Press Release

<< Back
H&R Block Reports Fiscal 2011 Second Quarter Results

KANSAS CITY, MO, Dec 07, 2010 (MARKETWIRE via COMTEX) -- H&R Block, Inc. (NYSE: HRB)

--  Net loss from continuing operations of $0.35 per share, compared to
    prior-year loss of $0.38 per share*
--  Consolidated net loss of $0.36 per share, compared to a loss of $0.38
    per share in prior year
--  Total revenues down 1.0 percent to prior year

H&R Block, Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal second quarter ended Oct. 31, 2010, of $106.8 million, or $0.35 per share compared to a loss of $126.5 million, or $0.38 per share in the second quarter a year ago. H&R Block typically reports a second quarter operating loss due to the seasonality of its business. The consolidated net loss was $109.0 million, or $0.36 per share, compared to a loss of $128.6 million, or $0.38 per share, in the prior year period. Total revenues were down 1.0 percent from the prior year to $322.9 million.

"Our second quarter results met our expectations and we are aggressively preparing for the key second half of our fiscal year," said Alan Bennett, president and chief executive officer of H&R Block. "Reversing our early-season client losses is our top priority and we will take strong actions to drive more traffic into our offices," added Bennett.

For the six months ended Oct. 31, 2010, H&R Block reported a net loss from continuing operations of $234.5 million, or $0.75 per share, compared with a loss of $257.1 million, or $0.77 cents per share, for the same period of fiscal 2010. Six-month revenues were $597.4 million in fiscal 2011 versus $601.6 million in the prior year. Discontinued operations in the first half of fiscal 2011 recorded a loss of $5.3 million, or $0.02 per share, essentially flat to the prior year.

Tax Services

Second quarter Tax Services revenues grew 1.5 percent year-over-year to $110.9 million. The segment reported a pretax loss of $154.4 million compared to a loss of $172.2 million a year ago. Total expenses fell by $16.2 million, or 5.8 percent, primarily as a result of staff reductions and the closing of certain underperforming retail office locations.

For the first six months of fiscal 2011, Tax Services revenues of $202.6 million were up 2.7 percent from $197.3 million last year. The pretax loss of $329.0 million compares with a loss of $344.2 million in the year-ago period.

RSM McGladrey

Second quarter revenues fell 1.5 percent year-over-year to $203.4 million. The segment reported pretax income of $8.4 million compared to pretax income of $0.2 million a year ago. Total expenses fell $11.4 million, or 5.5 percent, primarily due to reduced compensation in the current year period and litigation costs incurred in the prior year period.

Six-month segment revenues were $378.1 million, down 1.6 percent from $384.2 million in last year's period. Pretax income for the first six months of fiscal 2011 was $8.0 million, compared to income of $1.5 million in the prior-year period.

Corporate

Corporate includes support department costs, such as finance and legal, as well as net interest margin and other gains/losses associated with H&R Block Bank's mortgage portfolio. Corporate reported a pretax loss of $29.2 million for the second quarter ended Oct. 31, 2010, compared to a loss of $40.8 million in the prior year. Lower losses were due to reduced loss provisions on mortgage loans held for investment and corporate expense reductions.

For the first six months of fiscal 2011, a pretax loss of $61.4 million compares with a loss of $81.1 million in the year-ago period.

Net mortgage loans held for investment declined 20 percent from $671.0 million at Oct. 31, 2009 to $537.2 million at Oct. 31, 2010. Loss provisions on mortgage loans totaled $8.3 million during the quarter ended Oct. 31, 2010, a decline of $5.1 million compared with the prior year quarter. Losses were lower due to a combination of declining delinquency rates and stabilizing home prices. The loan loss allowance was $87.6 million, or 14.1 percent of outstanding principal at Oct. 31, 2010 compared to $96.0 million or 12.6 percent at Oct. 31, 2009.

Discontinued Operations

Sand Canyon Corporation ("SCC", previously 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.

During the second quarter ended Oct. 31, 2010, SCC received new claims for alleged breaches of representations and warranties in the total principal amount of $21 million, compared with $83 million in the prior year quarter. Actual losses on representation and warranty claims totaled $3.4 million during the quarter ended Oct. 31, 2010.

From May 1, 2008 through October 31, 2010, SCC has received cumulative repurchase claims totaling $707 million in unpaid principal and incurred net losses of approximately $58 million. At Oct. 31, 2010, SCC's reserve for estimated losses on contingent mortgage loan repurchase obligations totaled $184.7 million. Claim activity and associated losses remain within SCC's reserved expectations.

Share Repurchases & Dividends

The company repurchased and retired 3.5 million shares in the fiscal second quarter at a cost of $44.3 million. A previously announced quarterly cash dividend of 15 cents per share is payable Jan. 3, 2011, to shareholders of record Dec. 13, 2010.

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) 758-0071
             Conference ID: 26450535

The call will also be webcast in a listen-only format for the media and public. The link to the webcast can be accessed directly at http://phx.corporate-ir.net/phoenix.zhtml?c=76888&p=irol-IRHome.

A replay of the call will be available beginning at 5:30 p.m. Eastern time on Dec. 7, and continuing until Jan. 1, 2011, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The conference ID is 26450535. The webcast will be available for replay beginning on Dec. 8 at http://phx.corporate-ir.net/phoenix.zhtml?c=76888&p=irol-IRHome

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 2010 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 550 million tax returns worldwide since 1955. In fiscal 2010, H&R Block had annual revenues of $3.9 billion and prepared more than 23 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.

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

H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
                                      Three months ended October 31,
                                ------------------------------------------
                                      Revenues            Income (loss)
                                --------------------- --------------------
                                  2010       2009       2010       2009
                                ---------- ---------- ---------  ---------
Tax Services                    $  110,921 $  109,305 $(154,355) $(172,188)
Business Services                  203,426    206,602     8,397        174
Corporate and Eliminations           8,542     10,174   (29,161)   (40,839)
                                ---------- ---------- ---------  ---------
                                $  322,889 $  326,081  (175,119)  (212,853)
                                ========== ==========
Income tax benefit                                      (68,307)   (86,381)
                                                      ---------  ---------
Net loss from continuing
 operations                                            (106,812)  (126,472)
Net loss from discontinued
 operations                                              (2,237)    (2,115)
                                                      ---------  ---------
Net loss                                              $(109,049) $(128,587)
                                                      =========  =========
Basic and diluted earnings
 (loss) per share:
  Net loss from continuing
   operations                                         $   (0.35) $   (0.38)
  Net loss from discontinued
   operations                                             (0.01)         -
                                                      ---------  ---------
  Net loss                                            $   (0.36) $   (0.38)
                                                      =========  =========
Basic and diluted shares
 outstanding                                            306,804    335,346
                                        Six months ended October 31,
                                ------------------------------------------
                                      Revenues            Income (loss)
                                --------------------- --------------------
                                  2010       2009       2010       2009
                                ---------- ---------- ---------  ---------
Tax Services                    $  202,566 $  197,268 $(328,979) $(344,162)
Business Services                  378,136    384,220     7,964      1,495
Corporate and Eliminations          16,661     20,098   (61,421)   (81,059)
                                ---------- ---------- ---------  ---------
                                $  597,363 $  601,586  (382,436)  (423,726)
                                ========== ==========
Income tax benefit                                     (147,986)  (166,637)
                                                      ---------  ---------
Net loss from continuing
 operations                                            (234,450)  (257,089)
Net loss from discontinued
 operations                                              (5,280)    (5,132)
                                                      ---------  ---------
Net loss                                              $(239,730) $(262,221)
                                                      =========  =========
Basic and diluted earnings
 (loss) per share:
  Net loss from continuing
   operations                                         $   (0.75) $   (0.77)
  Net loss from discontinued
   operations                                             (0.02)     (0.01)
                                                      ---------  ---------
  Net loss                                            $   (0.77) $   (0.78)
                                                      =========  =========
Basic and diluted shares
 outstanding                                            313,247    334,939
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
                                      October 31,  October 31,   April 30,
                                         2010         2009         2010
                                     -----------  -----------  -----------
                     ASSETS
Current assets:
  Cash and cash equivalents          $   959,746  $ 1,432,243  $ 1,804,045
  Cash and cash equivalents -
   restricted                             35,473       46,072       34,350
  Receivables, net                       416,333      461,485      517,986
  Prepaid expenses and other current
   assets                                324,014      361,186      292,655
                                     -----------  -----------  -----------
    Total current assets               1,735,566    2,300,986    2,649,036
  Mortgage loans held for
   investment, net                       537,226      671,049      595,405
  Property and equipment, net            327,881      351,288      345,470
  Intangible assets, net                 373,324      378,112      367,432
  Goodwill                               867,417      856,880      840,447
  Other assets                           466,368      409,044      436,528
                                     -----------  -----------  -----------
Total assets                         $ 4,307,782  $ 4,967,359  $ 5,234,318
                                     ===========  ===========  ===========
     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Customer banking deposits          $   929,898  $ 1,493,726  $   852,555
  Accounts payable, accrued expenses
   and other current liabilities         660,999      608,149      756,577
  Accrued salaries, wages and
   payroll taxes                          81,163       83,321      199,496
  Accrued income taxes                   151,708      169,004      459,175
  Current portion of long-term debt        3,407        3,667        3,688
  Commercial paper borrowings             39,517            -            -
  Current Federal Home Loan Bank
   borrowings                             50,000       25,000       50,000
                                     -----------  -----------  -----------
    Total current liabilities          1,916,692    2,382,867    2,321,491
Long-term debt                         1,041,103    1,032,562    1,035,144
Long-term Federal Home Loan Bank
 borrowings                               25,000       75,000       25,000
Other noncurrent liabilities             445,182      405,833      412,053
                                     -----------  -----------  -----------
      Total liabilities                3,427,977    3,896,262    3,793,688
                                     -----------  -----------  -----------
Stockholders' equity:
  Common stock, no par, stated value
   $.01 per share                          4,124        4,442        4,314
  Additional paid-in capital             810,403      827,423      832,604
  Accumulated other comprehensive
   income (loss)                           2,757           66        1,678
  Retained earnings                    2,104,050    2,308,153    2,658,586
  Less treasury shares, at cost       (2,041,529)  (2,068,987)  (2,056,552)
                                     -----------  -----------  -----------
      Total stockholders' equity         879,805    1,071,097    1,440,630
                                     -----------  -----------  -----------
Total liabilities and stockholders'
 equity                              $ 4,307,782  $ 4,967,359  $ 5,234,318
                                     ===========  ===========  ===========
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
                                 Three months ended     Six months ended
                                    October 31,           October 31,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Revenues:
  Service revenues              $ 296,139  $ 294,958  $ 543,558  $ 542,943
  Interest income                  10,635     12,113     20,937     24,400
  Product and other revenues       16,115     19,010     32,868     34,243
                                ---------  ---------  ---------  ---------
                                  322,889    326,081    597,363    601,586
                                ---------  ---------  ---------  ---------
Operating expenses:
  Cost of revenues                392,950    410,949    760,966    797,399
  Selling, general and
   administrative                 108,943    129,685    225,972    232,902
                                ---------  ---------  ---------  ---------
                                  501,893    540,634    986,938  1,030,301
                                ---------  ---------  ---------  ---------
Operating loss                   (179,004)  (214,553)  (389,575)  (428,715)
Other income, net                   3,885      1,700      7,139      4,989
                                ---------  ---------  ---------  ---------
Loss from continuing operations
 before tax benefit              (175,119)  (212,853)  (382,436)  (423,726)
Income tax benefit                (68,307)   (86,381)  (147,986)  (166,637)
                                ---------  ---------  ---------  ---------
Net loss from continuing
 operations                      (106,812)  (126,472)  (234,450)  (257,089)
Net loss from discontinued
 operations                        (2,237)    (2,115)    (5,280)    (5,132)
                                ---------  ---------  ---------  ---------
Net loss                        $(109,049) $(128,587) $(239,730) $(262,221)
                                =========  =========  =========  =========
Basic and diluted earnings
 (loss) per share:
  Net loss from continuing
   operations                   $   (0.35) $   (0.38) $   (0.75) $   (0.77)
  Net loss from discontinued
   operations                       (0.01)         -      (0.02)     (0.01)
                                ---------  ---------  ---------  ---------
  Net loss                      $   (0.36) $   (0.38) $   (0.77) $   (0.78)
                                =========  =========  =========  =========
  Basic and diluted shares
   outstanding                    306,804    335,346    313,247    334,939
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
                                                      Six months ended
                                                         October 31,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------
Net cash used in operating activities             $  (548,001) $  (786,152)
                                                  -----------  -----------
Cash flows from investing activities:
  Principal payments on mortgage loans held for
   investment, net                                     30,829       38,693
  Purchases of property and equipment, net            (35,005)      (7,280)
  Payments made for business acquisitions, net        (43,310)      (6,606)
  Other, net                                           30,851       18,473
                                                  -----------  -----------
   Net cash provided by (used in) investing
    activities                                        (16,635)      43,280
                                                  -----------  -----------
Cash flows from financing activities:
  Repayments of short-term borrowings                 (75,000)           -
  Proceeds from short-term borrowings                 114,490            -
  Customer banking deposits                            77,023      638,466
  Dividends paid                                      (95,068)    (100,784)
  Repurchase of common stock, including shares
   surrendered                                       (283,470)      (3,785)
  Proceeds from exercise of stock options               1,493        8,218
  Other, net                                          (21,352)     (30,884)
                                                  -----------  -----------
   Net cash provided by (used in) financing
    activities                                       (281,884)     511,231
                                                  -----------  -----------
Effects of exchange rates on cash                       2,221        9,221
Net decrease in cash and cash equivalents            (844,299)    (222,420)
Cash and cash equivalents at beginning of the
 period                                             1,804,045    1,654,663
                                                  -----------  -----------
Cash and cash equivalents at end of the period    $   959,746  $ 1,432,243
                                                  ===========  ===========
Supplementary cash flow data:
  Income taxes paid                               $   103,803  $   196,427
  Interest paid on borrowings                          30,933       37,304
  Interest paid on deposits                             3,828        4,134
  Transfers of loans to foreclosed assets              11,185        9,212

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

Media Relations:
Jennifer Love
(816) 854-4448
Email Contact


SOURCE: H & R Block