What changed in this filing

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Item 1. Financial Statements

2023-11-07 compared with 2023-05-09 · 120 added, 188 removed, 338 unchanged (48% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME:

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS:

(unaudited, in 000s, except

per share amounts)

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

2023 2022 2023 2022

Three months ended September 30,

Service revenues $ 171,726 $ 167,194

7 unchanged sentences

Interest expense on borrowings ( 15,870 ) ( 15,824 )

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

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

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

Loss from continuing operations before income tax benefit ( 212,360 ) ( 221,324 )

Income tax benefit ( 49,487 ) ( 53,957 )

Net loss from continuing operations ( 162,873 ) ( 167,367 )

Net loss from discontinued operations, net of tax benefits of $ 182 and $ 316

( 609 ) ( 1,054 )

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

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.22 $ 4.13 $ 1.65 $ 1.95

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

Consolidated $ 4.21 $ 4.12 $ 1.61 $ 1.92

DILUTED EARNINGS PER SHARE:

NET LOSS $ ( 163,482 ) $ ( 168,421 )

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ ( 1.11 ) $ ( 1.05 )

2 unchanged sentences

DIVIDENDS DECLARED PER SHARE $ 0.32 $ 0.29

COMPREHENSIVE INCOME:

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

COMPREHENSIVE LOSS:

Net loss $ ( 163,482 ) $ ( 168,421 )

Change in foreign currency translation adjustments ( 10,914 ) ( 32,345 )

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

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

Other comprehensive loss ( 10,914 ) ( 32,345 )

Comprehensive loss $ ( 174,396 ) $ ( 200,766 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of March 31, 2023 June 30, 2022

As of September 30, 2023 June 30, 2023

Cash and cash equivalents $ 426,990 $ 986,975

30 unchanged sentences

Accumulated other comprehensive loss ( 48,013 ) ( 37,099 )

Retained earnings (deficit) ( 109,384 ) 120,405

Retained deficit ( 393,621 ) ( 48,677 )

Less treasury shares, at cost, of 31,742,185 and 32,785,658

5 unchanged sentences

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

Nine months ended March 31, 2023 2022

Three months ended September 30, 2023 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 251,429 $ 330,971

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

Net loss $ ( 163,482 ) $ ( 168,421 )

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

Depreciation and amortization 30,225 33,624

Provision 49,174 59,778

Provision for credit losses 1,098 1,077

Deferred taxes ( 37,757 ) 16,918

7 unchanged sentences

Other, net 160 ( 435 )

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

Net cash used in operating activities ( 334,989 ) ( 321,666 )

CASH FLOWS FROM INVESTING ACTIVITIES:

6 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of line of credit borrowings ( 970,000 ) ( 705,000 )

Proceeds from line of credit borrowings 970,000 705,000

Dividends paid ( 42,953 ) ( 43,093 )

Repurchase of common stock, including shares surrendered ( 150,442 ) ( 202,845 )

Proceeds from exercise of stock options 1,427 4,605

Other, net ( 1,803 ) ( 955 )

10 unchanged sentences

Accrued dividends payable to common shareholders 46,901 46,100

Accrued purchase of common stock 10,003 32,356

See accompanying notes to consolidated financial statements.

5 unchanged sentences

Comprehensive

Income (Loss) (1)

Deficit Treasury Stock Total

12 unchanged sentences

Balances as of September 30, 2023 175,671 $ 1,757 $ 740,434 $ ( 48,013 ) $ ( 393,621 ) ( 31,742 ) $ ( 645,441 ) $ ( 344,884 )

Net loss — — — — ( 223,579 ) — — ( 223,579 )

Other comprehensive income — — — 9,307 — — — 9,307

Stock-based compensation — — 9,544 — — — — 9,544

Stock-based awards exercised or vested — — 421 — ( 209 ) 52 1,023 1,235

Acquisition of treasury shares (2)

— — — — — ( 2 ) ( 79 ) ( 79 )

Repurchase and retirement of common shares ( 3,241 ) ( 33 ) ( 1,911 ) — ( 128,409 ) — — ( 130,353 )

Cash dividends declared - $ 0.29 per share

— — — — ( 44,569 ) — — ( 44,569 )

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

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

Other comprehensive income — — — 402 — — — 402

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

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

Acquisition of treasury shares (2)

— — — — — ( 6 ) ( 219 ) ( 219 )

Cash dividends declared - $ 0.29 per share

— — — — ( 44,163 ) — — ( 44,163 )

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

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

(2) Represents shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards.

See accompanying notes to consolidated financial statements.

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

(amounts in 000s, except per share amounts)

Common Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss) (1)

(Deficit) Treasury Stock Total

12 unchanged sentences

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

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

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

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

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

Acquisition of treasury shares (2)

— — — — — ( 2 ) ( 52 ) ( 52 )

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

Cash dividends declared - $ 0.27 per share

— — — — ( 46,497 ) — — ( 46,497 )

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

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

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

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

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

Acquisition of treasury shares (2)

— — — — — ( 1 ) ( 32 ) ( 32 )

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

Cash dividends declared - $ 0.27 per share

— — — — ( 43,042 ) — — ( 43,042 )

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

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

(1) The balance of our accumulated other comprehensive 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.

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

Q1 FY2024 Form 10-Q| H&R Block, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of March 31, 2023 and June 30, 2022, the consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2023 and 2022, the consolidated statements of cash flows for the nine months ended March 31, 2023 and 2022, and the consolidated statements of stockholders' equity for the three and nine months ended March 31, 2023 and 2022 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of March 31, 2023 and 2022 and for all periods presented, have been made.

BASIS OF PRESENTATION – The consolidated balance sheets as of September 30, 2023 and June 30, 2023, the consolidated statements of operations and comprehensive loss for the three months ended September 30, 2023 and 2022, the consolidated statements of cash flows for the three months ended September 30, 2023 and 2022, and the consolidated statements of stockholders' equity for the three months ended September 30, 2023 and 2022 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of September 30, 2023 and 2022 and for all periods presented, have been made.

"H&R Block," "the Company," "we," "our," and "us" are used interchangeably to refer to H&R Block, Inc., to H&R Block, Inc.

1 unchanged sentence

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted.

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

These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our June 30, 2023 Annual Report on Form 10-K.

All amounts presented herein as of June 30, 2023 or for the year then ended are derived from our Annual Report on Form 10-K.

7 unchanged sentences

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

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

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

REVENUE RECOGNITION

The majority of our revenues are from our U.S.

tax services business.

The majority of our revenues are from our United States (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:

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

2023 2022 2023 2022

Three months ended September 30,

assisted tax preparation $ 39,263 $ 36,312

5 unchanged sentences

Emerald Card® and Spruce SM

44,358 50,660 68,448 103,748

Interest and fee income on Emerald Advance SM

33,750 30,535 47,267 43,438

International 60,565 58,834

4 unchanged sentences

POM Deferred Revenue Deferred Wages

Nine months ended March 31, 2023 2022 2023 2022

Three months ended September 30, 2023 2022 2023 2022

Balance, beginning of the period $ 167,257 $ 173,486 $ 21,828 $ 19,495

2 unchanged sentences

Balance, end of the period $ 139,935 $ 146,143 $ 18,511 $ 16,512

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

As of September 30, 2023, deferred revenue related to POM was $ 139.9 million.

We expect that $ 94.1 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

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

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

As of September 30, 2023 and 2022, Tax Identity Shield® (TIS) deferred revenue was $ 20.8 million and $ 21.2 million, respectively.

Deferred revenue related to TIS was $ 25.2 million and $ 25.8 million as of June 30, 2023 and 2022, respectively.

All deferred revenue related to TIS will be recognized by April 2024 .

3 unchanged sentences

Per share amounts are computed by dividing net income (loss) from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period.

Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 0.7 million and 0.6 million shares for the three and nine months ended March 31, 2023,

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

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

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

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 3.5 million and 4.4 million shares for the three months ended September 30, 2023 and 2022 respectively, as the effect would be antidilutive due to the net loss from continuing operations during the periods.

Q1 FY2024 Form 10-Q| H&R Block, Inc.

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

(in 000s, except per share amounts)

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

2023 2022 2023 2022

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

Three months ended September 30,

Net loss from continuing operations attributable to shareholders $ ( 162,873 ) $ ( 167,367 )

Amounts allocated to participating securities ( 177 ) ( 179 )

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

Net loss from continuing operations attributable to common shareholders $ ( 163,050 ) $ ( 167,546 )

Basic weighted average common shares 146,273 159,284

1 unchanged sentence

Dilutive weighted average common shares 146,273 159,284

Earnings per share from continuing operations attributable to common shareholders:

Loss per share from continuing operations attributable to common shareholders:

Basic $ ( 1.11 ) $ ( 1.05 )

1 unchanged sentence

The decrease in the weighted average shares outstanding is due to share repurchases completed in the current and prior fiscal years.

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

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

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

STOCK-BASED COMPENSATION – We granted 1.6 million and 0.9 million shares, including adjustments for performance achievement and dividend equivalents, under our stock-based compensation plans during the three months ended September 30, 2023 and 2022, respectively.

Stock-based compensation expense of our continuing operations totaled $ 7.6 million and $ 7.7 million for the three months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, unrecognized compensation cost for nonvested shares and units totaled $ 67.6 million.

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

As of March 31, 2023 June 30, 2022

As of September 30, 2023 June 30, 2023

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

4 unchanged sentences

6,328 331 8,499 414

H&R Block Emerald Advance® lines of credit

H&R Block Emerald Advance®

8,253 8,281 10,834 7,089

4 unchanged sentences

Total $ 60,330 $ 32,778 $ 59,987 $ 34,641

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

Balances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets.

LOANS TO FRANCHISEES – Franchisee loan balances consist of term loans made primarily to finance the purchase of franchises and revolving lines of credit primarily for the purpose of funding working capital needs.

As of March 31, 2023 and June 30, 2022, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.

As of September 30, 2023 and June 30, 2023, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

H&R BLOCK'S INSTANT REFUND SM – H&R Block's Instant Refund SM amounts are generally received from the Canada Revenue Agency within 60 days of filing the client's return, with the remaining balance collectible from the client.

1 unchanged sentence

We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value.

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

B alances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by tax return year of origination, as of March 31, 2023 are as foll ows:

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

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

B alances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by tax return year of origination, as of September 30, 2023 are as foll ows:

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

2022 $ 8,392 $ 7,800

2021 and prior 232 232

8,624 $ 8,032

Allowance ( 1,965 )

Net balance $ 6,659

H&R BLOCK EMERALD ADVANCE ® LINES OF CREDIT – We review the credit quality of our purchased participation interests in Emerald Advance SM (EA) receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid.

H&R BLOCK EMERALD ADVANCE ® – Historically, Emerald Advance® lines of credit (EA LOCs) have been offered to clients in our offices from mid-November through mid-January.

If the borrower met certain criteria as agreed in the loan terms, the line of credit could be utilized year-round (Revolving Loan).

In fiscal year 2024, EAs are being offered as term loans (EA TLs), and we are discontinuing the EA LOCs, including the Revolving Loans.

See note 8 for discussion of the new EA TL.

We review the credit quality of our purchased participation interests in EA receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid.

We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value.

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

Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by fiscal year of origination, as of March 31, 2023 are as follows:

Fiscal year of origination Current Balance Non-Accrual

2023 $ 33,096 $ 33,096

2022 and prior 3,757 3,757

Typically, in December of each year, we charge-off the receivables and the related allowance for EA LOCs, excluding Revolving Loans, to an amount we believe represents the net realizable value.

However, due to the discontinuation of EA LOCs, we have charged-off the receivables and the related allowance of EA LOCs and Revolving Loans to an amount that we believe represents net realizable value as of September 30, 2023.

Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by fiscal year of origination, as of September 30, 2023 are as follows:

Fiscal year of origination Balance Non-Accrual

2023 – Lines of credit $ 11,643 $ 11,643

2022 and prior – Lines of credit 2,951 2,951

Revolving Loans 1,940 1,129

16,534 $ 15,723

Allowance ( 28,029 )

Net balance $ 16,534

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the nine months ended March 31, 2023 and 2022 is as follows:

Q1 FY2024 Form 10-Q| H&R Block, Inc.

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the three months ended September 30, 2023 and 2022 is as follows:

EAs All Other Total

Balances as of July 1, 2023 $ 27,386 $ 35,108 $ 62,494

Provision 16,702 32,472 49,174

Provision for credit losses 328 770 1,098

Charge-offs, recoveries and other ( 27,714 ) ( 409 ) ( 28,123 )

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

Balances as of September 30, 2023 $ — $ 35,469 $ 35,469

Balances as of July 1, 2022 $ 26,141 $ 51,126 $ 77,267

Provision 13,797 45,981 59,778

Provision for credit losses — 1,077 1,077

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

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

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

Gross charge-offs of EAs were $ 27.7 million for the three months ended September 30, 2023, of which $ 15.4 million related to EA LOCs originated in fiscal year 2023 and $ 12.3 million related to Revolving Loans.

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the three months ended September 30, 2023 are as follows:

Goodwill Accumulated Impairment Losses Net

1 unchanged sentence

Acquisitions (1)

3,081 — 3,081

Disposals and foreign currency changes, net ( 7,714 ) — ( 7,714 )

Impairments — — —

Balances as of March 31, 2023 $ 907,854 $ ( 138,297 ) $ 769,557

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

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

Balances as of September 30, 2023 $ 909,117 $ ( 138,297 ) $ 770,820

(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.

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

Components of intangible assets are as follows:

Amount Accumulated

Gross Carrying Amount Accumulated

Amortization Net

As of March 31, 2023:

As of September 30, 2023:

Reacquired franchise rights $ 394,535 $ ( 216,277 ) $ 178,258

15 unchanged sentences

$ 1,067,824 $ ( 790,781 ) $ 277,043

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

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

We made payments to acquire businesses totaling $ 6.9 million and $ 16.5 million during the three months ended September 30, 2023 and 2022, respectively.

The amounts and weighted-average lives of intangible assets acquired during the three months e nded September 30, 2023 a re as follows:

(dollars in 000s)

Amount Weighted-Average Life (in years)

Internally-developed software $ 2,822 2

Customer relationships $ 4,098 5

2 unchanged sentences

Total $ 6,433 5

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

Amortization of intangible assets for the three months ended September 30, 2023 was $ 15.8 million compared to $ 18.4 million for the three months ended September 30, 2022.

Estimated amortization of intangible assets for fiscal years ending June 30, 2024, 2025, 2026, 2027, and 2028 is $ 56.9 million, $ 34.3 million, $ 25.0 million, $ 19.0 million and $ 11.7 million, respectively.

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

Q1 FY2024 Form 10-Q| H&R Block, Inc.

LONG-TERM DEBT

The components of long-term debt are as follows:

As of March 31, 2023 June 30, 2022

As of September 30, 2023 June 30, 2023

Senior Notes, 5.250 %, due October 2025

19 unchanged sentences

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

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

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

We were in compliance with these requirements as of September 30, 2023.

We had no outst anding balance under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of September 30, 2023.

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

with the Internal Revenue Service (IRS) and file tax returns in various state, local, and foreign jurisdictions.

Tax returns are typically examined and either settled upon completion of the examination or through the appeals process.

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.

Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

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

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

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

March 31, 2023.

We had gross unrecognized tax benefits of $ 237.9 million and $ 240.1 million as of September 30, 2023 and June 30, 2023, respectively.

The gross unrecognized tax benefits decreased by $ 2.2 million during the three months ended September 30, 2023.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 136.1 million within the next twelve months.

1 unchanged sentence

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

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

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

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

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

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

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

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 23.3 % and 24.4 % for the three months ended September 30, 2023 and 2022, respectively.

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

Consistent with prior years, our pretax loss for the three months ended September 30, 2023 is expected to be offset by income in our third and fourth quarters due to the established pattern of seasonality in our primary business operations.

As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year.

The amount of tax benefit recorded for the three months ended September 30, 2023 reflects management’s estimate of the annual effective tax rate applied to year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.

COMMITMENTS AND CONTINGENCIES

and Canadian businesses offer our 100% accuracy guarantee.

Assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a return.

DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $ 10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the IRS that a client would otherwise not have been required to pay.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 14.6 million and $ 14.0 million as of March 31, 2023 and June 30, 2022, respectively.

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 $ 14.4 million and $ 15.8 million as of September 30, 2023 and June 30, 2023, 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 $ 19.9 million and $ 12.9 million as of March 31, 2023 and June 30, 2022, respectively, with amounts recorded in deferred revenue and other liabilities.

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 $ 20.3 million and $ 18.3 million as of September 30, 2023 and June 30, 2023 respectively, with amounts recorded in deferred revenue and other liabilities.

Should actual results differ from our estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.

We have contractual commitments to fund certain franchises with approved revolving lines of credit.

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

In March 2020, the U.S.

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 stat ute of limitations.

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

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

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

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

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

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

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

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

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

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

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

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 obligation under these lines of credit was $ 14.4 million at September 30, 2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 8.4 million.

We purchase a 90% participation interest in each EA originated by Pathward®, N.A.

(Pathward) in accordance with our agreement.

Historically, EA LOCs have been offered to our clients in our offices.

In fiscal year 2024, EAs are being offered as term loans and we are discontinuing EA LOCs.

EA TLs are interest bearing with principal and interest due in full on March 31, and there are no annual fees or required monthly payments.

EA TLs are offered to clients in our offices, in November and December, in amounts of $350 to $1,300.

Effective October 20, 2023, we amended the Program Management Agreement and entered into a new participation agreement related to EA TLs originated by Pathward.

We will continue to purchase a 90% participation interest in each loan made by Pathward in accordance with the participation agreement.

LITIGATION AND OTHER RELATED CONTINGENCIES

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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.

Q1 FY2024 Form 10-Q| 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.

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For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of March 31, 2023.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of September 30, 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.

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

Our accrued liabilities were $ 0.2 million as of September 30, 2023 and June 30, 2023.

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

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

As of March 31, 2023, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, is not material.

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

As of September 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.

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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.

|Q1 FY2024 Form 10-Q

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

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

A trial date is set for August 14, 2023.

A trial date is set for February 20, 2024.

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.

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

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

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

We received a demand and draft complaint in February 2023 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.

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

An accrual related to these matters is included in our loss contingency accrual.

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

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

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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 March 31, 2023, total

H&R Block, Inc.

|Q3 FY2023 Form 10-Q

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

SCC's principal assets, as of September 30, 2023, total approximately $ 265 million and consist of an intercompany note receivable.

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

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While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay to discharge or settle these other matters will not have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

Q1 FY2024 Form 10-Q| H&R Block, Inc.

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

What changed 10-Q

Item 1. Financial Statements