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