HR Block 2010 Annual Report Download - page 20

through direct deposit or at participating retail locations. The H&R Block Prepaid Emerald MasterCard»is issued
by HRB Bank.
Tax Return Preparation Courses. We offer income tax return preparation courses to the public, which teach
students how to prepare income tax returns and provide us with a source of trained tax professionals.
CashBack Program. We offer a refund discount (CashBack) program to our customers in Canada. In
accordance with current Canadian regulations, if a customer’s tax return indicates the customer is entitled to
a tax refund, we issue a check to the client in the amount of the refund, less a discount. The client assigns to us the
full amount of the tax refund to be issued by the Canada Revenue Agency (CRA) and the refund check is then sent
by the CRA directly to us. In accordance with the law, the discount is deemed to include both the tax return
preparation fee and the fee for tax refund discounting. This program is financed by short-term borrowings. The
number of returns discounted under the CashBack program in fiscal year 2010 was approximately 797,000,
compared to 782,000 in 2009 and 749,000 in 2008.
LOAN PARTICIPATIONS –Since July 1996, we have been a party to agreements with HSBC and its predecessors
to participate in RALs provided by a lending bank to H&R Block tax clients. During fiscal year 2006, we signed new
agreements with HSBC in which we obtained the right to purchase a 49.9% participation interest in all RALs
obtained through our retail offices. We received a signing bonus from HSBC during fiscal year 2006 in connection
with these agreements, which was recorded as deferred revenue and is earned over the contract term. These
agreements are effective through June 2011 and we have the right to extend through 2013. Our purchases of the
participation interests are financed through short-term borrowings and we bear all of the credit risk associated
with our participation interests. Revenue from our participation is calculated as the rate of participation multiplied
by the fee paid by the borrower to the lending bank. Our RAL participation revenue was $146.2 million,
$139.8 million and $190.2 million in fiscal years 2010, 2009 and 2008, respectively.
SEASONALITY OF BUSINESS –Because most of our clients file their tax returns during the period from January
through April of each year, substantially all of our revenues from income tax return preparation and related
services and products are received during this period. As a result, this segment generally operates at a loss through
the first eight months of the fiscal year. Peak revenues occur during the applicable tax season, as follows:
United States and Canada
Australia
January – April
July – October
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, and therefore peak in January and
February and taper off through the remainder of the tax season.
COMPETITIVE CONDITIONS –The retail tax services business is highly competitive. There are a substantial
number of tax return preparation firms and accounting firms offering tax return preparation services. Many tax
return preparation firms and many firms not otherwise in the tax return preparation business are involved in
providing electronic filing and RAL services to the public. Commercial tax return preparers and electronic filers
are highly competitive with regard to price and service. In terms of the number of offices and personal tax returns
prepared and electronically filed in offices, online and via our software, we are one of the largest providers of
direct tax return preparation and electronic filing services in the U.S. We also believe we operate the largest tax
return preparation businesses in Canada and Australia.
Our digital tax solutions businesses compete with a number of companies. Intuit, Inc. is the largest supplier of
tax preparation software and online tax preparation services. There are many smaller competitors in the online
market, as well as free state-sponsored online filing programs. Price and marketing competition for digital tax
preparation services is increasing, including offers of free tax preparation services.
HRB Bank provides banking services primarily to our tax clients, both retail and digital, and for many of these
clients, HRB Bank is the only provider of banking services. HRB Bank does not seek to compete broadly with
regional or national retail banks.
GOVERNMENT REGULATION –Federal legislation requires income tax return preparers to, among other
things, set forth their signatures and identification numbers on all tax returns prepared by them and retain all
tax returns prepared by them for three years. Federal laws also subject income tax return preparers to accuracy-
related penalties in connection with the preparation of income tax returns. Preparers may be prohibited from
further acting as income tax return preparers if they continuously and repeatedly engage in specified misconduct.
The federal government regulates the electronic filing of income tax returns in part by requiring electronic filers
to comply with all publications and notices of the IRS applicable to electronic filing. We are required to provide
certain electronic filing information to the taxpayer and comply with advertising standards for electronic filers. We
are also subject to possible monitoring by the IRS, penalties for improper disclosure or use of income tax return
preparation, other preparer penalties and suspension from the electronic filing program.
4H&R BLOCK 2010 Form 10K