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11
The Impossible Dream Liberty Tax Service 2005 Annual Report
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Page 1: Liberty%20Annual%20Report%202005

TheImpossible

Dream

Liberty Tax Service 2005 Annual Report

Page 2: Liberty%20Annual%20Report%202005

To Our Shareholders,

I am tempted to begin this letter by saying WOW!!!So I think I will….WOW!!! I have told literally hundredsof people that when we began this journey eight yearsago, most would have described my vision as inane, orinsane, I’m not sure which fits better. There were four ofus and we wrote our “commandments” on the back of anapkin, finalized our business plan in a spare bedroom,because only one of us had a computer, and then rentedan 800 square foot office so we’d have a businessaddress.

Today, almost eight years later, we have a clearmission and principles that are printed on posters thathang in Liberty Tax offices all across the United Statesand Canada, we employ over 200 people, (all of whomhave access to a computer) and we have takenpossession of a 30,000 square foot building in theheart of Virginia Beach. It’s no wonder I feel likesaying WOW!! These are reasons that we arecelebrating fiscal year 2005 as “Living the Dream.”

In spite of our humble beginnings we havebecome the fastest growing retail tax business EVER!It is a great feeling to be able to say that and I say itas often as I can.

We have recruited some of the best performingfranchisees I have had the privilege to work with inmy 36 years in this industry. In tax season 2005 ournew franchisees opened offices in cities around thecountry and prepared record breaking numbers oftax returns.

Liberty Tax Service has continued to grow andprosper and stayed on the forefront of the industry.

John T. HewittCEO & Founder

Revenue(in $ millions)

2002 200420032001

$10.7$17.9

$28.5$42.2

2005

$51.0

! Liberty Tax Service revenues increased to $51,011,000from $42,211,000.

! Liberty Tax Service income before taxes increased for the 8th

consecutive year.

! Again this year we faced uncertain economicindicators yet we increased shareholder equity by 34% andincreased our operating income by 44%.

! Our revenue from franchise sales grew to$19,491,810. We added 326 new offices in theUnited States andCanada.

! We have embarked on a new initiative to offerproprietary software to our franchisees in thenext two years.

! Guerrilla marketing efforts continue to bring usincreased brand awareness in virtually every majormarket. Everywhere I go, someone will tell me thatthey have seen our costumed statues on thestreets of their town.

Page 3: Liberty%20Annual%20Report%202005

! The Area Developmentprogram continues to thrive.We have approximately 75Area Developers, repre-senting 650 franchisees.

! Liberty Tax Service wasranked by Entrepreneurmagazine as the 15th bestfranchise opportunity in theworld. We are also rankedthe 8th fastest growing and the6th best low investmentopportunity.

! Inc. magazine has rankedLiberty Tax on their list offastest growing privately heldcompanies for the secondconsecutive year.

! For the sixth time, I havebeen named one of the top100 most influential people inthe accounting profession by Accounting Today magazine.

! Accounting Today also ranks Liberty Tax Service on their list of top 100 accounting and tax firms, and over the last two yearswe are the fastest growing on that list.

! Black Enterprise magazine also recognizes Liberty Tax as one of the ten best “Hot Deals” in franchising.

! The Virginia Chamber of Commerce recognized Liberty Tax Service in their “Fabulous Fifty” businesses in the state for thesecond consecutive year.

One of the most impactful things that happened to me personally and for the company overall was President Bush referring tome in a nationally televised speech he made in January, when he named his father andformer President Clinton co-chairmen of the U.S. Tsunami relief effort. He called on theprivate sector to step forward and help the victims in Southeast Asia. Several days beforehe made the speech, I was quoted on the front page of USA Today regarding our donationto tsunami relief through Stop Hunger Now. The President was making examples ofbusinesses that had responded quickly to the disaster, and he picked up on my pledge. Inever imagined that I would be recognized by the President of the United States. Needless to say I am bursting with pride for all that we have accomplished. Ourfranchisees and employees possess the kind of drive and motivation that is only foundin a company that has an excellent corporate culture. I believe we demonstrate aculture that is fun and infectious. We have created a new word, INTAXICATED, andeveryone at Liberty is!

Thank you for your support in 2005. We look forward to an even more exciting2006.

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USA Today article quoting John Hewitt concerning Tsunami Relief

Liberty’s mission statement.

Page 4: Liberty%20Annual%20Report%202005

The Ultimate Dream…..To be the Biggest Tax PreparationCompany in the Universe.

How will Liberty Tax Service realize this dream? We will continue to provide the best service anddevelop the best brand. We will know our customers and we will offer a consistent system on which theycan depend. At the very heart of Liberty’s success is the delicate balance between growing value andstrengthening the brand.

For eight years our system of doing business has enabled the Company to generate increasedrevenue and earnings. The lifeblood of this demonstrated performance is the incredible power of theLiberty brand and the Company’s determination to continuously protect and strengthen it.

Working in seamless balance, Liberty’s increasing profitability, along with our unique and prophetic brand, fuelsexciting new opportunities that entice and excite our customers. Together, they create a passionate following and ensure theCompany’s legacy for many years to come.

In fiscal 2005 Liberty Tax Service grew in number of offices by 326. The number of returns prepared continues to increase. Thisyear it took 20% more returns for a franchise to make it onto the list of the top 50 offices. Our same store sales increased over 27.8%from 2004 and second year offices grew by 53.4%. Liberty Tax Service is helping hundreds of people to realize their dream of financialindependence through the success of our franchise system.

Throughout the Liberty system we are focused on getting and keeping more customers. Brand superiority, sales expansion andcustomer retention are the fundamentals for success; we continue to mine deeper for each.

What are we doing to keep the million customers we have today? We are taking advantage of every customer’s experience as anopportunity to distinguish our brand. Whether itis tax preparation, business-to-businessmarketing or a visit to our website, we aremaking every customer contact count. How are we reaching the customers we want

tomorrow?• We offer superior service that wins customers

from our competition.• We create a brand experience so powerful

that it brings new customers in our door.• We leverage our growing name recognition

and reputation to reach customers that wehave not been able to reach.

• We practice neighborhood marketing.• We employ more sophisticated use of

targeted marketing.• We expand our commitment to cause related

marketing that makes us better corporatecitizens.

Number of Offices

2002 200420032001

551 611

919

1409

2005

1735

Above and left: Liberty was mentioned in hundreds ofnewspapers around the country in 2005. Marketerswilling to work throughout the winter was a great hook.

“Never before in the history of the retail income tax

industry has a company been able to achieve what we

have. We are the tax company of the present, and

most certainly, the tax company of the future.” JTH

Page 5: Liberty%20Annual%20Report%202005

Creating the Dream……We were “tilting” atwindmills.

When John Hewitt decided it was time to start a new income tax preparationcompany, customer service was already the hallmark of his plan. He learned tocultivate strong customer service ideals during his tenure as a regional director forH&R Block and as founder of Jackson Hewitt Tax Service. By doing so, he establisheda culture of “setting the standard” for his employees and franchisees. He then continued to expandit. That fanatical commitment to provide an excellent experience for his customers, along with his keen analyticalunderstanding of the tax industry, served him well when the idea of Liberty Tax Service was born. Today the industry hasexpanded a bit and so has our business. We’ve grown to 1735 offices in just eight short years. Never before in the history of the tax

business has this milestone been met. But westill offer the outstanding customer service thatwas the keystone to our beginning.

Since the beginning we’ve been involved inpreparing taxes, but we are not your average,ordinary tax company. In fact we’reextraordinary. Our goal to become the biggesttax preparation company in the universe boilsdown to one simple thing…commitment. We arecommitted to our franchisees and our franchiseesare committed to getting customers. In virtuallyevery market in the United States and Canada ourLiberty wavers can be seen on numerous streetcorners. It has become our trademark and thething that sets us apart from our competition.This is the type of scrappiness and innovationthat has made Liberty Tax Service the companythat people are talking about. But more thanthat, the competition is starting to imitate us, the

most sincere form of flattery!It took John Hewitt’s know-how, entrepreneurial spirit and hard work to develop a solid foundation, but the tax industry hasn’t

stood still and neither has the Company. Our forty member management team has over 400 combined years of experience andcontinue to build upon what John has started, transforming our service, our system and our software to adapt to emerging markettrends and competitive advances. Today the transformation continues as we build upon what’s made us successful in the past. We’reaggressively marketing our core services to new customers and developing a network of franchisees that are literally “in love” withLiberty. Our franchisees have taken the Liberty message and culture “to the streets” by employing the unconventional marketingmachine that has become our signature. The army is now over 1000 strong and growing every day. Last year we awarded 630 newterritories and opened 326 new offices. Our increase in raw number of tax returns prepared was over 200,000. H&R Block openedapproximately 1200 new offices and they experienced a decrease in number of returns prepared for the third year in a row. We havecreated the dream.

Above right: Liberty costumed characters take part in parades all around the country during off-season to create brand awareness. Above left: A contingent of Lady Libertys and Uncle Sams go toLas Vegas.

248

376

551

804

Number of Franchisees

2002 200420032001 2005

1097 “I often think that back in 1996 when we started

this journey, people said I was insane. There was

no way I could build another tax company. But I

did and it’s even better than the last one.” JTH

Page 6: Liberty%20Annual%20Report%202005

The Results of the Dream(so far)...The Proof is in the Pudding.

In fiscal year 2005, Liberty Tax Service continued to set the standard for the tax industry. Companywide we prepared over 1million returns. We had the largest increase in raw number of returns prepared of all three branded tax companies. We continue tobe recognized by the investment community and have been invited to make presentations at several of the large investment firms.During tax season we conducted a series of conference calls for investment analysts to assess the tax season. As a result, John Hewitthas established himself as the tax industry expert for analysts nationwide.

Our media exposure this year has been phenomenal. During tax season we generated over700 media exposures on radio, television and newspaper. The costumed characters that wave onthe street corners are attention getting and certainly attract a lot of attention from the media. For

our tsunami relief efforts, we were also featured on ABC Nightly News,Neil Cavuto’s Your World show on the Fox network and countless localtelevision stations. One of the big cause-related marketing programs werolled out this year was a National Premier Partnership with a programcalled Cell Phones For Soldiers. The concept was the brainstorm ofthirteen year old Brittany Bergquist and her twelve year old brotherRobbie of Norwell, Massachusetts. They were disturbed after hearing a

Above: Soldiers in Afghanistan thank Liberty for supporting Cell Phones For Soldiers.Left: The founders of Cell Phones for Soldiers, Brittany and Robbie Bergquist, spokeat the opening ceremonies of the 2005 Liberty Convention.

Page 7: Liberty%20Annual%20Report%202005

“Results are what count…it’s not how you

start, but how you finish.” JTH

news story about an American soldier in Iraq with a staggeringphone bill. They started Cell Phones For Soldiers with snackmoney and have subsequently recruited sponsors and cell phonecompanies to help. Liberty franchisees promoted the programand asked people to drop off their old cell phones at offices acrossthe country. Each phone donated buys a calling card of up to 100minutes. The cards are then sent to Iraq for distribution to theservice men and woman. During fiscal 2005, Liberty franchiseescollected over 25,000 cell phones resulting in 2,500,000 minutesof calling time for our troops. We are continuing the programthis year.

We believe that throughout 2005 we continued to buildmomentum, setting ourselves up for 2006 and beyond. The heartand soul of our business is, and will continue to be taxpreparation. We are expanding in existing areas and branchingout to new markets every day. We now have franchisees in all 50states and have a presence in 155 television markets out of a totalof 210.

Our plan is simple but tough. Every day we get closer to ourultimate goal of being the biggest tax preparation company in theuniverse.

Right and below: Liberty sent costumed franchisees and employees to NewYork City to celebrate the reopening of the Statue of Liberty in August2004. Hundreds of Liberty crowns were handed out at the ferry andnewspapers all over the country picked up the story. (Mario Tama/GettyImages)

Page 8: Liberty%20Annual%20Report%202005

2000

Liberty moves its world headquarters toBonney Road in Virginia Beach, VA

John Hewitt is named one of thetop 100 most influential people inaccounting by Accounting Today

1997Liberty officially beginsoperations in Canada

1998

U&R name changes to LibertyTax Service. Pictured-thestatue in Las Vegas that gaveJohn Hewitt the idea for thename.

Five Liberty offices open in U.S. inColumbus, Ohio.

Entrepreneur magazine ranksLiberty #405 on its Franchise500 list

1999John Hewitt’s non-compete clauseends

Liberty opens 35 offices in theU.S., 214 offices are opera-tional in Canada

Page 9: Liberty%20Annual%20Report%202005

2002

2003

Liberty is ranked #15 on Entrepreneur’slist of Top Low-Cost Franchises and #50 onthe list of Fastest Growing FranchiseOpportunities

Liberty is ranked #28 onEntrepreneur’s Franchise500; #12 on their list ofTop Low-Cost Franchisesand #9 on the list of FastestGrowing FranchiseOpportunities

2004

2001Liberty wins a lawsuit against H&RBlock, forcing Block to stopmisrepresenting tax loans asrefunds or refund amounts

John Hewitt is named Virginia Entrepre-neur of the Year by Ernst & Young. Here,John’s son Danny accepts the award.

Liberty makesNBC Today Showdebut appearance

Liberty Tax Service operates1,735 offices. It took ourcompetitors 13 years to reachthat number.

Liberty is ranked #106 onInc. Magazine’s Inc. 500 listof privately-heldcompanies

®

Lady Liberty Opens Her Doors

WEDNESDAY, AUGUST 4,2004

Lovely Lady Liberty Tax Service franchisee Tina Napolitano of Queens in front of

the Statue of Liberty, which opened yesterday for the first time since the September

11 attacks

When the Statue of Liberty officially

reopened August 3rd, Liberty Tax Service

was a part of it in New York, New York. A

delegation of 100 costumed LTS Lady

Libertys and Mr. Libertys converged on

New York City. Headquarters staffers filled

four vans and hit the road to meet up with

local New York franchisees and other

franchisees who traveled from as far away

as Utah, Florida and Tennessee. Our

diverse group was not only “mighty

women with a torch,” but tiny Lady

Libertys and Mr. Libertys of various ages

and races.

Our full day August 3rd started with a

2:00 a.m. wake-up call, and a subway ride

to Rockefeller Plaza to be outside The

Today Show. Although our original plan

was foiled to show the NBC viewers our

huddled and costumed Miss Liberty

masses, some of our franchisees were

clearly visible on the program. The LTS

delegation then headed to Good

Morning America, and the Fox morning

news program where we were also

featured.

Local and national media spread

the news, and featured pictures and

mentions about us. We got ink and/or

pictures and mentions in the New York

Times, the New York Sun (Front page),

The Financial Times, Newsday, Detroit

Free Press, Palm Beach Post (Front

page), Washington Post, www.npr.com,

www.peopledaily.com, Associated

Press and the San Antonio Express

News. National Public Radio gave us a

nice plug, and mentioned our “guerrilla

marketing tactics.”

We continued to create a visual

display of Liberty Tax Service support

when we had a picnic in Bryant Park, rode

the ferry to Liberty Island, and the subway

to the Yankees game. Our Lady Libertys

were the toast of New York and photo

opportunities for not only the media, but

others curious and excited about seeing so

many of us together. Everywhere we went

people were stopping and asking to take

pictures of us. We handed out over 8,000

crowns in NYC on Tuesday alone.

This was truly our greatest team effort

in Liberty history, with so much support

from the franchisees and headquarters

staff to bring this concept to fruition. To

all who helped, we could not have done it

without you! Thanks to all who truly

helped Liberty market outrageously, and

have lots of fun in the brand-building

process on a great day for America!

Call Me Liberty Liberty Tax Service franchisees Walter

and Norma Icker are among those dressed as the

Statue of Liberty yesterday as the monument partially

reopened to the public.

Liberty franchiseesand staff visit NewYork City on the dayof the reopening ofthe Statue of Libertyin August

2005

Tax Warsheated upwhen H&RBlock tried tocompete withLiberty inguerrillamarketing

Liberty is ranked #15 onEntrepreneur’s Fran-chise 500; #6 on theirlist of Top Low-CostFranchises and #8 onthe list of FastestGrowing FranchiseOpportunities

®

Page 10: Liberty%20Annual%20Report%202005

Liberty Directors and Officers

John HewittPresident, Chief Executive Officer and Chairman

Mark BaumgartnerChief Financial Officer

Dennis BowermanVice President of Field Operations

Kathleen CurryVice President of Legal

Donna HalliganVice President of Area Developer Operations

and Corporate Secretary

John GarelDirector

Gary GoldingDirector

Steven IbbotsonDirector

Mark JohnsonVice President of Area Development

Charles KirkpatrickChief Information Officer

Steven LepkowskiVice President of Sales & Marketing

Martha O’GormanVice President of Marketing

T. Rufe VanderpoolVice President of Software Development

Directors

Officers

Steven LepkowskiDirector

Ross N. LongfieldDirector

George RobsonDirector

Page 11: Liberty%20Annual%20Report%202005

Liberty ConventionSnapshots

Where can you find a beach concertfeaturing Motown greats Martha Reeves andthe Vandellas, fireworks, golf tournaments, anationally acclaimed marketing guru,breakout sessions, a casino night and about200 Lady Libertys and Uncle Sams?

At the 2005 Liberty Tax Convention,of course. Record numbers of franchiseescame to Virginia Beach in May to helpcelebrate the year’s successes.

The chorus from Green RunHigh School sang the NationalAnthem.

Excitement mounted during the opening ceremonies of the 2005 Convention asthe lights went down.

Then the LadyLibertys took overthe stage.

Tom Feltenstein, author of the 10-minute Marketer and theconvention’s keynote speaker, delivered a rousing speech aboutneighborhood marketing and gave Liberty’s guerrilla marketingefforts high marks.The last night

culminated in luckySan Antonio, Texasfranchisee, Lana Lee,winning a JeepLiberty during CasinoNight.


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