HR Block 2007 Annual Report Download - page 52

e-filing services and a $12.2 million increase in the recognition of Pretax income for fiscal year 2007 increased $115.1 million, or 19.5%,
deferred fee revenue from our POM guarantees. Additionally, this from 2006, primarily due to higher revenues and the impact of the
segment earned customer fees in connection with an agreement with $70.2 million prior year RAL litigation charge.
HRB Bank for our new H&R Block Emerald Prepaid MasterCard˛
program, under which, this segment shares in the revenues and FISCAL 2006 COMPARED TO FISCAL 2005 –Tax Services’ revenues
expenses associated with the program. increased $93.0 million, or 3.9%, compared to fiscal year 2005. We
Royalty revenue increased $12.4 million, or 6.0%, due to a 7.6% opened more than 750 new offices, 550 of which were part of the
increase in the net average fee and a 1.6% increase in clients served in expansion of our company-owned retail distribution network. This
franchise offices. expansion contributed incremental revenues of $36.4 million and pretax
Loan participation fees and related revenues increased $32.2 million, losses of $8.5 million in fiscal year 2006.
or 18.1%, from the prior year. This increase is primarily due to the Taxpreparation fees from our retail offices increased $73.4 million, or
introduction of the IMAL, an early-season loan product, which increased 4.3%, for fiscal year 2006. This increase is primarily due to an increase of
our participation revenues $17.6 million. The remainder of the increase 6.1% in the net average fee per U.S. client served, partially offset by a
is primarily due to our new RAL participation agreement with HSBC. decrease of 2.3% in U.S. clients served in company-owned offices. The
Other revenues decreased $9.7 million, or 14.3%, primarily due to a decrease in clients served was partially due to a number of technology
decline in revenues from supply sales to franchises, as our franchises problems that severely hurt the start of our filing season, coupled with
now order directly from the supplier. increased competition due to competitors’ refund lending products. Our
Revenue from our digital business, which includes both service and international operations contributed $17.1 million to the increase,
product revenues, increased $29.2 million, or 21.9%, primarily due to a resulting from a 5.4% increase in clients served.
19.4% increase in clients served. In fiscal year 2007, we implemented an Royalty revenue increased $10.2 million, or 5.2%, due to a 5.2%
aggressive plan to grow market share, although the required spending to increase in the net average fee, slightly offset by a 1.0% decline in clients
achieve these results did impact our margin. served in franchise offices.
Total expenses increased $121.0 million, or 6.5%, compared to the Loan participation fees and related revenues earned during fiscal year
prior year. Cost of services increased $169.6 million, or 12.9%, from the 2006 decreased $4.9 million, or 2.7%, from fiscal year 2005. This
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prior year. Our real estate expansion efforts have contributed to a total decrease is primarily due to a decrease in the number of RALs, which
increase of $28.0 million across all cost of services categories. resulted from increased competition for clients in the early months of
Compensation and benefits increased $72.3 million, or 9.6%, primarily the tax season.
due to higher wages associated with increased revenues, costs Revenue from our digital business increased 8.2%, primarily due to a
associated with our earlier office openings and initiatives addressing 23.3% increase in clients served, partially offset by planned reductions
operational readiness for the tax season. Occupancy expenses in unit prices.
increased $30.3 million, or 9.6%, primarily as a result of higher rent Total expenses increased $168.2 million, or 9.9%, primarily due to a
expenses, due to a 5.9% increase in company-owned offices under lease $70.2 million charge relating to the settlement of two RAL claims. See
and a 3.9% increase in the average rent. Other cost of services increased additional discussion below and in Item 8, note 19 to the consolidated
$71.3 million, or 60.2%, primarily due to additional corporate shared financial statements.
services for information technology and other projects, and costs Cost of services for the fiscal year 2006 increased $57.9 million, or
associated with the H&R Block Emerald Prepaid MasterCard program, 4.6%, from fiscal year 2005. Our real estate expansion efforts have
which this segment shares with HRB Bank. contributed to a total increase of $43.5 million across all cost of services
Cost of other revenues, selling, general and administrative expenses categories. Compensation and benefits increased $31.7 million, or 4.4%,
increased $21.7 million, or 4.6%, primarily due to increases of primarily due to an increase in staff needed for our new offices and the
$30.9 million and $26.0 million in bad debt on loan participations and addition of costs related to our small business initiatives. Occupancy
marketing expenses, respectively. The higher bad debt expense is expenses increased $35.4 million, or 12.6%, primarily as a result of
primarily due to an $18.0 million favorable adjustment to RAL bad debt higher rent expenses, due to a 9.5% increase in company-owned offices
recorded in the prior year and the addition of our IMAL product. These under lease and a 7.3% increase in the average rent. Depreciation
increases were partially offset by a $26.6 million reduction in corporate declined $9.7 million, or 17.8%, primarily due to decreased capital
shared services and a $10.8 million decrease in legal expenses. expenditures compared to fiscal year 2005.
In the prior year, we recorded $70.2 million, including legal fees, Cost of other revenues, selling, general and administrative expenses
related to the settlement of RAL litigation. increased $40.2 million, or 9.3%, primarily due to a $31.5 million
increase in corporate shared services, $20.7 million of which was
H&R BLOCK 2007 Form 10K