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H&R Block Reports Fiscal 2011 Fourth Quarter and Full Year Results

KANSAS CITY, MO, Jun 23, 2011 (MARKETWIRE via COMTEX) --

H&R Block, Inc. (NYSE: HRB)

--  Fourth quarter net income from continuing operations of $2.14 per share
    includes after-tax litigation charge of $17.0 million, or $0.06 per
    share(1)
--  Fiscal 2011 net income from continuing operations of $419 million, or
    $1.35 per share
--  Adjusted non-GAAP net income from continuing operations of $471 million
    in fiscal 2011, or $1.52 per share, compared to $474 million, or $1.42
    per share in prior year
--  U.S. tax returns prepared up 6.5 percent, or 1.3 million returns; U.S.
    market share up 80 basis points to 16.4 percent

H&R Block, Inc. (NYSE: HRB) today reported net income from continuing operations for the fiscal year ended April 30, 2011 of $419.4 million, or $1.35 per share. In addition to previously announced charges, the company's Business Services segment incurred an after-tax litigation charge in the fourth quarter of $17.0 million, or $0.06 per share. Adjusted (non-GAAP) income from continuing operations for fiscal 2011 was $470.6 million, essentially flat to adjusted net income in the prior year. Adjusted earnings per share increased 7 percent to $1.52 due to a decline in weighted average shares outstanding. Total revenues of $3.8 billion were down 2.6 percent compared to the prior year.

"The actions taken this year have strengthened important fundamentals in our business," said William C. Cobb, H&R Block's president and chief executive officer. "We achieved our highest level of U.S. client growth since 2001 and maintained strong earnings results despite a number of special items. We also reversed years of market share declines and have built a solid pipeline of new and younger clients. All of this positions us well for the future."

Tax Services

The segment reported fiscal 2011 pretax income of $767.5 million. Adjusting for special items, the segment's pretax income was $829.9 million, essentially flat to the prior year. Adjusted pretax margin for the segment improved to 28.5 percent, compared with adjusted pretax margin of 27.9 percent in the prior year, as a result of cost savings achieved through reductions in force and the office network.

Fiscal 2011 segment revenues declined 2.1 percent to $2.9 billion. This decline was primarily attributable to the strategic sale of 280 company owned locations to franchisees, as well as lower revenues stemming from the company's inability to offer refund anticipation loans this tax season.

Total U.S. tax returns prepared by H&R Block in fiscal 2011 grew 6.5 percent, or 1.3 million returns. Total retail returns prepared grew 3.6 percent, while the net average retail fee per tax return prepared declined 3.3 percent. Total digital tax returns prepared increased 13.5 percent, led by growth of 28.7 percent in online filings(2).

In tax season 2011, the company believes total industry-wide filings at the IRS increased by 1.1 percent to approximately 131 million returns. The company estimates it gained 80 basis points of total U.S. market share in tax season 2011, including 60 basis points of share in retail and 90 basis points in the digital online category.

"The significant improvement in many of our key client satisfaction indicators gives us confidence that we can attract more clients to our brand, retain clients at higher rates, and continue driving organic growth in our business," said Cobb.

RSM McGladrey

Segment pretax income of $49.0 million was down 16.5 percent compared to fiscal 2010. Adjusting for legal charges, fiscal 2011 pretax income was $77.3 million and the pretax margin was 9.3 percent. This compares to adjusted pretax income of $88.2 million and pretax margin of 10.3 percent in the prior year. Fiscal 2011 segment revenues fell 3.6 percent to $829.8 million.

Corporate

Corporate operations include corporate support department costs, as well as net interest margin and other gains/losses associated with H&R Block Bank's mortgage portfolio. Corporate operations reported a pretax loss of $139.5 million in fiscal 2011 compared to a loss of $141.9 million in the prior year.

The company's effective tax rate for continuing operations in fiscal 2011 was 38.1 percent compared to 37.6 percent in the prior year.

Discontinued Operations

Sand Canyon Corporation ("SCC"), formerly known as Option One Mortgage Corporation, ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued its remaining operations. SCC is a separate legal entity from H&R Block, Inc. At April 30, 2011, SCC had equity of approximately $300 million, in addition to an accrual for representation and warranty liabilities of $126.3 million.

New claims for alleged breaches of representation and warranties in the principal amount of $55 million were received during the fourth quarter. SCC completed a review of claims of approximately $41 million during the quarter, with incurred losses totaling $4.5 million. At April 30, 2011, total claims of $79 million remain subject to review.

As previously announced on March 9, 2011, SCC made its final payment of $24.2 million for reserved losses under a $50.0 million indemnification agreement dated April 2008. The indemnification agreement was entered into with a specific counterparty in exchange for a full and complete release of such party's ability to assert representation and warranty claims. SCC has fulfilled its obligation under this agreement.

Balance Sheet

At April 30, 2011, the Company had unrestricted cash of $1.7 billion and total outstanding debt of $1.1 billion. Shareholder equity at April 30 was $1.4 billion, essentially flat to the prior year.

Dividend

A previously announced quarterly cash dividend of 15 cents per share is payable on July 1, 2011, to shareholders of record as of June 10, 2011.

Conference Call

At 4:30 p.m. Eastern time today, the company will host a conference call for analysts, institutional investors and shareholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:

             U.S./Canada (877) 809-6980 or International (706) 634-7287
             Conference ID: 70449405

The call will also be webcast in a listen-only format for the media and public. The link to the webcast can be accessed on the company's investor relations Web site at www.hrblock.com.

A replay of the call will be available beginning at 5:30 p.m. Eastern on June 23 and continuing until July 23, 2011, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The conference ID is 70449405. The webcast will be available for replay beginning on June 24.

Forward Looking Statements

This announcement may contain forward-looking statements, which are any statements that are not historical facts. These forward-looking statements, as well as the Company's guidance, are based upon the Company's current expectations and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, the Company's actual results could differ materially from these statements. These risks and uncertainties relate to, among other things, uncertainties regarding the Company's ability to attract and retain clients; meet its prepared returns targets; uncertainties and potential contingent liabilities arising from our former mortgage loan origination and servicing business; uncertainties in the residential mortgage market and its impact on loan loss provisions; uncertainties pertaining to the commercial debt market; competitive factors; the Company's effective income tax rate; litigation defense expenses and costs of judgments or settlements; uncertainties regarding the level of share repurchases; and changes in market, economic, political or regulatory conditions. Information concerning these risks and uncertainties is contained in Item 1A of the Company's 2011 annual report on Form 10-K and in other filings by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

About H&R Block

H&R Block Inc. (NYSE: HRB) is one of the world's largest tax services providers, having prepared more than 575 million tax returns worldwide since 1955. In fiscal 2011, H&R Block had annual revenues of $3.8 billion and prepared more than 24.5 million tax returns worldwide, utilizing more than 100,000 highly trained tax professionals. The Company provides tax return preparation services in person, through H&R Block At Home(TM) online and desktop software products, and through other channels. The Company is also one of the leading providers of business services through RSM McGladrey. For more information, visit our Online Press Center at www.hrblock.com.

(1) All per share amounts are based on fully diluted shares

(2) Total online returns prepared exclude software-based and Free File Alliance ("FFA") returns.

H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
                                      Three months ended April 30,
                              --------------------------------------------
                                     Revenues            Income (loss)
                              --------------------- ----------------------
                                2011       2010        2011        2010
                              ---------- ---------- ----------  ----------
Tax Services                  $2,036,985 $2,030,299 $1,092,363  $1,080,335
Business Services                280,349    297,647     32,452      68,441
Corporate and Eliminations         8,117      9,948    (47,905)    (38,366)
                              ---------- ---------- ----------  ----------
                              $2,325,451 $2,337,894  1,076,910   1,110,410
                              ========== ==========
Income taxes                                           418,680     417,978
                                                    ----------  ----------
Net income from continuing
 operations                                            658,230     692,432
Net income (loss) from
 discontinued operations                                   331      (1,604)
                                                    ----------  ----------
Net income                                          $  658,561  $  690,828
                                                    ==========  ==========
Basic earnings (loss) per share:
  Net income from continuing
   operations                                       $     2.15  $     2.11
  Net income (loss) from
   discontinued operations                                   -           -
                                                    ----------  ----------
  Net income                                        $     2.15  $     2.11
                                                    ==========  ==========
Basic shares outstanding                               305,283     326,255
Diluted earnings (loss) per share:
  Net income from continuing
   operations                                       $     2.14  $     2.11
  Net income (loss) from
   discontinued operations                                   -       (0.01)
                                                    ----------  ----------
  Net income                                        $     2.14  $     2.10
                                                    ==========  ==========
Diluted shares outstanding                             306,118     327,314
                                          Year ended April 30,
                              --------------------------------------------
                                     Revenues            Income (loss)
                              --------------------- ----------------------
                                 2011       2010       2011        2010
                              ---------- ---------- ----------  ----------
Tax Services                  $2,912,361 $2,975,252 $  767,498  $  867,362
Business Services                829,794    860,349     49,003      58,714
Corporate and Eliminations        32,141     38,731   (139,476)   (141,941)
                              ---------- ---------- ----------  ----------
                              $3,774,296 $3,874,332    677,025     784,135
                              ========== ==========
Income taxes                                           257,620     295,189
                                                    ----------  ----------
Net income from continuing
 operations                                            419,405     488,946
Net loss from discontinued
 operations                                            (13,295)     (9,704)
                                                    ----------  ----------
Net income                                          $  406,110  $  479,242
                                                    ==========  ==========
Basic earnings (loss) per share:
  Net income from continuing
   operations                                       $     1.35  $     1.47
  Net loss from discontinued
   operations                                            (0.04)      (0.03)
                                                    ----------  ----------
  Net income                                        $     1.31  $     1.44
                                                    ==========  ==========
Basic shares outstanding                               309,230     332,283
Diluted earnings (loss) per share:
  Net income from continuing
   operations                                       $     1.35  $     1.46
  Net loss from discontinued
   operations                                            (0.04)      (0.03)
                                                    ----------  ----------
  Net income                                        $     1.31  $     1.43
                                                    ==========  ==========
Diluted shares outstanding                             309,777     333,236
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings per share is computed using the two-class method and is
based on the weighted average number of shares outstanding.  The dilutive
effect of potential common shares is included in diluted earnings per
share, except in those periods with a loss from continuing operations.
H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data
                                                    April 30,   April 30,
                                                       2011        2010
                                                    ----------  ----------
                       ASSETS
Current assets:
  Cash and cash equivalents                         $1,677,844  $1,804,045
  Cash and cash equivalents - restricted                48,383      34,350
  Receivables, net                                     492,290     517,986
  Prepaid expenses and other current assets            259,214     292,655
                                                    ----------  ----------
    Total current assets                             2,477,731   2,649,036
  Mortgage loans held for investment, net              485,008     595,405
  Property and equipment, net                          307,320     345,470
  Intangible assets, net                               367,919     367,432
  Goodwill                                             846,245     840,447
  Other assets                                         723,738     436,528
                                                    ----------  ----------
Total assets                                        $5,207,961  $5,234,318
                                                    ==========  ==========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Customer banking deposits                         $  852,220  $  852,555
  Accounts payable, accrued expenses and other
   current liabilities                                 618,070     756,577
  Accrued salaries, wages and payroll taxes            257,038     199,496
  Accrued income taxes                                 458,910     459,175
  Current portion of long-term debt                      3,437       3,688
  Federal Home Loan Bank borrowings                     25,000      50,000
                                                    ----------  ----------
    Total current liabilities                        2,214,675   2,321,491
Long-term debt                                       1,049,754   1,035,144
Federal Home Loan Bank borrowings                            -      25,000
Other noncurrent liabilities                           493,958     412,053
                                                    ----------  ----------
      Total liabilities                              3,758,387   3,793,688
                                                    ----------  ----------
Stockholders' equity:
  Common stock, no par, stated value $.01 per share      4,124       4,314
  Additional paid-in capital                           812,666     832,604
  Accumulated other comprehensive income                11,233       1,678
  Retained earnings                                  2,658,103   2,658,586
  Less treasury shares, at cost                     (2,036,552) (2,056,552)
                                                    ----------  ----------
      Total stockholders' equity                     1,449,574   1,440,630
                                                    ----------  ----------
Total liabilities and stockholders' equity          $5,207,961  $5,234,318
                                                    ==========  ==========
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
                               Three months ended
                                   April 30,         Year ended April 30,
                             ---------------------  ----------------------
                                2011       2010        2011        2010
                             ---------- ----------  ----------  ----------
Revenues:
  Service revenues           $2,005,008 $1,944,217  $3,225,861  $3,231,487
  Product and other revenues    263,336    344,018     414,282     520,440
  Interest income                57,107     49,659     134,153     122,405
                             ---------- ----------  ----------  ----------
                              2,325,451  2,337,894   3,774,296   3,874,332
                             ---------- ----------  ----------  ----------
Operating expenses:
  Cost of revenues            1,018,461  1,024,850   2,414,590   2,467,996
  Selling, general and
   administrative               232,365    203,936     694,136     631,499
                             ---------- ----------  ----------  ----------
                              1,250,826  1,228,786   3,108,726   3,099,495
                             ---------- ----------  ----------  ----------
Operating income              1,074,625  1,109,108     665,570     774,837
Other income, net                 2,285      1,302      11,455       9,298
                             ---------- ----------  ----------  ----------
Income from continuing
 operations before tax        1,076,910  1,110,410     677,025     784,135
Income taxes                    418,680    417,978     257,620     295,189
                             ---------- ----------  ----------  ----------
Net income from continuing
 operations                     658,230    692,432     419,405     488,946
Net income (loss) from
 discontinued operations            331     (1,604)    (13,295)     (9,704)
                             ---------- ----------  ----------  ----------
Net income                   $  658,561 $  690,828  $  406,110  $  479,242
                             ========== ==========  ==========  ==========
Basic earnings (loss) per
 share:
  Net income from continuing
   operations                $     2.15 $     2.11  $     1.35  $     1.47
  Net income (loss) from
   discontinued operations            -          -       (0.04)      (0.03)
                             ---------- ----------  ----------  ----------
  Net income                 $     2.15 $     2.11  $     1.31  $     1.44
                             ========== ==========  ==========  ==========
  Basic shares outstanding      305,283    326,255     309,230     332,283
Diluted earnings (loss) per
 share:
  Net income from continuing
   operations                $     2.14 $     2.11  $     1.35  $     1.46
  Net income (loss) from
   discontinued operations            -      (0.01)      (0.04)      (0.03)
                             ---------- ----------  ----------  ----------
  Net income                 $     2.14 $     2.10  $     1.31  $     1.43
                             ========== ==========  ==========  ==========
  Diluted shares outstanding    306,118    327,314     309,777     333,236
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
                                                     Year ended April 30,
                                                    ----------------------
                                                       2011        2010
                                                    ----------  ----------
Net cash provided by operating activities           $  512,503  $  587,469
                                                    ----------  ----------
Cash flows from investing activities:
  Available-for-sale securities:
    Purchases of available-for-sale securities        (138,824)     (5,365)
    Maturities of and payments received on
     available-for-sale securities                      16,797      15,758
  Principal payments on mortgage loans held for
   investment, net                                      58,471      72,832
  Purchases of property and equipment                  (62,959)    (90,515)
  Payments made for business acquisitions, net of
   cash acquired                                       (54,171)    (10,539)
  Proceeds from sales of businesses, net                71,083      66,623
  Franchise loans:
    Loans funded                                       (92,455)    (89,664)
    Payments received                                   57,552      40,710
  Other, net                                            34,349      31,513
                                                    ----------  ----------
    Net cash provided by (used in) investing
     activities                                       (110,157)     31,353
                                                    ----------  ----------
Cash flows from financing activities:
  Repayments of commercial paper                    (4,818,766) (1,406,013)
  Proceeds from issuance of commercial paper         4,818,766   1,406,013
  Repayments of other borrowings                       (50,000) (4,267,773)
  Proceeds from other borrowings                             -   4,242,727
  Customer banking deposits, net                       (11,440)     17,539
  Dividends paid                                      (186,802)   (200,899)
  Repurchase of common stock, including shares
   surrendered                                        (283,534)   (254,250)
  Proceeds from exercise of stock options                  424      16,682
  Other, net                                            (3,039)    (35,144)
                                                    ----------  ----------
      Net cash used in financing activities           (534,391)   (481,118)
                                                    ----------  ----------
Effects of exchange rates on cash                        5,844      11,678
Net increase (decrease) in cash and cash equivalents  (126,201)    149,382
Cash and cash equivalents at beginning of the year   1,804,045   1,654,663
                                                    ----------  ----------
Cash and cash equivalents at end of the year        $1,677,844  $1,804,045
                                                    ==========  ==========
Supplementary cash flow data:
  Income taxes paid, net of refunds received        $  244,917  $  359,559
  Interest paid on borrowings                           73,791      78,305
  Interest paid on deposits                              8,541      10,156
  Transfers of foreclosed loans to other assets         16,463      19,341
H&R BLOCK
U.S. Tax Operating Data
(in thousands, except net average fee)
                                              Year ended April 30,
                                             --------------------- Percent
                                               2011       2010      Change
                                             ---------- ---------- -------
Net tax preparation fees - retail: (1,2)
  Company-owned operations                   $1,739,490 $1,742,517    -0.2%
  Franchise operations                          960,219    954,291     0.6%
                                             ---------- ---------- -------
                                             $2,699,709 $2,696,808     0.1%
                                             ========== ========== =======
Total returns prepared: (2,4)
  Company-owned operations                        9,168      8,817     4.0%
  Franchise operations                            5,588      5,429     2.9%
                                             ---------- ---------- -------
    Total retail operations                      14,756     14,246     3.6%
                                             ---------- ---------- -------
  Software                                        2,201      2,193     0.4%
  Online                                          3,722      2,893    28.7%
                                             ---------- ---------- -------
    Sub-total                                     5,923      5,086    16.5%
                                             ---------- ---------- -------
  Free File Alliance                                767        810    -5.3%
                                             ---------- ---------- -------
    Total digital tax solutions                   6,690      5,896    13.5%
                                             ---------- ---------- -------
                                                 21,446     20,142     6.5%
                                             ========== ========== =======
Net average fee - retail: (2,3)
  Company-owned operations                   $   189.73 $   197.63    -4.0%
  Franchise operations                           171.86     175.65    -2.2%
                                             ---------- ---------- -------
                                             $   182.96 $   189.25    -3.3%
                                             ========== ========== =======
(1) Amounts include gross tax preparation fees less coupons and discounts.
(2) Prior year tax preparation fees (in thousands) of $70,199 and returns
    prepared (in thousands) of 365 have been reclassified between
    company-owned and franchise operations for offices which were
    refranchised during either year.
(3) Amounts are calculated as net retail tax preparation fees divided by
    retail tax returns.
(4) Total returns prepared include the filing (in thousands) of 93 and 38
    extensions for 2011 and 2010 respectively.
H&R BLOCK
NON-GAAP RECONCILIATION
Unaudited, amounts in millions, except per share amounts
We report our financial results in accordance with generally accepted
accounting principles (GAAP). However, we believe certain non-GAAP
performance measures and ratios used in managing the business may provide
additional meaningful comparisons between current year results and prior
periods. Reconciliations to GAAP financial measures are provided below.
These non-GAAP financial measures should be viewed in addition to, not as
an alternative for, our reported GAAP results.
                                            Segment Pretax Income
                                    --------------------------------------
                                       Tax Services     Business Services
                                        Year ended         Year ended
                                         April 30,          April 30,
                                    ------------------  ------------------
                                      2011      2010      2011      2010
                                    --------  --------  --------  --------
Pretax income - as reported         $  767.5  $  867.4  $   49.0  $   58.7
                                    --------  --------  --------  --------
Add back (pretax):
  Litigation and arbitration            15.0         -      28.3      14.5
  Incremental Emerald Advance
   credit losses (1)                    40.5         -         -         -
  Severance                             27.4      11.9         -         -
  Asset impairments                     24.6         -         -      15.0
  Gain on sale of tax offices to
   franchisees                         (45.1)    (49.0)        -         -
                                    --------  --------  --------  --------
                                        62.4     (37.1)     28.3      29.5
                                    --------  --------  --------  --------
                                    --------  --------  --------  --------
Pretax income - as adjusted         $  829.9  $  830.3  $   77.3  $   88.2
                                    ========  ========  ========  ========
Revenues - as reported              $2,912.4  $2,975.3  $  829.8  $  860.3
                                    --------  --------  --------  --------
Pretax margin - as reported             26.4%     29.2%      5.9%      6.8%
Pretax margin - as adjusted             28.5%     27.9%      9.3%     10.3%
                                           Consolidated Net Income
                                             Year ended April 30,
                                    --------------------------------------
                                           2011                2010
                                    ------------------  ------------------
                                    After-tax Per share After-tax Per share
                                    --------  --------  --------  --------
Net income from continuing
 operations - as reported           $  419.4  $   1.35  $  488.9  $   1.46
                                    --------  --------  --------  --------
Add back (net of tax):
  Litigation and arbitration            26.8      0.09       9.1      0.03
  Incremental Emerald Advance
   credit losses (1)                    25.1      0.08         -         -
  Severance                             18.3      0.06       8.4      0.03
  Asset impairments                     15.2      0.05       9.4      0.03
  Gain on sale of tax offices to
   franchisees                         (27.9)    (0.09)    (30.6)    (0.09)
  Other gains (2)                       (6.3)    (0.02)    (11.5)    (0.04)
                                    --------  --------  --------  --------
                                        51.2      0.17     (15.2)    (0.04)
                                    --------  --------  --------  --------
                                    --------  --------  --------  --------
Net income from continuing
 operations - as adjusted           $  470.6  $   1.52  $  473.7  $   1.42
                                    ========  ========  ========  ========
Diluted shares                                   309.8               333.2
(1) Credit losses were higher in fiscal 2011 compared to fiscal 2010 as a
    result of higher levels of Emerald Advance clients not returning for
    tax preparation. Incremental credit losses were calculated based on the
    difference between the fiscal 2011 loss rate assumption and the actual
    loss rate multiplied by the principal amount of fiscal 2011 loan
    originations.
(2) Represents gain on commutation of insurance liability in fiscal year
    2010 and gains on residual interests in securitizations in fiscal years
    2011 and 2010.  Both gains were recorded in corporate operations.

For Further Information
Investor Relations:
Derek Drysdale
(816) 854-4513
Email Contact

Media Relations:
Kate O'Neill Rauber
(816) 854-4548
Email Contact


SOURCE: H & R Block

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