HR Block 2008 Annual Report Download - page 11

9
types of small acquisitions to build our client base than was desirable. Growing
the customer base organically is our fi rst preference, but we will be more vigi-
lant in looking for add-on opportunities to acquire existing tax and accounting
businesses in the next few years.
From its earliest times, H&R Block has utilized franchising to help spread its
network of offi ces to reach more clients. While other competitors rely almost
exclusively on franchisees, H&R Block has historically utilized a mix of company-
operated and franchisee-operated locations. We believe that approach serves
shareowners well. However, we also recognize the signifi cant benefi ts franchisees
can bring through knowledge of the local community, entrepreneurial spirit and
other tangible and intangible factors. H&R Block benefi ts today from the high
quality of our franchisees who deliver H&R Block quality coast-to-coast. For the
future, we are likely to put greater emphasis on franchising as we expand. This
will be particularly true as we build out alternative distribution channels such as
our Express Tax system, or pursue specialized economic, ethnic or international
markets. We believe that increased franchising will help us enhance growth
and returns on capital without compromising our company-owned system or the
quality our clients expect from us.
RSM MCGLADREY
Another area of opportunity for the future is our wholly owned subsidiary
RSM McGladrey (“RSM”). Through what is know as an “alternative practice
structure,” RSM McGladrey and McGladrey & Pullen LLP (“M&P”), as
independent entities, provided attest, accounting, tax and business consult-
ing services to mutual clients. M&P is a licensed CPA fi rm and provides attest
services only, whereas RSM McGladrey delivers all other services to clients.
RSM McGladrey and M&P offer services to a client base largely comprising
small- and medium-sized, privately held U.S. businesses. Although they are
separate fi rms, RSM McGladrey and M&P jointly market their respective
services to mutual clients. Through H&R Block, RSM McGladrey is the only
major accounting fi rm today with access to public capital, and we believe that
this can be an engine for future expansion. Through RSM McGladrey, we
provide nearly a half billion dollars of tax advice to middle-market businesses
and their owners. RSM McGladrey also delivers business advice in a wide range
of areas, as well as tax and accounting assistance, to the small- and medium-
size businesses that form the heart of the U.S. economy.
RSM McGladrey generates slightly more than 20% of H&R Block’s consolidated
revenues. However, in the past it has sometimes been distracted by peripheral
businesses and unprofi table efforts, such as providing fi nance and accounting
services on an outsourced basis. Consistent with the theme of refocusing on
the basics in our Tax Services business, we are refocusing RSM McGladrey on
its core accounting, tax and consulting services. RSM McGladrey has exited
certain noncore businesses in the last two years, and may exit others in the
future as we intensify focus on becoming the premier provider of business and
tax advice to the small- and medium-sized business sector. At RSM McGladrey,
there may have been more historic focus on expansion of revenues than on
effi ciency. While we want to see RSM McGladrey get bigger, our fi rst priority
is on seeing it get better. That means new tools to provide better service to
2004 2005 2006 2007 2008
$276 $320 $298
$374
$454
0
CONSOLIDATED NET INCOME
FROM CONTINUING OPERATIONS
IN MILLIONS