introduction financial h&r block consumer rsm...

H&R Block Investment Community Conference

January 9, 2007 1

Introduction FinancialReview

H&R BlockTax Services

ConsumerFinancial Services

RSMMcGladrey

Industry Context

Market shift to professionally supported tax preparation

Paid prep channels taking share from DIY

DIY shifting to digitalNon-digital DIY channels are declining as filers move toward software and online

Integration of digital and professional services represent next stage of industry growth

61

26

33

54

13

13

128million

Other DIY

Paid Prep

134million

Digital DIY

CAGR

-13.7%

TS00 TS06

+13.2%

+2.9%

100% 100%

0.8%

U.S. Tax Filers


January 9, 2007 2

Speed of Refund Control Expertise

ClientCharacteristics

Competitors

Drivers ofChoice

Settlement products

Convenience

Stress reduction

Lower income (<$40k)

Younger (<40)

High school education

Renters

H&R Block (30% share)

JH/Liberty (<10% share)

Other Paid (52% share)

Expertise of

Professional

Referrals

Relationship

Mid to upper income

(>$50k)

Older (>40)

College education

Homeowners

CPA/Accountants

(64% share)

H&R Block (10% share)

Digital (15% share)

Control over process

Ease of use

Cost/value

Software users have

moderate to high

income and are older

Online users have low

to moderate income

and are younger

Intuit

H&R Block

TaxAct

Consumer Segment Context

Historical Mix of Tax Clients

2.2 2.2 2.3 2.3 2.5

17.2 16.6 16.1 16.0 15.7

2.3 2.9 3.2 3.0 3.7

FY02 FY03 FY04 FY05 FY06

H&R Block Clients Served

21.7 21.7 21.6 21.4 21.9

Digital

Retail

IntÊl

(millions)

Record number of clients served


January 9, 2007 3


133 million total tax filers (TS05)

H&R Block retail shareH&R Block digital share

Hybrid Expertise

ControlSpeed of Refund

27% of Tax Filers 32% of Tax Filers

19% of Tax Filers22% of Tax Filers

Later season clients who have

more complex tax situations

Later season clients who have

more complex tax situations

Dispersed across retail, CPAs,

digital and other service platforms

Dispersed across retail, CPAs,

digital and other service platforms

Early-season clients who

demand their money fast

Early-season clients who

demand their money fast

In the market from late

November throughout the

tax season

In the market from late

November throughout the

tax season


11%

5%

6%

13%

10%

3%

Hybrid Expertise

ControlSpeed of Refund

42.6 million Tax Filers



10%

9%

1%

30%

29%

1%


133 million total tax filers (TS05)


10%

3%

5%

6%

31 millionPotential

New Clients

31 millionPotential

New Clients

26 millionPotential

New Clients

26 millionPotential

New Clients

38 millionPotential

New Clients

38 millionPotential

New Clients

18 millionPotential

New Clients

18 millionPotential

New Clients


January 9, 2007 4

Speed of Refund Segment

45% of H&R Block retail office clients

Dominated by tax prep firms and independents

Product innovation driving segment dynamics


Speed of Refund

30%

29%

1%

19% of Tax Filers

Tax Season 2007 Focus:Win Speed of Refund

Key Strategies

Innovate Products

Open Early

Create Operations Excellence

Strengthen Marketing


January 9, 2007 5

Open Early

Opened 1,500 company offices and 3,100 franchise offices in November

Opened all remaining offices first week of January

Offer tax planning andInstant Money Advance Loan

Set client appointments for tax preparation

Innovate Products

Instant Money Advance Loan

Guaranteed Instant RAL

Emerald Prepaid MasterCard®

Emerald RAL

Available in November

Higher loan amounts, better approval rates, single-product structure and much lower cost than competition

Guaranteed approval or tax preparation is free

Nationwide roll-out of successful TS06 test

Convenience, safety and savings on check cashing

First step toward banking for many clients

Offer Classic RAL at 36% APR with Emerald card, a savings of 40% vs. last year for average loan


January 9, 2007 6

Innovate Products

H&R Block Bank account accessed by prepaid MasterCard® debit card

No upfront fees

No overdraft fees

Low fees inside the product

Reloadable

Client loyalty opportunity in speed of refund segment

Innovate Products

$132

$177

$100

$60

2007RAL w/ Check

2006RAL w/ Check

Competition

2007Emerald RAL

H&R Block

2007RAL w/ Card

66%Savings

66%Savings

40%Savings

40%Savings

For a $2,800 RAL


January 9, 2007 7

TechnologyDevelopment and Implementation

New end-to-end testing approach

New approach to field capacity and readiness

Technology Infrastructure

Client Management

Operations Excellence

17,000 new PCs

93% of company offices upgraded to broadband

Rapid issue identification and resolution process

Continued focus on reduced wait times

Improved Client Service Center approach

Operations Excellence:Office Growth and Tenuring

680625

550

450

300

Year 1 Year 2 Year 3 Year 4 Year 5

$27.3

$14.0

$2.1

$(15.7)

$(21.9)

Year 1 Year 2 Year 3 Year 4 Year 5($ 000s)

Single Office Economics(Fully Burdened)

New Clients per Retail Office2007: 400 new offices

Reduction in growth pace to ensure quality execution

New offices contribute to client growth momentum for 4-5 years

Disciplined return expectations from new locations


January 9, 2007 8


Strengthen Marketing: Direct Mail


January 9, 2007 9

Strengthen Marketing:National Promotion

„Toss Out Your Bills‰ promotion offering $10,000 debt relief

Other prizes:Rent/mortgage $1,000

Groceries $100

Cable bill $50

Gasoline $20

Free lunch $5 Subway

Second chance: go to hrblock.com to enter $50,000 Grand Prize Drawing

Strengthen Marketing:Latino Local Marketing

Street Blitz – In Your Neighborhood

Alianza Soccer Sponsorship


January 9, 2007 10




January 9, 2007 11

Expertise Segment

25% of H&R Block retail clients

Largest share of market, clients and revenue

75% use CPAs and independents


Expertise

10%

9%

1%

32% of Tax Filers

Focus on H&R Block Tax Professionals

Market H&R Block Expertise

Help Tax Professionals Build Their Client Base

Re-launch Savings Products

Tax Season 2007 Focus:Build Expertise Segment

Key Strategies


January 9, 2007 12


Increased focus on Expertise segment with new „You Got People‰ campaign

Research supports strength of advocacy positioning for H&R Block brand

Occupational advice

Access to personal relationships with Tax Professionals

Speak to concerns of average people

Position the expertise and experience ofH&R Block Tax Professionals as key differentiator

Impacts both consumer and Tax Professional choice

Focus on Tax Professionals

Drive Expertise Messages

Launch New Campaign



January 9, 2007 13


Market H&R Block Expertise:National Tax Advice Day

Boston

Topeka, KS

San Francisco


January 9, 2007 14


Focus on H&R Block Tax Professionals

Tax Professional value proposition clarity

Improved tools and training

New compensation plan incorporating Tax Professional retention and seasonal benefits

New campaign featuringTax ProfessionalsÊ expertise

Stands behind me and my clients

Provides me the mostin-depth tax knowledge in the industry

Provides me the tools and environment that I need to serve my clients well

Offers me the chance to grow and develop as a professional

Helps me make a real difference in the financial lives of my clients

Tax Professional PromiseH&R Block...


January 9, 2007 15

Focus on Tax Professional Client Base Building

National Tax Advice Day, in-season local marketing

Building Your Client Base toolkit and training

Nearly 10,000 Tax Professionals enrolled in new Building Your Client Base course

Revised core training incorporating tools and techniques to build business

Integrated approach to training, career development and compensation

Test mentoring and other new approaches

Develop Comprehensive Strategy

Train on Client Base Building

DriveTax Professional Engagement

Re-launch Savings Products

5.00%

2.10%

1.09%

2.00%

1.09%

5.25%

4.25%

5.00%

2.00%

0.50%0.75%

5.05%5.25%

0.25%0.50%0.50%0.50%

0.20%

4.50%

5.05%

Bank of America

JPMorganChase

Wachovia Wells Fargo Citigroup WaMu

IRA Savings

E-Trade AllStateBank

ING Direct

H&R BlockÊs Savings Products vs. Competitive Benchmarks


January 9, 2007 16

Control Segment

H&R Block serves 11% of segment – fastest growth through digital TurboTax leads digital portion of marketHigh incidence of pen and paper use


Control

11%

5%

6%

22% of Tax Filers

Tax Season 2007 Focus:Grow Digital Business

Use digital presence to expand brand relevance

Simplify software line-up to differentiate

Aggressively increase digital brand awareness

Key Strategies


January 9, 2007 17

Simplified Software Line-up

All SKUs are Premium Federal based

Customer decision is based on filing intentions

Easier choice for consumers

Priced for better value

Simplify Software Experience

Simpler, faster start-up (sign-in, install, update)Simplified language and standardized Q&AImproved error prevention and correctionClear feedback to enhance client confidence

End of experience/e-filing, printingWhereÊs my refund; refund/owe meter

Expect significant decrease in live support contacts

TaxCut 2005TaxCut 2005

TaxCut 2006TaxCut 2006


January 9, 2007 18

Digital Presence:Brand Relevance

Digital Presence:Brand Relevance

A digital tax organizerDemonstrates our expertise

Creates a tax preparation list

Links to tax preparation options/tools on hrblock.com

Usable with H&R Block tax preparation or stand-alone

Distributionhrblock.com/online

Direct mail via CD

To Financial Advisor clients

Test distribution strategies


January 9, 2007 19

Increase Brand Awareness

Increase Brand Awareness


January 9, 2007 20

Hybrid Segment

High dispersion across filing methods

30% retail

14% CPA

26% digital

30% other

Dispersion results from inadequate choices to meet consumer desire for tax help


Hybrid

Hybrid

13%

10%

3%

27% of Tax Filers

Tax Market Choices

CPAsJackson Hewitt

H&R Block Products and Services

TurboTaxTaxAct

TaxCutSoftware

Online

H&R BlockRetail Office

Customer Need

Key Competitors

Self PreparationDo it myself

Professional PreparationDo it for me


January 9, 2007 21

Tax Market Choices

Assistance

Do it with me

H&R BlockOnline Office

SignatureAsk a Tax Advisor

Tango

TaxCutSoftware

Online

H&R BlockRetail Office

Self PreparationDo it myself

Professional PreparationDo it for me

Online Office

Client initiates relationship online; Tax Professional completes/files return

Office visit not required

Uniquely positioned to execute on a scaled basis, with consistent quality

Leverages network, efficient workflow distribution

Significant historical client growth rates


January 9, 2007 22

Online Office

New Solutions

New experience in tax preparation

Targeted to do-it-yourself clients who want the assurance of extra support and guidance if needed

Partnership approach betweenClient and Tango

Tango and H&R Block


January 9, 2007 23

A New Category to Serve Tax Consumers

Newly built technology platform

Allows professional support inside product with intelligent cueing for Tax Professionals

Unique to industry technology features

Data files can have either local or central storage

Accordion-style navigation

Soft launch in TS07 to refine execution

Core client targetAggressively competing to winUnique H&R Block competitive capability

Core client target –significant room for growthMultiple market approaches

Limited number of scale competitorsProduct innovation can impact choice

Unique H&R Block assets to create scaled capability

Outlook

Tax Outlook

Speed of Refund

Expertise

Control/DIY

Hybrid

Product innovationProduct pricing impact and communication

Promotion of capabilityModel development

Aggressive product promotionBrand building

New product development and launchTesting category promotion

Tax Season 2007


January 9, 2007 24

Tax Season 2007 Outlook

Unique impacts in TS07Tax extenders impact nearly 200,000 early season clientsTelephone tax rebateSplit refunds

PacingExtra Wednesday in Q3 peakEarly-season lending – uncertain impactApril 15th – Sunday

PricingMid-single digit price increaseValue enhancement – advice and client advocacy

Tax Margins

Reduced pace of office expansion

Intersegment margin sharing with H&R Block Bank

Emerald Card affects segment margins by 80bp – fully realized in bank

FY07 projected margin impactsEarly season lending as defensive strategy

Incremental marketing targeted at high potential segments

Digital acquisition strategy potentially creates negative margin impact but positive client growth with offsetting revenues

28.3% 29.1%28.1%

26.1%

FY02 FY03 FY04 FY05 FY06 FY07

Projected

29.0% 28.7%30.9%30.9%

Estimated Negative Effect from Office ExpansionDigital ImpactReported Margin Litigation Impact

Contribution to H&R Block Bank

26.9%26.9% 26.9%26.9%


January 9, 2007 25

Tax Season 2007

Winning today⁄Aggressive speed of refund actions consistent with H&R Block advocacy intent

Product agreements and bank provide key competitive advantages

Focus on Tax Professionals as key competitive advantage – both front line and national positioning

Multi-channel delivery as unique brand capability

Tax Season 2007

And tomorrow⁄Continued brand building – „Expert in Your Corner‰

New hybrid category launch

Multiple tests within each target segment to inform future

Client loyalty strategies

Client acquisition strategies

Pricing structures

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