“Given the risk associated with the unsettled market dynamics and the pace of secondary market rate increases in the past three months, we now expect that fiscal 2006 company earnings are likely to range from $1.90 to $2.15 per share,” Ernst said. The new guidance compares with a previous range of $2.12 to $2.32 per share established in June 2005.

“This change in earnings outlook is entirely associated with mortgage expectations and is partially offset by improving results in our other lines of business,” Ernst concluded.

For the six months ended Oct. 31, 2005, H&R Block reported a net loss of $100.5 million, or 31 cents per share, compared with a loss of $86.6 million, or 26 cents per share, for the same period of fiscal 2005. Six-month revenues rose 20 percent to $1.2 billion in fiscal 2006 from $1.0 billion last year.

Tax Services

Second quarter 2006 revenues increased 9 percent to $80.8 million from $74.1 million in the prior-year period. A pretax loss of $142.9 million in the fiscal 2006 quarter was 7 percent greater than the $133.9 million loss posted last year, due to incremental costs associated with retail office expansion from offices opened in the last year as well as current-year additions.

For the first six months of fiscal 2006, revenues of $138.0 million were up 11 percent from $124.6 million last year. The pretax loss of $287.4 million compares with a loss of $246.6 million in the year-ago period.

“Our plans for the 2006 tax season are in place, and we’re focusing now on final implementation,” Ernst said. “In particular, our program to add approximately 1,000 retail locations is on target.” The company expects to meet or exceed the top of its 500 to 700 range for additional retail offices and estimates it will open approximately 300 more shared locations in Wal-Mart, Sears and other retail stores.

“We believe these locations will contribute to business growth this year by offering greater convenience and enhancing our ability to serve clients quickly and efficiently,” Ernst said. “We expect incremental client growth both this year and for several years to come as a result of adding these new service locations.”

Mortgage Services

Pretax income in mortgage services declined 44 percent in the fiscal 2006 second quarter to $61.0 million from $108.5 million last year. Revenues rose 6 percent

to $301.5 million in the current quarter from $284.3 million a year ago.

For the first six months of fiscal 2006, revenues of $662.0 million were 19 percent ahead of last year’s $556.3 million, and pretax income of $195.5 million was 10 percent under last year’s $217.5 million.

H&R Block Reports Second Quarter Financial Results – page 3 of 5

“We went into the second quarter knowing that conditions would be challenging in the mortgage business,” Ernst said. “However, secondary market funding costs rose sharply, offsetting the increased coupon rates we had begun to generate.

“As we start the third quarter, our coupon rate increases have started to outpace the increases in our funding costs. As a result we are optimistic that we can increase origination margin in the third quarter and again in the fourth, benefiting as well from successful cost-discipline measures,” Ernst said.

Loan origination volume continued to climb in the quarter, reaching a record $12.6 billion versus $10.9 billion in the first quarter of fiscal 2006. “Thanks to the quality of client service we deliver, our production volume held up even as we led the industry in raising rates,” Ernst said. “We expect originations to remain in the range of $10 billion to $11 billion in each of the next two quarters.”

Loan origination costs improved to 1.79 percent in the second quarter of 2006 from 1.94 percent in the year’s first quarter and 2.47 percent a year ago.

Total gain on sale for Mortgage Services was $162.6 million for the current quarter, 12 percent lower than $184.1 million in last year’s period. The decrease is due primarily to declining margins, partially offset by growth in loan originations, a net gain on disposition of residual interests and higher gains from interest-rate hedging activities.

Option One increased its mortgage servicing portfolio 54 percent to $82.4 billion at the end of this year’s second quarter, versus $53.6 billion a year ago. Servicing revenues advanced 60 percent to $100.4 million in the quarter from $62.6 million in the year-ago period.

Overall, the segment’s residual interests performed as expected, as the effect of lower than previously modeled credit losses was mostly offset by higher interest rates. Consequently, the company realized a net write-up to residuals of $12.8 million in the quarter, which was recorded in other comprehensive income, net of deferred taxes. The company also realized a write-up of $2.4 million on trading residuals. This write-up, and $9.7 million in write-downs, was recorded in gains on sales of mortgage assets in the income statement.

Business Services

In the 2006 second quarter, Business Services revenues rose 29 percent to $166.8 million from $129.0 million a year earlier. Revenues rose 13 percent excluding the impact of the American Express Tax & Business Services division acquired effective Oct. 1. The segment’s pretax loss improved 56 percent to $2.1 million versus $4.9 million last year. The business is highly seasonal and typically loses money outside the third and fourth quarters.

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Six-month 2006 revenues of $293.7 million were 23 percent greater than $238.1 million in last year’s period, and a pretax loss of $8.9 million was 40 percent better than last year’s loss of $14.9 million.

“RSM McGladrey continues to perform exceptionally well,” Ernst said, “and we are delighted with the expanded presence the acquisition gives us in providing tax, accounting and business services to mid-sized companies. We welcome our new colleagues formerly with American Express. The integration has been going well. We’re now focused on serving clients and capturing growth opportunities in the coming busy season,” Ernst noted.

Investment Services

Revenues for H&R Block Financial Advisors in the quarter increased 30 percent to $70.0 million from $53.8 million in the prior-year period. The pretax loss of $7.9 million in the quarter was 62 percent better than a loss of $20.8 million last year. Included in the quarterly loss in both years is $9.2 million of intangible amortization.

For the first six months of fiscal 2006, revenues increased 29 percent to $138.0 million from $107.3 million in the prior-year period, and pretax loss declined 62 percent to $15.5 million from $41.1 million. Intangible amortization was $18.3 million in each period.

“We were looking for significant performance improvement at Financial Advisors this year, and so far that expectation is being met,” Ernst said. “There’s work to be done to achieve the level of performance we need to sustain this business, but the trend of improvement is clearly encouraging.”

Dividend Declared

H&R Block’s board of directors declared a quarterly cash dividend of 12.5 cents per share, payable Jan. 3, 2006, to shareholders of record Dec. 13, 2005. The payment will be the company’s 173^rd consecutive quarterly dividend.

Other

During the second quarter of fiscal 2006, the company reacquired 4.6 million shares of its common stock at an average purchase price of $27.98 per share.

Conference Call

H&R Block will host a conference call for analysts and institutional investors at 5 p.m. EST (4 p.m. CST) Nov. 17. Mark Ernst, chairman and chief executive officer; Bill Trubeck, executive vice president and chief financial officer; Tim Gokey, president of H&R Block Tax Services; and Bob Dubrish, president and chief executive officer of Option One Mortgage Corp., will discuss the quarter’s results and future expectations, as well as respond to analyst questions.  To access the call, please dial the number approximately five to 10 minutes prior to the scheduled starting time:

H&R Block Reports Second Quarter Financial Results – page 5 of 5

The call will be webcast in a listen-only format for the media and public.  The link to the webcast can be obtained at www.hrblock.com. Supplemental slides will be available in connection with the webcast, or can be accessed directly on H&R Block’s Investor Relations Web site at www.hrblock.com/about/investor following market close. 

A replay of the call will be available beginning at 8 p.m. EST Nov. 17 until 12 a.m. EST Nov. 25, by dialing 800-642-1687 (U.S./Canada) or 706-645-9291 (international). The replay access code is 1305947. A replay of the webcast will also be available on the company’s Web site at www.hrblock.com through Dec. 17.

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 uncertainty that the company will achieve or exceed its revenue, earnings, and earnings-per-share growth goals or expectations for fiscal year 2006; the uncertainty of the company’s ability to purchase shares of its common stock pursuant to the board’s authorization; the uncertainty of the effect of any share repurchases upon the company and its shareholders; changes in interest rates; changes in economic, political or regulatory environments; changes in competition; litigation involving the company and its subsidiaries; 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. (NYSE: HRB) is a leading provider of tax, financial, mortgage, accounting and business consulting products and services. H&R Block is the world’s largest tax services provider, having prepared more than 400 million tax returns since 1955. The company and its subsidiaries generated revenues of $4.4 billion and net income of $636 million in fiscal year 2005 from operations in four principal business segments: tax preparation and advice via in-office, online and software solutions; investment and financial advisory services; retail and wholesale mortgage services; and tax/accounting/business consulting services for mid-sized businesses. Headquartered in Kansas City, Mo., H&R Block markets its services and products under three leading brands – H&R Block, Option One and RSM McGladrey.  For more information visit our Online Press Center at www.hrblock.com. 

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