MISSOURI | 1-6089 | 44-0607856 |
(State or other jurisdiction of | (Commission File Number) | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
¨ | 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)) |
H&R BLOCK, INC. | |||
Date: | December 7, 2015 | By: | /s/ Scott W. Andreasen |
Scott W. Andreasen | |||
Vice President and Secretary |
• | H&R Block Bank divestiture transaction closed; H&R Block no longer regulated as a savings and loan holding company2 |
• | Company completed key elements of its previously announced new capital structure, including the approval of a $3.5 billion share repurchase program effective through June 2019, the repurchase of $1.5 billion of H&R Block stock, the issuance of $1 billion in long-term debt and the completion of a new $2 billion line of credit2 |
• | Total revenues decreased $6 million, or 4.6%, to $128 million mainly due to the impact of foreign currency exchange rates |
• | Loss per share from continuing operations of $0.54 3due to the seasonality of the tax business |
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 | Details regarding the bank divestiture and related agreements, capital structure transactions and share repurchase program can be found in previously filed press releases issued, as well as Forms 8-K filed with the Securities and Exchange Commission in September and October of 2015. |
3 | All per share amounts are based on fully diluted shares at the end of the corresponding period. |
Actual | Adjusted4 | |||||||||||||||
(in millions, except EPS) | Fiscal Year 2016 | Fiscal Year 2015 | Fiscal Year 2016 | Fiscal Year 2015 | ||||||||||||
Revenue | $ | 128 | $ | 135 | $ | 128 | $ | 135 | ||||||||
EBITDA | $ | (181 | ) | $ | (148 | ) | $ | (169 | ) | $ | (149 | ) | ||||
Pretax Loss | $ | (238 | ) | $ | (201 | ) | $ | (225 | ) | $ | (202 | ) | ||||
Net Loss | $ | (143 | ) | $ | (113 | ) | $ | (135 | ) | $ | (114 | ) | ||||
Weighted-Avg. Shares - Diluted | 266.3 | 275.1 | 266.3 | 275.1 | ||||||||||||
EPS | $ | (0.54 | ) | $ | (0.41 | ) | $ | (0.51 | ) | $ | (0.41 | ) | ||||
▪ | Revenues decreased 4.6% to $128 million, due primarily to the negative impact of foreign currency exchange rates in Australia and Canada. |
▪ | Total operating expenses increased $43 million, or 13.5%, the largest contributor of which was $20.8 million in transaction costs related to the bank divestiture and capital structure actions described below. Additionally, occupancy costs and amortization expense increased due to the annualization of expenses related to acquisitions of independent tax preparation and franchise businesses in the prior year. |
▪ | Pretax loss increased 18.5% to $238 million. |
▪ | Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., continued to engage in constructive settlement discussions with counterparties that have made a significant majority of previously denied and possible future representation and warranty claims. |
▪ | SCC's accrual for contingent losses related to representation and warranty claims increased $4 million from the prior quarter to $154 million. |
▪ | Upon divestiture of H&R Block Bank, certain liabilities, including all customer banking deposits were successfully transferred to BofI Federal Bank (BofI). The bank's net cash payment to BofI equaled approximately $419 million, which was approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI. |
▪ | Available for sale securities, previously held to meet regulatory requirements, were liquidated for approximately $388 million. |
4 | The company reports adjusted financial performance, which it believes is a better indication of the company's recurring operations. See “About Non-GAAP Financial Information” below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP). |
5 | Following the divestiture of H&R Block Bank, we operate as a single segment offering tax preparation and related services and products to clients in our offices or through our tax software. Segment information for earlier periods has been consolidated into that single segment in this press release. |
▪ | The Company's previous committed line of credit agreement was replaced with a new five-year, $2.0 billion Credit and Guarantee Agreement. There were no outstanding borrowings under this new line of credit at October 31, 2015. |
▪ | Long-term debt increased due to the issuance of $650 million of 4.125% Senior Notes and $350 million of 5.250% Senior Notes. |
▪ | Stockholder's equity was impacted by the repurchase and subsequent retirement of 40.5 million shares of common stock for $1.5 billion, or a price of $37.00 per share. |
▪ | Details regarding the bank divestiture and related agreements, capital structure transactions and share repurchase program can be found in previously filed press releases issued, as well as Forms 8-K filed with the Securities and Exchange Commission in September and October of 2015. |
CONSOLIDATED STATEMENTS OF OPERATIONS | (unaudited, in 000s - except per share amounts) | |||||||||||||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
REVENUES: | ||||||||||||||||
Service revenues | $ | 113,420 | $ | 115,442 | $ | 231,854 | $ | 230,915 | ||||||||
Royalty, product and other revenues | 14,995 | 19,186 | 34,279 | 37,299 | ||||||||||||
128,415 | 134,628 | 266,133 | 268,214 | |||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Cost of revenues: | ||||||||||||||||
Compensation and benefits | 62,694 | 69,381 | 118,483 | 121,236 | ||||||||||||
Occupancy and equipment | 95,051 | 87,626 | 184,906 | 170,932 | ||||||||||||
Provision for bad debt and loan losses | 1,182 | 385 | 3,187 | 4,749 | ||||||||||||
Depreciation and amortization | 28,358 | 28,429 | 55,442 | 53,514 | ||||||||||||
Other | 39,116 | 35,876 | 77,891 | 68,992 | ||||||||||||
226,401 | 221,697 | 439,909 | 419,423 | |||||||||||||
Selling, general and administrative: | ||||||||||||||||
Marketing and advertising | 12,965 | 12,513 | 21,496 | 20,658 | ||||||||||||
Compensation and benefits | 61,593 | 54,353 | 116,262 | 115,317 | ||||||||||||
Depreciation and amortization | 13,991 | 10,500 | 27,001 | 19,101 | ||||||||||||
Other selling, general and administrative | 47,298 | 20,013 | 69,280 | 39,503 | ||||||||||||
135,847 | 97,379 | 234,039 | 194,579 | |||||||||||||
Total operating expenses | 362,248 | 319,076 | 673,948 | 614,002 | ||||||||||||
Other income, net | 10,505 | — | 10,938 | 523 | ||||||||||||
Interest expense on borrowings | (14,181 | ) | (13,843 | ) | (22,756 | ) | (27,638 | ) | ||||||||
Other expenses, net | (210 | ) | (2,282 | ) | (5,195 | ) | (3,486 | ) | ||||||||
Loss from continuing operations before income tax benefit | (237,719 | ) | (200,573 | ) | (424,828 | ) | (376,389 | ) | ||||||||
Income tax benefit | (95,201 | ) | (87,346 | ) | (185,805 | ) | (154,311 | ) | ||||||||
Net loss from continuing operations | (142,518 | ) | (113,227 | ) | (239,023 | ) | (222,078 | ) | ||||||||
Net income (loss) from discontinued operations | (2,489 | ) | 1,229 | (5,643 | ) | (6,152 | ) | |||||||||
NET LOSS | $ | (145,007 | ) | $ | (111,998 | ) | $ | (244,666 | ) | $ | (228,230 | ) | ||||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||
Continuing operations | $ | (0.54 | ) | $ | (0.41 | ) | $ | (0.88 | ) | $ | (0.81 | ) | ||||
Discontinued operations | (0.01 | ) | — | (0.02 | ) | (0.02 | ) | |||||||||
Consolidated | $ | (0.55 | ) | $ | (0.41 | ) | $ | (0.90 | ) | $ | (0.83 | ) | ||||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES | 266,267 | 275,106 | 271,016 | 274,841 | ||||||||||||
CONSOLIDATED BALANCE SHEETS | (unaudited, in 000s - except per share data) | |||||||||||
As of | October 31, 2015 | October 31, 2014 | April 30, 2015 | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 360,681 | $ | 627,490 | $ | 2,007,190 | ||||||
Cash and cash equivalents — restricted | 42,781 | 55,543 | 91,972 | |||||||||
Receivables, net | 94,760 | 107,705 | 167,964 | |||||||||
Deferred tax assets and income taxes receivable | 145,912 | 197,193 | 174,267 | |||||||||
Prepaid expenses and other current assets | 80,458 | 88,270 | 70,283 | |||||||||
Investments in available-for-sale securities | 2,116 | 381,180 | 439,625 | |||||||||
Total current assets | 726,708 | 1,457,381 | 2,951,301 | |||||||||
Mortgage loans held for investment, net | 220,671 | 251,092 | 239,338 | |||||||||
Property and equipment, net | 298,602 | 318,225 | 311,387 | |||||||||
Intangible assets, net | 466,224 | 414,045 | 432,142 | |||||||||
Goodwill | 442,068 | 464,182 | 441,831 | |||||||||
Deferred tax assets and income taxes receivable | 11,264 | 37,937 | 13,461 | |||||||||
Other noncurrent assets | 124,360 | 148,428 | 125,960 | |||||||||
Total assets | $ | 2,289,897 | $ | 3,091,290 | $ | 4,515,420 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
LIABILITIES: | ||||||||||||
Customer banking deposits | $ | — | $ | 454,860 | $ | 744,241 | ||||||
Accounts payable and accrued expenses | 141,070 | 97,105 | 231,322 | |||||||||
Accrued salaries, wages and payroll taxes | 37,512 | 36,215 | 144,744 | |||||||||
Accrued income taxes | 67,732 | 147,000 | 434,684 | |||||||||
Current portion of long-term debt | 808 | 772 | 790 | |||||||||
Deferred revenue and other current liabilities | 319,426 | 339,725 | 322,508 | |||||||||
Total current liabilities | 566,548 | 1,075,677 | 1,878,289 | |||||||||
Long-term debt | 1,501,938 | 505,588 | 505,298 | |||||||||
Deferred tax liabilities and reserves for uncertain tax positions | 140,539 | 151,951 | 142,586 | |||||||||
Deferred revenue and other noncurrent liabilities | 108,115 | 119,398 | 156,298 | |||||||||
Total liabilities | 2,317,140 | 1,852,614 | 2,682,471 | |||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock, no par, stated value $.01 per share | 2,761 | 3,166 | 3,166 | |||||||||
Additional paid-in capital | 757,816 | 772,662 | 783,793 | |||||||||
Accumulated other comprehensive income (loss) | (16,208 | ) | 6,577 | 1,740 | ||||||||
Retained earnings | 3,573 | 1,250,465 | 1,836,442 | |||||||||
Less treasury shares, at cost | (775,185 | ) | (794,194 | ) | (792,192 | ) | ||||||
Total stockholders’ equity (deficiency) | (27,243 | ) | 1,238,676 | 1,832,949 | ||||||||
Total liabilities and stockholders’ equity | $ | 2,289,897 | $ | 3,091,290 | $ | 4,515,420 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | (unaudited, in 000s) | |||||||
Six months ended October 31, | 2015 | 2014 | ||||||
NET CASH USED IN OPERATING ACTIVITIES | $ | (602,713 | ) | $ | (627,577 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Sales, maturities of and payments received on available-for-sale securities | 434,261 | 49,013 | ||||||
Principal payments on mortgage loans held for investment, net | 17,006 | 13,451 | ||||||
Capital expenditures | (38,779 | ) | (70,927 | ) | ||||
Payments made for business acquisitions, net of cash acquired | (61,846 | ) | (94,230 | ) | ||||
Franchise loans: | ||||||||
Loans funded | (10,281 | ) | (18,251 | ) | ||||
Payments received | 17,473 | 29,637 | ||||||
Other, net | 7,246 | 10,585 | ||||||
Net cash provided by (used in) investing activities | 365,080 | (80,722 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayments of long-term debt | — | (400,000 | ) | |||||
Proceeds from issuance of long-term debt | 996,831 | — | ||||||
Customer banking deposits, net | (326,705 | ) | (316,269 | ) | ||||
Transfer of HRB Bank deposits | (419,028 | ) | — | |||||
Dividends paid | (110,338 | ) | (109,871 | ) | ||||
Repurchase of common stock, including shares surrendered | (1,517,786 | ) | (10,247 | ) | ||||
Proceeds from exercise of stock options | 16,875 | 14,477 | ||||||
Other, net | (37,820 | ) | (23,392 | ) | ||||
Net cash used in financing activities | (1,397,971 | ) | (845,302 | ) | ||||
Effects of exchange rate changes on cash | (10,905 | ) | (4,216 | ) | ||||
Net decrease in cash and cash equivalents | (1,646,509 | ) | (1,557,817 | ) | ||||
Cash and cash equivalents at beginning of the period | 2,007,190 | 2,185,307 | ||||||
Cash and cash equivalents at end of the period | $ | 360,681 | $ | 627,490 | ||||
SUPPLEMENTARY CASH FLOW DATA: | ||||||||
Income taxes paid, net of refunds received | $ | 132,096 | $ | 157,680 | ||||
Interest paid on borrowings | 15,606 | 27,379 | ||||||
Transfers of foreclosed loans to other assets | 1,450 | 3,155 | ||||||
Accrued additions to property and equipment | 4,573 | 3,243 | ||||||
Conversion of investment in preferred stock to available-for-sale common stock | — | 5,000 | ||||||
FINANCIAL RESULTS | (unaudited, in 000s - except per share amounts) | |||||||||||||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Tax preparation fees: | ||||||||||||||||
U.S. assisted | $ | 36,403 | $ | 31,926 | $ | 63,688 | $ | 57,415 | ||||||||
International | 35,340 | 42,831 | 71,058 | 84,287 | ||||||||||||
U.S. digital | 3,469 | 2,892 | 6,648 | 5,824 | ||||||||||||
75,212 | 77,649 | 141,394 | 147,526 | |||||||||||||
Royalties | 9,163 | 8,582 | 18,858 | 16,224 | ||||||||||||
Revenues from Refund Transfers | 1,948 | 2,154 | 5,363 | 5,573 | ||||||||||||
Revenues from Emerald Card® | 9,808 | 11,524 | 25,497 | 25,569 | ||||||||||||
Revenues from Peace of Mind® Extended Service Plan | 19,325 | 16,563 | 47,028 | 40,816 | ||||||||||||
Other | 12,959 | 18,156 | 27,993 | 32,506 | ||||||||||||
Total revenues | 128,415 | 134,628 | 266,133 | 268,214 | ||||||||||||
Compensation and benefits: | ||||||||||||||||
Field wages | 53,525 | 56,904 | 99,463 | 102,901 | ||||||||||||
Other wages | 46,127 | 42,368 | 87,996 | 85,561 | ||||||||||||
Benefits and other compensation | 24,635 | 24,462 | 47,286 | 48,091 | ||||||||||||
124,287 | 123,734 | 234,745 | 236,553 | |||||||||||||
Occupancy and equipment | 94,997 | 84,267 | 184,796 | 167,376 | ||||||||||||
Marketing and advertising | 12,965 | 12,513 | 21,496 | 20,658 | ||||||||||||
Depreciation and amortization | 42,349 | 38,929 | 82,443 | 72,615 | ||||||||||||
Bad debt | 1,182 | 385 | 3,187 | 4,749 | ||||||||||||
Supplies | 4,728 | 7,528 | 7,127 | 10,601 | ||||||||||||
Other | 81,740 | 51,720 | 140,154 | 101,450 | ||||||||||||
Total operating expenses | 362,248 | 319,076 | 673,948 | 614,002 | ||||||||||||
Other income, net | 10,505 | — | 10,938 | 523 | ||||||||||||
Interest expense on borrowings | (14,181 | ) | (13,843 | ) | (22,756 | ) | (27,638 | ) | ||||||||
Other expenses, net | (210 | ) | (2,282 | ) | (5,195 | ) | (3,486 | ) | ||||||||
Pretax loss | (237,719 | ) | (200,573 | ) | (424,828 | ) | (376,389 | ) | ||||||||
Income tax benefit | (95,201 | ) | (87,346 | ) | (185,805 | ) | (154,311 | ) | ||||||||
Net loss from continuing operations | (142,518 | ) | (113,227 | ) | (239,023 | ) | (222,078 | ) | ||||||||
Net income (loss) from discontinued operations | (2,489 | ) | 1,229 | (5,643 | ) | (6,152 | ) | |||||||||
Net loss | $ | (145,007 | ) | $ | (111,998 | ) | $ | (244,666 | ) | $ | (228,230 | ) | ||||
Basic and diluted loss per share: | ||||||||||||||||
Continuing operations | $ | (0.54 | ) | $ | (0.41 | ) | $ | (0.88 | ) | $ | (0.81 | ) | ||||
Discontinued operations | (0.01 | ) | — | (0.02 | ) | (0.02 | ) | |||||||||
Consolidated | $ | (0.55 | ) | $ | (0.41 | ) | $ | (0.90 | ) | $ | (0.83 | ) | ||||
Weighted average basic and diluted shares | 266,267 | 275,106 | 271,016 | 274,841 | ||||||||||||
NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
Three months ended October 31, | 2015 | 2014 | ||||||||||||||
EBITDA | Loss | EBITDA | Loss | |||||||||||||
As reported - from continuing operations | $ | (181,145 | ) | $ | (142,518 | ) | $ | (147,661 | ) | $ | (113,227 | ) | ||||
Adjustments (pretax): | ||||||||||||||||
Loss contingencies - litigation | 71 | 71 | 44 | 44 | ||||||||||||
Severance | — | — | 238 | 238 | ||||||||||||
Professional fees related to HRB Bank and recapitalization transactions | 20,766 | 20,766 | 89 | 89 | ||||||||||||
Gains on AFS securities, net | (8,426 | ) | (8,426 | ) | (965 | ) | (965 | ) | ||||||||
Gain on sales of tax offices/businesses | (26 | ) | (26 | ) | (899 | ) | (899 | ) | ||||||||
Tax effect of adjustments | — | (4,642 | ) | — | 570 | |||||||||||
12,385 | 7,743 | (1,493 | ) | (923 | ) | |||||||||||
As adjusted - from continuing operations | $ | (168,760 | ) | $ | (134,775 | ) | $ | (149,154 | ) | $ | (114,150 | ) | ||||
Adjusted EPS | $ | (0.51 | ) | $ | (0.41 | ) | ||||||||||
Six months ended October 31, | 2015 | 2014 | ||||||||||||||
EBITDA | Loss | EBITDA | Loss | |||||||||||||
As reported - from continuing operations | $ | (319,449 | ) | $ | (239,023 | ) | $ | (275,851 | ) | $ | (222,078 | ) | ||||
Adjustments (pretax): | ||||||||||||||||
Loss contingencies - litigation | 689 | 689 | 272 | 272 | ||||||||||||
Severance | — | — | 1,051 | 1,051 | ||||||||||||
Professional fees related to HRB Bank and recapitalization transactions | 20,818 | 20,818 | 114 | 114 | ||||||||||||
Gains on AFS securities, net | (8,138 | ) | (8,138 | ) | (24 | ) | (24 | ) | ||||||||
Gain on sales of tax offices/businesses | (26 | ) | (26 | ) | (899 | ) | (899 | ) | ||||||||
Tax effect of adjustments | — | (5,000 | ) | — | (194 | ) | ||||||||||
13,343 | 8,343 | 514 | 320 | |||||||||||||
As adjusted - from continuing operations | $ | (306,106 | ) | $ | (230,680 | ) | $ | (275,337 | ) | $ | (221,758 | ) | ||||
Adjusted EPS | $ | (0.85 | ) | $ | (0.81 | ) | ||||||||||
NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
EBITDA | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net loss - as reported | $ | (145,007 | ) | $ | (111,998 | ) | $ | (244,666 | ) | $ | (228,230 | ) | ||||
Add back : | ||||||||||||||||
Discontinued operations | 2,489 | (1,229 | ) | 5,643 | 6,152 | |||||||||||
Income taxes | (95,201 | ) | (87,346 | ) | (185,805 | ) | (154,311 | ) | ||||||||
Interest expense | 14,225 | 13,983 | 22,936 | 27,923 | ||||||||||||
Depreciation and amortization | 42,349 | 38,929 | 82,443 | 72,615 | ||||||||||||
(36,138 | ) | (35,663 | ) | (74,783 | ) | (47,621 | ) | |||||||||
EBITDA from continuing operations | $ | (181,145 | ) | $ | (147,661 | ) | $ | (319,449 | ) | $ | (275,851 | ) | ||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
Supplemental Information | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Pretax | $ | 7,858 | $ | 7,140 | $ | 13,876 | $ | 14,599 | ||||||||
After-tax | 4,910 | 4,465 | 8,677 | 9,085 | ||||||||||||
Amortization of intangible assets: | ||||||||||||||||
Pretax | $ | 17,865 | $ | 13,219 | $ | 34,479 | $ | 24,463 | ||||||||
After-tax | 11,161 | 8,258 | 21,560 | 15,223 | ||||||||||||
▪ | 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. |