HR Block 2010 Annual Report Download - page 38

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Revenues from core tax, consulting and accounting services increased $25.0 million, or 3.4%, over fiscal year 2008.
Tax services revenues increased $15.9 million, or 3.6%, due to increases in net billed rate per hour. Business consulting
revenues increased $12.2 million, or 5.2%, primarily due to a large one-time financial institutions engagement.
Weak economic conditions in fiscal year 2009 severely reduced investment and transaction activity. As a result,
capital markets revenues decreased $32.9 million, or 64.4%, from fiscal year 2008 primarily due to a 57.4% decline in
the number of transactions closed.
Leased employee revenue decreased due to a change in organizational structure between the businesses we
acquired from American Express Tax and Business Services, Inc. (AmexTBS) and the Attest Firms that, while not
affiliates of our company, also serve our clients. Employees we previously leased to the Attest Firms were
transferred to the separate attest practices in fiscal years 2008 and 2007. As a result, we no longer record the
revenues and expenses associated with leasing these employees, which resulted in a reduction of $25.0 million to
fiscal year 2009 revenues, and a similar reduction in compensation and benefits.
Other revenue declined $12.0 million, or 11.0%, primarily due to a decrease in outside contractor services
provided to our clients.
Total expenses decreased $51.2 million, or 6.0%, compared to fiscal year 2008. Other expenses decreased
$45.2 million, or 30.2%, primarily due to declines in external consulting fees, allocated corporate and support
department costs and travel and entertainment expenses.
Pretax income for the year ended April 30, 2009 of $96.1 million compares to $88.8 million in fiscal year 2008.
Pretax margin for the segment increased from 9.4% in fiscal year 2008, to 10.7% in fiscal year 2009.
CORPORATE, ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
Corporate operating losses include interest income from U.S. passive investments, interest expense on
borrowings, net interest margin and gains or losses relating to mortgage loans held for investment, real estate
owned, residual interests in securitizations and other corporate expenses, principally related to finance, legal and
other support departments.
Year Ended April 30, 2010 2009 2008
Corporate – Operating Results (in 000s)
Interest income on mortgage loans held for investment $ 31,877 $ 46,396 $ 74,895
Other 6,854 7,295 9,388
Total revenues 38,731 53,691 84,283
Interest expense 79,929 92,945 92,923
Provision for loan losses 47,750 63,897 42,004
Compensation and benefits 53,607 48,973 115,479
Other, net (614) 31,651 13,324
Total expense 180,672 237,466 263,730
Pretax loss $ (141,941) $ (183,775) $ (179,447)
FISCAL YEAR 2010 COMPARED TO FISCAL YEAR 2009
Interest income earned on mortgage loans held for investment for the fiscal year ended April 30, 2010 decreased
$14.5 million, or 31.3%, from the prior year, primarily as a result of non-performing loans. Interest expense
decreased $13.0 million, or 14.0%, due to lower funding costs related to our mortgage loan portfolio and lower
corporate borrowings. Our provision for loan losses decreased $16.1 million from the prior year. See related
discussion below under “Mortgage Loans Held for Investment.”
Other expenses declined $32.3 million primarily due to gains of $9.0 million on residual interests in the current
year, compared to impairments of $3.1 million recorded in the prior year. Additionally, we transferred liabilities
relating to previously retained insurance risk to a third-party, and recorded a gain of $9.5 million in fiscal year 2010.
Income Taxes on Continuing Operations
Our effective tax rate for continuing operations was 37.6% for the fiscal year ended April 30, 2010, compared to
38.9% in the prior year. Our effective tax rates declined from the prior year due to a reduction in our valuation
allowance related to tax-planning strategies and favorable tax benefits related to investment gains on our
corporate owned life insurance investments.
Mortgage Loans Held for Investment
Mortgage loans held for investment at April 30, 2010 totaled $595.4 million. The portfolio includes loans originated
by SCC, and purchased by HRB Bank which constituted approximately 64% of the total loan portfolio at April 30,
2010. We have experienced higher rates of delinquency and have greater exposure to loss with respect to this
segment of our loan portfolio. Our remaining loan portfolio totaled $249.0 million and is more characteristic of a
prime loan portfolio, and we believe subject to a lower loss exposure.
22 H&R BLOCK 2010 Form 10K