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H&R Block Announces Fiscal 2013 Results

KANSAS CITY, MO--(Marketwired - Jun 12, 2013) - H&R Block, Inc. (NYSE: HRB)

  • Earnings per share(1) from continuing operations of $1.69, up 46% from prior year(2)

  • Total revenues increase 0.4% to $2.9 billion

  • Successful cost reduction initiatives contribute to $126 million, or 22%, increase in pretax earnings from continuing operations

  • EBITDA increased 15% to $874 million, or 30% of revenues(3)

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, 2013. Earnings per share from continuing operations increased 46 percent to $1.69. On an adjusted non-GAAP basis, earnings per share from continuing operations increased 25 percent to $1.59, largely driven by the successful execution of the company's previously announced cost reduction initiatives. Total revenues increased 0.4 percent to $2.9 billion, while total expenses fell 5 percent to $2.2 billion.

The 2013 U.S. tax season experienced unprecedented challenges, including significant tax legislation changes that occurred shortly before the traditional opening of the tax season, delays related to the opening of the Internal Revenue Service's (IRS) e-file system, and increased fraud controls at the IRS affecting several forms, among other matters. Based on data through April 30, the company estimates total filings at the IRS during tax season 2013 decreased approximately 0.6 percent to 133 million returns, and that the company maintained its share of total U.S. tax returns. International returns increased 1.3 percent to 3.3 million. Total tax returns prepared worldwide by and through H&R Block were 25.4 million in fiscal 2013.

CEO Perspective

"Considering the challenges the industry faced this tax season, we're pleased to have executed well and delivered improved profits," said Bill Cobb, H&R Block's president and chief executive officer. "While there is opportunity for improvement, we remain committed to our long-term strategy of balancing client acquisition with earnings growth. Consistent with this strategy, we made a number of decisions this year to optimize our promotional offerings and distribution channels in both the assisted and digital do-it-yourself categories. Though some of these actions negatively impact total client volume, we improved overall profitability, while maintaining our overall share of the U.S. market. We also gained share for the third consecutive year in the important digital online category," added Cobb.

Fiscal 2013 Results From Continuing Operations

Actual

Adjusted*

in millions, except EPS

Fiscal
Year
2013

Fiscal
Year
2012

Fiscal
Year
2013

Fiscal
Year
2012

Revenue

$2,906

$2,894

$2,906

$2,894

EBITDA*

$874

$757

$883

$808

Pretax Income

$702

$576

$710

$626

Net Income

$465

$346

$437

$380

Weighted Avg. Shares - Diluted

274.4

298.6

274.4

298.6

EPS

$1.69

$1.16

$1.59

$1.27

*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 203rd 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.

(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).

KEY OPERATING RESULTS

Unaudited, amounts in thousands, except per share data

Three months ended April 30,

Revenues

Income (loss)

2013

2012

2013

2012

Tax Services

$

2,193,261

$

1,994,234

$

1,156,346

$

1,015,735

Corporate and Eliminations

6,951

6,440

(26,510

)

(34,109

)

$

2,200,212

$

2,000,674

1,129,836

981,626

Income taxes

440,914

389,923

Net income from continuing operations

688,922

591,703

Net loss from discontinued operations

(24,582

)

(5,600

)

Net income

$

664,340

$

586,103

Basic earnings per share:

Continuing operations

$

2.53

$

2.02

Discontinued operations

(0.09

)

(0.02

)

Consolidated

$

2.44

$

2.00

Basic shares

272,384

293,103

Diluted earnings per share:

Continuing operations

$

2.51

$

2.01

Discontinued operations

(0.09

)

(0.02

)

Consolidated

$

2.42

$

1.99

Diluted shares

274,715

293,985

Twelve months ended April 30,

Revenues

Income (loss)

2013

2012

2013

2012

Tax Services

$

2,877,967

$

2,862,378

$

821,143

$

704,002

Corporate and Eliminations

27,976

31,393

(119,132

)

(127,932

)

$

2,905,943

$

2,893,771

702,011

576,070

Income taxes

236,853

230,102

Net income from continuing operations

465,158

345,968

Net loss from discontinued operations

(31,210

)

(80,036

)

Net income

$

433,948

$

265,932

Basic earnings per share:

Continuing operations

$

1.70

$

1.16

Discontinued operations

(0.11

)

(0.27

)

Consolidated

$

1.59

$

0.89

Basic shares

273,057

297,863

Diluted earnings per share:

Continuing operations

$

1.69

$

1.16

Discontinued operations

(0.11

)

(0.27

)

Consolidated

$

1.58

$

0.89

Diluted shares

274,359

298,601

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic earnings per share is computed using the two-class method and 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 from continuing operations.

On October 25, 2012, we issued $500.0 million aggregate principal amount of our 5.50% Senior Notes due 2022 for aggregate proceeds of $497.2 million. The notes bear interest at 5.50% per annum, subject to adjustment based upon our credit ratings. Interest is payable on May 1 and November 1 of each year beginning on May 1, 2013 until the stated maturity date of November 1, 2022. The notes were issued by our wholly-owned subsidiary, Block Financial LLC (Block Financial), and were fully and unconditionally guaranteed by H&R Block, Inc.

On October 25, 2012, we provided notice to the trustee of our intention to redeem the entire $600.0 million aggregate principal amount of our 7.785% Senior Notes that were due to mature in January 2013. The redemption settled on November 26, 2012 for an aggregate price of $623.0 million, which included full payment of principal, a make-whole premium of $5.8 million and interest accrued up to the redemption date of $17.2 million. Proceeds of the issuance of our 5.50% Senior Notes, together with cash balances on hand, were used to redeem the 7.875% Senior Notes. We recognized a loss on the extinguishment of this debt of $5.8 million in fiscal year 2013, which primarily represents the interest that would have been paid on these notes if they had not been redeemed prior to maturity. This loss is included in other income, net on our consolidated statements of income.

CONSOLIDATED BALANCE SHEETS

Unaudited, amounts in thousands, except per share data

April 30,

April 30,

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$

1,747,584

$

1,944,334

Cash and cash equivalents - restricted

117,837

48,100

Receivables, net

206,835

193,858

Prepaid expenses and other current assets

390,087

314,702

Total current assets

2,462,343

2,500,994

Mortgage loans held for investment, net

338,789

406,201

Investments in available-for-sale securities

486,876

371,315

Property and equipment, net

267,880

240,772

Intangible assets, net

284,439

276,664

Goodwill

434,782

427,566

Other assets

262,670

426,055

Total assets

$

4,537,779

$

4,649,567

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Customer banking deposits

$

936,464

$

827,549

Accounts payable, accrued expenses and other current liabilities

523,921

567,079

Accrued salaries, wages and payroll taxes

134,970

163,992

Accrued income taxes

416,128

336,374

Current portion of long-term debt

722

631,434

Total current liabilities

2,012,205

2,526,428

Long-term debt

905,958

409,115

Other noncurrent liabilities

356,069

388,132

Total liabilities

3,274,232

3,323,675

Stockholders' equity:

Common stock, no par, stated value $.01 per share

3,166

3,979

Additional paid-in capital

752,483

796,784

Accumulated other comprehensive income

10,550

12,145

Retained earnings

1,333,445

2,523,997

Less treasury shares, at cost

(836,097

)

(2,011,013

)

Total stockholders' equity

1,263,547

1,325,892

Total liabilities and stockholders' equity

$

4,537,779

$

4,649,567

CONSOLIDATED STATEMENTS OF INCOME

Unaudited, amounts in thousands, except per share data

Three months ended April 30,

Twelve months ended April 30,

2013

2012

2013

2012

Revenues:

Service revenues

$

1,884,472

$

1,717,064

$

2,443,000

$

2,434,307

Product and other revenues

274,943

243,547

364,114

359,664

Interest income

40,797

40,063

98,829

99,800

2,200,212

2,000,674

2,905,943

2,893,771

Expenses:

Cost of revenues:

Compensation and benefits

514,731

512,634

769,161

828,773

Occupancy and equipment

107,553

118,122

354,612

381,200

Provision for bad debt and loan losses

39,287

23,734

90,685

92,157

Interest

15,062

22,737

79,957

92,089

Depreciation and amortization of property and equipment

19,081

16,470

68,192

61,390

Other

126,021

112,561

242,181

246,086

821,735

806,258

1,604,788

1,701,695

Impairment of goodwill

-

3,152

-

7,409

Selling, general and administrative expenses

251,667

210,231

604,469

618,375

1,073,402

1,019,641

2,209,257

2,327,479

Operating income

1,126,810

981,033

696,686

566,292

Other income, net

3,026

593

5,325

9,778

Income from continuing operations before taxes

1,129,836

981,626

702,011

576,070

Income taxes

440,914

389,923

236,853

230,102

Net income from continuing operations

688,922

591,703

465,158

345,968

Net loss from discontinued operations

(24,582

)

(5,600

)

(31,210

)

(80,036

)

Net income

$

664,340

$

586,103

$

433,948

$

265,932

Basic earnings per share:

Continuing operations

$

2.53

$

2.02

$

1.70

$

1.16

Discontinued operations

(0.09

)

(0.02

)

(0.11

)

(0.27

)

Consolidated

$

2.44

$

2.00

$

1.59

$

0.89

Basic shares

272,384

293,103

273,057

297,863

Diluted earnings per share:

Continuing operations

$

2.51

$

2.01

$

1.69

$

1.16

Discontinued operations

(0.09

)

(0.02

)

(0.11

)

(0.27

)

Consolidated

$

2.42

$

1.99

$

1.58

$

0.89

Diluted shares

274,715

293,985

274,359

298,601

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited, amounts in thousands

Twelve months ended April 30,

2013

2012

Net cash provided by operating activities

$

497,108

$

362,049

Cash flows from investing activities:

Purchases of available-for-sale securities

(227,177

)

(256,173

)

Sales, maturities and payments received on available-for-sale securities

118,411

66,382

Principal repayments on mortgage loans held for investment, net

44,031

49,142

Purchases of property and equipment, net

(113,239

)

(82,457

)

Payments made for acquisitions of businesses and intangibles, net

(20,742

)

(15,258

)

Proceeds from sale of businesses, net

3,785

560,499

Franchise loans:

Loans funded

(70,807

)

(46,246

)

Payments received

83,445

56,591

Surrender of company-owned life insurance policies

81,125

-

Other, net

(9,769

)

19,387

Net cash provided by (used in) investing activities

(110,937

)

351,867

Cash flows from financing activities:

Repayments of commercial paper

(1,214,238

)

(664,167

)

Proceeds from commercial paper

1,214,238

664,167

Repayments of long-term debt

(636,621

)

-

Proceeds from issuance of long-term debt

497,185

-

Repayments of FHLB borrowings

-

(25,000

)

Customer banking deposits, net

103,608

(26,091

)

Dividends paid

(217,201

)

(208,801

)

Repurchase of common stock, including shares surrendered

(340,413

)

(180,592

)

Proceeds from exercise of stock options, net

25,139

12,275

Other, net

(16,238

)

(16,853

)

Net cash used in financing activities

(584,541

)

(445,062

)

Effects of exchange rates on cash

1,620

(2,364

)

Net increase (decrease) in cash and cash equivalents

(196,750

)

266,490

Cash and cash equivalents at beginning of the year

1,944,334

1,677,844

Cash and cash equivalents at end of the year

$

1,747,584

$

1,944,334

Supplementary cash flow data:

Income taxes paid, net

$

155,617

$

218,444

Interest paid on borrowings

73,559

69,681

Interest paid on deposits

5,665

6,843

Transfers of foreclosed loans to other assets

10,357

10,308

Accrued additions to property and equipment

4,261

801

Accrued purchase of common stock

-

22,484

Tax Services Income Statement

Unaudited, dollars in thousands

Twelve months ended April 30,

2013

2012

Tax preparation fees:

U.S.

$

1,712,319

$

1,749,032

International

220,870

205,466

1,933,189

1,954,498

Royalties

318,386

308,561

Fees from RACs

158,176

132,361

Fees from Emerald Card

98,896

104,143

Fees from POM guarantees

71,355

75,603

Interest and fee income on EAs

59,657

59,660

Other

238,308

227,552

Total revenues

2,877,967

2,862,378

Compensation & benefits:

Field wages

654,794

691,680

Other wages

150,306

150,908

Benefits and other compensation

148,492

183,037

953,592

1,025,625

Occupancy and equipment

354,430

381,572

Marketing and advertising

270,240

278,231

Depreciation and amortization

92,004

88,836

Bad debt

77,402

68,082

Supplies

40,131

44,236

Impairment of goodwill and intangible assets

3,581

11,389

Other

265,444

260,405

Total expenses

2,056,824

2,158,376

Pretax income

$

821,143

$

704,002

Pretax margin

28.5

%

24.6

%

U.S. Tax Operating Data

(in thousands)

Fiscal Year to Date through 4/30/13

Fiscal Year to Date through 4/30/12

Percent change

Total returns prepared: (1)

H&R Block Company-Owned Operations

8,907

9,203

-3.2

%

H&R Block Franchise Operations

5,598

5,697

-1.7

%

Total H&R Block Assisted Returns

14,505

14,900

-2.7

%

H&R Block At Home Desktop

2,004

2,158

-7.1

%

H&R Block At Home Online

4,892

4,419

10.7

%

Sub-total

6,896

6,577

4.9

%

H&R Block Free File Alliance

774

861

-10.1

%

Total H&R Block at Home

7,670

7,438

3.1

%

Total H&R Block U.S. Returns

22,175

22,338

-0.7

%

(1)

Prior year numbers have been reclassified between company-owned and franchise operations for offices that were refranchised during either year.

NON-GAAP FINANCIAL MEASURES

Unaudited, amounts in thousands, except per share amounts

Three months ended
April 30,

Twelve months ended
April 30,

EBITDA and Adjusted EBITDA (1)

2013

2012

2013

2012

Net income from continuing operations - as reported

$

688,922

$

591,703

$ 465,158

$ 345,968

Add back :

Income taxes

440,914

389,923

236,853

230,102

Interest expense

15,062

22,737

79,957

92,089

Depreciation and amortization

25,165

23,030

92,407

89,157

481,141

435,690

409,217

411,348

EBITDA from continuing operations

1,170,063

1,027,393

874,375

757,316

Adjustments:

Loss contingencies - litigation

364

(4,567

)

(4,579)

22,961

Impairment of goodwill and intangible assets

2,160

3,152

3,581

11,389

Severance

4,310

30,554

4,785

32,474

Loss on extinguishment of debt

-

-

5,790

-

Gains on sales of tax offices

(396

)

(17,742

)

(1,272)

(16,601)

6,438

11,397

8,305

50,223

Adjusted EBITDA from continuing operations

$

1,176,501

$

1,038,790

$ 882,680

$ 807,539

Non-GAAP Pretax Results

Pretax income from continuing operations - as reported

$

1,129,836

$

981,626

$ 702,011

$ 576,070

Add back :

Loss contingencies - litigation

364

(4,567

)

(4,579)

22,961

Impairment of goodwill and intangible assets

2,160

3,152

3,581

11,389

Severance

4,310

30,554

4,785

32,474

Loss on extinguishment of debt

-

-

5,790

-

Gains on sales of tax offices

(396

)

(17,742

)

(1,272)

(16,601)

6,438

11,397

8,305

50,223

Pretax income from continuing operations - as adjusted

$

1,136,274

$

993,023

$ 710,316

$ 626,293

Non-GAAP After-Tax Results

Net income from continuing operations - as reported

$

688,922

$

591,703

$ 465,158

$ 345,968

Add back (net of tax) :

Loss contingencies - litigation

215

(2,832

)

(2,817)

13,935

Impairment of goodwill and intangible assets

1,331

1,895

2,203

6,912

Severance

2,653

18,539

2,944

19,708

Loss on extinguishment of debt

10

-

3,562

-

Gains on sales of tax offices

(245

)

(10,770

)

(782)

(10,075)

Discrete tax items

5,377

4,932

(33,302)

3,643

9,341

11,764

(28,192)

34,123

Net income from continuing operations - as adjusted

$

698,263

$

603,467

$ 436,966

$ 380,091

(1) Earnings before interest, taxes, depreciation and amortization.

Three months ended
April 30,

Twelve months ended
April 30,

Non-GAAP EPS

2013

2012

2013

2012

EPS from continuing operations - as reported

$

2.51

$

2.01

$ 1.69

$ 1.16

Add back :

Loss contingencies - litigation

-

(0.01

)

(0.01)

0.04

Impairment of goodwill and intangible assets

-

0.01

0.01

0.02

Severance

0.01

0.06

0.01

0.07

Gains on sales of tax offices

-

(0.04

)

-

(0.03)

Loss on extinguishment of debt

-

-

0.01

-

Discrete tax items

0.02

0.02

(0.12)

0.01

0.03

0.04

(0.10)

0.11

EPS from continuing operations - as adjusted

$

2.54

$

2.05

$ 1.59

$ 1.27

Non-GAAP Pretax Results - Tax Services segment

Pretax income - as reported

$

1,156,346

$

1,015,735

$ 821,143

$ 704,002

Add back :

Loss contingencies - litigation

364

(4,390

)

(4,829)

23,137

Impairment of goodwill and intangible assets

2,160

3,152

3,581

11,389

Severance

3,781

29,365

4,261

31,125

Gains on sales of tax offices

(396

)

(17,742

)

(1,272)

(16,601)

5,909

10,385

1,741

49,050

Pretax income - as adjusted

$

1,162,255

$

1,026,120

$ 822,884

$ 753,052

Supplemental Information

Stock-based compensation expense:

Pretax

$

3,879

$

3,166

$ 15,293

$ 14,213

After-tax

2,407

1,897

9,408

8,626

Amortization of intangible assets:

Pretax

$

6,085

$

6,560

$ 24,215

$ 27,767

After-tax

3,775

3,935

14,896

16,852

About Non-GAAP Financial Measures

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 in 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 from our non-GAAP financial measures litigation charges we incur and favorable reserve adjustments. This does not include legal defense costs.

  • We exclude from our non-GAAP financial measures 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 from our non-GAAP financial measures severance and other restructuring charges in connection with the termination of personnel, closure of facilities and related costs.

  • We exclude from our non-GAAP financial measures the gains and losses on business dispositions, including investment banking, legal and accounting fees.

  • We exclude from our non-GAAP financial measures the gains and losses on extinguishment of debt.

  • We exclude from our non-GAAP financial measures 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, adjusted pretax and net income of continuing operations, adjusted EPS and adjusted pretax results of our Tax Services segment. We also use EBITDA and pretax income of continuing operations as factors in incentive compensation calculations for our employees. These adjusted results 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.

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