Bharper

H&R Block's in Big Trouble Heading Into Tonight's Earnings

They stopped originating all but fannie/freddie loans in August. All the loans they ever originated have been securitized-the company retains no liability but $113 million of loans remaining for sale. The odds that they could have lied about this are exactly nil.

The page you are referring to in the Q is a reference to the servicing business. Servicing doesn't retain credit risk. Servicing businesses still have value in this market-they are low risk and relatively predictable cash cows. It will ultimately get sold.

Breeden has no reason to lie, he bought into the co after all this stuff went down. His money is where his mouth is.

Fair value: $27-28/shr.

H&R Block's in Big Trouble Heading Into Tonight's Earnings

Matt, What do you attribute the potential billions in additional losses to? The company has only $70 million in remaining loans on its books related to the discontinued OOMC operations. The net book value of discontinued ops is $860 million, $965 million of assets and liabilities are offsetting and have no economic value or risk and will ultimately roll off. Essentially the remaining value of OOMC is related to the servicing ops, which are valued at $820 million as of the 10-Q. Do you have an idea of what might be written off or what might be reserved against given the companies remaining assets and exposures?

Don't forget that HR Block's business is seasonal and they always build up debt at this time of year, then they generate all of their earnings and cash flow between now and April and the debt is paid down. The difference this year is that they've had to tap a credit line rather than their normal issuance of comm'l paper since the comm'l paper market has dried up.