EX-99 2 exhibitsfy06.htm EXH 99.1 PRESS RELEASE

 

 

News Release

 

For Further Information

Media Relations: Linda McDougall, 816-932-7542, lmcdougall@hrblock.com

Investor Relations: Scott Dudley, 816-932-8342, scott.dudley@hrblock.com

 

 

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

 

Fiscal 2007 Earnings Guidance at $1.80 to $2.05 per Share

 

Board Increases Quarterly Dividend and Share Repurchase Authorization

 

FOR RELEASE June 7, 2006 4 p.m. EDT

 

KANSAS CITY, Mo. – 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 share, including an after tax charge of $6.4 million, or 2 cents per share, for a previously announced restructuring of its mortgage operations to further lower the cost of origination 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 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 tax services strategy, took decisive action in our mortgage business, and emerged as the clear middle-market 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 origination volumes and also lowered costs to help it

 

 

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H&R Block Reports Fourth Quarter and Fiscal Year Results/Page 2

 

 

compete in a more challenging environment this year. And RSM McGladrey, 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.”

 

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 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 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 in Mortgage Services. In our newly created Consumer Financial Services 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 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 the company to repurchase up to 20 million of its shares, in addition to the shares remaining on its June 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 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 rose more than 4 percent for the quarter to $883.5 million, but for the year decreased to $589.8 million, including a pretax charge of $70.2 million for litigation settlements and associated legal costs.

 

 

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H&R Block Reports Fourth Quarter and Fiscal Year Results/Page 3

 

 

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 begun to see increased growth in the blending 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 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 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 capacity with volume. Option One and H&R Block Mortgage also are investing in technology to streamline and automate processes to reduce costs.

 

Net gain-on-sale gross margin improved to 2.10 percent in the fourth quarter versus1.86 percent in the third quarter, as loan sale premiums strengthened. For the

 

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H&R Block Reports Fourth Quarter and Fiscal Year Results/Page 4

 

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 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 to residuals of $35.3 million for fiscal 2006, including a net write-down 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 Tax and Business Services unit (Amex TBS) 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 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 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 tax, accounting and business services offices in Germany, the United Kingdom, Russia, mainland China, Poland, Hungary, Romania and the Czech Republic. 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 with RSM Hemmelrath Gruppe, a legal and tax firm based in Munich, Germany. Like RSM McGladrey, it is a member of the RSM International affiliation 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.

 

Investment Services

 

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H&R Block Reports Fourth Quarter and Fiscal Year Results/Page 5

 

 

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 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, 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 H&R Block in the consumer marketplace. It will also serve as an in-house depositary 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 and shareholders at 5 p.m. EDT (4 p.m. CDT) on Wednesday, June 7. Mark Ernst and William L. Trubeck, executive vice president and chief financial officer, will discuss the quarter and year-end 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:

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 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

 

 

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H&R Block Reports Fourth Quarter and Fiscal Year Results/Page 6

 

 

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 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 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 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); Consumer Financial Services (investment and financial advisory services, 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. 

 

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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.

 

 

 

 


 

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited, amounts in thousands, except share data

 

 

 

April 30,

 

April 30,

 

ASSETS

 

2006

 

2005

 

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

 

 

 

 

 


 

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

 

 

 

 

 


 

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

 

 

 

 

 


 

SELECTED OPERATING DATA

Unaudited

 

Mortgage Services

 

Year ended

 

 

 

Three months ended

 

 

 

4/30/2006

 

 

 

4/30/2006

 

4/30/2005

 

% change

 

1/31/2006

 

% change

 

Volume of loans originated (thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale (non-prime)

 

$

36,028,794

 

 

 

$

7,471,558

 

$

8,090,274

 

-7.6

%

$

7,941,048

 

-5.9

%

Retail: Non-prime

 

 

3,260,071

 

 

 

 

529,798

 

 

807,269

 

-34.4

%

 

667,542

 

-20.6

%

Prime

 

 

1,490,898

 

 

 

 

317,482

 

 

380,946

 

-16.7

%

 

343,897

 

-7.7

%

 

 

 

4,750,969

 

 

 

 

847,280

 

 

1,188,215

 

-28.7

%

 

1,011,439

 

-16.2

%

Total

 

$

40,779,763

 

 

 

$

8,318,838

 

$

9,278,489

 

-10.3

%

$

8,952,487

 

-7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan characteristics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loan size (thousands)

 

$

183

 

 

 

$

192

 

$

158

 

21.5

%

$

194

 

-1.0

%

Weighted average interest rate (WAC) (1)

 

 

7.87

%

 

 

 

8.51

%

 

7.45

%

1.06

%

 

8.27

%

0.24

%

Weighted average FICO score (1)

 

 

622

 

 

 

 

613

 

 

618

 

 

 

 

621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan sales (thousands)

 

$

40,272,225

 

 

 

$

8,006,905

 

$

9,322,150

 

-14.1

%

$

8,924,788

 

-10.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans serviced

 

 

441,981

 

 

 

 

441,981

 

 

435,290

 

1.5

%

 

466,026

 

-5.2

%

Servicing portfolio (billions)

 

$

73.4

 

 

 

$

73.4

 

$

68.0

 

7.9

%

$

76.8

 

-4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents non-prime production only.

 

 

Investment Services

 

Year ended

 

 

 

Three months ended

 

 

 

4/30/2006

 

 

 

4/30/2006

 

4/30/2005

 

% change

 

1/31/2006

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer trades (2)

 

 

974,625

 

 

 

 

259,106

 

 

241,327

 

7.4

%

 

255,879

 

1.3

%

Customer daily average trades

 

 

3,883

 

 

 

 

4,248

 

 

3,892

 

9.1

%

 

4,127

 

2.9

%

Average revenue per trade (3)

 

$

119.11

 

 

 

$

114.06

 

$

127.73

 

-10.7

%

$

113.83

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer accounts: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional brokerage

 

 

418,162

 

 

 

 

418,162

 

 

431,749

 

-3.1

%

 

426,699

 

-2.0

%

Express IRAs

 

 

442,157

 

 

 

 

442,157

 

 

380,539

 

16.2

%

 

381,859

 

15.8

%

 

 

 

860,319

 

 

 

 

860,319

 

 

812,288

 

5.9

%

 

808,558

 

6.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance of assets under administration (billions)

 

$

31.8

 

 

 

$

31.8

 

$

27.8

 

14.4

%

$

31.4

 

1.3

%

Average assets per traditional brokerage account

 

$

75,222

 

 

 

$

75,222

 

$

63,755

 

18.0

%

$

72,914

 

3.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average customer margin balances (millions)

 

$

539

 

 

 

$

493

 

$

603

 

-18.2

%

$

529

 

-6.8

%

Average payables to customers (millions)

 

$

782

 

 

 

$

721

 

$

936

 

-23.0

%

$

769

 

-6.2

%

Advisors

 

 

958

 

 

 

 

958

 

 

1,010

 

-5.1

%

 

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.

 

 

 

 


 

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.