HR Block 2008 Annual Report Download - page 28

SEASONALITY OF BUSINESS – HRB Bank’s operating results are subject to seasonal fluctuations primarily
related to the offering of the H&R Block Prepaid Emerald MasterCard»and Emerald Advance lines of credit. These
services are offered to Tax Services’ clients, and therefore peak in January and February and taper off through the
remainder of the tax season.
HRBFA does not experience significant seasonal fluctuations. Financial services businesses are cyclical,
however, and directly affected by national and global economic and political conditions, trends in business
and finance and changes in interest rates and the conditions of the securities markets in which our clients invest.
COMPETITIVE CONDITIONS – HRBFA competes directly with a broad range of companies seeking to attract
consumer financial assets, including retail brokerage firms, discount and online brokerage firms, mutual fund
companies, investment-banking firms, commercial and savings banks, insurance companies and others. The
financial services industry has become more concentrated as numerous securities firms have been acquired by or
merged into other firms.
We compete based on expertise and integration with our tax services relationships, quality of service, breadth of
services offered, prices, accessibility through delivery channels and technological innovation.
GOVERNMENT REGULATION – Financial services businesses are subject to extensive regulation by U.S. federal
and state regulatory agencies, securities exchanges and by various non-governmental agencies, regulatory bodies
and central banks. These regulatory agencies in the U.S. include, among others, the SEC, FINRA, the NYSE, the
FDIC, the Federal Reserve, the Municipal Securities Rulemaking Board and the OTS. Additional legislation,
regulations and rulemaking may directly affect our manner of operation and profitability.
HRBFA is registered with the SEC and subject to regulation by the SEC and by self-regulatory organizations,
such as FINRA and the securities exchanges of which it is a member. As a registered broker-dealer, HRBFA is
subject to the Uniform Net Capital Rule (Rule 15c3-1) administered by the SEC, which specifies minimum net
capital requirements for registered brokers and dealers.
HRB Bank is subject to regulation, supervision and examination by the OTS, the Federal Reserve and the FDIC.
All savings associations are subject to the capital adequacy guidelines and the regulatory framework for prompt
corrective action. HRB Bank must meet specific capital guidelines involving quantitative measures of HRB Bank’s
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. HRB
Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk-weightings and other factors. As a savings and loan holding company, H&R Block, Inc. is also
subject to regulation by the OTS.
See Item 7, “Regulatory Environment” and Item 8, note 16 to the consolidated financial statements for additional
discussion of regulatory requirements.
Also see discussion in 1A, “Risk Factors” for additional information.
DISCONTINUED OPERATIONS
GENERAL – Effective November 2006, our Board of Directors approved a plan to exit the mortgage business
operated through our subsidiary, OOMC, and we began reporting that business as discontinued operations. During
our third fiscal quarter ended January 31, 2008, OOMC ceased all loan origination activities, and initiated a plan to
sell its servicing operations. On April 30, 2008, OOMC sold its loan servicing assets to an affiliate of WL Ross
pursuant to a previously announced agreement dated March 17, 2008.
During fiscal year 2007, we also committed to a plan to sell two smaller lines of business and completed the
wind-down of one other line of business, all of which were previously reported in our Business Services segment.
The two businesses held-for-sale were sold during fiscal year 2008. Additionally, during fiscal year 2007, we
completed the wind-down of our tax operations in the United Kingdom, which were previously reported in Tax
Services.
At April 30, 2008, these businesses are presented as discontinued operations in the consolidated financial
statements for all periods presented. See Item 1A, “Risk Factors” and Item 8, note 19 to our consolidated financial
statements for additional information and discussion of the sale of OOMC assets and impairments we recorded
relating to the disposition of these businesses.
MORTGAGE OPERATIONS – OOMC historically originated, sold and securitized non-prime mortgage loans,
sold or held for investment residual interests, and serviced non-prime mortgage loans in the United States.
HRBMC, a wholly-owned subsidiary of OOMC, originated non-prime and prime mortgage loans for sale to OOMC,
HRB Bank or third-party buyers. Revenues primarily consisted of gains from sales and securitizations of mortgage
assets net of repurchase provisions, derivative gains and losses, and impairments of residual interests, interest
income and servicing fee income.
8H&R BLOCK 2008 Form 10K