Press Release

<< Back
H&R Block Reports Fiscal 2012 Results; Update on Share Repurchases

KANSAS CITY, MO, Jun 26, 2012 (MARKETWIRE via COMTEX) --H&R Block, Inc. (NYSE: HRB)

--  Fiscal 2012 GAAP diluted earnings per share(1) from continuing
    operations of $1.16, above prior outlook of $1.09 to $1.15 per share
--  Total revenues of $2.9 billion, in line with prior outlook
--  Total worldwide tax returns prepared up 1.1 million, or 4.3 percent,
    to record 25.6 million
--  Total Emerald Card units issued up 24 percent to 2.9 million, with
    $9.5 billion in total deposits
--  Achieved share growth in both assisted and digital categories for
    second consecutive year
--  Repurchased and retired 8 percent of shares outstanding, or 22.8
    million shares, since fiscal third quarter ended Jan. 31, 2012

H&R Block, Inc. (NYSE: HRB) today reported GAAP net income from continuing operations for the fiscal year ended April 30, 2012 of $346.0 million, or $1.16 per share. These results include after-tax charges of $30.8 million, or 10 cents per share, largely related to a previously announced strategic realignment and litigation expenses. Total revenues of $2.9 billion were down 1.7 percent compared to the prior year.

"I am very pleased that we served a record 25.6 million clients this year," said Bill Cobb, H&R Block's President and Chief Executive Officer. "We achieved our top goal this fiscal year by growing clients and share in both the assisted and digital categories for the second consecutive year. During my first year as CEO, we also rationalized our cost structure and shed non-core assets to drive higher margins and to refocus the business on what we do best -- tax preparation. Today, we believe we're running a better, nimbler, and more client-centric company, which positions us well for long-term client and earnings growth."

Tax Services

Based on preliminary data, the company believes total filings at the IRS during tax season 2012 increased by approximately 2 percent to 133.5 million returns. The company estimates it gained 30 basis points of total U.S. market share, including 75 basis points of share in the do-it-yourself category and 10 basis points of share in the assisted category.

Total tax returns prepared worldwide in fiscal 2012 grew by 4.3 percent, or 1.1 million, to a record 25.6 million. In the U.S., total returns prepared grew by 4.2 percent, or nearly 900,000. Total international returns prepared grew 5.3 percent to 3.2 million, with strong growth in both Canada and Australia.

Total segment revenues declined 1.7 percent from the prior year to $2.9 billion. Tax preparation and related revenues increased 1.2 percent, or $23.5 million. Higher tax preparation revenues were offset by a decline in financial product revenues. To attract and retain more early-season tax clients, the company offered free refund anticipation checks (RACs), to clients electing to deposit their refunds on the H&R Block Emerald Prepaid MasterCard(R). This promotion resulted in a 24 percent increase in total Emerald Card units issued, but a decline of $49.3 million in RAC revenues. The company also changed its underwriting criteria for its Emerald Advance program in fiscal 2012. While this change led to a $34.6 million decline in interest income, associated credit losses fell by $71.0 million. Prior year results also included $17.2 million of non-recurring revenue from a terminated refund anticipation loan contract.

The Tax Services segment reported pretax income of $704.0 million compared to $767.5 million in the prior year. The decline in profitability was primarily due to lower revenues from financial products, increased marketing expense, and a decline in gains from the sale of company-owned offices, partially offset by lower credit losses.

Corporate

Corporate includes costs incurred by support departments, such as finance and legal, as well as net interest margin and other gains/losses associated with H&R Block Bank's mortgage loan portfolio. For fiscal 2012, the pretax loss in corporate operations improved to $127.9 million compared to a loss of $139.8 million in the prior year. A shrinking loan portfolio and moderation of delinquency and severity rates resulted in an $11.5 million reduction in loss provisions on mortgage loans held for investment at H&R Block Bank.

The company's effective tax rate for continuing operations in fiscal 2012 was 39.9 percent compared to 37.5 percent in the prior year. The higher effective tax rate was primarily due to increased tax expense related to changes in the value of investments held within company-owned life insurance (COLI) policies. The company also expects to surrender certain COLI policies over the next 12 months, which triggered a one-time tax expense for prior year gains in fiscal 2012. Excluding discrete items, the company expects its effective tax rate in fiscal 2013 to approximate 39 percent.

Discontinued Operations

Discontinued operations include the results of RSM McGladrey (RSM) and Sand Canyon Corporation, formerly known as Option One Mortgage Corporation, and its subsidiaries (SCC).

Discontinued operations reported a fourth quarter net loss of $5.6 million, compared to net income of $15.7 million in the prior-year period. For fiscal 2012, the net loss of $80.0 million compared to net income of $13.6 million in the prior-year period. The variance to the prior fiscal year is primarily due to a $36.9 million net loss on the sale of RSM, a previously announced settlement by SCC with the Securities and Exchange Commission, and higher loss provisions for representation and warranty claims that were recorded in the second quarter of fiscal 2012.

As previously announced on April 25, SCC received new claims for alleged breaches of representation and warranties in the principal amount of $543 million during the fiscal fourth quarter. Claims in the principal amount of $329 million were reviewed during the quarter, of which 4 percent were determined to be valid. Incurred losses totaling $12.9 million during the quarter were charged against SCC's accrual for representation and warranty liabilities.

Total claims of $618 million remain subject to review as of April 30. SCC ended fiscal 2012 with net equity of approximately $265 million, in addition to an accrual of $130 million for representation and warranty liabilities.

"This incremental claim activity does not change how we think about Sand Canyon's exposure to rep and warrant related claims or how H&R Block thinks about capital allocation. Sand Canyon is a separate legal entity from H&R Block and we believe our legal position is strong on any potential corporate veil-piercing arguments," said Cobb.

Balance Sheet

At April 30, 2012, the Company had unrestricted cash of $1.9 billion and total outstanding debt of $1.0 billion. Shareholder equity at April 30 was $1.3 billion.

Share Repurchases and Dividends

In fiscal 2012, the company repurchased and retired 14.6 million shares of its common stock at an aggregate price of $200.0 million, or $13.74 per share, including the repurchase of 1.5 million shares during the fourth quarter. At April 30, 292.1 million shares were outstanding.

During the first quarter of fiscal 2013 to-date, the company has repurchased and retired an additional 21.3 million shares at an aggregate price of $315.0 million, or $14.82 per share. As of today, 270.9 million shares are outstanding.

"Since I became CEO in May 2011, we have returned $723 million to shareholders through share repurchases and dividends. Over that 13 month span, we repurchased 12 percent of outstanding shares and raised our annual dividend by 33 percent. We believe these actions demonstrate that we have a lot of confidence in our business and that our philosophy on capital allocation is shareholder friendly," added Cobb.

The company completed these share repurchases under a $2.0 billion share repurchase program approved by the company's board of directors in June 2008. Under this program, the company has repurchased shares of its common stock for an aggregate purchase price of $1.1 billion. Although the share repurchase program was originally scheduled to expire on June 30, 2012, the company's board recently voted to extend the expiration of the program until June 30, 2015.

A previously announced quarterly cash dividend of 20 cents per share is payable on July 2, 2012 to shareholders of record as of June 11, 2012.

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: 81619408

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://investors.hrblock.com.

A replay of the call will be available beginning at 6:30 p.m. Eastern on June 26 and continuing until July 10, 2012, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 81619408. The webcast will be available for replay beginning on June 27 at http://investors.hrblock.com.

Forward-Looking Statements This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "would," "will," "should," "could" or "may." Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. They may include estimates of revenues, income, earnings per share, capital expenditures, dividends, liquidity, capital structure or other financial items, descriptions of management's plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by federal securities laws. By their nature, forward-looking statements are subject to risks and uncertainties. For a discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the company's Annual Report on Form 10-K and in other filings by the company with the Securities and Exchange Commission.

About H&R Block H&R Block, Inc. (NYSE: HRB) is the world's largest tax services provider, having prepared more than 600 million tax returns worldwide since 1955. In fiscal 2012, H&R Block had annual revenues of $2.9 billion and prepared 25.6 million tax returns worldwide. Tax return preparation services are provided in company-owned and franchise retail tax offices by nearly 100,000 professional tax preparers, and through H&R Block At Home(TM) digital products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Online Press Center.

(1) 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 April 30,
                           ------------------------------------------------
                                   Revenues              Income (loss)
                           ----------------------- ------------------------
                               2012        2011        2012         2011
                           ----------- ----------- -----------  -----------

Tax Services               $ 1,994,234 $ 2,036,985 $ 1,015,735  $ 1,092,363
Corporate and Eliminations       6,440       8,274     (34,109)     (48,025)
                           ----------- ----------- -----------  -----------
                           $ 2,000,674 $ 2,045,259     981,626    1,044,338
                           =========== ===========
Income taxes                                           389,923      401,505
                                                   -----------  -----------
Net income from continuing
 operations                                            591,703      642,833
Net income (loss) from
 discontinued operations                                (5,600)      15,728
                                                   -----------  -----------
Net income                                         $   586,103  $   658,561
                                                   ===========  ===========

Basic earnings (loss) per
 share:
  Net income from
   continuing operations                           $      2.02  $      2.10
  Net income (loss) from
   discontinued operations                               (0.02)        0.05
                                                   -----------  -----------
  Net income                                       $      2.00  $      2.15
                                                   ===========  ===========

Basic shares outstanding                               293,103      305,283

Diluted earnings (loss)
 per share:
  Net income from
   continuing operations                           $      2.01  $      2.09
  Net income (loss) from
   discontinued operations                               (0.02)        0.05
                                                   -----------  -----------
  Net income                                       $      1.99  $      2.14
                                                   ===========  ===========

Diluted shares outstanding                             293,985      306,118



                                         Year ended April 30,
                           ------------------------------------------------
                                   Revenues              Income (loss)
                           ----------------------- ------------------------
                               2012        2011        2012         2011
                           ----------- ----------- -----------  -----------

Tax Services               $ 2,862,378 $ 2,912,361 $   704,002  $   767,498
Corporate and Eliminations      31,393      32,619    (127,932)    (139,795)
                           ----------- ----------- -----------  -----------
                           $ 2,893,771 $ 2,944,980     576,070      627,703
                           =========== ===========
Income taxes                                           230,102      235,156
                                                   -----------  -----------
Net income from continuing
 operations                                            345,968      392,547
Net income (loss) from
 discontinued operations                               (80,036)      13,563
                                                   -----------  -----------
Net income                                         $   265,932  $   406,110
                                                   ===========  ===========

Basic earnings (loss) per
 share:
  Net income from
   continuing operations                           $      1.16  $      1.27
  Net income (loss) from
   discontinued operations                               (0.27)        0.04
                                                   -----------  -----------
  Net income                                       $      0.89  $      1.31
                                                   ===========  ===========

Basic shares outstanding                               297,863      309,230

Diluted earnings (loss)
 per share:
  Net income from
   continuing operations                           $      1.16  $      1.27
  Net income (loss) from
   discontinued operations                               (0.27)        0.04
                                                   -----------  -----------
  Net income                                       $      0.89  $      1.31
                                                   ===========  ===========

Diluted shares outstanding                             298,601      309,777


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In November 2011, we sold RSM McGladrey, Inc. (RSM) to McGladrey & Pullen LLP (M&P) for net cash proceeds of $523.1 million. We also received at the time of sale a long-term note in the amount of $54.0 million. M&P assumed substantially all liabilities of RSM, including contingent payments and lease obligations. We have indemnified M&P for certain litigation matters. The net after tax loss on the sale of RSM totaled $36.9 million, which includes an $85.4 million impairment of goodwill recorded in our first quarter and tax benefits associated with capital loss carry-forwards utilized.

As of April 30, 2012, the results of operations of this business are presented as discontinued operations in the consolidated financial statements. All periods presented in our consolidated balance sheets and statements of income have been reclassified to reflect our discontinued operations.

In April 2012, we announced a strategic realignment which eliminated approximately 350 positions and closed approximately 200 underperforming company-owned offices. We recorded $31.2 million in severance costs and $5.5 million in lease termination costs and impairment charges in the fourth quarter of fiscal year 2012.



H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except per share data

                                                    April 30,    April 30,
                                                       2012         2011
                                                   -----------  -----------
                      ASSETS
Current assets:
  Cash and cash equivalents                        $ 1,944,334  $ 1,677,844
  Cash and cash equivalents - restricted                48,100       48,383
  Receivables, net                                     193,858      230,172
  Prepaid expenses and other current assets            314,702      191,360
  Assets of discontinued operations, held for sale           -      900,328
                                                   -----------  -----------
    Total current assets                             2,500,994    3,048,087

  Mortgage loans held for investment, net              406,201      485,008
  Investments in available-for-sale securities         371,315      163,836
  Property and equipment, net                          252,985      255,298
  Intangible assets, net                               264,451      275,342
  Goodwill                                             427,566      434,151
  Other assets                                         426,055      627,731
                                                   -----------  -----------
Total assets                                       $ 4,649,567  $ 5,289,453
                                                   ===========  ===========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Customer banking deposits                        $   827,549  $   852,220
  Accounts payable, accrued expenses and other
   current liabilities                                 567,079      550,982
  Accrued salaries, wages and payroll taxes            163,992      208,748
  Accrued income taxes                                 336,374      458,911
  Current portion of long-term debt                    631,434          557
  Federal Home Loan Bank borrowings                          -       25,000
  Liabilities of discontinued operations, held for
   sale                                                      -      241,562
                                                   -----------  -----------
    Total current liabilities                        2,526,428    2,337,980

  Long-term debt                                       409,115    1,039,527
  Other noncurrent liabilities                         388,132      462,372
                                                   -----------  -----------
      Total liabilities                              3,323,675    3,839,879
                                                   -----------  -----------

Stockholders' equity:
  Common stock, no par, stated value $.01 per
   share                                                 3,979        4,124
  Additional paid-in capital                           796,784      812,666
  Accumulated other comprehensive income                12,145       11,233
  Retained earnings                                  2,523,997    2,658,103
  Less treasury shares, at cost                     (2,011,013)  (2,036,552)
                                                   -----------  -----------
      Total stockholders' equity                     1,325,892    1,449,574
                                                   -----------  -----------
Total liabilities and stockholders' equity         $ 4,649,567  $ 5,289,453
                                                   ===========  ===========




H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited, amounts in thousands, except per share data

                              Three months ended           Year ended
                                   April 30,                April 30,
                           ------------------------ ------------------------
                               2012         2011        2012         2011
                           -----------  ----------- -----------  -----------
Revenues:
  Service revenues         $ 1,717,064  $ 1,732,835 $ 2,434,307  $ 2,428,104
  Product and other
   revenues                    243,547      255,430     359,664      383,216
  Interest income               40,063       56,994      99,800      133,660
                           -----------  ----------- -----------  -----------
                             2,000,674    2,045,259   2,893,771    2,944,980
                           -----------  ----------- -----------  -----------
Expenses:
  Cost of revenues:
    Compensation and
     benefits                  512,634      503,246     828,773      830,980
    Occupancy and
     equipment                 118,122      123,674     381,200      385,515
    Provision for bad debt
     and loan losses            23,734       55,872      92,157      174,626
    Interest                    22,737       23,634      92,089       94,183
    Depreciation and
     amortization of
     property and
     equipment                  18,416       18,258      69,310       73,183
    Other                      110,615       99,564     238,166      218,295
                           -----------  ----------- -----------  -----------
                               806,258      824,248   1,701,695    1,776,782
  Impairment of goodwill         3,152            -       7,409       22,700
  Selling, general and
   administrative expenses     210,231      178,958     618,375      529,159
                           -----------  ----------- -----------  -----------
                             1,019,641    1,003,206   2,327,479    2,328,641
                           -----------  ----------- -----------  -----------

Operating income               981,033    1,042,053     566,292      616,339
Other income, net                  593        2,285       9,778       11,364
                           -----------  ----------- -----------  -----------

Income from continuing
 operations before taxes       981,626    1,044,338     576,070      627,703
Income taxes                   389,923      401,505     230,102      235,156
                           -----------  ----------- -----------  -----------

Net income from continuing
 operations                    591,703      642,833     345,968      392,547
Net income (loss) from
 discontinued operations        (5,600)      15,728     (80,036)      13,563
                           -----------  ----------- -----------  -----------

Net income                 $   586,103  $   658,561 $   265,932  $   406,110
                           ===========  =========== ===========  ===========

Basic earnings (loss) per
 share:
    Net income from
     continuing operations $      2.02  $      2.10 $      1.16  $      1.27
    Net income (loss) from
     discontinued
     operations                  (0.02)        0.05       (0.27)        0.04
                           -----------  ----------- -----------  -----------
    Net income             $      2.00  $      2.15 $      0.89  $      1.31
                           ===========  =========== ===========  ===========

  Basic shares outstanding     293,103      305,283     297,863      309,230

Diluted earnings (loss)
 per share:
    Net income from
     continuing operations $      2.01  $      2.09 $      1.16  $      1.27
    Net income (loss) from
     discontinued
     operations                  (0.02)        0.05       (0.27)        0.04
                           -----------  ----------- -----------  -----------
    Net income             $      1.99  $      2.14 $      0.89  $      1.31
                           ===========  =========== ===========  ===========

  Diluted shares
   outstanding                 293,985      306,118     298,601      309,777




H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands

                                                     Year ended April 30,
                                                   ------------------------
                                                       2012         2011
                                                   -----------  -----------

Net cash provided by operating activities          $   362,049  $   512,503
                                                   -----------  -----------

Cash flows from investing activities:
  Available-for-sale securities:
      Purchases of available-for-sale securities      (256,173)    (138,824)
      Maturities of and payments received on
       available-for-sale securities                    66,382       16,797
  Principal payments on mortgage loans held for
   investment, net                                      49,142       58,471
  Purchases of property and equipment                  (82,457)     (62,959)
  Payments made for business acquisitions, net of
   cash acquired                                       (15,258)     (54,171)
  Proceeds from sales of businesses, net               560,499       71,083
  Franchise loans:
    Loans funded                                       (46,246)     (92,455)
    Payments received                                   56,591       57,552
  Other, net                                            19,387       34,349
                                                   -----------  -----------
    Net cash provided by (used in) investing
     activities                                        351,867     (110,157)
                                                   -----------  -----------

Cash flows from financing activities:
  Repayments of commercial paper                      (664,167)  (4,818,766)
  Proceeds from issuance of commercial paper           664,167    4,818,766
  Repayments of other borrowings                       (25,000)     (50,000)
  Customer banking deposits, net                       (26,091)     (11,440)
  Dividends paid                                      (208,801)    (186,802)
  Repurchase of common stock, including shares
   surrendered                                        (180,592)    (283,534)
  Proceeds from exercise of stock options               12,275          424
  Other, net                                           (16,853)      (3,039)
                                                   -----------  -----------
    Net cash used in financing activities             (445,062)    (534,391)
                                                   -----------  -----------

Effects of exchange rates on cash                       (2,364)       5,844

Net increase (decrease) in cash and cash
 equivalents                                           266,490     (126,201)
Cash and cash equivalents at beginning of the
 period                                              1,677,844    1,804,045
                                                   -----------  -----------
Cash and cash equivalents at end of the period     $ 1,944,334  $ 1,677,844
                                                   ===========  ===========

Supplementary cash flow data:
  Income taxes paid, net of refunds received       $   218,444  $   244,917
  Interest paid on borrowings                           69,681       73,791
  Interest paid on deposits                              6,843        8,541
  Transfers of foreclosed loans to other assets         10,308       16,463
  Accrued purchase of common stock                      22,484            -





H&R BLOCK
U.S. Tax Operating Data
(in thousands)

                                   Fiscal Year   Fiscal Year
                                  to Date as of to Date as of    Percent
                                     4/30/12       4/30/11        change
                                  ------------- ------------- -------------
Total returns prepared: (1)
  Company-owned operations                9,207         9,079           1.4%
  Franchise operations                    5,693         5,677           0.3%
                                  ------------- ------------- -------------
    Total retail operations              14,900        14,756           1.0%
                                  ------------- ------------- -------------

  Software                                2,158         2,201          -2.0%
  Online                                  4,419         3,722          18.7%
                                  ------------- ------------- -------------
    Sub-total                             6,577         5,923          11.0%
                                  ------------- ------------- -------------

  Free File Alliance                        861           767          12.3%
                                  ------------- ------------- -------------
    Total digital tax solutions           7,438         6,690          11.2%
                                  ------------- ------------- -------------
                                         22,338        21,446           4.2%
                                  ============= ============= =============

(1) Prior year numbers have been reclassified between company-owned and
 franchise operations for offices which were refranchised during either
 year.

For Further Information
Investor Relations:
Derek Drysdale
(816) 854-4513
Email Contact
Media Relations:
Gene King
(816) 854-4672
Email Contact


SOURCE: H & R Block

http://www2.marketwire.com/mw/emailprcntct?id=ECC945EC74295F23
http://www2.marketwire.com/mw/emailprcntct?id=1397225336820210