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OMB APPROVAL |
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OMB Number:
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3235-0059 |
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Expires:
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January 31, 2008 |
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Estimated average burden
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14 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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o Definitive Proxy Statement |
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þ Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
H&R BLOCK, INC.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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| SEC 1913 (02-02) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
| On Track to Enhance Shareholder Value 1 |
| 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 correct. Because
forward-looking statements involve risks and uncertainties and speak only as of the date on which
they are made, the company’s actual results could differ materially from these statements. These
risks and uncertainties relate to, among other things, the company’s pending sale of Option One
Mortgage Corp.; competitive factors; regulatory capital requirements; the company’s effective
income tax rate; litigation; and changes in market, economic, political or regulatory conditions.
Information concerning these risks and uncertainties is contained in Item 1A of the company’s 2007
annual report on Form 10-K and in other filings by the company with the Securities and Exchange
Commission. 2 |
| · 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 reaffirm our FY08 continuing EPS guidance
· Expect earnings of $1.25 — $1.45 per share
· Middle of range represents growth of 17% over FY07
The Breeden Partners’ campaign is disruptive:
· Offers no new ideas
· Creates risk to auditor independence3 |
| Table o
f Contents
· On Track to Enhance Shareholder Value |
| · Review of Performance
· Core Business Strategy
· Outlook4 |
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
· RSM McGladrey growing and poised to improve margins
· Complete sale of unprofitable units
· Build brand around core accounting expertise
· Improve Financial Advisors operating and financial performance
· Exit non-core mortgage business
· Option One sale expected to be completed by October 31
· Closed H&R Block Mortgage Corp.5 |
| 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 core businesses, along with continued disciplined capital
allocation, will allow us to deliver superior financial performance6 |
| · On Track to Enhance Shareholder Value |
| · Review of Performance
· Core Business Strategy
· Outlook7 |
| 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 $172 |
| ($ millions) Share Repurchases Dividends Paid 8 |
| 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 |
9
| Revenue Contribution
2 Year CAGR: 13% |
| $4,021 $3,575 $3,146
FY05 FY06 FY07 |
| Tax Services Business Services Consumer Financial
Services |
| Pretax Earnings Contribution |
| ($millions)
FY05 FY06 FY07
Business Services Tax Services Consumer Financial Services Corporate & Eliminations
*Continuing Operations 10 |
| · On Track to Enhance Shareholder Value |
| · Review of Performance
· Core Business Strategy
· Outlook |
| • 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 to the middle-online offeringsmarket |
| · These products are key for |
| · Offering core tax, accounting, and addressing DIY filers, who are business consulting services – all rapidly migrating away from pen these segments are growing and paper strongly |
| · Making inroads against Intuit and • With acquisition of AMEX TBS, has other competitors
through Tax, Accounting scale to drive margins product simplification, intense
marketing and smart pricing and Related |
| Financial Services
Financial Advisors Bank |
| · Focus on upper-end tax clients with |
| · Key tool to meet tax client needs goal of increasing client loyalty and while enhancing client loyalty, retentionespecially in the early filer segment |
| · Focused on building scale, |
| · Creates incremental economics to increasing advisor productivity and be able to offer refund loans at enhancing profitability attractive rates relative to competitors12 |
| 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 |
| 22% of U.S. Tax Filers Early Filer 19% of
U.S. Tax Filers |
| from late 1% Early season
11%
November clients who throughout the 6% 29% demand their tax season money fast
5%
H&R Block digital share
H&R Block retail share *TS05 Market Share |
| Early filer clients are inherently the least loyal and hardest to retain |
· Product innovation driving segment dynamics
· Segment dominated by tax prep firms |
| Early Filer and independent providers |
| · In TS07, HRB retained 67.7%
of early Filers filers vs. 71.5% of all
retail filers |
| 1% Early filers
represent 45% of H&R Block
retail office clients |
| 29% · Tend to
be un/underbanked |
· Users of alternative financial services
· Lower income |
| rmance in early filer segment drives Tax Services success |
| H&R Block digital share
H&R Block retail share |
| Year-to-Year Change in Retail Clients |
| (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 of overall H&R Block market share |
| 1.8% · Driver of performance much more (0.9%) (3.6%) (3.8%)
dependent on product superiority and distribution |
| · FY05 and
FY07
demonstrate
impact of
success
against these
drivers |
| · The
bank allows us to
develop products for
this segment that are
superior to those
offered by our
competitors15 |
| · 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-bank competitors have commoditized
settlement products by making them widely available |
| 2002 2007 % Growth Electronic Return Originators* 90,700 157,000 73% |
| · Increasing our points-of-presence has mitigated, but not reversed, this
challenge |
· Pre-file loans demonstrated client demand for credit access
· Our Emerald Card was a breakthrough innovation in FY07 |
| *Retail tax preparer locations capable of direct e-filing to IRS; excludes H&R Block 16 |
| 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 distribution options |
| How the Bank Supports Tax |
| · Enabled creation of Emerald Card – a competitively priced transaction account
— that appealed to our clients: |
| · Magnitude of client retention potential (growth in tax preparation revenues)
expected to be more apparent in TS08 |
| · Clients with points of contact beyond tax preparation (i.e., through Financial
Advisors or savings accounts) are more loyal |
| · HRB Bank enhances our ability to attract and retain early filers, as well as
change the competitive dynamics |
· Brought more than 2 million clients into deeper H&R Block relationship
· Lowered APRs on refund loan products significantly |
| · Created a competitive advantage in our core tax business due to strength of HRB
Bank product offerings relative to our competitors18 |
| · 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 |
| · On Track to Enhance Shareholder Value |
| · Review of Performance
· Core Business Strategy
· Outlook |
| · FY08 continuing EPS of $1.25 — $1.45 |
| · Middle of range represents growth of 17% over FY07 |
· Mid-to-high single digit revenue growth (pricing and clients)
· Modest margin improvement – high single-digit continuing operations earnings growth |
| · RSM McGladrey
· Low double-digit organic growth |
· FY08 benefit from divesting certain operations
· Business Services — net operating margin of 8% |
| · Consumer Financial Services – profit to double in ’08 |
| 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 to disclose Richard Breeden’s position as
Monitor of KPMG, H&R Block’s auditor |
· Creates risk of auditor losing its required independence
· Abrupt mid-year change of auditors would be expensive and disruptive |
| · Breeden Partners owns less than 2% and has been a shareholder for less than a
year and now seeks to replace more than 25% of H&R Block’s Board members |
| 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 about H&R Block and the
2007 Annual Meeting. H&R Block urges its shareholders to read the Proxy Statement carefully.
Shareholders may obtain additional free copies of the Proxy Statement and other documents filed
with the Securities Exchange Commission (SEC) by H&R Block through the website maintained |
| by the SEC at www.sec.gov. In addition, copies of the Proxy Statement and other documents may be
obtained free of charge by directing a request to: H&R Block, Inc., Attn: Corporate Secretary, 1
H&R Block Way, Kansas City, MO 64105, (816) 854-3000 or from our website (www.hrblock.com). Copies
of the Proxy Statement also may be requested by contacting our proxy solicitor, Innisfree M&A
Incorporated, at 877-456-3463 toll-free.23 |
