HR Block 2009 Annual Report Download - page 24

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FISCAL 2008 COMPARED TO FISCAL 2007 – Tax Services’ revenues increased $302.8 million, or 11.3%, compared
to fiscal year 2007.
Tax preparation fees from our retail offices increased $200.0 million, or 10.5%, for fiscal year 2008. This increase
was primarily due to an increase of 6.5% in the net average fee per U.S. tax return prepared in company-owned
offices, and a 1.9% increase in the number of U.S. tax returns prepared in those offices. Our international
operations contributed $33.2 million to the increase, resulting from a 6.1% increase in tax returns prepared.
Other service revenue increased $62.2 million, or 20.6%, primarily due to $23.9 million in additional license fees
earned from bank products and $16.2 million in additional revenues from our online tax preparation and e-filing
services. This segment also earned $15.1 million in additional customer fees based on an agreement with HRB
Bank for the H&R Block Emerald Prepaid MasterCard»program.
Royalty revenue increased $17.9 million, or 8.1%, due to a 2.1% increase in tax returns prepared in franchise
offices and a 4.4% increase in the net average fee.
Loan participation fees and related revenues decreased $19.8 million, or 9.4%, from fiscal year 2007. This
decrease was primarily due to participation fees earned on Instant Money Advance Loans (IMALs) in fiscal year
2007. IMALs were not offered during fiscal year 2008. This decrease was offset by an increase in other revenues
related to Emerald Advance lines of credit.
Other revenues increased $42.6 million, or 73.5%, primarily due to $24.1 million in fees earned in connection with
the Emerald Advance loan program, also under a revenue and expense sharing agreement with HRB Bank.
Additionally, $16.2 million of the increase was due to sales of commercial tax preparation software, TaxWorks»,
which was acquired in February 2007.
Total expenses increased $222.1 million, or 11.2%, compared to fiscal year 2007. Cost of services increased
$117.4 million, or 7.9%, from fiscal year 2007. Compensation and benefits increased $63.9 million, or 7.7%, primarily
as a result of a 6.5% increase in commission-based wages resulting from a corresponding increase in tax returns
prepared and net average charge. Occupancy expenses increased $29.4 million, or 8.5%, primarily as a result of
higher rent expenses, due to a 2.8% increase in company-owned offices under lease and a 3.4% increase in the
average rent. Bad debt expense increased $17.0 million due to increased settlement product withholdings and
increased delinquency rates. Other cost of services increased $14.1 million, or 7.4%, primarily due to additional
support department costs for information technology and other projects and costs associated with the H&R Block
Emerald Prepaid MasterCard»program, which this segment shares with HRB Bank.
Cost of other revenues, selling, general and administrative expenses increased $104.6 million, or 21.2%. This
increase was primarily due to $58.1 million of incremental bad debt expense related to RALs and our new Emerald
Advance program. Approximately $14.2 million of the increase in bad debt expense was due to the elimination of
third-party cross-collect practices, whereby banks no longer collect amounts due from clients on our behalf, and
an additional $12.0 million resulted from changes in IRS taxpayer fraud detection practices. The remaining
increase was primarily due to an incremental $31.5 million in bad debt expense related to the Emerald Advance
loan program, which replaced the IMAL. This increase was primarily due to the participation rate on IMALs, which
was 26%, while Emerald Advances are funded by HRB Bank with nearly 100% participation by this segment in loans
outstanding at April 30, 2008. We also saw increases of $23.3 million, $10.6 million and $9.8 million in corporate
wages, amortization of intangibles and legal expenses, respectively.
Pretax income for fiscal year 2008 increased $80.7 million, or 11.4%, from 2007.
20 H&R BLOCK 2009 Form 10K