HR Block 2012 Annual Report Download - page 36

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compensation liabilities. This decision triggered a one-time tax expense related to prior period gains. In addition
to the impact of COLI, changes in tax items including valuation allowances, income tax reserves and other
discrete tax adjustments caused a small net increase to tax expense.
FISCAL YEAR 2011 COMPARED TO FISCAL YEAR 2010
Interest income earned on mortgage loans held for investment decreased $7.2 million, or 22.5%, from the prior
year, primarily as a result of declining rates and non-performing loans. Our provision for loan losses decreased
$12.2 million, or 25.5%, from the prior year as a result of the continued run-off of our portfolio.
Income Taxes on Continuing Operations
Our effective tax rate from continuing operations was 37.5% for the fiscal year ended April 30, 2011, compared
to 37.1% in the prior year. The increase resulted from a decline in gains from investments in company-owned life
insurance assets which were not subject to tax and an increase in the state effective tax rate offset by other
favorable net discrete adjustments recorded in fiscal year 2011 compared to net unfavorable adjustments
recorded in fiscal year 2010.
DISCONTINUED OPERATIONS
Our discontinued operations include the results of RSM and related businesses, which were previously reported
in our Business Services segment, and our discontinued mortgage operations.
Discontinued Operations – Operating Results (in 000s)
Year ended April 30, 2012 2011 2010
Revenues $ 417,168 $828,725 $859,869
Pretax income (loss) from operations:
RSM and related businesses $ 14,441 $ 48,021 $ 59,492
Mortgage (59,702) (20,644) (16,449)
(45,261) 27,377 43,043
Income taxes (benefit) (13,329) 13,814 18,924
Net income (loss) from operations (31,932) 13,563 24,119
Pretax loss on sales of businesses (109,719) ––
Income tax benefit (61,615) ––
Net loss on sales of businesses (48,104) ––
Net income (loss) from discontinued operations $ (80,036) $ 13,563 $ 24,119
FISCAL YEAR 2012 COMPARED TO FISCAL YEAR 2011
The net loss from our discontinued operations totaled $80.0 million compared to income of $13.6 million for the
prior year. The loss on the sale of RSM and related businesses includes a $99.7 million goodwill impairment
recorded in the first quarter related to the sales of RSM and MCM. Additionally, the prior year includes twelve
months of RSM operating results while the current year includes only seven months.
The loss related to the mortgage business increased due to a settlement of approximately $28 million to the
SEC accrued during the current year, coupled with $20.0 million in incremental loss provisions related to an
increase in SCC’s estimated contingent losses for representation and warranty claims.
Income Taxes
The sale of RSM resulted in a pretax financial statement loss, but produced a gain for tax purposes. The tax gain
resulted primarily from larger amortization deductions taken for tax purposes than for financial statement
purposes. A portion of the gain from the sale of intangible assets is capital in nature and was offset by utilization
of capital loss carry-forwards, resulting in an incremental tax benefit reported for financial statement purposes.
FISCAL YEAR 2011 COMPARED TO FISCAL YEAR 2010
Net income from our discontinued operations fell to $13.6 million in fiscal year 2011, from $24.1 million for
fiscal year 2010, primarily due to lower revenues and higher litigation expenses in our RSM business and higher
expenses from our discontinued mortgage business.
Income Taxes
Our effective tax rate for discontinued operations was 50.5% for the fiscal year ended April 30, 2011, compared
to 44.0% in the prior year. This increase resulted from the impact of permanent tax items and increased state tax
rates.
22
H&R BLOCK 2012 Form 10K