H & R Block Inc (HRB) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the H&R Block fiscal 2007 earnings call.

My name is Danielle and I will be your coordinator for today.

At this time all participants are in listen-only mode.

We will conduct a question-and-answer session toward the end of this conference.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr.

Scott Dudley, AVP Investor Relations.

Please proceed, sir.

Thank you.

Good morning and thank you for joining us to discuss our fourth quarter and fiscal year-end results.

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 fiscal 2007 results and our outlook for fiscal year 2008.

We will then open up for questions.

Tim Gokey, Group President Retail Tax, and Tom Allanson, Group President Digital Tax, will also be available during the question-and-answer portion.

Our call today is scheduled for one 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, assumptions that are difficult to predict.

Therefore, actual outcomes and results could materially differ from what is expressed, implied, or forecast in such forward-looking statements.

Such differences could be caused by a number of factors, including, but not limited to, the uncertainty that the Company will achieve its revenue, earnings, and earnings per share expectations for the fiscal year 2008 or subsequent fiscal years or any quarter thereof, and that actual results for fiscal year 2008 or subsequent fiscal years or any quarter thereof will fall within the guidance provided by the Company, the uncertainty of the impact and effect of changes in the non-prime mortgage market, including changes in interest rates, loan origination volumes, and levels of early payment defaults, changes in the Company's effective income tax rate, changes in economic, political, regulatory or competitive environments, litigation involving H&R Block, Inc.

and its affiliates, the uncertainty regarding a sale or separation of the Company's Mortgage business, the uncertainty of the Company's ability to purchase shares of its common stock pursuant to its board of directors repurchase authorization, and other 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.

You should note that in conjunction with today's call, there is an accompanying slide presentation which is posted to the Investor Relations section of our Web site at hrblock.com.

In addition, a copy of our prepared remarks will be posted to our Web site shortly after the conclusion of this call.

So with that I'll turn the call over to Mark Ernst.

Thanks, Scott.

Let me start by taking a moment to thank our associates from throughout the organization, from our mortgage associates, who managed through an incredibly complex and difficult period, to our many tax associates whose efforts delivered a strong tax year, your dedication and commitment are greatly appreciated.

I want to begin with a summary of full-year financial performance and then discuss the results for each segment.

Bill Trubeck will then cover the Mortgage sale process and financial results from our discontinued operations, and comment on our year-end financial position.

I'll then conclude with our outlook for fiscal 2008.

For the fiscal year, revenues from continuing operations exceeded $4 billion, an improvement of more than 12% versus last year.

Net income from continuing operations increased 26% over last year, growing to $374 million, or $1.15 per diluted share, which was within our guidance range.

This compares to prior year income from continuing operations of $298 million, which includes RAL litigation settlements that totaled $43 million after-tax.

Despite the strong performance from our ongoing businesses in FY '07, the losses from our discontinued operations resulted in a net loss for the year of $434 million, or $1.33 per diluted share.

Our Tax Services results were good and the segment achieved growth and profitability in line with our expectations for this year.

We experienced a strong early season supported by well-designed refund lending products and the introduction of the Emerald Prepaid Debit Card.

Digital tax services implemented an aggressive plan that was successful in growing market share again, although the required spending to achieve those results impacted margins more than we planned.

The success of our early season tax strategy benefited our Consumer Financial Services segment as well.

The popularity of the Emerald Card contributed to H&R Block Bank's strong first year results.

I'll say more about the success of our Emerald Card later, but with over 2 million cards issued in this introductory year, it seems clear that we have found a way to better serve our clients while establishing a platform for future growth and new product offerings.

Meanwhile, H&R Block Financial Advisors had a solid year in which we surpassed our profitability goals by focusing on advisor productivity and annuitized products.

Within Business Services, the core tax, accounting and consulting business of RSM McGladrey did well while certain of the non-core businesses continued to burden the segment's overall margin.

With that, let me discuss the results for our continuing segments in detail, starting with Tax Services.

Tax season 2007 demonstrated what it will take for H&R Block to improve our position in the overall tax market.

We need to drive product changes that will lead the early season portion of the market, build our brand and service to better meet the needs of expertise-oriented clients who we see in the second half of the season, aggressively compete in the digital market, and do all this with outstanding execution.

Tax season 2007 was characterized by solid performance against most of these growth initiatives.

We had very good execution across the business, possibly our best year ever operationally, as we opened 4,500 offices by the middle of November, according to plan.

We demonstrated that when we assert our role as the industry leader, as we did with the Instant Money Advance Loan and the Emerald Card bank account, and dramatically lowered the pricing for refund loans, we can drive change broadly across the industry and better position our Company for future success.

The 22.9 million total clients served by H&R Block was another record year, which included 20.3 million clients coming from our U.S.

retail and digital tax units.

In the important retail portion of our business, the changes that we made this year reverse the performance momentum as clients served increased by 0.9% for the full-year.

We not only performed well at the start of the season, but we also had a strong finish.

In Digital we built on last year's success and continued to gain share in this highly competitive online and software space with Digital clients served increasing 19.4% for the year.

Our International operations had another great year with growth in clients served of 4.5%.

Combined, we saw client growth of 4.4% across H&R Block's brand and channels.

Tax Services posted continuing operations revenue growth of nearly 10% for the year to about $2.7 billion.

We've decided to exit our small tax business in the U.K., and those operations have been classified as discontinued operations.

Pretax earnings from continuing operations grew by 20% to $705 million versus last year, which included a $70 million pretax RAL litigation charge.

The reported margin for the Tax segment was 26.3%, above our expectation of 26.1% outlined in our investor conference in January.

We made several investment choices designed to position the retail and digital businesses for long-term success.

These strategic decisions focused on retail client acquisition and retention, growing the scale of our digital business, and continued investment in our retail office expansion.

The impact of these investments to our operating margin was about 200 basis points, and demonstrates the earnings potential that we continue to have from expanded margins in this business.

The year-over-year segment margin increase of 220 basis points reflect the impact of last year's RAL litigation charge and margin expansion in the retail business, offset by investments made in the digital business and lower settlement product prices.

This fiscal year net average tax preparation per client rose 6.4% across company-owned and franchise operations, which was near the middle of our 5% to 7% expected range and with our franchisees increasing prices more than our company operations.

Client satisfaction data continues to confirm that clients find the service we provide valuable and appropriately priced.

There are a few things that I would like to point out about the tax services industry that are impacting how we think about the business going forward.

First, this year continued a trend that we had been watching for some time for the early portion of the season to be somewhat less intense and the later portion of the season to be bigger.

This is consistent with broad demographic shifts that we have been modeling for a number of years.

We project that total tax filers for the season just ended will show an increase of 1.3% when the IRS publishes its numbers.

Given this context, we're pleased with our overall client growth this season.

In January we outlined our view of the market in terms of four distinct client segments, early filers, those are early season clients who generally are motivated to get fast access to their tax refund; control clients, who are typically do-it-yourselfers who are in the market from late November throughout the tax season; expertise clients, those who have more complex tax situations who tend to file later; and hybrid clients, filers who are dispersed across retail, CPA, digital and other service platforms.

Let me just briefly discuss how we addressed these segments this year.

We went into this season with the clear intent to aggressively pursue early season clients and regain our leadership position in this important segment.

Early season filer clients are both a significant part of our U.S.

retail client base, about 45%, and a very profitable segment that we serve.

We executed our strategy very successfully.

We opened our offices earlier than ever, including 330 new locations through our real estate expansion initiative.

These new offices performed in line with our expectations for new client acquisition.

We also expanded our focus on early season clients through the acquisition of a second franchise brand, Express Tax, that allows us to competitively overlay in certain markets to pre-empt our competitors' expansion.

Our strategy to introduce innovative products with industry-leading pricing and other features was well received by both our clients and our tax professionals.

The success of our Instant Money Advance Loan, or IMAL, and very popular Emerald Prepaid MasterCard, filled strong client demands.

We facilitated over 1 million IMALs with 92% of these clients returning for tax preparation by year-end and established over 2 million Emerald Card accounts.

The introduction of refund loans associated with the Emerald Card account and an industry leading 36% APR has set a new standard for responsible pricing in the tax industry.

Just as last year we called for the elimination of early season loans, we now call on responsible members of the industry to bring their RAL pricing in line with this new standard.

It's imperative that our industry take the lead in demonstrating how we can bring value and well performing products to meet the needs of our clients, including those clients who rely on access to bank products to speed their access to their tax refund proceeds.

In February we closed on the acquisition of Tax Works, a commercial tax software provider.

We have a multifaceted strategy for this addition to our tax business, one part of which affords us access to the independent early filer segment of the market.

We'll have more to say about our strategy for this business later, but we're working to leverage this business to further lead toward the greater adoption of industry best practices.

Within the control segment, we set out to become much more aggressive in competing for digital clients who largely comprise this segment.

We're very pleased with our digital client growth of over 19%.

Growth rates in the digital tax market are showing clear signs of decelerating, making our market share gains all the more important in a segment where share will increasingly be key to growth.

Our simplified lineup and smart pricing of TaxCut software and online products, combined with an investment in marketing, proved successful in expanding our digital client base to 4.4 million paid clients.

Our decision to invest in client acquisition impacted digital margins this year, however, we gained important knowledge about the effectiveness of various client acquisition methods that will allow us to benefit from efficiencies next year, along with the greater pricing power relative to other market alternatives.

In the expertise segment, we believe that we have significant growth opportunities.

This season we focused on our tax professionals as a key competitive strength in serving this segment.

In particular, we supported them with tools and training to help them build their book of business and increase clients through referrals.

We emphasized their level of training and know-how both on the front lines and with national advertising around our "You Got People" campaign.

At the same time, we've increasingly seen clients demand unique combinations of service.

Clients who generally want to prepare their returns themselves, yet are looking for the assurance of a tax professional before filing.

As part of our approach to address this hybrid market, we soft launched our Tango online-based product this year and served a limited number of clients utilizing innovative access to H&R Block tax professional help.

This product joins our online office and signature offerings in serving the needs of this emerging segment.

Our international tax operations posted another good year of performance.

International pretax earnings from continuing operations improved 14%.

As mentioned earlier, the U.K.

tax business is now reported in discontinued operations, so our international tax business consists of operations in Canada and Australia.

The strength of the H&R Block brand is seen in the 4.5% growth in clients that we served in these two operations.

Turning to Consumer Financial Services, the segment delivered another quarter of solid performance that contributed to favorable results for the full-year.

Full-year revenues from continuing operations were up 35% to $388 million, reflecting the establishment of the H&R Block Bank in fiscal year 2007.

The segment delivered pretax earnings from continuing operations of nearly $20 million for the year.

H&R Block Bank benefited from the strong demand for the Emerald Prepaid MasterCard, opening over 2 million card-based accounts during the tax season, nearly double our initial expectation.

We believe the success of the Emerald Card further differentiates H&R Block in the market, leading to significant potential for higher client growth and retention in the critically important and competitively challenging early season client segment next tax season.

For the year, the Bank realized a pretax return on average assets of 2.6% with an efficiency ratio of 37%, in line with our first year plan.

The net interest margin was 2.7%, hurt by the flat yield curve.

The Bank ended the year with total assets of $1.5 billion, and primarily consisted of mortgage loans held for investment.

These loans were purchased from Option One Mortgage, H&R Block Mortgage, and various third parties.

H&R Block Financial Advisors utilized the bank to hold $792 million in FDIC insured deposits on behalf of certain customers.

In addition, we ended the year with over $165 million in deposits for H&R Block tax clients.

I want to point out that the assets of $1.5 billion were down from a high of $1.8 billion at the end of January, reflecting the expected withdrawal of initial refund-based deposits by the majority of Emerald Card clients.

It's estimated that Emerald Card clients have already collectively saved over $63 million in check cashing fees by using this product.

We're educating our customers on the benefits of using the account year-round, and as a result some clients are saving additional check cashing fees by utilizing the account for payroll direct deposits.

H&R Block Financial Advisors was profitable for a second quarter in a row after $9 million of intangible amortization in the quarter.

This performance and the improved results for the year were supported by increased margins on sweep accounts and participation in underwriting of closed-end funds.

Performance improvements reflect an 11% increase in advisor productivity, driven by our focus on recruitment of higher-level producers in the past couple of years.

At year-end we had $33.1 billion in assets under administration.

This is up $1.3 billion, or about 4% over the prior year.

For this tax season, we had nearly 8,300 tax professionals enrolled in our preferred partner program, which leverages our tax professional's effectiveness in identifying and referring tax clients to our financial advisors, especially those clients we serve in the expertise segment.

In fiscal year '07, we opened about 14,000 new funded accounts from tax clients with assets of over $690 million.

Production revenue from all cross service accounts represented over 16% of our total production revenue for the year.

Turning to Business Services, revenues from continuing operations grew nearly 13% compared to last year to a record $932 million.

The revenue increase includes a full year of operations of offices acquired in October 2005 from American Express Tax and Business Services, or Amex TBS, and a gain in RSM McGladrey's existing business.

Revenues from our core accounting, tax, and consulting business grew a strong 15% versus last year due to continued client growth through our focus on middle market clients.

Wealth management assets grew 29% to $3.6 billion.

The revenue gain was reduced by a change in organizational structure during 2007 that shifted certain attest businesses acquired through the Amex TBS business into unconsolidated entities.

As a result, business services no longer records revenues formally associated with leasing associates to the attest firms.

Reported revenues declined 6% for the fourth quarter due entirely to this change in accounting.

Pretax earnings from continuing operations declined to $58 million from $71 million last year, resulting in a pretax earnings margin from continuing operations for the year of 6.2% compared to 8.5% last year.

The decline in earnings was related primarily to off-season losses of Amex TBS that we incurred this year that weren't realized in the comparable previous year, and the one-time impacts related to a narrowing of our focus within our capital markets business, as well as about $6 million in costs related to acquisitions that will not be completed in our international network.

As we mentioned previously, we're in the process of disposing of three of our smaller non-accounting businesses.

The wind-down of the employer services payroll business has been completed while the sale of certain other non-core businesses is underway.

These businesses are presented in discontinued operations this quarter.

Our consolidated results continue to be impacted by the drag that these non-core businesses create.

The investments that we're making in our brand-building efforts are well underway with the start of the RSM McGladrey sponsorships in conjunction with the PGA.

We're proud to congratulate this year's Masters and AT&T Classic winner, Zach Johnson, a member of Team RSM McGladrey.

Before turning to the outlook I'll now ask Bill Trubeck to cover our Mortgage operations, year-end financial position and other financial highlights.

Thanks, Mark.

I'll start with an update on the Mortgage sale process and then discuss discontinued operations, including a financial review of Mortgage.

I'll also cover other items related to our financial statements.

Two months ago we announced a definitive agreement to sell Option One Mortgage Corp.

to Cerberus Capital Management for a cash purchase price equal to the adjusted tangible net asset value as defined in the sales agreement on the date of closing less $300 million.

Additionally, the agreement calls for us to receive one-half of Option One's cumulative net income from origination activities for the 18 months following closing capped at $300 million.

While we're in the period between signing and closing, we continue to operate the business with a focus on positioning the Company for improved profitability and market success.

We're making meaningful progress towards closing the transaction during our second quarter which ends October 31st.

In particular, we're working on obtaining required regulatory approvals from state licensing authorities and entities such as HUD, Fannie Mae and Freddie Mac.

In terms of the closing, an estimate of the tangible net assets will be used to determine the cash that transfers at closing, followed by a final tangible net asset value, which will determine any required true up payments.

Certain assets, such as mortgage servicing rights, the beneficial interest in trusts and loans, both in the pipeline and those held for sale, will be valued by third parties or through an external bid process to determine the final tangible net asset value and ultimate purchase price.

During the past 12 months, the subprime mortgage market has gone through a dramatic series of changes.

The environment continues to be challenging and the performance of Option One reflects these conditions.

This past quarter was especially challenging for us.

During the quarter, Mortgage business incurred a pretax loss of $960 million.

We incurred losses from our origination activities as secondary market pressures led to a negative 687 basis point net gain on sale gross margin for the quarter.

To understand what happened, one key measure that you can use to see the dramatic change in the mortgage market that occurred this quarter is seen in spreads between the ABX index and the one-month LIBOR.

Heading into March, spreads gapped dramatically as the fear of the subprime mortgage slowdown swept the market.

While the spreads have since tightened somewhat, we executed sales and securitizations in both during April and the relatively lower value we received significantly hurt our fourth quarter results.

73% of our loans were executed as securitizations during the quarter, reflecting a shift in market liquidity with the remaining 27% being whole loan sales.

We also adjusted the carrying value of residuals to reflect the sentiment of market participants for loan losses at the end of April.

We also took additional reserves for repurchased loans reflecting the weak secondary market conditions for scratch and dent loans, increased our lifetime loss assumptions and the carrying value of our residual assets to reflect current market sentiment, and took further restructuring actions to adjust the Option One operations to this new environment.

In addition, we took impairment charges for the indicated value of the sale of the business.

Loan origination levels for the fourth quarter were at $5.8 billion down somewhat from $6.3 billion in the third quarter.

The cost of origination was 245 basis points, up from 205 basis points the prior quarter.

We continue to focus on optimizing our origination platform through restructuring activities, which will continue until we close the sale.

We expect to incur restructuring charges of $12 million during the first quarter and $8 million in the second quarter of fiscal 2008 related to the previously-announced closure of 12 loan processing offices and a staff reduction of 615.

I would note here that our off balance sheet warehouse facilities are subject to minimum net income financial covenants, which we would not have been able to meet at year-end.

We have obtained waivers from our warehouse providers to allow us to continue our off balance sheet activities in support of loan originations.

As we've made changes in our products and underwriting criteria, we're seeing changes in loan characteristics.

The average loan balance was $234,000 up from $221,000 in the third quarter.

The average [WAC] was maintained at 8.47%, about the same as it was in the third quarter, while the two-year swap moved down 27 basis points to 5.02% at quarter end.

Since then, the two-year swap has moved up about 40 basis points and in the first quarter of fiscal year '08, we're originating loans with an average WAC of about 8.8%.

In mid March we made substantial changes to our underwriting criteria such as generally no longer funding loans with combined loan to values over 90%, requiring a minimum FICO of 540, decreasing qualifying debt to income levels, and requiring larger disposable income minimums.

While the changes have had the effect of reducing volumes, they are the key to achieving improved profitability through better secondary market values for higher quality loans and reduced early payment defaults.

One indicator of the effect of our many changes is in first payment default trends which have improved to 3.1% during the fourth quarter compared to the third quarter average of 3.56%.

This quarter the results of our discontinued operations, in addition to Option One and HRB Block Mortgage Corp., also include results and the related cost to sell and complete the wind-down of three smaller lines of businesses previously reported in our business services segment, as well as our tax operations in the U.K., previously reported in Tax Services.

This is consistent with our stated intent to bring greater focus to our core tax and accounting businesses, and those financial services that create competitive advantage for us in those businesses.

The assets and liabilities of the businesses to be sold are now classified as held for sale.

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

We recorded a loss from discontinued operations of $808 million net of tax, or a loss of $2.48 per diluted share.

The loss reflects several notable pretax items, a $389 million loan loss reserve and repurchase reserve due to higher loss severity, a $155 million write-down of goodwill, and a $123 million additional impairment to reflect the assets held for sale at fair value less expected cost to sell, and a $169 million impairment of residual interest due to increased cumulative loss assumptions.

Now please keep in mind that these amounts are reflective of current market conditions including loan performance and investor appetite for loans with various characteristics, and do not reflect any potential upside benefit that could be realized under the earnout provision which can be as much as $300 million per the sales agreement.

We realize that investors are very interested in the value of the assets of Option One given the pending sale, so let me provide an update.

At year-end the balance sheet for our Mortgage operations consisted of $1 billion of current assets, $705 million of non-current assets, and $610 million of liabilities for a GAAP book value of $1.1 billion.

The respective estimated tangible net asset value is calculated per the stock purchase agreement also equal to $1.1 billion at April 30, 2007.

Turning to the consolidated balance sheet, I'll review some of the more notable items.

Our cash position at April 30th was $922 million, up from $674 million in the prior year.

The year-over-year increase in cash resulted primarily from cash held at year-end due to uncertainties surrounding Mortgage operations.

Short-term borrowings at the end of the year were $1.6 billion, primarily due to working capital needs at Option One.

Mortgage loans held for investment increased to $1.4 billion, reflecting further growth at H&R Block Bank, in accordance with the business plan.

And remember that these are high-quality loans by OTS standards, even though they were purchased from Option One and third parties.

Receivables declined to $556 million from a seasonal high last quarter, reflecting the normal pattern of collections related to our participation in RALs.

Property and equipment has increased about $35 million year-over-year to $379 million, reflecting the completion of our world headquarters building.

I would note here that our capital expenditures for FY '08 are anticipated to be about $79 million, down from 6 -- $161 million in FY '07, and depreciation for '08 should be about $55 million.

During the fourth quarter we obtained short-term financing that matures on December 20, 2007 to provide funding for our maturing senior notes of $500 million.

This long-term debt carried a coupon of 8.5% and has been replaced with borrowings at LIBOR plus 35 basis points.

Upon replacement of this bridge loan, we expect that our cost of borrowing will be approximately 200 basis points more favorable than the debt that matured.

Significant changes in year-over-year cash flow uses were driven by Option One's operating needs, reflecting continuing -- conditions, rather, in the subprime mortgage market and higher income tax payments.

It should be noted that fiscal year 2007 earnings from continuing operations include $41 million in stock-based compensation expense, $93 million of depreciation, and $57 million of amortization of intangibles.

In FY '07, equity generation was down $991 million versus FY '06, due primarily to reduced earnings.

As a result, there were no share repurchases in the fourth quarter and the board authorization remains at 22.4 million shares.

We issued 3 million shares from our treasury shares for option exercises, the employee stock purchase plan and restricted shares.

We ended the year with 323 million shares outstanding.

Our higher corporate expense of $147 million for the year was primarily due to increased interest costs associated with higher borrowings.

We expect corporate costs to be similar in FY '08.

The effective tax rate from continuing operations for fiscal year 2007 was approximately 41.1%, reflecting the impact of current routine adjustments of tax reserves and other accruals.

At this point we expect our effective tax rate from continuing operations in FY '08 to be slightly higher.

Our discontinued operations reported an effective tax rate of 34.5% for fiscal '07.

Income tax benefits for discontinued operations were reduced as a result of the recording of a valuation allowance in the amount of $56 million, which primarily relates to capital loss carry forwards and state deferred tax assets.

FASB Interpretation Number 48, accounting for uncertainty in income taxes, or FIN 48, is effective as of the beginning of our fiscal year 2008.

We have analyzed the impact of the adoption of FIN 48 and have determined that it will not have a material impact on our consolidated financial statements.

The performance of our Mortgage operations and the treatment of assets held for sale have important impacts on our capital structure.

At our investor's conference last January, we said that we expected to redeploy $700 million of capital for share repurchase from the anticipated sale of Option One and its then $1.3 billion book value.

However, the impairment charges and operating losses from Option One have eliminated the capital allocated to our Mortgage business.

Additionally, the 3% tangible equity requirement of the OTS prescribes capital levels that we are to maintain.

We fell below the minimum 3% ratio at January 31st and we're also below that level at April 30, 2007.

Normal seasonal operating losses are expected to cause us to be below this level until the end of fiscal '08.

We're working constructively with the OTS to develop a plan designed to regain compliance by April 30th of 2008.

As a result of these issues and our overall capital position, we don't expect to be in a position to repurchase shares until our fiscal fourth quarter.

We'll have more to say about our capital structure following the closing of the Option One sale.

We have run our businesses to minimize the capital necessary to deliver the returns and cash flows we require of our operations and any excess has historically been returned to our shareholders.

Because we run lean, it is easy to see how a major event like the losses associated with Mortgage can have a depleting impact on capital levels.

As we announced two weeks ago, the Board of Directors approved a 6% increase in the quarterly dividend.

This marks the tenth consecutive year in which we have increased the dividend as part of our commitment to return value to shareholders.

The new quarterly rate of $0.1425 per share will become effective with the October 1st payment.

In the past we have viewed the earnings from our Option One as the primary determinant of share repurchase activity.

The dividends, however, have been more reflective of the most stable source of earnings and cash flow, our tax business.

The decision to raise the dividend is based on the stability and growth of our core tax operations going forward.

And finally, I'll note that we expect to complete our year-end process and file our 10-K by the June 29 deadline.

Mark will now comment on our performance and outlook for the coming year.

Thanks, Bill.

The past year has seen the greatest amount of change in many years for H&R Block.

We are focusing the Company around our tax, accounting, and related financial service businesses that will help us create competitive advantage in the market.

While we are generally pleased with our results from continuing operations this year, including the strong execution within Tax Services, we are intent on aggressively managing our operations for better performance in the coming fiscal year, even as we conclude the separation of our discontinued operations.

We expect earnings from continuing operations for fiscal year '08 to be in the range of $1.25 to $1.45 per share.

We expect the results of our discontinued operations likely will continue to have a modest negative impact on our earnings on a fully reported basis throughout the first two quarters of the fiscal year.

Before going into the individual units, I'd note that the key difference between our expectations and those reported on First Call are two things.

Our tax rate assumption at 45, or excuse me, 41.5% for fiscal year '08 reflects accrued interest on somewhat higher tax reserves as a consequence of FIN 48, and some models that are reported on First Call still include Mortgage earnings in the coming year.

Within our Tax Services segment, we are expecting mid to high single-digit revenue growth reflecting a combination of pricing and client growth.

We will continue to optimize our spending and are targeting a modest improvement in margins, yielding earnings from continuing operations growth in the high single digits.

The upcoming tax season is shaping up to be quite different from past years in the critical early season portion of the market, from product changes and product provider strategies that are changing in important ways.

We will continue to be very aggressive in the early season as we were this past year and are prepared to take additional leadership steps to shape the industry.

Our retail tax business has a good season when we succeed in the early season and we are working now on our next steps to win in this important part of the market.

Our success in product differentiation reduces our need to build out our real estate presence to maintain our market position.

Our addition of Express Tax and Tax Works give us new tools for which we can reach into the market for growth.

We are assessing the best way to blend these into our network to enhance our competitive position.

We have more analysis and planning to do, but our intent is to build on the momentum created this past year.

We expect our Consumer Financial Services profitability to more than double as the Bank continues to expand and build on its success of this past year, along with Financial Advisors further progressing against its business plan and becomes profitable.

We look for continued strong performance in RSM McGladrey's core tax accounting and consulting services as our investment in brand gains traction.

The Business Services segment is expected to improve margin significantly.

We are targeting a margin of 8% from the continuing operations of this segment.

This past year we took significant steps to simplify H&R Block's business mix to put us in a position to more effectively create shareholder value.

We look forward to the closing of the sale of Option One on schedule and are optimistic that our key strategies will support the growth and improvement in our businesses, delivering stronger overall performance and bottom line results for fiscal year '08.

Those are our prepared comments.

And with that, operator, we are now ready to begin the Q&A session.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Kartik Mehta with FTN Midwest Securities.

Please proceed.

Good morning, Mark.

A question on the Mortgage business.

The results that came in, were those anticipated in line with the agreement you had to sell the business?

So I guess what I'm trying to ask is, does this change anything for you in terms of trying to sell this business?

Certainly, this was a.

you know, this was a really rough quarter for the subprime industry overall, and the fact that our balance sheet in effect, or our business is effectively a mark-to-market business, the results are, I guess, notably large, but these are consistent with what I think Cerberus knew what's happening in the business, knew what's happening in the industry, and I would tell you that when we missed our deadline of March 31st for completing a transaction, it was really because of the turmoil that these results reflect, and that's all now in line with what Cerberus fully understood was happening and I think expected us to be reporting.

So I would tell you there's nothing that's in these numbers that would affect our ability to close.

And second, maybe a bigger picture question, Mark, on the Bank.

Obviously, because of what's happened with the OTS requirements, it kind of ties your hand to buy back shares until 4Q '08.

In light of that, and in light of the fact that maybe the product that you offer through the Bank, the Emerald Card, could be something you could outsource (inaudible).

Do you still think the Bank is a good strategy considering the other businesses you have generate so much free cash flow and you could buy back shares or you could recapitalize the Company.

In light of those things, is the Bank, in your opinion, still a good strategy and does it still make a lot of sense?

Let me step back from that question and I'll come back to it specifically.

The challenge for us in our core tax business fundamentally, I mean we participated in lots of different segments of the tax business, but fundamentally, if we succeed in the early season, we will have a good season and if we don't succeed in the early season, we generally -- it's hard in the other parts of the business to make up for that shortcoming.

That is the essence of our tax business in a lot of important ways.

And while we're working on expanding our market reach in a lot of different ways, that early season still matters very significantly to us.

We know that that early season client is motivated by a lot of things, but product is an important part of it.

And we have found this year that the Emerald Card in particular, and our ability to manufacture that product, gave us a distinct advantage in year one.

We don't know, frankly, whether or not that will carry over and have the kind of retention affects and other affects that we're looking for in the second year, so we're going to find out the answer to that.

If in fact the conclusion is that it doesn't make the kind of impact that we would like to see, I think we would certainly reassess whether or not the capital commitments and the other restraints that the Bank imposes on us is really in the shareholder's best interest.

So I would say all bets are still off, but we are very focused on how the bank creates competitive advantage for us in our tax business in the critical early season client base.

Thank you very much.

Your next question will come from the line of Michael Millman with Soleil Securities.

Please proceed.

Thank you.

I guess just following up, I don't think you touched on the questioner's comment, could you outsource all this work?

Sure.

So I guess I maybe didn't hit that directly.

We have -- we had developed, had been working to develop that product or some of these products on an outsourced basis prior to this year as we were sort of in the process of seeking a charter.

And one of the things we found in that process was that it was very difficult to find business partners who were able to or willing to manufacture a project to the specifications that we believe were critical to fit the needs of our clients.

And in fact, we have had various forms of this product in the market on a test basis in prior years and they were never anywhere near as successful as we just experienced, and we would attribute a lot of that to the fact that we specifically were able to develop the product to meet the exact specifications that we believe were going to work for our clients.

So now having said that, we now have those specifications and we have the evidence that in fact that product works, both economically as well as it works in the market for consumers.

So maybe it would look different to a partner now than it did before.

So I wouldn't -- I would not conclude that we couldn't outsource this product, but frankly, until we were able to prove on ourselves, I don't know that ever could have gotten there.

Moving on and regarding the Mortgage business, just so we understand, it looks like you're down about $200 million in terms of the net asset value tangible that you'd spoken about before and that would suggest that at the current time they would be buying the business for about $800 million rather than the $1 billion previously.

Is that correct?

Well, I don't think that's quite right.

I mean one of the things that we did this quarter is we marked the business to sort of mark-to-market, if you will, the assets of that business.

That includes taking a haircut for the expected discount that we negotiated for the sale transaction.

So that $1.1 billion now reflects that haircut that we have negotiated.

But there's a lot of things that go into that tangible book value number, and those include some assets that we will retain and some assets that are being sold.

So the one thing I would point out, though, is that $1.1 billion is effectively a mark-to-market balance sheet.

I think that's fair, right Bill?

Yes.

So just to understand that, that's equivalent to what would have shown up as $1.4 billion before, because it's taken the $300 million haircut?

Yes, I think that's, yes, that is right.

Okay.

So despite the fact that it's higher because of all the write-offs, there's still not going to be any availability for share repurchases?

At this time, we do not expect that share repurchase would be occurring until our fourth quarter.

On the tax business, '07 I would say you had all the stars aligned, everything going your way, yet basically on the retail end, you were barely up.

Why do you think that '08 is going to be better?

And secondly, do you think, in fact, that there's growth in the retail business for the industry?

Well, so for the industry, I think there is modest, very modest growth.

The thing that I would point to, and I think we internally believe, is that the things that we have not executed on or we're not willing to execute on historically was to be very aggressive in that early season part of the market and we did not do that for a variety of reasons.

But I would tell you the most significant word, the inability to put products in the market that we believe were consistent with the brand positioning that we wanted to have for H&R Block broadly.

This past year through the combination of more flexibility in our ability to design the refund lending products that we put in the market, our ability to manufacture products through our Bank, to our specifications, we found that we are now able to design products that are brand right and that have a lot of appeal and competitive advantage for us in the market in that early season part of the market.

And we, frankly, learned a whole bunch this year about some of the ways those products resonate or don't resonate, as the case may be, in that important part of the market.

We are working to build on that learning now to drive our plans for the coming season.

And as I said earlier, and I think this is generally the case for us as a company, we have a lot of different tax businesses inside of our tax segment, but we have a good year when we succeed in the early season, and we have a -- we can have a poor year if we don't succeed in that early part of the season.

We now have a variety of tools at our disposal to go after that early season part of the market much more aggressively than we were willing to in the past, and I think that's where we are focusing on building on the learnings of this past year.

How much did Tax Express add to results in terms of units, volume, and could you be more specific in how that's set to compete?

I'm sorry, I missed the end of your question.

I think you had indicated that Tax Express in part was a second branch strategy to be more competitive and so was looking for how.

Oh, okay.

So Express Tax, which is a franchise, a second franchised business, contributed about 60,000 clients in its first year for us and we are, that along with Tax Works, are two new strategies that we have that we are taking to the market to address a couple of different segments, but importantly, I'd say Express Tax in particular, is a business that is targeted very much at that early season part of the market.

And our expansion plans for that for the coming year, I think, are still very much in development, but we think that is a key tool that we have now to blunt competitive inroads into that important part of the market.

Okay.

And then two more questions.

On the digital end of the business, which increased 19%, what was the revenue increase and how would you split that between software and Internet?

And can you also comment on the synergy between the Business Services and the rest of the Company?

I guess, obviously, looking for --

Got it.

Why aren't you spinning this off or selling it or doing --

Yes.

So digital, I'll take a shot and Tom Allanson may want to add to this.

You know, I think our ASP was about similar to last year, so our revenues grew about the same amount as our units, about 20% for the year.

I don't know that exactly, but I think that's pretty close.

And our mix, unlike what we've seen from some of the competitors, we had a good year in software.

Our software sales were up somewhat single-digit growth in units of software and so we know we gained, we believe we gained, clearly, gained share in the software part of the market as well as gaining share online.

The balance of our business came online.

So all in all, we had a good mix of growth in both portions of that business.

We don't break that out in very fine detail because of its relative scale and therefore we don't have to tell our competitors any more than we have to.

Business Services, we have -- we've really looked at what are the types of businesses that H&R Block can sort of uniquely compete in and have a strong position in the market with and we believe -- I believe for the longer term tax and accounting and the kinds of economics that come out of these businesses are certainly the kinds of sort of stable revenue, stable margins that our shareholders can benefit from as well as the free cash flow characteristics.

The one thing that is particularly attractive, in addition to the market position that we now have in McGladrey, is our ability to deploy capital and to build that business and enhance our competitive position.

We are clearly the number five accounting firm now in the United States and there's a lot of room to close the gap between our position and the big four.

So there's an awful lot of growth potential, we think, inherent in that business that makes it attractive, but frankly, to your, I guess, the implied point about your question that could this business be separated, sure, it could, but there are no intents to do that.

Great.

Thank you very much.

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

Please proceed.

Hey, good morning.

I guess some questions if we could start off in Tax.

Mark, you mentioned that you anticipate margins going up next year in the tax business.

Would that be a result of a decreased aggressive marketing push in the beginning of the season, or what's kind of driving that?

Scott, our increased -- our expected increase in margins has much more to do with cost spending discipline, I would say, Tim, than anything else.

We are not, in our current -- in that guidance, we are not currently expecting to moderate our level of marketing spend in the early season.

In fact, I think that level assumes sort of similar business as usual as we experienced this past year in a lot of aspects of our operation.

So generally, there is nothing inherent in that sort of margin guidance that would reflect a change in the operations of the business from where we were last year.

Now clearly, there are some things that will be different next year because of product changes and because of the availability of certain early season products next year versus what was in the market this year.

So I think that will change, but it's -- the margin guidance doesn't reflect that at this time.

Anything you'd add to that, Tim?

I think as you say, it's good control of fixed expenses and also just improvement.

Yes.

So a digital improvement is another key area where we're looking for sort of margin enhancement.

I see.

Okay.

I know you may not want to foreshadow what your plans are, but should we anticipate, I guess, a slowdown in the expansion plans of new stores?

Is that part of it?

We didn't go exactly directly at that question in the script about how many locations would we be adding next year, and part of the reason we didn't yet sort of pin that down is that with the addition of Express Tax, with the addition of Tax Works, we are looking at various ways we can mix different formats into the market in different ways to address different segments -- subsegments of the market in particular that early season part of the market where we have been adding locations principally to blunt competitors in some of those early season kind of filer markets.

We now have new tools at our disposal to do that, so we're looking at ways in which we can sort of mix the formats in different ways.

I would expect that we will certainly add locations and add points of presence, but we are looking at different ways those points of presence might be added for next year.

Okay.

And I guess if Bill did provide us with Cap Ex guidance, I don't have it right here in front of me.

Could you remind us what piece of Cap Ex in this year just completed was one-time ala the headquarters so we can kind of get a look at the year-over-year (inaudible)?

Yes, I think the amount that was one-time or, you know, is out for the coming year is about $90 million.

So we will go from $160 some-odd million to down to closer to 75 to $80 million for the coming year.

And then just a question on, still on the tax scene.

We've seen some fraud issues at Jackson Hewitt and on their recent conference call, they had noted that the IRS has increased its scrutiny on them as a corporation as opposed to just the franchisee involved.

Are you seeing anything on that front?

Is the IRS becoming more aggressive overall as a result of this and specifically, are they targeting you in any way?

All indications we have is that is specific to Jackson Hewitt.

We've seen no -- nothing here related to that.

Clearly, we understand how those kinds of things can happen and so I want to be a little cautious about that, but frankly, we have, as a consequence of seeing that, have reviewed, again, our internal risk management practices and policies and technology to understand how our systems are designed to ferret that kind of risk out before it happens and feel pretty comfortable that, in fact, our risk management procedures and process and compliance activities are working very effectively.

So, you know, never say never, but we're not seeing anything from IRS or others looking at that issue industry-wide.

Okay.

I'll stop there.

Thanks very much.

Thanks.

Your next question will come from line of Kelly Flynn with UBS.

Please proceed.

Thanks.

A couple questions on the Mortgage business.

I know you addressed this but I just want to clarify.

If you were not to lose any more money in that business, what would be the purchase price ultimately of the deal, at which the deal closes?

And in answering that, can you again repeat what was the tangible book value of the business as of the end of the April quarter?

Assuming that business operates just as it is, the net tangible book value is $1.1 billion.

As of the end of April?

Yes.

Okay.

And then, so why isn't the implied purchase price the $800 million that Michael mentioned?

That $1.1 billion already reflects, in effect we, because of the accounting that we have for our Mortgage business generally, and in particular because of the transaction that we've announced now, we mark-to-market our balance sheet, is the most effective way to say it, I think.

And as a consequence because we have negotiated to sell the business at a haircut, the $300 million haircut, that $1.1 billion and the results that we just reported already reflect us writing down that haircut or taking that as part of the charge we just took.

So that's why the net amount is not $300 million less than the $1.1 billion.

Having said that, just to be clear, the sale price -- the book value is made up of a whole range of different assets, all of which we believe are now fairly valued at 430, and their mark-to-market at April 30th, but some of those assets we will keep, some of those will go to Cerberus as part of the transaction, so the transaction value and the tangible book value can be somewhat different because of some assets that we'll retain versus those that go with the business.

But the book value already reflects the haircut.

Okay.

And so the comparable number as of January 31st would have been 1.4.

Is that correct?

Yes, approximately, yes.

Okay.

A couple other questions.

I got the impression that you might close this deal in July.

Is that likely?

And if not, are you optimistic you'll close it before October?

Kelly, I'm not sure where the initial impression came from on July, but I think as we went down the path here to close the transaction or with an eye towards closing as soon as possible, I think the factor that came into play was that it takes a considerable amount of time to get all of the regulatory approvals that I mentioned, HUD, the state licensing, and so forth, and there are probably 35 -- there are 18 definitely large states that we have to get licensing in and there are, I think, there are about 35 where we have to get back on a timely basis and make sure those licenses are in place.

Unfortunately, these are state issues and as you can imagine, with the state bureaucracies, it doesn't always sail through as quickly as we like.

So I think that's why we maintained that it could be, it would be in our second financial quarter, but that is really the reason for the delay and not anything beyond that.

Okay.

And finally, Bill, you mentioned in your comments that you'd have more to say about your capital structure after the Option One deal goes through.

Could you just elaborate on what you meant about that, and specifically, does it make sense for you guys to leverage up and repurchase a much more significant amount of your shares than you've done in recent years?

I'll just say briefly, what we wanted to allude to, of course, was the fact that we have discussions that still are in process with the OTS and that would affect, to a certain extent, flexibility.

So that's one of the issues we want to clear before we'd go into any further discussion on that.

Okay.

Thank you.

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

Please proceed.

Thanks.

Just, I guess, a couple of real quick questions.

In regards to the Mortgage business, you have a number of warehouse lines.

I know you've gotten exemptions in the current standpoint for the off balance sheet financing, but some of those warehouse lines are coming due over the next few months.

How have you, how is the sort of process of getting renewals or continuations on those gone?

Obviously they're important for the deal.

Yes, we have gotten all the waivers that are required to get us to the point we need to be at at closing.

At this point in time, the total amount of facilities, both committed on balance sheet and off balance sheet is $9.2 billion and so I think with respect to the waivers we have everything that we need to proceed.

Maybe I'm -- I guess I thought it was a little higher before.

Is that down from the end of last quarter?

I'm sorry?

Say that again, Mark?

Sorry.

I guess I thought it was a little higher before at the end of last quarter.

Is the 9.2, is that down a little bit with this renegotiations or?

Yes.

We consciously brought them down a bit because the volumes in the industry are just that much lower, so continuing to have much more line capacity didn't make sense.

Okay.

No, I was more curious than anything else.

And then maybe a couple of quick questions on the tax side, in some ways are a little bit repetitive, but I guess what Scott was asking earlier a little bit about the location expansion or store expansion, I guess, is there any discussions about, you know, you talked a lot about the early season and using Express Tax and Tax Works.

Is there any discussion, not only in maybe realigning some of the other buildout that you'd done in previous years, are you looking at individual store performance for whether or not you're going to close some, increase kind of closing of locations that may not be performing to par?

Yes.

I'll tell you, we look at that all the time, so that would -- nothing incremental to what we do as a normal course for our business.

There will be probably some of that, but it would be pretty small amount.

The locations that we've added in the last several years, we monitor their performance and their sort of net after cannibalization of their office's contribution, and they continued to perform within our models.

So there's nothing about that -- those choices that we would say is a failure or isn't working the way we would have wanted it to.

The bigger point, though, is that we are looking at with all the different tools that we have available to us now going into the next year, how do we best mix those together.

And then when you look at the season coming forward, obviously you've talked about continuing to focus on the early season customer, but last year we had a significant amount of stores open in the November/December time frame which was obviously a little bit new for you with the loan product.

So given that these early season loan products aren't going to exist in the same-store connotation, are you expecting to still open those stores and if so, what's the logic?

At this point, we don't have those plans in place so it's premature to answer that question.

We just don't know.

Clearly, we're not going to open up locations if we have nothing to do there.

But our margin guidance, I would tell you, for the most part continues to reflect that cost that was consistent with the cost we had last year more or less, so there's either room to work on our margins or to use that early season capacity for something.

At the moment we don't have that planned.

Got you.

And when you talk about the products, I guess you'd mentioned earlier, I think it was with Michael's question regarding the Bank and the value of outsourcing and whatnot, I guess with this past year, you had 2 million people taking the Emerald Card, but a significant amount of those came through the process of the preseason loan product, if I'm not mistaken.

So without the preseason loan product, what is the product base -- what's the differentiating factor in the product now versus where it would have been maybe two, three years prior that makes owning the Bank and owning that relationship much different?

Are you looking at new products that, you know, the additional type of products and services that you're trying to offer through the Card that maybe make this a much more functional item?

So without sort of revealing our strategy to our competitors, probably the biggest thing that the card relationship allows us to do is to sort of renew a relationship with our clients in an effective, direct way that we think can potentially have retentive affects that we weren't able to generate when we didn't have that kind of bank account relationship.

So that's at least part of the answer to that, but frankly, we are just coming out of our first year with this and are looking at how can we and can we, in fact, get the kind of advantage in the market that we believe this can create for us.

To Michael's point earlier and your question, if it doesn't do that, we clearly understand how we can -- other ways we can create value for shareholders, so if it's not having the kind of affect that we want to have in terms of solidifying our position in that early season, we'll look to do other things.

And if I could slide one last question in.

If you look at the price, the $1.1 billion on the theoretical price, and obviously we're still dealing with some ambiguity on the Mortgage sale, you previously talked about the OTS liability to sort of true up on that side being in the 650 range and then you'd have the excess.

So are we in a situation where that's significantly higher now, or is it, where is that gap that doesn't give us that excess capital to play with, either on a buy back or somewhere else?

Thanks.

And the biggest place is the operating results for the fourth quarter.

I mean the Mortgage results for the fourth quarter essentially absorbed a lot of that excess capital that would have otherwise gone to share repurchase as a result of the transaction.

I think we maybe have time for one more question.

Mark, just one point of clarification.

I think, Scott, on the issue of the lines outstanding, and just to be clear, there is, I mentioned $9.2 billion.

Those are committed facilities, just to be certain and (inaudible) you had a different number in mind.

There are $2 billion in lines that are uncommitted so that gives you $11.25 billion.

And if you were thinking in terms of where it was before, that combination would have been 13.5.

So that's the adjustment you need to know.

Great.

Thanks.

So I think we've got time for one more question.

Yes, sir.

Your last question will come from the line of Jennifer Pinnick with Morgan Stanley.

Please proceed.

Good morning.

Good morning, Jennifer.

I have a question regarding the unit gains.

Your tax unit gains was up reversing your trend from last year up 0.9, but the industry you're estimating is going to be 1.3.

Can you address what appears to be a market share loss despite an easy comparison?

And also a follow-up.

The midyear statistics from the IRS show a loss in market share from paid preparation.

If you could discuss what you see in that trend as well?

Sure.

Well, it's a little bit early because we have not seen final numbers from the IRS, so our analysis at this point is really informed by our own assessment of the industry and trying to build our own models of what incurred in the industry.

So I give you that caveat.

Having said that, clearly, our growth in retail clients, office clients -- office-based clients, while it didn't match what we think is the overall market growth of 1.3, it is a dramatic shift from where we have been, and I think it reflects, for us at least, the first important step in re-establishing our position in the early season part of the market.

So when we think about the shift, it's as much as anything else that change in momentum related to where we've been and how we have been competing or able to compete effectively in that early season.

And I would tell you, while I will tell you we see improvement in that from this past season, we are not satisfied and we have much further to go and we think we now have tools at our disposal to go after that more aggressively even than we did this past year.

So that's more the point of our comment about our market position from this past year.

In terms of the overall market, a key question that we monitor is sort of the relative mix of do-it-yourselfers versus people going to paid professionals.

And while that number has been building for several decades now toward providing advantage to the paid category at the expense of do-it-yourself and the digital business has really grown very much from enabling paper and pencil users to use technology.

The last year, both this past year and the year before that, it appears that that long-term trend toward assisted preparation may have halted and that digital is, or the do-it-yourself part of the market is both holding share and maybe slightly gaining share.

So unclear to us about that, but when we look at the mix of industry, or parts of the industry, we're looking at all those different things and assessing both our business mix going forward, sort of our competitive position going forward, as well as how we should view our results.

Okay.

And with regard to share repurchase timing, you do note in your call today that your first repurchase would be around Q4 '08, but typically your timing had been your fiscal first and second quarters.

Have you changed any of your policy regarding share repurchases?

Yes.

We will have to assess that.

The fourth quarter '08 is clearly a difficult quarter for us from an information perspective, so how we would execute and to what degree we would execute on a fourth quarter repurchase is something that we still have to develop.

I don't think we have the answers to that right now.

And during your analyst day earlier in the year, you talked about a $600 million intercompany transfer.

Is that related to the capital deficit and could you discuss maybe the change in magnitude of this intercompany transfer since January?

I'm sorry, I'm not sure I followed the question, Jennifer.

In the analyst day in January and on prior conference calls, we've discussed a $600 million intercompany transfer that due to the Option One proceeds would lower the share repurchase amount by $600 million, so the $700 million would be available for share repurchase?

Yes.

Yes.

I was just -- is that related to the capital deficit from the OTS requirements, and how has that changed the magnitude of that change since January?

Yes.

That has not changed dramatically -- that intercompany portion has not changed dramatically during the quarter.

Okay.

Okay.

That's my question.

Okay.

Jennifer, you may want to call us on that so we can get a very specific answer.

I think we're kind of around a very technical point that I don't want to have you get the wrong answer on.

Okay.

Great.

In fact, I would use that a way of saying maybe wrapping up and offering that anybody who has follow-up questions, feel free to give us a call.

We'll be happy to try to clarify points and share the information that we can.

With that, thanks for joining us this morning.

Ladies and gentlemen, this concludes your presentation.

You may now disconnect and have a great day.