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Item 1. Financial Statements

2023-05-09 compared with 2023-02-07 · 119 added, 88 removed, 407 unchanged (34% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS:

CONSOLIDATED STATEMENTS OF OPERATIONS 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,

2023 2022 2023 2022

8 unchanged sentences

Interest expense on borrowings ( 22,298 ) ( 23,746 ) ( 57,107 ) ( 69,661 )

Loss from continuing operations before income tax benefit ( 298,003 ) ( 298,918 ) ( 519,327 ) ( 496,236 )

Income tax benefit ( 77,140 ) ( 109,845 ) ( 131,097 ) ( 157,218 )

Net loss from continuing operations ( 220,863 ) ( 189,073 ) ( 388,230 ) ( 339,018 )

Income from continuing operations before income taxes 855,428 861,857 336,101 365,621

Income taxes 209,351 186,884 78,254 29,666

Net income from continuing operations 646,077 674,973 257,847 335,955

Net loss from discontinued operations, net of tax benefits of $ 792 , $ 539 , $ 1,920 and $ 1,495

( 2,648 ) ( 1,796 ) ( 6,418 ) ( 4,984 )

NET LOSS $ ( 223,579 ) $ ( 190,605 ) $ ( 392,000 ) $ ( 342,206 )

BASIC AND DILUTED LOSS PER SHARE:

NET INCOME $ 643,429 $ 673,177 $ 251,429 $ 330,971

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.22 $ 4.13 $ 1.65 $ 1.95

1 unchanged sentence

Consolidated $ 4.21 $ 4.12 $ 1.61 $ 1.92

DILUTED EARNINGS PER SHARE:

Continuing operations $ 4.14 $ 4.06 $ 1.62 $ 1.92

Discontinued operations ( 0.02 ) ( 0.01 ) ( 0.04 ) ( 0.03 )

Consolidated $ 4.12 $ 4.05 $ 1.58 $ 1.89

DIVIDENDS DECLARED PER SHARE $ 0.29 $ 0.27 $ 0.87 $ 0.81

COMPREHENSIVE LOSS:

Net loss $ ( 223,579 ) $ ( 190,605 ) $ ( 392,000 ) $ ( 342,206 )

COMPREHENSIVE INCOME:

Net income $ 643,429 $ 673,177 $ 251,429 $ 330,971

Change in foreign currency translation adjustments 402 5,595 ( 22,636 ) ( 3,926 )

Other comprehensive income (loss) 402 5,595 ( 22,636 ) ( 3,926 )

Comprehensive loss $ ( 214,272 ) $ ( 188,949 ) $ ( 415,038 ) $ ( 351,727 )

Comprehensive income $ 643,831 $ 678,772 $ 228,793 $ 327,045

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of December 31, 2022 June 30, 2022

As of March 31, 2023 June 30, 2022

Cash and cash equivalents $ 909,075 $ 885,015

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Total current liabilities 1,115,582 998,813

Long-term debt and line of credit borrowings 2,067,937 1,486,876

Long-term debt 1,488,457 1,486,876

Deferred tax liabilities and reserves for uncertain tax positions 256,119 226,362

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

Six months ended December 31, 2022 2021

Nine months ended March 31, 2023 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 392,000 ) $ ( 342,206 )

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

Net income $ 251,429 $ 330,971

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

Depreciation and amortization 98,660 107,462

9 unchanged sentences

Other, net ( 3,285 ) ( 5,378 )

Net cash used in operating activities ( 780,458 ) ( 913,571 )

Net cash provided by operating activities 498,386 373,128

CASH FLOWS FROM INVESTING ACTIVITIES:

12 unchanged sentences

Other, net ( 7,400 ) ( 13,389 )

Net cash provided by (used in) financing activities 128,813 ( 149,883 )

Net cash used in financing activities ( 505,587 ) ( 707,466 )

Effects of exchange rate changes on cash ( 7,880 ) ( 1,666 )

8 unchanged sentences

Accrued dividends payable to common shareholders 44,163 43,041

Accrued purchase of common stock — 4,845

See accompanying notes to consolidated financial statements.

30 unchanged sentences

Balances as of December 31, 2022 185,403 $ 1,854 $ 767,683 $ ( 44,683 ) $ ( 708,437 ) ( 33,127 ) $ ( 659,896 ) $ ( 643,479 )

Net income — — — — 643,429 — — 643,429

Other comprehensive income — — — 402 — — — 402

Stock-based compensation — — 7,830 — — — — 7,830

Stock-based awards exercised or vested — — ( 244 ) — ( 213 ) 13 265 ( 192 )

Acquisition of treasury shares (2)

— — — — — ( 6 ) ( 219 ) ( 219 )

Cash dividends declared - $ 0.29 per share

— — — — ( 44,163 ) — — ( 44,163 )

Balances as of March 31, 2023 185,403 $ 1,854 $ 775,269 $ ( 44,281 ) $ ( 109,384 ) ( 33,120 ) $ ( 659,850 ) $ ( 36,392 )

(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, 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.

5 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of December 31, 2022 and June 30, 2022, the consolidated statements of operations and comprehensive loss for the three and six months ended December 31, 2022 and 2021, the consolidated statements of cash flows for the six months ended December 31, 2022 and 2021, and the consolidated statements of stockholders' equity for the three and six months ended December 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 December 31, 2022 and 2021 and for all periods presented, have been made.

BASIS OF PRESENTATION – The consolidated balance sheets as of March 31, 2023 and June 30, 2022, the consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2023 and 2022, the consolidated statements of cash flows for the nine months ended March 31, 2023 and 2022, and the consolidated statements of stockholders' equity for the three and nine months ended March 31, 2023 and 2022 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, 2023 and 2022 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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The following table disaggregates our U.S.

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

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

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,

2023 2022 2023 2022

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POM Deferred Revenue Deferred Wages

Six months ended December 31, 2022 2021 2022 2021

Nine months ended March 31, 2023 2022 2023 2022

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

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Balance, end of the period $ 182,441 $ 184,485 $ 20,862 $ 20,087

As of December 31, 2022, deferred revenue related to POM was $ 128.9 million.

As of March 31, 2023, deferred revenue related to POM was $ 182.4 million.

We expect that $ 103.3 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, 2022 and 2021, Tax Identity Shield® (TIS) deferred revenue was $ 16.8 million and $ 18.5 million, respectively.

As of March 31, 2023 and 2022, Tax Identity Shield® (TIS) deferred revenue was $ 33.3 million and $ 37.4 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.

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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 4.5 million shares for the three and six months ended December 31, 2022 and 5.1 million shares for the three and six months ended December 31, 2021, 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 0.7 million and 0.6 million shares for the three and nine months ended March 31, 2023,

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

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

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

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,

2023 2022 2023 2022

Net loss from continuing operations attributable to shareholders $ ( 220,863 ) $ ( 189,073 ) $ ( 388,230 ) $ ( 339,018 )

Net income from continuing operations attributable to shareholders $ 646,077 $ 674,973 $ 257,847 $ 335,955

Amounts allocated to participating securities ( 2,822 ) ( 3,061 ) ( 1,064 ) ( 1,543 )

Net loss from continuing operations attributable to common shareholders $ ( 221,055 ) $ ( 189,283 ) $ ( 388,601 ) $ ( 339,467 )

Net income from continuing operations attributable to common shareholders $ 643,255 $ 671,912 $ 256,783 $ 334,412

Basic weighted average common shares 152,281 162,777 155,249 171,481

1 unchanged sentence

Dilutive weighted average common shares 155,561 165,612 158,488 174,142

Loss per share from continuing operations attributable to common shareholders:

Earnings per share from continuing operations attributable to common shareholders:

Basic $ 4.22 $ 4.13 $ 1.65 $ 1.95

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, 2022, we granted 1.0 million shares under our stock-based compensation plan.

We granted awards of 1.5 million shares under our stock-based compensation plans during the six months ended December 31, 2021.

Stock-based compensation expense of our continuing operations totaled $ 10.2 million and $ 17.9 million for the three and six months ended December 31, 2022, respectively, and $ 6.4 million and $ 13.2 million for the three and six months ended December 31, 2021, respectively.

As of December 31, 2022, unrecognized compensation cost for stock options totaled $ 0.3 million, and for nonvested shares and units totaled $ 66.9 million.

STOCK-BASED COMPENSATION – We granted 1.1 million and 1.6 million shares under our stock-based compensation plans during the nine months ended March 31, 2023 and March 31, 2022, respectively.

Stock-based compensation expense of our continuing operations totaled $ 8.9 million and $ 26.8 million for the three and nine months ended March 31, 2023, respectively, and $ 6.8 million and $ 20.0 million for the three and nine months ended March 31, 2022, respectively.

As of March 31, 2023, unrecognized compensation cost for stock options totaled $ 0.2 million, and for nonvested shares and units totaled $ 56.6 million.

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

As of December 31, 2022 June 30, 2022

As of March 31, 2023 June 30, 2022

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

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Total $ 249,150 $ 39,265 $ 58,447 $ 34,864

Q3 FY2023 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.

Q2 FY2023 Form 10-Q| H&R Block, Inc.

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

As of March 31, 2023 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'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.

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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, 2022 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, 2023 are as foll ows:

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

1 unchanged sentence

2021 and prior 451 451

Allowance ( 1,290 )

Net balance $ 43,224

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, 2022 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, 2023 are as follows:

Fiscal year of origination Current Balance Non-Accrual

5 unchanged sentences

Net balance $ 22,142

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, 2022 and 2021 is as follows:

H&R Block, Inc.

|Q3 FY2023 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, 2023 and 2022 is as follows:

EAs All Other Total

2 unchanged sentences

Charge-offs, recoveries and other ( 14,814 ) ( 51,081 ) ( 65,895 )

Balances as of December 31, 2022 $ 26,408 $ 1,197 $ 27,605

Balances as of March 31, 2023 $ 28,029 $ 32,517 $ 60,546

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

1 unchanged sentence

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

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

H&R Block, Inc.

|Q2 FY2023 Form 10-Q

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

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the nine months ended March 31, 2023 are as follows:

Goodwill Accumulated Impairment Losses Net

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Impairments — — —

Balances as of December 31, 2022 $ 903,099 $ ( 138,297 ) $ 764,802

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, 2023 $ 907,854 $ ( 138,297 ) $ 769,557

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

Q3 FY2023 Form 10-Q| H&R Block, Inc.

Components of intangible assets are as follows:

1 unchanged sentence

Amortization Net

As of December 31, 2022:

As of March 31, 2023:

Reacquired franchise rights $ 392,274 $ ( 208,401 ) $ 183,873

15 unchanged sentences

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

Q2 FY2023 Form 10-Q| H&R Block, Inc.

We made payments to acquire businesses totaling $ 39.8 million and $ 19.3 million during the six months ended December 31, 2022 and 2021, respectively.

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

We made payments to acquire businesses totaling $ 47.7 million and $ 25.5 million during the nine months ended March 31, 2023 and 2022, respectively.

The amounts and weighted-average lives of intangible assets acquired during the nine months e nded March 31, 2023, including amounts capitalized related to internally-developed software, a re as follows:

(dollars in 000s)

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Total $ 39,130 5

Amortization of intangible assets for the three and six months ended December 31, 2022 was $ 18.5 million and $ 36.9 million, respectively, compared to $ 19.4 million and $ 39.2 million for the three and six months ended December 31, 2021, respectively.

Amortization of intangible assets for the three and nine months ended March 31, 2023 was $ 17.8 million and $ 54.7 million, respectively, compared to $ 19.5 million and $ 58.7 million for the three and nine months ended March 31, 2022, respectively.

Estimated amortization of intangible assets for fiscal years ending June 30, 2023, 2024, 2025, 2026, and 2027 is $ 71.9 million, $ 55.2 million, $ 32.6 million, $ 23.6 million and $ 17.8 million, respectively.

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

LONG-TERM DEBT

The components of long-term debt are as follows:

As of December 31, 2022 June 30, 2022

As of March 31, 2023 June 30, 2022

Senior Notes, 5.250 %, due October 2025

4 unchanged sentences

650,000 650,000

Committed line of credit borrowings 580,000 —

Debt issuance costs and discounts ( 11,543 ) ( 13,124 )

11 unchanged sentences

and (3) covenants restricting our ability to incur certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive agreements.

H&R Block, Inc.

|Q2 FY2023 Form 10-Q

includes provisions for an equity cure which could potentially allow us to independently cure certain defaults.

The CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults.

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

We were in compliance with these requirements as of December 31, 2022.

We had an outst anding balance of $ 580.0 million under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of December 31, 2022.

We were in compliance with these requirements as of March 31, 2023.

We had no outst anding balance under our CLOC and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $ 1.4 billion of March 31, 2023.

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

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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 $ 221.3 million and $ 232.0 million as of December 31, 2022 and June 30, 2022, respectively.

The gross unrecognized tax benefits decreased by $ 10.7 million during the six months ended December 31, 2022 due to expiration of statutes and settlements with state tax authorities.

We had gross unrecognized tax benefits of $ 256.3 million and $ 232.0 million as of March 31, 2023 and June 30, 2022, respectively.

The gross unrecognized tax benefits increased by $ 24.3 million during the nine months ended

Q3 FY2023 Form 10-Q| H&R Block, Inc.

March 31, 2023.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 53.5 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.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 25.2 % and 31.7 % for the six months ended December 31, 2022 and 2021, respectively.

Discrete items increased the effective tax rate by 1.4 % and 10.1 % for the six months ended December 31, 2022, and 2021, respectively.

A discrete income tax benefit of $ 7.2 million and $ 50.0 million were recorded in the six months ended December 31, 2022 and 2021, respectively.

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

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 23.3 % and 8.1 % for the nine months ended March 31, 2023 and 2022, respectively.

Discrete items decreased the effective tax rate by 1.3 % and 14.4 % for the nine months ended March 31, 2023, and 2022, respectively.

A discrete income tax benefit of $ 4.2 million and $ 52.6 million were recorded in the nine months ended March 31, 2023 and 2022, respectively.

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

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

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

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

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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 $ 11.7 million and $ 14.0 million as of December 31, 2022 and June 30, 2022, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 14.6 million and $ 14.0 million as of March 31, 2023 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 $ 21.4 million and $ 12.9 million as of December 31, 2022 and June 30, 2022, respectively, with amounts recorded in deferred revenue and other

Q2 FY2023 Form 10-Q| H&R Block, Inc.

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 $ 19.9 million and $ 12.9 million as of March 31, 2023 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 $ 21.1 million at December 31, 2022, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 7.4 million.

Our total obligation under these lines of credit was $ 20.4 million at March 31, 2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 9.6 million.

In March 2020, the U.S.

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We plan to record any benefit related to these credits upon both the receipt of the benefit and the resolution of the uncertainties, including, but not limited to, the completion of any potential audit or examination, or the expiration of the related stat ute of limitations.

During the six months ended December 31, 2022, we received $ 12.1 million related to these credits and recognized $ 3.2 million as an offset to related operating expenses.

As of December 31, 2022 and June 30, 2022, we had deferre d balances of $ 13.9 million and $ 5.1 million, respectively, which is recorded in deferred revenue and other current liabilities.

During the nine months ended March 31, 2023, we received $ 13.2 million related to these credits and recognized $ 3.7 million as an offset to related operating expenses.

As of March 31, 2023 and June 30, 2022, we had deferre d balances of $ 14.6 million and $ 5.1 million, respectively, which is recorded in deferred revenue and other current liabilities.

Emerald Advance SM lines of credit (EAs) are originated by Pathward TM N.A.

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

At December 31, 2022, the principal balance of purchased participation interests for the current year totaled $ 270.4 million.

At March 31, 2023, the principal balance of purchased participation interests for the current year totaled $ 277.9 million.

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

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

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, 2023, we accrued an estimated liability of $ 0.8 million related to this guarantee, compared to $ 0.6 million at March 31, 2022.

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

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, 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

H&R Block, Inc.

|Q2 FY2023 Form 10-Q

operations, and cash flows.

Our total accrued liabilities were $ 1.6 million and $ 1.7 million as of December 31, 2022 and June 30, 2022, respectively.

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, 2023.

Our total accrued liabilities were $ 4.0 million and $ 1.7 million as of March 31, 2023 and June 30, 2022, respectively.

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

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

As of December 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.

As of March 31, 2023, 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.

Q3 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.

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LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS –

Free File Litigation.

On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No.

7 unchanged sentences

from the case and amended its complaint to add HRB Tax Group, Inc.

We filed a motion for summary judgment, which was denied on December 1, 2022.

We filed a motion for summary judgment, which was denied.

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.

We have received and are responding to certain governmental inquiries relating to the IRS Free File Program and our DIY tax preparation services.

In February 2023, we received a demand and draft complaint from the Federal Trade Commission (FTC) relating to our DIY tax preparation services.

The Company has been discussing potential resolution of the matter with the FTC.

If we are not able to reach a resolution, the FTC may seek resolution through litigation.

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

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.

Q2 FY2023 Form 10-Q| H&R Block, Inc.

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.

7 unchanged sentences

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 December 31, 2022, total approximately $ 267 million and consist of an intercompany note receivable.

SCC's principal assets, as of March 31, 2023, total

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

approximately $ 266 million and consist of an intercompany note receivable.

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

4 unchanged sentences

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