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Item 1. Financial Statements

2022-05-10 compared with 2022-02-04 · 136 added, 129 removed, 483 unchanged (35% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (unaudited, in 000s, except

AND COMPREHENSIVE INCOME (unaudited, in 000s, except

per share amounts)

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

Three months ended March 31, Nine months ended March 31,

2022 2021 2022 2021

8 unchanged sentences

Interest expense on borrowings ( 23,746 ) ( 22,471 ) ( 69,661 ) ( 78,657 )

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 )

Income from continuing operations before income taxes 861,857 829,215 365,621 495,770

Income taxes 186,884 69,543 29,666 50,997

Net income from continuing operations 674,973 759,672 335,955 444,773

Net loss from discontinued operations, net of tax benefits of $ 539 , $ 793 , $ 1,495 and $ 3,317

( 1,796 ) ( 1,425 ) ( 4,984 ) ( 4,533 )

NET LOSS $ ( 190,605 ) $ ( 255,751 ) $ ( 342,206 ) $ ( 318,007 )

BASIC AND DILUTED LOSS PER SHARE:

NET INCOME $ 673,177 $ 758,247 $ 330,971 $ 440,240

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.13 $ 4.15 $ 1.95 $ 2.38

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Consolidated $ 4.12 $ 4.14 $ 1.92 $ 2.35

DILUTED EARNINGS PER SHARE:

Continuing operations $ 4.06 $ 4.09 $ 1.92 $ 2.35

Discontinued operations ( 0.01 ) ( 0.01 ) ( 0.03 ) ( 0.02 )

Consolidated $ 4.05 $ 4.08 $ 1.89 $ 2.33

DIVIDENDS DECLARED PER SHARE $ 0.27 $ 0.26 $ 0.81 $ 0.78

COMPREHENSIVE LOSS:

Net loss $ ( 190,605 ) $ ( 255,751 ) $ ( 342,206 ) $ ( 318,007 )

COMPREHENSIVE INCOME:

Net income $ 673,177 $ 758,247 $ 330,971 $ 440,240

Change in foreign currency translation adjustments 5,595 3,955 ( 3,926 ) 34,753

Other comprehensive income (loss) 5,595 3,955 ( 3,926 ) 34,753

Comprehensive loss $ ( 188,949 ) $ ( 233,769 ) $ ( 351,727 ) $ ( 287,209 )

Comprehensive income $ 678,772 $ 762,202 $ 327,045 $ 474,993

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of December 31, 2021 June 30, 2021

As of March 31, 2022 June 30, 2021

Cash and cash equivalents $ 1,041,740 $ 1,434,381

34 unchanged sentences

( 664,321 ) ( 680,356 )

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

Total stockholders' equity 44,856 388,058

Total liabilities and stockholders' equity $ 3,781,127 $ 4,014,388

2 unchanged sentences

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

Six months ended December 31, 2021 2020

Nine months ended March 31, 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 342,206 ) $ ( 318,007 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income $ 330,971 $ 440,240

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 107,462 117,037

9 unchanged sentences

Other, net ( 5,378 ) ( 4,723 )

Net cash used in operating activities ( 913,571 ) ( 702,840 )

Net cash provided by operating activities 373,128 501,356

CASH FLOWS FROM INVESTING ACTIVITIES:

22 unchanged sentences

Interest paid on borrowings 58,009 77,398

Accrued purchase of common stock 4,845 —

Accrued additions to property and equipment 1,336 977

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

Net income — — — — 673,177 — — 673,177

Other comprehensive income — — — 5,595 — — — 5,595

Stock-based compensation — — 5,619 — — — — 5,619

Stock-based awards exercised or vested — — ( 2,595 ) — ( 201 ) 244 4,771 1,975

Acquisition of treasury shares (2)

— — — — — ( 1 ) ( 32 ) ( 32 )

Repurchase and retirement of common shares ( 9,694 ) ( 97 ) ( 5,816 ) — ( 219,868 ) — — ( 225,781 )

Cash dividends declared - $ 0.27 per share

— — — — ( 43,042 ) — — ( 43,042 )

Balances as of March 31, 2022 193,571 $ 1,936 $ 767,869 $ ( 3,838 ) $ ( 56,790 ) ( 33,979 ) $ ( 664,321 ) $ 44,856

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

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

Net income — — — — 758,247 — — 758,247

Other comprehensive income — — — 3,955 — — — 3,955

Stock-based compensation — — 6,943 — — — — 6,943

Stock-based awards exercised or vested — — ( 1,071 ) — ( 214 ) 111 2,174 889

Acquisition of treasury shares (2)

— — — — — ( 2 ) ( 39 ) ( 39 )

Repurchase and retirement of common shares ( 2,063 ) ( 20 ) ( 1,219 ) — ( 36,832 ) — — ( 38,071 )

Cash dividends declared - $ 0.26 per share

— — — — ( 47,181 ) — — ( 47,181 )

Balances as of March 31, 2021 216,656 $ 2,167 $ 781,692 $ ( 5,028 ) $ 94,409 ( 35,191 ) $ ( 686,372 ) $ 186,868

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

BASIS OF PRESENTATION – The consolidated balance sheets as of March 31, 2022 and June 30, 2021, the consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2022 and 2021, the consolidated statements of cash flows for the nine months ended March 31, 2022 and 2021, and the consolidated statements of stockholders' equity for the three and nine months ended March 31, 2022 and 2021 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 March 31, 2022 and 2021 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 six months ended December 31, 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 nine months ended March 31, 2021.

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

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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 December 31, Six months ended December 31,

Three months ended March 31, Nine months ended March 31,

2022 2021 2022 2021

14 unchanged sentences

POM Deferred Revenue Deferred Wages

Six months ended December 31, 2021 2020 2021 2020

Nine months ended March 31, 2022 2021 2022 2021

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

1 unchanged sentence

Amounts recognized on previous deferrals ( 69,075 ) ( 73,683 ) ( 6,786 ) ( 8,068 )

Balances as of December 31,

Balances as of March 31,

$ 184,485 $ 181,319 $ 20,087 $ 19,351

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

As of March 31, 2022, deferred revenue related to POM was $ 184.5 million.

We expect that $ 101.2 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

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

As of March 31, 2022 and 2021, Tax Identity Shield® (TIS) deferred revenue was $ 37.4 million and $ 38.2 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 5.1 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.

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 0.3 million and 0.6 million shares for the three and nine months ended March 31, 2022, respectively, and 0.6 million and 0.9 million shares for the three and nine months ended March 31, 2021 , respectively, as the effect would be antidilutive.

H&R Block, Inc.

|Q3 FY2022 Form 10-Q

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

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

(in 000s, except per share amounts)

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

Three months ended March 31, Nine months ended March 31,

2022 2021 2022 2021

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

Net income from continuing operations attributable to shareholders $ 674,973 $ 759,672 $ 335,955 $ 444,773

Amounts allocated to participating securities ( 3,061 ) ( 3,374 ) ( 1,543 ) ( 1,908 )

Net loss from continuing operations attributable to common shareholders $ ( 189,283 ) $ ( 254,199 ) $ ( 339,467 ) $ ( 315,316 )

Net income from continuing operations attributable to common shareholders $ 671,912 $ 756,298 $ 334,412 $ 442,865

Basic weighted average common shares 162,777 182,204 171,481 186,162

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Dilutive weighted average common shares 165,612 184,905 174,142 188,133

Loss per share from continuing operations attributable to common shareholders:

Earnings per share from continuing operations attributable to common shareholders:

Basic $ 4.13 $ 4.15 $ 1.95 $ 2.38

1 unchanged sentence

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 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.

STOCK-BASED COMPENSATION – During the nine months ended March 31, 2022, we granted 1.6 million shares under our stock-based compensation plan.

We granted awards of 0.7 million shares under our stock-based compensation plans during the nine months ended March 31, 2021.

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 $ 6.4 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.

Stock-based compensation expense of our continuing operations totaled $ 6.8 million and $ 20.0 million for the three and nine months ended March 31, 2022, respectively, and $ 7.8 million and $ 21.2 million for the three and nine months ended March 31, 2021, respectively.

As of March 31, 2022, unrecognized compensation cost for stock options totaled $ 0.5 million, and for nonvested shares and units totaled $ 44.9 million.

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

As of December 31, 2021 June 30, 2021

As of March 31, 2022 June 30, 2021

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

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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 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.

As of March 31, 2022 and June 30, 2021, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.

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.

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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:

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 March 31, 2022 are as foll ows:

Tax return year of origination:

Balance Non-Accrual

2021 $ 40,565 $ —

2020 and prior 266 266

Allowance ( 1,071 )

Net balance $ 39,760

2 unchanged sentences

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:

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 March 31, 2022 are as follows:

Fiscal year of origination:

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|Q3 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:

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the nine months ended March 31, 2022 and 2021 is as follows:

EAs All Other Total

2 unchanged sentences

Charge-offs, recoveries and other ( 16,377 ) ( 60,343 ) ( 76,720 )

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

Balances as of March 31, 2022 $ 25,124 $ 45,910 $ 71,034

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

1 unchanged sentence

Charge-offs, recoveries and other ( 18,650 ) ( 54,092 ) ( 72,742 )

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

Balances as of March 31, 2021 $ 26,795 $ 45,091 $ 71,886

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the nine months ended March 31, 2022 are as follows:

Goodwill Accumulated Impairment Losses Net

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Impairments — — —

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.

Balances as of March 31, 2022 $ 902,725 $ ( 138,297 ) $ 764,428

In conjunction with our annual impairment test, we tested goodwill for impairment during the quarter and did not identify any impairment.

Q3 FY2022 Form 10-Q| H&R Block, Inc.

2 unchanged sentences

Amortization Net

As of December 31, 2021:

As of March 31, 2022:

Reacquired franchise rights $ 378,257 $ ( 193,589 ) $ 184,668

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

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:

We made payments to acquire businesses totaling $ 25.5 million and $ 15.5 million during the nine months ended March 31, 2022 and 2021, respectively.

The amounts and weighted-average lives of intangible assets acquired during the nine months e nded March 31, 2022, including amounts capitalized related to internally-developed software, a re as follows:

(dollars in 000s)

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Total $ 31,082 4

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.

Amortization of intangible assets for the three and nine months ended March 31, 2022 was $ 19.5 million and $ 58.7 million, respectively, compared to $ 20.7 million and $ 62.1 million for the three and nine months ended March 31, 2021, respectively.

Estimated amortization of intangible assets for fiscal years ending June 30, 2022, 2023, 2024, 2025 and 2026 is $ 77.3 million, $ 64.2 million, $ 44.6 million, $ 23.9 million and $ 16.3 million, respectively.

3 unchanged sentences

The components of long-term debt are as follows:

As of December 31, 2021 June 30, 2021

As of March 31, 2022 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 ( 14,075 ) ( 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 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 were in compliance with these requirements as of March 31, 2022.

We had no outst anding balance under our CLOC and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $ 427.5 million as of March 31, 2022.

SUBSEQUENT EVENT – On April 1, 2022, we sent a notice of redemption to the trustee to fully redeem our outstanding $ 500 million 5.500 % Senior Notes originally due in November 2022 (2022 Senior Notes).

The redemption price is equal to 100% of the outstanding principal amount of the 2022 Senior Notes, plus accrued and unpaid interest up to, but not including, the redemption date.

The 2022 Senior Notes were redeemed on May 2, 2022.

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

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Consequently, our U.S.

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

Q3 FY2022 Form 10-Q| H&R Block, Inc.

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

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.

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 $ 225.9 million as of March 31, 2022 and $ 264.3 million as of June 30, 2021.

The gross unrecognized tax benefits decreased $ 38.4 million during the nine months ended March 31, 2022.

The decrease is related to federal and state statute of limitation periods expiring in the current year.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 33.3 million within the next twelve months.

1 unchanged sentence

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 $ 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 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.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 8.1 % and 10.3 % for the nine months ended March 31, 2022 and 2021, respectively.

Discrete items decreased the effective tax rate by 14.4 % and 2.3 % for the nine months ended March 31, 2022 and 2021, respectively.

A discrete income tax benefit of $ 52.6 million and $ 11.4 million were recorded in the nine months ended March 31, 2022 and 2021, respectively.

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

The discrete tax benefit recorded in the prior period primarily resulted from settlements with taxing authorities and statute of limitations expirations.

The impact discrete tax items have on our tax rate through the third quarter are slightly exaggerated versus the impact discrete tax items have on the full fiscal year tax rate.

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.

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 $ 11.5 million and $ 12.6 million as of December 31, 2021 and June 30, 2021, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 13.8 million and $ 12.6 million as of March 31, 2022 and June 30, 2021, respectively.

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

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $ 18.4 million and $ 17.3 million as of December 31, 2021 and June 30, 2021, respectively, with amounts recorded in deferred revenue and other liabilities.

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 $ 13.9 million and $ 17.3 million as of March 31, 2022 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 $ 24.9 million at December 31, 2021, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 12.3 million.

Our total obligation under these lines of credit was $ 25.5 million at March 31, 2022, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 16.1 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 first quarter, we applied

H&R Block, Inc.

|Q2 FY2022 Form 10-Q

for employee retention credits related to calendar year 2020.

During the first 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.

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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.

H&R Block, Inc.

|Q3 FY2022 Form 10-Q

March 31, 2022, the principal balance of purchased participation interests for the current year totaled $ 256.5 million.

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

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

We pay fees primarily based on loan size and customer type.

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

At March 31, 2022, we accrued an estimated liability of $ 0.6 million related to this guarantee, compared to $ 2.4 million at March 31, 2021.

LITIGATION AND OTHER RELATED CONTINGENCIES

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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 December 31, 2021.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of March 31, 2022.

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 December 31, 2021 and June 30, 2021 our total accrued liabilities were $ 1.7 million and $ 1.6 million, respectively.

As of March 31, 2022 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

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

Q3 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.

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 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.

As of March 31, 2022, 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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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 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 four 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.

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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.

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 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) 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.

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 arbitration order was denied;

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

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 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

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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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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 plaintiff sought 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 alleged 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 sought 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.

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

The plaintiff filed a claim in arbitration, which was dismissed on February 7, 2022.

The plaintiff’s lawsuit was dismissed on March 2, 2022.

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.

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|Q3 FY2022 Form 10-Q

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.

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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.

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.

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.

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SCC removed the case to the United States District Court for the Southern District of New York on June 28, 2012 (Case No.

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 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, asserted 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.

The plaintiff sought specific

Q3 FY2022 Form 10-Q| H&R Block, Inc.

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.

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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.

Homeward filed an appeal to the Second Circuit Court of Appeals, which was denied on February 10, 2022.

Homeward subsequently filed a petition for panel rehearing with the Second Circuit, which was denied on March 15, 2022.

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

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Sand Canyon Corporation (Case No.

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

The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of the trustee and the certificate holders of such trust, asserted 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.

The plaintiff sought 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.

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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

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|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.

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 filed an appeal to the Second Circuit Court of Appeals, which was denied on February 10, 2022.

Homeward subsequently filed a petition for panel rehearing with the Second Circuit, which was denied on March 15, 2022.

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

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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.

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|Q3 FY2022 Form 10-Q

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.

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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 December 31, 2021, total approximately $ 267 million and consist of an intercompany note receivable.

SCC's principal assets, as of March 31, 2022, total approximately $ 265 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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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