HR Block 2015 Annual Report Download - page 35

28 2015 Form 10-K | H&R Block, Inc.
FISCAL 2015 COMPARED TO FISCAL 2014
TAX SERVICES – Tax Services' revenues increased $56.8 million, or 1.9%, compared to the prior year. U.S. assisted tax
preparation fees increased $71.4 million, or 4.0%, while royalty revenues declined $23.4 million, or 7.4%, almost
entirely due to acquisitions of franchisee businesses during the fiscal year. Return counts in our company-owned
offices, excluding returns prepared in those offices acquired during fiscal year 2015, declined 4.6%.
International tax preparation fees increased $7.6 million, or 3.8%, due primarily to pricing changes, partially offset
by unfavorable exchange rates.
Tax preparation fees from our U.S. DIY business increased $25.3 million, or 12.3%, primarily due to an 8.1% increase
in paid returns. The remaining increase is due to better monetization of new and existing clients and a higher number
of more complicated returns.
Fees earned on RTs decreased $10.3 million, or 5.7%, primarily due to lower assisted return volumes.
Revenue from fees for our POM is initially deferred, and recognized over the term of the service plan based on
actual claims paid in relation to projected claims. Revenue decreased $8.1 million, or 9.1%, in fiscal year 2015 primarily
due to a change in projected claims that resulted in an increase in revenue recognized last year.
Total expenses increased $108.6 million, or 5.1%, from the prior year. Total compensation and benefits increased
$26.9 million primarily due to higher variable field wages resulting from increased revenues and increased training
costs. Occupancy and equipment expenses increased $11.8 million, or 3.2%, primarily due to a 4.6% increase in
company-owned offices resulting from franchise acquisitions. Marketing and advertising expenses increased $34.7
million due to a planned increase in national advertising spend as part of our current year marketing strategy.
Depreciation and amortization expense increased $44.3 million, or 38.4%, primarily due to acquisitions of franchisee
and competitor businesses and improvements to existing offices. Other expenses decreased $18.6 million, or 7.1%,
primarily due to lower litigation and consulting costs in the current year.
Other income declined $9.9 million primarily due to a $10.1 million gain on the sale of an intangible customer list
asset in the prior year. Other expenses declined $18.4 million, primarily due to an other-than-temporary impairment
on AFS securities of $12.4 million recorded in the prior year, coupled with a decline of $6.7 million in foreign currency
losses.
Pretax income for fiscal year 2015 decreased $43.1 million, or 5.0%, over the prior year. The pretax margin for the
segment decreased to 26.9% in fiscal year 2015 from 28.9% in fiscal year 2014.
CORPORATE – Bad debt expense declined $8.3 million from the prior year due to improved collateral values. Other
operating expenses decreased $19.0 million, or 44.3%, primarily due to declines in litigation, insurance, consulting
and loan servicing costs.
Other income declined $25.1 million, primarily due to a gain of $18.3 million recognized in fiscal year 2014 on the
sale of residual interests in mortgage securitizations. Interest expense declined $10.0 million, or 18.7%, due to
repayment of our notes that matured in October 2014. Other expenses declined $6.0 million primarily due to lower
foreign currency losses.
DISCONTINUED OPERATIONS – The net loss from our discontinued operations totaled $13.1 million for the current
year, compared to a net loss of $24.9 million in the prior year.
Pretax losses of mortgage operations totaled $27.1 million, compared to $38.5 million in the prior year, and resulted
primarily from loss provisions related to SCC's estimated contingent losses for representation and warranty claims of
$16.0 million and $25.0 million for fiscal years 2015 and 2014, respectively.
Our discontinued Business Services segment also recorded favorable adjustments resulting in an improvement of
$7.5 million in legal settlements during fiscal year 2015 over the prior year.