H & R Block Inc (HRB) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the third quarter 2007 H&R Block Incorporated earnings conference call.

My name is Tim, and I will be your operator for today.

At this time, all participates are in a listen-only mode.

We will conduct a question and answer session towards the end of this conference. [OPERATOR INSTRUCTIONS]

I would now like the turn the call over to Mr. Scott Dudley, AVP of Investor Relations.

Please proceed.

Thank you.

Good afternoon, and we appreciate you joining us to discuss our fiscal 2007 third quarter results.

Let me just mention at the outset here that we are having a little bit of technical difficulty with the slide portion of our webcast today.

We hope to get that resolved as we progress through the call.

On the call today are Mark Ernst, Chairman, President and CEO, and Bill Trubeck, Executive Vice President and Chief Financial Officer.

They will comment on our results, and then we will open up the call to your questions.

Tim Gokey, President of Retail Tax Services, and Tom Allanson, our President of Tax Solutions, will also be available during the question and answer portion of the call.

To start let me provide our Safe Harbor statement.

Various comments we make include certain estimates, projections, and other forward-looking statements.

The words will, plan, estimate, approximate, project, intend, remain, expect, believes, and variations thereof, and similar expressions, are intended to identify forward-looking statements.

These statements speak only as of the date on which they are made, and are not guarantees of future performance.

Actual results may differ materially from those expressed, implied or forecast in the forward-looking statements.

Some of the factors that could cause actual results to differ are included in the Safe Harbor statement contained in today's earnings press release, and in the slide presentation that accompanies this webcast.

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 addition to the slide presentation posted to our website at www.hrblock.com, a copy of our prepared remarks will be posted to our website shortly after the conclusion of this call.

With that, I will turn the call over to Mark Ernst.

Thank you, Scott.

At the outset I want to take a moment to thank the associates throughout our organization, including the tens of thousands of tax professionals hard at work in the midst of a busy tax season.

I want to thank you for your dedication and committment to serving clients and ultimately delivering value for investors.

Our people have been working extremely hard since late November, and we sincerely appreciate your efforts during this critical time of the year.

I am going to begin with an update on the current tax season, and on the mortgage disposition process, and an overview of the quarter, followed by a more detailed discussion of each of the segments.

Bill Trubeck will follow with a review of items related to our financial reporting and our financial position.

Let me start by providing some insight into early industry filing trends followed by our specific results.

There was a clearly slower start to the tax filing season overall, as indicated by total industry filing numbers.

The somewhat slower start has mostly resolved itself through mid-February, though there appears to be a bit of residual slowness.

The proportion of consumers choosing paid professional preparation versus a do-it-yourself method, appears to be tracking very close to the level that we saw last year.

Within the do-it-yourself market we are once again seeing a move towards digital solutions displacing paper and pencil methods.

Within the digital category, growth thus far appears to be all online with industry software sales flat to perhaps down slightly.

Against this backdrop, we are very pleased with our results thus far.

This tax season clients came into H&R Block tax offices early and in larger numbers.

Digital clients are growing substantially.

Through the fiscal third quarter ended January 31, retail clients served is up 14.2% over a year ago.

This year including the retail clients served our IMAL clients, our early season loan product who have yet to return for tax preparation.

Because of the delay between the time a client takes an IMAL, and when they return to have their taxes prepared, we have a slightly different way that we are reporting clients serve this had year, and the January 31st cut off for the end of our fiscal quarter caused some of this difference.

Looking at our results through February 15th, we have seen that over 90% of IMAL clients have returned as tax clients.

We realize that for comparison purposes, it is helpful to see the client numbers normalized for the impact that IMAL clients are having on these reported numbers.

Our analysis suggests that about 95% of IMAL clients will ultimately return as a tax client, and our reported normalized client growth numbers reflect this adjustment for the timing of when we would expect to finally serve IMAL clients.

So we have shown for the quarter and the interim period through February 15th a normalized client growth number for retail operations.

With this adjustment retail clients were up a solid 6.8% for the third quarter.

Year-to-date through February 15th, we increased total clients served by 5.9% including retail clients served growth of 1.9%.

When normalized, this overall and retail growth is 5.6% and 1.4% respectively.

I think that this is reflective of the success that we are experiencing, due to our product innovation and solid operational execution.

As we will describe in more detail early season loan products and Emerald cards were very popular, and contributed to early season success.

This combined with digital strong gains has us feeling good about the start of the season.

I will provide more color on the operating environment and results within our mortgage operations later, but first let me comment on the separation process that we announced last November.

Our process is progressing in-line with the plans that we discussed at our Investor Conference last month.

After reviewing and considering initial expressions of interest, working with our advisor Goldman Sachs, we are in the midst of due diligence reviews with the most attractive parties, and we are not surprised so many potential investors have recognized the quality of the Option One management team, and the quality and operational efficiencies of our origination and servicing platforms.

While it is imprudent to comment specifically on the final outcome, we remain pleased by the quality and sophistication of buyers interested in the business.

As we have said, we expect to know the outcome of this process by the end of March.

We remain pleased with how this process is progressing.

Given the substantial progress that we have made in the process to separate the mortgage business, we are now reporting mortgage operations as held for sale and discontinued operations.

This will impact a number of items related to financial reporting in our comparable results.

Bill Trubeck will review those impacts to our financials later in the call.

Turning to our results from continuing operations for the third quarter, total revenues for the quarter grew to $955 million, or 11% increase over the prior year period.

Net income from continuing operations was $25 million, which would compare to prior year income of $13 million, excluding the $43 million after-tax impact of a Rowe settlement last year.

The current quarter also included approximately $13 million in tax benefits related to investments in certain foreign subsidiaries, and routine adjustments of tax reserves and accruals.

The strong start to our tax season has had a positive impact on the Consumer Financial Services segment as well.

As you might recall, just over two weeks ago we announced that H&R Block Bank reached its goal of opening 1 million bank accounts, nearly three months earlier than expected.

The H&R Block Emerald prepaid Mastercard continues to be very popular.

I am happy to report that we are approaching 2 million accounts.

As we discussed at our Investor Conference last month, about half of the card economics, that is ATM fees, floats, and interchange go to the H&R Block Bank, while some of the card programs start-up costs are allocated to tax services.

As we discussed, tax services will see a slight negative impact to margin in fiscal year '07 as a result of this split in costs and benefits.

As we mentioned last quarter, we are disposing of some of the non-core operations at business services.

While growth in the core business is proceeding well, the drag in the non-core operations yielded essentially flat earnings results.

With that introduction, let me discuss the segment results more specifically.

For the quarter Tax Services, which includes U.S. retail, international, and digital tax services, along with refund settlement products, posted a 15% year-over-year increase in revenues over the same quarter last year.

Pretax earnings were $59 million.

Along with strong client growth, and an 8% increase in net average charge, revenues and earnings reflect the impact of our new agreement with HSBC.

Third-quarter earnings also include the incremental costs associated with higher tax professional labor, operational readiness for opening early, the early season loan, and Emerald card product offerings, office ,expansion and increased marketing.

Adjusted for the Rowe litigation of $72 million, last year's comparable earnings were $65 million.

While we are pleased with the results thus far there is a great deal of the filing season left, and our organizations are focused on winning in the entire season, not just the early season.

The tax filing season again started out slower than most people in the industry expected.

Our analysis suggests that tax filings, tax return filings for the industry were down slightly from a year ago at January 31st.

Given this context we are quite pleased with the level of success that we have had thus far this season.

The impact of late December tax law changes impacted the IRS' ability to process certain returns after February 2nd, until after February 2nd.

The effect of these so-called tax extenders, along with issuance of updated 1099s by brokerage firms, will likely have some impact on the mid- to later part of the tax filing season, by pushing clients from January and February into later months.

With the introduction of early season products by our competitors last year, and our competitive response with a superior product this year, the pattern of the tax season is a little hard to assess.

We are seeing that this season, or at least its peak has shifted a little later, though we have been observing this sort of broad industry patted for slightly later filing for a number of years.

This year our offices were open and ready earlier than at any time in our Company's history.

In addition to the obvious impact this had on serving clients with early seen IMAL loans, we also experienced virtually no operational problems, and are seeing improved retention of traditionally early filing clients.

Our early season loan product proved to be very popular, both with our clients and our tax professionals.

During the quarter we facilitated over 1 million IMALs with an overwhelming majority of these clients returning for tax preparation through the February 15th period.

Our industry leading rate of a 36% APR when taken on the H&R Block Emerald card, clearly gave us a competitive product that our tax professionals could proudly stand behind.

Nearly 40% of our new bank clients did not previously have a checking or savings account.

Through February 15th, we estimate that we have saved our clients more than $43 million in check-cashing fees.

We have enabled many of our clients to enter mainstream banking through direct payroll deposit for continued savings.

We have accepted over $44 million in payroll and other deposits, and have helped over 60,000 clients begin on a path towards savings, by providing our IRA and savings accounts so far this tax season.

Improving client convenience continues to be an important part of our overall strategy, and added to the success we have had so far this year.

We opened about 330 new offices, bringing total locations to nearly 12,800.

The tenuring of our offices continues to meet our expectations.

So far this season net average tax preparation and related fees per client rose 7.3% for company-owned and franchise operations combined.

These increases continue to be in-line with our expectations given the mix of our clients served to date.

We would clearly expect this pace of price increase to moderate as the season progresses.

Our digital tax business with its full line of TaxCut software and online products, continued to build on the success it achieved last season.

Importantly, this growth is not coming at the expense of our retail client growth.

Our analysis suggests that nearly 6% of paper and pencil filers within the do-it-yourself segment migrated to digital tax prep solutions this year.

At the same time, we in the industry are seeing a continued shift from software to online within the digital space.

Our digital products hit the market in late November and will be used by our clients throughout the filing season.

This year digital revenues have benefited from a modest price increase.

At the same time, we have maintained a competitive pricing differential versus the market leader, even while we have added value and simplified the consumer's decision process, by offering premium federal based products across the board.

With nearly 1.3 million digital clients served through January 31st, representing growth of almost 11% compared to last year, it is clear that we are capturing market share.

We continue to gain share during the interim period from February 1st through February 15th, as we increased digital clients served by 39%.

Year-to-date through February 15th, our digital client growth stands at an impressive 22%.

While there is a great deal of the filing season left for the digital business as well, we are obviously very pleased with the start that we have in this business.

Our international tax operations generated revenue in the quarter of $14 million, a 3% increase over last year driven mainly by Australian operations, and recorded a pretax loss of $7 million, essentially flat with last year.

Mean while the Canadian tax season launched recently and early season results are in-line with our expectations.

Turning to Consumer Financial Services, revenue from continuing operations were up substantially to $108 million for the quarter.

Much of the growth reflects the addition of H&R Block Bank last May, as the prior year didn't have benefit of those revenues.

The segment delivered another quarter of improved performance, with pretax earnings from continuing operations of $11 million, a swing to profitability versus last year's pre-tax loss from continuing operations of $8 million.

As a reminder, the results for both periods include $9 million of intangible amortization for H&R Block Financial Advisors.

Our bank benefited from the strong demand for the H&R Block Emerald prepaid Mastercard with close to 2 million accounts open since offering the accounts starting in late November, we've already achieved a level that's almost double our original goal.

Importantly, this success represents significant opportunity for client retention for next year.

We believe that the way that we are able to serve clients, meets real unmet needs of clients, enhances the value that we bring to this segment of the market in our overall relationship, does so in a manner that sets a new standard for making a real difference in the financial lives of our clients, and will be rewarding for our shareholders.

With the Emerald card account deposits H&R Block Bank continues to build its asset base.

During the quarter we realized an annualized net interest margin of 2.52%, with an efficiency ratio of 36%, and earned an annualized pretax return on average assets of 2.63%.

At January 31 mortgage loans held for investment were nearly $1.1 billion, and consisted of prime quality loans.

H&R Block Financial Advisors utilized the bank to hold $756 million in FDIC insured deposits on behalf of certain customers.

We ended the quarter with $710 million of Emerald account deposits, which is we primarily invested in over night funds.

Due to the shorter term nature of these deposits, we expect the asset base of the bank to normalize to a lower level during the fourth quarter.

H&R Block Financial Advisors solid results this quarter were helped by a boost in sales of closed-end funds, related to increased participation in fund underwritings.

While these sales volumes may not be reached each quarter, the results in the third quarter are indicative that this business is doing the right things on its path to profitability and strategic alignment.

Performance improvements were also driven by productivity increases from our Financial Advisors, with an increase of 18% over the same quarter last year.

The number of Advisors was essentially flat quarter-over-quarter.

Retention rates for recent classes of highly productive advisors are up this quarter, indicating that our recruiting efforts in a challenging market are resulting in financial advisors who have a good fit with H&R Block Financial Advisors.

While transactional revenues have been declining in past quarters, they were strong this quarter due to the strong closed-end fund sales I mentioned.

Annuitized revenues continued their steady growth with improved performance compared to the prior quarter and the prior year.

At quarter end we had $32.6 billion in assets under administration.

This is up 60 million from the prior quarter, and up 1.2 billion compared to the same quarter a year ago.

With the 2007 tax season in full swing, we are again emphasizing ways to strengthen the relationship between our financial advisors and our tax professionals.

We have focused on this initiative for several seasons.

For this season we have nearly 8,000 tax professionals enrolled in our Preferred Partner program, that leverages tax professionals effectiveness in identifying and referring tax clients to our financial advisors, especially those who serve in the expertise segment.

Fiscal year-to-date we have opened about 7,400 new funded accounts from tax clients, adding assets of nearly $460 million, and generating $7 million in revenues from these accounts.

Third quarter revenues for business services declined 8% compared with the same quarter last year to $216 million, and the reported pretax loss of $1 million was essentially flat to last year.

The decline in revenues was related primarily to year-over-year changes in the organizational structure between the American Express tax and business services businesses, which we acquired and the test firm that also serve our clients.

Revenue growth rates in our legacy core service offerings of accounting, tax consulting, and in the wealth management business, continued to be strong exceeding 10% this quarter over the same quarter last year.

Moving into this segment's busiest quarter we have scaled up our staffing to accommodate the anticipated increase in demand.

We are in the process of disposing of and restructuring several of our smaller non-accounting businesses, which will position us well for fiscal 2008 and beyond.

However our overall results, both in the quarter and for the year are impacted by the drag that these strategic actions create.

During the quarter, we have incurred incremental expenses for our continuing investments in our brand building campaign for RSM McGladrey.

As the golf season begins and our PGA sponsorship is rolled out, we look forward to increased of RSM McGladrey, as the nation's leading provider of accounting and business services to the middle market.

While we are now reporting our mortgage operations as discontinued, I feel that it is important that we share our perspective on the market and how Option One is performing in this environment.

This is importantly why we have set both strong interest in this Company, and confidence in our separation process.

Overall, our business is performing well in a very challenging environment.

Our level of loan origination has remained strong at $6 billion this quarter, and have been strengthened in January and in February.

As weaker competitors have struggled or left the market, we are seeing strong demand for loans from solid businesses such as Option One.

I would note that this strength in volume is occurring after substantial changes that we made in our underwriting, to address the challenging credit environment.

Our underwriting changes affected about 25% of our previous production, and yet our overall production levels have remained healthy and recently growing.

We are taking advantage of the industry turmoil to selectively add to our sales organization.

We identified the issues of early payment default and the impact this had on loan originators back in the summer of 2006.

We took action then to address this issue through underwriting changes, broker segmentation, loan servicing actions, and our repurchase reserving.

The effect of those actions is beginning to be seen.

In January, we experienced a notable decline in the incidence of early payment defaults, and that trend is further improving in February.

As the early payment default issue has been recognized throughout the industry, the volume of problem loans in the secondary market has been growing rapidly.

Against this backdrop, we have moved aggressively to dispose of loan that fit this description, believing that the pricing environment for troubled loans will be under pressure for a while.

Consistent with this belief, we sold nearly $670 million of loans in the third quarter to truncate our exposure.

This led to additional reserves that we have taken for prior production of nearly $93 million in the quarter.

Further, we have increased the reserve levels that we are carrying on remaining loans, and potential repurchases be nearly 50% on a relative basis, to account for the weaker secondary market pricing for these loans.

All of this is consistent with our operating philosophy of running the business for long-term success, and minimizing our market exposure.

While market pricing for traditional loan origination has weakened a bit, our efforts to lower our cost of origination have us moving distinctly towards our objective of industry-leading low cost operations.

Included in the quarter's, current quarter's results is about $13 million of restructuring costs, associated with our ongoing cost reduction efforts.

Despite weak secondary market pricing and continued high reserve requirements for early payment defaults on new loans, we believe that Option One is now positioned to operate profitably even in this very challenging environment, and is positioned as a strong and getting stronger competitor for the long-term.

This is a view that we believe is shared by the people exploring an acquisition of the business, and is why the separation process has continued to go well, despite such negative news about the industry.

Before turning to the outlook, I will now ask Bill Trubeck to address our financial reporting, the balance sheet, and other financial highlights.

As Mark mentioned at the outset of the call, we are now reporting our mortgage businesses, assets and liabilities, as held for sale, and the related results of operations as discontinued operations.

For the third quarter, we recorded a loss from discontinued operations of 70 million, net of tax, or a loss of $0.22 per share.

This included an approximate $111 million increase in loan loss reserves, 93 million of which relates to loans originated in previous quarters, as we disposed of the bulk of our troubled loans.

For financial reporting, we are required to present the loss for discontinued operations separately below the line.

The operating results and other businesses of H&R Block are presented as continuing operations.

For consistency purposes, all prior periods of the income statement, balance sheet and cash flow statements, have been reclassified to separate the results of discontinued operations.

I should also note that the results associated with our discontinued operations, could be subject to some refinement as we work to complete our 10-Q filing.

As you can imagine, many of the staff at Option One have been actively involved in handling information requests, and meetings with prospective buyers.

At the same time, they have been working to close our books.

As a result, final sign-off from our auditors may take several days.

However, we do expect to file our form 10-Q by the March 12th deadline.

A more complete discussion of our discontinued operations will be presented in our filings.

As we discussed during our Investor Conference in New York City we expect to have substantial funds available for share repurchase from the anticipated sale of our mortgage business, and we continued to believe that the amount will be about $700 million.

The ultimate use of these funds would of course also be subject to the approval of our Board of Directors.

The major fluctuations with respect to the balance sheet this quarter are primarily due to seasonality within the tax-related businesses, and the Company's purchase of participation interest in refund anticipation loans.

As such, receivables are up considerably to 2.4 billion, compared to 482 million At April 30, 2006.

Short term borrowings were 2.9 billion at the end of the third quarter, compared with 1 billion at the end of last quarter.

Our cash position was 1.1 billion, up 405 million over fiscal year end, and this reflects 677 million on the H&R Block Bank's books, mostly related to the Emerald card product, and a reduction in cash held at corporate.

Mortgage loans held for investment increased to 1.1 billion, further reflecting further growth of H&R Block Bank.

There were no share repurchases in the third quarter, so the remaining Board authorization is unchanged at 22.4 million shares, and we issued 1 million shares from our Treasury shares for option exercises, the employee stock purchase plans and restricted shares.

The current portion of long-term debt on our January 31 balance sheet includes 500 million, representing senior notes due in April 2007, which we plan to refinance.

Regarding our debt ratings, I would note that Moody's, S&P, Fitch, and DBRS have recently published on the Company, and our debt ratings are unchanged.

Income taxes for continuing operations included one-time benefits of approximately $13 million in the quarter, relating to our investment in a foreign subsidiary, and a net favorable impact of routine adjustments of tax reserves and accruals.

Excluding these one-time benefits, our tax rates for continuing operations would have been about 40%.

Our expectations for the full year is that our effective tax rate for continuing operations, including these one-time benefits, will be about 39%.

As you may recall, we are required to adopt a new accounting principle, FIN 48, related to accounting for income taxes beginning in fiscal '08.

Implementation efforts are ongoing, and we are beginning the process of determining the full effect of the standards that adoption will have on our financial statements.

With that I will turn the call back to Mark, for our outlook and conclusion.

Thanks, Bill.

Let me briefly comment on our outlook for the remainder of the tax season and our fiscal year.

While we are pleased with our early tax season results, the season is far from over.

Our efforts are focused on executing well during the second half of the season, to deliver continued retail and overall client growth, achieve solid pricing growth, and build further traction in the digital business.

The results we have achieved thus far are consistent with the start of the season that we expected in our full year outlook.

We expect our Consumer Financial Services segment to continue to operate profitably, as the bank continues to grow, and Financial Advisors makes further progress against it's business plan.

Within Business Services, we continue to expect improvement to core accounting and tax services revenues, and earnings as it reaches its seasonal peak.

As we continue to streamline our operations through the disposition of certain business lines within Business Services, we anticipate that approximately $0.05 per share of the reported $0.71 year-to-date loss per share, will move to discontinued operation in the fourth quarter.

Inclusive of this fact and given our results to date in fiscal 2007, we now expect our full year earnings from continuing operations to range from $1.15 to $1.25 per share.

With that, I think operator, we are ready to open up the line for questions.

Your first question is from the line of Kelly Flynn from UBS.

Please proceed.

A couple questions on the mortgage sale profits.

First of all, do you have any formal offers in?

We have not opened up the process for formal offers yet.

Okay.

With that said, Bill, you made the comment that you are still expecting that you'll be able to buy it back 700 million as a result of the proceeds that you get from the mortgage sale.

Am I correct that that's still assumes you'll sell it for about 1.3 billion?

That's correct.

Okay.

That is the assumption that drives that number, but obviously it could be more.

Okay.

And so none of the negative issues that have gone on in the market recently, have changed your prospective on what you can sell it for?

I would tell you, Kelly, we do not believe that they do, that the things that we have been seeing occurring in the industry,, and the noise in the industry we think is reflective of in fact the things that we identified and have been acting against since last summer.

We don't hear new issues in the market that are unusual, and we think that we are six months or further into resolving those issues, and addressing our operating model in a way that reflects this current new reality, and I think in many ways, that gives us confidence that the strength of this platform is really very valuable.

Okay.

Great.

And I appreciate you broke out balance sheet items for discontinued operations, and it looks like the implied equity book value is 1.3 billion, based on what you put on the balance sheet.

I think if you do the math it is like 1.344, something like that.

So I know there has been a lot of talk about this.

Can you help us understand what the difference between that is, and the 700 million number that you said is in the book that you distributed to sellers?

It is my understanding there is an intercompany note.

Can you explain that and also speak to what's the asset offset to that?

Yes.

Essentially, Kelly, let me try this.

Bill and I talked and talked about what's the best way to describe this.

I will try my version.

That is that essentially we have capital levels that we target for all of our different businesses.

We retain enough capital within the overall consolidated entity, to support all of our different businesses with what we believe is the appropriate level of capital.

However, some of our businesses, while they need capital they don't need the cash that comes along with that, so we redeploy that cash into the mortgage company, in lieu of other borrowings, and so that's why you can have a larger book value and less equity per se in the business ultimately that could come out, because we'll retain some of that equity for other aspects of our Company.

Okay.

So if you sell it, the book value that the buyer will be looking at, you think will be 700 million?

Well, I think the better way to describe it is the asset value the buyer will be looking at is $1.3 billion.

How they finance that, those assets is really up to them.

Okay.

Aren't you showing more like 1.8 billion of assets on the balance sheet now?

Yes, and then we would have to pay off what we currently have as outstanding debt against that.

Okay.

And, sorry, one last question unrelated.

Can you talk about the what assumptions you used in Q3 for basically what you could sell the non-performing loans for relative to face value?

Yes, sure.

We are essentially reserved at a level that assumes that the severity level, the net value is about $0.80 on the dollar.

Okay.

Okay.

Is that consistent with what you are seeing now?

Because we have heard that it might have gotten a bit worse than that?

That's consistent, we have gone through, I should clarify.

When we are reserving today we're using about $0.20 on the dollar.

That number varies an awful lot, depending upon what type of asset we're talking about.

As you know, there is seconds, there is fixed product, there is variable products, each of those is a little bit different, and we look at the mix of assets that we are reserving against.

Frankly, if you are looking at a pool of seconds, you probably would be talking about a reserve more like 80%, and if you are looking at a pool of fixed that had missed their first payment, you might be looking at a reserve about 10 or 12%.

So it really varies depending on the mix of overall assets, so I don't know how to exactly talk about, or respond to your point about what you've been hearing, but we think that this is reflective of what we have seen as, not just bids but sales that we have done very recently.

Okay.

Can you tell us what non-performing loans you have left on the balance sheet?

Yes.

There is about $240 million.

Okay.

There is also just to be clear, there is also about $115 million of remaining potential repurchase loans to be repurchased, and we have fully reserved that level on all of those.

Okay.

Great.

And, sorry, one last one.

Is your tax, the guidance that you gave for the full year, is that consistent with the low single digit client growth target that you gave at the Investor Day?

Yes.

Okay.

Thanks a lot.

Your next question comes from the line of Scott Schneeberger, CIBC World Markets.

Please proceed.

Good afternoon.

Hi, Scott.

How are you?

Great, thanks.

How about you?

Good, thanks.

I guess just a quick question on my unfamiliarity with discontinued ops, accounting wise.

Your timing to do that now, how certain is that that you are going to sell the unit?

My question stems from you can always bring that back if you don't sell it, but at what point do you make that decision?

Scott, let me try to answer that.

Under the accounting rules there are about six specific items that have to be met in order to classify an asset held for sale.

There are a couple of other requirements that are need to do take it all the way to and through Disc Ops.

One of those, for example, or amongst all of those would be, for example, the plan and the approved plan to sell the determination that you are really not likely to bring it back, although you could if you had to, but in determining that we take the step, we met all of those, all the tests that are specified, and therefore we took the action at this time, and holding it in Disc Ops, really is the appropriate thing to do, given the fact that we are anticipating the sale.

Thanks, that's helpful.

I will switch it up now to tax.

I guess if I could ask, and congratulations it sounds like you're doing well.

The pricing.

What are you seeing there on the per client?

How is that trending?

Just kind of the outlook for the full year there?

Scott, let me say a couple things about that and I think one of the things we forgot to comment on in the script, I will use that as a way of doing that as well.

The other thing that we are seeing thus far is a substantial meaningful increase in client satisfaction thus far this year across the board, on all of the different things we track, so from our perspective that is the other key balancing part of our pricing decision, is whether or not clients are seeing greater value from the things that we are doing for them relative to the price that we have added.

Having said that, I think, Tim, it is fair to say that the level of price increase that we seen thus far is certainly due to moderate, and that we are probably going to target something closer to 6% or slightly below for the full year, rather than what we're seeing so far.

I think 5 to 7 is a good range, and I do think it will moderate.

I think we have seen less promotional activity than we had expected in the early season, and we've seen our franchisees be more aggressive than they have been historically in the early season, and I think both of those things will trend to quote our expectations.

Thanks.

On the digital product, I was on the Intuit call earlier, it sounds like they had very robust revenue growth on plus 1% year-over-year on TurboTax through February 17th, I believe.

Obviously a lot of pricing strength in their product there.

You guys discount TaxCut to their TurboTax offerings.

Are you seeing a lot of market share gain, and how are you seeing nice revenue growth there as well?

Yes.

I would tell you and have Tom join in on this.

We increased price a bit this year, but not as aggressively as the folks at Turbo did, and we also did a variety of things to simplify our product lineup at the software side, as well as our online offers, and I haven't heard what they said specifically, but we have seen through mid-February that we have had paid clients, clients were paying us for our software and online services up 22%, as best I can tell, that is clearly well above what the industry is experiencing, and Intuit as a market leader, I am sure it has to be impacting that overall market level.

Tom, what are the things you would say about the market share shifts?

I think the shifts are primarily driven by at retail, we really simplified the line-up, and we're finding the customers that are new to the category are finding the lineup that we have to be much easier to select from.

We find that to resonate well with them, and on the online products we always have felt like we have been well positioned on price in that particular segment, and we feel like we didn't have to differentiate price any more than we already had in previous seasons.

Great.

Thanks very much.

Thanks, Scott.

Your next question comes from the line of Mark Sproule from Thomas Weisel Partners.

Please proceed.

Thanks.

I guess one of the things I want to talk a little bit about is the normalization of retail offerings.

I guess how should we look at the two-week period in February?

Is the impact I guess when you normalize it, you are reporting it down 3.6%, is that because of the pull forward from the IMAL loans?

Yes.

Especially considering you're mentioning a delay in the tax season?

I guess I would have thought that would imply a recovery during that timeframe?

There is a variety of things going on in there, and I would tell you that the normalized number year-to-date through February 15th is probably the right place to kind of settle in on, and think about how things are performing, because that sort of washes all of the various things that are going on out.

The difference between normalized and reported if you will as of January 31st would reflect IMAL clients who had not yet come in for tax services, and for the most part that reversed then, and you can see that in the next period the difference in the next period.

Having said that, the January 31st normalized growth rate in our retail operations of 6.8% really reflects the sort of calendar effect of having an extra Wednesday this year, versus Tuesday last year in the January 31st cut-off period.

You are seeing a little bit of a bump in that period, because of the timing of the January 31st cut-off.

However having said that, if last year's numbers had just simply, or last year's trend had just simply played out through January 31st the same way that it did last year this year, we would have expected this number to be closer to 10% versus the 6.8%, so that is, that difference if you will, is really when we talk about a slower start that's how you would be able to see that.

Okay.

And then if your comment about pushing the season out, continue to push it out maybe a week or so, does that imply that sort of our 15th to the end of the month has been significantly stronger, than either you would have expected before, or than it was last year?

Yes.

You know, at this point it is a little tough to answer that simply because by the time we get into this period and some of these other ones we have a whole series of other effects that are going on.

As you know, the what we refer to as the Valentine's Day massacre with weather across the United States and the East Coast, really hurt our numbers that week, we saw some of that being recovered the following week, so there is a variety of other effects going on now in the second half of February, but that's why it is a little hard to judge exactly all these different moving parts, but I think that we believe that when you see some of the overall industry data finally come out, that there has been a little bit of a shift back in the filing season, and that that's what the numbers will reflect.

Okay.

When I look at the operating performance by segments, the Consumer Services was much better than I had expected.

How much of that is sort of shifting of revenue recognition from the Emerald products, et cetera, into that that are to a large degree tax dependent?

It is really not much.

Okay.

Surprisingly.

It is probably I think if I am remembering the numbers right, it is about $3 million of that is Emerald card effect in the bank.

The balance is really underlying bank performance at a very strong quarter from Financial Advisors.

Okay.

And then if I can throw one last one on the RSM side, you are noting some of the discontinued items that might come in as we going forward.

Are we getting close to turning that corner, net of those items, to start to see sort of an earnings inflection in that business?

We were there last year, and sort of implied sort of a significant growth as we get to this part of the year.

How do you look at that?

Thanks.

I think your comment is right about that business, that absent the wind-down that we are doing inside that segment on a couple lines of business, which we think we will ultimately, the accounting rules will have us pull those out in our fourth quarter.

We don't know that finally, but we think that's the case.

Absent those we are seeing okay performance, good performance this year in our core business, and we are going to see without the effects of some of these discontinued operations, as well as other things that we've done we expect that '08 is going to be that inflection point, in terms of earnings.

Thanks.

Your next question comes from the line of John Neff from William Blair.

Please proceed.

Thank you.

Question for you.

You are opening up a lot of bank accounts which is great.

Is there sort of a retention rate, you sort of envision for those say three to six months?

In other words, three to six months from the end of tax season, how many of those do you expect to be active carrying forward into the next tax season?

John, that's actually one of these big open questions for us, because we have never, we tested a version of this product last year, it wasn't anything, it wasn't quite like the one we have, and as a consequence we are seeing a lot of the performance characteristics of the accounts be different already this year.

So having said that, we would expect that maybe low single digits, 2, 3, 4, maybe as much as 5% at the best, of those accounts will sort of develop into an ongoing kind of usage pattern as an account.

However, having said that, the account stays open, and one of the key strategies that we would expect to employ, is that we would help our clients know that they have an account and reactivate, not reactivate, it is still active, the account as they get into the filing season next year, so that's how we think about the benefiting from the retention effect.

Okay.

Right.

A question for you on the normalized growth rates that you are showing.

Does the normalized numbers in the retail channel, does that adjust for both the IMAL customers, and for having 5,000 offices open in November of this year for the first time?

In other words, if we were just to look January to January, what was the retail unit volume growth excluding the IMAL customers, or is IMAL and the year end sort of planning effort this year, sort of synonymous with one another?

That's a good technical question.

I believe these numbers are quarter to date numbers, so they would pick up sort of that activity in November and December, but I think that is one we should follow up and get you a detailed answer on.

Okay.

Great.

Thank you.

Thanks.

Your next question comes from the line of Jennifer Pinnick from Morgan Stanley.

Please proceed.

Good afternoon.

Hi, Jennifer.

Hi.

I was wondering, are 100% of the IMAL fees within the Customer Services, or are some of them in the tax services business within perhaps the new HSBC agreement?

On the IMAL, it would be inside of tax.

Okay.

Now, because the Bank, which is in Consumer Financial Services, is not in any way active or participating in the lending activity itself.

However, to the extent that IMAL clients took their loans, and received those proceeds in one of our bank accounts, our Emerald card accounts, those revenues from that spend activity would be in the bank.

That would be relatively small.

Okay.

Does this affect the average retail fee?

It does not, no.

No.

Okay.

And when are they booked?

Are they booked at the time the loan is taken out, or at the time the tax return is done?

They are actually accrued over the period of time the loan is outstanding, and the due date for those loans I think was February 19th, so a portion would have been accrued in this current quarter, and some portion of it will continue to be realized or accrued in the fourth quarter.

Okay.

And your tax pretax income in the tax segment was down about 6 million year-over-year.

Can you quantify the incremental cost in the quarter?

Yes.

I don't know if I I have that in front of me.

Maybe Tim does.

Tim, do you want to comment on what some of the major moving parts were?

Yes.

We had about $87 million of incremental expense in the quarter, about 30 million of that would be directly tied to tax preparation, sort of production through our commissionable tax professionals.

The remainder of that is really, I would call it front-loaded expense relative to getting the season started, is some of the things we mentioned in the scripts, in terms of office openings and some of the preseason costs, and some of our marketing really goes across all the line items.

We would expect again our full year margins to be in-line with those that we discussed in January.

Great.

Thanks.

Thanks, Jennifer.

Your next question comes from the line of Michael Millman from Soliel Securities.

Please proceed.

Thank you.

Just stepping back on the mortgage company balance sheet for a moment, the 1.8, 1.9 billion of assets, how much of that is cash, and how much of that is mortgages?

You know, I don't know, I don't have that right off the top of my finger tips.

Cash would be, hang on.

Somebody is handing it to me.

I will give you the number.

Cash is about $120 million, and mortgages held for sale is $360 million.

And so what's the rest of the --

Well, you have prepaid, you have the beneficial interest in trust.

You have the residuals, you have the mortgage servicing rights.

Have you the goodwill that's been in this segment, or from this segment, so we are going to break all of this out in the Q, but it is all the different assets that were attached to running this business.

And so over the last, since you have had this sale process, there has been apparently little in the way of discounting on some of these assets?

Well, the assets that would have values that would be moving around, I guess, mortgages, you know, that are held for sale as we indicated we have increase the reserve levels against those to reflect sort of a weakening in the secondary market for sort of problem loans, so that is probably a lower number today than what it has been.

We have seen relatively little change in estimated value of residuals, which is the other assets that often is moving around, so that one really hasn't changed.

It has changed a little bit.

It changed a little bit this quarter.

I think it may be the valuation declined by, Bill, what was the number? $13 million or something.

The carrying value of the written down by about $13 million.

We sell some assets, some categories are going up and other categories are going down.

But the absolute value, the valuation side of it, probably the biggest place where we have seen change is in the reserve levels that we are carrying against problem loans.

Okay.

And you are in the second round.

How many rounds do you expect?

Two.

So this is it?

Do you expect to get offers out of this round?

Yes.

And so by the end of March, you basically will be able to say it is go or no-go, and here is the price if it is go?

Yes.

That's our expectation.

Okay.

Moving to I guess from back to the front, on the Dis Op earnings numbers that you, I guess $1.15 to $1.25, is that the number, the new estimates?

That's continuing operations, yes.

Can you give us an idea or what the earlier $1.20 to $1.45, how much mortgage was in there, and also compare this with the '06 number?

I don't have that level of detail to be able to kind of comment on.

I would tell you that the $1.15 to $1.25 is consistent from a continuing operations perspective, with what we would have embedded in the expectations that we had before, so frankly our ongoing operations, or continuing operations are performing in-line with and are embedded in really haven't changed, and were embedded in that previous guidance.

The change clearly is the mortgage business coming out of the previous guidance.

So the mortgage business you had thought was going to a contributor this year?

We had thought that, yes.

Okay.

And there is no '06 comparable number available, you are saying?

Comparable for continuing operations?

Well, I guess I could go back and look at what mortgage contributed last year, and the balance, I think it was $0.60 or something, so --

When we look at the numbers, will mortgage be discontinued, when we look at the 10-Q, will we see mortgage discontinued year-over-year?

Yes, you will.

So there should be an '06 number, then?

Yes.

There would be.

I just don't have it in front of me.

On the business service, I wasn't clear what moved around that caused revenue to decline.

Let me take a shot at explaining that.

Basically when we acquired the American Express Tax and Business Services business, both their business and our business our RSM McGladrey, use an alternative practice structure that has a sort of sister test firm, audit firm, that is not part of our consolidation, and it is an independent operation serving the audit needs of our common clients.

There are two ways in which to operationalize that kind of alternative practice structure.

One is to have the employees resident inside the audit firm, and then to at times share their time and ours back to the non-audit firm, which is a structure we use or alternatively you can have the employees own, or not own but the employees employed by the non-attest firm, and then leased or rented back to the audit firm, which is the forum that American Express used.

Those give you dramatically different levels of revenue recognition, based on where the revenues are realized, the growth revenues are realized.

Ours generate fewer revenues to be reported.

Their structure generated more revenues by that structure.

As we have worked to migrate and to incorporate the attest firms that were part of the American Express firms into McGladrey and pull-in, that has shifted those revenues, that revenue reporting to our method versus their method, and as a consequence the audit firm, or audit revenues that were formerly grossed up in the reporting numbers of the AmEx businesses, have gone away.

And so that we have an apples-to-apples number, what would it look like year-to-year on a gross basis?

The number I have is that we have seen in our traditional, or our organic business, the apples-to-apples business that revenues in the tax accounting, consulting, and wealth management business was up this quarter year-over-year on a comparable basis by about 10%.

And that includes the American Express business?

Yes, it does.

On tax some of this was just talked about, but it is hard I guess to imagine such a dichotomy between Intuit's plus 1%, when as far as we can tell at least the in-store numbers look to be, don't seem to show much share change, although maybe you have different numbers, and their 22%.

Would you have other than your great ability to sell another explanation?

That's the one I am going to go with.

I guess you earned it.

You know, that's probably too flip.

First of all, a couple things.

To the extent you are looking at NPD date, you have to remember that NPD data is a subset of all retail distribution points, so there is a little bit of variation there, and so that caution, I would you not to take NPD as sort of inclusive of everything.

The other thing that obviously that data doesn't describe is the online business, and so all in all I would tell you, Tom Allanson and his team deserve an awful lot of credit.

They are just having a fantastic year.

I think it is due to some of the strategic choices we made early around simplifying the product lineup, the pricing choices that we made around how to price the lineup that we have in-store, as well as online, and it is the things that we're doing to promote the product.

We have had great success at getting the awareness level of TaxCut as a product to rise this year.

We had a new ad that we were introduced into the market in January, H&R Block had three of the Top Ten, and two of those were TaxCut ads.

We suddenly have people realizing that H&R Block and TaxCut are viable alternative products that, where we didn't have as much recognition of the product brand in the past, so there is just a whole series of things that are going on, that I think are driving this.

Clearly it is early, and there is a lot of season left to go, so we have got a lot of work left ahead of us.

Considering how proud you are, could you share with us the breaking out, the software from the digital?

One of the absolute benefits of having this be less material to our operations, is we choose not to disclose that, and there is a lot of important competitive reasons why we don't think that is good for our shareholders.

Can you give us a rough approximation as to how much is online, how much is --

One thing I can tell you is that the growth that we are seeing this year is virtually all online growth.

It is not software growth.

We are seeing software be more or less flat, while online is where the bulk of the growth is coming.

And then finally retail tax.

First of all, do you have the day-to-day numbers for the 31st, and for more importantly February 15th?

I don't have them in front of me.

They are a point or two below these numbers.

So if they are a point or two below the retail, on a day-to-day basis showed almost no growth, is that correct?

That's right, but that would be reflective of the fact that we're counting an extra day in the filing season last year, versus this year in the day-to-day comparison.

That is how much the numbers will move.

The IRS numbers will reflect that when they finally come out.

And so again, day-to-day the retail of the kind of flat year-over-year, and last year you lost something north of 400,000 in the same period.

I guess what I am curious about is why there shouldn't have been much more gain considering all of those early loan people that were in the office, and presumably the very high retention rates?

Yes, you know, I think you get at an important point.

That is that as we have worked on the early season lending product, that is almost exclusively, very dominantly targeted at prior year clients, and that is for an important reason, and that is that you are essentially underwriting an unsecured loan, and so there is much more certainty in the underwriting process against a prior year client, than in somebody who has not been a prior year client, even if that person had been a client the year before, so in that way we targeted virtually all of the early season lending activity, much of the early season lending activity, against retaining prior year clients, not against reacquiring clients.

You can do that in a variety of ways, but you take on a fair amount of underwriting risk in the process, and because we have not had as much experience with this product, didn't feel comfortable doing that particularly aggressively, so I would say that is the key thing you need to keep in mind.

Typically you have about a 30% churn, and so if we assume that you reduced some of that churn, and got your normal level of replacement, if you will, it would just seem that you should have on a day-to-day basis, some positive growth, particularly with the 400,000 you lost last year.

Well, I would tell you this remains a very competitive industry, so what may be I am not sure what should have been or might have been or could have been, but fundamentally this remains a very competitive market, and consumers have a lot of choices out there, and we think that the things that we have done have solidified our position with many of our early season filing clients, and will further solidify that position with those early-season filing clients, because of things like the Emerald card.

Clients, you know, once client behavior changes, you know, it is not that simple to just simply get people to reverse course.

Thank you.

Thanks.

Your next question comes from the line of [Herb Bookbinder] from Wachovia Securities.

Can you clarify something?

I think you said that $0.05 lost from the mortgage business would be classified as discontinued, that's in the $1.15 to $1.25 range, is that correct?

No.

What we are referring to is that $0.05 within business services --

Business services.

We would expect will shift to discontinued in the fourth quarter, assuming that the track that we are on with some of these ancillary businesses continues.

Are there any other unusual one-time items in this $1.15 to $1.25 that theoretically would be added back for looking at an estimate for next year, or is this a pretty clean number?

I would say that's a pretty clean number.

Okay.

All right.

Would you have sold all of those troubled loans as you did, if Option One was not put up for sale?

Generally I think the answer would be yes.

Frankly our philosophy has always been that we are not looking to sort of build a balance sheet.

We are not looking to take on any more market risk than we must naturally take on in this industry and this business, so I think we would have been in the same position absent that.

Now, part of our judgment was that the secondary market for scratch and dent loans was, you know, going to be weak, or weak over time, so we wanted to move a little bit faster.

I think that same judgment would have been there, and I think it helps us clearly in the sale process that we are in, because we just simply have a cleaner balance sheet.

Can you tell me how much thought and discussion went into the possibility of taking Option One off the market right now, because of so much of the industry condition being so volatile right now?

Is that something that was discussed and the fact that you made it a discontinued item really indicates that there wasn't much discussion along those lines.

You know, there hasn't been, but I would tell you the reason for that is, while what you hear in the press about the industry sort of sounds like there is a lot going on.

This is the stuff that we have had on our radar, and been working on since the summer, so I don't know that what has recently been in the press, although there are a few things that are probably new developments in the industry, but for the most part, the things that are making the headlines, are other competitors disclosing the effects of things that we started talking about last summer.

The good thing is you are seeing some improvement in default rates in January and February.

I almost hope this process takes longer and longer.

Because if things get better it could ultimately maybe increase the value that you are going to get.

I don't know, how long do you think this process realistically will take right now?

I think that we have some very smart sophisticated potential buyers, who are looking at the business.

They understand not just the business but they understand the cycle, and they understand that this is an industry that is not going away, this is a subprime mortgage market has developed because of consumer need, and while it will tighten up here for a bit, and we will all adjust to some of the realities of the housing market, you know, there is not an industry that's going away, and they all understand that.

So you have buyers looking at this are for very smart reasons, that are all kind of strategic for them.

Okay.

Hope you can get as much as you think you're going to get for it.

Thanks a lot.

Thanks.

Your next question is a follow-up question from the line of Kelly Flynn from UBS.

Please proceed.

Thanks.

I have two follow-ups.

One, I know people have asked about this, but I want to look at it slightly differently.

Where are the interchange and fees in the float fee related to the new products?

Is that in consumer or tax?

That is all in consumer.

Okay.

And then secondly, back to this book value issue, another way of looking at this is, if you sell it for 1.3 billion, do you expect to book a gain in GAAP?

No.

If you sold the business for 1.341 or whatever the net is on the balance sheet and broken out, that would result I think in no net GAAP gain or loss.

Right.

Okay.

All right.

Great.

Thanks.

Thanks.

Your next question is from the line of [Phillip Traic, Thermopolis Partners].

The question has been asked in a different manner, but now I am curious having listened to do a number of calls over the past could of years on the mortgage business specifically, one of the reasons stated all along was for the investment in that business was to smooth your earnings, and now it seems like you are trying to sell the business to smooth your earnings.

It seems ironic, especially in light of all of the good news you seem to be telling about the mortgage business today.

As a survivor in the subprime space is appears that you are able to take market share, and maybe it isn't adverse selection that is occurring.

I am just curious, if it is so good, why don't you keep the business?

I am not sure we have ever characterized that we were in this business to smooth earnings.

I know that there have been people who made that point that might be the reason, but I would tell you, we have never believed that that was a reason to be in the business.

We got into the business back in the late 90's, and this business grew up around us in a way, that made it much larger and more impactful on the overall company, that probably the people who got into the business in the late 90's ever anticipates that it could, and our what I think we have stated, and certainly what I would tell you today, is we always viewed as that the returns on capital, the returns on equity, that this business was able to generate on a risk-adjusted basis are very attractive, and have been attractive for a long time, and the model that we were using to drive sort of good cash flow out of that business, was a model the market was able to offer.

We have seen that change, and the market is increasingly complex, and dominated by people who need to have access to capital in ways that we have not wanted to put in this business.

We made the decision that the market is changing enough that Option One would be better served with some other parent.

That was the essence of what both I think the way we have always thought about it, and the way that we thought about sort of where we're at in the cycle, and where we're at in the industry, and why we are looking for a separation.

None that far is changing, and frankly I think that we are seeing potentially kind of a bounce off the bottom of the operating numbers of the industry, and that the cycle, we may see light at the end of the tunnel here from a cycle perspective with this business, but that doesn't change the objectives, and the reasons why we believe this is the right time for us to find a different parent for the Company.

Fair enough.

Your next question comes from the line of Brian Horey from Aurelian Management.

Please proceed.

Hi.

I was wondering if you could comment on the state of the secondary market in the mortgage business, and what you're seeing in the way of bids in the whole loan business, or what the securitization market looks like?

We are seeing that to be very sluggish, and I think it is reflective a little bit of the, it varies between the two, both the whole loan market and the securitization market.

On the whole loan side, I think that the headlines have created a lot of, and probably the need that a lot of people have to generate cash has generated an opportunistic time for whole loan buyers, that coupled with the very aggressive application of first payment default options that exist inside those sales, makes the whole loan market not very attractive today.

We think that will cycle back, but for today it is not very attractive.

The securitization market you have clearly seen a widening out of the lower tranches, the lower credit quality tranches in securitization.

That is kind of putting pressure on the overall gains on sale.

However, that still remains a far more attractive place to go with production today than the whole loan market seems to be.

Okay.

Can you comment on where you seem to be gaining share in the mortgage business?

It sounds like you are, with respect to geography or type of product?

Yes.

It is a little hard to tell exactly, because it is not clear yet what all of our competitors have done.

I would tell you we have clearly worked different geographies in different ways, and targeted our products in different places, based on what we think we can see around product performance, both EPD performance, as well as sort of the attractiveness of different products that are available.

Having said that, I would prefer not to go into all the detail of where we see that for competitive reasons.

Okay.

Are you still doing combo and second loans?

You know, there is a little bit, but it is a different, it is a substantially different form, and it is all at higher credit qualities.

It also reflects the fact that seconds on combos are not pricing worth a darn.

Okay.

Can you give us any sense as to how the EPD rate trended by months in the quarter?

It was reasonably high in November.

It got a little bit higher in December, and it came down substantially in January, and it has gotten a little bit, even better than that in February.

Okay.

Thanks very much.

Your next question comes from the line of Jim Delisle from Cambridge Place.

Please proceed.

this is Jim Delisle.

I want to congratulate you.

Impressive progress on your EPDs.

I bet with this phone calls at this point, you could be very, very happy to have sold this company and several months from now, you will be able to get back to focusing on these calls to the core business.

Have you considered doing, is that one you are considering selling to a sole buyer, or are any of these people looking at one part like servicing origination, servicing or the origination, or any block of assets?

Yes.

You know, without going into very much detail, because I think so we are at a tender spot here with the process, we have had some people indicate interest in things like the servicing business separate from the origination platform, but we have not entertained those choices.

Okay.

And what was your annualized run rate of production last quarter?

About annualized last quarter about 24, 25 billion.

24 to 25, and how was that split between subprime and prime?

That's all subprime.

All subprime.

And you're $1.15 to $1.25 in terms of earnings from continuing operations.

How far off would a cash flow number be from that estimate?

It would probably be about $0.20 higher.

Okay.

Because of amortization of intangibles and stock-based compensation running through there.

So somewhere in the area of $1.35 to $1.50 or so?

I think that's right.

Okay.

And final question.

As soon as you made the decision to sell Option One, did you also make the, did you have any extraordinary hedging beyond normal pipeline, such that they like buying protection on the ABX BBB-, or something along the lines that protects you once a decision was made to leave the business, from the vagaries that we have seen hit the business since then?

We did not.

We have looked at the sort of the hedging, or the ability to hedge some of those credit default swap positions, and concluded that it was just way too pricey as a hedge, so we have not.

Okay.

Great.

Once again, it is really good to see you are benefiting sooner, because you realized the problem sooner.

Congratulations.

Thanks.

Your next question comes from the line of [Isaac Boltanski from EGF Capital].

Please proceed.

Your line is open.

We will take that one offline.

There are no further questions in the queue at this time.

I would like the turn the call back over to management for closing remarks.

Great.

Thank you.

Thanks for joining us today, and as always if you have follow-up questions, please give us a call.

We appreciate your time.

Thanks.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.