HR Block 2010 Annual Report Download - page 36

decline in tax returns prepared in company-owned offices was 6.7% from fiscal 2009 to 2010. The 6.7% decrease in
U.S. retail tax returns prepared in company-owned offices is primarily due to the following factors:
쐍Tax returns filed with the IRS declined 1.7%.
쐍Lower employment levels disproportionately impacted our key client segments. Fourth quarter 2009
unemployment levels ranged from 15-30%, far in excess of national unemployment levels for key client
segments.
쐍We closed certain under-performing offices and exited offices serving clients in Wal-Mart locations. We
believe that tax returns prepared declined by approximately 1% (net of client retention through other office
locations) as a result of these office closures.
Royalties increased $20.0 million, or 7.8%, due to the conversion of 267 company-owned offices into franchises,
partially offset by a decline in tax returns prepared in existing franchise offices.
Interest income on Emerald Advance lines of credit decreased $13.1 million, or 14.4%. This decline was primarily
a result of lower loan volumes due to these lines of credit only being offered to prior year tax clients in fiscal year
2010, while being offered to both prior and new clients in fiscal year 2009.
Other revenue decreased $10.8 million, or 3.4%, primarily due to a $12.5 million decline in license fees earned
from bank products, mainly RACs, and a decrease in software revenues.
Total expenses decreased $97.1 million, or 4.4%, compared to the prior year. Total compensation and benefits
decreased $41.1 million, or 3.9%, primarily as a result of lower commission-based wages due to the decline in the
number of tax returns prepared. Bad debt expense decreased $7.3 million, or 6.5%, primarily as a result of lower
Emerald Advance lines of credit and RAL volumes, and more restrictive underwriting criteria. Depreciation and
amortization expenses increased $13.9 million, or 17.5%, primarily as a result of amortization of intangible assets,
related to the November 2008 acquisition of our last major independent franchise operator. Other expenses
decreased $31.4 million, or 10.7%, primarily as a result of lower legal expenses. During fiscal year 2010 we
recognized gains of $49.1 million on the sale of certain company-owned offices to franchisees, compared to
$14.9 million in the prior year. We do not expect these gains to continue at a similar level during fiscal year 2011.
Pretax income for fiscal year 2010 decreased $59.7 million, or 6.4%, from 2009. As a result of the declines in
revenues, pretax margin for the segment decreased from 29.6% in fiscal year 2009, to 29.2% in fiscal year 2010.
FISCAL 2009 COMPARED TO FISCAL 2008 – Tax Services’ revenues increased $71.4 million, or 2.3%, compared to
fiscal year 2008.
Tax preparation fees from our retail offices increased $58.6 million, or 2.8%, for fiscal year 2009. This increase is
primarily due to an increase of 6.8% in the net average fee per U.S. tax return prepared in company-owned offices,
offset by a 2.8% decrease in the number of U.S. tax returns prepared in those offices. Tax return volume was
positively affected by the November 2008 acquisition of our last major independent franchise operator, which
resulted in an increase of 470,000 tax returns prepared in company-owned offices. See Item 8, note 2 to the
consolidated financial statements for additional information on this acquisition. Excluding operating results
attributable to the acquired franchise operator, tax returns prepared in company-owned offices decreased 7.3%
from fiscal year 2008 and tax preparation fees decreased $32.9 million.
Increases in our net average fee were due primarily to increased tax return complexity. In addition, planned
pricing increases of approximately 1% and lower discounts contributed to an increase in net average fee. We
believe that declines during the year in tax return volume were attributable to a decline of approximately 6% in IRS
tax filings overall, and difficult economic conditions which resulted in clients seeking lower-cost tax preparation
alternatives.
Tax returns prepared in our international operations grew 5.1%, and the related tax preparation revenues
increased 8.9% in local currencies. However, unfavorable exchange rates caused these revenues in U.S. dollars to
decline $9.5 million, or 5.6%, from fiscal year 2008.
Royalty revenue increased $17.6 million, or 7.4%, primarily due to a 7.2% increase in the net average fee and an
increase in royalty rates at sub-franchises of the acquired franchise operator.
Loan participation fees and related revenues decreased $50.4 million, or 26.5%, from fiscal year 2008. This
decrease is primarily due to a 24.6% decline in RAL volume, mainly as a result of many clients choosing lower cost
alternatives such as RACs rather than a loan. In addition, stricter credit criteria were required by our third-party
loan originator.
Fees from Emerald Card activities and interest income on Emerald Advance increased $19.6 million and
$45.7 million, respectively, both primarily as a result of higher volumes.
Other revenues decreased $17.3 million, or 5.2%, primarily due to a $10.6 million decline in e-filing revenues, as a
result of the elimination of separate e-filing fees related to our tax preparation software and a decline in software
revenues. These declines were partially offset by $10.7 million in additional license fees earned from bank
products, mainly RACs.
20 H&R BLOCK 2010 Form 10K