H&r Block, Inc. · NYSE:HRB
H&r Block — Proxy Contest (July 2007)
22 slides from H&r Block's proxy contest presentation, Jul 31, 2007
Slide 1: On Track to Enhance Shareholder Value
On Track to Enhance Shareholder Value 1
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation may contain forward-looking statements, which are any statements that are not historical facts. These forward-looking statements are based upon the current expectations of the company and there can be no assurance that such expectations will prove to be c
Slide 3: Introduction
Introduction · We have the right strategy to build shareholder value · We are taking the necessary steps to focus on our core tax, accounting and related financial services businesses · The Bank creates a competitive advantage for our core tax business, particularly in the early filer segment We rea
Slide 4: Table of Contents
Table o f Contents · On Track to Enhance Shareholder Value · Review of Performance · Core Business Strategy · Outlook4
Slide 5: Initiatives to Enhance Shareholder Value
Initiatives to Enhance Shareholder Value · Tax Services achieved good growth in FY07, significantly aided by H&R Block Bank · Bank is key tool to build loyalty in early filer segment · Strength of Bank product offerings, relative to competitors, creates competitive advantage in our core tax business
Slide 6: FY08 Expectations
FY · We expect continued success in TS08, building on a strong TS07 Bank is the foundation for increasing market share in critical early filer segment · With expected strong profits, we will rebuild capital and be positioned for continued share repurchases and dividend increases · Concentration on c
Slide 7: Table of Contents
Table of Co ntents · On Track to Enhance Shareholder Value · Review of Performance · Core Business Strategy · Outlook7
Slide 8: Dividends and Share Repurchases
Dividends and Share Repurchases H&R Block’s disciplined capital allocation consistently returns excess capital to shareholders $657 $671 $138 $143 $443 $414 $126 $353 $160 $519 $527 $172 $317 $254 $181 FY03 FY04 FY05 FY06 FY07 ($ millions) Share Repurchases Dividends Paid 8
Slide 9: Option One Contribution
Option One Contribution Despite recent industry difficulties, Option One contributed significantly to HRB’s book value with earnings of $2.0 billion FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
Slide 10: Segment Contribution
Segment Contribution* Revenue Contribution 2 Year CAGR: 13% $4,021 $3,575 $3,146 FY05 FY06 FY07 ($ millions) Tax Services Business Services Consumer Financial Services Pretax Earnings Contribution 2 Year CAGR: 10% $636 $528 $510 ($millions) FY05 FY06 FY07 Business Services Tax Services Consumer Fina
Slide 11: Table of Contents
of Contents · On Track to Enhance Shareholder Value · Review of Performance · Core Business Strategy · Outlook 11
Slide 12: Focus for H&R Block
Focus for H&R Block Retail — Tax • 45% of HRB retail office clients are early filers · A mix of company-owned and franchised retail offices, each with low capital requirements Digital — Tax • New offices reach steady state in 5 years RSM McGladrey · Consists of both software and · Leading provider t
Slide 13: Tax Segments and H&R Block Share
Tax Segments and H&R Block Share 133 million total U.S. tax filers* Dispersed across Later season Hybrid Expertise retail, CPAs, clients who have 27% of U.S. Tax Filers 32% of U.S. Tax Filers digital and other more complex tax service platforms situations 13% 3% 10% 1% 10% 9% Control 22% of U.S. Tax
Slide 14: Year-to-Year Change in Retail Clients
plit Year-to-Year Change in Retail Clients Late Season Client (6.5%) (2.4%) (3.8%) 0.3% (0.1%) · We have made consistent progress in addressing the second-half filer (expertise-oriented client) category FY03 FY03 FY04 FY05 FY06 FY07 · The early filer segment is a critical Early Season Client driver
Slide 15: Competitive Challenge
Competitive Challenge · Refund settlement products (RALs and early season loans) drive consumer choice for tax services · Strong consumer demand · Price inelasticity · Electronic Return Originators (EROs), which e-file tax returns directly to the IRS, have proliferated. As a result, our bank and non
Slide 16: Cultivating Client Loyalty
Cultivating Client Loyalty · Bank enabled a product (the Emerald Card) to be manufactured to our specifications · Developed 36% APR RAL product delivered on prepaid debit card · Next version leverages unique features to extend loyalty and enhance brand · Platform can open door to new tax distributio
Slide 17: How the Bank Supports Tax
How the Bank Supports Tax · Enabled creation of Emerald Card – a competitively priced transaction account — that appealed to our clients: · High client take rate · Magnitude of client retention potential (growth in tax preparation revenues) expected to be more apparent in TS08 · Clients with points
Slide 18: The Success of the Bank
The Success of the Bank · Bank had a very successful first year · Low cost deposit strategy leveraged capital · Earned $23 million (pretax), including Emerald Card economics (ATM and merchant fees, float) · Launched high-yielding IRA and savings accounts 19
Slide 19: Table of Contents
Table of Contents · On Track to Enhance Shareholder Value · Review of Performance · Core Business Strategy · Outlook 20
Slide 20: FY08 Guidance
FY08 Guidance · FY08 continuing EPS of $1.25 — $1.45 · Middle of range represents growth of 17% over FY07 · Tax Services · Mid-to-high single digit revenue growth (pricing and clients) · Modest margin improvement – high single-digit continuing operations earnings growth · RSM McGladrey · Low double-
Slide 21: Breeden Partners: A Disruption
Breeden Partners: A Disruption · Breeden Partners’ campaign disruptive to H&R Block’s strategic initiatives · Has not advanced new ideas to improve value · We believe Breeden Partners advocates the sale of the Bank and ignores its potential value to Tax Services · Breeden Partners originally failed
Slide 22: Important Additional Information
Important Additional Information On July 31, 2007, H&R Block began the process of mailing its definitive proxy statement (the “Proxy Statement”), together with a WHITE proxy card, in connection with H&R Block’s 2007 Annual Meeting of Shareholders. The Proxy Statement contains important information a