H&R Block Announces Fiscal 2013 Results

[1] All per share amounts are based on fully diluted shares.

[2] Unless otherwise noted, all comparisons, including those made to the “prior year,” refer to the current period compared to the prior year period.

[3]EBITDA (earnings before interest, taxes, depreciation and amortization) is 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).

Fiscal 2013 Results From Continuing Operations

*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).

CFO Perspective

“While we would have preferred to see stronger revenue growth, I’m pleased that we remained disciplined and exceeded our previously stated goal of reducing costs $85 to $100 million,” said Greg Macfarlane, H&R Block’s chief financial officer. “Despite the industry challenges we faced, we were able to deliver modest revenue growth along with significant expansion in our EBITDA margin, which increased four full points to 30%. We remain committed to providing shareholder return, evidenced by share repurchases and dividends totaling $532 million this fiscal year, and appreciation in our stock price that outpaced the S&P 500 benchmark during the last 12 months.”

Business Segment Results and Highlights

Tax Services

• Revenues increased 0.5 percent to $2.9 billion, primarily due to changes in promotional offerings such as the Free Refund Anticipation Check (RAC) and an increase in digital online filings
• U.S. assisted tax preparation fees and royalties declined 1 percent to $2.0 billion due to a 2.7 percent decrease in assisted returns prepared, partially offset by a 1.7 percent increase in price
• Revenues related to core financial services increased 7 percent to $317 million, primarily due to the discontinuation of the Free RAC promotion in fiscal 2013, partially offset by lower Emerald Card fees compared to the prior year
• International revenue increased 7 percent to $249 million, with strong performance in both Canada and Australia
• Total expenses declined 4.7 percent to $2.1 billion, driven by previously announced cost reduction initiatives that included lower compensation and occupancy costs.
• Adjusted, non-GAAP pretax income improved 9 percent to $823 million, primarily due to successful cost reduction initiatives mentioned above

Corporate

• Pretax loss improved by $9 million to $119 million, due to lower interest expense resulting from the refinancing of our medium term notes during this fiscal year. Additionally, the provision for loan loss decreased reflecting lower delinquencies in the mature and declining legacy mortgage loan portfolio noted below.

• Net balance of mortgage loans held for investment declined $67 million to $339 million, while provision for loan losses declined 45 percent to $13.3 million
• Effective tax rate from continuing operations improved approximately 6.2 points to 33.7%, driven by a $43 million tax benefit related to the settlement of substantially all outstanding issues in our 1999 through 2007 tax returns with the IRS

Discontinued Operations

• Net loss of $31 million compared to $80 million net loss in prior year as fiscal 2012 results included a loss on the sale of RSM McGladrey
• Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., received new claims during the quarter for alleged breaches of representations and warranties in the principal amount of $23 million
• SCC reviewed claims in the principal amount of $26 million during the quarter, all of which were deemed invalid
• During the latter half of fiscal 2013, SCC entered into tolling agreements with certain counterparties from which SCC had received a significant majority of its asserted claims. During the fourth quarter SCC engaged in settlement discussions with these counterparties related to previously denied and future claims. Based on these actions and other considerations, SCC recorded a provision of $40 million during the fourth quarter, increasing its accrual for contingent losses related to representations and warranties to $159 million at April 30.

Balance Sheet

• As of April 30, 2013 the company had unrestricted cash of $1.7 billion and total outstanding debt of $0.9 billion
• Shareholder equity at April 30 was $1.3 billion

Share Repurchases and Dividends

During fiscal 2013, the company repurchased and retired 21.3 million shares at an aggregate price of $315.0 million, or $14.82 per share. The purchase represented an approximate 8 percent reduction in shares outstanding. As of April 30, 2013, 272.6 million shares remained outstanding.

A previously announced quarterly cash dividend of 20 cents per share is payable on July 1, 2013 to shareholders of record as of June 17, 2013. The July 1 dividend payment will mark H&R Block’s 203^rd consecutive quarterly dividend since the company went public in 1962.

Conference Call

At 4:30 p.m. Eastern on June 12, 2013, 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: 57796144

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 12, 2013, and continuing until July 12, 2013, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 57796144. The webcast will be available for replay June 13, 2013 at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE: HRB) is the world’s largest consumer tax services provider. More than 600 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2013, H&R Block had annual revenues of $2.9 billion with 25.4 million tax returns prepared worldwide. Tax return preparation services are provided in company-owned and franchise retail tax offices by approximately 90,000 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.

Full press release with complete tables can be viewed here: Marketwired.

For Further Information:
Investor Relations: Colby Brown, (816) 854-4559, colby.brown@hrblock.com
Media Relations: Gene King, (816) 854-4672, gene.king@hrblock.com