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Form 10-Q for H&R Block, Inc.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
            For the quarterly period ended January 31, 2002

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
            For the transition period from                                 to

Commission file number 1-6089

H&R BLOCK, INC.
(Exact name of registrant as specified in its charter)


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

4400 Main Street
Kansas City, Missouri 64111
(Address of principal executive offices, including zip code)

(816) 753-6900
(Registrant’s telephone number, including area code)

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 X No

The number of shares outstanding of the registrant’s Common Stock, without par value, at the close of business on February 28, 2002 was 183,503,521 shares.

TABLE OF CONTENTS


PART I Financial Information
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
SIGNATURES
EX-10.1 Employment Agreement - David F. Byers
EX-10.2 Employment Agreement - Robert D. Dubrish
EX-10.3 Employment Agreement - James H. Ingraham
EX-10.4 Employment Agreement - Brian L. Nygaard
EX-10.5 Employment Agreement - Stephanie R. Otto
EX-10.6 Employment Agreement - Thomas L. Zimmerman

TABLE OF CONTENTS


		Page

PART I	Financial Information
	Consolidated Balance Sheets January 31, 2002 and April 30, 2001	1
	Consolidated Statements of Operations Three and Nine Months Ended January 31, 2002 and 2001	2
	Consolidated Statements of Cash Flows Nine Months Ended January 31, 2002 and 2001	3
	Notes to Consolidated Financial Statements	4
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Quantitative and Qualitative Disclosures about Market Risk	53
PART II	Other Information	53
SIGNATURES		55

H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share amounts


					January 31,			April 30,
					2002			2001

					(Unaudited)			(Audited)
				ASSETS
CURRENT ASSETS
	Cash and cash equivalents				$	538,308		$	255,814
	Cash and cash equivalents — restricted					101,917			15,999
	Marketable securities — available-for-sale					—			8,266
	Marketable securities — trading					21,733			46,158
	Receivables from customers, brokers, dealers and clearing organizations, less allowance for doubtful accounts of $1,745 and $1,692					910,967			1,310,804
	Receivables, less allowance for doubtful accounts of $40,318 and $47,125					1,241,470			373,223
	Prepaid expenses and other current assets					329,275			260,942

		TOTAL CURRENT ASSETS				3,143,670			2,271,206
INVESTMENTS AND OTHER ASSETS
	Investments in available-for-sale marketable securities					281,135			270,159
	Intangible assets					382,212			402,209
	Goodwill					734,463			649,617
	Other					237,176			239,586

						1,634,986			1,561,571
PROPERTY AND EQUIPMENT, at cost less accumulated depreciation and amortization						287,812			288,847

					$	5,066,468		$	4,121,624

				LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Notes payable				$	1,638,832		$	—
	Accounts payable to customers, brokers and dealers					948,722			1,058,000
	Accounts payable, accrued expenses and deposits					264,616			361,210
	Accrued salaries, wages and payroll taxes					171,999			221,830
	Accrued taxes on earnings					48,100			295,599
	Current portion of long-term debt					53,192			51,763

			TOTAL CURRENT LIABILITIES			3,125,461			1,988,402
LONG-TERM DEBT						874,644			870,974
OTHER NONCURRENT LIABILITIES						100,951			88,507
STOCKHOLDERS’ EQUITY
	Common stock, no par, stated value $.01 per share					2,179			2,179
	Additional paid-in capital					465,963			419,957
	Retained earnings					1,333,494			1,449,022
	Accumulated other comprehensive income (loss)					(25,184	)		(42,767	)

						1,776,452			1,828,391
	Less cost of 34,646,147 and 34,336,910 shares of common stock in treasury					811,040			654,650

						965,412			1,173,741

					$	5,066,468		$	4,121,624

See Notes to Consolidated Financial Statements

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


		Three Months Ended				Nine Months Ended
		January 31,				January 31,

		2002		2001		2002			2001

Revenues
	Service revenues	$	523,878	$	513,639	$	967,052		$	1,026,353
	Product revenues		155,702		103,011		391,925			214,602
	Royalties		33,329		28,636		37,772			33,829
	Other		15,129		10,714		34,143			22,800

			728,038		656,000		1,430,892			1,297,584

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

			679,092		651,367		1,483,126			1,474,552

Operating earnings (loss)			48,946		4,633		(52,234	)		(176,968	)
Other income
	Investment income, net		466		1,099		2,678			6,354
	Other, net		362		2,060		515			2,057

			828		3,159		3,193			8,411

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

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

Basic net earnings (loss) per share		$	.16	$	.02	$	(.16	)	$	(.53	)

Diluted net earnings (loss) per share		$	.16	$	.02	$	(.16	)	$	(.53	)

Dividends per share		$	.16	$	.15	$	.47		$	.44

See Notes to Consolidated Financial Statements

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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands


		Nine Months Ended
		January 31,

		2002			2001

Cash flows from operating activities:
	Net loss	$	(29,179	)	$	(96,941	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization		107,095			148,990
	Net gain on sale of operating units		(362	)		(2,040	)
	Provision for bad debt		50,194			43,448
	Accretion of acquisition liabilities		8,999			8,766
	Tax benefit from stock option exercises		55,004			—
	Changes in:
	Cash and cash equivalents — restricted		(85,918	)		4,891
	Receivable from customers, brokers, dealers and clearing org		399,579			942,791
	Receivables		(929,660	)		(826,093	)
	Marketable securities — trading		24,425			2,713
	Prepaid expenses and other current assets		(96,383	)		(84,742	)
	Accounts payable to customers, brokers and dealers		(109,278	)		(943,588	)
	Accounts payable, accrued expenses and deposits		(96,594	)		62,565
	Accrued salaries, wages and payroll taxes		(49,831	)		(31,185	)
	Accrued taxes on earnings		(247,499	)		(205,592	)
	Other, net		5,230			180

	Net cash used in operating activities		(994,178	)		(975,837	)

Cash flows from investing activities:
	Purchases of available-for-sale securities		(3,695	)		(5,413	)
	Maturities of available-for-sale securities		61,209			32,375
	Purchases of property and equipment		(71,343	)		(55,363	)
	Payments made for business acquisitions, net of cash acquired		(44,397	)		(13,285	)
	Proceeds from sale of operating units		428			23,200
	Other, net		(3,834	)		24,065

	Net cash provided by (used in) investing activities		(61,632	)		5,579

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

	Net cash provided by financing activities		1,338,304			976,166

Net increase in cash and cash equivalents			282,494			5,908
Cash and cash equivalents at beginning of the period			255,814			353,259

Cash and cash equivalents at end of the period		$	538,308		$	359,167

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

See Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited, dollars in thousands, except share data

1.		The Consolidated Balance Sheet as of January 31, 2002, the Consolidated Statements of Operations for the three and nine months ended January 31, 2002 and 2001, and the Consolidated Statements of Cash Flows for the nine months ended January 31, 2002 and 2001 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 January 31, 2002 and for all periods presented have been made.

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

		Results for the three months and nine months ended January 31, 2001 have been adjusted to reflect the implementation of SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). The effect of this change was to reduce revenues by $5,354 and net earnings by $1,185 in the third quarter and increase revenues and net earnings by the same amounts in the fourth quarter of fiscal 2001. Therefore, there was no effect to the full fiscal year 2001 results from the implementation of SAB 101. The adjustment was reflected in the Company’s April 30, 2001 Annual Report to Shareholders on Form 10-K.

		Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s April 30, 2001 Annual Report to Shareholders on Form 10-K.

		Operating revenues of the U.S. tax operations and Business services segments are seasonal in nature with peak revenues occurring in the months of January through April. Thus, the nine-month results are not indicative of results to be expected for the year.

2.		Cash and cash equivalents — restricted consists primarily of cash and securities purchased under agreements to resell that are segregated and on deposit for federal or other regulatory purposes.

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Receivables consist of the following:


		January 31,		April 30,
		2002		2001

		(Unaudited)		(Audited)
Participation in refund anticipation loans		$	740,932	$	38,824
Business services accounts receivable			172,885		188,041
Mortgage loans held for sale			126,829		80,925
Tax related fees due from Household Bank			72,261		2,600
Loans to franchisees			42,350		28,716
Royalties from franchisees			29,649		1,176
Software sales			18,005		33,456
Other			78,877		46,610

			1,281,788		420,348
	Allowance for doubtful accounts		40,318		47,125

		$	1,241,470	$	373,223

4.		The Company files its Federal and state income tax returns on a calendar year basis. The Consolidated Statements of Operations reflect the effective tax rates expected to be applicable for the respective full fiscal years.

5.		On June 20, 2001, the Company’s Board of Directors declared a two-for-one split of its common stock in the form of a 100% stock distribution effective August 1, 2001, to shareholders of record as of the close of business on July 10, 2001. All share and per share amounts have been adjusted to reflect the retroactive effect of the stock split.

6.		Basic net 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 net earnings (loss) per share. The computations of basic and diluted net earnings (loss) per share are as follows (shares in thousands):


		Three months ended				Nine months ended
		January 31,				January 31,

		2002		2001		2002			2001

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

Basic weighted average shares			182,936		182,597		183,028			183,975
Effect of dilutive securities:
Common stock options			5,244		1,474		—			—
Convertible preferred stock			1		1		—			—

Dilutive potential shares			188,181		184,072		183,028			183,975

Net earnings (loss) per share:
	Basic	$	.16	$	.02	$	(.16	)	$	(.53	)
	Diluted		.16		.02		(.16	)		(.53	)

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		Diluted net earnings (loss) per share excludes the impact of shares issuable upon the exercise of common stock options of 16,184,258 shares for the nine months ended January 31, 2002 and the conversion of 1,216 shares of preferred stock to common stock, as they are antidilutive. All common stock option shares are included in dilutive potential shares for the three months ended January 31, 2002, as the options’ exercise prices were all less than the average market price for the period. Diluted net earnings (loss) per share excludes the impact of shares issuable upon the exercise of common stock options of 10,502,646 for the three months ended January 31, 2001, and 19,980,760 shares and the conversion of 1,216 shares of preferred stock to common stock for the nine months ended January 31, 2001, as they are antidilutive.

		The weighted average shares outstanding for the nine months ended January 31, 2002 decreased to 183,028,000 from 183,975,000 last year, due to the purchase of treasury shares by the Company. The effect of these repurchases was partially reduced by the issuance of treasury shares for stock option exercises.

7.		During the nine months ended January 31, 2002 and 2001, the Company issued 9,260,707 and 213,550 shares of common stock, respectively, pursuant to provisions for exercise of stock options under its stock option plans. During the nine months ended January 31, 2002, the Company acquired 9,697,158 shares of its common stock at an aggregate cost of $352,213. During the nine months ended January 31, 2001, the Company acquired 13,632,196 shares of its common stock at an aggregate cost of $222,894.

8.		CompuServe Corporation (CompuServe), certain current and former officers and directors of CompuServe and the Company were named as defendants in six lawsuits in state and Federal courts in Columbus, Ohio. All suits alleged similar violations of the Securities Act of 1933 based on assertions of omissions and misstatements of fact in connection with CompuServe’s public filings related to its initial public offering in April 1996. One state lawsuit brought by the Florida State Board of Administration also alleged certain oral omissions and misstatements in connection with such offering. Relief sought in the lawsuits was unspecified, but included pleas for rescission and damages.

		In the class action pending in state court, the court issued, in November 2000, its order approving a settlement pursuant to which the defendants agreed to pay a gross settlement amount of $9,500. Payment of plaintiffs’ attorneys’ fees and expenses were to be paid out of the gross settlement fund. The gross settlement fund was paid in its entirety by the Company’s insurance carrier. The agreement to settle and payment of the gross settlement fund are not admissions of the validity of any claim or any fact alleged by the plaintiffs and defendants continue to deny any wrongdoing and any liability.

		The Florida State Board of Administration opted out of the class action settlement and that litigation continues separately from the state court class action. The parties have reached a settlement that will dispose of the case in its entirety with no material adverse impact on the Company’s consolidated financial position or results of operations.

9.		The Company’s comprehensive income is comprised of net earnings (loss), foreign currency translation adjustments and the change in the net unrealized gain (loss) on marketable

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securities. The components of comprehensive income (loss) during the three and nine months ended January 31, 2002 and 2001 were:


	Three months ended					Nine months ended
	January 31,					January 31,

	2002			2001		2002			2001

Net earnings (loss)	$	29,616		$	4,460	$	(29,179	)	$	(96,941	)
Change in net unrealized gain (loss) on marketable securities		(3,729	)		9,027		21,877			7,414
Change in foreign currency translation adjustments		(565	)		526		(4,294	)		(5,649	)

Comprehensive income (loss)	$	25,322		$	14,013	$	(11,596	)	$	(95,176	)

10.		In May 2001, the Company elected early adoption of Statement of Financial Accounting Standards No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets” (SFAS 141 and 142). SFAS 141 addresses financial accounting and reporting for business combinations and replaces APB Opinion No. 16, “Business Combinations” (APB 16). SFAS 141 no longer allows the pooling of interests method of accounting for acquisitions, provides new recognition criteria for intangible assets and carries forward without reconsideration the guidance in APB 16 related to the application of the purchase method of accounting. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and replaces APB Opinion No. 17, “Intangible Assets.” SFAS 142 addresses how intangible assets should be accounted for upon their acquisition and after they have been initially recognized in the financial statements. The new standards provide specific guidance on measuring goodwill for impairment annually using a two-step process.

		As of May 1, 2001, the Company identified those intangible assets that remain separable under the provisions of SFAS 141 and those that are to be included in goodwill. In applying SFAS 142, the Company re-evaluated the useful lives of these separable intangible assets. The weighted average life of the remaining intangible assets with finite lives is 10 years. In accordance with SFAS 141, on the date of adoption, the previously identified intangible assets of assembled workforce and management infrastructure were subsumed into goodwill. In the year of adoption, SFAS 142 requires the first step of the goodwill impairment test to be completed within the first six months and the final step to be completed within twelve months of adoption. The first step of the test was completed during the quarter ended October 31, 2001 and no indications of goodwill impairment were found; therefore, step two of the goodwill impairment test is not applicable.

		Had the provisions of SFAS 141 and 142 been applied for the three and nine months ended January 31, 2001, the Company’s net earnings (loss) and net earnings (loss) per share would have been as follows:

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		Three months ended				Nine months ended
		January 31, 2001				January 31, 2001

		Net earnings		Per Share		Net loss			Per share

Net earnings (loss):
As reported		$	4,460	$	.02	$	(96,941	)	$	(.53	)
Add amortization (net of tax):
	Goodwill		7,195		.04		21,336			.12
	Assembled workforce		4,023		.02		11,727			.06
	Management infrastructure		226		—		677			—
	Trade name		431		.01		1,292			.01

Adjusted net earnings (loss)		$	16,335	$	.09	$	(61,909	)	$	(.34	)

Intangible assets consist of the following:


		January 31, 2002					April 30, 2001

		Gross					Gross
		Carrying		Accumulated			Carrying		Accumulated
		Amount		Amortization			Amount		Amortization

Amortized intangible assets:
	Customer relationships	$	405,505	$	(91,789	)	$	397,049	$	(61,036	)
	Noncompete agreements		20,517		(2,790	)		17,269		(1,842	)
Unamortized intangible assets:
	Trade name		55,637		(4,868	)		55,637		(4,868	)

Total intangible assets		$	481,659	$	(99,447	)	$	469,955	$	(67,746	)

Changes in the carrying amount of goodwill for the nine months ended January 31, 2002, are as follows by segment:


	April 30,						January 31,
	2001		Acquisitions		Other		2002

U.S. tax operations	$	126,829	$	2,089	$	—	$	128,918
International tax operations		5,755		—		89		5,844
Mortgage operations		152,467		—		—		152,467
Investment services		169,732		—		—		169,732
Business services		194,834		82,668		—		277,502

Total goodwill	$	649,617	$	84,757	$	89	$	734,463

		Amortization of intangible assets for the three and nine months ended January 31, 2002 was $10,741 and $31,701, respectively. Estimated amortization of intangible assets for fiscal years 2002, 2003, 2004, 2005 and 2006 is $43,765, $41,808, $41,533, $41,533 and $41,533, respectively.

		In December 2001, the Company acquired a controlling interest in MyBenefitSource, an integrated payroll and benefits processing company, with an option to acquire the remaining shares. The Company also acquired 100% of Equico Resources, LLC (“Equico”), a valuation, merger and acquisition consulting company. These acquisitions were accounted for as purchases, and the results of operations for these businesses have been consolidated in the segment’s financial results since acquisition. Total cash payments related to these acquisitions totaled $28.5

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		million. The purchase agreements also provide for possible future contingent consideration based on achieving certain revenue, profitability and working capital targets over the next five years, and such consideration will be treated as purchase price when paid. The excess of cost over the fair value of net tangible assets acquired is included in goodwill for the Business services segment. Upon completion of the valuation of identifiable intangible assets, such will be reclassified out of goodwill into the appropriate intangible asset categories.

11.		Included in Marketable securities-trading and Investments in available-for-sale marketable securities on the consolidated balance sheet are residual interests in securitizations (residuals) of real estate mortgage investment conduits (REMICs). The fair value of the residuals at January 31, 2002 and April 30, 2001 was $266,199 and $238,600, respectively. The Company received cash proceeds from net interest margin (NIM) securitizations of $412,715 and cash flows from interest-only strips of $33,006 from the securitization trusts during the nine months ended January 31, 2002.

		Mortgage servicing rights (MSRs) are included in other assets on the consolidated balance sheet. The fair value of MSRs at January 31, 2002 and April 30, 2001 was $78,427 and $61,796, respectively. Additions to and amortization of MSRs for the nine months ended January 31, 2002 were $46,819 and $30,188, respectively.

		The key assumptions the Company utilizes to estimate the cash flows of the residual interests and MSRs are as follows:


Estimated annual prepayments	23% to 90%
Estimated annual credit losses	2.5% to 6.5%
Discount rate — residual interests	12% to 37%
Discount rate — MSRs		12.8%

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At January 31, 2002, the sensitivities of the current fair value of the residuals and MSRs to 10% and 20% adverse changes in the above key assumptions are as follows:


		Residential Mortgage Loans

		Cross-			NIM			Servicing
		Collateralized			Residuals			Asset

Carrying amount/fair value of residuals		$	65,452		$	200,747		$	78,427
Weighted average life (in years)			3.1			2.4			1.6
Annual prepayments (including defaults):
	Adverse 10% — $ impact on fair value	$	(2,628	)	$	(5,997	)	$	(9,934	)
	Adverse 20% — $ impact on fair value		(2,383	)		(7,776	)		(20,068	)
Annual credit losses:
	Adverse 10% — $ impact on fair value	$	(4,839	)	$	(26,826	)	Not applicable
	Adverse 20% — $ impact on fair value		(6,911	)		(55,837	)	Not applicable
Discount rate:
	Adverse 10% — $ impact on fair value	$	(4,865	)	$	(6,043	)	$	(1,218	)
	Adverse 20% — $ impact on fair value		(6,876	)		(11,572	)		(2,399	)
Variable interest rates:
	Adverse 10% — $ impact on fair value	$	(3,025	)	$	(36,660	)	Not applicable
	Adverse 20% — $ impact on fair value		(3,197	)		(62,400	)	Not applicable

		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.

12.		In May 2001, the Company adopted Emerging Issues Task Force (EITF) Issue 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (EITF 99-20). EITF 99-20 addresses how the holder of beneficial interests should recognize cash flows on the date of the transaction, how interest income is recognized over the life of the interests and when securities must be written down to fair value due to other than temporary impairments. EITF 99-20 requires adverse changes in the timing of cash flows to be treated as losses when they are determined and requires positive changes to cash flows to be accreted into earnings over the remaining life of the underlying loans using the effective yield method. The adoption of EITF 99-20 did not have a material impact on the consolidated financial statements.

13.		In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), effective for the Company’s fiscal year beginning May 1, 2002. This

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		statement supercedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” (SFAS 121) and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company does not anticipate that the adoption of SFAS 144 will have a material effect on the consolidated financial statements.

14.		On May 1, 2001, the Company adopted a new methodology for allocation of corporate services and support costs to business units. The change was made to more accurately reflect each business segment’s performance. Prior year segment results have been restated based on this allocation methodology. Information concerning the Company’s operations by reportable operating segments for the three and nine months ended January 31, 2002 and 2001 is as follows:


		Three months ended						Nine months ended
		January 31,						January 31,

		2002			2001			2002			2001

Revenues:
	U.S. tax operations	$	379,235		$	321,956		$	427,229		$	359,709
	International tax operations		7,989			7,857			26,530			27,655
	Mortgage operations		179,751			114,169			508,897			279,459
	Investment services		61,085			118,164			194,837			380,404
	Business services		94,194			92,729			265,955			247,093
	Corporate operations		5,784			1,125			7,444			3,264

		$	728,038		$	656,000		$	1,430,892		$	1,297,584

Earnings (loss) from:
	U.S. tax operations	$	25,280		$	1,498		$	(160,113	)	$	(169,788	)
	International tax operations		(5,242	)		(6,486	)		(11,886	)		(13,692	)
	Mortgage operations		77,427			38,051			237,397			80,014
	Investment services		(12,300	)		7,378			(27,533	)		30,840
	Business services		1,780			769			2,163			(3,495	)
	Corporate operations		(16,660	)		(7,366	)		(31,917	)		(19,266	)
	Interest exp.-acquisition debt		(19,243	)		(23,988	)		(60,001	)		(75,760	)

			51,042			9,856			(51,890	)		(171,147	)
	Investment income, net		466			1,099			2,678			6,354
	Intercompany interest		(1,734	)		(3,163	)		171			(3,764	)

Earnings (loss) before income taxes (benefit)		$	49,774		$	7,792		$	(49,041	)	$	(168,557	)

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

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15.		Block Financial Corporation (BFC) is an indirect, wholly owned subsidiary of the Company. BFC is the Issuer and the Company is the Guarantor of the Senior Notes issued on October 21, 1997 and April 13, 2000. 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 Statements of Operations


		Three months ended January 31, 2002

		H&R Block, Inc.		BFC		Other						Consolidated
		(Guarantor)		(Issuer)		Subsidiaries			Elims			H&R Block

Total revenues		$	—	$	296,795	$	433,534		$	(2,291	)	$	728,038

Expenses:
	Compensation & benefits		—		82,464		238,889			—			321,353
	Occupancy & equipment		—		14,711		57,967			—			72,678
	Interest		—		24,175		6,558			—			30,733
	Depreciation & amortization		—		17,667		20,500			—			38,167
	Marketing & advertising		—		12,297		47,080			(100	)		59,277
	Supplies, freight & postage		—		3,402		18,606			—			22,008
	Other		—		86,245		50,922			(2,291	)		134,876

			—		240,961		440,522			(2,391	)		679,092

Operating earnings (loss)			—		55,834		(6,988	)		100			48,946
Other income, net			49,774		—		828			(49,774	)		828

Earnings (loss) before income taxes (benefit)			49,774		55,834		(6,160	)		(49,674	)		49,774
Income taxes (benefit)			20,158		22,675		(2,557	)		(20,118	)		20,158

Net earnings (loss)		$	29,616	$	33,159	$	(3,603	)	$	(29,556	)	$	29,616


		Three months ended January 31, 2001

		H&R Block, Inc.		BFC		Other						Consolidated
		(Guarantor)		(Issuer)		Subsidiaries			Elims			H&R Block

Total revenues		$	—	$	278,290	$	379,716		$	(2,006	)	$	656,000

Expenses:
	Compensation & benefits		—		78,674		226,730			—			305,404
	Occupancy & equipment		—		12,225		51,492			—			63,717
	Interest		—		59,835		8,213			—			68,048
	Depreciation & amortization		—		21,392		31,456			—			52,848
	Marketing & advertising		—		11,784		24,767			(104	)		36,447
	Supplies, freight & postage		—		5,461		14,078			—			19,539
	Other		—		57,602		49,768			(2,006	)		105,364

			—		246,973		406,504			(2,110	)		651,367

Operating earnings (loss)			—		31,317		(26,788	)		104			4,633
Other income, net			7,792		—		3,159			(7,792	)		3,159

Earnings (loss) before income taxes (benefit)			7,792		31,317		(23,629	)		(7,688	)		7,792
Income taxes (benefit)			3,332		14,545		(11,257	)		(3,288	)		3,332

Net earnings (loss)		$	4,460	$	16,772	$	(12,372	)	$	(4,400	)	$	4,460

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		Nine months ended January 31, 2002

		H&R Block, Inc.			BFC		Other						Consolidated
		(Guarantor)			(Issuer)		Subsidiaries			Elims			H&R Block

Total revenues		$	—		$	763,249	$	669,987		$	(2,344	)	$	1,430,892

Expenses:
	Compensation & benefits		—			237,621		460,448			—			698,069
	Occupancy & equipment		—			45,611		148,495			—			194,106
	Interest		—			78,920		11,403			—			90,323
	Depreciation & amortization		—			51,316		55,779			—			107,095
	Marketing & advertising		—			20,201		63,461			(302	)		83,360
	Supplies, freight & postage		—			10,630		27,421			—			38,051
	Other		—			172,193		102,273			(2,344	)		272,122

			—			616,492		869,280			(2,646	)		1,483,126

Operating earnings (loss)			—			146,757		(199,293	)		302			(52,234	)
Other income, net			(49,041	)		—		3,193			49,041			3,193

Earnings (loss) before income taxes (benefit)			(49,041	)		146,757		(196,100	)		49,343			(49,041	)
Income taxes (benefit)			(19,862	)		60,212		(80,196	)		19,984			(19,862	)

Net earnings (loss)		$	(29,179	)	$	86,545	$	(115,904	)	$	29,359		$	(29,179	)


		Nine months ended January 31, 2001

		H&R Block, Inc.			BFC		Other						Consolidated
		(Guarantor)			(Issuer)		Subsidiaries			Elims			H&R Block

Total revenues		$	—		$	709,581	$	590,121		$	(2,118	)	$	1,297,584

Expenses:
	Compensation & benefits		—			222,808		402,036			—			624,844
	Occupancy & equipment		—			38,395		141,780			—			180,175
	Interest		—			179,916		15,303			—			195,219
	Depreciation & amortization		—			65,460		83,530			—			148,990
	Marketing & advertising		—			22,918		38,383			(352	)		60,949
	Supplies, freight & postage		—			14,052		23,071			—			37,123
	Other		—			124,953		104,468			(2,169	)		227,252

			—			668,502		808,571			(2,521	)		1,474,552

Operating earnings (loss)			—			41,079		(218,450	)		403			(176,968	)
Other income, net			(168,557	)		—		8,411			168,557			8,411

Earnings (loss) before income taxes (benefit)			(168,557	)		41,079		(210,039	)		168,960			(168,557	)
Income taxes (benefit)			(71,616	)		27,515		(99,302	)		71,787			(71,616	)

Net earnings (loss)		$	(96,941	)	$	13,564	$	(110,737	)	$	97,173		$	(96,941	)

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Condensed Consolidating Balance Sheets


			January 31, 2002

			H&R Block, Inc.		BFC			Other						Consolidated
			(Guarantor)		(Issuer)			Subsidiaries			Elims			H&R Block

Cash & cash equivalents			$	—	$	431,147		$	107,161		$	—		$	538,308
Cash & equivalents-restricted				—		101,917			—			—			101,917
Receivables from customers, brokers and dealers				—		910,967			—			—			910,967
Receivables				1,256		948,497			291,717			—			1,241,470
Intangible assets				—		229,517			152,695			—			382,212
Goodwill				—		322,199			412,264			—			734,463
Investments in subsidiaries				2,441,048		215			1,001			(2,441,048	)		1,216
Other assets				70		784,972			370,536			337			1,155,915

	Total assets		$	2,442,374	$	3,729,431		$	1,335,374		$	(2,440,711	)	$	5,066,468

Notes payable			$	—	$	1,638,832		$	—		$	—		$	1,638,832
Accts. payable to customers, brokers and dealers				—		948,722			—			—			948,722
Long-term debt				—		746,738			127,906			—			874,644
Other liabilities				4,928		178,633			456,589			(1,292	)		638,858
Net intercompany advances				1,472,034		(160,482	)		(1,312,879	)		1,327			—
Stockholders’ equity				965,412		376,988			2,063,758			(2,440,746	)		965,412

		Total liabilities and stockholders’ equity	$	2,442,374	$	3,729,431		$	1,335,374		$	(2,440,711	)	$	5,066,468


		April 30, 2001

		H&R Block, Inc.		BFC		Other						Consolidated
		(Guarantor)		(Issuer)		Subsidiaries			Elims			H&R Block

Cash & cash equivalents		$	—	$	151,140	$	104,674		$	—		$	255,814
Cash & equivalents-restricted			—		15,999		—			—			15,999
Receivables from customers, brokers and dealers			—		1,310,804		—			—			1,310,804
Receivables			—		172,409		200,814			—			373,223
Intangible assets			—		251,492		150,717			—			402,209
Goodwill			—		322,199		327,418			—			649,617
Investments in subsidiaries			2,452,643		215		262			(2,452,643	)		477
Other assets			—		720,004		394,431			(954	)		1,113,481

	Total assets	$	2,452,643	$	2,944,262	$	1,178,316		$	(2,453,597	)	$	4,121,624

Notes payable		$	—	$	—	$	—		$	—		$	—
Accts. payable to customers, brokers and dealers			—		1,058,000		—			—			1,058,000
Long-term debt			—		746,250		124,724			—			870,974
Other liabilities			4,763		228,847		782,058			3,241			1,018,909
Net intercompany advances			1,274,139		637,487		(1,907,206	)		(4,420	)		—
Stockholders’ equity			1,173,741		273,678		2,178,740			(2,452,418	)		1,173,741

	Total liabilities and stockholders’ equity	$	2,452,643	$	2,944,262	$	1,178,316		$	(2,453,597	)	$	4,121,624

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Condensed Consolidating Statements of Cash Flows


	Nine months ended January 31, 2002

	H&R Block, Inc.			BFC			Other					Consolidated
	(Guarantor)			(Issuer)			Subsidiaries			Elims		H&R Block

Net cash provided by (used in) operating activities	$	53,842		$	(560,171	)	$	(487,849	)	$	—	$	(994,178	)

Cash flows from investing:
Purchase of AFS securities		—			—			(3,695	)		—		(3,695	)
Maturities of AFS securities		—			33,005			28,204			—		61,209
Purchase property & equipment		—			(27,954	)		(43,389	)		—		(71,343	)
Payments for business acq.		—			—			(44,397	)		—		(44,397	)
Net intercompany advances		197,895			(803,705	)		605,810			—		—
Proceeds from sale of operating units		—			—			428			—		428
Other, net		—			—			(3,834	)		—		(3,834	)

Net cash provided by (used in) investing activities		197,895			(798,654	)		539,127			—		(61,632	)

Cash flows from financing:
Repayments of notes payable		—			(6,147,398	)		—			—		(6,147,398	)
Proceeds from notes payable		—			7,786,230			—			—		7,786,230
Payments on acquisition debt		—			—			(49,479	)		—		(49,479	)
Dividends paid		(86,349	)		—			—			—		(86,349	)
Payments to acquire treasury shares		(352,213	)		—			—			—		(352,213	)
Proceeds from stock option exercises		186,825			—			—			—		186,825
Other, net		—			—			688			—		688

Net cash provided by (used in) financing activities		(251,737	)		1,638,832			(48,791	)		—		1,338,304

Net increase in cash		—			280,007			2,487			—		282,494
Cash — beginning of period		—			151,140			104,674			—		255,814

Cash — end of period	$	—		$	431,147		$	107,161		$	—	$	538,308

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	Nine months ended January 31, 2001

	H&R Block, Inc.			BFC			Other					Consolidated
	(Guarantor)			(Issuer)			Subsidiaries			Elims		H&R Block

Net cash used in operating activities	$	(96	)	$	(585,216	)	$	(390,525	)	$	—	$	(975,837	)

Cash flows from investing:
Purchase of AFS securities		—			—			(5,413	)		—		(5,413	)
Maturities of AFS securities		—			11,599			20,776			—		32,375
Purchase property & equipment		—			(18,383	)		(36,980	)		—		(55,363	)
Payments for business acq		—			—			(13,285	)		—		(13,285	)
Net intercompany advances		300,404			(747,803	)		447,399			—		—
Proceeds from sale of operating units		—			—			23,200			—		23,200
Other, net		—			—			24,065			—		24,065

Net cash provided by (used in) investing activities		300,404			(754,587	)		459,762			—		5,579

Cash flows from financing:
Repayments of notes payable		—			(11,864,855	)		—			—		(11,864,855	)
Proceeds from notes payable		—			13,207,864			—			—		13,207,864
Payments on acquisition debt		—			—			(67,643	)		—		(67,643	)
Dividends paid		(80,433	)		—			—			—		(80,433	)
Payments to acquire treasury shares		(222,894	)		—			—			—		(222,894	)
Proceeds from stock option exercises		3,019			—			—			—		3,019
Other, net		—			—			1,108			—		1,108

Net cash provided by (used in) financing activities		(300,308	)		1,343,009			(66,535	)		—		976,166

Net increase in cash		—			3,206			2,702			—		5,908
Cash — beginning of period		—			230,181			123,078			—		353,259

Cash — end of period	$	—		$	233,387		$	125,780		$	—	$	359,167

-16-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

H&R Block’s Mission:

“To help our clients achieve their financial objectives
by serving as their tax and financial partner.”

H&R Block’s Vision:

“To provide shareholder value as we strive to be the
world’s leading provider of financial services through tax
and accounting based advisory relationships.”

Overview of Reportable Operating Segments

The principal business activity of the Company’s operating subsidiaries is providing tax and financial services to the general public. The Company does business in the following reportable operating segments:

		U.S. tax operations: This segment primarily consists of the Company’s traditional tax business — which served 16.9 million taxpayers in fiscal year 2001, more than any other company.

		International tax operations: This segment is primarily engaged in providing local tax return preparation, filing and related services in Canada, Australia and the United Kingdom.

		Mortgage operations: This segment is primarily engaged in the origination, servicing, and sale of nonconforming and conforming mortgage loans.

		Investment services: This segment is primarily engaged in offering investment advice and services.

		Business services: This segment is primarily engaged in providing accounting, tax and consulting services to business clients and tax, estate planning, financial planning, wealth management and insurance services to individuals.

General Business

During the first month of the tax-filing season, U.S. tax operations were off to a strong start over the prior year. Tax law changes drove a substantial increase in the average fee due to added complexity for early season filers. The new complexity is primarily related to last year’s tax rebates and to a lesser extent, changes in the child tax credit. The increase in average fees associated with the tax rebate is not expected to continue, at the level experienced during January, for the remainder of the tax season. Due to the sensitivity of the January 31 cut-off for the third quarter, the Company believes that results through February are a better indicator of how the tax season is progressing. Through February 28, 2002, tax returns prepared by company-owned offices increased 3.3% to 6.3 million (compared to 4.9% through January 31, 2002) and the number of clients served increased 2.3% to 6.3 million (compared to 3.9% through

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January 31, 2002). The average fee per client served through February 28 was up 8.9% to $122.27 compared to $112.27 last year and compared to 10.3% through January 31, 2002.

This tax season, U.S. tax operations began offering new products to bring additional value to H&R Block’s client base. For the first time, tax offices are offering a new Refund Anticipation Loan (RAL) product — an “instant RAL.” With an “instant RAL,” clients who qualify can receive a check for loan proceeds upon the completion of their tax return and will not have to return to the office a second time to pick up their check. In addition, tax offices are offering a new product to those clients whose tax returns reflect a balance due the Internal Revenue Service (IRS). Through a relationship with Household Bank, f.s.b. (Household), clients who qualify can receive a line of credit from Household that can be used to pay a balance due the IRS. This line of credit will have “same as cash” terms for 90 days. Unlike the traditional RAL products, the Company does not have a participation interest in these lines of credit. The e-commerce business is also offering new tax and advice products to its clients. This tax season, both software and online users have an opportunity to have an H&R Block tax professional review their return and provide feedback to the client prior to filing. In addition, all software and online clients have the opportunity to open an Express IRA account and to receive a free financial plan through H&R Block Financial Advisors (HRBFA).

During fiscal 2002, the Company’s residual interests have been performing better than expected with higher excess retained interest spread and lower loan losses and prepayments to date than originally projected. As a result of these items, in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” the Company recorded a $45.1 million pretax mark-to-market adjustment in other comprehensive income (loss) during the second quarter. Beginning in the third quarter, the Company adjusted the amount of interest income recognized on certain residual interests to reflect these new conditions. This adjustment results in higher interest income earned throughout the remaining life of those residual interests, assuming conditions remain the same. Management continues to evaluate the strategy of executing a net interest margin (NIM) transaction to securitize certain existing residual interests from previous NIM transactions in an effort to expedite cash receipts, as discussed in the Form 10-Q for the period ended October 31, 2001.

One of the Company’s core strategic objectives is creating a financial partnership with its tax clients through delivery of advice, coupled with the products and services needed to act on that advice. The Company’s initiative to serve the mortgage needs of its tax clients though its retail mortgage operations resulted in 39.8% of all retail loans, and 7.5% of all loans originated during the third quarter this year coming from H&R Block tax clients. It had been previously disclosed that 66.4% of all retail loans, and 12.6% of all loans originated were referred from H&R Block’s tax client base. While the percentages are correct, the referral source should have been stated as all H&R Block clients, including clients of HRBFA and Option One Mortgage servicing.

During the 2002 tax season, Express IRA was launched in all tax services regions whereas in the 2001 tax season, it was only offered in six tax services regions. Express IRA introduces new technology, sales activities, service functions and training across the tax services and HRBFA organizations. Another key cross-organizational initiative was the creation and testing of the Tax Preparer Financial Advisor (TPFA) program. In its pilot year in fiscal 2001, 430 TPFAs cross-

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sold 3,000 investment-related accounts. From May 1, 2001 to February 15, 2002, 440 TPFAs have cross-sold 3,445 investment related accounts (accounts opened and funded).

RESULTS OF OPERATIONS

The analysis that follows should be read in conjunction with the tables below and the Consolidated Statements of Operations found on page 2. All amounts in the following tables are in thousands, except as noted.

On May 1, 2001, the Company adopted a new methodology for allocation of corporate services and support costs to business units. The change was made to more accurately reflect each business segment’s performance. Prior year segment results have been restated based on this allocation methodology.

Consolidated H&R Block, Inc.

Consolidated H&R Block, Inc. — Three-month comparison to prior year


	Three months ended				Variance
	January 31,				Better/(worse)

	2002		2001		$		%

Revenues	$	728,038	$	656,000	$	72,038		11.0	%

Pretax earnings		49,774		7,792		41,982		538.8	%
Net earnings	$	29,616	$	4,460	$	25,156		564.0	%

Basic & diluted earnings per share	$	.16	$	.02	$	.14		700.0	%

Consolidated revenues for the three months ended January 31, 2002 increased 11.0% primarily due to the Mortgage and U.S. tax operations segments, which increased revenues by $65.6 million, and $57.3 million, respectively, over the prior year. These increases were partially offset by the decline in revenues from Investment services of $57.1 million.

The Company reported pretax earnings of $49.8 million for the third quarter of fiscal 2002 compared to $7.8 million in the prior year, an increase of $42.0 million. The improvement over the prior year is primarily due to the Mortgage and U.S. tax operations segments. Mortgage operations reported earnings of $77.4 million, a $39.4 million improvement over last year and U.S. tax operations reported earnings of $25.3 million, a $23.8 million increase over the third quarter last year. Losses of $12.3 million from Investment services somewhat offset these improvements. In addition, the Company benefited $15.6 million over the prior year’s third quarter from the adoption of SFAS 141 and 142, which is included in the respective reportable segments.

Net earnings were $29.6 million, or $.16 per basic and diluted share compared to $4.5 million, or $.02 per basic and diluted share in the third quarter of fiscal 2001. The three months ended

-19-

January 31, 2002 reflect the adoption of SFAS 141 and 142 effective May 1, 2001 related to business combinations, goodwill and other intangible assets, which eliminates goodwill and certain other intangible asset amortization. Of the improvement over the prior year’s third quarter, $11.9 million (net of taxes), or $.06 per diluted share and $.07 per basic share, relates to this change in accounting.

The effective income tax rate decreased from 42.5% last year to 40.5% this year. The decrease in the effective tax rate is primarily due to the reduction in non-deductible goodwill and other intangible asset amortization related to the adoption of SFAS 141 and 142 on May 1, 2001.

The Company’s performance as measured by earnings before interest (including interest expense on acquisition debt, investment income and interest allocated to operating business units), taxes, depreciation and amortization (EBITDA) improved $21.8 million, or 25.1%, to $108.5 million compared to $86.7 million in the prior year’s third quarter. EBITDA is utilized by management to evaluate the performance of its operating segments because many of the segments reflect substantial amortization of acquired intangible assets and goodwill resulting from recent acquisitions. Management believes EBITDA is a good measure of cash flow generation because the Company’s operations have not historically been capital intensive, and it also removes the effects of purchase accounting. The calculation of EBITDA may not be comparable to the calculation of EBITDA by other companies and it is a non-GAAP financial measure.

In addition, the Company continues to measure its performance based on the calculation of earnings excluding the after-tax impact of amortization of acquired intangible assets. Net earnings, excluding the after-tax impact of this expense, were $39.4 million, or $.21 per diluted share in the third quarter, compared to $25.9 million, or $.14 per diluted share in last year’s third quarter.

Consolidated H&R Block, Inc. — Three-month comparison to preceding quarter


	Fiscal Year					Variance
	2002 Quarter					Better/(worse)

	3rd		2nd			$		%

Revenues	$	728,038	$	378,729		$	349,309		92.2	%

Pretax earnings (loss)		49,774		(47,077	)		96,851		—
Net earnings (loss)	$	29,616	$	(28,011	)	$	57,627		—

Basic and diluted earnings (loss) per share	$	.16	$	(.15	)	$	.31		—

Consolidated revenues for the three months ended January 31, 2002 increased 92.2% over the three months ended October 31, 2001 almost entirely due to the U.S. tax operations segment, increasing $351.2 million over the second quarter, resulting from the start of the U.S. tax-filing season.

-20-

The Company reported pretax earnings of $49.8 million for the third quarter of fiscal 2002 compared to a loss of $47.1 million in the second quarter. The quarter-over-quarter improvement is due to the U.S. tax operations segment, with a $129.5 million improvement over last quarter. This increase was partially offset by lower earnings from Mortgage operations and Business services and increased losses from International tax operations and Investment services. Net earnings were $29.6 million, or $.16 per share compared to a loss of $28.0 million, or $.15 per share in the second quarter.

The Company’s performance as measured by EBITDA improved to $108.5 million compared to $5.9 million for the three months ended October 31, 2001. The Company’s net earnings, excluding the after-tax impact of the amortization of acquired intangible assets, was $39.4 million, or $.21 per diluted share in the third quarter, compared to a loss of $18.5 million, or $.10 per basic share in the second quarter.

Consolidated H&R Block, Inc. — Nine-month comparison to prior year


	Nine months ended						Variance
	January 31,						Better/(worse)

	2002			2001			$		%

Revenues	$	1,430,892		$	1,297,584		$	133,308		10.3	%

Pretax loss		(49,041	)		(168,557	)		119,516		70.9	%
Net loss	$	(29,179	)	$	(96,941	)	$	67,762		69.9	%

Basic & diluted loss per share	$	(.16	)	$	(.53	)	$	.37		69.8	%

Consolidated revenues for the nine months ended January 31, 2002 increased 10.3% primarily due to the Mortgage operations segment, which increased revenues by $229.4 million, or 82.1%, over the prior year. Also contributing to the increase was the U.S. tax operations and Business services segments, which reported an 18.8% and 7.6%, respectively, improvement over the prior year. These increases were partially offset by the decline in revenues of $185.6 million from Investment services.

The Company reported a pretax loss of $49.0 million for the nine months ended January 31, 2002 compared to a loss of $168.6 million in the prior year. The improvement over the prior year is primarily due to the Mortgage operations segment that reported earnings of $237.4 million, a $157.4 million improvement over last year. Losses of $27.5 million from Investment services somewhat offset the increase from Mortgage operations. U.S. tax and International tax operations, as well as Business services, also reported improvements over the prior year. In addition, the Company’s improved performance over the prior year is attributable to the adoption of SFAS 141 and 142, which positively impacted the year-over-year variance by $45.7 million.

The net loss was $29.2 million, or $.16 per share compared to a net loss of $96.9 million, or $.53 per share for the nine months ended January 31, 2001. Of the improvement over the prior year, $35.0 million (net of taxes), or $.19 per share, relates to the adoption of SFAS 141 and 142.

-21-

The Company’s performance as measured by EBITDA improved $61.6 million to $115.2 million compared to $53.6 million for the nine months ended January 31, 2001. The Company’s net loss, excluding the after-tax impact of amortization of acquired intangible assets, was $492 thousand in the current year, compared to $33.8 million, or $.18 per share last year.

U.S. Tax Operations

This segment primarily consists of the Company’s traditional tax business — which served 16.9 million taxpayers in fiscal year 2001, more than any other company. This segment is primarily engaged in providing tax return preparation, filing, and related services in the United States. Tax-related service revenues include fees from company-owned tax offices and royalties from franchised offices. This segment also participates in the Refund Anticipation Loan (RAL) products offered by a third-party lending institution to tax clients. This segment includes the Company’s tax preparation software — TaxCut® from H&R Block, other personal productivity software, online tax preparation through a tax professional (whereby the client fills out an online tax organizer and sends it to a tax professional for preparation), online do-it-yourself tax preparation, online professional tax review and online tax advice through the hrblock.com website.

The Company participates with Household in offering RALs to customers through tax offices (49.9% in company-owned offices and 25.0% in major franchise offices). Revenue from participation is calculated as the Company’s percentage participation multiplied by the fee that the customer pays for the RAL. The fee that the customer pays for the RAL is set by Household and is based on the dollar amount of the RAL.

This segment offers RALs through its tax offices and also participates in the funding of the RALs. As these are two different operating activities, there is a difference between the number of RALs in which the Company participates and the number of RALs reported in tax offices. This difference is due to the timing of the IRS acknowledgement of the return and when the client receives the funds. The number of RALs in which the Company participates is accumulated when the client receives the funds. The number of RALs reported in tax offices is accumulated when the IRS acknowledges receipt the tax return.

Due to the seasonal nature of this segment’s business, third quarter and year-to-date results are not indicative of the expected results for the entire fiscal year.

-22-

U.S. Tax Operations — Statistics for company-owned operations

(in 000s except average fee and offices)


		Period January 1
		through January 31,

		2002		2001		Percent change

Tax returns prepared			2,129		2,029		4.9	%
Clients served:
	Company-owned offices		2,149		2,069		3.9	%
	E-commerce		143		109		31.2	%
Tax returns filed electronically:
	Company-owned offices		2,081		1,977		5.3	%
	E-commerce		119		96		24.0	%
Average fee per client served (in offices)		$	120.89	$	109.63		10.3	%
Refund anticipation loans (RALs):
	Company-owned offices		1,196		1,020		17.3	%
	E-commerce		8		5		60.0	%
Offices			5,017		5,060		-0.8	%

U.S. Tax Operations — Three-month comparison to prior year


		Three months ended				Variance
		January 31,				Better/(worse)

		2002		2001		$			%

Tax preparation and related fees		$	271,477	$	237,361	$	34,116			14.4	%
Royalties			32,429		27,941		4,488			16.1	%
RAL participation fees			30,154		25,387		4,767			18.8	%
Software sales			21,980		18,476		3,504			19.0	%
Other			23,195		12,791		10,404			81.3	%

	Total revenues		379,235		321,956		57,279			17.8	%

Compensation & benefits			150,765		141,407		(9,358	)		-6.6	%
Occupancy & equipment			43,954		40,005		(3,949	)		-9.9	%
Depreciation & amortization			8,982		14,918		5,936			39.8	%
Cost of software sales			14,598		10,604		(3,994	)		-37.7	%
Bad debt expense			24,072		21,629		(2,443	)		-11.3	%
Supplies, freight & postage			7,903		8,352		449			5.4	%
Other			30,627		27,022		(3,605	)		-13.3	%
Allocated corporate & shared costs			73,054		56,521		(16,533	)		-29.3	%

	Total expenses		353,955		320,458		(33,497	)		-10.5	%

Pretax earnings		$	25,280	$	1,498	$	23,782			—

EBITDA		$	39,534	$	20,770	$	18,764			90.3	%

-23-

Tax preparation and related fees increased 14.4% to $271.5 million for the three months ended January 31, 2002 compared to the prior year third quarter. This increase is primarily attributable to a 4.9% increase in company-owned returns prepared and a 10.3% increase in the average fee on those returns in the first month of the tax season. The overall increase in tax returns prepared is due to continued client demand during the early tax-filing season. The increase in average charge, in addition to a planned increase, is primarily due to the federal rebate credit and, to a lesser extent, changes in the child tax credit. It is not anticipated that the increase in the average fee associated with these rebates will continue throughout the remainder of the tax-filing season at the same levels as were experienced in January.

Royalties from franchises of $32.4 million increased proportionally with the increase in tax preparation and related fees generated from company-owned offices. Franchise offices experienced an 11.5% increase in tax returns prepared to 1.4 million and an 11.3% increase in the average fee to $106.03 from $95.25 in the prior year.

Revenues from participation in RALs increased $4.8 million or 18.8% over the prior year third quarter. This increase is attributable to a 15.7% increase in the number of funded RALs to 845,902, and an increase in pricing. The increased price was driven by an increase in the average refund amount and favorable changes in product mix resulting in a gross revenue per RAL of $76.19 which is up 2.8% over last year’s third quarter.

Software revenues increased 19.0% over the third quarter last year due to both an increase in price per unit and an increase in the number of units sold for TaxCut by H&R Block. Also contributing to the improvement was an increase in the number of legal software products sold.

During the first month of tax season, the Company’s e-commerce initiatives have improved over the prior year with increases in the number of “Online Tax Preparation” (OTP), “Professional Tax Service” (PTS) and “Review” clients. Revenues from these initiatives are included in other revenues.

In addition, revenues from the Peace of Mind warranty program helped drive the increase in other revenues due to the increase in the number of warranties sold compared to last year. The increase in the number of warranties sold is due to both an increase in the number of returns prepared, as well as an increase in the percent of clients that purchased the warranty from 22% in the prior year, to 33% in the current period. The pretax impact of these revenues is minimal in the current year, as the net profit is deferred and recognized over the warranty term.

Total expenses of $354.0 million during the three months ended January 31, 2002 were $33.5 million, or 10.5% higher than last year. The increase in expenses is primarily attributable to increased direct expenses driven by higher tax preparation volume. These direct expenses include compensation and benefits, occupancy and equipment and bad debt expense related to tax return preparation. Offsetting the increase in bad debt expense related to tax return preparation, bad debt expense associated with participation in RALs declined $4.2 million due to a more favorable collection rate on RALs this year caused by a problem with the IRS debt indicator last year. The IRS debt indicator identifies outstanding debts to the IRS or other federal government entities. Due to the problems with the debt indicator, bad debt expense was 49 basis points higher in January 2001 than during the remainder of the 2001 tax season. Also

-24-

contributing to the increase in expenses were allocated corporate and shared costs related to marketing and technology development, which increased $16.5 million. The higher marketing costs are due to the Company’s increased advertising initiatives this year. Amortization expense benefited from the early adoption of SFAS No. 141 and 142, resulting in lower amortization of goodwill when compared to the prior year by $2.9 million. Additionally, depreciation and amortization expense was lower by $3.1 million this year due to certain assets becoming fully depreciated at the end of the prior fiscal year.

The pretax earnings of $25.3 million for the quarter ended January 31, 2002 increased $23.8 million from earnings of $1.5 million in the same period a year ago.

U.S. Tax Operations — Three-month comparison to preceding quarter


		Fiscal Year					Variance
		2002 Quarter					Better/(worse)

		3rd		2nd			$			%

Tax preparation and related fees		$	271,477	$	11,396		$	260,081			—
Royalties			32,429		1,470			30,959			—
RAL participation fees			30,154		14			30,140			—
Software sales			21,980		722			21,258			—
Other			23,195		14,413			8,782			60.9	%

	Total revenues		379,235		28,015			351,220			—

Compensation & benefits			150,765		34,491			(116,274	)		-337.1	%
Occupancy & equipment			43,954		33,828			(10,126	)		-29.9	%
Depreciation & amortization			8,982		7,429			(1,553	)		-20.9	%
Cost of software sales			14,598		452			(14,146	)		—
Bad debt expense			24,072		(1,042	)		(25,114	)		—
Supplies, freight & postage			7,903		3,151			(4,752	)		-150.8	%
Other			30,627		15,098			(15,529	)		-102.9	%
Allocated corporate & shared costs			73,054		38,833			(34,221	)		-88.1	%

	Total expenses		353,955		132,240			(221,715	)		-167.7	%

Pretax earnings (loss)		$	25,280	$	(104,225	)	$	129,505			—

EBITDA		$	39,534	$	(92,309	)	$	131,843			—

The improved results are due to the start of the U.S. tax-filing season in January 2002.

-25-

U.S. Tax Operations — Nine-month comparison to prior year


		Nine months ended						Variance
		January 31,						Better/(worse)

		2002			2001			$			%

Tax preparation and related fees		$	294,221		$	254,709		$	39,512			15.5	%
Royalties			34,995			30,466			4,529			14.9	%
RAL participation fees			30,450			25,587			4,863			19.0	%
Software sales			23,475			19,591			3,884			19.8	%
Other			44,088			29,356			14,732			50.2	%

	Total revenues		427,229			359,709			67,520			18.8	%

Compensation & benefits			208,325			188,558			(19,767	)		-10.5	%
Occupancy & equipment			110,908			103,452			(7,456	)		-7.2	%
Depreciation & amortization			23,715			37,753			14,038			37.2	%
Cost of software sales			15,369			11,237			(4,132	)		-36.8	%
Bad debt expense			23,911			22,029			(1,882	)		-8.5	%
Supplies, freight & postage			12,590			12,294			(296	)		-2.4	%
Other			54,672			50,215			(4,457	)		-8.9	%
Allocated corporate & shared costs			137,852			103,959			(33,893	)		-32.6	%

	Total expenses		587,342			529,497			(57,845	)		-10.9	%

Pretax loss		$	(160,113	)	$	(169,788	)	$	9,675			5.7	%

EBITDA		$	(121,977	)	$	(120,904	)	$	(1,073	)		-0.9	%

Tax preparation and related fees increased 15.5% to $294.2 million during the nine months ended January 31, 2002 compared to the nine months ended January 31, 2001. This increase is primarily attributable to the 4.9% increase in returns prepared in company-owned offices combined with the 10.3% increase in the average charge on those returns for the first month of the tax season. The average charge earned during the first month of the fiscal 2002 tax season was $120.89 compared to $109.63 earned last year.

Royalties from franchises of $35.0 million increased proportionately with the increase in tax preparation and related fees generated from company-owned offices. Franchise offices experienced an 11.5% increase in tax returns prepared to 1.4 million during January 2002 compared to last year. The average charge in franchise offices increased 11.3% to $106.03 during January 2002 as compared to the prior January.

Revenues from participation in RALs increased $4.9 million, or 19.0%, to $30.5 million compared to the prior year. This increase is attributable to a 15.7% increase in the number of funded RALs to 845,902 and an increase in pricing. The increased price was driven by an increase in the average refund amount and favorable changes in product mix resulting in a gross revenue per RAL of $76.93 which is up 2.9% over last year.

-26-

Software revenues increased 19.8% over last year due to both an increase in price per unit and an increase in the number of units sold for TaxCut by H&R Block. Also contributing to the improvement was an increase in the number of legal software products sold.

During the first month of the tax season, the Company’s e-commerce initiatives have improved over the prior year with increases in the number of OTP, PTS and “Review” clients. Revenues from these initiatives are included in other revenues.

Contributing to the increase in other revenues were revenues from the Peace of Mind warranty program due to an increase in unit sales.

Total expenses increased 10.9% to $587.3 million during the nine months ended January 31, 2002 compared to the nine months ended January 31, 2001. This increase is due to an increase of $33.9 million in allocated and shared costs primarily related to marketing and technology development. The higher marketing costs are due to the Company’s increased advertising initiatives this year. In addition, compensation and benefits, occupancy and equipment and bad debt expense associated with tax return preparation increased as a direct result of the increase in revenues. Offsetting these increases was lower depreciation and amortization expense of $14.0 million due to certain assets becoming fully depreciated at the end of the prior fiscal year and $8.5 million related to the early adoption of SFAS No. 141 and 142. In addition, bad debt expense associated with participation in RALs declined $4.9 million due to a more favorable collection rate in the current year caused by a problem with the IRS debt indicator last year.

The pretax loss for the nine months ended January 31, 2002 was $160.1 million, a decrease of 5.7% compared to the pretax loss of $169.8 million for the nine months ended January 31, 2001.

International Tax Operations

This segment is primarily engaged in providing local tax return preparation, filing and related services in Canada, Australia and the United Kingdom. In addition, there are franchise offices in 9 countries that prepare U.S. tax returns for U.S. citizens living abroad. This segment served 2.3 million taxpayers in fiscal 2001. Tax-related service revenues include fees from company-owned tax offices and royalties from franchised offices.

As the Company’s operations in this segment are transacted in the local currencies of the countries it operates in, the results can be affected by the translation into U.S. dollars. The continued strength of the U.S. dollar during the third quarter and year-to-date has the impact of lowering revenues, reducing losses and earnings.

Due to the seasonal nature of this segment’s business, third quarter and year-to-date results are not indicative of the expected results for the entire fiscal year.

-27-

International Tax Operations — Three-month comparison to prior year


		Three months ended						Variance
		January 31,						Better/(worse)

		2002			2001			$			%

Canada		$	2,637		$	3,003		$	(366	)		-12.2	%
Australia			4,978			4,412			566			12.8	%
United Kingdom			238			344			(106	)		-30.8	%
Overseas franchises			136			98			38			38.8	%

	Total revenues		7,989			7,857			132			1.7	%

Canada			(5,308	)		(6,170	)		862			14.0	%
Australia			1,151			715			436			61.0	%
United Kingdom			(314	)		(443	)		129			29.1	%
Overseas franchises			(220	)		(143	)		(77	)		-53.8	%
Allocated corporate & shared costs			(551	)		(445	)		(106	)		-23.8	%

Pretax loss		$	(5,242	)	$	(6,486	)	$	1,244			19.2	%

EBITDA		$	(4,392	)	$	(5,200	)	$	808			15.5	%

Revenues increased by 1.7% to $8.0 million from $7.9 million last year. The increase in Australian revenue is primarily being driven by an increase in tax returns prepared during the quarter. The decrease in Canadian revenue is driven by management’s decision to further reduce the non-profitable early discounted return business. The decrease in United Kingdom revenue is driven by the closure of unprofitable offices. The overall strength in the U.S. dollar continues to negatively impact the revenue comparison.

The pretax loss improved by 19.2% to $5.2 million compared to a loss of $6.5 million in last year’s third quarter. The improved performance is primarily attributed to reduced operating costs in Canada due to better cost control and increased tax return volume in Australia.

-28-

International Tax Operations — Three-month comparison to preceding quarter


		Fiscal Year						Variance
		2002 Quarter						Better/(worse)

		3rd			2nd			$			%

Canada		$	2,637		$	2,400		$	237			9.9	%
Australia			4,978			10,947			(5,969	)		-54.5	%
United Kingdom			238			239			(1	)		-0.4	%
Overseas franchises			136			123			13			10.6	%

	Total revenues		7,989			13,709			(5,720	)		-41.7	%

Canada			(5,308	)		(4,018	)		(1,290	)		-32.1	%
Australia			1,151			4,160			(3,009	)		-72.3	%
United Kingdom			(314	)		(396	)		82			20.7	%
Overseas franchises			(220	)		(160	)		(60	)		-37.5	%
Allocated corporate & shared costs			(551	)		(577	)		26			4.5	%

Pretax loss		$	(5,242	)	$	(991	)	$	(4,251	)		-429.0	%

EBITDA		$	(4,392	)	$	(229	)	$	(4,163	)		—

Revenues decreased by $5.7 million from the second quarter. The decrease is driven primarily by the end of the Australian tax season, which occurs during the second quarter.

The pretax loss increased by $4.3 million over the second quarter. The primary drivers of the increased loss are the end of the Australian tax season and the preparation for the beginning of the Canadian tax season.

-29-

International Tax Operations — Nine-month comparison to prior year


		Nine months ended						Variance
		January 31,						Better/(worse)

		2002			2001			$			%

Canada		$	8,294		$	8,837		$	(543	)		-6.1	%
Australia			16,468			16,797			(329	)		-2.0	%
United Kingdom			1,109			1,391			(282	)		-20.3	%
Overseas franchises			659			630			29			4.6	%

	Total revenues		26,530			27,655			(1,125	)		-4.1	%

Canada			(12,772	)		(15,310	)		2,538			16.6	%
Australia			3,661			4,209			(548	)		-13.0	%
United Kingdom			(889	)		(1,034	)		145			14.0	%
Overseas franchises			(199	)		(1	)		(198	)		—
Allocated corporate & shared costs			(1,687	)		(1,556	)		(131	)		-8.4	%

Pretax loss		$	(11,886	)	$	(13,692	)	$	1,806			13.2	%

EBITDA		$	(9,506	)	$	(9,850	)	$	344			3.5	%

Revenues decreased by 4.1% to $26.5 million from $27.7 million last year. The revenue decrease is primarily driven by the continued strength of the U.S. dollar and the closure of unprofitable offices in the United Kingdom.

The pretax loss improved 13.2% to $11.9 million from $13.7 million last year. This improvement is primarily attributed to better business management and cost control in Canada. The Australian results were negatively impacted by a poor beginning of the tax season and additional costs attributed to the opening of thirteen new offices in July.

Mortgage Operations

Through Option One Mortgage Corporation and H&R Block Mortgage Corporation, this segment offers a wide range of home mortgage products. This segment is primarily engaged in the origination, servicing, and sale of nonconforming and conforming mortgage loans. This segment mainly offers, through a network of mortgage brokers, a flexible product line to borrowers who are creditworthy but do not meet traditional underwriting criteria. Conforming mortgage loan products, as well as the same flexible product line available through brokers, are offered through some H&R Block Financial Advisors branch offices and H&R Block Mortgage Corporation retail offices. One of the primary sources of revenue from this segment is the recognition of gains on sales of mortgage loans. This segment also holds residual interests in securitized mortgage loans in which cash flows are received over the life of the loans. The subsequent securitization of these residual interests in the form of a net interest margin transaction (NIM) results in the receipt of a substantial portion of the cash from the residual at the closing of the NIM transaction, rather than over the actual life of the loans.

-30-

Management utilizes operating profit margin to evaluate this segment’s performance. Operating profit margin is defined as pretax earnings before goodwill amortization divided by mortgage fundings.

Mortgage Operations — Quarterly Operating Statistics

(in 000s except # of loans originated
and servicing portfolio)


		Three months ended
		January 31,
									October 31,
		2002		2001		% change			2001		% change

# of loans originated:
	Wholesale		17,344		12,443		39.4	%		18,172		-0.5	%
	Retail		4,056		2,424		67.3	%		3,352		21.0	%

	Total		21,400		14,867		43.9	%		21,524		-0.1	%

Volume of loans originated:
	Wholesale	$	2,346,687	$	1,297,435		80.9	%	$	2,206,041		6.4	%
	Retail		549,112		294,241		86.6	%		438,158		25.3	%

	Total	$	2,895,799	$	1,591,676		81.9	%	$	2,644,199		9.5	%

Loan sales		$	2,868,690	$	1,547,169		85.4	%	$	2,618,065		9.6	%
# of loans serviced			202.4		172.6		17.3	%		184.8		9.5	%
Average servicing portfolio (billions)		$	20.3		16.2		24.9	%		19.5		4.1	%

-31-

Mortgage Operations — Three-month comparison to prior year


		Three months ended				Variance
		January 31,				Better/(worse)

		2002		2001		$			%

Gain on sale of mortgage loans		$	107,882	$	63,168	$	44,714			79.8	%
Interest income			36,850		20,491		16,359			79.8	%
Loan servicing			34,335		29,579		4,756			16.1	%
Other			684		931		(247	)		-26.5	%

	Total revenues		179,751		114,169		65,582			57.4	%

Compensation & benefits			45,121		33,555		(11,566	)		-34.5	%
Variable servicing & processing			26,252		9,825		(16,427	)		-167.2	%
Occupancy & equipment			7,557		5,898		(1,659	)		-28.1	%
Interest expense			937		6,661		5,724			85.9	%
Bad debt expense			5,386		4,116		(1,270	)		-30.8	%
Amortization of acquisition intangibles			—		3,394		3,394			100.0	%
Other			15,667		12,147		(3,520	)		-29.0	%
Allocated corporate & shared costs			1,404		522		(882	)		-169.0	%

	Total expenses		102,324		76,118		(26,206	)		-34.4	%

Pretax earnings		$	77,427	$	38,051	$	39,376			103.5	%

EBITDA		$	81,128	$	43,633	$	37,495			85.9

Revenues increased by $65.6 million or 57.4%, to $179.8 million, for the three months ended January 31, 2002 compared to the same period last year. The increase is primarily due to an increase in production volume, higher excess retained interest spread earned, a favorable secondary market environment and a larger servicing portfolio.

Revenues related to the sale of mortgage loans increased by $44.7 million or 70.8%, to $107.9 million, over the comparable prior year period resulting from a significant increase in loan origination volume. The increase in loan production is a result of an increase in the average loan size, an increase in the size of the sales force, an improvement in the closing ratio and to a lesser extent, the declining interest rate environment. The average loan size increased to $135 thousand from $107 thousand in the prior year’s third quarter due to emphasis being placed on originating higher average loan balances. Partially offsetting gains on sales of mortgage loans was the decline in the total execution price representing sale of mortgage loans. The total execution price for the three months ended January 31, 2002 was 3.82% compared to 4.24% for the same period last year. The decline in the execution price is primarily attributable to lower interest rates on the underlying loans, which yield a lower premium. In addition, losses of $13.1 million were recorded in the third quarter of fiscal year 2002 related to adverse changes in the timing of cash flows on certain residual interests in accordance with EITF 99-20.

Interest income for the three months ended January 31, 2002 increased by $16.4 million or 79.8%, to $36.9 million, over the comparable prior year period. This increase is primarily the

-32-

result of (1) a higher average loan receivable balance from the owner trust resulting from higher volume and the timing of the third-party securitizations; (2) higher interest accretion on residual interests as a result of the mark-to-market adjustment recorded in the second quarter of fiscal 2002; and (3) the declining interest rate environment since new non-prime loan originations are far less sensitive to such declines as compared to the interest rates charged on the related warehouse line borrowings, which directly reflect changes in market interest rates and therefore improves the excess retained interest spread earned. The excess retained interest spread for the three months ended January 31, 2002 was 6.05% compared to 2.38% for the same period last year.

Loan servicing revenues increased by $4.8 million or 16.1%, to $34.3 million, for the three months ended January 31, 2002, as compared to the same period last year. The increase is due to a higher average loan servicing portfolio balance.

Pretax earnings increased by $39.4 million or 103.5%, to $77.4 million, for the three months ended January 31, 2002. The improved performance is primarily due to the increase in revenues as discussed above. In addition, the higher loan volumes helped drive a decline in the net cost of origination. The increase in variable servicing and processing expense is due to the increase in the size of the servicing portfolio and a $8.5 million write-down of mortgage servicing rights (MSR) taken in the third quarter to reflect a change in the assumptions underlying the related loan portfolios. The increase in compensation and benefits is due to an increase in the number of employees supporting the increase in volumes. The third quarter also benefited by $3.4 million compared to the third quarter of fiscal year 2001 due to the adoption of SFAS 141 and 142. Mortgage operations’ operating profit margin of 2.67% improved 7 basis points from 2.60% in the prior year.

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Mortgage Operations — Three-month comparison to preceding quarter


		Fiscal Year				Variance
		2002 Quarter				Better/(worse)

		3rd		2nd		$			%

Gain on sale of mortgage loans		$	107,882	$	118,186	$	(10,304	)		-8.7	%
Interest income			36,850		27,995		8,855			31.6	%
Loan servicing			34,335		33,570		765			2.3	%
Other			684		1,070		(386	)		-36.1	%

	Total revenues		179,751		180,821		(1,070	)		-0.6	%

Compensation & benefits			45,121		42,695		(2,426	)		-5.7	%
Variable servicing & processing			26,252		15,510		(10,742	)		-69.3	%
Occupancy & equipment			7,557		7,581		24			0.3	%
Interest expense			937		1,394		457			32.8	%
Bad debt expense			5,386		5,450		64			1.2	%
Amortization of acquisition intangibles			—		—		—			—
Other			15,667		14,478		(1,189	)		-8.2	%
Allocated corporate & shared costs			1,404		522		(882	)		-169.0	%

	Total expenses		102,324		87,630		(14,694	)		-16.8	%

Pretax earnings		$	77,427	$	93,191	$	(15,764	)		-16.9	%

EBITDA		$	81,128	$	96,942	$	(15,814	)		-16.3	%

Revenues decreased slightly by $1.1 million or .6%, to $179.8 million, for the three months ended January 31, 2002 compared to the second quarter of fiscal 2002. Revenues related to the sale of mortgage loans decreased due to a decrease in overall execution price on loan sales. The total execution price representing the sale of mortgage loans for the three months ended January 31, 2002 was 3.82% compared to 5.08% for the three months ended October 31, 2001. The decline in the execution price is primarily attributable to lower interest rates on the underlying loans, which yield a lower premium. In addition, losses of $13.1 million were recorded in the third quarter related to adverse changes in the timing of cash flows on certain residual interests compared to $7.7 million recorded in the second quarter. These decreases were somewhat offset by an increase in interest income of $8.9 million over the second quarter. This increase is primarily the result of the lower interest rate environment, which improves the excess retained interest spread earned. The excess retained interest spread for the three months ended January 31, 2002 was 6.05% compared to 5.21% for the three months ended October 31, 2001. In addition, higher interest accretion on residual interests was recorded in the third quarter as a result of the mark-to-market adjustment recorded in the second quarter of fiscal 2002.

Loan servicing revenues increased by $765 thousand or 2.3%, to $34.3 million, for the three months ended January 31, 2002, as compared to the second quarter. The increase reflects a higher average loan servicing portfolio balance.

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Pretax earnings decreased by $15.8 million or 16.9%, to $77.4 million for the three months ended January 31, 2002. The reduction in performance is primarily due to a write-down in MSRs and the decrease in revenues as discussed above. Mortgage operations’ operating profit margin of 2.67% declined 85 basis points from 3.52% in the second quarter of fiscal 2002.

Mortgage Operations — Year-to-date Operating Statistics

(in 000s except # of loans originated
and servicing portfolio)


		Nine months ended
		January 31,

		2002		2001		% change

# of loans originated:
	Wholesale		53,515		35,645		50.1	%
	Retail		11,103		6,734		64.9	%

	Total		64,618		42,379		52.5	%

Volume of loans originated:
	Wholesale	$	6,673,256	$	3,710,545		79.8	%
	Retail		1,490,688		767,607		94.2	%

	Total	$	8,163,944	$	4,478,152		82.3	%

Loan sales		$	8,191,794	$	4,678,265		75.1	%
# of loans serviced			191.7		162.8		17.7	%
Average servicing portfolio (billions)		$	19.5	$	15.4		26.5	%

-35-

Mortgage Operations — Nine-month comparison to prior year


		Nine months ended				Variance
		January 31,				Better/(worse)

		2002		2001		$			%

Gain on sale of mortgage loans		$	322,302	$	162,807	$	159,495			98.0	%
Interest income			84,039		35,074		48,965			139.6	%
Loan servicing			100,378		79,081		21,297			26.9	%
Other			2,178		2,497		(319	)		-12.8	%

	Total revenues		508,897		279,459		229,438			82.1	%

Compensation & benefits			129,588		88,476		(41,112	)		-46.5	%
Variable servicing & processing			53,282		26,723		(26,559	)		-99.4	%
Occupancy & equipment			21,175		16,923		(4,252	)		-25.1	%
Interest expense			4,126		10,748		6,622			61.6	%
Bad debt expense			17,452		12,309		(5,143	)		-41.8	%
Amortization of acquisition intangibles			—		10,183		10,183			100.0	%
Other			43,671		32,624		(11,047	)		-33.9	%
Allocated corporate & shared costs			2,206		1,459		(747	)		-51.2	%

	Total expenses		271,500		199,445		(72,055	)		-36.1	%

Pretax earnings		$	237,397	$	80,014	$	157,383			196.7	%

EBITDA		$	248,005	$	96,975	$	151,030			155.7	%

Revenues increased by $229.4 million or 82.1%, to $508.9 million, for the nine months ended January 31, 2002 compared to the same period last year. The increase is primarily due to an increase in production volume, higher excess retained interest spread earned, a favorable secondary market environment and a larger servicing portfolio.

Revenues related to the sale of mortgage loans increased by $159.5 million or 98.0% to $322.3 million over the prior year period resulting from a significant increase in loan origination volume, as well as better pricing execution on mortgage loan sales. During the nine months ended January 31, 2002, the Company’s loan origination volume increased 82.3% over the same period last year. The increase in loan production is a result of an increase in the average loan size, an increase in the size of the sales force, an improvement in the closing ratio and to a lesser extent, the declining interest rate environment. The total execution price for the nine months ended January 31, 2002 was 4.74% compared to 3.42% for the same period last year. The better execution price is partially attributable to the declining interest rate environment that has the effect of widening spreads on mortgage loan sales. Somewhat offsetting the increase in the gain on sale, losses of $29.6 million were recorded in the nine months ended January 31, 2002 related to adverse changes in the timing and amount of cash flows on certain residual interests.

Interest income for the nine months ended January 31, 2002 totaled $84.0 million, an increase of $49.0 million or 139.6% over the comparable prior year period. This increase is primarily the result of the declining interest rate environment, which improves the excess retained interest

-36-

spread earned. The excess retained interest spread for the nine months ended January 31, 2002 was 5.36% compared to 2.39% for the same period last year. Also contributing to the increase in interest income is higher interest accretion on residual interests during fiscal year 2002.

Servicing revenues increased $21.3 million to $100.4 million for the nine months ended January 31, 2002 as compared to the same period last year. The increase reflects a higher average loan servicing portfolio balance. The average servicing portfolio for the nine-month period increased 26.5% compared to the same period last year.

Pretax earnings increased $157.4 million or 196.7%, to $237.4 million for the nine months ended January 31, 2002. The improved performance is primarily due to the increase in revenues as discussed above. In addition, the higher loan volumes helped drive a decline in the net cost of origination. The increase in compensation and benefits is due to an increase in the number of employees supporting the increase in volumes. The increase in variable servicing and processing expense is due to the increase in the size of the servicing portfolio and a $8.5 million write-down of MSRs taken in fiscal 2002 to reflect a change in the assumptions underlying the related loan portfolios. The nine months ended January 31, 2002 also benefited by $10.2 million compared to the prior year from the adoption of SFAS 141 and 142. Mortgage operations’ operating profit margin of 2.91% improved 90 basis points from 2.01% in the prior year.

Investment Services

This segment is primarily engaged in offering investment advice and services through H&R Block Financial Advisors, Inc., a full-service securities broker. Financial planning and investment advice and services are offered through H&R Block Financial Advisors branch offices, and stocks, bonds, mutual funds and other products and securities are offered through a nationwide network of registered representatives at the same locations.

Results for all periods are down primarily due to bearish market conditions. The economy began to slow down in the summer of 2000 and continued to decline in the winter months and into calendar year 2001. The September 11th tragedies exacerbated the decline in investor confidence, and, as a result of these events, the exchanges were closed for four days. Similar to the rest of the industry, Investment services has been experiencing a decline in trading volumes. In addition, customer margin balances have continued to significantly decline throughout fiscal year 2002. Related to the declining margin balances, interest expense, which is mainly comprised of interest paid on customer credit balances and interest paid for securities lending which is used to finance customer margin balances, has declined in all periods presented. The Company measures the profitability of margin lending activities through net interest margin. Net interest margin is defined as interest earned on the average margin loan balance, less the cost of funding these loans. Revenues are closely linked with the overall performance of market indices and management believes that when investors are once again confident in the market, margin lending and stock transactions will increase, which will positively affect this segment’s results.

Additionally, decimalization replaced fractional trading for listed equities on January 29, 2001 and for NASDAQ equities on April 9, 2001. The impact of decimalization has reduced the dealer spread between the bid and ask prices, reducing revenue opportunities.

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Products. Continuing efforts to become an advisory-based relationship provider, a number of key initiatives occurred despite the difficult financial and market environment. Annuities were added to the product line beginning in January 2001. The Company currently conducts annuity business in twelve states, but is licensed in thirty-nine states, and will continue to add additional states to distribute the product. In the fall of 2000, the Company began offering online accounts to its customers. The number of online trades represents 8.0% of total trades for the quarter and the nine months ended January 31, 2002. Accounts with cash management features like the VISA Gold ATM/Check card, which offers customers the choice of a 1% cash rebate on every VISA Gold purchase or airline miles that can be redeemed on any airline, were offered for the first time in July 2001. In the third quarter of fiscal 2002, the Company launched fee-based services. The Investment services segment has yet to experience significant revenues from the majority of these initiatives.

Investment Services — Quarterly Operating Statistics

(actual amounts, except as indicated)


	Three months ended
	January 31,
								October 31,
	2002		2001		% change			2001		% change

Customer trades		402,016		598,754		-32.9	%		377,094		6.6	%
Customer daily average trades		6,241		9,816		-36.4	%		6,285		-0.7	%
Average commission per trade	$	64.61	$	68.61		-5.8	%	$	63.17		2.3	%
Number of active accounts		602,618		605,221		-0.4	%		608,594		-1.0	%
Average trades per active account per quarter		0.67		0.99		-32.6	%		0.62		8.1	%
Average trades per active accts per year (annualized)		2.67		3.96		-32.6	%		2.48		7.7	%
Ending balance of assets under administration (billions)	$	27.2	$	36.3		-25.0	%	$	27.1		0.7	%
Average assets per active acct	$	45,191	$	60,028		-24.7	%	$	44,448		1.7	%
Ending debit balances (000s)	$	878,000	$	1,902,200		-53.8	%	$	888,000		-1.1	%
Ending credit balances (000s)	$	865,000	$	933,300		-7.3	%	$	772,000		12.0	%

-38-

Investment Services — Three-month comparison to prior year


		Three months ended					Variance
		January 31,					Better/(worse)

		2002			2001		$			%

Commission & fee income		$	37,496		$	60,190	$	(22,694	)		-37.7	%
Margin interest income			11,642			50,381		(38,739	)		-76.9	%
Other			11,947			7,593		4,354			57.3	%

	Total revenues		61,085			118,164		(57,079	)		-48.3	%

Compensation & benefits			33,822			41,980		8,158			19.4	%
Interest expense			2,095			26,280		24,185			92.0	%
Occupancy & equipment			5,903			6,547		644			9.8	%
Depreciation & amortization			5,314			4,434		(880	)		-19.8	%
Commission, floor brokerage & fees			1,328			2,062		734			35.6	%
Amortization of acquisition intangibles			7,362			11,387		4,025			35.3	%
Other			12,030			9,218		(2,812	)		-30.5	%
Allocated corporate & shared costs			5,531			8,878		3,347			37.7	%

	Total expenses		73,385			110,786		37,401			33.8	%

Pretax earnings (loss)		$	(12,300	)	$	7,378	$	(19,678	)		—

EBITDA		$	1,014		$	23,756	$	(22,742	)		-95.7	%

Investment services revenues for the third quarter of fiscal year 2002 compared to the third quarter of 2001 decreased 48.3% to $61.1 million from $118.2 million. The overall decrease in revenues can be attributed primarily to decreased customer trading and margin lending activities.

Pretax results for Investment services for the third quarter of fiscal year 2002 compared to 2001 decreased $19.7 million to a loss of $12.3 million from pretax earnings of $7.4 million. The decrease in pretax results is primarily attributable to the decline in customer trading and customer margin activity. Total expenses decreased by 33.8% to $73.4 million from $110.8 million. As a result of the adoption of SFAS 141 and 142, Investment services amortization of acquired intangible assets declined by $4.0 million.

Commissions and fees. Total customer trades for the third quarter of fiscal year 2002 were down 32.9%. Commission and fee income decreased 37.7% to $37.5 million from $60.2 million. The average commission per trade declined 5.8%, reflecting lower dollar volume trades as compared to the previous year’s similar time period. Overall principal trading revenue, including equities, fixed income trading, underwriting, and unit investment trusts, decreased 37.4% to $10.2 million from $16.3 million in the third quarter last year. Underwriting revenues increased by $1.9 million or 157.9% from the previous third quarter, primarily due to increased demand for Trust Preferred Debt Securities. More clients have shown a greater interest in fixed rate capital securities due to the current equity market conditions. More than offsetting this increase was an 88.9% or $3.0 million decline in equity unit investment trusts (UIT) and a decline of 82.1%, or $6.8 million in equity trading.

-39-

Margin Lending. Customer margin balances fell from an average of $2.3 billion in the third quarter of 2001 to an average of $861 million for the same time period in fiscal 2002. The decrease in margin interest revenue was primarily attributable to the decline in margin balances and to a lesser extent, the declining interest rate environment. At the end of the third quarter of fiscal 2002, the Federal Funds Rate declined 375 basis points to 1.75% from 5.5% at the end of the third quarter of fiscal 2001. Net interest margin declined from 1.70% for the three months ended January 31, 2001 to 0.58% for the three months ended January 31, 2002.

Interest Expenditures. The largest decrease in expenses for the third quarter of fiscal 2002, as compared to the third quarter of fiscal 2001, was interest expense. Interest expense decreased 92.0% to $2.1 million from $26.3 million. Interest paid on customer credit balances decreased 75.6% to $1.9 million from $7.8 million. The decrease is due to smaller customer balances and lower interest rates. Customer balances fell from an average of $871 million in the third quarter of fiscal 2001 to an average of $849 million for the same time period for 2002, a decline of 2.5%. Interest paid on securities lending decreased 98.8% to $223 thousand from $18.5 million. The smaller securities lending balance reflects the decline in the margin balance, as securities lending is used to finance margin balances, which have declined significantly as noted above.

Investment Services — Three-month comparison to preceding quarter


		Fiscal Year						Variance
		2002 Quarter						Better/(worse)

		3rd			2nd			$			%

Commission & fee income		$	37,496		$	41,375		$	(3,879	)		-9.4	%
Margin interest income			11,642			17,222			(5,580	)		-32.4	%
Other			11,947			6,230			5,717			91.8	%

	Total revenues		61,085			64,827			(3,742	)		-5.8	%

Compensation & benefits			33,822			33,155			(667	)		-2.0	%
Interest expense			2,095			4,267			2,172			50.9	%
Occupancy & equipment			5,903			7,412			1,509			20.4	%
Depreciation & amortization			5,314			4,803			(511	)		-10.6	%
Commission, floor brokerage & fees			1,328			1,802			474			26.3	%
Amortization of acquisition intangibles			7,362			7,381			19			0.3	%
Other			12,030			13,414			1,384			10.3	%
Allocated corporate & shared costs			5,531			1,728			(3,803	)		-220.1	%

	Total expenses		73,385			73,962			577			0.8	%

Pretax loss		$	(12,300	)	$	(9,135	)	$	(3,165	)		-34.6	%

EBITDA		$	1,014		$	3,582		$	(2,568	)		-71.7	%

Investment services revenue for the third quarter of fiscal year 2002 compared to the second quarter of fiscal 2002 decreased 5.8% to $61.1 million from $64.8 million. The overall decrease in revenues can be attributed primarily to decreased principal trading and margin lending activities.

-40-

The pretax loss for Investment services for the third quarter of fiscal 2002, compared to the second quarter of fiscal 2002 increased 34.6% to a loss of $12.3 million from a loss of $9.1 million. The increase is primarily attributed to the decline in customer trading and customer margin activity. Total expenses decreased by 0.8% to $73.4 million from $74.0 million.

Commissions and fees. Total customer trades for the third quarter of fiscal 2002 increased 6.6% over the second quarter. Commission and fee income decreased 9.4% to $37.5 million from $41.4 million. The average commission per trade remained fairly stable over the two quarters. Commission rates charged to customers were increased in October 2001. Overall principal trading revenue, including equities, fixed income trading, underwriting, and unit investment trusts, decreased 14.0% to $10.2 million. Underwriting revenues decreased by $2.0 million or 39.1% from the second quarter of fiscal 2002, primarily due to the decrease in demand for new Trust Preferred Debt Securities. Revenue from trading equity securities decreased $591 thousand or 28.4%.

Margin Lending. Customer margin balances have declined from an average of $1.1 billion in the second quarter of fiscal 2002 to an average of $861 million in the third quarter. The decrease in margin interest revenue was primarily attributed to the decline in margin balances and to a lesser extent the declining interest rate environment. At the end of the third quarter, the Federal Funds Rate was 1.75%, a decrease of 75 basis points from the end of the second quarter. Net interest margin declined from 1.08% at the end of the second quarter to 0.58% at the end of the third quarter of fiscal 2002.

Interest Expenditures. The largest decrease in expenses for the third quarter of fiscal year 2002, as compared to the second quarter, was interest expense. Interest expense decreased 50.9% to $2.1 million from $4.3 million. Interest paid on customer credit balances decreased 41.8% to $1.9 million from $3.2 million. The decrease is due to lower interest rates. Balances increased from an average of $756 million in the second quarter of fiscal 2002 to an average of $849 million in the third quarter, an increase of 11.0%. Interest paid on securities lending decreased 78.4% to $223 thousand from $1.0 million. Since stock loans are used to finance the margin-lending portfolio, the decline in the portfolio has reduced the need for this financing.

Investment services has been undergoing the process of re-engineering and consolidation efforts (with corporate departments) to try to streamline certain activities. As a result of these efforts, a reduction in workforce occurred in October 2001 and the Company incurred severance charges of approximately $1.7 million in the second quarter.

-41-

Investment Services — Year-to-date Operating Statistics

(actual amounts, except as indicated)


	Nine months ended
	January 31,

	2002		2001		Percent change

Customer trades		1,168,453		1,871,667		-37.6	%
Customer daily average trades		6,215		9,956		-37.6	%
Average commission per trade	$	63.35	$	67.42		-6.0	%
Number of active accounts		602,618		605,221		-0.4	%
Average trades per active acct per qtr		0.65		1.03		-36.9	%
Average trades per active accounts per year (annualized)		2.6		4.12		-36.9	%
Ending balance of assets under administration (billions)	$	27.2	$	36.3		-25.0	%
Average assets per active account	$	45,191	$	60,028		-24.7	%
Ending debit balances (000s)	$	878,000	$	1,902,200		-53.8	%
Ending credit balances (000s)	$	865,000	$	933,300		-7.3	%

Investment Services — Nine-month comparison to prior year


		Nine months ended					Variance
		January 31,					Better/(worse)

		2002			2001		$			%

Commission & fee income		$	120,647		$	190,326	$	(69,679	)		-36.6	%
Margin interest income			50,819			168,925		(118,106	)		-69.9	%
Other			23,371			21,153		2,218			10.5	%

	Total revenues		194,837			380,404		(185,567	)		-48.8	%

Compensation & benefits			98,477			126,009		27,532			21.8	%
Interest expense			13,007			92,655		79,648			86.0	%
Occupancy & equipment			21,004			20,541		(463	)		-2.3	%
Depreciation & amortization			15,099			12,752		(2,347	)		-18.4	%
Commission, floor brokerage & fees			4,750			8,642		3,892			45.0	%
Amortization of acquisition intangibles			22,124			34,414		12,290			35.7	%
Other			38,581			39,009		428			1.1	%
Allocated corporate & shared costs			9,328			15,542		6,214			40.0	%

	Total expenses		222,370			349,564		127,194			36.4	%

Pretax earnings (loss)		$	(27,533	)	$	30,840	$	(58,373	)		—

EBITDA		$	11,413		$	79,823	$	(68,410	)		-85.7	%

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Investment services revenue for the nine months ended January 31, 2002 compared to the same period last year decreased 48.8% to $194.8 million from $380.4 million. The overall decrease in revenues can be attributed primarily to decreased customer trading and margin lending activities. Pretax results for Investment services for the nine months ended January 31, 2002 compared to the prior year decreased $58.4 million to a loss of $27.5 million from pretax earnings of $30.8 million. The decrease in pretax results is primarily attributed to the decline in customer trading and customer margin activity. Total expenses decreased by 36.4% to $222.4 million from $349.6 million. As a result of the adoption of SFAS 141 and 142, Investment services amortization of acquired intangible assets declined by $12.3 million.

Trading Volume. Total customer trades for the first nine months of 2002 declined 37.6% compared to the prior year. Commission and fee income decreased 36.6% to $120.6 million from $190.3 million. The average commission per trade declined 6.0% reflecting lower dollar volume trades as compared to the previous year’s similar time period.

Margin Lending. Customer margin balances have declined from an average of $2.6 billion for the nine months ended January 31, 2001 to an average of $1.1 billion for the same period in fiscal 2002. The decrease in margin interest revenue was primarily attributed to the decline in margin balances and to a lesser extent, lower interest rates. At the beginning of the first quarter of fiscal 2001, the Federal Funds Rate was 6.0% and by the end of the third quarter of fiscal 2002, the Federal Funds Rate was 1.75%, a decrease of 425 basis points. Net interest margin declined from 1.71% for the nine months ended January 2001 to 1.06% for the nine months ended January 2002.

Principal Trading. Overall principal trading revenue, including equities, fixed income trading, underwriting, and unit investment trusts, decreased 29.7% to $35.3 million. Underwriting revenues increased by $9.3 million or 301.9% from the nine months ended January 31, 2001, primarily due to increased demand for Trust Preferred Debt Securities. More clients have shown a greater interest in fixed rate capital securities due to the current equity market conditions. More than offsetting this increase was an 88.0% or $14.3 million decline in equity UITs and a decline of 74.4% or $14.8 million in equity trading. Client demand for equity UITs fell as many equity UITs have taken sharp down turns from initial offering prices in late fiscal 2000 and early fiscal 2001.

Interest Expenditures. The largest decrease in expenses for the first nine months of fiscal year 2002, as compared to the prior year, was interest expense. Interest expense decreased 86.0% to $13.0 million from $92.7 million. Interest paid on customer credit balances decreased 61.7% to $9.5 million from $24.8 million. The decrease is due to smaller customer balances and lower interest rates. Balances fell from an average of $910.1 million in the first nine months of fiscal 2001 to an average of $798.0 million for fiscal 2002, a decline of 12.3%. Interest paid on securities lending decreased 94.9% to $3.5 million from $67.8 million. In addition to a decline in interest rates, the lower expense is attributable to the decline in customer margin balances. Since stock loans are used to finance the margin-lending portfolio, the decline in the portfolio has reduced the need for this financing.

Investment services has been undergoing process re-engineering and consolidation efforts (with corporate departments) to streamline certain activities. As a result of these efforts, a reduction in

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workforce occurred in October 2001 and the Company incurred severance charges of approximately $1.7 million in fiscal 2002.

Business Services

This segment is primarily engaged in providing accounting, tax and consulting services to business clients and tax, estate planning, financial planning, wealth management and insurance services to individuals.

In December 2001, the segment made two acquisitions that provide significant opportunities to capitalize on existing client relationships by providing value-added services. The Company acquired a controlling interest in MyBenefitSource, an integrated payroll and benefits processing company, with an option to acquire the remaining shares. The Company also acquired 100% of Equico Resources, LLC (“Equico”), a valuation, merger and acquisition consulting company. These acquisitions were accounted for as purchases, and the results of operations for these businesses have been consolidated in the segment’s financial results since acquisition. Total cash payments related to these acquisitions totaled $28.5 million. The purchase agreements also provide for possible future contingent consideration based on achieving certain revenue, profitability and working capital targets over the next five years, and such consideration will be treated as purchase price when paid. The initial purchase price will be allocated to the net assets acquired based upon their fair values upon completion of a valuation.

In addition, the segment has acquired several accounting firms during fiscal year 2002 which have initiated a geographic presence in the Seattle and San Francisco metropolitan areas and expanded its existing presence in the New York City and Dallas metropolitan areas.

The introduction of Wealth Management services is part of a focus to provide a fully integrated approach to clients to further their business and personal financial objectives. Revenues from the initiative consist of fees relating to assets managed for clients and revenue from insurance carriers relating to alliances to provide life insurance solutions to clients. Revenues from Wealth Management services declined in the current quarter compared to due to the timing of revenues earned from insurance carriers.

A recession in manufacturing and a continuing cautious business environment have contributed to weakness in the segment’s business consulting services in the current fiscal year, which is expected to continue at least through the end of the fiscal year.

Due to the seasonal nature of this segment’s business, third quarter and year-to-date results are not indicative of the expected results for the entire fiscal year.

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Business Services — Three-month comparison to prior year


		Three months ended				Variance
		January 31,				Better/(worse)

		2002		2001		$			%

Accounting, consulting & tax		$	79,784	$	76,537	$	3,247			4.2	%
Product sales			4,742		5,654		(912	)		-16.1	%
Management fee income			3,150		4,050		(900	)		-22.2	%
Other			6,518		6,488		30			0.5	%

	Total revenues		94,194		92,729		1,465			1.6	%

Compensation & benefits			64,311		64,288		(23	)		—
Occupancy & equipment			4,426		4,244		(182	)		-4.3	%
Depreciation & amortization			1,626		1,539		(87	)		-5.7	%
Marketing & advertising			1,249		1,389		140			10.1	%
Bad debt expense			3,457		2,721		(736	)		-27.0	%
Amortization of acquisition intangibles			3,569		8,477		4,908			57.9	%
Other			13,165		8,919		(4,246	)		-47.6	%
Allocated corporate & shared costs			611		383		(228	)		-59.5	%

	Total expenses		92,414		91,960		(454	)		-0.5	%

Pretax earnings		$	1,780	$	769	$	1,011			131.5	%

EBITDA		$	6,987	$	10,831	$	(3,844	)		-35.5	%

Business services revenues of $94.2 million increased 1.6% from $92.7 million in the quarter ended January 31, 2001. Revenues from acquisitions, net of revenue decreases from sales of businesses, accounted for a $4.9 million increase in revenues. Revenues from existing businesses decreased $3.4 million as growth in tax consulting and other services was offset by a slowdown in business consulting and wealth management revenues.

Pretax earnings improved $1.0 million as compared to the prior year quarter to $1.8 million for the quarter ended January 31, 2002. Pretax earnings improved by $5.2 million as a result of the adoption of SFAS 141 and 142. Pretax results were negatively affected by $2.1 million related to expected operating losses of two new acquisitions made during the third quarter, as well as accounting firm acquisitions made during the first nine months, which operate at a loss during this time period. Also impacting the comparison to the prior year, pretax earnings for fiscal 2001 included a gain on the sale of the assets of KSM Business Services, Inc. of $1.9 million.

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Business Services — Three-month comparison to preceding quarter


		Fiscal Year				Variance
		2002 Quarter				Better/(worse)

		3rd		2nd		$			%

Accounting, consulting & tax		$	79,784	$	79,059	$	725			0.9	%
Product sales			4,742		4,950		(208	)		-4.2	%
Management fee income			3,150		3,150		—			—
Other			6,518		4,620		1,898			41.1	%

	Total revenues		94,194		91,779		2,415			2.6	%

Compensation & benefits			64,311		62,496		(1,815	)		-2.9	%
Occupancy & equipment			4,426		4,491		65			1.4	%
Depreciation & amortization			1,626		1,521		(105	)		-6.9	%
Marketing & advertising			1,249		1,307		58			4.4	%
Bad debt expense			3,457		1,617		(1,840	)		-113.8	%
Amortization of acquisition intangibles			3,569		3,255		(314	)		-9.6	%
Other			13,165		14,103		938			6.7	%
Allocated corporate & shared costs			611		435		(176	)		-40.5	%

	Total expenses		92,414		89,225		(3,189	)		-3.6	%

Pretax earnings		$	1,780	$	2,554	$	(774	)		-30.3	%

EBITDA		$	6,987	$	7,347	$	(360	)		-4.9	%

Business services revenues of $94.2 million increased 2.6% from $91.8 million in the quarter ended October 31, 2001. Revenues from acquisitions increased sequential revenues by $4.4 million. Revenues from existing businesses decreased $2.0 million as growth in tax consulting and other services was offset by a slowdown in business consulting, accounting and tax services, and wealth management revenues.

Pretax earnings declined from $2.6 million in the quarter ended October 31, 2001 to $1.8 million earnings for the current quarter. After taking into consideration the expected losses related to the two new acquisitions of $2.1 million, pretax income increased $1.3 million. This increase is primarily due to increased earnings from tax consulting which is partially offset by decreased earnings from wealth management.

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Business Services — Nine-month comparison to prior year


		Nine months ended					Variance
		January 31,					Better/(worse)

		2002		2001			$			%

Accounting, consulting & tax		$	223,744	$	207,184		$	16,560			8.0	%
Product sales			15,057		15,621			(564	)		-3.6	%
Management fee income			8,550		9,217			(667	)		-7.2	%
Other			18,604		15,071			3,533			23.4	%

	Total revenues		265,955		247,093			18,862			7.6	%

Compensation & benefits			184,970		159,529			(25,441	)		-15.9	%
Occupancy & equipment			14,336		19,134			4,798			25.1	%
Depreciation & amortization			5,249		5,638			389			6.9	%
Marketing & advertising			3,919		4,155			236			5.7	%
Bad debt expense			8,085		6,986			(1,099	)		-15.7	%
Amortization of acquisition intangibles			10,020		23,299			13,279			57.0	%
Other			35,865		30,766			(5,099	)		-16.6	%
Allocated corporate & shared costs			1,348		1,081			(267	)		-24.7	%

	Total expenses		263,792		250,588			(13,204	)		-5.3	%

Pretax earnings (loss)		$	2,163	$	(3,495	)	$	5,658			—

EBITDA		$	17,472	$	25,586		$	(8,114	)		-31.7	%

Business services revenues of $266.0 million increased 7.6% from $247.1 million in the prior year. This increase was due to the addition of new firms and revenue from Wealth Management services and tax consulting. The effect of acquisitions completed in fiscal year 2002 plus the full nine months for mergers completed in fiscal year 2001, net of the sale of the businesses completed in fiscal year 2001, was to increase revenue for the nine months by $14.5 million or 5.8% of revenue. Growth from existing product lines was $5.1 million or 2.1% of revenue and was primarily due to Wealth Management services and tax consulting. Revenue from core tax services and general business consulting services remained relatively flat for the nine months.

Pretax results improved from a pretax loss of $3.5 million in the prior year to earnings of $2.2 million for the current year. Pretax results were positively impacted by $14.3 million as a result of the adoption of SFAS 141 and 142. This increase was partly offset by $2.1 million relating to planned operating losses for the two new acquisitions in the third quarter. In addition, fiscal 2001 included a gain on the sale of the assets of KSM Business Services, Inc. of $1.9 million.

Corporate Operations

This segment consists primarily of corporate support departments that provide services to the Company’s operating segments. These support departments consists of marketing, information technology, facilities, human resources, supply, executive, legal, finance and corporate communications. These support department costs are allocated to the Company’s operating

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segments. The Company’s captive insurance and franchise financing subsidiaries are also included within this segment.

As previously discussed, the Company adopted a new methodology for allocation of corporate services and support costs to business units. The change was made to more accurately reflect each business segment’s performance. Prior year segment results have been restated based on this allocation methodology.

The decrease in interest expense on acquisition debt is attributable to lower financing costs and payment of a portion of the acquisition debt in fiscal 2002.

Corporate Operations &
Interest Expense on Acquisition Debt — Three-month comparison to prior year


		Three months ended						Variance
		January 31,						Better/(worse)

		2002			2001			$			%

Total revenues		$	5,784		$	1,125		$	4,659			414.1	%

Compensation & benefits			20,959			17,964			(2,995	)		-16.7	%
Occupancy & equipment			7,276			4,180			(3,096	)		-74.1	%
Depreciation & amortization			6,875			5,494			(1,381	)		-25.1	%
Marketing & advertising			42,985			25,781			(17,204	)		-66.7	%
Other			25,183			33,108			7,925			23.9	%
Allocated corporate & shared costs			(80,834	)		(78,036	)		2,798			3.6	%

	Total expenses		22,444			8,491			(13,953	)		-164.3	%

Pretax loss		$	(16,660	)	$	(7,366	)	$	(9,294	)		-126.2	%

Interest expense on acquisition debt		$	19,243		$	23,988		$	4,745			19.8	%

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Corporate Operations &
Interest Expense on Acquisition Debt — Three-month comparison to preceding quarter


		Fiscal Year						Variance
		2002 Quarter						Better/(worse)

		3rd			2nd			$			%

Total revenues		$	5,784		$	(422	)	$	6,206			—

Compensation & benefits			20,959			21,468			509			2.4	%
Occupancy & equipment			7,276			5,284			(1,992	)		-37.7	%
Depreciation & amortization			6,875			5,530			(1,345	)		-24.3	%
Marketing & advertising			42,985			4,658			(38,327	)		-822.8	%
Other			25,183			18,210			(6,973	)		-38.3	%
Allocated corporate & shared costs			(80,834	)		(45,754	)		35,080			76.7	%

	Total expenses		22,444			9,396			(13,048	)		-138.9	%

Pretax loss		$	(16,660	)	$	(9,818	)	$	(6,842	)		-69.7	%

Interest expense on acquisition debt		$	19,243		$	19,360		$	117			0.6	%

Corporate Operations &
Interest Expense on Acquisition Debt — Nine-month comparison to prior year


		Nine months ended						Variance
		January 31,						Better/(worse)

		2002			2001			$			%

Total revenues		$	7,444		$	3,264		$	4,180			128.1	%

Compensation & benefits			59,593			45,369			(14,224	)		-31.4	%
Occupancy & equipment			16,943			10,648			(6,295	)		-59.1	%
Depreciation & amortization			18,217			15,036			(3,181	)		-21.2	%
Marketing & advertising			49,092			30,210			(18,882	)		-62.5	%
Other			58,037			65,817			7,780			11.8	%
Allocated corporate & shared costs			(162,521	)		(144,550	)		17,971			12.4	%

	Total expenses		39,361			22,530			(16,831	)		-74.7	%

Pretax loss		$	(31,917	)	$	(19,266	)	$	(12,651	)		-65.7	%

Interest expense on acquisition debt		$	60,001		$	75,760		$	15,759			20.8	%

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FINANCIAL CONDITION

These comments should be read in conjunction with the Consolidated Balance Sheets and Consolidated Statements of Cash Flows found on pages 1 and 3, respectively.

Liquidity and capital resources

Cash used in operations totaled to $994.2 million during the nine months ended January 31, 2002 as compared to $975.8 million in the prior year. The primary use of cash in operations for the current nine months is the net funding of participations in RAL receivables totaling $702.0 million. Cash used in operations was impacted by the net loss from operations of $29.2 million for the nine months compared to a net loss of $96.9 million one year ago.

Cash expenditures during the first nine months of fiscal year 2002 relating to investing and financing activities include the purchase of property and equipment ($71.3 million), business acquisitions ($44.4 million), payments on acquisition debt ($49.5 million), payment of dividends ($86.3 million) and the acquisition of treasury shares ($165.4 million net of the proceeds of stock options exercised).

Cash and cash equivalents, including restricted balances, totaled $640.2 million at January 31, 2002. HRBFA held $305.3 million of the $640.2 million, of which $101.9 million was segregated in a special reserve account for the exclusive benefit of customers pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934. The restricted cash balance has grown from $16.0 million at the beginning of fiscal 2002 to $101.9 million as of January 31, 2002. Customer credit balances have become larger than customer debit balances due to the significant decline in margin loan balances resulting from the slowing economy, while customer credit balances have increased slightly during the period. The remaining cash and cash equivalents held by HRBFA reflect excess cash remaining from the firm and clients after funding margin debits and security settlements. The balance of cash and cash equivalents held outside of HRBFA largely reflects management’s decision to hold excess cash to ensure on-hand liquidity through the peak RAL season.

Working capital decreased to $18.2 million at January 31, 2002 from $282.8 million at April 30, 2001. The working capital ratio at January 31, 2002 is 1.01 to 1, compared to 1.14 to 1 at April 30, 2001. The decrease in working capital and the working capital ratio is attributable to the seasonal nature of the business. Historically, a large portion of tax return preparation occurs in the fourth quarter and has the effect of increasing certain assets and liabilities during the fourth quarter, including cash and cash equivalents, receivables, accrued salaries, wages and payroll taxes and accrued taxes on earnings.

The Company’s capital expenditures, dividend payments, share repurchases, business acquisitions, RAL participation fundings and normal operating activities during the first nine months were funded through both internally-generated funds and short-term borrowings. At January 31, 2002, short-term borrowings were $1.64 billion compared with a zero balance at April 30, 2001. The Company receives the majority of its operational cash inflows in the fourth quarter due to the seasonal nature of the U.S. tax operations segment. As such, the Company intends to reduce its short-term borrowings to zero at April 30, 2002 for the second consecutive year.

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The Company’s commercial paper borrowings are supported by a $1.93 billion unsecured, committed credit facility provided by a consortium of 20 financial institutions. This credit facility is subject to annual renewal in October. Access to the credit facility is not impacted by the Company’s credit ratings. In addition, the Company entered into a $500 million credit facility for the period of February 1, 2002 through February 22, 2002. The purpose of the additional facility was to ensure sufficient liquidity to fund the RAL product through the peak period. Both credit facilities remain undrawn.

The Company incurs short-term borrowings by issuing commercial paper. Access to the commercial paper market can be impacted by numerous factors including, but not limited to, a downgrade of the Company’s short-term credit ratings and market factors outside of the Company’s control. In the event of impaired access to the commercial paper market, other sources of liquidity could include cash, the above mentioned credit facility, other uncommitted bank borrowings, medium- and long-term debt issuance and asset securitization.

The Company originates non-conforming and conforming mortgage loans daily. In an effort to reduce the Company’s capital investment in its mortgage operations, the Company entered into third-party off-balance sheet arrangements beginning in April 2000, renewable annually. The arrangements, which are not guaranteed by the Company, have freed up cash and short-term borrowing capacity ($1.83 billion at January 31, 2002), while still enabling the Company to have access to liquidity in the secondary market for mortgage loans. The mortgage loans are originated and the money is provided to the borrower using internal funds. On the same day the loan is originated, it is sold in a whole-loan sale (in accordance with Statement of Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”) to a third-party trust (Trust). The Trust purchases the loans from the Company utilizing the warehouse financing that the Company has arranged. The Trust is solely responsible for paying principal and interest on the warehouse financing arrangement. As a result of the whole-loan sale to the Trust, the Company records a receivable from the Trust for a portion of the net spread that the Trust has earned while holding the mortgage loans. This receivable is included in prepaid and other current assets on the consolidated balance sheet. The Company then pledges its receivable to a securitization trust and the Trust pledges the related mortgage loans to the securitization trust to reconstitute the loans. The securitization trust then securitizes the mortgage loans. At this point, the Company’s receivable is recharacterized as a residual interest from the securitized mortgage loans. To enable the Company to receive cash for its residual interests earlier, the Company then securitizes its residual interests in a net interest margin (NIM) transaction. From the NIM transaction, the Company receives cash and retains a residual interest that is much smaller than the original residual interest. These residual interests are classified as available-for-sale and are included in Investments in available-for-sale marketable securities on the consolidated balance sheet.

The Company has also begun receiving cash collections from its residual interests issued in 2000. Cash received on these residual interests in the third quarter was $24.3 million. The receipt of cash reduces the residual interest on the consolidated balance sheet.

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The Company has commitments to fund mortgage loans of $2.0 billion at January 31, 2002, subject to contract verification. External market forces impact the probability of loan commitments being closed, and therefore, total commitments outstanding do not necessarily represent future cash requirements. If the loan commitments are exercised, they will be funded using the Company’s third-party off-balance sheet arrangements.

In March 2000, the Company’s Board of Directors approved an authorization to repurchase up to 12 million shares of its common stock. Repurchases under the March 2000 authorization were completed in September 2001. On September 12, 2001, the Company’s Board of Directors authorized the repurchase of an additional 15 million shares of common stock. In the first nine months of fiscal 2002, the Company repurchased 9.7 million shares (split-adjusted) pursuant to these authorizations at an aggregate price of $352.2 million or an average price of $36.32 per share. There are approximately 11.1 million shares remaining under the September 2001 authorization. The Company plans to continue to purchase its shares on the open market in accordance with this authorization, subject to various factors including the price of the stock, the ability to maintain progress toward a financial and capital structure that will support a mid single A rating, the availability of excess cash, the ability to maintain liquidity and financial flexibility, securities laws restrictions and other investment opportunities available.

There have been no changes during this fiscal year to the Company’s long- or short-term credit ratings of A3/P2 by Moody’s, BBB+/A2 by Standard and Poor’s, and A/F1 by Fitch.

Forward-looking information

The information contained in this Form 10-Q and the exhibits hereto may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based upon current information, expectations, estimates and projections regarding the Company, the industries and markets in which the Company operates, and management’s assumptions and beliefs relating thereto. Words such as “will,” “plan,” “expect,” “remain,” “intend,” “estimate,” “approximate,” and variations thereof and similar expressions are intended to identify such forward-looking statements. These statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such forward-looking statements. Such differences could be caused by a number of factors including, but not limited to, the uncertainty of laws, legislation, regulations, supervision and licensing by Federal, state and local authorities and their impact on any lines of business in which the Company’s subsidiaries are involved; unforeseen compliance costs; the uncertainty that the Company will achieve or exceed its revenue, earnings, earnings per share, client and pricing growth goals and expectations for fiscal year 2002; changes in economic, political or regulatory environments; changes in competition and the effects of such changes; the inability to implement the Company’s strategies; changes in management and management strategies; the Company’s inability to successfully design, create, modify and operate its computer systems and networks; the uncertainty that actual future excess cash flows from residual interests in securitizations of REMIC certificates and mortgage servicing rights will differ from estimated future excess cash flows from such items; the ability of the Company to complete a NIM transaction on existing residual interests; that the level of growth experienced in U.S. tax operations in the third quarter

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and early tax season will continue throughout the remainder of the tax season and fiscal year; litigation involving the Company; the uncertainty of the impact of any share repurchases on earnings per share; and risks described from time to time in reports and registration statements filed by the Company and its subsidiaries with the Securities and Exchange Commission. Readers should take these factors into account in evaluating any such forward-looking statements. The Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from those reported at April 30, 2001.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

CompuServe Corporation (CompuServe), certain current and former officers and directors of CompuServe and the Company were named as defendants in six lawsuits in state and Federal courts in Columbus, Ohio. All suits alleged similar violations of the Securities Act of 1933 based on assertions of omissions and misstatements of fact in connection with CompuServe’s public filings related to its initial public offering in April 1996. One state lawsuit brought by the Florida State Board of Administration also alleged certain oral omissions and misstatements in connection with such offering. Relief sought in the lawsuits was unspecified, but included pleas for rescission and damages.

In the class action pending in state court, the court issued, in November 2000, its order approving a settlement pursuant to which the defendants agreed to pay a gross settlement amount of $9.5 million. Payment of plaintiffs’ attorneys’ fees and expenses were to be paid out of the gross settlement fund. The gross settlement fund was paid in its entirety by the Company’s insurance carrier. The agreement to settle and payment of the gross settlement fund are not admissions of the validity of any claim or any fact alleged by the plaintiffs and defendants continue to deny any wrongdoing and any liability.

The Florida State Board of Administration opted out of the class action settlement and that litigation continues separately from the state court class action. The parties have reached a settlement that will dispose of the case in its entirety with no material adverse impact on the Company’s consolidated financial position or results of operations.

The lawsuits discussed herein were previously reported in Forms 10-K and 10-Q filed by the Company, including the quarterly reports on Form 10-Q for the periods ending July 31, 2001 and October 31, 2001.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a) Exhibits

10.1 Employment Agreement between HRB Management, Inc and David F. Byers
fully executed as of February 1, 2002.

10.2 Employment Agreement between Option One Mortgage Corporation and Robert D. Dubrish
executed on February 9, 2002.

10.3 Employment Agreement dated as of September 12, 2001, between HRB Management, Inc. and James H. Ingraham,
fully executed as of February 1, 2002.

10.4 Employment Agreement dated as of November 5, 2001, between
H&R Block Financial Advisors, Inc. and Brian L. Nygaard.

10.5 Employment Agreement dated as of January 28, 2002, between
HRB Management, Inc. and Stephanie R. Otto.

10.6 Employment Agreement dated as of November 1, 2001, between
H&R Block Tax Services, Inc. and Thomas L. Zimmerman.

b) Reports on Form 8-K

The registrant did not file any reports on Form 8-K during the third quarter of fiscal year 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		H&R BLOCK, INC. (Registrant)

DATE 3/18/02	BY	/s/ Frank J. Cotroneo Frank J. Cotroneo Senior Vice President and Chief Financial Officer

DATE 3/18/02	BY	/s/ Cheryl L. Givens Cheryl L. Givens Vice President and Corporate Controller

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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT


                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
_____________, 2001, by and between HRB Management, Inc., a Missouri corporation
(the "Company"), and David F. Byers ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective June 30, 2001
(the "Employment Date"), the Company hereby employs Executive to serve in the
capacity set forth in Section 1.02, and Executive hereby accepts such employment
by the Company, subject to the terms of this Agreement. The Company reserves the
right, in its sole discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as the
Senior Vice President and Chief Marketing Officer of H&R Block, Inc., a Missouri
corporation ("Block") and the indirect parent corporation of the Company,
subject to the authority and direction of the Board of Directors of Block and
the Chief Executive Officer of Block. Subject to the foregoing, Executive will
have such authority and responsibility and duties as are normally associated
with the position of Senior Vice President and Chief Marketing Officer. The
Company reserves the right to modify, delete, add, or otherwise change
Executive's job responsibilities, in its sole discretion, at any time. Executive
will perform such other duties as are assigned to Executive from time to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of Block, the Company, and/or
any other direct or indirect subsidiary of Block (each such other subsidiary an
"Affiliate") may be subject to governmental regulation, some of which may
require Executive to submit to background investigation as a condition of Block,
the Company, and/or Affiliates' participation in certain activities subject to
such regulation. If Executive, Block, the Company, or Affiliates are unable to
participate, in whole or in part, in any such activity as the result of any
action or inaction on the part of Executive, then this Agreement and Executive's
employment hereunder may be terminated by


                                       1

the Company without notice.

                  1.03 - Compensation. The Company will pay to Executive a gross
salary at an annual rate of $250,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  1.04 - June 30, 2001 Stock Option Grant. As additional
consideration for entering into this Agreement, Executive was granted as of June
30, 2001, a stock option under Block's 1993 Long-Term Executive Compensation
Plan, as amended (the "1993 Plan") to purchase 25,000 shares of Block's common
stock at an option price per share equal to $64.55, such stock option being
conditioned on the entry into this Agreement and otherwise having terms and
conditions consistent with the terms and conditions of options granted to other
senior executive officers of Block and its subsidiaries.

                  1.05 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.06 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.07 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


                                       2


                  1.08 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or

                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.


                                       3


                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan); provided,
         however, (1) the "Severance Period" (as such term is defined in the
         Severance Plan) will be 18 months, notwithstanding any provision in the
         Severance Plan to the contrary, and (2) Executive will be credited with
         no less than 18 "Years of Service" (as such term is defined in the
         Severance Plan) for the purpose of determining severance compensation
         under Section 4(a)(i) of the Severance Plan as it exists on the date of
         this Agreement or the comparable section of the Severance Plan as it
         exists on Executive's Last Day of Employment, notwithstanding any
         provision in the Severance Plan to the contrary. The Severance Plan as
         it exists on the date of this Agreement is attached hereto as Exhibit
         A. Executive must notify the Company in writing within 5 business days
         after Executive's Last Day of Employment of Executive's Change of
         Control Election. Severance compensation and benefits provided under
         this Section 1.08(c) will terminate immediately if Executive violates
         Sections 3.02, 3.03, or 3.05 of this Agreement or becomes reemployed
         with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership,


                                       4


                  immediately prior to such acquisition, of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent to the date hereof, whose election, or
                  nomination for election by Block's shareholders, was approved
                  by a vote of at least a majority of the Board (or nominating
                  committee of the Board) will be considered as though such
                  individual were a member or members of the Incumbent Board,
                  but excluding, for this purpose, any such individual whose
                  initial assumption of office is in connection with an actual
                  or threatened election contest relating to the election of the
                  directors of Block (as such terms are used in Rule 14a-11 of
                  Regulation 14A promulgated under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger or consolidation approved by the shareholders of Block,
                  in each case, with respect to which all or substantially all
                  of the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment; provided, however, (1) the "Severance Period" (as such term is
defined in the Severance Plan) will be 18 months, notwithstanding any provision
in the Severance Plan to the contrary, and (2) Executive will be credited with
no less than 18 "Years of Service" (as such term is defined in the Severance
Plan) for the purpose of determining severance compensation under Section
4(a)(i) of the Severance Plan as it exists on the date of this Agreement or the
comparable section of the Severance Plan as it exists on Executive's Last Day of
Employment, notwithstanding any provision in the Severance Plan to the contrary.
The Severance Plan as it exists on the date of this Agreement is attached hereto
as


                                       5


Exhibit A. Executive must notify the Company in writing within 5 business days
after Executive's Last Day of Employment of Executive's Severance Election.
Severance compensation and benefits provided under this Section 1.08(d) will
terminate immediately if Executive violates Sections 3.02, 3.03, or 3.05 of this
Agreement or becomes reemployed with the Company or an Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section
1.08, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or
provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable


                                       6


subsidiary of Block) and its assigns, and Block (or the applicable subsidiary of
Block) is the sole owner of all patents, copyrights, trademarks, names, and
other rights in connection therewith and without regard to whether Block (or any
subsidiary of Block) is at any particular time developing or marketing the same.
Executive hereby assigns to Block any rights Executive may have or may acquire
in such Proprietary Information. At all times during and after Executive's
employment with the Company or any Affiliate, Executive will keep in strictest
confidence and trust all Proprietary Information and Executive will not use or
disclose any Proprietary Information without the written consent of Block,
except as may be necessary in the ordinary course of performing duties as an
employee of the Company or as may be required by law or the order of any court
or governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, programs, software, specifications, documentation,
data, Proprietary Information, and other materials and property of any nature
belonging to Block or any subsidiary of Block and obtained during the course of
Executive's employment with the Company. In addition, upon such termination,
Executive will not remove from the premises of Block or any subsidiary of Block
any of the foregoing or any reproduction of any of the foregoing or any
Proprietary Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees. Executive agrees and understands that it is important to protect
Block, the Company, Affiliates and their employees, agents, directors, and
clients from the unauthorized use and appropriation of Block Employee
information, Proprietary Information, and trade secret business information
developed, held, or used by Block, the Company, or Affiliates, and to protect
Block, the Company, and Affiliates and their employees, agents, directors, and
customers Executive agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to


                                       7


become an employee of or otherwise be associated with any other party or with
Executive or any company or business with which Executive is or may become
associated. The running of the 1-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of
the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services while
employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that engages in any line of business that is
competitive with any Line of Business of Block (as defined below), provided that
this Section 3.05 will not apply to Executive if Executive's primary place of
employment by the Company or an Affiliate as of the Last Day of Employment is in
either the State of California or the State of North Dakota. "Line of Business
of Block" means any line of business (including lines of business under
evaluation or development) of the Company, as well as any one or more lines of
business (including lines of business under evaluation or development) of any
Affiliate by which Executive was employed during the two-year period preceding
the Last Day of Employment,


                                       8


provided that, "Line of Business of Block" will in all events include, but not
be limited to, the income tax return preparation business, and provided further
that if Executive's employment was, as of the Last Day of Employment or during
the 2-year period immediately prior to the Last Day of Employment, with HRB
Management, Inc. or any successor entity thereto, "Line of Business of Block"
means any line of business (including lines of business under evaluation or
development) of Block and all of its subsidiaries. The running of the 2-year
period will be suspended during any period of violation and/or any period of
time required to enforce this covenant by litigation or threat of litigation.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and
enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. No modification, amendment, termination, or waiver of
this Agreement will be binding unless in writing and signed by Executive and a
duly authorized officer of the Company. Failure of the Company, Block, or
Executive to insist upon strict compliance with any of the terms, covenants, or
conditions hereof will not be deemed a waiver of such terms, covenants, and
conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the


                                       9


heirs, executors, assigns and administrators of Executive or Executive's estate
and property and will inure to the benefit of the Company, Block and their
successors and assigns. Executive may not assign or transfer to others the
obligation to perform Executive's duties hereunder. The Company may assign this
Agreement to an Affiliate with the consent of Executive, in which case, after
such assignment, the "Company" means the Affiliate to which this Agreement has
been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company. This Section 4.05 does not affect the
Company's obligation to "gross up" any relocation benefits paid to Executive
pursuant to Subsection 1.05(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 4400 Main
Street, Kansas City, Missouri 64111; and to the Company at: 4400 Main Street,
Kansas City, Missouri 64111, Attn: President, with a copy to H&R Block, Inc.,
4400 Main Street, Kansas City, Missouri 64111, Attn: Corporate Secretary; or to
such other address and/or person designated by either party in writing to the
other party. Any notice given by mail will be deemed given as of the date it is
so mailed and postmarked or received by a nationally recognized overnight
courier for delivery.


                                       10


                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.

         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                               EXECUTIVE:



Dated: 2-1-02                                  /s/ David F. Byers
       -------------------                     ---------------------------------
                                               David F. Byers

Accepted and Agreed:

HRB MANAGEMENT, INC.
a Missouri corporation

By: /s/ Mark A. Ernst
    -------------------------------------
    Mark A. Ernst
    President and Chief Executive Officer

 Dated: 1 Feb 02
        ------------------


                                       11


                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any


                                       1


         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

               Number of days since most recent employment anniversary date
               ------------------------------------------------------------
                                            365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:


                                       3




                          MINIMUM YEARS    MAXIMUM YEARS
    PAY GRADE               OF SERVICE       OF SERVICE
    ---------             -------------    -------------
                                     
81-89 and 231-235               6               18

 65-80, 109-110,                3               18
   and 218-230

 57-64, 105-108,                1               18
   and 210-217

 48-56, 100-102,                1               18
   and 200-209


3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as determined by the Participating Employer)
                  during the Severance Period beginning after the later of the
                  Termination Date or the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving


                                       4


         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.

5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i) medical;

                  (ii) dental;

                  (iii) vision;

                  (iv) employee assistance;

                  (v) medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi) life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are


                                       5


                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal Revenue Code;
                  or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the operation of
         Section 6(a), above, or otherwise, at any time during the Severance
         Period and, except in the event that the Severance Period terminates
         pursuant to Section 8(a), for a period up to 3 months after the end of
         the Severance Period (notwithstanding Section 8). Any such election
         shall apply to all outstanding incentive stock options and nonqualified
         stock options, will be irrevocable and must be made in writing and
         delivered to the Plan Administrator on or before the later of the
         Termination Date or Release Date. If the Participant fails to make an
         election, the Participant's right to exercise such options will expire
         3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)


                                       6


         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth transition between employment with the Participating
Employer and employment with another employer. Any outplacement services
provided under this Plan will be provided by an outplacement service chosen by
the Participating Employer. The Participant is not entitled to any monetary
payment in lieu of outplacement services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.

                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a


                                       7


                  subsidiary of the Company for the purpose of engaging in any
                  business transaction of the nature performed by such
                  subsidiary, or contemplated to be performed by such
                  subsidiary, for such customer, provided that this Section
                  8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.

                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.

         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may


                                       8


be entitled thereunder in accordance with the Plan. Not in limitation, but in
amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any real or alleged conflict of interest on the part of the Plan
Administrator. The decision of the Plan Administrator upon all matters within
the scope of its authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The


                                       9


                  notice must further advise the Claimant of his or her right to
                  bring a civil action under Section 502(a) of ERISA following
                  the exhaustion of the claims procedures described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are pertinent. The Claimant, or his or her duly authorized
         representative, may review and request pertinent Plan documents. The
         Plan Administrator will reexamine all facts related to the appeal and
         make a final determination as to whether the denial of benefits is
         justified under the circumstances. The Plan Administrator will advise
         the Claimant in writing of its decision within 60 days of the
         Claimant's written request for review, unless special circumstances
         (such as a hearing) require an extension of time, in which case the
         Plan Administrator will make a decision as soon as possible, but no
         later than 120 days after its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the Plan, as determined by a court of competent jurisdiction, will
not affect the validity or enforceability of any other provision of the Plan and
all other provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails


                                       10


to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued
performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.


                                       11


         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.

         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Pension and Welfare Benefits Administration.



                                       12


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                         HRB MANAGEMENT, INC.


                                         /s/ Mark A. Ernst
                                         ---------------------------------------
                                         Mark A. Ernst
                                         President and Chief Executive Officer



                                       13


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                       14


                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT


                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
_____________, 2001, by and between Option One Mortgage Corporation, a
California corporation (the "Company"), and Robert E. Dubrish ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective June 30, 2001
(the "Employment Date"), the Company hereby employs Executive to serve in the
capacity set forth in Section 1.02, and Executive hereby accepts such employment
by the Company, subject to the terms of this Agreement. The Company reserves the
right, in its sole discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as its
President and Chief Executive Officer, subject to the authority and direction of
the Board of Directors of the Company and the Chief Executive Officer of H&R
Block, Inc., a Missouri corporation ("Block") and the indirect parent of the
Company. Subject to the foregoing, Executive will have such authority and
responsibility and duties as are normally associated with the position of
President. The Company reserves the right to modify, delete, add, or otherwise
change Executive's job responsibilities, in its sole discretion, at any time.
Executive will perform such other duties as are assigned to Executive from time
to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of Block, the Company, and/or
any other direct or indirect subsidiary of Block (each such other subsidiary an
"Affiliate") may be subject to governmental regulation, some of which may
require Executive to submit to background investigation as a condition of Block,
the Company, and/or Affiliates' participation in certain activities subject to
such regulation. If Executive, Block, the Company, or Affiliates are unable to
participate, in whole or in part, in any such activity as the result of any
action or inaction on the part of Executive, then this Agreement and Executive's
employment hereunder may be terminated by


                                       1

the Company without notice.

                  1.03 - Compensation. The Company will pay to Executive a gross
salary at an annual rate of $360,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  1.04 - June 30, 2001 Stock Option Grant. As additional
consideration for entering into this Agreement, Executive was granted as of June
30, 2001, a stock option under Block's 1993 Long-Term Executive Compensation
Plan, as amended (the "1993 Plan") to purchase 30,000 shares of Block's common
stock at an option price per share equal to $64.55, such stock option being
conditioned on the entry into this Agreement and otherwise having terms and
conditions consistent with the terms and conditions of options granted to other
senior executive officers of Block and its subsidiaries.

                  1.05 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.06 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.07 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


                                       2


                  1.08 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or

                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.


                                       3


                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan). For the
         purpose of determining severance compensation and benefits as would be
         provided under the Severance Plan, Executive will be deemed to be in
         the highest pay grade range listed in the Severance Plan. The Severance
         Plan as it exists on the date of this Agreement is attached hereto as
         Exhibit A. Executive must notify the Company in writing within 5
         business days after Executive's Last Day of Employment of Executive's
         Change of Control Election. Severance compensation and benefits
         provided under this Section 1.08(c) will terminate immediately if
         Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement or
         becomes reemployed with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of
                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the


                                       4


                  "Incumbent Board") cease for any reason to constitute at least
                  a majority of the Board, provided that any individual or
                  individuals becoming a director subsequent to the date hereof,
                  whose election, or nomination for election by Block's
                  shareholders, was approved by a vote of at least a majority of
                  the Board (or nominating committee of the Board) will be
                  considered as though such individual were a member or members
                  of the Incumbent Board, but excluding, for this purpose, any
                  such individual whose initial assumption of office is in
                  connection with an actual or threatened election contest
                  relating to the election of the directors of Block (as such
                  terms are used in Rule 14a-11 of Regulation 14A promulgated
                  under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger or consolidation approved by the shareholders of Block,
                  in each case, with respect to which all or substantially all
                  of the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment. For the purpose of determining severance compensation and
benefits as would be provided under the Severance Plan, Executive will be deemed
to be in the highest pay grade range listed in the Severance Plan. The Severance
Plan as it exists on the date of this Agreement is attached hereto as Exhibit A.
Executive must notify the Company in writing within 5 business days after
Executive's Last Day of Employment of Executive's Severance Election. Severance
compensation and benefits provided under this Section 1.08(d) will terminate
immediately if Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement
or becomes reemployed with the Company or an Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section


                                       5


1.08, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or
provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole owner of all patents, copyrights,
trademarks, names, and other rights in connection therewith and without regard
to whether Block (or any subsidiary of Block) is at any particular time
developing or marketing the same. Executive hereby assigns to Block any rights
Executive may have or may acquire in such Proprietary Information. At all times
during and after Executive's employment with the Company or any Affiliate,
Executive will keep in strictest confidence and trust all Proprietary
Information and Executive will not use or disclose any Proprietary Information
without the written consent of Block, except as may be necessary in the ordinary
course of performing duties as an employee of the Company or as may be required
by law or the order of any court or


                                       6


governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, programs, software, specifications, documentation,
data, Proprietary Information, and other materials and property of any nature
belonging to Block or any subsidiary of Block and obtained during the course of
Executive's employment with the Company. In addition, upon such termination,
Executive will not remove from the premises of Block or any subsidiary of Block
any of the foregoing or any reproduction of any of the foregoing or any
Proprietary Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees. Executive agrees and understands that it is important to protect
Block, the Company, Affiliates and their employees, agents, directors, and
clients from the unauthorized use and appropriation of Block Employee
information, Proprietary Information, and trade secret business information
developed, held, or used by Block, the Company, or Affiliates, and to protect
Block, the Company, and Affiliates and their employees, agents, directors, and
customers Executive agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to become an employee of
or otherwise be associated with any other party or with Executive or any company
or business with which Executive is or may become associated. The running of the
1-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of


                                       7


the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services while
employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that engages in any line of business that is
competitive with any Line of Business of Block (as defined below), provided that
this Section 3.05 will not apply to Executive if Executive's primary place of
employment by the Company or an Affiliate as of the Last Day of Employment is in
either the State of California or the State of North Dakota. "Line of Business
of Block" means any line of business (including lines of business under
evaluation or development) of the Company, as well as any one or more lines of
business (including lines of business under evaluation or development) of any
Affiliate by which Executive was employed during the two-year period preceding
the Last Day of Employment, provided that, "Line of Business of Block" will in
all events include, but not be limited to, the income tax return preparation
business, and provided further that if Executive's employment was, as of the
Last Day of Employment or during the 2-year period immediately prior to the Last
Day of Employment, with HRB Management, Inc. or any successor entity thereto,
"Line of Business of Block" means any line of business (including lines of
business under evaluation or development) of Block and all of its subsidiaries.
The running of the 2-year period will be suspended during any period of
violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.


                                       8


                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and
enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. No modification, amendment, termination, or waiver of
this Agreement will be binding unless in writing and signed by Executive and a
duly authorized officer of the Company. Failure of the Company, Block, or
Executive to insist upon strict compliance with any of the terms, covenants, or
conditions hereof will not be deemed a waiver of such terms, covenants, and
conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will inure to the benefit of the Company,
Block and their successors and assigns. Executive may not assign or transfer to
others the obligation to perform Executive's duties hereunder. The Company may
assign this Agreement to an Affiliate with the consent of Executive, in which
case, after such assignment, the "Company" means the Affiliate to which this
Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings.


                                       9


Executive remains primarily liable to such authorities for such taxes and
charges to the extent not actually paid by the Company. This Section 4.05 does
not affect the Company's obligation to "gross up" any relocation benefits paid
to Executive pursuant to Subsection 1.05(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 3 Aida, Irvine,
California 92618; and to the Company at: 3 Aida, Irvine, California 92618, Attn:
Corporate Secretary, with a copy to H&R Block, Inc., 4400 Main Street, Kansas
City, Missouri 64111, Attn: Corporate Secretary; or to such other address and/or
person designated by either party in writing to the other party. Any notice
given by mail will be deemed given as of the date it is so mailed and postmarked
or received by a nationally recognized overnight courier for delivery.

                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.


                                       10

         4.11 - Binding Effect. This Agreement is effective only when executed
by an officer of the Company and approved in writing by the President and Chief
Executive Officer of Block.

         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                                  EXECUTIVE:



Dated:                                            /s/ Robert E. Dubrish
       ----------------                           ------------------------------
                                                  Robert E. Dubrish


ACCEPTED AND AGREED:

OPTION ONE MORTGAGE CORPORATION
a California corporation

By: /s/ Robert E. Dubrish
    -------------------------------------
    Robert E. Dubrish
    President and Chief Executive Officer

Dated:
       ---------------



APPROVED:

H&R Block, Inc.
a Missouri corporation

By: /s/ Mark A. Ernst
    -------------------------------------
    Mark A. Ernst
    President and Chief Executive Officer

Dated: 9 Feb 02
       ---------------


                                       11


                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any


                                       1


         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

               Number of days since most recent employment anniversary date
               ------------------------------------------------------------
                                            365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:



                        MINIMUM YEARS      MAXIMUM YEARS
    PAY GRADE             OF SERVICE         OF SERVICE
    ---------           -------------      -------------
                                     
81-89 and 231-235             6                 18

 65-80, 109-110,              3                 18
   and 218-230

 57-64, 105-108,              1                 18
   and 210-217

 48-56, 100-102,              1                 18
   and 200-209



                                       3


3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as determined by the Participating Employer)
                  during the Severance Period beginning after the later of the
                  Termination Date or the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving
         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.


                                       4


5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i) medical;

                  (ii) dental;

                  (iii) vision;

                  (iv) employee assistance;

                  (v) medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi) life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are provided under group health plans in
                  accordance with his or her rights under Section 4980B of the
                  Internal Revenue Code; or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal


                                       5


                  Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the operation of
         Section 6(a), above, or otherwise, at any time during the Severance
         Period and, except in the event that the Severance Period terminates
         pursuant to Section 8(a), for a period up to 3 months after the end of
         the Severance Period (notwithstanding Section 8). Any such election
         shall apply to all outstanding incentive stock options and nonqualified
         stock options, will be irrevocable and must be made in writing and
         delivered to the Plan Administrator on or before the later of the
         Termination Date or Release Date. If the Participant fails to make an
         election, the Participant's right to exercise such options will expire
         3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)
         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth


                                       6


transition between employment with the Participating Employer and employment
with another employer. Any outplacement services provided under this Plan will
be provided by an outplacement service chosen by the Participating Employer. The
Participant is not entitled to any monetary payment in lieu of outplacement
services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.

                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a subsidiary of the Company for the
                  purpose of engaging in any business transaction of the nature
                  performed by such subsidiary, or contemplated to be performed
                  by such subsidiary, for such customer, provided that this
                  Section 8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.


                                       7


                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.

         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may be entitled thereunder in accordance with the Plan. Not in limitation, but
in amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any


                                       8


real or alleged conflict of interest on the part of the Plan Administrator. The
decision of the Plan Administrator upon all matters within the scope of its
authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The notice must further advise the Claimant of his
                  or her right to bring a civil action under Section 502(a) of
                  ERISA following the exhaustion of the claims procedures
                  described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are


                                       9


         pertinent. The Claimant, or his or her duly authorized representative,
         may review and request pertinent Plan documents. The Plan Administrator
         will reexamine all facts related to the appeal and make a final
         determination as to whether the denial of benefits is justified under
         the circumstances. The Plan Administrator will advise the Claimant in
         writing of its decision within 60 days of the Claimant's written
         request for review, unless special circumstances (such as a hearing)
         require an extension of time, in which case the Plan Administrator will
         make a decision as soon as possible, but no later than 120 days after
         its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the Plan, as determined by a court of competent jurisdiction, will
not affect the validity or enforceability of any other provision of the Plan and
all other provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails
to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued


                                       10


performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.

         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.


                                       11


         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Pension and Welfare Benefits Administration.


                                       12


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                          HRB MANAGEMENT, INC.


                                          /s/ Mark A. Ernst
                                          --------------------------------------
                                          Mark A. Ernst
                                          President and Chief Executive Officer


                                       13


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                       14


                                                                    EXHIBIT 10.3


                              EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
September 12, 2001, by and between HRB Management, Inc., a Missouri corporation
(the "Company"), and James H. Ingraham ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective September 12,
2001 (the "Employment Date"), the Company hereby employs Executive to serve in
the capacity set forth in Section 1.02, and Executive hereby accepts such
employment by the Company, subject to the terms of this Agreement. The Company
reserves the right, in its sole discretion, to change the title of Executive at
any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as the
Senior Vice President, General Counsel and Secretary of H&R Block, Inc., a
Missouri corporation ("Block") and the indirect parent corporation of the
Company, subject to the authority and direction of the Board of Directors of
Block and the Chief Executive Officer of Block. Subject to the foregoing,
Executive will have such authority and responsibility and duties as are normally
associated with the position of Senior Vice President, General Counsel and
Secretary. The Company reserves the right to modify, delete, add, or otherwise
change Executive's job responsibilities, in its sole discretion, at any time.
Executive will perform such other duties as are assigned to Executive from time
to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of Block, the Company, and/or
any other direct or indirect subsidiary of Block (each such other subsidiary an
"Affiliate") may be subject to governmental regulation, some of which may
require Executive to submit to background investigation as a condition of Block,
the Company, and/or Affiliates' participation in certain activities subject to
such regulation. If Executive, Block, the Company, or Affiliates are unable to
participate, in whole or in part, in any such activity as the result of any
action or inaction on the part of Executive, then this Agreement and Executive's
employment hereunder may be terminated by


                                       1


the Company without notice.

                  1.03 - Compensation.

                  (a) Base Salary. The Company will pay to Executive a gross
salary at an annual rate of $200,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  (b) Base Salary Increase. The parties acknowledge and agree
that (i) the Base Salary set forth in Section 1.03(a) above includes a $32,000
increase over the annual rate of base salary paid by the Company to Executive
prior to the Employment Date, (ii) said increase is in connection with
Executive's promotion to Senior Vice President, General Counsel and Secretary of
Block, and (iii) said increase constitutes additional consideration for the
entry by the parties into this Agreement.

                  1.04 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.05 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.

                  1.06 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or


                                       2


                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.

                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan). The
         Severance


                                       3


         Plan as it exists on the date of this Agreement is attached hereto as
         Exhibit A. Executive must notify the Company in writing within 5
         business days after Executive's Last Day of Employment of Executive's
         Change of Control Election. Severance compensation and benefits
         provided under this Section 1.06(c) will terminate immediately if
         Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement or
         becomes reemployed with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of
                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent to the date hereof, whose election, or
                  nomination for election by Block's shareholders, was approved
                  by a vote of at least a majority of the Board (or nominating
                  committee of the Board) will be considered as though such
                  individual were a member or members of the Incumbent Board,
                  but excluding, for this purpose, any such individual whose
                  initial assumption of office is in connection with an actual
                  or threatened election contest relating to the election of the
                  directors of Block (as such terms are used in Rule 14a-11 of
                  Regulation 14A promulgated under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger, or consolidation approved by the shareholders of
                  Block, in each case, with respect to which all or
                  substantially all of the individuals and entities who were the
                  respective beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or


                                       4


                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment. The Severance Plan as it exists on the date of this Agreement is
attached hereto as Exhibit A. Executive must notify the Company in writing
within 5 business days after Executive's Last Day of Employment of Executive's
Severance Election. Severance compensation and benefits provided under this
Section 1.06(d) will terminate immediately if Executive violates Sections 3.02,
3.03, or 3.05 of this Agreement or becomes reemployed with the Company or an
Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section
1.06, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or
provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered


                                       5


access to information that has been created, developed, or acquired by Block and
its subsidiaries or otherwise become known to Block and its subsidiaries and
which has commercial value in the businesses in which Block and its subsidiaries
have been and will be engaged and has not been publicly disclosed by Block. All
information described above is hereinafter called "Proprietary Information." By
way of illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole owner of all patents, copyrights,
trademarks, names, and other rights in connection therewith and without regard
to whether Block (or any subsidiary of Block) is at any particular time
developing or marketing the same. Executive hereby assigns to Block any rights
Executive may have or may acquire in such Proprietary Information. At all times
during and after Executive's employment with the Company or any Affiliate,
Executive will keep in strictest confidence and trust all Proprietary
Information and Executive will not use or disclose any Proprietary Information
without the written consent of Block, except as may be necessary in the ordinary
course of performing duties as an employee of the Company or as may be required
by law or the order of any court or governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, programs, software, specifications, documentation,
data, Proprietary Information, and other materials and property of any nature
belonging to Block or any subsidiary of Block and obtained during the course of
Executive's employment with the Company. In addition, upon such termination,
Executive will not remove from the premises of Block or any subsidiary of Block
any of the foregoing or any reproduction of any of the foregoing or any
Proprietary Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block


                                       6


Employees") and, in addition to Executive's access to such information,
Executive may, during (and in the course of) Executive's employment by the
Company, develop relationships with such Block Employees whereby information
valuable to Block and its subsidiaries concerning the Block Employees was
acquired by Executive. Such information includes, without limitation: the
identity, skills, and performance levels of the Block Employees, as well as
compensation and benefits paid by Block to such Block Employees. Executive
agrees and understands that it is important to protect Block, the Company,
Affiliates and their employees, agents, directors, and clients from the
unauthorized use and appropriation of Block Employee information, Proprietary
Information, and trade secret business information developed, held, or used by
Block, the Company, or Affiliates, and to protect Block, the Company, and
Affiliates and their employees, agents, directors, and customers Executive
agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to become an employee of
or otherwise be associated with any other party or with Executive or any company
or business with which Executive is or may become associated. The running of the
1-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of
the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services while
employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such


                                       7


obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act (except to the extent
that such act constitutes the practice of law) as an officer, director or
employee of, or consultant, advisor or lender to, any firm, corporation,
partnership, limited liability company, institution, business, government
agency, or entity that engages in any line of business that is competitive with
any Line of Business of Block (as defined below), provided that this Section
3.05 will not apply to Executive if Executive's primary place of employment by
the Company or an Affiliate as of the Last Day of Employment is in either the
State of California or the State of North Dakota. "Line of Business of Block"
means any line of business (including lines of business under evaluation or
development) of the Company, as well as any one or more lines of business
(including lines of business under evaluation or development) of any Affiliate
by which Executive was employed during the two-year period preceding the Last
Day of Employment, provided that, "Line of Business of Block" will in all events
include, but not be limited to, the income tax return preparation business, and
provided further that if Executive's employment was, as of the Last Day of
Employment or during the 2-year period immediately prior to the Last Day of
Employment, with HRB Management, Inc. or any successor entity thereto, "Line of
Business of Block" means any line of business (including lines of business under
evaluation or development) of Block and all of its subsidiaries. The running of
the 2-year period will be suspended during any period of violation and/or any
period of time required to enforce this covenant by litigation or threat of
litigation. Nothing in this Section 3.05 is to be construed to limit in any
manner Executive's ability to practice law after employment with the Company or
to be inconsistent with any state or local rules of professional conduct that
govern Executive's conduct as a lawyer.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and
enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party


                                       8


beneficiary as to the obligations imposed upon Executive under this Agreement
and as to the rights and privileges to which the Company is entitled pursuant to
this Agreement, and that Block is entitled to all of the rights and privileges
associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. No modification, amendment, termination, or waiver of
this Agreement will be binding unless in writing and signed by Executive and a
duly authorized officer of the Company. Failure of the Company, Block, or
Executive to insist upon strict compliance with any of the terms, covenants, or
conditions hereof will not be deemed a waiver of such terms, covenants, and
conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will inure to the benefit of the Company,
Block and their successors and assigns. Executive may not assign or transfer to
others the obligation to perform Executive's duties hereunder. The Company may
assign this Agreement to an Affiliate with the consent of Executive, in which
case, after such assignment, the "Company" means the Affiliate to which this
Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company.

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.


                                       9


                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 4400 Main
Street, Kansas City, Missouri 64111; and to the Company at: 4400 Main Street,
Kansas City, Missouri 64111, Attn: President; or to such other address and/or
person designated by either party in writing to the other party. Any notice
given by mail will be deemed given as of the date it is so mailed and postmarked
or received by a nationally recognized overnight courier for delivery.

                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.

         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                              EXECUTIVE:



Dated: January 30, 2002                       /s/ James H. Ingraham
       --------------------                   ----------------------------------
                                              James H. Ingraham

Accepted and Agreed:

HRB MANAGEMENT, INC.
a Missouri corporation

By: /s/ Mark A. Ernst
    -------------------------------------
    Mark Ernst
    President and Chief Executive Officer

Dated: 1 Feb 02
       -------------------



                                       10



                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any


                                       1


         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

               Number of days since most recent employment anniversary date
               ------------------------------------------------------------
                                            365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:



                            MINIMUM YEARS         MAXIMUM YEARS
    PAY GRADE                OF SERVICE            OF SERVICE
    ---------               -------------         -------------
                                            
81-89 and 231-235                 6                    18

 65-80, 109-110,                  3                    18
   and 218-230

 57-64, 105-108,                  1                    18
   and 210-217

 48-56, 100-102,                  1                    18
   and 200-209



                                       3


3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as determined by the Participating Employer)
                  during the Severance Period beginning after the later of the
                  Termination Date or the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving
         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.


                                       4


5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i) medical;

                  (ii) dental;

                  (iii) vision;

                  (iv) employee assistance;

                  (v) medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi) life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are provided under group health plans in
                  accordance with his or her rights under Section 4980B of the
                  Internal Revenue Code; or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal


                                       5


                  Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the operation of
         Section 6(a), above, or otherwise, at any time during the Severance
         Period and, except in the event that the Severance Period terminates
         pursuant to Section 8(a), for a period up to 3 months after the end of
         the Severance Period (notwithstanding Section 8). Any such election
         shall apply to all outstanding incentive stock options and nonqualified
         stock options, will be irrevocable and must be made in writing and
         delivered to the Plan Administrator on or before the later of the
         Termination Date or Release Date. If the Participant fails to make an
         election, the Participant's right to exercise such options will expire
         3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)
         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth


                                       6


transition between employment with the Participating Employer and employment
with another employer. Any outplacement services provided under this Plan will
be provided by an outplacement service chosen by the Participating Employer. The
Participant is not entitled to any monetary payment in lieu of outplacement
services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.

                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a subsidiary of the Company for the
                  purpose of engaging in any business transaction of the nature
                  performed by such subsidiary, or contemplated to be performed
                  by such subsidiary, for such customer, provided that this
                  Section 8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.


                                       7


                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.

         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may be entitled thereunder in accordance with the Plan. Not in limitation, but
in amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any


                                       8


real or alleged conflict of interest on the part of the Plan Administrator. The
decision of the Plan Administrator upon all matters within the scope of its
authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The notice must further advise the Claimant of his
                  or her right to bring a civil action under Section 502(a) of
                  ERISA following the exhaustion of the claims procedures
                  described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are


                                       9


         pertinent. The Claimant, or his or her duly authorized representative,
         may review and request pertinent Plan documents. The Plan Administrator
         will reexamine all facts related to the appeal and make a final
         determination as to whether the denial of benefits is justified under
         the circumstances. The Plan Administrator will advise the Claimant in
         writing of its decision within 60 days of the Claimant's written
         request for review, unless special circumstances (such as a hearing)
         require an extension of time, in which case the Plan Administrator will
         make a decision as soon as possible, but no later than 120 days after
         its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the Plan, as determined by a court of competent jurisdiction, will
not affect the validity or enforceability of any other provision of the Plan and
all other provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails
to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued


                                       10


performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.

         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.


                                       11


         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Pension and Welfare Benefits Administration.


                                       12


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                    HRB MANAGEMENT, INC.


                                    /s/ Mark A. Ernst
                                    --------------------------------------------
                                    Mark A. Ernst
                                    President and Chief Executive Officer


                                       13


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                       14


                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
November 5, 2001, by and between H&R Block Financial Advisors, Inc., a Michigan
corporation (the "Company"), and Brian L. Nygaard ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective November 5, 2001
or an earlier date as agreed upon by both parties (the "Employment Date"), the
Company hereby employs Executive to serve in the capacity set forth in Section
1.02, and Executive hereby accepts such employment by the Company, subject to
the terms of this Agreement. The Company reserves the right, in its sole
discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as its
President and Chief Executive Officer, subject to the authority and direction of
the Board of Directors of the Company and the Chief Executive Officer of H&R
Block, Inc. ("Block"). Subject to the foregoing, Executive will have such
authority and responsibility and duties as are normally associated with the
position of President. The Company reserves the right to modify, delete, add, or
otherwise change Executive's job responsibilities, in its sole discretion, at
any time. Executive will perform such other duties as are assigned to Executive
from time to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of Block, the Company, and/or
any other direct or indirect subsidiary of Block (each such other subsidiary an
"Affiliate") may be subject to governmental regulation, some of which may
require Executive to submit to background investigation as a condition of Block,
the Company, and/or Affiliates' participation in certain activities subject to
such regulation. If Executive, Block, the Company, or Affiliates are unable to
participate, in whole or in part, in any such activity as the result of any
action or inaction on the part of Executive, then this Agreement and Executive's
employment hereunder may be terminated by the Company without notice.


                                       1


                  1.03 - Compensation.

                  (a) Base Salary. The Company will pay to Executive a gross
salary at an annual rate of $350,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  (b) Short-Term Incentive Compensation. As approved by the
Compensation Committee of the Board of Block, Executive shall participate in the
H&R Block Short-Term Incentive Plan and the discretionary short-term incentive
program. Under such Plan and program, Executive shall have an aggregate target
bonus for calendar year 2001 of $192,500 and an opportunity to earn 200% of such
target bonus. The payment of the actual award under such Plan and program shall
be based upon such performance criteria which shall be determined by the
Compensation Committee of Block. Under such Plan and program, for calendar year
2001 only, Executive's actual incentive compensation shall be prorated based
upon the number of months during such year that he is actually employed by the
Company but shall be no less than $300,000 (after such proration), provided that
Executive must remain employed through December 31, 2001 to receive any payments
under the Plan and program. Such incentive compensation shall be paid to
Executive following the completion of calendar year 2001 when the same is paid
to other senior executives of the Company. If Executive voluntarily terminates
his employment with the Company prior to the expiration of 12 months after the
Employment Date, other than for "good reason" (as defined in Section
1.07(a)(ii)) or following a "Change of Control" (as defined in Section
1.07(a)(iii) or if the Company terminates Executive with "cause" (as defined in
Section 1.07(a)(iv), Executive shall reimburse the Company 50% of Executive's
actual incentive compensation paid on account of calendar year 2001 (which in no
case will be less than $150,000) on or before the 30th day after the effective
date of such termination. In addition, Executive shall be eligible to earn
additional incentive compensation in an amount from 0% to 25% of annual base
salary based upon the assessment of the Compensation Committee of the Board of
Directors of Block or the Board of Directors of Block itself of the performance
of Block and its subsidiaries during calendar year 2002 with respect to
long-term strategic objectives. Such additional incentive compensation, if any,
shall be paid to Executive following the completion of calendar year 2002 when
the same is paid to other senior executives of the Company.

                  (c) Stock Options. As authorized under the H&R Block 1993
Long-Term Executive Compensation Plan, as amended (the "1993 Plan"), Executive
shall be granted (i) on the Employment Date a stock option under the 1993 Plan
to purchase 40,000 shares of Block's common stock at an option price per share
equal to its closing price on the New York Stock Exchange on the date of grant,
such option to expire on the tenth anniversary of the date of grant; to vest and
become exercisable as to one-third (13,333) of the shares covered thereby on the
second anniversary of the date of grant, as to an additional one-third (13,333)
of such shares on the third anniversary of the date of grant, and as to the
remaining one-third (13,334) of the shares on the fourth anniversary of the date
of grant; to be an incentive stock option for the maximum


                                       2


number of shares permitted by Internal Revenue Code Section 422 and the
regulations promulgated thereunder; to otherwise be a nonqualified stock option;
and (ii) a stock option to purchase a minimum of 50,000 shares of Block's common
stock at an option price per share equal to its closing price on the New York
Stock Exchange on the date in fiscal year 2003 on which options are granted
under the 1993 Plan to all or substantially all other senior executive officers
of Block and its subsidiaries, such stock option to have terms and conditions
consistent with the terms and conditions of options granted to such other senior
executive officers except as provided in Section 1.07(a).

                  (d) Restricted Stock. As approved by the Compensation
Committee of the Board of Block and the Board of Block itself, Executive shall
be awarded promptly after the Employment Date, 14,500 Restricted Shares of
Block's common stock under the 1993 Plan. One-third of the 14,500 shares shall
vest (i.e., the restrictions on such shares shall terminate), respectively, on
each of the first three anniversaries following such employment commencement
date (in increments of 4,833, 4,833 and 4834 whole shares). Prior to the time
such Restricted Shares are so vested, (i) such Restricted Shares shall be
nontransferable, and (ii) Executive shall be entitled to receive any cash
dividends payable with respect to unvested Restricted Shares and vote such
unvested Restricted Shares at any meeting of shareholders of Block.

                  1.04 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.05 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.06 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


                                       3


                  1.07 - Termination of Employment.

                  (a) Termination for Good Reason, Due to a Change of Control or
Without Cause.

                           (i) If Executive terminates Executive's employment
         under this Agreement for "good reason" (as defined in subsection
         1.07(a)(ii), below), or during the 180-day period following the date of
         the occurrence of a "Change of Control" (as defined in subsection
         1.07(a)(iii), below) of Block, or if the Company terminates Executive's
         employment under this Agreement for any reason other than for "cause"
         (as defined in subsection 1.07(a)(iv), below) then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan); provided,
         however, that if Executive terminates Executive's employment under this
         Agreement during the 180-day period following the date of the
         occurrence of a "Change of Control" of Block, (1) the "Severance
         Period" (as such term is defined in the Severance Plan) will be 24
         months, notwithstanding any provision in the Severance Plan to the
         contrary, (2) Executive will be credited with 24 "Years of Service" (as
         such term is defined in the Severance Plan) for the purpose of
         determining severance compensation under Section 4(a)(i) of the
         Severance Plan as it exists on the date of this Agreement or the
         comparable section of the Severance Plan as it exists on Executive's
         Last Day of Employment, notwithstanding any provision in the Severance
         Plan to the contrary, (3) Executive will receive an amount equal to
         Executive's most recent payment under the H&R Block Short-Term
         Incentive Plan and the discretionary short-term incentive program
         (except in the case of a "Change of Control" that occurs in calendar
         year 2002, in which case Executive will receive $192,500) in lieu of
         any amount calculated under Section 4(a)(ii) of the Severance Plan as
         it exists on the date of this Agreement or the comparable section of
         the Severance Plan as it exists on Executive's Last Day of Employment
         to be paid out over the Severance Period, and (4) any nonvested portion
         of stock options or nonvested Restricted Shares awarded pursuant to
         Sections 1.03(c)(i) and 1.03(d) of this Agreement shall immediately
         vest on Executive's Last Day of Employment notwithstanding any
         provision in the Severance Plan to the contrary. In the event Executive
         terminates Executive's employment under this Agreement during the
         180-day period following the date of the occurrence of a "Change of
         Control" of Block, all restrictions on any Restricted Shares awarded to
         Executive, other than the Restricted Shares awarded pursuant to Section
         1.03(d) of this Agreement, that would have vested in accordance with
         their terms by reason of lapse of time within 18 months after the
         effective date of the termination of employment (absent such
         termination of employment) shall terminate (and such Restricted Shares
         shall be fully vested) and any Restricted Shares


                                       4


         that would not have vested in accordance with their terms by reason of
         lapse of time within 18 months after the effective date of termination
         of employment shall be forfeited. In the event of the termination of
         employment by Executive for good reason, or the termination of
         employment by the Company for any reason other than for "cause," all
         restrictions on any Restricted Shares awarded to Executive, including
         the Restricted Shares awarded pursuant to Section 1.03(d) of this
         Agreement, that would have vested in accordance with their terms by
         reason of lapse of time within 18 months after the effective date of
         the termination of employment (absent such termination of employment)
         shall terminate (and such Restricted Shares shall be fully vested) and
         any Restricted Shares that would not have vested in accordance with
         their terms by reason of lapse of time within 18 months after the
         effective date of termination of employment shall be forfeited. The
         Severance Plan as it exists on the date of this Agreement is attached
         hereto as Exhibit A. Executive must notify the Company in writing
         within 5 business days after Executive's Last Day of Employment of
         Executive's Change of Control Election. Severance compensation and
         benefits provided under this Section 1.07(c) will terminate immediately
         if Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement or
         becomes reemployed with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, "good
         reason" shall mean:

                                    (A) Any material diminution in Executive's
                  duties, responsibilities, or authority as set forth in this
                  Agreement unless such diminution is a result of or due to the
                  revocation or suspension without reinstatement within 180 days
                  after such revocation or suspension of any license required by
                  law, regulation, or rule governing broker/dealers or
                  investment advisors to be held by the President and/or Chief
                  Executive Officer of the Company; or

                                    (B) Any other material breach of this
                  Agreement by the Company which is not remedied by the Company
                  within a reasonable period of time not to exceed 30 days after
                  the Company's receipt of written notice of the breach from
                  Executive.

                  To the extent that this Agreement or any agreement referred to
                  herein imposes an obligation on Block or otherwise requires
                  that Block take (or refrain from taking) any action, any
                  material breach of such obligation or requirement by Block
                  shall be treated as a material breach of this Agreement by the
                  Company.

                           (iii) For the purpose of this subsection, a "Change
         of Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in


                                       5


                  the election of directors, but excluding, for this purpose,
                  any such acquisition by Block or any of its subsidiaries, or
                  any employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of
                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent to the date hereof, whose election, or
                  nomination for election by Block's shareholders, was approved
                  by a vote of at least a majority of the Board (or nominating
                  committee of the Board) will be considered as though such
                  individual were a member or members of the Incumbent Board,
                  but excluding, for this purpose, any such individual whose
                  initial assumption of office is in connection with an actual
                  or threatened election contest relating to the election of the
                  directors of Block (as such terms are used in Rule 14a-11 of
                  Regulation 14A promulgated under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger or consolidation approved by the shareholders of Block,
                  in each case, with respect to which all or substantially all
                  of the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                           (iv) For the purpose of this subsection, "cause"
         shall mean any one or more of the following grounds:

                                    (A) Executive's gross misconduct that
                  interferes with or prejudices the proper conduct of the
                  business of Block, the Company or any Affiliate or which may
                  reasonably result in material harm to the reputation of Block,
                  the Company and/or any Affiliate; or


                                       6


                                    (B) Executive's commission of an act
                  materially and demonstrably detrimental to the good will of
                  Block or any subsidiary of Block, which act constitutes gross
                  negligence or willful misconduct by Executive in the
                  performance of Executive's material duties to Block or such
                  subsidiary; or

                                    (C) Commission by Executive of any act of
                  dishonesty or breach of trust resulting or intending to result
                  in material personal gain or enrichment of Executive at the
                  expense of Block or any subsidiary of Block; or

                                    (D) Executive's violation of Article Two or
                  Three of this Agreement; or

                                    (E) Executive's conviction of a misdemeanor
                  (involving an act of moral turpitude) or a felony; or

                                    (F) Executive's disobedience,
                  insubordination or material failure to discharge Executive's
                  duties; or

                                    (G) The revocation or suspension of any
                  license required by law, regulation, or rule governing
                  broker/dealers or investment advisors to be held by the
                  President and/or Chief Executive Officer of the Company
                  without reinstatement by the end of 180 days after such
                  revocation or suspension; or

                                    (H) Executive's suspension by the Internal
                  Revenue Service from participation in the Electronic Filing
                  Program; or

                                    (I) The inability of Executive, Block, the
                  Company, and/or an Affiliate to participate, in whole or in
                  part, in any activity subject to governmental regulation as
                  the result of any action or inaction on the part of Executive,
                  as described in Section 1.02(b); or

                                    (J) Executive's death or total and permanent
                  disability. The term "total and permanent disability" will
                  have the meaning ascribed thereto under any long-term
                  disability plan maintained by the Company or Block for
                  executives of the Company.

                  (b) Termination Due to Mutual Agreement. The parties may
terminate Executive's employment under this Agreement at any time by mutual
written agreement.

                  (c) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be


                                       7


payable by the Company, Block, or any Affiliate to Executive, except (i) as set
forth in this Section 1.07, (ii) as required by the express terms of any written
benefit plans or written arrangements maintained by the Company or Block and
applicable to Executive at the time of such termination of Executive's
employment, or (iii) as may be required by law. Any termination of this
Agreement, however, will not be effective as to Sections 3.02, 3.03 and 3.05, or
any other portions or provisions of this Agreement which, by their express
terms, require performance by either party following termination of this
Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole owner of all patents, copyrights,
trademarks, names, and other rights in connection therewith and without regard
to whether Block (or any subsidiary of Block) is at any particular time
developing or marketing the same. Executive hereby assigns to Block any rights
Executive may have or may acquire in such Proprietary Information. At all times
during and after Executive's employment with the Company or any Affiliate,
Executive will keep in strictest confidence and trust all Proprietary
Information and Executive will not use or disclose any Proprietary Information
without the written consent of Block, except as may be necessary in the ordinary
course of performing


                                       8


duties as an employee of the Company or as may be required by law or the order
of any court or governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, specifications, documentation, data, and other
materials of any nature belonging to Block or any subsidiary of Block and
obtained during the course of Executive's employment with the Company. In
addition, upon such termination, Executive will not remove from the premises of
Block or any subsidiary of Block any of the foregoing or any reproduction of any
of the foregoing or any Proprietary Information that is embodied in a tangible
medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder and during the time Executive is receiving payments hereunder, and for
a period of two (2) years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly recruit,
solicit, or hire any Block Employee or otherwise induce any such Block Employee
to leave the employment of Block (or the applicable employer-subsidiary of
Block) to become an employee of or otherwise be associated with any other party
or with Executive or any company or business with which Executive is or may
become associated. The running of the 2-year period will be suspended during any
period of violation and/or any period of time required to enforce this covenant
by litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for two (2) years after the later of Executive's Last Day of
Employment or cessation of such payments, Executive may not directly or
indirectly solicit or enter into any arrangement with any person or entity which
is, at the time of the solicitation, a significant customer of the Company or an
Affiliate for the purpose of engaging in any business transaction of the nature
performed by the Company or such Affiliate, or contemplated to be performed by
the Company or such Affiliate, for such customer, provided that this Section
3.03 will only apply to customers for whom Executive personally provided
services


                                       9


while employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition.

                  (a) During the period of Executive's employment hereunder,
Executive shall not engage in, or own or control any interest in (except as a
passive investor in less than one percent of the outstanding securities of
publicly held companies), or act as an officer, director or employee of, or
consultant, advisor or lender to, any firm, corporation, partnership, limited
liability company, institution, business, government agency, or entity that
engages in any line of business that is competitive with any Line of Business of
Block (as defined below). "Line of Business of Block" means any line of business
(including lines of business under evaluation or development) of the Company, as
well as any one or more lines of business (including lines of business under
evaluation or development) of any Affiliate by which Executive was employed
during the two-year period preceding the Last Day of Employment, provided that,
"Line of Business of Block" will in all events include, but not be limited to,
the income tax return preparation business, and provided further that if
Executive's employment was, as of the Last Day of Employment or during the
2-year period immediately prior to the Last Day of Employment, with HRB
Management, Inc. or any successor entity thereto, "Line of Business of Block"
means any line of business (including lines of business under evaluation or
development) of Block and all of its subsidiaries. The running of the 2-year
period will be suspended during any period of violation and/or any period of
time required to enforce this covenant by litigation or threat of litigation.

                  (b) During the two (2) years after the later of Executive's
Last Day of Employment or the cessation of Executive's receipt of any payments
pursuant to this Agreement, Executive shall not engage in, or own or control any
interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, (i) any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that at the time of the


                                       10


initiation of such engagement, ownership, control, or action by Executive,
engages in, or has developed a plan to engage in a business whose core strategy
is to integrate the provision of tax and/or accounting products or services with
the provision of investment products or services to its clients, or (ii) any
subsidiary, division or segment of a firm, corporation, partnership, limited
liability company, institution, business, government agency, or entity that at
the time of the initiation of such engagement, ownership, control, or action by
Executive, engages in, or has developed a plan to engage in a business that
integrates the provision of tax and/or accounting products or services with the
provision of investment products or services to its clients. The running of the
2-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.

                  (c) If this Agreement is assigned by the Company to an
Affiliate at any time in accordance with Section 4.04, then, during the two (2)
years after the later of Executive's Last Day of Employment or the cessation of
Executive's receipt of any payments pursuant to this Agreement, Executive shall
not engage in any conduct proscribed in subsection 3.05(a) of this Agreement.
The running of the 2-year period will be suspended during any period of
violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  (d) No provision in this Section 3.05 shall apply to Executive
if Executive's primary place of employment by the Company or an Affiliate as of
the Last Day of Employment is in either the State of California or the State of
North Dakota.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and
enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. No


                                       11


modification, amendment, termination, or waiver of this Agreement will be
binding unless in writing and signed by Executive and a duly authorized officer
of the Company. Failure of the Company, Block, or Executive to insist upon
strict compliance with any of the terms, covenants, or conditions hereof will
not be deemed a waiver of such terms, covenants, and conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will inure to the benefit of the Company,
Block and their successors and assigns. Executive may not assign or transfer to
others the obligation to perform Executive's duties hereunder. The Company may
assign this Agreement to an Affiliate with the consent of Executive, in which
case, after such assignment, the "Company" means the Affiliate to which this
Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company. This Section 4.05 does not affect the
Company's obligation to "gross up" any relocation benefits paid to Executive
pursuant to Subsection 1.04(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.


                                       12


                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 2274 Edgemere
Lake Circle, Marietta, Georgia, 30062; and to the Company at: 751 Griswold,
Detroit, Michigan 48226, Attn: Secretary, with a copy to H&R Block, Inc., 4400
Main Street, Kansas City, Missouri 64111, Attn: President; or to such other
address and/or person designated by either party in writing to the other party.
Any notice given by mail will be deemed given as of the date it is so mailed and
postmarked or received by a nationally recognized overnight courier for
delivery.

                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.

                  4.11 - Binding Effect. This Agreement is effective only when
executed by an officer of the Company and approved in writing by the President
and Chief Executive Officer of Block.


                                       13


         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                              EXECUTIVE:



Dated: 11-05-01                               /s/ Brian L. Nygaard
       --------------------                   ----------------------------------
                                              Brian L. Nygaard


ACCEPTED AND AGREED:

H&R Block Financial Advisors, Inc.
a Michigan corporation

By: /s/ Bernard M. Wilson
    -------------------------------------

Name: Bernard M. Wilson
      -----------------------------------

Title: SVP
       ----------------------------------

Dated: 11/30/01
       -------------------



APPROVED:

H&R Block, Inc.
a Missouri corporation

By: /s/ Mark A. Ernst
    -------------------------------------
    Mark A. Ernst
    President and Chief Executive Officer

Dated: 20 Nov 01
       --------------------



                                       14


                            H&R BLOCK SEVERANCE PLAN
                         (AS AMENDED SEPTEMBER 19, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any revocation period provided under the Release.


                                      A-2


         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with respect to a Participant begins on the Termination Date. A
         Participant's


                                      A-3


         Severance Period will be the shorter of (i) 12 months or (ii) a number
         of months equal to the whole number of Years of Service determined
         under Section 2(p), unless earlier terminated in accordance with
         Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

          Number of days since most recent employment anniversary date
          ------------------------------------------------------------
                                       365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:


                                      A-4




                         MINIMUM YEARS        MAXIMUM YEARS
    PAY GRADE             OF SERVICE           OF SERVICE
    ---------            -------------        -------------
                                        
81-89 and 231-235             6                   18

 65-80, 109-110,              3                   18
   and 218-230

 57-64, 105-108,              1                   18
   and 210-217

 48-56, 100-102,              1                   18
   and 200-209


         Notwithstanding the above, if an Employee has received credit for Years
         of Service under this Plan or under any previous plan, program, or
         agreement for the purpose of receiving severance benefits before a
         Qualifying Termination, such Years of Service will be disregarded when
         calculating Years of Service for such Qualifying Termination under the
         Plan; provided, however, that if such severance benefits were
         terminated prior to completion because the Employee was rehired by any
         subsidiary of the Company then the Employee will be re-credited with
         full Years of Service for which severance benefits were not paid in
         full or in part because of such termination.

3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as


                                      A-5



                  determined by the Participating Employer) during the Severance
                  Period beginning after the later of the Termination Date or
                  the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving
         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.

5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i)   medical;

                  (ii)  dental;

                  (iii) vision;

                  (iv)  employee assistance;

                  (v)   medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi)  life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes


                                      A-6


         a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are provided under group health plans in
                  accordance with his or her rights under Section 4980B of the
                  Internal Revenue Code; or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the


                                      A-7


         operation of Section 6(a), above, or otherwise, at any time during the
         Severance Period and, except in the event that the Severance Period
         terminates pursuant to Section 8(a), for a period up to 3 months after
         the end of the Severance Period (notwithstanding Section 8). Any such
         election shall apply to all outstanding incentive stock options and
         nonqualified stock options, will be irrevocable and must be made in
         writing and delivered to the Plan Administrator on or before the later
         of the Termination Date or Release Date. If the Participant fails to
         make an election, the Participant's right to exercise such options will
         expire 3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)
         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth transition between employment with the Participating
Employer and employment with another employer. Any outplacement services
provided under this Plan will be provided by an outplacement service chosen by
the Participating Employer. The Participant is not entitled to any monetary
payment in lieu of outplacement services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.


                                      A-8


                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a subsidiary of the Company for the
                  purpose of engaging in any business transaction of the nature
                  performed by such subsidiary, or contemplated to be performed
                  by such subsidiary, for such customer, provided that this
                  Section 8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.

                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.


                                      A-9


         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company in any position other than
         a position classified as seasonal by such employer.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may be entitled thereunder in accordance with the Plan. Not in limitation, but
in amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any real or alleged conflict of interest on the part of the Plan
Administrator. The decision of the Plan Administrator upon all matters within
the scope of its authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the


                                      A-10

                  Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The notice must further advise the Claimant of his
                  or her right to bring a civil action under Section 502(a) of
                  ERISA following the exhaustion of the claims procedures
                  described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are pertinent. The Claimant, or his or her duly authorized
         representative, may review and request pertinent Plan documents. The
         Plan Administrator will reexamine all facts related to the appeal and
         make a final determination as to whether the denial of benefits is
         justified under the circumstances. The Plan Administrator will advise
         the Claimant in writing of its decision within 60 days of the
         Claimant's written request for review, unless special circumstances
         (such as a hearing) require an extension of time, in which case the
         Plan Administrator will make a decision as soon as possible, but no
         later than 120 days after its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the


                                      A-11


Plan, as determined by a court of competent jurisdiction, will not affect the
validity or enforceability of any other provision of the Plan and all other
provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails
to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued
performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and


                                      A-12


         available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.

         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.

         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or


                                      A-13


the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210. You may also obtain certain publications about your
rights and responsibilities under ERISA by calling the publications hotline of
the Pension and Welfare Benefits Administration.


                                      A-14


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                       HRB MANAGEMENT, INC.


                                       /s/ Mark A. Ernst
                                       -----------------------------------------
                                       Mark A. Ernst
                                       President and Chief Executive Officer


                                      A-15


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                      A-16


                                                                    EXHIBIT 10.5

                              EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
January 28, 2002, by and between HRB Management, a Missouri corporation (the
"Company"), and Stephanie R. Otto ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective June 30, 2001
(the "Employment Date"), the Company hereby employs Executive to serve in the
capacity set forth in Section 1.02, and Executive hereby accepts such employment
by the Company, subject to the terms of this Agreement. The Company reserves the
right, in its sole discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as the
Senior Vice President, Human Resources of H&R Block, Inc., a Missouri
corporation ("Block") and the indirect parent corporation of the Company,
subject to the authority and direction of the Board of Directors of Block and
the Chief Executive Officer of Block. Subject to the foregoing, Executive will
have such authority and responsibility and duties as are normally associated
with the position of Senior Vice President, Human Resources. The Company
reserves the right to modify, delete, add, or otherwise change Executive's job
responsibilities, in its sole discretion, at any time. Executive will perform
such other duties as are assigned to Executive from time to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of Block, the Company, and/or
any other direct or indirect subsidiary of Block (each such other subsidiary an
"Affiliate") may be subject to governmental regulation, some of which may
require Executive to submit to background investigation as a condition of Block,
the Company, and/or Affiliates' participation in certain activities subject to
such regulation. If Executive, Block, the Company, or Affiliates are unable to
participate, in whole or in part, in any such activity as the result of any
action or inaction on the part of Executive, then this Agreement and Executive's
employment hereunder may be terminated by


                                       1


the Company without notice.

                  1.03 - Compensation. The Company will pay to Executive a gross
salary at an annual rate of $180,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  1.04 - June 30, 2001 Stock Option Grant. As additional
consideration for entering into this Agreement, Executive was granted as of June
30, 2001, a stock option under Block's 1993 Long-Term Executive Compensation
Plan, as amended (the "1993 Plan") to purchase 14,000 shares of Block's common
stock at an option price per share equal to $64.55, such stock option being
conditioned on the entry into this Agreement and otherwise having terms and
conditions consistent with the terms and conditions of options granted to other
senior executive officers of Block and its subsidiaries.

                  1.05 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.06 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.07 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


                                       2


                  1.08 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or

                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.


                                       3


                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan); provided,
         however, (1) the "Severance Period" (as such term is defined in the
         Severance Plan) will be 18 months, notwithstanding any provision in the
         Severance Plan to the contrary, and (2) Executive will be credited with
         no less than 18 "Years of Service" (as such term is defined in the
         Severance Plan) for the purpose of determining severance compensation
         under Section 4(a)(i) of the Severance Plan as it exists on the date of
         this Agreement or the comparable section of the Severance Plan as it
         exists on Executive's Last Day of Employment, notwithstanding any
         provision in the Severance Plan to the contrary. The Severance Plan as
         it exists on the date of this Agreement is attached hereto as Exhibit
         A. Executive must notify the Company in writing within 5 business days
         after Executive's Last Day of Employment of Executive's Change of
         Control Election. Severance compensation and benefits provided under
         this Section 1.08(c) will terminate immediately if Executive violates
         Sections 3.02, 3.03, or 3.05 of this Agreement or becomes reemployed
         with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of

                                       4



                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent to the date hereof, whose election, or
                  nomination for election by Block's shareholders, was approved
                  by a vote of at least a majority of the Board (or nominating
                  committee of the Board) will be considered as though such
                  individual were a member or members of the Incumbent Board,
                  but excluding, for this purpose, any such individual whose
                  initial assumption of office is in connection with an actual
                  or threatened election contest relating to the election of the
                  directors of Block (as such terms are used in Rule 14a-11 of
                  Regulation 14A promulgated under the Exchange Act); or

                                    (C) approval by the shareholders of Block of
                  (I) a reorganization, merger or consolidation of Block, in
                  each case, with respect to which all or substantially all of
                  the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  (II) a complete liquidation or dissolution of Block, voluntary
                  or involuntary, or (III) the sale or other disposition of all
                  or substantially all of the assets of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment; provided, however, (1) the "Severance Period" (as such term is
defined in the Severance Plan) will be 18 months, notwithstanding any provision
in the Severance Plan to the contrary, and (2) Executive will be credited with
no less than 18 "Years of Service" (as such term is defined in the Severance
Plan) for the purpose of determining severance compensation under Section
4(a)(i) of the Severance Plan as it exists on the date of this Agreement or the
comparable section of the Severance Plan as it exists on Executive's Last Day of
Employment, notwithstanding any provision in the Severance Plan to the contrary.
The Severance Plan as it exists on the date of this Agreement is attached hereto
as Exhibit A. Executive must notify the Company in writing within 5 business
days after Executive's Last Day of Employment of Executive's Severance


                                       5


Election. Severance compensation and benefits provided under this Section
1.08(d) will terminate immediately if Executive violates Sections 3.02, 3.03, or
3.05 of this Agreement or becomes reemployed with the Company or an Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section
1.08, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or
provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole


                                       6


owner of all patents, copyrights, trademarks, names, and other rights in
connection therewith and without regard to whether Block (or any subsidiary of
Block) is at any particular time developing or marketing the same. Executive
hereby assigns to Block any rights Executive may have or may acquire in such
Proprietary Information. At all times during and after Executive's employment
with the Company or any Affiliate, Executive will keep in strictest confidence
and trust all Proprietary Information and Executive will not use or disclose any
Proprietary Information without the written consent of Block, except as may be
necessary in the ordinary course of performing duties as an employee of the
Company or as may be required by law or the order of any court or governmental
authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, programs, software, specifications, documentation,
data, Proprietary Information, and other materials and property of any nature
belonging to Block or any subsidiary of Block and obtained during the course of
Executive's employment with the Company. In addition, upon such termination,
Executive will not remove from the premises of Block or any subsidiary of Block
any of the foregoing or any reproduction of any of the foregoing or any
Proprietary Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees. Executive agrees and understands that it is important to protect
Block, the Company, Affiliates and their employees, agents, directors, and
clients from the unauthorized use and appropriation of Block Employee
information, Proprietary Information, and trade secret business information
developed, held, or used by Block, the Company, or Affiliates, and to protect
Block, the Company, and Affiliates and their employees, agents, directors, and
customers Executive agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to become an employee of
or otherwise be associated with any other party or with Executive or any


                                       7


company or business with which Executive is or may become associated. The
running of the 1-year period will be suspended during any period of violation
and/or any period of time required to enforce this covenant by litigation or
threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of
the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services while
employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that engages in any line of business that is
competitive with any Line of Business of Block (as defined below), provided that
this Section 3.05 will not apply to Executive if Executive's primary place of
employment by the Company or an Affiliate as of the Last Day of Employment is in
either the State of California or the State of North Dakota. "Line of Business
of Block" means any line of business (including lines of business under
evaluation or development) of the Company, as well as any one or more lines of
business (including lines of business under evaluation or development) of any
Affiliate by which Executive was employed during the two-year period preceding
the Last Day of Employment, provided that, "Line of Business of Block" will in
all events include, but not be limited to, the


                                       8


income tax return preparation business, and provided further that if Executive's
employment was, as of the Last Day of Employment or during the 2-year period
immediately prior to the Last Day of Employment, with HRB Management, Inc. or
any successor entity thereto, "Line of Business of Block" means any line of
business (including lines of business under evaluation or development) of Block
and all of its subsidiaries. The running of the 2-year period will be suspended
during any period of violation and/or any period of time required to enforce
this covenant by litigation or threat of litigation.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and
enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. No modification, amendment, termination, or waiver of
this Agreement will be binding unless in writing and signed by Executive and a
duly authorized officer of the Company. Failure of the Company, Block, or
Executive to insist upon strict compliance with any of the terms, covenants, or
conditions hereof will not be deemed a waiver of such terms, covenants, and
conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will


                                       9


inure to the benefit of the Company, Block and their successors and assigns.
Executive may not assign or transfer to others the obligation to perform
Executive's duties hereunder. The Company may assign this Agreement to an
Affiliate with the consent of Executive, in which case, after such assignment,
the "Company" means the Affiliate to which this Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company. This Section 4.05 does not affect the
Company's obligation to "gross up" any relocation benefits paid to Executive
pursuant to Subsection 1.05(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 4400 Main
Street, Kansas City, Missouri 64111; and to the Company at: 4400 Main Street,
Kansas City, Missouri 64111, Attn: President, with a copy to H&R Block, Inc.,
4400 Main Street, Kansas City, Missouri 64111, Attn: Corporate Secretary; or to
such other address and/or person designated by either party in writing to the
other party. Any notice given by mail will be deemed given as of the date it is
so mailed and postmarked or received by a nationally recognized overnight
courier for delivery.


                                       10


                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.

         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                               EXECUTIVE:



Dated: 1/28/2002                               /s/ Stephanie R. Otto
       --------------------                    ---------------------------------
                                               Stephanie R. Otto

Accepted and Agreed:

HRB MANAGEMENT, INC.
a Missouri corporation

By: /s/ Mark A. Ernst
    -------------------------------------
    Mark Ernst
    President and Chief Executive Officer

Dated: 1 Feb 02
       -------------------


                                       11


                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any


                                       1


         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

              Number of days since most recent employment anniversary date
              ------------------------------------------------------------
                                          365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:



                       MINIMUM YEARS      MAXIMUM YEARS
    PAY GRADE            OF SERVICE        OF SERVICE
    ---------          -------------      -------------
                                    
81-89 and 231-235            6                 18

 65-80, 109-110,             3                 18
   and 218-230

 57-64, 105-108,             1                 18
   and 210-217

 48-56, 100-102,             1                 18
   and 200-209



                                       3


3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as determined by the Participating Employer)
                  during the Severance Period beginning after the later of the
                  Termination Date or the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving
         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.


                                       4


5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i)   medical;

                  (ii)  dental;

                  (iii) vision;

                  (iv)  employee assistance;

                  (v)   medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi)  life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are provided under group health plans in
                  accordance with his or her rights under Section 4980B of the
                  Internal Revenue Code; or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal


                                       5


                  Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the operation of
         Section 6(a), above, or otherwise, at any time during the Severance
         Period and, except in the event that the Severance Period terminates
         pursuant to Section 8(a), for a period up to 3 months after the end of
         the Severance Period (notwithstanding Section 8). Any such election
         shall apply to all outstanding incentive stock options and nonqualified
         stock options, will be irrevocable and must be made in writing and
         delivered to the Plan Administrator on or before the later of the
         Termination Date or Release Date. If the Participant fails to make an
         election, the Participant's right to exercise such options will expire
         3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)
         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth


                                       6


transition between employment with the Participating Employer and employment
with another employer. Any outplacement services provided under this Plan will
be provided by an outplacement service chosen by the Participating Employer. The
Participant is not entitled to any monetary payment in lieu of outplacement
services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.

                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a subsidiary of the Company for the
                  purpose of engaging in any business transaction of the nature
                  performed by such subsidiary, or contemplated to be performed
                  by such subsidiary, for such customer, provided that this
                  Section 8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.


                                       7


                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.

         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may be entitled thereunder in accordance with the Plan. Not in limitation, but
in amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any


                                       8


real or alleged conflict of interest on the part of the Plan Administrator. The
decision of the Plan Administrator upon all matters within the scope of its
authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The notice must further advise the Claimant of his
                  or her right to bring a civil action under Section 502(a) of
                  ERISA following the exhaustion of the claims procedures
                  described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are


                                       9


         pertinent. The Claimant, or his or her duly authorized representative,
         may review and request pertinent Plan documents. The Plan Administrator
         will reexamine all facts related to the appeal and make a final
         determination as to whether the denial of benefits is justified under
         the circumstances. The Plan Administrator will advise the Claimant in
         writing of its decision within 60 days of the Claimant's written
         request for review, unless special circumstances (such as a hearing)
         require an extension of time, in which case the Plan Administrator will
         make a decision as soon as possible, but no later than 120 days after
         its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the Plan, as determined by a court of competent jurisdiction, will
not affect the validity or enforceability of any other provision of the Plan and
all other provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails
to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued


                                       10


performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.

         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.


                                       11


         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Pension and Welfare Benefits Administration.


                                       12


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                           HRB MANAGEMENT, INC.


                                           /s/ Mark A. Ernst
                                           -------------------------------------
                                           Mark A. Ernst
                                           President and Chief Executive Officer


                                       13


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                       14


                                                                    EXHIBIT 10.6

                              EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
November 1, 2001, by and between H&R Block Services, Inc., a Missouri
corporation (the "Company"), and Thomas L. Zimmerman ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective June 30, 2001
(the "Employment Date"), the Company hereby employs Executive to serve in the
capacity set forth in Section 1.02, and Executive hereby accepts such employment
by the Company, subject to the terms of this Agreement. The Company reserves the
right, in its sole discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as its
President, U.S. Tax Operations, subject to the authority and direction of the
Board of Directors of the Company and the President of the Company. Subject to
the foregoing, Executive will have such authority and responsibility and duties
as are normally associated with the position of President, U.S. Tax Operations.
The Company reserves the right to modify, delete, add, or otherwise change
Executive's job responsibilities, in its sole discretion, at any time. Executive
will perform such other duties as are assigned to Executive from time to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of H&R Block, Inc. ("Block"),
the Company, and/or any other direct or indirect subsidiary of Block (each such
other subsidiary an "Affiliate") may be subject to governmental regulation, some
of which may require Executive to submit to background investigation as a
condition of Block, the Company, and/or Affiliates' participation in certain
activities subject to such regulation. If Executive, Block, the Company, or
Affiliates are unable to participate, in whole or in part, in any such activity
as the result of any action or inaction on the part of Executive, then this
Agreement and Executive's employment hereunder may be terminated by the Company
without notice.


                                       1


                  1.03 - Compensation. The Company will pay to Executive a gross
salary at an annual rate of $310,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  1.04 - June 30, 2001 Stock Option Grant. As additional
consideration for entering into this Agreement, Executive was granted as of June
30, 2001, a stock option under Block's 1993 Long-Term Executive Compensation
Plan, as amended (the "1993 Plan") to purchase 30,000 shares of Block's common
stock at an option price per share equal to $64.55, such stock option being
conditioned on the entry into this Agreement and otherwise having terms and
conditions consistent with the terms and conditions of options granted to other
senior executive officers of Block and its subsidiaries.

                  1.05 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.06 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.07 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


                                       2


                  1.08 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or

                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.


                                       3


                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan). The
         Severance Plan as it exists on the date of this Agreement is attached
         hereto as Exhibit A. Executive must notify the Company in writing
         within 5 business days after Executive's Last Day of Employment of
         Executive's Change of Control Election. Severance compensation and
         benefits provided under this Section 1.08(c) will terminate immediately
         if Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement or
         becomes reemployed with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of
                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent


                                       4


                  to the date hereof, whose election, or nomination for election
                  by Block's shareholders, was approved by a vote of at least a
                  majority of the Board (or nominating committee of the Board)
                  will be considered as though such individual were a member or
                  members of the Incumbent Board, but excluding, for this
                  purpose, any such individual whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest relating to the election of the directors of Block (as
                  such terms are used in Rule 14a-11 of Regulation 14A
                  promulgated under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger or consolidation approved by the shareholders of Block,
                  in each case, with respect to which all or substantially all
                  of the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment. The Severance Plan as it exists on the date of this Agreement is
attached hereto as Exhibit A. Executive must notify the Company in writing
within 5 business days after Executive's Last Day of Employment of Executive's
Severance Election. Severance compensation and benefits provided under this
Section 1.08(d) will terminate immediately if Executive violates Sections 3.02,
3.03, or 3.05 of this Agreement or becomes reemployed with the Company or an
Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section
1.08, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or


                                       5


provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole owner of all patents, copyrights,
trademarks, names, and other rights in connection therewith and without regard
to whether Block (or any subsidiary of Block) is at any particular time
developing or marketing the same. Executive hereby assigns to Block any rights
Executive may have or may acquire in such Proprietary Information. At all times
during and after Executive's employment with the Company or any Affiliate,
Executive will keep in strictest confidence and trust all Proprietary
Information and Executive will not use or disclose any Proprietary Information
without the written consent of Block, except as may be necessary in the ordinary
course of performing duties as an employee of the Company or as may be required
by law or the order of any court or governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings,


                                       6


programs, software, specifications, documentation, data, Proprietary
Information, and other materials and property of any nature belonging to Block
or any subsidiary of Block and obtained during the course of Executive's
employment with the Company. In addition, upon such termination, Executive will
not remove from the premises of Block or any subsidiary of Block any of the
foregoing or any reproduction of any of the foregoing or any Proprietary
Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees. Executive agrees and understands that it is important to protect
Block, the Company, Affiliates and their employees, agents, directors, and
clients from the unauthorized use and appropriation of Block Employee
information, Proprietary Information, and trade secret business information
developed, held, or used by Block, the Company, or Affiliates, and to protect
Block, the Company, and Affiliates and their employees, agents, directors, and
customers Executive agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to become an employee of
or otherwise be associated with any other party or with Executive or any company
or business with which Executive is or may become associated. The running of the
1-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of
the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services


                                       7


while employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that engages in any line of business that is
competitive with any Line of Business of Block (as defined below), provided that
this Section 3.05 will not apply to Executive if Executive's primary place of
employment by the Company or an Affiliate as of the Last Day of Employment is in
either the State of California or the State of North Dakota. "Line of Business
of Block" means any line of business (including lines of business under
evaluation or development) of the Company, as well as any one or more lines of
business (including lines of business under evaluation or development) of any
Affiliate by which Executive was employed during the two-year period preceding
the Last Day of Employment, provided that, "Line of Business of Block" will in
all events include, but not be limited to, the income tax return preparation
business, and provided further that if Executive's employment was, as of the
Last Day of Employment or during the 2-year period immediately prior to the Last
Day of Employment, with HRB Management, Inc. or any successor entity thereto,
"Line of Business of Block" means any line of business (including lines of
business under evaluation or development) of Block and all of its subsidiaries.
The running of the 2-year period will be suspended during any period of
violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and


                                       8


enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. This Agreement cancels and supercedes Executive's
employment agreement with H&R Block Tax Services, Inc. dated January 20, 1998,
and any amendments, modifications, or supplements thereto. No modification,
amendment, termination, or waiver of this Agreement will be binding unless in
writing and signed by Executive and a duly authorized officer of the Company.
Failure of the Company, Block, or Executive to insist upon strict compliance
with any of the terms, covenants, or conditions hereof will not be deemed a
waiver of such terms, covenants, and conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for breach of any of the covenants and agreements herein
and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will inure to the benefit of the Company,
Block and their successors and assigns. Executive may not assign or transfer to
others the obligation to perform Executive's duties hereunder. The Company may
assign this Agreement to an Affiliate with the consent of Executive, in which
case, after such assignment, the "Company" means the Affiliate to which this
Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company. This Section 4.05 does not affect the
Company's obligation to


                                       9


"gross up" any relocation benefits paid to Executive pursuant to Subsection
1.05(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 4400 Main
Street, Kansas City, Missouri 64111; and to the Company at: 4400 Main Street,
Kansas City, Missouri 64111, Attn: President, with a copy to H&R Block, Inc.,
4400 Main Street, Kansas City, Missouri 64111, Attn: Corporate Secretary; or to
such other address and/or person designated by either party in writing to the
other party. Any notice given by mail will be deemed given as of the date it is
so mailed and postmarked or received by a nationally recognized overnight
courier for delivery.

                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.


                                       10


         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                                    EXECUTIVE:



Dated: 11/1/01                                      /s/ Thomas L. Zimmerman
       -------------------                          ----------------------------
                                                    Thomas L. Zimmerman

Accepted and Agreed:

H&R BLOCK SERVICES, INC.
a Missouri corporation

By: /s/ Jeffrey W. Yabuki
    --------------------------------
    Jeffrey W. Yabuki
    President

Dated: 1-15-02
       -------------------


                                       11


                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any


                                       1


         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

           Number of days since most recent employment anniversary date
           ------------------------------------------------------------
                                       365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:



                         MINIMUM YEARS      MAXIMUM YEARS
    PAY GRADE              OF SERVICE         OF SERVICE
    ---------            -------------      -------------
                                      
81-89 and 231-235              6                 18

 65-80, 109-110,               3                 18
   and 218-230

 57-64, 105-108,               1                 18
   and 210-217

 48-56, 100-102,               1                 18
   and 200-209



                                       3


3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying
Termination and sign a Release are eligible to participate in the Plan. An
eligible Employee will become a Participant in the Plan as of the Termination
Date.

4. SEVERANCE COMPENSATION.

         (a) Amount. Subject to Section 8, each Participant will receive during
         the Severance Period from the applicable Participating Employer
         aggregate severance compensation equal to:

                  (i) the Participant's Monthly Salary multiplied by the
                  Participant's Years of Service; plus

                  (ii) one-twelfth of the Participant's target payout under the
                  Short-Term Incentive Program of the Participating Employer in
                  effect at the time of his or her Termination Date multiplied
                  by the Participant's Years of Service; plus

                  (iii) an amount to be determined by the Participating Employer
                  at its sole discretion, which amount may be zero.

         (b) Timing of Payments. Except as stated in Section 4(c), and subject
         to Section 8,

                  (i) the sum of any amounts determined under Sections 4(a)(i)
                  and 4(a)(ii) of the Plan will be paid in semi-monthly or
                  bi-weekly installments (the timing and amount of each
                  installment as determined by the Participating Employer)
                  during the Severance Period beginning after the later of the
                  Termination Date or the Release Date; and

                  (ii) any amounts determined under Section 4(a)(iii) of the
                  Plan will be paid in one lump sum within 15 days after the
                  later of the Termination Date or the Release Date, unless
                  otherwise agreed in writing by the Participating Employer and
                  Participant or otherwise required by law.

         (c) Death. In the event of the Participant's death prior to receiving
         all payments due under this Section 4, any unpaid severance
         compensation will be paid (i) in the same manner as are death benefits
         under the Participant's basic life insurance coverage provided by the
         Participant's Participating Employer, and (ii) in accordance with the
         Participant's beneficiary designation under such coverage. If no such
         coverage exists, or if no beneficiary designation exists under such
         coverage as of the date of death of the Participant, the severance
         compensation will be paid to the Participant's estate in one-lump sum.


                                       4


5. HEALTH AND WELFARE BENEFITS.

         (a) Benefits. In addition to the severance compensation provided
         pursuant to Section 4 of the Plan, a Participant may continue to
         participate in the following health and welfare benefits provided by
         his or her Participating Employer during the Severance Period on the
         same basis as employees of the Participating Employer:

                  (i) medical;

                  (ii) dental;

                  (iii) vision;

                  (iv) employee assistance;

                  (v) medical expense reimbursement and dependent care expense
                  reimbursement benefits provided under a cafeteria plan;

                  (vi) life insurance (basic and supplemental); and

                  (vii) accidental death and dismemberment insurance (basic and
                  supplemental).

         For the purposes of any of the above-described benefits provided under
         a Participating Employer's cafeteria plan, a Qualifying Termination
         constitutes a "change in status" or "life event."

         (b) Payment and Expiration. Payment of the Participant's portion of
         contribution or premiums for such selected benefits will be withheld
         from any severance compensation payments paid to the Participant under
         this Plan. The Participating Employer's partial subsidization of such
         coverages will remain in effect until the earlier of:

                  (i) the expiration or earlier termination of the Employee's
                  Severance Period, after which time the Participant may be
                  eligible to elect to continue coverage of those benefits
                  listed above that are provided under group health plans in
                  accordance with his or her rights under Section 4980B of the
                  Internal Revenue Code; or

                  (ii) the Participant's attainment of or eligibility to attain
                  health and welfare benefits through another employer after
                  which time the Participant may be eligible to elect to
                  continue coverage of those benefits listed above that are
                  provided under group health plans in accordance with his or
                  her rights under Section 4980B of the Internal


                                       5


                  Revenue Code.

6. STOCK OPTIONS.

         (a) Accelerated Vesting. Any portion of any outstanding incentive stock
         options and nonqualified stock options that would have vested during
         the 18-month period following the Termination Date had the Participant
         remained an employee with the Participating Employer during such
         18-month period will vest as of the Termination Date. This Section 6(a)
         applies only to options (i) granted to the Participant under the
         Company's 1993 Long-Term Executive Compensation Plan, or any successor
         plan to its 1993 Long-Term Executive Compensation Plan, not less than 6
         months prior to his or her Termination Date and (ii) outstanding at the
         close of business on such Termination Date. The determination of
         accelerated vesting under this Section 6(a) shall be made as of the
         Termination Date and shall be based solely on any time-specific vesting
         schedule included in the applicable stock option agreement without
         regard to any accelerated vesting provision not related to the Plan in
         such agreement.

         (b) Post-Termination Exercise Period. Subject to the expiration dates
         and other terms of the applicable stock option agreements, the
         Participant may elect to have the right to exercise any outstanding
         incentive stock options and nonqualified stock options granted prior to
         the Termination Date to the Participant under the Company's 1984
         Long-Term Executive Compensation Plan, its 1993 Long-Term Executive
         Compensation Plan, or any successor plan to its 1993 Long-Term
         Executive Compensation Plan that are vested as of the Termination Date
         (or, if later, the Release Date), whether due to the operation of
         Section 6(a), above, or otherwise, at any time during the Severance
         Period and, except in the event that the Severance Period terminates
         pursuant to Section 8(a), for a period up to 3 months after the end of
         the Severance Period (notwithstanding Section 8). Any such election
         shall apply to all outstanding incentive stock options and nonqualified
         stock options, will be irrevocable and must be made in writing and
         delivered to the Plan Administrator on or before the later of the
         Termination Date or Release Date. If the Participant fails to make an
         election, the Participant's right to exercise such options will expire
         3 months after the Termination Date.

         (c) Stock Option Agreement Amendment. The operation of Sections 6(a)
         and 6(b), above, are subject to the Participant's execution of an
         amendment to any affected stock option agreements.

7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career
transition counseling or outplacement services may be provided upon the
Participant's Qualifying Termination. Such outplacement service will be provided
at the Participating Employer's sole discretion. Outplacement services are
designed to assist employees in their search for new employment and to
facilitate a smooth


                                       6


transition between employment with the Participating Employer and employment
with another employer. Any outplacement services provided under this Plan will
be provided by an outplacement service chosen by the Participating Employer. The
Participant is not entitled to any monetary payment in lieu of outplacement
services.

8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation
and benefits under the Plan, and all obligations of his or her Participating
Employer to pay any unpaid severance compensation or provide benefits under the
Plan will terminate as of the day:

         (a) The Participant has engaged in any conduct described in Sections
         8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be
         limited pursuant to Section 8(a)(vi).

                  (i) During the Severance Period, the Participant's engagement
                  in, ownership of, or control of any interest in (except as a
                  passive investor in less than one percent of the outstanding
                  securities of publicly held companies), or acting as an
                  officer, director or employee of, or consultant, advisor or
                  lender to, any firm, corporation, partnership, limited
                  liability company, institution, business, government agency,
                  or entity that engages in any line of business that is
                  competitive with any Line of Business of the Company, provided
                  that this Section 8(a)(i) shall not apply to the Participant
                  if the Participant's primary place of employment by a
                  subsidiary of the Company as of the Termination Date is in
                  either the State of California or the State of North Dakota.

                  (ii) During the Severance Period, the Participant employs or
                  solicits for employment by any employer other than a
                  subsidiary of the Company any employee of any subsidiary of
                  the Company, or recommends any such employee for employment to
                  any employer (other than a subsidiary of the Company) at which
                  the Participant is or intends to be (A) employed, (B) a member
                  of the Board of Directors, (C) a partner, or (D) providing
                  consulting services.

                  (iii) During the Severance Period, the Participant directly or
                  indirectly solicits or enters into any arrangement with any
                  person or entity which is, at the time of the solicitation, a
                  significant customer of a subsidiary of the Company for the
                  purpose of engaging in any business transaction of the nature
                  performed by such subsidiary, or contemplated to be performed
                  by such subsidiary, for such customer, provided that this
                  Section 8(a)(iii) shall only apply to customers for whom the
                  Participant personally provided services while employed by a
                  subsidiary of the Company or customers about whom or which the
                  Participant acquired material information while employed by a
                  subsidiary of the Company.


                                       7


                  (iv) During the Severance Period, the Participant
                  misappropriates or improperly uses or discloses confidential
                  information of the Company and/or its subsidiaries.

                  (v) If the Participant engaged in any of the conduct described
                  in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or
                  after Participant's term of employment with a Participating
                  Employer, but prior to the commencement of the Severance
                  Period, and such engagement becomes known to the Participating
                  Employer during the Severance Period, such conduct shall be
                  deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii)
                  or 8(a)(iv) to have occurred during the Severance Period.

                  (vi) If the Participant is a party to an employment contract
                  with a Participating Employer that contains a covenant or
                  covenants relating to the Participant's engagement in conduct
                  that is the same as or substantially similar to the conduct
                  described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or
                  8(a)(iv), and any specific conduct regulated in such covenant
                  or covenants in such employment contract is more limited in
                  scope geographically or otherwise than the corresponding
                  specific conduct described in any of such Sections 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding
                  specific conduct addressed in the applicable Section 8(a)(i),
                  8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same
                  extent as such conduct is limited in the employment contract
                  and the Participating Employer's rights and remedy with
                  respect to such conduct under this Section 8 shall apply only
                  to such conduct as so limited.

         (b) The Participant is rehired by his or her Participating Employer or
         hired by any other subsidiary of the Company.

9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the
Plan or to terminate the Plan and all benefits hereunder in their entirety at
any time.

10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion
to construe the provisions of the Plan and to determine all questions relating
to the eligibility of employees of Participating Employers to become
Participants in the Plan, and the amount of benefits to which any Participant
may be entitled thereunder in accordance with the Plan. Not in limitation, but
in amplification of the foregoing and of the authority conferred upon the Plan
Administrator, the Plan Sponsor specifically intends that the Plan Administrator
have the greatest permissible discretion to construe the terms of the Plan and
to determine all questions concerning eligibility, participation and benefits.
Any such decision made by the Plan Administrator will be binding on all
Employees, Participants, and Beneficiaries, and is intended to be subject to the
most deferential standard of judicial review. Such standard of review is not to
be affected by any


                                       8


real or alleged conflict of interest on the part of the Plan Administrator. The
decision of the Plan Administrator upon all matters within the scope of its
authority will be final and binding.

11. CLAIMS PROCEDURES.

         (a) FILING A CLAIM FOR BENEFITS. Participants are not required to
         submit claim forms to initiate payment of benefits under this Plan. To
         make a claim for benefits, individuals other than Participants who
         believe they are entitled to receive benefits under this Plan and
         Participants who believe they have been denied certain benefits under
         the Plan must write to the Plan Administrator. These individuals and
         such Participants are hereinafter referred to in this Section 11 as
         "Claimants." Claimants must notify the Plan Administrator if they will
         be represented by a duly authorized representative with respect to a
         claim under the Plan.

         (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a
         claim for benefits under the Plan. The Plan Administrator may solicit
         additional information from the Claimant if necessary to evaluate the
         claim. If the Plan Administrator denies all or any portion of the
         claim, the Claimant will receive, within 90 days after the receipt of
         the written claim, a written notice setting forth:

                  (i) the specific reason for the denial;

                  (ii) specific references to pertinent Plan provisions on which
                  the Plan Administrator based its denial;

                  (iii) a description of any additional material and information
                  needed for the Claimant to perfect his or her claim and an
                  explanation of why the material or information is needed; and

                  (iv) that any appeal the Claimant wishes to make of the
                  adverse determination must be in writing to the Plan
                  Administrator within 60 days after receipt of the notice of
                  denial of benefits. The notice must advise the Claimant that
                  his or her failure to appeal the action to the Plan
                  Administrator in writing within the 60-day period will render
                  the Plan Administrator's determination final, binding and
                  conclusive. The notice must further advise the Claimant of his
                  or her right to bring a civil action under Section 502(a) of
                  ERISA following the exhaustion of the claims procedures
                  described herein.

         (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should
         appeal to the Plan Administrator, the Claimant, or his or her duly
         authorized representative, must submit, in writing, whatever issues and
         comments the Claimant or his or her duly authorized representative
         feels are


                                       9


         pertinent. The Claimant, or his or her duly authorized representative,
         may review and request pertinent Plan documents. The Plan Administrator
         will reexamine all facts related to the appeal and make a final
         determination as to whether the denial of benefits is justified under
         the circumstances. The Plan Administrator will advise the Claimant in
         writing of its decision within 60 days of the Claimant's written
         request for review, unless special circumstances (such as a hearing)
         require an extension of time, in which case the Plan Administrator will
         make a decision as soon as possible, but no later than 120 days after
         its receipt of a request for review.

12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by
the applicable Participating Employer, as incurred, out of the general assets of
such Participating Employer.

13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year
basis. The Plan Number is 509. The Plan is self-administered and is considered a
severance plan.

14. GOVERNING LAW. The Plan is established in the State of Missouri. To the
extent federal law does not apply, any questions arising under the Plan will be
determined under the laws of the State of Missouri.

15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction
determines that any provision of the Plan is not enforceable, then such
provision shall be enforceable to the maximum extent possible under applicable
law, as determined by such court. The invalidity or unenforceabilty of any
provision of the Plan, as determined by a court of competent jurisdiction, will
not affect the validity or enforceability of any other provision of the Plan and
all other provisions will remain in full force and effect.

16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold
from any benefit payable under the Plan all federal, state, city or other taxes
as may be required pursuant to any law, governmental regulation or ruling. The
Participant shall pay upon demand by the Company or the Participating Employer
any taxes required to be withheld or collected by the Company or the
Participating Employer upon the exercise by the Participant of a nonqualified
stock option granted under the Company's 1984 Long-Term Executive Compensation
Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails
to pay any such taxes associated with such exercise upon demand, the
Participating Employer shall have the right, but not the obligation, to offset
such taxes against any unpaid severance compensation under this Plan.

17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any
rights (or imposes any obligations) to continued employment by his or her
Participating Employer or other subsidiary of the Company, nor does it give such
Participating Employer any rights (or impose any obligations) for the continued


                                       10


performance of duties by the Employee for the Participating Employer or any
other subsidiary of the Company.

18. NO ASSIGNMENT. The Employee's right to receive payments of severance
compensation and benefits under the Plan are not assignable or transferable,
whether by pledge, creation of a security interest, or otherwise. In the event
of any attempted assignment or transfer contrary to this section, the applicable
Participating Employer will have no liability to pay any amount so attempted to
be assigned or transferred.

19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as
agent for service of legal process. Service of legal process may be made upon
the Secretary of the Plan Administrator at:

         HRB Management, Inc.
         Attn: Secretary
         4400 Main Street
         Kansas City, Missouri 64111

20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, which provides that all Plan
Participants are entitled to:

         (a) examine without charge, at the Plan Administrator's office, all
         documents governing the Plan and a copy of the latest annual report
         (Form 5500 Series) filed by the Plan with the U.S. Department of Labor
         and available at the Public Disclosure Room of the Pension and Welfare
         Benefit Administration;

         (b) obtain, upon written request to the Plan Administrator, copies of
         documents governing the operation of the Plan, copies of the latest
         annual report (Form 5500 Series) and an updated summary plan
         description. The Plan Administrator may make a reasonable charge for
         the copies; and

         (c) receive a summary of the Plan's annual financial report if required
         to be filed for the year. The Plan Administrator is required by law to
         furnish each participant with a copy of this summary annual report if
         an annual report is required to be filed for the year.

         In addition to creating rights for Plan Participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Participating Employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a welfare benefit or exercising your rights under ERISA.


                                       11


         If your claim for a welfare benefit is denied or ignored, in whole or
in part, you have the right to know why this was done, to obtain copies of
documents relating to the decision without charge, and to appeal any denial, all
within certain time schedules.

         Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request a copy of plan documents or the latest annual
report from the Plan and do not receive them within 30 days, you may file suit
in a Federal court. In such a case, the court may require the Plan Administrator
to provide the materials to you and pay you up to $110 a day until you receive
the materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or Federal
court. If it should happen that you are discriminated against for asserting your
rights, you may seek assistance from the U. S. Department of Labor, or you may
file suit in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

         If you have any questions about the Plan, you should contact the Plan
Administrator. If you have questions about this statement or about your rights
under ERISA, or if you need assistance in obtaining documents from the Plan
Administrator, you should contact the nearest office of the Pension and Welfare
Benefits Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications
about your rights and responsibilities under ERISA by calling the publications
hotline of the Pension and Welfare Benefits Administration.


                                       12


IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective
this 23rd day of April, 2001.


                                           HRB MANAGEMENT, INC.


                                           /s/ Mark A. Ernst
                                           -------------------------------------
                                           Mark A. Ernst
                                           President and Chief Executive Officer


                                       13


                                   SCHEDULE A

                             PARTICIPATING EMPLOYERS


Block Financial Corporation

Financial Marketing Services, Inc.

Franchise Partner, Inc.

H&R Block Investments, Inc.

H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries

HRB Business Services, Inc.

HRB Management, Inc.

HRB Retail Services, Inc.

Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries,
which subsidiaries include H&R Block Financial Advisors, Inc.


                                       14