HR Block 2007 Annual Report Download - page 32

services. Our U.S. clients served constituted 16.1% of an IRS estimate of 2006, we signed a new agreement with HSBC in which we obtained the
total individual income tax returns filed as of April 30, 2007, compared right to purchase a 49.9% participation interest in all RALs obtained
to 15.7% in 2006 and 15.6% in 2005. through our retail offices. We received a signing bonus from HSBC
OWNED AND FRANCHISED OFFICES –A summary of our company- during the prior year in connection with this agreement, which was
owned and franchise offices is as follows: recorded as deferred revenue and is earned over the contract term. The
new agreement is effective through June 2011. Our purchases of the
April 30, 2007 2006 2005
participation interests are financed through short-term borrowings, and
U.S. OFFICES –
we bear all of the credit risk associated with our participation interests
Company-owned offices 6,669 6,387 5,811
in the RALs. Revenue from our participation is calculated as the rate of
Company-owned shared locations(1) 1,488 1,473 1,296
participation multiplied by the fee paid by the borrower to the lending
Total company-owned offices 8,157 7,860 7,107
bank. Our RAL participation revenue was $192.4 million, $177.9 million
Franchise offices 3,784 3,703 3,528
and $182.8 million in fiscal years 2007, 2006 and 2005, respectively.
Franchise shared locations(1) 843 602 526
During the current year, our RAL contract was amended to include
Total franchise offices 4,627 4,305 4,054
participation in IMALs. We obtained the right to purchase a 75.0%
12,784 12,165 11,161
participation interest in IMALs obtained through our retail offices in 22
INTERNATIONAL OFFICES –
states. Our IMAL participation revenue was $17.6 million in fiscal year
Canada 1,070 1,011 912
2007. While this amendment is also effective through 2011, HSBC has
Australia 360 362 378
elected not to offer these early-season loans next year.
Other -10 10
SEASONALITY OF BUSINESS –Because most of our clients file their
1,430 1,383 1,300
tax returns during the period from January through April of each year,
substantially all of our revenues from income tax return preparation
(1) Shared locations include offices located within Wal-Mart, Sears or other third-party
and related services and products are received during this period. As a
businesses.
result, our tax segment generally operates at a loss through the first
Offices in shared locations at April 30, 2007 include 1,146 offices eight months of the fiscal year. Additionally, the tax business is affected
operated in Wal-Mart stores and 760 offices in Sears stores operated as
m4
by economic conditions and unemployment rates. Peak revenues occur
‘‘H&R Block at Sears.’’ The Wal-Mart agreement expires in May 2007 and during the applicable tax season, as follows:
is in the process of being renegotiated. The Sears license agreement was
renewed in June 2007 and expires in July 2010. The Sears agreement is
United States and Canada January –April
subject to standard termination rights by either party which include
Australia July – October
change in control, bankruptcy, material misuse of intellectual property, In fiscal year 2006, the CRA extended the Canadian tax season to
unauthorized disclosure of confidential information, failure to pay May 1, 2006. Clients served in our Canadian operations in fiscal year
required fees, failure to comply with the agreement, or failure to carry 2006 includes approximately 41,400 returns in both company-owned and
required insurance by the other party. franchise offices which were accepted by the client on May 1, 2006. The
We offer franchises as a way to expand our presence in the market. revenues related to these returns were recognized in fiscal year 2007. In
Our franchise arrangements provide us with certain rights designed to fiscal year 2005, the Canadian tax season was extended to May 2, 2005.
protect our brand. Most of our franchisees receive signs, designated Clients served in our Canadian operations in fiscal year 2005 includes
equipment, specialized forms, local advertising, initial training, and approximately 47,500 returns in both company-owned and franchise
supervisory services, and pay us a percentage of gross tax return offices which were accepted by the client on May 1 and 2, 2005. The
preparation and related service revenues as a franchise royalty. revenues related to these returns were recognized in fiscal year 2006. In
From time to time, we have acquired the territories of existing fiscal year 2007, the Canadian tax season ended April 30, 2007.
franchisees and other tax return preparation businesses, and will COMPETITIVE CONDITIONS –The retail tax services business is
continue to do so if future conditions warrant and satisfactory terms highly competitive. There are a substantial number of tax return
can be negotiated. During fiscal year 2007, we acquired ExpressTax, a preparation firms and accounting firms offering tax return preparation
national franchisor of tax preparation businesses, for an aggregate cash services. Many tax return preparation firms and many firms not
purchase price of $5.7 million. This acquisition added 249 offices to our otherwise in the tax return preparation business are involved in
network, which continue to operate under the ExpressTax name. providing electronic filing, RAL and IMAL services to the public.
LOAN PARTICIPATIONS –Since July 1996, we have been a party to Commercial tax return preparers and electronic filers are highly
agreements with HSBC and its predecessors to participate in RALs competitive with regard to price and service. In terms of the number of
provided by a lending bank to H&R Block tax clients. During fiscal year
H&R BLOCK 2007 Form 10K