Cash earnings improved 24.1 percent over the prior year’s quarter with a loss of $28.6 million, or 31 cents per basic and diluted share, compared with $37.7 million, or 39 cents per basic and diluted share. The company defines cash earnings as net losses from operations excluding the after-tax effect of amortization expense of acquired intangible assets.

The company typically incurs losses in the second quarter due to the seasonality of its tax and business services operations. The quarter’s 11 percent higher net loss resulted primarily from amortization of intangibles from the acquisition of H&R Block Financial Advisors Inc. (formerly Olde Discount Corporation), and RSM McGladrey Inc., and higher interest expense on acquisition financing, partially offset by an increase in the effective income tax rate.

The company reported that revenues for the second quarter climbed 72.7 percent to $362.6 million, compared with $209.9 million for the same period last year.

For the second quarter, the company purchased 282,700 of its shares of common stock for approximately $9.7 million, bringing the year-to-date total to 6.8 million shares repurchased at a cost of $222.8 million, or $32.70 per share. The loss of investment income due to the company’s share repurchase program and the resulting fewer shares outstanding increased this quarter’s loss per share by approximately 6 cents compared to last year.

In the quarter, the company’s performance as measured by earnings before interest (including interest expense on acquisition debt, investment income and interest allocated to operating business units), taxes, depreciation and amortization (EBITDA), improved by $30.6 million to a negative $14.1 million, a gain of 68.5 percent over the prior year’s quarter. The pretax amortization expense of acquired intangible assets increased in the second quarter to $25.6 million from $10.7 million during the same period last year.

Tax Operations

U.S. tax operations reported a pretax loss of $87.2 million, compared with $83.7 million last year. The segment’s increased loss was due to increases in depreciation, amortization and rent expense of $7.1 million associated with office expansion and franchise acquisitions during the prior year, partially offset by a $5.4 million increase in revenues from the company’s Peace of Mind service. In addition, $2 million of the segment’s net $3.5 million increased loss was associated with the development of online services for the upcoming tax season.

Earnings in International tax operations improved 71.6 percent, driven primarily by reduced expenses in Canadian operations and a strong tax season in Australia, offset by strength in the U.S. dollar.

Financial Services

The financial services segment reported a 54.9 percent increase in pretax earnings to $32.4 million, due primarily to the first-time inclusion of H&R Block Financial Advisors, which was acquired Dec. 1, 1999. Revenues rose 163.8 percent to $241.4 million.

Mortgage operations, which include Option One Mortgage Corporation and H&R Block Mortgage Corporation, reported pretax earnings of $20.7 million, a 10.9 percent decrease from the prior year. Revenues rose 24.5 percent to $109.8 million. The lower margin is primarily attributable to higher warehouse financing costs associated with the company’s new third-party financing arrangement and narrowing profit margins on loan sale transactions. Option One and H&R Block Mortgage originated $1.5 billion in loans in the second quarter, an increase of 2.6 percent over the same period last year. As of Oct. 31, 2000, Option One’s servicing portfolio was approximately $16.6 billion, an increase of $7.8 billion over last year.

Block’s investment services operations, which consists primarily of H&R Block Financial Advisors, contributed $131.6 million in revenues and $11.7 million in pretax earnings. The average commission rate per trade of $70.52 represents a 10.2 percent increase from $64.02 in the prior year’s quarter and an 11.4 percent increase compared with the last quarter’s rate of $63.31.

The financial services segment also reported solid cash flows. EBITDA increased $28 million to $53.9 million, or 108.3 percent over the prior year. The increase was primarily driven by the first-time inclusion of H&R Block Financial Advisors.

Business Services

Business services, which primarily includes RSM McGladrey, improved pretax losses by 32.2 percent to $0.8 million while revenues declined 5.9 percent to $78.3 million compared with $83.2 million last year. The improved contribution reflects increased utilization of staff during the quarter. Business services reported a 55.7 percent improvement in EBITDA to $8.9 million, compared with $5.7 million last year.

Other

Interest expense on acquisition debt increased $16.5 million to $24.5 million, due to the first-time inclusion of the financing costs associated with the acquisition of H&R Block Financial Advisors.

For the six months ended Oct. 31, 2000, H&R Block’s revenues were $683.2 million, up 106.1 percent from the same period a year ago. The net loss was $101.4 million, or $1.10 per basic and diluted share, compared with a net loss of $81.8 million, or 84 cents per share for the same six-month period last year. Cash earnings improved 14.2 percent over the prior year’s six-month period with a loss of $59.7 million, or 65 cents per basic and diluted share, compared with a loss of $69.6 million, or 71 cents per basic and diluted share. EBITDA improved by $55.4 million to a negative $33.1 million, an increase of 62.6 percent over the prior year’s six-month period.

The Board of Directors of H&R Block declared a quarterly dividend of 30 cents per share, payable Jan. 2, 2001, to shareholders of record on Dec. 12, 2000.