Print This ReleaseInvestor Relations:
Derek Drysdale 816-854-4513 derek.drysdale@hrblock.com
Media Relations:
Jennifer Love 816.854.4448 jennifer.love@hrblock.com VP - Communications
H&R Block Reports Fiscal 2010 Financial Results
FOR RELEASE JUN 24, 2010
KANSAS CITY, Mo. - H&R Block, Inc. (NYSE: HRB) today reported consolidated net income for the fiscal year ended April 30, 2010 of $479.2 million, or $1.43 per share , down 1.3 percent from the prior year period of $485.7 million, or $1.45 per share. Net income from continuing operations fell 4.7 percent to $488.9 million, or $1.46 per share, compared to income of $513.1 million, or $1.53 per share in the prior year period. Total revenues declined 5.1 percent to $3.9 billion.
“Our business results reflect the challenging economic conditions of this tax season, caused by record levels of sustained unemployment that led to fewer returns being filed by our core retail tax client base,” said Russ Smyth, H&R Block’s president and chief executive officer. “Despite these difficult conditions, we were able to minimize the impact on consolidated net income. At the same time we positioned our business for future success by improving the overall client experience, increasing client retention rates and optimizing our operating cost structure,” added Smyth.
Tax Services
Tax Services reported pretax income of $867.4 million, down 6.4 percent from $927.0 million in the prior year. Total segment revenues fell 5.0 percent year-over-year to $3.0 billion, primarily due to a 6.1 percent decline in total retail returns prepared, partially offset by an increase of 1.1 percent in net average fees per retail return. Same-office tax returns prepared in retail operations fell 3.9 percent over the prior tax season.
The company’s continued focus on cost-control measures, including reductions in the size of its retail office network and renegotiation of lease payments, resulted in a declining fixed expense base during the fiscal year.
Total digital tax returns prepared by H&R Block increased 0.4 percent, driven by a 5.0 percent decline in software-based returns that was entirely due to the company’s decision to exit two unprofitable distribution channels. Online returns grew by 4.3 percent, while returns prepared through the Free File Alliance (FFA) increased 2.8 percent.
Overall, total tax returns prepared (including software and online) by H&R Block were down 4.3 percent compared to the prior year period. Volume declines were more pronounced in the early-season, as total tax returns prepared were down 7.8 percent from Jan. 1 – Feb. 28.
In tax season 2010, total industry-wide filings at the IRS fell by 1.7 percent to 129.3 million returns. This decline was the largest since 1971, primarily due to continued high levels of unemployment.
RSM McGladrey
RSM McGladrey reported fiscal 2010 pretax income of $58.7 million, down nearly 39 percent from $96.1 million in the prior year. Revenues declined 4.2 percent to $860.3 million, primarily due to the impact of the overall weak economic environment, which continues to pressure billable rates and hours within the industry. Profitability was negatively impacted by costs associated with previously resolved arbitration proceedings involving McGladrey & Pullen and other costs of litigation totaling $14.5 million in the aggregate, as well as a $15.0 million goodwill impairment charge at our capital markets business unit.
Excluding these charges, pretax income would have been approximately $88 million and pretax margin for the segment would have been 10.3 percent, essentially flat with the prior year. The shortfall in revenues was partially mitigated by cost reduction efforts throughout the year. These efforts included headcount reductions to reflect lower client demand, as well as other non-client facing cost reduction initiatives.
Corporate
Corporate operations includes corporate 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 operations reported a fiscal 2010 pretax loss of $141.9 million compared to a loss of $183.8 million in the prior year. Lower losses were primarily due to reductions in insurance costs, reduced loss provisions on mortgage loans held for investment and gains on residual interest assets from the company’s former mortgage business.
The company’s effective tax rate for continuing operations in fiscal 2010 was 37.6 percent, compared to 38.9 percent in the prior year. The effective tax rate declined from the prior year due to tax-planning strategies which resulted in a reduction in the company’s deferred tax valuation allowance, and non-taxable benefits on company-owned life insurance.
Balance Sheet
At April 30, 2010, the Company had cash of $1.8 billion and total outstanding debt of $1.1 billion. Shareholder equity at fiscal year-end was $1.4 billion, essentially flat to the prior year as the company returned substantially all earnings to shareholders in the form of share repurchases and dividends.
Share Repurchases and Dividends
The company repurchased and retired 12.8 million shares in fiscal 2010 at a cost of $250.0 million, including repurchases of 6.0 million shares in the fourth quarter at a cost of $100.0 million. A previously announced quarterly cash dividend of 15 cents per share is payable July 1, 2010, to shareholders of record June 10, 2010.
Outlook
The company expects to reduce annual operating expenses by $140 - $150 million per year by the end of fiscal year 2012 as a result of a realignment of field and support services announced May 19, 2010. The realignment resulted in the elimination of 400 full-time positions and closure of 400 tax offices.
Due to the seasonality of its business and the current uncertainty in certain external variables that could significantly impact operating results (including but not limited to employment levels, the changing settlement product environment and tax law changes), the company is not currently providing detailed earnings guidance. However, the company will provide directional insights for certain key business metrics on today’s earnings conference call.
“Moving forward, in our retail business we will aggressively market in the early season and leverage our access to best-in-class financial products, while continuing to improve our service levels for all clients. In our digital business, we will attract more new clients to our online segment and enhance the leadership talent to drive accelerated growth. At McGladrey, we will leverage our enhanced partnership agreement to extend our leadership in the middle market segment. In each of our business segments, we will continue to optimize our operating cost structure to better match our future business needs. The combination of these initiatives will allow us to provide all of our clients with an outstanding value proposition, create a rewarding work environment for our employees, and further improve our returns to shareholders,” said Smyth.
Conference Call
At 4:30 p.m. EST today, the company will host a conference call for analysts, institutional investors and shareholders. To access the call, please dial the number below approximately five to 10 minutes prior to the scheduled starting time:
U.S./Canada (877) 247-6355 or International (706) 679-0371
Conference ID: 76468825
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://investor-relations.hrblock.com.
A replay of the call will be available beginning at 6 p.m. EST on June 24, and continuing until July 15, 2010, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The conference ID is 76468825. The webcast will be available for replay beginning on June 25 at http://investor-relations.hrblock.com.
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 2009 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 at www.hrblock.com.
# # #
