H&R BLOCK INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA DISCUSSION OF FINANCIAL RESPONSIBILITY H&R Block's management is responsible for the integrity and objectivity of the information contained in this document. Management is responsible for the consistency of reporting this information and for ensuring that accounting principles generally accepted in the U.S. are properly applied. In discharging this responsibility, management maintains an extensive program of internal audits and requires members of management to certify financial information within their scope of management. Our system of internal control over financial reporting also includes formal policies and procedures, including a Code of Business Ethics and Conduct that reinforces our commitment to ethical business conduct and is designed to encourage our employees and directors to act with high standards of integrity in all that they do. The Audit Committee of the Board of Directors, composed solely of independent outside directors, meets periodically with management, the independent auditor and the Vice President, Audit Services (our chief internal auditor) to review matters relating to our financial statements, internal audit activities, internal accounting controls and non-audit services provided by the independent auditors. The independent auditor and the Vice President, Audit Services have full access to the Audit Committee and meet with the committee, both with and without management present, to discuss the scope and results of their audits, including internal controls and financial matters. Deloitte & Touche LLP audited our consolidated financial statements for the fiscal years ended June 30, 2023 and 2022, the two months ended June 30, 2021 (Transition Period), and for the fiscal year ended April 30, 2021. The audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 12a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), using the 2013 framework, as of June 30, 2023. Based on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2023, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO, using the 2013 framework. The Company's external auditor, Deloitte & Touche LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting. /s/ Jeffrey J. Jones II /s/ Tony G. Bowen Jeffrey J. Jones II Tony G. Bowen President and Chief Executive Officer Chief Financial Officer H&R Block, Inc. | 2023 Form 10-K 33 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of H&R Block, Inc . Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of H&R Block, Inc. and subsidiaries (the "Company") as of June 30, 2023, and June 30, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for the years ended June 30, 2023, and June 30, 2022, the two months ended June 30, 2021 (Transition Period) and the year ended April 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and June 30, 2022, and the results of its operations and its cash flows for the years ended June 30, 2023 and June 30, 2022, the two months ended June 30, 2021 (Transition Period) and the year ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 17, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Taxes - Uncertain Tax Positions - Refer to Note 9 to the consolidated financial statements Critical Audit Matter Description The Company operates in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact the mix of earnings in countries with differing statutory tax rates. The Company accrues a liability for unrecognized tax benefits arising from uncertain tax positions reflecting their judgment as to the ultimate resolution of the applicable issues. For each position, management considers all applicable information including relevant tax laws, the taxing authorities' potential position, management’s tax return position, and the 34 2023 Form 10-K | H&R Block, Inc. possible settlement outcomes to determine the amount of liability to record. The Company’s unrecognized tax benefits as of June 30, 2023, were $240 million. We identified the Company’s determination of uncertain tax positions measured in accordance with the Company’s transfer pricing policies as a critical audit matter because of the significant judgment in the application of the tax law in applying the arm’s length standard to intercompany transactions and scrutiny by local tax authorities. The significant level of judgment increases the uncertainty in evaluating the valuation of tax balances, including any uncertain tax positions that relate to the Company’s transfer pricing. As a result, we utilized a high degree of auditor judgment and increased the extent of work performed, including involving our income tax specialists to evaluate whether management’s judgments in interpreting and applying tax laws were appropriate. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s uncertain tax positions for transfer pricing included the following, among others: • We tested the effectiveness of controls over management’s evaluation and determination of uncertain tax positions. This evaluation includes management’s assessment of tax positions taken by the Company on its tax returns, including transfer pricing terms and conditions, and the related recorded amounts for uncertain tax positions • With the assistance of our income tax specialists, we evaluated the Company’s transfer pricing methodologies and performed the following: ◦ Evaluated the appropriateness of management’s application of jurisdictional tax regulations in applying the arm’s length standard to intercompany transactions. ◦ Evaluated the application of the transfer pricing method to transactions subject to transfer pricing. ◦ Tested the application of the transfer pricing policies by legal entity through an independent calculation. ◦ Evaluated management’s approach to identifying uncertain tax positions related to changes in the transfer pricing terms and conditions and tested the calculation of the tax positions at the individual legal entity level and at the consolidated level. /s/ Deloitte & Touche LLP Kansas City, Missouri August 17, 2023 We have served as the Company's auditor since 2007. H&R Block, Inc. | 2023 Form 10-K 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of H&R Block, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of H&R Block, Inc. and subsidiaries (the “Company”) as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2023, of the Company and our report dated August 17, 2023, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Kansas City, Missouri August 17, 2023 36 2023 Form 10-K | H&R Block, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in 000s, except per share amounts) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 REVENUES: Service revenues $ 3,156,921 $ 3,134,686 $ 427,575 $ 3,067,223 Royalty, product and other revenues 315,264 328,584 38,531 346,764 3,472,185 3,463,270 466,106 3,413,987 OPERATING EXPENSES: Costs of revenues 1,923,452 1,881,262 232,763 1,842,092 Selling, general and administrative 800,035 837,111 98,988 802,268 Total operating expenses 2,723,487 2,718,373 331,751 2,644,360 Other income (expense), net 35,492 2,454 672 5,979 Interest expense on borrowings ( 72,978 ) ( 88,282 ) (14,032) ( 106,870 ) Income from continuing operations before income taxes 711,212 659,069 120,995 668,736 Income taxes 149,412 98,423 29,876 78,524 Net income from continuing operations 561,800 560,646 91,119 590,212 Net loss from discontinued operations, net of tax benefits of $ 2,423 , $2,093, $ 451 and $ 3,883 ( 8,100 ) ( 6,972 ) (1,509) ( 6,421 ) NET INCOME $ 553,700 $ 553,674 $ 89,610 $ 583,791 BASIC EARNINGS PER SHARE: Continuing operations $ 3.63 $ 3.31 $ 0.50 $ 3.15 Discontinued operations ( 0.05 ) ( 0.04 ) (0.01) ( 0.04 ) Consolidated $ 3.58 $ 3.27 $ 0.49 $ 3.11 DILUTED EARNINGS PER SHARE: Continuing operations $ 3.56 $ 3.26 $ 0.49 $ 3.11 Discontinued operations ( 0.05 ) ( 0.04 ) (0.01) ( 0.03 ) Consolidated $ 3.51 $ 3.22 $ 0.48 $ 3.08 COMPREHENSIVE INCOME: Net income $ 553,700 $ 553,674 $ 89,610 $ 583,791 Change in foreign currency translation adjustments ( 15,454 ) ( 21,733 ) (4,698) 56,362 Other comprehensive income (loss) ( 15,454 ) ( 21,733 ) (4,698) 56,362 Comprehensive income $ 538,246 $ 531,941 $ 84,912 $ 640,153 See accompanying notes to consolidated financial statements. H&R Block, Inc. | 2023 Form 10-K 37 CONSOLIDATED BALANCE SHEETS (in 000s, except share and per share amounts) As of June 30, 2023 June 30, 2022 ASSETS Cash and cash equivalents $ 986,975 $ 885,015 Cash and cash equivalents - restricted 28,341 165,698 Receivables, less allowance for credit losses of $ 55,502 and $ 65,351 59,987 58,447 Income taxes receivable 35,910 202,838 Prepaid expenses and other current assets 76,273 72,460 Total current assets 1,187,486 1,384,458 Property and equipment, at cost, less accumulated depreciation and amortization of $ 846,177 and $ 857,468 130,015 123,912 Operating lease right of use asset 438,299 427,783 Intangible assets, net 277,043 309,644 Goodwill 775,453 760,401 Deferred tax assets and income taxes receivable 211,391 208,948 Other noncurrent assets 52,571 54,012 Total assets $ 3,072,258 $ 3,269,158 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 159,901 $ 160,929 Accrued salaries, wages and payroll taxes 95,154 154,764 Accrued income taxes and reserves for uncertain tax positions 271,800 280,115 Operating lease liabilities 205,391 206,898 Deferred revenue and other current liabilities 206,536 196,107 Total current liabilities 938,782 998,813 Long-term debt 1,488,974 1,486,876 Deferred tax liabilities and reserves for uncertain tax positions 264,567 226,362 Operating lease liabilities 240,543 228,820 Deferred revenue and other noncurrent liabilities 107,328 116,656 Total liabilities 3,040,194 3,057,527 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, no par, stated value $ .01 per share, 800,000,000 shares authorized, shares issued of 178,935,578 and 193,571,309 1,789 1,936 Additional paid-in capital 770,376 772,182 Accumulated other comprehensive loss ( 37,099 ) ( 21,645 ) Retained earnings (deficit) ( 48,677 ) 120,405 Less treasury shares, at cost, of 32,785,658 and 33,640,988 ( 654,325 ) ( 661,247 ) Total stockholders' equity 32,064 211,631 Total liabilities and stockholders' equity $ 3,072,258 $ 3,269,158 See accompanying notes to consolidated financial statements. 38 2023 Form 10-K | H&R Block, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 553,700 $ 553,674 $ 89,610 $ 583,791 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 130,501 142,178 24,586 156,852 Provision for credit losses 52,290 66,807 4,617 73,451 Deferred taxes 49,579 ( 53,352 ) 22,926 ( 22,583 ) Stock-based compensation 31,326 34,252 4,700 28,271 Changes in assets and liabilities, net of acquisitions: Receivables ( 57,244 ) ( 37,889 ) 108,470 ( 150,933 ) Prepaid expenses, other current and noncurrent assets ( 7,011 ) ( 1,944 ) 26,753 ( 49,498 ) Accounts payable, accrued expenses, salaries, wages and payroll taxes ( 67,627 ) ( 19,645 ) ( 186,754 ) 150,635 Deferred revenue, other current and noncurrent liabilities ( 4,773 ) 7,342 ( 15,809 ) ( 1,160 ) Income tax receivables, accrued income taxes and income tax reserves 144,164 118,713 ( 43,476 ) ( 138,152 ) Other, net ( 3,064 ) ( 1,599 ) ( 797 ) ( 4,746 ) Net cash provided by operating activities 821,841 808,537 34,826 625,928 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 69,698 ) ( 61,955 ) ( 5,188 ) ( 52,792 ) Payments made for business acquisitions, net of cash acquired ( 48,246 ) ( 35,920 ) ( 846 ) ( 15,576 ) Franchise loans funded ( 21,633 ) ( 18,467 ) ( 135 ) ( 26,917 ) Payments from franchisees 27,350 30,899 8,634 41,215 Other, net 10,838 8,902 1,227 8,547 Net cash provided by (used in) investing activities ( 101,389 ) ( 76,541 ) 3,692 ( 45,523 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of line of credit borrowings ( 970,000 ) ( 705,000 ) — ( 3,275,000 ) Proceeds from line of credit borrowings 970,000 705,000 — 1,275,000 Repayments of long-term debt — ( 500,000 ) — ( 650,000 ) Proceeds from issuance of long-term debt — — 494,435 647,965 Dividends paid ( 177,925 ) ( 186,476 ) — ( 195,068 ) Repurchase of common stock, including shares surrendered ( 568,952 ) ( 563,174 ) ( 4,633 ) ( 191,294 ) Proceeds from exercise of stock options 3,383 6,334 308 2,140 Other, net ( 7,498 ) ( 14,030 ) ( 5,584 ) ( 22,566 ) Net cash provided by (used in) financing activities ( 750,992 ) ( 1,257,346 ) 484,526 ( 2,408,823 ) Effects of exchange rate changes on cash ( 4,857 ) ( 8,101 ) ( 1,800 ) 18,318 Net increase (decrease) in cash and cash equivalents, including restricted balances ( 35,397 ) ( 533,451 ) 521,244 ( 1,810,100 ) Cash, cash equivalents and restricted cash, beginning of the period 1,050,713 1,584,164 1,062,920 2,873,020 Cash, cash equivalents and restricted cash, end of the period $ 1,015,316 $ 1,050,713 $ 1,584,164 $ 1,062,920 SUPPLEMENTARY CASH FLOW DATA: Income taxes paid (received), net $ ( 45,539 ) $ 31,689 $ 52,149 $ 236,459 Interest paid on borrowings 69,554 81,960 14,317 103,855 Accrued additions to property and equipment 2,238 4,315 2,085 1,643 Accrued dividends payable to common shareholders 42,953 43,093 48,998 — See accompanying notes to consolidated financial statements. H&R Block, Inc. | 2023 Form 10-K 39 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except per share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) (1) Retained Earnings (Deficit) Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balances as of May 1, 2020 228,207 $ 2,282 $ 775,387 $ ( 51,576 ) $ 42,965 ( 35,731 ) $ ( 698,017 ) $ 71,041 Net income — — — — 583,791 — — 583,791 Other comprehensive income — — — 56,362 — — — 56,362 Stock-based compensation — — 26,138 — — — — 26,138 Stock-based awards exercised or vested — — ( 11,417 ) — ( 1,900 ) 755 14,748 1,431 Acquisition of treasury shares (2) — — — — — ( 214 ) ( 3,081 ) ( 3,081 ) Repurchase and retirement of common shares ( 11,551 ) ( 115 ) ( 6,816 ) — ( 181,282 ) — — ( 188,213 ) Cash dividends declared - $ 1.04 per share — — — — ( 195,068 ) — — ( 195,068 ) Balances as of April 30, 2021 216,656 $ 2,167 $ 783,292 $ 4,786 $ 248,506 ( 35,190 ) $ ( 686,350 ) $ 352,401 Net income — — — — 89,610 — — 89,610 Other comprehensive loss — — — ( 4,698 ) — — — ( 4,698 ) Stock-based compensation — — 4,285 — — — — 4,285 Stock-based awards exercised or vested — — ( 8,112 ) — ( 2,424 ) 545 10,627 91 Acquisition of treasury shares (2) — — — — — ( 197 ) ( 4,633 ) ( 4,633 ) Cash dividends declared - $ 0.27 per share — — — — ( 48,998 ) — — ( 48,998 ) Balances as of June 30, 2021 216,656 $ 2,167 $ 779,465 $ 88 $ 286,694 ( 34,842 ) $ ( 680,356 ) $ 388,058 Net income — — — — 553,674 — — 553,674 Other comprehensive loss — — — ( 21,733 ) — — — ( 21,733 ) Stock-based compensation — — 28,189 — — — — 28,189 Stock-based awards exercised or vested — — ( 21,622 ) — ( 3,126 ) 1,634 31,937 7,189 Acquisition of treasury shares (2) — — — — — ( 433 ) ( 12,828 ) ( 12,828 ) Repurchase and retirement of common shares ( 23,085 ) ( 231 ) ( 13,850 ) — ( 536,265 ) — — ( 550,346 ) Cash dividends declared - $ 1.08 per share — — — — ( 180,572 ) — — ( 180,572 ) Balances as of June 30, 2022 193,571 $ 1,936 $ 772,182 $ ( 21,645 ) $ 120,405 ( 33,641 ) $ ( 661,247 ) $ 211,631 Net income — — — — 553,700 — — 553,700 Other comprehensive loss — — — ( 15,454 ) — — — ( 15,454 ) Stock-based compensation — — 27,086 — — — — 27,086 Stock-based awards exercised or vested — — ( 20,258 ) — ( 1,899 ) 1,298 25,656 3,499 Acquisition of treasury shares (2) — — — — — ( 443 ) ( 18,734 ) ( 18,734 ) Repurchase and retirement of common shares ( 14,635 ) ( 147 ) ( 8,634 ) — ( 543,098 ) — — ( 551,879 ) Cash dividends declared - $ 1.16 per share — — — — ( 177,785 ) — — ( 177,785 ) Balances as of June 30, 2023 178,936 $ 1,789 $ 770,376 $ ( 37,099 ) $ ( 48,677 ) ( 32,786 ) $ ( 654,325 ) $ 32,064 (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. 40 2023 Form 10-K | H&R Block, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS – Our subsidiaries provide assisted and do-it-yourself (DIY) tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our bank partners, to the general public primarily in the United States (U.S.), Canada and Australia. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices and online through Wave. "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. PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of the Company and our subsidiaries. Intercompany transactions and balances have been eliminated. 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 12 for additional information on loss contingencies related to our discontinued operations. SEGMENT INFORMATION – We report a single segment that includes all of our continuing operations. MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, and fair value of reporting units. Estimates have been prepared based on the best information available as of each balance sheet date. As such, actual results could differ materially from those estimates. CHANGE IN FISCAL YEAR END – On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30. As a result of this change, the Company filed a Transition Report on Form 10-Q that included financial information for the transition period from May 1, 2021 to June 30, 2021 (Transition Period). CASH AND CASH EQUIVALENTS – All non-restricted highly liquid instruments maturing within three months at acquisition are considered to be cash equivalents. Outstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $ 3.3 million and $ 2.7 million as of June 30, 2023 and 2022, respectively. CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of cash held by our captive insurance subsidiary that is expected to be used to pay claims. RECEIVABLES AND RELATED ALLOWANCES – Our trade receivables consist primarily of accounts receivable from tax clients for tax return preparation and related fees. The allowance for credit losses for these receivables requires management's judgment regarding collectibility and current economic conditions to establish an amount considered by management to be adequate to cover estimated losses as of the balance sheet date. Losses from tax clients for tax return preparation and related fees are not specifically identified and charged off; instead they are evaluated on a pooled basis. At the end of the fiscal year the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. 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. H&R Block, Inc. | 2023 Form 10-K 41 Our financing receivables consist primarily of participations in H&R Block Emerald Advance ® lines of Credit (EAs), loans made to franchisees, and amounts due under H&R Block's Instant Refund SM (Instant Refund). Our accounting policies related to receivables and related allowances are discussed further in note 4 . PROPERTY AND EQUIPMENT – Buildings, equipment and leasehold improvements are initially recorded at cost and are depreciated over the estimated useful life of the assets using the straight-line method. Estimated useful lives are generally 15 to 40 years for buildings, two to five years for computers and other equipment, three to five years for purchased software and up to eight years for leasehold improvements. GOODWILL AND INTANGIBLE ASSETS – Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but rather is tested for impairment annually during our third quarter, or more frequently if indications of potential impairment exist. Intangible assets, including internally-developed software, with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Intangible assets are typically amortized over the estimated useful life of the assets using the straight-line method. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. See additional discussion in note 6 . LEASES – Operating lease right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. The majority of our lease portfolio consists of retail office space in the U.S., Canada, and Australia. The contract terms for these retail offices generally are from May 1 to April 30, and generally run two to five years . We record operating lease ROU assets and operating lease liabilities based on the discounted future minimum lease payments over the term of the lease. We generally do not include renewal options in the term of the lease. As the rates implicit in our leases are not readily determinable, we use our incremental borrowing rate based on the lease term and geographic location in calculating the discounted future minimum lease payments. We recognize lease expenses for our operating leases on a straight-line basis. For lease payments that are subject to adjustments based on indexes or rates, the most current index or rate adjustments were included in the measurement of our ROU assets and lease liabilities at commencement of the lease. Variable lease costs, including non-lease components (such as common area maintenance, utilities, insurance, and taxes) and certain index-based changes in lease payments, are expensed as incurred. Our ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. FOREIGN CURRENCY – The financial statements of the Company’s foreign operations are translated into U.S. dollars. Assets and liabilities are translated at current exchange rates as of the balance sheet date, equity accounts at historical exchange rates, while income statement accounts are translated at the average rates in effect during the year. Translation adjustments are not included in net income, but are recorded as a separate component of other comprehensive income in stockholders' equity. Foreign currency gains and losses included in operating results for fiscal years ended June 30, 2023, June 30, 2022, April 30, 2021 and the Transition Period were not material. TREASURY SHARES – We record shares of common stock repurchased by us as treasury shares, at cost, resulting in a reduction of stockholders' equity. Periodically, we may retire shares held in treasury as determined by our Board of Directors. We typically reissue treasury shares as part of our stock-based compensation programs. When shares are reissued, we determine the cost using the average cost method. 42 2023 Form 10-K | H&R Block, Inc. FAIR VALUE MEASUREMENT – We use the following classification of financial instruments pursuant to the fair value hierarchy methodologies for assets measured at fair value: ▪ Level 1 – inputs to the valuation are quoted prices in an active market for identical assets. ▪ Level 2 – inputs to the valuation include quoted prices for similar assets in active markets utilizing a third-party pricing service to determine fair value. ▪ Level 3 – valuation is based on significant inputs that are unobservable in the market and our own estimates of assumptions that we believe market participants would use in pricing the asset. Assets measured on a recurring basis are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Fair value estimates, methods and assumptions are set forth below. The fair value was not estimated for assets and liabilities that are not considered financial instruments. ▪ Cash and cash equivalents, including restricted – Fair value approximates the carrying amount (Level 1). ▪ Receivables, net – short-term – For short-term balances the carrying values reported in the balance sheet approximate fair market value due to the relative short-term nature of the respective instruments (Level 1). ▪ Receivables, net – long-term – The carrying values for the long-term portion of loans to franchisees approximate fair market value due to variable interest rates, low historical delinquency rates and franchise territories serving as collateral (Level 1). Long-term EA, Refund Transfer (RT) and Instant Refund receivables are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined based on historical and projected collection rates. ▪ Long-term debt – The fair value of our Senior Notes is based on quotes from multiple banks (Level 2). See note 7 for fair value. ▪ Contingent consideration – Fair value approximates the carrying amount (Level 3). See note 10 for the carrying amount. REVENUE RECOGNITION – Revenue is recognized upon satisfaction of performance obligations by the transfer of a product or service to the customer. Revenue is the amount of consideration we expect to receive for our services and products and excludes sales taxes. The majority of our services and products have multiple performance obligations. We have certain services for which, the various performance obligations are generally provided simultaneously at a point in time, and revenue is recognized at that time. We have certain services and products where we have multiple performance obligations that are provided at various points in time. For these services and products, we allocate the transaction price to the various performance obligations based on relative standalone selling prices and recognize the revenue when the respective performance obligations have been satisfied. We have determined that our contracts do not contain a significant financing component. Service revenues consist of assisted and online tax preparation revenues, fees for electronic filing, revenues from RTs, Emerald Card®, Peace of Mind® (POM), Tax Identity Shield® (TIS) and Wave. Assisted tax preparation services include tax preparation and electronic filing or printing of the completed tax return. Revenues from tax preparation and printing for clients that choose to print and mail their returns, are recognized when a completed return is accepted by the customer. Revenues for electronic filing are recognized when the return is electronically filed. Royalties are based on contractual percentages of franchise gross receipts and are generally recorded in the period in which the services are provided by the franchisee to the customer. DIY tax preparation services includes fees for online and desktop tax preparation software and for electronic filing or printing. Revenues for online software and printing for clients that choose to print and mail their returns, are recognized when the customer uses the software to complete a return. Revenues for desktop software are recognized when the software is sold to the end user. Revenues for electronic filing are recognized when the return is electronically filed. Refund Transfer revenues are recognized when the Internal Revenue Service (IRS) filing acknowledgment is received and the bank account is established at our bank partner, Pathward TM , N.A. (Pathward), a wholly-owned subsidiary of Pathward Financial, Inc. H&R Block, Inc. | 2023 Form 10-K 43 Emerald Card® and Spruce SM revenues consist of interchange income from the use of debit cards and fees paid by cardholders. Interchange income is a fee paid by merchants to our bank partner through the interchange network. Revenues associated with Emerald Card® and Spruce SM are recognized based on authorization of cardholder transactions. Peace of Mind® Extended Service Plan revenues are initially deferred and recognized over the term of the plan, based on the historical pattern of actual claims paid, as claims paid represent the transfer of POM services to the customer. The plan is effective for the life of the tax return, which can be up to six years; however, the majority of claims are incurred in years two and three after the sale of POM. POM has multiple performance obligations where we represent our clients if they are audited by a taxing authority, and assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. Incremental wages are also deferred and recognized over the term of the plan, in conjunction with the revenues earned. Tax Identity Shield® revenues are initially deferred and are recognized as the various services are provided to the client, either by us or a third party, throughout the term of the contract, which generally ends on April 30th of the following year. TIS has multiple performance obligations where we provide clients assistance in helping protect their tax identity and access to services to help restore their tax identity, if necessary. Protection services include a daily scan of the dark web for personal information, a monthly scan for the client's social security number in credit header data, notifying clients if their information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections when eligible. Interest and fee income on Emerald Advance SM lines of credit is recorded over the life of the underlying loan. Wave® revenues primarily consist of fees received to process payment transactions and are generally calculated as a percentage of the transaction amounts processed. Revenues are recognized upon authorization of the transaction. MARKETING AND ADVERTISING – Advertising costs for radio and television ads are expensed over the course of the tax season, with online, print and mailing advertising expensed as incurred. Marketing and advertising expenses totaled $ 286.3 million, $ 284.2 million and $ 262.0 million for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $ 11.9 million for the Transition Period. EMPLOYEE BENEFIT PLANS – We have a 401(k) defined contribution plan in the U.S., and similar plans internationally, covering eligible full-time and seasonal employees following the completion of an eligibility period. Employer contributions to these plans are discretionary and totaled $ 25.6 million, $ 25.1 million and $ 26.6 million for continuing operations for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $ 3.4 million for the Transition Period. We have severance plans covering executives and eligible regular full-time or part-time active employees who incur a qualifying termination. Expenses related to severance benefits for continuing operations totaled $ 6.9 million, $ 2.6 million and $ 8.4 million for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $ 1.2 million for the Transition Period. 44 2023 Form 10-K | H&R Block, Inc. NOTE 2: REVENUE RECOGNITION The majority of our revenues are from our U.S. tax services business. The following table disaggregates our U.S. revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Revenues: U.S. assisted tax preparation $ 2,167,138 $ 2,094,612 $ 259,527 $ 2,035,107 U.S. royalties 210,631 225,242 29,659 226,253 U.S. DIY tax preparation 314,758 319,086 76,106 313,055 Refund Transfers 143,310 162,893 14,269 163,329 Peace of Mind® Extended Service Plan 95,181 94,637 20,231 98,882 Tax Identity Shield® 38,265 39,114 3,928 40,624 Emerald Card® and Spruce SM 84,651 125,444 19,193 136,717 Interest and fee income on Emerald Advance SM 47,554 43,981 299 53,430 International 235,131 231,335 22,071 249,868 Wave 90,314 80,965 12,481 58,277 Other 45,252 45,961 8,342 38,445 Total revenues $ 3,472,185 $ 3,463,270 $ 466,106 $ 3,413,987 Changes in the balances of deferred revenue for POM are as follows: (in 000s) POM Deferred Revenue Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Balance, beginning of the period $ 173,486 $ 172,759 $ 183,871 $ 183,685 Amounts deferred 103,136 110,679 12,464 115,114 Amounts recognized on previous deferrals ( 109,365 ) ( 109,952 ) ( 23,576 ) ( 114,928 ) Balance, end of the period $ 167,257 $ 173,486 $ 172,759 $ 183,871 Changes in the balances of deferred wages for POM are as follows: (in 000s) POM Deferred Wages Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Balance, beginning of the period $ 19,495 $ 17,867 $ 20,169 $ 21,618 Amounts deferred 14,247 12,668 8 11,367 Amounts recognized on previous deferrals ( 11,914 ) ( 11,040 ) ( 2,310 ) ( 12,816 ) Balance, end of the period $ 21,828 $ 19,495 $ 17,867 $ 20,169 As of June 30, 2023, deferred revenue related to POM was $ 167.3 million. We expect that $ 99.9 million will be recognized over the next twelve months, while the remaining balance will be recognized over the following five years . POM deferred revenues are included in deferred revenue and other liabilities in the consolidated balance sheets. POM deferred wages are included in prepaid expenses and other current assets and other noncurrent assets. As of June 30, 2023 and 2022, TIS deferred revenue was $ 25.2 million and $ 25.8 million, respectively. The related liabilities are included in deferred revenue and other current liabilities in the consolidated balance sheets. All deferred revenue related to TIS as of June 30, 2023 will be recognized by April 2024 . H&R Block, Inc. | 2023 Form 10-K 45 A significant portion of our accounts receivable balances arise from services and products that we provide to our customers, with the exception of those related to EAs, which arise from purchased participation interests with our bank partner. The majority of our receivables are related to our RT product. Generally the prices of our services and products are fixed and determinable at the time of sale. For our RT product, we record a receivable for our fees which is then collected at the time the IRS issues the client’s refund. Our receivables from customers are generally collected on a periodic basis during and subsequent to the tax season. See note 4 for our accounts receivable balances. NOTE 3: EARNINGS PER SHARE Basic and diluted earnings per share is computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period. The computations of basic and diluted earnings per share from continuing operations are as follows: (in 000s, except per share amounts) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Net income from continuing operations attributable to shareholders $ 561,800 $ 560,646 $ 91,119 $ 590,212 Amounts allocated to participating securities ( 2,272 ) ( 2,468 ) ( 402 ) ( 2,413 ) Net income from continuing operations attributable to common shareholders $ 559,528 $ 558,178 $ 90,717 $ 587,799 Basic weighted average common shares 154,044 168,519 181,473 186,832 Potential dilutive shares 3,204 2,916 3,389 1,945 Dilutive weighted average common shares 157,248 171,435 184,862 188,777 Earnings per share from continuing operations attributable to common shareholders: Basic $ 3.63 $ 3.31 $ 0.50 $ 3.15 Diluted 3.56 3.26 0.49 3.11 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 0.6 million, 0.4 million and 0.8 million shares of stock for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and 0.3 million shares of stock for the Transition Period as the effect would be antidilutive. 46 2023 Form 10-K | H&R Block, Inc. NOTE 4: RECEIVABLES Receivables, net of their related allowance, consist of the following: (in 000s) As of June 30, 2023 June 30, 2022 Short-term Long-term Short-term Long-term Loans to franchisees $ 6,344 $ 19,206 $ 6,194 $ 22,036 Receivables for U.S. assisted and DIY tax preparation and related fees 11,061 6,824 18,893 2,560 H&R Block's Instant Refund SM receivables 8,499 414 3,491 198 H&R Block Emerald Advance ® lines of credit 10,834 7,089 6,691 8,825 Software receivables from retailers 1,650 — 3,992 — Royalties and other receivables from franchisees 3,416 — 3,682 73 Wave payment processing receivables 964 — 1,393 — Other 17,219 1,108 14,111 1,172 $ 59,987 $ 34,641 $ 58,447 $ 34,864 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 short-term lines of credit primarily for the purpose of funding seasonal working capital needs. As of June 30, 2023 and 2022 loans with a principal balance more than 90 days past due, or on non-accrual status, are not material. The credit quality of these receivables is assessed at origination at an individual franchisee level. Payment history is monitored on a regular basis. Based upon our internal analysis and underwriting activities, we believe all loans to franchisees are of similar credit quality. Loans are evaluated for collectibility when they become delinquent or more than 90 days past due. Amounts deemed to be uncollectible are written off to bad debt expense and bad debt related to these loans has typically been immaterial. Additionally, the franchise territory serves as additional protection in the event a franchisee defaults on the loan, as we may revoke franchise rights, write off the remaining balance of the loan and refranchise the territory or begin operating it as company-owned. H&R Block's Instant Refund SM . Our Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), in exchange for a fee. The total fee we charge for this service is mandated by legislation which is administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the refund is then sent by the CRA directly to us. The amount we advance to clients under this program is the amount of their estimated refund, less our fees, any amounts expected to be withheld by the CRA for amounts the client may owe to government authorities and any amounts owed to us from prior years. The CRA system for tracking amounts due to various government agencies also indicates if the client has already filed a return, does not exist in CRA records, or is bankrupt. This serves to greatly reduce the amounts of uncollectible receivables and the risk of fraudulent returns. H&R Block's Instant Refund SM amounts are generally received from the CRA within 60 days of filing the client's return, with the remaining balance collectible from the client. Credit losses from these receivables are not specifically identified and charged off; instead we review the credit quality of these receivables on a pooled basis, segregated by the tax return year of origination with older years being deemed more unlikely to be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. 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. H&R Block, Inc. | 2023 Form 10-K 47 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 June 30, 2023 are as follows: (in 000s) Tax return year of origination Balance More Than 60 Days Past Due 2022 $ 10,608 $ 7,920 2021 and prior 283 283 10,891 $ 8,203 Allowance ( 1,978 ) Net balance $ 8,913 H&R Block Emerald Advance® lines of credit . EAs are typically offered to clients in our offices from mid-November through mid-January, in amounts up to $ 1,000 . If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. EA balances require an annual paydown on February 15 th , and any amounts unpaid are placed on non-accrual status as of March 1 st . Payments on past due amounts are applied to principal. These lines of credit are offered by our bank partner. We purchase participation interests in their loans, as discussed further in note 10 . Credit losses from EAs are not specifically identified and charged off; instead we review the credit quality of these receivables on a pooled basis, segregated by the fiscal year of origination with older years being deemed more unlikely to be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. 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 fiscal year of origination as of June 30, 2023, are as follows: (in 000s) Fiscal year of origination Balance Non-Accrual 2023 $ 28,031 $ 28,031 2022 and prior 3,040 3,040 Revolving loans 14,238 13,118 45,309 $ 44,189 Allowance ( 27,386 ) Net balance $ 17,923 48 2023 Form 10-K | H&R Block, Inc. Allowance for Credit Losses. Activity in the allowance for credit losses for EAs and all other short-term and long-term receivables for the periods ended June 30, 2023, June 30, 2022, June 30, 2021 and April 30, 2021 is as follows: (in 000s) EAs All Other Total Balances as of May 1, 2020 $ 32,034 $ 50,446 $ 82,480 Provision for credit losses 14,319 59,132 73,451 Charge-offs, recoveries and other ( 18,649 ) ( 53,774 ) ( 72,423 ) Balances as of April 30, 2021 27,704 55,804 83,508 Provision for credit losses — 4,617 4,617 Charge-offs, recoveries and other — ( 149 ) ( 149 ) Balances as of June 30, 2021 27,704 60,272 87,976 Provision for credit losses 14,814 51,993 66,807 Charge-offs, recoveries and other ( 16,377 ) ( 61,139 ) ( 77,516 ) Balances as of June 30, 2022 26,141 51,126 77,267 Provision for credit losses 16,059 36,231 52,290 Charge-offs, recoveries and other ( 14,814 ) ( 52,249 ) ( 67,063 ) Balances as of June 30, 2023 $ 27,386 $ 35,108 $ 62,494 NOTE 5: PROPERTY AND EQUIPMENT The components of property and equipment, net of accumulated depreciation and amortization, are as follows: (in 000s) As of June 30, 2023 June 30, 2022 Buildings $ 28,954 $ 34,303 Computers and other equipment 49,750 48,837 Leasehold improvements 49,428 38,142 Purchased software 506 1,253 Land and other non-depreciable assets 1,377 1,377 $ 130,015 $ 123,912 Depreciation expense of property and equipment for continuing operations for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 was $ 58.5 million, $ 64.7 million and $ 73.4 million, respectively and was $ 10.8 million for the Transition Period. The carrying value of long-lived assets held outside the U.S., which is comprised of property and equipment, totaled $ 19.2 million and $ 15.4 million as of June 30, 2023 and 2022 respectively. H&R Block, Inc. | 2023 Form 10-K 49 NOTE 6: GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the periods ended June 30, 2023 and 2022 are as follows: (in 000s) Goodwill Accumulated Impairment Losses Net Balances as of July 1, 2021 $ 892,818 $ ( 138,297 ) $ 754,521 Acquisitions 18,696 — 18,696 Disposals and foreign currency changes, net ( 12,816 ) — ( 12,816 ) Impairments — — — Balances as of June 30, 2022 898,698 ( 138,297 ) 760,401 Acquisitions (1) 23,832 — 23,832 Disposals and foreign currency changes, net ( 8,780 ) — ( 8,780 ) Impairments — — — Balances as of June 30, 2023 $ 913,750 $ ( 138,297 ) $ 775,453 (1) All goodwill added during the period is expected to be tax-deductible for federal income tax reporting. We test goodwill for impairment annually as of February 1, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value. Components of intangible assets are as follows: (in 000s) Gross Carrying Amount Accumulated Amortization Net June 30, 2023: Reacquired franchise rights $ 392,452 $ ( 212,495 ) $ 179,957 Customer relationships 351,695 ( 301,062 ) 50,633 Internally-developed software 133,380 ( 120,054 ) 13,326 Noncompete agreements 42,596 ( 39,617 ) 2,979 Franchise agreements 19,201 ( 18,668 ) 533 Purchased technology 122,700 ( 96,565 ) 26,135 Trade name 5,800 ( 2,320 ) 3,480 $ 1,067,824 $ ( 790,781 ) $ 277,043 June 30, 2022: Reacquired franchise rights $ 379,114 $ ( 197,068 ) $ 182,046 Customer relationships 331,020 ( 278,717 ) 52,303 Internally-developed software 137,638 ( 107,111 ) 30,527 Noncompete agreements 41,789 ( 37,684 ) 4,105 Franchise agreements 19,201 ( 17,388 ) 1,813 Purchased technology 122,700 ( 87,910 ) 34,790 Trade name 5,800 ( 1,740 ) 4,060 $ 1,037,262 $ ( 727,618 ) $ 309,644 Amortization of intangible assets for continuing operations for the fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 was $ 72.0 million, $ 77.5 million and $ 83.4 million, respectively, and was $ 13.8 million for the Transition Period. Estimated amortization of intangible assets for fiscal years 2024, 2025, 2026, 2027 and 2028 is $ 55.6 million, $ 32.8 million, $ 23.6 million, $ 17.8 million and $ 10.5 million, respectively. We made payments to acquire businesses totaling $ 48.2 million, $ 35.9 million and $ 15.6 million during the fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $ 0.8 million for the Transition 50 2023 Form 10-K | H&R Block, Inc. Period. The amounts and weighted-average lives of assets acquired during fiscal year 2023, including amounts capitalized related to internally-developed software, are as follows: (dollars in 000s) Amount Weighted-Average Life (in years) Internally-developed software $ 3,354 2 Customer relationships 22,161 5 Reacquired franchise rights 13,586 4 Noncompete agreements 836 5 Total $ 39,937 5 NOTE 7: LONG-TERM DEBT The components of long-term debt are as follows: (in 000s) As of June 30, 2023 June 30, 2022 Senior Notes, 5.250 %, due October 2025 (1) $ 350,000 $ 350,000 Senior Notes, 2.500 %, due July 2028 (1) 500,000 500,000 Senior Notes, 3.875 %, due August 2030 (1) 650,000 650,000 Debt issuance costs and discounts ( 11,025 ) ( 13,124 ) Total long-term debt 1,488,975 1,486,876 Less: Current portion — — Long-term portion $ 1,488,975 $ 1,486,876 Estimated fair value of long-term debt $ 1,339,000 $ 1,377,000 (1) The Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. The interest rates on our Senior Notes are subject to adjustment based upon our credit ratings. Our unsecured committed line of credit (CLOC) provides for an unsecured senior revolving credit facility in the aggregate principal amount of $ 1.5 billion, which includes a $ 175.0 million sublimit for swingline loans and a $ 50.0 million sublimit for standby letters of credit. We may request increases in the aggregate principal amount of the revolving credit facility of up to $ 500.0 million, subject to obtaining commitments from lenders and meeting certain other conditions. The CLOC will mature on June 11, 2026, unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due and payable. Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings. The CLOC is subject to various conditions, triggers, events or occurrences that could result in earlier termination and contains customary representations, warranties, covenants and events of default, including, without limitation: (1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio, as defined by the CLOC agreement, calculated on a consolidated basis of no greater than (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on March 31, June 30, and September 30 of each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on December 31 of each year; (2) a covenant requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) calculated on a consolidated basis of not less than 2.50 to 1.00 as of the last date of any fiscal quarter; and (3) covenants restricting our ability to incur certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive agreements. The CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with these requirements as of June 30, 2023. We had no outstanding balance under our CLOC as of June 30, 2023 and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of June 30, 2023. OTHER INFORMATION – The aggregate payments required to retire long-term debt are $ 350.0 million in fiscal year 2026, $ 500.0 million in fiscal year 2029 and $ 650.0 million in fiscal year 2031. H&R Block, Inc. | 2023 Form 10-K 51 NOTE 8: STOCK-BASED COMPENSATION We have a stock-based Long Term Incentive Plan (Plan), under which we can grant stock options, restricted shares, performance-based share units, restricted share units, deferred stock units and other forms of equity to employees, non-employee directors and consultants. Stock-based compensation expense and related tax items are as follows: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Stock-based compensation expense $ 31,326 $ 34,252 $ 4,700 $ 28,271 Tax benefit 7,386 6,494 1,016 1,802 Realized tax benefit 6,942 5,438 2,356 1,690 As of June 30, 2023, we had 9.3 million shares reserved for future awards under our Plan. We issue treasury shares to satisfy the exercise or vesting of stock-based awards and believe we have adequate treasury shares available for future issuances. We measure the fair value of restricted share units (other than performance-based share units) based on the closing price of our common stock on the grant date. We measure the fair value of performance-based share units based on the Monte Carlo valuation model, taking into account, as necessary, those provisions of the performance-based share units that are characterized as market conditions. We generally expense the grant-date fair value, net of estimated forfeitures, over the vesting period on a straight-line basis. Options and restricted share units (other than performance-based share units) granted to employees typically vest pro-rata based upon service over a three-year period with a portion vesting each year. Performance-based share units granted to employees typically cliff vest at the end of a three-year period based upon satisfaction of both service-based and performance-based requirements. The number of performance-based share units that ultimately vest can range from zero up to 200 percent of the number granted, based on the form of the award, which can vary by year of grant. The performance metrics for these awards typically consist of earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA growth, return on invested capital, total shareholder return or our stock price. Deferred stock units granted to non-employee directors vest when they are granted and are settled six months after the director separates from service as a director of the Company, except in the case of death. All share units granted to employees and non-employee directors receive cumulative dividend equivalents to the extent of the units ultimately vesting at the time of distribution. Options granted under our Plan have a maximum contractual term of ten years . A summary of restricted share units and deferred stock units, including those that are performance-based, for the year ended June 30, 2023, is as follows: (shares in 000s) Restricted Share Units and Deferred Stock Units Performance-Based Share Units Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Outstanding, beginning of the year 1,970 $ 24.40 1,918 $ 23.79 Granted 625 43.96 487 48.09 Released ( 694 ) 22.98 ( 580 ) 31.54 Forfeited ( 151 ) 32.88 ( 138 ) 34.84 Outstanding, end of the year 1,750 $ 30.96 1,687 $ 25.04 The total fair value of shares vesting during fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 was $ 33.6 million, $ 33.3 million and $ 16.1 million, respectively, and was $ 12.3 million for the Transition Period. As 52 2023 Form 10-K | H&R Block, Inc. of June 30, 2023, we had $ 41.3 million of total unrecognized compensation cost related to these shares. This cost is expected to be recognized over a weighted-average period of two years . When valuing our performance-based share units on the grant date, we typically estimate the expected volatility using historical volatility for H&R Block, Inc. and selected comparable companies. The dividend yield is calculated based on the current dividend and the market price of our common stock on the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve in effect on the grant date. Both expected volatility and the risk-free interest rate are based on a period that approximates the expected term. There were no performance-based share units issued during the Transition Period. The following assumptions were used to value performance-based share units using the Monte Carlo valuation model during the periods: Year Ended June 30, 2023 Year Ended June 30, 2022 Year Ended April 30, 2021 Expected volatility 24.80 % - 163.58 % 23.19 % - 88.48 % 21.14 % - 84.49 % Expected term 3 years 3 years 3 years Dividend yield (1) 0 % 0 % 0 %- 3.95 % Risk-free interest rate 3.43 % 0.37 % 0.14% - 0.18% Weighted-average fair value $ 48.58 $ 27.07 $ 16.74 (1) The valuation model assumes that dividends are reinvested by the Company on a continuous basis. NOTE 9: INCOME TAXES We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. 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. On November 7, 2022, the IRS commenced their examination of our 2020 tax return and related carryback claims to tax years 2015 through 2018. Our U.S. federal income tax returns for tax years 2014 and prior are closed. 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. The components of income from continuing operations upon which domestic and foreign income taxes have been provided are as follows: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Domestic $ 447,900 $ 478,166 $ 145,714 $ 489,499 Foreign 263,312 180,903 ( 24,719 ) 179,237 $ 711,212 $ 659,069 $ 120,995 $ 668,736 We operate in multiple income tax jurisdictions both within the U.S. and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Although these intercompany transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates. H&R Block, Inc. | 2023 Form 10-K 53 The reconciliation between the statutory U.S. federal tax rate and our effective tax rate from continuing operations is as follows: Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 U.S. statutory tax rate 21.0 % 21.0 % 21.0 % 21.0 % Change in tax rate resulting from: State income taxes, net of federal income tax benefit 1.6 % 2.1 % 2.9 % 1.8 % Earnings taxed in foreign jurisdictions ( 2.9 ) % ( 2.4 ) % 0.8 % ( 1.2 ) % Permanent differences 0.6 % 0.9 % 0.4 % 0.5 % Uncertain tax positions ( 0.9 ) % ( 6.3 ) % 2.9 % 7.5 % U.S. tax on income from foreign affiliates 3.1 % 2.0 % ( 1.6 ) % 1.0 % Remeasurement of deferred tax assets and liabilities — % ( 0.2 ) % ( 1.0 ) % ( 0.1 ) % Changes in prior year estimates ( 0.2 ) % 0.1 % — % ( 0.5 ) % Federal income tax credits ( 1.3 ) % ( 2.6 ) % ( 0.5 ) % ( 0.9 ) % Tax benefit due to NOL carryback under CARES Act ( 0.2 ) % ( 0.1 ) % — % ( 17.5 ) % Tax deductible write-down of foreign investment — % 0.6 % ( 0.2 ) % ( 1.7 ) % Change in valuation allowance - domestic ( 0.4 ) % 0.2 % — % ( 0.2 ) % Change in valuation allowance - foreign 0.7 % ( 0.3 ) % 0.3 % 1.7 % Other ( 0.1 ) % ( 0.1 ) % ( 0.3 ) % 0.3 % Effective tax rate 21.0 % 14.9 % 24.7 % 11.7 % Our effective tax rate from continuing operations was 21.0 %, 14.9 % and 11.7 % for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and was 24.7 % for the Transition Period. The increase in the effective tax rate for the year ended June 30, 2023 compared to the year ended June 30, 2022 is primarily due to lower benefits in the current year resulting from the expiration of statutes of limitations related to uncertain tax positions. The components of income tax expense for continuing operations are as follows: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Current: Federal $ 97,430 $ 121,319 $ 11,563 $ 58,834 State 19,023 25,108 743 12,000 Foreign 18,214 8,956 ( 1,481 ) 26,032 134,667 155,383 10,825 96,866 Deferred: Federal 23,367 ( 58,487 ) 16,950 2,493 State 1,860 ( 2,016 ) 4,809 ( 11,368 ) Foreign ( 10,482 ) 3,543 ( 2,708 ) ( 9,467 ) 14,745 ( 56,960 ) 19,051 ( 18,342 ) Total income taxes for continuing operations $ 149,412 $ 98,423 $ 29,876 $ 78,524 54 2023 Form 10-K | H&R Block, Inc. We account for income taxes under the asset and liability method, which requires us to record deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. Deferred taxes are determined separately for each tax-paying component within each tax jurisdiction based on provisions of enacted tax law. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the estimated amount that we believe is more likely than not to be realized. Determination of a valuation allowance for deferred tax assets requires that we make judgments about future matters that are not certain, including projections of future taxable income and evaluating potential tax-planning strategies. The significant components of deferred tax assets and liabilities are reflected in the following table: (in 000s) As of June 30, 2023 June 30, 2022 Deferred tax assets: Accrued expenses $ 2,540 $ 1,917 Deferred revenue 17,702 35,519 Allowance for credit losses 22,715 30,565 Deferred and stock-based compensation 6,629 6,964 Net operating loss carry-forward 116,956 105,710 Lease liabilities 111,721 109,397 Federal tax benefits related to state unrecognized tax benefits 22,037 19,115 Property and equipment — 9,846 Intangibles - intellectual property 80,879 77,123 Valuation allowance ( 57,566 ) ( 55,172 ) Total deferred tax assets 323,613 340,984 Deferred tax liabilities: Prepaid expenses and other ( 5,954 ) ( 4,723 ) Lease right of use assets ( 109,814 ) ( 107,445 ) Property and equipment ( 1,421 ) — Income tax method change ( 1,018 ) ( 5,892 ) Intangibles ( 56,651 ) ( 59,424 ) Total deferred tax liabilities ( 174,858 ) ( 177,484 ) Net deferred tax assets $ 148,755 $ 163,500 A reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the consolidated balance sheets is as follows: (in 000s) As of June 30, 2023 June 30, 2022 Deferred income tax assets $ 152,699 $ 163,500 Deferred tax liabilities ( 3,944 ) — Net deferred tax asset $ 148,755 $ 163,500 H&R Block, Inc. | 2023 Form 10-K 55 Changes in our valuation allowance for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 and for the Transition Period are as follows: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Balance, beginning of the period $ 55,172 $ 55,784 $ 55,401 $ 45,124 Additions charged to costs and expenses 6,438 4,752 389 13,492 Deductions ( 4,044 ) ( 5,364 ) ( 6 ) ( 3,215 ) Balance, end of the period $ 57,566 $ 55,172 $ 55,784 $ 55,401 Our valuation allowance on deferred tax assets has a net increase of $ 2.4 million during the current period. The gross increase in valuation allowance of $ 6.4 million is primarily related to net operating loss deferred tax assets generated in foreign jurisdictions that we do not expect to utilize in future years. This increase is offset by a $ 4.0 million decrease to our valuation allowance balance for adjustments to certain domestic and foreign net operating losses utilized in the current fiscal year and changes in future projections of net operating loss utilization. Certain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of June 30, 2023, we had net operating losses in various states and foreign jurisdictions. The amount of state and foreign net operating losses varies by taxing jurisdiction. We maintain a valuation allowance of $ 19.3 million on state net operating losses and $ 36.2 million on foreign net operating losses for the portion of such loses that, more likely than not, will not be realized. Of the $ 117.0 million of net operating loss deferred tax assets, $ 25.7 million will expire in varying amounts during fiscal years 2024 through 2041 and the remaining $ 91.3 million have no expiration. Of the total net operating loss deferred tax assets, $ 61.4 million are more likely than not to be realized. We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability; therefore, no provision has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected foreign tax credits, is immaterial as of June 30, 2023. Changes in unrecognized tax benefits for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 and for the Transition Period are as follows: (in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Balance, beginning of the period $ 232,004 $ 264,323 $ 264,810 $ 168,062 Additions based on tax positions related to prior years 1,252 2,499 485 121,364 Reductions based on tax positions related to prior years — ( 5,332 ) ( 1,209 ) ( 34,470 ) Additions based on tax positions related to the current year 33,330 32,948 679 43,800 Reductions related to settlements with tax authorities ( 661 ) ( 9,800 ) ( 442 ) ( 29,362 ) Expiration of statute of limitations ( 25,862 ) ( 52,634 ) — ( 4,584 ) Balance, end of the period $ 240,063 $ 232,004 $ 264,323 $ 264,810 Included in the total gross unrecognized tax benefit ending balance as of June 30, 2023, June 30, 2022, June 30, 2021 and April 30, 2021, are $ 209.0 million, $ 203.7 million, $ 224.5 million and $ 214.9 million, respectively, which if recognized, would impact our effective tax rate. Increases from prior year are primarily related to additions based on current year tax positions offset by expirations of statute of limitations and settlements with taxing authorities. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 33.7 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. 56 2023 Form 10-K | H&R Block, Inc. Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The total gross interest and penalties accrued as of June 30, 2023 and 2022 totaled $ 32.6 million and $ 22.7 million, respectively. NOTE 10: COMMITMENTS AND CONTINGENCIES Assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a return. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $ 10,000 , if our software makes an arithmetic error that results in payment of penalties and/or interest to the respective taxing authority that a client would otherwise not have been required to pay. Our liability related to estimated losses under the 100% accuracy guarantee was $ 15.8 million and $ 14.0 million as of June 30, 2023 and 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 $ 18.3 million and $ 12.9 million as of June 30, 2023 and 2022, respectively, with amounts recorded in deferred revenue and other liabilities. These liabilities will be settled within the next ten years. 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 short-term lines of credit for the purpose of meeting their seasonal working capital needs. Our total oblig ation under these lines of credit was $ 0.4 million as of June 30, 2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 0.2 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. 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, including, but not limited to, the completion of any potential audit or examination, or the expiration of the related statute of limitations. During the year ended June 30, 2023, we received $ 15.4 million related to these credits and recognized $ 5.1 million as an offset to related operating expense. During the year ended June 30, 2022, we received $ 7.3 million related to these credits and recognized $ 2.2 million as an offset to related operating expense. As of June 30, 2023 and 2022 we had deferred balances of $ 15.4 million and $ 5.1 million, respectively, which is recorded in deferred revenue and other current liabilities. We are self-insured for certain risks, including employer provide d medical benefits, workers' compensation, property, general liability, tax errors and omissions, and claims related to POM. These programs maintain various self-insured retentions and commercial insurance is purchased in excess of the self-insured retentions for all but POM in company-owned offices and employer provided medical benefits. We accrue estimated losses for self-insured retentions using actuarial models and assumptions based on historical loss experience. We have a deferred compensation plan that permits certain employees to defer portions of their compensation and accrue income on the deferred amounts. As of June 30, 2023 and 2022, $ 10.5 million is included in deferred revenue and other liabilities reflecting our obligation under this plan. Emerald Advances are originated by Pathward, and pursuant to our participation agreement, we purchase a 90 % participation interest in each advance made by Pathward. See note 4 for additional information about these balances. 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. We accrued an estimated liability of $ 0.7 million at June 30, 2023 related to this guarantee. As of H&R Block, Inc. | 2023 Form 10-K 57 June 30, 2022 we had $ 0.6 million accrued under the RA guarantee agreement, and we paid $ 0.5 million, net of recoveries, related to that guarantee during the fiscal year ended June 30, 2023. We offer POM to U.S. and Canadian clients, whereby we (1) represent our clients if they are audited by a taxing authority, and (2) assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. The additional taxes paid under POM have a cumulative limit of $ 6,000 for U.S. clients and $ 3,000 CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM. A loss on POM would be recognized if the sum of expected costs for services exceeded unearned revenue. NOTE 11: LEASES O ur lease costs and other information related to operating leases consisted of the following: (dollars in 000s) Year Ended June 30, 2023 Year Ended June 30, 2022 Two Months Ended June 30, 2021 (Transition Period) Year Ended April 30, 2021 Operating lease costs $ 238,899 $ 233,004 $ 36,853 $ 239,357 Variable lease costs 85,239 79,923 14,359 77,758 Subrental income ( 575 ) ( 520 ) ( 52 ) ( 650 ) Total lease costs $ 323,563 $ 312,407 $ 51,160 $ 316,465 Cash paid for operating lease costs $ 236,423 $ 236,946 $ 35,394 $ 240,299 New operating right of use assets and related lease liabilities $ 253,755 $ 222,352 $ 48,307 $ 167,827 Weighted-average remaining operating lease term (years) 2 2 2 3 Weighted-average operating lease discount rate 4.1 % 2.8 % 2.9 % 3.0 % Aggregate operating lease maturities as of June 30, 2023 are as follows: (in 000s) 2024 $ 219,082 2025 138,740 2026 61,387 2027 28,463 2028 11,838 2029 and thereafter 9,168 Total future undiscounted operating lease payments 468,678 Less imputed interest ( 22,744 ) Total operating lease liabilities $ 445,934 NOTE 12: LITIGATION AND OTHER RELATED CONTINGENCIES 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. U.S. jurisdictions permit considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction. 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 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. 58 2023 Form 10-K | H&R Block, Inc. 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. If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range. For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made. It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of June 30, 2023. 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 June 30, 2023 and 2022 our total accrued liabilities were $ 0.2 million and $ 1.7 million, respectively. Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range only represents those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure. Matters for which we are not currently able to estimate the reasonably possible loss or range of loss are not included in this range. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the reasonably possible loss or range of loss, such as precise information about the amount of damages or other remedies being asserted, the defenses to the claims being asserted, discovery from other parties and investigation of factual allegations, rulings by courts 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 June 30, 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. 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. Any receivable for insurance recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable and reasonably estimable. We believe we have meritorious defenses to the claims asserted in the various matters described in this note, and we intend to defend them vigorously. The amounts claimed in the matters are substantial, however, and there can be no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows. H&R Block, Inc. | 2023 Form 10-K 59 LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS – On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No. 19STCV15742). The case is styled The People of the State of California v. HRB Digital LLC, et al. The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period startin g 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the case and amended its complaint to add HRB Tax Group, Inc. We filed a motion for summary judgment, which was denied. The August 14, 2023 trial date was continued. A new trial date has not yet been set. 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 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. If the parties are not able to reach amicable 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. 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. In June 2023, a settlement was paid resolving certain of these matters. We have not concluded that a loss related to any other potential indemnification or contribution claims is probable, nor have we accrued a liability related to these matters. 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 and the indeterminate damages sought. 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 June 30, 2023, total approximately $ 262 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, 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. 60 2023 Form 10-K | H&R Block, Inc. While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay to discharge or settle these other matters will not have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements or reportable events requiring disclosure pursuant to Item 304(b) of Regulation S-K.