HR Block 2012 Annual Report Download - page 16

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See discussion below and in Item 8, note 22 to the consolidated financial statements.
DESCRIPTION OF BUSINESS
TAX SERVICES
GENERAL – Our Tax Services segment is primarily engaged in providing tax return preparation and related
services and products in the U.S. and its territories, Canada, and Australia. Major revenue sources include fees
earned for tax preparation and related services performed at company-owned retail tax offices, royalties from
franchisees, sales of tax preparation software, online tax preparation fees, fees from refund anticipation checks
(RACs), fees from our H&R Block Prepaid Emerald MasterCard
®
, and interest and fees from Emerald Advance
lines of credit (EAs). HRB Bank also offers traditional banking services including checking and savings
accounts, individual retirement accounts and certificates of deposit.
Assisted income tax return preparation and related services are provided by tax professionals via a system of
retail offices operated directly by us or by franchisees.
TAX RETURNS PREPARED – We, together with our franchisees, prepared 25.6 million tax returns worldwide
during fiscal year 2012, compared to 24.5 million in 2011 and 23.2 million in 2010. We prepared 22.3 million tax
returns in the U.S. during fiscal year 2012, up from 21.4 million in 2011 and 20.1 million in 2010. Our U.S. tax
returns prepared during the 2012 tax season, including those prepared by our franchisees and those prepared
and filed at no charge, constituted approximately 16% of an Internal Revenue Service (IRS) estimate of total
individual income tax returns filed during the fiscal year 2012 tax season. See Item 7 for further discussion of
changes in the number of tax returns prepared.
FRANCHISES – We offer franchises as a way to expand our presence in certain markets. Our franchise
arrangements provide us with certain rights designed to protect our brand. Most of our franchisees receive the
right to use our software, access to product offerings and expertise, signs, specialized forms, advertising and
initial training and supervisory services. Our franchisees pay us a percentage, typically approximately 30%, of
gross tax return preparation and related service revenues as a franchise royalty in the U.S.
During fiscal years 2012, 2011 and 2010 we sold certain offices to existing franchisees for sales proceeds
totaling $17.3 million, $65.6 million and $65.7 million, respectively. The net gain on these transactions totaled
$16.6 million, $45.1 million and $49.1 million in fiscal years 2012, 2011 and 2010, respectively. The extent to
which we choose to sell company-owned offices depends upon our analysis regarding the optimal mix of offices
for our network, including geographic location, as well as our ability to identify qualified franchisees.
From time to time, we have also acquired the assets of existing franchisees and other tax return preparation
businesses, and may continue to do so if future conditions warrant and satisfactory terms can be negotiated.
OFFICES – In fiscal year 2012 we operated in 10,992 offices across the U.S., which is slightly less than the
prior year. A summary of our company-owned and franchise offices is included in Item 7, under “Tax Services –
Operating Statistics.” We sold 83, 280 and 267 company-owned offices to franchisees in fiscal years 2012, 2011
and 2010, respectively. Offices in shared locations at April 30, 2012 consist primarily of offices in Sears and
Wal-Mart stores. Offices in shared locations at April 30, 2011 and 2010 consist primarily of offices in Sears
stores. The Sears license agreement expires in July 2012, while the Wal-Mart agreement expires in May 2013.
SERVICE AND PRODUCT OFFERINGS – In addition to our retail offices, we offer a number of digital tax
preparation alternatives. By offering professional and do-it-yourself tax preparation options through multiple
channels, we seek to serve our clients in the manner they choose to be served. We also offer clients a number of
options for receiving their income tax refund, including a check directly from the IRS, an electronic deposit
directly to their bank account, a prepaid debit card or a RAC offered through HRB Bank.
Online Tax Preparation. We offer a comprehensive range of online tax services, from tax advice to complete
professional and do-it-yourself tax return preparation and electronic filing, through our website at
www.hrblock.com. The services available at this website allow clients to prepare their federal and state income
tax returns using the H&R Block At Home™ Online Tax Program, access tax tips, advice and tax-related news,
and use calculators for tax planning.
We participate in the Free File Alliance (FFA). This alliance was created by the tax return preparation
industry and the IRS, and allows qualified filers with adjusted gross incomes of less than $57,000 to prepare and
file their federal return online at no charge. We believe this program provides a valuable public service and
increases our visibility with new clients, while also providing an opportunity to offer our state return
preparation and other services to these clients.
2 H&R BLOCK 2012 Form 10K