H&R Block Reports Fourth Quarter and Fiscal Year Results; Record Revenues for Quarter and Year; Earnings Reduced by Lower Mortgage Results and Litigation Settlement Costs.KANSAS CITY Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). , Mo. -- H&R Block Inc. (NYSE NYSE See: New York Stock Exchange : HRB HRB H&R Block, Inc. HRB Harbin, China (Airport Code) HRB Human Resources Branch (Canada) HRB Haiti International Airline (ICAO code) HRB Human Rights Bureau ): Fiscal 2007 Earnings Guidance at $1.80 to $2.05 per Share Board Increases Quarterly Dividend and Share Repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. Authorization The right or permission to use a system resource; the process of granting access. See access control. H&R Block Inc. (NYSE: HRB) today reported that revenues increased 6 percent to $2.5 billion in the fourth quarter of fiscal 2006, and rose 10 percent to $4.9 billion for the fiscal year ended April 30. Both were records for the company. Net income for the quarter was $587.5 million, or $1.77 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, including an after tax charge of $6.4 million, or 2 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. , for a previously announced restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of its mortgage operations to further lower the cost of origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real in the coming year. For the fiscal year, net income was $490.4 million, or $1.47 per diluted share. The results include after tax charges totaling $49.1 million, or 15 cents per diluted share, for the previously announced settlement of refund anticipation loan A (Tax) Refund Anticipation Loan (RAL) is a high interest rate short-term loan secured by a taxpayer’s expected tax refund. United States In the United States, the taxpayer commonly applies for the loan through a paid tax preparation firm. litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and associated legal costs, and the mortgage restructuring. "With significant industry change occurring in each of our three leading businesses, we demonstrated the importance of our multi-channel See multichannel. tax services strategy, took decisive action in our mortgage business, and emerged as the clear middle-market The term middle-market may refer to either a type of newspaper or a type of company. A middle-market newspaper is one that attempts to cater to readers who want some entertainment value from their newspaper as well as adequate serious coverage of significant news leader in business services," said Mark A. Ernst, chairman and chief executive officer. "Our Tax Services business recovered from a poor start to the season to finish the year strongly, while positioning H&R Block for growth and leadership through coming industry change," Ernst said. "Mortgage Services maintained pricing discipline in the face of declining industry Declining Industry An industry where growth is either negative or is not growing at the broader rate of economic growth. There are many reasons for a declining industry: consumer demand may be steadily evaporating, the depletion of a natural resource may be occurring, or there may origination volumes and also lowered costs to help it compete in a more challenging environment this year. And RSM McGladrey RSM McGladrey, Inc. is a tax, accounting and consulting firm in the United States, headquartered in Bloomington, Minnesota. It is the US member firm of RSM International, the 6th largest network of professional service firms in the world. , our Business Services operation, emerged as the clear leading alternative to the Big 4 accounting firms to serve middle-market companies in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ." Tax Services gained momentum in the digital market by serving 23 percent more clients, Ernst said, and in U.S. retail tax added 1,000 office locations to enhance client convenience and support future client growth. In Mortgage Services, as the industry shifts its focus from volume to cost-efficient Adj. 1. cost-efficient - productive relative to the cost cost-effective efficient - being effective without wasting time or effort or expense; "an efficient production manager"; "efficient engines save gas" origination and profit improvement, he noted that the company is maintaining its emphasis on delivering superior service at the same time it reduces loan origination The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. costs. Fiscal 2007 Outlook The company announced that earnings per share for fiscal 2007 are expected to be in the range of $1.80 to $2.05. "We expect solid growth in both Tax Services and Business Services and a more stable environment for operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: in Mortgage Services. In our newly created Consumer Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. segment, we expect continued significant improvement from H&R Block Financial Advisors and a meaningful contribution from the new H&R Block Bank," Ernst said. "Ultimately, our results will depend on strong execution in Tax Services and our ability to operate effectively in the volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. mortgage market as the interest rate environment often creates unpredictable operating and competitive challenges." Board Actions Reflecting the company's business outlook, the Board of Directors has approved an 8 percent increase in the quarterly cash dividend to 13.5 cents per share. The increase is effective with the dividend to be paid Oct. 2, 2006, to shareholders of record Sept. 11, 2006. This payment will be the company's 176th consecutive quarterly dividend and marks the ninth consecutive year of increase. The Board also authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: the company to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to 20 million of its shares, in addition to the shares remaining on its June June: see month. 2004 authorization. "Given our strong cash generation ability, we continue to view dividends and share repurchases as important ways to return value to shareholders," Ernst said. In fiscal 2006 the company paid $160 million in dividends and repurchased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 9 million shares for $254 million. Business Segment Performance Tax Services Revenues for the fourth quarter of fiscal 2006 increased nearly 4 percent to $1.8 billion, and for the full year were up 4 percent to $2.5 billion. Pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. rose more than 4 percent for the quarter to $883.5 million, but for the year decreased to $589.8 million, including a pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern charge of $70.2 million for litigation settlements and associated legal costs. Total clients served in H&R Block's U.S. retail and digital tax business grew 2.1 percent to 19.5 million for the 2006 fiscal year. Net average fee per retail client served increased 5.8 percent to $155.21. "After early season challenges, we performed as anticipated in the second half of the tax season," Ernst said. "Retail office client growth in the second half demonstrated the strength of both the H&R Block brand and our people in serving the full range of client needs in the marketplace. "We saw especially strong results during the fiscal year in digital tax, where we grew 23 percent in clients and gained market share," Ernst continued. "We also served a greater share of taxpayers in the Free File Alliance. "H&R Block is the only firm that effectively allows clients to choose the type of service they need as their tax lives change," Ernst noted. "We've we've Contraction of we have. we've have begun to see increased growth in the blending blend v. blend·ed or blent , blend·ing, blends v.tr. 1. To combine or mix so that the constituent parts are indistinguishable from one another: of digital services with tax professional assistance, an emerging market category in which H&R Block clearly leads." H&R Block expanded its U.S. retail office network to 12,165 company-owned and franchise locations for the 2006 tax season, an increase of just over 1,000. "As competition for clients in the retail channel grows, our ability to meet client needs for convenience continues to be a distinct competitive priority for H&R Block," Ernst said. Also contributing to this year's results were ongoing enhancements in client service, resulting in continued strength in reported client and price/value satisfaction. Strong performance by the international tax operations also benefited results. Mortgage Services In Mortgage Services -- which included Option One Mortgage and H&R Block Mortgage in fiscal 2006 -- revenues declined 20 percent to $304.1 million in the fourth quarter versus last year and held steady at $1.2 billion for the year. Pretax income declined to $73.5 million in the fourth quarter and to $321.6 million for the year. The full year results include a pretax charge of $12.6 million for restructuring costs. "The mortgage industry has slowed from its fast pace of recent years, largely because of rising interest rates and a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. U.S. housing market," Ernst said. "Our mortgage originations peaked during the first half of fiscal 2006. In step with the industry, our volumes seem to be settling in at lower, but more sustainable levels as we enter fiscal 2007." Loan origination volume of $8.3 billion for the fourth quarter was within the company's expected range of $8 billion to $9 billion. "We're we're Contraction of we are. we're we are pleased with the progress we've made in lowering our cost of origination, and we're working to become even more cost effective," Ernst said. Consolidations have reduced office locations and staffing to further align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. capacity with volume. Option One and H&R Block Mortgage also are investing in technology to streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. and automate To turn a set of manual steps into an operation that goes by itself. See automation. processes to reduce costs. Net gain-on-sale gross margin improved to 2.10 percent in the fourth quarter versus 1.86 percent in the third quarter, as loan sale premiums strengthened. For the year, net gain-on-sale gross margin declined to 1.76 percent, and total gain on sales dropped to $714 million. Cost of origination improved to 1.96 percent for the quarter versus 2.12 percent during the 2006 third quarter, and to 1.91 percent for the year versus 2.23 percent during 2005. Option One's mortgage servicing Mortgage servicing The collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan. portfolio was $73 billion at the end of the fiscal year, up from a year ago, but off slightly from the end of the third quarter. For the year, servicing contributed revenues of $399 million and pretax income of $76 million. The company realized a net write-up Write-Up An increase made to the book value of an asset because it is undervalued compared to market values. Notes: A write-up will increase a company's accounting book value without any expenditures. to residuals Residuals (1) Part of stock returns not explained by the explanatory variable (the market index return). Residuals measure the impact of firm-specific events during a particular period. of $35.3 million for fiscal 2006, including a net write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of $3.7 million in the fourth quarter, which was recorded in other comprehensive income, net of deferred taxes. The company also recorded $34 million of impairments for the year, which is recorded as a reduction in gains on sales of mortgage assets in the income statement. Business Services Business Services revenues increased 72 percent to $347.8 million for the fourth quarter and improved 53 percent for the year to $877.3 million. The American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. Tax and Business Services unit (Amex TBS TBS Tablespoon TBS Tokyo Broadcasting System, Inc. TBS Treasury Board Secretariat (Canada) TBS Tris-Buffered Saline TBS Tris Buffered Saline TBS Turn Based Strategy (games) ) acquired effective Oct. 1, 2005, contributed $135.1 million to revenues for the quarter and $251.3 million for the year. Pretax income rose 63 percent for the quarter to $63.3 million and climbed 79 percent for the year to $53.4 million. Excluding Amex TBS, pretax income was down 4 percent for the quarter and up 24 percent for the year. "Adding Amex TBS to our RSM McGladrey business made us the clear leading accounting, tax and consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a serving midsized companies, and the combination has been delivering both the financial and early strategic benefits we expected," Ernst said. "At the same time, revenues are growing rapidly in our emerging wealth management and financial process outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. businesses, and we continue to invest in their potential." RSM McGladrey will announce tomorrow morning that it has entered into an agreement to create affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. tax, accounting and business services offices in Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). , the United Kingdom, Russia Russia, officially the Russian Federation, Rus. Rossiya, republic (2005 est. pop. 143,420,000), 6,591,100 sq mi (17,070,949 sq km). , mainland Mainland. 1 Island (1991 pop. 14,150), 178 sq mi (461 sq km), N Scotland. The largest of the Orkney Islands, it is also called Pomona. Kirkwall, the seat of the Orkney Islands council area, is on the island. China, Poland Poland, Pol. Polska, officially Republic of Poland, republic (2005 est. pop. 38,635,000), 120,725 sq mi (312,677 sq km), central Europe. It borders on Germany in the west, on the Baltic Sea and the Kaliningrad region of Russia in the north, on Lithuania, , Hungary Hungary, Hung. Magyarország, officially Republic of Hungary, republic (2005 est. pop. 10,007,000), 35,919 sq mi (93,030 sq km), central Europe. , Romania Romania (rōmān`ēə, –yə) or Rumania (r  –), republic (v), 91,699 sq mi (237,500 sq km), SE Europe. and the Czech Republic Czech Republic, Czech Česká Republika (2005 est. pop. 10,241,000), republic, 29,677 sq mi (78,864 sq km), central Europe. It is bordered by Slovakia on the east, Austria on the south, Germany on the west, and Poland on the north. . The agreement creates
RSM McGladrey UK Ltd., a wholly owned international consulting
subsidiary that provides the foundation for global tax and cross-border
transaction support. It is a collaboration Working together on a project. See collaborative software. with RSM RSM (in Britain) regimental sergeant major Hemmelrath Gruppe, a
legal and tax firm based in Munich Munich (my`nĭk), Ger. München (mün`khən), city (1994 pop. 1,255,623), capital of Bavaria, S Germany, on the Isar River near the Bavarian Alps. , Germany. Like RSM McGladrey, it is a
member of the RSM International RSM International is a global network of professional service firms. Member firms operate in over 70 countries worldwide, employing over 23,000 people. Total revenues for 2006 were in excess of $2.7 billion USD, placing RSM International in the top 7 global accountancy firms. affiliation affiliation (fil´ēā´sh of separate and independent
legal entities."The needs of middle-market businesses increasingly require the sophisticated tax and global capabilities that RSM McGladrey has been providing through its RSM International affiliation. This transaction will strengthen our ability to ensure that clients receive the quality service they need as their businesses become more interconnected globally," said Ernst. Terms of the transaction will not be disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). . Investment Services Revenues for Investment Services rose 10 percent for the quarter to $76.8 million and increased over 20 percent for the year to $288 million. The business achieved its fifth consecutive quarter of improvement over the prior-year period, reducing its pretax loss pretax loss A loss reported before tax benefits are considered. by 33 percent to $9.7 million. The annual loss of $32.8 million was less than half of the prior year (down 56 percent) and includes $36.6 million of intangible amortization. "H&R Block Financial Advisors delivered the kind of year we were expecting," Ernst said. "We saw the benefits from a 2005 reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. , as well as our cost management discipline and initiatives to increase advisor productivity." Ernst noted that Investment Services has become part of the new Consumer Financial Services business segment that H&R Block established after year end. "In fiscal 2007, we are bringing together three businesses -- H&R Block Financial Advisors, H&R Block Mortgage and the new H&R Block Bank -- that offer complementary financial services and products to consumers under the H&R Block brand." H&R Block Bank began operations May 1, with headquarters and its single branch location in Kansas City. By providing essential, affordable banking products and services to clients who currently have limited access, the bank will help differentiate differentiate /dif·fer·en·ti·ate/ (dif?er-en´she-at) 1. to distinguish, on the basis of differences. 2. to develop specialized form, character, or function differing from that surrounding it or from the original. H&R Block in the consumer marketplace. It will also serve as an in-house In-house In the context of general equities, keeping an activity within the firm. For example, rather than go to the marketplace and sell a security for a client to anyone, an attempt is made to find a buyer to complete the transaction with the firm. depositary DEPOSITARY, contracts. He with whom a deposit is confided or made. 2. It is, the essence of the contract of deposits that it should be gratuitous on the part 'of the depositary. 9 M. R. 470. for certain assets belonging to H&R Block and its subsidiaries. Conference Call H&R Block will host a conference call for analysts, institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. and shareholders at 5 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (4 p.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT ) on Wednesday Wednesday: see week. , June 7. Mark Ernst and William William, crown prince of Germany William or Frederick William, 1882–1951, crown prince of Germany, son of William II. In World War I he commanded (1914) an army on the Western Front and was nominal commander in the German attack L. Trubeck, executive vice president and chief financial officer, will discuss the quarter and year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. results and future expectations, as well as respond to analysts' questions. To access the call, please dial the number below approximately five to 10 minutes prior to the scheduled starting time Noun 1. starting time - the time at which something is supposed to begin; "they got an early start"; "she knew from the get-go that he was the man for her" commencement, get-go, offset, outset, showtime, start, kickoff, beginning, first : U.S./Canada (888) 425-2715 - Access Code 2013276 International (706) 679-8257 - Access Code 2013276 The call will be webcast in a listen-only format for the media and public. The link to the webcast can be obtained at www.hrblock.com. Supplemental financial and statistical information will be available in connection with the webcast, or can be accessed directly on H&R Block's Investor Relations Investor relations The process by which the corporation communicates with its investors. Web site at www.hrblock.com/about/investor following close of the NYSE market. A replay of the call will be available beginning at 6 p.m. EDT June 7 and continuing until 12 a.m. EDT June 16, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The replay access code is 2013276. A replay of the webcast will also be available on the company's Web site at www.hrblock.com/about/investor. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Except for historical information contained herein, the matters set forth in this press release are forward-looking statements based upon current information and expectations. Such statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that could cause actual results to differ materially from what is expressed, implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. or forecast in such forward-looking statements. Such differences could be caused by a number of factors, including, but not limited to: the uncertainty that the company will achieve or exceed its revenue, earnings, and earnings-per-share growth goals or expectations for fiscal year 2007; the uncertainty of the company's ability to purchase shares of its common stock pursuant to the board's authorization; the uncertainty of the effect of any share repurchases upon the company and its shareholders; changes in interest rates; changes in the company's effective income tax rate; changes in economic, political or regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. environments; changes in competition; litigation involving the company and its subsidiaries; and risks described from time to time in reports and registration statements filed by H&R Block Inc. and its subsidiaries with the Securities and Exchange Commission. Readers should take these factors into account in evaluating such forward-looking statements. About H&R Block H&R Block Inc. (NYSE: HRB) is a leading provider of tax, financial, mortgage, accounting and business consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.) service - work done by one person or group that benefits another; "budget separately for goods and services" and products. H&R Block is the world's largest tax services provider, having prepared more than 400 million tax returns since 1955. The company and its subsidiaries generated revenues of $4.9 billion and net income of $490 million in fiscal year 2006. In fiscal year 2007, it is operating in four principal business segments: Tax Services (income tax preparation and advice via in-office, online and software solutions); Mortgage Services (wholesale mortgage originations and loan servicing Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers. The level of service varies depending on the type loan and the terms negotiated between the firm and the investor seeking their services. ); Consumer Financial Services (investment and financial advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal , retail mortgage loans, and banking products and services); and Business Services (tax, accounting and consulting services for midsized businesses). Headquartered in Kansas City, Mo., H&R Block markets its services and products under three leading brands - H&R Block, Option One and RSM McGladrey. For more information visit our Online Press Center at www.hrblock.com.
H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
Three months ended April 30,
---------------------------------------------
Revenues Income (loss)
----------------------- --------------------
2006 2005 2006 2005
---------------------------------------------
Tax Services $1,765,308 $1,702,654 $883,468 $846,441
Mortgage Services 304,056 380,841 73,456 163,113
Business Services 347,768 202,295 63,321 38,892
Investment Services 76,778 69,798 (9,709) (14,488)
Corporate 2,108 (309) (29,553) (30,903)
----------------------- --------------------
$2,496,018 $2,355,279 980,983 1,003,055
=======================
Income taxes 393,445 388,125
--------------------
Net income $587,538 $614,930
====================
Basic earnings per share $1.79 $1.86
====================
Basic shares outstanding 328,423 330,771
Diluted earnings per share $1.77 $1.83
====================
Diluted shares outstanding 332,141 336,833
Year ended April 30,
---------------------------------------------
Revenues Income (loss)
----------------------- --------------------
2006 2005 2006 2005
---------------------------------------------
Tax Services $2,451,806 $2,358,293 $589,766 $663,518
Mortgage Services 1,247,138 1,246,018 321,616 496,093
Business Services 877,259 573,316 53,378 29,871
Investment Services 287,955 239,244 (32,835) (75,370)
Corporate 8,643 3,148 (104,532) (96,397)
----------------------- --------------------
$4,872,801 $4,420,019 827,393 1,017,715
=======================
Income taxes 336,985 393,805
--------------------
Net income $490,408 $623,910
====================
Basic earnings per share $1.49 $1.88
====================
Basic shares outstanding 328,118 331,612
Diluted earnings per share $1.47 $1.85
====================
Diluted shares outstanding 333,187 337,625
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
On June 8, 2005, our Board of Directors declared a two-for-one stock
split of the Company's Common Stock in the form of a 100% stock
distribution, effective August 22, 2005, to shareholders of record as
of the close of business on August 1, 2005. All share and per share
amounts have been adjusted to reflect the retroactive effect of the
stock split.
Basic earnings per share is based on the weighted average number of
shares outstanding. The dilutive effect of potential common shares is
included in diluted earnings per share except in those periods with a
loss.
Certain reclassifications have been made to prior year amounts to
conform to the current period presentation. These reclassifications
had no effect on the results of operations or stockholders' equity as
previously reported.
H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except share data
April 30, April 30,
2006 2005
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $694,358 $1,100,213
Cash and cash equivalents - restricted 394,069 516,909
Receivables from customers, brokers, dealers
and clearing organizations, net 496,577 590,226
Receivables, net 503,188 341,706
Mortgage loans held for sale 236,399 77,082
Prepaid expenses and other current assets 499,356 444,498
----------- -----------
Total current assets 2,823,947 3,070,634
----------- -----------
Residual interests in securitizations -
available-for-sale 159,058 205,936
Beneficial interest in Trusts - trading 188,014 215,367
Mortgage servicing rights 272,472 166,614
Mortgage loans held for investment 407,538 -
Property and equipment, net 443,785 330,150
Intangible assets, net 219,494 247,092
Goodwill, net 1,100,452 1,015,947
Other assets 374,375 286,316
----------- -----------
Total assets $5,989,135 $5,538,056
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $506,992 $25,545
Accounts payable to customers, brokers and
dealers 781,303 950,684
Accounts payable, accrued expenses and other 768,505 564,749
Accrued salaries, wages and payroll taxes 330,946 318,644
Accrued income taxes 505,690 375,174
----------- -----------
Total current liabilities 2,893,436 2,234,796
----------- -----------
Long-term debt 417,539 923,073
Other noncurrent liabilities 530,361 430,919
----------- -----------
Total liabilities 3,841,336 3,588,788
----------- -----------
Stockholders' equity:
Common stock, no par, stated value $.01 per
share 4,359 4,359
Additional paid-in capital 653,053 598,388
Accumulated other comprehensive income 21,948 68,718
Retained earnings 3,492,059 3,161,682
Less cost of 107,377,858 and 104,649,850
shares of common stock in treasury (2,023,620) (1,883,879)
----------- -----------
Total stockholders' equity 2,147,799 1,949,268
----------- -----------
Total liabilities and stockholders' equity $5,989,135 $5,538,056
=========== ===========
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
-----------------------
Year ended April 30,
-----------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $490,408 $623,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 191,703 183,867
Accretion of residual interests in
securitizations (114,346) (137,610)
Impairment of residual interests in
securitizations 34,107 12,235
Realized gain on sale of previously
securitized residuals (31,463) (15,396)
Additions to mortgage servicing rights (250,537) (137,510)
Amortization and impairment of mortgage
servicing rights 144,679 84,717
Other net changes in working capital, net
of acquisitions 121,135 (100,420)
----------- -----------
Net cash provided by operating activities 585,686 513,793
----------- -----------
Cash flows from investing activities:
Cash received from residual interests in
securitizations 80,539 136,045
Cash received from sale of previously
securitized residuals 62,396 16,485
Mortgage loans originated for investment,
net (407,538) -
Purchases of property and equipment (250,510) (209,458)
Payments made for business acquisitions, net
of cash acquired (212,543) (37,621)
Other, net 39,151 36,139
----------- -----------
Net cash used in investing activities (688,505) (58,410)
----------- -----------
Cash flows from financing activities:
Repayments of commercial paper (6,423,881) (5,191,623)
Proceeds from issuance of commercial paper 6,423,881 5,191,623
Repayments of other short-term borrowings (625,000) (750,000)
Proceeds of other short-term borrowings 625,000 750,000
Repayments of Senior Notes - (250,000)
Proceeds from issuance of long-term debt - 395,221
Payments on acquisition debt (26,819) (25,664)
Dividends paid (160,031) (142,988)
Acquisition of treasury shares (260,312) (530,022)
Proceeds from issuance of common stock 108,507 136,102
Other, net 35,619 (10,564)
----------- -----------
Net cash used in financing activities (303,036) (427,915)
----------- -----------
Net increase (decrease) in cash and cash
equivalents (405,855) 27,468
Cash and cash equivalents at beginning of the
year 1,100,213 1,072,745
----------- -----------
Cash and cash equivalents at end of the year $694,358 $1,100,213
=========== ===========
Supplementary cash flow data:
Income taxes paid $270,540 $437,427
Interest paid 102,317 82,535
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
----------------------- -----------------------
Three Months Ended
April 30, Year Ended April 30,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues:
Service revenues $1,951,496 $1,724,460 $3,463,111 $2,920,586
Other revenues:
Gains on sales of
mortgage assets,
net 172,386 255,983 713,981 822,075
Product and other
revenues 324,266 314,738 492,502 478,443
Interest income 47,870 60,098 203,207 198,915
----------- ----------- ----------- -----------
2,496,018 2,355,279 4,872,801 4,420,019
----------- ----------- ----------- -----------
Operating expenses:
Cost of service
revenues 1,018,937 875,802 2,383,299 1,999,068
Cost of other
revenues 121,108 140,034 523,992 448,021
Selling, general and
administrative 371,538 327,500 1,111,585 920,677
----------- ----------- ----------- -----------
1,511,583 1,343,336 4,018,876 3,367,766
----------- ----------- ----------- -----------
Operating income 984,435 1,011,943 853,925 1,052,253
Interest expense 12,028 13,467 49,059 62,367
Other income, net 8,576 4,579 22,527 27,829
----------- ----------- ----------- -----------
Income before taxes 980,983 1,003,055 827,393 1,017,715
Income taxes 393,445 388,125 336,985 393,805
----------- ----------- ----------- -----------
Net income $587,538 $614,930 $490,408 $623,910
=========== =========== =========== ===========
Basic earnings per
share $1.79 $1.86 $1.49 $1.88
=========== =========== =========== ===========
Basic shares
outstanding 328,423 330,771 328,118 331,612
Diluted earnings per
share $1.77 $1.83 $1.47 $1.85
=========== =========== =========== ===========
Diluted shares
outstanding 332,141 336,833 333,187 337,625
H&R BLOCK
SELECTED OPERATING DATA
Unaudited
------------ ---------------------------------
Mortgage Services Year ended Three months ended
------------ ---------------------------------
4/30/2006 4/30/2006 4/30/2005 %change
-----------------------------------------------------------------
Volume of loans originated
(thousands):
Wholesale (non-
prime) $36,028,794 $7,471,558 $8,090,274 -7.6%
Retail: Non-prime 3,260,071 529,798 807,269 -34.4%
Prime 1,490,898 317,482 380,946 -16.7%
------------ ----------- ----------- ------
4,750,969 847,280 1,188,215 -28.7%
------------ ----------- ----------- ------
Total $40,779,763 $8,318,838 $9,278,489 -10.3%
============ =========== =========== ======
Loan
characteristics:
Average loan size
(thousands) $183 $192 $158 21.5%
Weighted average
interest rate
(WAC)(1) 7.87% 8.51% 7.45% 1.06%
Weighted average
FICO score(1) 622 613 618
Loan sales
(thousands) $40,272,225 $8,006,905 $9,322,150 -14.1%
============ =========== =========== ======
Servicing
portfolio:
Number of loans
serviced 441,981 441,981 435,290 1.5%
Servicing
portfolio
(billions) $73.4 $73.4 $68.0 7.9%
(1) Represents non-prime production only.
Investment ------------ ---------------------------------
Services Year ended Three months ended
------------ ---------------------------------
4/30/2006 4/30/2006 4/30/2005 %change
-------- --------------------------------------------------------
Customer
trades(2) 974,625 259,106 241,327 7.4%
Customer daily
average trades 3,883 4,248 3,892 9.1%
Average revenue
per trade(3) $119.11 $114.06 $127.73 -10.7%
Customer
accounts:(4)
Traditional
brokerage 418,162 418,162 431,749 -3.1%
Express IRAs 442,157 442,157 380,539 16.2%
------------ ----------- -----------
860,319 860,319 812,288 5.9%
============ =========== ===========
Ending balance of
assets under
administration
(billions) $31.8 $31.8 $27.8 14.4%
Average assets per
traditional
brokerage account $75,222 $75,222 $63,755 18.0%
Average customer
margin balances
(millions) $539 $493 $603 -18.2%
Average payables to
customers
(millions) $782 $721 $936 -23.0%
Advisors 958 958 1,010 -5.1%
(2) Includes only trades on which revenues are earned ("revenue
trades"). Revenues, defined as trading revenues, are earned on
both transactional and annuitized trades.
(3) Calculated as trading revenues divided by revenue trades.
(4) Includes only accounts with a positive period-end balance.
H&R BLOCK
SELECTED OPERATING DATA
Unaudited
-----------------------
Mortgage Services Three months ended
-----------------------
1/31/2006 % change
----------------------------------------------------------
Volume of loans originated
(thousands):
Wholesale (non-prime) $7,941,048 -5.9%
Retail: Non-prime 667,542 -20.6%
Prime 343,897 -7.7%
----------- ----------
1,011,439 -16.2%
----------- ----------
Total $8,952,487 -7.1%
=========== ==========
Loan characteristics:
Average loan size (thousands) $194 -1.0%
Weighted average interest rate
(WAC)(1) 8.27% 0.24%
Weighted average FICO score(1) 621
Loan sales (thousands) $8,924,788 -10.3%
=========== ==========
Servicing portfolio:
Number of loans serviced 466,026 -5.2%
Servicing portfolio (billions) $76.8 -4.4%
(1) Represents non-prime production only.
-----------------------
Investment Services Three months ended
-----------------------
1/31/2006 % change
----------------------------------------------------------
Customer
trades(2) 255,879 1.3%
Customer daily average trades 4,127 2.9%
Average revenue per trade(3) $113.83 0.2%
Customer accounts:(4)
Traditional brokerage 426,699 -2.0%
Express IRAs 381,859 15.8%
-----------
808,558 6.4%
===========
Ending balance of assets under
administration (billions) $31.4 1.3%
Average assets per traditional
brokerage account $72,914 3.2%
Average customer margin balances
(millions) $529 -6.8%
Average payables to customers
(millions) $769 -6.2%
Advisors 956 0.2%
(2) Includes only trades on which revenues are earned ("revenue
trades"). Revenues, defined as trading revenues, are earned on
both transactional and annuitized trades.
(3) Calculated as trading revenues divided by revenue trades.
(4) Includes only accounts with a positive period-end balance.
H&R BLOCK
U.S. TAX OPERATING DATA
----------------------------------------------------------------------
(in thousands, except average fee and number of offices)
------------------------------
For the year ending April 30,
------------------------------
2006 2005(1) Change
----------- ----------- ------
Clients served:
Company-owned operations 10,359 10,608 -2.3%
Franchise operations 5,373 5,428 -1.0%
----------- -----------
Total retail operations 15,732 16,036 -1.9%
Digital tax solutions(2) 3,721 3,017 23.3%
----------- -----------
19,453 19,053 2.1%
=========== ===========
Gross tax preparation & related fees:
Company-owned operations $1,756,720 $1,678,029 4.7%
Franchise operations 771,124 738,090 4.5%
----------- -----------
Total retail operations $2,527,844 $2,416,119 4.6%
=========== ===========
Gross average fee per client served:
(3)
Company-owned operations $169.58 $158.19 7.2%
Franchise operations 143.52 135.98 5.5%
----------- -----------
Total retail operations $160.68 $150.67 6.6%
=========== ===========
Net average fee per client served:(4)
Company-owned operations $162.91 $153.53 6.1%
Franchise operations 140.36 133.49 5.2%
----------- -----------
Total retail operations $155.21 $146.75 5.8%
=========== ===========
Offices:
Company-owned offices 6,387 5,811 9.9%
Company-owned shared office
locations(5) 1,473 1,296 13.7%
----------- -----------
Total company-owned offices 7,860 7,107 10.6%
----------- -----------
Franchise offices 3,703 3,528 5.0%
Franchise shared office locations(5) 602 526 14.4%
----------- -----------
Total franchise offices 4,305 4,054 6.2%
----------- -----------
12,165 11,161 9.0%
=========== ===========
(1) Prior year numbers have not been reclassified between
company-owned and franchise offices for offices which commenced
company-owned operations during fiscal year 2006.
(2) Includes federal Taxcut software units sold, online completed and
paid federal returns, and paid state returns and e-filings only
when no payment was made for a federal return.
(3) Calculated as gross tax preparation and related fees divided by
clients served.
(4) Calculated as gross tax preparation and related fees less coupons
and discounts, divided by clients served.
(5) Shared office locations include offices located within Wal-Mart,
Sears and other third-party businesses.
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