HR Block 2006 Annual Report Download - page 19

STEVE TAIT
President
RSM McGladrey Business Services
The industry environment has changed for
providing accounting, tax and business
consulting services to midsized companies.
More than a half million U.S. businesses
make up this market, consisting of companies
between $2.5 million and $500 million in
annual revenues. Middle-market companies
account for the highest portion of the
professional workforce, about 43 percent,
and they employ about 50 percent of the
manufacturing workforce.
But the major accounting firms have been
moving some of their focus toward their
largest client companies, including dedicating
significant resources to help them handle
Sarbanes-Oxley compliance work.
The result? A market gap that RSM
McGladrey has quickly and capably filled.
We are fully committed to excellence in
serving the breadth of global needs of
midsized businesses today and in the
future, and we have built a compelling
force in the marketplace.
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From revenues under $50 million in fiscal 1999 – just before RSM McGladrey was formed
with H&R Block’s acquisition of the non-attest assets of McGladrey & Pullen LLP(1) – Business
Services’ revenues jumped to $877 million in 2006. While much of the advance reflected a
healthy gain in core and extended businesses, about $250 million came from part-year
ownership of the former American Express Tax and Business Services (Amex TBS).
ACQUISITION ADDS SIZE, STRENGTH AND OPPORTUNITY
The Amex TBS acquisition (which was completed in October 2005) created a premier enterprise
with more than $1 billion in annualized revenues and over 5,000 accounting professionals
among 7,000 total associates. RSM McGladrey is now the nation’s leading accounting, tax
and business consulting firm focused on midsized companies, and the fifth largest(2) in revenues
among all U.S. accounting firms.
Size means opportunity for clients and H&R Block. For the first time, a firm of national scale
and reputation is dedicated to serving midsized businesses. And for the first time, a single
source offers a range of services rivaling those the Big 4 accounting firms provide to their
large clients. A full-service partner is exactly what midsized companies want today, as they
cope with the same complex domestic and global business issues as larger companies.
The Amex TBS acquisition strengthened our reach in several key markets. RSM McGladrey
is now the largest accounting firm in Baltimore, third largest in Chicago, and fifth largest
in New York and Boston. We’ve also moved into new areas – Cleveland, for example. Today
we serve clients from 125 offices in 26 states and in 18 of the top 25 U.S. markets.
Supplementing our in-house expertise, RSM McGladrey accesses global services for clients
as a member of RSM International, an affiliation of separate and independent accounting
firms worldwide. In June 2006, RSM McGladrey announced that it would be forming a
wholly owned subsidiary, RSM McGladrey UK Ltd., as a foundation for global tax and cross-
border transaction support. At the same time, it signed an agreement under which RSM
Hemmelrath Gruppe, a legal and tax firm based in Munich, Germany, will supply staff needed
by RSM McGladrey UK to provide such services in eight initial countries, including Germany,
the United Kingdom, Russia and mainland China.
GROWTH MOMENTUM IN OUR BUSINESSES
Growth also has been strong in RSM McGladrey’s core and extended U.S. businesses. Market
development initiatives are quickening the introduction of new services and products and
creating a one-firm image that puts the full power of our services portfolio into the market.
(1) RSM McGladrey and McGladrey & Pullen LLP, which provides audit and assurance services, have an alternative practice
structure that enables the two separate and independent legal entities to work together to serve clients’ business needs.
(2) Combined with McGladrey & Pullen revenues, which are not consolidated in H&R Block’s financial statements.