HR Block 2009 Annual Report Download - page 23

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FISCAL 2009 COMPARED TO FISCAL 2008 – Tax Services’ revenues increased $44.5 million, or 1.5%, compared to
the prior year.
Tax preparation fees from our retail offices increased $59.0 million, or 2.8%, for fiscal year 2009. This increase is
primarily due to an increase of 6.8% in the net average fee per U.S. tax return prepared in company-owned offices,
offset by a 2.8% decrease in the number of U.S. tax returns prepared in those offices. Tax return volume was
positively affected by the November 2008 acquisition of our last major independent franchise operator, which
resulted in an increase of 470,000 tax returns prepared in company-owned offices. See Item 8, note 2 to the
consolidated financial statements for additional information on this acquisition. Excluding operating results
attributable to the acquired franchise operator, tax returns prepared in company-owned offices decreased 7.3%
from the prior year and tax preparation fees decreased $32.9 million.
Increases in our net average fee are due primarily to increased tax return complexity. In addition, planned
pricing increases of approximately 1% and lower discounts contributed to an increase in net average fee. We
believe that declines during the year in tax return volume were attributable to a decline of approximately 6% in IRS
tax filings overall, and difficult economic conditions which resulted in clients seeking lower-cost tax preparation
alternatives.
Tax returns prepared in our international operations grew 5.1%, and the related tax preparation revenues
increased 8.9% in local currencies. However, unfavorable exchange rates caused these revenues in U.S. dollars to
decline $9.5 million, or 5.6%, from the prior year.
Other service revenue increased $3.6 million, or 1.0%, primarily due to $10.7 million in additional license fees
earned from bank products, mainly RACs, coupled with additional revenues from online tax preparation. We also
earned an incremental $6.6 million in connection with an agreement with HRB Bank for the H&R Block Emerald
Prepaid MasterCard»program, under which, this segment shares in the revenues and expenses associated with the
program. These increases were partially offset by a $10.6 million decline in e-filing revenues, as a result of the
elimination of separate e-filing fees related to our TaxCut»software product.
Royalty revenue increased $17.6 million, or 7.4%, primarily due to a 7.2% increase in the net average fee and an
increase in royalty rates at sub-franchises of the acquired franchise operator.
Loan participation fees and related revenues decreased $47.5 million, or 25.0%, from the prior year. This
decrease is primarily due to a 24.6% decline in RAL volume, mainly as a result of many clients choosing lower cost
alternatives such as RACs rather than a loan. In addition, stricter credit criteria were required by our third-party
loan originator.
Other revenues increased $11.9 million, or 11.8%, primarily due to $22.7 million in incremental fees earned in
connection with the Emerald Advance loan program, also under a revenue and expense sharing agreement with
HRB Bank. This increase was partially offset by a decline in software revenues.
Total expenses decreased $63.5 million, or 2.9%, compared with the prior year, due primarily to lower tax return
volumes, lower bad debt on loan products and planned cost reduction initiatives. Cost of services decreased
$19.3 million, or 1.2%, from the prior year almost exclusively as a result of a decrease in commission-based wages
resulting from a corresponding decrease in tax returns prepared.
Cost of other revenues, selling, general and administrative expenses decreased $44.2 million, or 7.4%. This
decrease was due, in part, to a $17.1 million decline in bad debt expense due to lower RAL volumes and the impact
of loss provisions in the prior year which did not repeat in fiscal year 2009, partially offset by an increase in
Emerald Advance loan volumes. We also saw a decline of $32.4 million in allocated corporate and support
department costs due to cost reduction efforts, offset by a planned increase of $43.0 million in marketing costs.
During fiscal year 2009 we sold certain company-owned offices to franchisees, recognizing a net gain of
$14.9 million, which is included above as a reduction to cost of other revenues, selling, general and
administrative expenses.
Pretax income for fiscal year 2009 increased $108.0 million, or 13.7%, from 2008. As a result of cost reduction
initiatives and the acquisition of our last major franchise operator, pretax margin for the segment increased from
26.3% in fiscal year 2008, to 29.5% in fiscal year 2009, in excess of our stated minimum goal to achieve a 200 basis
point margin improvement.
H&R BLOCK 2009 Form 10K 19