What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-03-09 · 153 added, 299 removed, 420 unchanged (52% of the section changed)

3 unchanged sentences

per share amounts)

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Three months ended September 30,

Service revenues $ 176,977 $ 382,357

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Interest expense on borrowings ( 22,830 ) ( 34,697 )

Loss from continuing operations before income tax benefit ( 283,500 ) ( 177,030 ) ( 396,485 ) ( 645,450 )

Income tax benefit ( 51,669 ) ( 49,004 ) ( 35,730 ) ( 188,146 )

Loss from continuing operations before income taxes (benefit) ( 197,318 ) ( 32,946 )

Income taxes (benefit) ( 47,373 ) 27,964

Net loss from continuing operations ( 149,945 ) ( 60,910 )

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CONSOLIDATED BALANCE SHEETS (unaudited, in 000s, except

share and per share amounts)

As of January 31, 2021 January 31, 2020 April 30, 2020

As of September 30, 2021 June 30, 2021

Cash and cash equivalents $ 891,739 $ 1,434,381

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56,829 88,932

Income taxes receivable 338,399 330,872

Prepaid expenses and other current assets 69,714 76,414

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141,006 139,276

Operating lease right of use asset 419,245 463,777 494,788

Operating lease right of use assets 410,724 445,847

Intangible assets, net 337,451 351,093

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Accrued income taxes and reserves for uncertain tax positions 155,137 238,863

Current portion of long-term debt — 649,022 649,384

Operating lease liabilities 201,179 214,190

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Total current liabilities 752,969 982,486

Long-term debt and line of credit borrowings 2,369,574 1,880,589 2,845,873

Long-term debt 1,984,512 1,983,719

Deferred tax liabilities and reserves for uncertain tax positions 303,476 301,658

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Common stock, no par, stated value $ 0.01 per share, 800,000,000 shares authorized, shares issued of 209,853,951 and 216,655,616

2,187 2,282 2,282

Additional paid-in capital 770,683 779,465

Accumulated other comprehensive loss ( 11,693 ) ( 25,391 ) ( 51,576 )

Accumulated other comprehensive income (loss) ( 11,089 ) 88

Retained earnings (deficit) ( 74,757 ) 286,694

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( 671,408 ) ( 680,356 )

Total stockholders' equity (deficiency) ( 534,580 ) ( 318,379 ) 71,041

Total stockholders' equity 15,528 388,058

Total liabilities and stockholders' equity $ 3,368,027 $ 4,014,388

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)

Nine months ended January 31, 2021 2020

Three months ended September 30, 2021 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

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Repayments of line of credit borrowings — ( 2,000,000 )

Proceeds from line of credit borrowings 1,200,000 1,320,000

Repayments of long-term debt — ( 650,000 )

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Other, net ( 5,911 ) ( 19,131 )

Net cash provided by (used in) financing activities ( 1,442,825 ) 611,912

Net cash used in financing activities ( 217,322 ) ( 2,146,807 )

Effects of exchange rate changes on cash ( 3,959 ) 2,975

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Interest paid on borrowings 12,594 34,726

Accrued purchase of common stock 4,785 12,323

Accrued additions to property and equipment 6,273 1,816

New operating right of use assets and related lease liabilities 29,371 21,590

Accrued dividends payable to common shareholders 47,940 50,154

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except

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Comprehensive

Income (Loss) Retained

Income (Loss) (1)

(Deficit) Treasury Stock Total

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Shares Amount Shares Amount

Balances as of May 1, 2020 228,207 $ 2,282 $ 775,387 $ ( 51,576 ) $ 42,965 ( 35,731 ) $ ( 698,017 ) $ 71,041

Net income — — — — 91,259 — — 91,259

Other comprehensive income — — — 17,539 — — — 17,539

Stock-based compensation — — 7,422 — — — — 7,422

Stock-based awards exercised or vested — — ( 10,027 ) — ( 1,247 ) 627 12,247 973

Acquisition of treasury shares (1)

— — — — — ( 204 ) ( 2,913 ) ( 2,913 )

Cash dividends declared - $ 0.26 per share

— — — — ( 50,044 ) — — ( 50,044 )

Balances as of July 1, 2021 216,656 $ 2,167 $ 779,465 $ 88 $ 286,694 ( 34,842 ) $ ( 680,356 ) $ 388,058

Net loss — — — — ( 151,601 ) — — ( 151,601 )

Other comprehensive income — — — 2,330 — — — 2,330

Other comprehensive loss — — — ( 11,177 ) — — — ( 11,177 )

Stock-based compensation — — 5,627 — — — — 5,627

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— — — — ( 47,940 ) — — ( 47,940 )

Balances as of October 31, 2020 218,719 $ 2,187 $ 773,691 $ ( 31,707 ) $ ( 335,617 ) ( 35,301 ) $ ( 688,520 ) $ ( 279,966 )

Net loss — — — — ( 232,994 ) — — ( 232,994 )

Other comprehensive income — — — 20,014 — — — 20,014

Stock-based compensation — — 5,265 — — — — 5,265

Stock-based awards exercised or vested — — ( 461 ) — ( 218 ) 76 1,473 794

Acquisition of treasury shares (1)

— — — — — ( 1 ) ( 4 ) ( 4 )

Cash dividends declared - $ 0.26 per share

— — — — ( 47,689 ) — — ( 47,689 )

Balances as of January 31, 2021 218,719 $ 2,187 $ 778,495 $ ( 11,693 ) $ ( 616,518 ) ( 35,226 ) $ ( 687,051 ) $ ( 534,580 )

(1) Represents shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except

per share amounts)

Balances as of September 30, 2021 209,854 $ 2,099 $ 770,683 $ ( 11,089 ) $ ( 74,757 ) ( 34,342 ) $ ( 671,408 ) $ 15,528

Common Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss) Retained

Income (Loss) (1)

(Deficit) Treasury Stock Total

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Shares Amount Shares Amount

Balances as of May 1, 2019 238,337 $ 2,383 $ 767,636 $ ( 20,416 ) $ 499,386 ( 36,377 ) $ ( 707,462 ) $ 541,527

Net loss — — — — ( 150,247 ) — — ( 150,247 )

Other comprehensive loss — — — ( 2,320 ) — — — ( 2,320 )

Stock-based compensation — — 6,557 — — — — 6,557

Stock-based awards exercised or vested — — ( 13,789 ) — ( 2,786 ) 906 17,631 1,056

Acquisition of treasury shares (1)

— — — — — ( 314 ) ( 9,185 ) ( 9,185 )

Repurchase and retirement of common shares ( 1,593 ) ( 16 ) ( 955 ) — ( 43,101 ) — — ( 44,072 )

Cash dividends declared - $ 0.26 per share

— — — — ( 52,512 ) — — ( 52,512 )

Balances as of July 1, 2020 228,207 $ 2,282 $ 772,943 $ ( 39,781 ) $ ( 18,455 ) ( 35,478 ) $ ( 692,187 ) $ 24,802

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— — — — ( 50,154 ) — — ( 50,154 )

Balances as of October 31, 2019 231,024 $ 2,310 $ 765,220 $ ( 21,817 ) $ ( 122,535 ) ( 35,778 ) $ ( 698,925 ) $ ( 75,747 )

Net loss — — — — ( 129,683 ) — — ( 129,683 )

Other comprehensive loss — — — ( 3,574 ) — — — ( 3,574 )

Stock-based compensation — — 6,529 — — — — 6,529

Stock-based awards exercised or vested — — ( 69 ) — ( 180 ) 47 939 690

Acquisition of treasury shares (1)

— — — — — ( 2 ) ( 56 ) ( 56 )

Repurchase and retirement of common shares ( 2,817 ) ( 28 ) ( 1,690 ) — ( 64,056 ) — — ( 65,774 )

Cash dividends declared - $ 0.26 per share

— — — — ( 50,764 ) — — ( 50,764 )

Balances as of January 31, 2020 228,207 $ 2,282 $ 769,990 $ ( 25,391 ) $ ( 367,218 ) ( 35,733 ) $ ( 698,042 ) $ ( 318,379 )

Balances as of September 30, 2020 222,250 $ 2,222 $ 774,075 $ ( 30,965 ) $ ( 216,385 ) ( 35,305 ) $ ( 688,607 ) $ ( 159,660 )

(1) The balance of our accumulated other comprehensive income (loss) consists of foreign currency translation adjustments.

(2) Represents shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards.

See accompanying notes to consolidated financial statements.

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Q1 FY2022 Form 10-Q| H&R Block, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of January 31, 2021 and 2020, the consolidated statements of operations and comprehensive loss for the three and nine months ended January 31, 2021 and 2020, the consolidated statements of cash flows for the nine months ended January 31, 2021 and 2020, and the consolidated statements of stockholders' equity for the three and nine months ended January 31, 2021 and 2020 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of January 31, 2021 and 2020 and for all periods presented, have been made.

"H&R Block," "the Company," "we," "our," and "us" are used interchangeably to refer to H&R Block, Inc.

or to H&R Block, Inc.

and its subsidiaries, as appropriate to the context.

BASIS OF PRESENTATION – The consolidated balance sheets as of September 30, 2021 and June 30, 2021, the consolidated statements of operations and comprehensive loss for the three months ended September 30, 2021 and 2020, the consolidated statements of cash flows for the three months ended September 30, 2021 and 2020, and the consolidated statements of stockholders' equity for the three months ended September 30, 2021 and 2020 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of September 30, 2021 and 2020 and for all periods presented, have been made.

"H&R Block," "the Company," "we," "our," and "us" are used interchangeably to refer to H&R Block, Inc., to H&R Block, Inc.

and its subsidiaries, or to H&R Block, Inc.'s operating subsidiaries, as appropriate to the context.

On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30.

The Company's 2022 fiscal year began on July 1, 2021 and will end on June 30, 2022.

As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from May 1, 2021 to June 30, 2021 (Transition Period).

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted.

These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, 2020 Annual Report to Shareholders on Form 10-K.

All amounts presented herein as of April 30, 2020 or for the year then ended are derived from our Annual Report on Form 10-K.

These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, 2021 Annual Report to Shareholders on Form 10-K and our June 30, 2021 Transition Report filed on Form 10-Q.

MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

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Therefore, results for interim periods are not indicative of results to be expected for the full year.

IMPACTS OF THE COVID-19 PANDEMIC - During March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak to be a global pandemic.

As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the United States (U.S.) for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020.

Substantially all U.S.

states with an April 15 individual state income tax filing requirement extended their respective deadlines.

In Canada, the deadline for individuals to file was extended to June 1, 2020.

These extensions impacted the typical seasonality of our business and the comparability of our financial results.

Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021.

On January 15, 2021, the Internal Revenue Service (IRS) announced that it would begin accepting and processing 2020 individual income tax returns on February 12, 2021.

Historically, the IRS has begun accepting and processing returns during our third fiscal quarter.

This delay has impacted the timing of recognizing a portion of revenue for the returns that we prepared during the quarter but were not able to electronically file with the IRS.

See n ote 2 for additional information.

On March 21, 2020, the federal tax filing deadline in the U.S.

for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, shifting a portion of revenues and expenses from that tax season into the three months ended September 30, 2020.

This extension impacted the typical seasonality of our business and the comparability of our financial results.

DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC), which exited its mortgage business in fiscal year 2008.

See note 9 for additional information on litigation, claims, and other loss contingencies related to our discontinued operations.

NEW ACCOUNTING PRONOUNCEMENTS –

Current Expected Credit Losses.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No.

2016-13 (ASU 2016-13), "Measurement of Credit Losses on Financial Instruments," which

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replaces the existing incurred credit loss model for an expected credit loss model.

We adopted ASU 2016-13 as of May 1, 2020, which did not have a material impact on our consolidated financial statements.

H&R Block, Inc.

|Q1 FY2022 Form 10-Q

REVENUE RECOGNITION

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tax services revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines:

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Three months ended September 30,

assisted tax preparation $ 33,607 $ 207,167

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Interest and fee income on Emerald Advance SM

27,590 32,741 28,754 33,780

Wave 19,137 13,737

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Total revenues $ 192,624 $ 417,346

Revenue is recognized upon satisfaction of performance obligations by the transfer of a product or service to the customer.

The majority of our services and products have multiple performance obligations.

For our tax preparation services, the various performance obligations are generally provided simultaneously at a point in time, and revenue is recognized at that time.

We allocate the transaction price to the various performance obligations based on relative standalone selling prices.

The value of point-of-sale discounts and coupons are recorded as a reduction of revenue.

Assisted tax preparation services include tax preparation and electronic filing or printing of the completed tax return.

Revenues from tax preparation services, including printing for clients that choose to print and mail their returns, are recognized when a completed return is accepted by the customer, and revenues for electronic filing a completed return are recognized when the return is electronically filed.

Royalties are based on contractual percentages of franchise gross receipts and are generally recognized in the period in which the services are provided by the franchisee to the customer.

DIY tax preparation includes fees for online and desktop tax preparation software and for electronic filing or printing.

Revenues for online software, including printing for clients that choose to print and mail their returns, are recognized when the customer uses the software to complete a return and revenues for desktop software are recognized when the software is sold to the end user.

Revenues for electronic filing are recognized when the return is electronically filed.

Refund Transfer revenues are recognized when the IRS filing acknowledgment is received and the bank account is established at our banking partner.

Revenues for electronic filing of U.S.

returns totaling $ 18.7 million were deferred as of January 31, 2021 and will be recognized in February 2021 when the associated tax returns are electronically filed.

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Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows:

POM Deferred Revenue Deferred Wages

Nine months ended January 31, 2021 2020 2021 2020

Balance, beginning of the period $ 183,685 $ 212,511 $ 21,618 $ 27,306

Three months ended September 30, 2021 2020 2021 2020

Balances as of July 1, $ 172,759 $ 167,827 $ 17,867 $ 18,707

Amounts deferred 1,492 10,560 7 20

Amounts recognized on previous deferrals ( 28,948 ) ( 31,652 ) ( 2,847 ) ( 3,458 )

Balance, end of the period $ 135,089 $ 153,347 $ 13,084 $ 16,999

As of January 31, 2021, deferred revenue related to POM was $ 135.1 million.

We expect that $ 94.2 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following sixty months .

As of January 31, 2021 and 2020, Tax Identity Shield® (TIS) deferred revenue was $ 20.4 million and $ 21.2 million, respectively.

Deferred revenue related to TIS was $ 30.8 million and $ 29.7 million as of April 30, 2020 and 2019, respectively.

All deferred revenue related to TIS will be recognized within the next fifteen months .

Balances as of September 30, $ 145,303 $ 146,735 $ 15,027 $ 15,269

As of September 30, 2021, deferred revenue related to POM was $ 145.3 million.

We expect that $ 96.5 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

As of September 30, 2021 and 2020, Tax Identity Shield® (TIS) deferred revenue was $ 23.5 million and $ 21.7 million, respectively.

Deferred revenue related to TIS was $ 28.3 million and $ 28.8 million as of June 30, 2021 and June 30, 2020, respectively.

All deferred revenue related to TIS will be recognized by April 30, 2022 .

EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY

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The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

Per share amounts are computed by dividing net income or loss from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period.

The dilutive effect of potential common shares is included in diluted earnings per share except in those periods with a loss from continuing operations.

Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 5.4 million shares for the three and nine months ended January 31, 2021 and 3.7 million shares for the three and nine months ended January 31, 2020, as the effect would be antidilutive due to the net loss from continuing operations during those periods.

The computations of basic and diluted loss per share from continuing operations are as follows:

Per share amounts are computed by dividing net income (loss) from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period.

Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 5.3 million shares and 5.1 million shares for the three months ended September 30, 2021 and

Q1 FY2022 Form 10-Q| H&R Block, Inc.

2020, respectively, as the effect would be antidilutive due to the net loss from continuing operations during the periods.

The computations of basic and diluted earnings (loss) per share from continuing operations are as follows:

(in 000s, except per share amounts)

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Three months ended September 30,

Net loss from continuing operations attributable to shareholders $ ( 149,945 ) $ ( 60,910 )

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Diluted ( 0.84 ) ( 0.32 )

The decrease in the weighted average shares outstanding for both the three and nine month periods is due to share repurchases completed in the current and prior fiscal years.

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STOCK-BASED COMPENSATION – During the nine months ended January 31, 2021, we granted awards of 2.5 million shares under our stock-based compensation plans, consisting primarily of nonvested units.

Stock-based compensation expense of our continuing operations totaled $ 5.8 million and $ 20.7 million for the three and nine months ended January 31, 2021, respectively, and $ 6.6 million and $ 22.7 million for the three and nine months ended January 31, 2020, respectively.

As of January 31, 2021, unrecognized compensation cost for stock options totaled $ 0.8 million, and for nonvested shares and units totaled $ 40.9 million.

The decrease in the weighted average shares outstanding is due to share repurchases completed in the current and prior fiscal years.

STOCK-BASED COMPENSATION – During the three months ended September 30, 2021, we granted 1.4 million shares under our stock-based compensation plan.

We granted awards of 0.2 million shares under our stock-based compensation plans during the three months ended September 30, 2020.

The increase in shares granted compared to the prior year is a result of the change in timing of grants due to the change in our fiscal year.

Stock-based compensation expense of our continuing operations totaled $ 6.8 million for the three months ended September 30, 2021 and $ 7.8 million for the three months ended September 30, 2020.

As of September 30, 2021, unrecognized compensation cost for stock options totaled $ 0.6 million, and for nonvested shares and units totaled $ 61.7 million.

Receivables, net of their related allowance, consist of the following:

As of January 31, 2021 January 31, 2020 April 30, 2020

Short-term Long-term Short-term Long-term Short-term Long-term

As of September 30, 2021 June 30, 2021

Short-term Long-term Short-term Long-term

Loans to franchisees $ 12,409 $ 27,348 $ 9,497 $ 28,026

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Total $ 56,829 $ 38,584 $ 88,932 $ 41,595

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Balances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets.

LOANS TO FRANCHISEES – Franchisee loan balances consist of term loans made primarily to finance the purchase of franchises and revolving lines of credit primarily for the purpose of funding working capital needs.

As of January 31, 2021 and 2020 loans with a principal balance o f $ 0.5 million and $ 0.4 million, respectively, were more than 90 days past due.

As of September 30, 2021 and June 30, 2021 loans with a principal balance o f $ 0.5 million and $ 0.2 million , respectively, were more than 90 days past due.

We had no loans to franchisees on non-accrual status.

H&R BLOCK INSTANT REFUND TM PROGRAM – H&R Block Instant Refund TM amounts are generally received from the Canada Revenue Agency within 60 days of filing the client's return, with the remaining balance collectible from the client.

We review the credit quality of our Instant Refund receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid.

Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by year of origination, as of January 31, 2021 are as foll ows:

Year of Origination Balance Non-Accrual

We review the credit quality of our Instant Refund receivables based on pools, which are segregated by the tax return year of origination, with older years being deemed more unlikely to be repaid.

Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by tax return year of origination, as of September 30, 2021 are as foll ows:

Tax return year of origination:

Balance Non-Accrual

2020 $ 1,921 $ 1,157

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Net balance $ 773

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H&R BLOCK EMERALD ADVANCE ® LINES OF CREDIT – We review the credit quality of our purchased participation interests in Emerald Advance SM (EA) receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid.

Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, as of January 31, 2021, by year of origination, are as follows:

Year of origination:

H&R BLOCK EMERALD ADVANCE ® LINES OF CREDIT – We review the credit quality of our purchased participation interests in Emerald Advance SM (EA) receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid.

Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, as of September 30, 2021, by fiscal year of origination, are as follows:

Fiscal year of origination:

Balance Non-Accrual

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Net balance $ 11,724

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the nine months ended January 31, 2021 and 2020 is as follows:

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the three months ended September 30, 2021 and 2020 is as follows:

EAs All Other Total

Balances as of May 1, 2020 $ 32,034 $ 50,446 $ 82,480

Balances as of July 1, 2021 $ 27,704 $ 60,272 $ 87,976

Provision — 1,850 1,850

Charge-offs, recoveries and other — ( 3,583 ) ( 3,583 )

Balances as of January 31, 2021 $ 26,168 $ 8,848 $ 35,016

Balances as of May 1, 2019 $ 27,535 $ 53,938 $ 81,473

Balances as of September 30, 2021 $ 27,704 $ 58,539 $ 86,243

Balances as of July 1, 2020 $ 32,034 $ 52,166 $ 84,200

Provision ( 2,709 ) 2,709 —

Charge-offs, recoveries and other — ( 835 ) ( 835 )

Balances as of January 31, 2020 $ 28,124 $ 18,492 $ 46,616

Balances as of September 30, 2020 $ 29,325 $ 54,040 $ 83,365

Q1 FY2022 Form 10-Q| H&R Block, Inc.

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the nine months ended January 31, 2021 and 2020 are as follows:

Changes in the carrying amount of goodwill for the three months ended September 30, 2021 are as follows:

Goodwill Accumulated Impairment Losses Net

Balances as of May 1, 2020 $ 850,435 $ ( 138,297 ) $ 712,138

Balances as of July 1, 2021 $ 892,818 $ ( 138,297 ) $ 754,521

Acquisitions 2,375 — 2,375

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Impairments — — —

Balances as of January 31, 2021 $ 883,913 $ ( 138,297 ) $ 745,616

Balances as of May 1, 2019 $ 552,234 $ ( 32,297 ) $ 519,937

Acquisition of Wave 300,560 — 300,560

Other acquisitions 23,421 — 23,421

Disposals and foreign currency changes, net ( 5,088 ) — ( 5,088 )

Impairments — — —

Balances as of January 31, 2020 $ 871,127 $ ( 32,297 ) $ 838,830

We test goodwill for impairment annually in our fourth quarter, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.

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Balances as of September 30, 2021 $ 887,706 $ ( 138,297 ) $ 749,409

We test goodwill for impairment annually as of February 1, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.

Components of intangible assets are as follows:

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Amortization Net

As of January 31, 2021:

Reacquired franchise rights $ 370,076 $ ( 174,484 ) $ 195,592

Customer relationships 316,600 ( 244,441 ) 72,159

Internally-developed software 168,642 ( 123,709 ) 44,933

Noncompete agreements 41,177 ( 34,962 ) 6,215

Franchise agreements 19,201 ( 15,574 ) 3,627

Purchased technology 122,700 ( 68,844 ) 53,856

Trade name 5,800 ( 918 ) 4,882

$ 1,044,196 $ ( 662,932 ) $ 381,264

As of January 31, 2020:

As of September 30, 2021:

Reacquired franchise rights $ 371,793 $ ( 186,227 ) $ 185,566

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Trade name 5,800 ( 1,305 ) 4,495

Acquired assets pending final allocation (1)

$ 1,041,829 $ ( 704,378 ) $ 337,451

$ 1,023,821 $ ( 590,747 ) $ 433,074

As of April 30, 2020:

As of June 30, 2021:

Reacquired franchise rights $ 370,405 $ ( 182,366 ) $ 188,039

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Trade name 5,800 ( 1,160 ) 4,640

Acquired assets pending final allocation (1)

$ 1,036,196 $ ( 685,103 ) $ 351,093

(1) Represents franchisee and competitor business acquisitions for which final purchase price allocations have not yet been determined.

We made payments to acquire businesses totaling $ 15.0 million and $ 450.3 million during the nine months ended January 31, 2021 and 2020, respectively.

The nine months ended January 31, 2020 included the acquisition of Wave.

The amounts and weighted-average lives of intangible assets acquired during the nine months e nded January 31, 2021, including amounts capitalized and placed in service related to internally-developed software, a re as follows:

We made payments to acquire businesses totaling $ 4.3 million and $ 2.5 million during the three months ended September 30, 2021 and 2020, respectively.

The amounts and weighted-average lives of intangible assets acquired

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during the three months e nded September 30, 2021, including amounts capitalized related to internally-developed software, a re as follows:

(dollars in 000s)

Amount Weighted-Average life (in years)

Capitalized software $ 14,389 3

Internally-developed software $ 2,816 3

Customer relationships 1,889 5

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Total $ 6,231 4

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Amortization of intangible assets for the three and nine months ended January 31, 2021 was $ 21.7 million and $ 62.1 million, respectively, compared to $ 21.5 million and $ 61.3 million for the three and nine months ended January 31, 2020, respectively.

Estimated amortization of intangible assets for fiscal years 2021, 2022, 2023, 2024 and 2025 is $ 83.5 million, $ 75.5 million, $ 57.7 million, $ 38.4 million and $ 20.3 million, respectively.

Amortization of intangible assets for the three months ended September 30, 2021 was $ 19.8 million compared to $ 19.9 million for the three months ended September 30, 2020.

Estimated amortization of intangible assets for fiscal years ending June 30, 2022, 2023, 2024, 2025 and 2026 is $ 73.0 million, $ 55.8 million, $ 36.4 million, $ 18.8 million and $ 13.3 million, respectively.

LONG-TERM DEBT

The components of long-term debt are as follows:

As of January 31, 2021 January 31, 2020 April 30, 2020

Senior Notes, 4.125 %, due October 2020

$ — $ 650,000 $ 650,000

As of September 30, 2021 June 30, 2021

Senior Notes, 5.500 %, due November 2022

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350,000 350,000

Senior Notes, 2.500 %, due July 2028

500,000 500,000

Senior Notes, 3.875 %, due August 2030

Committed line of credit borrowings 880,000 1,035,000 2,000,000

650,000 650,000

Debt issuance costs and discounts ( 15,488 ) ( 16,281 )

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Estimated fair value of long-term debt $ 2,122,000 $ 2,123,000

On August 7, 2020, we issued $ 650.0 million of 3.875 % Senior Notes due August 15, 2030 (2030 Senior Notes).

The 2030 Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices.

The proceeds of the 2030 Senior Notes were used to repay the $ 650 million Senior Notes that matured on October 1, 2020.

UNSECURED COMMITTED LINE OF CREDIT – Our unsecured committed line of credit (CLOC) provides for an unsecured senior revolving credit facility in the aggregate principal amount of $ 1.5 billion, which includes a $ 175.0 million sublimit for swingline loans and a $ 50.0 million sublimit for standby letters of credit.

We may request increases in the aggregate principal amount of the revolving credit facility of up to $ 500.0 million, subject to obtaining commitments from lenders and meeting certain other conditions.

The CLOC will mature on September 21, 2023, unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due and payable.

The CLOC will mature on June 11, 2026, unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due and payable.

Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.

The CLOC is subject to various conditions, triggers, events or occurrences that could result in earlier termination and contains customary representations, warranties, covenants and events of default, including, without limitation:

(1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio calculated on a consolidated basis of no greater than (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on April 30, July 31, and October 31 of each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on January 31 of each year;

(1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio, as defined by the CLOC agreement, calculated on a consolidated basis of no greater than (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on March 31, June 30, and September 30 of each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on December 31 of each year;

(2) a covenant requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) calculated on a consolidated basis of not less than 2.50 to 1.00 as of the last date of any fiscal quarter;

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Proceeds under the CLOC may be used for working capital needs or for other general corporate pu rposes.

We were in compliance with these requirements as of January 31, 2021.

In September 2020, we utilized our cash on hand to repay the outstanding $ 2.0 billion balance on our CLOC.

We had an outst anding balance of $ 880.0 million under the CLOC as of January 31, 2021 and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $ 520 million as of January 31, 2021 .

We were in compliance with these requirements as of September 30, 2021.

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We had no outst anding balance under our CLOC and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $ 1.2 billion as of September 30, 2021 .

We file a consolidated federal income tax return in the U.S.

with the IRS and file tax returns in various state, local, and foreign jurisdictions.

with the Internal Revenue Srvice (IRS) and file tax returns in various state, local, and foreign jurisdictions.

Tax returns are typically examined and either settled upon completion of the examination or through the appeals process.

On July 14, 2021 we filed a U.S.

federal income tax form 1139 carryback claim to utilize net operating losses against income earned in tax years 2015 and 2016.

Filing this carryback claim has opened our 2015 and 2016 tax years to examination.

federal income tax returns for 2017, 2014 and all years prior to 2014 are closed.

Consequently, our U.S.

federal income tax returns for 2015, 2016, 2018 and later years remain open for examination.

federal income tax returns for 2016 and all prior periods are currently closed.

With respect to state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed.

Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law.

The CARES Act includes, among other items, modifications to net operating loss carryback periods, net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act allows a five-year carryback of net operating losses generated between 2018 and 2021 to fully offset taxable income previously subject to a 35% statutory tax rate.

As a result of the CARES Act and changes to our methods of accounting for items under the Internal Revenue Code, we anticipate generating a loss for tax purposes on our calendar 2020 tax return, plan to carry back the loss to two of the five preceding tax years, and obtain a refund of previously paid federal income taxes.

The net operating loss carryback has been factored into our annual effective tax rate which has reduced our effective tax rate and income taxes payable and increased our unrecognized tax benefits, income tax refund receivables, and deferred tax liabilities.

We also expect that the net operating loss carryback will reopen our 2015 tax return to examination.

Our effective tax rate for continuing operations, including the effects of discrete tax items was 9.0 % and 29.2 % for the nine months ended January 31, 2021 and 2020, respectively.

Discrete items decreased the effective tax rate for the nine months ended January 31, 2021 by 4.9 % and increased the effective tax rate for the nine months ended January 31, 2020 by 4.3 %.

A discrete income tax expense of $ 19.5 million was recorded in the nine months ended January 31, 2021 compared to a discrete tax benefit of $ 27.7 million in the same period of the prior year.

The discrete tax expense recorded in the current period primarily resulted from uncertain tax benefits related to the net operating loss carryback offset by settlements with tax authorities and statute of limitation expirations.

The discrete tax benefit recorded in the prior year resulted from the settlement of various matters, including expiration of statute of limitations and resolutions with tax authorities and valuation allowance changes related to utilization of foreign losses.

Due to the loss through the third quarter, a discrete tax benefit increases the tax rate while an item of discrete tax expense decreases the tax rate.

The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate through our third quarter to be significantly different than the rate for our full fiscal year.

Consistent with prior years, our pretax loss for the nine months ended January 31, 2021 is expected to be offset by income in the fourth quarter due to the established pattern of seasonality in our primary business operations.

As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year.

The amount of tax benefit recorded for the nine months ended January 31, 2021 reflects management’s estimate of the annual effective tax rate applied to year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.

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Changes in unrecognized tax benefits for nine months ended January 31, 2021 are as follows:

Nine months ended January 31, 2021 Amount

Balance, beginning of the period $ 168,062

Additions based on tax positions related to prior years 117,770

Reductions based on tax positions related to prior years ( 31,958 )

Additions based on tax positions related to the current year 11,795

Reductions related to settlements with tax authorities ( 26,556 )

Expiration of statute of limitations ( 5,423 )

Balance, end of the period $ 233,690

We had gross unrecognized tax benefits of $ 233.7 million, $ 148.7 million and $ 168.1 million as of January 31, 2021 and 2020 and April 30, 2020, respectively.

The gross unrecognized tax benefits increased $ 65.6 million and decreased $ 36.4 million during the nine months ended January 31, 2021 and 2020, respectively.

The increase in unrecognized tax benefits during the nine months ending January 31, 2021 is primarily related to the net operating loss carryback.

We had gross unrecognized tax benefits of $ 264.3 million as of September 30, 2021 and June 30, 2021.

The gross unrecognized tax benefits were unchanged during the three months ended September 30, 2021.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 67.9 million within the next twelve months.

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For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

OTHER INCOME AND OTHER EXPENSES

The following table shows the components of other income (expense), net:

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Interest income $ 123 $ 2,397 $ 2,011 $ 12,648

Foreign currency gains (losses), net 489 ( 139 ) 544 ( 25 )

Other, net 1,755 ( 379 ) 2,204 1,118

$ 2,367 $ 1,879 $ 4,759 $ 13,741

A discrete income tax benefit of $ 0.3 million was recorded in the three months ended September 30, 2021 compared to a discrete income tax expense of $ 31.8 million in the three months ended September 30, 2020.

The discrete tax benefit recorded in the current period primarily resulted from interest recorded on existing uncertain tax benefits.

The discrete tax expense recorded in the prior period primarily resulted from uncertain tax benefits related to our 2020 taxable loss carryback to prior years.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 24.0 % and ( 84.9 )% for the three months ended September 30, 2021 and 2020, respectively.

Discrete items increased the effective tax rate by 0.1 % for the three months ended September 30, 2021 and decreased the effective tax rate by 96.5 % for the three months ended September 30, 2020.

Due to the loss in the quarter, a discrete tax expense decreases the tax rate while an item of discrete benefit increases the tax rate.

The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate in our first quarter to be significantly different than the rate for our full fiscal year.

Consistent with prior years, our pretax loss for the three months ended September 30, 2021 is expected to be offset by income in our third and fourth quarters due to the established pattern of seasonality in our primary business operations.

As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year.

The amount of tax benefit recorded for the three months ended September 30, 2021 reflects management’s estimate of the annual effective tax rate applied to year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.

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COMMITMENTS AND CONTINGENCIES

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DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $ 10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the IRS that a client would otherwise not have been required to pay.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 9.2 million, $ 7.0 million and $ 9.4 million as of January 31, 2021 and 2020 and April 30, 2020, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 12.0 million and $ 12.6 million as of September 30, 2021 and June 30, 2021, respectively.

The short-term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated balance sheets.

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $ 18.8 million, $ 11.4 million and $ 14.2 million as of January 31, 2021 and 2020 and April 30, 2020, respectively, with amounts recorded in deferred revenue and other liabilities.

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $ 11.6 million and $ 17.3 million as of September 30, 2021 and June 30, 2021, respectively, with amounts recorded in deferred revenue and other liabilities.

Should actual results differ from our estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.

We have contractual commitments to fund certain franchises with approved revolving lines of credit.

Our total obligation under these lines of credit was $ 29.3 million at January 31, 2021, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 13.7 million.

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Both the U.S.

and Canada implemented emergency economic relief programs as a way of minimizing the economic impact of the global COVID-19 pandemic.

In the U.S., the CARES Act includes, among other items, provisions relating to refundable payroll tax credits and deferment of certain tax payments through the end of calendar 2020.

In Canada the COVID-19 Economic Response Plan includes the Canada Emergency Wage Subsidy (CEWS).

businesses we have elected to defer the employer-paid portion of social security taxes and are evaluating the employee retention credit, and in Canada we have received $ 15.9 million i n wage subsidies during the nine months ended January 31, 2021 which has been treated as a government subsidy to offset related operating expenses.

On August 5, 2020, we entered into a Program Management Agreement with MetaBank®, N.A.

(Meta), a wholly-owned subsidiary of Meta Financial Group, Inc.

Under the Meta Program Management Agreement and its ancillary agreements and related product schedules, Meta acts as the bank provider of H&R Block-branded financial products.

Emerald Advance SM lines of credit (EAs) are originated by Meta, and we purchase a 90 % participation interest, at par, in the advances originated by Meta.

At January 31, 2021, the principal balance of purchased participation interests for the current year totaled $ 303.2 million.

Refund Advance loans are originated by Meta and offered to certain assisted U.S.

tax preparation clients, based on client eligibility as determined by Meta.

We pay fees based on loan size and customer type.

The fees are intended to cover expected loan losses and payments to capital providers, among other items.

We have provided two guarantees related to this agreement.

We have provided a guarantee up to $ 18.0 million related to certain loans to clients prior to the IRS accepting electronic filing.

At January 31, 2021, we accrued an estimated liability of $ 1.3 million related to this guarantee, compared to $ 1.9 million at January 31, 2020, under a similar guarantee with our prior bank partner.

Additionally, we provided a guarantee related to loans to virtual assisted clients.

There is no maximum exposure under this guarantee.

At January 31, 2021, we had no amounts accrued under this guarantee and we do not expect that a material amount will be paid for this guarantee under anticipated loss scenarios related to the fiscal year 2021 tax season.

Our total obligation under these lines of credit was $ 15.0 million at September 30, 2021, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 9.6 million.

In March 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide economic and other relief as a result of the COVID-19 pandemic.

The CARES Act includes, among other items, provisions relating to refundable employee retention payroll tax credits.

During the quarter, we applied for employee retention credits related to calendar year 2020.

Due to the complex nature of the employee retention credit computations, any benefits we may receive are uncertain and may significantly differ from our current estimates.

We plan to record any benefit related to these credits upon both the receipt of the benefit and the resolution of the uncertainties, which could include the completion of any potential audit or examination, or the expiration of the related statute of limitations.

LITIGATION AND OTHER RELATED CONTINGENCIES

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We accrue liabilities for litigation, claims, including indemnification and contribution claims, and other related loss contingencies and any related settlements (each referred to, individually, as a "matter" and, collectively, as "matters") when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued.

If a range of loss is estimated, and some amount within that range appears to be a better estimate than

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any other amount within that range, then that amount is accrued.

If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range.

For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made.

It is possible that such matters could require us to pay damages

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or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of January 31, 2021.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of September 30, 2021.

While the potential future liabilities could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we do not believe any such liabilities are likely to have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

As of January 31, 2021 and 2020 and April 30, 2020, our total accrued liabilities were $ 5.5 million, $ 1.6 million and $ 1.6 million, respectively.

As of September 30, 2021 and June 30, 2021 our total accrued liabilities were $ 1.8 million and $ 1.6 million, respectively.

Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible.

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The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

As of January 31, 2021, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, is not material.

On a quarterly and annual basis, we review relevant information with respect to litigation and other loss contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss based on such reviews.

As of September 30, 2021, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, is not material.

At the end of each reporting period, we review relevant information with respect to litigation and other loss contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss based on such reviews.

Costs incurred with defending matters are expensed as incurred.

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We filed a motion to stay the case based on the primary jurisdiction doctrine, which was denied.

A trial date has been set for August 9, 2022.

A trial date is set for November 8, 2022.

We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

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On May 17, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc.

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3:19-cv-03610-SK).

The plaintiff filed a first amended

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complaint on August 9, 2019, dropping H&R Block, Inc.

The plaintiff filed a first amended complaint on August 9, 2019, dropping H&R Block, Inc.

from the case.

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We filed a motion to stay the proceedings based on the primary jurisdiction doctrine and a motion to compel arbitration, both of which were denied.

We filed an appeal of the denial of the motion to compel arbitration, which was denied on December 9, 2020.

We filed an answer to the amended complaint on April 7, 2020, and a renewed motion to compel arbitration and to stay the litigation on February 22, 2021.

A trial date has been set for October 18, 2022.

Our appeal of the court's order on the motion to compel arbitration was denied;

we filed a petition for review with the United States Supreme Court.

We filed an answer to the amended complaint.

We filed a renewed motion to compel arbitration, which the court denied on May 13, 2021;

we filed an appeal.

We also filed a motion to dismiss the plaintiff's claim for public injunctive relief, which the court granted and dismissed the case in its entirety on August 24, 2021.

The plaintiff has filed an appeal.

We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

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for lack of personal jurisdiction.

The court granted our motion to compel arbitration and stayed the case pending the outcome of arbitration.

The court granted our motion to compel arbitration and stayed the case pending the outcome of individual arbitration.

We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

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It is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters.

In many of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these matters, some of which are beyond the Company's control, and the indeterminate damages sought in some of these matters.

In many of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these

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matters, some of which are beyond the Company's control, and the indeterminate damages sought in some of these matters.

Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized such loans, or in the form of residential mortgage-backed securities (RMBSs).

In connection with the sale of loans and/or RMBSs, SCC made certain representations and warranties.

Claims under these representations

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and warranties together with any settlement arrangements related to these losses are collectively referred to as "representation and warranty claims." The statute of limitations for a contractual claim to enforce a representation and warranty obligation is generally six years or such shorter limitations period that may apply under the law of a state where the economic injury occurred.

Claims under these representations and warranties together with any settlement arrangements related to these losses are collectively referred to as "representation and warranty claims." The statute of limitations for a contractual claim to enforce a representation and warranty obligation is generally six years or such shorter limitations period that may apply under the law of a state where the economic injury occurred.

On June 11, 2015, the New York Court of Appeals, New York’s highest court, held in ACE Securities Corp.

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Sand Canyon Corporation (Case No.

The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to the trust.

The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for

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the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to the trust.

The trust was originally collateralized with approximately 7,500 loans.

The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual and anticipated losses.

In response to a motion filed by SCC, the court

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dismissed the plaintiff's claims for breach of the duty to cure or repurchase and for indemnification of its costs associated with the litigation.

In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase and for indemnification of its costs associated with the litigation.

On September 30, 2016, the court granted a motion allowing the plaintiff to file a second amended complaint to include breach of contract claims with respect to 649 additional loans in the trust and to allow such claims with respect to other loans in the trust proven to be in material breach of SCC’s representations and warranties.

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Claimants may also attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities.

SCC's principal assets, as of January 31, 2021, total approximately $ 271 million and consist of an intercompany note receivable.

SCC's principal assets, as of September 30, 2021, total approximately $ 268 million and consist of an intercompany note receivable.

We believe our legal position is strong on any potential corporate veil-piercing arguments;

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These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent others who may be similarly situated.

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While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay to discharge or settle these other matters will not have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements