SOURCE: H & R Block

H & R Block

June 26, 2012 16:03 ET

H&R Block Reports Fiscal 2012 Results; Update on Share Repurchases

KANSAS CITY, MO--(Marketwire - Jun 26, 2012) - H&R Block, Inc. (NYSE: HRB

  • Fiscal 2012 GAAP diluted earnings per share1 from continuing operations of $1.16, above prior outlook of $1.09 to $1.15 per share
  • Total revenues of $2.9 billion, in line with prior outlook
  • Total worldwide tax returns prepared up 1.1 million, or 4.3 percent, to record 25.6 million
  • Total Emerald Card units issued up 24 percent to 2.9 million, with $9.5 billion in total deposits
  • Achieved share growth in both assisted and digital categories for second consecutive year
  • Repurchased and retired 8 percent of shares outstanding, or 22.8 million shares, since fiscal third quarter ended Jan. 31, 2012

H&R Block, Inc. (NYSE: HRB) today reported GAAP net income from continuing operations for the fiscal year ended April 30, 2012 of $346.0 million, or $1.16 per share. These results include after-tax charges of $30.8 million, or 10 cents per share, largely related to a previously announced strategic realignment and litigation expenses. Total revenues of $2.9 billion were down 1.7 percent compared to the prior year. 

"I am very pleased that we served a record 25.6 million clients this year," said Bill Cobb, H&R Block's President and Chief Executive Officer. "We achieved our top goal this fiscal year by growing clients and share in both the assisted and digital categories for the second consecutive year. During my first year as CEO, we also rationalized our cost structure and shed non-core assets to drive higher margins and to refocus the business on what we do best -- tax preparation. Today, we believe we're running a better, nimbler, and more client-centric company, which positions us well for long-term client and earnings growth." 

Tax Services

Based on preliminary data, the company believes total filings at the IRS during tax season 2012 increased by approximately 2 percent to 133.5 million returns. The company estimates it gained 30 basis points of total U.S. market share, including 75 basis points of share in the do-it-yourself category and 10 basis points of share in the assisted category.

Total tax returns prepared worldwide in fiscal 2012 grew by 4.3 percent, or 1.1 million, to a record 25.6 million. In the U.S., total returns prepared grew by 4.2 percent, or nearly 900,000. Total international returns prepared grew 5.3 percent to 3.2 million, with strong growth in both Canada and Australia.

Total segment revenues declined 1.7 percent from the prior year to $2.9 billion. Tax preparation and related revenues increased 1.2 percent, or $23.5 million. Higher tax preparation revenues were offset by a decline in financial product revenues. To attract and retain more early-season tax clients, the company offered free refund anticipation checks (RACs), to clients electing to deposit their refunds on the H&R Block Emerald Prepaid MasterCard®. This promotion resulted in a 24 percent increase in total Emerald Card units issued, but a decline of $49.3 million in RAC revenues. The company also changed its underwriting criteria for its Emerald Advance program in fiscal 2012. While this change led to a $34.6 million decline in interest income, associated credit losses fell by $71.0 million. Prior year results also included $17.2 million of non-recurring revenue from a terminated refund anticipation loan contract.

The Tax Services segment reported pretax income of $704.0 million compared to $767.5 million in the prior year. The decline in profitability was primarily due to lower revenues from financial products, increased marketing expense, and a decline in gains from the sale of company-owned offices, partially offset by lower credit losses.

Corporate

Corporate includes costs incurred by support departments, such as finance and legal, as well as net interest margin and other gains/losses associated with H&R Block Bank's mortgage loan portfolio. For fiscal 2012, the pretax loss in corporate operations improved to $127.9 million compared to a loss of $139.8 million in the prior year. A shrinking loan portfolio and moderation of delinquency and severity rates resulted in an $11.5 million reduction in loss provisions on mortgage loans held for investment at H&R Block Bank.

The company's effective tax rate for continuing operations in fiscal 2012 was 39.9 percent compared to 37.5 percent in the prior year. The higher effective tax rate was primarily due to increased tax expense related to changes in the value of investments held within company-owned life insurance (COLI) policies. The company also expects to surrender certain COLI policies over the next 12 months, which triggered a one-time tax expense for prior year gains in fiscal 2012. Excluding discrete items, the company expects its effective tax rate in fiscal 2013 to approximate 39 percent.

Discontinued Operations

Discontinued operations include the results of RSM McGladrey (RSM) and Sand Canyon Corporation, formerly known as Option One Mortgage Corporation, and its subsidiaries (SCC). 

Discontinued operations reported a fourth quarter net loss of $5.6 million, compared to net income of $15.7 million in the prior-year period. For fiscal 2012, the net loss of $80.0 million compared to net income of $13.6 million in the prior-year period. The variance to the prior fiscal year is primarily due to a $36.9 million net loss on the sale of RSM, a previously announced settlement by SCC with the Securities and Exchange Commission, and higher loss provisions for representation and warranty claims that were recorded in the second quarter of fiscal 2012.

As previously announced on April 25, SCC received new claims for alleged breaches of representation and warranties in the principal amount of $543 million during the fiscal fourth quarter. Claims in the principal amount of $329 million were reviewed during the quarter, of which 4 percent were determined to be valid. Incurred losses totaling $12.9 million during the quarter were charged against SCC's accrual for representation and warranty liabilities.

Total claims of $618 million remain subject to review as of April 30. SCC ended fiscal 2012 with net equity of approximately $265 million, in addition to an accrual of $130 million for representation and warranty liabilities.

"This incremental claim activity does not change how we think about Sand Canyon's exposure to rep and warrant related claims or how H&R Block thinks about capital allocation. Sand Canyon is a separate legal entity from H&R Block and we believe our legal position is strong on any potential corporate veil-piercing arguments," said Cobb.

Balance Sheet

At April 30, 2012, the Company had unrestricted cash of $1.9 billion and total outstanding debt of $1.0 billion. Shareholder equity at April 30 was $1.3 billion.

Share Repurchases and Dividends

In fiscal 2012, the company repurchased and retired 14.6 million shares of its common stock at an aggregate price of $200.0 million, or $13.74 per share, including the repurchase of 1.5 million shares during the fourth quarter. At April 30, 292.1 million shares were outstanding.

During the first quarter of fiscal 2013 to-date, the company has repurchased and retired an additional 21.3 million shares at an aggregate price of $315.0 million, or $14.82 per share. As of today, 270.9 million shares are outstanding. 

"Since I became CEO in May 2011, we have returned $723 million to shareholders through share repurchases and dividends. Over that 13 month span, we repurchased 12 percent of outstanding shares and raised our annual dividend by 33 percent. We believe these actions demonstrate that we have a lot of confidence in our business and that our philosophy on capital allocation is shareholder friendly," added Cobb.

The company completed these share repurchases under a $2.0 billion share repurchase program approved by the company's board of directors in June 2008. Under this program, the company has repurchased shares of its common stock for an aggregate purchase price of $1.1 billion. Although the share repurchase program was originally scheduled to expire on June 30, 2012, the company's board recently voted to extend the expiration of the program until June 30, 2015.

A previously announced quarterly cash dividend of 20 cents per share is payable on July 2, 2012 to shareholders of record as of June 11, 2012.

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) 634-7287

Conference ID: 81619408

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 on June 26 and continuing until July 10, 2012, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 81619408. The webcast will be available for replay beginning on June 27 at http://investors.hrblock.com

Forward-Looking Statements
This press release may contain forward-looking statements within the meaning of the federal 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," "would," "will," "should," "could" or "may." Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. 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. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by federal securities laws. By their nature, forward-looking statements are subject to risks and uncertainties. For a discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the company's Annual Report on Form 10-K and in other filings by the company with the Securities and Exchange Commission.

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 annual 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.

1 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 April 30,  
    Revenues   Income (loss)  
    2012   2011   2012     2011  
                             
Tax Services   $ 1,994,234   $ 2,036,985   $ 1,015,735     $ 1,092,363  
Corporate and Eliminations     6,440     8,274     (34,109 )     (48,025 )
    $ 2,000,674   $ 2,045,259     981,626       1,044,338  
Income taxes                 389,923       401,505  
Net income from continuing operations                 591,703       642,833  
Net income (loss) from discontinued operations                 (5,600 )     15,728  
Net income               $ 586,103     $ 658,561  
                             
Basic earnings (loss) per share:                            
  Net income from continuing operations               $ 2.02     $ 2.10  
  Net income (loss) from discontinued operations                 (0.02 )     0.05  
  Net income               $ 2.00     $ 2.15  
                             
Basic shares outstanding                 293,103       305,283  
                             
Diluted earnings (loss) per share:                            
  Net income from continuing operations               $ 2.01     $ 2.09  
  Net income (loss) from discontinued operations                 (0.02 )     0.05  
  Net income               $ 1.99     $ 2.14  
                             
Diluted shares outstanding                 293,985       306,118  
                             
                             
                             
    Year ended April 30,  
    Revenues   Income (loss)  
    2012   2011   2012     2011  
                             
Tax Services   $ 2,862,378   $ 2,912,361   $ 704,002     $ 767,498  
Corporate and Eliminations     31,393     32,619     (127,932 )     (139,795 )
    $ 2,893,771   $ 2,944,980     576,070       627,703  
Income taxes                 230,102       235,156  
Net income from continuing operations                 345,968       392,547  
Net income (loss) from discontinued operations                 (80,036 )     13,563  
Net income               $ 265,932     $ 406,110  
                             
Basic earnings (loss) per share:                            
  Net income from continuing operations               $ 1.16     $ 1.27  
  Net income (loss) from discontinued operations                 (0.27 )     0.04  
  Net income               $ 0.89     $ 1.31  
                             
Basic shares outstanding                 297,863       309,230  
                             
Diluted earnings (loss) per share:                            
  Net income from continuing operations               $ 1.16     $ 1.27  
  Net income (loss) from discontinued operations                 (0.27 )     0.04  
  Net income               $ 0.89     $ 1.31  
                             
Diluted shares outstanding                 298,601       309,777  
   

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In November 2011, we sold RSM McGladrey, Inc. (RSM) to McGladrey & Pullen LLP (M&P) for net cash proceeds of $523.1 million. We also received at the time of sale a long-term note in the amount of $54.0 million. M&P assumed substantially all liabilities of RSM, including contingent payments and lease obligations. We have indemnified M&P for certain litigation matters. The net after tax loss on the sale of RSM totaled $36.9 million, which includes an $85.4 million impairment of goodwill recorded in our first quarter and tax benefits associated with capital loss carry-forwards utilized.

As of April 30, 2012, the results of operations of this business are presented as discontinued operations in the consolidated financial statements. All periods presented in our consolidated balance sheets and statements of income have been reclassified to reflect our discontinued operations.

In April 2012, we announced a strategic realignment which eliminated approximately 350 positions and closed approximately 200 underperforming company-owned offices. We recorded $31.2 million in severance costs and $5.5 million in lease termination costs and impairment charges in the fourth quarter of fiscal year 2012.

   
   
H&R BLOCK  
CONDENSED CONSOLIDATED BALANCE SHEETS  
Unaudited, amounts in thousands, except per share data  
             
    April 30,     April 30,  
    2012     2011  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 1,944,334     $ 1,677,844  
  Cash and cash equivalents - restricted     48,100       48,383  
  Receivables, net     193,858       230,172  
  Prepaid expenses and other current assets     314,702       191,360  
  Assets of discontinued operations, held for sale     -       900,328  
    Total current assets     2,500,994       3,048,087  
                 
  Mortgage loans held for investment, net     406,201       485,008  
  Investments in available-for-sale securities     371,315       163,836  
  Property and equipment, net     252,985       255,298  
  Intangible assets, net     264,451       275,342  
  Goodwill     427,566       434,151  
  Other assets     426,055       627,731  
Total assets   $ 4,649,567     $ 5,289,453  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Customer banking deposits   $ 827,549     $ 852,220  
  Accounts payable, accrued expenses and other current liabilities     567,079       550,982  
  Accrued salaries, wages and payroll taxes     163,992       208,748  
  Accrued income taxes     336,374       458,911  
  Current portion of long-term debt     631,434       557  
  Federal Home Loan Bank borrowings     -       25,000  
  Liabilities of discontinued operations, held for sale     -       241,562  
    Total current liabilities     2,526,428       2,337,980  
                 
  Long-term debt     409,115       1,039,527  
  Other noncurrent liabilities     388,132       462,372  
      Total liabilities     3,323,675       3,839,879  
                 
Stockholders' equity:                
  Common stock, no par, stated value $.01 per share     3,979       4,124  
  Additional paid-in capital     796,784       812,666  
  Accumulated other comprehensive income     12,145       11,233  
  Retained earnings     2,523,997       2,658,103  
  Less treasury shares, at cost     (2,011,013 )     (2,036,552 )
      Total stockholders' equity     1,325,892       1,449,574  
Total liabilities and stockholders' equity   $ 4,649,567     $ 5,289,453  
                 
                 
 
 
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited, amounts in thousands, except per share data
                     
    Three months ended
April 30,
  Year ended
April 30,
    2012     2011   2012     2011
Revenues:                            
  Service revenues   $ 1,717,064     $ 1,732,835   $ 2,434,307     $ 2,428,104
  Product and other revenues     243,547       255,430     359,664       383,216
  Interest income     40,063       56,994     99,800       133,660
      2,000,674       2,045,259     2,893,771       2,944,980
Expenses:                            
  Cost of revenues:                            
    Compensation and benefits     512,634       503,246     828,773       830,980
    Occupancy and equipment     118,122       123,674     381,200       385,515
    Provision for bad debt and loan losses     23,734       55,872     92,157       174,626
    Interest     22,737       23,634     92,089       94,183
    Depreciation and amortization of property and equipment     18,416       18,258     69,310       73,183
    Other     110,615       99,564     238,166       218,295
      806,258       824,248     1,701,695       1,776,782
  Impairment of goodwill     3,152       -     7,409       22,700
  Selling, general and administrative expenses     210,231       178,958     618,375       529,159
      1,019,641       1,003,206     2,327,479       2,328,641
                             
Operating income     981,033       1,042,053     566,292       616,339
Other income, net     593       2,285     9,778       11,364
                             
Income from continuing operations before taxes     981,626       1,044,338     576,070       627,703
Income taxes     389,923       401,505     230,102       235,156
                             
Net income from continuing operations     591,703       642,833     345,968       392,547
Net income (loss) from discontinued operations     (5,600 )     15,728     (80,036 )     13,563
                             
Net income   $ 586,103     $ 658,561   $ 265,932     $ 406,110
                             
Basic earnings (loss) per share:                            
    Net income from continuing operations   $ 2.02     $ 2.10   $ 1.16     $ 1.27
    Net income (loss) from discontinued operations     (0.02 )     0.05     (0.27 )     0.04
    Net income   $ 2.00     $ 2.15   $ 0.89     $ 1.31
                             
  Basic shares outstanding     293,103       305,283     297,863       309,230
                             
Diluted earnings (loss) per share:                            
    Net income from continuing operations   $ 2.01     $ 2.09   $ 1.16     $ 1.27
    Net income (loss) from discontinued operations     (0.02 )     0.05     (0.27 )     0.04
    Net income   $ 1.99     $ 2.14   $ 0.89     $ 1.31
                             
  Diluted shares outstanding     293,985       306,118     298,601       309,777
                             
                             
   
   
H&R BLOCK  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
Unaudited, amounts in thousands  
             
    Year ended April 30,  
    2012     2011  
                 
Net cash provided by operating activities   $ 362,049     $ 512,503  
                 
Cash flows from investing activities:                
  Available-for-sale securities:                
      Purchases of available-for-sale securities     (256,173 )     (138,824 )
      Maturities of and payments received on available-for-sale securities     66,382       16,797  
  Principal payments on mortgage loans held for investment, net     49,142       58,471  
  Purchases of property and equipment     (82,457 )     (62,959 )
  Payments made for business acquisitions, net of cash acquired     (15,258 )     (54,171 )
  Proceeds from sales of businesses, net     560,499       71,083  
  Franchise loans:                
    Loans funded     (46,246 )     (92,455 )
    Payments received     56,591       57,552  
  Other, net     19,387       34,349  
    Net cash provided by (used in) investing activities     351,867       (110,157 )
                 
Cash flows from financing activities:                
  Repayments of commercial paper     (664,167 )     (4,818,766 )
  Proceeds from issuance of commercial paper     664,167       4,818,766  
  Repayments of other borrowings     (25,000 )     (50,000 )
  Customer banking deposits, net     (26,091 )     (11,440 )
  Dividends paid     (208,801 )     (186,802 )
  Repurchase of common stock, including shares surrendered     (180,592 )     (283,534 )
  Proceeds from exercise of stock options     12,275       424  
  Other, net     (16,853 )     (3,039 )
    Net cash used in financing activities     (445,062 )     (534,391 )
                 
Effects of exchange rates on cash     (2,364 )     5,844  
                 
Net increase (decrease) in cash and cash equivalents     266,490       (126,201 )
Cash and cash equivalents at beginning of the period     1,677,844       1,804,045  
Cash and cash equivalents at end of the period   $ 1,944,334     $ 1,677,844  
                 
Supplementary cash flow data:                
  Income taxes paid, net of refunds received   $ 218,444     $ 244,917  
  Interest paid on borrowings     69,681       73,791  
  Interest paid on deposits     6,843       8,541  
  Transfers of foreclosed loans to other assets     10,308       16,463  
  Accrued purchase of common stock     22,484       -  
                   
                   
   
   
H&R BLOCK  
U.S. Tax Operating Data  
(in thousands)  
             
  Fiscal Year to Date as of 4/30/12   Fiscal Year to Date as of 4/30/11   Percent
change
 
Total returns prepared: (1)            
  Company-owned operations 9,207   9,079   1.4 %
  Franchise operations 5,693   5,677   0.3 %
    Total retail operations 14,900   14,756   1.0 %
             
  Software 2,158   2,201   -2.0 %
  Online 4,419   3,722   18.7 %
    Sub-total 6,577   5,923   11.0 %
             
  Free File Alliance 861   767   12.3 %
    Total digital tax solutions 7,438   6,690   11.2 %
  22,338   21,446   4.2 %
             
(1) Prior year numbers have been reclassified between company-owned and franchise operations for offices which were refranchised during either year.  

Contact Information

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