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H&R Block Announces Fiscal 2014 Results

By: H&R Block |  3 Shares     196 Reads

KANSAS CITY, MO - (Marketwired) - June 11, 2014 - H&R Block, Inc. (NYSE: HRB)

• Total revenues increased $118 million, or 4%, to $3.024 billion¹
• EBITDA increased 8% to $940 million, or 31% of revenues²
• Non-GAAP adjusted earnings per share³from continuing operations up 5% to $1.67 

H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today announced its financial results for the fiscal year ended April 30, 2014. Revenues increased 4.1 percent, to $3.024 billion, driven by improved return mix and changes to the company's pricing strategy in its retail locations, digital tax software product enhancements and monetization efforts, and increased Tax Plus financial services product revenues. Returns prepared by and through H&R Block declined 2.6% to 24.2 million worldwide, primarily due to the company's decision to discontinue its U.S.-based free federal 1040EZ promotion in virtually all markets. Earnings per share from continuing operations increased to $1.81. On an adjusted non-GAAP basis, earnings per share from continuing operations increased 5.0 percent to $1.67.

The company's increase in revenues in fiscal 2014 was consistent with its recently outlined strategy to grow revenues through a balance of improved return mix and increased product attachments. This included the discontinuation of the company's free federal 1040EZ promotion in virtually all markets, the exit from unprofitable retail partnerships, and enhancements to its online digital tax software offering focused on improving monetization and conversion. Additionally, the company achieved EBITDA margin expansion, while continuing to invest in initiatives that contributed to improved client satisfaction and helped maintain retention levels for clients filing forms other than the 1040EZ.

The company also served a greater proportion of its clients with its Tax Plus financial services products and increased year-round usage of its best-in-class general purpose reloadable debit card, the award winning Emerald Prepaid MasterCard®. Revenue per card increased 13 percent, driven by an increase in reloader rates and average deposits per card. The company issued 2.4 million Emerald Cards in fiscal 2014 with approximately $9.2 billion in total deposits.

CEO Perspective

"We delivered a strong year of both revenue and earnings growth and lived up to our long-standing tradition of being the world's leading tax services provider," said Bill Cobb, H&R Block's president and chief executive officer. "Though we anticipated an overall decline in return counts, our Tax Plus strategy is working, and we will continue to focus on enhancing the client experience and delivering best-in-class products and services to drive profitable growth. Our improving client satisfaction scores are a testament to the value we bring to our clients, positioning us well for 2015 and beyond," added Cobb.

Fiscal 2014 Results From Continuing Operations

		Actual						Adjusted *
(in millions, except EPS)		Fiscal Year 2014			Fiscal Year 2013			Fiscal Year 2014			Fiscal Year 2013
Revenue		$	3,024		$	2,906		$	3,024		$	2,906
EBITDA *		$	940		$	874		$	933		$	884
Pretax Income		$	767		$	702		$	760		$	712
Net Income		$	500		$	465		$	462		$	438
Weighted-Avg. Shares - Diluted			276.0			274.4			276.0			274.4
EPS		$	1.81		$	1.69		$	1.67		$	1.59

*Adjusted amounts and EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP financial measures. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

CFO Perspective

"By executing on our Tax Plus objectives, we delivered exceptional results this year, growing both our top and bottom line," said Greg Macfarlane, H&R Block's chief financial officer. "Our productivity initiatives enabled us to manage our costs more efficiently and drive margin expansion, while continuing to invest in our business, ultimately creating shareholder value."

Business Segment Results and Highlights

Tax Services

• Revenues increased 4.2 percent to $3.0 billion, driven by improved mix and changes to the company's pricing strategy in its retail locations, digital tax software product enhancements and monetization efforts, and increased Tax Plus financial services product revenues
• U.S. assisted tax preparation fees and royalties increased 4.0 percent to $2.1 billion, primarily due to incremental revenue from the company's decision to discontinue its free federal 1040EZ promotion in virtually all markets, pricing changes, and improved return mix
• Revenues related to Tax Plus financial services products increased 11.2 percent to $432 million, primarily due to pricing changes in the company's refund transfer offering, higher Peace of Mind revenues, and increased usage and average deposit per card on its Emerald Prepaid Master Card
• International revenue decreased 6.7 percent to $232 million, driven by unfavorable exchange rates and timing differences due to a 5-day extension in the Canadian tax season this year to May 5, which is subsequent to the company's fiscal year end. Including revenues from returns prepared through May 5, international revenues increased 5.6 percent in local currency.
• Total expenses increased 2.9 percent to $2.1 billion, driven by increased compensation and benefits, including variable compensation resulting from higher tax preparation fees, and depreciation and amortization expenses
• Adjusted non-GAAP pretax income improved 6.3 percent to $874 million

Corporate

• Pretax loss improved by $20 million to $99 million, primarily due to a non-recurring gain from the sale of residual interests in mortgage loan securitizations
• Net balance of mortgage loans held for investment declined $70 million to $268 million, while provision for loan losses declined 38 percent to $8 million
• Effective tax rate from continuing operations increased to 34.8 percent, due to discrete tax adjustments

Discontinued Operations

• Reduction of net loss to $25 million compared to $31 million in the prior year
• Sand Canyon Corporation (SCC), a separate legal entity of H&R Block, Inc., continued to engage in settlement discussions with counterparties that represent a significant majority of previously denied and expected future representation and warranty claims. Based on these actions, SCC recorded a provision of $25 million during the fourth quarter, increasing its accrual for contingent losses related to representations and warranty claims to$184 million at April 30.

Balance Sheet

• As of April 30, the company had unrestricted cash of $2.2 billion and total outstanding debt of $906.5 million
• Shareholder equity at April 30 was $1.6 billion 

Dividends

A previously announced quarterly cash dividend of 20 cents per share is payable on July 1, 2014 to shareholders of record as of June 16, 2014. The July 1 dividend payment will be H&R Block's 207th consecutive quarterly dividend since the company went public in 1962.

Conference Call

In conjunction with the announcement of fiscal 2014 results, the company will host a conference call at 8:30 a.m. Eastern time on June 11, 2014 for analysts, institutional investors, and shareholders to discuss fiscal 2014 results, future outlook and a general business update. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (888) 895-5260 or International (443) 842-7595
Conference ID: 34435396

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 11:30 a.m. Eastern time on June 11, 2014, and continuing untilJuly 12, 2014, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 34435396. The webcast will be available for replay June 11, 2014 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 650 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2014, H&R Block had annual revenues over $3.0 billion with 24.2 million tax returns prepared worldwide. Tax return preparation services are provided in approximately 12,000 company-owned and franchise retail tax offices worldwide by professional tax preparers, and through H&R Block Tax Software products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Newsroom.

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. 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 "Non-GAAP Financial Information."

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, 2013 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.

¹All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current fiscal year to the prior fiscal year.

²EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP financial measure, which the company finds relevant when measuring its performance. The company also 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).

³All per share amounts are based on fully diluted shares.

KEY OPERATING RESULTS			(unaudited, in 000s - except per share data)
			Three months ended April 30,
			Revenues						Income (loss)
			2014			2013			2014				2013
Tax Services			$	2,555,733		$	2,193,261		$	1,492,174			$	1,156,346
Corporate and Eliminations				7,257			6,951			(13,377	)			(26,510	)
			$	2,562,990		$	2,200,212			1,478,797				1,129,836
Income taxes										549,664				440,914
Net income from continuing operations										929,133				688,922
Net loss from discontinued operations										(19,135	)			(24,582	)
Net income									$	909,998			$	664,340
Basic earnings (loss) per share:
	Continuing operations								$	3.38			$	2.53
	Discontinued operations									(0.07	)			(0.09	)
	Consolidated								$	3.31			$	2.44
Basic shares										274,222				272,384
Diluted earnings (loss) per share:
	Continuing operations								$	3.36			$	2.51
	Discontinued operations									(0.07	)			(0.09	)
	Consolidated								$	3.29			$	2.42
Diluted shares										276,406				274,715
			Twelve months ended April 30,
			Revenues						Income (loss)
			2014			2013			2014				2013
Tax Services			$	2,999,460		$	2,877,967		$	866,367			$	821,143
Corporate and Eliminations				24,835			27,976			(99,251	)			(119,132	)
			$	3,024,295		$	2,905,943			767,116				702,011
Income taxes										267,019				236,853
Net income from continuing operations										500,097				465,158
Net loss from discontinued operations										(24,940	)			(31,210	)
Net income									$	475,157			$	433,948
Basic earnings (loss) per share:
	Continuing operations								$	1.82			$	1.70
	Discontinued operations									(0.09	)			(0.11	)
	Consolidated								$	1.73			$	1.59
Basic shares										273,830				273,057
Diluted earnings (loss) per share:
	Continuing operations								$	1.81			$	1.69
	Discontinued operations									(0.09	)			(0.11	)
	Consolidated								$	1.72			$	1.58
Diluted shares										276,027				274,359

 

CONSOLIDATED BALANCE SHEETS					(unaudited, in 000s - except per share data)
As of April 30,					2014				2013
ASSETS
	Cash and cash equivalents				$	2,185,307			$	1,747,584
	Cash and cash equivalents -- restricted					115,319				117,837
	Receivables, net					191,618				206,835
	Prepaid expenses and other current assets					198,267				390,087
	Investments in available-for-sale securities					423,495				--
		Total current assets				3,114,006				2,462,343
	Mortgage loans held for investment, net					268,428				338,789
	Investments in available-for-sale securities					4,329				486,876
	Property and equipment, net					304,911				267,880
	Intangible assets, net					355,622				284,439
	Goodwill					436,117				434,782
	Other assets					210,116				262,670
		Total assets			$	4,693,529			$	4,537,779
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
	Customer banking deposits				$	769,785			$	936,464
	Accounts payable, accrued expenses and other current liabilities					569,007				523,921
	Accrued salaries, wages and payroll taxes					167,032				134,970
	Accrued income taxes					406,655				416,128
	Current portion of long-term debt					400,637				722
		Total current liabilities				2,313,116				2,012,205
	Long-term debt					505,837				905,958
	Other noncurrent liabilities					318,027				356,069
		Total liabilities				3,136,980				3,274,232
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
	Common stock, no par, stated value $.01 per share					3,166				3,166
	Convertible preferred stock, no par, stated value $0.01 per share					--				--
	Additional paid-in capital					766,654				752,483
	Accumulated other comprehensive income					5,177				10,550
	Retained earnings					1,589,297				1,333,445
	Less treasury shares, at cost					(807,745	)			(836,097	)
		Total stockholders' equity				1,556,549				1,263,547
			Total liabilities and stockholders' equity		$	4,693,529			$	4,537,779

 

CONSOLIDATED STATEMENTS OF INCOME									(unaudited, in 000s - except per share amounts)
					Three Months Ended April 30,								Twelve months ended April 30,
					2014				2013				2014				2013
REVENUES:
	Service revenues				$	2,211,428			$	1,884,472			$	2,570,273			$	2,443,000
	Royalty, product and other revenues					312,660				274,943				355,928				364,114
	Interest income					38,902				40,797				98,094				98,829
						2,562,990				2,200,212				3,024,295				2,905,943
OPERATING EXPENSES:
	Cost of revenues:
		Compensation and benefits				548,955				514,731				816,623				769,161
		Occupancy and equipment				113,301				107,553				362,782				354,612
		Provision for bad debt and loan losses				34,247				39,287				80,007				90,685
		Interest				14,185				15,062				57,388				79,957
		Depreciation and amortization				27,277				20,930				93,259				75,229
		Other				95,237				124,172				217,597				235,144
						833,202				821,735				1,627,656				1,604,788
	Selling, general and administrative:
		Marketing and advertising				140,096				152,352				238,763				270,783
		Compensation and benefits				107,286				85,180				249,779				213,987
		Depreciation and amortization				6,974				4,235				22,345				17,178
		Other selling, general and administrative				13,835				9,900				122,541				102,521
						268,191				251,667				633,428				604,469
			Total operating expenses			1,101,393				1,073,402				2,261,084				2,209,257
Operating income						1,461,597				1,126,810				763,211				696,686
Other income, net						17,200				3,026				3,905				5,325
Income from continuing operations before income taxes						1,478,797				1,129,836				767,116				702,011
Income taxes						549,664				440,914				267,019				236,853
Net income from continuing operations						929,133				688,922				500,097				465,158
Net loss from discontinued operations						(19,135	)			(24,582	)			(24,940	)			(31,210	)
NET INCOME					$	909,998			$	664,340			$	475,157			$	433,948
BASIC EARNINGS (LOSS) PER SHARE:
	Continuing operations				$	3.38			$	2.53			$	1.82			$	1.70
	Discontinued operations					(0.07	)			(0.09	)			(0.09	)			(0.11	)
	Consolidated				$	3.31			$	2.44			$	1.73			$	1.59
DILUTED EARNINGS (LOSS) PER SHARE:
	Continuing operations				$	3.36			$	2.51			$	1.81			$	1.69
	Discontinued operations					(0.07	)			(0.09	)			(0.09	)			(0.11	)
	Consolidated				$	3.29			$	2.42			$	1.72			$	1.58

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS					(unaudited, in 000s)
Twelve months ended April 30,					2014				2013
NET CASH PROVIDED BY OPERATING ACTIVITIES					$	809,581			$	497,108
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of available-for-sale securities					(45,158	)			(227,177	)
	Sales, maturities and payments received on available-for-sale securities					107,101				118,411
	Principal payments on mortgage loans held for investment, net					46,664				44,031
	Capital expenditures					(147,011	)			(113,239	)
	Payments made for business acquisitions, net of cash acquired					(68,428	)			(20,742	)
	Proceeds from sale of businesses, net					942				3,785
	Proceeds from notes receivable					64,865				--
	Franchise loans:
		Franchise loans funded				(63,960	)			(70,807	)
		Payments received on franchise loans				87,220				83,445
	Surrender of company-owned life insurance policies					--				81,125
	Other, net					28,455				(9,769	)
			Net cash provided by (used in) investing activities			10,690				(110,937	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayments of commercial paper and other short-term borrowings					(316,000	)			(1,214,238	)
	Proceeds from issuance of commercial paper and other short-term borrowings					316,000				1,214,238
	Repayments of long-term debt					--				(636,621	)
	Proceeds from issuance of long-term debt					--				497,185
	Customer banking deposits, net					(163,952	)			103,608
	Dividends paid					(218,980	)			(217,201	)
	Repurchase of common stock, including shares surrendered					(6,106	)			(340,413	)
	Proceeds from exercise of stock options					28,246				25,139
	Other, net					(4,138	)			(16,238	)
		Net cash used in financing activities				(364,930	)			(584,541	)
Effects of exchange rate changes on cash						(17,618	)			1,620
Net increase (decrease) in cash and cash equivalents						437,723				(196,750	)
Cash and cash equivalents at beginning of the year						1,747,584				1,944,334
Cash and cash equivalents at end of the year					$	2,185,307			$	1,747,584
SUPPLEMENTARY CASH FLOW DATA:
	Income taxes paid, net of refunds received				$	155,735			$	155,617
	Interest paid on borrowings					55,221				73,559
	Interest paid on deposits					2,162				5,665
	Transfers of foreclosed loans to other assets					7,644				10,357
	Transfer of mortgage loans held for investment to held for sale					7,608				--
	Accrued additions to property and equipment					5,257				4,261

 

WORLDWIDE OPERATING DATA					(unaudited, in 000s)
Twelve months ended April 30,					2014		2013		% Change
U.S. Tax Returns Prepared: (1)
	H&R Block Company-Owned Operations				8,342		9,065		(8.0	)%
	H&R Block Franchise Operations				5,268		5,440		(3.2	)%
		Total H&R Block Assisted Returns			13,610		14,505		(6.2	)%
	H&R Block Desktop (2)				2,026		2,055		(1.4	)%
	H&R Block Online (2)				4,389		4,356		0.8	%
		Sub-Total (2)			6,415		6,411		0.1	%
	H&R Block Free File Alliance (2)				767		663		15.7	%
	Total H&R Block Tax Software (2)				7,182		7,074		1.5	%
			Total H&R Block U.S. Returns		20,792		21,579		(3.6	)%
International Tax Returns Prepared:
		Canada (3)			2,642		2,517		5.0	%
		Australia			746		741		0.7	%
	Total International Tax Returns				3,388		3,258		4.0	%
Tax Returns Prepared Worldwide					24,180		24,837		(2.6	)%

 

(1)	Prior year numbers have been reclassified between company-owned and franchise operations for offices which were refranchised or repurchased by the company during either year.
(2)	Previously reported return counts for fiscal year 2013 have been restated to primarily reflect accepted e-files. No changes were made to previously reported assisted return counts.
(3)	In fiscal year 2014, the end of the Canadian tax season was extended from April 30 to May 5, 2014. Tax returns prepared in Canada in fiscal year 2014 includes approximately 141 thousand returns in both company-owned and franchise offices which were accepted by the client after April 30. The revenues related to these returns will be recognized in fiscal year 2015.

 

TAX SERVICES - FINANCIAL RESULTS					(unaudited, amounts in 000s)
Twelve months ended April 30,					2014			2013
Tax preparation fees:
	U.S.				$	1,794,043		$	1,712,319
	International					200,152			220,870
						1,994,195			1,933,189
Royalties						316,153			318,386
Fees from refund anticipation checks						181,394			158,176
Fees from Emerald Card						103,730			98,896
Fees from Peace of Mind® guarantees						89,685			71,355
Interest and fee income on Emerald Advance						56,877			59,657
Other						257,426			238,308
		Total revenues				2,999,460			2,877,967
Compensation and benefits:
	Field wages					702,312			654,794
	Other wages					169,583			150,306
	Benefits and other compensation					158,203			148,492
						1,030,098			953,592
Occupancy and equipment						363,590			354,430
Marketing and advertising						237,214			270,240
Depreciation and amortization						115,488			92,004
Bad debt						71,733			77,402
Supplies						36,454			40,131
Impairment of goodwill and intangible assets						277			3,581
Other						278,239			265,444
			Total expenses			2,133,093			2,056,824
Pretax income					$	866,367		$	821,143

 

NON-GAAP FINANCIAL MEASURES		(unaudited, in 000s - except per share amounts)
		Twelve months ended April 30, 2014
		Revenues			Expenses				EBITDA				Pretax income				Net income				EPS
As reported - from continuing operations		$	3,024,295		$	2,261,084			$	940,108			$	767,116			$	500,097			$	1.81
Adjustments:
	Loss contingencies - litigation		--			1,844				1,844				1,844				1,122				--
	Impairment of goodwill and intangible assets		--			277				277				277				169				--
	Severance		--			5,204				5,204				5,204				3,166				0.01
	Professional fees related to HRB Bank transaction		--			2,747				2,747				2,747				1,671				0.01
	Impairment of AFS securities		--			--				12,414				12,414				7,553				0.03
	Gain on sale of residual interests in securitizations		--			--				(18,250	)			(18,250	)			(11,104	)			(0.04	)
	Gain on sales of tax offices/businesses		--			(1,613	)			(11,738	)			(11,738	)			(7,142	)			(0.03	)
	Discrete tax items		--			--				--				--				(33,347	)			(0.12	)
			--			8,459				(7,502	)			(7,502	)			(37,912	)			(0.14	)
As adjusted - from continuing operations		$	3,024,295		$	2,252,625			$	932,606			$	759,614			$	462,185			$	1.67
		Twelve months ended April 30, 2013
		Revenues			Expenses				EBITDA				Pretax income				Net income				EPS
As reported - from continuing operations		$	2,905,943		$	2,209,257			$	874,375			$	702,011			$	465,158			$	1.69
Adjustments:
	Loss contingencies - litigation		--			(4,579	)			(4,579	)			(4,579	)			(2,817	)			(0.01	)
	Impairment of goodwill and intangible assets		--			3,581				3,581				3,581				2,203				0.01
	Severance		--			4,785				4,785				4,785				2,944				0.01
	Professional fees related to HRB Bank transaction		--			1,565				1,565				1,565				963				--
	Loss on extinguishment of debt		--			--				5,790				5,790				3,562				0.01
	Gain on sales of tax offices/businesses		--			(1,272	)			(1,272	)			(1,272	)			(782	)			--
	Discrete tax items		--			--				--				--				(33,302	)			(0.12	)
			--			4,080				9,870				9,870				(27,229	)			(0.10	)
As adjusted - from continuing operations		$	2,905,943		$	2,205,177			$	884,245			$	711,881			$	437,929			$	1.59

 

			Three Months Ended April 30,						Twelve months ended April 30,
EBITDA			2014			2013			2014			2013
Net income - as reported			$	909,998		$	664,340		$	475,157		$	433,948
Add back :
	Discontinued operations			19,135			24,582			24,940			31,210
	Income taxes			549,664			440,914			267,019			236,853
	Interest expense			14,185			15,062			57,388			79,957
	Depreciation and amortization			34,251			25,165			115,604			92,407
				617,235			505,723			464,951			440,427
EBITDA from continuing operations			$	1,527,233		$	1,170,063		$	940,108		$	874,375
				Three Months Ended April 30,						Twelve months ended April 30,
Supplemental Information				2014			2013			2014			2013
Stock-based compensation expense:
	Pretax		$	4,581		$	3,879		$	20,058		$	15,293
	After-tax			2,794			2,407			12,204			9,408
Amortization of intangible assets:
	Pretax		$	9,544		$	6,085		$	30,895		$	24,215
	After-tax			5,817			3,775			18,798			14,896

NON-GAAP FINANCIAL INFORMATION

The accompanying press release contains non-GAAP financial measures. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.

We consider non-GAAP financial measures to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.

The following are descriptions of adjustments we make for our non-GAAP financial measures:

• 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.
• We exclude the effects of discrete income tax reserve and related adjustments recorded in a specific quarter. 

We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.

We measure the performance of our business using a variety of metrics, including EBITDA, adjusted EBITDA and adjusted pretax income of continuing operations. Adjusted EBITDA and adjusted pretax income eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance. We also use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

SOURCE H & R Block

Contacts:

Colby Brown
Investor Relations
(816) 854-4559

Gene King
Media Relations
(816) 854-4672

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