HR Block 2006 Annual Report Download - page 78

Certain state laws restrict or prohibit prepayment penalties on six states and restrict the amount or duration of prepayment penalties
mortgage loans, and we relied on the federal Alternative Mortgage that we may impose in an additional eleven states. This places us at a
Transactions Parity Act (Parity Act) and related rules issued in the past competitive disadvantage relative to financial institutions that continue
by the OTS to preempt state limitations on prepayment penalties. In to enjoy federal preemption of such state restrictions. Such institutions
September 2003, the OTS released a new rule that reduced the scope of can charge prepayment penalties without regard to state restrictions
the Parity Act preemption effective July 1, 2004 and, as a result, we can and, as a result, may be able to offer loans with interest rate and loan
no longer rely on the Parity Act to preempt state restrictions on fee structures that are more attractive than the interest rate and loan fee
prepayment penalties. The elimination of this federal preemption structures that we are able to offer.
requires compliance with state restrictions on prepayment penalties. See discussion in ‘‘Risk Factors’’ for additional information.
These restrictions prohibit us from charging any prepayment penalty in
BUSINESS SERVICES
GENERAL –Our Business Services segment offers middle-market firms, including those public accounting firms previously associated
companies accounting, tax and business consulting services. We have with American Express Tax and Business Services, with whom we do
continued to expand the services we offer our clients by adding wealth business (collectively, ‘‘the Attest Firms’’) provide audit and review
management, retirement resources, payroll services, corporate finance services and other services in which the Attest Firms issue written
and financial process outsourcing. Segment revenues constituted 18.0% reports on client financial statements. Through a number of agreements,
of our consolidated revenues for fiscal year 2006, 13.0% for 2005 and including agreements with these Attest Firms, we lease accounting
11.8% for 2004. personnel and provide accounting, payroll, human resources and other
This segment consists primarily of RSM McGladrey, Inc., which administrative services to the Attest Firms and receive a management
provides accounting, tax, and business consulting services from fee for these services. We also have a cost-sharing arrangement with the
125 offices in 26 states and offers services in 18 of the top 25 Attest Firms, whereby they reimburse us for the costs of certain items,
U.S. markets. mainly supplies and for the use of RSM owned or leased real estate,
Services are also provided through the following businesses: property and equipment. The Attest Firms are limited liability
쐍RSM McGladrey Retirement Resources administers retirement partnerships with their own management committees, legal and
plans, helps clients design the best plan for their needs, and business advisors, professional liability insurance and risk management
provides retirement plan investment advice, year-end compliance, policies. Accordingly, the Attest Firms are separate legal entities and
tax reporting and consulting. not affiliates. Some partners and employees of the Attest Firms are also
쐍RSM EquiCo, Inc. is an investment banking firm specializing in employees of RSM McGladrey.
business valuations, acquisitions and divestitures for private SEASONALITY OF BUSINESS –Revenues for this segment are largely
middle-market businesses. seasonal in nature, with peak revenues occurring during January
쐍RSM McGladrey Employer Services, Inc. is a provider of payroll through April.
and benefits administration services to middle-market businesses. COMPETITIVE CONDITIONS –The accounting, tax and consulting
쐍RSM McGladrey Financial Process Outsourcing, Inc. is a provider business is highly competitive. The principal methods of competition
of accounting, reporting, payroll and bill paying services to are price, service and reputation for quality. There are a substantial
distributors/franchisors and their population of number of accounting firms offering similar services at the
retailers/franchisees. international, national, regional and local levels. As our focus is on
쐍PDI Global, Inc. provides marketing, communications and visibility middle-market businesses, our principal competition is with national
programs, tax and financial planning guides, and marketing and and regional accounting firms. We believe we have a competitive
management consulting services to accountants, consultants, advantage in the geographic areas in which we are currently located
lawyers, banks, insurers, and other financial service providers. based on the breadth of services we can offer to these clients above and
From time to time, we have acquired businesses, and will continue to beyond what a traditional accounting firm can offer.
do so if future conditions warrant and satisfactory terms can be GOVERNMENT REGULATION –Many of the same federal and state
negotiated. During fiscal year 2006, we paid $190.7 million to acquire all regulations relating to tax preparers and the information concerning tax
the outstanding common stock of American Express Tax and Business reform discussed above in the ‘‘Government Regulation’’ section of ‘‘Tax
Services, Inc., which has been merged into RSM McGladrey, Inc. Services’’ apply to the Business Services segment as well. However,
RELATIONSHIP WITH ATTEST FIRMS –By regulation, we cannot accountants are not subject to the same prohibition on the use or
provide audit and attest services. M&P, and other public accounting disclosure of certain income tax return information as tax
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H&R BLOCK 2006 Form 10K