H&R BLOCK INC 10-Q

ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited, in 000s, except per share amounts) Three months ended September 30, 2021 2020 REVENUES: Service revenues $ 176,977 $ 382,357 Royalty, product and other revenues 15,647 34,989 192,624 417,346 OPERATING EXPENSES: Costs of revenues 241,532 278,107 Selling, general and administrative 125,864 139,992 Total operating expenses 367,396 418,099 Other income (expense), net 284 2,504 Interest expense on borrowings ( 22,830 ) ( 34,697 ) 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 ) Net loss from discontinued operations, net of tax benefits of $ 495 and $ 1,392 ( 1,656 ) ( 1,346 ) NET LOSS $ ( 151,601 ) $ ( 62,256 ) BASIC AND DILUTED LOSS PER SHARE: Continuing operations $ ( 0.84 ) $ ( 0.32 ) Discontinued operations ( 0.01 ) — Consolidated $ ( 0.85 ) $ ( 0.32 ) DIVIDENDS DECLARED PER SHARE $ 0.27 $ 0.26 COMPREHENSIVE LOSS: Net loss $ ( 151,601 ) $ ( 62,256 ) Change in foreign currency translation adjustments ( 11,177 ) 8,816 Other comprehensive income (loss) ( 11,177 ) 8,816 Comprehensive loss $ ( 162,778 ) $ ( 53,440 ) See accompanying notes to consolidated financial statements. H&R Block, Inc. |Q1 FY2022 Form 10-Q 1 Table of Contents CONSOLIDATED BALANCE SHEETS (unaudited, in 000s, except share and per share amounts) As of September 30, 2021 June 30, 2021 ASSETS Cash and cash equivalents $ 891,739 $ 1,434,381 Cash and cash equivalents - restricted 139,067 149,783 Receivables, less allowance for credit losses of $ 74,000 and $ 77,518 56,829 88,932 Income taxes receivable 338,399 330,872 Prepaid expenses and other current assets 69,714 76,414 Total current assets 1,495,748 2,080,382 Property and equipment, at cost, less accumulated depreciation and amortization of $ 857,096 and $ 842,861 141,006 139,276 Operating lease right of use assets 410,724 445,847 Intangible assets, net 337,451 351,093 Goodwill 749,409 754,521 Deferred tax assets and income taxes receivable 178,946 181,996 Other noncurrent assets 54,743 61,273 Total assets $ 3,368,027 $ 4,014,388 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 156,605 $ 164,269 Accrued salaries, wages and payroll taxes 54,816 168,989 Accrued income taxes and reserves for uncertain tax positions 155,137 238,863 Operating lease liabilities 201,179 214,190 Deferred revenue and other current liabilities 185,232 196,175 Total current liabilities 752,969 982,486 Long-term debt 1,984,512 1,983,719 Deferred tax liabilities and reserves for uncertain tax positions 303,476 301,658 Operating lease liabilities 221,184 244,932 Deferred revenue and other noncurrent liabilities 90,358 113,535 Total liabilities 3,352,499 3,626,330 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: 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 2,099 2,167 Additional paid-in capital 770,683 779,465 Accumulated other comprehensive income (loss) ( 11,089 ) 88 Retained earnings (deficit) ( 74,757 ) 286,694 Less treasury shares, at cost, of 34,342,194 and 34,842,125 ( 671,408 ) ( 680,356 ) Total stockholders' equity 15,528 388,058 Total liabilities and stockholders' equity $ 3,368,027 $ 4,014,388 See accompanying notes to consolidated financial statements. 2 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s) Three months ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 151,601 ) $ ( 62,256 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 35,715 38,237 Provision 1,850 — Deferred taxes ( 13,547 ) ( 480 ) Stock-based compensation 6,847 7,781 Changes in assets and liabilities, net of acquisitions: Receivables 35,913 29,016 Prepaid expenses, other current and noncurrent assets 8,610 1,673 Accounts payable, accrued expenses, salaries, wages and payroll taxes ( 134,215 ) ( 37,546 ) Deferred revenue, other current and noncurrent liabilities ( 27,990 ) ( 20,783 ) Income tax receivables, accrued income taxes and income tax reserves ( 72,768 ) ( 52,698 ) Other, net ( 1,438 ) ( 1,541 ) Net cash used in operating activities ( 312,624 ) ( 98,597 ) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 15,620 ) ( 13,386 ) Payments made for business acquisitions, net of cash acquired ( 4,265 ) ( 2,538 ) Franchise loans funded ( 4,474 ) ( 7,913 ) Payments from franchisees 2,839 10,744 Other, net 2,067 1,100 Net cash used in investing activities ( 19,453 ) ( 11,993 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of line of credit borrowings — ( 2,000,000 ) Repayments of long-term debt — ( 650,000 ) Proceeds from issuance of long-term debt — 647,965 Dividends paid ( 48,996 ) ( 50,044 ) Repurchase of common stock, including shares surrendered ( 165,800 ) ( 76,731 ) Proceeds from exercise of stock options 3,385 1,134 Other, net ( 5,911 ) ( 19,131 ) Net cash used in financing activities ( 217,322 ) ( 2,146,807 ) Effects of exchange rate changes on cash ( 3,959 ) 2,975 Net decrease in cash and cash equivalents, including restricted balances ( 553,358 ) ( 2,254,422 ) Cash, cash equivalents and restricted cash, beginning of period 1,584,164 2,769,947 Cash, cash equivalents and restricted cash, end of period $ 1,030,806 $ 515,525 SUPPLEMENTARY CASH FLOW DATA: Income taxes paid, net of refunds received $ 38,419 $ 79,343 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. H&R Block, Inc. | Q1 FY2022 Form 10-Q 3 Table of Contents ` CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except per share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) (1) Retained Earnings (Deficit) Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount 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 loss — — — ( 11,177 ) — — — ( 11,177 ) Stock-based compensation — — 5,627 — — — — 5,627 Stock-based awards exercised or vested — — ( 10,328 ) — ( 291 ) 705 13,765 3,146 Acquisition of treasury shares (2) — — — — — ( 205 ) ( 4,817 ) ( 4,817 ) Repurchase and retirement of common shares ( 6,802 ) ( 68 ) ( 4,081 ) — ( 161,619 ) — — ( 165,768 ) Cash dividends declared - $ 0.27 per share — — — — ( 47,940 ) — — ( 47,940 ) 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 Paid-in Capital Accumulated Other Comprehensive Income (Loss) (1) Retained Earnings (Deficit) Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balances as of July 1, 2020 228,207 $ 2,282 $ 772,943 $ ( 39,781 ) $ ( 18,455 ) ( 35,478 ) $ ( 692,187 ) $ 24,802 Net loss — — — — ( 62,256 ) — — ( 62,256 ) Other comprehensive income — — — 8,816 — — — 8,816 Stock-based compensation — — 7,259 — — — — 7,259 Stock-based awards exercised or vested — — ( 2,613 ) — ( 636 ) 215 4,176 927 Acquisition of treasury shares (2) — — — — — ( 42 ) ( 596 ) ( 596 ) Repurchase and retirement of common shares ( 5,957 ) ( 60 ) ( 3,514 ) — ( 84,884 ) — — ( 88,458 ) Cash dividends declared - $ 0.26 per share — — — — ( 50,154 ) — — ( 50,154 ) 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. 4 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, 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. Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, fair value of reporting units, and related matters. Estimates have been prepared based on the best information available as of each balance sheet date. As such, actual results could differ materially from those estimates. SEASONALITY OF BUSINESS – Our operating revenues are seasonal in nature with peak revenues typically occurring in the months of February through April. Therefore, results for interim periods are not indicative of results to be expected for the full year. 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. H&R Block, Inc. |Q1 FY2022 Form 10-Q 5 Table of Contents NOTE 2: REVENUE RECOGNITION The majority of our revenues are from our U.S. tax services business. The following table disaggregates our U.S. tax services revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines: (in 000s) Three months ended September 30, 2021 2020 Revenues: U.S. assisted tax preparation $ 33,607 $ 207,167 U.S. royalties 7,358 22,652 U.S. DIY tax preparation 4,061 47,463 International 58,325 58,776 Refund Transfers 1,665 6,113 Emerald Card® 28,258 12,436 Peace of Mind® Extended Service Plan 24,836 27,192 Tax Identity Shield® 5,153 8,994 Interest and fee income on Emerald Advance SM 479 526 Wave 19,137 13,737 Other 9,745 12,290 Total revenues $ 192,624 $ 417,346 Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows: (in 000s) POM Deferred Revenue Deferred Wages 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 ) 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 . NOTE 3: EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY EARNINGS PER SHARE – Basic and diluted earnings (loss) per share is computed using the two-class method. 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 (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 6 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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 September 30, 2021 2020 Net loss from continuing operations attributable to shareholders $ ( 149,945 ) $ ( 60,910 ) Amounts allocated to participating securities ( 239 ) ( 207 ) Net loss from continuing operations attributable to common shareholders $ ( 150,184 ) $ ( 61,117 ) Basic weighted average common shares 178,099 192,314 Potential dilutive shares — — Dilutive weighted average common shares 178,099 192,314 Loss per share from continuing operations attributable to common shareholders: Basic $ ( 0.84 ) $ ( 0.32 ) Diluted ( 0.84 ) ( 0.32 ) 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. NOTE 4: RECEIVABLES Receivables, net of their related allowance, consist of the following: (in 000s) 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 Receivables for U.S. assisted and DIY tax preparation and related fees 10,234 3,793 41,900 3,793 H&R Block Instant Refund TM receivables 681 92 2,357 159 H&R Block Emerald Advance® lines of credit 5,742 5,982 8,248 8,089 Software receivables from retailers 1,045 — 2,910 — Royalties and other receivables from franchisees 3,703 151 6,167 178 Wave payment processing receivables 2,930 — 2,187 — Other 20,085 1,218 15,666 1,350 Total $ 56,829 $ 38,584 $ 88,932 $ 41,595 H&R Block, Inc. |Q1 FY2022 Form 10-Q 7 Table of Contents 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 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 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: (in 000s) Tax return year of origination: Balance Non-Accrual 2020 $ 1,921 $ 1,157 2019 and prior 435 435 2,356 $ 1,592 Allowance ( 1,583 ) Net balance $ 773 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: (in 000s) Fiscal year of origination: Balance Non-Accrual 2021 $ 23,638 $ 23,638 2020 and prior 1,361 1,361 Revolving loans 14,429 12,462 39,428 $ 37,461 Allowance ( 27,704 ) 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 three months ended September 30, 2021 and 2020 is as follows: (in 000s) EAs All Other Total 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 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 September 30, 2020 $ 29,325 $ 54,040 $ 83,365 8 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents NOTE 5: GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the three months ended September 30, 2021 are as follows: (in 000s) Goodwill Accumulated Impairment Losses Net Balances as of July 1, 2021 $ 892,818 $ ( 138,297 ) $ 754,521 Acquisitions 2,375 — 2,375 Disposals and foreign currency changes, net ( 7,487 ) — ( 7,487 ) Impairments — — — 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: (in 000s) Gross Carrying Amount Accumulated Amortization Net As of September 30, 2021: Reacquired franchise rights $ 371,793 $ ( 186,227 ) $ 185,566 Customer relationships 318,038 ( 261,471 ) 56,567 Internally-developed software 163,027 ( 124,308 ) 38,719 Noncompete agreements 41,270 ( 36,270 ) 5,000 Franchise agreements 19,201 ( 16,428 ) 2,773 Purchased technology 122,700 ( 78,369 ) 44,331 Trade name 5,800 ( 1,305 ) 4,495 $ 1,041,829 $ ( 704,378 ) $ 337,451 As of June 30, 2021: Reacquired franchise rights $ 370,405 $ ( 182,366 ) $ 188,039 Customer relationships 316,547 ( 255,294 ) 61,253 Internally-developed software 160,315 ( 119,460 ) 40,855 Noncompete agreements 41,228 ( 35,802 ) 5,426 Franchise agreements 19,201 ( 16,108 ) 3,093 Purchased technology 122,700 ( 74,913 ) 47,787 Trade name 5,800 ( 1,160 ) 4,640 $ 1,036,196 $ ( 685,103 ) $ 351,093 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 H&R Block, Inc. |Q1 FY2022 Form 10-Q 9 Table of Contents 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) Internally-developed software $ 2,816 3 Customer relationships 1,889 5 Reacquired franchise rights 1,464 4 Noncompete agreements 62 5 Total $ 6,231 4 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. NOTE 6: LONG-TERM DEBT The components of long-term debt are as follows: (in 000s) As of September 30, 2021 June 30, 2021 Senior Notes, 5.500 %, due November 2022 $ 500,000 $ 500,000 Senior Notes, 5.250 %, due October 2025 350,000 350,000 Senior Notes, 2.500 %, due July 2028 500,000 500,000 Senior Notes, 3.875 %, due August 2030 650,000 650,000 Debt issuance costs and discounts ( 15,488 ) ( 16,281 ) Total long-term debt 1,984,512 1,983,719 Less: Current portion — — Long-term portion $ 1,984,512 $ 1,983,719 Estimated fair value of long-term debt $ 2,122,000 $ 2,123,000 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 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, 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; and (3) covenants restricting our ability to incur certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive agreements. The CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. 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 September 30, 2021. 10 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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 . NOTE 7: INCOME TAXES We file a consolidated federal income tax return in the U.S. 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. Our U.S. 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. 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. 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. The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various state matters currently under examination. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. 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. H&R Block, Inc. |Q1 FY2022 Form 10-Q 11 Table of Contents NOTE 8: COMMITMENTS AND CONTINGENCIES All assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a return. 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 $ 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 $ 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 $ 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. NOTE 9: LITIGATION AND OTHER RELATED CONTINGENCIES We are a defendant in numerous litigation matters, arising both in the ordinary course of business and otherwise, including as described below. The matters described below are not all of the lawsuits to which we are subject. In some of the matters, very large or indeterminate amounts, including punitive damages, are sought. U.S. jurisdictions permit considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. We believe that the monetary relief which may be specified in a lawsuit or a claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in litigating or resolving through settlement of numerous claims over an extended period of time. The outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Among other things, uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. In addition to litigation matters, we are also subject to claims and other loss contingencies arising out of our business activities, including as described below. 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 12 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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 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 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. This aggregate range only represents those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure. Matters for which we are not currently able to estimate the reasonably possible loss or range of loss are not included in this range. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the reasonably possible loss or range of loss, such as precise information about the amount of damages or other remedies being asserted, the defenses to the claims being asserted, discovery from other parties and investigation of factual allegations, rulings by courts on motions or appeals, analysis by experts, or the status or terms of any settlement negotiations. The estimated range of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. 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. Any receivable for insurance recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable and reasonably estimable. We believe we have meritorious defenses to the claims asserted in the various matters described in this note, and we intend to defend them vigorously. The amounts claimed in the matters are substantial, however, and there can be no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows. LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS – Free File Litigation. On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No. 19STCV15742). The case is styled The People of the State of California v. HRB Digital LLC, et al . The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period starting 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the case and amended its complaint to add HRB Tax Group, Inc. We filed a motion to stay the case based on the primary jurisdiction doctrine, which was denied. 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. H&R Block, Inc. |Q1 FY2022 Form 10-Q 13 Table of Contents On May 17, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc. and HRB Digital LLC in the Superior Court of the State of California, County of San Francisco (Case No. CGC-19576093). The case is styled Snarr v. HRB Tax Group, Inc., et al . The case was removed to the United States District Court for the Northern District of California on June 21, 2019 (Case No. 3:19-cv-03610-SK). The plaintiff filed a first amended complaint on August 9, 2019, dropping H&R Block, Inc. from the case. In the amended complaint, the plaintiff seeks to represent classes of all persons, between May 17, 2015 and the present, who (1) paid to file one or more federal tax returns through H&R Block’s internet-based filing system, (2) were eligible to file those tax returns for free through the H&R Block Free File offer of the IRS Free File Program, and (3) resided in and were citizens of California at the time of the payments. The plaintiff generally alleges unlawful, unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Consumers Legal Remedies Act, California Civil Code §§1750, et seq ., California False Advertising Law, California Business and Professions Code §§17500, et seq ., and California Unfair Competition Law, California Business and Professions Code §§17200 et seq . The plaintiff seeks declaratory and injunctive relief, restitution, compensatory damages, punitive damages, interest, attorneys’ fees and costs. 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. 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. On September 26, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc., HRB Digital LLC and Free File, Inc. in the United States District Court for the Western District of Missouri (Case No. 4:19-cv-00788-GAF) styled Swanson v. H&R Block, Inc., et al. The plaintiff seeks to represent both a nationwide class and a California subclass of all persons eligible for the IRS Free File Program who paid to use an H&R Block product to file an online tax return for the 2002 through 2018 tax filing years. The plaintiff generally alleges unlawful, unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Consumers Legal Remedies Act, California Civil Code §§1750, et seq ., California False Advertising Law, California Business and Professions Code §§17500, et seq ., California Unfair Competition Law, California Business and Professions Code §§17200, et seq ., in addition to breach of contract and fraud. The plaintiff seeks injunctive relief, disgorgement, compensatory damages, statutory damages, punitive damages, interest, attorneys’ fees and costs. The court granted a motion to dismiss filed by defendant Free File, Inc. for lack of personal jurisdiction. 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. We have also received and are responding to certain governmental inquiries relating to the IRS Free File Program. LITIGATION, CLAIMS, INCLUDING INDEMNIFICATION AND CONTRIBUTION CLAIMS, OR OTHER LOSS CONTINGENCIES PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS – Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has been, remains, and may in the future be, subject to litigation, claims, including indemnification and contribution claims, and other loss contingencies pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. These lawsuits, claims, and other loss contingencies include actions by regulators, third parties seeking indemnification or contribution, including depositors, underwriters, and securitization trustees, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other things, these lawsuits, claims, and contingencies allege or may allege discriminatory or unfair and deceptive loan origination and servicing (including debt collection, foreclosure, and eviction) practices, other common law torts, rights to indemnification or contribution, breach of contract, violations of securities laws, and violations of a variety of federal statutes, including the Truth in Lending Act (TILA), Equal Credit Opportunity Act, Fair Housing Act, Real Estate Settlement Procedures Act (RESPA), Home Ownership & Equity Protection Act (HOEPA), as well as similar state statutes. 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 14 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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 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. v. DB Structured Products, Inc. , that the six-year statute of limitations under New York law starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the RMBS transactions into which SCC entered. However, this decision would not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by agreement or a suit was timely filed. In response to the statute of limitations rulings in the ACE case and similar rulings in other state and federal courts, parties seeking to pursue representation and warranty claims or lawsuits have sought, and may in the future seek, to distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against other contractual parties such as securitization trustees. For example, a 2016 ruling by a New York intermediate appellate court, followed by the federal district court in the second Homeward case described below, allowed a counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. Additionally, plaintiffs in litigation to which SCC is not party have alleged breaches of an independent contractual duty to provide notice of material breaches of representations and warranties and pursued separate claims to which, they argue, the statute of limitations ruling in the ACE case does not apply. The impact on SCC from alternative legal theories seeking to avoid or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear. SCC has not accrued liabilities for claims not subject to a tolling arrangement or not relating back to timely filed litigation. On May 31, 2012, a lawsuit was filed by Homeward Residential, Inc. (Homeward) in the Supreme Court of the State of New York, County of New York, against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Index No. 651885/2012). SCC removed the case to the United States District Court for the Southern District of New York on June 28, 2012 (Case No. 12-cv-5067). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-2 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract, anticipatory breach, indemnity, and declaratory judgment in connection with alleged losses incurred as a result of the breach of representations and warranties relating to SCC and to 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, as well as a repurchase of all loans due to alleged misrepresentations by SCC as to itself and as to the loans' compliance with its underwriting standards and the value of underlying real estate. In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase, anticipatory breach, indemnity, and declaratory judgment. The case proceeded on the remaining claims. Representatives of a holder of certificates in the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims against H&R Block, Inc. based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court denied the motion to intervene. Discovery in the case closed on September 30, 2019, with motions for summary judgment filed on December 6, 2019. On November 9, 2020, the court granted SCC's motion for summary judgment and dismissed Homeward's claims in their entirety as untimely under the applicable statute of limitations. Homeward appealed that ruling on December 4, 2020, and the appeal remains pending. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter. On September 28, 2012, a second lawsuit was filed by Homeward in the United States District Court for the Southern District of New York against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 12-cv-7319). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for H&R Block, Inc. |Q1 FY2022 Form 10-Q 15 Table of Contents 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 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. SCC filed a motion for reconsideration, followed by a motion for leave to appeal the ruling, both of which were denied. On October 6, 2016, the plaintiff filed its second amended complaint. In response to a motion filed by SCC, the court dismissed the plaintiff's claim for breach of one of the representations. The case proceeded on the remaining claims. Representatives of a holder of certificates in the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims against H&R Block, Inc. based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court denied the motion to intervene. The settlement payments that were made in fiscal year 2018 for representation and warranty claims related to some of the loans in this case. Discovery in the case closed on September 30, 2019, with motions for summary judgment filed on December 6, 2019. On November 9, 2020, the court granted SCC's motion for summary judgment and dismissed Homeward's claims in their entirety as untimely under the applicable statute of limitations. Homeward appealed that ruling on December 4, 2020, and the appeal remains pending. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter. Parties, including underwriters, depositors, and securitization trustees, are, or have been, involved in multiple lawsuits, threatened lawsuits, and settlements related to securitization transactions in which SCC participated. A variety of claims are alleged in these matters, including violations of federal and state securities laws and common law fraud, based on alleged materially inaccurate or misleading disclosures, that originators, depositors, securitization trustees, or servicers breached their representations and warranties or otherwise failed to fulfill their obligations, or that securitization trustees violated statutory requirements by failing to properly protect the certificate holders’ interests. SCC has received notices of claims for indemnification or potential indemnification obligations relating to such matters, including lawsuits or settlements to which underwriters, depositors, or securitization trustees are party. Additional lawsuits against the parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of claims for indemnification, contribution or similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims. Certain of the notices received included, and future notices may include, a reservation of rights to assert claims for contribution, which are referred to herein as "contribution claims." Contribution claims may become operative if indemnification is unavailable or insufficient to cover all of the losses and expenses involved. We have not concluded that a loss related to any of these indemnification or contribution claims is probable, nor have we accrued a liability related to any of these claims. If the amount that SCC is ultimately required to pay with respect to claims and litigation related to its past sales and securitizations of mortgage loans, together with payment of SCC's related administration and legal expense, exceeds SCC's net assets, the creditors of SCC, other potential claimants, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. 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 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; however, if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. OTHER – We are from time to time a party to litigation, claims and other loss contingencies not discussed herein arising out of our business operations. 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. 16 Q1 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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.