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H&R Block Swings to Loss, Hurt By Subprime Charges

H&R Block swung to a fourth-quarter loss Thursday as the continuing struggles of its mortgage lending arm offset higher revenue in its tax and financial services divisions.

H&R Block reported losing $85.5 million, or 26 cents per share, during the February-April period, which is when the nation's largest tax preparer sees the majority of its revenue. By comparison, the company earned $587.5 million, or $1.79, during the same period a year ago.

Revenues during the quarter grew 7.9% from about $2.18 billion to about $2.35 billion.

H&R Block announced in April that it will sell its Option One Mortgage to a subsidiary of private equity firm Cerberus Capital Management by October 31. The price won't be final until the sale closes but it's expected the company will sell Option One at a discount.

Option One, which lends money to people with poor credit, has suffered as the so-called subprime market has been rocked as rising interest rates and declining home prices has forced more borrowers to default on their loans.

The company said it recorded a quarterly loss of $676.8 million, or $2.07 per share, on discontinued operations, which includes Option One as well as several smaller non-mortgage businesses.

Not including those operations, the company said it earned $591.2 million, or $1.81 per share. By comparison, earnings from continuing operations during the same period a year ago totaled $541.7 million, or $1.63 per share.

Analysts surveyed by Thomson Financial expected earnings of $1.88 on $2.44 billion in revenue.

The company's tax division reported $1.91 billion in revenue, up 8.2% from $1.76 billion during the same period last year.

H&R Block's consumer financial services, which includes its year-old bank, saw fourth-quarter revenues jump almost 57% from $76.8 million to $120.2 million.

For the year, the company said it lost $433.6 million, or $1.34 per share, compared with earnings of $490.4 million, or $1.49 per share, during the previous year.

H&R Block reported an $808 million, or $2.48 per share, loss on discontinued operations. Not including those operations, the company said it earned $374.3 million, or $1.15 per share, for the year, up 26% from $297.5 million, or 89 cents per share, the year before.

The 2006 earnings included a $42.5 million after-tax charge for settling various lawsuits and other legal expenses.

Revenue for the year increased 12% from $3.57 billion to $4.02 billion.

Analysts were expecting annual earnings of $1.17 per share on $4.5 billion in revenue.

Looking ahead to the current fiscal year, the company said it expected earnings of between $1.25 and $1.45 per share, below analysts' expectation of $1.47 per share. H&R Block said it expected Option One and other discontinued operations to continue posting modest losses during the first two quarters.

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