SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q/A

(Mark One)

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

For the quarterly period ended July 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

H&R Block, Inc.

MISSOURI		44-0607856
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Yes þ      Accelerated filer Yes o       Non-accelerated filer 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 August 31, 2005 was 324,650,475 shares.

 

 

		H&R BLOCK

Table of Contents

		Page
PART I Financial Information
Item 1. Condensed Consolidated Balance Sheets July 31, 2005 (Restated) and April 30, 2005 (Restated)			1
Condensed Consolidated Statements of Income and Comprehensive Income Three Months Ended July 31, 2005 (Restated) and 2004 (Restated)			2
Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2005 (Restated) 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			18
Item 4. Controls and Procedures			32
PART II Other Information
Item 6. Exhibits			33
SIGNATURES			35
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

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to the company’s Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2005, initially filed with the Securities and Exchange Commission on September 8, 2005, is being filed to reflect restatements of our consolidated balance sheets at July 31, 2005 and April 30, 2005, consolidated statements of income and comprehensive income for the three months ended July 31, 2005 and 2004, and of cash flows for the three months ended July 31, 2005 and 2004, and the notes related thereto. See detail discussion of the restatements in Item 1, note 2 to the condensed consolidated financial statements.

     On February 22, 2006, the Company’s management and the Audit Committee of the Board of Directors concluded to restate previously issued consolidated financial statements for the fiscal quarters ended October 31, 2005 and July 31, 2005, the fiscal years ended April 30, 2005 and 2004 and the related fiscal quarters. The Company arrived at this conclusion during the course of its closing process for the quarter ended January 31, 2006.

     The restatement pertains primarily to errors in determining the Company’s state effective income tax rate, including errors in identifying changes in state apportionment, expiring state net operating losses and related factors.

		H&R BLOCK

CONDENSED CONSOLIDATED BALANCE SHEETS

		(in 000s, except share amounts)
		Restated				Restated
		July 31, 2005				April 30, 2005
		(Unaudited)
ASSETS
Cash and cash equivalents		$	632,801			$	1,100,213
Cash and cash equivalents – restricted			416,981				516,909
Marketable securities – trading			77,085				11,790
Receivables from customers, brokers, dealers and clearing organizations, net			585,214				590,226
Receivables, less allowance for doubtful accounts of $46,752 and $38,879			404,501				418,788
Prepaid expenses and other current assets			473,831				432,708
Total current assets			2,590,413				3,070,634
Residual interests in securitizations – available-for-sale			193,207				205,936
Beneficial interest in Trusts – trading			185,539				215,367
Mortgage servicing rights			188,708				166,614
Property and equipment, at cost less accumulated depreciation and amortization of $677,989 and $658,425			328,684				330,150
Intangible assets, net			232,242				247,092
Goodwill, net			1,018,632				1,015,947
Other assets			278,529				286,316
Total assets		$	5,015,954			$	5,538,056
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Current portion of long-term debt		$	25,854			$	25,545
Accounts payable to customers, brokers and dealers			871,715				950,684
Accounts payable, accrued expenses and other current liabilities			497,215				564,749
Accrued salaries, wages and payroll taxes			161,661				318,644
Accrued income taxes			372,114				375,174
Total current liabilities			1,928,559				2,234,796
Long-term debt			923,145				923,073
Other noncurrent liabilites			368,028				430,919
Total liabilities			3,219,732				3,588,788
Stockholders’ equity:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, 435,890,796 shares issued at July 31, 2005 and April 30, 2005			4,359				4,359
Additional paid-in capital			601,348				598,388
Accumulated other comprehensive income			63,731				68,718
Retained earnings			3,097,151				3,161,682
Less cost of 106,780,588 and 104,649,850 shares of common stock in treasury			(1,970,367	)			(1,883,879	)
Total stockholders’ equity			1,796,222				1,949,268
Total liabilities and stockholders’ equity		$	5,015,954			$	5,538,056

See Notes to Condensed Consolidated Financial Statements

		H&R BLOCK

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

		(Unaudited, amounts in 000s,
		except per share amounts)
		Restated				Restated
Three months ended July 31,		2005				2004
Revenues:
Service revenues		$	315,128			$	248,588
Other revenues:
Gains on sales of mortgage assets, net			236,431				183,360
Interest income			49,253				39,720
Product and other revenues			14,181				14,883
			614,993				486,551
Operating expenses:
Cost of services			343,218				290,975
Cost of other revenues			123,357				78,395
Selling, general and administrative			189,252				160,196
			655,827				529,566
Operating loss			(40,834	)			(43,015	)
Interest expense			12,435				17,793
Other income, net			7,400				2,008
Loss before taxes			(45,869	)			(58,800	)
Income tax benefit			(17,875	)			(22,846	)
Net loss		$	(27,994	)		$	(35,954	)
Basic and diluted loss per share		$	(0.08	)		$	(0.11	)
Basic and diluted shares			330,714				337,270
Dividends per share		$	0.11			$	0.10
Comprehensive income (loss):
Net loss		$	(27,994	)		$	(35,954	)
Change in unrealized gain on available-for-sale securities, net			(5,811	)			21,470
Change in foreign currency translation adjustments			824				(330	)
Comprehensive income (loss)		$	(32,981	)		$	(14,814	)

See Notes to Condensed Consolidated Financial Statements

		H&R BLOCK

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		(Unaudited, amounts in 000s)
		Restated				Restated
Three months ended July 31,		2005				2004
Cash flows from operating activities:
Net loss		$	(27,994	)		$	(35,954	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			44,085				38,908
Accretion of residual interests in securitizations			(30,777	)			(28,677	)
Impairments of residual interests in securitizations			12,415				2,609
Additions to trading securities – residual interests in securitizations			(101,002	)			—
Proceeds from net interest margin transactions, net			40,371				—
Additions to mortgage servicing rights			(49,306	)			(28,493	)
Amortization and impairment of mortgage servicing rights			27,212				18,334
Net change in beneficial interest in Trusts			29,828				(1,433	)
Other, net of acquisitions			(255,347	)			(480,626	)
Net cash used in operating activities			(310,515	)			(515,332	)
Cash flows from investing activities:
Cash received from residual interests in securitizations			24,031				38,826
Purchases of property and equipment, net			(30,330	)			(22,714	)
Payments made for business acquisitions, net of cash acquired			(3,452	)			(806	)
Other, net			7,935				8,300
Net cash provided by (used in) investing activities			(1,816	)			23,606
Cash flows from financing activities:
Repayments of commercial paper			—				(314,836	)
Proceeds from issuance of commercial paper			—				419,700
Dividends paid			(36,537	)			(33,636	)
Acquisition of treasury shares			(131,642	)			(347,395	)
Proceeds from issuance of common stock			32,318				12,375
Other, net			(19,220	)			(127	)
Net cash used in financing activities			(155,081	)			(263,919	)
Net decrease in cash and cash equivalents			(467,412	)			(755,645	)
Cash and cash equivalents at beginning of the period			1,100,213				1,072,745
Cash and cash equivalents at end of the period		$	632,801			$	317,100

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 July 31, 2005, the condensed consolidated statements of income and comprehensive income for the three months ended July 31, 2005 and 2004, and the condensed consolidated statements of cash flows for the three months ended July 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 July 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 restatements 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 retroactive 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.

     We file our federal and state income tax returns on a calendar year basis. The condensed consolidated income statements reflect the effective tax rates expected to be applicable for the respective full fiscal years.

2.		Restatements of Previously Issued Financial Statements
		(A) On February 22, 2006, management and the Audit Committee of the Board of Directors concluded to restate previously issued consolidated financial statements for the fiscal quarters ended October 31, 2005 and July 31, 2005, the fiscal years ended April 30, 2005 and 2004 and the related fiscal quarters. We arrived at this conclusion during the course of our closing process for the quarter ended January 31, 2006. This restatement pertains primarily to errors in determining the Company’s state effective income tax rate, including errors in identifying changes in state apportionment, expiring state net operating losses and related factors. These errors resulted in an understatement of income tax benefit (net of federal income tax benefit) of $0.3 million and $0.8 million for the three months ended July 31, 2005 and 2004, respectively, an overstatement of deferred income tax assets of $1.2 million as of July 31, 2005 and April 30, 2005, and an understatement of accrued income taxes of $25.5 million and $25.9 million as of July 31, 2005 and April 30, 2005, respectively. The effect of the above adjustments on the condensed consolidated financial statements is set forth in “2C” below.
		(B) 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 months ended July 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 $3.0 million for the three months ended July 31, 2004. This correction also decreased impairments of residual

			interests $0.8 million and increased comprehensive income $2.4 million for the three months ended July 31, 2004.
	§		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 three months ended July 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 months ended July 31, 2004 by $0.2 million.
	§		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 understatement of operating expenses of $0.1 million for the three months ended July 31, 2004.
	§		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 the provision for income taxes was overstated by approximately $3.7 million for the three months ended July 31, 2004.
	The effect of the above adjustments on the condensed consolidated financial statements is set forth in “2C” below.

(C) Notes 4, 5, 7, 11, and 13 have been restated to reflect the above described adjustments.

     The following is a summary of the impact of the restatement described in “2A” above on our condensed consolidated balance sheet as of July 31, 2005:

		(in 000s, except per share amounts)
		As Previously
		Reported (1)				Adjustments (2)				Restated
Other assets		$	279,756			$	(1,227	)		$	278,529
Total assets			5,017,181				(1,227	)			5,015,954
Accrued income taxes			346,568				25,546				372,114
Total current liabilities			1,903,013				25,546				1,928,559
Total liabilities			3,194,186				25,546				3,219,732
Retained earnings			3,123,924				(26,773	)			3,097,151
Total stockholders’ equity			1,822,995				(26,773	)			1,796,222
Total liabilities and stockholders’ equity			5,017,181				(1,227	)			5,015,954

     The following is a summary of the impact of the restatement described in “2A” above on our condensed consolidated statement of income and comprehensive income for the three months ended July 31, 2005:

		As Previously
		Reported (1)				Adjustments (2)				Restated
Income tax benefit		$	(17,545	)		$	(330	)		$	(17,875	)
Net loss			(28,324	)			330				(27,994	)
Basic and diluted loss per share		$	(0.09	)		$	0.01			$	(0.08	)
Comprehensive income (loss)		$	(33,311	)		$	330			$	(32,981	)

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

		As Previously								As Previously
		Reported (1)				Adjustments (2)				Restated (3)				Adjustments (4)				Restated
Gain on sale of mortgage assets, net		$	182,534			$	826			$	183,360			$	—			$	183,360
Interest income			36,706				3,014				39,720				—				39,720
Total revenues			482,711				3,840				486,551				—				486,551
Total operating expenses			539,490				(9,924	)			529,566				—				529,566
Operating loss			(56,779	)			13,764				(43,015	)			—				(43,015	)
Loss before taxes			(72,564	)			13,764				(58,800	)			—				(58,800	)
Income tax benefit			(28,481	)			6,423				(22,058	)			(788	)			(22,846	)
Net loss			(44,083	)			7,341				(36,742	)			788				(35,954	)
Basic and diluted loss per share		$	(.13	)		$	0.02			$	(.11	)		$	—			$	(.11	)
Change in unrealized gain on marketable securities, net		$	23,843			$	(2,373	)		$	21,470			$	—			$	21,470
Comprehensive income (loss)			(20,570	)			4,968				(15,602	)			788				(14,814	)

     The following is a summary of the impact of the restatement described in “2A” above on our condensed consolidated statement of cash flows for the three months ended July 31, 2005:

		As Previously
		Reported (1)				Adjustments (2)				Restated
Net loss		$	(28,324	)		$	330			$	(27,994	)
Other, net of acquisitions			(255,017	)			(330	)			(255,347	)

     The following is a summary of the impact of the restatements on our condensed consolidated statement of cash flows for the three months ended July 31, 2004:

		(in 000s)
		As Previously								As Previously
Three months ended July 31, 2004		Reported (1)				Adjustments (2)				Restated (3)				Adjustments (4)				Restated
Net loss		$	(44,083	)		$	7,341			$	(36,742	)		$	788			$	(35,954	)
Depreciation and amortization			37,137				1,771				38,908				—				38,908
Accretion of residual interests in securitizations			(25,663	)			(3,014	)			(28,677	)			—				(28,677	)
Impairment of residual interests in securitizations			3,435				(826	)			2,609				—				2,609
Other, net of acquisitions			(474,367	)			(5,471	)			(479,838	)			(788	)			(480,626	)
Net cash provided by operating activities			(515,133	)			(199	)			(515,332	)			—				(515,332	)
Purchases of property and equipment, net			(22,913	)			199				(22,714	)			—				(22,714	)
Net cash provided by (used in) investing activities			23,407				199				23,606				—				23,606

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

3.		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 33.7 million shares and 37.0 million shares of stock for the three months ended July 31, 2005 and 2004, respectively, as the effect would be antidilutive due to the net loss recorded during the periods.

     The weighted average shares outstanding for the three months ended July 31, 2005 decreased to 330.7 million from 337.3 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 the three months ended July 31, 2005 and 2004, we issued 2.5 million shares and 1.2 million shares, respectively, 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 three months ended July 31, 2005, we acquired 4.6 million shares of our common stock, of which 4.4 million shares were purchased from third parties with the remaining shares swapped or surrendered to us, at an aggregate cost of $131.6 million. During the three months ended July 31, 2004, we acquired 14.9 million shares of our common stock, of which 14.8 million shares were purchased from third parties with the remaining shares swapped or surrendered to us, at an aggregate cost of $347.4 million.

4.		Mortgage Banking Activities
		Activity related to available-for-sale residual interests in securitizations consists of the following:

		(in 000s)
						Restated
Three months ended July 31,		2005				2004
Balance, beginning of period		$	205,936			$	210,973
Additions from net interest margin (NIM) transactions			2,109				—
Cash received			(24,031	)			(38,826	)
Accretion			30,777				28,677
Impairments of fair value			(11,875	)			(2,609	)
Other			(330	)			—
Changes in unrealized holding gains, net			(9,379	)			35,067
Balance, end of period		$	193,207			$	233,282

     We sold $10.8 billion and $6.7 billion of mortgage loans in whole loan sales to warehouse trusts (Trusts) or other buyers during the three months ended July 31, 2005 and 2004, respectively, with gains totaling $222.8 million and $185.3 million, respectively, recorded on these sales.

     Trading residual interests valued at $101.0 million were recorded in connection with the securitizations of mortgage loans during the three months ended July 31, 2005, with net cash proceeds of $40.4 million received in connection with NIM transactions. Total net additions to residual interests from net interest margin (NIM) transactions for the three months ended July 31, 2005 were $2.1 million. We did not complete any securitizations or NIM transactions during the three months ended July 31, 2004.

     At July 31, 2005, we had $58.0 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 second quarter. Trading residuals are included in marketable securities — trading on the condensed consolidated balance sheet with mark-to-market adjustments and impairments included in gains on sales of mortgage assets on the condensed consolidated income statement. Such adjustments resulted in a gain of $3.5 million for the three months ended July 31, 2005. There were no such trading securities recorded as of April 30, 2005.

     Cash flows of $24.0 million and $38.8 million were received from the securitization trusts for the three months ended July 31, 2005 and 2004, respectively. Cash received on residual interests is included in investing activities in the condensed consolidated statements of cash flows.

     Aggregate net unrealized gains on residual interests, which had not yet been accreted into income, totaled $105.9 million at July 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)
Three months ended July 31,		2005				2004
Balance, beginning of period		$	166,614			$	113,821
Additions			49,306				28,493
Amortization			(26,892	)			(18,334	)
Impairment			(320	)			—
Balance, end of period		$	188,708			$	123,980

     Estimated amortization of MSRs for fiscal years 2006 through 2010 is $80.2 million, $67.6 million, $29.1 million, $9.4 million and $2.2 million, respectively.

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

Three months ended		July 31, 2005
Estimated credit losses			2.70	%
Discount rate			21.57	%
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 July 31, 2005 and April 30, 2005 are as follows:

		July 31, 2005				April 30, 2005
Estimated credit losses – residual interests			2.98	%			3.03	%
Discount rate – residual interests			19.31	%			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 Without
		Penalty				Prepayment Penalty
		Expiration				Zero - 3				Remaining Life
Adjustable rate mortgage loans:
With prepayment penalties			30	%			70	%			43	%
Without prepayment penalties			36	%			53	%			41	%
Fixed rate mortgage loans:
With prepayment penalties			29	%			47	%			40	%

     For fixed rate mortgages without prepayment penalties, we use an average prepayment rate of 35% 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:
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 July 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				Asset
Carrying amount/fair value		$	193,207			$	185,539			$	57,982			$	188,708
Weighted average remaining life (in years)			1.3				2.3				2.0				1.2
Prepayments (including defaults):
Adverse 10% – $ impact on fair value		$	458			$	(9,933	)		$	(2,407	)		$	(26,926	)
Adverse 20% – $ impact on fair value			13,807				(15,078	)			2,540				(44,709	)
Credit losses:
Adverse 10% – $ impact on fair value		$	(36,108	)		$	(7,360	)		$	(1,743	)		Not applicable
Adverse 20% – $ impact on fair value			(64,062	)			(14,540	)			(3,435	)		Not applicable
Discount rate:
Adverse 10% – $ impact on fair value		$	(4,490	)		$	(4,629	)		$	(1,473	)		$	(2,634	)
Adverse 20% – $ impact on fair value			(8,734	)			(9,059	)			(2,870	)			(5,205	)
Variable interest rates (LIBOR forward curve):
Adverse 10% – $ impact on fair value		$	(11,240	)		$	(40,538	)		$	(2,211	)		Not applicable
Adverse 20% – $ impact on fair value			(23,873	)			(81,169	)			(4,962	)		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 July 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)
		July 31,				April 30,				July 31,				April 30,				Three months ended
		2005				2005				2005				2005				July 31, 2005				April 30, 2005
Securitized mortgage loans		$	11,140,672			$	10,300,805			$	1,058,989			$	1,128,376			$	23,545			$	21,641
Mortgage loans in warehouse Trusts			6,759,723				6,742,387				—				—				—				—
Total loans		$	17,900,395			$	17,043,192			$	1,058,989			$	1,128,376			$	23,545			$	21,641

5.		Goodwill and Intangible Assets
		Changes in the carrying amount of goodwill for the three months ended July 31, 2005 consist of the following:

(in 000s)
		April 30, 2005				Additions				Other				July 31, 2005
Tax Services		$	360,781			$	3,291			$	38			$	364,110
Mortgage Services			152,467				—				—				152,467
Business Services			328,745				81				(725	)			328,101
Investment Services			173,954				—				—				173,954
Total goodwill		$	1,015,947			$	3,372			$	(687	)		$	1,018,632

     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 three months ended July 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)
						July 31, 2005												April 30, 2005
		Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net
Tax Services:
Customer relationships		$	23,717			$	(8,027	)		$	15,690			$	23,717			$	(7,207	)		$	16,510
Noncompete agreements			17,677				(13,074	)			4,603				17,677				(11,608	)			6,069
Business Services:
Customer relationships			130,707				(71,179	)			59,528				130,585				(68,433	)			62,152
Noncompete agreements			27,633				(11,876	)			15,757				27,796				(11,274	)			16,522
Trade name – amortizing			1,450				(1,013	)			437				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				(207,542	)			85,458				293,000				(198,385	)			94,615
Total intangible assets		$	549,821			$	(317,579	)		$	232,242			$	549,862			$	(302,770	)		$	247,092

     Amortization of intangible assets for the three months ended July 31, 2005 and 2004 was $15.2 million and $15.1 million, respectively. Estimated amortization of intangible assets for fiscal years 2006 through 2010 is $60.6 million, $51.5 million, $34.4 million, $11.7 million and $9.8 million, respectively.

6.		Derivative Instruments
		A summary of our derivative instruments as of July 31, 2005 and April 30, 2005, and gains or losses incurred during the three months ended July 31, 2005 and 2004 follows. 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.

(in 000s)
										Gain (Loss) in the Three
		Asset (Liability) Balance at								Months Ended July 31,
		July 31, 2005				April 30, 2005				2005				2004
Interest rate swaps		$	19,661			$	(1,325	)		$	25,543			$	—
Interest rate caps			—				12,458				640				—
Rate-lock equivalents			(292	)			801				(1,093	)			1,484
Prime short sales			790				(805	)			996				(808	)
		$	20,159			$	11,129			$	26,086			$	676

     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, effectively converting our fixed financing costs into a floating rate. These contracts increase in value as rates rise and decrease in value as rates fall.

     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 July 31, 2005 were $3.9 billion. Most of our forward commitments give us the option to under- or over-deliver by five to ten percent.

     We, in the normal course of business, 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, however 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 July 31, 2005 or April 30, 2005.

7.		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)
		Restated				Restated
Three months ended July 31,		2005				2004
Net loss as reported		$	(27,994	)		$	(35,954	)
Add: Stock-based compensation expense included in reported net loss, net of related tax effects			5,765				3,100
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects			(8,309	)			(5,781	)
Pro forma net loss		$	(30,538	)		$	(38,635	)
Basic and diluted loss per share:
As reported		$	(0.08	)		$	(0.11	)
Pro forma			(0.09	)			(0.11	)

8.		Supplemental Cash Flow Information
		During the three months ended July 31, 2005, we paid $35.3 million and $13.8 million for income taxes and interest, respectively. During the three months ended July 31, 2004, we paid $183.4 million and $12.5 million for income taxes and interest, respectively.

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

(in 000s)
Three months ended July 31,		2005				2004
Residual interest mark-to-market		$	12,942			$	53,473
Additions to residual interests			2,109				—

5.		Commitments and Contingencies
		We maintain two unsecured committed lines of credit (CLOCs) for working capital, to support our commercial paper program and for general corporate purposes. The two CLOCs are from a consortium of thirty-one banks. The first $1.0 billion CLOC is subject to annual renewal in August 2005, has a one-year term-out provision with a maturity date in August 2006. The second $1.0 billion CLOC has a maturity date of August 2009. These lines are subject to various affirmative and negative covenants, including a minimum net worth covenant. These CLOCs were undrawn at July 31, 2005. Subsequent to July 31, 2005, the first CLOC expired and was replaced with a new $1.0 billion CLOC, which expires in August 2010. Also subsequent to July 31, 2005, the second CLOC was extended, and now expires in August 2010.

     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)
Three months ended July 31,		2005				2004
Balance, beginning of period		$	130,762			$	123,048
Amounts deferred for new guarantees issued			408				369
Revenue recognized on previous deferrals			(23,900	)			(22,613	)
Balance, end of period		$	107,270			$	100,804

     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 $4.7 billion and $3.9 billion at July 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 whole 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 $41.8 million and $41.2 million at July 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 July 31, 2005 and April 30, 2005 was $6.7 billion. The fair value of mortgage loans held by the Trusts as of July 31, 2005 and April 30, 2005 was $6.9 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 $5.9 million and $5.1 million as of July 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 July 31, 2005 and April 30, 2005 totaled $71.6 million and $68.9 million, respectively. We have a receivable of $40.7 million and $39.0 million, which represents the amounts drawn on the FELCs, as of July 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 counter parties 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 July 31, 2005.

10.		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.

     As discussed in our Form 8-K dated May 9, 2005, we initially recorded litigation reserves of approximately $38.0 million, after taxes, in connection with a proposed settlement of Lynne A. Carnegie, et al. v. Household International, Inc., H&R Block, Inc., et al., (formerly Joel E. Zawikowski, et al. v. Beneficial National Bank, H&R Block, Inc., Block Financial Corporation, et al.). In negotiating the proposed settlement and in determining the amount of consideration we were willing to pay under the proposed settlement, we ascribed significant value to the expanded class of plaintiffs to be covered by the proposed settlement and settlement terms that reduced the likelihood of future claims being made against us regarding our RAL programs. As a result of the May 26, 2005 court ruling to deny the settlement offer, we reversed our legal reserves to amounts representing our assessment of our probable loss.

     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 not 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 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 July 31, 2005 were immaterial.

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

(in 000s)
						Restated
Three months ended July 31,		2005				2004
Revenues:
Tax Services		$	57,191			$	50,447
Mortgage Services			360,438				271,973
Business Services			126,846				109,102
Investment Services			67,983				53,581
Corporate			2,535				1,448
		$	614,993			$	486,551
Pretax income (loss):
Tax Services		$	(144,506	)		$	(112,646	)
Mortgage Services			134,468				109,025
Business Services			(6,765	)			(10,045	)
Investment Services			(7,552	)			(20,343	)
Corporate			(21,514	)			(24,791	)
Loss before taxes		$	(45,869	)		$	(58,800	)

12.		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 final standards are scheduled to be issued in the first quarter of calendar year 2006.

     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 July 31, 2005, the Trusts held loans totaling $6.7 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.

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. We have begun our evaluation of the effects of the Act, but do not expect to be able to complete this evaluation until additional clarifying language on key elements of the Act is issued. As of July 31, 2005, we have not provided deferred taxes on foreign earnings because we intended to indefinitely reinvest such earnings outside the United States. Whether we will ultimately take advantage of this provision depends on our review of the Act and any additional guidance provided and we are therefore currently uncertain as to the impact, if any, this matter will have on our consolidated financial statements, and are unable to estimate the amount of earnings we may repatriate.

13.		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 October 21, 1997, 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
July 31, 2005 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	460,640			$	157,665			$	(3,312	)		$	614,993
Cost of service revenues			—				109,353				233,776				89				343,218
Cost of other revenues			—				120,900				2,457				—				123,357
Selling, general and administrative			—				91,188				101,465				(3,401	)			189,252
Total expenses			—				321,441				337,698				(3,312	)			655,827
Operating income (loss)			—				139,199				(180,033	)			—				(40,834	)
Interest expense			—				11,810				625				—				12,435
Other income, net			(45,869	)			—				7,400				45,869				7,400
Income (loss) before taxes			(45,869	)			127,389				(173,258	)			45,869				(45,869	)
Income taxes (benefit)			(17,875	)			49,682				(67,557	)			17,875				(17,875	)
Net income (loss)		$	(27,994	)		$	77,707			$	(105,701	)		$	27,994			$	(27,994	)

Three months ended			H&R Block, Inc.			BFC				Other								Consolidated
July 31, 2004 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	328,603			$	161,215			$	(3,267	)		$	486,551
Cost of services			—				93,265				197,664				46				290,975
Cost of other revenues			—				76,981				1,414				—				78,395
Selling, general and administrative			—				72,188				91,321				(3,313	)			160,196
Total expenses			—				242,434				290,399				(3,267	)			529,566
Operating income (loss)			—				86,169				(129,184	)			—				(43,015	)
Interest expense			—				16,802				991				—				17,793
Other income, net			(58,800	)			—				2,008				58,800				2,008
Income (loss) before taxes			(58,800	)			69,367				(128,167	)			58,800				(58,800	)
Income taxes (benefit)			(22,846	)			27,088				(49,934	)			22,846				(22,846	)
Net income (loss)		$	(35,954	)		$	42,279			$	(78,233	)		$	35,954			$	(35,954	)

Condensed Consolidating Balance Sheets	(in 000s)
			H&R Block, Inc.			BFC				Other								Consolidated
July 31, 2005 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Cash & cash equivalents		$	—			$	148,287			$	484,514			$	—			$	632,801
Cash & cash equivalents – restricted			—				403,171				13,810				—				416,981
Receivables from customers, brokers and dealers, net			—				585,214				—				—				585,214
Receivables, net			176				248,677				155,648				—				404,501
Intangible assets and goodwill, net			—				414,838				836,036				—				1,250,874
Investments in subsidiaries			4,814,169				215				506				(4,814,169	)			721
Other assets			—				1,458,040				266,660				162				1,724,862
Total assets		$	4,814,345			$	3,258,442			$	1,757,174			$	(4,814,007	)		$	5,015,954
Accts. payable to customers, brokers and dealers		$	—			$	871,715			$	—			$	—			$	871,715
Long-term debt			—				896,799				26,346				—				923,145
Other liabilities			2				525,312				899,558				—				1,424,872
Net intercompany advances			3,018,121				(639,321	)			(2,378,714	)			(86	)			—
Stockholders’ equity			1,796,222				1,603,937				3,209,984				(4,813,921	)			1,796,222
Total liabilities and stockholders’ equity		$	4,814,345			$	3,258,442			$	1,757,174			$	(4,814,007	)		$	5,015,954

			H&R Block, Inc.			BFC				Other								Consolidated
April 30, 2005 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Cash & cash equivalents		$	—			$	162,983			$	937,230			$	—			$	1,100,213
Cash & cash equivalents – restricted			—				488,761				28,148				—				516,909
Receivables from customers, brokers and dealers, net			—				590,226				—				—				590,226
Receivables, net			101				199,990				218,697				—				418,788
Intangible assets and goodwill, net			—				421,036				842,003				—				1,263,039
Investments in subsidiaries			4,851,680				210				449				(4,851,680	)			659
Other assets			—				1,407,082				241,532				(392	)			1,648,222
Total assets		$	4,851,781			$	3,270,288			$	2,268,059			$	(4,852,072	)		$	5,538,056
Accts. payable to customers, brokers and dealers		$	—			$	950,684			$	—			$	—			$	950,684
Long-term debt			—				896,591				26,482				—				923,073
Other liabilities			2				532,562				1,182,459				8				1,715,031
Net intercompany advances			2,902,511				(641,611	)			(2,262,818	)			1,918				—
Stockholders’ equity			1,949,268				1,532,062				3,321,936				(4,853,998	)			1,949,268
Total liabilities and stockholders’ equity		$	4,851,781			$	3,270,288			$	2,268,059			$	(4,852,072	)		$	5,538,056

Condensed Consolidating Statements of Cash Flows	(in 000s)
Three months ended		H&R Block, Inc.				BFC				Other								Consolidated
July 31, 2005 (Restated)		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Net cash provided by (used in) operating activities:		$	15,721			$	(51,974	)		$	(274,262	)		$	—			$	(310,515	)
Cash flows from investing:
Cash received on residuals			—				24,031				—				—				24,031
Purchase property & equipment			—				(9,255	)			(21,075	)			—				(30,330	)
Payments for business acquisitions			—				(2,994	)			(458	)			—				(3,452	)
Net intercompany advances			120,140				—				—				(120,140	)			—
Other, net			—				330				7,605				—				7,935
Net cash provided by (used in) investing activities			120,140				12,112				(13,928	)			(120,140	)			(1,816	)
Cash flows from financing:
Dividends paid			(36,537	)			—				—				—				(36,537	)
Acquisition of treasury shares			(131,642	)			—				—				—				(131,642	)
Proceeds from common stock			32,318				—				—				—				32,318
Net intercompany advances			—				14,587				(134,727	)			120,140				—
Other, net			—				10,579				(29,799	)			—				(19,220	)
Net cash provided by (used in) financing activities			(135,861	)			25,166				(164,526	)			120,140				(155,081	)
Net decrease in cash			—				(14,696	)			(452,716	)			—				(467,412	)
Cash – beginning of period			—				162,983				937,230				—				1,100,213
Cash – end of period		$	—			$	148,287			$	484,514			$	—			$	632,801