Scott Dudley - Vice President of Communications and Investor Relations Richard Breeden - Chairman of the Board

Kartik Mehta - FTN Midwest Michael Millman - Soleil Securities Vance Edelson - Morgan Stanley Scott Schneeberger - Oppenheimer Andrew Fones - UBS Securities Brian Luster

Good day, ladies and gentlemen, and welcome to the first quarter 2009 H&R Block Incorporated earnings call. (Operator Instructions) I would now like to turn our presentation over to Scott Dudley, Vice President of Communications and Investor Relations. Please proceed.

Thank you, and thank you for joining us this afternoon. Presenting on the call today are Richard Breeden, Chairman of the Board; Russ Smyth, President and Chief Executive Officer; Tim Gokey, President of Retail Tax Services; and Becky Shulman, Senior Vice President and Chief Financial Officer. They will discuss our first quarter results and our outlook for the remainder of the fiscal year. We will then open the call to questions. While you may have some detailed questions on information in our 10-Q filed today, we ask that you address those with us after the call. We're planning our call today to last about an hour. To start, let me provide our Safe Harbor statement. Comments made on this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based upon current information and management's expectations regarding the company, speak only as of the date on which they are made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such forward-looking statements. Such differences could be caused by a number of factors, including risks described from time to time in H&R Block's press releases and forms 10-K, 10-Q, 8-K and other filings with the Securities and Exchange Commission. H&R Block undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or 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. In conjunction with today's call, there is an accompanying slide presentation, which is posted on the Investor Relations section of our website at hrblock.com. In addition, our 10-Q has been filed and our earnings release has been posted to our website. To give as many participants as possible an opportunity to ask a question, we ask that when called upon, you limit your query to one initial question and then one related follow-up question, if needed. When asking your question, please remember to avoid using a headset or a speakerphone as this will cause audio problems. With that, I will now turn the call over to Richard Breeden.

Thank you, Scott. Good afternoon, everyone. I am pleased to be on the call today with our new Chief Executive Officer, Russ Smyth, who joined H&R Block on August 1, just about a month ago. We're delighted to have found someone with Russ' background, his experience, and his personality that together represent a very good fit with H&R Block. As we noted when we announced his appointment as CEO, Russ spent 21 years with McDonald's, one of the world's great consumer brands with over 30,000 retail locations in the United States and across the world. He spent most of his time working internationally, including President of McDonald's Europe, where he was responsible for more than 6,300 restaurants that generated $6.7 billion in revenues or more than a third of McDonald's total. Russ worked with and motivated a large and diverse work force. He also has proven abilities running a significant franchise network. The Board believes that Russ will help H&R Block utilize more effectively the power of its brand in growing our market share and also in improving our efficiencies. During his McDonald's tenure, Russ learned first hand the importance of focusing on a company's core strengths and delivering consistent quality across a large retail network. That's an important need here at H&R Block. Russ's international experience was also a bonus for many reasons particularly that Russ had to use the McDonald's brand in new markets where it wasn't already dominant, but wished to grow significantly. At H&R Block, we are very strong in some market segments, but not nearly as strong as we intend to be in others. Russ' selection reflects the Board's desire to challenge perceived limitations to H&R Block's pace of growth in its core tax business. We will be hearing from Russ in just a minute as we discuss results for the quarter. While welcoming Russ on Board, I'd also like to take just a moment to thank Alan Bennett, who did such an outstanding job as Interim CEO. Alan was the stabilizing force for an organization undergoing significant change, and he provided really excellent leadership and results during his tenure. I have been in his shoes, and I know how difficult the challenges are as an Interim Chief Executive Officer. We are extremely pleased that Alan agreed to join our Board, where he will bring his long experience with financial markets as developed as CFO of Aetna, as well as the knowledge of H&R Block's business and its people gained from eight months at the helm, and we believe that he represents a terrific improvement to our Board. But thanks very much to Alan for all of his effort. The Board and the new leadership team remain focused on repositioning H&R Block for accelerated long-term profitable growth and delivering shareholder value. We have taken some recent steps to further our focus on growing our core tax business, and focusing the overall company effort. Last month, we announced the sale of H&R Block Financial Advisors to Ameriprise in a transaction that we believe is a win-win for everybody. Good for us, good for our tax clients, and good for the Financial Advisors, who will be joining Ameriprise. Our tax clients will continue to enjoy the high quality advice previously provided by our H&R Block Financial Advisors and in the future they will have the opportunity to continue to work with these Financial Advisors. The Securities Brokerage business increasingly demand size and scale, and HRBFA simply did not have the size to be able to compete at the highest levels in the future. This transaction will give HRBFA a parent company with a growing platform, and strong technology, so that they can compete effectively and efficiently. At the same time, the transaction should strongly benefit Block shareholders, as we eliminate what has been a long-term drag on returns, and a source of operating and market risk. When this transaction closes in three to six month, we will complete the initial phase of H&R Block strategically realignment. Earlier today, we announced an agreement to acquire a major Southwest franchise operator. We believe that the Block Texas acquisition is a very good transaction that will enhance our client growth, and our financial return. Block Texas operates a network of 621 tax offices in Texas, Oklahoma and Arkansas. 385 of these offices are owned and operated by Block Texas, while the remaining 236 offices were operated and owned by sub-franchisees. After this transaction, the sub-franchisees locations will become regular H&R Block franchise offices with the direct franchise relationship to H&R Block parent. The Block Texas operated locations will become H&R Block company-operated offices at least initially. Longer-term, we will look hard in opportunities to re-franchise offices in Texas and elsewhere, as part of normal efforts to shift the total proportion of offices in the direction of a greater mix of franchise. Block Texas is a unique opportunity based on the retirement of the key operator of this business, and it removes a current barrier to significant expansion of franchising and the company, and growth in company owned offices in the Texas region. We believe this acquisition brings us two primary benefits. First, it is financially attractive at a purchase price of 5.8 times projected FY‘09 EBITDA, it is immediately accretive. We expected to add approximately $0.05 per share to our earnings in FY'09, and somewhat lower amounts indefinitely in the future. The transaction also represents a strong long-term return on invested capital even before any synergies or incremental growth. It does not affect our ability to repurchase shares in the future, and it is low risk because there is an operation that we know well with minimal integration risks. More importantly, this transaction opens up important growth avenues. The Block Texas markets are growing strongly, and have a significant Latino presence. Our current penetration in the key Block Texas operated metro market, is 20% to 40% lower than in our comparable company operated market. Only Block Texas will give us the ability to open new H&R Block branded offices, and it will create additional Express Tax, Latino and other franchise opportunities. We believe that over the next several years, we will be able to add more than 400 locations in the region, and our goal is to add at least 250,000 new clients over time. So, while our first fiscal quarter is not usually a focal point, because we report a preseason loss every year. We obviously feel good about the many positive steps we have taken, and the momentum we believe we are sustaining, as we prepare ourselves for tax season 2009. With that I would like to turn the call over to Russ.

Thanks, Richard. And thanks all of you, who joined us on the call today to discuss our first quarter results, as well as our outlook for fiscal year 2009. Before I start, I should mention that there are several members of our senior management team here in addition to those of us that are presenting, and they will be available during the Q&A session, and that group include Kathy Barney, who is President of H&R Block Bank, Joan Cohen, who is President of H&R Block Financial Advisors and Jeff Brown our Controller. Obviously this is my first earnings call, and I welcome this opportunity to start a dialogue with our investors and our analysts, and even more importantly, I am looking forward to meeting many of you personally in the coming months ahead. So in a month, it's been fairly busy. As Richard mentioned, we announced the sale of HRBFA as we continue to focus on our core businesses. We appointed a new president of Digital Tax, as we begin to refine our Digital strategy and better coordinate growth opportunities with Retail Tax. This morning, we announced a large acquisition that will contribute positively to earnings and shareholder value immediately, as well as to give us a fair opportunity for growth over the next several years. And we are doing earnings today, and tomorrow is our annual shareholder meeting. So, in between all this activity, I expect the rest of my time getting educated about H&R Block's businesses and meeting with people throughout the organization to get their views on how we can best leverage our strengths and accelerate growth in our core businesses of H&R Block and RSM McGladrey. As I spend time within the organization, to be honest, there has been no real big surprises in terms of the company, the way it operates compared to my initial perceptions coming in. There are clearly some things about H&R Block that I believe are important to our success in the future, and those have been reinforced by what I have learned to date. I believe in both H&R Block and RSM McGladrey. We have brands with great potential that we can better leverage with targeted messaging to our diverse customer segment. We have strong values and ethics, where how you do things is just as important as what you get done. And we have market leadership positions in both our Tax Services and Business Services segments that give us a unique competitive advantage. But most importantly, we truly have the best people in the business. They are clearly our greatest strength. And when it comes to our cash flows in H&R Block, I really believe they are perhaps our best kept secret, but not for long, I promise you that. So, those are just some of the reasons why I am excited about our future as we lead H&R Block back to being a great company again. And just so you understand what I mean by a great company, I think great companies do three things exceptionally well. First, they consistently exceed their clients' expectations. Second, they provide superior returns to shareholders. And third, they create a challenging, yet supportive work environment for employees. And because they do those three things well, they grow. So, as we do those three things better, we will grow faster. We'll grow our client base by improving client satisfaction and retention for existing customers. We'll also attract new customers with market-leading services and products, communicated in a compelling and relevant manner in our advertising. We'll open new locations to meet the increased demand in underserved markets. And we may even acquire businesses that add to both client growth and shareholders returns. And while we are growing, we'll keep a close eye on our cost structure, investing where it's needed to drive growth or quickly eliminating cost that don't improve either customer satisfaction or shareholder value. So, those are the things that we'll be focusing on during my watch here at H&R Block. And that's what you'll see reflected in our future business results. And while it's still early days, I can't tell you, we plan to enhance our marketing efforts this year and to further utilize franchising as a growth driver, particularly in Latino and our expertise market groups. And this year, we're also focused on doing fewer things, but doing each of them better, because at the end of day, great execution will ultimately be the biggest reason for our success. So, now, I'd like to turn to our first quarter. I'd like to give you a brief summary of our overall performance and results from the non-tax continuing operations areas, and then I'll turn it over to Tim Gokey who will recover our results for tax, and then Becky Shulman will review discontinued operations as well as key items from a financial perspective. And then I'll conclude with some comments about our outlook for fiscal year '09, and we will open up for your questions. Now, as you know, this is a time of the year when Tax Services and our RSM McGladrey businesses are really preparing for the upcoming busy season. And in the meantime, we are also managing the residual risk from having been in the mortgage business. Our net loss from continuing operations was $129 million or $0.40 per share compared with the loss of $110 million or $0.34 per share in the prior year. The increase in loss was primarily due to higher loan loss reserves for the bank and operating loss from our Financial Advisors business and a write-down of residual interest and securitizations associated with our former mortgage business, all of which were somewhat offset by improved preseason results from our Tax Services group. We had significant improvement in our quarter one consolidated net loss over the same period last year as there were no additional reserves taken on Option One mortgages, whereas in the quarter a year ago, there was a total of more than $260 million in residual impairments, losses and loan repurchases and losses on the sale of loan. Inclusive of discontinued operation, our net loss for the quarter was $133 million or $0.41 per share compared with the net loss of $303 million or $0.93 per share in the prior year. In Business Services, RSM McGladrey achieved a slight improvement in earnings despite some softness in the overall market. Reported revenues declined 9%, primarily due to reduced leased employee revenues, reflecting the integration of the AmEX TBS acquisition. Employees that have been leased to the AmEX TBS to attest firms have now been transferred to RSM McGladrey to the separate attest practices. So, as a result, we no longer record the revenues and expenses associated with the leasing employees to the attest firms. This change however had no impact on earnings. Given the seasonal nature of tax and accounting businesses, RSM normally reports a loss in the first half of the fiscal year. This segment reported a small pretax loss of $300, 000 in the first quarter, compared to a loss of $2 million, same period last year. And this improvement reflects savings in ongoing operating expenses, and the recent cost reduction efforts that occurred company wide. Our Consumer Financial Services segment, which comprises our bank and financial advisory businesses, continues to be negatively impacted by interest rates and difficult conditions in financial and housing markets. The bank recorded a pretax loss of $14 million, compared with pretax income of $5 million a year ago. The decline in profitability was due to quarterly mortgage loan and related loss provisions totaling $20 million. Although, our delinquency rate during the first quarter was consistent with our previous assumptions, underlying collateral values on the mortgage loan portfolio, continued to decline resulting in additional reserve requirements. We continue to work towards shrinking our mortgage loan portfolio in related assets, which declined by a further $34 million during the quarter as a result of net principle repayments. And Becky will have more to say about the bank's loan portfolio during her remarks. At July 31, we held approximately 520 million of deposits on behalf of H&R Block Financial Advisors clients, a slightly more than 250 million of deposits for our Tax Services clients. The sale agreement with Ameriprise, provides for the bank to continue to have access to HRBFA customer deposits for more than two years after the closing date. At HRBFA, first quarter revenues fell 22%, compared to the prior-year quarter to 68 million. The revenue decline is due to the absence of underwriting activity this year, and a challenging market environment in general. HRBFA reported a pretax loss of 3.6 million, compared with pretax income of 1.4 million a year ago. This entire variance from the prior year is due to the revenue reduction, but was partially mitigated by cost savings initiatives enacted at FA. Now as a result of the recent sale to Ameriprise, FA's results, current and historical, will be reported in discontinued operations beginning in our fiscal second quarter. And with that, let me turn the call over to Tim, for a review of tax services.

Thanks, Russ. Our tax operations reported improved results for this pre-season quarter. Revenues increased 8% over the prior year to 75 million, primarily due to a 16% increase in US retail client served. About seven percentage points of the increase was attributable to onetime Economic Stimulus Act Filers, although these Filers had only a minor revenue impact due to the lower charge of these relatively simple returns. Our client increase also reflects the success of our Second Look product. Our Canadian operations also had a strong quarter, reflected in client growth of 13%, and pricing growth of 5%. The pretax loss in our tax segment of 164 million represents a 5% improvement over the prior year. This is the first time, and nearly a decade that our first quarter loss is less than the prior year, largely due to overall better management of expenses, including our recent cost reduction effort. Although some of this result is due to timing. Our expense control in the first quarter gives us increased confidence in our planned margin increases for the year. As you can imagine, we are deep into planning for the upcoming tax season. We intend to build on the momentum from this past tax season, in which we drove retail client growth and retention through continued product superiority, service quality and the expertise of our tax professionals. Our plans in retail tax will focus in particular on extending their leadership in the important early filer segment, while aggressively pursuing the large opportunity we have amongst expertise filers. In digital tax services, our goal is to build our market share and maintain profitability. The acquisition of Block Texas will add approximately $103 million to FY '09 tax segment revenue and $38 million to pretax profit. Including Block Texas, we now anticipate high single digit revenue growth for the segment, with margins increasing in excess of 200 basis points. We look forward to sharing more details about our plans just prior to the tax season. With that let me turn the call over to Becky Shulman.

Thank you, Tim. I'll start with a discussion of our corporate segment and the banks mortgage loan portfolio, both of which are part of continuing operations, followed by a review of our discontinued operations. I'll also cover balance sheet and other items related to our financial statements. The first quarter pre tax loss in corporate operations was $33 million compared to a loss of $16 million a year ago. The increased loss reflects a $12 million increase in net interest expense, as interest on borrowings incurred to cover losses of our former mortgage operations, we reported in discontinued operations last fiscal year within continuing operations in the current year. The larger loss is also due to a $5 million impairment of residual interest. Although first quarter corporate losses are larger year-over-year, enterprise wide expenses of our continuing operations are $15 million lower in fiscal 2008. We remain on track to fully deliver our previously committed expense saving. The Bank ended the first quarter with more than 4,100 mortgage loans held for investments, representing an aggregate net principal balance of $869 million. In addition, in July 31, the Bank had 246 properties classified as other real estate owned or OREO, totaling $48 million net. Our mortgage loan and OREO portfolio was reduced by $50 million since the fourth quarter, due primarily to net principal payments of approximately $34 million and additional loss reserves taken during the quarter. Primarily as a result of declining collateral values during the first quarter, we increased our loan loss allowance by $15 million and wrote down other real estate by $5 million for aggregate loss provisions of $20 million during the quarter. Our loan loss allowance totaled $47 million at July 31, 5.1% of our total mortgage loan portfolio, up from 4.5% at the end of the fourth quarter. During the quarter, we continued to observe sharply lower property values across the country, in particular certain areas where we have loan concentrations, including California, certain communities in Florida and select states in the Northeast. As a result, we increased our expected weighted average loss severity used to estimate loss reserves on loans less than 60 days past due from approximately 22% at April 30 to approximately 30% at July 31. It's important to note that the original loan-to-value on the Bank's portfolio was approximately 76%. And therefore, our current loss severity assumption implies a nearly 50% decline in property value from the appraised value at origination. At July 31, our mortgage loan 30-plus-day delinquency rate and OREO was a combined 16.9% or $153 million, which is up from 11.7% or $117 million at the end of our fiscal fourth quarter. Within this total, loans delinquent by more than 90 days were $113 million or 12.5% of the portfolio, up from $74 million or 7.4% of the portfolio at the end of the fourth quarter. We continue to actively manage the loan portfolio to minimize losses. In the first quarter, the Bank modified 146 loans, totaling $42 million, of which 72 loans totaling approximately $20 million were previously delinquent. Our loan loss reserve at April 30 assumed an overall delinquency rate during fiscal 2009 of 14% with higher delinquencies early in the year and a declining delinquency rate throughout the year. Actual delinquencies during the first quarter were consistent with our expectations. We believe that we have established an adequate reserve based on current conditions. However, market conditions remain volatile, and future increases in the loan loss reserve may occur, particularly if pressure on the housing market persists. We estimate that 100 basis point increase in our current delinquency rate assumption would result in an additional loan loss provision of approximately $2 million, and a 100 basis point increase in our current loss severity assumption would result in additional loan loss provisions of approximately $1.6 million. Our net loss from discontinued operations of $3 million during the quarter was down significantly from a net loss of $193 million in the prior year. The relatively small loss for the first quarter of this year reflects the continued wind down of our former mortgage operation. There will continue to be a minimal amount of shutdown expenses incurred throughout the year as well as some expenses related to the small long-term staff in place to handle the remaining windup activities. We repurchased just $4 million in mortgage loans in the quarter with respect to rep and warrant-related repurchase obligations, and new claims were consistent with our expectation. Repurchase activity during the quarter did not give rise to recording of additional repurchase reserves. And accordingly, the repurchase reserves remained relatively unchanged from yearend. Residual interest in securitizations from our former mortgage operations declined by $8 million during the quarter, of which $5 million went through the income statement in continuing operations, with the remaining change resulting from cash received and write downs recorded as a direct adjustment of equity. Due to the current mortgage market, the company has decided to retain the residual interest and is reporting all activity related to residual interest from continuing operations. Turning to the balance sheet, at quarter end, our unrestricted cash position decreased to $356 million from $727 million at April 30, primarily due to our off season working capital requirements and dividend payments. Our total outstanding debt of $1 billion was essentially flat compared to the fourth quarter. Net receivables declined to $383 million from more than $550 million at fiscal yearend 2008, reflecting the normal pattern of collections, primarily at RSM McGladrey. We will continue to run our businesses to minimize the capital necessary to deliver the returns and cash flow we require of our operations, while keeping with our historical view that any excess capital should be returned to our shareholders. As we have noted before, our Board has authorized the purchase of $2 billion worth of stock over the next four years. As a reminder, our share repurchase activity will begin before the fourth quarter of this fiscal year. During the first quarter, we issued 2.3 million shares from our treasury for option exercises, the employee stock purchase plan and restricted shares. As a result, the weighted average shares outstanding for the quarter increased to 327.1 million. The effective tax rate from continuing operations for the first quarter was 40%. And throughout this year, we have taken several steps to streamline and strengthen our company, and these efforts have been recognized by external parties. On July 31st, S&P upgraded H&R Block counterparty credit rating to BBB-/A-2 with a positive outlook, reflecting the changes we have made in our overall improved liquidity position. I will now turn the call back over to Russ to conclude with our outlook for the remainder of the year.

Thanks, Becky. As we've said, we announced earlier today the acquisition of Blocks Texas franchise and that transaction is accretive to us this fiscal year. But we are keeping our fiscal 2009 earning guidance at $1.60 to $1.70 per share. Now it's important to keep in mind that this is just the first quarter of the year, and we generate almost all of our earnings for the year in the fiscal fourth quarter. In deciding to leave the guidance unchanged, we also consider the higher loss reserves for the bank that we booked in the first quarter, as well the anticipated earnings contribution from HRBFA, which we originally included in setting our guidance, but now we reported in discontinued operations starting in the second quarter of this year. Overall, we remain very confident in our ability to build on the underlining momentum in our core businesses from last year, and find new ways to aggressively grow our business through improved client satisfaction and retention, new client acquisition and maintaining a lean and mean organization, while we invest wisely in our people and our businesses for future growth. So, with that Scott I will turn it back to you to open up the floor for questions.

Hey, operator, we are ready for questions.

(Operator Instructions) Your first question comes from the line of Kartik Mehta with FTN Midwest. Please proceed. Kartik Mehta - FTN Midwest: Thank you. Richard I wanted to just make sure. I think you made a statement earlier on a conference call that I just wanted to better understand. And I thought you indicated that tax margins would improve more than 200 basis points, and I believe, perhaps if I remember, you said 200 to 300 basis point, and I know it's just a technicality, but I would just wanted to make sure that the things haven't changed and that isn't changing your perception on the margins for business?

Tim, you want to take that one?

Yeah. Absolutely, our expectations continues to be to increase margins in excess of 200 basis point this year, and a little bit in excess of 100 basis points in each of that two years after that. Kartik Mehta - FTN Midwest: So there isn't really a change then from what you said in 4Q '08 to what you are saying today?

That is true. There really isn't a change, actually the acquisition, I believe will be a little bit of an addition to margins, but we are just staying with the plus 200 for now.

And that comment would also be true, not only for the Retail Tax business, but for the RSM McGladrey business as well as for what we promised in the past on cost reductions. All the messages that you've heard before on cost reduction and margin improvements, there is no change from what we have seen so far in the first quarter. Kartik Mehta - FTN Midwest: Perfect. And just one last question for you, Tim. I think you talked a little bit about the Digital Tax business and growing market share for that business, and I am just wondering maybe if you could elaborate a little bit, is that more of a pricing issue that you will price more aggressively compared to TurboTax, or is it marketing, or is it something else that will allow you to gain more market churn in that business?

I think it is a little bit early for us to go into any detail regarding our plans for 2009. I would just suffice it to say that we will be competing very aggressively. We are very excited about our plans of the year, and we will look forward talking more about it in January. Kartik Mehta - FTN Midwest: All right, thank you very much.

Your next question comes from the line of Michael Millman with Soleil Securities. Please proceed. Michael Millman - Soleil Securities: Thank you, and it's actually Soleil Securities. It looks like either Hewitt Jackson and Liberty will have a pre loan product this year and military RAL product this year. And therefore, it looks a lot of bank field, can you talk about what you think that means about your ability to gain share and increase profit in the retail end of the business, tax business?

Yes, absolutely. We expect to be very competitive with Jackson, Hewitt and Liberty this year. Even more so, we expect to be very competitive with the independent preparers who really control the largest part of the market and who do not have any pre-filed product or military products. So I think we feel very good about it. I'd also note that our products the Emerald Advance for the preseason, it is modeled on the FDIC's guidelines for small-dollar lending, and was really held by consumer advocates last year, as a healthy alternative for consumers needing short-term credit. So, we feel good about our product, we feel good about its attractiveness, and we feel very good about our ability to compete aggressively amongst early filers. Michael Millman - Soleil Securities: When you say you expect to be competitive, or aggressively competitive, could you give us some color, you're talking about pricing, you are talking about servicing, are you talking about offering additional products, higher level of loans, a paced up equivalent product? Generally, I am looking for some definition of how you expect to be more competitive.

Mike, I think, all I really feel comfortable saying at this point is that we have always had product superiority and that we intend to maintain that this year. We believe our Bank gives us an ability to tailor products that are a better fit for this segment than others might have. So, we believe we will have the best product in the market and that we will be able to promote it more aggressively than our competitors and that we will do very well. Michael Millman - Soleil Securities: Just a quick on the Digital, where I think you have indicated you expect to be in the free business this year. Do you expect that product to allow you to increase profits this year or expect that to be net expense this year?

We believe that net-net, given the market share, the overall growth, we anticipate that we will be able to maintain our current profit level. So, certainly on investments we were making in that business, we believe that we'll be able to offset that within the business with other areas of growth. Michael Millman - Soleil Securities: Thank you.

Your next questions come from the line of Vance Edelson with Morgan Stanley. Please proceed. Vance Edelson - Morgan Stanley: Hi. Thanks a lot. Could you elaborate on the synergies you can derive from taking on the Texas franchises as a company-owned? Any challenges involved in integrating those franchisees and creating those synergies? Or would you say, it should be a relatively smooth process? Thanks.

Yes, we expect it to be relatively smooth. The Texas franchise is structured very, very similarly to our current company operations. So, on the Texas franchise-owned side, they have a regional and divisional structured very similar to ours. We have worked closely with them over the years. And so, we expect that to be a very smooth transition. In terms of synergies, there are some synergies. We really see there the primary motivation for this deal to be around growth. While the Block Texas operators are very good operators, they have been somewhat constrained in investment in recent years. And we think there are opportunities to invest in that area and also to unleash some new growth tactic that we've been pursuing elsewhere in the country, but haven't pursued there yet. So, we are very excited about the growth opportunity and think it should be a very smooth transition. Vance Edelson - Morgan Stanley: Okay. And there is a quick follow-up. Could you give us an update on where you would say you are in terms of overall cost savings initiatives company-wide as most of the heavy lifting been done at this point?

Yes, it has. So, we announced our targets last year. We are tracking it very closely, and we expect to come in with the margin improvement that we told you to expect. So, so far so good, and we are seeing everything come through. I think a good way to think about it, when you look at our overall corporate expenses, historically you have probably seen those increase about 10% a year. This year, you'll probably see those be up around 1 to 2. And so, remember when we put those out there, we basically said that it would not all fall through to the bottomline because we were going to be doing some reinvestment into the business, and that's exactly what we are seeing happen.

And this is Russ. I just want to add that while the heavy lifting was done and the one-time cost, big cost saving initiative last year, I think that there is an ongoing process of always looking at our cost and finding ways to get more efficient that we need to do on an ongoing basis as part of the way we run the business. And if we do that, we will never have to go through another one-time cost saving initiative again. So, I think that's going to be part of the disciplinary process that we learnt from last year that we've now added to what we do on a day-to-day basis. Vance Edelson - Morgan Stanley: Okay. That's helpful. Thanks.

Your next question comes from line of Scott Schneeberger with Oppenheimer. Please proceed. Scott Schneeberger - Oppenheimer: Thanks very much. Going back to the activity in Texas today, just curious what is the view now on your franchise versus company-owned split? Are you working to significantly alter that mix of about a third franchise, two-thirds company-owned over the coming few years? Just the strategic thoughts there. And then as a follow-up, how many HRB offices do you anticipate having a year from now, three years from now, five years from now? Thanks.

Scott, this is Richard. Let me take a crack from a policy perspective and then let Russ and Tim comment. I mean I think that Texas transaction, first of all, we see it as a one-off opportunity. It was initiated really by the seller, not by us. The person operating, the principal operator there had a desire to retire. So, we see that as a growth story more than a story about reengineering the franchise network. Now, the reason we see it as a growth strategy and a growth opportunity is in part because of the fact that instead of having an exclusive franchisee with a large three state territory, we are now going to have that territory and we can flood it, with Latino franchises, Express Tax franchises, as well as a normal Block rounded franchises for company owned stores. So, it's simply in the nature of removing somebody with an exclusive territory, it gives us an opportunity to redesign that territory if you will. And I think, the management has indicated an intent to utilize products. We are utilizing other places in the country in that region to a greater degree than they have been doing. So, we see that as adding to growth numbers in that region, as well as I indicated, it's financially attractive transaction on its own merits. More broadly, I think there is a policy desire to look hard at franchising, as one member of the Board only, speaking only for myself personally, I would like to see us move to a 50/50 split of franchise and company owned locations, and once we get there, then look and see how we like that and consider where we go in the future. And I don't know, and I don't think any of us know whether that's a, three year project or a five year project, a ten year project or never get their project. We are going to look hard at franchising. Now what we know is that some of the new growth in Express Tax and Latino are going to be essentially a 100% franchisee. And so, to the extent those non-Block branded parts of the business grow, it will out of necessity dilute the -- increased the overall company wide percentage of total franchisees. I think we would be beyond our limits to wisely predict, let alone our ability to do it, to try and give you a store account breakdown of what things are going to look like two or three years from now. But we all recognize, the financial benefits of franchising, the fact that franchises know their communities traditionally, have entrepreneurial spirit, and lots and lots of good advantages from franchises and at the same time, we generate very significant earnings from a good network of company owned locations, and we are not going to trying our back on that. So, there is a balancing exercise that goes on here, and over time and I think the Board is very interested and as I indicated the oust set, it was one of the reasons, one of the things that was an element in Russ's selection, but one of many things that franchising is an opportunity for us to continue to grow market share and grow financial returns. But we see that is a long-term opportunity, not a overnight kind of change.

: And I think, based on what we learnt in our success down there, that's going to help us answer the bigger strategic question of what the overall mix would look like in three, five, seven, ten years from now. So, this acquisition is really an opportunity to kind of put some fuel on the fire in the franchising question and get some better answers around that, so we can set a better long-term strategic direction for ourselves. And then Tim I'll turn it over to you, if you could answer the question about the number of openings by one. : And I think, based on what we learnt in our success down there, that's going to help us answer the bigger strategic question of what the overall mix would look like in three, five, seven, ten years from now. So, this acquisition is really an opportunity to kind of put some fuel on the fire in the franchising question and get some better answers around that, so we can set a better long-term strategic direction for ourselves. And then Tim I'll turn it over to you, if you could answer the question about the number of openings by one.

Yes, absolutely. So our openings this year will be rather modest. We are doing this acquisition late in the year, so we will do some, but not a huge number this year. I'd expect to see on the order of 75 to 100 in each of the next 5 years. I mentioned an overall goal of around 400 over that timeframe, and obviously we need to build a pipeline of people that will be franchisees in these areas, so that will be one of the factors that will go into our phase of openings in that territory. Scott Schneeberger - Oppenheimer: Great thanks. I'll tell you that's a really informative answer from all of you. I appreciate that. I guess, Tim, following up on your part, a goal of roughly 400 new over the coming, call it 5 years. You had also mentioned before, to potentially [culling] 300 underperforming company on stores over the next three years. So, is that 400 number a gross or a net number?

That 400 is a gross number that refers to the territories that Block Texas has only, it's not a national number. The other part was really more of a national project to make sure that we are getting the best out of every office. Scott Schneeberger - Oppenheimer: Okay thanks. That's helpful. I appreciate that. And one more if I can sneak it in. I guess for Russ or Richard, any update on your strategic thoughts on, we just saw your disposition financial advisors. Any update you care to provide on what you view as core/non core businesses going forward? Thanks.

Well, I think we have tried our annual report, try to lay out pretty clearly that the two core businesses, we see ourselves having are the tax business and business services through McGladrey. And of course, McGladrey is when we call at a separate segment, and it's not entirely divorced from tax, since McGladrey does about $400 million-plus of tax services every year. So, it is an area where, as we think about growing the Retail Tax business in what we call the expertise segment, the higher income individuals and more complex tax returns, McGladrey is actually one of the leading providers of services to exactly that marketplace. So, we see these as strategically related activities, and clearly, the two core businesses we will be pursuing going forward. Now, I don't mention the Bank in describing that. Number one, we don't see the Bank as a core independent area of business. That doesn't mean the Bank will be disposed off. I think we see the repositioned Bank as really a factory for creating products that will be used in support of the tax business. So, I personally think of the Bank as if it is part of the tax business, though, of course, legally it is an independent institution with its own Board. But it is the provider of the Emerald Cards, the Emerald lines of credit, all the things we've been talking about and rolling out over the last couple of years that are used every single day in every one of our tax offices. So, intellectually, I consider that part and parcel of the tax business rather than a free standing independent banking business uncorrelated to our tax business. Scott Schneeberger - Oppenheimer: Great. Thanks so much for all the color.

Your next question comes from the line of Andrew Fones with UBS Securities. Please proceed. Andrew Fones - UBS Securities: Yes. Thanks. To the extent you're able to give us any color, I was hoping you could help us understand how you plan to attack the complex CPI higher-end tax market, if you could. Thanks.

I am sorry. Andrew, can you repeat that one? You were cutting in and out on this side. Andrew Fones - UBS Securities: Okay. I'm sorry. Yes, to the extent you could, could you help us understand how you plan to attack the complex CPI tax market? Thanks.

Actually, Andrew, this is Tim. I think there are really two aspects to this. The biggest is just further growth within our core Block brand. We actually grew fastest amongst expertise filers last year. As Russ mentioned, our tax [sessionals] have an incredible amount of expertise that is not well-known at this point. A typical client is seen by tax professional with over eight years of experience, and as we expose clients and prospects to the expertise that our tax professionals have, they are surprised and our consideration amongst expertise filers goes up significantly. So, we think that just doing more with basically our current business model under the Block brand is a big opportunity for us in expertise. Beyond that, we have alternative value propositions that we are testing with a number of different small businesses that we think could be interesting new business models for us, probably franchised, and we think that could be an additional area of growth for us over time. We don't have any of those perfected far enough long at this stage to be in a sort of a full rollout of them, but we are [inaudible] getting promising initial results. Andrew Fones - UBS Securities: Thanks. That was helpful. And then just as a kind of a follow-up to your answer there as well, you've kind of given us a good understanding of where you are earmarking most of your cash flow and the use of that with the share buyback. But in terms of what could be spent on acquisitions, do you have anything budgeted there, what is you appetite, and is there anything you are kind of looking at currently?

This is Richard. We are focused and the Board deliberated at some length, Andrew, on before we announced the long-term buy back target. And we could have picked a shorter-term target and then changed it as we went along. We thought that the market would benefit from having some visibility into what the Board saw as a really prominent opportunity to return cash to shareholders. And certainly, at the time, we were deliberating it. And even today, we would revise the share price as a very attractive use of our capital. So, we tried to put a long-term target out there with the understanding that we really meant it and that that is a view of the Board of a very desirable use of our capital. Now, we have said at various times in the annual report and other places that notwithstanding our interest and our belief that the share repurchases offer us compelling long-term value that we are not going to be afraid to reinvest in the business. And we've tried to speak with equal emphasis that building market share and increasing the total number of clients is a major priority for the company. We think it is a realistic and attainable opportunity to grow our market share consistently over time and to do so at a somewhat more rapid pace than we have done in the past. As a number of the initiatives we've talking about come online here. So we would look at acquisition opportunities in an opportunistic way as we did at Block Texas, something that we didn't have on the radar screen came along. We evaluated it, decided, it was really a great opportunity and good value for the shareholders, and so we moved on it. It happened that the purchase price was little less than the sales proceeds, we are going to be receiving from FA, but that wasn't critical. We would have done the blue transaction even if we hadn't had the FA sale, I believe. So I think you will see us willing to look at areas in which we can expand market share and historically there have been acquisitions in McGladrey of other local accounting firms across the country. I see no reason to expect that that activity will cease. And so, but we are going to, at the same time, I think we have an extremely disciplined approach to doing only acquisitions that are going to build those core businesses, and do so in a financially attractive way and offer us both attractive returns on capital and opportunities to grow market share. Andrew Fones - UBS Securities: Thanks. That was really helpful.

Your follow up question comes from the line of Michael Millman with Soleil Securities. Please proceed. Michael Millman - Soleil Securities: Thank you. I could, I guess, two questions. One, when you compare the profitability on expertise clients with those on the Bank product buying clients? And secondly regarding growth in franchisees, do you expect that you have to subsidize franchisees just like some of our competitors have to do currently, and to what extent you expect to do that? And regarding Latino, can you talk about what kind of subsidies you might get from of the government for having Latino franchisees?

Michael this is Tim. Let me just see if I can take those in order. First of all with respect to comparing the profitability of Expertise clients versus early filers, we really don't see a lot of difference. The components of that are, Expertise filers tend to have larger more complex tax returns. Some of the early filers might have some what simpler tax returns, but then some products revenue is associated with it, and when you add all of that up, they are not really material differences between the two segments. With respect to franchise growth, and the need to potentially subsidize new franchisees, I think, we spend a lot of time thinking about our Express Tax model and how we would have a model that is differentiated for prospective franchisees from those of our main competitors, and one of the difference between us and them is that we are a tax company not a franchise sales company. And so, while our key competitors have significant upfront fees to become a franchisee, and then lower ongoing royalties, our Express Tax franchise is a structure with a much smaller upfront fee and then little bit higher royalties over time. So, we think that it will makes a lot easier for people to get into the business with us, and obliviously we believe that when they do that, they don't have access to our superior products and other things that are benefits of being part of the H&R Block family.

And Michael while, I'll let Tim take a break before he answers the Latino piece, because this is where our savings spend some time in the franchise business. What I can tell you is, anytime somebody is subsidizing a franchisee, is because the underlying unit economics of the business are weak. Okay, and so when you guys see that you want to recognize that there is something broken with the economic model, and that is not the case with H&R Block.

And then this is going to be a short answer on Latino. We are at this point, as we model this out and think about the opportunity, we are not anticipating any government subsidies related to that, generally to the extent we were able to obtain those that would be interesting to us.

But Tim you already mention the role we play as it is, not fully Latino and deliver any IPC and other benefits and that certainly is something we expect over time.

What Richard just commenting on is, certainly the earned income tax credit, which is an important benefit from government is, and important part of our business and many parts of the early filer statement including Latino filers. We currently help those who receive almost 25% of earned income tax credit in US to-date, and as we experience more success with Latinos and other early filers, that would increase. Michael Millman - Soleil Securities: Thank you. I appreciate it.

Your next question comes from the line of Brian Luster. Please proceed.

Yes. Just for some clarity on the HRB Houston acquisition, was the $140 million in revenues, net of, incorporate a 6% royalty, or does that 6% royalty come off of that 140?

That 140 with system revenues, well that is the revenues that their network receives from clients, irrespective of any payments to us.

Okay, so they will then reduce, they will then pay you on top of that, or out of that 140?

They did pay us out of that 140 previously. Yes.

And what is the royalty that they were receiving from their sub-franchises?

They were receiving 30%.

So they were receiving 30%, and you all receiving 6?

That's correct.

Great, thank you.

There are no more questions in queue at this time. I would like to turn the call over to Mr. Scott Dudley for closing remark.

Great. Well, thank you all for joining us. And if you have any additional follow-up questions, please give us a call in investor relations. Thank you.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.