Form 8-K (9-3-14)


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): September 3, 2014

H&R BLOCK, INC.
(Exact name of registrant as specified in charter)
MISSOURI
1-6089
44-0607856
(State or other jurisdiction of
(Commission File Number)
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

One H&R Block Way, Kansas City, MO 64105
(Address of Principal Executive Offices) (Zip Code)

(816) 854-3000
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 







Item 2.02.    Results of Operations and Financial Condition.
On September 3, 2014, the Company issued a press release regarding the Company's results of operations for the fiscal quarter ended July 31, 2014. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Item 9.01.    Financial Statements and Exhibits.
(d) Exhibits
Exhibit Number    Description
99.1    Press Release Issued September 3, 2014





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
H&R BLOCK, INC.
 
 
 
 
Date:
September 3, 2014
By:
 /s/ Scott W. Andreasen
 
 
 
Scott W. Andreasen
 
 
 
Vice President and Secretary






EXHIBIT INDEX

Exhibit 99.1        Press Release Issued September 3, 2014


Form 8-K (9-3-14) Exhibit 99.1

Exhibit 99.1
News Release
For Immediate Release: September 3, 2014
H&R Block Announces Fiscal 2015 First Quarter Results
KANSAS CITY, Mo. - H&R Block, Inc. (NYSE: HRB), the world’s largest consumer tax services provider, today announced its financial results for the fiscal 2015 first quarter ended July 31, 2014. The company typically reports a first quarter operating loss due to the seasonality of its core U.S. tax business.

First Quarter 2015 Highlights1 
Total revenues increased $6 million, or 5.0%, to $134 million
Net loss from continuing operations improved 4% to $109 million, or $0.40 per share2 
Non-GAAP adjusted loss per share3 from continuing operations unchanged at $0.40

Revenues increased 5 percent, to $134 million, primarily due to a 5-day extension by the Canadian Revenue Agency of the completion of the Canadian tax season this year from April 30, our fiscal year end, to May 5. Loss per share from continuing operations improved to $0.40. On an adjusted non-GAAP basis, earnings per share from continuing operations was unchanged at $0.40.

CEO Perspective
“I am pleased with the progress we’ve made this offseason in preparation for tax season 2015. This year, we’ll continue our Tax Plus strategy to drive profitable growth and maximize the value offering to our clients,” said Bill Cobb, H&R Block’s president and chief executive officer. “I like our competitive position and believe that we have the right people, resources, and expertise to continue to provide best-in-class service to our clients, and to take advantage of the long-term opportunities that lie ahead.”

First Quarter Results From Continuing Operations
 
 
Actual
 
Adjusted
(in millions, except EPS)
 
Fiscal Year 2015
 
Fiscal Year 2014
 
Fiscal Year 2015
 
Fiscal Year 2014
Revenue
 
$
134

 
$
127

 
$
134

 
$
127

EBITDA
 
$
(128
)
 
$
(147
)
 
$
(126
)
 
$
(139
)
Pretax Loss
 
$
(176
)
 
$
(184
)
 
$
(174
)
 
$
(176
)
Net Loss
 
$
(109
)
 
$
(113
)
 
$
(108
)
 
$
(108
)
Weighted-Avg. Shares - Diluted
 
274.6

 
273.1

 
274.6

 
273.1

EPS
 
$
(0.40
)
 
$
(0.42
)
 
$
(0.40
)
 
$
(0.40
)
 
 
 
 
 
 
 
 
 

1 All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2 All per share amounts are based on fully diluted shares.
3 The company reports adjusted financial performance, which it believes is a better indication of the company's recurring operations. The company also reports EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP financial measure, which the company finds relevant when measuring its performance. See “About Non-GAAP Financial Information” below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).




Business Segment Results and Highlights
Tax Services
Revenues increased 6 percent to $129 million, driven by the aforementioned extension of the completion of the Canadian tax season
Total operating expenses increased 5 percent to $280 million, driven by depreciation and amortization from planned office and technology upgrades, increased wages, and higher occupancy costs, partially offset by lower foreign exchange currency losses and legal fees
Adjusted non-GAAP pretax loss increased 4 percent to $149 million
Corporate
Total operating expenses declined $16 million to $30 million, primarily due to lower provisions for losses on mortgage loans held for investment and lower expenses related to the pending exit of HRB Bank
Pretax loss improved by $15 million to $25 million
Discontinued Operations
Net loss of $7 million compared to $2 million in the prior year
Sand Canyon Corporation (SCC), a separate legal entity of H&R Block, Inc., continued to engage in constructive settlement discussions with counterparties that represent a significant majority of previously denied and expected future representation and warranty claims. Based on these actions, SCC recorded a provision of $10 million during the first quarter, increasing its accrual for contingent losses related to representations and warranty claims to $194 million at July 31.
Dividends
A previously announced quarterly cash dividend of 20 cents per share is payable on Oct. 1, 2014 to shareholders of record as of Sept. 9, 2014. The October 1 dividend payment will be H&R Block’s 208th consecutive quarterly dividend since the company went public in 1962.
Conference Call
In conjunction with the announcement of first quarter fiscal 2015 first quarter results, the company will host a conference call at 4:30 p.m. Eastern time on Sept. 3, 2014. During the conference call the company will discuss fiscal 2015 first quarter results, future outlook and a general business update. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:
U.S./Canada (888) 895-5260 or International (443) 842-7595
Conference ID: 77437530
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 time on Sept. 3, 2014, and continuing until Oct. 3, 2014, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 77437530. The webcast will be available for replay September 4, 2014 at http://investors.hrblock.com.





About H&R Block
H&R Block, Inc. (NYSE: HRB) is the world’s largest consumer tax services provider. More than 650 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2014, H&R Block had annual revenues over $3.0 billion with 24.2 million tax returns prepared worldwide. Tax return preparation services are provided in approximately 12,000 company-owned and franchise retail tax offices worldwide by professional tax preparers, and through H&R Block Tax Software products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Newsroom at http://newsroom.hrblock.com/.
About Non-GAAP Financial Information
This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying tables titled "Non-GAAP Financial Information.”
Forward-Looking Statements
This press release may contain forward-looking statements within the meaning of the 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,” “projects,” “forecasts,” “targets,” “would,” “will,” “should,” “could” or “may” or other similar expressions. Forward-looking statements provide management’s current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. 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 or events. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive and regulatory factors, many of which are beyond the company’s control and which are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2014 in the section entitled “Risk Factors,” as well as additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
For Further Information
Investor Relations:    Colby Brown, (816) 854-4559, colby.brown@hrblock.com
Media Relations:    Gene King, (816) 854-4672, gene.king@hrblock.com
TABLES FOLLOW








KEY OPERATING RESULTS
 
(unaudited, in 000s - except per share data)
 
 
 
Three months ended July 31,
 
 
Revenues
 
Income (loss)
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Tax Services
 
$
129,080

 
$
121,691

 
$
(150,560
)
 
$
(144,394
)
Corporate and Eliminations
 
4,506

 
5,504

 
(25,256
)
 
(40,100
)
 
 
$
133,586

 
$
127,195

 
(175,816
)
 
(184,494
)
Income tax benefit
 
 
 
 
 
(66,965
)
 
(71,224
)
Net loss from continuing operations
 
 
 
 
 
(108,851
)
 
(113,270
)
Net loss from discontinued operations
 
 
 
 
 
(7,381
)
 
(1,917
)
Net loss
 
 
 
 
 
$
(116,232
)
 
$
(115,187
)
 
 
 
 
 
 
 
 
 
Basic and diluted earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
 
 
 
 
 
$
(0.40
)
 
$
(0.42
)
Discontinued operations
 
 
 
 
 
(0.02
)
 

Consolidated
 
 
 
 
 
$
(0.42
)
 
$
(0.42
)
 
 
 
 
 
 
 
 
 
Basic and diluted shares
 
 
 
 
 
274,575

 
273,080

 
 
 
 
 
 
 
 
 





CONSOLIDATED BALANCE SHEETS
 
(in 000s - except per share data)
 
As of
 
July 31, 2014

 
July 31, 2013

 
April 30, 2014

 
 
(unaudited)

 
(unaudited)

 
 
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,429,489

 
$
1,163,876

 
$
2,185,307

Cash and cash equivalents — restricted
 
71,917

 
55,477

 
115,319

Receivables, net
 
122,315

 
121,309

 
191,618

Prepaid expenses and other current assets
 
264,666

 
364,270

 
198,267

Investments in available-for-sale securities
 
403,774

 

 
423,495

Total current assets
 
2,292,161

 
1,704,932

 
3,114,006

Mortgage loans held for investment, net
 
259,732

 
309,681

 
268,428

Investments in available-for-sale securities
 
4,289

 
487,033

 
4,329

Property and equipment, net
 
314,531

 
286,584

 
304,911

Intangible assets, net
 
347,890

 
280,455

 
355,622

Goodwill
 
478,845

 
435,667

 
436,117

Other assets
 
193,371

 
258,536

 
210,116

Total assets
 
$
3,890,819

 
$
3,762,888

 
$
4,693,529

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
Customer banking deposits
 
$
482,975

 
757,929

 
$
769,785

Accounts payable, accrued expenses and other current liabilities
 
485,205

 
443,065

 
569,007

Accrued salaries, wages and payroll taxes
 
30,996

 
32,926

 
167,032

Accrued income taxes
 
284,038

 
215,834

 
406,655

Current portion of long-term debt
 
400,705

 
730

 
400,637

Total current liabilities
 
1,683,919

 
1,450,484

 
2,313,116

Long-term debt
 
505,714

 
905,902

 
505,837

Other noncurrent liabilities
 
303,986

 
301,187

 
318,027

Total liabilities
 
2,493,619

 
2,657,573

 
3,136,980

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
Common stock, no par, stated value $.01 per share
 
3,166

 
3,166

 
3,166

Convertible preferred stock, no par, stated value $0.01 per share
 

 

 

Additional paid-in capital
 
766,014

 
753,209

 
766,654

Accumulated other comprehensive income (loss)
 
5,483

 
(257
)
 
5,177

Retained earnings
 
1,418,124

 
1,163,651

 
1,589,297

Less treasury shares, at cost
 
(795,587
)
 
(814,454
)
 
(807,745
)
Total stockholders’ equity
 
1,397,200

 
1,105,315

 
1,556,549

Total liabilities and stockholders’ equity
 
$
3,890,819

 
$
3,762,888

 
$
4,693,529

 
 
 
 
 
 
 






CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in 000s - except per share amounts)
 
Three months ended July 31,
 
2014
 
2013
 
 
 
 
 
REVENUES:
 
 
 
 
Service revenues
 
$
115,473

 
$
107,800

Royalty, product and other revenues
 
8,814

 
8,198

Interest income
 
9,299

 
11,197

 
 
133,586

 
127,195

OPERATING EXPENSES:
 
 
 
 
Cost of revenues:
 
 
 
 
Compensation and benefits
 
51,855

 
46,312

Occupancy and equipment
 
83,306

 
78,736

Provision for bad debt and loan losses
 
4,364

 
11,491

Interest
 
13,940

 
14,446

Depreciation and amortization
 
25,085

 
18,620

Other
 
32,971

 
40,448

 
 
211,521

 
210,053

Selling, general and administrative:
 
 
 
 
Marketing and advertising
 
8,145

 
7,123

Compensation and benefits
 
60,964

 
53,047

Depreciation and amortization
 
8,601

 
4,254

Other selling, general and administrative
 
19,490

 
32,273

 
 
97,200

 
96,697

Total operating expenses
 
308,721

 
306,750

Operating loss
 
(175,135
)
 
(179,555
)
Other income (expense), net
 
(681
)
 
(4,939
)
Loss from continuing operations before income tax benefit
 
(175,816
)
 
(184,494
)
Income tax benefit
 
(66,965
)
 
(71,224
)
Net loss from continuing operations
 
(108,851
)
 
(113,270
)
Net loss from discontinued operations
 
(7,381
)
 
(1,917
)
NET LOSS
 
$
(116,232
)
 
$
(115,187
)
 
 
 
 
 
BASIC AND DILUTED LOSS PER SHARE:
 
 
 
 
Continuing operations
 
$
(0.40
)
 
$
(0.42
)
Discontinued operations
 
(0.02
)
 

Consolidated
 
$
(0.42
)
 
$
(0.42
)
 
 
 
 
 






CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited, in 000s)
 
Three months ended July 31,
 
2014
 
2013
 
 
 
 
 
NET CASH USED IN OPERATING ACTIVITIES
 
$
(381,585
)
 
$
(318,742
)
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of available-for-sale securities
 
(100
)
 
(45,158
)
Maturities of and payments received on available-for-sale securities
 
18,484

 
32,061

Principal payments on mortgage loans held for investment, net
 
6,250

 
11,707

Capital expenditures
 
(25,841
)
 
(34,386
)
Payments made for business acquisitions, net of cash acquired
 
(40,533
)
 
(1,303
)
Franchise loans:
 
 
 
 
Loans funded
 
(7,398
)
 
(6,657
)
Payments received
 
18,674

 
7,164

Other, net
 
4,130

 
7,482

Net cash used in investing activities
 
(26,334
)
 
(29,090
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Customer banking deposits, net
 
(287,609
)
 
(179,364
)
Dividends paid
 
(54,852
)
 
(54,550
)
Proceeds from exercise of stock options
 
13,368

 
21,953

Other, net
 
(19,316
)
 
(17,294
)
Net cash used in financing activities
 
(348,409
)
 
(229,255
)
 
 
 
 
 
Effects of exchange rate changes on cash
 
510

 
(6,621
)
 
 
 
 
 
Net decrease in cash and cash equivalents
 
(755,818
)
 
(583,708
)
Cash and cash equivalents at beginning of the period
 
2,185,307

 
1,747,584

Cash and cash equivalents at end of the period
 
$
1,429,489

 
$
1,163,876

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Income taxes paid, net of refunds received
 
$
88,924

 
$
106,467

Interest paid on borrowings
 
15,415

 
15,883

Interest paid on deposits
 
201

 
640

Transfers of foreclosed loans to other assets
 
1,818

 
2,100

Accrued additions to property and equipment
 
11,988

 
8,048

Transfer of mortgage loans held for investment to held for sale
 

 
7,608

 
 
 
 
 





TAX SERVICES – FINANCIAL RESULTS
 
(unaudited, amounts in 000s)
 
Three months ended July 31,
 
2014
 
2013
Tax preparation fees:
 
 
 
 
U.S.
 
$
25,489

 
$
22,026

International
 
41,456

 
32,094

 
 
66,945

 
54,120

Royalties
 
7,642

 
6,562

Fees from Emerald Card®
 
14,045

 
14,611

Fees from Peace of Mind® guarantees
 
24,253

 
27,826

Other
 
16,195

 
18,572

Total revenues
 
129,080

 
121,691

 
 
 
 
 
Compensation and benefits:
 
 
 
 
Field wages
 
45,997

 
39,904

Other wages
 
38,717

 
34,735

Benefits and other compensation
 
18,822

 
15,937

 
 
103,536

 
90,576

Occupancy and equipment
 
83,098

 
78,550

Marketing and advertising
 
7,387

 
7,017

Depreciation and amortization
 
33,683

 
22,802

Other
 
51,936

 
67,140

Total expenses
 
279,640

 
266,085

Pretax loss
 
$
(150,560
)
 
$
(144,394
)
 
 
 
 
 






NON-GAAP FINANCIAL MEASURES
 
(unaudited, in 000s - except per share amounts)
 
 
 
Three months ended July 31, 2014
 
 
Revenues
 
Expenses
 
EBITDA
 
Pretax loss
 
Net loss
 
EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
As reported - from continuing operations
 
$
133,586

 
$
308,721

 
$
(128,190
)
 
$
(175,816
)
 
$
(108,851
)
 
$
(0.40
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Loss contingencies - litigation
 

 
228

 
228

 
228

 
141

 

Severance
 

 
813

 
813

 
813

 
504

 

Professional fees related to HRB Bank transaction
 

 
25

 
25

 
25

 
15

 

Asset impairments
 

 

 
941

 
941

 
583

 

Discrete tax items
 

 

 

 

 
(49
)
 

 
 

 
1,066

 
2,007

 
2,007

 
1,194

 

As adjusted - from continuing operations
 
$
133,586

 
$
307,655

 
$
(126,183
)
 
$
(173,809
)
 
$
(107,657
)
 
$
(0.40
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended July 31, 2013
 
 
Revenues
 
Expenses
 
EBITDA
 
Pretax loss
 
Net loss
 
EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
As reported - from continuing operations
 
$
127,195

 
$
306,750

 
$
(147,174
)
 
$
(184,494
)
 
$
(113,270
)
 
$
(0.42
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Loss contingencies - litigation
 

 
373

 
373

 
373

 
229

 

Severance
 

 
1,105

 
1,105

 
1,105

 
677

 

Professional fees related to HRB Bank transaction
 

 
7,024

 
7,024

 
7,024

 
4,306

 
0.02

Discrete tax items
 

 

 

 

 
157

 

 
 

 
8,502

 
8,502

 
8,502

 
5,369

 
0.02

As adjusted - from continuing operations
 
$
127,195

 
$
298,248

 
$
(138,672
)
 
$
(175,992
)
 
$
(107,901
)
 
$
(0.40
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




NON-GAAP FINANCIAL MEASURES
 
(unaudited, in 000s - except per share amounts)
 
 
 
 
 
 
 
Three Months Ended 
 July 31,
 
 
EBITDA
 
 
 
 
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss - as reported
 
 
 
 
 
$
(116,232
)
 
$
(115,187
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add back :
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
 
 
 
 
 
 
 
7,381

 
1,917

 
 
Income taxes
 
 
 
 
 
 
 
(66,965
)
 
(71,224
)
 
 
Interest expense
 
 
 
 
 
 
 
13,940

 
14,446

 
 
Depreciation and amortization
 
 
 
 
 
 
 
33,686

 
22,874

 
 
 
 
 
 
 
 
 
 
(11,958
)
 
(31,987
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA from continuing operations
 
 
 
 
 
 
 
$
(128,190
)
 
$
(147,174
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 July 31,
 
 
Supplemental Information
 
 
 
 
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation expense:
 
 
 
 
 
 
 
 
 
 
 
 
Pretax
 
 
 
 
 
 
 
$
7,459

 
$
4,552

 
 
After-tax
 
 
 
 
 
 
 
4,620

 
2,791

 
 
Amortization of intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Pretax
 
 
 
 
 
 
 
$
11,244

 
$
6,071

 
 
After-tax
 
 
 
 
 
 
 
6,965

 
3,722

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




NON-GAAP FINANCIAL INFORMATION
The accompanying press release contains non-GAAP financial measures. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.
We consider non-GAAP financial measures to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.
The following are descriptions of adjustments we make for our non-GAAP financial measures:
We exclude losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs.
We exclude non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values.
We exclude severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs.
We exclude the gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions.
We exclude the gains and losses on extinguishment of debt.
We exclude the effects of discrete income tax reserve and related adjustments recorded in a specific quarter.
We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.
We measure the performance of our business using a variety of metrics, including EBITDA, adjusted EBITDA and adjusted pretax income of continuing operations. Adjusted EBITDA and adjusted pretax income eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance. We also use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.