Scott Dudley - VP, Investor Relations Timothy C. Gokey - Group President, Retail Tax Services Joan Cohen - President, H&R Block Financial Advisors Alan Bennett - Interim Chief Executive Officer Kathy Barney - President, H&R Block Bank Becky Shulman - Acting Chief Financial Officer, Senior VPand Treasurer Jeffrey Nachbor - Controller

Scott Schneeberger -H&R Block Mark Sproule -Thomas Weisel Partners Michael Millman - Soleil Securities Andrew Fones - UBS Harry DeMoss - King Street Capital Management SyLond - Morgan Stanley Larry - Oppenheimer Ed Shen - Ivory Capital Sateesh Boulee - Merrill Lynch

Good afternoon. I appreciate you joining us to discuss ourfiscal 2008 second quarter results. On the call today are Richard Breeden, Chairman of the Board; Alan Bennett, Interim Chief ExecutiveOfficer; and Becky Shulman, Senior Vice President, Treasurer, and Interim ChiefFinancial Officer. They will comment onour second quarter results and we will open up for questions. Our call today is planned for about an hour. To start, let me provide our Safe Harbor statement. Comments made onthis call may contain forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. Such statements are based upon current information andmanagement’s expectations regarding the company, speak only as of the date on which they are made, are not guarantees of future performance, andinvolve certain risks, uncertainties, assumptions that are difficult to predict. Therefore, actual outcomes and results couldmaterially differ from what is expressed, implied, or forecast in such forward-looking statements. Such differences could be caused by a number of factors including risk describedfrom time to time in H&R Block’s press releases and forms 10-K, form 10-Q, and forms 8-K and other filings with the Securities and Exchange Commission. H&R Block undertakes no obligation topublicly release any revisions to forward-looking statements to reflect eventsor expectations after the date of these remarks. H&R Block provides a detailed discussion of risk factors in periodic SEC filings and you are encouraged to review these filings. You should note thatin conjunction with today’s call there is an accompanying slide presentation which isposted to the Investor Relation section of our website at hrblock.com. To give as manyparticipants as possible an opportunity to ask a question during our Q&A Session, we askthat when you are called upon you limit your query to one initial question and then onerelated follow up question if needed. With that, I’ll turn the call over now to Richard Breeden. Richard C. Breeden: Thank you very muchScott and good afternoon to everyone. Welcome to our review of second quarter fiscal year ’08 earnings and I’mhappy to be here and be with our new management team. In recent weeks the company has appointed a new Interim CEO and CFO. We have separated the positions of Chairman and CEO in accordance with a Shareholder Resolution to that effect thatpassed at our last annual meeting in September. The Board elected me to serve as our initial non-executive chairman. We completed the transition to Deloitte & Touche, our new independent auditfirm. We de-staggered our Board ofDirectors so that all directors will run for election each year beginning in 2008. We have appointed a search committee and selected a search firm to begin the process of selecting a permanent CEO. We reached an agreement announced December 4thwith Cerberus Capital Management thatpermitted us to terminate our agreement relating to the sale of Option One Mortgage Corporation, the pendency of that agreement required the company to incur significant continuingoperation costs relating to loan originations and the mutual agreement between H&R Block andCerberus to bring that to a close was the key to enabling us to take thevigorous steps we announced on the fourth to begin eliminating the mortgage origination business of OOMC. We closed those activities, allowing with a cessation of new loan applications and we’rein the middle now of rapid wind down of origination activities at OOMC. While we made changes, the Board has been working very well together and thesedecisions have for the most part reflected Board unanimity. Our former CEO had a long tenure and there are many natural changes that come with a new management team. The transition to Alan Bennett, our Interim CEO,has gone very smoothly and we are beginning to work our way through an evaluation of the company’s performance and strategy for the future. The Board’s first priority in recent weeks has been to stop the bleeding at OOMC and to accelerate our exit from thatbusiness. As I mentioned on December 4th,we announced that we had ceased accepting new loan applications, that we wouldclose our remaining loan origination activities, and that we were free to do this as a result of exiting from the ongoing agreement with Cerberus struck lastApril. We have been closing offices andseparating personnel in accordance with this announcement. We continue to operate our loan servicing business but at the same time we’ve begun an effort to find one or more buyers for the activities of the servicing business. We are taking steps to review our overall strategyand the hallmark of that strategic review is toreturn focus to our pre-eminent tax business. We have the good fortune to have the dominant market share in one of what is said to be only two inevitable things in life, death and taxes. We believe that is a paramount strategic advantage for us in the future and we intend to do everything in our power to strengthen market share andincrease profitability in every segment of our existing taxpreparation and tax services businesses. That will mean we renewed focus on our human capital and furtherenhancing our tax expertise. We hope toexpand our presence in every segment of the market which will mean working to expandvertically up the income ladder and horizontally by further extending our digitalprofessional and commercial activities. More than 110 million tax returns were filed in the United States last year without our assistance and wewon’t be satisfied until we have begun to compete for every single one of thosereturns. We have majoropportunities in other business lines, both to reinforce our market position in tax and to generate complimentary feeincome. We will review our strategy in operations in banking, financial advisors, businessservices, or RSM McGladrey. We do believe that these businesses must generatestronger returns on capital in the future and our initial effort will be to identify ways to improve the return characteristics of each of thosebusinesses. While these are among our first priorities, we will be conducting the strategic review longer run to determine the best way to have each of these segments addvalue to H&R Block shareholders. Looking forward, we are fortunate to have attracted Alan Bennett toH&R Block to serve as our interim CEO while we search for a permanent chief executive. Alan comes with a great base of experience and he’s alreadymade a wonderful contribution in the short time he’s been with the company. In the near term, the primary focus for H&R Block will be on executing our plans in tax services to achieve an outstanding tax season. With the industry’s best tax professionals,continuation of our industry-leading Refund Anticipation Loan programs built onthe Emerald card platform and what in the future we believe will be an interesting Emerald suite of products, and the launch of exciting new products relating to the Emerald advance line of credit, the ANEW RAL and other commercial marketinitiatives, we believe we are well-positioned for the coming tax season. We also have a strong lineup of digital tax products and a solid plan for continued growth. With these products and a strong marketing push to emphasize the expertise and knowledge of our taxprofessionals, we’re poised, we believe, to have a very solid tax season. Our future ambitionsgo well beyond having a solid tax season as we have traditionallydefined it. Before I turn over toAlan, let me first directly speak to our tax professionals and full time associateswho are listening. In the short time since I joined the Board, I’ve been impressed by the quality and dedication of both our taxprofessionals and associates. On the eve of tax season, we couldn’t be more pleased with our readiness and focusand on behalf of the entire board of directors, I’d like to thank you for your efforts in getting us prepared to serve more than 20million clients with distinction this season. Secondly, I’d liketo say a word on the alternate minimum tax situation which I knowis an issue of concern to many people. As you all know, Congress has yet to enact an AMT patch to limit the effect of the alternate minimum tax on approximately 21million taxpayers or roughly 15% of the filing universe who will otherwise be swept into paying AMT for the first time. The fact that more and more Americans are exposed to the complexities of AMT is, if anything, a factor that we believe will drive long-termgrowth in our tax business as people who may have prepared their own taxes seekprofessional assistance with this increasingly complex issue. In the short term, we won’t know the likely impact on Block until legislativeaction is complete and the IRS announces how it will handle the delay. In some scenarios we may benefit and in others we may see a short-run negative impact. We are pretty sure that whatever Congress does, it won’t abolish taxes in 2008 and we will be there for the public with the solutions expressly tailored to the provisions of the new law once it is enacted. Now let me turn the balance of the call over to Alan.

Great, thank you,Richard. It’s a pleasure to be with you today to discuss our results andour outlook. By now you’ve all had a chance to review our press release and leafthrough our 10-Q which was filed on December 13th. Let me begin by noting that several members of oursenior management team are with me here this afternoon and will be actively participating in the Q &A session. This includes Tim Gokey, our Group President of Retail Tax Services,Joan Cohen, our President of H&R Block Financial Advisors, KathyBarney, President, H&R Block Bank, Becky Shulman, our Treasurer and interimCFO, and Jeff Nachbor, our Controller. Since my arrival here three weeks ago, I have observed some keyattributes of H&R Block. First, asRichard has observedas well, we have strong businesses and strong brands. We also have atalented, committed, and engaged workforce that is focused on providing ourclients with the bestproducts, services, and experience possible. The leadershipteam is focused on repositioning H&R Block for long-term profitablegrowth. Thefirst step in thisrepositioning effort was theannounced shutdown of Option One’s Mortgage Origination activities. Thenext step will be theorderly sale of theremaining loan servicing operation. Thiswill result in H&RBlock going forward as asmaller, less volatile company and one that is more aligned with its corestrengths and heritage. Let mestart by discussing our discontinued operation results which areessentially allrelated to Option One and where we recorded apre-tax loss of $551 million inthe quarter. This loss is comprised of restructuring costsof approximately $61 million, losses on sale of mortgage loans including theimpairment of residuals of $314 million, other operating losses of $53 million,and an additionalimpairment charge of $123 million to bring remaining assets of Option One to anestimated market value. We have beenvery active reducing our mortgage loan exposure during thesecond quarter by reducing loan originations and to aggressive sales ofloans. Let mestart with loans on thebalance sheet. We began thequarter with a grossloan amount of $248 million. We originated $128 million, repurchased $188million, and sold $429 million of loans, resulting ina gross loan balanceof $135 million atOctober 31. After netting a$65 million valuation allowance, we ended thesecond quarter with $70 million of loans held on thebalance sheet. With respect to exposure inour off balance sheet warehouse, we entered thequarter with $2.1 billion of sub-prime loans. We originated nearly $600 million during thesecond quarter, including $544 million inthe month of Augustalone, of which about 25% were prime loans. We sold $2.6 billion and ended thequarter with only $57 million principal amount of loans remaining inthe warehouse. Theestimated losses on thefuture disposition of these remaining warehouse loans, which is $14 million,have been reflected inour second quarter operating results. Soafter the significantsale activity, here’s what remains of mortgage loans on our balance sheet and inour warehouse atOctober 31: loans inthe warehouse of $33million at October 31,loans held for sale on thebalance sheet totaled $70 million, which is reported net of a48% allowance. We have establishedrepurchase reserves of $86 million for potential losses on thepurchases of loans previously sold. About 55% of thereserve is for potential repurchases due to reps and warranty defects and therest relates to potential early payment defaults. This rateis consistent with alower origination volume inthe quarter and thehigher quality of loans originated since August. Therepurchase reserve intotal assumes anaverage loss severity rateof 42% which is up from 48% inthe firstquarter. Atquarter end we also have loan applications inthe pipeline of $69million, of which we believe $20 to $30 million will befunded, and then our loan originations will cease. Our total residual interest insecuritizations arevalued at $38 million atOctober 31, down from more than $90 million atthe end of thefirst quarter. Thediscontinued operations balance sheet hasa $427 milliondeferred tax asset. As required by GAAP,we have reduced our gross tax asset by valuation allowances for any portion of thegrowth-deferred tax that is less than 50% likely to berealized in thefuture. Accordingly, the$427 million asset is net of a$56 million valuation allowance. Weexpect a significantportion of thedeferred tax asset will bemonetized as we close our originations business and dispose of remainingassets. Option One held mortgage servicing rights or MSRs coveringapproximately $58 billion principal amount of mortgage loans owned by thirdparties as of October 31. These MSRswere carried on Option One’s books atcost which is thelower of cost ofmarket or $200 million atOctober 31. AtOctober 31, Option One had servicing advances and related assets of $821million. These servicing advancesprimarily represent advances of principal and interest made to borrowers ofloan pools when payment is not remitted by theborrower. These advances aregenerally considered to have top-of-the-waterfall priority inthat we as theservicer are entitledto be thefirst party to collect any monies paid by theborrower or recover inforeclosure. As I mentioned earlier, atOctober 31 we booked anadditional impairment of $123 million related to thediscontinued operations balance sheet of Option One. This brings our total valuation allowance to$338 million and a netbook value to $873 million. I would note that for presentation purposes on this chart,we have removed theasset and offsetting liability of $927 million at10/31 and $300 million at7/31 related to loans held for sale with optional repurchase triggers. These triggers give us theright but not therequirement to exercise this option, and since we have no intention torepurchase, we have zero exposure on these loans. TheFAS 140 requires that they beincluded in our 10-Qfinancial statement, which we have done. Before I discuss theoperating results from our continuing operations, I would like to review themortgage loans held by H&R Block Bank. At October 31we had approximately $1.1 billion of mortgage loans held from vestment. Our second quarter loan portfoliocharacteristics look very similar to those from theprevious quarter. On average, theloan size is $219,000 with a717 FICO score with combined loan-to-value ration of about 77%. Theaverage debt-to-income ratio for theborrowers is 34% and theaverage weighted average coupon is 7.2%. The currentdelinquency ratedefined as 30 plus days past due is 1.96%. Approximately 68% of themortgage loans were purchased from OOMC. The averageFICO on the OOMCpurchased loans is slightly lower at711 and the combinedloan-to-value is slightly higher at81%. Theaverage delinquency rateis approximately 2.4%. Atthe end of eachquarter we record anallowance for loan losses representing our estimate of credit losses inherent inthe mortgage loanportfolio. Theallowance represents estimated loan losses that we expect to incur over thenext twelve months. Themajority of the creditloss is evaluated on apooled basis; however, we review non-performing loans individually and recordloss estimates typically based on thevalue of theunderlying collateral. Loss rates arebased on historical experience. Ourassessment of economic and market conditions and loss rates of comparablefinancial institutions. As aresult of declining collateral values due to declining residential home pricesand increasing delinquencies occurring inOctober and November, we increased our loan loss provision inthe quarter by about$9.5 million. Turning to continuing operations results for thesecond quarter, revenue was $435 million, up 10% from last year. Our net loss from continuing operations was$136 million or $0.42 pershare compared with aloss of $121 million or $0.38 pershare in theprior year. Tax services operatingrevenues from continuing operations increased 11% over theprior year to $91 million. Primarily dueto strong growth inour Australian operations which achieved revenue growth of 23% over lastyear. Half of Australia’srevenue growth is attributable to currency exchangerate gains. Thetax segment’s pre-tax loss from continuing operations during this off-seasonquarter was 19% higher than ayear ago. Thehigher loss resulted from anincremental $12 million write-off of Refund Anticipation Loan receivables andrelated collected expenses, and $7 million inoff-season losses from arecently acquired commercial markets businesses, as well as normal increases inother operating expenses. The$12 million charge is aresult of increased withholding of taxpayer refunds by theIRS due to their enhanced fraud prevention efforts to screen returns aimed primarilyat theindividual taxpayer. This is not relatedto any fraud by tax preparers. Industry-wide, theIRS withheld refunds atmore than 5 times the rateof the 2006 taxyear. Intax season 2007, our Retail Tax Group grew clients by nearly 90 basis points,grew earnings by 9%, improved client retention by 80 basis points, improvedclients likelihood to recommend Block by 370 basis points, and increasedretention of tax professionals by more than 200 basis points. As we re-energize our efforts on every aspectof tax services in taxseason 2008, we plan to build on 2007’s success by continuing to drive ourfocus on building expertise, winning aspeed of refund, and building agreat organization. H&R Block’s retail business is equally attractive to customersseeking expertise or aspeed of refund. While Block’s currentclient base is split nearly evenly between these two groups, themarket for clients whose main need is expertise is significantly larger. Growing our penetration inthis important segment is our biggest long-term opportunity. While this opportunity stands for retail,digital, and commercial businesses, I will focus on theretail opportunity here. Block hasconsiderable assets to address this market, standing with our outstanding baseof experienced and highly trained tax professionals. Theaverage Block client is served by atax professional with over eight years of experience and theequivalent of sixuniversity courses of training. Sinceconsideration of Block among expertise-oriented non-clients is currentlyrelatively low, giving small increases inconsideration can translate into good growth for Block. Our strategy for winning theexpertise client over thelong term includesboth strengthening thevalue proposition of our coreretail channel for expertise filers and developing new channels over time. Intax season 2008, we aremoving in thisdirection by focusing on our tax professionals and helping them to build theirindividual client bases. Theexpertise market is largely based on referrals and word of mouth. Inthe off-season, wehave been giving our tax professionals thetraining, tools, and products they need to generate referrals, improve loyaltyto them personally, and build their client base among expertise filers. Our expertise-oriented marketing intax season 2008 will directly support these efforts with aparticular emphasis on directly exposing potential clients to theexpertise of our tax professionals. Themarket for speed-of-refund-oriented filers is nearly 40 million taxpayers, orabout 30% of thetotal. Block is particularly strong inthis segment and itmakes up about half our client base. Inrecent years, intense competition inthis segment fueled by theready availability of RAL facilities to our competitors hasled to rapid growth inthe number of bothbranded and independent tax preparation firms focused on this market. Since we charge fees on credit products that aremarkedly lower than most firms inthe tax preparationindustry as a whole,we believe we will benefit if consumers begin to differentiate competitorsbased on their prices for credit products. While expertise may bethe bigger long-termgrowth opportunity, we fully intend to increase our market share inthe speed-of-refundsegment. Our long-term strategy forwinning in thespeed-of-refund segment is to combine industry-leading tax preparation andclient service with renewed product superiority based on consumer-friendlyproducts that simultaneously drive industry reform. Last year we offered thefirst 36% APR Refund Anticipation Loan. We introduced theEmerald card, anFDIC-insured bank account on anext-generation prepaid platform, and thecard gained over 2 million clients for our bank. As we mentioned inAugust, we are expandingthe 36% APR RALprogram and are addingto it inways that will over time create lower RAL prices and greater transparencythroughout theindustry. We’ve also enhanced theEmerald card platform by adding bill payand money transfer capabilities by linking itto a savings accountthat pays industry leading rates and importantly by adding asimple line of credit, theEmerald Advance. TheEmerald Advance is designed to conform to theFDIC’s proposed approach for consumer-friendly small dollar lending. These product enhancements arecomplimented with our investments inimproved client service, peak capacity, and targeted growth initiatives. These plans rest on building agreat organization. We believe wealready have the bestpeople in theindustry. Recruiting, developing, andretaining our tax professionals is akey priority. Last season we began asignificant effort to refocus on our tax preparers and we intend to increasethis in thefuture. We have introduced new trainingfor both new and experienced tax professionals, improved our coretax preparation program, and provided new tools. We areconsciously focused on moderating thenumber of new preparers we hire while increasing retention of experienced taxprofessionals. Last year’s two pointgain in retention was asignificant gain compared to prior years. We expect this to lead to improved productivity, client service, andclient retention over time. Overall theretail business is poised to continue its growth by building on last year’ssuccess, seizing theclient retention opportunity created by theEmerald card, utilizing theincreased number of experienced tax professionals, taking advantage of ourproduct superiority, and leveraging theearly season product exclusivity provided by theEmerald suite of products. Themarket for digital filers is over 25 million taxpayers. We continue to view this market as asignificant growth opportunity for H&R Block. Our long-term strategy is to growour shares to animproved online experience, better distribution on thesoftware side, and increased awareness of both by leveraging theBlock brand. For 2008 we arefocused on improving thebottom line and building on thestrong momentum digital achieved last year, which saw overall client gains of19%. Our Tax Cut software, named Productof the Year atoffice products retailer Staples, is already on store shelves for thestart of the holidayseason. Our product lineup features thesame consumer-friendly bundles we offered last year but with higher price pointsto reflect the valueof our product offering. We areexpanding distribution into places such as Sam’s Cluband as a result we areclearly well-positioned to increase volume and gain market share onceagain. We will continue to invest inthis growing segment to capture do-it-yourselfers who migrate to digital and tointroduce them to theH&R Block brand. We also lookforward to improved performance from our software and online products. Turning to consumer financial services which is comprised ofH&R Block Bank and H&R Block Financial Advisors, thesegment delivered strong top-line growth. Revenues from continuing operations were up 24% over theprior year to $101 million while thepre-tax loss from continuing operations was $9 million compared to theloss of $2 million in theprior year. For thequarter the Bankgenerated revenues of $23 million, up from $11 million inthe second quarter ayear ago and apre-tax loss of $4.4 million compared with pre-tax profit of $2.4 million ayear ago. Thedrop in profit ismainly due to a $9.5million increase inloan loss reserves which I mentioned earlier. The Bank’squarter-end assets were $1.2 billion consisting of $1.1 million of mortgageloans held for investment. Atquarter end, the 30day delinquency rateon the Bank’s loanportfolio was 1.96%, representing $21 million worth of loans, and of thisamount, 0.25% of theloans worth $3 million were delinquent by more than 90 days and theBank did not hold any repossessed real estate atquarter end. As I mentioned previously, theBank increased its loan loss reserve levels inthe second quarter to140 basis points up from 97 basis points atthe end of thefirst quarter. We believe that we haveestablished anadequate reserve based on current conditions. We donot anticipate that theBank will purchase either whole loans or mortgage securities inthe foreseeablefuture. TheBank’s deposits continued to belargely comprised of assets from clients of H&R Block Financial Advisorsand Tax Services. H&R BlockFinancial Advisors utilized theBank to hold $589 million inFDIC-insured customer deposits and tax clients accounted for $125 million indeposits. H&R Block FinancialAdvisors continued to improve performance. Second quarter revenues grew nearly 11% to $78.2 million while thepre-tax loss of $4.7 million was comparable to theloss in theyear ago period. Both periods include $9 million of intangibleamortization which will becompleted in thethird quarter of this year. Therefore,our second half earnings will significantly improve. Atquarter end we had just over $34 billion inassets under administration, up 6% from thefirst quarter. Average productivity peradvisor during thequarter increased 19% over last year, driven by organic growth inour successful recruitment and retention of higher-level producers. Thenumber of advisors atquarter end increased to 956, up 20 from theend of the firstquarter. We look forward to continuingthese positive trends. Annuitizedrevenues as apercentage of total production continue to grow, inline with our emphasis on long-term advisor relationships with our clients and afocus on a fee-basedannuity and other insurance products. Production from partnering with tax was up more than 8% year over yearand now represents more than 18% of our total production. Business servicesexperienced top-line growth and improved operating results. Total revenues were $239 million, up 4.5%over the same quarter last year and pre-tax incomewas $12 million compared to income of $1 million for the second quarter last year reflectingefficiencies gained from integration of businesses acquired in Fiscal ’06. With that, I’ll nowturn the call over to Becky.

Thank you,Alan. I’d like to comment on our liquidityposition as we’ve had a number of questions on this issue. I’ll begin by saying we believe our liquiditysources to be sufficient for the normal scenarios we envision. With tax season right around the corner, we have $200 million remaining onour lines of credit, plus our cash on hand which is about $250 million. I would also like to note that this year’sliquidity needs are quite different from last year’s. In tax season ’07, the company used approximately $227 million tofund our early season loan product. Fortax season ’08, the early season product is being funded by H&R Block Bank which has different funding sources and therefore willnot be a use of corporate cash. Although we’re in a larger borrowing position due to the losses in the mortgage operations, I would point out thatmany of the mortgage losses were non-cash and the potential for additional cash losses in the mortgage operations are smaller given the actions taken that were discussed earlier in the call. There are a few variables which we’re watchingclosely. First is the volatility in the servicing advance growth. We believe our expected scenario takes intoaccount the recent stress levels caused by increased delinquencies and reducedpayoffs. That being said, we’re workingon upsizing our servicing advance facility to ensure we can handleunanticipated increases in servicing advances. To date we’ve been successful in increasing our financing as these advances are very high-quality collateral. The second is the cash flow timing impact from a potential delay and the start of the tax season due to a change in the AMT. It is unclear at this time what the outcome will be, but we are preparing for various scenarios and are working on arranging additional sources of liquidityfor the sake of flexibility, including financing ourheadquarters building. We expect our$500 million bridge financing to be extended. So again, we believe our liquidity is adequate and we’re working to makesure that we have what we need to cover any uncertainties. Alan will concludewith our outlook for the remainder of the year.

Thanks, Becky. I’d like to comment on the full year 2008 outlook and also our plannedefforts to right size H&R Block post-Option One. For full year 2008, we remain confident aboutthe operating performance of our continuingbusinesses. As a result, we are affirming our previous range of $1.30 to$1.45 per share. However, we will havehigher borrowing costs anticipated when we set our last guidance and as a result, we expect our earnings will be toward the lower end of our guidance range. No adjustment to this estimate has been made for the impact of AMT. Some IRS alternatives could be net positives and some negatives, but Idon’t want to speculate on that point at this time. I do want to comment on our expense base. Ourcorporate support activities provide services to all of our operating companies. When the closing of our mortgage originationsactivity and hopefully the sale in the near future of loan servicing, we are now undertaking a comprehensive review of all expenses to realign our cost structure with our new, smallercompany. Cost discipline and a healthy cost culture are characteristics of high performancecompanies. All of our businesses must have appropriate cost structures to compete successfully in the marketplace and have a fair return on investment. We must be razor sharp in investing SG&A dollars into the right activities and make certain that we get the appropriate benefit from our spend. We will be taking action once our review is complete,likely in the mid-January time frame. At the same time we will continue to invest in the tax segment in advance of what we believe will be a very solid tax season. I’d like to thankyou all for listening and we’re now ready to takequestions.

(Operator Instructions) Your first question comes from theline of Scott Schneeberger with H&R Block. Please proceed. Scott Schneeberger -H&R Block: Good afternoon. Aquestion on thedecision to raise debt or equity if you dofind that you need additional capital. Iguess what is thetiming and thequantity I guess my question and then I guess we’re allowed one follow up andmy follow up would bewhy cut to thedividend if you areconcerned about thecapital situation? Thanks.

I think theway I’ll answer that is that we have base cases and some stretch cases that saythat we are fine withour bridge facility and anupgrade to our servicing advances. We arethinking and looking to raising additional funds to provide alittle more breathing room potentially with therefinancing of our building. Withrespect I think to going to market with debtor stock, I think we’d like to keepthose open. I think we certainly haveshort-term debt that atsome point we need to term out. I thinkwe look to market conditions and other events to determine thesize of that and thetiming of that in thefuture and I think with respect to thedividend our approach is that it’s agood sign of confidence to themarketplace that we really believe inthe long-termprospects of thecompany. Is that responsive to yourquestion? Scott Schneeberger -H&R Block: Yes, thank you.

Your next question comes from theline of Mark Sproule with Thomas Weisel Partners. Please proceed. Mark Sproule - ThomasWeisel Partners: Thanks. I guess thequestion is with all thevolatility around thedelay in closing theOption One business, how does this changeyour perspective of longer term trying to return capital to shareholders inlight of some of therestrictions that you’re under currently?

I think we arevery mindful of theimpact that Option One hashad on the company andits finances and theBoard will see. Repairing thedamage that has beendone as an importantpriority but for thefuture we are acutelyconscious of theimportance of once that repair is accomplished of right-sizing our balancesheet and making sure that we have tight discipline on returns for our investedcapital and that growth and shareholder value is aprime focus of theBoard of Directors. Mark Sproule - ThomasWeisel Partners: And I guess as afollow up, if you would... Is there any impact from afunding capacity perspective on your ability to provide services and operationsfor the tax seasonthis year? Thanks.

I couldn’t hear you, you’re breaking up. Areyou still on theline? If you could repeat that, it’d begreat. Mark Sproule - ThomasWeisel Partners: Yeah. Arethere any impacts to thecoming tax season from some of thefunding limitations that might begoing on currently?

No, I think it’s agreat question. I appreciate thequestion. No, actually, we’re investingheavily in thetax season. I think as you look atkind of a short-termstrategy here, thefirst thing obviously was theannouncement to close origination and you can seethe work we’ve doneand some of thetalking points with respect to reducing our exposure to our loanportfolio. We’ve worked hard atnot only stopping theoriginations but really looking hard atthe balancesheet. Theservicing platform that we’re running right now is actually running aboutbreak-even and it hascash flow positivecharacteristics assuming that you can continue to finance theservice advances. Even with theinterest cost it’s $9to $10 million cash flowpositive, which is helpful. I think asyou look at thethings that we need to getdone, obviously we’ve got to wall that off and complete thesale of that servicing platform. We haveto get our operatingcosts in line. We have to getoperating margins improved inall of our businessesand then we, as Richard mentioned, we’re going to go to work and really solidifyour balance sheet but during this timeframe we’ve not been constricted on thetype of activities and investments and products and people and locations withinour tax segment. We’re gearing up, we think, for avery good 2008. Mark Sproule - ThomasWeisel Partners: Thank you.

Your next question comes from theline of Michael Millman with Soleil Securities. Please proceed. Michael Millman -Soleil Securities: Some follow up questions. [inaudible] shareholders elected you to theBoard, certain options that you talked about including the[inaudible] managed for several years [inaudible] talk about you’ve learned nowthat you’ve been there for awhile any things you want to dobeyond what sounds like of executing better give us timetable as major itemsthat you think can beaccomplished?

I think I’ve got thegist of that. You’re breaking up alittle bit, but I think what I would sayright now is that based on afour week, three and ahalf week review of our businesses that we have, I think, pretty significantopportunities to tighten up and run into tighter tolerances inall of our businesssegments. Soto the extent that wecan make their businesses more competitive through cutting operating costs orimprove margins inother ways, I think there’s opportunities for allof our businesses short term to improve theresults. I think intermediate term posttax season there’s anadditional review just to make sure that we have aproper alignment of our segments that there aremeaningful synergies that allof our businesses add value to our base of tax business soI think that strategic review that Richard talked about will beongoing as we also look to improve theoperating performances of each of thebusiness segments. Richard C. Breeden: I think after... Itshould be clear thatafter nearly ten yearsunder the tenure of theprior CEO there will bea zero based review ofeverything we do. We’re going to focuson changing ahistory in whichH&R Block for thelast few years hassignificantly underperformed themarket and the Boardis going to bedetermined to review each and every corner of thecompany and find every possible step that will moveus if we can accomplish this from anunderperformer to anoverperformer. Michael Millman -Soleil Securities: Interms of the Bank,discuss how you dispose of theBank, if you dispose of theBank, if the mark tomarket of the assets,what would they be? Richard C. Breeden: You’re breaking up pretty severely. I think your question, but correct us if I’mwrong, was inconnection with any possible sale of theBank, what the issuewould be of mark tomarket of assets? Michael Millman -Soleil Securities: And also what [inaudible] different ways that you candispose of the Bank? Richard C. Breeden: Well I think that’s entirely premature atthis point and so Idon’t think it would beuseful to go into that. TheBank is something that creates some very interesting strategic potential interms of what we refer to as theEmerald suite of products to support our tax business with credit products thatcompetitors may not beable to replicate, particularly as some of thetraditional large providers of RAL credit exit that marketplace. We may have some strategic advantages thatothers do not. Inthe course of theproxy campaign, we raised theissue that theregulatory costs from owning abank and in particularthe 3% holding companycapital requirement might bein excess of thebenefits that the Bankbrings to thecompanies, and there areclear benefits. Our first objective willbe to try andrestructure and reconfigure our banking operations to avoid those regulatorycosts or minimize them inorder to then evaluate where we are. Forexample, the 3%holding company capital requirement is not inthe law but itwas imposed as aregulatory condition by theOffice of Thrift Supervision. Itwas done at atime when H&R Block owned Option One and I know that as aformer regulator theregulators at OTS wereproperly sensitive to theimmense risks that OOMC represented. Indeed, the OTSto its credit, and since I had alittle something to dowith its creation when I was inWashington, I would saythis was a little bitof pride for what they did, they were more sensitive to theOOMC risks then thecompany was itself. But that regulatoryprovision, the 3%rule, was crafted to deal with risks that will no longer exist once we haveexited OMC and areno longer in thesubprime mortgage lending. I can’t speakfor the OTS but wecertainly believe that itwould be appropriatefor them to consider eliminating that 3% requirement. If so, that would substantially changethe economics ofcontinued ownership of theBank in avery favorable way to H&R Block. Wedon’t know where that will come out but there aremany facets to theultimate strategic decision of what to dowith the Bank. Theone thing that is very clear is that whether we own abank or do not own abank, we will continue to find through our own bank or through partnershipsways to offer theEmerald suite of products because those aredirectly related to success inour tax business. Michael Millman -Soleil Securities: Excellent. Iappreciate it. Thank you.

Your next question comes from theline of Andrew Fones with UBS. Pleaseproceed. Andrew Fones - UBS: Yeah. If I could justfollow up to that comment you made. How doyou expect to respond, you know, I think you have to respond by January 15thto the OTS’ requestregarding minimum bank equity? Richard C. Breeden: Well theissue is not minimum bank equity. Thebank is actually heavily capitalized. Theissue relates to how we plan to meet the3% overall holding company tangible capital requirement and that of courseassumes that any such requirement is still ineffect. We cannot speak for them. Itis in effect today andwe will prepare financial projections. TheOTS has been workingvery cooperatively with us. I’ve metwith them on several occasions as does management on aregular basis and they appreciate that H&R Block without Option One is atotally different company and doesn’t present many of therisks that H&R Block as theowner of Option One did present and I expect that theregulatory community, I can’t predict what they’ll do, but that they will ina thoughtful wayreview our lower risk profile inthe future and adjust thecapital requirement. Sothe people who look atit simply as assumingthat the 3% which is adiscretionary requirement imposed by OTS inthe OOMC days, notsomething mandated by law, people assume that that requirement will always bethere. I don’t think that’s anecessarily good assumption but we will certainly beresponsive and continue adialogue that is ongoing with OTS. Andrew Fones - UBS: Okay, thanks, and for my follow up, you’ve mentioned thatyou’re going to have astrong focus on returns on invested capital. I was wondering what returns you’re targeting or what thresholds you mayhave for the variousbusinesses? Thanks.

Yeah, this is Alan again. I... We’re not going to give specific guidance on returns. I think that thefocus will clearly beon margin improvement and then introduce more capital discipline aroundthat. We’re right inthe middle of ourstrategic plan right now which will bethe basis for nextyear’s operating plan, sowe’ll have more to sayI think about that as we go along intime. Itwould be fair to saythat the days inwhich people focus on revenue growth without focusing on bottom line and marginlevels are over. Andrew Fones - UBS: Okay, thanks.

Your next question comes from theline of Harry DeMoss with King Street Capital Management. Please proceed. Harry DeMoss - King Street Capital Management: Hi. I had twoquestions I guess. You mentioned thatyou guys expect thebridge to beextended. Obviously you have four daysto come up with half abillion dollars. Doyou have any more details on that or is that anongoing negotiation and if you dohave details, I’d love to know either how longit’s going to beextended for and how is that going to relate to thelines of credit and theclean down provisions there and then I have afollow up.

We’re indiscussions right now, we actually have written approval on one half and averbal on the otherand we’re just papering thesecond half, so we’removing ahead on good pace on that and what was your follow up? Harry DeMoss - King Street Capital Management: Well I guess just on that one inparticular, how is that going to relate interms of the extensionto the clean downprovisions you have on theHELOCs and the timingof those and then my follow up was simply you mentioned your building outthere, your headquarters building, ingeneral any sense as to what you think that’s worth or what itwould cost and does ithave a mortgage on itnow?

Thefirst position first is that thebridge would carry us through to tax season sothat would... it wouldbe clearly abridge to our revenue and then therevenue would be thedriver of taking theclock down. So thatwould be aneat package for our financing. Withrespect to thebuilding, we do nothave debt on itnow. We’ve got lots of room because wethink it’s worth up to $170 million or so, sothe question is howmuch do we really wantto take? Should we borrow more than weneed? Sowe’re going through that right now. Harry DeMoss - King Street Capital Management: Okay, great. Thanks alot.

Your next question comes from Larry with Oppenheimer. Please proceed. Larry - Oppenheimer: Hi. One of myquestions was answered. I think actuallyboth of them have been answered. Thankyou.

Great. Thanks, Larry.

Your next question comes from theline of Sy Lond withMorgan Stanley. Please proceed. Sy Lond - Morgan Stanley: Hi, SyLond from Morgan Stanley. Question onworking capital inthecontext of your comments that you’re investing inthecompany going into thetax season. Typically when I look atthecompany historically we generally need over $1 billion of short-term debt goinginto tax season but when I look atyour availability right now there’s only about $200 million available on therevolver and I appreciate thecomments on cash flowtiming and thecorporate headquarters, but how dowe reconcile this gapof your typical working capital need intax season, what’s your availability is right now?:

I tried to lay out, I think atthe beginning of mycomments, because I’ve got tena lot of questions onwhat last year was versus what this year is and I think that there’ssignificant differences, not just inhow we’re funding but also thefact that a year agowe were issuing commercial paper. This year we’re operating under workingcapital lines of credit soyou don’t have overlap inraising funding and there’s just quite afew differences there, sokeep in mindtoo that we are inthe middle of Decembernow and tax season is just right around thecorner, but our expectation is that inDecember there’s probably allin about $250 or somillion dollars of need, about $204 is related to tax and our seasonalbusinesses, and then inJanuary you’re offset with earnings. Sothe need declinesquite a bit, sothe need from anall-end basis is about $41 million inJanuary. SyLond - Morgan Stanley: Can you try explaining ita little bit more indetail because it’s a bigquestion in themarket because if you look atyour seasonal CP borrowings there’s ahuge spike ahead of tax season and we just won’t seethat this year?

You’re breaking up. Can you repeat that last? SyLond - Morgan Stanley: If you look atthe company going backsix or seven yearseven, there’s always adramatic increase incommercial paper borrowing inthe January time frameand I’m just trying to reconcile what is sodramatically different this year versus prior years.

One of theprimary differences is thecompany has historicallyfunded its participation interests inRefund Anticipation Loans and beginning last year we were no longer responsiblefor that funding. But again last year wewere still responsible for theearly season funding and this year we will beresponsible for none of that. Richard C. Breeden: And one of themany questions about ownership of theBank, it is avery important difference on theplus side of theledger to remember that even with aroughly 12% capital level that you’re getting an8:1 leverage on capital injection into thebank in terms of itsability to support lending products associated with RAL needs and things thatused to be done withcorporate cash are nowdone to a significantvolume with supported by bank deposits and thefunding requirement for Block is roughly one-eighth of those fundingrequirements. SyLond - Morgan Stanley: Okay, thank you.

Your next question comes from theline of Larry with Oppenheimer. Pleaseproceed. Larry - Oppenheimer: Hi guys. Sorry. Howmuch stock has beenbought back in 2007and one other question, hasthere been any, I don’t know if theright word is push back, from theH&R Block advisors about kind of theupheaval going on at thefirm, stock price, things like that? Thanks alot.

Thefirst question on this stock buy back is virtually zero stock bought back thisyear. I think thesecond question was really about turmoil within financial advisors and franklywe’ve had great stability there over thelast quarter. We brought anet twenty new advisors inthe quarter which isvery successful, so weare retaining some,attracting others. We’re finding thatthere are other firmsout there that have turmoil and we aresuccessfully recruiting against them. Sonot only are we addingmore advisors, we have more experience intotal with our advisors and our productivity within our advisors is higher andwe’re selling more annuitized products soI would say that rightnow the indicators, thekey indicators fromthat business, are verypositive.

Your next question comes from theline of Ed Shen with Ivory Capital. Please proceed. Ed Shen - Ivory Capital: Hi. I just wantedto go back and make sure I had thenumbers correct on one of your previous responses. I believe you said that inDecember you have anall incash need for thetax business of $260 million, expecting theall endamount to be$40 million inJanuary? Did I getthat down correctly?:

Yes. Ed Shen - Ivory Capital: Okay and that includes operating losses as well as workingcapital?

Yes. Ed Shen - Ivory Capital: Okay and against that you have $250 million of cash on thebalance sheet and $200 million inavailability on your HELOC, is that correct?

Yes. Ed Shen - Ivory Capital: Got it. Soit sounds like youhave a cushion ofabout $150 million.

We also have theservicing advance facility and theservicing advance facility we have $750 million incapacity today and as I said we areworking on an upsizethere and servicing advances as those vary can changethose numbers. Sothere can beadditional capacity there but again atour peak in November,I think we were atabout $705 million against that. Sothere’s other inflows and outflows. There’s other sources available but primarily that’s right. Ed Shen - Ivory Capital: And when doyou expect to complete theservicing advance facility?

I would sayit would probably bevery early inJanuary. Ed Shen - Ivory Capital: Areyou expecting to increase thesize of that facility substantially or is itgoing to be anincrease similar to thesize that you had inNovember?

We arelooking for asubstantial increase inthe size of thefacility, I think. Keep inmind thought that thefacility can only beused to the extentthat you have theadvances to draw down soif we had... If we got thefacility upsized to $2 billion, it’s not $2 billion of incremental recruitingonly to the extentthat you have advances to put inthere, so we arelooking to grow thesize of the facilityas our servicing advances grow. Ed Shen - Ivory Capital: Got it. Thank you.

Your next question comes from theline of Andrew Fones with UBS. Pleaseproceed. Andrew Fones - UBS: Yeah, thanks. First Iwas wondering if you could give us any color regarding thesale of the servicingbusiness, how that’s going, if you seemuch interest there? Thanks. Richard C. Breeden: We have had quite afew strong interest expressed from quite anumber of sources inboth the servicingplatform and possible sale of MSRs. Thatprocess is moving along very smoothly with alot of interest and sowe expect to be ableto make some decisions really inthe New Year. Andrew Fones - UBS: Okay, thank you, and then secondly, regarding theearnings guidance, you saynow that you think that theearnings might come intowards the lowend of the prior rangedue to higher interest expense. Can youquantify the interestexpense or the changein your projectionthere? Thanks.

I would saythe incrementalcontinuing operations interest costin therange of $0.04 pershare or so. Andrew Fones - UBS: Okay. Thank you.

Your next question comes from theline of Scott Schneeberger with H&R Block. Please proceed.: Scott Schneeberger -H&R Block: Thank you. Could yougive us an idea of howmany incremental tax offices you’ll berolling out this year, year over year, and what type of CapEx forecast youhave?

Thefirst half of that question is we have amodest increase in theoffsets in therange of $150 or sofor the upcoming taxseason. On theCapEx, we’ll get backto you on the CapExpart of that. Scott Schneeberger -H&R Block: Thanks and I just wanted to follow up on anunrelated matter. I recognize inthe 10-Q that youmention share repurchases should not beexpected at theearliest until after FY09 year as opposed to, I believe itwas FY08 year before. I assume that’sbusiness as usual with how thecompany is structured right now. Would itbe possible to movethat up with say achange inthe way you’reregulated with thebank or removal of thebank or any other scenario? Thank you. Richard C. Breeden: I suppose theeasy answer is anything’s possible. We arelooking in thenext year at, as I mentioned, possible changein theregulatory requirements and I want to emphasize those aredecisions that areexclusively within theprovince of theOTS. We cannot speak for them but itis something that they acknowledge, that the3% requirement was created for aset of risks that will bedramatically different inthe future andtherefore we’re optimistic that we will have agood dialogue with OTS and that itwill lead to arational solution. Soone possibility that will changethe picture iselimination in itsentirety of the 3%holding company tangible rule or modification to reduce itfrom where it istoday. Theother thing that will happen incalendar 2008 is to a, I would say, to avery high degree of likelihood is asset sales. We are inan active marketingprocess for both our servicing business platform and separately MSRs and soour current position is afunction. Our projected position isgoing to be afunction of both operating results and changesin rules and proceedsof asset sales. Scott Schneeberger -H&R Block: Thank you. Real quickif I could sneak one more back inon tax. You mentioned that you areincreasing pricing this year on Tax Cut software bundling. Could you speak alittle bit more to that strategy, how you’re expanding that offering, any colorthere would beappreciated. Thanks somuch.

What we said inguidance is essentially with respect to tax prices, theretail price increases arein therange of 6-8% and that’s really where theguidance we’re getting on top line price increases are. Scott Schneeberger -H&R Block: Specifically on your bundling though, I think you hadmentioned some commentary on increasing pricing there and perhaps abroadening of who you’re approaching as acustomer base. Could you speak alittle bit more on that? Richard C. Breeden: On theTax Cut bundling and thesort of thinking strategically around that and our pricing, we havehistorically been sort of positioned as just as good as Turbo Tax but for lessand I think as we made very significant price improvements over thelast two years we see areal ability to narrow that different, soparticularly retail, on front end pricing we will beat parity to afew dollars less. We’ll still bebelow them on back end pricing but we dosee our products changesenabling us to be amuch closer price to them going forward. Scott Schneeberger -H&R Block: Thank you.

Your next question comes from theline of Sateesh Boulee with Merrill Lynch. Please proceed. Sateesh Boulee - Merrill Lynch: My question was related to theservicing advances that you’re making against very [inaudible] Typically, is thepayment profile that you expect interms of the cashcoming back to you against advances that you aremaking?

Can you repeat thequestion? Itwas very difficult to hear ithere. Sateesh Boulee - Merrill Lynch: Allright. Maybe I’ll try again. I’m lookingfor a bit more detail onthe servicing advancesthat you’re making against delinquent loans. Richard C. Breeden: Oh, I see, okay, thank you. Yes, I understand. Theservicing advances. Just for alittle bit of background, theservicing advances aremonies that we as servicer remit to theowners of the mortgageloans where people aredelinquent. We have first priority,top-of-the-waterfall rights to those assets sothat any proceeds on payoff or on foreclosure or on other settlement to thatasset come to us first. We also have theright not to remit if we feel that we have impairment or could possibly haveimpairment on advances that we might make. So we have...this is considered to bea very goodasset. We expect to getthe asset back. Sateesh Boulee - Merrill Lynch: Thank you.

This concludes theQ&A Session and I’d now like to turn thecall over for closing remarks.

Thank you very much everyone for joining us and if you havefollow up questions, please feel free to call Investor Relations. Thanks again.

This concludes thecall. You may allnow disconnect.