Table of Contents
UNITED STATES
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 October 31, 2011
OR
 
[    ]	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.)	
One H&R Block Way
Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 854-3000
(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     Ö        No        
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     Ö        No        
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one) :

Large accelerated filer	 	   Ö   	 	  Accelerated filer	 	 	 	  Non-accelerated filer	 	 	 	Smaller reporting company	 	 	
 	 	 	 	 	
 	 	 	 	 	 	(Do not check if a smaller reporting company)	 	 	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes        No    Ö    
The number of shares outstanding of the registrant’s Common Stock, without par value, at the close of business on November 30, 2011 was 292,903,052 shares.

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Form 10-Q for the Period Ended October 31, 2011

Table of Contents

 
 	 	 	 	 	 	 	
 	  	 	  	Page	 	
 	 	 	
PART I	  	Financial Information	  	 	 	 	
 	 	 	
Item 1.	  	Condensed Consolidated Balance Sheets
October 31, 2011 and April 30, 2011	  	 	1	  	
 	 	 	
 	  	Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss)
Three and Six Months Ended October 31, 2011 and 2010	  	 	2	  	
 	 	 	
 	  	Condensed Consolidated Statements of Cash Flows
Six Months Ended October 31, 2011 and 2010	  	 	3	  	
 	 	 	
 	  	Notes to Condensed Consolidated Financial Statements	  	 	4	  	
 	 	 	
Item 2.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	30	  	
 	 	 	
Item 3.	  	Quantitative and Qualitative Disclosures about Market Risk	  	 	34	  	
 	 	 	
Item 4.	  	Controls and Procedures	  	 	34	  	
 	 	 	
PART II	  	Other Information	  	 	 	 	
 	 	 	
Item 1.	  	Legal Proceedings	  	 	35	  	
 	 	 	
Item 1A.	  	Risk Factors	  	 	38	  	
 	 	 	
Item 2.	  	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	38	  	
 	 	 	
Item 6.	  	Exhibits	  	 	39	  	
 	 	
SIGNATURES	  	 	40	  	

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CONDENSED CONSOLIDATED BALANCE SHEETS(amounts in 000s, except share and per share amounts)	 	
As of	 	October 31, 2011	 	 	April 30, 2011	 	
 	 	(Unaudited)	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	572,611	  	 	$	1,677,844	  	
Cash and cash equivalents – restricted	 	 	37,524	  	 	 	48,383	  	
Receivables, less allowance for doubtful accounts of $48,412 and $47,943	 	 	128,062	  	 	 	230,172	  	
Prepaid expenses and other current assets	 	 	218,054	  	 	 	191,360	  	
Assets of discontinued operations, held for sale	 	 	729,153	  	 	 	900,328	  	
 	 	 	 	 	 	 	 	 	
Total current assets	 	 	1,685,404	  	 	 	3,048,087	  	
Mortgage loans held for investment, less allowance for loan losses of $91,379 and $92,087	 	 	450,137	  	 	 	485,008	  	
Investments in available-for-sale securities	 	 	306,310	  	 	 	163,836	  	
Property and equipment, at cost, less accumulated depreciation and amortization of $609,439 and $578,655	 	 	257,870	  	 	 	255,298	  	
Intangible assets, net	 	 	262,106	  	 	 	275,342	  	
Goodwill	 	 	438,403	  	 	 	434,151	  	
Other assets	 	 	576,283	  	 	 	627,731	  	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	3,976,513	  	 	$	5,289,453	  	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	
Customer banking deposits	 	$	723,318	  	 	$	852,220	  	
Accounts payable, accrued expenses and other current liabilities	 	 	581,069	  	 	 	550,982	  	
Accrued salaries, wages and payroll taxes	 	 	46,588	  	 	 	208,748	  	
Accrued income taxes	 	 	135,858	  	 	 	458,911	  	
Commercial paper borrowings	 	 	39,990	  	 	 	–	  	
Current portion of long-term debt	 	 	30,735	  	 	 	557	  	
Federal Home Loan Bank borrowings	 	 	25,000	  	 	 	25,000	  	
Liabilities of discontinued operations, held for sale	 	 	199,030	  	 	 	241,562	  	
 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	1,781,588	  	 	 	2,337,980	  	
Long-term debt	 	 	1,009,196	  	 	 	1,039,527	  	
Other noncurrent liabilities	 	 	322,907	  	 	 	462,372	  	
 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	3,113,691	  	 	 	3,839,879	  	
 	 	 	 	 	 	 	 	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 399,397,099 and 412,440,599	 	 	3,994	  	 	 	4,124	  	
Additional paid-in capital	 	 	799,270	  	 	 	812,666	  	
Accumulated other comprehensive income	 	 	4,359	  	 	 	11,233	  	
Retained earnings	 	 	2,080,162	  	 	 	2,658,103	  	
Less treasury shares, at cost	 	 	(2,024,963	) 	 	 	(2,036,552	) 	
 	 	 	 	 	 	 	 	 	
Total stockholders’ equity	 	 	862,822	  	 	 	1,449,574	  	
 	 	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	 	$	3,976,513	  	 	$	5,289,453	  	

 
See Notes to Condensed Consolidated Financial Statements
 
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CONDENSED CONSOLIDATED STATEMENTS OF	 	 	 	 	(Unaudited, amounts in 000s,
except per share amounts)
 	
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 	 	 	 	
 	 	Three months ended
October 31,	 	 	Six months ended
October 31,	
  	 	2011	 	 	2010	 	 	2011	 	 	2010	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues	 	$	  109,983	  	 	$	  99,840	  	 	$	  193,003	  	 	$	  181,355	  	 	 	
Product and other revenues	 	 	9,290	  	 	 	9,253	  	 	 	16,553	  	 	 	17,416	  	 	 	
Interest income	 	 	9,921	  	 	 	10,497	  	 	 	20,261	  	 	 	20,654	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	129,194	  	 	 	119,590	  	 	 	229,817	  	 	 	219,425	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Compensation and benefits	 	 	61,438	  	 	 	61,859	  	 	 	108,659	  	 	 	120,764	  	 	 	
Occupancy and equipment	 	 	86,551	  	 	 	88,318	  	 	 	170,054	  	 	 	171,188	  	 	 	
Depreciation/amortization of property and equipment	 	 	16,652	  	 	 	18,468	  	 	 	33,124	  	 	 	36,881	  	 	 	
Provision for bad debt and loan losses	 	 	8,200	  	 	 	9,365	  	 	 	15,491	  	 	 	18,726	  	 	 	
Interest	 	 	22,873	  	 	 	22,992	  	 	 	45,809	  	 	 	45,887	  	 	 	
Other	 	 	31,899	  	 	 	30,973	  	 	 	67,060	  	 	 	64,204	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	227,613	  	 	 	231,975	  	 	 	440,197	  	 	 	457,650	  	 	 	
Impairment of goodwill	 	 	4,257	  	 	 	–	  	 	 	4,257	  	 	 	–	  	 	 	
Selling, general and administrative expenses	 	 	103,755	  	 	 	74,983	  	 	 	196,408	  	 	 	159,562	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	335,625	  	 	 	306,958	  	 	 	640,862	  	 	 	617,212	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating loss	 	 	(206,431	) 	 	 	(187,368	) 	 	 	(411,045	) 	 	 	(397,787	) 	 	 	
Other income, net	 	 	2,502	  	 	 	3,852	  	 	 	6,515	  	 	 	7,120	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations before tax benefit	 	 	(203,929	) 	 	 	(183,516	) 	 	 	(404,530	) 	 	 	(390,667	) 	 	 	
Income tax benefit	 	 	(80,916	) 	 	 	(72,072	) 	 	 	(162,362	) 	 	 	(151,415	) 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss from continuing operations	 	 	(123,013	) 	 	 	(111,444	) 	 	 	(242,168	) 	 	 	(239,252	) 	 	 	
Net income (loss) from discontinued operations	 	 	(18,711	) 	 	 	2,395	  	 	 	(74,654	) 	 	 	(478	) 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(141,724	) 	 	$	(109,049	) 	 	$	(316,822	) 	 	$	(239,730	) 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted loss per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss from continuing operations	 	$	(0.41	) 	 	$	(0.36	) 	 	$	(0.80	) 	 	$	(0.77	) 	 	 	
Net income (loss) from discontinued operations	 	 	(0.06	) 	 	 	–	  	 	 	(0.25	) 	 	 	–	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(0.47	) 	 	$	(0.36	) 	 	$	(1.05	) 	 	$	(0.77	) 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted shares	 	 	299,895	  	 	 	306,804	  	 	 	302,693	  	 	 	313,247	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per share	 	$	0.15	  	 	$	0.15	  	 	$	0.30	  	 	$	0.30	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(141,724	) 	 	$	(109,049	) 	 	$	(316,822	) 	 	$	(239,730	) 	 	 	
Change in unrealized gain on available-for-sale securities, net	 	 	905	  	 	 	(333	) 	 	 	1,880	  	 	 	(639	) 	 	 	
Change in foreign currency translation adjustments	 	 	(9,238	) 	 	 	5,396	  	 	 	(8,754	) 	 	 	1,376	  	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive loss	 	$	(150,057	) 	 	$	(103,986	) 	 	$	(323,696	) 	 	$	(238,993	) 	 	 	

 
See Notes to Condensed Consolidated Financial Statements
 
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	  	(unaudited, amounts in 000s)	 	
 	 	 	
Six months ended October 31,	  	2011	 	 	2010	 	
Net cash used in operating activities	  	$	(582,628	) 	 	$	(548,001	) 	
 	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Purchases of available-for-sale securities	  	 	(155,159	) 	 	 	–	  	
Principal repayments on mortgage loans held for investment, net	  	 	22,978	  	 	 	30,829	  	
Purchases of property and equipment, net	  	 	(40,510	) 	 	 	(35,005	) 	
Payments made for business acquisitions, net	  	 	(8,164	) 	 	 	(43,310	) 	
Proceeds from sale of businesses, net	  	 	37,036	  	 	 	58,834	  	
Franchise loans:	  	 	 	 	 	 	 	 	
Loans funded	  	 	(27,682	) 	 	 	(64,851	) 	
Payments received	  	 	7,447	  	 	 	8,673	  	
Other, net	  	 	36,934	  	 	 	28,195	  	
 	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(127,120	) 	 	 	(16,635	) 	
 	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Repayments of commercial paper	  	 	(37,989	) 	 	 	(75,000	) 	
Proceeds from commercial paper	  	 	77,979	  	 	 	114,490	  	
Customer banking deposits, net	  	 	(129,285	) 	 	 	77,023	  	
Dividends paid	  	 	(91,446	) 	 	 	(95,068	) 	
Repurchase of common stock, including shares surrendered	  	 	(180,222	) 	 	 	(283,470	) 	
Proceeds from exercise of stock options, net	  	 	(430	) 	 	 	1,493	  	
Other, net	  	 	(28,057	) 	 	 	(21,352	) 	
 	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(389,450	) 	 	 	(281,884	) 	
 	  	 	 	 	 	 	 	 	
Effects of exchange rates on cash	  	 	(6,035	) 	 	 	2,221	  	
Net decrease in cash and cash equivalents	  	 	(1,105,233	) 	 	 	(844,299	) 	
Cash and cash equivalents at beginning of the period	  	 	1,677,844	  	 	 	1,804,045	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents at end of the period	  	$	572,611	  	 	$	959,746	  	
 	  	 	 	 	 	 	 	 	
Supplementary cash flow data:	  	 	 	 	 	 	 	 	
Income taxes paid	  	$	122,832	  	 	$	103,803	  	
Interest paid on borrowings	  	 	27,748	  	 	 	30,933	  	
Interest paid on deposits	  	 	3,323	  	 	 	3,828	  	
Transfers of foreclosed loans to other assets	  	 	4,438	  	 	 	11,185	  	
Accrued additions to property and equipment	  	 	10,798	  	 	 	4,141	  	

See Notes to Condensed Consolidated Financial Statements
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	  	(unaudited)	

1.	Summary of Significant Accounting Policies	
Basis of Presentation
The condensed consolidated balance sheet as of October 31, 2011, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended October 31, 2011 and 2010, and the condensed consolidated statements of cash flows for the six months ended October 31, 2011 and 2010 have been prepared by the Company, without audit. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows at October 31, 2011 and for all periods presented have been made. See below for discussion of our presentation of discontinued operations.
“H&R Block,” “the Company,” “we,” “our” and “us” are used interchangeably to refer to H&R Block, Inc. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, 2011 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, 2011 or for the year then ended, are derived from our April 30, 2011 Annual Report to Shareholders on Form 10-K.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions and judgments are applied in the determination of our allowance for loan losses, potential losses from loan repurchase and indemnity obligations associated with our discontinued mortgage business, contingent losses associated with pending litigation, fair value of reporting units, valuation allowances based on future taxable income, reserves for uncertain tax positions, credit losses on receivable balances and related matters. Estimates have been prepared on the basis of the most current and best information available as of each balance sheet date. As such, actual results could differ materially from those estimates.
Seasonality of Business
Our operating revenues are seasonal in nature with peak revenues occurring in the months of January through April. Therefore, results for interim periods are not indicative of results to be expected for the full year.
Discontinued Operations – Recent Events
In August 2011, our Board of Directors approved a non-binding letter of intent to sell substantially all assets of RSM McGladrey, Inc. (RSM) to McGladrey and Pullen LLP (M&P) and, on November 30, 2011, the sale of RSM was completed. At closing we received cash proceeds totaling $475.0 million, a short-term receivable of $34.0 million and a note in the principal amount of $54.0 million. The final purchase price is subject to further post-closing adjustments. M&P also assumed substantially all liabilities of RSM, including contingent payments and lease obligations. We have indemnified M&P for certain litigation matters and certain obligations related primarily to previously sold RSM subsidiaries. In the first quarter we recorded an $85.4 million impairment of goodwill in connection with the sale of RSM. The net loss ultimately resulting from the divestiture of RSM will be based on post-closing adjustments to the purchase price, as well as the additional realization of tax benefits related to the sale. In the first quarter, we also announced we were evaluating strategic alternatives for RSM EquiCo, Inc. (EquiCo), and recorded a $14.3 million impairment of goodwill related to this business.
As of October 31, 2011, the results of operations of these businesses are presented as discontinued operations and the assets and liabilities of the businesses being sold are presented as held-for-sale in the
 
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condensed consolidated financial statements. All periods presented in our condensed consolidated balance sheets and statements of operations have been reclassified to reflect our discontinued operations. See additional information in note 12.
 
2.	Loss Per Share and Stockholders’ Equity	
Basic and diluted loss per share is computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period. The dilutive effect of potential common shares is included in diluted earnings per share except in those periods with a loss from continuing operations. Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 13.0 million shares for the three and six months ended October 31, 2011, and 15.6 million shares for the three and six months ended October 31, 2010, as the effect would be antidilutive due to the net loss from continuing operations during each period.
The computations of basic and diluted loss per share from continuing operations are as follows:

  	  	(in 000s, except per share amounts)	 	
  	  	Three months ended
October 31,	 	 	Six months
ended October 31,	 	
  	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Net loss from continuing operations attributable to shareholders	  	$	(123,013	) 	 	$	(111,444	) 	 	$	(242,168	) 	 	$	(239,252	) 	
Amounts allocated to participating securities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(nonvested shares)	  	 	62	  	 	 	(26	) 	 	 	176	  	 	 	(7	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss from continuing operations attributable to common shareholders	  	$	(123,075	) 	 	$	(111,418	) 	 	$	(242,344	) 	 	$	(239,245	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic weighted average common shares	  	 	299,895	  	 	 	306,804	  	 	 	302,693	  	 	 	313,247	  	
Potential dilutive shares	  	 	–	  	 	 	–	  	 	 	–	  	 	 	–	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dilutive weighted average common shares	  	 	299,895	  	 	 	306,804	  	 	 	302,693	  	 	 	313,247	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss per share from continuing operations:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	  	$	(0.41	) 	 	$	(0.36	) 	 	$	(0.80	) 	 	$	(0.77	) 	
Diluted	  	 	(0.41	) 	 	 	(0.36	) 	 	 	(0.80	) 	 	 	(0.77	) 	
The weighted average shares outstanding for the three and six months ended October 31, 2011 decreased to 299.9 million and 302.7 million, respectively, from 306.8 million and 313.2 million for the three and six months ended October 31, 2010, respectively, primarily due to share repurchases completed in the current year. During the six months ended October 31, 2011, we purchased and immediately retired 13.0 million shares of our common stock at a cost of $177.5 million. The cost of shares retired during the current period was allocated to the components of stockholders’ equity as follows:

  	  	(in 000s)	
Common stock	  	$	130	  	  	 	
Additional paid-in capital	  	 	7,826	  	  	 	
Retained earnings	  	 	169,548	  	  	 	
 	  	 	 	 	  	 	
 	  	$	177,504	  	  	 	

During the six months ended October 31, 2010, we purchased and immediately retired 19.0 million shares of our common stock at a cost of $279.9 million.
During the six months ended October 31, 2011 and 2010, we issued 0.8 million and 1.0 million shares of common stock, respectively, due to the exercise of stock options, employee stock purchases and vesting of nonvested shares.
 
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During the six months ended October 31, 2011, we acquired 0.2 million shares of our common stock at an aggregate cost of $2.7 million, and during the six months ended October 31, 2010, we acquired 0.2 million shares at an aggregate cost of $3.5 million. Shares acquired during these periods represented shares swapped or surrendered to us in connection with the vesting of nonvested shares and the exercise of stock options.
During the six months ended October 31, 2011, we granted 2.3 million stock options and 1.0 million nonvested shares and units under our stock-based compensation plans. The weighted average fair value of options granted was $3.37 for management options. These awards vest over a three year period with one-third vesting each year. Stock-based compensation expense of our continuing operations totaled $4.5 million and $7.8 million for the three and six months ended October 31, 2011, respectively, and $1.8 million and $3.8 million for the three and six months ended October 31, 2010, respectively. At October 31, 2011, unrecognized compensation cost for options totaled $8.5 million, and for nonvested shares and units totaled $19.8 million.
 
3.	Receivables	
Short-term receivables of our continuing operations consist of the following:

  	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Loans to franchisees	  	$	67,594	  	  	$	62,181	  	
Receivables for tax preparation and related fees	  	 	34,561	  	  	 	38,930	  	
Emerald Advance lines of credit	  	 	29,929	  	  	 	31,645	  	
Royalties from franchisees	  	 	5,389	  	  	 	11,645	  	
Tax client receivables related to RALs	  	 	1,933	  	  	 	2,412	  	
Other	  	 	37,068	  	  	 	131,302	  	
 	  	 	 	 	  	 	 	 	
 	  	 	176,474	  	  	 	278,115	  	
Allowance for doubtful accounts	  	 	(48,412	) 	  	 	(47,943	) 	
 	  	 	 	 	  	 	 	 	
 	  	$	128,062	  	  	$	230,172	  	

The short-term portion of Emerald Advance lines of credit (EAs), tax client receivables related to refund anticipation loans (RALs) and loans made to franchisees is included in receivables, while the long-term portion is included in other assets in the condensed consolidated financial statements. These amounts are as follows:

  	  	(in 000s)	 	
  	  	Emerald Advance
Lines of Credit	 	  	Tax Client
Receivables-RALs	 	  	Loans
to Franchisees	 	
As of October 31, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	
Short-term	  	$	29,929	  	  	$	1,933	  	  	$	67,594	  	
Long-term	  	 	17,749	  	  	 	5,260	  	  	 	130,280	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	47,678	  	  	$	7,193	  	  	$	197,874	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
As of April 30, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	
Short-term	  	$	31,645	  	  	$	2,412	  	  	$	62,181	  	
Long-term	  	 	21,619	  	  	 	5,855	  	  	 	110,420	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	53,264	  	  	$	8,267	  	  	$	172,601	  	

 
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We review the credit quality of our EA receivables and tax client receivables related to RALs based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid. These amounts as of October 31, 2011, by year of origination, are as follows:

  	  	(in 000s)	 	
  	  	Emerald Advance
Lines of Credit	 	  	Tax Client
Receivables-RALs	 	
Credit Quality Indicator – Year of origination:	  	 	 	 	  	 	 	 	
2011	  	$	24,829	  	  	$	–	  	
2010	  	 	4,950	  	  	 	85	  	
2009	  	 	4,930	  	  	 	2,122	  	
2008 and prior	  	 	2,072	  	  	 	4,986	  	
Revolving loans	  	 	10,897	  	  	 	–	  	
 	  	 	 	 	  	 	 	 	
 	  	$	47,678	  	  	$	7,193	  	

As of October 31, 2011 and April 30, 2011, $44.4 million and $46.8 million, respectively, of EAs were on non-accrual status and classified as impaired, or more than 60 days past due. All tax client receivables related to RALs are considered impaired.
Loans made to franchisees totaled $197.9 million at October 31, 2011, and consisted of $146.3 million in term loans made to finance the purchase of franchises and $51.6 million in revolving lines of credit made to existing franchisees primarily for the purpose of funding their off-season needs.
The allowance for doubtful accounts for continuing operations consists of the following:

  	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Allowance related to:	  	 	 	 	  	 	 	 	
Emerald Advance lines of credit	  	$	5,930	  	  	$	4,400	  	
Tax client receivables related to RALs	  	 	–	  	  	 	–	  	
Loans to franchisees	  	 	–	  	  	 	–	  	
All other receivables	  	 	42,482	  	  	 	43,543	  	
 	  	 	 	 	  	 	 	 	
 	  	$	48,412	  	  	$	47,943	  	

Activity in the allowance for doubtful accounts for the six months ended October 31, 2011 and 2010 is as follows:

  	  	(in 000s)	 	
  	  	Emerald Advance
Lines of Credit	 	  	Tax Client
Receivables-RALs	 	  	Loans
to Franchisees	 	 	All
Other	 	 	Total	 	
Balance as of April 30, 2011	  	$	4,400	  	  	$	–	  	  	$	–	  	 	$	43,543	  	 	$	47,943	  	
Provision	  	 	1,530	  	  	 	–	  	  	 	–	  	 	 	828	  	 	 	2,358	  	
Charge-offs	  	 	–	  	  	 	–	  	  	 	–	  	 	 	(1,889	) 	 	 	(1,889	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of October 31, 2011	  	$	5,930	  	  	$	–	  	  	$	–	  	 	$	42,482	  	 	$	48,412	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of April 30, 2010	  	$	35,239	  	  	$	12,191	  	  	$	4	  	 	$	43,723	  	 	$	91,157	  	
Provision	  	 	1,120	  	  	 	2	  	  	 	–	  	 	 	984	  	 	 	2,106	  	
Charge-offs	  	 	–	  	  	 	–	  	  	 	(4	) 	 	 	(1,526	) 	 	 	(1,530	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Balance as of October 31, 2010	  	$	36,359	  	  	$	12,193	  	  	$	–	  	 	$	43,181	  	 	$	91,733	  	

There were no changes to our methodology related to the calculation of our allowance for doubtful accounts during the six months ended October 31, 2011.
 
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4.	Mortgage Loans Held for Investment and Related Assets	
The composition of our mortgage loan portfolio as of October 31, 2011 and April 30, 2011 is as follows:

  	  	(dollars in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
  	  	Amount	 	 	        % of Total	 	  	        Amount	 	 	        % of Total	 	
Adjustable-rate loans	  	$	311,218	  	 	 	58%	  	  	$	333,828	  	 	 	58%	  	
Fixed-rate loans	  	 	226,536	  	 	 	42%	  	  	 	239,146	  	 	 	42%	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
 	  	 	537,754	  	 	 	100%	  	  	 	572,974	  	 	 	100%	  	
Unamortized deferred fees and costs	  	 	3,762	  	 	 	 	 	  	 	4,121	  	 	 	 	 	
Less: Allowance for loan losses	  	 	(91,379	) 	 	 	 	 	  	 	(92,087	) 	 	 	 	 	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	450,137	  	 	 	 	 	  	$	485,008	  	 	 	 	 	

Our loan loss allowance as a percent of mortgage loans was 17.0% at October 31, 2011, compared to 16.1% at April 30, 2011.
Activity in the allowance for loan losses for the six months ended October 31, 2011 and 2010 is as follows:

  	  	(in 000s)	 	
Six months ended October 31,	  	2011	 	 	2010	 	
Balance, beginning of the period	  	$	92,087	  	 	$	93,535	  	
Provision	  	 	12,750	  	 	 	16,300	  	
Recoveries	  	 	88	  	 	 	86	  	
Charge-offs	  	 	(13,546	) 	 	 	(22,354	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of the period	  	$	91,379	  	 	$	87,567	  	

When determining our allowance for loan losses, we evaluate loans less than 60 days past due on a pooled basis, while loans we consider impaired, including those loans more than 60 days past due or modified as troubled debt restructurings (TDRs), are evaluated individually. The balance of these loans and the related allowance is as follows:

  	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
  	  	Portfolio Balance	 	  	Related Allowance	 	  	Portfolio Balance	 	  	Related Allowance	 	
Pooled (less than 60 days past due)	  	$	276,447	  	  	$	10,076	  	  	$	304,325	  	  	$	11,238	  	
Impaired:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Individually (TDRs)	  	 	89,351	  	  	 	8,576	  	  	 	106,328	  	  	 	11,056	  	
Individually (60 days or more past due)	  	 	171,956	  	  	 	72,727	  	  	 	162,321	  	  	 	69,793	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	537,754	  	  	$	91,379	  	  	$	572,974	  	  	$	92,087	  	

Our portfolio includes loans originated by Sand Canyon Corporation (SCC) and purchased by H&R Block Bank (HRB Bank) which constitute 63% of the total loan portfolio at October 31, 2011. We have experienced higher rates of delinquency and have greater exposure to loss with respect to this segment of our loan portfolio. Our remaining loan portfolio totaled $201.1 million and is characteristic of a prime loan portfolio, and we believe subject to a lower loss exposure. Detail of our mortgage loans held for investment and the related allowance at October 31, 2011 is as follows:

  	  	(dollars in 000s)	 	
 	  	Outstanding	 	  	Loan Loss Allowance	 	  	% 30+ Days	 	
  	  	Principal Balance	 	  	Amount	 	  	% of Principal	 	  	Past Due	 	
Purchased from SCC	  	$	336,689	  	  	$	78,517	  	  	 	23.3%	  	  	 	44.7%	  	
All other	  	 	201,065	  	  	 	12,862	  	  	 	6.4%	  	  	 	11.7%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	537,754	  	  	$	91,379	  	  	 	17.0%	  	  	 	32.4%	  	

 
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Credit quality indicators at October 31, 2011 include the following:

  	  	(in 000s)	 	
Credit Quality Indicators	  	Purchased from SCC	 	  	All Other	 	  	Total Portfolio	 	
Occupancy status:	  	 	 	 	  	 	 	 	  	 	 	 	
Owner occupied	  	$	238,204	  	  	$	127,138	  	  	$	365,342	  	
Non-owner occupied	  	 	98,485	  	  	 	73,927	  	  	 	172,412	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	336,689	  	  	$	201,065	  	  	$	537,754	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Documentation level:	  	 	 	 	  	 	 	 	  	 	 	 	
Full documentation	  	$	100,555	  	  	$	145,912	  	  	$	246,467	  	
Limited documentation	  	 	8,707	  	  	 	21,830	  	  	 	30,537	  	
Stated income	  	 	196,106	  	  	 	20,515	  	  	 	216,621	  	
No documentation	  	 	31,321	  	  	 	12,808	  	  	 	44,129	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	336,689	  	  	$	201,065	  	  	$	537,754	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Internal risk rating:	  	 	 	 	  	 	 	 	  	 	 	 	
High	  	$	136,885	  	  	$	–	  	  	$	136,885	  	
Medium	  	 	199,804	  	  	 	–	  	  	 	199,804	  	
Low	  	 	–	  	  	 	201,065	  	  	 	201,065	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	336,689	  	  	$	201,065	  	  	$	537,754	  	

Loans given our internal risk rating of “high” are generally originated by SCC, have no documentation or are stated income and are non-owner occupied. Loans given our internal risk rating of “medium” are generally full documentation or stated income, with loan-to-value at origination of more than 80% and have credit scores at origination below 700. Loans given our internal risk rating of “low” are generally full documentation, with loan-to-value at origination of less than 80% and have credit scores greater than 700.
Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately 52% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California and New York.
Detail of the aging of the mortgage loans in our portfolio that are past due as of October 31, 2011 is as follows:

  	  	  	 	  	  	 	  	  	 	  	  	 	  	  	 	  	(in 000s)	 	
  	  	Less than 60
Days Past Due	 	  	60–89 Days
Past Due	 	  	90+ Days
Past Due (1)	 	  	Total
Past Due	 	  	Current	 	  	Total	 	
Purchased from SCC	  	$	27,296	  	  	$	6,614	  	  	$	139,761	  	  	$	173,671	  	  	$	163,018	  	  	$	336,689	  	
All other	  	 	9,683	  	  	 	801	  	  	 	20,826	  	  	 	31,310	  	  	 	169,755	  	  	 	201,065	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	36,979	  	  	$	7,415	  	  	$	160,587	  	  	$	204,981	  	  	$	332,773	  	  	$	537,754	  	

(1)   No loans past due 90 days or more are still accruing interest.	      	
Information related to our non-accrual loans is as follows:

  	  	  	 	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Loans:	  	 	 	 	  	 	 	 	
Purchased from SCC	  	$	145,493	  	  	$	143,358	  	
Other	  	 	23,079	  	  	 	14,106	  	
 	  	 	 	 	  	 	 	 	
 	  	 	168,572	  	  	 	157,464	  	
 	  	 	 	 	  	 	 	 	
TDRs:	  	 	 	 	  	 	 	 	
Purchased from SCC	  	 	3,055	  	  	 	2,849	  	
Other	  	 	893	  	  	 	329	  	
 	  	 	 	 	  	 	 	 	
 	  	 	3,948	  	  	 	3,178	  	
 	  	 	 	 	  	 	 	 	
Total non-accrual loans	  	$	172,520	  	  	$	160,642	  	

 
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Information related to impaired loans is as follows:

  	  	  	 	  	  	 	  	  	 	  	(in 000s)	 	
  	  	Portfolio Balance
With Allowance	 	  	Portfolio Balance
With No Allowance	 	  	Total
Portfolio Balance	 	  	Related Allowance	 	
As of October 31, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Purchased from SCC	  	$	180,396	  	  	$	45,369	  	  	$	225,765	  	  	$	72,465	  	
Other	  	 	26,241	  	  	 	9,301	  	  	 	35,542	  	  	 	8,838	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	206,637	  	  	$	54,670	  	  	$	261,307	  	  	$	81,303	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As of April 30, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Purchased from SCC (1)	  	$	180,387	  	  	$	51,674	  	  	$	232,061	  	  	$	71,733	  	
Other (1)	  	 	29,027	  	  	 	7,561	  	  	 	36,588	  	  	 	9,116	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	209,414	  	  	$	59,235	  	  	$	268,649	  	  	$	80,849	  	

(1)   Classification of amounts as of April 30, 2011 has been restated to conform to the current period presentation.	      	
Information related to the allowance for impaired loans is as follows:

  	  	  	 	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:	  	 	 	 	  	 	 	 	
Based on collateral value method	  	$	72,727	  	  	$	69,794	  	
Based on discounted cash flow method	  	 	8,576	  	  	 	11,055	  	
 	  	 	 	 	  	 	 	 	
 	  	$	81,303	  	  	$	80,849	  	

Information related to activities of our non-performing assets is as follows:

  	  	  	 	  	(in 000s)	 	
Six months ended October 31,	  	2011	 	  	2010	 	
Average impaired loans:	  	 	 	 	  	 	 	 	
Purchased from SCC	  	$	226,880	  	  	 	 	 	
All other	  	 	35,525	  	  	 	 	 	
 	  	 	 	 	  	 	 	 	
 	  	$	262,405	  	  	$	320,371	  	
 	  	 	 	 	  	 	 	 	
Interest income on impaired loans:	  	 	 	 	  	 	 	 	
Purchased from SCC	  	$	3,076	  	  	 	 	 	
All other	  	 	238	  	  	 	 	 	
 	  	 	 	 	  	 	 	 	
 	  	$	3,314	  	  	$	3,353	  	
 	  	 	 	 	  	 	 	 	
Interest income on impaired loans recognized on a cash basis on non-accrual status:	  	 	 	 	  	 	 	 	
Purchased from SCC	  	$	2,973	  	  	 	 	 	
All other	  	 	224	  	  	 	 	 	
 	  	 	 	 	  	 	 	 	
 	  	$	3,197	  	  	$	3,146	  	

Our real estate owned (REO) includes loans accounted for as in-substance foreclosures of $6.2 million and $7.7 million at October 31, 2011 and April 30, 2011, respectively. Activity related to our real estate owned is as follows:

  	  	  	 	 	(in 000s)	 	
Six months ended October 31,	  	2011	 	 	2010	 	
Balance, beginning of the period	  	$	19,532	  	 	$	29,252	  	
Additions	  	 	4,438	  	 	 	11,185	  	
Sales	  	 	(6,303	) 	 	 	(12,784	) 	
Writedowns	  	 	(1,706	) 	 	 	(2,076	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of the period	  	$	15,961	  	 	$	25,577	  	

 
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5.	Investments in Available-for-Sale Securities	
The amortized cost and fair value of securities classified as available-for-sale (AFS) held at October 31, 2011 and April 30, 2011 are summarized below:

  	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	(in 000s)	 	
As of	 	October 31, 2011	 	 	April 30, 2011	 	
  	 	Amortized
Cost	 	 	Gross
Unrealized
Gains	 	 	Gross
Unrealized
Losses (1)	 	 	Fair
Value	 	 	Amortized
Cost	 	 	Gross
Unrealized
Gains	 	 	Gross
Unrealized
Losses (1)	 	 	Fair
Value	 	
Short-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Municipal bonds	 	$	2,008	  	 	$	21	  	 	$	–	  	 	$	2,029	  	 	$	3,023	  	 	$	58	  	 	$	–	  	 	$	3,081	  	
Long-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage-backed securities	 	 	297,157	  	 	 	3,716	  	 	 	(209	) 	 	 	300,664	  	 	 	157,970	  	 	 	401	  	 	 	(194	) 	 	 	158,177	  	
Municipal bonds	 	 	5,277	  	 	 	369	  	 	 	–	  	 	 	5,646	  	 	 	5,312	  	 	 	347	  	 	 	–	  	 	 	5,659	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	302,434	  	 	 	4,085	  	 	 	(209	) 	 	 	306,310	  	 	 	163,282	  	 	 	748	  	 	 	(194	) 	 	 	163,836	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	304,442	  	 	$	4,106	  	 	$	(209	) 	 	$	308,339	  	 	$	166,305	  	 	$	806	  	 	$	(194	) 	 	$	166,917	  	

(1)  At October 31, 2011 and April 30, 2011, we had no investments that had been in a continuous loss position for more than twelve months.	      	
We did not record any other-than-temporary impairments of AFS securities during the three or six months ended October 31, 2011. During the three and six months ended October 31, 2010, we recorded other-than-temporary impairments of AFS securities totaling $0.1 million and $0.3 million, respectively, as a result of an assessment that it was probable we would not collect all amounts due or an assessment that we would not be able to hold the investments until potential recovery of market value.
Contractual maturities of AFS debt securities at October 31, 2011, occur at varying dates over the next 30 years, and are set forth in the table below.

  	  	  	 	  	(in 000s)	 	
  	  	Cost Basis	 	  	Fair Value	 	
Maturing in:	  	 	 	 	  	 	 	 	
Less than one year	  	$	2,008	  	  	$	2,029	  	
Two to five years	  	 	4,219	  	  	 	4,467	  	
Six to ten years	  	 	1,058	  	  	 	1,179	  	
Beyond	  	 	297,157	  	  	 	300,664	  	
 	  	 	 	 	  	 	 	 	
 	  	$	304,442	  	  	$	308,339	  	

 
6.	Assets and Liabilities Measured at Fair Value	
We use the following valuation methodologies for assets and liabilities measured at fair value and the general classification of these instruments pursuant to the fair value hierarchy.
 	•	 	Available-for-sale securities – Available-for-sale securities are carried at fair value on a recurring basis. When available, fair value is based on quoted prices in an active market for identical securities and as such, would be classified as Level 1. If quoted market prices are not available, we use a third-party pricing service to determine fair value and classify the securities as Level 2. The service’s pricing model is based on market data and utilizes available trade, bid and other market information for similar securities. Available-for-sale securities that we classify as Level 2 include certain agency and non-agency mortgage-backed securities, U.S. states and political subdivisions debt securities and other debt and equity securities.	
 	•	 	Real estate owned – REO includes foreclosed properties securing mortgage loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to REO. Fair value is generally based on independent market prices or appraised values of the collateral. Subsequent holding period losses and losses arising from the sale of REO are expensed as incurred. Because our REO is valued based on significant inputs that are unobservable in the market and our own estimates of assumptions that we believe market participants would use in pricing the asset, these assets are classified as Level 3.	
 
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 	•	 	Impaired mortgage loans held for investment – The fair value of impaired mortgage loans held for investment is generally based on the net present value of discounted cash flows for TDR loans or the appraised value of the underlying collateral for all other loans. These loans are classified as Level 3.	
The following table presents for each hierarchy level the assets that were remeasured at fair value on both a recurring and non-recurring basis during the six months ended October 31, 2011 and 2010 and the gains (losses) on those remeasurements:

  	  	  	 	  	  	 	  	  	 	  	  	 	  	(dollars in 000s)	 	
  	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Gain (loss)	 	
As of October 31, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Recurring:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Mortgage-backed securities	  	$	300,664	  	  	$	–	  	  	$	300,664	  	  	$	–	  	  	$	3,507	  	
Municipal bonds	  	 	7,675	  	  	 	–	  	  	 	7,675	  	  	 	–	  	  	 	390	  	
Non-recurring:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
REO	  	 	16,918	  	  	 	–	  	  	 	–	  	  	 	16,918	  	  	 	(485	) 	
Impaired mortgage loans held for investment	  	 	114,394	  	  	 	–	  	  	 	–	  	  	 	114,394	  	  	 	(6,672	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	439,651	  	  	$	–	  	  	$	308,339	  	  	$	131,312	  	  	$	(3,260	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As a percentage of total assets	  	 	11.1%	  	  	 	–%	  	  	 	7.8%	  	  	 	3.3%	  	  	 	 	 	
As of October 31, 2010: (1)	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Recurring:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Mortgage-backed securities	  	$	20,945	  	  	$	–	  	  	$	20,945	  	  	$	–	  	  	$	38	  	
Municipal bonds	  	 	8,937	  	  	 	–	  	  	 	8,937	  	  	 	–	  	  	 	550	  	
Trust preferred security	  	 	21	  	  	 	–	  	  	 	21	  	  	 	–	  	  	 	(1,575	) 	
Non-recurring:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
REO	  	 	27,112	  	  	 	–	  	  	 	–	  	  	 	27,112	  	  	 	(1,275	) 	
Impaired mortgage loans held for investment	  	 	103,079	  	  	 	–	  	  	 	–	  	  	 	103,079	  	  	 	(5,955	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	160,094	  	  	$	–	  	  	$	29,903	  	  	$	130,191	  	  	$	(8,217	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As a percentage of total assets	  	 	3.7%	  	  	 	–%	  	  	 	0.7%	  	  	 	3.0%	  	  	 	 	 	
(1)  Prior year amounts have been restated to include only impaired mortgage loans and REO that were remeasured during the quarter and the gain (loss) on those remeasurements.	      	
There were no changes to the unobservable inputs used in determining the fair values of our level 2 and level 3 financial assets.
The following methods were used to determine the fair values of our other financial instruments:
 	•	 	Cash equivalents, accounts receivable, investment in Federal Home Loan Bank (FHLB) stock, accounts payable, accrued liabilities, commercial paper borrowings and the current portion of long-term debt – The carrying values reported in the balance sheet for these items approximate fair market value due to the relative short-term nature of the respective instruments.	
 	•	 	Mortgage loans held for investment – The fair value of mortgage loans held for investment is generally determined using market pricing sources based on origination channel and performance characteristics.	
 	•	 	Deposits – The estimated fair value of demand deposits is the amount payable on demand at the reporting date. The estimated fair value of IRAs and other time deposits is estimated by discounting the future cash flows using the rates currently offered by HRB Bank for products with similar remaining maturities.	
 	•	 	Long-term borrowings and FHLB borrowings – The fair value of borrowings is based on rates currently available to us for obligations with similar terms and maturities, including current market yields on our Senior Notes.	
 
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The carrying amounts and estimated fair values of our financial instruments at October 31, 2011 are as follows:

  	  	  	 	  	(in 000s)	
  	  	Carrying
Amount	 	  	Estimated
Fair Value	 	 	  	
Mortgage loans held for investment	  	$	450,137	  	  	$	271,634	  	 	 	
Deposits	  	 	733,887	  	  	 	735,264	  	 	 	
Long-term borrowings	  	 	1,039,931	  	  	 	1,076,256	  	 	 	
FHLB advances	  	 	25,000	  	  	 	24,997	  	 	 	

7.	Goodwill and Intangible Assets	
Changes in the carrying amount of the goodwill of our continuing operations, which is included in our Tax Services segment, for the six months ended October 31, 2011 consist of the following:

  	  	(in 000s)	 	
Balance at April 30, 2011:	  	 	 	 	
Goodwill	  	$	459,039	  	
Accumulated impairment losses	  	 	(24,888	) 	
 	  	 	 	 	
 	  	 	434,151	  	
 	  	 	 	 	
Changes:	  	 	 	 	
Acquisitions	  	 	9,329	  	
Disposals and foreign currency changes	  	 	(820	) 	
Impairments	  	 	(4,257	) 	
 	  	 	 	 	
Balance at October 31, 2011:	  	 	 	 	
Goodwill	  	 	467,548	  	
Accumulated impairment losses	  	 	(29,145	) 	
 	  	 	 	 	
 	  	$	438,403	  	

In the current period, we decided to discontinue service under our ExpressTax brand. As a result, we recorded an impairment of the reporting unit’s goodwill, which totaled $4.3 million.
We test goodwill and other indefinite-life intangible assets for impairment annually or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.
Intangible assets of our continuing operations consist of the following:

  	  	  	 	  	(in 000s)	 	
As of	  	  	 	 	October 31, 2011	 	 	  	 	  	  	 	  	April 30, 2011	 	 	  	 	
  	  	Gross
Carrying
Amount	 	 	Accumulated
Amortization	 	 	Net	 	  	Gross
Carrying
Amount	 	  	Accumulated
Amortization	 	 	Net	 	
Tax Services:	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Customer relationships	  	$	81,428	  	 	$	(43,730	) 	 	$	37,698	  	  	$	87,624	  	  	$	(41,076	) 	 	$	46,548	  	
Noncompete agreements	  	 	23,387	  	 	 	(22,445	) 	 	 	942	  	  	 	23,456	  	  	 	(22,059	) 	 	 	1,397	  	
Reacquired franchise rights	  	 	214,330	  	 	 	(12,022	) 	 	 	202,308	  	  	 	214,330	  	  	 	(9,961	) 	 	 	204,369	  	
Franchise agreements	  	 	19,201	  	 	 	(3,733	) 	 	 	15,468	  	  	 	19,201	  	  	 	(3,093	) 	 	 	16,108	  	
Purchased technology	  	 	14,700	  	 	 	(9,635	) 	 	 	5,065	  	  	 	14,700	  	  	 	(8,505	) 	 	 	6,195	  	
Trade name	  	 	1,325	  	 	 	(700	) 	 	 	625	  	  	 	1,325	  	  	 	(600	) 	 	 	725	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	354,371	  	 	$	(92,265	) 	 	$	262,106	  	  	$	360,636	  	  	$	(85,294	) 	 	$	275,342	  	

Amortization of intangible assets of our continuing operations for the three and six months ended October 31, 2011 was $5.4 and $10.5 million respectively. Additionally, we recorded an impairment of customer relationships of $4.0 million, related to the discontinuation of our ExpressTax brand, as discussed above. Amortization of intangible assets of our continuing operations for the three and six
 
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months ended October 31, 2010 was $4.2 and $8.3 million respectively. Estimated amortization of intangible assets for fiscal years 2012 through 2016 is $17.4 million, $15.8 million, $14.0 million, $10.6 million and $10.0 million, respectively.
 
8.	Income Taxes	
We file a consolidated federal income tax return in the United States and file tax returns in various state and foreign jurisdictions. The U.S. Federal consolidated tax returns for the years 1999 through 2009 are currently under examination by the Internal Revenue Service, with the 1999-2007 years currently at the appellate level. Federal returns for tax years prior to 1999 are closed by statute. Historically, tax returns in various foreign and state jurisdictions are examined and settled upon completion of the exam.
We had gross unrecognized tax benefits of $158.0 million and $154.8 million at October 31, 2011 and April 30, 2011, respectively. The gross unrecognized tax benefits increased $3.2 million net in the current year, due to accruals of tax on positions related to prior years partially offset by statute of limitations expirations and settlements with taxing authorities. Except as noted below, we have classified the liability for unrecognized tax benefits, including corresponding accrued interest, as long-term at October 31, 2011, and included this amount in other noncurrent liabilities on the condensed consolidated balance sheet.
Based upon the expiration of statutes of limitations, payments of tax and other factors in several jurisdictions, we believe it is reasonably possible that the gross amount of reserves for previously unrecognized tax benefits may decrease by $16.8 million within twelve months of October 31, 2011. This portion of our liability for unrecognized tax benefits has been classified as current and is included in accounts payable, accrued expenses and other current liabilities on the condensed consolidated balance sheets.
 
9.	Interest Income and Expense	
The following table shows the components of interest income and expense of our continuing operations:

  	  	  	 	  	(in 000s)	 	
 	  	Three months
ended October 31,	 	  	Six months
ended October 31,	 	
  	  	2011	 	  	2010	 	  	2011	 	  	2010	 	
Interest income:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Mortgage loans, net	  	$	5,151	  	  	$	6,525	  	  	$	10,812	  	  	$	12,848	  	
Other	  	 	4,770	  	  	 	3,972	  	  	 	9,449	  	  	 	7,806	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	9,921	  	  	$	10,497	  	  	$	20,261	  	  	$	20,654	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Interest expense:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Borrowings	  	$	21,114	  	  	$	20,649	  	  	$	42,243	  	  	$	41,225	  	
Deposits	  	 	1,608	  	  	 	1,947	  	  	 	3,264	  	  	 	3,870	  	
FHLB advances	  	 	151	  	  	 	396	  	  	 	302	  	  	 	792	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	22,873	  	  	$	22,992	  	  	$	45,809	  	  	$	45,887	  	

 
10.	Regulatory Requirements	
HRB Bank files its regulatory Thrift Financial Report (TFR) on a calendar quarter basis with the Office of Thrift Supervision (OTS). In July 2011, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Reform Act), the responsibility and authority of the OTS moved to the Office of the Comptroller of the Currency (OCC). HRB Bank will continue to file TFR reports with the OCC through December 31, 2011. Beginning March 31, 2012, HRB Bank will file Reports of Condition and Income (Call Report) with the OCC quarterly. Additionally, H&R Block, Inc. as the bank holding company, is now regulated by the Federal Reserve Bank.
 
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The following table sets forth HRB Bank’s regulatory capital requirements, as calculated in its TFR:

  	  	  	 	  	  	 	  	(dollars in 000s)	 	
  	  	Actual	 	  	For Capital Adequacy
Purposes	 	  	To Be Well
Capitalized
Under Prompt
Corrective
Action Provisions	 	
  	  	Amount	 	  	Ratio	 	  	Amount	 	  	Ratio	 	  	Amount	 	  	Ratio	 	
As of September 30, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total risk-based capital ratio(1)	  	$	409,193	  	  	 	97.1%	  	  	$	33,715	  	  	 	8.0%	  	  	$	42,144	  	  	 	10.0%	  	
Tier 1 risk-based capital ratio(2)	  	$	403,638	  	  	 	95.8%	  	  	 	N/A	  	  	 	N/A	  	  	$	25,287	  	  	 	6.0%	  	
Tier 1 capital ratio (leverage)(3)	  	$	403,638	  	  	 	35.6%	  	  	$	136,150	  	  	 	12.0%	  	  	$	56,729	  	  	 	5.0%	  	
Tangible equity ratio(4)	  	$	403,638	  	  	 	35.6%	  	  	$	17,019	  	  	 	1.5%	  	  	 	N/A	  	  	 	N/A	  	
As of March 31, 2011:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total risk-based capital ratio(1)	  	$	405,000	  	  	 	92.5%	  	  	$	35,019	  	  	 	8.0%	  	  	$	43,773	  	  	 	10.0%	  	
Tier 1 risk-based capital ratio(2)	  	$	399,187	  	  	 	91.2%	  	  	 	N/A	  	  	 	N/A	  	  	$	26,264	  	  	 	6.0%	  	
Tier 1 capital ratio (leverage)(3)	  	$	399,187	  	  	 	22.8%	  	  	$	209,758	  	  	 	12.0%	  	  	$	87,399	  	  	 	5.0%	  	
Tangible equity ratio(4)	  	$	399,187	  	  	 	22.8%	  	  	$	26,220	  	  	 	1.5%	  	  	 	N/A	  	  	 	N/A	  	
 	(1) 	Total risk-based capital divided by risk-weighted assets.	
 	(2) 	Tier 1 (core) capital less deduction for low-level recourse and residual interest divided by risk-weighted assets.	
 	(3) 	Tier 1 (core) capital divided by adjusted total assets.	
 	(4) 	Tangible capital divided by tangible assets.	
 
As of October 31, 2011, HRB Bank’s leverage ratio was 33.6%.
 
11.	Commitments and Contingencies	
Changes in deferred revenue balances related to our Peace of Mind (POM) program, the current portion of which is included in accounts payable, accrued expenses and other current liabilities and the long-term portion of which is included in other noncurrent liabilities in the condensed consolidated balance sheets, are as follows:

  	  	  	 	 	(in 000s)	 	
Six months ended October 31,	  	2011	 	 	2010	 	
Balance, beginning of period	  	$	140,603	  	 	$	141,542	  	
Amounts deferred for new guarantees issued	  	 	1,331	  	 	 	1,422	  	
Revenue recognized on previous deferrals	  	 	(46,073	) 	 	 	(48,358	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	95,861	  	 	$	94,606	  	

In addition to amounts accrued for our POM guarantee, we had accrued $11.8 million and $14.7 million at October 31, 2011 and April 30, 2011, respectively, related to our standard guarantee which is included with our standard tax preparation services.
The following table summarizes certain of our other contractual obligations and commitments:

  	  	  	 	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Franchise Equity Lines of Credit – undrawn commitment	  	$	34,162	  	  	$	37,695	  	
Media advertising purchase obligation	  	 	9,690	  	  	 	9,498	  	
We have recorded liabilities totaling $8.7 million and $11.0 million as of October 31, 2011 and April 30, 2011, respectively, in conjunction with contingent payments related to recent acquisitions of our continuing operations, with the short-term amount recorded in accounts payable, accrued expenses and deposits and the long-term portion included in other noncurrent liabilities. Our estimate is based on current financial conditions. Should actual results differ materially from our assumptions, the potential payments will differ from the above estimate.
 
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We routinely enter into contracts that include embedded indemnifications that have characteristics similar to guarantees. Guarantees and indemnifications of the Company and its subsidiaries include obligations to protect counterparties from losses arising from the following: (1) tax, legal and other risks related to the purchase or disposition of businesses; (2) penalties and interest assessed by federal and state taxing authorities in connection with tax returns prepared for clients; (3) indemnification of our directors and officers; and (4) third-party claims relating to various arrangements in the normal course of business. Typically, there is no stated maximum payment related to these indemnifications, and the terms of the indemnities may vary and in many cases are limited only by the applicable statute of limitations. The likelihood of any claims being asserted against us and the ultimate liability related to any such claims, if any, is difficult to predict. While we cannot provide assurance we will ultimately prevail in the event any such claims are asserted, we believe the fair value of guarantees and indemnifications relating to our continuing operations is not material as of October 31, 2011.
Variable Interests
We evaluated our financial interests in variable interest entities (VIEs) as of October 31, 2011 and determined that there have been no significant changes related to those financial interests.
Discontinued Operations – Mortgage Operations
SCC, previously known as Option One Mortgage Corporation, ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued its remaining operations. The sale of servicing assets did not include the sale of any mortgage loans.
In connection with the sale of loans and/or residential mortgage-backed securities (RMBS), SCC made certain representations and warranties, including, but not limited to, representations relating to matters such as ownership of the loan, validity of lien securing the loan, and the loan’s compliance with SCC’s underwriting criteria. Representations and warranties in whole loan sale transactions to institutional investors included a “knowledge qualifier” which limits SCC liability for borrower fraud to those instances where SCC had knowledge of the fraud at the time the loans were sold. In the event that there is a breach of a representation and warranty and such breach materially and adversely affects the value of a mortgage loan, SCC may be obligated to repurchase a loan or otherwise indemnify certain parties for losses incurred as a result of loan liquidation. Generally, these representations and warranties are not subject to a stated term, but would be subject to statutes of limitation applicable to the contractual provisions.
Claims received by SCC have primarily related to alleged breaches of representations and warranties related to a loan’s compliance with the underwriting standards established by SCC at origination, borrower fraud and credit exceptions without sufficient compensating factors. Claims received since May 1, 2008 are as follows:

  	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	  	  	 	 	  	 	 	(in millions)	 	
  	 	Fiscal Year	 	 	Fiscal Year 2010	 	 	Fiscal Year 2011	 	  	Fiscal Year 2012	 	 	  	 	
  	 	2009	 	 	Q1	 	 	Q2	 	 	Q3	 	 	Q4	 	 	Q1	 	 	Q2	 	 	Q3	 	 	Q4	 	  	Q1	 	 	Q2	 	 	Total	 	
Loan Origination Year:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
2005	 	$	62	  	 	$	–	  	 	$	15	  	 	$	–	  	 	$	–	  	 	$	6	  	 	$	1	  	 	$	–	  	 	$	1	  	  	$	–	  	 	$	–	  	 	$	85	  	
2006	 	 	217	  	 	 	2	  	 	 	57	  	 	 	4	  	 	 	45	  	 	 	100	  	 	 	15	  	 	 	29	  	 	 	50	  	  	 	29	  	 	 	130	  	 	 	678	  	
2007	 	 	153	  	 	 	4	  	 	 	11	  	 	 	7	  	 	 	–	  	 	 	3	  	 	 	5	  	 	 	4	  	 	 	4	  	  	 	2	  	 	 	353	  	 	 	546	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	432	  	 	$	6	  	 	$	83	  	 	$	11	  	 	$	45	  	 	$	109	  	 	$	21	  	 	$	33	  	 	$	55	  	  	$	31	  	 	$	483	  	 	$	1,309	  	

 
 	Note:	The table above excludes amounts related to an indemnity agreement dated April 2008, which is discussed below.	
 
SCC received $483 million in claims in the second quarter of fiscal year 2012, the majority of which were asserted by a private-label securitization trustee on behalf of bondholders ($385 million) and by a monoline insurer ($84 million). The nature of the claims and the loans to which they relate, including loan vintage, loan performance characteristics, and alleged breaches of representations and warranties, is consistent with claims received in prior periods.
For claims received, reviewed and determined to be valid or otherwise settled, SCC has complied with its obligations by either repurchasing the mortgage loans or related collateral, or providing for the reimbursement of losses in connection with liquidated collateral, or reaching other settlements. SCC has
 
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denied approximately 85% of all claims reviewed, excluding resolution reached under other settlements. Counterparties could reassert claims that SCC has denied. Of claims determined to be valid, approximately 22% resulted in loan repurchases and 78% resulted in indemnification or settlement payments. Losses on loan repurchase, indemnification and settlement payments totaled approximately $120 million for the period May 1, 2008 through October 31, 2011. Loss severity rates on repurchases and indemnification have approximated 58% and SCC has not observed any material trends related to average losses. Repurchased loans are considered held for sale and are included in prepaid expenses and other current assets on the condensed consolidated balance sheets. The net balance of all mortgage loans held for sale by SCC was $11.8 million at October 31, 2011.
SCC generally has 60 to 120 days to respond to representation and warranty claims and performs a loan-by-loan review of all repurchase claims during this time. Claims totaling approximately $537 million remained subject to review as of October 31, 2011. Approximately $46 million of claims under review represent a reassertion of previously denied claims.
All claims asserted against SCC since May 1, 2008 relate to loans originated during calendar years 2005 through 2007, of which, approximately 90% relate to loans originated in calendar years 2006 and 2007. During calendar year 2005 through 2007, SCC originated approximately $84 billion in loans, of which less than 1% were sold to government sponsored entities. SCC is not subject to loss on loans that have been paid in full, repurchased, or were sold without recourse.
The majority of claims asserted since May 1, 2008, which have been determined by SCC to represent a valid breach of its representations and warranties, relate to loans that became delinquent within the first two years following the origination of the mortgage loan. SCC believes the longer a loan performs prior to an event of default, the less likely the default will be related to a breach of a representation and warranty. Loans originated in 2005, 2006 and 2007 which defaulted in the first two years totaled $4.0 billion, $6.3 billion and $2.9 billion, respectively, at October 31, 2011.
SCC estimates losses relating to representation and warranty claims by estimating loan repurchase and indemnification obligations on both known claims and projections of future claims. Projections of future claims are based on an analysis that includes a review of valid claims and loss severities by counterparty, the terms and provisions of related agreements, the historical experience under repurchase and indemnification obligations related to breaches of representations and warranties and third-party activity, which includes inquiries from various third-parties, loan file access by third parties, and repurchase demands. SCC’s methodology for calculating this liability also includes an assessment of the probability that individual counterparties (private label securitization trustees on behalf of bondholders, monoline insurers and whole-loan purchasers) will assert future claims.
SCC has recorded a liability for estimated contingent losses related to representation and warranty claims as of October 31, 2011, of $142.9 million, which represents SCC’s best estimate of the probable loss that may occur. During the quarter, SCC observed increased third-party activity. As a result of this third-party activity, SCC’s estimate of probable claims increased from its prior expectations and accordingly, it recorded a loss provision. During the prior year, payments totaling $49.8 million were made under an indemnity agreement dated April 2008 with a specific counterparty in exchange for a full and complete release of such party’s ability to assert representation and warranty claims. The indemnity agreement was given as part of obtaining the counterparty’s consent to SCC’s sale of its mortgage servicing business in 2008. We have no remaining payment obligations under this indemnity agreement.
The recorded liability represents SCC’s estimate of losses from future claims where assertion of a claim and a related contingent loss are both deemed probable. Because the rate at which future claims may be deemed valid and actual loss severity rates may differ significantly from historical experience, SCC is not able to estimate reasonably possible loss outcomes in excess of its current accrual. A 1% increase in both assumed validity rates and loss severities would result in losses beyond SCC’s accrual of approximately $28 million. This sensitivity is hypothetical and is intended to provide an indication of the impact of a change in key assumptions on the representations and warranties liability. In reality, changes in one assumption may result in changes in other assumptions, which may or may not counteract the sensitivity.
While SCC uses the best information available to it in estimating its liability, assessing the likelihood that claims will be asserted in the future and estimating probable losses are inherently difficult to estimate and require considerable management judgment. To the extent that the volume of asserted claims, the
 
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level of valid claims, the counterparties asserting claims, the nature of claims, or the value of residential home prices differ in the future from current estimates, future losses may be greater than the current estimates and those differences may be significant.
A rollforward of our liability for losses on repurchases for the six months ended October 31, 2011 and 2010 is as follows:

  	  	(in 000s)	 	
Six months ended October 31,	  	2011	 	 	2010	 	
Balance at beginning of period:	  	 	 	 	 	 	 	 	
Amount related to repurchase and indemnifications	  	$	126,260	  	 	$	138,415	  	
Amount related to indemnity agreement dated April 2008	  	 	–	  	 	 	49,785	  	
 	  	 	 	 	 	 	 	 	
 	  	 	126,260	  	 	 	188,200	  	
 	  	 	 	 	 	 	 	 	
Changes:	  	 	 	 	 	 	 	 	
Provision for estimated losses	  	 	20,000	  	 	 	–	  	
Losses on repurchase and indemnifications	  	 	(3,337	) 	 	 	(3,344	) 	
Payments under indemnity agreement dated April 2008	  	 	–	  	 	 	(134	) 	
 	  	 	 	 	 	 	 	 	
Balance at end of period:	  	 	 	 	 	 	 	 	
Amount related to repurchase and indemnifications	  	 	142,923	  	 	 	135,071	  	
Amount related to indemnity agreement dated April 2008	  	 	–	  	 	 	49,651	  	
 	  	 	 	 	 	 	 	 	
 	  	$	142,923	  	 	$	184,722	  	

 
12.	Discontinued Operations	
As of October 31, 2011, the assets and liabilities of RSM and EquiCo are being presented as held-for-sale and the results of operations of these businesses are presented as discontinued operations in the condensed consolidated financial statements.
The major classes of assets and liabilities reported as held-for-sale are as follows:

  	  	  	 	  	(in 000s)	 	
As of	  	October 31, 2011	 	  	April 30, 2011	 	
Receivables, net	  	$	215,817	  	  	$	262,118	  	
Prepaid expenses and other current assets	  	 	61,357	  	  	 	67,854	  	
Property and equipment, net	  	 	49,833	  	  	 	52,022	  	
Intangible assets, net	  	 	87,324	  	  	 	92,579	  	
Goodwill	  	 	299,896	  	  	 	412,094	  	
Other assets	  	 	14,926	  	  	 	13,661	  	
 	  	 	 	 	  	 	 	 	
Assets held for sale	  	$	729,153	  	  	$	900,328	  	
 	  	 	 	 	  	 	 	 	
Accounts payable, accrued expenses and deposits	  	$	67,947	  	  	$	67,088	  	
Accrued salaries, wages and payroll taxes	  	 	39,009	  	  	 	48,290	  	
Long-term debt	  	 	10,841	  	  	 	13,107	  	
Deferred tax liability	  	 	50,209	  	  	 	81,492	  	
Other liabilities	  	 	31,024	  	  	 	31,585	  	
 	  	 	 	 	  	 	 	 	
Liabilities held for sale	  	$	199,030	  	  	$	241,562	  	

 
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The results of operations of our discontinued operations are as follows:

  	  	  	 	 	  	 	  	  	 	 	(in 000s)	 	
 	  	Three months ended
October 31,	 	  	Six months ended
October 31,	 	
  	  	2011	 	 	2010	 	  	2011	 	 	2010	 	
Revenues	  	$	199,042	  	 	$	203,088	  	  	$	365,928	  	 	$	378,109	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income (loss) from operations before impairment and income tax benefit	  	$	(22,949	) 	 	$	5,708	  	  	$	(18,472	) 	 	$	327	  	
Impairment of goodwill	  	 	–	  	 	 	–	  	  	 	(99,697	) 	 	 	–	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Pretax income (loss)	  	 	(22,949	) 	 	 	5,708	  	  	 	(118,169	) 	 	 	327	  	
Income tax expense (benefit)	  	 	(4,238	) 	 	 	3,313	  	  	 	(43,515	) 	 	 	805	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net income (loss) from discontinued operations	  	$	(18,711	) 	 	$	2,395	  	  	$	(74,654	) 	 	$	(478	) 	

During fiscal year 2008, we exited our mortgage business. Our discontinued operations also include pretax losses related to our mortgage business of $24.1 million and $26.6 million for the three and six months ended October 31, 2011, respectively, and $2.1 million and $6.6 million for the three and six months ended October 31, 2010, respectively.
For income tax purposes, the sale of RSM may result in a taxable gain, a portion of which could be capital in character. To the extent all or a portion of the tax gain is determined to be capital, it would be offset up to our existing capital loss carry forwards. In order to determine the amount of such gain, the purchase price will be allocated among the assets sold and liabilities assumed. Capital gains resulting from the sale would allow us to release additional portions of the valuation allowance on capital loss deferred tax assets. The amount of valuation allowance release has not yet been determined, but would result in a tax benefit recorded to discontinued operations and could have a material impact on our results of operations in the third quarter. In the second quarter, no benefit or expense was recorded relating to the RSM transaction because the sale of RSM had not yet closed.
 
13.	Litigation and Related Contingencies	
We are a defendant in a large number of litigation matters. In some of the matters, very large and/or indeterminate amounts, including punitive damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been established for a number of the matters noted below. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. It is possible that some of the matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at October 31, 2011. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations. As of October 31, 2011, we have accrued $84.4 million, including obligations under indemnifications, compared to $70.6 million at April 30, 2011.
 
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Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, we are able to estimate a reasonably possible range of loss. As of October 31, 2011, we estimate the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be approximately $0 to $104 million.
Matters as to Which an Estimate Cannot Be Made
For other matters disclosed below, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
Litigation and Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated and the loan servicing business was sold during fiscal year 2008, SCC and HRB remain subject to investigations, claims and lawsuits pertaining to SCC’s mortgage business activities that occurred prior to such termination and sale. These investigations, claims and lawsuits include actions by state and federal regulators, municipalities, third party indemnitees, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other things, these investigations, claims and lawsuits allege discriminatory or unfair and deceptive loan origination and servicing practices, fraud, rights to indemnification, and violations of securities laws, the Truth in Lending Act, Equal Credit Opportunity Act and the Fair Housing Act. Given the non-prime mortgage environment, the number of these investigations, claims and lawsuits has increased over historical experience and is likely to continue to increase. The amounts claimed in these investigations, claims and lawsuits are substantial in some instances, and the ultimate resulting liability is difficult to predict and thus cannot be reasonably estimated. In the event of unfavorable outcomes, the amounts that may be required to be paid in the discharge of liabilities or settlements could be substantial and could have a material impact on our consolidated results of operations.
On February 1, 2008, a class action lawsuit was filed in the United States District Court for the District of Massachusetts against SCC and other related entities styled  Cecil Barrett, et al. v. Option One Mortgage Corp., et al.  (Civil Action No. 08-10157-RWZ). Plaintiffs allege discriminatory practices relating to the origination of mortgage loans in violation of the Fair Housing Act and Equal Credit Opportunity Act, and seek declaratory and injunctive relief in addition to actual and punitive damages. The court dismissed H&R Block, Inc. from the lawsuit for lack of personal jurisdiction. In March 2011, the court issued an order certifying a class, which defendants sought to appeal. On August 24, 2011, the First Circuit Court of Appeals declined to hear the appeal, noting that the district court could reconsider its certification decision in light of a recent ruling by the United States Supreme Court in an unrelated matter. SCC has filed a motion to decertify the class, which remains pending. A portion of our loss contingency accrual is related to this lawsuit for the amount of loss that we consider probable and estimable. We believe we have meritorious defenses to the claims in this case and intend to defend the case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
On December 9, 2009, a putative class action lawsuit was filed in the United States District Court for the Central District of California against SCC and H&R Block, Inc. styled  Jeanne Drake, et al. v. Option One Mortgage Corp., et al.  (Case No. SACV09-1450 CJC). Plaintiffs allege breach of contract, promissory fraud, intentional interference with contractual relations, wrongful withholding of wages and unfair business practices in connection with the failure to pay severance benefits to employees when their employment transitioned to American Home Mortgage Servicing, Inc. in connection with the sale of certain assets and operations of Option One. Plaintiffs seek to recover severance benefits of approximately $8 million, interest and attorney’s fees, in addition to penalties and punitive damages on certain claims. On September 2, 2011, the court granted summary judgment in favor of the defendants on all claims. Plaintiffs have filed an appeal, which remains pending. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter. We believe we have
 
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meritorious defenses to the claims in this case and intend to defend the case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a lawsuit in the Circuit Court of Cook County, Illinois (Case No. 10CH45033) styled  Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation, et al.  against multiple defendants, including various SCC related entities and H&R Block, Inc. related entities, arising out of FHLB’s purchase of mortgage-backed securities. Plaintiff asserts claims for rescission and damages under state securities law and for common law negligent misrepresentation in connection with its purchase of two securities originated and securitized by SCC. These two securities had a total initial principal amount of approximately $50 million, of which approximately $42 million remains outstanding. Plaintiffs agreed to voluntarily dismiss H&R Block, Inc. from the suit. The remaining defendants, including SCC, have filed motions to dismiss, which are pending. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter. We believe the claims in this case are without merit and we intend to defend them vigorously. There can be no assurances, however, as to its outcome or its impact on our consolidated results of operations.
SCC or its subsidiaries entered into indemnification agreements with certain third parties that sold or underwrote the sale of securities. Some of those third parties are defendants in lawsuits where various parties are seeking damages and other remedies based on the activities of such third parties in the sale of RMBS, including in some instances, SCC securitizations. SCC has received claims from some of these third parties for indemnification against losses, including defense costs, that those third parties might incur as a result of these lawsuits. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter.
Employment-Related Claims and Litigation
We have been named in several wage and hour class action lawsuits throughout the country, including Alice Williams v. H&R Block Enterprises LLC , Case No.RG08366506 (Superior Court of California, County of Alameda, filed January 17, 2008) (alleging improper classification of office managers in California);  Arabella Lemus v. H&R Block Enterprises LLC, et al.,  Case No. CGC-09-489251 (United States District Court, Northern District of California, filed June 9, 2009) (alleging failure to timely pay compensation to tax professionals in California);  Delana Ugas v. H&R Block Enterprises LLC, et al.,  Case No. BC417700 (United States District Court, Central District of California, filed July 13, 2009) (alleging failure to compensate tax professionals in California for all hours worked and to provide meal periods); and  Barbara Petroski v. H&R Block Eastern Enterprises, Inc., et al.,  Case No. 10-CV-00075 (United States District Court, Western District of Missouri, filed January 25, 2010) (alleging failure to compensate tax professionals nationwide for off-season training).
A class was certified in the Lemus case in December 2010 (consisting of tax professionals who worked in company-owned offices in California from 2007 to 2010); in the  Williams  case in March 2011 (consisting of office managers who worked in company-owned offices in California from 2004 to 2011); and in the  Ugas  case in August 2011 (consisting of tax professionals who worked in company-owned offices in California from 2006 to 2011). In  Petroski,  a conditional class was certified under the Fair Labor Standards Act in March 2011 (consisting of tax professionals nationwide who worked in company-owned offices and who were not compensated for certain training courses occurring on or after April 15, 2007). Two classes were also certified under state law in California and New York (consisting of tax professionals who worked in company-owned offices in those states). A trial date has been set in the  Williams  case for April 30, 2012.
The plaintiffs in the wage and hour class action lawsuits seek actual damages, pre-judgment interest and attorneys’ fees, in addition to statutory penalties under state and federal law, which could equal up to 30 days of wages per tax season for class members who worked in California. A portion of our loss contingency accrual is related to these lawsuits for the amount of loss that we consider probable and estimable. We believe we have meritorious defenses to the claims in these lawsuits and intend to defend them vigorously. The amounts claimed in these matters are substantial in some instances and the ultimate liability with respect to these matters is difficult to predict. There can be no assurances as to the outcome of these cases or their impact on our consolidated results of operations, individually or in the aggregate.
 
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RAL Litigation
We have been named in a putative class action styled Sandra J. Basile, et al. v. H&R Block, Inc., et al., April Term 1992 Civil Action No. 3246 in the Court of Common Pleas, First Judicial District Court of Pennsylvania, Philadelphia County, instituted on April 23, 1993. The plaintiffs allege inadequate disclosures with respect to the RAL product and assert claims for violation of consumer protection statutes, negligent misrepresentation, breach of fiduciary duty, common law fraud, usury, and violation of the Truth In Lending Act. Plaintiffs seek unspecified actual and punitive damages, injunctive relief, attorneys’ fees and costs. A Pennsylvania class was certified, but later decertified by the trial court in December 2003. An appellate court subsequently reversed the decertification decision. We are appealing the reversal. We have not concluded that a loss related to this matter is probable nor have we accrued a loss contingency related to this matter. We believe we have meritorious defenses to this case and intend to defend it vigorously. There can be no assurances, however, as to the outcome of this case or its impact on our consolidated results of operations.
Express IRA Litigation
We have one remaining lawsuit regarding our former Express IRA product. That case was filed on January 2, 2008 by the Mississippi Attorney General in the Chancery Court of Hinds County, Mississippi First Judicial District (Case No. G 2008 6 S 2) and is styled  Jim Hood, Attorney for the State of Mississippi v. H&R Block, Inc., H&R Block Financial Advisors, Inc .,  et al.  The complaint alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the sale of the product in Mississippi and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We believe we have meritorious defenses to the claims in this case, and we intend to defend this case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible for any liabilities relating to the Express IRA litigation, among other things, through an indemnification agreement. A portion of our accrual is related to these indemnity obligations.
Litigation and Claims Pertaining to the Discontinued Operations of RSM McGladrey
EquiCo, its parent and certain of its subsidiaries and affiliates, are parties to a class action filed on July 11, 2006 and styled Do Right’s Plant Growers, et al. v. RSM EquiCo, Inc., et al. (the “RSM Parties”),  Case No. 06 CC00137, in the California Superior Court, Orange County. The complaint contains allegations relating to business valuation services provided by EquiCo, including allegations of fraud, conversion and unfair competition. Plaintiffs seek unspecified actual and punitive damages, in addition to pre-judgment interest and attorneys’ fees. On March 17, 2009, the court granted plaintiffs’ motion for class certification on all claims. To avoid the cost and inherent risk associated with litigation, the parties reached an agreement to settle the case for a maximum payment of $41.5 million, although the actual cost of the settlement will depend on the number of valid claims submitted by class members. The California Superior Court granted final approval of the settlement on October 20, 2011. We previously recorded a liability for our best estimate of the expected loss.
At the closing of the sale of RSM, we indemnified M&P for certain litigation matters and certain obligations related primarily to previously sold RSM subsidiaries.
Other
In October 2010, we signed a definitive merger agreement to acquire all of the outstanding shares of 2SS Holdings, Inc. (“2SS”), developer of TaxACT digital tax preparation solutions, for $287.5 million in cash. In May 2011, the United States Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. district court in Washington, D.C., (Case No. 1:11-cv-00948) against H&R Block and 2SS styled  United States v. H&R Block, Inc., 2SS Holdings, Inc., and TA IX L.P.,  to block our proposed acquisition of 2SS .  On October 31, 2011, the court granted the DOJ’s motion for a permanent injunction to block the transaction. The defendants did not file an appeal. On November 14, 2011, the parties agreed to terminate the merger agreement.
In addition, we are from time to time party to investigations, claims and lawsuits not discussed herein arising out of our business operations. These investigations, claims and lawsuits include actions by state
 
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attorneys general, other state regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others similarly situated. We believe we have meritorious defenses to each of these investigations, claims and lawsuits, and we are defending or intend to defend them vigorously. The amounts claimed in these matters are substantial in some instances, however, the ultimate liability with respect to such matters is difficult to predict. In the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material impact on our consolidated results of operations.
We are also party to claims and lawsuits that we consider to be ordinary, routine litigation incidental to our business, including claims and lawsuits (collectively, “Other Claims”) concerning the preparation of customers’ income tax returns, the fees charged customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters and contract disputes. While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay in the discharge of liabilities or settlements in these Other Claims will not have a material impact on our consolidated results of operations.
 
14.	Segment Information	
Results of our continuing operations by reportable operating segment are as follows:

  	  	  	 	 	  	 	 	  	 	 	(in 000s)	 	
 	  	Three months ended
October 31,	 	 	Six months ended
October 31,	 	
  	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax Services	  	$	121,018	  	 	$	110,921	  	 	$	212,443	  	 	$	202,566	  	
Corporate	  	 	8,176	  	 	 	8,669	  	 	 	17,374	  	 	 	16,859	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	$	129,194	  	 	$	119,590	  	 	$	229,817	  	 	$	219,425	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income (loss):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax Services	  	$	(173,966	) 	 	$	(154,355	) 	 	$	(343,449	) 	 	$	(328,979	) 	
Corporate	  	 	(29,963	) 	 	 	(29,161	) 	 	 	(61,081	) 	 	 	(61,688	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations before tax benefit	  	$	(203,929	) 	 	$	(183,516	) 	 	$	(404,530	) 	 	$	(390,667	) 	

As of October 31, 2011, the results of operations of our previously reported Business Services segment are presented as discontinued operations in the condensed consolidated statements of operations. All periods presented have been reclassified to reflect our discontinued operations. See notes 1 and 12 for additional information.
 
15.	Accounting Pronouncements	
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” Under the amendments in this guidance, an entity may consider qualitative factors before applying Step 1 of the goodwill impairment assessment, but may no longer be permitted to carry forward estimates of a reporting unit’s fair value from a prior year when specific criteria are met. These amendments are effective for goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early adoption is permitted. We are currently evaluating the effect of this guidance on our condensed consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Statement of Comprehensive Income.” Under the amendments in this guidance, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this guidance do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. These amendments are
 
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effective for fiscal years beginning after December 15, 2011. Early adoption is permitted. We elected to adopt this guidance as of May 1, 2011, and it did not have an effect on our presentation of comprehensive income in our condensed consolidated financial statements.
In April 2011, the FASB issued Accounting Standards Update 2011-02, “Receivables (Topic 310) — A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” This guidance assists in determining if a loan modification qualifies as a TDR and requires that creditors must determine that a concession has been made and the borrower is having financial difficulties. We adopted this guidance as of May 1, 2011. We did not identify any new TDRs attributable to this new guidance and it did not have a material effect on our condensed consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements.” This guidance amends the criteria for separating consideration in multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (1) vendor-specific objective evidence; (2) third-party evidence; or (3) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s new multiple-deliverable revenue arrangements. We adopted this guidance as of May 1, 2011 and it did not have a material effect on our condensed consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments affect reporting units whose carrying amount is zero or negative, and require performance of Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, a reporting unit would consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance. The reporting unit would evaluate if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We adopted this guidance as of May 1, 2011 and it did not have a material effect on our condensed consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this guidance specify that if a public entity presents comparative financial statements, the entity would disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Additionally, disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. We adopted this guidance as of May 1, 2011 and it did not have a material effect on our condensed consolidated financial statements.
 
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16.	Condensed Consolidating Financial Statements	
Block Financial LLC (BFC) is an indirect, wholly-owned consolidated subsidiary of the Company. BFC is the Issuer and the Company is the Guarantor of the Senior Notes issued on January 11, 2008 and October 26, 2004, our CLOCs and other indebtedness issued from time to time. 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 stockholders’ equity and other intercompany balances and transactions.

Condensed Consolidating Statements of Operations	 	 	  	 	 	  	 	 	  	 	  	(in 000s)	 	
Three months ended
October 31, 2011	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	  	Consolidated
H&R Block	 	
Total revenues	  	$	–	  	 	$	17,560	  	 	$	111,634	  	 	$	–	  	  	$	129,194	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Cost of revenues	  	 	–	  	 	 	36,978	  	 	 	190,635	  	 	 	–	  	  	 	227,613	  	
Selling, general and administrative	  	 	–	  	 	 	6,444	  	 	 	101,568	  	 	 	–	  	  	 	108,012	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total expenses	  	 	–	  	 	 	43,422	  	 	 	292,203	  	 	 	–	  	  	 	335,625	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Operating loss	  	 	–	  	 	 	(25,862	) 	 	 	(180,569	) 	 	 	–	  	  	 	(206,431	) 	
Other income (expense), net	  	 	(203,929	) 	 	 	3,065	  	 	 	(563	) 	 	 	203,929	  	  	 	2,502	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Loss from continuing operations before tax benefit	  	 	(203,929	) 	 	 	(22,797	) 	 	 	(181,132	) 	 	 	203,929	  	  	 	(203,929	) 	
Income tax benefit	  	 	(80,916	) 	 	 	(15,063	) 	 	 	(65,853	) 	 	 	80,916	  	  	 	(80,916	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss from continuing operations	  	 	(123,013	) 	 	 	(7,734	) 	 	 	(115,279	) 	 	 	123,013	  	  	 	(123,013	) 	
Net income (loss) from discontinued operations	  	 	(18,711	) 	 	 	(19,066	) 	 	 	355	  	 	 	18,711	  	  	 	(18,711	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss	  	$	(141,724	) 	 	$	(26,800	) 	 	$	(114,924	) 	 	$	141,724	  	  	$	(141,724	) 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended
October 31, 2010	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	 	Consolidated
H&R Block	 	
Total revenues	  	$	–	  	 	$	17,320	  	 	$	102,270	  	 	$	–	  	 	$	119,590	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenues	  	 	–	  	 	 	35,959	  	 	 	196,016	  	 	 	–	  	 	 	231,975	  	
Selling, general and administrative	  	 	–	  	 	 	9,379	  	 	 	65,604	  	 	 	–	  	 	 	74,983	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	–	  	 	 	45,338	  	 	 	261,620	  	 	 	–	  	 	 	306,958	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating loss	  	 	–	  	 	 	(28,018	) 	 	 	(159,350	) 	 	 	–	  	 	 	(187,368	) 	
Other income (expense), net	  	 	(183,516	) 	 	 	4,890	  	 	 	(1,038	) 	 	 	183,516	  	 	 	3,852	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from continuing operations before tax benefit	  	 	(183,516	) 	 	 	(23,128	) 	 	 	(160,388	) 	 	 	183,516	  	 	 	(183,516	) 	
Income tax benefit	  	 	(72,072	) 	 	 	(7,654	) 	 	 	(64,418	) 	 	 	72,072	  	 	 	(72,072	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss from continuing operations	  	 	(111,444	) 	 	 	(15,474	) 	 	 	(95,970	) 	 	 	111,444	  	 	 	(111,444	) 	
Net income (loss) from discontinued operations	  	 	2,395	  	 	 	(1,330	) 	 	 	3,725	  	 	 	(2,395	) 	 	 	2,395	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	  	$	(109,049	) 	 	$	(16,804	) 	 	$	(92,245	) 	 	$	109,049	  	 	$	(109,049	) 	

 
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Six months ended
October 31, 2011	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	  	Consolidated
H&R Block	 	
Total revenues	  	$	–	  	 	$	39,333	  	 	$	190,484	  	 	$	–	  	  	$	229,817	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Cost of revenues	  	 	–	  	 	 	74,640	  	 	 	365,557	  	 	 	–	  	  	 	440,197	  	
Selling, general and administrative	  	 	–	  	 	 	14,339	  	 	 	186,326	  	 	 	–	  	  	 	200,665	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total expenses	  	 	–	  	 	 	88,979	  	 	 	551,883	  	 	 	–	  	  	 	640,862	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Operating loss	  	 	–	  	 	 	(49,646	) 	 	 	(361,399	) 	 	 	–	  	  	 	(411,045	) 	
Other income (expense), net	  	 	(404,530	) 	 	 	6,346	  	 	 	169	  	 	 	404,530	  	  	 	6,515	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Loss from continuing operations before tax benefit	  	 	(404,530	) 	 	 	(43,300	) 	 	 	(361,230	) 	 	 	404,530	  	  	 	(404,530	) 	
Income tax benefit	  	 	(162,362	) 	 	 	(16,913	) 	 	 	(145,449	) 	 	 	162,362	  	  	 	(162,362	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss from continuing operations	  	 	(242,168	) 	 	 	(26,387	) 	 	 	(215,781	) 	 	 	242,168	  	  	 	(242,168	) 	
Net loss from discontinued operations	  	 	(74,654	) 	 	 	(20,703	) 	 	 	(53,951	) 	 	 	74,654	  	  	 	(74,654	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss	  	$	(316,822	) 	 	$	(47,090	) 	 	$	(269,732	) 	 	$	316,822	  	  	$	(316,822	) 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six months ended
October 31, 2010	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	  	Consolidated
H&R Block	 	
Total revenues	  	$	–	  	 	$	38,320	  	 	$	181,105	  	 	$	–	  	  	$	219,425	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Cost of revenues	  	 	–	  	 	 	74,987	  	 	 	382,663	  	 	 	–	  	  	 	457,650	  	
Selling, general and administrative	  	 	–	  	 	 	11,469	  	 	 	148,093	  	 	 	–	  	  	 	159,562	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total expenses	  	 	–	  	 	 	86,456	  	 	 	530,756	  	 	 	–	  	  	 	617,212	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Operating loss	  	 	–	  	 	 	(48,136	) 	 	 	(349,651	) 	 	 	–	  	  	 	(397,787	) 	
Other income (expense), net	  	 	(390,667	) 	 	 	5,272	  	 	 	1,848	  	 	 	390,667	  	  	 	7,120	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Loss from continuing operations before tax benefit	  	 	(390,667	) 	 	 	(42,864	) 	 	 	(347,803	) 	 	 	390,667	  	  	 	(390,667	) 	
Income tax benefit	  	 	(151,415	) 	 	 	(15,495	) 	 	 	(135,920	) 	 	 	151,415	  	  	 	(151,415	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss from continuing operations	  	 	(239,252	) 	 	 	(27,369	) 	 	 	(211,883	) 	 	 	239,252	  	  	 	(239,252	) 	
Net income (loss) from discontinued operations	  	 	(478	) 	 	 	(4,334	) 	 	 	3,856	  	 	 	478	  	  	 	(478	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net loss	  	$	(239,730	) 	 	$	(31,703	) 	 	$	(208,027	) 	 	$	239,730	  	  	$	(239,730	) 	

 
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Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Condensed Consolidating Balance Sheets	 	  	  	 	 	  	 	 	  	 	 	(in 000s)	 	
October 31, 2011	  	H&R Block, Inc.
(Guarantor)	 	  	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	 	Consolidated
H&R Block	 	
Cash & cash equivalents	  	$	–	  	  	$	380,692	  	 	$	192,199	  	 	$	(280	) 	 	$	572,611	  	
Cash & cash equivalents – restricted	  	 	–	  	  	 	922	  	 	 	36,602	  	 	 	–	  	 	 	37,524	  	
Receivables, net	  	 	33	  	  	 	105,082	  	 	 	22,947	  	 	 	–	  	 	 	128,062	  	
Mortgage loans held for investment	  	 	–	  	  	 	450,137	  	 	 	–	  	 	 	–	  	 	 	450,137	  	
Intangible assets and goodwill, net	  	 	–	  	  	 	–	  	 	 	700,509	  	 	 	–	  	 	 	700,509	  	
Investments in subsidiaries	  	 	2,121,899	  	  	 	–	  	 	 	516	  	 	 	(2,121,899	) 	 	 	516	  	
Assets held for sale	  	 	–	  	  	 	–	  	 	 	729,153	  	 	 	–	  	 	 	729,153	  	
Other assets	  	 	10,775	  	  	 	528,281	  	 	 	818,945	  	 	 	–	  	 	 	1,358,001	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	  	$	2,132,707	  	  	$	1,465,114	  	 	$	2,500,871	  	 	$	(2,122,179	) 	 	$	3,976,513	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customer deposits	  	$	–	  	  	$	723,598	  	 	$	–	  	 	$	(280	) 	 	$	723,318	  	
Long-term debt	  	 	–	  	  	 	999,145	  	 	 	40,786	  	 	 	–	  	 	 	1,039,931	  	
Commercial paper borrowings	  	 	–	  	  	 	39,990	  	 	 	–	  	 	 	–	  	 	 	39,990	  	
FHLB borrowings	  	 	–	  	  	 	25,000	  	 	 	–	  	 	 	–	  	 	 	25,000	  	
Liabilities held for sale	  	 	–	  	  	 	–	  	 	 	199,030	  	 	 	–	  	 	 	199,030	  	
Other liabilities	  	 	191	  	  	 	(127,614	) 	 	 	1,213,845	  	 	 	–	  	 	 	1,086,422	  	
Net intercompany advances	  	 	1,269,694	  	  	 	24,060	  	 	 	(1,293,754	) 	 	 	–	  	 	 	–	  	
Stockholders’ equity	  	 	862,822	  	  	 	(219,065	) 	 	 	2,340,964	  	 	 	(2,121,899	) 	 	 	862,822	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	2,132,707	  	  	$	1,465,114	  	 	$	2,500,871	  	 	$	(2,122,179	) 	 	$	3,976,513	  	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 30, 2011	  	H&R Block, Inc.
(Guarantor)	 	  	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	 	Consolidated
H&R Block	 	
Cash & cash equivalents	  	$	–	  	  	$	616,238	  	 	$	1,061,656	  	 	$	(50	) 	 	$	1,677,844	  	
Cash & cash equivalents – restricted	  	 	–	  	  	 	9,522	  	 	 	38,861	  	 	 	–	  	 	 	48,383	  	
Receivables, net	  	 	88	  	  	 	102,011	  	 	 	128,073	  	 	 	–	  	 	 	230,172	  	
Mortgage loans held for investment, net	  	 	–	  	  	 	485,008	  	 	 	–	  	 	 	–	  	 	 	485,008	  	
Intangible assets and goodwill, net	  	 	–	  	  	 	–	  	 	 	709,491	  	 	 	–	  	 	 	709,491	  	
Investments in subsidiaries	  	 	2,699,555	  	  	 	–	  	 	 	32	  	 	 	(2,699,555	) 	 	 	32	  	
Assets held for sale	  	 	–	  	  	 	–	  	 	 	900,328	  	 	 	–	  	 	 	900,328	  	
Other assets	  	 	13,613	  	  	 	469,461	  	 	 	755,121	  	 	 	–	  	 	 	1,238,195	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	  	$	2,713,256	  	  	$	1,682,240	  	 	$	3,593,562	  	 	$	(2,699,605	) 	 	$	5,289,453	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customer deposits	  	$	–	  	  	$	852,270	  	 	$	–	  	 	$	(50	) 	 	$	852,220	  	
Long-term debt	  	 	–	  	  	 	998,965	  	 	 	41,119	  	 	 	–	  	 	 	1,040,084	  	
FHLB borrowings	  	 	–	  	  	 	25,000	  	 	 	–	  	 	 	–	  	 	 	25,000	  	
Liabilities held for sale	  	 	–	  	  	 	–	  	 	 	241,562	  	 	 	–	  	 	 	241,562	  	
Other liabilities	  	 	178	  	  	 	(26,769	) 	 	 	1,707,604	  	 	 	–	  	 	 	1,681,013	  	
Net intercompany advances	  	 	1,263,504	  	  	 	24,173	  	 	 	(1,287,677	) 	 	 	–	  	 	 	–	  	
Stockholders’ equity	  	 	1,449,574	  	  	 	(191,399	) 	 	 	2,890,954	  	 	 	(2,699,555	) 	 	 	1,449,574	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	2,713,256	  	  	$	1,682,240	  	 	$	3,593,562	  	 	$	(2,699,605	) 	 	$	5,289,453	  	

 
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Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Condensed Consolidating Statements of Cash Flows	 	 	  	 	 	  	 	 	  	 	 	(in 000s)	 	
Six months ended October 31, 2011	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	 	Consolidated
H&R Block	 	
Net cash provided by (used in) operating activities:	  	$	5,821	  	 	$	(40,451	) 	 	$	(547,998	) 	 	$	–	  	 	$	(582,628	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from investing:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of available-for-sale securities	  	 	–	  	 	 	(155,159	) 	 	 	–	  	 	 	–	  	 	 	(155,159	) 	
Mortgage loans originated for investment, net	  	 	–	  	 	 	22,978	  	 	 	–	  	 	 	–	  	 	 	22,978	  	
Purchase property & equipment	  	 	–	  	 	 	(94	) 	 	 	(40,416	) 	 	 	–	  	 	 	(40,510	) 	
Payments made for business acquisitions, net	  	 	–	  	 	 	–	  	 	 	(8,164	) 	 	 	–	  	 	 	(8,164	) 	
Proceeds from sale of businesses, net	  	 	–	  	 	 	–	  	 	 	37,036	  	 	 	–	  	 	 	37,036	  	
Loans made to franchisees	  	 	–	  	 	 	(27,682	) 	 	 	–	  	 	 	–	  	 	 	(27,682	) 	
Repayments from franchisees	  	 	–	  	 	 	7,447	  	 	 	–	  	 	 	–	  	 	 	7,447	  	
Net intercompany advances	  	 	266,274	  	 	 	–	  	 	 	–	  	 	 	(266,274	) 	 	 	–	  	
Other, net	  	 	–	  	 	 	28,300	  	 	 	8,634	  	 	 	–	  	 	 	36,934	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) investing activities	  	 	266,274	  	 	 	(124,210	) 	 	 	(2,910	) 	 	 	(266,274	) 	 	 	(127,120	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repayments of commercial paper	  	 	–	  	 	 	(37,989	) 	 	 	–	  	 	 	–	  	 	 	(37,989	) 	
Proceeds from commercial paper	  	 	–	  	 	 	77,979	  	 	 	–	  	 	 	–	  	 	 	77,979	  	
Customer banking deposits	  	 	–	  	 	 	(129,055	) 	 	 	–	  	 	 	(230	) 	 	 	(129,285	) 	
Dividends paid	  	 	(91,446	) 	 	 	–	  	 	 	–	  	 	 	–	  	 	 	(91,446	) 	
Repurchase of common stock	  	 	(180,222	) 	 	 	–	  	 	 	–	  	 	 	–	  	 	 	(180,222	) 	
Proceeds from exercise of stock options, net	  	 	(430	) 	 	 	–	  	 	 	–	  	 	 	–	  	 	 	(430	) 	
Net intercompany advances	  	 	–	  	 	 	17,228	  	 	 	(283,502	) 	 	 	266,274	  	 	 	–	  	
Other, net	  	 	3	  	 	 	952	  	 	 	(29,012	) 	 	 	–	  	 	 	(28,057	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(272,095	) 	 	 	(70,885	) 	 	 	(312,514	) 	 	 	266,044	  	 	 	(389,450	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effects of exchange rates on cash	  	 	–	  	 	 	–	  	 	 	(6,035	) 	 	 	–	  	 	 	(6,035	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net decrease in cash	  	 	–	  	 	 	(235,546	) 	 	 	(869,457	) 	 	 	(230	) 	 	 	(1,105,233	) 	
Cash – beginning of period	  	 	–	  	 	 	616,238	  	 	 	1,061,656	  	 	 	(50	) 	 	 	1,677,844	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash – end of period	  	$	–	  	 	$	380,692	  	 	$	192,199	  	 	$	(280	) 	 	$	572,611	  	

 
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Six months ended
October 31, 2010	  	H&R Block, Inc.
(Guarantor)	 	 	BFC
(Issuer)	 	 	Other
Subsidiaries	 	 	Elims	 	 	Consolidated
H&R Block	 	
Net cash used in operating activities:	  	$	(46,961	) 	 	$	(15,379	) 	 	$	(485,661	) 	 	$	–	  	 	$	(548,001	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from investing:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans originated for investment, net	  	 	–	  	 	 	30,829	  	 	 	–	  	 	 	–	  	 	 	30,829	  	
Purchase property & equipment	  	 	–	  	 	 	–	  	 	 	(35,005	) 	 	 	–	  	 	 	(35,005	) 	
Payments made for business acquisitions, net	  	 	–	  	 	 	–	  	 	 	(43,310	) 	 	 	–	  	 	 	(43,310	) 	
Proceeds from sale of businesses, net	  	 	–	  	 	 	–	  	 	 	58,834	  	 	 	–	  	 	 	58,834	  	
Loans made to franchisees	  	 	–	  	 	 	(64,851	) 	 	 	–	  	 	 	–	  	 	 	(64,851	) 	
Repayments from franchisees	  	 	–	  	 	 	8,673	  	 	 	–	  	 	 	–	  	 	 	8,673	  	
Net intercompany advances	  	 	423,572	  	 	 	–	  	 	 	–	  	 	 	(423,572	) 	 	 	–	  	
Other, net	  	 	–	  	 	 	15,941	  	 	 	12,254	  	 	 	–	  	 	 	28,195	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) investing activities	  	 	423,572	  	 	 	(9,408	) 	 	 	(7,227	) 	 	 	(423,572	) 	 	 	(16,635	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repayments of commercial paper	  	 	–	  	 	 	(75,000	) 	 	 	–	  	 	 	–	  	 	 	(75,000	) 	
Proceeds from commercial paper	  	 	–	  	 	 	114,490	  	 	 	–	  	 	 	–	  	 	 	114,490	  	
Customer banking deposits	  	 	–	  	 	 	76,923	  	 	 	–	  	 	 	100	  	 	 	77,023	  	
Dividends paid	  	 	(95,068	) 	 	 	–	  	 	 	–	  	 	 	–	  	 	 	(95,068	) 	
Repurchase of common stock	  	 	(283,470	) 	 	 	–	  	 	 	–	  	 	 	–	  	 	 	(283,470	) 	
Proceeds from exercise of stock options, net	  	 	1,493	  	 	 	–	  	 	 	–	  	 	 	–	  	 	 	1,493	  	
Net intercompany advances	  	 	–	  	 	 	15,851	  	 	 	(439,423	) 	 	 	423,572	  	 	 	–	  	
Other, net	  	 	434	  	 	 	760	  	 	 	(22,546	) 	 	 	–	  	 	 	(21,352	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	(376,611	) 	 	 	133,024	  	 	 	(461,969	) 	 	 	423,672	  	 	 	(281,884	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effects of exchange rates on cash	  	 	–	  	 	 	–	  	 	 	2,221	  	 	 	–	  	 	 	2,221	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash	  	 	–	  	 	 	108,237	  	 	 	(952,636	) 	 	 	100	  	 	 	(844,299	) 	
Cash – beginning of period	  	 	–	  	 	 	702,021	  	 	 	1,102,135	  	 	 	(111	) 	 	 	1,804,045	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash – end of period	  	$	–	  	 	$	810,258	  	 	$	149,499	  	 	$	(11	) 	 	$	959,746	  	

 
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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND     RESULTS OF OPERATIONS	

RESULTS OF OPERATIONS
Our subsidiaries provide tax preparation and retail banking services. We are the only major company offering a full range of software, online and in-office tax preparation solutions to individual tax clients.
RECENT EVENTS
In August 2011, our Board of Directors approved a non-binding letter of intent to sell substantially all assets of RSM McGladrey, Inc. (RSM) to McGladrey and Pullen LLP (M&P) and, on November 30, 2011, the sale of RSM was completed. At closing we received cash proceeds totaling $475.0 million, a short-term receivable of $34.0 million and a note in the principal amount of $54.0 million. The final purchase price is subject to further post-closing adjustments. M&P also assumed substantially all liabilities of RSM, including contingent payments and lease obligations. We have indemnified M&P for certain litigation matters and certain obligations related primarily to previously sold RSM subsidiaries. In the first quarter we recorded an $85.4 million impairment of goodwill in connection with the sale of RSM. The net loss ultimately resulting from the divestiture of RSM will be based on post-closing adjustments to the purchase price, as well as the additional realization of tax benefits related to the sale. In the first quarter, we also announced we were evaluating strategic alternatives for RSM EquiCo, Inc. (EquiCo), and recorded a $14.3 million impairment of goodwill related to this business.
As of October 31, 2011, the results of operations of these businesses are presented as discontinued operations and the assets and liabilities of the businesses being sold are presented as held-for-sale in the condensed consolidated financial statements. All periods presented in our condensed consolidated balance sheets and income statements have been reclassified to reflect our discontinued operations. See additional information in note 12 to the condensed consolidated financial statements.
TAX SERVICES
This segment primarily consists of our income tax preparation businesses – retail, online and software. This segment includes our tax operations in the U.S. and its territories, Canada, and Australia. Additionally, this segment includes the product offerings and activities of H&R Block Bank (HRB Bank) that primarily support the tax network, refund anticipation checks, our prior participations in refund anticipation loans, and our commercial tax business, which provides tax preparation software to CPAs and other tax preparers.

Tax Services – Operating Results	 	 	(in 000s)	 	
 	  	Three months ended
October 31,	 	 	Six months ended
October 31,	 	
  	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Tax preparation fees	  	$	73,038	  	 	$	63,590	  	 	$	107,959	  	 	$	98,135	  	
Fees from Peace of Mind guarantees	  	 	18,892	  	 	 	19,811	  	 	 	46,073	  	 	 	48,358	  	
Fees from Emerald Card activities	  	 	7,660	  	 	 	6,693	  	 	 	18,901	  	 	 	17,268	  	
Royalties	  	 	7,929	  	 	 	7,027	  	 	 	13,632	  	 	 	12,632	  	
Other	  	 	13,499	  	 	 	13,800	  	 	 	25,878	  	 	 	26,173	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	121,018	  	 	 	110,921	  	 	 	212,443	  	 	 	202,566	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Compensation and benefits:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Field wages	  	 	52,951	  	 	 	52,188	  	 	 	89,798	  	 	 	91,437	  	
Other wages	  	 	34,548	  	 	 	35,154	  	 	 	67,603	  	 	 	70,954	  	
Benefits and other compensation	  	 	19,956	  	 	 	18,093	  	 	 	37,445	  	 	 	52,397	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	107,455	  	 	 	105,435	  	 	 	194,846	  	 	 	214,788	  	
Occupancy and equipment	  	 	86,478	  	 	 	88,142	  	 	 	169,815	  	 	 	170,766	  	
Depreciation and amortization	  	 	30,248	  	 	 	22,568	  	 	 	51,698	  	 	 	44,963	  	
Marketing and advertising	  	 	13,188	  	 	 	12,106	  	 	 	19,909	  	 	 	20,519	  	
Other	  	 	56,809	  	 	 	43,738	  	 	 	118,712	  	 	 	85,645	  	
Loss (gain) on sale of tax offices, net	  	 	806	  	 	 	(6,713	) 	 	 	912	  	 	 	(5,136	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	294,984	  	 	 	265,276	  	 	 	555,892	  	 	 	531,545	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax loss	  	$	(173,966	) 	 	$	(154,355	) 	 	$	(343,449	) 	 	$	(328,979	) 	

 
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Three months ended October 31, 2011 compared to October 31, 2010
Tax Services’ revenues increased $10.1 million, or 9.1% over the prior year, primarily due to favorable exchange rates and higher return volumes in our Australian operations.
Total expenses increased $29.7 million, or 11.2%, for the three months ended October 31, 2011. Depreciation and amortization increased $7.7 million, or 34.0%, primarily due to the write-off of certain intangibles associated with the previously announced discontinuation of our ExpressTax brand. Other expenses increased $13.1 million, or 29.9%, primarily due to $8.0 million in incremental legal charges compared to the prior year.
The pretax loss for the three months ended October 31, 2011 and 2010 was $174.0 million and $154.4 million, respectively.
Six months ended October 31, 2011 compared to October 31, 2010
Tax Services’ revenues increased $9.9 million, or 4.9% over the prior year, primarily due to favorable exchange rates and higher return volumes in our Australian operations, and the extension of the 2011 tax filing season in Canada, which resulted in two days of revenue being reported in this fiscal year.
Total expenses increased $24.3 million, or 4.6%, for the six months ended October 31, 2011. Compensation and benefits decreased $19.9 million, or 9.3%, primarily due to severance costs recorded in the prior year. Depreciation and amortization increased $6.7 million, or 15.0%, primarily due to the write-off of certain intangibles associated with the discontinuation of our ExpressTax brand. Other expenses increased $33.1 million, or 38.6%, primarily due to $23.0 million in incremental legal charges compared to the prior year.
The pretax loss for the six months ended October 31, 2011 and 2010 was $343.4 million and $329.0 million, respectively.
CORPORATE, ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
Corporate operating losses include interest income from U.S. passive investments, interest expense on borrowings, net interest margin and gains or losses relating to mortgage loans held for investment, real estate owned, residual interests in securitizations and other corporate expenses.

Corporate – Operating Results	  	  	 	 	  	 	 	  	 	 	(in 000s)	 	
 	  	Three months ended
October 31,	 	 	Six months ended
October 31,	 	
  	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Interest income on mortgage loans held for investment	  	$	5,151	  	 	$	6,525	  	 	$	10,812	  	 	$	12,848	  	
Other	  	 	3,025	  	 	 	2,144	  	 	 	6,562	  	 	 	4,011	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	8,176	  	 	 	8,669	  	 	 	17,374	  	 	 	16,859	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	  	 	20,975	  	 	 	20,861	  	 	 	41,993	  	 	 	41,649	  	
Provision for loan losses	  	 	7,125	  	 	 	8,300	  	 	 	12,750	  	 	 	16,300	  	
Compensation and benefits	  	 	5,639	  	 	 	3,631	  	 	 	12,404	  	 	 	8,702	  	
Other	  	 	4,400	  	 	 	5,038	  	 	 	11,308	  	 	 	11,896	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	38,139	  	 	 	37,830	  	 	 	78,455	  	 	 	78,547	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax loss	  	$	(29,963	) 	 	$	(29,161	) 	 	$	(61,081	) 	 	$	(61,688	) 	

Income Taxes
Our effective tax rate for continuing operations was 39.7% and 40.1% for the three and six months ended October 31, 2011, respectively, compared to 39.3% and 38.8% for the three and six months ended and October 31, 2010, respectively. Our effective tax rate increased from the prior year due primarily to losses in our investments in company-owned life insurance assets for which we do not receive a tax benefit, and an increase in the state effective tax rate. These increases were partially offset by a decrease in our reserve for uncertain tax positions.
 
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DISCONTINUED OPERATIONS
Our discontinued operations include the results of RSM and related businesses, which were previously reported in our Business Services segment, and Sand Canyon Corporation (SCC, previously known as Option One Mortgage Corporation).

Discontinued Operations – Operating Results
 	  	  	 	 	  	 	 	  	 	 	(in 000s)	 	
  	  	Three months ended
October 31,	 	 	Six months ended
October 31,	 	
  	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Income (loss) from operations of:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RSM and related businesses	  	$	1,104	  	 	$	7,761	  	 	$	(91,535	) 	 	$	6,901	  	
Mortgage business	  	 	(24,053	) 	 	 	(2,053	) 	 	 	(26,634	) 	 	 	(6,574	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income (loss)	  	 	(22,949	) 	 	 	5,708	  	 	 	(118,169	) 	 	 	327	  	
Income tax (benefit)	  	 	(4,238	) 	 	 	3,313	  	 	 	(43,515	) 	 	 	805	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) from discontinued operations	  	$	(18,711	) 	 	$	2,395	  	 	$	(74,654	) 	 	$	(478	) 	

Three months ended October 31, 2011 compared to October 31, 2010
The net loss from discontinued operations totaled $18.7 million for the three months ended October 31, 2011, compared to net income of $2.4 million for the three months ended October 31, 2010. Pretax results of SCC declined $22.0 million, primarily due to incremental loss provisions of $20.0 million recorded in the current quarter, related to an increase in SCC’s estimated contingent losses for representation and warranty claims.
Six months ended October 31, 2011 compared to October 31, 2010
The net loss from our discontinued operations totaled $74.7 million and $0.5 million for the six months ended October 31, 2011 and 2010, respectively. The net loss increased due to a $59.2 million after-tax goodwill impairment recorded in the first quarter related to the sale of RSM and the previously mentioned loss provision for representation and warranty claims by SCC. See additional discussion below and in notes 1, 11 and 12 to the condensed consolidated financial statements.
Representation and Warranty Claims
SCC ceased originating mortgage loans in December of 2007 and, in April 2008, sold its servicing assets and discontinued its remaining operations. The sale of servicing assets did not include the sale of any mortgage loans. SCC retained contingent liabilities that arose from the operations of SCC prior to its disposal, including certain mortgage loan repurchase obligations, contingent liabilities associated with litigation and related claims, lease commitments, and employee termination benefits. SCC also retained residual interests in certain mortgage loan securitization transactions prior to cessation of its origination business.
In connection with the securitization and sale of mortgage loans, SCC made certain representations and warranties. In the event that there is a breach of a representation and warranty and such breach materially and adversely affects the value of a mortgage loan, SCC may be obligated to repurchase a loan or otherwise indemnify certain parties for losses resulting from a liquidation of loan collateral.
SCC has recorded a liability for estimated contingent losses related to representation and warranty claims as of October 31, 2011, of $142.9 million, which represents SCC’s best estimate of the probable loss that may occur. Losses on valid claims totaled $3.3 million for the six months ended October 31, 2011 and 2010. These amounts were recorded as reductions of our loan repurchase liability.
While SCC uses the best information available to it in estimating its liability, assessing the likelihood that claims will be asserted in the future and estimating probable losses is inherently difficult and requires considerable management judgment. To the extent that the volume of asserted claims, the level of valid claims, the counterparties asserting claims, the nature of claims, or the value of residential home prices differ in the future from current estimates, future losses may be greater than the current estimates and those differences may be significant. See additional discussion in note 11 to the condensed consolidated financial statements.
 
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FINANCIAL CONDITION
These comments should be read in conjunction with the condensed consolidated balance sheets and condensed consolidated statements of cash flows found on pages 1 and 3, respectively.
CAPITAL RESOURCES AND LIQUIDITY – Our sources of capital include cash from operations, cash from customer deposits, issuances of common stock and debt. We use capital primarily to fund working capital, pay dividends, repurchase shares of common stock and acquire businesses. Our operations are highly seasonal and therefore generally require the use of cash to fund operating losses during the period May through mid-January.
Given the likely availability of a number of liquidity options discussed herein, including borrowing capacity under our unsecured committed lines of credit (CLOCs), we believe, that in the absence of any unexpected developments, our existing sources of capital at October 31, 2011 are sufficient to meet our operating needs.
CASH FROM OPERATING ACTIVITIES – Cash used in operations totaled $582.6 million for the first six months of fiscal year 2012, compared with $548.0 million for the same period last year.
The sale of RSM will trigger account distributions of approximately $80 million to RSM employees who were participants in an H&R Block sponsored deferred compensation plan. We expect these amounts to be paid in December 2011.
CASH FROM INVESTING ACTIVITIES – Cash used in investing activities totaled $127.1 million for the first six months of fiscal year 2012, compared to $16.6 million in the same period last year.
Purchases of Available-for-Sale Securities. During the six months ended October 31, 2011, HRB Bank purchased $155.2 million in mortgage-backed securities. No such purchases were made in the first half of the prior year.
Mortgage Loans Held for Investment. We received net payments of $23.0 million and $30.8 million on our mortgage loans held for investment for the first six months of fiscal years 2012 and 2011, respectively. Cash payments declined primarily due to non-performing loans and continued run-off of our portfolio.
Purchases of Property and Equipment. Total cash paid for property and equipment was $40.5 million and $35.0 million for the first six months of fiscal years 2012 and 2011, respectively.
Business Acquisitions. Total cash paid for acquisitions was $8.2 million and $43.3 million during the six months ended October 31, 2011 and 2010, respectively. In July 2010 our Business Services segment acquired a Boston-based accounting firm, and cash used in investing activities includes payments totaling $32.6 million related to this acquisition.
Sales of Businesses. Proceeds from the sales of businesses totaled $37.0 million and $58.8 million for the six months ended October 31, 2011 and 2010, respectively. During the first six months of fiscal year 2012, we sold 68 tax offices to franchisees, compared to 250 tax offices in the prior year. The majority of these sales were financed through affiliate loans. Also during the first half of fiscal year 2012, RSM sold one of its ancillary businesses for $20.3 million.
Loans Made to Franchisees. Loans made to franchisees totaled $27.7 million and $64.9 million for the six months ended October 31, 2011 and 2010, respectively. These amounts included both the financing of sales of tax offices and franchisee draws under our Franchise Equity Lines of Credit (FELCs).
CASH FROM FINANCING ACTIVITIES – Cash used in financing activities totaled $389.5 million for the first six months of fiscal year 2012, compared to $281.9 million in the same period last year.
Short-Term Borrowings. We had commercial paper borrowings of $40.0 million and $39.5 million at October 31, 2011 and 2010, respectively. These borrowings were used to fund our off-season losses and cover our seasonal working capital needs.
Customer Banking Deposits. Customer banking deposits declined $129.3 million for the six months ended October 31, 2011 compared to an increase of $77.0 million in the prior year. We utilize cash provided by deposit balances as a funding source for our Emerald Advance lines of credit during the tax season. Funding from customer deposits will be obtained later this year than in the prior year.
Dividends. We have consistently paid quarterly dividends. Dividends paid totaled $91.4 million and $95.1 million for the six months ended October 31, 2011 and 2010, respectively.
Repurchase and Retirement of Common Stock. We purchased and immediately retired 13.0 million shares of our common stock at a cost of $177.5 million during the six months ended October 31, 2011, compared to 19.0 million shares of our common stock at a cost of $279.9 million during the six months ended October 31, 2010. We expect to continue to repurchase and retire common stock or retire treasury stock in the future.
 
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BORROWINGS
The following chart provides the debt ratings for Block Financial LLC (BFC) as of October 31, 2011:

  	  	Short-term	  	Long-term	 	  	Outlook	 	
Moody’s	  	P-2	  	 	Baa2	  	  	 	Stable	  	
S&P	  	A-2	  	 	BBB	  	  	 	Negative	  	
DBRS	  	R-2 (high)	  	 	BBB (high)	  	  	 	Stable	  	
 
At October 31, 2011, we maintained a CLOC agreement to support commercial paper issuances, general corporate purposes or for working capital needs. This facility provides funding up to $1.7 billion and matures July 31, 2013. This facility bears interest at an annual rate of LIBOR plus 1.30% to 2.80% or PRIME plus 0.30% to 1.80% (depending on the type of borrowing) and includes an annual facility fee of 0.20% to 0.70% of the committed amounts, based on our credit ratings. Covenants include: (1) maintenance of a minimum net worth of $650.0 million on the last day of any fiscal quarter; and (2) reduction of the aggregate outstanding principal amount of short-term debt, as defined in the agreement, to $200.0 million or less for thirty consecutive days during the period March 1 to June 30 of each year (“Clean-down requirement”). At October 31, 2011, we were in compliance with these covenants and had net worth of $862.8 million. We had no balance outstanding under the CLOCs at October 31, 2011.
There have been no material changes in our borrowings or debt ratings from those reported at April 30, 2011 in our Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual obligations and commercial commitments from those reported at April 30, 2011 in our Annual Report on Form 10-K.
REGULATORY ENVIRONMENT
There have been no material changes in our regulatory environment from those reported at April 30, 2011 in our Annual Report on Form 10-K.
FORWARD-LOOKING INFORMATION
This report and other documents filed with the Securities and Exchange Commission (SEC) may contain forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “would,” “should,” “could” or “may.” Forward-looking statements provide management’s current expectations or predictions of future conditions, events or results. They may include projections of revenues, income, earnings per share, capital expenditures, dividends, liquidity, capital structure or other financial items, descriptions of management’s plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. These statements speak only as of the date made and management does not undertake to update them to reflect changes or events occurring after that date except as required by federal securities laws.

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	

There have been no material changes in our market risks from those reported at April 30, 2011 in our Annual Report on Form 10-K.

 
 
ITEM 4.	CONTROLS AND PROCEDURES	

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Form 10-Q, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
 
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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

 
ITEM 1.	LEGAL PROCEEDINGS	
 
Litigation and Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated and the loan servicing business was sold during fiscal year 2008, SCC and HRB remain subject to investigations, claims and lawsuits pertaining to SCC’s mortgage business activities that occurred prior to such termination and sale. These investigations, claims and lawsuits include actions by state and federal regulators, municipalities, third party indemnitees, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other things, these investigations, claims and lawsuits allege discriminatory or unfair and deceptive loan origination and servicing practices, fraud, rights to indemnification, and violations of securities laws, the Truth in Lending Act, Equal Credit Opportunity Act and the Fair Housing Act. Given the non-prime mortgage environment, the number of these investigations, claims and lawsuits has increased over historical experience and is likely to continue to increase. The amounts claimed in these investigations, claims and lawsuits are substantial in some instances, and the ultimate resulting liability is difficult to predict and thus cannot be reasonably estimated. In the event of unfavorable outcomes, the amounts that may be required to be paid in the discharge of liabilities or settlements could be substantial and could have a material impact on our consolidated results of operations.
On February 1, 2008, a class action lawsuit was filed in the United States District Court for the District of Massachusetts against SCC and other related entities styled  Cecil Barrett, et al. v. Option One Mortgage Corp., et al.  (Civil Action No. 08-10157-RWZ). Plaintiffs allege discriminatory practices relating to the origination of mortgage loans in violation of the Fair Housing Act and Equal Credit Opportunity Act, and seek declaratory and injunctive relief in addition to actual and punitive damages. The court dismissed H&R Block, Inc. from the lawsuit for lack of personal jurisdiction. In March 2011, the court issued an order certifying a class, which defendants sought to appeal. On August 24, 2011, the First Circuit Court of Appeals declined to hear the appeal, noting that the district court could reconsider its certification decision in light of a recent ruling by the United States Supreme Court in an unrelated matter. SCC has filed a motion to decertify the class, which remains pending. A portion of our loss contingency accrual is related to this lawsuit for the amount of loss that we consider probable and estimable. We believe we have meritorious defenses to the claims in this case and intend to defend the case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
On December 9, 2009, a putative class action lawsuit was filed in the United States District Court for the Central District of California against SCC and H&R Block, Inc. styled Jeanne  Drake, et al. v. Option One Mortgage Corp., et al.  (Case No. SACV09-1450 CJC). Plaintiffs allege breach of contract, promissory fraud, intentional interference with contractual relations, wrongful withholding of wages and unfair business practices in connection with the failure to pay severance benefits to employees when their employment transitioned to American Home Mortgage Servicing, Inc. in connection with the sale of certain assets and operations of Option One. Plaintiffs seek to recover severance benefits of approximately $8 million, interest and attorney’s fees, in addition to penalties and punitive damages on certain claims. On September 2, 2011, the court granted summary judgment in favor of the defendants on all claims. Plaintiffs have filed an appeal, which remains pending. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter. We believe we have meritorious defenses to the claims in this case and intend to defend the case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a lawsuit in the Circuit Court of Cook County, Illinois (Case No. 10CH45033) styled  Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation, et al.  against multiple defendants, including various SCC related entities and H&R Block, Inc. related entities, arising out of FHLB’s purchase of mortgage-backed securities. Plaintiff asserts claims for rescission and damages under state securities law and for common law negligent misrepresentation
 
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in connection with its purchase of two securities originated and securitized by SCC. These two securities had a total initial principal amount of approximately $50 million, of which approximately $42 million remains outstanding. Plaintiffs agreed to voluntarily dismiss H&R Block, Inc. from the suit. The remaining defendants, including SCC, have filed motions to dismiss, which are pending. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter. We believe the claims in this case are without merit and we intend to defend them vigorously. There can be no assurances, however, as to its outcome or its impact on our consolidated results of operations.
SCC or its subsidiaries entered into indemnification agreements with certain third parties that sold or underwrote the sale of securities. Some of those third parties are defendants in lawsuits where various parties are seeking damages and other remedies based on the activities of such third parties in the sale of RMBS, including in some instances, SCC securitizations. SCC has received claims from some of these third parties for indemnification against losses, including defense costs, that those third parties might incur as a result of these lawsuits. We have not concluded that a loss related to this matter is probable nor have we established a loss contingency related to this matter.
Employment-Related Claims and Litigation
We have been named in several wage and hour class action lawsuits throughout the country, including Alice Williams v. H&R Block Enterprises LLC, Case No.RG08366506 (Superior Court of California, County of Alameda, filed January 17, 2008) (alleging improper classification of office managers in California);  Arabella Lemus v. H&R Block Enterprises LLC, et al.,  Case No. CGC-09-489251 (United States District Court, Northern District of California, filed June 9, 2009) (alleging failure to timely pay compensation to tax professionals in California);  Delana Ugas v. H&R Block Enterprises LLC, et al.,  Case No. BC417700 (United States District Court, Central District of California, filed July 13, 2009) (alleging failure to compensate tax professionals in California for all hours worked and to provide meal periods); and  Barbara Petroski v. H&R Block Eastern Enterprises, Inc., et al.,  Case No. 10-CV-00075 (United States District Court, Western District of Missouri, filed January 25, 2010) (alleging failure to compensate tax professionals nationwide for off-season training).
A class was certified in the Lemus case in December 2010 (consisting of tax professionals who worked in company-owned offices in California from 2007 to 2010); in the  Williams  case in March 2011 (consisting of office managers who worked in company-owned offices in California from 2004 to 2011); and in the  Ugas  case in August 2011 (consisting of tax professionals who worked in company-owned offices in California from 2006 to 2011). In Petroski,  a conditional class was certified under the Fair Labor Standards Act in March 2011 (consisting of tax professionals nationwide who worked in company-owned offices and who were not compensated for certain training courses occurring on or after April 15, 2007). Two classes were also certified under state law in California and New York (consisting of tax professionals who worked in company-owned offices in those states). A trial date has been set in the  Williams  case for April 30, 2012.
The plaintiffs in the wage and hour class action lawsuits seek actual damages, pre-judgment interest and attorneys’ fees, in addition to statutory penalties under state and federal law, which could equal up to 30 days of wages per tax season for class members who worked in California. A portion of our loss contingency accrual is related to these lawsuits for the amount of loss that we consider probable and estimable. We believe we have meritorious defenses to the claims in these lawsuits and intend to defend them vigorously. The amounts claimed in these matters are substantial in some instances and the ultimate liability with respect to these matters is difficult to predict. There can be no assurances as to the outcome of these cases or their impact on our consolidated results of operations, individually or in the aggregate.
RAL Litigation
We have been named in a putative class action styled Sandra J. Basile, et al. v. H&R Block, Inc., et al., April Term 1992 Civil Action No. 3246 in the Court of Common Pleas, First Judicial District Court of Pennsylvania, Philadelphia County, instituted on April 23, 1993. The plaintiffs allege inadequate disclosures with respect to the RAL product and assert claims for violation of consumer protection statutes, negligent misrepresentation, breach of fiduciary duty, common law fraud, usury, and violation of the Truth In Lending Act. Plaintiffs seek unspecified actual and punitive damages, injunctive relief, attorneys’ fees and costs. A Pennsylvania class was certified, but later decertified by the trial court in December 2003. An appellate court subsequently reversed the decertification decision. We are appealing the reversal. We have not concluded that a loss related to this
 
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matter is probable nor have we accrued a loss contingency related to this matter. We believe we have meritorious defenses to this case and intend to defend it vigorously. There can be no assurances, however, as to the outcome of this case or its impact on our consolidated results of operations.
Express IRA Litigation
We have one remaining lawsuit regarding our former Express IRA product. That case was filed on January 2, 2008 by the Mississippi Attorney General in the Chancery Court of Hinds County, Mississippi First Judicial District (Case No. G 2008 6 S 2) and is styled  Jim Hood, Attorney for the State of Mississippi v. H&R Block, Inc., H&R Block Financial Advisors, Inc .,  et al.  The complaint alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the sale of the product in Mississippi and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We believe we have meritorious defenses to the claims in this case, and we intend to defend this case vigorously, but there can be no assurances as to its outcome or its impact on our consolidated results of operations.
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible for any liabilities relating to the Express IRA litigation, among other things, through an indemnification agreement. A portion of our accrual is related to these indemnity obligations.
Litigation and Claims Pertaining to the Discontinued Operations of RSM McGladrey
EquiCo, its parent and certain of its subsidiaries and affiliates, are parties to a class action filed on July 11, 2006 and styled Do Right’s Plant Growers, et al. v. RSM EquiCo, Inc., et al. (the “RSM Parties”),  Case No. 06 CC00137, in the California Superior Court, Orange County. The complaint contains allegations relating to business valuation services provided by EquiCo, including allegations of fraud, conversion and unfair competition. Plaintiffs seek unspecified actual and punitive damages, in addition to pre-judgment interest and attorneys’ fees. On March 17, 2009, the court granted plaintiffs’ motion for class certification on all claims. To avoid the cost and inherent risk associated with litigation, the parties reached an agreement to settle the case for a maximum payment of $41.5 million, although the actual cost of the settlement will depend on the number of valid claims submitted by class members. The California Superior Court granted final approval of the settlement on October 20, 2011. We previously recorded a liability for our best estimate of the expected loss.
At the closing of the sale of RSM, we indemnified M&P for certain litigation matters and certain obligations related primarily to previously sold RSM subsidiaries.
Other
In October 2010, we signed a definitive merger agreement to acquire all of the outstanding shares of 2SS Holdings, Inc. (“2SS”), developer of TaxACT digital tax preparation solutions, for $287.5 million in cash. In May 2011, the United States Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. district court in Washington, D.C., (Case No. 1:11-cv-00948) against H&R Block and 2SS styled  United States v. H&R Block, Inc., 2SS Holdings, Inc., and TA IX L.P.,  to block our proposed acquisition of 2SS .  On October 31, 2011, the court granted the DOJ’s motion for a permanent injunction to block the transaction. The defendants did not file an appeal. On November 14, 2011, the parties agreed to terminate the merger agreement.
In addition, we are from time to time party to investigations, claims and lawsuits not discussed herein arising out of our business operations. These investigations, claims and lawsuits include actions by state attorneys general, other state regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others similarly situated. We believe we have meritorious defenses to each of these investigations, claims and lawsuits, and we are defending or intend to defend them vigorously. The amounts claimed in these matters are substantial in some instances, however, the ultimate liability with respect to such matters is difficult to predict. In the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material impact on our consolidated results of operations.
We are also party to claims and lawsuits that we consider to be ordinary, routine litigation incidental to our business, including claims and lawsuits (collectively, “Other Claims”) concerning the preparation of customers’ income tax returns, the fees charged customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters and contract disputes. While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay in the discharge of liabilities or settlements in these Other Claims will not have a material impact on our consolidated results of operations.
 
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ITEM 1A.	RISK FACTORS	

There have been no material changes in our risk factors from those reported at April 30, 2011 in our Annual Report on Form 10-K.

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	

A summary of our purchases of H&R Block common stock during the second quarter of fiscal year 2012 is as follows:

  	  	  	 	  	  	 	  	(in 000s, except per share amounts)	 	
  	  	Total
Number of Shares
Purchased (1)	 	  	Average
Price Paid
per Share	 	  	Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (2)	 	  	Maximum $ Value
of Shares that May
Be Purchased Under
the Plans  or Programs	 	
August 1 – August 31	  	 	4	  	  	$	14.27	  	  	 	–	  	  	$	1,371,957	  	
September 1 – September 30	  	 	10,649	  	  	$	13.69	  	  	 	10,644	  	  	$	1,226,399	  	
October 1 – October 31	  	 	2,444	  	  	$	13.25	  	  	 	2,400	  	  	$	1,194,648	  	
 
(1) 	We purchased approximately 53 thousand shares in connection with the funding of employee income tax withholding obligations arising upon the exercise of stock options or the lapse of restrictions on nonvested shares.	
(2) 	In June 2008, our Board of Directors rescinded previous authorizations to repurchase shares of our common stock, and approved an authorization to purchase up to $2.0 billion of our common stock through June 2012.	

 
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ITEM 6.	EXHIBITS	

 	 	 	
 	 	
 31.1	  	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 31.2	  	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 32.1	  	Certification by Chief Executive Officer furnished pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.	
 32.2	  	Certification by Chief Financial Officer furnished pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.	
 101.INS	  	XBRL Instance Document	
 101.SCH	  	XBRL Taxonomy Extension Schema	
 101.CAL	  	XBRL Extension Calculation Linkbase	
 101.LAB	  	XBRL Taxonomy Extension Label Linkbase	
 101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase	
 101.REF	  	XBRL Taxonomy Extension Reference Linkbase	
 
 	*	Indicates management contracts, compensatory plans or arrangements.	
 
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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.	

 	
William C. Cobb	
President and Chief Executive Officer	
December 5, 2011	

 	
Jeffrey T. Brown	
Senior Vice President and	
Chief Financial Officer	
December 5, 2011	

 	
Colby R. Brown	
Vice President and	
Corporate Controller	
December 5, 2011	
 
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Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William C. Cobb, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 5, 2011	 	/s/ William C. Cobb	 	 	
 	 	William C. Cobb	 	 	
 	 	Chief Executive Officer	 	 	
 	 	H&R Block, Inc.	 	 	

Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey T. Brown, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 5, 2011	  	/s/ Jeffrey T. Brown	  	 	
 	  	Jeffrey T. Brown	  	 	
 	  	Senior Vice President and Chief Financial Officer	  	 	
 	  	H&R Block, Inc.	  	 	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending October 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William C. Cobb, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

/s/ William C. Cobb	
William C. Cobb	
Chief Executive Officer	
H&R Block, Inc.	
December 5, 2011	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending October 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey T. Brown, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

/s/ Jeffrey T. Brown	
Jeffrey T. Brown	
Senior Vice President and Chief Financial Officer	
H&R Block, Inc.	
December 5, 2011