What changed in this filing

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Item 1. Financial Statements

2022-02-04 compared with 2021-11-04 · 139 added, 100 removed, 473 unchanged (34% of the section changed)

3 unchanged sentences

per share amounts)

Three months ended September 30,

Three months ended December 31, Six months ended December 31,

2021 2020 2021 2020

Service revenues $ 133,725 $ 116,613 $ 310,702 $ 498,970

7 unchanged sentences

Interest expense on borrowings ( 23,085 ) ( 21,489 ) ( 45,915 ) ( 56,186 )

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

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

Loss from continuing operations before income tax benefit ( 298,918 ) ( 300,499 ) ( 496,236 ) ( 333,445 )

Income tax benefit ( 109,845 ) ( 46,510 ) ( 157,218 ) ( 18,546 )

Net loss from continuing operations ( 189,073 ) ( 253,989 ) ( 339,018 ) ( 314,899 )

17 unchanged sentences

share and per share amounts)

As of September 30, 2021 June 30, 2021

As of December 31, 2021 June 30, 2021

Cash and cash equivalents $ 336,250 $ 1,434,381

17 unchanged sentences

Accrued income taxes and reserves for uncertain tax positions 78,921 238,863

Current portion of long-term debt 499,395 —

Operating lease liabilities 189,984 214,190

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( 669,060 ) ( 680,356 )

Total stockholders' equity 15,528 388,058

Total stockholders' equity (deficiency) ( 372,655 ) 388,058

Total liabilities and stockholders' equity $ 3,100,055 $ 4,014,388

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

Three months ended September 30, 2021 2020

Six months ended December 31, 2021 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

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Repayments of line of credit borrowings ( 210,000 ) ( 2,050,000 )

Proceeds from line of credit borrowings 485,000 1,040,000

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

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

Net loss — — — — ( 190,605 ) — — ( 190,605 )

Other comprehensive income — — — 1,656 — — — 1,656

Stock-based compensation — — 5,640 — — — — 5,640

Stock-based awards exercised or vested — — ( 1,709 ) — ( 219 ) 122 2,400 472

Acquisition of treasury shares (2)

— — — — — ( 2 ) ( 52 ) ( 52 )

Repurchase and retirement of common shares ( 6,589 ) ( 66 ) ( 3,953 ) — ( 154,778 ) — — ( 158,797 )

Cash dividends declared - $ 0.27 per share

— — — — ( 46,497 ) — — ( 46,497 )

Balances as of December 31, 2021 203,265 $ 2,033 $ 770,661 $ ( 9,433 ) $ ( 466,856 ) ( 34,222 ) $ ( 669,060 ) $ ( 372,655 )

(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.

Q2 FY2022 Form 10-Q| H&R Block, Inc.

Common Stock Additional

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

Net loss — — — — ( 255,751 ) — — ( 255,751 )

Other comprehensive income — — — 21,982 — — — 21,982

Stock-based compensation — — 5,181 — — — — 5,181

Stock-based awards exercised or vested — — ( 134 ) — ( 220 ) 8 144 ( 210 )

Acquisition of treasury shares (2)

— — — — — ( 3 ) ( 44 ) ( 44 )

Repurchase and retirement of common shares ( 3,531 ) ( 35 ) ( 2,083 ) — ( 59,566 ) — — ( 61,684 )

Cash dividends declared - $ 0.26 per share

— — — — ( 47,689 ) — — ( 47,689 )

Balances as of December 31, 2020 218,719 $ 2,187 $ 777,039 $ ( 8,983 ) $ ( 579,611 ) ( 35,300 ) $ ( 688,507 ) $ ( 497,875 )

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

1 unchanged sentence

See accompanying notes to consolidated financial statements.

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

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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.

BASIS OF PRESENTATION – The consolidated balance sheets as of December 31, 2021 and June 30, 2021, the consolidated statements of operations and comprehensive loss for the three and six months ended December 31, 2021 and 2020, the consolidated statements of cash flows for the six months ended December 31, 2021 and 2020, and the consolidated statements of stockholders' equity for the three and six months ended December 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 December 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., to H&R Block, Inc.

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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.

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 six months ended December 31, 2020.

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

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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

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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 September 30,

Three months ended December 31, Six months ended December 31,

2021 2020 2021 2020

assisted tax preparation $ 30,845 $ 34,020 $ 64,452 $ 241,187

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Interest and fee income on Emerald Advance SM

12,424 14,039 12,903 14,565

Wave 19,497 14,837 38,634 28,574

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POM Deferred Revenue Deferred Wages

Three months ended September 30, 2021 2020 2021 2020

Six months ended December 31, 2021 2020 2021 2020

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

1 unchanged sentence

Amounts recognized on previous deferrals ( 49,034 ) ( 52,974 ) ( 4,805 ) ( 5,834 )

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.

Balances as of December 31,

$ 126,686 $ 127,274 $ 13,072 $ 12,919

As of December 31, 2021, deferred revenue related to POM was $ 126.7 million.

We expect that $ 93.1 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.

As of December 31, 2021 and 2020, Tax Identity Shield® (TIS) deferred revenue was $ 18.5 million and $ 17.1 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.

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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.

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 5.1 million shares for the three and six months ended December 31, 2021 and 5.3 million shares for the three and six months ended December 31, 2020, as the effect would be antidilutive due to the net loss from continuing operations during the periods.

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

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,

Three months ended December 31, Six months ended December 31,

2021 2020 2021 2020

Net loss from continuing operations attributable to shareholders $ ( 189,073 ) $ ( 253,989 ) $ ( 339,018 ) $ ( 314,899 )

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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.

STOCK-BASED COMPENSATION – During the six months ended December 31, 2021, we granted 1.5 million shares under our stock-based compensation plan.

We granted awards of 0.6 million shares under our stock-based compensation plans during the six months ended December 31, 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.

Stock-based compensation expense of our continuing operations totaled $ 6.4 million and $ 13.2 million for the three and six months ended December 31, 2021, respectively, and $ 5.6 million and $ 13.4 million for the three and six months ended December 31, 2020, respectively.

As of December 31, 2021, unrecognized compensation cost for stock options totaled $ 0.6 million, and for nonvested shares and units totaled $ 51.8 million.

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

As of September 30, 2021 June 30, 2021

As of December 31, 2021 June 30, 2021

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

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Total $ 301,055 $ 35,554 $ 88,932 $ 41,595

H&R Block, Inc.

|Q1 FY2022 Form 10-Q

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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.

As of December 31, 2021 and June 30, 2021 loans with a principal balance o f $ 0.1 million and $ 0.2 million , respectively, were more than 90 days past due.

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

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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:

We establish an allowance for doubtful accounts at an amount that we believe represents the net realizable value.

In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.

B alances 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 December 31, 2021 are as foll ows:

Tax return year of origination:

Balance Non-Accrual

2020 $ 1,921 $ 1,157

2020 and prior $ 340 $ 340

2,356 $ 1,592

Allowance ( 1,583 )

Net balance $ 340

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:

We establish an allowance for doubtful accounts at an amount that we believe represents the net realizable value.

In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.

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

Fiscal year of origination:

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Net balance $ 248,761

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:

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

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 six months ended December 31, 2021 and 2020 is as follows:

EAs All Other Total

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Charge-offs, recoveries and other ( 16,377 ) ( 60,437 ) ( 76,814 )

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

Balances as of December 31, 2021 $ 23,756 $ 2,045 $ 25,801

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

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Charge-offs, recoveries and other ( 18,650 ) ( 54,322 ) ( 72,972 )

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

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

Balances as of December 31, 2020 $ 25,297 $ 1,908 $ 27,205

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the six months ended December 31, 2021 are as follows:

Goodwill Accumulated Impairment Losses Net

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Impairments — — —

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

Balances as of December 31, 2021 $ 897,480 $ ( 138,297 ) $ 759,183

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.

Q2 FY2022 Form 10-Q| H&R Block, Inc.

Components of intangible assets are as follows:

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Amortization Net

As of September 30, 2021:

As of December 31, 2021:

Reacquired franchise rights $ 377,512 $ ( 189,936 ) $ 187,576

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$ 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

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

We made payments to acquire businesses totaling $ 19.3 million and $ 12.2 million during the six months ended December 31, 2021 and 2020, respectively.

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

(dollars in 000s)

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Total $ 23,317 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.

Amortization of intangible assets for the three and six months ended December 31, 2021 was $ 19.4 million and $ 39.2 million, respectively, compared to $ 21.5 million and $ 41.4 million for the three and six months ended December 31, 2020, respectively.

Estimated amortization of intangible assets for fiscal years ending June 30, 2022, 2023, 2024, 2025 and 2026 is $ 76.7 million, $ 62.6 million, $ 43.1 million, $ 23.0 million and $ 15.8 million, respectively.

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

LONG-TERM DEBT

The components of long-term debt are as follows:

As of September 30, 2021 June 30, 2021

As of December 31, 2021 June 30, 2021

Senior Notes, 5.500 %, due November 2022

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650,000 650,000

Committed line of credit borrowings 275,000 —

Debt issuance costs and discounts ( 14,775 ) ( 16,281 )

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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 September 30, 2021.

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

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

We had an outst anding balance of $ 275.0 million under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of December 31, 2021 .

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.

with the Internal Revenue Service (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.

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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 2017, 2014 and all years prior to 2014 are 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.

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.

Although the outcome of tax audits is always uncertain, we believe that adequate

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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 $ 212.8 million as of December 31, 2021 and $ 264.3 million as of June 30, 2021.

The gross unrecognized tax benefits decreased $ 51.5 million during the six months ended December 31, 2021.

The decrease in unrecognized tax benefits during the six months ending December 31, 2021 is related to federal and state statute of limitation periods expiring in the current quarter.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 43.8 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.

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.

A discrete income tax benefit of $ 50.0 million was recorded in the six months ended December 31, 2021 compared to a discrete income tax expense of $ 18.2 million in the six months ended December 31, 2020.

The discrete tax benefit recorded in the current period primarily resulted from federal and state statute of limitations expiring in the current quarter.

The discrete tax expense recorded in the prior period primarily resulted from uncertain tax benefits related to a net operating loss carryback generated on our calendar year 2020 federal income tax return.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 31.7 % for the six months ended December 31, 2021 and 5.6 % for the six months ended December 31, 2020.

Discrete items increased the effective tax rate by 10.1 % for the six months ended December 31, 2021, and decreased the effective tax rate by 5.5 % for the six months ended December 31, 2020.

Due to the loss through the second 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 second quarter to be significantly different than the rate for our full fiscal year.

Consistent with prior years, our pretax loss for the six months ended December 31, 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

The amount of tax benefit recorded for the six months ended December 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.

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 $ 12.0 million and $ 12.6 million as of September 30, 2021 and June 30, 2021, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 11.5 million and $ 12.6 million as of December 31, 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.

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 $ 18.4 million and $ 17.3 million as of December 31, 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.

Our total obligation under these lines of credit was $ 24.9 million at December 31, 2021, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 12.3 million.

In March 2020, the U.S.

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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.

During the first quarter, we applied

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

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.

Emerald Advance SM lines of credit (EAs) are originated by MetaBank®, N.A.

We purchase a 90 % participation interest, at par, in all EAs originated by Meta in accordance with our participation agreement.

At December 31, 2021, the principal balance of purchased participation interests for the current year totaled $ 247.7 million.

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

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

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 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.

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 December 31, 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.

As of December 31, 2021 and June 30, 2021 our total accrued liabilities were $ 1.7 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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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.

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

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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.

As of December 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.

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.

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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

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

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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).

3:19-cv-03610-SK) and is styled Snarr v.

HRB Tax Group, Inc., et a l.

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

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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.

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

Our appeal of the court's arbitration order 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;

After filing 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.

We filed a motion to dismiss the plaintiff's claim for public injunctive relief.

The court granted our motion and dismissed the case in its entirety on August 24, 2021.

The plaintiff filed an

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

appeal, which was later dismissed by the parties, along with the other appeals.

We have no accrual related to this matter as of December 31, 2021.

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.

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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

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

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 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).

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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.

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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.

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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

H&R Block, Inc.

|Q1 FY2022 Form 10-Q

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 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.

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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.

On November 9, 2020, the court granted SCC's motion for

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

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.

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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 September 30, 2021, total approximately $ 268 million and consist of an intercompany note receivable.

SCC's principal assets, as of December 31, 2021, total approximately $ 267 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.

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

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.

Q2 FY2022 Form 10-Q| H&R Block, Inc.

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