What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-05-10 · 129 added, 293 removed, 326 unchanged (56% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (unaudited, in 000s, except

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS:

(unaudited, in 000s, except

per share amounts)

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

2022 2021 2022 2021

Three months ended September 30,

Service revenues $ 167,194 $ 176,977

7 unchanged sentences

Interest expense on borrowings ( 15,824 ) ( 22,830 )

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

Loss from continuing operations before income tax benefit ( 221,324 ) ( 197,318 )

Income tax benefit ( 53,957 ) ( 47,373 )

Net loss from continuing operations ( 167,367 ) ( 149,945 )

Net loss from discontinued operations, net of tax benefits of $ 316 and $ 495

( 1,054 ) ( 1,656 )

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

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.13 $ 4.15 $ 1.95 $ 2.38

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

Consolidated $ 4.12 $ 4.14 $ 1.92 $ 2.35

DILUTED EARNINGS PER SHARE:

NET LOSS $ ( 168,421 ) $ ( 151,601 )

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ ( 1.05 ) $ ( 0.84 )

2 unchanged sentences

DIVIDENDS DECLARED PER SHARE $ 0.29 $ 0.27

COMPREHENSIVE INCOME:

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

COMPREHENSIVE LOSS:

Net loss $ ( 168,421 ) $ ( 151,601 )

Change in foreign currency translation adjustments ( 32,345 ) ( 11,177 )

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

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

Other comprehensive loss ( 32,345 ) ( 11,177 )

Comprehensive loss $ ( 200,766 ) $ ( 162,778 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of March 31, 2022 June 30, 2021

As of September 30, 2022 June 30, 2022

Cash and cash equivalents $ 322,824 $ 885,015

17 unchanged sentences

Accrued income taxes and reserves for uncertain tax positions 188,118 280,115

Current portion of long-term debt 499,395 —

Operating lease liabilities 197,491 206,898

10 unchanged sentences

Additional paid-in capital 759,629 772,182

Accumulated other comprehensive income (loss) ( 3,838 ) 88

Accumulated other comprehensive loss ( 53,990 ) ( 21,645 )

Retained earnings (deficit) ( 311,671 ) 120,405

1 unchanged sentence

( 660,840 ) ( 661,247 )

Total stockholders' equity 44,856 388,058

Total stockholders' equity (deficiency) ( 264,985 ) 211,631

Total liabilities and stockholders' equity $ 2,559,232 $ 3,269,158

2 unchanged sentences

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

Nine months ended March 31, 2022 2021

Three months ended September 30, 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 330,971 $ 440,240

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

Net loss $ ( 168,421 ) $ ( 151,601 )

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

Depreciation and amortization 33,624 35,715

9 unchanged sentences

Other, net ( 435 ) ( 1,438 )

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

Net cash used in operating activities ( 321,666 ) ( 312,624 )

CASH FLOWS FROM INVESTING ACTIVITIES:

6 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of line of credit borrowings ( 705,000 ) ( 3,275,000 )

Proceeds from line of credit borrowings 705,000 1,275,000

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

Proceeds from issuance of long-term debt — 647,965

Dividends paid ( 43,093 ) ( 48,996 )

8 unchanged sentences

SUPPLEMENTARY CASH FLOW DATA:

Income taxes paid, net of refunds received $ 76,894 $ 100,118

Income taxes paid (received), net $ ( 29,811 ) $ 38,419

Interest paid on borrowings 19,792 12,594

Accrued purchase of common stock 32,356 4,785

Accrued additions to property and equipment 4,704 6,273

4 unchanged sentences

| Q1 FY2023 Form 10-Q

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

per share amounts)

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

Common Stock Additional

16 unchanged sentences

Balances as of September 30, 2022 188,644 $ 1,887 $ 759,629 $ ( 53,990 ) $ ( 311,671 ) ( 33,177 ) $ ( 660,840 ) $ ( 264,985 )

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 )

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.

(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.

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

Common Stock Additional

7 unchanged sentences

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

Other comprehensive income — — — 8,816 — — — 8,816

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

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

6 unchanged sentences

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

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 )

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.

1 unchanged sentence

See accompanying notes to consolidated financial statements.

H&R Block, Inc.

|Q3 FY2022 Form 10-Q

Q1 FY2023 Form 10-Q| H&R Block, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of 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.

BASIS OF PRESENTATION – The consolidated balance sheets as of September 30, 2022 and June 30, 2022, the consolidated statements of operations and comprehensive loss for the three months ended September 30, 2022 and 2021, the consolidated statements of cash flows for the three months ended September 30, 2022 and 2021, and the consolidated statements of stockholders' equity for the three months ended September 30, 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 September 30, 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.

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.

These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our June 30, 2022 Annual Report to Shareholders on Form 10-K.

All amounts presented herein as of June 30, 2022 or for the year then ended are derived from our Annual Report on Form 10-K.

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.

4 unchanged sentences

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 nine months ended March 31, 2021.

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.

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

See note 9 for additional information on loss contingencies related to our discontinued operations.

H&R Block, Inc.

|Q1 FY2023 Form 10-Q

REVENUE RECOGNITION

3 unchanged sentences

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 March 31, Nine months ended March 31,

2022 2021 2022 2021

Three months ended September 30,

assisted tax preparation $ 36,312 $ 33,607

1 unchanged sentence

DIY tax preparation 3,158 4,061

International 65,232 62,869 151,464 148,282

Refund Transfers 1,284 1,665

Emerald Card® 50,660 73,647 103,748 96,045

Peace of Mind® Extended Service Plan 24,770 24,836

Tax Identity Shield® 5,167 5,153

Interest and fee income on Emerald Advance SM

Emerald Card® and Spruce SM

11,612 28,258

Interest and fee income on Emerald Advance SM

International 58,834 58,325

Wave 22,646 19,137

3 unchanged sentences

POM Deferred Revenue Deferred Wages

Nine months ended March 31, 2022 2021 2022 2021

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

Three months ended September 30, 2022 2021 2022 2021

Balance, beginning of the period $ 173,486 $ 172,759 $ 19,495 $ 17,867

Amounts deferred 1,360 1,492 5 7

Amounts recognized on previous deferrals ( 28,703 ) ( 28,948 ) ( 2,988 ) ( 2,847 )

Balances as of March 31,

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

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

Balance, end of the period $ 146,143 $ 145,303 $ 16,512 $ 15,027

As of September 30, 2022, deferred revenue related to POM was $ 146.1 million.

We expect that $ 97.0 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

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

As of September 30, 2022 and 2021, Tax Identity Shield® (TIS) deferred revenue was $ 21.2 million and $ 23.5 million, respectively.

Deferred revenue related to TIS was $ 25.8 million and $ 28.3 million as of June 30, 2022 and June 30, 2021, respectively.

4 unchanged sentences

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 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 per share from continuing operations are as follows:

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 4.4 million shares and 5.3 million shares for the three months ended September 30, 2022 and 2021, respectively, as the effect would be antidilutive due to the net loss from continuing operations during the periods.

Q1 FY2023 Form 10-Q| H&R Block, Inc.

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 March 31, Nine months ended March 31,

2022 2021 2022 2021

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

Three months ended September 30,

Net loss from continuing operations attributable to shareholders $ ( 167,367 ) $ ( 149,945 )

Amounts allocated to participating securities ( 179 ) ( 239 )

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

Net loss from continuing operations attributable to common shareholders $ ( 167,546 ) $ ( 150,184 )

Basic weighted average common shares 159,284 178,099

1 unchanged sentence

Dilutive weighted average common shares 159,284 178,099

Earnings per share from continuing operations attributable to common shareholders:

Loss per share from continuing operations attributable to common shareholders:

Basic $ ( 1.05 ) $ ( 0.84 )

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 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 $ 6.8 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.

STOCK-BASED COMPENSATION – During the three months ended September 30, 2022, we granted 0.9 million shares under our stock-based compensation plan.

We granted awards of 1.4 million shares under our stock-based compensation plans during the three months ended September 30, 2021.

Stock-based compensation expense of our continuing operations totaled $ 7.7 million for the three months ended September 30, 2022 and $ 6.8 million for the three months ended September 30, 2021.

As of September 30, 2022, unrecognized compensation cost for stock options totaled $ 0.4 million, and for nonvested shares and units totaled $ 76.9 million.

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

As of March 31, 2022 June 30, 2021

As of September 30, 2022 June 30, 2022

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

2 unchanged sentences

assisted and DIY tax preparation and related fees 14,104 2,337 18,893 2,560

H&R Block Instant Refund TM receivables

H&R Block's Instant Refund SM receivables

1,412 112 3,491 198

6 unchanged sentences

Total $ 61,035 $ 34,335 $ 58,447 $ 34,864

Q3 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 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.

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

H&R Block, Inc.

|Q1 FY2023 Form 10-Q

H&R BLOCK'S INSTANT REFUND SM – H&R Block's Instant Refund SM 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.

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

We establish an allowance for credit losses at an amount that we believe reflects the receivable at 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 March 31, 2022 are as foll ows:

Tax return year of origination:

Balance Non-Accrual

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 September 30, 2022 are as foll ows:

Tax return year of origination Current Balance More Than 60 Days Past Due

2021 $ 2,781 $ 2,261

2020 and prior 111 111

2,892 $ 2,372

Allowance ( 1,368 )

1 unchanged sentence

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.

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

We establish an allowance for credit losses at an amount that we believe reflects the receivable at 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 March 31, 2022 are as follows:

Fiscal year of origination:

Balance Non-Accrual

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 September 30, 2022 are as follows:

Fiscal year of origination Current Balance Non-Accrual

2022 $ 23,865 $ 23,865

4 unchanged sentences

Net balance $ 13,898

H&R Block, Inc.

|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 nine months ended March 31, 2022 and 2021 is as follows:

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the three months ended September 30, 2022 and 2021 is as follows:

EAs All Other Total

2 unchanged sentences

Charge-offs, recoveries and other — ( 1,281 ) ( 1,281 )

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

Balances as of September 30, 2022 $ 26,141 $ 50,922 $ 77,063

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

1 unchanged sentence

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

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

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

Q1 FY2023 Form 10-Q| H&R Block, Inc.

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the three months ended September 30, 2022 are as follows:

Goodwill Accumulated Impairment Losses Net

3 unchanged sentences

Impairments — — —

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.

Balances as of September 30, 2022 $ 885,008 $ ( 138,297 ) $ 746,711

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:

1 unchanged sentence

Amortization Net

As of March 31, 2022:

As of September 30, 2022:

Reacquired franchise rights $ 383,809 $ ( 200,442 ) $ 183,367

15 unchanged sentences

$ 1,037,262 $ ( 727,618 ) $ 309,644

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:

We made payments to acquire businesses totaling $ 16.5 million and $ 4.3 million during the three months ended September 30, 2022 and 2021, respectively.

The amounts and weighted-average lives of intangible assets acquired

H&R Block, Inc.

|Q1 FY2023 Form 10-Q

during the three months e nded September 30, 2022, including amounts capitalized related to internally-developed software, a re as follows:

(dollars in 000s)

5 unchanged sentences

Total $ 12,702 4

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.

Amortization of intangible assets for the three months ended September 30, 2022 was $ 18.4 million compared to $ 19.8 million for the three months ended September 30, 2021.

Estimated amortization of intangible assets for fiscal years ending June 30, 2023, 2024, 2025, 2026, and 2027 is $ 68.8 million, $ 49.1 million, $ 27.5 million, $ 19.3 million and $ 13.8 million, respectively.

H&R Block, Inc.

|Q3 FY2022 Form 10-Q

LONG-TERM DEBT

The components of long-term debt are as follows:

As of March 31, 2022 June 30, 2021

Senior Notes, 5.500 %, due November 2022

$ 500,000 $ 500,000

As of September 30, 2022 June 30, 2022

Senior Notes, 5.250 %, due October 2025

9 unchanged sentences

Estimated fair value of long-term debt $ 1,312,000 $ 1,377,000

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.

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.

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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 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 were in compliance with these requirements as of September 30, 2022.

Q1 FY2023 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 $ 1.47 billion as of September 30, 2022.

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

1 unchanged sentence

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.

Consequently, our U.S.

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 2015, 2016, 2019 and later years remain open for examination.

federal income tax returns for 2018, 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.

On October 4, 2022, the IRS notified us that it plans to audit our 2020 tax return and related carryback claims.

With respect to federal, 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 $ 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 had gross unrecognized tax benefits of $ 231.7 million and $ 232.0 million as of September 30, 2022 and June 30, 2022, respectively.

The gross unrecognized tax benefits decreased by $ 0.3 million during the three months ended September 30, 2022 due to settlements with state tax authorities.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 33.1 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.

The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various state matters currently under examination or in appeals.

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

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.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 24.4 % and 24.0 % for the three months ended September 30, 2022 and 2021, respectively.

Consistent with prior years, our pretax loss for the three months ended September 30, 2022 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, 2022 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 $ 13.8 million and $ 12.6 million as of March 31, 2022 and June 30, 2021, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 12.7 million and $ 14.0 million as of September 30, 2022 and June 30, 2022, 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 $ 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.

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 $ 16.0 million and $ 12.9 million as of September 30, 2022 and June 30, 2022, 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 $ 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.

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 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.

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.

Our total obligation under these lines of credit was $ 15.3 million at September 30, 2022, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 8.7 million.

H&R Block, Inc.

|Q1 FY2023 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

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.

We are a defendant in numerous litigation and arbitration 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 or arbitrations to which we are subject.

In some of the matters, very large or indeterminate amounts, including punitive damages, may be sought.

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.

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.

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.

We believe that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in handling and resolving numerous claims over an extended period of time.

The outcome of a 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 courts and arbitrators will apply the law.

Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.

In addition to litigation and arbitration matters, we are also subject to other loss contingencies arising out of our business activities, including as described below.

We accrue liabilities for litigation, arbitration, and other related loss contingencies and any related settlements when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

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

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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 March 31, 2022.

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, 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 March 31, 2022 and June 30, 2021 our total accrued liabilities were $ 1.7 million and $ 1.6 million, respectively.

Our total accrued liabilities were $ 1.7 million as of September 30, 2022 and June 30, 2022.

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.

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

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 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 or arbitrators on motions or appeals, analyses 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 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.

As of September 30, 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.

Q1 FY2023 Form 10-Q| H&R Block, Inc.

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

Costs incurred with defending matters are expensed as incurred.

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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 four 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 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.

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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.

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 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 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 filed a motion for summary judgment, which remains pending.

A trial date is set for August 14, 2023.

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.

H&R Block, Inc.

|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.

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.

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 and may in the future be, subject to litigation and other loss contingencies, including indemnification and contribution claims, pertaining to SCC's mortgage business activities that occurred prior to such termination and sale.

Parties, including underwriters, depositors, and securitization trustees, have been, remain, or may in the future be, involved in lawsuits, threatened lawsuits, or 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, breaches of representations and warranties, or violations of statutory requirements.

SCC has received notices of potential indemnification or contribution obligations relating to such matters.

Additional lawsuits against the parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of potential indemnification, contribution or similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims.

We have not concluded that a loss related to any of these potential indemnification or contribution claims is probable, nor have we accrued a liability related to any of these claims.

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

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

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.

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.

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.

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 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.

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 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.

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.

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, 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 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.

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 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.

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

If the amount that SCC is ultimately required to pay with respect to loss contingencies, 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 also may 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, 2022, total approximately $ 264 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

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|Q1 FY2023 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.

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 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;

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.

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, arbitration 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.

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

What changed 10-Q

Item 1. Financial Statements