Our subsidiaries provide tax preparation, retail banking and various business advisory and consulting services. We are the only major company offering a full range of software, online and in-office tax preparation solutions to individual tax clients.

OVERVIEW
A summary of our fiscal year 2009 results is as follows:
§ Revenues for the fiscal year were $4.1 billion, essentially flat compared with prior year results.
§ Diluted earnings per share of our continuing operations increased 12.5% from the prior year to $1.53, primarily due to cost containment measures implemented across all our segments.
§ Tax returns prepared in the U.S. declined 3.2% from the prior year due to a decline in overall IRS filings and a weak economy, which we believe resulted in clients seeking lower-cost alternatives.
§ Increases in net average fee per tax return prepared of 7.2% resulted primarily from higher return-complexity.
§ Tax Services segment revenues increased 1.5% over the prior year. Segment pretax income increased $108.0 million, or 13.7%, due primarily to cost containment measures resulting in a year-over-year increase to pretax margin of 320 basis points to 29.5%. Revenues and margins also benefitted from the November 2008 acquisition of our last major franchise operator.
§ Business Services pretax income increased 8.2% over the prior year, as lower than expected revenues were offset by cost containment measures. § Consumer Financial Services reported a pretax loss of $14.5 million compared to income of $11.5 million in the prior year, due primarily to increases in loan loss provisions.
§ Our brokerage advisor business previously conducted through HRBFA was sold to Ameriprise effective November 1, 2008 and results for that business have been reported as discontinued operations for all periods presented.

Consolidated Results of Operations Data              (in 000s, except per share amounts)

Year Ended April 30,                              2009             2008             2007


REVENUES:
Tax Services                              $  3,033,123     $  2,988,617     $  2,685,858
Business Services                              897,809          941,686          932,361
Consumer Financial Services                    141,801          142,706           77,178
Corporate and eliminations                      10,844           13,621           14,965

                                          $  4,083,577     $  4,086,630     $  3,710,362

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES:
Tax Services                              $    893,805     $    785,839     $    705,171
Business Services                               96,097           88,797           57,661
Consumer Financial Services                    (14,508 )         11,484           23,086
Corporate and eliminations                    (136,024 )       (151,049 )       (158,657 )

                                               839,370          735,071          627,261
Income taxes                                   326,315          289,124          257,801

Net income from continuing operations          513,055          445,947          369,460
Net loss of discontinued operations            (27,382 )       (754,594 )       (803,113 )

Net income (loss)                         $    485,673     $   (308,647 )   $   (433,653 )

BASIC EARNINGS (LOSS) PER SHARE:
Net income from continuing operations     $       1.54     $       1.37     $       1.14
Net loss of discontinued operations              (0.08 )          (2.32 )          (2.48 )

Net income (loss)                         $       1.46     $      (0.95 )   $      (1.34 )

DILUTED EARNINGS (LOSS) PER SHARE:
Net income from continuing operations     $       1.53     $       1.36     $       1.13
Net loss of discontinued operations              (0.08 )          (2.30 )          (2.46 )

Net income (loss)                         $       1.45     $      (0.94 )   $      (1.33 )

RESULTS OF OPERATIONS

TAX SERVICES
This segment primarily consists of our income tax preparation businesses -
retail, online and software. This segment includes our tax operations in the
U.S., Canada and Australia. The following discussion excludes the results of our
former tax business in the United Kingdom, which is reported in discontinued
operations for fiscal year 2007.


Tax Services - Operating Statistics
                                                            (in 000s, except average fee)

Year Ended April 30,                                     2009          2008          2007


TAX RETURNS PREPARED (1):
United States:
Company-owned operations                               10,231        10,530        10,336
Franchise operations                                    4,936         5,577         5,460

Total retail operations                                15,167        16,107        15,796

Software                                                2,418         2,378         2,708
Online                                                  2,775         1,911         1,723
Free File Alliance                                        788         1,453         1,224

Total digital tax solutions                             5,981         5,742         5,655

Total U.S operations                                   21,148        21,849        21,451
International operations                                2,864         2,725         2,569

                                                       24,012        24,574        24,020

NET AVERAGE FEE PER U.S. TAX RETURN PREPARED (2):
Company-owned operations                            $  196.16     $  183.68     $  172.45
Franchise operations                                   169.04        157.72        151.06

                                                    $  187.36     $  174.70     $  165.06

LOAN PRODUCTS :
RALs(3):
Company-owned operations                                1,904         2,446         2,402
Franchise operations                                    1,042         1,460         1,450

                                                        2,946         3,906         3,852

Emerald Advance lines of credit                         1,047           887            -

(1) Fiscal year 2009 tax returns prepared in company-owned offices include approximately 470,000 returns prepared in offices of our last major franchise operator, which we acquired in November 2008. Tax returns prepared in the same acquired offices are reported in franchise operations for fiscal years 2008 and 2007. Clients who were prompted to file a tax return to receive a rebate under the Economic Stimulus Act of 2008 have been excluded from all periods.
(2) Calculated as net tax preparation fees divided by retail tax returns prepared.
(3) Data is for tax season (January 1 - April 30) only.

Tax Services - Financial Results                                                               (dollars in 000s)

Year Ended April 30,                                  2009                   2008                           2007


Service revenues:
Tax preparation fees                           $ 2,155,217            $ 2,096,236            $         1,896,269
Other services                                     367,153                363,579                        301,411

                                                 2,522,370              2,459,815                      2,197,680
Royalties                                          255,536                237,986                        220,136
Loan participation fees and related revenue        142,740                190,201                        210,040
Other                                              112,477                100,615                         58,002

Total revenues                                   3,033,123              2,988,617                      2,685,858

Cost of services:
Compensation and benefits                          870,044                889,923                        826,064
Occupancy                                          377,846                376,350                        346,937
Supplies                                            47,852                 56,731                         58,013
Bad debt                                            43,327                 42,248                         25,228
Depreciation and amortization                       37,521                 36,378                         42,043
Allocated shared services and other                209,473                203,695                        189,595

                                                 1,586,063              1,605,325                      1,487,880
Cost of other revenues, selling, general and
administrative                                     553,255                597,453                        492,807

Total expenses                                   2,139,318              2,202,778                      1,980,687

Pretax income                                  $   893,805            $   785,839            $           705,171

Pretax margin                                        29.5%                  26.3%                          26.3%


18  H&R BLOCK 2009 Form 10K

FISCAL 2009 COMPARED TO FISCAL 2008 - Tax Services' revenues increased $44.5 million, or 1.5%, compared to the prior year.
Tax preparation fees from our retail offices increased $59.0 million, or 2.8%, for fiscal year 2009. This increase is primarily due to an increase of 6.8% in the net average fee per U.S. tax return prepared in company-owned offices, offset by a 2.8% decrease in the number of U.S. tax returns prepared in those offices. Tax return volume was positively affected by the November 2008 acquisition of our last major independent franchise operator, which resulted in an increase of 470,000 tax returns prepared in company-owned offices. See Item 8, note 2 to the consolidated financial statements for additional information on this acquisition. Excluding operating results attributable to the acquired franchise operator, tax returns prepared in company-owned offices decreased 7.3% from the prior year and tax preparation fees decreased $32.9 million.
Increases in our net average fee are due primarily to increased tax return complexity. In addition, planned pricing increases of approximately 1% and lower discounts contributed to an increase in net average fee. We believe that declines during the year in tax return volume were attributable to a decline of approximately 6% in IRS tax filings overall, and difficult economic conditions which resulted in clients seeking lower-cost tax preparation alternatives. Tax returns prepared in our international operations grew 5.1%, and the related tax preparation revenues increased 8.9% in local currencies. However, unfavorable exchange rates caused these revenues in U.S. dollars to decline $9.5 million, or 5.6%, from the prior year.
Other service revenue increased $3.6 million, or 1.0%, primarily due to $10.7 million in additional license fees earned from bank products, mainly RACs, coupled with additional revenues from online tax preparation. We also earned an incremental $6.6 million in connection with an agreement with HRB Bank for the H&R Block Emerald Prepaid MasterCard® program, under which, this segment shares in the revenues and expenses associated with the program. These increases were partially offset by a $10.6 million decline in e-filing revenues, as a result of the elimination of separate e-filing fees related to our TaxCut® software product.
Royalty revenue increased $17.6 million, or 7.4%, primarily due to a 7.2% increase in the net average fee and an increase in royalty rates at sub-franchises of the acquired franchise operator.
Loan participation fees and related revenues decreased $47.5 million, or 25.0%, from the prior year. This decrease is primarily due to a 24.6% decline in RAL volume, mainly as a result of many clients choosing lower cost alternatives such as RACs rather than a loan. In addition, stricter credit criteria were required by our third-party loan originator.
Other revenues increased $11.9 million, or 11.8%, primarily due to $22.7 million in incremental fees earned in connection with the Emerald Advance loan program, also under a revenue and expense sharing agreement with HRB Bank. This increase was partially offset by a decline in software revenues.
Total expenses decreased $63.5 million, or 2.9%, compared with the prior year, due primarily to lower tax return volumes, lower bad debt on loan products and planned cost reduction initiatives. Cost of services decreased $19.3 million, or 1.2%, from the prior year almost exclusively as a result of a decrease in commission-based wages resulting from a corresponding decrease in tax returns prepared.
Cost of other revenues, selling, general and administrative expenses decreased $44.2 million, or 7.4%. This decrease was due, in part, to a $17.1 million decline in bad debt expense due to lower RAL volumes and the impact of loss provisions in the prior year which did not repeat in fiscal year 2009, partially offset by an increase in Emerald Advance loan volumes. We also saw a decline of $32.4 million in allocated corporate and support department costs due to cost reduction efforts, offset by a planned increase of $43.0 million in marketing costs. During fiscal year 2009 we sold certain company-owned offices to franchisees, recognizing a net gain of $14.9 million, which is included above as a reduction to cost of other revenues, selling, general and administrative expenses.
Pretax income for fiscal year 2009 increased $108.0 million, or 13.7%, from 2008. As a result of cost reduction initiatives and the acquisition of our last major franchise operator, pretax margin for the segment increased from 26.3% in fiscal year 2008, to 29.5% in fiscal year 2009, in excess of our stated minimum goal to achieve a 200 basis point margin improvement.

FISCAL 2008 COMPARED TO FISCAL 2007 - Tax Services' revenues increased $302.8 million, or 11.3%, compared to fiscal year 2007.
Tax preparation fees from our retail offices increased $200.0 million, or 10.5%, for fiscal year 2008. This increase was primarily due to an increase of 6.5% in the net average fee per U.S. tax return prepared in company-owned offices, and a 1.9% increase in the number of U.S. tax returns prepared in those offices. Our international operations contributed $33.2 million to the increase, resulting from a 6.1% increase in tax returns prepared.
Other service revenue increased $62.2 million, or 20.6%, primarily due to $23.9 million in additional license fees earned from bank products and $16.2 million in additional revenues from our online tax preparation and e-filing

services. This segment also earned $15.1 million in additional customer fees based on an agreement with HRB Bank for the H&R Block Emerald Prepaid MasterCard® program.
Royalty revenue increased $17.9 million, or 8.1%, due to a 2.1% increase in tax returns prepared in franchise offices and a 4.4% increase in the net average fee.
Loan participation fees and related revenues decreased $19.8 million, or 9.4%, from fiscal year 2007. This decrease was primarily due to participation fees earned on Instant Money Advance Loans (IMALs) in fiscal year 2007. IMALs were not offered during fiscal year 2008. This decrease was offset by an increase in other revenues related to Emerald Advance lines of credit.
Other revenues increased $42.6 million, or 73.5%, primarily due to $24.1 million in fees earned in connection with the Emerald Advance loan program, also under a revenue and expense sharing agreement with HRB Bank. Additionally, $16.2 million of the increase was due to sales of commercial tax preparation software, TaxWorks®, which was acquired in February 2007.
Total expenses increased $222.1 million, or 11.2%, compared to fiscal year 2007. Cost of services increased $117.4 million, or 7.9%, from fiscal year 2007. Compensation and benefits increased $63.9 million, or 7.7%, primarily as a result of a 6.5% increase in commission-based wages resulting from a corresponding increase in tax returns prepared and net average charge. Occupancy expenses increased $29.4 million, or 8.5%, primarily as a result of higher rent expenses, due to a 2.8% increase in company-owned offices under lease and a 3.4% increase in the average rent. Bad debt expense increased $17.0 million due to increased settlement product withholdings and increased delinquency rates. Other cost of services increased $14.1 million, or 7.4%, primarily due to additional support department costs for information technology and other projects and costs associated with the H&R Block Emerald Prepaid MasterCard® program, which this segment shares with HRB Bank.
Cost of other revenues, selling, general and administrative expenses increased $104.6 million, or 21.2%. This increase was primarily due to $58.1 million of incremental bad debt expense related to RALs and our new Emerald Advance program. Approximately $14.2 million of the increase in bad debt expense was due to the elimination of third-party cross-collect practices, whereby banks no longer collect amounts due from clients on our behalf, and an additional $12.0 million resulted from changes in IRS taxpayer fraud detection practices. The remaining increase was primarily due to an incremental $31.5 million in bad debt expense related to the Emerald Advance loan program, which replaced the IMAL. This increase was primarily due to the participation rate on IMALs, which was 26%, while Emerald Advances are funded by HRB Bank with nearly 100% participation by this segment in loans outstanding at April 30, 2008. We also saw increases of $23.3 million, $10.6 million and $9.8 million in corporate wages, amortization of intangibles and legal expenses, respectively. Pretax income for fiscal year 2008 increased $80.7 million, or 11.4%, from 2007.

20 H&R BLOCK 2009 Form 10K

BUSINESS SERVICES
This segment offers accounting, tax and business consulting services, wealth
management and capital market services to middle-market companies. The following
discussion excludes the results of three businesses reported in discontinued
operations in fiscal years 2008 and 2007.


     Business Services - Operating Statistics

     Year Ended April 30,                            2009          2008          2007


     ACCOUNTING, TAX AND BUSINESS CONSULTING:
     Chargeable hours (000s)                        4,724         4,971         5,075
     Chargeable hours per person                    1,406         1,423         1,373
     Net billed rate per hour                   $     151     $     147     $     148
     Average margin per person                  $ 121,492     $ 120,638     $ 118,415

 Business Services - Operating Results                                 (dollars in 000s)

 Year Ended April 30,                        2009           2008                    2007


 Tax services                          $  458,439     $  442,521     $           408,857
 Business consulting                      249,346        237,113                 205,541
 Accounting services                       54,217         57,399                  65,372
 Capital markets                           18,220         51,144                  48,886
 Leased employee revenue                       55         25,100                  83,244
 Reimbursed expenses                       19,863         18,654                  13,436
 Other                                     97,669        109,755                 107,025

 Total revenues                           897,809        941,686                 932,361

 Compensation and benefits                521,513        535,920                 541,861
 Occupancy                                 79,817         74,841                  68,859
 Other                                     61,732         65,349                  65,699

 Cost of revenues                         663,062        676,110                 676,419
 Amortization of intangible assets         13,018         14,439                  15,521
 Selling, general and administrative      125,632        162,340                 182,760

 Total expenses                           801,712        852,889                 874,700

 Pretax income                         $   96,097     $   88,797     $            57,661

 Pretax margin                              10.7%           9.4%                    6.2%

FISCAL 2009 COMPARED TO FISCAL 2008 - Business Services' revenues for fiscal year 2009 decreased $43.9 million, or 4.7%, from the prior year, primarily due to declines in capital markets, leased employee revenues and outside contractor services.
Revenues from core tax, consulting and accounting services increased $25.0 million, or 3.4%, over the prior year. Tax services revenues increased $15.9 million, or 3.6%, over the prior year due to increases in net billed rate per hour. Business consulting revenues increased $12.2 million, or 5.2%, over the prior year primarily due to a large one-time financial institutions engagement.
Weak economic conditions in the current year severely reduced investment and transaction activity. As a result, capital markets revenues decreased $32.9 million, or 64.4%, from the prior year primarily due to a 57.4% decline in the number of transactions closed.
Leased employee revenue decreased due to a change in organizational structure between the businesses we acquired from American Express Tax and Business Services, Inc. (AmexTBS) and the Attest Firms that, while not affiliates of our company, also serve our clients. Employees we previously leased to the Attest Firms were transferred to the separate attest practices over the last two fiscal years. As a result, we no longer record the revenues and expenses associated with leasing these employees, which resulted in a reduction of $25.0 million to current year revenues, and a similar reduction in compensation and benefits. Other revenue declined $12.1 million, or 11.0%, primarily due to a decrease in outside contractor services provided to our clients.
Total expenses decreased $51.2 million, or 6.0%, compared to the prior year. Compensation and benefits decreased $14.4 million, primarily due to the change in organizational structure with AmexTBS and fewer capital markets commissions resulting from the decline in transactions, as discussed above. These decreases were partially offset by severance costs incurred in the current year. Selling, general and administrative expenses decreased $36.7 million, or 22.6%, primarily due to declines in external consulting fees, allocated corporate and support department costs and travel and entertainment expenses.
Pretax income for the year ended April 30, 2009 of $96.1 million compares to $88.8 million in the prior year. Pretax margin for the segment increased from 9.4% in fiscal year 2008, to 10.7% in fiscal year 2009, below our stated

goal to achieve a 12.0% pretax margin primarily due to poor results in our capital markets business and lower than expected revenue growth in our core businesses.

FISCAL 2008 COMPARED TO FISCAL 2007 - Business Services' revenues for fiscal year 2008 increased $9.3 million, or 1.0%, over fiscal year 2007.
Tax services revenues increased $33.7 million, or 8.2% and business consulting revenues increased $31.6 million, or 15.4%, over fiscal year 2007. These increases resulted primarily from both an increase in the number of client service professionals as well as an improvement in productivity per professional.
Capital markets revenues increased $2.3 million, primarily due to a $12.6 million increase in underwriting revenues due to a 37.4% increase in revenue per transaction. Valuation and seminar revenues declined $10.4 million due to a 70.3% decline in the number of business valuation projects as a result of the wind-down of this service line.
Leased employee revenue decreased due to the change in organizational structure with AmexTBS as discussed above, which resulted in a reduction of $58.1 million to fiscal year 2008 revenues, and a similar reduction in compensation and benefits.
Total expenses decreased $21.8 million, or 2.5%, for fiscal year 2008 compared to 2007. Compensation and benefits decreased due to the change in organizational structure with AmexTBS as discussed above, which was almost entirely offset by additional compensation resulting from increases in the number of personnel and the average wage per employee.
Selling, general and administrative expenses decreased $20.4 million, or 11.2%, primarily due to decreases in external consulting and legal fees. During fiscal year 2007, additional consulting fees were incurred related to our marketing initiatives, and additional legal expenses were incurred related to international acquisitions that were ultimately not completed.
Pretax income for the year ended April 30, 2008 of $88.8 million compares to $57.7 million in fiscal year 2007.

CONSUMER FINANCIAL SERVICES
This segment is engaged in providing retail banking offerings primarily to Tax Services clients through HRB Bank. HRB Bank offers traditional banking services including prepaid debit card accounts, Emerald Advance lines of credit, checking and savings accounts, individual retirement accounts and certificates of deposit. This segment previously included HRBFA, which has been presented as a discontinued operation in the accompanying consolidated financial statements.

22 H&R BLOCK 2009 Form 10K

 Consumer Financial Services - Operating Statistics

 Year Ended April 30,                                2009            2008            2007


 Net interest margin (1)                            9.06%           5.54%           2.77%
 Pretax return on average assets (2)               (1.03% )         0.80%           2.60%
 Total assets (in 000s)                       $ 1,117,000     $ 1,078,188     $ 1,501,390
 Mortgage loans held for investment:
 Loan loss reserve as a % of mortgage loans        10.23%           4.49%           0.25%
 Delinquency rate (30+ days)                       20.23%          11.71%           3.86%

(1) Defined as net interest income divided by average earning assets. See "Reconciliation of Non-GAAP Financial Information" at the end of Item 7.
(2) Defined as pretax income divided by average assets. See "Reconciliation of Non-GAAP Financial Information" at the end of Item 7.

      Consumer Financial Services - Operating Results                  (in 000s)

      Year Ended April 30,                    2009           2008           2007


      Interest income:
      Mortgage loans, net               $   46,396     $   74,895     $   53,396
      Emerald Advance lines of credit       44,171         21,224              -
      Other                                  1,845          7,151          3,531

                                            92,412        103,270         56,927

. . .