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 July 31, 2006

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		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 þ Accelerated filer o Non-accelerated filer 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, 2006 was 321,682,760 shares.

 

 

Form 10-Q for the Period Ended July 31, 2006

Table of Contents

		Page
PART I Financial Information
Item 1. Condensed Consolidated Balance Sheets July 31, 2006 and April 30, 2006			1
Condensed Consolidated Statements of Income and Comprehensive Income Three Months Ended July 31, 2006 and 2005			2
Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2006 and 2005			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures about Market Risk			35
Item 4. Controls and Procedures			35
PART II Other Information
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities			38
Item 6. Exhibits			39
SIGNATURES			40
Description of Executive Officer Compensation
Omnibus Amendment #3 to Option One Owner Trust
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

CONDENSED CONSOLIDATED BALANCE SHEETS		(amounts in 000s, except share amounts)

		July 31, 2006				April 30, 2006
		(Unaudited)
ASSETS
Cash and cash equivalents		$	390,068			$	694,358
Cash and cash equivalents – restricted			345,729				394,069
Marketable securities – trading			77,219				16,141
Receivables from customers, brokers, dealers and clearing organizations, net			437,697				496,577
Receivables, less allowance for doubtful accounts of $60,732 and $64,480			370,307				467,677
Mortgage loans held for sale			245,006				236,399
Prepaid expenses and other current assets			522,675				483,215
Total current assets			2,388,701				2,788,436
Residual interests in securitizations – available-for-sale			145,779				159,058
Beneficial interest in Trusts – trading			125,628				188,014
Mortgage servicing rights			275,266				272,472
Mortgage loans held for investment, net			541,361				407,538
Property and equipment, at cost less accumulated depreciation and amortization of $735,426 and $704,792			452,010				443,785
Intangible assets, net			205,101				219,494
Goodwill, net			1,104,273				1,100,452
Other assets			398,149				409,886
Total assets		$	5,636,268			$	5,989,135
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Commercial paper		$	189,356			$	—
Current portion of long-term debt			515,305				506,992
Accounts payable to customers, brokers and dealers			716,305				781,303
Customer banking deposits			404,030				—
Accounts payable, accrued expenses and other current liabilities			703,730				768,505
Accrued salaries, wages and payroll taxes			146,346				330,946
Accrued income taxes			259,509				505,690
Total current liabilities			2,934,581				2,893,436
Long-term debt			411,734				417,539
Other noncurrent liabilities			478,384				530,361
Total liabilities			3,824,699				3,841,336
Stockholders’ equity:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, 435,890,796 shares issued at July 31, 2006 and April 30, 2006			4,359				4,359
Additional paid-in capital			649,451				653,053
Accumulated other comprehensive income			20,255				21,948
Retained earnings			3,320,197				3,492,059
Less cost of 114,315,001 and 107,377,858 shares of common stock in treasury			(2,182,693	)			(2,023,620	)
Total stockholders’ equity			1,811,569				2,147,799
Total liabilities and stockholders’ equity		$	5,636,268			$	5,989,135

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 July 31,		2006				2005
Revenues:
Service revenues		$	421,699			$	315,128
Other revenues:
Gains on sales of mortgage assets, net			63,913				236,431
Interest income			41,010				49,253
Product and other revenues			14,157				14,181
			540,779				614,993
Operating expenses:
Cost of services			446,089				347,688
Cost of other revenues			92,014				123,357
Selling, general and administrative			215,998				184,782
			754,101				655,827
Operating loss			(213,322	)			(40,834	)
Interest expense			(12,135	)			(12,435	)
Other income, net			6,798				7,400
Loss before income tax benefit			(218,659	)			(45,869	)
Income tax benefit			(87,282	)			(17,875	)
Net loss		$	(131,377	)		$	(27,994	)
Basic and diluted loss per share		$	(0.41	)		$	(0.08	)
Basic and diluted shares			323,671				330,714
Dividends per share		$	0.13			$	0.11
Comprehensive income (loss):
Net loss		$	(131,377	)		$	(27,994	)
Change in unrealized gain on available-for-sale securities, net			(2,511	)			(5,811	)
Change in foreign currency translation adjustments			818				824
Comprehensive income (loss)		$	(133,070	)		$	(32,981	)

See Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		(Unaudited, amounts in 000s)

Three months ended July 31,		2006				2005
Cash flows from operating activities:
Net loss		$	(131,377	)		$	(27,994	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			46,394				44,085
Accretion of residual interests in securitizations			(13,509	)			(30,777	)
Impairments of available-for-sale residual interests			17,266				11,875
Additions to trading residual interests in securitizations, net			(58,417	)			(100,462	)
Proceeds from net interest margin transactions, net			—				40,371
Additions to mortgage servicing rights			(50,122	)			(49,306	)
Amortization and impairment of mortgage servicing rights			47,328				27,212
Tax benefits from stock-based compensation			8,075				12,699
Excess tax benefits from stock-based compensation			(1,114	)			—
Other, net of acquisitions			(322,939	)			(238,218	)
Net cash used in operating activities			(458,415	)			(310,515	)
Cash flows from investing activities:
Cash received from residual interests in securitizations			4,567				24,031
Mortgage loans originated for investment, net			(135,161	)			—
Purchases of property and equipment, net			(42,868	)			(30,330	)
Payments made for business acquisitions, net of cash acquired			(4,627	)			(3,452	)
Other, net			7,068				7,935
Net cash used in investing activities			(171,021	)			(1,816	)
Cash flows from financing activities:
Repayments of commercial paper			(1,034,210	)			—
Proceeds from issuance of commercial paper			1,223,566				—
Customer deposits			404,030				—
Dividends paid			(40,485	)			(36,537	)
Acquisition of treasury shares			(186,339	)			(131,642	)
Excess tax benefits from stock-based compensation			1,114				—
Proceeds from exercise of stock options			6,791				27,180
Other, net			(49,321	)			(14,082	)
Net cash provided by (used in) financing activities			325,146				(155,081	)
Net decrease in cash and cash equivalents			(304,290	)			(467,412	)
Cash and cash equivalents at beginning of the period			694,358				1,100,213
Cash and cash equivalents at end of the period		$	390,068			$	632,801
Supplementary cash flow data:
Income taxes paid		$	190,378			$	35,278
Interest paid			18,702				13,830

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, 2006, the condensed consolidated statements of income and comprehensive income for the three months ended July 31, 2006 and 2005, and the condensed consolidated statements of cash flows for the three months ended July 31, 2006 and 2005 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, 2006 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. In March 2006, the Office of Thrift Supervision (OTS) approved the charter of H&R Block Bank (HRB Bank). The bank commenced operations on May 1, 2006, at which time we realigned certain segments of our business to reflect a new management reporting structure. The previously reported Investment Services segment, H&R Block Mortgage Corporation (HRBMC), which was previously included in the Mortgage Services segment, and H&R Block Bank have been combined in the Consumer Financial Services segment. Presentation of prior-year results reflects the new segment alignment. See note 11 for additional information on this new segment.
		Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles 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, 2006 Annual Report to Shareholders on Form 10-K.
		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.		Earnings (Loss) Per Share
		Basic and diluted 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 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 32.9 million shares and 33.7 million shares of stock for the three months ended July 31, 2006 and 2005, respectively, as the effect would be antidilutive due to the net loss recorded during the period.
		The weighted average shares outstanding for the three months ended July 31, 2006 decreased to 323.7 million from 330.7 million last year, primarily due to 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, 2006 and 2005, we issued 1.4 million and 2.5 million shares of common stock, respectively, pursuant to the exercise of stock options, employee stock purchases and awards of nonvested shares, in accordance with our stock-based compensation plans.
		During the three months ended July 31, 2006, we acquired 8.4 million shares of our common stock, of which 8.1 million shares were purchased from third parties with the remaining shares swapped or surrendered to us, at an aggregate cost of $186.3 million. 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.

3.		Mortgage Banking Activities
		Activity related to trading residual interests in securitizations consists of the following:

(in 000s)
Three months ended July 31,		2006				2005
Balance, beginning of period		$	—			$	—
Additions resulting from securitization of mortgage loans			63,424				96,967
Cash received			(4,546	)			—
Accretion			909				—
Change of fair value			(461	)			3,495
Residuals securitized in NIM transactions			—				(42,480	)
Balance, end of period		$	59,326			$	57,982

		At July 31, 2006 and 2005, we had $59.3 million and $58.0 million, respectively, in residual interests classified as trading securities, which are included in marketable securities – trading on the condensed consolidated balance sheet. These residual interests are the result of the initial securitization of mortgage loans and those held at July 31, 2006 are expected to be securitized in a NIM transaction during our second quarter. There were no such trading securities recorded as of April 30, 2006. Cash received on trading residual interests is included in operating activities in the condensed consolidated statements of cash flows.
		Activity related to available-for-sale residual interests in securitizations consists of the following:

(in 000s)
Three months ended July 31,		2006				2005
Balance, beginning of period		$	159,058			$	205,936
Additions from net interest margin (NIM) transactions			—				2,109
Cash received			(4,567	)			(24,031	)
Accretion			12,600				30,777
Impairment of fair value			(17,266	)			(11,875	)
Other			—				(330	)
Changes in unrealized holding gains, net			(4,046	)			(9,379	)
Balance, end of period		$	145,779			$	193,207

		Cash flows from available-for-sale residual interests of $4.6 million and $24.0 million were received from the securitization trusts for the three months ended July 31, 2006 and 2005, 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 available-for-sale residual interests not yet accreted into income totaled $40.1 million at July 31, 2006 and $44.1 million at April 30, 2006. 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,		2006				2005
Balance, beginning of period		$	272,472			$	166,614
Additions			50,122				49,306
Amortization and impairment of fair value			(47,328	)			(27,212	)
Balance, end of period		$	275,266			$	188,708

Estimated amortization of MSRs for fiscal years 2007 through 2011 is $120.9 million, $92.1 million, $40.4 million, $15.9 million and $6.0 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, 2006 and 2005 are as follows:

Three months ended July 31,		2006				2005
Estimated credit losses			3.51	%			2.70	%
Discount rate			18.00	%			21.57	%
Variable returns to third-party beneficial interest holders		LIBOR forward curve at closing date

The key weighted average assumptions we used to estimate the cash flows and values of the residual interests and MSRs at July 31, 2006 and April 30, 2006 are as follows:

		July 31, 2006				April 30, 2006
Estimated credit losses			3.10	%			3.07	%
Discount rate – residual interests			20.24	%			21.98	%
Discount rate – MSRs			18.00	%			18.00	%
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 and MSRs is average annualized prepayment speeds. Prepayment speeds include voluntary prepayments, involuntary prepayments and scheduled principal payments. Prepayment rate assumptions are as follows:

						Months Outstanding After
		Prior to Initial				Initial Rate Reset Date
		Rate Reset Date				Zero - 3				Remaining Life
Adjustable rate mortgage loans:
With prepayment penalties			31	%			72	%			39	%
Without prepayment penalties			35	%			52	%			34	%
Fixed rate mortgage loans:
With prepayment penalties			30	%			48	%			38	%

		For fixed rate mortgages without prepayment penalties, we use an average prepayment rate of 32% 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				2007
As of:
July 31, 2006			4.75	%			2.69	%			2.12	%			2.20	%			2.29	%			3.19	%			3.51	%
April 30, 2006			4.75	%			2.69	%			2.13	%			2.18	%			2.48	%			3.05	%			—
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, 2006, 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 presented in the following table. These sensitivities are hypothetical and should be used with caution. As the figures indicate, 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 of the retained interest is calculated without changing any other assumptions; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

(dollars in 000s)
		Residential Mortgage Loans
		NIM				Beneficial Interest				Trading
		Residuals				in Trusts				Residuals				MSRs
Carrying amount/fair value		$	145,779			$	125,628			$	59,326			$	275,266
Weighted average remaining life (in years)			2.1				1.9				1.2				1.3
Prepayments (including defaults):
Adverse 10% – $ impact on fair value		$	5,159			$	(2,019	)		$	(1,720	)		$	(41,994	)
Adverse 20% – $ impact on fair value			13,390				(1,692	)			(897	)			(70,642	)
Credit losses:
Adverse 10% – $ impact on fair value		$	(43,684	)		$	(4,216	)		$	(2,601	)		Not applicable
Adverse 20% – $ impact on fair value			(73,023	)			(8,095	)			(5,197	)		Not applicable
Discount rate:
Adverse 10% – $ impact on fair value		$	(5,305	)		$	(2,021	)		$	(1,090	)		$	(4,473	)
Adverse 20% – $ impact on fair value			(10,255	)			(3,987	)			(2,139	)			(8,813	)
Variable interest rates (LIBOR forward curve):
Adverse 10% – $ impact on fair value		$	(3,988	)		$	(29,141	)		$	756			Not applicable
Adverse 20% – $ impact on fair value			(10,171	)			(55,963	)			1,357			Not applicable

Increases in prepayment rates related to available-for-sale NIM residuals can generate a positive impact to fair value when reductions in estimated credit losses and increases in prepayment penalties exceed the adverse impact to accretion from accelerating the life of the available-for-sale residual interest.

Mortgage loans that have been securitized at July 31, 2006 and April 30, 2006, 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
		2006				2006				2006				2006				July 31, 2006				April 30, 2006
Securitized mortgage loans		$	10,486,419			$	10,046,032			$	1,067,076			$	1,012,414			$	29,636			$	35,307
Mortgage loans in warehouse Trusts			4,268,181				7,845,834				—				—				—				—
Mortgage loans held for sale			265,133				255,224				124,635				98,906				22,208				33,504
Total loans		$	15,019,733			$	18,147,090			$	1,191,711			$	1,111,320			$	51,844			$	68,811

4.		Goodwill and Intangible Assets
		Changes in the carrying amount of goodwill for the three months ended July 31, 2006 consist of the following:

(in 000s)
		April 30, 2006				Additions				Other				July 31, 2006
Tax Services		$	376,515			$	1,683			$	(9	)		$	378,189
Mortgage Services			136,586				—				—				136,586
Business Services			397,516				2,147				—				399,663
Consumer Financial Services			189,835				—				—				189,835
Total goodwill		$	1,100,452			$	3,830			$	(9	)		$	1,104,273

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 events were identified within any of our segments during the three months ended July 31, 2006.

Intangible assets consist of the following:

(in 000s)
		July 31, 2006												April 30, 2006
		Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net
Tax Services:
Customer relationships		$	27,750			$	(11,726	)		$	16,024			$	27,257			$	(10,842	)		$	16,415
Noncompete agreements			18,904				(17,778	)			1,126				18,879				(17,686	)			1,193
Business Services:
Customer relationships			153,767				(84,657	)			69,110				153,844				(81,178	)			72,666
Noncompete agreements			32,521				(15,169	)			17,352				32,534				(14,300	)			18,234
Trade name – amortizing			4,050				(2,163	)			1,887				4,050				(1,823	)			2,227
Trade name – non-amortizing			55,637				(4,868	)			50,769				55,637				(4,868	)			50,769
Consumer Financial Services:
Customer relationships			293,000				(244,167	)			48,833				293,000				(235,010	)			57,990
Total intangible assets		$	585,629			$	(380,528	)		$	205,101			$	585,201			$	(365,707	)		$	219,494

		Amortization of intangible assets for the three months ended July 31, 2006 and 2005 was $15.0 million and $15.2 million, respectively. Estimated amortization of intangible assets for fiscal years 2007 through 2011 is $56.7 million, $38.9 million, $15.7 million, $13.3 million and $11.8 million, respectively.
		In October 2005, we acquired all outstanding common stock of American Express Tax and Business Services, Inc. for an aggregate purchase price of $190.7 million. The preliminary purchase price allocations are subject to change and will be adjusted based upon resolution of several matters including, but not limited to, determination of the post-closing adjustment and final purchase price, 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.
5.		Derivative Instruments
		A summary of our derivative instruments as of July 31, 2006 and April 30, 2006, and gains or losses incurred during the three months ended July 31, 2006 and 2005 is as follows:

(in 000s)
										Gain (Loss) for the Three
		Asset (Liability) Balance at								Months Ended July 31,
		July 31, 2006				April 30, 2006				2006				2005
Rate-lock equivalents		$	7,428			$	(317	)		$	7,745			$	(1,093	)
Interest rate swaps			6,240				8,831				13,179				25,543
Put options on Eurodollar futures			2,108				3,282				(38	)			—
Prime short sales			(1,176	)			777				(561	)			996
Forward loan sale commitments			(5,121	)			1,961				(7,082	)			—
Interest rate caps			—				—				—				640
		$	9,479			$	14,534			$	13,243			$	26,086

		The notional amount of interest rate swaps to which we were a party at July 31, 2006 was $3.9 billion, with a weighted average duration of 1.9 years. The notional value and the contract value of our forward loan sale commitments at July 31, 2006 was $3.2 billion and $3.3 billion, respectively.
		None of our derivative instruments qualify for hedge accounting treatment as of July 31, 2006 or April 30, 2006.

6.		Stock-Based Compensation
		Beginning May 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123R) under the modified prospective approach. Under SFAS 123R, we continue to measure and recognize the fair value of stock-based compensation consistent with our past practice under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” which we adopted on May 1, 2003 under the prospective transition method. The adoption of SFAS 123R did not have a material impact on our consolidated financial statements.

     The following is a comparison of reported and pro forma results had compensation cost for all stock-based compensation grants been determined in accordance with SFAS 123 for the three months ended July 31, 2005.

(in 000s, except per share amounts)
Net loss as reported		$	(27,994	)
Add: Stock-based compensation expense included in reported net loss, net of related tax effects			5,765
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects			(8,309	)
Pro forma net loss		$	(30,538	)
Basic and diluted loss per share:
As reported		$	(0.08	)
Pro forma			(0.09	)

     Stock-based compensation expense of $10.5 million and the related tax benefits of $3.7 million are included in our results for the three months ended July 31, 2006.

     SFAS 123R requires the reclassification, in the statement of cash flows, of the excess tax benefits from stock-based compensation from operating cash flows to financing. As a result, we classified $1.1 million as a cash inflow from financing activities rather than as an operating activity for the three months ended July 31, 2006.

     We have four stock-based compensation plans which have been approved by our shareholders. As of July 31, 2006, we had approximately 21.7 million shares reserved for future awards under these plans. We issue shares from our treasury stock to satisfy the exercise or release of stock-based awards.

     Our 2003 Long-Term Executive Compensation Plan provides for awards of options (both incentive and nonqualified), nonvested shares, performance nonvested share units and other stock-based awards to employees. These awards are granted to employees and entitle the holder to shares or the right to purchase shares of common stock as the award vests, typically over a three-year period with one-third vesting each year. Nonvested shares receive dividends during the vesting period and performance nonvested share units receive cumulative dividends at the end of the vesting period. We measure the fair value of options on the grant date or modification date using the Black-Scholes option valuation model. We measure the fair value of nonvested shares and performance nonvested share units based the average of the high and low quoted price of our common stock on the grant date. Generally, we expense the grant-date fair value, net of estimated forfeitures, over the vesting period on a straight-line basis. Upon adoption of SFAS 123R, awards granted to employees who are of retirement age, or reach retirement age at least one year after the grant date but prior to the end of the service period of the award, are expensed over the shorter of the two periods. Options are granted at a price equal to the fair market value of our common stock on the grant date and have a contractual term of ten years.

     Our 1999 Stock Option Plan for Seasonal Employees provides for awards of nonqualified options to employees. These awards are granted to seasonal employees in our Tax Services segment and entitle the holder to the right to purchase shares of common stock as the award vests, typically over a two-year period. We measure the fair value of options on the grant date using the Black-Scholes option valuation model. We expense the grant-date fair value, net of estimated forfeitures, over the service period. Options are granted at a price equal to the fair market value of our common stock on the grant date, are exercisable during September through November in each of the two years following the calendar year of the grant and have a contractual term of 29 months.

     Our 1989 Stock Option Plan for Outside Directors provides for awards of nonqualified options to outside directors. These awards are granted to outside directors and entitle the holder to the right to purchase shares of common stock. We measure the fair value of options on the grant date using the Black-Scholes option valuation model. These awards vest immediately upon issuance and are therefore fully expensed on the grant date. Options are granted at a price equal to the fair market value of our common stock on the grant date and have a contractual term of ten years.

     Our 2000 Employee Stock Purchase Plan (ESPP) provides employees the option to purchase shares of our Common Stock through payroll deductions. The purchase price of the stock is 90% of the lower of either the fair market value of our Common Stock on the first trading day within the Option Period or on the last trading day of the Option Period. The Option Periods are six-month periods beginning on January 1 and July 1 each year. We measure the fair value of options on the grant date utilizing the Black-Scholes option valuation model in accordance with FASB Technical Bulletin 97-1, “Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back Option.” We expense the grant-date fair value over the six-month vesting period.

     A summary of options for the three months ended July 31, 2006 is as follows:

(in 000s, except per share amounts)
										Weighted Average
						Weighted Average				Remaining				Aggregate
		Shares				Exercise Price				Contractual Term				Intrinsic Value
Outstanding, beginning of period			26,048			$	21.40
Granted			4,943				23.86
Exercised			(460	)			14.84
Forfeited or expired			(191	)			22.98
Outstanding, end of period			30,340				21.89			5 years				$	80,521
Exercisable, end of period			18,301			$	19.35			4 years				$	75,626
Exercisable and expected to vest			28,547				21.70			5 years				$	80,265

     The total intrinsic value of options exercised during the three months ended July 31, 2006 and 2005 were $0.5 million and $7.8 million, respectively. We utilize the Black-Scholes option pricing model to value our options on the grant date. We estimated the expected volatility using our historical stock price data. We also used historical exercise and forfeiture behaviors to estimate the options expected term and our forfeiture rate. The following assumptions were used to value options during the periods:

Three months ended July 31,		2006				2005
Options – management and director:
Expected volatility			23.67% - 29.06	%			27.05% - 27.30	%
Expected term		4 - 7 years				5 years
Dividend yield			2.15% - 2.35	%			1.71	%
Risk-free interest rate			4.77% - 5.10	%			3.65% - 3.75	%
Weighted-average fair value		$	5.17			$	7.42
Options – seasonal:
Expected volatility			20.05	%			23.28	%
Expected term		2 years				2 years
Dividend yield			2.26	%			1.71	%
Risk-free interest rate			5.11	%			3.61	%
Weighted-average fair value		$	3.17			$	4.16
ESPP options:
Expected volatility			26.30	%			24.52	%
Expected term		0.5 years				0.5 years
Dividend yield			2.26	%			1.71	%
Risk-free interest rate			5.24	%			3.37	%
Weighted-average fair value		$	1.91			$	2.12

     A summary of nonvested shares and performance nonvested share units for the three months ended July 31, 2006 is as follows:

(shares in 000s)
						Weighted Average
		Shares				Grant Date Fair Value
Outstanding, beginning of period			2,455			$	25.27
Granted			944				23.93
Released			(738	)			25.01
Forfeited			(77	)			24.63
Outstanding, end of period			2,584				24.95

     The total fair value of shares vesting during the three months ended July 31, 2006 and 2005 was $17.6 million and $16.3 million, respectively. Upon the grant of nonvested shares and performance nonvested share units, unearned compensation cost is recorded as an offset to additional paid in capital and is amortized as compensation expense over the vesting period. As of July 31, 2006, we had $57.1 million of total unrecognized compensation cost related to these shares. This cost is expected to be recognized over a weighted-average period of two years.

7.		Supplemental Cash Flow Information
		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,		2006				2005
Residual interest mark-to-market		$	531			$	12,942
Additions to residual interests			—				2,109

8.		Regulatory Requirements
		Registered Broker-Dealer
		HRBFA is subject to regulatory requirements intended to ensure the general financial soundness and liquidity of broker-dealers. At July 31, 2006, HRBFA’s net capital of $124.2 million, which was 26.4% of aggregate debit items, exceeded its minimum required net capital of $9.4 million by $114.8 million.

     Pledged securities at July 31, 2006 totaled $42.5 million, an excess of $5.9 million over the margin requirement. Pledged securities at April 30, 2006 totaled $53.0 million, an excess of $9.9 million over the margin requirement.

Banking

HRB Bank is subject to various regulatory capital guidelines and requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on HRB Bank’s operations. Under these capital adequacy guidelines and the regulatory framework for prompt corrective action, HRB Bank must meet specific capital guidelines that involve quantitative measures of HRB Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. HRB Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

     Quantitative measures established by regulation to ensure capital adequacy require HRB Bank to maintain minimum amounts and ratios of capital to assets. As shown in the table below, at June 30, 2006, the most recent date of reporting to Federal banking agencies, HRB Bank is categorized as “well capitalized” for regulatory purposes, which is the highest classification. There are no conditions or events since June 30, 2006 that management believes have changed the Bank’s category. At July 31, 2006, management believes that HRB Bank meets all capital adequacy requirements to which it is subject. However, events beyond management’s control, such as fluctuations in interest rates or a downturn in the economy in areas in which HRB Bank’s loans or securities are concentrated, could adversely affect future earnings and consequently, HRB Bank’s ability to meet its future capital requirements.

     HRB Bank’s capital amounts and ratios as of June 30, 2006 are presented in the table below:

(dollars in 000s)
										Minimum Required to
										Qualify as Well
		Actual								Capitalized
		Amount				Ratio				Amount				Ratio
Tier 1 capital to adjusted total assets (leverage)		$	160,270				33.70	%		$	23,776				5.0	%
Total risk-based capital to total risk-weighted assets		$	161,393				67.20	%		$	24,017				10.0	%

     Additionally, H&R Block, Inc. is now subject to a three percent minimum ratio of adjusted tangible capital to adjusted total assets, as defined by the OTS.

9.		Commitments and Contingencies
		Changes in the deferred revenue liability related to our Peace of Mind (POM) program are as follows:

(in 000s)
Three months ended July 31,		2006				2005
Balance, beginning of period		$	141,684			$	130,762
Amounts deferred for new guarantees issued			511				408
Revenue recognized on previous deferrals			(28,738	)			(23,900	)
Balance, end of period		$	113,457			$	107,270

     The following table summarizes certain of our other contractual obligations and commitments:

(in 000s)
As of		July 31, 2006				April 30, 2006
Commitment to fund mortgage loans		$	3,664,877			$	4,032,045
Commitment to sell mortgage loans			3,185,000				3,052,688
Commitment to fund Franchise Equity Lines of Credit			75,965				75,909
Contingent business acquisition obligations			22,845				24,482

     In the normal course of business, we maintain recourse with standard representations and warranties customary to the mortgage banking industry. Violations of these representations and warranties, such as early payment defaults by borrowers, may require us to repurchase loans previously sold. In accordance with these loan sale agreements, we repurchased loans previously sold into the secondary market with an outstanding principal balance of $92.3 million and $60.0 million during the three months ended July 31, 2006 and 2005, respectively. Repurchased loans are normally sold in subsequent sale transactions. We established a liability related to the potential loss we expect to incur on repurchase of loans previously sold and premium recapture, totaling $104.0 million and $33.4 million at July 31, 2006 and April 30, 2006, respectively. This liability relates to loans not yet repurchased. On an ongoing basis, we monitor the adequacy of this liability, which is established upon the initial sale of the loans, and is included in accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheets. During the three months ended July 31, 2006 we experienced higher early payment defaults, resulting in an increase in actual and expected loan repurchase activity. As a result, we increased our reserves accordingly. In establishing our reserves, we’ve assumed all loans that are currently delinquent and subject to contractual repurchase terms will be repurchased, and that 5% of loans previously sold but not yet subject to contractual repurchase terms will be repurchased. Based on historical experience, we assumed 30% of all loans we repurchase will cure with no loss incurred, and of those that do not cure, we assumed an average 15% loss severity.

     HRB Bank is a member of the Federal Home Loan Bank (FHLB) of Des Moines, which extends credit availability to member banks based on eligible collateral and asset size. At July 31, 2006, HRB Bank had FHLB advance capacity of $198.0 million, but no amounts had been drawn on this facility.

     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 July 31, 2006.

		Restructuring Charge
		During fiscal year 2006, we initiated a restructuring plan to reduce costs within our mortgage operations. Changes in the restructuring charge liability during the three months ended July 31, 2006 are as follows:

(in 000s)
		Accrual Balance				Cash				Accrual Balance
		as of April 30, 2006				Payments				as of July 31, 2006
Employee severance costs		$	1,737			$	(1,737	)		$	—
Contract termination costs			5,821				(2,889	)			2,932
		$	7,558			$	(4,626	)		$	2,932

     The remaining liability related to this restructuring charge is included in accounts payable, accrued expenses and other current liabilities on our condensed consolidated balance sheet and relates to lease obligations for vacant space resulting from branch office closings.

10.		Litigation and Related Contingencies
		We have been named as a defendant in numerous lawsuits throughout the country regarding our RAL programs (the “RAL Cases”). The RAL Cases have involved a variety of legal theories asserted by plaintiffs. These theories include allegations that, among others, (i) disclosures in the RAL applications were inadequate, misleading and untimely; (ii) the RAL interest rates were usurious and unconscionable; (iii) we did not disclose that we would receive part of the finance charges paid by the customer for such loans; (iv) untrue, misleading or deceptive statements in marketing RALs; (v) breach of state laws on credit service organizations; (vi) breach of contract, unjust enrichment, unfair and deceptive acts or practices; (vii) violations of the federal Racketeer Influenced and Corrupt Organizations Act; (viii) violations of the federal Fair Debt Collection Practices Act and unfair competition with respect to debt collection activities; and (ix) we owe, and breached, a fiduciary duty to our customers in connection with the RAL program.

     The amounts claimed in the RAL Cases have been very substantial in some instances. We have successfully defended against numerous RAL cases, some of which were dismissed on our motions for dismissal or summary judgment, and others were dismissed voluntarily by the plaintiffs after denial of class certification. Other cases have been settled, with the combined pretax expense for such settlements in fiscal year 2006 totaling $70.2 million. During the three months ended July 31, 2006, the 2006 settlements were paid in full.

     One RAL class action case and a state attorney general lawsuit are still pending, with the amounts claimed on a collective basis being very substantial. The ultimate cost of this litigation could be substantial. We believe we have meritorious defenses to the remaining RAL Cases and we intend to defend them vigorously. There can be no assurances, however, as to the outcome of the pending RAL Cases individually or in the aggregate or the associated impact on our financial statements.

     We are also a party to claims and lawsuits pertaining to our electronic tax return filing services, our POM guarantee program, our Express IRA product, business valuation services and tax planning 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 we and certain of our current and former directors and officers are party to several putative class actions alleging violations of certain securities laws, and certain of our current and former officers and directors are defendants in several putative shareholder derivative actions, which have purportedly been brought on behalf of the Company and in which the Company is named as a nominal defendant. The putative securities class actions allege, among other things, deceptive, material and misleading financial statements, failure to prepare financial statements in accordance with generally accepted accounting principles and concealment of the potential for lawsuits stemming from the allegedly fraudulent nature of our operations. The shareholder derivative cases

pertain primarily to our recent financial restatement and certain of our products and business activities and generally allege breach of fiduciary duty, abuse of control, gross mismanagement, waste and unjust enrichment. 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, tax planning services, 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 provider of investment products 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.

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

(in 000s)
														Consumer
		Tax				Mortgage				Business				Financial
		Services				Services				Services				Services				Corporate				Eliminations				Consolidated
Three months ended July 31, 2006:
Revenues:
External		$	66,018			$	166,961			$	205,017			$	100,288			$	2,495			$	—			$	540,779
Loan sales to HRB Bank			—				10,378				—				—				—				(10,378	)			—
HRBMC loan sales to Option One			—				(8,472	)			—				8,472				—				—				—
Other intersegment			17				809				114				(462	)			3,063				(3,541	)			—
		$	66,035			$	169,676			$	205,131			$	108,298			$	5,558			$	(13,919	)		$	540,779
Pretax loss		$	(153,148	)		$	(4,924	)		$	(14,565	)		$	(7,780	)		$	(28,512	)		$	(9,730	)		$	(218,659	)
Three months ended July 31, 2005:
Revenues:
External		$	57,165			$	308,276			$	126,739			$	120,145			$	2,668			$	—			$	614,993
HRBMC loan sales to Option One			—				(4,235	)			—				4,235				—				—				—
Other intersegment			26				1,006				107				—				2,336				(3,475	)			—
		$	57,191			$	305,047			$	126,846			$	124,380			$	5,004			$	(3,475	)		$	614,993
Pretax income (loss)		$	(144,506	)		$	130,664			$	(6,765	)		$	(3,748	)		$	(21,762	)		$	248			$	(45,869	)

     HRB Bank commenced operations on May 1, 2006, at which time we realigned certain segments of our business to reflect a new management reporting structure. The previously reported Investment Services segment, HRBMC (which was previously included in the Mortgage Services segment), and HRB Bank are now reported in the Consumer Financial Services segment. Presentation of prior-year results reflects the new segment alignment.

     The Consumer Financial Services segment is primarily engaged in offering advice-based brokerage services and investment planning through HRBFA, mortgage loans through HRBMC and full-service banking through HRB Bank. HRB Bank offers traditional banking services, including

checking and savings accounts, home equity lines of credit, individual retirement accounts, certificates of deposit and prepaid debit card deposit accounts. HRB Bank also purchases loans from Option One Mortgage Corporation (OOMC) to hold for investment purposes. HRBMC originates non-prime loans for sale to OOMC and prime loans for sale to other third-party buyers.

     All intersegment transactions are eliminated in consolidation. The largest intersegment revenue transactions include gains recognized on loans sold to HRB Bank by OOMC and mortgage fees earned by HRBMC on loans sold to OOMC.

12.		New Accounting Pronouncements
	In June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), was issued. The interpretation requires that a tax position meet a “more-likely-than-not” recognition threshold for the benefit of the uncertain tax position to be recognized in the financial statements and provides guidance on the measurement of the benefit. The interpretation also requires interim period estimated tax benefits of uncertain tax positions to be accounted for in the period of change rather than as a component of the annual effective tax rate. The provisions of this standard are effective as of the beginning of our fiscal year 2008. We are currently evaluating what effect the adoption of FIN 48 will have on our consolidated financial statements.

     In June 2006, Emerging Issues Task Force Issue No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation)” (EITF 06-3) was issued. EITF 06-3 requires disclosure of the presentation of taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis as an accounting policy decision. The provisions of this standard are effective for interim and annual reporting periods beginning after December 15, 2006. We do not expect the adoption of EITF 06-3 to have a material impact on our consolidated financial statements.

     In March 2006, Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets – An Amendment of FASB Statement No. 140,” (SFAS 156), was issued. The provisions of this standard require mortgage servicing rights to be initially valued at fair value. SFAS 156 allows servicers to choose to subsequently measure their servicing rights at fair value or to continue using the “amortization method” under SFAS 140. The provisions of this standard are effective as of the beginning of our fiscal year 2008. We are currently evaluating what effect the adoption of SFAS 156 will have on our consolidated financial statements.

     In February 2006, Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Instruments – An Amendment of FASB Statements No. 133 and 140” (SFAS 155), was issued. The provisions of this standard establish a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. The standard permits a hybrid financial instrument to be accounted for in its entirety if the holder irrevocably elects to measure the hybrid financial instrument at fair value, with changes in fair value recognized currently in earnings. The provisions of this standard are effective as of the beginning of our fiscal year 2008. Our residual interests typically have interests in derivative instruments embedded within the securitization trusts. If we elect to account for our residual interests on a fair value basis, changes in fair value will impact earnings in the period in which the change occurs. We are currently evaluating what effect the adoption of SFAS 155 will have on our consolidated financial statements.

Exposure Draft – Amendment of SFAS 140

In August 2005, the Financial Accounting Standards Board (FASB) issued an exposure draft which amends Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This 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, 2006, the Trusts held loans and debt totaling $4.2 billion, which we would be required to consolidate into our financial statements under the provisions of this exposure draft. The final standard for this exposure draft is scheduled to be issued in the second quarter of calendar year 2007.

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 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, 2006		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	323,661			$	218,565			$	(1,447	)		$	540,779
Cost of services			—				125,798				320,259				32				446,089
Cost of other revenues			—				88,691				3,323				—				92,014
Selling, general and administrative			—				101,591				115,886				(1,479	)			215,998
Total expenses			—				316,080				439,468				(1,447	)			754,101
Operating income (loss)			—				7,581				(220,903	)			—				(213,322	)
Interest expense			—				(11,808	)			(327	)			—				(12,135	)
Other income, net			(218,659	)			2,772				4,026				218,659				6,798
Loss before tax benefit			(218,659	)			(1,455	)			(217,204	)			218,659				(218,659	)
Income tax benefit			(87,282	)			(567	)			(86,715	)			87,282				(87,282	)
Net loss		$	(131,377	)		$	(888	)		$	(130,489	)		$	131,377			$	(131,377	)

Three months ended		H&R Block, Inc.				BFC				Other								Consolidated
July 31, 2005		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Total revenues		$	—			$	460,640			$	157,665			$	(3,312	)		$	614,993
Cost of services			—				109,353				238,246				89				347,688
Cost of other revenues			—				120,900				2,457				—				123,357
Selling, general and administrative			—				91,188				96,995				(3,401	)			184,782
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 tax (benefit)			(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	)

Condensed Consolidating Balance Sheets																		(in 000s)
		H&R Block, Inc.				BFC				Other								Consolidated
July 31, 2006		(Guarantor)				(Issuer)				Subsidiaries				Elims				H&R Block
Cash & cash equivalents		$	—			$	214,375			$	175,693			$	—			$	390,068
Cash & cash equivalents – restricted			—				332,757				12,972				—				345,729
Receivables from customers, brokers and dealers, net			—				437,697				—				—				437,697
Receivables, net			69				103,955				266,283				—				370,307
Mortgage loans held for investment			—				541,361				—				—				541,361
Intangible assets and goodwill, net			—				377,991				931,383				—				1,309,374
Investments in subsidiaries			5,027,345				215				—				(5,027,345	)			215
Other assets			—				1,545,035				696,754				(272	)			2,241,517
Total assets		$	5,027,414			$	3,553,386			$	2,083,085			$	(5,027,617	)		$	5,636,268
Commercial paper		$	—			$	189,356			$	—			$	—			$	189,356
Accts. payable to customers, brokers and dealers			—				716,305				—				—				716,305
Long-term debt			—				398,060				13,674				—				411,734
Other liabilities			2				1,467,295				1,040,007				—				2,507,304
Net intercompany advances			3,215,843				(1,005,129	)			(2,210,714	)			—				—
Stockholders’ equity			1,811,569				1,787,499				3,240,118				(5,027,617	)			1,811,569
Total liabilities and stockholders’ equity		$	5,027,414			$	3,553,386			$	2,083,085			$	(5,027,617	)		$	5,636,268