HR Block 2011 Annual Report Download - page 4

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I’m very excited to have the opportunity to lead H&R Block
and its employees and franchisees, for many years to come.
I deeply believe in our company, its heritage and its mission,
and I hope to help bring it to new heights. My top priority is
to create value for H&R Block’s shareholders, our employees,
and our clients.
Fiscal 2011 was a challenging, yet exciting year for H&R Block. We
entered this tax season following two consecutive years of significant
client and market share losses, a sluggish economy with sustained, high levels of unemployment,
and an unpredictable regulatory environment that left us at a competitive disadvantage. Despite
these challenges, the organization showed tremendous resilience in achieving its best client
growth since 2001. Total worldwide returns prepared grew nearly 6 percent to 24½ million. In
the U.S., total returns were up 6½ percent, and we grew our U.S. market share by 80 basis points
to 16.4 percent.
Although the Board and I were very pleased by the client and market share gains, we recognize
the impact our inability to offer refund anticipation loans had on our financial results. Another
drag on our results came from RSM McGladrey, where revenue and profitability fell for the second
consecutive year. Altogether, our adjusted, non-GAAP net income from continuing operations was
essentially flat to last year, and we generated $450 million of free cash flow from operations.
Looking ahead, I see a company with a tremendous amount of opportunity. Having just come
off a very successful tax season, we have a lot of momentum on our side. We have a very strong
brand and many assets, including the best tax professionals in the industry, strong leaders in each
of our businesses, and the trust of millions of clients. We generate significant amounts of free cash
flow and our balance sheet is very strong with low debt. I believe we are very well positioned to
thrive in a sea of change and competition, and that there is a lot more value to be had across our
four key growth areas: Retail Tax, Digital Tax, International and Financial Services. Here is what is
bolstering my confidence:
•
Retail Tax: Assisted tax preparation remains very resilient due to the complexity of the U.S.
tax code and the value that tax professionals provide clients. Today, assisted returns represent
about 61 percent of total IRS filings, which is exactly the same percentage it was in 2002. Our
core retail business is strong and growing stronger as more clients turn to H&R Block. This
year, we drove much stronger results than many expected, gaining more than 500,000 clients
and 60 basis points of market share. We also showed significant improvement in key leading
indicators, including client retention, satisfaction and new client growth. These results were
driven by improved execution, client service, and aggressive client acquisition programs, such as
Free Federal 1040 EZs and 2nd Looks. I’m particularly excited about the EZ program. Introducing
young filers to the benefits of assisted tax preparation is a critical component of our long-term
growth strategy, as the majority of these filers migrate to more complex tax returns within two
years. Thanks to the program’s success, we now have a solid pipeline of new and younger
clients, and the word-of-mouth referrals they generate.
Fellow Shareholders:
William C. Cobb
President and Chief Executive Officer
2H&R Block 2011 Annual Report