2007%20Liberty%20Tax%20Annual%20Report

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  • 1. Celebrating 10 Years Of Excellence Liberty Tax Service 2007 Annual Report
  • 2. Contents To Our Shareholders .................................. 2 Celebrating Growth ................................... 8 Celebrating Change and Vision................. 10 Celebrating Celebrity .............................. 12
  • 3. tax returns. Moreover, we accomplished to balance strong that with just 2,000 offices, compared to growth, best busi- 19,000 offices for the competition. We ness practices, social have made history in the income tax responsibility, and a industry. Just 10 short years ago, we had fulfilling life experi- no offices and people kept asking me why ence for our franchi- I wanted to start over, to compete against sees and employees H&R Block and a company that still bore has guided us. Our my name. Today it is clear to see why. Mission Statement Our results are an amazing testament to of “Set the Standard, my vision and my goal. There are many Improve Each Day, reasons why Liberty is successful; we Have Some Fun,” have a great name, proven strategies for calls us to use our getting customers, and a solid business business model to model. Nevertheless, what it really boils improve the quality of down to is the people. We have the best life of our community, franchisees and the best employees in the country and the world. industry. These results could not have been achieved without them. So let me tell you how we are doing. It seems hard to believe that a year has gone by since our last Annual Report, From my perspective, and much has happened. We have made 2007 was a year of major strides in software development success across all fac- and online tax preparation. This year we ets of our Mission Statement, with par- To Our deployed our new proprietary software ticularly strong financial results. Our rev- Shareholders, “LibTax™” to 534 offices. Generally, enue increased 13.6% from $66,152,546 acceptance by the franchisees is positive to $75,147,670. Net income rose 90.2% and we remain optimistic that full deploy- from $8,271,700 to $15,729,677. It is a distinct privilege for me to have ment for tax season 2008 will be success- this opportunity to reflect on Liberty Tax We added 433 net new Service’s 10th year anniversary. The locations and grew the chance to be the leader of a front running, number of franchisees to principles-led company is what inspired 1,607. However, per- me to found Liberty Tax Service in the haps the most significant first place, and it’s what keeps me fanati- result is one that cannot cal about the journey that still lies ahead be extrapolated from our of us. financial statement. This year, in the United States, At Liberty Tax Service, being a prin- Liberty Tax Service beat ciples-led company is more than a list of both Jackson Hewitt and ideals –it is part of our mission. Since H&R Block combined in 1997, a mission statement that seeks increase of raw number of 2
  • 4. ful. We are very excited about the software rollout as it adds yet another technological advantage to our growing arsenal of strengths. No longer are we dependent on a third party for our tax software. We have total control over how the software functions and will continue to modify it to fit our ever growing needs. We are also conducting compre- hensive trainings both over the internet and on-site to teach the franchisees how to effectively use the software. LibTax™ contains tremendous tools that will make Page 2 top: John Hewitt, CEO & Founder of Liberty Tax Service. Page 2 bottom: John our offices run even more efficiently. We Hewitt speaks with franchisees and area devel- opers at this year’s convention. This page top have been able to recruit and hire our and right: Liberty tax preparers provide the franchisees to assist both in the testing best customer service in the industry. and training phases of the software de- ployment. It has proven to be invaluable to the development phase of this program by allowing the franchisees to get com- fortable with the new software as well as Another exciting development concerns generate some off season income. our continued expansion into online tax preparation. Late last fall, we purchased E Smart Tax, an internet income tax preparation business. With this acquisi- $75.1 Revenue (in millions) tion, Liberty is able to provide an internet $66.2 solution for individual tax preparation that is user-friendly, well supported, and affordable. E Smart Tax software will $51.0 enhance and expand our existing product $42.2 offering by allowing customers who wish to prepare and file their individual income tax returns on the internet to do so from $28.5 our company’s website. $17.9 $10.7 Last year, 21.7 million individual tax returns were filed using the internet. On- line filing is the fastest growing segment 2001 2002 2003 2004 2005 2006 2007 3
  • 5. of the tax industry and we are going to take advantage of that growth. We are also using the software platform to participate in the Free File Alliance partnership that provides a free tax prepa- ration alternative through the IRS’s web- site. Since the Free File’s debut in 2003, 15.6 million returns have been prepared and filed through the program. The online program is easy to use and features an IRS forms based application, online help, and guaranteed calculations, as well as a fully translated Spanish lan- guage version. The addition of the online tax preparation product complements our Above: Liberty mascots work year-round to get the Liberty name out. Below: Taking a breather from mascot duties. brick-and-mortar operations because we can now serve consumers who routinely switch between self-prepared and paid “We have the best franchisees preparation based upon life style changes or tax law changes. Due in most part to and the best employees in the their complexity; well over half of all tax returns started online are not completed. industry.” Our goal is to move those filers who don’t finish their return online into one of our nearby offices. We are enthusiastic of Miami Beach and everywhere in be- about the possibilities the online service tween. Here is a synopsis of the recogni- presents to our franchisees. By having a tion we have received in the last year: product offering for each type of con- sumer, the paid filer and the “do-it-your- • The Virginia Chamber of Commerce selfer,” our customer retention should recognized Liberty as one of the improve significantly. This is a huge step Fantastic 50 companies in the state forward for Liberty and our franchisees. for the third year in a row. • Inside Business named Liberty as Finally, I would like to comment on the expansion of our brand. Liberty Tax one of the 25 best places to work in Service is gaining tremendous recognition Hampton Roads. all across the country. Our wavers can be seen from Anchorage, Alaska to the sands
  • 6. • Hispanic Trends named Liberty one of the top 25 franchise opportunities for Hispanics. • Bond’s Top 100 Franchises featured Liberty Tax Service. • I was featured in an article in Entre- preneur magazine on Franchising Legends. • Black Enterprise magazine named Liberty to its list of top 30 franchise opportunities. • Accounting Today recognized me as one of the most influential people in Top: Franchisees dress family members in costume the accounting industry for the sixth during special events. Right: Roadside parties are held during tax season to bring passersby into year. Liberty offices. • Entrepreneur magazine ranks us in decade of Liberty’s growth. There their top 20 best franchise opportu- are so many new opportunities nities. awaiting us that we are exploring and others that are still to be discov- Of course, we are proud of what we have ered. Our number one goal is to continue done, but that is yesterday’s news. We to find ways to delight and amaze our to create raving fans! Liberty Tax Ser- are ready to move forward into the next customers, to exceed their expectations, vice is a company on the move. We have proven that passion, focus, and dedication 2363 are the characteristics needed to build a Number of Offices world-class organization. We are well on our way. 1946 1735 Sincerely, 1409 919 John T. Hewitt 611 551 Founder and CEO 2007 2001 2002 2003 2004 2005 2006 5
  • 7. Liberty implements a tax 2007 preparer certification process. There are over 100 Liberty Area Developers throughout 80% of the country. 2006 THE WALL STREET JOURNAL. Hispanic Trends recognizes © 2006 Dow Jones & Company, Inc. All Rights Reserved. MONDAY, APRIL 17, 2006 attention-getting. Children know that the In working-class neighborhoods— Liberty as one of the top 25 Upstart Tax Preparer two are often good for free Statue of Liberty says it serves the same market as Liberty crowns. Wal-Mart Stores Inc.—Uncle Sam and Uncle Sam and Lady Liberty have been Lady Liberty have become cultural icons. Surges to No. 3 Spot at it since January, and today their “They’re always out there, and they’re numbers could reach a new high. As the hilarious,” says 22-year-old Delissa Drake PROOF Riding ‘the Wavers’ midnight deadline approaches for filing of Kansas City, Kan., who says the wavers tax returns in most states, the population attracted her to Liberty this year for help of Uncle Sams and Lady Libertys on the in filing her first-ever return. i i i streets of America could hit 3,000. Mr. Hewitt doesn’t have strict require- Tomorrow, all will be gone. ments for the job. He says homeless Dancing Uncle Sams Lure franchise opportunities for “Uncle Sam gets hung up for another people are welcome. Many of the actors John Is Named year,” says Willis Tyus, the most popular interviewed described themselves as Customers to Liberty; of several Uncle Sams on 39th Street here unemployed or underemployed. Mr. Tyus, in Kansas City, Kan. the star of 39th Street here, lost his job of Dodging a Tossed Hot Dog 7 7 Uncle Sam and Lady Liberty are the seven years as a window washer over the creations of a tax-preparation industry winter. From the median of 39th Street pioneer named John Hewitt. After build- one recent day, he pointed disapprovingly By KEVIN HELLIKER ing a firm called Jackson Hewitt Inc. into at streaks in some recently washed the industry’s second-largest player be- windows across the street. KANSAS CITY, Kan.—Kebba Njie was hind H&R Block Inc., Mr. Hewitt orches- Hispanics. earning $6 an hour moving furniture and trated a sale of Jackson Hewitt, resigned In working-class Entrepreneur Of The Year cleaning up messes when the opportunity and soon afterward started a new arose to play Uncle Sam. company, Liberty Tax Service. To get Never mind that Mr. Njie, a West neighborhoods, customers into Liberty’s doors, he started African immigrant, isn’t old, bearded or hiring costumed wavers. an American citizen. To passersby on The strategy seemed ill-advised to some Uncle Sam and State Avenue here, he became the because costumed wavers—for instance, nation’s symbol. the Chick-fil-A restaurant cows that hold Lady Liberty are signs saying Eat Mor Chikin—generally personify the promise of food and fun. By now cultural icons. contrast, Uncle Sam and Lady Liberty By The International tout the promise of a well-prepared Form 1040. When a Florida official of H&R Block took a page out of Liberty’s book by dress- Then he quickly returned to character, ing up as a big green block, H&R head- dancing and bantering with drivers quarters wasn’t amused. stopped at a light. Praised by his boss as “This was off-strategy and that person the top waver at this site, the 57-year-old was reprimanded for doing it,” says an Mr. Tyus says, “I like to be the best at H&R Block spokeswoman. “Americans whatever I do.” expect an experienced, highly trained tax Liberty Tax says the job pays between Franchise Association. professional to lead them through the $8 and $10 an hour. Here in Kansas City, myriad of tax-law changes. That’s why however, some wavers report receiving H&R Block is serious about the image it only $7 an hour, including Mr. Njie, the projects.” West African immigrant. The wavers work in shifts of only four hours so as not Yet Liberty and its franchisees have to lose their enthusiasm and energy. opened nearly 2,000 offices in nine years. Kalid Baste Anyone who asks a question about the That makes Liberty the industry’s third- service is told to visit the office. largest player after H&R Block and Those new to the job must watch a Jackson Hewitt, and its fastest-growing. Waver Jerron Dennis and Lady Liberty training video that shows wavers dancing Mr. Hewitt gives much of the credit to his outside Liberty Tax Service in Chicago. and doing cartwheels to get attention. The costumed characters. “A lot of people video recommends that wavers salute carry their W-2 in their wallet, and when police cars and fire trucks, give truckers they see our wavers they pull right in,” he On street corners across America, the “honk-the-horn gesture” and tip their says. Chicago franchisee Kalid Baste says Uncle Sam waves, dances, shouts, sings headgear toward senior citizens. Young he considered wavers “foolish” until and plays air guitar on behalf of a tax- people should be given the peace sign, heavy losses at his Liberty stores forced preparation service. A regular companion although some wavers have found that him to give them a try. Soon, he says, is Lady Liberty. Her antics are similarly this can be misinterpreted. “The police revenue doubled. (over please) THE PUBLISHER’S SALE OF THIS REPRINT DOES NOT CONSTITUTE OR IMPLY ANY ENDORSEMENT OR SPONSORSHIP OF ANY PRODUCT, SERVICE, COMPANY OR ORGANIZATION. Custom Reprints (609)520-4331 P.O. Box 300 Princeton, N.J. 08543-0300. DO NOT EDIT OR ALTER REPRINT••/REPRODUCTIONS NOT PERMITTED #30633 ! Liberty Reaches Liberty Makes The Front Page The Top 10 On Of The Wall Street Journal. Entrepreneur’s List of Best RANKED Franchises. #10 OVERALL 2004 Liberty franchisees and 2005 Liberty is ranked #15 staff visit New York on Entrepreneur’s City on the day of the Franchise 500; #6 on reopening of the Statue their list of Top of Liberty in August. Low-Cost Franchises Liberty is ranked #28 on and #8 on the list Entrepreneur’s Franchise of Fastest Growing Liberty world head- 500; #12 on their list of Top Franchise quarters moves to Low-Cost Franchises and #9 Opportunities. Corporate Landing on the list of Fastest Growing Parkway in Virginia Franchise Opportunities. Tax Wars heated up when Beach, VA. H&R Block tried to compete with Liberty in guerrilla marketing. 2003 John Hewitt is named Liberty is ranked #106 on Inc. Virginia Entrepreneur of 2002 magazine’s Inc. 500 list of the Year by Ernst & Young. privately-held companies. Here, John’s son Danny accepts the award. Liberty makes NBC Today Show debut appearance. 6
  • 8. Liberty has 2,363 offices throughout the U.S and Canada Liberty acquires E Smart Tax as an inroad to the growing online tax preparation market. Our proprietary software, LibTax™, is deployed to a test Inside Business names Lib- market of 534 offices. erty one of the 25 Best Places to Work in Hampton Roads, VA for the 2nd consecutive year. 2001 Liberty wins a lawsuit against H&R Block, forcing Block to stop misrepresenting tax loans as refunds or refund amounts. 2000 Liberty moves John Hewitt is named its world one of the top 100 most headquarters to 1999 influential people in Bonney Road in accounting by Account- Virginia Beach, ing Today. VA. John’s non-compete clause ends. 1997 1998 Liberty officially begins operations in Canada. Five Liberty offices U&R name changes open in the U.S. in to Liberty Tax Ser- Columbus, Ohio. vice. Pictured-the statue in Las Vegas that gave John the idea for the name. 7
  • 9. Left: Franchisees in training love the opportunity to don Liberty costumes and meet the public on the Vir- ginia Beach oceanfront boardwalk. Below: Role-playing helps new franchisees learn by doing. plishment validates the strength and sustainability of our operating system. In FY 2007, Liberty Tax Service wel- comed 438 new franchisees into our system. This outstanding performance by our development team smashed our prior record of 341 new franchisees. Subse- quently our training department was very busy. That group trained 763 people in our Effective Operations module, which Celebrating was a 23% increase over 2006. In our U.S. offices was approximately 174,000, total training tally, including the interme- more than H&R Block and Jackson Growth diate and advanced modules, we trained Hewitt combined! Again, this accom- A 10-year anniversary is rare for any “We continue to be the fastest business. Businesses fail at the rate of 80% within the first five years if you sub- growing retail tax preparation scribe to that parable. So, for Liberty Tax Service to have reached our 10-year mile- company EVER.” stone is remarkable. Then, when you take into consideration our meteoric growth, remarkable becomes extraordinary. We continue to be the fastest growing retail tax preparation company EVER. In fiscal year 2007, the Company operated 2,363 offices in the United States and Canada. In FY 2008, we expect to operate approx- imately 3,000 offices. Each year the tax industry grows in two ways; more people file and more people pay a preparer. We are capitalizing on that growth by increas- ing our network of offices through new franchisees and the expansion of exist- ing franchisees. This year our network completed approximately 1.5 million tax returns in the U.S. and Canada. Our increase in raw number of returns in our 8
  • 10. 1,755 people, an increase of 43% over the prior year. Our theme for attracting new franchisees this year is “Don’t Quit Your Day Job.” Obviously this a twist on the old adage. But, as our ad says, “We mean it in the nicest way.” The focus of the campaign is to enlighten corporate America to the opportunity Liberty Tax Service offers to frustrated entrepreneurs who feel “trapped” by the security a full time job provides. The retail tax industry offers a unique challenge to people who are “con- fined to a cubicle” but would like to own a business and become self-employed. Above: Liberty’s training department takes franchisees 16 weeks. If someone can spare an extra to local offices so they can see how an office should be Many of the people who have joined our 25-30 hours a week for less than four set up. Below: Our wavers get Liberty lots of free public- ity in newspapers around the country. system keep their jobs because the busi- months, this is certainly a business to ness model allows them to adjust their consider. Franchisees can continue to schedules to accommodate the inclusion work their “day job,” be paid, and receive of an income tax business. Since the benefits while building a business that tax season is only 105 days, a franchisee will some day allow them to step into the can work in the office in the evening and role of an entrepreneur when the time is weekends. Unlike other retail business right. models that require a 52 week, 12 hour day commitment, Liberty Tax Service needs daily attention for approximately 1607 Number of Franchisees 1314 1097 804 551 376 248 2007 2001 2002 2003 2004 2005 2006
  • 11. Left: Liberty continued its work with Cell Phones for Soldiers to get over $1,000,000 worth of free phone min- utes to our troops overseas. Bottom: We also took part in Valentines for Troops in 2007. Liberty offices sent over 600,000 valentines cards to our military. • A tax preparer certification test- ing process was implemented. All franchisees are required to have pre- parers pass level one certification in order to operate. The company tapped resources within the corporate tax and software development departments and solicited feedback from franchisees and employees to develop a web-based examination. The three-tier examina- tion is crafted to measure skills of entry “The year 2007 was a milestone for Liberty Tax in many ways.” • E Smart Tax online prepara- level and more experienced preparers. Celebrating tion was acquired, giving Liberty Tax The examination is also a test of the Service a strong foothold in the rapidly training materials and teaching methods Change and growing internet tax preparation arena. used in our tax schools. This is another Vision The year 2007 was a milestone for Liberty Tax in many ways. Not only did we celebrate a decade of excellence, we also took major strides in technology and operational matters: • LibTax™, our proprietary tax software, was introduced to 534 offices. The successful rollout has given us con- fidence to implement a full deployment in tax season 2008. 10
  • 12. visionary program that Liberty is the first to implement. None of the other large retail firms have a certification program at this time. The future holds tougher scrutiny of the credentials within the tax preparation industry. This is a proactive approach to professional standardization and customer satisfac- tion. The ultimate goal is to have every return prepared by a certified preparer. • Liberty Tax Service introduced pre-season Refund Loans in 2007. Despite the company’s severe reluc- tance to offer these products, Liberty our Canadian tax preparation software was forced to enter this business due with a new product from Doctor Tax. to competitive pressures. Fortunately, The conceptual design has been com- in early April, the financial institutions pleted and we are in the process of in- that were funding the loans decided to troducing it to the Canadian franchisees eliminate the products. Liberty fought through a series of trainings. to keep the pre-season loans out of the product mix in 2005 and 2006. The • The Area Development Program company has gone on record that the has almost reached capacity. Currently, pre-season loans were bad for business. Above: Liberty gave away $100,000 in the Tax Day Giveaway sponsored by Valpak in 2007. The grand prize over 80% of the country has been sold The abolishment of these products is of $45,000 was awarded to Amy Behles from the Chicago area. The Sweepstakes was such a success, Valpak of to Area Developers. This concept has a step in the right direction for the tax Southern Virginia went to the Valpak convention dressed as Liberty wavers - they won best costume! Below: John’s been a major factor in the growth and preparation industry and is well ground- commitment to Stop Hunger Now was supported by corporate employees and Hampton Roads franchisees expansion of the Liberty system begin- ed in business considerations. through packaging meals for international hunger relief. Liberty packaged 30,000 meals in a single day - enough ning in 2003. There are over 100 Area to feed 180,000 people. Developers in the program. • The Liberty Tax websites were redesigned to feature clean graphics, easy navigation, and flexibility, as well as improved content and programming to facilitate better search engine optimi- zation and organic rankings. Franchi- sees also have been given unique URL’s attached to the website that enable them to display a customized webpage for each of their locations. Visit the web- sites at www.libertytax.com and www. libertytaxfranchise.com. • We are in the process of replacing
  • 13. Celebrating Celebrity Liberty Tax Service is an explosive brand. If not for the pioneering and fighting spirit of our employees and franchisees, we would not be celebrating our 10th an- niversary. The cornerstone of our brand development has been the local, grass- roots outpouring created by our often imitated, but never duplicated, guerrilla marketing concept. There is no other way This page: Liberty’s 2007 convention celebrated 10 years of excellence with an exciting opening ceremony to explain our incredible victories over including Ken Schmidt, former Harley-Davidson mar- keting expert. The festivities continued with a night of our competitors, town by town, market by game show fun and grand prizes of 2 Harley-Davidson motorcycles. market, state by state. From the begin- ning, seemingly insurmountable odds to overcome adversity and prove that an were stacked against Liberty Tax Service. upstart company could beat a 50-year-old It was the remarkable courage, persever- household name brand. And here we are ance, and innovation of our early em- on Virginia Beach for a three day celebra- today proving it over and over again! ployees and franchisees that enabled us tion of our history making organization. Once again, expectations were surpassed The testament to our success occurs ev- as our employees and franchisees took ery year during our national convention. time to celebrate our celebrity. It is clear This year over 1,700 people converged that Liberty Tax Service is the company to watch not just in the tax industry, but in the business world.
  • 14. 800-790-3863 1716 Corporate Landing Parkway Virginia Beach, VA 23454