SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

H&R Block, Inc.

MISSOURI (State or other jurisdiction of incorporation or organization)		44-0607856 (I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, without par value, at the close of business on November 30, 2005 was 327,638,203 shares.

 

 

Form 10-Q for the Period Ended October 31, 2005

Table of Contents

		Page
PART I Financial Information
Item 1. Condensed Consolidated Balance Sheets October 31, 2005 and April 30, 2005			1
Condensed Consolidated Statements of Income and Comprehensive Income Three and Six Months Ended October 31, 2005 and 2004 (Restated)			2
Condensed Consolidated Statements of Cash Flows Six Months Ended October 31, 2005 and 2004 (Restated)			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			41
PART II Other Information
Item 1. Legal Proceedings			43
Item 2. Unregistered Sales of Equity Securities			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Item 6. Exhibits			46
SIGNATURES			48
Amended and Restated Sale and Servicing Agreement
Amended and Restated Note Purchase Agreement
Amended and Restated Five-Year Credit and Guarantee Agreement
Five-Year Credit and Guarantee Agreement
Sale and Servicing Agreement
Note Purchase Agreement
Indenture
Omnibus Amendment No. 1
Other Income License Agreement
Employment Agreement - Jeff Nachbor
Amendment No. Six to Amended/Restated Note Purchase Agreement
Amendment No. Two to Amended/Restated Sale & Servicing Agreement
Amendment No. Three to Amended/Restated Sale & Servicing Agreement
HSBC Retail Settlement Products Distribution Agreement
HSBC Digital Settlement Products Distribution Agreement
HSBC Refund Anticipation Loan Participation Agreement
HSBC Settlement Products Servicing Agreement
Appendix of Defined Terms and Rules of Construction
Sale and Servicing Agreement
Note Purchase Agreement
Indenture
Fourth Amended/Restated Loan Purchase & Contribution Agreement
Second Amendment to 2nd Amended/Restated Refund Anticipation Loan Operations Agreement
Certification by CEO Pursuant to Section 302
Certification by CFO Pursuant to Section 302
Certification by CEO Furnished Pursuant to 18 U.S.C. 1350
Certification by CFO Furnished Pursuant to 18 U.S.C. 1350

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in 000s, except share amounts)
		October 31, 2005				April 30, 2005
		(Unaudited)
ASSETS
Cash and cash equivalents		$	392,490			$	1,100,213
Cash and cash equivalents — restricted			464,480				516,909
Marketable securities — trading			114,136				11,790
Receivables from customers, brokers, dealers and clearing organizations, net			577,506				590,226
Receivables, less allowance for doubtful accounts of $59,332 and $38,879			693,302				418,788
Prepaid expenses and other current assets			464,005				432,708
Total current assets			2,705,919				3,070,634
Residual interests in securitizations — available-for-sale			142,782				205,936
Beneficial interest in Trusts — trading			169,378				215,367
Mortgage servicing rights			245,928				166,614
Property and equipment, at cost less accumulated depreciation and amortization of $714,971 and $658,425			362,041				330,150
Intangible assets, net			247,849				247,092
Goodwill, net			1,087,587				1,015,947
Other assets			335,695				287,543
Total assets		$	5,297,179			$	5,539,283
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Commercial paper		$	498,175			$	—
Current portion of long-term debt			16,946				25,545
Accounts payable to customers, brokers and dealers			846,913				950,684
Accounts payable, accrued expenses and other current liabilities			639,812				564,749
Accrued salaries, wages and payroll taxes			170,056				318,644
Accrued income taxes			204,725				349,298
Total current liabilities			2,376,627				2,208,920
Long-term debt			917,884				923,073
Other noncurrent liabilites			428,395				430,919
Total liabilities			3,722,906				3,562,912
Stockholders’ equity:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, 435,890,796 shares issued at October 31, 2005 and April 30, 2005			4,359				4,359
Additional paid-in capital			612,207				598,388
Accumulated other comprehensive income			44,463				68,718
Retained earnings			2,996,805				3,188,785
Less cost of 110,565,669 and 104,649,850 shares of common stock in treasury			(2,083,561	)			(1,883,879	)
Total stockholders’ equity			1,574,273				1,976,371
Total liabilities and stockholders’ equity		$	5,297,179			$	5,539,283

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited, amounts in 000s,
except per share amounts)
		Three months ended October 31,								Six months ended October 31,
						Restated								Restated
		2005				2004				2005				2004
Revenues:
Service revenues		$	384,263			$	290,232			$	699,391			$	538,820
Other revenues:
Gains on sales of mortgage assets, net			147,267				184,148				383,698				367,508
Interest income			55,010				48,552				104,263				88,272
Product and other revenues			18,503				19,021				32,684				33,904
			605,043				541,953				1,220,036				1,028,504
Operating expenses:
Cost of services			387,217				324,084				730,435				615,059
Cost of other revenues			134,864				96,249				258,221				174,644
Selling, general and administrative			206,549				184,867				395,801				345,063
			728,630				605,200				1,384,457				1,134,766
Operating loss			(123,587	)			(63,247	)			(164,421	)			(106,262	)
Interest expense			12,385				18,081				24,820				35,874
Other income, net			2,843				1,510				10,243				3,518
Loss before taxes			(133,129	)			(79,818	)			(178,998	)			(138,618	)
Income tax benefit			(46,854	)			(29,946	)			(64,399	)			(52,004	)
Net loss		$	(86,275	)		$	(49,872	)		$	(114,599	)		$	(86,614	)
Basic and diluted loss per share		$	(0.26	)		$	(0.15	)		$	(0.35	)		$	(0.26	)
Basic and diluted shares			326,047				329,372				328,381				333,442
Dividends per share		$	.13			$	.11			$	.24			$	.21
Comprehensive income (loss):
Net loss		$	(86,275	)		$	(49,872	)		$	(114,599	)		$	(86,614	)
Change in unrealized gain on available-for-sale securities, net			(23,653	)			8,084				(29,464	)			29,554
Change in foreign currency translation adjustments			4,385				8,371				5,209				8,041
Comprehensive income (loss)		$	(105,543	)		$	(33,417	)		$	(138,854	)		$	(49,019	)

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in 000s)
						Restated
Six months ended October 31,		2005				2004
Cash flows from operating activities:
Net loss		$	(114,599	)		$	(86,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			90,173				80,267
Accretion of residual interests in securitizations			(64,341	)			(63,514	)
Impairments of available-for-sale residual interests			20,613				2,609
Additions to trading securities — residual interests in securitizations, net			(185,645	)			(68,618	)
Proceeds from net interest margin transactions, net			85,472				53,348
Realized gain on sale of available-for-sale residual interests			(28,675	)			—
Additions to mortgage servicing rights			(136,294	)			(58,894	)
Amortization and impairment of mortgage servicing rights			56,980				38,653
Net change in beneficial interest in Trusts			45,989				25,524
Other, net of acquisitions			(474,532	)			(590,035	)
Net cash used in operating activities			(704,859	)			(667,274	)
Cash flows from investing activities:
Cash received from available-for-sale residual interests			64,377				73,477
Cash received from sale of available-for-sale residual interests			30,497				—
Purchases of property and equipment, net			(77,635	)			(60,598	)
Payments made for business acquisitions, net of cash acquired			(200,309	)			(5,472	)
Other, net			13,151				12,138
Net cash provided by (used in) investing activities			(169,919	)			19,545
Cash flows from financing activities:
Repayments of commercial paper			(1,101,729	)			(1,376,877	)
Proceeds from issuance of commercial paper			1,599,904				1,692,933
Proceeds from issuance of long-term debt, net			—				395,221
Dividends paid			(77,381	)			(69,997	)
Acquisition of treasury shares			(259,745	)			(529,558	)
Proceeds from issuance of common stock			48,001				53,933
Other, net			(41,995	)			(24,600	)
Net cash provided by financing activities			167,055				141,055
Net decrease in cash and cash equivalents			(707,723	)			(506,674	)
Cash and cash equivalents at beginning of the period			1,100,213				1,072,745
Cash and cash equivalents at end of the period		$	392,490			$	566,071

See Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.		Basis of Presentation
		The condensed consolidated balance sheet as of October 31, 2005, the condensed consolidated statements of income and comprehensive income for the three and six months ended October 31, 2005 and 2004, and the condensed consolidated statements of cash flows for the six months ended October 31, 2005 and 2004 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at October 31, 2005 and for all periods presented have been made.

     “H&R Block,” “the Company,” “we,” “our” and “us” are used interchangeably to refer to H&R Block, Inc. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.

     Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These reclassifications had no effect on our results of operations or stockholders’ equity as previously reported. Adjustments related to the restatement of previously issued financial statements are detailed in note 2.

     On June 8, 2005, our Board of Directors declared a two-for-one stock split of the Company’s Common Stock in the form of a 100% stock distribution, effective August 22, 2005, to shareholders of record as of the close of business on August 1, 2005. All share and per share amounts in this document have been adjusted to reflect the effect of the stock split.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, 2005 Annual Report to Shareholders on Form 10-K/A.

     Operating revenues of the Tax Services and Business Services segments are seasonal in nature with peak revenues occurring in the months of January through April. Therefore, results for interim periods are not indicative of results to be expected for the full year.

2.		Restatement of Previously Issued Financial Statements
		On June 7, 2005, management and the Audit Committee of the Board of Directors determined that restatement of our previously issued consolidated financial statements, including financial statements for the three and six months ended October 31, 2004, was appropriate as a result of the errors noted below. All amounts listed are pretax, unless otherwise noted.

	§		An error in calculating the gain on sale of residual interests in fiscal year 2003. This error was corrected by deferring a portion of the gain on sale of residual interests as of the transaction date in fiscal year 2003 and recognizing revenue from the sale as interest income from accretion of residual interests in subsequent periods. Interest income from accretion increased $2.7 million and $5.7 million for the three and six months ended October 31, 2004, respectively. This correction also decreased impairments of residual interests $0.9 million for the six months ended October 31, 2004 and decreased comprehensive income $1.7 million and $4.0 million for the three and six months ended October 31, 2004, respectively.
	§		An error in the calculation of an incentive compensation accrual at our Mortgage Services segment as of April 30, 2004. This error resulted in an overstatement of compensation expense for the six months ended October 31, 2004 of $12.1 million.
	§		An error in accounting for leased properties related to rent holidays and mandatory rent escalation in our Tax Services, Mortgage Services and Investment Services segments. Rent expense was understated for the three and six months ended October 31, 2004 by $0.4 million and $0.6 million, respectively.
	§		An error from the capitalization of certain branch office costs at our Investment Services segment, which should have been expensed as incurred. This error resulted in an understatement of

			occupancy expenses and an overstatement of depreciation expense and capital expenditures, resulting in a net overstatement of operating expenses of $5.7 million and $5.5 million for the three and six months ended October 31, 2004, respectively.
	§		Errors related to accounting for acquisitions at our Business Services and Investment Services segments, the largest of which was the acquisition of OLDE in fiscal year 2000. Amortization of customer relationships was understated by $1.8 million and $3.7 million for the three and six months ended October 31, 2004, respectively, and the provision for income taxes was overstated by approximately $3.7 million and $7.5 million, respectively.

     Notes 5, 6, 8, 12, and 14 have been restated to reflect the above described adjustments.

     The following is a summary of the impact of the restatement on our condensed consolidated statement of income and comprehensive income for the three and six months ended October 31, 2004:

(in 000s, except per share amounts)
		Three months ended October 31, 2004													Six months ended October 31, 2004
		As Previously													As Previously
		Reported (1)				Adjustments				Restated					Reported (1)				Adjustments				Restated
Gain on sale of mortgage assets, net		$	184,114			$	34			$	184,148				$	366,648			$	860			$	367,508
Interest income			45,888				2,664				48,552					82,594				5,678				88,272
Total revenues			539,255				2,698				541,953					1,021,966				6,538				1,028,504
Total operating expenses			608,608				(3,408	)			605,200					1,148,098				(13,332	)			1,134,766
Operating loss			(69,353	)			6,106				(63,247	)				(126,132	)			19,870				(106,262	)
Loss before taxes			(85,924	)			6,106				(79,818	)				(158,488	)			19,870				(138,618	)
Income tax benefit			(33,725	)			3,779				(29,946	)				(62,206	)			10,202				(52,004	)
Net loss			(52,199	)			2,327				(49,872	)				(96,282	)			9,668				(86,614	)
Basic and diluted loss per share		$	(0.16	)		$	.01			$	(0.15	)			$	(0.29	)		$	.03			$	(0.26	)
Change in unrealized gain on available-for-sale securities, net		$	9,752			$	(1,668	)		$	8,084				$	33,595			$	(4,041	)		$	29,554
Comprehensive income			(34,076	)			659				(33,417	)				(54,646	)			5,627				(49,019	)

     The following is a summary of the impact of the restatement on our condensed consolidated statement of cash flows for the six months ended October 31, 2004:

(in 000s)
		As Previously
Six months ended October 31, 2004		Reported (1)				Adjustments				Restated
Net loss		$	(96,282	)		$	9,668			$	(86,614	)
Depreciation and amortization			76,768				3,499				80,267
Accretion of residual interests in securitizations			(57,835	)			(5,679	)			(63,514	)
Impairment of available-for-sale residual interests			3,469				(860	)			2,609
Other, net of acquisitions			(588,756	)			(1,279	)			(590,035	)
Net cash used in operating activities			(672,623	)			5,349				(667,274	)
Purchases of property and equipment, net			(55,249	)			(5,349	)			(60,598	)
Net cash provided by (used in) investing activities			24,894				(5,349	)			19,545

     The restatement had no impact on our cash flows from financing activities as previously reported.

3.		Business Combinations
		Effective October 1, 2005, we acquired all outstanding common stock of American Express Tax and Business Services, Inc. for cash payments totaling $191.4 million. The initial purchase price is subject to a post-closing adjustment based upon determination of the final September 30, 2005 net asset value. Results related to American Express Tax and Business Services, Inc. have been included in our condensed consolidated financial statements since October 1, 2005. Pro forma results of operations have not been presented because the effects of this acquisition were not material to our results. The accompanying balance sheet reflects a preliminary allocation of the purchase price to assets acquired and liabilities assumed as follows:

		(in 000s)
Property and equipment		$	18,590
Other assets			136,169
Liabilities			(57,420	)
Amortizing intangible assets			28,100
Goodwill			65,987
Total cash paid		$	191,426

     Goodwill recognized in these transactions is included in the Business Services segment and is not deductible for tax purposes. The preliminary purchase price allocations are subject to change and will be adjusted based upon resolution of several matters including, but not limited to, the following:

	§		Determination of the post-closing adjustment and final purchase price;
	§		Completion of our valuation of intangible assets and determination of useful lives;
	§		Determination of final liabilities relating to planned exit activities; and
	§		Determination of the tax basis of acquired assets and liabilities, and deferred tax balances of the acquired business.

4.		Earnings (Loss) Per Share
		Basic earnings (loss) per share is computed using the weighted average shares outstanding during each period. The dilutive effect of potential common shares is included in diluted earnings (loss) per share except in those periods with a loss. Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 32.6 million shares of stock for the three and six months ended October 31, 2005 and 35.2 million shares for the three and six months ended October 31, 2004, as the effect would be antidilutive due to the net loss recorded during the periods.

     The weighted average shares outstanding for the three and six months ended October 31, 2005 decreased to 326.0 million and 328.4 million, respectively, from 329.4 million and 333.4 million last year, primarily due to our purchases of treasury shares. The effect of these purchases was partially offset by the issuance of treasury shares related to our stock-based compensation plans.

     During each of the six month periods ended October 31, 2005 and 2004, we issued 3.3 million shares of common stock pursuant to the exercise of stock options, employee stock purchases and awards of restricted shares, in accordance with our stock-based compensation plans.

     During the six months ended October 31, 2005, we acquired 9.2 million shares of our common stock, of which 9.0 million shares were purchased from third parties with the remaining shares swapped or surrendered to us, at an aggregate cost of $259.7 million. During the six months ended October 31, 2004, we acquired 22.5 million shares of our common stock, nearly all of which were purchased from third parties, at an aggregate cost of $529.6 million.

5.

Mortgage Banking Activities

Activity related to available-for-sale residual interests in securitizations consists of the following:

(in 000s)
						Restated
Six months ended October 31,		2005				2004
Balance, beginning of period		$	205,936			$	210,973
Additions from net interest margin (NIM) transactions			8,724				15,270
Cash received			(64,377	)			(73,477	)
Cash received on sale of residual interests			(30,497	)			—
Accretion			61,925				63,514
Impairments of fair value			(20,613	)			(2,609	)
Other			366				—
Changes in unrealized holding gains, net			(18,682	)			47,832
Balance, end of period		$	142,782			$	261,503

     We sold $23.3 billion and $13.3 billion of mortgage loans in loan sales to warehouse trusts (Trusts) or other buyers during the six months ended October 31, 2005 and 2004, respectively, with gains totaling $288.8 million and $372.0 million, respectively, recorded on these sales.

     Net additions to trading residual interests recorded in connection with the securitization of mortgage loans totaled $185.6 million and $68.6 million during the six months ended October 31, 2005 and 2004, respectively. Trading residuals valued at $94.2 million were securitized in net interest margin (NIM) transactions during the current year, with net cash proceeds of $85.5 million received in connection with NIM transactions. In the prior year, all trading residuals, which totaled $68.6 million, were securitized with net cash proceeds of $53.3 million received on the transactions. Total net additions to residual interests from NIM transactions for the six months ended October 31, 2005 and 2004 were $8.7 million and $15.3 million, respectively.

     During the six months ended October 31, 2005, we completed the sale of $40.5 million of previously securitized residual interests and recorded a gain of $28.7 million. We received cash proceeds of $30.5 million and retained a $10.0 million residual interest in the sale. This sale accelerates cash flows from the residual interests and recognition of unrealized gains included in other comprehensive income.

     At October 31, 2005, we had $93.9 million in residual interests classified as trading securities. These residual interests are the result of the initial securitization of mortgage loans and are expected to be securitized in a NIM transaction during our third quarter. Trading residuals are included in marketable securities — trading on the condensed consolidated balance sheet with mark-to-market adjustments included in gains on sales of mortgage assets on the condensed consolidated income statement. Such adjustments resulted in a net loss of $1.4 million and a net gain of $2.1 million for the three and six months ended October 31, 2005, respectively. Similar adjustments resulted in a net gain of $4.9 million for the three and six months ended October 31, 2004. Cash flows from trading residuals of $7.9 million were received for the six months ended October 31, 2005 and are included in operating activities in the accompanying condensed consolidated statement of cash flows. There were no such trading securities recorded as of April 30, 2005.

     Cash flows from available-for-sale residual interests of $64.4 million and $73.5 million were received from the securitization trusts for the six months ended October 31, 2005 and 2004, respectively. Cash received on available-for-sale residual interests is included in investing activities in the condensed consolidated statements of cash flows.

     Aggregate net unrealized gains on residual interests not yet accreted into income totaled $67.9 million at October 31, 2005 and $115.4 million at April 30, 2005. These unrealized gains are recorded net of deferred taxes in other comprehensive income, and may be recognized in income in future periods either through accretion or upon further securitization or sale of the related residual interest.

     Activity related to mortgage servicing rights (MSRs) consists of the following:

(in 000s)
Six months ended October 31,		2005				2004
Balance, beginning of period		$	166,614			$	113,821
Additions			136,294				58,894
Amortization			(56,660	)			(38,653	)
Impairment			(320	)			—
Balance, end of period		$	245,928			$	134,062

     Estimated amortization of MSRs for fiscal years 2006 through 2010 is $69.9 million, $100.9 million, $48.0 million, $18.9 million and $8.2 million, respectively.

     During the current quarter, we completed an evaluation of assumptions used to value our MSRs. The changes in our assumptions as a result of this evaluation resulted in an increase to MSRs recorded in conjunction with loans originated during the second quarter. This change in assumptions increased our weighted average value of MSRs by approximately 14 basis points, primarily as a result of lower servicing costs, in particular interest paid to bondholders on monthly loan prepayments. As a result, additions to MSRs and gains on sales of mortgage loans during our second quarter were approximately $16.8 million higher than would have been recorded under our previous assumptions.

     The key weighted average assumptions we used to estimate the cash flows and values of the residual interests initially recorded during the six months ended October 31, 2005 are as follows:

Six months ended October 31,		2005				2004
Estimated credit losses			2.82	%			3.08	%
Discount rate			20.02	%			25.00	%
Variable returns to third-party beneficial interest holders		LIBOR forward curve at closing

     The key weighted average assumptions we used to estimate the cash flows and values of the residual interests and MSRs at October 31, 2005 and April 30, 2005 are as follows:

		October 31, 2005				April 30, 2005
Estimated credit losses			2.96	%			3.03	%
Discount rate — residual interests			19.24	%			21.01	%
Discount rate — MSRs			15.00	%			12.80	%
Variable returns to third-party beneficial interest holders		LIBOR forward curve at valuation date

     We originate both adjustable and fixed rate mortgage loans. A key assumption used to estimate the cash flows and values of the residual interests is average annualized prepayment speeds. Prepayment speeds include voluntary prepayments, involuntary prepayments and scheduled principal payments. Prepayment rate assumptions are as follows:

		Prior to				Months Outstanding After
		Initial Rate				Initial Rate Reset Date
		Reset Date				Zero - 3				Remaining Life
Adjustable rate mortgage loans:
With prepayment penalties			31	%			70	%			43	%
Without prepayment penalties			37	%			53	%			41	%
Fixed rate mortgage loans:
With prepayment penalties			30	%			50	%			41	%

     For fixed rate mortgages without prepayment penalties, we use an average prepayment rate of 34% over the life of the loans. Prepayment rate is projected based on actual paydown including voluntary, involuntary and scheduled principal payments.

     Expected static pool credit losses are as follows:

Mortgage Loans Securitized in Fiscal Year
		Prior to 2002				2002				2003				2004				2005				2006
As of:
October 31, 2005			4.52	%			2.49	%			2.05	%			2.16	%			2.93	%			2.84	%
July 31, 2005			4.53	%			2.53	%			2.03	%			2.20	%			2.86	%			2.70	%
April 30, 2005			4.52	%			2.53	%			2.08	%			2.30	%			2.83	%			—
April 30, 2004			4.46	%			3.58	%			4.35	%			3.92	%			—				—

     Static pool credit losses are calculated by summing the actual and projected future credit losses and dividing them by the original balance of each pool of assets.

     At October 31, 2005, the sensitivities of the current fair value of the residual interests and MSRs to 10% and 20% adverse changes in the above key assumptions are as follows:

(dollars in 000s)
		Residential Mortgage Loans
		NIM				Beneficial Interest				Trading				Servicing
		Residuals				in Trusts				Residual				Assets
Carrying amount/fair value		$	142,782			$	169,378			$	93,865			$	245,928
Weighted average remaining life (in years)			1.4				2.1				1.9				1.3
Prepayments (including defaults):
Adverse 10% — $ impact on fair value		$	4,200			$	(3,523	)		$	(1,303	)		$	(32,334	)
Adverse 20% — $ impact on fair value			11,888				(2,511	)			(2,112	)			(53,876	)
Credit losses:
Adverse 10% — $ impact on fair value		$	(34,306	)		$	(8,044	)		$	(3,060	)		Not applicable
Adverse 20% — $ impact on fair value			(59,982	)			(15,179	)			(6,101	)		Not applicable
Discount rate:
Adverse 10% — $ impact on fair value		$	(3,572	)		$	(3,441	)		$	(2,485	)		$	(3,732	)
Adverse 20% — $ impact on fair value			(6,924	)			(6,786	)			(4,849	)			(7,364	)
Variable interest rates (LIBOR forward curve):
Adverse 10% — $ impact on fair value		$	(10,099	)		$	(59,826	)		$	3,270			Not applicable
Adverse 20% — $ impact on fair value			(19,190	)			(93,728	)			6,264			Not applicable

     These sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also in this table, the effect of a variation of a particular assumption on the fair value is calculated without changing any other assumptions. It is likely that changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

     Mortgage loans that have been securitized at October 31, 2005 and April 30, 2005, past due sixty days or more and the related credit losses incurred are presented below:

(in 000s)
		Total Principal								Principal Amount of
		Amount of Loans								Loans 60 Days or								Credit Losses
		Outstanding								More Past Due								(net of recoveries)
		October 31,				April 30,				October 31,				April 30,				Three months ended
		2005				2005				2005				2005				October 31, 2005				April 30, 2005
Securitized mortgage loans		$	11,716,390			$	10,300,805			$	992,040			$	1,128,376			$	29,153			$	21,641
Mortgage loans in warehouse Trusts			9,566,572				6,742,387				—				—				—				—
Total loans		$	21,282,962			$	17,043,192			$	992,040			$	1,128,376			$	29,153			$	21,641

6.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the six months ended October 31, 2005 consist of the following:

(in 000s)
		April 30, 2005				Additions				Other				October 31, 2005
Tax Services		$	360,781			$	5,648			$	289			$	366,718
Mortgage Services			152,467				—				—				152,467
Business Services			328,745				66,428				(725	)			394,448
Investment Services			173,954				—				—				173,954
Total goodwill		$	1,015,947			$	72,076			$	(436	)		$	1,087,587

     We test goodwill for impairment annually at the beginning of our fourth quarter, or more frequently if events occur indicating it is more likely than not the fair value of a reporting unit’s net assets has been reduced below its carrying value. No such impairment or events indicating impairment were identified within any of our segments during the six months ended October 31, 2005. Our evaluation of

impairment is dependent upon various assumptions, including assumptions regarding projected operating results and cash flows of reporting units. Actual results could differ materially from our projections and those differences could alter our conclusions regarding the fair value of a reporting unit and its goodwill.

     Intangible assets consist of the following:

(in 000s)
		October 31, 2005												April 30, 2005
		Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net
Tax Services:
Customer relationships		$	24,327			$	(8,868	)		$	15,459			$	23,717			$	(7,207	)		$	16,510
Noncompete agreements			18,501				(14,607	)			3,894				17,677				(11,608	)			6,069
Business Services:
Customer relationships			153,186				(74,193	)			78,993				130,585				(68,433	)			62,152
Noncompete agreements			31,470				(12,558	)			18,912				27,796				(11,274	)			16,522
Trade name — amortizing			4,550				(1,030	)			3,520				1,450				(995	)			455
Trade name — non-amortizing			55,637				(4,868	)			50,769				55,637				(4,868	)			50,769
Investment Services:
Customer relationships			293,000				(216,698	)			76,302				293,000				(198,385	)			94,615
Total intangible assets		$	580,671			$	(332,822	)		$	247,849			$	549,862			$	(302,770	)		$	247,092

     Amortization of intangible assets for the three and six months ended October 31, 2005 was $15.3 million and $30.6 million, respectively. Amortization of intangible assets for the three and six months ended October 31, 2004 was $15.3 million and $30.4 million, respectively. Estimated amortization of intangible assets for fiscal years 2006 through 2010 is $64.1 million, $54.5 million, $37.4 million, $14.7 million and $12.6 million, respectively.

     The goodwill and intangible assets added in the Business Services segment relate primarily to the acquisition of American Express Tax and Business Services, Inc. and are preliminary, as discussed in note 3. Additionally, due to the preliminary nature of these assets and their associated useful lives, amounts included above in estimated future amortization are subject to change.

7.		Derivative Instruments
		We enter into derivative instruments to reduce risks relating to mortgage loans we originate and sell, and therefore all gains or losses are included in gains on sales of mortgage assets, net in the condensed consolidated income statements. A summary of our derivative instruments as of October 31, 2005 and April 30, 2005, and gains or losses incurred during the three and six months ended October 31, 2005 and 2004 is as follows:

(in 000s)
		Asset (Liability) Balance at								Gain (Loss) for the Three								Gain (Loss) for the Six
		October 31,				April 30,				Months Ended October 31,								Months Ended October 31,
		2005				2005				2005				2004				2005				2004
Interest rate swaps		$	27,118			$	(1,325	)		$	59,742			$	(2,104	)		$	85,285			$	(2,104	)
Interest rate caps			69				12,458				162				—				802				—
Rate-lock equivalents			62				801				354				215				(738	)			1,699
Prime short sales			1,329				(805	)			492				(717	)			1,487				(1,525	)
		$	28,578			$	11,129			$	60,750			$	(2,606	)		$	86,836			$	(1,930	)

     We generally use interest rate swaps and forward loan sale commitments to reduce interest rate risk associated with non-prime loans. We generally enter into interest rate swap arrangements related to existing loan applications with rate-lock commitments and for rate-lock commitments we expect to make in the next 30 days. Interest rate swaps represent an agreement to exchange interest rate payments. These contracts increase in value as rates rise and decrease in value as rates fall. The notional amount of interest rate swaps to which we were a party at October 31, 2005 was $10.0 billion, with a weighted average duration of 1.77 years.

     We generally enter into interest rate caps or swaps to mitigate interest rate risk associated with mortgage loans that will be securitized and residual interests that are classified as trading securities because they will be sold in a subsequent NIM transaction. These instruments enhance the marketability of the securitization and NIM transactions. An interest rate cap represents a right to receive cash if

interest rates rise above a contractual strike rate, its value therefore increases as interest rates rise. The interest rate used in our interest rate caps is based on LIBOR.

     We enter into forward loan commitments to sell our non-prime mortgage loans to manage interest rate risk. Forward loan sale commitments for non-prime loans are not considered derivative instruments and therefore cannot be recorded in our financial statements. The notional value and the contract value of the forward commitments at October 31, 2005 were $3.5 billion and $3.6 billion, respectively. Most of our forward commitments give us the option to under- or over-deliver by five to ten percent.

     In the normal course of business, we enter into commitments with our customers to fund both non-prime and prime mortgage loans for specified periods of time at “locked-in” interest rates. These derivative instruments represent commitments to fund loans (“rate-lock equivalents”). The fair value of non-prime loan commitments is calculated using a binomial option model, although we do not initially record an asset for non-prime commitments to fund loans. The fair value of prime loan commitments is calculated based on the current market pricing of short sales of FNMA, FHLMC and GNMA mortgage-backed securities and the coupon rates of the eligible loans.

     We sell short FNMA, FHLMC and GNMA mortgage-backed securities to reduce our risk related to our commitments to fund fixed-rate prime loans. The position on certain or all of the fixed-rate mortgage loans is closed approximately 10-15 days prior to standard Public Securities Association (PSA) settlement dates.

     None of our derivative instruments qualify for hedge accounting treatment as of October 31, 2005 or April 30, 2005.

8.		Stock-Based Compensation
		Effective May 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), under the prospective transition method as described in Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Had compensation cost for all stock-based compensation plan grants been determined in accordance with the fair value accounting method prescribed under SFAS 123, our net loss and loss per share would have been as follows:

(in 000s, except per share amounts)
		Three months ended October 31,								Six months ended October 31,
						Restated								Restated
		2005				2004				2005				2004
Net loss as reported		$	(86,275	)		$	(49,872	)		$	(114,599	)		$	(86,614	)
Add: Stock-based compensation expense included in reported net loss, net of related tax effects			6,246				5,242				12,011				8,342
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects			(8,790	)			(7,923	)			(17,098	)			(13,705	)
Pro forma net loss		$	(88,819	)		$	(52,553	)		$	(119,686	)		$	(91,977	)
Basic and diluted loss per share:
As reported		$	(0.26	)		$	(0.15	)		$	(0.35	)		$	(0.26	)
Pro forma			(0.27	)			(0.16	)			(0.36	)			(0.28	)

9.		Supplemental Cash Flow Information
		During the six months ended October 31, 2005, we paid $169.2 million and $50.1 million for income taxes and interest, respectively. During the six months ended October 31, 2004, we paid $316.8 million and $37.3 million for income taxes and interest, respectively. See note 3 for discussion of cash payments made, assets acquired and liabilities assumed related to our acquisition of American Express Tax and Business Services, Inc.

     The following transactions were treated as non-cash investing activities in the condensed consolidated statement of cash flows:

(in 000s)
Six months ended October 31,		2005				2004
Residual interest mark-to-market		$	25,791			$	88,867
Additions to residual interests			8,724				15,270

10.		Commitments and Contingencies
		We maintain two unsecured committed lines of credit (CLOCs) for working capital, support of our commercial paper program and general corporate purposes. The two CLOCs are from a consortium of thirty-one banks and expire in August 2010. These lines are subject to various affirmative and negative covenants, including a minimum net worth covenant. These CLOCs were undrawn at October 31, 2005.

     We offer guarantees under our Peace of Mind (POM) program to tax clients whereby we will assume the cost of additional taxes attributable to tax return preparation errors for which we are responsible. We defer all revenues and direct costs associated with these guarantees, recognizing these amounts over the term of the guarantee based upon historic and actual payment of claims. Changes in the deferred revenue liability are as follows:

(in 000s)
Six months ended October 31,		2005				2004
Balance, beginning of period		$	130,762			$	123,048
Amounts deferred for new guarantees issued			1,107				798
Revenue recognized on previous deferrals			(44,476	)			(41,627	)
Balance, end of period		$	87,393			$	82,219

     We have commitments to fund mortgage loans to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. The commitments to fund loans amounted to $4.1 billion and $3.9 billion at October 31, 2005 and April 30, 2005, respectively. External market forces impact the probability of commitments being exercised, and therefore, total commitments outstanding do not necessarily represent future cash requirements.

     We have entered into loan sale agreements with investors in the normal course of business, which include standard representations and warranties customary to the mortgage banking industry. Violations of these representations and warranties may require us to repurchase loans previously sold. A liability has been established related to the potential loss on repurchase of loans previously sold of $54.9 million and $41.2 million at October 31, 2005 and April 30, 2005, respectively, based on historical experience. Repurchased loans are normally sold in subsequent sale transactions.

     Option One Mortgage Corporation provides a guarantee up to a maximum amount equal to approximately 10% of the aggregate principal balance of mortgage loans held by the Trusts before ultimate disposition of the loans. This guarantee would be called upon in the event adequate proceeds were not available from the sale of the mortgage loans to satisfy the payment obligations of the Trusts. No losses have been sustained on this commitment since its inception. The total principal amount of Trust obligations outstanding as of October 31, 2005 and April 30, 2005 was $9.5 billion and $6.7 billion, respectively. The fair value of mortgage loans held by the Trusts as of October 31, 2005 and April 30, 2005 was $9.6 billion and $6.8 billion, respectively.

     We have various contingent purchase price obligations in connection with prior acquisitions. In many cases, contingent payments to be made in connection with these acquisitions are not subject to a stated limit. We estimate the potential payments (undiscounted) total approximately $8.8 million and $5.1 million as of October 31, 2005 and April 30, 2005, respectively. Our estimate is based on current financial conditions. Should actual results differ materially from our assumptions, the potential payments will differ from the above estimate. Such payments, if and when paid, would be recorded as additional cost of the acquired business, generally goodwill.

     We have contractual commitments to fund certain franchises requesting draws on Franchise Equity Lines of Credit (FELCs). Our commitment to fund FELCs as of October 31, 2005 and April 30, 2005 totaled $72.1 million and $68.9 million, respectively. We have a receivable of $47.9 million and $39.0

million, which represents the amounts drawn on the FELCs, as of October 31, 2005 and April 30, 2005, respectively.

     We routinely enter into contracts that include embedded indemnifications that have characteristics similar to guarantees, including obligations to protect counterparties from losses arising from the following: (a) tax, legal and other risks related to the purchase or disposition of businesses; (b) penalties and interest assessed by Federal and state taxing authorities in connection with tax returns prepared for clients; (c) indemnification of our directors and officers; and (d) third-party claims relating to various arrangements in the normal course of business. Typically, there is no stated maximum payment related to these indemnifications, and the term of indemnities may vary and in many cases is limited only by the applicable statute of limitations. The likelihood of any claims being asserted against us and the ultimate liability related to any such claims, if any, is difficult to predict. While we cannot provide assurance that such claims will not be successfully asserted, we believe the fair value of these guarantees and indemnifications is not material as of October 31, 2005.

11.		Litigation Commitments and Contingencies
		We have been involved in a number of class actions and putative class action cases since 1990 regarding our RAL programs. These cases are based on a variety of legal theories and allegations. These theories and allegations include, among others, that (i) we improperly did not disclose license fees we received from RAL lending banks for RALs they make to our clients, (ii) we owe and breached a fiduciary duty to our clients and (iii) the RAL program violates laws such as state credit service organization laws and the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. Although we have successfully defended many RAL cases, we incurred a pretax expense of $43.5 million in fiscal year 2003 in connection with settling one RAL case. Several of the RAL cases are still pending and the amounts claimed in some of them are very substantial. The ultimate cost of this litigation could be substantial. We intend to continue defending the RAL cases vigorously, although there are no assurances as to their outcome.

     We are also parties to claims and lawsuits pertaining to our electronic tax return filing services and our POM guarantee program associated with income tax preparation services. These claims and lawsuits include actions by individual plaintiffs, as well as cases in which plaintiffs seek to represent a class of similarly situated customers. The amounts claimed in these claims and lawsuits are substantial in some instances, and the ultimate liability with respect to such litigation and claims is difficult to predict. We intend to continue defending these cases vigorously, although there are no assurances as to their outcome.

     In addition to the aforementioned types of cases, we are parties to claims and lawsuits that we consider to be ordinary, routine disputes incidental to our business (Other Claims and Lawsuits), including claims and lawsuits concerning the preparation of customers’ income tax returns, the fees charged customers for various services, investment products, relationships with franchisees, contract disputes, employment matters and civil actions, arbitrations, regulatory inquiries and class actions arising out of our business as a broker-dealer and as a servicer of mortgage loans. We believe we have meritorious defenses to each of the Other Claims and Lawsuits and are defending them vigorously. Although we cannot provide assurance we will ultimately prevail in each instance, we believe that amounts, if any, required to be paid in the discharge of liabilities or settlements pertaining to Other Claims and Lawsuits will not have a material adverse effect on our consolidated financial statements. Regardless of outcome, claims and litigation can adversely affect us due to defense costs, diversion of management attention and time, and publicity related to such matters.

     It is our policy to accrue for amounts related to legal matters if it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Many of the various legal proceedings are covered in whole or in part by insurance. Any receivable for insurance recoveries is recorded separately from the corresponding litigation reserve, and only if recovery is determined to be probable. Receivables for insurance recoveries at October 31, 2005 were immaterial.

12.		Segment Information
		Information concerning our operations by reportable operating segment is as follows:

(in 000s)
		Three months ended October 31,								Six months ended October 31,
						Restated								Restated
		2005				2004				2005				2004
Revenues:
Tax Services		$	80,813			$	74,106			$	138,004			$	124,553
Mortgage Services			286,151				284,332				646,589				556,305
Business Services			166,805				129,047				293,651				238,149
Investment Services			70,018				53,761				138,001				107,342
Corporate			1,256				707				3,791				2,155
		$	605,043			$	541,953			$	1,220,036			$	1,028,504
Pretax income (loss):
Tax Services		$	(142,864	)		$	(133,932	)		$	(287,370	)		$	(246,578	)
Mortgage Services			46,239				108,472				180,707				217,497
Business Services			(2,143	)			(4,892	)			(8,908	)			(14,937	)
Investment Services			(7,906	)			(20,764	)			(15,458	)			(41,107	)
Corporate			(26,455	)			(28,702	)			(47,969	)			(53,493	)
Loss before taxes		$	(133,129	)		$	(79,818	)		$	(178,998	)		$	(138,618	)

13.		New Accounting Pronouncements
		Exposure Drafts — Amendments of SFAS 140
		In August 2005, the Financial Accounting Standards Board (FASB) issued three exposure drafts which amend Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

     The first exposure draft seeks to clarify the derecognition requirements for financial assets and the initial measurement of interests related to transferred financial assets that are held by a transferor. Our current off-balance sheet warehouse facilities (the Trusts) in our Mortgage Services segment would be required to be consolidated in our financial statements based on the provisions of the exposure draft. We will continue to monitor the status of the exposure draft and consider what changes, if any, could be made to the structure of the Trusts to continue to derecognize mortgage loans transferred to the Trusts. At October 31, 2005, the Trusts held loans totaling $9.5 billion, which we would be required to consolidate into our financial statements under the provisions of this exposure draft.

     The second exposure draft would require mortgage servicing rights to be initially valued at fair value. This provision would not have a material impact to our financial statements. In addition, this exposure draft would permit us to choose to continue to amortize mortgage servicing rights in proportion to and over the period of estimated net servicing income, as currently required under SFAS 140, or report mortgage servicing rights at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. We have not yet determined how we would elect to account for mortgage servicing rights under this provision or the potential impact to the financial statements.

     The third exposure draft, among other things, would establish a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are free-standing derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. Alternatively, this exposure draft would permit fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. Our residual interests in securitizations typically have interests in derivative instruments embedded within the securitization trusts. We have not yet determined if these embedded derivatives meet the criteria for bifurcation as outlined in the exposure draft.

     The final standard for the first exposure draft is scheduled to be issued in the second quarter of calendar year 2006, and the final standards for the second and third exposure drafts are scheduled for the first quarter of calendar year 2006.

		American Jobs Creation Act
		In October 2004, the American Jobs Creation Act (the Act) was signed into law. The Act introduces a one-time deduction for dividends received from the repatriation of certain foreign earnings, provided certain criteria are met. During the three months ended October 31, 2005, we completed our evaluation of the effects of the Act, and have elected not to repatriate foreign earnings. Because we intend to indefinitely reinvest foreign earnings outside the United States, we have not provided deferred taxes on such earnings.

14.		Condensed Consolidating Financial Statements
		Block Financial Corporation (BFC) is an indirect, wholly owned consolidated subsidiary of the Company. BFC is the Issuer and the Company is the Guarantor of the Senior Notes issued on April 13, 2000 and October 26, 2004. These condensed consolidating financial statements have been prepared using the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Company’s investment in subsidiaries account. The elimination entries eliminate investments in subsidiaries, related stockholder’s equity and other intercompany balances and transactions.

Condensed Consolidating Income Statements		(in 000s)
Three months ended		H&R Block, Inc.				BFC				Other								Consolidated
October 31, 2005		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	395,825			$	213,175			$	(3,957	)		$	605,043
Cost of services			—				115,818				271,356				43				387,217
Cost of other revenues			—				129,316				5,548				—				134,864
Selling, general and administrative			—				96,960				113,589				(4,000	)			206,549
Total expenses			—				342,094				390,493				(3,957	)			728,630
Operating income (loss)			—				53,731				(177,318	)			—				(123,587	)
Interest expense			—				11,811				574				—				12,385
Other income, net			(133,129	)			—				2,843				133,129				2,843
Income (loss) before taxes			(133,129	)			41,920				(175,049	)			133,129				(133,129	)
Income taxes (benefit)			(46,854	)			15,955				(62,809	)			46,854				(46,854	)
Net income (loss)		$	(86,275	)		$	25,965			$	(112,240	)		$	86,275			$	(86,275	)

Three months ended		H&R Block, Inc.				BFC				Other								Consolidated
October 31, 2004 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	340,865			$	204,440			$	(3,352	)		$	541,953
Cost of services			—				93,705				230,316				63				324,084
Cost of other revenues			—				90,764				5,485				—				96,249
Selling, general and administrative			—				71,454				116,828				(3,415	)			184,867
Total expenses			—				255,923				352,629				(3,352	)			605,200
Operating income (loss)			—				84,942				(148,189	)			—				(63,247	)
Interest expense			—				17,348				733				—				18,081
Other income, net			(79,818	)			—				1,510				79,818				1,510
Income (loss) before taxes			(79,818	)			67,594				(147,412	)			79,818				(79,818	)
Income taxes (benefit)			(29,946	)			24,879				(54,825	)			29,946				(29,946	)
Net income (loss)		$	(49,872	)		$	42,715			$	(92,587	)		$	49,872			$	(49,872	)

Six months ended		H&R Block, Inc.				BFC				Other								Consolidated
October 31, 2005		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	856,465			$	370,840			$	(7,269	)		$	1,220,036
Cost of service revenues			—				225,171				505,132				132				730,435
Cost of other revenues			—				250,216				8,005				—				258,221
Selling, general and administrative			—				188,148				215,054				(7,401	)			395,801
Total expenses			—				663,535				728,191				(7,269	)			1,384,457
Operating income (loss)			—				192,930				(357,351	)			—				(164,421	)
Interest expense			—				23,621				1,199				—				24,820
Other income, net			(178,998	)			—				10,243				178,998				10,243
Income (loss) before taxes			(178,998	)			169,309				(348,307	)			178,998				(178,998	)
Income taxes (benefit)			(64,399	)			64,341				(128,740	)			64,399				(64,399	)
Net income (loss)		$	(114,599	)		$	104,968			$	(219,567	)		$	114,599			$	(114,599	)

Six months ended		H&R Block, Inc.				BFC				Other								Consolidated
October 31, 2004 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	669,468			$	365,655			$	(6,619	)		$	1,028,504
Cost of services			—				186,970				427,980				109				615,059
Cost of other revenues			—				167,745				6,899				—				174,644
Selling, general and administrative			—				143,642				208,149				(6,728	)			345,063
Total expenses			—				498,357				643,028				(6,619	)			1,134,766
Operating income (loss)			—				171,111				(277,373	)			—				(106,262	)
Interest expense			—				34,150				1,724				—				35,874
Other income, net			(138,618	)			—				3,518				138,618				3,518
Income (loss) before taxes			(138,618	)			136,961				(275,579	)			138,618				(138,618	)
Income taxes (benefit)			(52,004	)			50,448				(102,452	)			52,004				(52,004	)
Net income (loss)		$	(86,614	)		$	86,513			$	(173,127	)		$	86,614			$	(86,614	)