H&R Block, Inc. · NYSE:HRB
H&R Block — Shareholder Meeting (September 2005)
35 slides from H&R Block's shareholder meeting presentation, Sep 7, 2005
Slide 1: Annual Shareholders' Meeting
Annual ShareholdersÊ Meeting September 7, 2005
Slide 2: Mark A. Ernst, Chairman, President and CEO
Mark A. Ernst Chairman, President and Chief Executive Officer 2
Slide 3: H&R Block Board of Directors
H&R Block Board of Directors G. Kenneth Baum Roger W. Hale Thomas M. Bloch David Baker Lewis Donna R. Ecton Tom D. Seip Mark A. Ernst Louis W. Smith Henry F. Frigon Rayford Wilkins, Jr. 3
Slide 4: Director Emeritus
H&R Block Director Emeritus Henry W. Bloch 4
Slide 5: Annual Shareholders' Meeting
Annual ShareholdersÊ Meeting September 7, 2005
Slide 6: Proposal One: Elect Class I Directors
Proposal One Elect Class I Directors Thomas M. Bloch Mark A. Ernst David Baker Lewis Tom D. Seip 6
Slide 7: Proposal Two: Approve Executive Performance Plan
Proposal Two Approve H&R Block Executive Performance Plan Rename Plan Increase aggregate limits to capture IRC Section 162(m) treatment 7
Slide 8: Proposal Three: Ratify KPMG LLP Appointment
Proposal Three Ratify KPMG LLP Appointment for Year Ending April 30, 2006 8
Slide 9: Annual Shareholders' Meeting
Annual ShareholdersÊ Meeting September 7, 2005
Slide 10: Forward-Looking Statement
Forward-Looking Statement This presentation and various comments made in connection with this presentation include certain estimates, projections and other forward-looking statements. The words „will,‰ „plan,‰ „estimate,‰ „approximate,‰ „project,‰ „intend,‰ „remain,‰ „expect,‰ „believe,‰ and variati
Slide 11: FY2005 Results
FY2005 Results 1-Year 3-Yr CAGR Revenues $ 4.4 billion 4% 10% Net Income $636 million (10%) 13% Earnings per Share $1.88 (4%) 17% Return on Equity 33.5% 11
Slide 12: Financial Strength
Financial Strength Prudent Balance Sheet Management D e bt / T ota l Ca pi ta l * 50% 44% 40% 36% 31% 32% 2000 2001 2002 2003 2004 2005 * Debt divided by debt plus stockholdersÊ equity. 12
Slide 13: Capital Allocation
Capital Allocation Priority Use of Capital Growth-oriented reinvestment into existing businesses Targeted capital structure High-value investment opportunities aligned with our strategies Return value to shareholders through dividends and share repurchase 13
Slide 14: Shareholder Results: 1-Year Performance
14 Per c entage R etur n -10% -5% 0% 5% 10% 15% 20% 25% 30% 9/ 1/ 2004 9/ 15/ 2004 9/ 28/ 2004 10/ 11/ 2004 Source: Bloomberg (price only) 10/ 22/ 2004 11/ 4/ 2004 HRB 11/ 17/ 2004 12/ 1/ 2004 S&P 500 12/ 14/ 2004 12/ 28/ 2004 1/ 10/ 2005 1/ 24/ 2005 2/ 4/ 2005 2/ 17/ 2005 3/ 3/ 2005 3/ 16/ 2005 3/
Slide 15: Shareholder Results: 5-Year Performance
15 Percentage Return -100% -50% 0% 50% 100% 150% 200% 250% 4 /2 8 /2 0 0 0 7 /2 8 /2 0 0 0 1 0 /2 8 /2 0 0 0 1 /2 8 /2 0 0 1 Source: Bloomberg (price only) 4 /2 8 /2 0 0 1 HRB 7 /2 8 /2 0 0 1 S&P 500 1 0 /2 8 /2 0 0 1 1 /2 8 /2 0 0 2 4 /2 8 /2 0 0 2 7 /2 8 /2 0 0 2 1 0 /2 8 /2 0 0 2 1 /2 8 /2 0 0 3
Slide 16: One Company: Three Brands
One Company: Three Brands Consumer Tax and Financial Services Business Tax, Accounting and Financial Services Mortgage Services 16
Slide 17: Key Highlights
Key Highlights Opened over 1,200 new Delivered 8th Increased loan tax offices and consecutive quarter production 33% to $31 Reversed two-year trend of double-digit billion of declining tax client revenue growth Reduced cost of growth Expansion to clear origination 67 basis Significantl
Slide 18: H&R Block Growth Plans
H&R Block Short-Term Growth Office expansion/office tenuring Client value driving pricing flexibility Operational improvement at H&R Block Financial Advisors Medium-Term Growth Office expansion/office tenuring New RAL bank provider contract Introduction of H&R Block Bank Digital growth
Slide 19: Retail Tax Office Tenuring Process
Retail Tax Office Tenuring Process Illustrative office Single-Office Operating Margin ($000s) performance 45 $37 $30 30 $13 15 $0 0 -15 ($16) ($13) -30 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Incremental New Clients 750 675 625 575 600 500 400 450 250 300 150 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 19
Slide 20: H&R Block Growth Plans
H&R Block Short-Term Growth Office expansion/office tenuring Client value driving pricing flexibility Operational improvement at H&R Block Financial Advisors Medium-Term Growth Office expansion/office tenuring New RAL bank provider contract Introduction of H&R Block Bank Digital growth
Slide 21: FY05 Tax Professional Satisfaction Results
21 0% 2% 4% 6% 8% 10% 12% Pay Rate Fairness of bon u s/commission policy Compensat ion for FA/ Mortg ag e referrals Training Year-Over-Year Satisfaction Increase Compu ter Systems J ob St ru ct u re Advancement Tax Professional FY05 Satisfaction Results
Slide 22: RSM McGladrey
RSM McGladrey Short-Term Growth SOX-driven growth Scale being achieved in emerging businesses Capital markets performance improvements Medium-Term Growth Business development capabilities Payroll, Financial Process Outsourcing Long-Term Growth Leading firm serving middle-market companies
Slide 23: RSM McGladrey: Largest Accounting Firms in the U.S.
RSM McGladrey ($ millions) Largest Accounting Firms in the U.S. Revenues 1. Deloitte & Touche $6,876 2. Ernst & Young 5,511 3. PricewaterhouseCoopers 5,350 4. KPMG 3,808 5. RSM McGladrey 1,188 6. Grant Thornton 635 7. BDO Seidman 440 8. CBIZ/Mayer Hoffman McCann 373 9. Crowe Group 342 10. BKD 229 So
Slide 24: RSM McGladrey
RSM McGladrey Short-Term Growth SOX-driven growth Scale being achieved in emerging businesses Capital markets performance improvements Medium-Term Growth Business development capabilities Payroll, Financial Process Outsourcing Long-Term Growth Leading firm serving middle-market companies
Slide 25: Option One Mortgage
Option One Mortgage Short-Term Growth Service differentiation supporting origination growth Reduce cost of origination for enhanced results Retail mortgage growth through H&R Block client referrals Medium-Term Growth Process re-engineering around technology enhancements Alternative mortgag
Slide 26: Mortgage Services Loan Production
Mortgage Services Loan Production $12 $10.9 $10 $9.3 $8.4 $8 $6.8 $6.5 $ in billions $6.3 $6.2 $6 $5.3 $5.4 $4 $2 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006 26
Slide 27: Mortgage Services Margin Trends
Mortgage Services Margin Trends Gain-on-Sale Margin * Cost of Origination ** 4.75% 4.58% 4.57% 4.30% 3.58% 3.48% 3.25% 3.05% 2.86% 2.02% 2.22% 2.43% 2.61% 2.22% 2.47% 2.10% 2.14% 1.94% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006 • Includes loan sale premium, accretion from beneficial interest in trust
Slide 28: Option One Mortgage
Option One Mortgage Short-Term Growth Service differentiation supporting origination growth Reduce cost of origination for enhanced results Retail mortgage growth through H&R Block client referrals Medium-Term Growth Process re-engineering around technology enhancements Alternative mortgag
Slide 29: Financial Outlook
Financial Outlook Long-Term Targets Revenue growth 10 – 15% Earnings per share growth 13 – 18% Return on equity 30 – 40% Maintain prudent balance sheet 29
Slide 30: Corporate Culture
Corporate Culture What We Aspire for Shareholders Consistency A company with highly predictable earnings and cash flows. A company that uses its capital efficiently. Growth Grow businesses in attractive markets, where we can create unique market positions that make us competitively differentiate
Slide 31: G. Kenneth Baum
G. Kenneth Baum H&R BLOCK’ HM Consistency MGrowth Mi Leadership 31
Slide 32: HM Consistency MGrowth Mi Leadership
HM Consistency MGrowth Mi Leadership 32
Slide 33: Annual Shareholders' Meeting
Annual ShareholdersÊ Meeting September 7, 2005
Slide 34: Appendix
Appendix HM Consistency MGrowth Mi Leadership 34
Slide 35: Reconciliation of Non-GAAP Financial Information
Reconciliation of Non-GAAP Financial Information ($ millions) Mortgage Origination Margin Restated Q1 Fiscal Year Fiscal Year 2006 2005 2004 Total Mortgage Services expenses $ 226 $ 750 $ 635 Add: Costs netted against gain on 114 378 268 sale Less: Cost of services (64) (221) (193) Cost of acquisiti