HR Block 2006 Annual Report Download - page 73

website at www.hrblock.com and www.taxcut.com. These websites OWNED AND FRANCHISED OFFICES –A summary of our company-
allow clients to prepare their federal and state income tax returns using owned and franchise offices is as follows:
the TaxCut Online Tax Program, access tax tips, advice and tax-related
April 30, 2006 2005 2004
news and use calculators for tax planning.
U.S. OFFICES –
Beginning with the fiscal year 2003 tax season, we participated in the
Company-owned offices 6,387 5,811 5,172
Free File Alliance (FFA). This alliance was created by the tax return
Company-owned shared locations (1) 1,473 1,296 996
preparation industry and the IRS, and allows qualified filers to prepare
Total company-owned offices 7,860 7,107 6,168
and file their federal return online at no charge. We feel that this
Franchise offices 3,703 3,528 3,418
program provides a valuable public service and increases our visibility
Franchise shared locations (1) 602 526 323
with new clients, while also providing an opportunity to offer our state
Total franchise offices 4,305 4,054 3,741
return preparation services to these new clients at our regular prices.
12,165 11,161 9,909
CASHBACK PROGRAM –We offer a refund discount (CashBack)
INTERNATIONAL OFFICES –
program to our customers in Canada. Canadian law specifies the
Canada 1,011 912 891
procedures we must follow in conducting the program. In accordance
Australia 362 378 378
with current Canadian regulations, if a customer’s tax return indicates
Other 10 10 7
the customer is entitled to a tax refund, we issue a check to the client.
1,383 1,300 1,276
The client assigns to us the full amount of the tax refund to be issued by
the Canada Revenue Agency (CRA) and the refund check is then sent by
(1) Shared locations include offices located within Wal-Mart, Sears or other third-party
the CRA directly to us. In accordance with the law, the discount is
businesses.
deemed to include both the tax return preparation fee and the fee for Offices in shared locations include 1,138 offices operated in Wal-Mart
tax refund discounting. This program is financed by short-term stores and 793 offices in Sears stores operated as ‘‘H&R Block at Sears.’’
borrowings. The number of returns discounted under the CashBack The Wal-Mart agreement expires in May 2007, and the Sears license
program in fiscal year 2006 was approximately 653,000, compared to agreement expires in July 2007, both subject to termination rights.
581,000 in 2005 and 552,000 in 2004. See discussion of the Canadian tax We offer franchises as a way to expand our presence in the market.
season extension under ‘‘Seasonality of Business.’’ Our franchise arrangements provide us with certain rights which are
CLIENTS SERVED –We, together with our franchisees, served designed to protect our brand. Most of our franchisees receive signs,
approximately 21.9 million clients worldwide during fiscal year 2006, designated equipment, specialized forms, local advertising, initial
compared to 21.4 million in 2005 and 21.6 million in 2004. See discussion training, and supervisory services, and pay us a percentage of gross tax
of the Canadian tax season extension under ‘‘Seasonality of Business.’’ return preparation and related service revenues as a franchise royalty.
We served 19.5 million clients in the U.S. during fiscal year 2006, From time to time, we have acquired the territories of existing
compared to 19.1 million in 2005 and 19.3 million in 2004. ‘‘Clients franchisees and other tax return preparation businesses, and will
served’’ includes taxpayers for whom we prepared income tax returns continue to do so if future conditions warrant and satisfactory terms
in offices, federal software units sold, online completed and paid federal can be negotiated. During fiscal year 2004, we paid $243.2 million to
returns, paid state returns when no federal return was purchased, and acquire the operations of ten of our former major franchisees.
taxpayers for whom we provided only paid electronic filing services. RAL PARTICIPATIONS –Since July 1996, we have been a party to
Our U.S. clients served constituted 15.7% of an IRS estimate of total agreements with HSBC and its predecessors to participate in RALs
individual income tax returns filed as of April 30, 2006, compared to provided by a lending bank to H&R Block tax clients. The 1996
15.6% in 2005 and 15.7% in 2004. agreement was amended and restated in January 2003 and again in June
2003. In the June 2003 agreement, we obtained the right to purchase a
49.9% participation interest in RALs obtained through company-owned
and regular franchise offices and a 25% interest in RALs obtained
through major franchise offices. The current agreement continues
through June 2006. During fiscal year 2006, we signed a new agreement
with HSBC in which we obtained the right to purchase a 49.9%
participation interest in all RALs obtained through our retail offices. We
received a signing bonus from HSBC during the current year in
connection with this agreement, which was primarily recorded as
deferred revenue at April 30, 2006. The new agreement will be in effect
H&R BLOCK 2006 Form 10K
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