H&R Block's Net Loss From Continuing Operations Improves 18 Percent; 11 Percent Improvement on Adjusted Basis

Dec 6, 2012

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Dec 06, 2012 (Marketwire via COMTEX) --H&R Block, Inc. (NYSE: HRB) today announced financial results for its fiscal second quarter ended Oct. 31, 2012. Due to the seasonality of its U.S. tax business, the company typically reports a second quarter operating loss.

Second Quarter 2013 Highlights¹

Total revenues grew 6 percent to $137 million due primarily to a strong tax season in Australia
Net loss from continuing operations improved 18 percent to $101 million, or $0.37 per share²
Adjusted net loss from continuing operations improved 11 percent to $100 million, or $0.37 per share
The company remains on pace to deliver $85 to $100 million of pretax earnings from cost reduction initiatives in fiscal 2013

Second Quarter Results From Continuing Operations


	Actual			Adjusted*
in millions, except EPS	Q2 FY13	Q2 FY12	Change	Q2 FY13	Q2 FY12	Change
Revenue	$137	$129	6%	$137	$129	6%
EBITDA*	($117)	($159)	26%	($117)	($141)	17%
Pretax Income (Loss)	($162)	($204)	20%	($163)	($186)	13%
Net Income (Loss)	($101)	($123)	18%	($100)	($112)	11%
Shares Outstanding	271.1	299.9	-10%	271.1	299.9	-10%
EPS	($0.37)	($0.41)	10%	($0.37)	($0.37)	0%

*Adjusted amounts and EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP financial measures. See "About Non-GAAP Financial Measures" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

Company Perspective

"I'm very pleased with the improvement in our second quarter results, which reflect savings from our cost reduction initiatives and a strong tax season in Australia," said Bill Cobb, H&R Block's President and CEO. "The U.S. tax season is right around the corner and we believe we're on pace to deliver significant earnings and margin expansion in fiscal 2013."

Business Segment Results and Highlights

Tax Services

Revenues grew by $9 million, or 7 percent, to $130 million, primarily due to an 8 percent increase in tax returns prepared in Australia
Pretax loss improved by 25 percent or $44 million, to $130 million
Adjusted pretax loss improved by 17 percent or $26 million, to $130 million primarily due to lower field wages and occupancy costs resulting from the company's cost reduction initiatives

Corporate

Revenues declined by $1 million due to lower interest income from H&R Block Bank's shrinking mortgage loan portfolio
Pretax loss increased by $2 million, or 7 percent, to $32 million

Second Quarter Results from Discontinued Operations

Net loss improved by $15 million to $4 million, as prior year results included a $12 million after-tax provision for estimated losses on representation and warranty claims at Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc.
SCC received new claims during the quarter for alleged breaches of representations and warranties in the principal amount of $10 million
SCC reviewed claims in the principal amount of $257 million during the quarter; no losses were charged against SCC's accrual for contingent losses related to representations and warranties during the quarter
$28 million of claims remained subject to review at Oct. 31, 2012
SCC's accrual for contingent losses related to representations and warranties remained essentially unchanged at $129 million

Dividend

A previously announced quarterly cash dividend of 20 cents per share is payable on Jan. 2, 2013 to shareholders of record as of Dec. 10, 2012. The Jan. 2 payment marks the company's 201^st consecutive quarterly dividend.

Investor Conference

At 8:15 a.m. EST today, the company will hold its investor conference in New York City. H&R Block's senior leaders will outline the company's growth strategies and outlook.

The event will be broadcast live in a listen-only format for the media and public on H&R Block's investor relations website at http://investors.hrblock.com. A replay will be available on the company's website at approximately 1:30 p.m. EST on Dec. 6 and continuing until Feb. 28, 2013.

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 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™ digital products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Online Press Center.

About Non-GAAP Financial Measures
This press release and the accompanying tables include non-GAAP financial measures. 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 "About Non-GAAP Financial Measures."

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, 2012 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.

¹ Unless otherwise noted, all growth rates refer to the current period compared to the prior year period.

² 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)
		2012		2011		2012			2011

Tax Services		$	129,819	$	121,018	$	(130,109	)	$	(173,966	)
Corporate and Eliminations			7,444		8,176		(32,179	)		(29,963	)
		$	137,263	$	129,194		(162,288	)		(203,929	)
Income tax benefit							(61,089	)		(80,916	)
Net loss from continuing operations							(101,199	)		(123,013	)
Net loss from discontinued operations							(4,044	)		(18,711	)
Net loss						$	(105,243	)	$	(141,724	)

Basic and diluted loss per share:
	Net loss from continuing operations					$	(0.37	)	$	(0.41	)
	Net loss from discontinued operations						(0.02	)		(0.06	)
	Net loss					$	(0.39	)	$	(0.47	)

Basic and diluted shares							271,145			299,895

		Six months ended October 31,
		Revenues				Income (loss)
		2012		2011		2012			2011

Tax Services		$	220,072	$	212,443	$	(271,014	)	$	(343,449	)
Corporate and Eliminations			13,680		17,374		(60,543	)		(61,081	)
		$	233,752	$	229,817		(331,557	)		(404,530	)
Income tax benefit							(124,708	)		(162,362	)
Net loss from continuing operations							(206,849	)		(242,168	)
Net loss from discontinued operations							(5,835	)		(74,654	)
Net loss						$	(212,684	)	$	(316,822	)

Basic and diluted loss per share:
	Net loss from continuing operations					$	(0.76	)	$	(0.80	)
	Net loss from discontinued operations						(0.02	)		(0.25	)
	Net loss					$	(0.78	)	$	(1.05	)

Basic and diluted shares							274,150			302,693

NOTES TO 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.

On October 25, 2012, we issued $500.0 million of 5.50% Senior Notes. The Senior Notes are due November 1, 2022, and are not redeemable by the bondholders prior to maturity. On October 25, 2012, we provided notice to the trustee of our intention to redeem the entire principal amount of the $600.0 million Senior Notes due in January 2013. The redemption settled on November 26, 2012 at a price of $623.0 million. Proceeds of the $500.0 million Senior Notes and other cash balances were used to repay the $600.0 million Senior Notes.


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

			October 31,			October 31,			April 30,
			2012			2011			2012
ASSETS
Current assets:
	Cash and cash equivalents		$	1,260,901		$	572,611		$	1,944,334
	Cash and cash equivalents - restricted			38,667			37,524			48,100
	Receivables, net			124,511			128,062			193,858
	Prepaid expenses and other current assets			282,874			218,054			314,702
	Assets of discontinued operations, held for sale			-			729,153			-
		Total current assets		1,706,953			1,685,404			2,500,994

	Mortgage loans held for investment, net			370,850			450,137			406,201
	Investments in available-for-sale securities			388,640			306,310			371,315
	Property and equipment, net			285,335			257,870			252,985
	Intangible assets, net			262,296			262,106			264,451
	Goodwill			434,492			438,403			427,566
	Other assets			448,164			576,283			426,055
Total assets			$	3,896,730		$	3,976,513		$	4,649,567

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Customer banking deposits		$	790,106		$	723,318		$	827,549
	Accounts payable, accrued expenses and other current liabilities			406,447			581,069			567,079
	Accrued salaries, wages and payroll taxes			39,345			46,588			163,992
	Accrued income taxes			95,126			135,858			336,374
	Commercial paper borrowings			-			39,990			-
	Current portion of long-term debt			600,678			30,735			631,434
	Federal Home Loan Bank borrowings			-			25,000			-
	Liabilities of discontinued operations, held for sale			-			199,030			-
		Total current liabilities		1,931,702			1,781,588			2,526,428

	Long-term debt			906,125			1,009,196			409,115
	Other noncurrent liabilities			365,970			322,907			388,132
		Total liabilities		3,203,797			3,113,691			3,323,675

Stockholders' equity:
	Common stock, no par, stated value $.01 per share			3,166			3,994			3,979
	Additional paid-in capital			748,298			799,270			796,784
	Accumulated other comprehensive income			8,685			4,359			12,145
	Retained earnings			795,707			2,080,162			2,523,997
	Less treasury shares, at cost			(862,923	)		(2,024,963	)		(2,011,013	)
		Total stockholders' equity		692,933			862,822			1,325,892
Total liabilities and stockholders' equity			$	3,896,730		$	3,976,513		$	4,649,567


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

			Three months ended October 31,						Six months ended October 31,						Three months ended July 31,
			2012			2011			2012			2011			2012			2011
Revenues:
	Service revenues		$	116,438		$	109,983		$	196,334		$	193,003		$	79,896		$	83,020
	Product and other revenues			10,966			9,290			17,686			16,553			6,720			7,263
	Interest income			9,859			9,921			19,732			20,261			9,873			10,340
				137,263			129,194			233,752			229,817			96,489			100,623

Expenses:
	Cost of revenues:
		Compensation and benefits		54,764			61,438			94,349			108,659			39,585			47,221
		Occupancy and equipment		82,398			86,551			162,349			170,054			79,951			83,503
		Depreciation and amortization of property and equipment		17,927			16,652			34,232			33,124			16,305			16,472
		Provision for bad debt and loan losses		3,725			8,200			8,370			15,491			4,645			7,291
		Interest		23,390			22,873			45,467			45,809			22,077			22,936
		Other		29,807			31,899			60,668			67,060			30,861			35,161
				212,011			227,613			405,435			440,197			193,424			212,584
	Impairment of goodwill			-			4,257			-			4,257			-			-
	Selling, general and administrative expenses			90,327			103,755			165,805			196,408			75,478			92,653
				302,338			335,625			571,240			640,862			268,902			305,237

Operating loss				(165,075	)		(206,431	)		(337,488	)		(411,045	)		(172,413	)		(204,614	)
Other income, net				2,787			2,502			5,931			6,515			3,144			4,013

Loss from continuing operations before tax benefit				(162,288	)		(203,929	)		(331,557	)		(404,530	)		(169,269	)		(200,601	)
Income tax benefit				(61,089	)		(80,916	)		(124,708	)		(162,362	)		(63,619	)		(81,446	)

Net loss from continuing operations				(101,199	)		(123,013	)		(206,849	)		(242,168	)		(105,650	)		(119,155	)
Net loss from discontinued operations				(4,044	)		(18,711	)		(5,835	)		(74,654	)		(1,791	)		(55,943	)

Net loss			$	(105,243	)	$	(141,724	)	$	(212,684	)	$	(316,822	)	$	(107,441	)	$	(175,098	)

Basic and diluted loss per share:
	Net loss from continuing operations		$	(0.37	)	$	(0.41	)	$	(0.76	)	$	(0.80	)	$	(0.38	)	$	(0.39	)
	Net loss from discontinued operations			(0.02	)		(0.06	)		(0.02	)		(0.25	)		(0.01	)		(0.18	)
	Net loss		$	(0.39	)	$	(0.47	)	$	(0.78	)	$	(1.05	)	$	(0.39	)	$	(0.57	)

	Basic and diluted shares			271,145			299,895			274,150			302,693			277,155			305,491


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

			Six months ended October 31,
			2012			2011

Net cash used in operating activities			$	(567,036	)	$	(582,628	)

Cash flows from investing activities:
	Purchases of available-for-sale securities			(67,474	)		(155,159	)
	Sales, maturities and payments received on available-for-sale securities			53,098			23,249
	Principal repayments on mortgage loans held for investment, net			23,608			22,978
	Purchases of property and equipment, net			(60,720	)		(40,510	)
	Payments made for acquisitions of businesses and intangibles, net			(10,442	)		(8,164	)
	Proceeds from sales of businesses, net			943			37,036
	Franchise loans:
		Loans funded		(20,670	)		(27,682	)
		Payments received		8,303			7,447
	Other, net			9,275			13,685
		Net cash used in investing activities		(64,079	)		(127,120	)

Cash flows from financing activities:
	Repayments of commercial paper			-			(37,989	)
	Proceeds from commercial paper			-			77,979
	Repayments of long-term debt			(30,831	)		-
	Proceeds from issuance of long-term debt			497,185			-
	Customer banking deposits, net			(37,913	)		(129,285	)
	Dividends paid			(108,428	)		(91,446	)
	Repurchase of common stock, including shares surrendered			(339,919	)		(180,222	)
	Proceeds from exercise of stock options, net			1,288			(430	)
	Other, net			(33,004	)		(28,057	)
		Net cash used in financing activities		(51,622	)		(389,450	)

Effects of exchange rates on cash				(696	)		(6,035	)

Net decrease in cash and cash equivalents				(683,433	)		(1,105,233	)
Cash and cash equivalents at beginning of the period				1,944,334			1,677,844
Cash and cash equivalents at end of the period			$	1,260,901		$	572,611

Supplementary cash flow data:
	Income taxes paid, net		$	48,201		$	122,832
	Interest paid on borrowings			42,106			27,748
	Interest paid on deposits			2,683			3,323
	Transfers of foreclosed loans to other assets			5,312			4,438
	Accrued additions to property and equipment			10,273			10,798



H&R BLOCK
NON-GAAP FINANCIAL MEASURES
Unaudited, amounts in thousands, except per share amounts

		Three months ended October 31,						Six months ended October 31,
EBITDA ⁽¹⁾		2012			2011			2012			2011

Net loss from continuing operations - as reported		$	(101,199	)	$	(123,013	)	$	(206,849	)	$	(242,168	)

Add back :
	Income taxes		(61,089	)		(80,916	)		(124,708	)		(162,362	)
	Interest expense		23,390			22,873			45,467			45,809
	Depreciation and amortization		22,053			22,089			42,604			43,621
			(15,646	)		(35,954	)		(36,637	)		(72,932	)

EBITDA of continuing operations			(116,845	)		(158,967	)		(243,486	)		(315,100	)

Adjustments:
	Loss contingencies - litigation charges		(2,451	)		8,193			(4,753	)		23,357
	Impairment of goodwill and intangibles		1,421			8,237			1,421			8,237
	Severance		1,558			526			1,057			2,110
	Loss (gain) on sales of tax offices		(754	)		806			(524	)		912
			(226	)		17,762			(2,799	)		34,616

Adjusted EBITDA of continuing operations		$	(117,071	)	$	(141,205	)	$	(246,285	)	$	(280,484	)

Non-GAAP Pretax Results

Pretax loss from continuing operations - as reported		$	(162,288	)	$	(203,929	)	$	(331,557	)	$	(404,530	)

Add back :
	Loss contingencies - litigation charges		(2,451	)		8,193			(4,753	)		23,357
	Impairment of goodwill and intangibles		1,421			8,237			1,421			8,237
	Severance		1,558			526			1,057			2,110
	Loss (gain) on sales of tax offices		(754	)		806			(524	)		912
			(226	)		17,762			(2,799	)		34,616

Pretax loss from continuing operations - as adjusted		$	(162,514	)	$	(186,167	)	$	(334,356	)	$	(369,914	)

Non-GAAP After-Tax Results

Net loss from continuing operations - as reported		$	(101,199	)	$	(123,013	)	$	(206,849	)	$	(242,168	)

Add back (net of tax) :
	Loss contingencies - litigation charges		(1,506	)		4,926			(2,906	)		14,124
	Impairment of goodwill and intangibles		869			4,981			869			4,981
	Severance		951			315			646			1,276
	Loss (gain) on sales of tax offices		(460	)		487			(320	)		551
	Discrete tax items		1,472			79			4,173			(2,451	)
			1,326			10,788			2,462			18,481

Net loss from continuing operations - as adjusted		$	(99,873	)	$	(112,225	)	$	(204,387	)	$	(223,687	)


⁽¹⁾ Earnings before interest, taxes, depreciation and amortization.

			Three months ended October 31,						Six months ended October 31,
Non-GAAP EPS			2012			2011			2012			2011

EPS from continuing operations - as reported		$	(0.37	)	$	(0.41	)	$	(0.76	)	$	(0.80	)

Add back :
	Loss contingencies - litigation charges		(0.01	)		0.02			(0.01	)		0.05
	Impairment of goodwill and intangibles		-			0.02			-			0.02
	Severance		-			-			-			-
	Loss (gain) on sales of tax offices		-			-			-			-
	Discrete tax items		0.01			-			0.02			(0.01	)
			-			0.04			0.01			0.06

EPS from continuing operations - as adjusted		$	(0.37	)	$	(0.37	)	$	(0.75	)	$	(0.74	)

Non-GAAP Pretax Results - Tax Services segment

Pretax loss - as reported		$	(130,109	)	$	(173,966	)	$	(271,014	)	$	(343,449	)

Add back :
	Loss contingencies - litigation charges		(2,451	)		8,192			(4,753	)		23,356
	Impairment of goodwill and intangibles		1,421			8,237			1,421			8,237
	Severance		1,593			526			1,092			2,110
	Loss (gain) on sales of tax offices		(754	)		806			(524	)		912
			(191	)		17,761			(2,764	)		34,615

Pretax loss - as adjusted		$	(130,300	)	$	(156,205	)	$	(273,778	)	$	(308,834	)


Supplemental Information

Stock-based compensation expense:
	Pretax	$	5,384		$	4,486		$	7,737		$	7,824
	After-tax		3,299			2,706			4,730			4,731
Amortization of intangible assets:
	Pretax	$	4,126		$	5,435		$	8,372		$	10,497
	After-tax		2,536			3,277			5,118			6,348

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

Press Release Details

H&R Block's Net Loss From Continuing Operations Improves 18 Percent; 11 Percent Improvement on Adjusted Basis