HR Block 2011 Annual Report Download - page 33

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BUSINESS SERVICES
This segment consists of RSM McGladrey, Inc. (RSM), a national firm offering tax, consulting and accounting
services, and capital market services to middle-market companies.
Year Ended April 30, 2011 2010 2009
(dollars in 000s)Business Services – Operating Results
Tax services $ 465,406 $ 454,551 $ 484,825
Business consulting 243,189 260,339 246,724
Accounting services 38,903 47,706 52,496
Capital markets 12,243 11,855 18,220
Reimbursed expenses 19,910 22,929 19,863
Other 50,143 62,969 75,681
Total revenues 829,794 860,349 897,809
Compensation and benefits 552,775 574,901 588,866
Occupancy 48,274 49,154 49,070
Depreciation 18,970 21,122 22,626
Marketing and advertising 20,914 18,960 23,803
Amortization of intangible assets 11,563 11,639 13,018
Litigation 39,317 19,968 6,712
Other 88,978 105,891 97,617
Total expenses 780,791 801,635 801,712
Pretax income $ 49,003 $ 58,714 $ 96,097
Pretax margin 5.9% 6.8% 10.7%
FISCAL 2011 COMPARED TO FISCAL 2010 – Business Services’ revenues decreased $30.6 million, or 3.6%, from
the prior year. Tax services revenues increased primarily as a result of the acquisition of Caturano, as discussed in
Item 8, note 2 to the consolidated financial statements. Business consulting revenues declined $17.2 million, or
6.6%, primarily due to a decline in services performed on a large multi-year engagement in our consulting practice.
Other revenues declined $12.8 million, or 20.4%, primarily as a result of a reduction in management fees received
related to the new administrative services agreement with M&P, as discussed in Item 8, note 17 to the consolidated
financial statements.
Total expenses decreased $20.8 million, or 2.6%, from the prior year. Compensation and benefits decreased
$22.1 million, or 3.8%, primarily due to a reduction of costs directly related to the large multi-year consulting
engagement discussed above and reduced spend on employee insurance benefits. Litigation expenses increased
$19.3 million, or 96.9%, over the prior year. Other expenses declined $16.9 million, or 16.0%, primarily due to an
impairment of goodwill recorded in the prior year.
Pretax income for the year ended April 30, 2011 of $49.0 million compares to $58.7 million in the prior year.
Pretax margin for the segment decreased to 5.9% from 6.8% in fiscal year 2010, primarily due to litigation costs.
FISCAL 2010 COMPARED TO FISCAL 2009 –Business Services’ revenues for fiscal year 2010 decreased
$37.5 million, or 4.2%, from fiscal year 2009. Revenues from core tax, consulting and accounting services
decreased $21.4 million, or 2.7%, from fiscal year 2009. Tax and accounting services revenues decreased
$30.3 million and $4.8 million, respectively, primarily due to decreases in chargeable hours and pressures on
billable rates. Business consulting revenues increased $13.6 million, or 5.5%, primarily due to a large engagement
in our operational consulting practice.
Continued weak economic conditions in recent years have severely reduced investment and transaction activity.
As a result, revenues from our capital markets business have been declining severely, including a decline of
$6.4 million, or 34.9%, from fiscal year 2009. As noted below, we recorded an impairment of goodwill associated
with this business during fiscal year 2010.
Other revenue declined $12.7 million, or 16.8%, primarily due to lower management fee revenues and interest
income received from M&P.
Total expenses were essentially flat compared to fiscal year 2009. Compensation and benefits decreased
$14.0 million, or 2.4%, primarily due to headcount reductions driven by reduced client demand. Marketing and
advertising costs decreased $4.8 million, or 20.3%, primarily due to fewer sponsorships and lower advertising
costs. Litigation expenses increased $13.3 million from fiscal year 2009. Other expenses increased $8.3 million
primarily due to a $15.0 million impairment of goodwill at RSM EquiCo, as discussed in Item 8, note 9 to the
consolidated financial statements.
H&R BLOCK 2011 Form 10K 21