form8k-030411.htm
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):  March 4, 2011

H&R BLOCK, INC.
(Exact name of registrant as specified in charter)
 
Missouri
(State of Incorporation)
1-6089
(Commission File Number)
44-0607856
(I.R.S. Employer
Identification Number)

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 1.01.                      Entry into a Material Definitive Agreement
 
On March 4, 2011, H&R Block, Inc. (the “Company”) and HRB Island Acquisition, Inc. (the “Sub”), an indirect wholly owned subsidiary of the Company, entered into an Agreement to Extend Outside Date (the “Extension Agreement”) with 2SS Holdings, Inc. (“2SS”), TA Associates Management, L.P. (“TA”) in its capacity as a stockholder representative, and Lance Dunn, in his capacity as a stockholder representative.  2SS owns 2nd Story Software, Inc., developer of TaxACT digital tax preparation solutions.

As previously reported in a Current Report on Form 8-K filed on October 14, 2010, the Company and the Sub entered into an Agreement and Plan of Merger (the “Merger Agreement”) dated October 13, 2010 with 2SS, TA and Mr. Dunn providing for the merger of Sub with and into 2SS (the “Merger”). The Merger Agreement provides that either party may terminate the Merger Agreement if the transaction does not close by April 30, 2011 (the “Outside Date”).  Pursuant to the Extension Agreement, the parties have changed the Outside Date to May 31, 2011.

Item 2.02.                      Results of Operations and Financial Condition
 
On March 9, 2011, the Company issued a press release regarding the Company’s results of operations for the fiscal quarter ended January 31, 2011.  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



 
 

 


 
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:  March 9, 2011
By:/s/ Andrew J. Somora                                                     
 
      Andrew J. Somora
 
      Secretary




 
 

 


EXHIBIT INDEX

Exhibit 99.1                      Press Release Issued March 9, 2011.


exh99x1-030411.htm
Exhibit 99.1
 
News Release

For Further Information
Investor Relations:                                       Derek Drysdale, 816-854-4513, derek.drysdale@hrblock.com
Media Relations:                                           Jennifer Love, 816-854-4448, jennifer.love@hrblock.com

H&R BLOCK REPORTS INTERIM TAX RESULTS THROUGH FEB. 28; FISCAL 2011 THIRD QUARTER EARNINGS ENDED JAN. 31

Tax season to-date results through Feb. 28
·  
Total tax returns prepared grow 6.0 percent
·  
Total retail returns prepared up 3.2 percent
·  
Total online1returns prepared increase more than 30 percent; total digital returns up nearly 13 percent
·  
Net retail-office tax preparation fees through Feb. 28 decline 4.1 percent; improving from down 7.6 percent at Feb. 15

Fiscal Third Quarter results ended Jan. 31
·  
Industry-wide slow start to tax season contributes to 8.9 percent decline in third quarter revenues to $851.5 million
·  
Net loss from continuing operations of $0.01 per share2
·  
Adjusted non-GAAP third quarter net income from continuing operations of $44.0 million, or $0.14 per share, compared to $54.6 million, or $0.16 per share, in prior year

For Immediate Release March 9, 2011

KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today released interim tax season results through Feb. 28, 2011.  Total tax returns prepared through Feb. 28 grew 6.0 percent compared to the prior year.  Total retail returns prepared increased 3.2 percent for the period, contrasted with losses in the comparable periods in each of last several years. Total digital tax returns increased 12.7 percent, including a 30.2 percent increase in online filings.  Through Feb. 28, the company’s efforts to promote early season filings led to retail new client growth of 25 percent.

After a slow start to the tax season the company has seen significant growth in returns prepared and tax preparation revenues during February.  On a comparable day-to-day basis, total retail returns prepared increased 17.2 percent in February and online filings increased 36.7 percent.

________________________________________
1Total online returns prepared exclude software-based and Free File Alliance (“FFA”) returns.
2All per share amounts are based on fully diluted shares.


 
1

 

    “We are now more than half-way through the tax season and I am very pleased with our execution to date,” said Alan Bennett, H&R Block’s president and chief executive officer. “Despite the competitive disadvantage of not being able to offer RALs, we believe we gained share in both retail and online within the highly competitive early-season.  Clearly understood goals and objectives, a focused and compelling marketing message, and strong execution throughout our organization led to solid growth in returns prepared,” added Bennett.

Increased website traffic and improved conversion rates continued to drive strong growth in the company’s online business, including new online client growth of 49 percent.  Strong season-to-date growth in online filings was partially offset by a 0.9 percent decline in software-based returns and a 12.8 percent decline in Free File Alliance (“FFA”).  Total digital tax returns, including online, software and FFA, increased 12.7 percent through Feb. 28, while total digital returns excluding FFA increased 16.7 percent.

As expected, retail tax preparation revenues grew by 14.0 percent on a comparable day-to-day basis from Feb. 15 to Feb. 28, led by strong growth in retail returns prepared and an improvement in the retail net average charge (“NAC”).   Retail tax preparation revenues year-to-date through Feb. 28 fell $66.4 million, or 4.1 percent compared to the prior year period.  This reflects a 3.2 percent increase in retail returns prepared, which was more than offset by a 7.1 percent decline in the NAC.

The decline in NAC to date is attributable primarily to strong new client growth, in particular growth resulting from this year’s free federal 1040 EZ offer.  Declines in NAC through Feb. 28 were also impacted by the IRS’ inability to process more complex returns prior to Feb. 14 and the loss of some RAL clients whose returns typically contain more complex tax credits.  Excluding 1040 EZ returns and fees, the adjusted NAC increased 2.7 percent versus the prior year.

The company expects its NAC will increase throughout the remainder of the tax season.  Due to the strong success of its early-season EZ promotion, the company anticipates its full-year NAC will decline approximately 2 to 4 percentage points compared to the prior year.  The company also expects that expiration of the EZ promotion effective Feb. 28 will result in moderation in new retail client growth, and estimates that total retail returns prepared in 2011 will increase approximately 0.5 to 1.5 percent compared to the prior year.

Fiscal Third Quarter Results

The company reported a net loss from continuing operations in the current quarter of $4.4 million, or $0.01 per share.  Third quarter revenues declined 8.9 percent to $851.5 million.  Adjusted (non-GAAP) income from continuing operations for the fiscal third quarter ended Jan. 31, 2011, was $44.0 million, or $0.14 per share, compared to $54.6 million, or $0.16 per share in the prior-year period.  As previously announced on Feb. 23, the company deferred $19.7 million ($11.9 million after-tax) of revenue to its fiscal fourth quarter due to an IRS delay in accepting certain forms prior to Feb. 14.  In addition, the company incurred after-tax charges of $36.5 million principally related to goodwill impairment at its RedGear reporting unit, incremental credit losses on its Emerald Advance line of credit, and costs of litigation.


 
2

 

Tax Services

Total segment revenues for the third quarter ended Jan. 31, fell 10.0 percent year-over-year to $672.8 million, reflecting a 5.8 percent decline in total retail tax returns prepared and a 5.9 percent decline in the retail NAC per tax return prepared through Jan. 31, 2011.  An industry-wide slow start to the tax season and the aforementioned charges resulted in a decline in third-quarter pretax income to $4.1 million compared with pretax income of $131.2 million a year ago.

Nine-month segment revenues were $875.4 million, down 7.4 percent from $945.0 million in last year’s period.  The pretax loss for the first nine months of fiscal 2011 was $324.9 million, compared to a loss of $213.0 million in the prior-year period.

RSM McGladrey

Third quarter revenues fell 4.0 percent year-over-year to $171.3 million. The segment reported pretax income of $8.6 million compared to a loss of $11.2 million a year ago.  Total expenses fell $27.0 million, or 14.2 percent, primarily due to a $15.0 million impairment of goodwill and litigation costs incurred in the prior year period.

Nine-month segment revenues were $549.4 million, down 2.4 percent from $562.7 million in last year’s period.  Pretax income for the first nine months of fiscal 2011 was $16.6 million, compared to a loss of $9.7 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 pretax losses of $30.2 million for the third quarter ended Jan. 31, 2011, compared to a loss of $22.5 million in the prior year. The higher loss was primarily due to a one-time gain of $9.5 million recorded in the prior year on the transfer of liabilities relating to previously retained insurance risk to a third-party.

For the first nine months of fiscal 2011, a pretax loss of $91.6 million compares with a loss of $103.6 million in the year-ago period.

Net mortgage loans held for investment declined 20 percent from $641.2 million at Jan. 31, 2010 to $513.2 million at Jan. 31, 2011.  Third quarter loss provisions on mortgage loans totaled $7.8 million, down $1.3 million compared with the prior year quarter.  The loan loss allowance was $87.9 million, or 14.7 percent of outstanding principal at Jan. 31, 2011 compared to $97.3 million or 13.3 percent at Jan. 31, 2010.

For the first nine months of fiscal 2011, loss provisions on mortgage loans totaled $24.1 million, a decline of $12.0 million compared with the prior year period.   Lower losses are primarily due to a combination of declining delinquency rates and stabilizing home prices.


 
3

 

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.

Sand Canyon entered the third quarter ended Jan. 31, 2011 with unresolved claims for alleged breaches of representations and warranties in the principal amount of $121 million.  In addition, new claims for alleged breaches in the principal amount of $33 million were received during the third quarter.  With the exception of $14 million of unresolved claims, all claims were reviewed, with incurred losses totaling $4.3 million.

As expected, SCC made payments during the quarter of $25.4 million for previously reserved losses under an indemnification agreement dated April 2008.  The indemnification agreement was entered into with a specific counterparty in exchange for a full and complete release of such party’s ability to assert representation and warranty claims. The remaining obligation of $24.2 million under this agreement was paid in the fourth quarter of fiscal 2011.
 
From May 1, 2008 through Jan. 31, 2011, SCC has received cumulative repurchase claims totaling $740 million in unpaid principal.  Losses on loan repurchase, indemnification and settlement payments totaled approximately $88 million during this period.   At Jan. 31, 2011, SCC’s reserve for estimated losses on contingent mortgage loan repurchase obligations, inclusive of the aforementioned $24.2 million indemnification obligation, totaled $155 million.  Claim activity and associated losses remain within SCC’s reserved expectations.

Dividend
 
A previously announced quarterly cash dividend of 15 cents per share is payable April 1, 2011, to shareholders of record March 10, 2011.

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: 46637713

The call will also be webcast in a listen-only format for the media and public.  The link to the webcast can be accessed on the company’s investor relations Web site at www.hrblock.com.

A replay of the call will be available beginning at 5:30 p.m. Eastern on March 9 and continuing until March 25, 2011, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International).  The conference ID is 46637713.  The webcast will be available for replay beginning on March 10.


 
4

 

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™ 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.


TABLE FOLLOWS





 
5

 
 
 
KEY OPERATING RESULTS
           
Unaudited, amounts in thousands, except per share data
                 
   
Three months ended January 31,
   
Revenues
 
Income (loss)
   
2011
 
2010
 
2011
 
2010
                 
Tax Services
 
 $        672,810
 
 $        747,685
 
 $            4,114
 
 $        131,189
Business Services
 
           171,309
 
           178,482
 
               8,587
 
            (11,222)
Corporate and Eliminations
               7,363
 
               8,685
 
            (30,150)
 
            (22,516)
   
 $        851,482
 
 $        934,852
 
            (17,449)
 
             97,451
Income tax (benefit)
         
            (13,074)
 
             43,848
Net income (loss) from continuing operations
 
              (4,375)
 
             53,603
Net loss from discontinued operations
     
              (8,346)
 
              (2,968)
Net income (loss)  
         
 $         (12,721)
 
 $          50,635
                 
Basic earnings (loss) per share:
           
  Net income (loss) from continuing operations
 
 $             (0.01)
 
 $              0.16
  Net loss from discontinued operations
     
               (0.03)
 
               (0.01)
  Net income (loss)
         
 $             (0.04)
 
 $              0.15
                 
Basic shares outstanding
       
           305,144
 
           332,999
                 
Diluted earnings (loss) per share:
           
  Net income (loss) from continuing operations
 
 $             (0.01)
 
 $              0.16
  Net loss from discontinued operations
     
               (0.03)
 
               (0.01)
  Net income (loss)
         
 $             (0.04)
 
 $              0.15
                 
Diluted shares outstanding
     
           305,144
 
           334,297
                 
                 
   
Nine months ended January 31,
   
Revenues
 
Income (loss)
   
2011
 
2010
 
2011
 
2010
                 
Tax Services
 
 $        875,376
 
 $        944,953
 
 $       (324,865)
 
 $       (212,973)
Business Services
 
           549,445
 
           562,702
 
             16,551
 
              (9,727)
Corporate and Eliminations
             24,024
 
             28,783
 
            (91,571)
 
          (103,575)
   
 $      1,448,845
 
 $      1,536,438
 
          (399,885)
 
          (326,275)
Income tax benefit
         
          (161,060)
 
          (122,789)
Net loss from continuing operations
     
          (238,825)
 
          (203,486)
Net loss from discontinued operations
     
            (13,626)
 
              (8,100)
Net loss  
         
 $       (252,451)
 
 $       (211,586)
                 
Basic and diluted earnings (loss) per share:
       
  Net loss from continuing operations
     
 $             (0.77)
 
 $             (0.61)
  Net loss from discontinued operations
     
               (0.04)
 
               (0.02)
  Net loss
         
 $             (0.81)
 
 $             (0.63)
                 
Basic and diluted shares outstanding
     
           310,546
 
           334,293
 
 
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.
 
 
 

 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
           
Amounts in thousands, except per share data
       
             
   
January 31,
January 31,
April 30,
   
2011
 
2010
 
2010
ASSETS
           
Current assets:
           
  Cash and cash equivalents
 
 $  1,465,690
 
 $  1,727,677
 
 $  1,804,045
  Cash and cash equivalents - restricted
 
         36,113
 
         85,313
 
         34,350
  Receivables, net
 
    1,371,152
 
    2,566,830
 
       517,986
  Prepaid expenses and other current assets
 
       401,106
 
       344,922
 
       292,655
    Total current assets
 
    3,274,061
 
    4,724,742
 
    2,649,036
             
  Mortgage loans held for investment, net
 
       513,192
 
       641,157
 
       595,405
  Property and equipment, net
 
       321,075
 
       362,170
 
       345,470
  Intangible assets, net
 
       375,644
 
       371,951
 
       367,432
  Goodwill
 
       849,028
 
       843,054
 
       840,447
  Other assets
 
       469,735
 
       467,055
 
       436,528
Total assets
 
 $  5,802,735
 
 $  7,410,129
 
 $  5,234,318
             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities:
           
  Customer banking deposits
 
 $  1,855,195
 
 $  2,220,501
 
 $    852,555
  Accounts payable, accrued expenses and other current liabilities
       671,682
 
       756,501
 
       756,577
  Accrued salaries, wages and payroll taxes
 
       153,613
 
       182,151
 
       199,496
  Accrued income taxes
 
         95,990
 
       118,079
 
       459,175
  Current portion of long-term debt
 
           3,583
 
           2,576
 
           3,688
  Short-term borrowings
 
       632,566
 
    1,675,094
 
                -   
  Federal Home Loan Bank borrowings
 
         50,000
 
         25,000
 
         50,000
    Total current liabilities
 
    3,462,629
 
    4,979,902
 
    2,321,491
             
Long-term debt
 
    1,049,358
 
    1,032,800
 
    1,035,144
Federal Home Loan Bank borrowings
 
         25,000
 
         75,000
 
         25,000
Other noncurrent liabilities
 
       438,065
 
       385,960
 
       412,053
      Total liabilities
 
    4,975,052
 
    6,473,662
 
    3,793,688
             
Stockholders' equity:
           
  Common stock, no par, stated value $.01 per share
 
           4,124
 
           4,374
 
           4,314
  Additional paid-in capital
 
       809,733
 
       826,503
 
       832,604
  Accumulated other comprehensive income
 
           7,162
 
           1,086
 
           1,678
  Retained earnings   
 
    2,045,447
 
    2,162,406
 
    2,658,586
  Less treasury shares, at cost
 
   (2,038,783)
 
   (2,057,902)
 
   (2,056,552)
      Total stockholders' equity
 
       827,683
 
       936,467
 
    1,440,630
Total liabilities and stockholders' equity
 
 $  5,802,735
 
 $  7,410,129
 
 $  5,234,318
 

 
 

 

CONDENSED CONSOLIDATED INCOME STATEMENTS
           
Unaudited, amounts in thousands, except per share data
       
                   
     
Three months ended January 31,
 
Nine months ended January 31,
     
2011
 
2010
 
2011
 
2010
Revenues:
               
 
Service revenues
 
 $        677,295
 
 $        744,327
 
 $      1,220,853
 
 $      1,287,270
 
Interest income
 
             56,109
 
             48,346
 
             77,046
 
             72,746
 
Product and other revenues
 
           118,078
 
           142,179
 
           150,946
 
           176,422
     
           851,482
 
           934,852
 
        1,448,845
 
        1,536,438
                   
Operating expenses:
               
 
Cost of revenues
 
           635,163
 
           645,747
 
        1,396,129
 
        1,443,146
 
Selling, general and administrative
 
           235,799
 
           194,661
 
           461,771
 
           427,563
     
           870,962
 
           840,408
 
        1,857,900
 
        1,870,709
                   
Operating income (loss)
 
            (19,480)
 
             94,444
 
          (409,055)
 
          (334,271)
Other income, net
 
               2,031
 
               3,007
 
               9,170
 
               7,996
                   
Income (loss) from continuing operations before tax (benefit)
            (17,449)
 
             97,451
 
          (399,885)
 
          (326,275)
Income tax (benefit)
 
            (13,074)
 
             43,848
 
          (161,060)
 
          (122,789)
                   
Net income (loss) from continuing operations
 
              (4,375)
 
             53,603
 
          (238,825)
 
          (203,486)
Net loss from discontinued operations
 
              (8,346)
 
              (2,968)
 
            (13,626)
 
              (8,100)
                   
Net income (loss)
 
 $         (12,721)
 
 $          50,635
 
 $       (252,451)
 
 $       (211,586)
                   
Basic earnings (loss) per share:
               
 
Net income (loss) from continuing operations
 
 $             (0.01)
 
 $              0.16
 
 $             (0.77)
 
 $             (0.61)
 
Net loss from discontinued operations
 
               (0.03)
 
               (0.01)
 
               (0.04)
 
               (0.02)
 
Net income (loss)
 
 $             (0.04)
 
 $              0.15
 
 $             (0.81)
 
 $             (0.63)
                   
 
Basic shares outstanding
 
           305,144
 
           332,999
 
           310,546
 
           334,293
                   
Diluted earnings (loss) per share:
               
 
Net income (loss) from continuing operations
 
 $             (0.01)
 
 $              0.16
 
 $             (0.77)
 
 $             (0.61)
 
Net loss from discontinued operations
 
               (0.03)
 
               (0.01)
 
               (0.04)
 
               (0.02)
 
Net income (loss)
 
 $             (0.04)
 
 $              0.15
 
 $             (0.81)
 
 $             (0.63)
                   
 
Diluted shares outstanding
 
           305,144
 
           334,297
 
           310,546
 
           334,293

 
 

 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   
Unaudited, amounts in thousands
       
                   
             
Nine months ended January 31,
             
2011
 
2010
                   
Net cash used in operating activities
 
 $    (1,505,418)
 
 $    (2,648,962)
                   
Cash flows from investing activities:
       
 
Principal payments on mortgage loans held for investment, net
45,316
 
            56,114
 
Purchases of property and equipment, net
 
(51,198)
 
(63,242)
 
Payments made for business acquisitions, net
 
(50,832)
 
(10,828)
 
Proceeds from sales of businesses, net
 
62,298
 
66,760
 
Loans made to franchisees
 
(90,304)
 
(88,564)
 
Other, net
 
48,577
 
30,849
   
Net cash used in investing activities
 
(36,143)
 
(8,911)
                   
Cash flows from financing activities:
       
 
Repayments of short-term borrowings
 
(2,654,653)
 
         (982,774)
 
Proceeds from short-term borrowings
 
3,286,603
 
       2,657,436
 
Customer banking deposits, net
 
1,002,274
 
       1,365,163
 
Dividends paid
 
(140,926)
 
(151,317)
 
Repurchase of common stock, including shares surrendered
         (283,494)
 
         (154,201)
 
Proceeds from exercise of stock options
 
               (866)
 
            15,678
 
Other, net
 
(10,062)
 
(29,434)
     
Net cash provided by financing activities
 
1,198,876
 
2,720,551
                   
Effects of exchange rates on cash
 
4,330
 
            10,336
                   
Net increase (decrease) in cash and cash equivalents
 
(338,355)
 
73,014
Cash and cash equivalents at beginning of the period
 
1,804,045
 
1,654,663
Cash and cash equivalents at end of the period
 
 $     1,465,690
 
 $     1,727,677
                   
Supplementary cash flow data:
       
 
Income taxes paid
 
 $       159,916
 
 $       269,774
 
Interest paid on borrowings
 
69,313
 
61,118
 
Interest paid on deposits
 
6,191
 
              8,654
 
Transfers of loans to foreclosed assets
 
            12,931
 
            12,689

 
 

 

Preliminary U.S. Tax Operating Data
           
   
(in thousands, except net average fee)
                   
                           
       
Tax Season Through 1/31/11
   
Tax Season Through 1/31/10
   
Percent change
   
Tax Season Through 2/28/11
   
Tax Season Through 2/28/10
 
 
Percent change
Net tax preparation fees - retail: (1,2)
                   
   
Company-owned operations
 $     391,143
 
 $     449,578
 
-13.0%
 
 $     969,405
 
 $   1,016,215
 
-4.6%
   
Franchise operations
        241,908
 
        264,610
 
-8.6%
 
        580,311
 
        599,943
 
-3.3%
     
 $     633,051
 
 $     714,188
 
-11.4%
 
 $   1,549,716
 
 $   1,616,158
 
-4.1%
                           
Total returns prepared: (2)
                     
   
Company-owned operations
            2,046
 
            2,190
   
-6.6%
   
            5,367
 
            5,148
   
4.3%
   
Franchise operations
            1,382
 
            1,449
 
-4.6%
 
            3,474
 
            3,419
 
1.6%
   
  Total retail operations
            3,428
 
            3,639
   
-5.8%
   
            8,841
 
            8,567
   
3.2%
                           
   
Software
              601
 
              635
 
-5.4%
 
            1,352
 
            1,364
 
-0.9%
   
Online
              942
 
              719
 
31.0%
 
            2,325
 
            1,786
 
30.2%
   
  Sub-total
            1,543
 
            1,354
 
14.0%
 
            3,677
 
            3,150
 
16.7%
                           
   
Free File Alliance
              167
 
              201
 
-16.9%
 
              437
 
              501
 
-12.8%
   
  Total digital tax solutions
            1,710
 
            1,555
 
10.0%
 
            4,114
 
            3,651
 
12.7%
     
            5,138
 
            5,194
   
-1.1%
   
          12,955
 
          12,218
   
6.0%
                           
Net average fee - retail: (2,3)
                     
   
Company-owned operations
 $       191.20
 
 $       205.25
 
-6.8%
 
 $       180.61
 
 $       197.41
 
-8.5%
   
Franchise operations
          175.03
 
          182.60
 
-4.1%
 
          167.06
 
          175.47
 
-4.8%
     
 $       184.68
 
 $       196.23
 
-5.9%
 
 $       175.29
 
 $       188.65
 
-7.1%
 
 
(1)
Amounts include gross tax preparation fees less coupons and discounts.
(2)
Prior year numbers have been reclassified between company-owned and franchise operations for offices which were refranchised during either year.
(3)
Amounts are calculated as net retail tax preparation fees divided by retail tax returns.
 

 
 

 
 
NON-GAAP RECONCILIATION
       
Unaudited, amounts in thousands, except per share data
       
 

     We report our financial results in accordance with generally accepted accounting principles (GAAP). However, we believe certain non-GAAP performance measures and ratios used in managing the business may provide additional meaningful comparisons between current year results and prior periods. Reconciliations to GAAP financial measures are provided below. These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP results.
 
 
     
Three months ended January 31,
     
2011
 
2010
     
After-tax
Per share
 
After-tax
Per share
               
Net income (loss) from continuing operations - as reported
 $       (4,375)
 $         (0.01)
 
 $      53,603
 $          0.16
               
Add back (net of tax):
           
 
Asset impairments
 
         13,713
            0.04
 
           8,251
            0.02
 
Incremental Emerald Advance credit losses (1)
 
         13,059
            0.04
 
                  -
                -   
 
Revenue deferred due to IRS filing delays
 
         11,900
            0.04
 
                  -
                -   
 
Litigation
 
           9,062
            0.03
 
           4,565
            0.01
 
Loss (gain) on sale of tax offices to franchisees
 
             648
                -   
 
          (6,598)
           (0.02)
 
Gain on commutation of insurance liability
 
                  -
                -   
 
          (5,218)
           (0.01)
     
         48,382
            0.15
 
           1,000
            0.00
               
Net income from continuing operations - as adjusted
 
 $      44,007
 $          0.14
 
 $      54,603
 $          0.16
               
Diluted shares
 
       305,144
   
       334,297
 
 
 
(1)
The Company believes that credit losses will be higher in fiscal 2011 compared to fiscal 2010 as a result of higher levels of Emerald Advance clients not returning for tax preparation.  Incremental credit losses have been estimated based on the difference between the fiscal 2011 loss rate assumption and the fiscal 2010 loss rate multiplied by the principal amount of fiscal 2011 loan originations.