H&R Block Reports Record Q3 Results, Strong Start to Tax Season

Feb 27, 2002
KANSAS CITY, Mo., Feb 27, 2002 /PRNewswire-FirstCall via COMTEX/ --

Company Reports 16-Cent Earnings Per Share, Raises Fiscal 2002 Earnings Guidance

H&R Block Inc. (NYSE: HRB) today reported record third quarter revenues and earnings due to strong results in its U.S. tax and mortgage businesses. The company raised its earnings guidance for the fiscal year on the basis of its strong third quarter results and growing confidence in the results expected from the current tax-filing season. In addition, the company declared its quarterly dividend.

For the third quarter ended Jan. 31, 2002, H&R Block's earnings increased to $29.6 million, or 16 cents per basic and diluted share, up from $4.5 million, or 2 cents per basic and diluted share, last year. Cash earnings improved $13.5 million, or 52.2 percent, to $39.4 million, or 21 cents per diluted share, compared with $25.9 million, or 14 cents per diluted share last year. The company defines cash earnings as net earnings from operations excluding the after-tax effect of amortization expense of acquired intangible assets.

Revenues for the third quarter increased 11 percent to $728 million, compared to $656 million in last year's third quarter.

"We had a great start to the tax season and an outstanding third quarter. We saw growth in the number of tax clients that we served in January, and our clients' tax returns were more complex due to changes in the tax laws," said Mark A. Ernst, president and chief executive officer, H&R Block.

"It's difficult to fully predict results for the entire tax season based on early season filings, but overall trends indicate that we're on track with previously announced growth targets for our U.S. tax operations," Ernst said. "Coupled with the continued strength of our mortgage operations, we're raising guidance for our full year results to a range of $2.20-to-$2.30, up 45-to-50 percent over last year's earnings. We expect overall revenue growth to be within our target range of 10-to-15 percent for the year."

Fiscal 2002 third quarter results reflect the company's previously announced early adoption of Statement of Financial Accounting Standards No. 141 and 142 (SFAS 141 and 142) related to business combinations, goodwill and other intangible assets. This change resulted in the elimination of goodwill and certain other intangible asset amortization as of May 1, 2001. The adoption of SFAS 141 and 142 represents $11.9 million, or 6 cents per diluted share, of the improvement over the prior year's third quarter.

In the quarter, the company's performance as measured by earnings before interest (including interest expense on acquisition debt, investment income and interest allocated to operating business units), taxes, depreciation and amortization (EBITDA), increased 25.1 percent, or $21.8 million to $108.5 million compared to $86.7 million last year.

U.S. Tax Operations

H&R Block's U.S. tax operations reported revenues of $379.2 million, an increase of $57.3 million, or 17.8 percent, compared with $322 million in the same quarter a year ago. Pretax earnings for the segment improved $23.8 million to $25.3 million, compared to $1.5 million last year. Increases in both the number of clients and average fees per client, along with strict cost management, were the primary contributors to the segment's improved results. The adoption of SFAS 141 and 142 accounts for $2.9 million of the improvement over last year. EBITDA increased $18.8 million to $39.5 million, compared to $20.8 million in the third quarter last year.

From Jan. 1 through Jan. 31, tax preparation and related fees from company-owned and franchised offices increased 16.5 percent compared with the same period last year, while the number of tax returns prepared increased 7.4 percent compared to last year. As of Jan. 31, H&R Block had filed 3.5 million federal returns electronically, representing a 7.8 percent increase over the prior year. Through the first month of the tax season, 95.5 percent of returns processed by the company were filed electronically. The number of Refund Anticipation Loans (RALs) processed by Block increased 17.9 percent to 2 million, compared with 1.7 million for the same period in 2001.

For the period Jan. 1 through Feb. 15, company-owned and franchised operations served 8.9 million clients, an increase of 4 percent over the same period last year. For the same period, tax preparation and related fees increased 12.9 percent to $964.2 million.

Outlook for Remainder of Tax Season

"While we are very encouraged by our strong start this tax season, a significant share of the tax filing season remains," Ernst said. "Our analysis of early season data that filing patterns to date are consistent with our net client growth expectation of 3-to-5 percent for the full year. While we believe our marketing efforts during the early season helped drive expected levels of new business, our ultimate results from the tax season will depend heavily on the success of our marketing initiatives for the balance of the season.

"Average fee increases are expected to be lower in the fourth quarter than those experienced in the third quarter. The increase in average fees to date is in large measure due to greater complexity from specific provisions of the tax laws affecting early filing clients. We don't expect to see this level of increase in average fees continue late into the tax season," Ernst explained.

International Tax Operations

International tax operations, which includes Canada, Australia and the United Kingdom, generated revenues of $8 million, up 1.7 percent over last year. The pretax loss improved $1.2 million, or 19.2 percent, to $5.2 million, compared with a loss of $6.5 million a year-ago. Good cost control, particularly in Canadian operations, drove the improved results.

Mortgage Operations

Mortgage operations, which primarily include Option One Mortgage Corp. and H&R Block Mortgage Corp., reported pretax earnings that rose 103.5 percent to $77.4 million, compared with $38.1 million last year. The adoption of SFAS 141 and 142 accounts for $3.4 million of the improvement in earnings over the prior year. Revenues rose 57.4 percent to $179.8 million.

An 81.9 percent increase in loan originations, larger servicing volume, improved pricing on loans generated, and contributions from retail mortgage combined for an outstanding quarter. In addition, higher volumes and cost controls helped drive a 22 percent decline in the cost of origination, contributing to the 7 basis point year-over-year improvement in operating profit margin. Operating profit margin for the quarter was 2.67 percent compared with 2.6 percent in last year's third quarter. Operating profit margin is defined as pretax earnings before goodwill amortization divided by mortgage fundings. EBITDA increased $37.5 million to $81.1 million, or 85.9 percent over the prior year.

"The performance of our mortgage businesses continues to be strong," Ernst said. "In its third consecutive profitable quarter, H&R Block Mortgage contributed 11.4 percent of the segment's $39.4 million year-over-year improvement. H&R Block tax clients generated 12.6 percent of all loans originated and 66.4 percent of all retail loans during the quarter."

Option One and H&R Block Mortgage originated $2.9 billion in loans during the third quarter. Option One's ending servicing portfolio was $22.7 billion, compared with $18 billion last year.

Based on current trends and market conditions, the company expects continued strength in its mortgage segment in the fourth quarter.

Investment Services

H&R Block's investment services operations, which consists primarily of H&R Block Financial Advisors Inc., continues to be adversely affected by the decline in investor activity and weak market conditions. Third quarter revenues totaled $61.1 million, compared with $118.2 million last year. The segment reported a pretax loss of $12.3 million compared with pretax earnings of $7.4 million last year. The adoption of SFAS 141 and 142 positively impacted the change over the prior year by $4 million. Investment services reported a decline in EBITDA to $1 million from $23.8 million in the prior year.

Key drivers of revenues for the business, including trading levels and margin balances, were consistent with those seen in the previous quarter. Consistent with industry trends, the company expects low levels of trading activity to continue through its fourth quarter.

Business Services

Business services, which primarily includes RSM McGladrey, reported pretax earnings of $1.8 million, compared to $769,000 last year. Revenues rose 1.6 percent to $94.2 million, compared with $92.7 million last year. Growth in tax consulting was offset by a slowdown in business consulting services, off-season losses from newly acquired firms, and normal operating cost increases. Business services reports the bulk of its earnings in the fourth quarter of the year.

The adoption of SFAS 141 and 142 positively affected results by $5.2 million compared to the third quarter last year. Business services reported a decline in EBITDA to $7 million, compared with $10.8 million last year.

Nine month results

For the nine months ended Jan. 31, 2002, H&R Block's revenues were $1.4 billion, up 10.3 percent from the same period a year ago. The net loss was $29.2 million, or 16 cents per basic share, compared with a net loss of $96.9 million, or 53 cents per basic share for the same nine-month period last year. Cash earnings improved to a loss of $492,000, compared with a loss of $33.8 million, or 18 cents per basic share. EBITDA improved by $61.6 million to $115.2 million, compared with $53.6 million for the prior year's nine-month period. The adoption of SFAS 141 and 142 represents $35 million, or 19 cents per share, of the improvement over the same period last year.

Dividend Announced

The Board of Directors of H&R Block Inc. declared a quarterly dividend of 16 cents per share payable April 1, 2002, to shareholders of record on March 11, 2002.

Other

Effective May 1, 2001, the company adopted a new methodology for allocation of corporate services and support costs to business units. This change was made in an effort to more accurately reflect each business line's performance. Prior year results have been restated to reflect the new methodology.

A conference call with H&R Block management discussing third quarter results will be conducted live today at 5 p.m. EST (4 p.m. Central) and may be accessed at www.hrblock.com .

Except for historical information contained herein, the matters set forth in this press release are forward-looking statements based upon current information and expectations. Such statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that could cause actual results to differ materially from what is expressed, implied or forecast in such forward-looking statements. Such differences could be caused by a number of factors, including, but not limited to, the uncertainties that the company will achieve its revenue, earnings and earnings per share goals for fiscal year 2002, that the level of growth experienced in U.S. tax operations in the third quarter and early tax season will continue throughout the remainder of the tax season and fiscal year, that actual financial results for fiscal year 2002 will fall within the guidance provided by the company, of the success of the company's marketing efforts, and of the continued strong performance of the mortgage operations segment; changes in economic, political or regulatory environments; changes in competition and the effects of such changes; litigation involving the company; and risks described from time to time in reports and registration statements filed by H&R Block Inc. and its subsidiaries with the Securities and Exchange Commission. Readers should take these factors into account in evaluating such forward-looking statements.

About H&R Block:

H&R Block Inc. is a diversified company with subsidiaries providing a range of financial products and services. In 2001, H&R Block served 19.2 million taxpayers -- - more than any tax or accounting firm -- - through its more than 10,400 offices located in the United States, Canada, Australia and the United Kingdom. H&R Block served another 2.3 million tax clients through its award-winning TaxCut(R) software program and through its online tax preparation services. Investment services and securities products are offered through H&R Block Financial Advisors Inc., member NYSE, SIPC. H&R Block, Inc. is not a registered broker-dealer. H&R Block Mortgage Corporation and Option One Mortgage Corporation offer a range of home mortgage products. RSM McGladrey Inc. is a national accounting, tax and consulting firm with 100 offices nationwide, as well as an affiliation with 550 offices in 75 countries as the U.S. member of RSM International. Additional information is available on the company's Web site at www.hrblock.com .

                                  H&R BLOCK, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS
              Unaudited, amounts in thousands, except per share data

                                               Three months ended January 31,
                                                2002        2001        2000

     Revenues                                $728,038    $656,000    $512,507

     Earnings (loss) before income taxes
      (benefit)                                49,774       7,792     (13,523)

     Net earnings (loss)                      $29,616      $4,460     $(7,075)

     Basic net earnings (loss) per share:

       Net earnings (loss)                      $0.16       $0.02      $(0.04)

       Basic shares outstanding               182,936     182,597     196,716

     Diluted net earnings (loss) per
      share:

       Net earnings (loss)                      $0.16       $0.02      $(0.04)

      Diluted shares outstanding              188,181     184,072     196,716


                                              Nine months ended January 31,
                                               2002        2001      2000

     Revenues                              $1,430,892  $1,297,584  $844,013

     Loss before income tax benefit           (49,041)   (168,557) (145,477)

     Net loss                                $(29,179)   $(96,941) $(88,886)

     Basic net earnings (loss) per share:

       Net loss                                $(0.16)     $(0.53)   $(0.45)

       Basic shares outstanding               183,028     183,975   195,923


    Notes to Consolidated Statements of Operations

    On June 20, 2001, the Company's Board of Directors declared a two-for-one
    stock split of its Common Stock in the form of a 100% stock distribution
    effective August 1, 2001, to shareholders of record as of the close of
    business on July 10, 2001.  Basic net earnings (loss) per share is based
    on the weighted average number of shares outstanding during each period.
    The dilutive effect of potential common shares is included in diluted net
    earnings per share.  All periods presented have been adjusted to reflect
    the stock split.

    Reclassifications have been made to prior years to conform with current
    period presentation.

    Results for the three months and the nine months ended January 31, 2001
    have been adjusted to reflect the implementation of SEC Staff Accounting
    Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101).
    The effect of this change was to reduce revenues by $5.4 million and net
    earnings by $1.2 million in the third quarter and increase revenues and
    net earnings in the fourth quarter of fiscal 2001 by the same amounts.
    Therefore, there was no effect to the full fiscal 2001 results from the
    implementation of SAB 101.

    Effective May 1, 2001, the Company adopted a new methodology for
    allocation of corporate services and support costs to business units.
    This change was made in an effort to more accurately reflect each business
    line's performance.  Prior year results have been restated to reflect the
    new methodology.

    In July 2001, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards No. 141, "Business Combinations," and No.
    142, "Goodwill and Other Intangible Assets" (SFAS 141 & 142).  SFAS 141
    addresses financial accounting and reporting for business combinations and
    replaces APB Opinion No. 16, "Business Combinations" (APB 16).  SFAS 141
    no longer allows the pooling of interests method of accounting for
    acquisitions, provides new recognition criteria for intangible assets and
    carries forward without reconsideration the guidance in APB 16 related to
    the application of the purchase method of accounting.  SFAS 142 addresses
    financial accounting and reporting for acquired goodwill and other
    intangible assets and replaces APB Opinion No. 17, "Intangible Assets"
    (APB 17).  SFAS 142 addresses how intangible assets should be accounted
    for upon their acquisition and after they have been initially recognized
    in the financial statements.  As of May 1, 2001, the Company elected early
    adoption of both SFAS 141 & 142.  The implementation of these standards
    has the effect of reducing amortization expense of acquired intangible
    assets.

    On December 1, 1999, the Company completed the acquisition of the
    outstanding capital stock of Olde Financial Corporation and Financial
    Marketing Services, Inc. (collectively, OLDE).  The purchase price was
    $850 million in cash plus net tangible book value payments of
    $48.5 million.  The acquisition was accounted for as a purchase and,
    accordingly, OLDE's results are included since the date of the
    acquisition.  The acquisition was funded with short-term borrowings and
    the issuance of $500 million in Senior Notes in the fourth quarter of
    fiscal 2000.

    On August 2, 1999, the Company, through a subsidiary, RSM McGladrey, Inc.,
    completed the purchase of substantially all of the non-attest assets of
    McGladrey & Pullen, LLP.  The purchase price was $240 million in
    cashpayments over four years and the assumption of certain pension
    liabilities with a present value of $52.7 million.  The acquisition was
    accounted for as a purchase, and accordingly, results are included since
    the date of acquisition.

    During the nine months ended January 31, 2002, 2001 and 2000, the Company
    issued shares of its common stock pursuant to provisions for exercise of
    the Company's stock option plans as follows:  2002 - 9,260,707 shares;
    2001 -213,550 shares; 2000 - 1,907,730 shares.  During the same periods,
    the Company reacquired shares of its common stock as follows:  2002 -
    9,697,158 shares at an aggregate cost of $352,213,000; 2001 - 13,632,196
    shares at an aggregate cost of $222,894,000; 2000 - 1,443,600 shares at an
    aggregate cost of $32,366,000.


      H&R BLOCK, INC.
      SELECTED OPERATIONAL INFORMATION
      Unaudited, amounts in thousands

                                        Three months ended January 31,
                                       Revenues            Earnings (loss)
                                   2002        2001       2002       2001

      U.S. tax operations        $379,235    $321,956    $25,280     $1,498
      International tax
       operations                   7,989       7,857     (5,242)    (6,486)
      Mortgage operations         179,751     114,169     77,427     38,051
      Investment services          61,085     118,164    (12,300)     7,378
      Business services            94,194      92,729      1,780        769
      Unallocated corporate         5,784       1,125    (16,660)    (7,366)
      Interest expense on
       acquisition debt               -           -      (19,243)   (23,988)
                                 $728,038    $656,000     51,042      9,856
      Investment income, net                                 466      1,099
      Intercompany interest*                              (1,734)    (3,163)
                                                          49,774      7,792
      Taxes on earnings                                   20,158      3,332
      Net earnings                                       $29,616     $4,460


                                          Nine months ended January 31,
                                        Revenues           Earnings (loss)
                                    2002        2001       2002       2001

      U.S. tax operations        $427,229    $359,709  $(160,113) $(169,788)
      International tax
       operations                  26,530      27,655    (11,886)   (13,692)
      Mortgage operations         508,897     279,459    237,397     80,014
      Investment services         194,837     380,404    (27,533)    30,840
      Business services           265,955     247,093      2,163     (3,495)
      Unallocated corporate         7,444       3,264    (31,917)   (19,266)
      Interest expense on
       acquisition debt               -           -      (60,001)   (75,760)
                               $1,430,892  $1,297,584    (51,890)  (171,147)
      Investment income, net                               2,678      6,354
      Intercompany interest*                                 171     (3,764)
                                                         (49,041)  (168,557)
      Income tax benefit                                 (19,862)   (71,616)
      Net loss                                          $(29,179)  $(96,941)

      * Intercompany interest represents net interest expense charged to
        financial related businesses for corporate cash that was borrowed to
        fund their operating activities and net unallocated interest expense
        attributable to commitment fees on the Company's credit facility.


    H&R Block, Inc.
    Consolidated Balance Sheets
    Unaudited, amounts in thousands, except share data

                                                           January 31,
                                                    2002              2001
                                     ASSETS

    CURRENT ASSETS:
         Cash and cash equivalents                $640,225          $380,918
         Marketable securities --
          available-for-sale                           -               8,288
         Marketable securities -- trading           21,733            42,690
         Receivables from customers,
          brokers, dealers and clearing
          organizations, less allowance for
          doubtful accounts of $1,745 and $878     910,967         1,913,319
         Receivables, less allowance for
          doubtful accounts of
          $53,407 and $37,042                    1,241,470         1,057,458
         Prepaid expenses and other
          current assets                           329,275           229,583
            TOTAL CURRENT ASSETS                 3,143,670         3,632,256

    INVESTMENTS AND OTHER ASSETS:
         Investments in available-for-
          sale marketable securities               281,135           295,415
         Excess of cost over fair value
          of net tangible assets
          acquired, net of amortization          1,116,675         1,069,302
         Other                                     237,176           260,494
                                                 1,634,986         1,625,211
    PROPERTY AND EQUIPMENT, at cost less
     accumulated depreciation and amortization     287,812           286,897
                                                $5,066,468        $5,544,364

            LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:
         Notes payable                          $1,638,832        $1,626,806
         Accounts payable to customers,
          brokers and dealers                      948,722         1,626,612
         Accounts payable, accrued
          expenses and deposits                    264,616           285,276
         Accrued salaries, wages and
          payroll taxes                            171,999           141,744
         Accrued taxes on earnings                  48,100            20,825
         Current portion of long-term debt          53,192            50,419
             TOTAL CURRENT LIABILITIES           3,125,461         3,751,682

    LONG-TERM DEBT                                 874,644           869,249

    OTHER NONCURRENT LIABILITIES                   100,951           100,328

    STOCKHOLDERS' EQUITY:
         Common stock, no par, stated
          value $.01 per share                       2,179             2,179
         Additional paid-in capital                465,963           419,517
         Retained earnings                       1,308,310         1,074,384
                                                 1,776,452         1,496,080
         Less cost of 34,646,147 and
          35,294,012 shares of common
          stock in treasury                        811,040           672,975
                                                   965,412           823,105
                                                $5,066,468        $5,544,364


    H&R Block, Inc.
    Consolidated Statements of Cash Flows
    Unaudited, amounts in thousands

                                                 Nine months ended January 31,
                                                    2002               2001
    Cash flows from operating
     activities:
     Net loss                                    $(29,179)           $(96,941)
     Adjustments to reconcile net loss
      to net cash used in operating activities:
       Depreciation and amortization              107,095             148,990
       Net (gain) loss on sale of
        operating unit                               (362)             (2,040)
       Provision for bad debt                      50,194              43,448
       Accretion of acquisition liabilities         8,999               8,766
       Tax benefit from stock option exercises     55,004                 -
       Changes in:
        Receivables from customers, brokers,
         dealers and clearing organizations       399,579             942,791
        Receivables                              (929,660)           (826,093)
        Marketable securities - trading            24,425               2,713
        Prepaid expenses and other
         current assets                           (96,383)            (84,742)
        Accounts payable to customers,
         brokers and dealers                     (109,278)           (943,588)
        Accounts payable, accrued
         expenses and deposits                    (96,594)             62,565
        Accrued salaries, wages and
         payroll taxes                            (49,831)            (31,185)
        Accrued taxes on earnings                (247,499)           (205,592)
       Other, net                                  34,902                 180
       Net cash used in operating activities     (878,588)           (980,728)

    Cash flows from investing  activities:
     Purchases of available-for-sale
      securities                                   (3,695)             (5,413)
     Maturities of available-for-sale
      securities                                   61,209              32,375
     Purchases of property and equipment, net     (71,343)            (47,674)
     Payments made for business
      acquisitions,  net of cash acquired         (44,397)            (13,285)
     Proceeds from sale of operating units           428              23,200
     Other, net                                   (33,506)             16,376
       Net cash provided by (used in)
        investing activities                      (91,304)              5,579

    Cash flows from financing activities:
     Repayments of notes payable               (6,147,398)        (11,864,855)
     Proceeds from issuance of notes payable    7,786,230          13,207,864
     Payments on acquisition debt                 (49,479)            (67,643)
     Dividends paid                               (86,349)            (80,433)
     Payments to acquire treasury shares         (352,213)           (222,894)
     Proceeds from stock options exercised        186,825               3,019
     Other, net                                       688               1,108
       Net cash provided by financing
        activities                              1,338,304             976,166

    Net increase in cash and cash equivalents     368,412               1,017
    Cash and cash equivalents at
     beginning of the period                      271,813             379,901
    Cash and cash equivalents at end of
     the period                                  $640,225            $380,918

    Supplementary cash flow data:
     Income taxes paid                           $162,902            $123,296
     Interest paid                                 72,896             173,137


    H&R Block, Inc.
    Consolidated Statements of Operations
    Unaudited, amounts in thousands, except per share data

                                    Three Months Ended     Nine Months Ended
                                        January 31,           January 31,
                                       2002      2001       2002       2001
    Revenues:
       Service revenues             $523,878  $513,639   $967,052  $1,026,353
       Product sales                 155,702   103,011    391,925     214,602
       Royalties                      33,329    28,636     37,772      33,829
       Other income                   15,129    10,714     34,143      22,800
                                     728,038   656,000  1,430,892   1,297,584

    Operating expenses:
       Employee compensation and
        benefits                     321,353   305,404    698,069     624,844
       Occupancy and equipment        72,678    63,717    194,106     180,175
       Interest                       30,733    68,048     90,323     195,219
       Depreciation and amortization  38,167    52,848    107,095     148,990
       Marketing and advertising      59,277    36,447     83,360      60,949
       Supplies, freight and
        postage                       22,008    19,539     38,051      37,123
       Bad debt                       33,095    29,194     50,194      43,448
       Other                         101,781    76,170    221,928     183,804
                                     679,092   651,367  1,483,126   1,474,552

    Operating earnings (loss)         48,946     4,633    (52,234)   (176,968)

    Other income:
       Investment income, net            468     1,099      2,679       6,354
       Other, net                        360     2,060        514       2,057
                                         828     3,159      3,193       8,411

    Earnings (loss) before income
     taxes (benefit)                  49,774     7,792    (49,041)   (168,557)
    Income taxes (benefit)            20,158     3,332    (19,862)    (71,616)

    Net earnings (loss)              $29,616    $4,460   $(29,179)   $(96,941)

    Basic net earnings (loss) per
     share                             $0.16     $0.02     $(0.16)     $(0.53)

    Basic shares outstanding         182,936   182,597    183,028     183,975

    Diluted net earnings (loss) per
     share                             $0.16     $0.02     $(0.16)     $(0.53)

    Diluted shares outstanding       188,181   184,072    183,028     183,975


    H&R BLOCK, INC.
    FINANCIAL SERVICES OPERATING DATA
    Unaudited

    H&R Block Financial Advisors, Inc.
                                            For the three months ended
                                     1/25/2002   1/26/2001 % Change 10/26/2001

     Customer trades (000's)              402         599    -32.9%       377
     Customer daily average trades      6,241       9,816    -36.4%     6,285
     Average commission per trade      $64.61      $68.61     -5.8%    $63.17

     Number of active accounts (000's)    603         605     -0.4%       609
     Average trades per active
      account per quarter                0.67        0.99    -32.6%      0.62
     Average trades per active
      account per year (annualized)      2.67        3.96    -32.6%      2.48

     Ending balance of assets
      under administration ($ bn's)     $27.2       $36.3    -25.0%     $27.1
     Average assets per active
      account                         $45,191     $60,028    -24.7%   $44,448

     Ending debit balances ($ bn's)      $0.9        $1.9    -53.8%      $0.9
     Ending credit balances ($ bn's)     $0.9        $0.9     -7.3%      $0.8


    Option One Mortgage Corporation
                                         For the three months ended
                                     1/31/2002   1/31/2001 % Change 10/31/2001

    Number of loans originated
     Wholesale                         17,344      12,443   39.4%      18,172
     Retail                             4,056       2,424   67.3%       3,352
      Total                            21,400      14,867   43.9%      21,524

    Volume of loans originated
     (000's)
     Wholesale                     $2,346,687  $1,297,435   80.9%  $2,206,041
     Retail                           549,112     294,241   86.6%     438,158
      Total                        $2,895,799  $1,591,676   81.9%  $2,644,199


     Loan sales                    $2,868,690  $1,547,169   85.4%  $2,618,065

    Servicing portfolio
     Number of loans serviced
      (000's)                           202.4       172.6   17.3%       184.8
     Servicing portfolio ($ bn's)       $22.7       $18.0   26.1%       $20.9


    H&R Block, Inc.
    Preliminary U.S. Tax Operating Data
    Period January 1 through January 31 and February 15
    Amounts in thousands, except average charge and number of offices

                             For the period ended       For the period ended
                           1/31/      1/31/    %      2/15/      2/15/    %
                           2002       2001  change    2002       2001  change
    Tax preparation &
     related fees
      Company owned
       offices           $259,783  $226,830  14.5%  $615,317  $548,779  12.1%
      Franchised offices  149,078   124,116  20.1%   348,840   305,417  14.2%
                         $408,861  $350,946  16.5%  $964,157  $854,196  12.9%

    Tax returns prepared
      Company owned
       offices              2,129     2,029   4.9%     5,002     4,825   3.7%
      Franchised offices    1,354     1,214  11.5%     3,169     2,954   7.3%
                            3,483     3,243   7.4%     8,171     7,779   5.0%

    Total clients served
      Company owned
       offices              2,149     2,069   3.9%     5,051     4,921   2.6%
      Franchised offices    1,406     1,303   7.9%     3,283     3,156   4.0%
      E-commerce *            143       109  31.2%       557       476  17.0%
                            3,698     3,481   6.2%     8,891     8,553   4.0%

    Tax returns filed
     electronically**
      Company owned
       offices              2,081     1,977   5.3%     4,807     4,590   4.7%
      Franchised offices    1,333     1,204  10.7%     3,008     2,782   8.1%
      E-commerce *            119        96  24.0%       501       448  11.8%
                            3,533     3,277   7.8%     8,316     7,820   6.3%

    Percent filed
     electronically
      Company owned
       offices              96.8%     95.6%            95.2%     93.3%
      Franchised offices    94.8%     92.4%            91.6%     88.1%
      E-commerce *          83.2%     88.1%            89.9%     94.1%
                            95.5%     94.1%            93.5%     91.4%

    Average fee per
     client served
      Company owned
       offices            $120.89   $109.63  10.3%   $121.82   $111.52   9.2%
      Franchised offices   106.03     95.25  11.3%    106.26     96.77   9.8%
                          $115.01   $104.08  10.5%   $115.69   $105.76   9.4%

    Refund anticipation
     loans
      Company owned
       offices              1,196     1,020  17.3%     2,514     2,197  14.4%
      Franchised offices      767       647  18.5%     1,591     1,351  17.8%
      E-commerce *              8         5  60.0%        25        22  13.6%
                            1,971     1,672  17.9%     4,130     3,570  15.7%

    Offices
      Company owned
       offices              5,017     5,060  -0.8%     5,017     5,060  -0.8%
      Franchised offices    3,998     4,012  -0.3%     3,998     4,012  -0.3%
                            9,015     9,072  -0.6%     9,015     9,072  -0.6%

    *  Includes on-line completed and paid returns and e-filings for software
       clients
    ** Includes Federal only.  State returns also electronically filed are not
       included in this total.


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SOURCE H&R Block Inc.

CONTACT:          Media Relations, Bob Schneider, +1-816-932-4835, or Investor
                  Relations, Mark Barnett, +1-816-701-4443, both of H&R Block Inc.

URL:              http://www.hrblock.com 
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