UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| | | | | | | | | | | |
| | | |
(Mark One)☑ | | |
þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended April | June 30, 20162023 |
| OR |
¨☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
Commission file number 1-06089
H&R Block, Inc.
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
MISSOURIMissouri | | 44-0607856 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
One H&R Block Way, Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 854-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, without par value | HRB | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes þ☑ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ ☐No þ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þAccelerated Filer ☑ Accelerated filer ¨☐ Non-accelerated filer ¨☐ Smaller reporting company ¨☐Emerging growth company ☐
(DoIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check ifmark whether the registrant has filed a smallerreport on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting company)under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
The aggregate market value of the registrant's Common Stock (all voting stock) held by non-affiliates of the registrant, computed by reference to the price at which the stock was sold on October 31, 2015,December 30, 2022, was $8,763,578,047.$5,496,269,711.
Number of shares of the registrant's Common Stock, without par value, outstanding on MayJuly 31, 2016: 220,517,257.2023: 146,996,414.
Documents incorporated by reference
The definitive proxy statement for the registrant's 2023 Annual Meeting of Shareholders, to be held September 8, 2016,filed no later than 120 days after June 30, 2023, is incorporated by reference in Part III to the extent described therein.
20162023 FORM 10-K AND ANNUAL REPORT
TABLE OF CONTENTS
| | | | | | | | |
| | |
| | |
| | |
| BUSINESS | | |
| | |
| | |
| PROPERTIES | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | | |
| SIGNATURES | | |
| EXHIBIT INDEX | |
INTRODUCTION
"H&R Block," "the Company," "we," "our" and "us" are used interchangeably to refer to H&R Block, Inc. or, to H&R Block, Inc. and its subsidiaries, or to H&R Block, Inc.'s operating subsidiaries, as appropriate to the context.
Specified portions of our proxy statement are "incorporated by reference" in response to certain items. Our proxy statement will be made available to shareholders in July 2016,no later than 120 days after June 30, 2023, and will also be available on our website at www.hrblock.com.
FORWARD-LOOKING STATEMENTS
This report and other documents filed with the Securities and Exchange Commission (SEC) may contain forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "could," "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, stock repurchase,share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management's plans or objectives for future operations, services or products, or descriptions of assumptions underlying any of the above. AllThey may also include the expected impact of external events beyond the Company's control, such as outbreaks of infectious disease (including the coronavirus (COVID-19) pandemic), severe weather events, natural or manmade disasters, or changes in the regulatory environment in which we operate.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made and reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law.
By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, operational and regulatory factors, many of which are beyond the Company's control. Investors should understand that it is not possible to predict or identify all such factors and, consequently, should not consider any such list to be a complete set of all potential risks or uncertainties.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 1 |
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESSOVERVIEW
H&R Block provides help and inspires confidence in its clients and communities everywhere through global tax preparation services, financial products, and small business solutions. We blend digital innovation with human expertise and care to help people get the best outcome at tax time and also be better with money by using our mobile banking app, Spruce℠.
H&R Block, Inc. was organized as a corporation in 1955 under the laws of the State of Missouri and has subsidiaries that provide tax preparation and other services.Missouri. A complete list of our subsidiaries as of AprilJune 30, 20162023 can be found in Exhibit 21.21. We provide assisted
| | |
| During fiscal year 2023, we prepared |
20.1 million U.S. tax returns(1) |
| which contributed to our consolidated revenues of |
| $3.5 billion, |
| net income from continuing operations of |
| $561.8 million, |
EBITDA(2) from continuing operations of |
| $914.7 million, |
| and diluted EPS from continuing operations of |
| $3.56 per share. |
| We repurchased |
| 14.6 million shares of our common stock, |
| and declared dividends of |
| $1.16 per share, |
| which was an increase of |
| $0.08, or 7.4%, per share from the prior year. |
(1) U.S. Tax returns prepared includes tax return preparation, digital do-it-yourself (DIY) tax solutionsreturns prepared in U.S. company and other services franchise office locations, virtually,
and products related to income tax return preparation to the general public primarilythrough our DIY solutions.
RECENT DEVELOPMENTS –
DivestitureItem 7 for a reconciliation of H&R Block Bank. In April 2014, our subsidiaries, H&R Block Bank (HRB Bank) and Block Financial LLC (Block Financial), the sole shareholder of HRB Bank, entered into a definitive Purchase and Assumption Agreement with BofI Federal Bank, a federal savings bank (BofI), pursuant to which we agreed to sell certain assets and liabilities, including all of the deposit liabilities of HRB Bank, to BofI (referred to herein as the P&A Transaction). On August 4, 2015, HRB Bank, Block Financial and BofI received regulatory approvals for the P&A Transaction. On August 5, 2015, HRB Bank, Block Financial and BofI entered into an Amended and Restated Purchase and Assumption Agreement. On August 31, 2015, we completed the P&A Transaction and made a net cash payment to BofI of $419 million, which was
non-GAAP measures.
|
| | | | |
| 2 | 2023 Form 10-K |H&R Block, Inc. | 2016 Form 10-K | 1 |
approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI. In connection with the closing, we liquidated the available-for-sale (AFS) securities previously held by HRB Bank.
In connection with the closing of the P&A Transaction we and certain of our affiliated entities entered into the Program Management Agreement, dated August 31, 2015 (PMA), the Emerald Advance Receivables Participation Agreement (RPA), and the Guaranty Agreement, dated August 31, 2015 (Guaranty Agreement). The PMA, RPA and Guaranty Agreement set forth the terms under which BofI offers H&R Block-branded financial products and services that we distribute to our clients. Under these agreements, one of our affiliated entities also provides certain marketing, servicing and operational support to BofI for such financial products and services, the performance of which is guaranteed by the Company.
A more detailed description of the terms of the PMA, RPA and Guaranty Agreement is set forth under Item 1.01 of the Company's Current Report on Form 8-K filed with the SEC on April 10, 2014 (as supplemented by the description of the revised terms of the PMA set forth under Item 1.01 of the Company’s Current Report on Form 8-K filed with the SEC on August 5, 2015). The foregoing descriptions of the PMA, RPA and Guaranty Agreement (including the description incorporated herein by reference) do not purport to be complete and are subject to, and qualified in their entirety by, reference to the PMA, RPA and Guaranty Agreement, which were attached as Exhibits 10.1, 10.2 and 10.3, respectively, to the Company's Current Report on Form 8-K filed with the SEC on September 1, 2015, each of which is incorporated herein by reference.
Upon closing of the P&A Transaction, HRB Bank merged with and into its parent company, Block Financial, surrendered its bank charter and ceased to exist as a bank. As a result, as of August 31, 2015, neither we nor any of our subsidiaries is subject to minimum regulatory capital requirements or to regulation as a bank by the Office of the Comptroller of the Currency (OCC).
In addition, H&R Block, Inc., H&R Block Group, Inc. and Block Financial (collectively, our Holding Companies) were savings and loan holding companies (SLHCs) because they controlled HRB Bank. As a result of the P&A Transaction and related actions, our Holding Companies have ceased to be SLHCs and have deregistered as SLHCs under Section 10(b) of the Home Owner's Loan Act. As of August 31, 2015, our Holding Companies are no longer subject to regulatory capital requirements applicable to SLHCs or to regulation by the Federal Reserve.
Capital Structure. On September 1, 2015, we announced our intent to establish a new capital structure, which included a new $3.5 billion share repurchase program approved by our Board of Directors, a new committed line of credit, and the issuance of incremental public debt. In September and October, 2015, we (i) as a part of the announced share repurchase program, completed our “modified Dutch auction” tender offer and purchased $1.5 billion of our common stock at a price of $37.00 per share; (ii) terminated our previous committed line of credit agreement and entered into a new five-year, $2.0 billion Credit and Guarantee Agreement; and (iii) issued $650.0 million of 4.125% Senior Notes due October 1, 2020, and $350.0 million of 5.250% Senior Notes due October 1, 2025. Proceeds of the 2020 Senior Notes and the 2025 Senior Notes and cash on hand were used to repurchase shares, all as discussed below and in Item 8, note 8 and note 10 to the consolidated financial statements.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We operate asreport a single segment that includes all of our continuing operations, which are designed to enable clients to obtainincludes tax preparation, small business services, seamlessly in our offices or through our DIY tax solutions.and financial services and products. See discussion belowbelow.
During fiscal year 2021, we introduced Block Horizons, our five year strategy that will leverage our human expertise and in Item 8, note 17technological infrastructure to deliver growth by driving tax solution innovation, helping small businesses to thrive, and support individuals where they need the consolidated financial statements.most help with money.
DESCRIPTION OF BUSINESS | | |
| Small Business |
| During fiscal year 2023 small business assisted tax improved client satisfaction metrics, and continued to focus on helping small business clients beyond tax. We launched an entity formation tool to allow small business customers to take advantage of benefits that may come from incorporating, and while early, our bookkeeping and payroll services are gaining traction. Wave is our one-stop money management platform for small business owners. Our top two priorities at Wave are accelerating revenue growth and driving long term profitability. |
| Financial Products |
In January 2023, we introduced SpruceSM, our mobile banking platform, to our assisted clients for the first time. Since the launch of SpruceSM through June 30, 2023, we have had 300 thousand signups and $334 million dollars in customer deposits. SpruceSM is committed to helping clients be better with money, and we are seeing progress towards that goal. During the year, we launched new features enabling clients to easily set up direct deposit within the app with just a few clicks and build healthy spending habits. Thousands of clients have engaged with the tools within the app, and feedback indicates that features give them the visibility and control they have been missing in their financial lives. From here, we are working to improve how we acquire clients both in and out of the tax season. |
| Block Experience |
| Block Experience is all about blending technology and digital tools with human expertise and care to serve clients however they want to be served: fully virtual to fully in person and everything in between. We have been successful in driving digital adoption by leveraging the MyBlock app features such as uploading documents, approving returns online, and utilizing virtual chat. This year, more than 30% of assisted clients used a virtual tool during their tax preparation experience within our company-owned offices. |
GENERAL – We provide assisted and DIYdo-it-yourself (DIY) tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and relateddistribute H&R Block-branded services and products, including those of our bank partners, to the general public primarily in the U.S., Canada Australia, and their respective territories.Australia. We also offer small business financial solutions through our company-owned and franchise offices and online through Wave. Major revenue sources include fees earned for tax preparation via our assisted and related services performed at company-owned retail tax offices,DIY channels, royalties from franchisees, sales of desktop tax preparation software, fees for online tax preparation services and fees from complementaryrelated services and products. By offering professional assisted and DIY tax solutions through multiple channels, we seek to serve our clients in the manner they choose to be served.
Tax Returns Prepared. During fiscal year 2016, 23.2 million tax returns were prepared by and through H&R Block worldwide, a decline of 4.1% from 24.2 million tax returns in each of our fiscal years 2015 and 2014. In the U.S., 19.7
|
| | | | |
2 | 2016 Form 10-K |H&R Block, Inc. | 2023 Form 10-K
| 3 |
million tax returns were prepared by and through H&R Block during fiscal year 2016, compared to 20.6 million in 2015 and 20.8 million in 2014. Our U.S. tax returns prepared during the 2016 tax season, including those prepared by our franchisees and through our DIY solutions, constituted approximately 14% of an Internal Revenue Service (IRS) estimate of total individual income tax returns filed during the 2016 tax season, compared to approximately 15% in fiscal year 2015. See Item 7, under "Results of Operations," for further discussion of changes in the number of tax returns prepared.TAX PREPARATION SERVICES
ASSISTED – AssistedAssisted income tax return preparation and related services are provided by tax professionals via a system of retail offices operated directly by us or our franchisees. These tax professionals provide assistance to our clients either in person or virtually in a number of ways. Clients can come into an office, digitally "drop off" their documents for their tax professional, approve their return online, have a tax professional review a return they prepared themselves through Tax Pro Review or get their questions answered as they complete their own return through Online Assist.
Offices. DuringOur online software may be accessed through our website at www.hrblock.com or in a mobile application, while our desktop software may be purchased online and through third-party retail stores.
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 tax 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 2016 tax season, we, together with our franchisees, operated in 10,213 offices acrossrespective taxing authority that the U.S. at the peak of the tax season, comparedclient would otherwise not have been required to 10,286 in the prior year. A summary of our company-owned and franchise offices is included in Item 7, under "Operating Statistics." Additional year-round tax support, planning, and business accounting and advisory services are offered to clients in Block Advisors offices beginning in fiscal year 2016.pay.
Franchises. We offer franchises as a way to expand our presence in certain geographic areas. Our franchise arrangements provide us with certain rights designed to protectIn the U.S., our brand. Most of our franchisees receive, among other things, the right to use our trademark and software, access to product offerings and expertise, signs, specialized forms, advertising and initial and ongoing training and advisory services. Our franchisees pay us approximately 30% of gross tax return preparation and related service revenues as a franchise royalty in the U.S. Our franchise arrangements typically include a ten-year term and do not provide for automatic renewal.royalty.
From time to time, we have sold certain company-owned offices to existing franchisees or have acquired the assets of existing franchisees and other tax return preparation businesses, and may continue to do so if future conditions warrant and satisfactory terms can be negotiated.
DO-IT-YOURSELF – In addition to our retail offices, we offer a number of DIY tax solutions.
Online Tax Services. We develop and market DIY online income tax preparation software. We offer a comprehensive range of online tax services, including preparation of federal and state income tax returns, review of tax returns by a tax professional, access to tax tips, advice and tax-related news, use of calculators for tax planning, error checking and electronic filing. Our online software may be accessed through our website at www.hrblock.com.
We are a member of Free File, Inc., also referred to as the Free File Alliance (FFA). This alliance was created by the tax return preparation industry and the IRS, and allows qualified filers with an adjusted gross income of $62,000 or less to prepare and file their federal return online at no charge. We believe this program provides a valuable public service and increases our visibility with new clients.
We develop and offer applications for mobile devices which provide tax return preparation and related services and products to clients, including online tax preparation and tools that complement our other tax preparation services and products.
Desktop Software. We develop and market DIY desktop income tax preparation software. Our desktop software offers a simple, step-by-step tax preparation interview, data imports from money management software, calculations, completion of the appropriate tax forms, error checking and electronic filing. Our desktop software may be purchased online, through third-party retail stores or via direct mail.
OTHER OFFERINGS– In addition to our tax services and products,
During fiscal year 2023, we also offeroffered U.S. clients a number of additional services, including refund transfers that include a fee deduction feature (RTs)Refund Transfers (RT), H&R Block Emerald Advance® linesour Peace of credit (EAs)Mind® Extended Service Plan (POM), H&R Block Emerald Prepaid MasterCardMastercard® (Emerald Card®), our Peace of Mind® Extended Service Plan (POM), Tax Identity Shield®(TIS), and, for our Canadian clients, a refund discount (Cash Back®) program. RTs, EAs and the H&R Block Emerald Prepaid MasterCard® are offered throughAdvance® Lines of Credit (EA), Tax Identity Shield® (TIS), Refund Advances (RA), and small business financial solutions. For our relationship with BofI.Canadian clients, we also offer POM, H&R Block's Instant RefundSM, H&R Block Pay With Refund®, and small business financial solutions.
Refund Transfers. RTs enable clients to receive their tax refunds by their chosen method of disbursement and include a feature enabling clients to deduct tax preparation and servicerelated fees from their tax refunds. ClientsDepending on circumstances, clients may choose to receive their RT proceeds by direct deposit to a deposit account, by a load to their H&R Block Emerald Prepaid MasterCard® orCard®, a deposit to their Spruce Spending Account, by receiving a check.check or by direct deposit to an existing account. RTs are available to U.S. clients and are frequently obtained by those whowho: (1) do not have bank accounts into which the IRSInternal Revenue Service (IRS) can direct deposit their refunds; (2) like the convenience and benefits of a temporary account for receipt of their refund; and/or (3) prefer to have their tax preparation fees paid directly out of
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 3 |
their refunds. Following the divestiture of HRB Bank, we facilitate RTs are offered by BofI. through our relationship with our bank partner. We offer a similar program, H&R Block Pay With Refund®, to our Canadian clients referred to as Pay With RefundTM.through a Canadian chartered bank.
H&R Block Emerald Advance® Lines of Credit. EAs are unsecured lines of credit offered to clients in our offices, typically from late November through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. Borrowers have the option to pay down balances on EAs with their tax refunds. Following the divestiture of HRB Bank, these lines of credit are now offered by BofI, and we subsequently purchase a participation interest in the outstanding balances.
H&R Block Emerald Prepaid Mastercard®. The H&R Block Emerald Prepaid MasterCard® enables clients to receive their tax refunds from the IRS directly on a prepaid debit card, or to direct RT proceeds to the card. The card can be used for everyday purchases, bill payments and ATM withdrawals anywhere MasterCard® is accepted. Additional funds can be added to the card year-round through direct deposit or at participating retail locations. Following the divestiture of HRB Bank, we distribute the H&R Block Emerald Prepaid MasterCard® offered by BofI.
Peace of Mind® Extended Service Plan. In addition to our standard guarantee, weWe offer POM to U.S. and Canadian clients who obtain assisted tax preparation services, whereby we (1) represent our clients if they are audited by the IRS,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, statestate/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM.
H&R Block Emerald Prepaid Mastercard®. The Emerald Card® enables clients to receive their tax refunds from the IRS directly on a prepaid debit card, or to direct RT, EA or RA proceeds to the card. The card can be used for everyday purchases, bill payments and ATM withdrawals anywhere Debit Mastercard® (Mastercard is a registered trademark of Mastercard International Incorporated) is accepted. Additional funds can be added to the card year-round, such as through direct deposit or at participating retail reload providers, and the Emerald Card® can be added to clients' mobile wallets. We distribute the Emerald Card® issued by our bank partner.
H&R Block Emerald Advance® Lines of Credit. EAs are lines of credit 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. In addition to the required monthly payments, borrowers
| | | | | |
| 4 | 2023 Form 10-K | H&R Block, Inc. |
may elect to pay down balances on EAs with their tax refunds. These lines of credit are offered by our bank partner, and we subsequently purchase a participation interest in all EAs originated by our bank partner.
Tax Identity Shield®. This service Our TIS program offers clients assistance obtaining additional IRSin helping protect their tax identity protection, when eligible,and access to better protect against unauthorized third parties filingservices to help restore their tax identity, if necessary. Protection services include a fraudulent tax return with their information. TIS also includesdaily scan of the dark web for personal information, a pre-tax season identity theft risk assessment, notificationmonthly 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 accessobtaining additional IRS identity protections when eligible.
Refund Advance Loans. RAs are interest-free loans offered by our bank partner, which are available to services to help restore their tax identity if necessary.
Cash Back® Refund Discount Program. During theeligible U.S. assisted clients in company-owned and participating franchise locations, including virtual clients. In tax season 2023, RAs were offered in amounts of $250, $500, $750, $1,250 and $3,500, based on client eligibility as determined by our bank partner.
H&R Block's Instant RefundSM. Our Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), for a fee. The fee charged for this service is mandated by federal 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 amount is then sent by the CRA directly to us.
Small Business Financial Solutions. Our Block Advisors certified tax professionals provide small businesses with financial expertise in taxes, bookkeeping and payroll through our office network. Wave provides small business owners with an online solution to manage their finances, including payment processing, payroll and bookkeeping services.
SEASONALITY OF BUSINESS –
Because mostthe majority of our clients file their tax returns during the period from JanuaryFebruary through April of eachin a typical year, a substantial majority of our revenues from income tax return preparation and related services and products are earned during this period.period. As a result, we generally operate at a loss through a majoritythe first two quarters of theour fiscal year.
COMPETITIVE CONDITIONS–
We provide both assisted and DIY tax preparation services and products, as well as small business financial solutions, and face substantial competition in and across each category. There are a substantial number ofcategory from tax return preparation firms and software providers, accounting firms, offering tax return preparation services, and we face significant competition from independent tax preparers, and certified public accountants. Many tax return preparation firms
We are involved in providing electronic filing services and RTs or similar services to the public. Tax return preparation firms are highly competitive with regard to price and service, and many firms offer services that may include preparation of tax returns at no charge. Our assisted tax preparation business also faces competition from firms offering DIY tax preparation services and products.
Our DIY tax solutions include various forms of digital electronic assistance, including online and mobile applications and desktop software. Many other companies offer digital and online tax preparation services, including Intuit, Inc., our largest competitor offering such services. Like all tax return preparation services and products, price and marketing competition for digital tax preparation services is intense among value and premium product offerings and many firms offer digital services and products at no charge. Our DIY tax solutions also compete with in-office tax preparation services. U.S. federal and certain state and foreign taxing authorities also currently offer, or facilitate the offering of, tax return preparation and filing options to taxpayers at no charge.
In terms one of the number of offices and revenues, we believe we are the largest single providerproviders of tax return preparation solutions and electronic filing services in the U.S., while we believe we are the second largest provider based on the number of tax returns prepared. We also believe we operate the largest tax return preparation businesses in Canada, and Australia.Australia with 23.4 million returns filed by or through H&R Block in fiscal year 2023.
GOVERNMENT REGULATION – TAX PREPARERS –
Our tax preparation business is subject to various forms of government regulation, including U.S. Federal and state tax preparer regulations, financial consumer protection and privacy regulations, state regulations, franchise regulations and foreign regulations. See further discussion of these items in our Item 1A. Risk Factors and Item 7 under "Regulatory Environment" of this Form 10-K. HUMAN CAPITAL
Fulfilling our purpose extends to helping and inspiring confidence in our associates. We are committed to our associates’ total well-being—physical, mental, financial, career, team and community. Together, when we balance these components, we achieve personal, team and organizational strength. These commitments extend to both our year-round and seasonal associates.
Associates. We had approximately 4,000 regular full-time associates as of June 30, 2023. Our business is dependent on the following:
availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these associates. The highest number of persons we employed during the fiscal year ended June 30, 2023, including seasonal associates, was approximately 74,400.
|
| |
4 | 2016 Form 10-K | H&R Block, Inc.
|
U.S. Federal Tax Preparer Regulations. U.S. federal legislation requires income tax return preparers to, among other things, set forth their signatures and identification numbers, including their Preparer Tax Identification Number (PTIN), on all tax returns prepared by them and retain all tax returns prepared by them for three years. U.S. federal laws also subject income tax return preparers to accuracy-related penalties in connection with the preparation of income tax returns. Preparers may be prohibited from continuing to act as income tax return preparers if they repeatedly engage in specified misconduct.
The U.S. federal government regulates the electronic filing of income tax returns in part by requiring electronic filers to comply with all publications and notices of the IRS applicable to electronic filing. We are required to provide certain electronic filing information to taxpayers and comply with advertising standards for electronic filers. We are also subject to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties, including penalties for improper disclosure or use of taxpayer information, other preparer penalties or suspension from the IRS electronic filing program.
Financial Consumer Protection and Privacy Regulations. The Gramm-Leach-Bliley Act and related Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) regulations require income tax preparers to (1) adopt and disclose consumer privacy notices, (2) provide consumers a reasonable opportunity to control (via "opt-out") whether their nonpublic personal information is disclosed to unaffiliated third-parties (subject to certain exceptions), and (3) implement reasonable safeguards to protect the security and confidentiality of nonpublic personal information. In addition, the IRS generally prohibits the use or disclosure of taxpayer information by tax return preparers for purposes other than tax return preparation without the prior written consent of the taxpayer. The CFPB may issue regulations that apply to our subsidiaries, or certain of our third party service providers that provide consumer financial services and products. The CFPB may examine, and take enforcement actions against, our subsidiaries or our third party service providers. See Item 1A, "Risk Factors," for further information on the CFPB and its recent actions.
State Regulations. Certain states have privacy laws and regulations similar to the U.S. federal regulations described above. Most states also have data security breach notice laws which may require notice to impacted individuals and others if there is unauthorized access to certain nonpublic personal information. Several states require income tax return preparers to, among other things, register as a return preparer and comply with certain registration requirements such as testing and continuing education requirements. State regulations may also subject income tax return preparers to accuracy-related penalties in connection with the preparation of income tax returns, and may prohibit preparers from continuing to act as income tax return preparers if they engage in specified misconduct. Certain states have regulations and requirements relating to offering income tax courses. These requirements may include licensing, bonding and certain restrictions on advertising.
Franchise Regulations. Many of the income tax return preparation offices operating in the U.S. under the name "H&R Block" are operated by franchisees. Our franchising activities are subject to the rules and regulations of the FTC, potential enforcement by the CFPB, and various state laws regulating the offer and sale of franchises. The FTC and various state laws require us to furnish to prospective franchisees a franchise disclosure document containing certain prescribed information. A number of states in which we are currently franchising regulate the sale of franchises and require registration of the franchise disclosure document with certain state authorities. We are currently operating under exemptions from registration in several of these states based on our net worth and experience. Substantive state laws regulating the franchisor/franchisee relationship presently exist in a large number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects. The state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. From time to time, we may make appropriate amendments to our franchise disclosure document to comply with our disclosure obligations under U.S. federal and state laws.
FOREIGN REGULATIONS – We are also subject to a variety of other regulations in various foreign markets, including anti-corruption laws, and regulations concerning privacy, data protection and data retention. Foreign regulations and laws potentially affecting our business are evolving rapidly. We rely on external counsel in the countries in which we do business to advise us regarding compliance with applicable laws and regulations. As our international operations grow, we continue to develop and enhance our internal legal and operational compliance programs that guide our businesses in complying with laws and regulations applicable in the countries in which we do business.
|
| |
H&R Block, Inc. | 20162023 Form 10-K | 5 |
Associate Engagement. We administer an annual survey to all associates to better understand their levels of Contents
engagement and identify areas where we can improve. In previous years, we compared our scores against a global benchmark, which is the average of thousands of companies. This year we aspirationally changed our benchmark from the global benchmark to the top 25th percentile of the global benchmark to challenge our associates and leaders and to yield reports that are easier for leaders to identify opportunities to take action. Across the company, over half of culture and engagement questions measured were at or above the top 25th percentile of the global benchmark. We are pleased with our overall employee satisfaction score which continues on an upward trend. This year, individual leaders at all levels have begun formally creating and monitoring culture and engagement-related goals to continue our upward trajectory.
Compensation and Benefits. Our compensation programs are designed to attract and retain top talent that act boldly, demand high standards, crave tough problems and value winning as a team. Our equitable and comprehensive benefits offerings provide access to benefits to help both regular and seasonal associates plan for the health and security of their families. H&R Block provides comprehensive medical insurance to our associates, and extends the opportunity for medical insurance to our seasonal workforce who satisfy the eligibility guidelines of the Affordable Care Act. Subject to meeting eligibility requirements, associates can also choose to participate in the H&R Block Retirement Savings Plan 401(k) and Employee Stock Purchase Plan.
Training and Development. We offer a variety of development opportunities for our associates, including in-person classes, online courses, assessments, and a learning library. Our tax professionals receive extensive annual tax training on topics including recent tax code changes and filing practices, and we offer additional education opportunities for tax professionals to enhance their knowledge and skills. In preparation for the upcoming tax season, our tax professionals receive training on H&R Block products, soft skills and tax office best practices.
Diversity, Inclusion and Belonging. We continually evaluate our management approaches to improving diversity and inclusion, which includes looking at how we can provide a sense of belonging in the workplace for our associates. We believe taking care of our associates significantly increases their job satisfaction and is instrumental to the company’s ongoing success. We materialized these efforts through our Belonging@Block program which is a council of associates from multiple departments across the organization with the responsibility to represent and improve our diverse and inclusive culture. We have continued to grow our membership in diversity and inclusion groups focusing on LGBTQ+, neurodiversity, young professionals, veterans, women, and Black associates. We have also extended our diversity and inclusion efforts to support supplier diversity, enhancement of our Racial Equity Action Plan, and the development of a program that supports technology talent diversity. We also remain committed to building a Connected Culture—one in which trust, care, and connections are how we work together as we continue to create an environment where everyone feels safe to bring their authentic self to work every day and feels like they belong as part of a larger team. Our people are the number one enabler for living our Purpose and we value our associates by offering various talent development opportunities, tax training and support, and regularly assessing compensation policies and data to ensure pay equity. To thank our associates and protect against heightened stress, burnout, and uncertainty, we have implemented ‘The Annual Reboot,’ a paid week of time off offered during the first week of July to disconnect and recharge. Because of our efforts to foster a culture of belonging, we are consistently recognized as a top employer in many different categories.
SERVICE MARKS TRADEMARKS AND PATENTSTRADEMARKS
We have made a practice of offering our services and products under service marks and trademarks and of securing registration for many of these marks in the U.S. and other countries where our services and products are marketed. We consider these service marks and trademarks, in the aggregate, to be of material importance to our business, particularly our businesses providing services and products under the "H&R Block" brand. The initial duration of U.S. federal trademark registrations is 10 years. Most U.S. federal registrations can be renewed perpetually at 10-year intervals and remain enforceable so long as the marks continue to be used.
We hold a small but growing patent portfolio that we believe is important to our overall competitive position, although we are not materially dependent on any one patent or particular group of patents in our portfolio at this time. Our patents have remaining terms generally ranging from one to 20 years.
EMPLOYEES AND EXECUTIVE OFFICERS
We had approximately 2,400 regular full-time employees as of April 30, 2016. Our business is dependent on the availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these employees. The highest number of persons we employed during the fiscal year ended April 30, 2016, including these seasonal employees, was approximately 94,800.
Information about our executive officers is as follows:
|
| | | | |
Name, age6 | 2023 Form 10-K | H&R Block, Inc. |
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
| Current position | | Business experience since May 1, 2011 | | | | | |
William C. Cobb,
age 59 | | President and Chief Executive Officer | | Jeffrey J. Jones II, 55, became our President and Chief Executive Officer since May 2011; retiredin October 2017 and was our President and Chief Executive Officer-Designate from eBay, Inc. in 2008, having worked there from November 2000August 2017 to March 2008, whereOctober 2017. Before joining the Company, he most recently served as the President of eBay Marketplaces North America for four years; before that, he held several senior management positions, including SeniorRidesharing at Uber Technologies, Inc. from October 2016 until March 2017. He also served as the Executive Vice President and General ManagerChief Marketing Officer of eBay International and Senior Vice President of Global Marketing.Target Corporation from April 2012 until September 2016. |
| | Tony G. Bowen age 41
| | Chief Financial Officer | | , 48, became our Chief Financial Officer sincein May 2016;2016. Prior to that, he served as our Vice President, U.S. Tax Services Finance from May 2013 through April 2016; Vice President, Digital GM from May 2012 until May 2013; Vice President, Digital CFO from2016. |
| | Kellie J. Logerwell, 53, became our Chief Accounting Officer in July 2011 until May 2012; Assistant2016. Prior to that, she served as our Vice President of Corporate Developmentand Field Accounting from October 2009December 2014 until July 2011.2016 and as our Assistant Controller from December 2010 until December 2014. |
Jeffrey T. Brown,
age 57 | | Dara S. Redler, 56, became our Chief Accounting and RiskLegal Officer | | Chief Accounting and Risk Officer since June 2012, retiring effective July 1, 2016; Senior Vice President and Chief Financial Officer from September 2010 until June 2012; Interim Chief Financial Officer from May 2010 to September 2010; Vice President and Corporate Controller from March 2008 until September 2010. |
Kathryn M. Collins,
age 52
| | Senior Vice President and Chief Marketing Officer | | Senior Vice President and Chief Marketing Officer since May 2016; Chief Marketing Officer from October 2013 through April 2016; Vice President, Retail Marketing from July 2012 until October 2013; Vice President, Marketing Communications and Brand Management from in January 2006 until July 2012.2022. Prior to 2006, Ms. Collins held various positions at Lee Jeans, a division of VF Corporation. |
Thomas A. Gerke,
age 60
| | joining the Company, she served as General Counsel and Chief Administrative Officer | | General Counsel and Chief Administrative Officer since May 2016; Chief Legal Officer (formerly titled Senior Vice President and General Counsel)Corporate Secretary for Tilray, Inc. from January 2012 through April 2016; Executive Vice President, General Counsel and Secretary2019 until September 2021. She also held various legal roles of YRC Worldwideincreasing responsibility with The Coca-Cola Company from January 2011 until April 2011; Executive Vice Chairman, Century Link, Inc. from July 2009September 2001 until December 2010. |
Jason L. Houseworth,2018.
age 41
| | Chief Innovation Officer | | Chief Innovation Officer (formerly titled Senior Vice President, Business Innovations) since May 2016; President, U.S. Tax Product Strategy and Development from April 2015 through May 2016; President, Global Digital and Product Management from May 2013 until April 2015; President, U.S. Tax Services from May 2012 until May 2013; Senior Vice President, Digital Tax Solutions from February 2011 until May 2012; Vice President, Technology from July 2008 until February 2011. |
Gregory J. Macfarlane,
age 46
| | Senior Vice President, U.S. Retail Products and Operations | | Senior Vice President, U.S. Retail Products and Operations since May 2016; Chief Financial Officer from June 2012 through April 2016; Executive Vice President and Chief Financial Officer of Ceridian Corporation from March 2007 until August 2011. |
AVAILABILITY OF REPORTS AND OTHER INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through our website at www.hrblock.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The public
|
| |
6 | 2016 Form 10-K | H&R Block, Inc.
|
may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov containing reports, proxy and information statements and other information regarding issuers who file electronically with the SEC.
The following corporate governance documents are posted on our website at www.hrblock.com:
| |
▪ | The Amended and Restated Articles of Incorporation of H&R Block, Inc.; |
| |
▪ | The Amended and Restated Bylaws of H&R Block, Inc.; |
| |
▪ | The H&R Block, Inc. Corporate Governance Guidelines; |
| |
▪ | The H&R Block, Inc. Code of Business Ethics and Conduct; |
| |
▪ | The H&R Block, Inc. Board of Directors Independence Standards; |
| |
▪ | The H&R Block, Inc. Audit Committee Charter; |
| |
▪ | The H&R Block, Inc. Compensation Committee Charter; |
| |
▪ | The H&R Block, Inc. Finance Committee Charter; and |
| |
▪ | The H&R Block, Inc. Governance and Nominating Committee Charter. |
▪The Amended and Restated Articles of Incorporation of H&R Block, Inc.;
▪The Amended and Restated Bylaws of H&R Block, Inc.;
▪The H&R Block, Inc. Corporate Governance Guidelines;
▪The H&R Block, Inc. Code of Business Ethics and Conduct;
▪The H&R Block, Inc. Board of Directors Independence Standards;
▪The H&R Block, Inc. Audit Committee Charter;
▪The H&R Block, Inc. Compensation Committee Charter;
▪The H&R Block, Inc. Finance Committee Charter; and
▪The H&R Block, Inc. Governance and Nominating Committee Charter.
If you would like a printed copy of any of these corporate governance documents, please send your request to H&R Block, Inc., One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary.
Information contained on our website does not constitute any part of this report.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 7 |
ITEM 1A. RISK FACTORS
Our business activities expose us to a variety of risks. Identification, monitoring, and management of these risks are essential to the success of our operations and the financial soundness of H&R Block. Senior management and the Board of Directors, acting as a whole and through its committees, take an active role in our risk management process and have delegated certain activities related to the oversight of risk management to the Company's enterprise risk management team and the Enterprise Risk Committee, which is comprised of senior managersVice Presidents of major businessesbusiness and control functions.functions and members of the enterprise risk management team. The Company’s enterprise risk management team, working in coordination with the Enterprise Risk Committee, is responsible for identifying and monitoring risk exposures and related mitigation and leading the continued development of our risk management policies and practices.
An investment in our securities involves risk, including the risk that the value of that investment may decline or that returns on that investment may fall below expectations. There are a number of significant factors that could cause actual conditions, events, or results to differ materially from those described in forward-looking statements, many of which are beyond management's control or its ability to accurately estimate or predict, or that could adversely affect our financial position, results of operations, cash flows, and the value of an investment in our securities. The risks described below are not the only ones we face. We could also be affected by other events, factors, or uncertainties that are presently unknown to us or that we do not currently consider to be significant risks to our business.
STRATEGIC AND INDUSTRY RISKS RELATING TO CONTINUING OPERATIONS
Changes in applicable tax laws have had, and may in the future have, a negative impact on the demand for and pricing of our services. Government changes in tax filing or IRS processes may adversely affect our business and our consolidated financial position, results of operations, and cash flows.
The U.S. government has in the past made, and may in the future make, changes to the individual income tax provisions of the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations. In addition, taxing authorities or other relevant governing bodies in various federal, state, local, and foreign jurisdictions in which we operate may change the income tax laws in their respective jurisdictions, and such laws may vary greatly across the various jurisdictions. It is difficult to predict the manner in which future changes to the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations, and state, local, and foreign tax laws may impact us and the tax return preparation industry. Such future changes could decrease the demand or the amount we charge for our services, and, in turn, have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
In addition, there are various initiatives from time to time seeking to simplify the tax return preparation filing process or otherwise modify IRS processes. Taxing authorities in various federal, state, local, and foreign jurisdictions in which we operate have also introduced measures seeking to simplify or otherwise modify the preparation and filing of tax returns or the issuance of refunds in their respective jurisdictions. For example, from time to time, U.S. federal and state governments have considered various proposals through which the respective governmental taxing authorities would use taxpayer information provided by employers, financial institutions, and other payers to "pre-populate," prepare and calculate tax returns and distribute them to taxpayers. There are various initiatives from time to time seeking to expedite, reduce, or change the timing of refunds, which could reduce the demand for certain of our services or financial products.
The adoption or expansion of any measures that significantly simplify tax return preparation, or otherwise reduce the need for third-party tax return preparation services or financial products, including governmental encroachment at the U.S. federal and state levels, as well as in foreign jurisdictions, could reduce demand for our services and products and could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows.
| | | | | |
| 8 | 2023 Form 10-K | H&R Block, Inc. |
Increased competition for tax preparation clients could adversely affect our current market share and profitability. Offers of free tax preparation services could adversely affectprofitability, and we may not be effective in achieving our revenuesstrategic and profitability.operating objectives.
We provide both assisted and DIY tax preparation services and products and face substantial competition throughout our businesses. All categories in the tax return preparation industry are highly competitive.competitive, and additional competitors have entered, and in the future may enter, the market to provide tax preparation services or products. In the assisted tax services category, there are a substantial number of tax return preparation firms and accounting firms offering tax return preparation services. Commercial tax return preparers are highly competitive with regard to price and service. In the DIY category,and virtual, options include the use of traditional paper forms and various forms of digital electronic assistance, including online and mobile applications, and desktop software, all of which we offer. Our DIY and virtual services and products compete with a number of online and software companies, primarily on price and functionality. Individual tax filers may elect to change their tax preparation method, choosing from among various assisted, DIY, and DIYvirtual offerings.
Our Block Horizons strategy is focused on small businesses, financial products and the tax client experience. While we believe that our strategic objectives reflect opportunities that are appropriate and achievable, it is possible that our objectives may not deliver projected long-term growth in revenue and profitability due to competition, inadequate execution, incorrect assumptions, sub-optimal resource allocation, or other reasons, including any of the other risks described in this “Risk Factors” section. If we are unable to realize the desired benefits from our business strategy, our ability to compete across our business and our consolidated financial position, results of operations, and cash flows could be adversely affected.
Technology advances quickly and in new and unexpected ways, and it is difficult to predict the manner in which these changes will impact the tax return preparation industry, the problems we may encounter in enhancing our productsservices and servicesproducts, or the time and resources we may need to devote to the creation, support, and maintenance of technological enhancements. In addition, new technologies, such as those related to artificial intelligence, machine learning, automation, and algorithms, may have unexpected consequences, which may be due to their limitations, potential manipulation or unintended uses, or our failure to use or implement them effectively. If we are slow to enhance our services, products, services, or technologies, or if our competitors are able to achieve results more quickly than us, if there are new and unexpected entrants into the industry, or if there are new technologies available that provide products or services that compete with ours, we may fail to capture, or lose, a significant share of the market, especially in the DIY category. market.
Additionally, we and many other tax return preparation firms are involved in providingcompete by offering one or more
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 7 |
of RTs, prepaid cards, RAs, other financial productsservices and services,products, and other tax-related services and products, many of which are subject to regulatory scrutiny, litigation, and other risks. WeFrom time to time we may make changes to certain of our services and products and we can make no assurances that we will be able to offer, or that we will continue to offer, all of these services and aproducts. Any such changes to our services or products or any failure to do socontinue offering such services and products could negatively impact our financial results and ability to compete. Intense competition could result in a reduction of our market share, lower revenues, lower margins, and lower profitability. In addition, we face intense competition with our small business solutions. We may be unsuccessful in competing with other providers, which may diminish our revenue and profitability, and harm our ability to acquire and retain clients.
Offers of free services or products could adversely affect our revenues and profitability.
U.S. federal, state, and foreign governmental authorities in certain jurisdictions in which we operate currently offer, or facilitate the offering of, tax return preparation and electronic filing options to taxpayers at no charge, and certain volunteer organizations also prepare tax returns at no charge for low-income taxpayers. In addition, many of our competitors offer certain tax preparation services and products, and electronic filing options at no charge. In order to compete, we may offer certain free tax preparationother financial services and products, at no charge. We enabledGovernment tax authorities, volunteer organizations, our competitors, and potential new market entrants may also elect to implement or expand free offerings in the preparationfuture. Free File, Inc., which operates under an agreement that is currently set to expire in October 2025, is currently the sole means through which the IRS offers free DIY tax software to taxpayers, however the IRS is not prohibited from offering competing services. For example, in May 2023, the IRS announced that it is beginning a limited pilot project to evaluate customer support and technology needs related to a direct online tax filing system, and is also evaluating the IRS’s ability to overcome the potential operational challenges associated with such a system. As a result of 678 thousand, 676 thousandthis or other programs,
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 9 |
the federal government could become our direct competitor, which could have a material adverse effect on our business and 767 thousand U.S. federal income tax returnsour consolidated financial position, results of operations, and cash flows.
In order to compete, we have offered certain, and may in fiscal years 2016, 2015the future offer additional, services and 2014, respectively,products at no charge through the FFA.charge. There can be no assurance that we will be able to attract clients or effectively ensure the migration of clients from our free tax service offerings to those for which we receive fees, and clients who have formerly paid for our tax service offerings may elect to use free offerings instead. These competitive factors may diminish our revenue and profitability, or harm our ability to acquire and retain clients.
Government tax authorities, volunteer organizations,clients, resulting in a material adverse effect on our business and our direct competitorsconsolidated financial position, results of operations, and cash flows.
Our businesses may also elect to expand free offeringsbe adversely affected by difficult economic conditions.
Unfavorable changes in economic conditions, which are typically beyond our control, including without limitation, inflation, slowing growth, rising interest rates, recession, changes in the future. From timepolitical climate, war (including, but not limited to, time U.S. federalthe conflict between Russia and state governments have considered various proposals (often referred to as "Return-Free Filing"Ukraine), supply chain or "Pre-Populated Returns") through which the respective governmental taxing authorities would use taxpayer information provided by employers,labor market disruptions, banking or financial institutions, andmarket disruptions, or other payers to "pre-populate," prepare and calculate tax returns and distribute them to taxpayers. Under this approach, the taxpayeradverse changes, could then review and contest the return or sign and return it. While the FFA and other free options that are currently offered, or may be offered in the future, may reduce the perceived need for government tax service offerings, they foster additional online competition and may cause us to lose significant revenue opportunities. We believe that governmental encroachment at both the U.S. federal and state levels, as well as comparable government levels in foreign jurisdictions in which we operate, could present a continued competitive threat tonegatively affect our business for the foreseeable future.
During fiscal year 2016, 23.2 million tax returns were preparedand financial condition. Difficult economic conditions are frequently characterized by high unemployment levels and through H&R Block worldwide, a decline of 4.1% from 24.2 million tax returns in each of our fiscal years 2015 and 2014. U.S. tax returns prepared by and through H&R Block during the 2016 tax season, including those prepared by our franchisees and through our DIY solutions, constituted approximately 14% of an Internal Revenue Service (IRS) estimate of total individual income tax returns filed during the 2016 tax season, compared to approximately 15% in fiscal year 2015. See additional discussion in Item 7, under "Operating Statistics."
Failure to comply with laws and regulations that protect our clients' and employees' personal information could harm our brand and reputation and could result in significant fines, penalties, and damages.
In the course of our business, we collect, use, and retain large amounts of personal client information and data, including tax return information, financial account information, and social security numbers. In addition, we collect and maintain personal information of our employees in the ordinary course of our business. The Company holds some of this personal information and third parties execute some transactions utilizing this information. We use securitydeclining consumer and business controls to limit access tospending. These poor economic conditions may negatively affect demand and use of personal information, but unauthorized individuals or third parties may be able to circumvent these security and business measures, which could require us to notify affected clients or employees under applicable privacy laws and regulations. In the normal course of their duties, some employees, contractors and temporary employees have access to the personal information of clients and employees or execute transactions requiring sensitive information. While we conduct employee background checks, as allowed by law, and limit access to systems and data, it is possible that one or more of these controls could be circumvented. Improper disclosure or use of our clients' or employees' personal information could result in damage to our brand and reputation, and actions required to remediate improper disclosures could be costly.
We are subject to laws, rules, and regulations relating to the collection, use, disclosure, and security of consumer and employee personal information, which have drawn increased attention from U.S. federal, state, and foreign governmental authorities in jurisdictions in which we operate. In the U.S., the IRS generally requires a tax return preparer to obtain the prior written consent of the taxpayer to use or disclose the taxpayer's information for certain purposes other than tax return preparation. In addition, other regulations require financial service providers to adopt
|
| |
8 | 2016 Form 10-K | H&R Block, Inc.
|
and disclose their consumer privacy notice and generally provide consumers with a reasonable opportunity to "opt-out" of having nonpublic personal information disclosed to unaffiliated third parties. Numerous jurisdictions have passed new laws related to the use and retention of consumer information and this area continues to be an area of interest for U.S. federal, state, and foreign governmental authorities. All of these laws may be interpreted and applied inconsistently from jurisdiction to jurisdiction, and our current data protection policies and practices may not be consistent with all of those interpretations and applications. In addition, changes in U.S. federal and state regulatory requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we operate, could result in more stringent requirements and in a need to change business practices, including the types of information we can use and the manner in which we can use such information. Establishing systems and processes to achieve compliance with these new requirements may increase our costs or limit our ability to pursue certain business opportunities.
A security breach of our systems, or third party systems on which we rely, resulting in unauthorized access to personal client information may adversely affect the demandpricing for our services and products, our reputation,products. In the event of difficult economic conditions that include high unemployment levels, especially within the client segments we serve, clients may elect not to file tax returns or utilize lower cost preparation and financial performance.filing alternatives.
We offer a rangeIn addition, difficult economic conditions may disproportionately impact small business owners. Wave’s revenues were negatively impacted during the start of servicesthe COVID-19 pandemic, and products to our clients, including assisted and DIY tax return preparation services and products, and financial products and services. Due tomay again be negatively impacted in the nature of these services and products, we use multiple digital technologies to collect, transmit, and store high volumes of personal client information. Information security risks to companies that use digital technologies continue to increase due in part to the increased adoption of and reliance upon these technologies by companies and consumers. Our risk and exposure to these matters remain heightened due to a variety of factors including, among other things, the evolving nature of these threats and related regulation, the increased sophistication of organized crime, cyber criminals and hackers, the prominence of our brand, our and our franchisees' extensive office footprint, our plans to continue to implement our DIY strategies for our online and mobile applications and our desktop software, and our use of third party vendors.
Cybersecurity risks may result from fraud or malice (a cyber attack), human error, or accidental technological failure. Cyber attacks are designed to electronically circumvent network security for malicious purposes such as unlawfully obtaining personal client information, disrupting our ability to offer services, damaging our brand and reputation, stealing our intellectual property, and advancing social or political agendas. We face a variety of cyber attack threats including computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, and other sophisticated attacks.
We maintain multiple levels of protection in order to address or otherwise mitigate the riskevent of a security breach. We regularly test our systems to discover and address potential vulnerabilities. Due to the structure of our business model, we also rely on our franchisees and other private and governmental third parties to maintain secure systems and respond to cybersecurity risks. Cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage,sustained economic slowdown or unauthorized access remain arecession. Difficult economic conditions, including an economic recession or high priority for us. As risks and regulations continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Notwithstanding these efforts, there can be no assurance that a security breach, intrusion, or loss or theft of personal client information will not occur.
A breach of our security measures or those of our franchisees or third parties on whom we rely, or other fraudulent activity, could result in unauthorized access to personal client information. If such an event were to occur, it could have serious short and long term negative consequences. Security breach remediation could require us to expend significant resources to notify or assist impacted clients, repair damaged systems, implement improved information security measures, and maintain client and business relationships. Other consequences could include reduced client demand for our services and products, loss of valuable intellectual property, reduced growth and profitability and negative impacts to future financial results, loss of our ability to deliver one or more services or products (e.g., inability to provide financial transaction services or to accept and process client credit card orders or tax returns), litigation, harm to our reputation and brands, fines, penalties, and other damages, and further regulation and oversight by U.S. federal, state, or foreign governmental authorities.
A security breach or other unauthorized access to our systemsinflationary period, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
OPERATIONAL AND EXECUTION RISKS
Our failure to effectively address fraud by third parties using our offerings could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. |
| |
H&R Block, Inc. | 2016 Form 10-K
| 9 |
attempted fraudulent activities by third parties, and those fraudulent activities are becoming increasingly sophisticated. A number of companies, including some in the tax return preparation and financial services industries, have reported instances where criminals gained access to consumer information or user accounts maintained on their systems by using stolen identity information (e.g., email, username, password information, or credit history) obtained from third-party sources. We have experienced, and in the future may continue to experience, this form of unauthorized and illegal access to our systems, despite no breach in the security of our systems. Though we do not believe this fraud is uniquely targeted at our offerings, our failure to effectively address any such fraud may adversely impact our business and our consolidated financial position, results of operations, and cash flows.
Stolen identity refundIn addition to losses directly from such fraud, which could occur in some cases, we may also suffer a loss of confidence by our clients or by governmental agencies in our ability to detect and mitigate fraudulent activity, and such governmental authorities may refuse to allow us to continue to offer such services or products. For example, a person with malicious intent may unlawfully take user account and password information from our clients to electronically file fraudulent federal and state tax returns, which could impede our clients' ability to timely and successfully file their tax returns and receive their tax refunds (or other amounts due) and could diminish consumers' perceptions of the security and reliability of our services and products, and services, resulting in negative publicity. Increased governmental regulation to attempt to combat that fraud could adversely affect our revenues and profitability.
Companies offering DIY tax preparation services have seen a rise in instances of criminals utilizing stolen information obtained through hacking, phishing, and other means of identity theft in order to electronically file fraudulent federal and state tax returns. As a result, an increasing number of taxpayers must complete additional forms and go through additional steps in order to report to appropriate authorities that their identities have been stolen and their tax returns were filed fraudulently. Though we offer assistance in the refund recovery process and offer our Tax Identity Shield® product to help protect clients, stolen identity refund fraud could impede our clients' ability to timely and successfully file their returns and receive their tax refunds, and could diminish consumers' perceptions of the security and reliability of our products and services, resulting in negative publicity, despite there having been no breach in the security of our systems. In addition, if stolen identity refund fraud is perpetrated through our products or services, state, federal or foreign tax authorities may refuse to allow us to continue to process our clients' tax returns electronically. As a result, stolen identity refund fraud could harm our revenue, results of operations and reputation.
Federal, state, and foreign governmentalGovernmental authorities in jurisdictions in which we operate have taken action, and may in the future take additional action, in an attempt to combat stolen identity refundtheft or other fraud, which may require changes to our systems and business practices, in waysor those of third parties on which we rely, that we cannot anticipate.be anticipated. These actions may have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
In addition,Furthermore, as fraudulent activity becomes more pervasive and sophisticated, we may implement fraud detection and prevention measures that could make it less convenient for legitimate clients to obtain and use our clients
| | | | | |
| 10 | 2023 Form 10-K | H&R Block, Inc. |
services and products, which may accessadversely affect the demand for our services and products, from personal or public computersour reputation, and mobile devices and may install and use our H&R Block DIY desktop tax preparation software on their computers. As a result, a person with malicious intent could obtain user account and password information from our clients through hacking, phishing, or other means of cyber attack, in order to perpetrate stolen identity refund fraud and otherwise cause losses for our clients. It has been reported that a number of companies, including some in the tax return preparation industry, have experienced instances where criminals gained unauthorized and illegal access to their systems by using stolen identity information obtained from sources other than those companies. The unauthorized and illegal access to those systems was used by criminals to perpetrate a variety of crimes, including stolen identity refund fraud. We could experience this form of unauthorized and illegal access to our systems, despite there having been no breach in the security of our systems, which could negatively impact our clients and harm our revenue, results of operations and reputation. Additionally, if such unauthorized or illegal access occurs, we may be subject to claims and litigation by clients, non-clients, or governmental agencies.financial performance.
An interruption in our information systems, or those of our franchisees or a third party on which we rely, or an interruption in the internet, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We, and our franchisees, and other third parties material to our business operations rely heavily upon communications, networks, and information systems and the internet to conduct our business.business (including third-party internet-based or cloud computing services, and the information systems of our key vendors). These networks, systems, and operations are potentially vulnerable to damage or interruption from upgrades and maintenance, network failure, hardware failure, software failure, power or telecommunications failures, cyber attacks involving the penetration of our network by hackers or other unauthorized users through computer viruses and worms, malicious code, phishing attacks, denial of service attacks, or information security breaches, other negative disruptions to the operation of the internet,cyberattacks, human error, and natural disasters. As our businesses aretax preparation business is seasonal, our systems must be capable of processing high volumes during our peak periods. Therefore, any failure or interruption in our information systems, or information systems of our franchisees or a private or government third party on which we rely, or an interruption in the internet or other critical business capability during our busiest periods, could negatively impact our business operations and reputation, and increase our risk of loss.
There can be no assurance that system or internet failures or interruptions in critical business capabilities will not occur, or, if they do occur, that we, our franchisees or the private or governmental third parties on whom we rely, will adequately address them. The precautionary measures that we, or third parties on whom we rely, have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions or failures may not be adequate, in all circumstances, and we and such third parties may not have anticipated or addressed all of the potential events that could threaten or undermine our or such third parties information systems or other critical business capabilities.
|
| |
10 | 2016 Form 10-K | H&R Block, Inc.
|
our systems and our disaster recovery planning may not account for all eventualities. Our software and computer systems utilize cloud computing services provided by Microsoft Corporation. If the Microsoft Azure Cloud is unavailable for any reason, it could negatively impact our ability to deliver our services and products and our clients may not be able to access certain of our products or features, any of which could significantly impact our operations, business, and financial results.
The occurrence of any systems or internet failure, or business interruption could negatively impact our ability to serve our clients, which in turn could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Government initiatives that modify tax return preparation requirements or expedite refunds could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
From time to time, there are various initiatives seeking to modify the preparation and filing of federal tax returns, including preparation of tax returns directly by the IRS, and to provide additional assistance with respect to preparing and filing such tax returns or expediting refunds. H&R Block is a member of the FFA, which provides the ability for low-income taxpayers to prepare and file their own federal tax returns online for free. The IRS has been exploring the Real Time Tax System concept, which would require that documents (such as W-2s and 1099s) must be on file with the IRS prior to taxpayers submitting their tax returns. The objective of this concept would be to facilitate document matching such that it would reduce fraud and after-the-fact audits. The implementation of the Real Time Tax System would provide a foundation for the IRS preparation of tax returns and make the pre-populated return a more tangible possibility.
The IRS has in the past explored the possibility of allowing taxpayers to allocate a portion of their tax refunds to pay tax preparation fees, which could reduce the demand for RTs, but the IRS has not advanced this initiative. Taxing authorities in various state, local, and foreign jurisdictions in which we operate have also introduced measures seeking to modify the preparation and filing of tax returns in their respective jurisdictions. The adoption or expansion of any measures that significantly modify tax return preparation, expedite refunds, or otherwise reduce the need for a third-party tax return preparer could reduce demand for our services and products and could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows.
The Dodd-Frank Act created the CFPB to administer and, in some cases, enforce U.S. federal financial consumer protection laws and expanded the role of state regulators with respect to consumer protection laws. Regulations promulgated by the CFPB or state regulators may affect our financial services businesses in ways we cannot predict, which may require changes to our financial products, services, and contracts.
The Dodd-Frank Act created the CFPB and gave it broad powers to administer, investigate compliance with, and, in some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a wide range of financial consumer protection laws that apply to all banks, federal savings banks, and other financial services companies, including the authority to prohibit "unfair, deceptive, or abusive" acts and practices.
The CFPB may examine, investigate, and take enforcement actions against our subsidiaries that provide consumer financial services and products, as well as financial institutions and service providers upon which our subsidiaries rely to provide consumer financial services and products. The Dodd-Frank Act also expanded the role of state regulators in enforcing and promulgating financial consumer protection laws, the results of which could be states issuing new and broader financial consumer protection laws, some of which could be more comprehensive than existing U.S. federal regulations. New CFPB and state regulations may require changes to our financial products, services and contracts, and this could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. Examples of recent CFPB action include the following:
| |
▪ | On November 13, 2014, the CFPB issued proposed rules that would change the regulation of prepaid products. It is not clear when the CFPB will publish the final version of these rules, or what their content will be. If enacted as proposed, the rules would make prepaid cards subject to Federal Reserve Regulations E and Z, among other things, and would apply to the H&R Block Emerald Prepaid MasterCard®. It is possible that, depending on the form of the final rules, changes would be necessary to the H&R Block Emerald Prepaid MasterCard® to comply with the final rules, and that such changes could have a material adverse effect on the revenue we derive from our H&R Block Emerald Prepaid MasterCard® program.
|
| |
▪ | On May 5, 2016, the CFPB issued a request for comments on its proposal to prohibit mandatory consumer arbitration clauses in consumer financial product contracts. We, and certain of our third party service providers, utilize consumer arbitration clauses in connection with all of our consumer financial services products. It is not clear when the CFPB will publish the final version of these rules, or what their content will be. It is possible that, if the CFPB issues final rules that prohibit our use of consumer arbitration clauses, the risk of litigation involving our consumer financial products could increase, and the revenue that we derive |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 11 |
from our consumer financial products could decline, as the result of adverse outcomes of litigation, increased volume of litigation, and the expense of defending such litigation.
| |
▪ | On June 2, 2016, the CFPB issued proposed rules that would change the regulation of many forms of consumer credit. It is not clear when the CFPB will publish the final version of these rules, or what their content will be. It is possible that the final rules, when enacted, could impact EAs. It is also possible that, depending on the form of the final rules, changes would be necessary to EAs to comply with the final rules, and that such changes could have a material adverse effect on the revenue that we derive from EAs. |
The nature of our tax service and product offerings requires timely product launches. Any significant delays in launching our tax service and product offerings, changes in government regulations or processes (including the acceptance of tax returns and the issuance of refunds and other amounts to clients by the IRS or state tax agencies) that affect how we provide such offerings to our clients, or significant problems with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations, and reputation.
Tax laws and tax forms are subject to change each year, and the nature and timing of such changes are unpredictable. As a part of our business, we must incorporate any changes to tax laws and tax forms into our tax service and product offerings, including our online tax servicesand mobile applications and desktop tax preparation software. The unpredictable nature, timing and timingeffective dates of changes to tax laws and tax forms can result in condensed development cycles for our tax service and product offerings because our clients expect high levels of accuracy and a timely launch of such offerings to prepare and file their taxes by the applicable tax filing deadlinedeadlines and, in turn, receive any tax refund amounts on a timely basis. In addition, governmental authorities regularly change their processes for accepting tax filings and related tax forms. Further, changes in governmental administrations could result in a delay of the start of the tax season or in further and unanticipated changes in regulations or processes. Changes in governmental regulations and processes that affect how we provide services and products to our clients may require us to make corresponding changes to our client service systems and procedures. Furthermore, unanticipated changes in governmental processes for accepting tax filings and related forms, or the ability of taxing authorities to accept electronic tax return filings, may result in delays in our processing of our clients' tax filings, or delays in tax authorities accepting electronic tax return filings, and, in turn, delay any tax refund amounts to which such clients may be entitled. From time to time, we review and enhance our quality controls for preparing accurate tax returns, but there can be no assurance that we will be able to prevent all inaccuracies. Any significant delays in launching our tax service and product offerings,Further, changes in governmentgovernmental administrations or regulations could result in further and unanticipated changes in requirements or processes, that affect how we provide such offeringswhich may require us to make corresponding changes to our clients, or significant problems with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations,client service systems and reputation.
If we encounter development challenges or discover errors in our systems, services or products, we may elect to delay or suspend our offerings. Any major defects or launch delays, or failure to anticipateprocedures. In addition, unanticipated changes in governmental processes, or newly implemented processes, for (1) accepting tax filings and related forms, including the ability of taxing authorities to accept electronic tax
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 11 |
return filings, or (2) distributing tax refunds or other amounts to clients may result in processing delays by us or applicable taxing authorities.
Certain of our financial products are dependent on the IRS following the client’s directions to direct deposit the tax refund. If the IRS disregards this direction, and sends the tax refund via check, then it could result in a loss of tax preparation and financial product revenue, negative publicity, and client dissatisfaction. In addition, any delays in launching new financial service or product offerings, or technical or other issues associated with the launch, could cause a loss of clients or client dissatisfaction, especially if such issues occur during the tax season.
Any major defects or delays caused by the above-described complexities may lead to loss of clients and loss of or delay in revenue, negative publicity, client and employee dissatisfaction, a deterioration in our business relationships with our partners or our franchisees, reduced retailer shelf space and promotions, exposure to litigation, and increased operating expenses.expenses, even if any such launch delays or defects are not caused by us. Any of the risks described above could have a material adverse effect on our business, our reputation, and our consolidated financial position, results of operations, and cash flows.
Regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The Company is subject to additional federal, state, and foreign laws and regulations that affect the Company, including, without limitation, in the areas of franchise, labor, advertising, consumer products, payment processing, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new regulations and heightened focus by the government in some of these areas, including, for example, the Affordable Care Act and the Department of Labor amendments to the overtime and exemption regulations of the Fair Labor Standards Act. There may be additional regulatory actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.
|
| |
12 | 2016 Form 10-K | H&R Block, Inc.
|
We rely on a single vendor or a limited number of vendors to provide certain key services or products, and the loss of such relationships, the inability of these key vendors to meet our needs, or errors by the key vendors in providing services to or for us, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Historically, we have contracted, and in the future we will likely continue to contract, with a single vendor or a limited number of vendors to provide certain key services or products for our tax, financial, and other services and products. TwoA few examples of this type of reliance are our relationships with FIS,Fidelity National Information Services, Inc. (FIS), Galileo Financial Technologies, LLC, or similar vendors, for data processing and card production services, Pathward, for the issuance of RTs, EAs RAs, Emerald Cards, and BofI, as discussed in Item 1.Spruce accounts, and Microsoft Corporation, for cloud computing services and artificial intelligence technology. In certain instances, we are vulnerable to vendor error, service inefficiencies, data breaches, service interruptions, or service delays. delays, and such issues by our key vendors in providing services to or for us could result in material losses for us due to the nature of the services being provided or our contractual relationships with our vendors. If any material adverse event were to affect one of our key vendors or if we are no longer able to contract with our key vendors for any reason, we may be forced to find an alternative provider for these critical services. It may not be possible to find a replacement vendor on terms that are acceptable to us or at all.
Our sensitivity to any of these issues may be heightened (1) due to the seasonality of our business, (2) with respect to any vendor that we utilize for the provision of any product or service that has specialized expertise, (3) with respect to any vendor that is a sole or exclusive provider, or (4) with respect to any vendor whose indemnification obligations are limited or that does not have the financial capacity to satisfy its indemnification obligations. Some of our vendors are subject to the oversight of regulatory bodies and, as a result, our product or service offerings may be affected by the actions or decisions of such regulatory bodies. Vendor failures could occur in various ways including (1) vendor error, (2) inability to meet our needs in a timely manner, or (3) termination or delay in the services or products provided by a vendor because the vendor fails to perform adequately, is no longer in business, experiences shortages, or discontinues a certain product or service that we utilize. If our vendors are unable to meet our needs and we are not able to develop alternative sources for these services and products quickly and cost-effectively, or if a key vendor were to commit a major error or suffer a material adverse event, it could result in a material and adverse impact on our business and our consolidated financial position, results of operations, and cash flows.
The specialized and highly seasonal nature of our business presents financial risks and operational and human capital challenges.
Our business is highly seasonal, with the substantial portion of our revenue earned from February through April in a typical year. The concentration of our revenue-generating activity during this relatively short period presents a number of challenges for us, including (1) cash and resource management during the remainder of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season, (2) responding to changes in competitive conditions, including marketing, pricing, and new product offerings, which ifcould affect our position during the tax season, (3) disruptions, delays, or extensions in a tax season, including those caused by pandemics, such as the COVID-19 outbreak, or severe weather, (4) client dissatisfaction issues or negative social media campaigns, which may not be timely discovered or satisfactorily addressed, and (5) ensuring optimal uninterrupted operations and service delivery during the tax season, which may be disrupted by natural or manmade disasters, extreme weather conditions, pandemics, or other catastrophic events. If we experience
| | | | | |
| 12 | 2023 Form 10-K | H&R Block, Inc. |
significant business disruptions during the tax season or if we are unable to effectively address the challenges described above and related challenges associated with a seasonal business, we could materially affectexperience a loss, disruption, or change in timing of business, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Success inWe may be unable to attract and retain key personnel or fully control or accurately predict our industrylabor costs.
Our business depends on our ability to attract, develop, motivate, and retain key personnel in a timely manner, including members of our executive team and those in seasonal tax preparation positions (which may be required on short notice during any extended tax season or to serve extended filers) or with other required specialized expertise, includingsuch as technical positions.positions (including with respect to cybersecurity, artificial intelligence, and machine learning). The market for such personnel is extremely competitive, and there can be no assurance that we will be successful in our efforts to attract and retain the required qualified personnel within necessary timeframes.timeframes, or at expected cost levels. As the global labor market continues to evolve as a result of the COVID-19 pandemic and other changes, our current and prospective key personnel may seek new or different opportunities based on pay levels, benefits, or remote work flexibility that are different from what we offer, or may determine to leave the workforce, making it difficult to attract and retain them. If we are unable to attract, develop,, motivate, and retain key personnel, our business, operations, and financial results could be negatively impacted.
Our business is highly seasonal, with the substantial portion of In addition, if our revenue earned in the fourth quarter of our fiscal year. The concentration of our revenue-generating activity during this relatively short period presents a number of challenges for us, including (1) cash and resource management during the first nine months of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcominglabor or related costs increase, if new or revised labor laws, rules, or regulations are adopted or implemented that impact our seasonal workforce and increase our labor costs, or if our labor costs are unpredictable due to tax season (2) ensuring compliance with financial covenants under our unsecured committed line of credit (2015 CLOC), particularly if the timing of our revenue generation deviates from this seasonal period, (3) the availability of a seasonal workforce, including tax professionals, and our ability to attract, hire, train, supervise, motivate, and retain these employees, (4) responding to changes in competitive conditions, including marketing, pricing, and new product offerings, whichfluctuations or otherwise, there could affect our position during the tax season, (5) disruptions in a tax season, including any customer dissatisfaction issues, which may not be timely discovered, and (6) ensuring optimal uninterrupted operations and service delivery during peak season. If we experience significant business disruptions during the tax season or if we are unable to satisfactorily address the challenges described above and related challenges associated with a seasonal business, we could experience a loss of business, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We face litigation in connection with our various business activities, and current or future litigation may damage our reputation, impair our product offerings, or result in material liabilities and losses.
We have been named, and from time to time will likely continue to be named, as a defendant in various legal actions, including arbitrations, class actions, actions or inquiries by state attorneys general, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. We also grant our franchisees a limited license to use our registered trademarks and, accordingly, there is risk that one or more of the franchisees may be identified as being controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to litigation could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 13 |
our subsidiaries' or franchisees' actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.
In addition, we have been sued, and certain of our competitors have been sued, in connection with the offering of different types of RT products. Further, we have received an inquiry from the California Attorney General requesting information regarding our RT product. In a case involving one of our competitors, a California appellate court affirmed a trial court's ruling that the competitor's specific version of a RT product was subject to truth-in-lending and other related laws. Following the appellate court's ruling, the case was denied further appellate review. We believe there are differences that distinguish our RT product from the product that was the subject of the competitor's case described above. Revenues from our RT product totaled $165 million in fiscal year 2016; any requirement that materially alters our offering of RTs, including limitations on the fees we charge or disclosure requirements that could reduce the demand for these products, could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.
Our access to liquidity may be negatively impacted as disruptions in credit markets occur, if credit rating downgrades occur, or if we fail to meet certain covenants. Funding costs may increase, leading to reduced earnings.
We need liquidity to meet our off-season working capital requirements, to service debt obligations including refinancing of maturing obligations, and for general corporate purposes. Our access to and the cost of liquidity could be negatively impacted in the event of credit rating downgrades or if we fail to meet existing financial covenants. In addition, events could occur which could increase our need for liquidity above current levels.
If rating agencies downgrade our credit rating, the cost of debt under our existing financing arrangements, as well as future financing arrangements, could increase and capital market access could decrease or become unavailable. Our 2015 CLOC is subject to various covenants, and a violation of a covenant could impair our access to liquidity currently available through the 2015 CLOC. The 2015 CLOC includes provisions that allow for the issuance of equity to comply with the financial covenant calculations as a means to avoid a shortfall. If current sources of liquidity were to become unavailable, we would need to obtain additional sources of funding, which may not be available or may only be available under less favorable terms. This could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The continued payment of dividends on our common stock and repurchases of our common stock are dependent on a number of factors, and future payments and repurchases cannot be assured.
We need liquidity sufficient to fund payments of dividends on our common stock and repurchases of our common stock. In addition, holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments, and our Board of Directors may only authorize the Company to repurchase shares of our common stock with funds legally available for such repurchases. The payment of future dividends and future repurchases will depend upon our earnings, economic conditions, liquidity and capital requirements, and other factors, including our debt leverage. Accordingly, we cannot make any assurance that future dividends will be paid, or future repurchases will be made, at levels comparable to our historical practices, if at all. Due to the seasonal nature of our business and the fact that our business is not asset-intensive, there may be periods of time during our fiscal year in which the payment of dividends or stock repurchases may cause us to have a negative net worth under accounting principles generally accepted in the U.S. (GAAP).
Our businesses may be adversely affected by difficult economic conditions, in particular, high unemployment levels.
Difficult economic conditions are frequently characterized by high unemployment levels and declining consumer and business spending. These poor economic conditions may negatively affect demand and pricing for our services and products. In the event of difficult economic conditions that include high unemployment levels, especially within client segments we serve, clients may elect not to file tax returns or seek lower cost preparation and filing alternatives. Sustained levels of high unemployment may negatively impact our ability to increase or retain tax preparation clients.
|
| |
14 | 2016 Form 10-K | H&R Block, Inc.
|
Economic conditions that negatively affect housing prices and the job market may result in deterioration in credit quality of mortgage loans held for investment and other loans, and such deterioration could have a negative impact on our business and profitability. The fair value of these mortgage loans is less than their carrying value and a decision by us to no longer hold these loans for investment would result in a significant impairment.
The overall credit quality of mortgage loans held for investment is impacted by the strength of the U.S. economy and local economic conditions, including residential housing prices. Economic trends that negatively affect housing prices and the job market could result in deterioration in credit quality of our mortgage loan portfolio and a decline in the value of associated collateral. Future interest rate resets could also lead to increased delinquencies in our mortgage loans held for investment.
Mortgage loans purchased from Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC) represent 59% of total loans held for investment as of April 30, 2016. Remaining loans held for investment were originated by a third-party bank and purchased by us. Loans we purchased from SCC have experienced higher delinquency rates than other loans we purchased, and may expose us to greater risk of credit loss.
Mortgage loans held for investment had a carrying value of $202 million and a fair value of $191 million as of April 30, 2016. If we decide to sell these mortgage loans we would incur an impairment loss for the difference between carrying value and fair value.
In addition to mortgage loans held for investment, we also purchase a participation interest in EAs originated by BofI. We may incur significant losses on those loans, which in turn could reduce our profitability.
Our business depends on our strong reputation and the value of our brands.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future services and products and is an important element in attracting new clients. In addition, our franchisees may operate their businesses under our brands. Adverse publicity (whether or not justified) relating to events or activities involving or attributed to us, our franchisees, employees, vendors, or agents or our services or products, which may be enhanced due to the nature of social media, may tarnish our reputation and reduce the value of our brands. Damage to our reputation and loss of brand equity may reduce demand for our services and products and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and restore the value of our brands.
Failure to maintain sound business relationships with our franchisees may have a material adverse effect on our business and we may be subject to legal and other challenges resulting from our franchisee relationships.
Our financial success depends in part on our ability to maintain sound business relationships with our franchisees. The support of our franchisees is also critical for the success of our ongoing operations. Deterioration in our relationships with our franchisees could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We also grant our franchisees a limited license to use our registered trademarks and, accordingly, there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from our or our franchisees’ actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.
Our international operations are subject to risks that may harm our business and our consolidated financial position, results of operations, and cash flows.
We have international operations, including tax preparation businesses in Canada and Australia, technology centers in India and Ireland, and Wave in Canada. We may consider expansion opportunities in additional countries in the future and there is uncertainty about our ability to generate revenues from new or emerging foreign operations or expand into other international markets. Additionally, there are risks inherent in doing business internationally, including: (1) changes in trade regulations; (2) difficulties in managing foreign operations as a result
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 13 |
of distance, language, and cultural differences; (3) profit repatriation restrictions, and fluctuations in foreign currency exchange rates; (4) geopolitical events, including acts of war and terrorism, and economic and political instability; (5) compliance with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and other applicable foreign anti-corruption laws; (6) compliance with U.S. and international laws and regulations, including those concerning privacy and data protection and retention; and (7) risks related to other government regulation or required compliance with local laws. These risks inherent in international operations and expansion could prevent us from expanding into other international markets or increase our costs of doing business internationally and could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
In addition, we prepare U.S. federal and state tax returns for taxpayers residing in foreign jurisdictions, including the European Union (EU), and we and certain of our franchisees operate and provide other services in foreign jurisdictions. As a result, certain aspects of our operations are subject, or may in the future become subject, to the laws, regulations, and policies of those jurisdictions that regulate the collection, use, and transfer of personal information, which may be more stringent than those of the U.S., including, but not limited to the EU General Data Protection Regulation, the Canadian Personal Information Protection and Electronic Documents Act, and Canadian Provincial legislation.
Costs for us to comply with such laws, regulations, and policies that are applicable to us could be significant. We may also face audits or investigations by one or more foreign government agencies relating to these laws, regulations, and policies that could result in the imposition of penalties or fines.
Our financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic, and may be impacted by a resurgence of COVID-19 or a variant thereof or a future outbreak of another highly infectious or contagious disease.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, and the impacts of the pandemic have been felt since that time. Since the beginning of the pandemic, jurisdictions in which we operate have from time-to-time imposed various restrictions on our business. Notwithstanding our efforts to address the impacts of the COVID-19 pandemic, or a variant thereof, on our business, there is no certainty that the measures we implemented, or may implement in the future, are or will be sufficient to mitigate the risks posed by COVID-19, a variant thereof, or another infectious disease. Alleged failures in this regard could result in negative impacts, including regulatory investigations, claims, legal actions, harm to our reputation and brands, fines, penalties, and other damages.
As a result of the COVID-19 pandemic, the IRS and substantially all U.S. states extended the filing deadline in consecutive tax seasons for 2019 and 2020 individual income tax returns. These extensions impacted the typical seasonality of our business and the comparability of our financial results. In the event of a resurgence of COVID-19 or the outbreak of another infectious disease, Treasury, the IRS, and state or foreign officials may determine to extend future tax deadlines or take other actions, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows in future years.
The extent to which the COVID-19 pandemic or another outbreak impacts our business, operations, and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict. The resurgence of COVID-19 or a variant thereof or a new global or national outbreak of another highly infectious or contagious disease, the requirements to take action to help limit the spread of illness, and the other risks described above may further impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, results of operations, cash flows, and financial condition.
INFORMATION SECURITY, CYBERSECURITY, AND DATA PRIVACY RISKS
Compliance with the complex and evolving laws, regulations, standards, and contractual requirements regarding privacy and data protection could require changes in our business practices and increase costs of operation; failure to comply could result in significant claims, fines, penalties, and damages.
Due to the nature of our business, we collect, use, and retain large amounts of personal information and data pertaining to clients, including tax return information, financial product and service information, and social security
| | | | | |
| 14 | 2023 Form 10-K | H&R Block, Inc. |
numbers. In addition, we collect, use, and retain personal information and data of our employees in the ordinary course of our business.
We are subject to laws, rules, and regulations relating to the collection, use, disclosure, and security of such consumer and employee personal information, which have drawn increased attention from U.S. federal, state, and foreign governmental authorities in jurisdictions in which we operate. In the U.S., the IRS generally requires a tax return preparer to obtain the written consent of the taxpayer prior to using or disclosing the taxpayer's tax return information for certain purposes other than tax return preparation, which may limit our ability to market revenue-generating products to our clients. In addition, other regulations require financial institutions to adopt and disclose their consumer privacy notice and generally provide consumers with a reasonable opportunity to "opt-out" of having nonpublic personal information disclosed to unaffiliated third parties for certain purposes.
Numerous jurisdictions have passed, and may in the future pass, new laws related to the collection, use, and retention of consumer or employee information and this area continues to be an area of interest for U.S. federal, state, and foreign governmental authorities. For example, the State of California adopted the California Consumer Privacy Act (CCPA), which became effective January 1, 2020, as amended by the California Privacy Rights Act (CPRA) on January 1, 2023. Subject to certain exceptions, these laws impose new requirements on how businesses collect, process, manage, and retain certain personal information of California residents and provide California residents with various rights regarding personal information collected by a business. In addition, certain states have adopted comprehensive privacy laws, and other jurisdictions have adopted or may in the future adopt their own, different privacy laws. These laws may contain different requirements or may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current privacy and data protection policies and practices may not be consistent with all of those requirements, interpretations, or applications. In addition, changes in U.S. federal and state regulatory requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we operate, could result in more stringent requirements and a need to change business practices, including the types of information we can use and the manner in which we can use such information. Establishing systems and processes, or making changes to our existing policies, to achieve compliance with these complex and evolving requirements may increase our costs or limit our ability to pursue certain business opportunities. There can be no assurance that we will successfully comply in all circumstances. We are, and may in the future be, subject to regulatory investigations, claims and legal actions related to the collection, use, sharing, and/or retention of information, which could lead to further inquiries, further legal actions, other regulatory or legislative actions, harm to our reputation and brands, fines, penalties, and other damages.
We have incurred, and may continue to incur, significant expenses to comply with existing or future privacy and data security standards and protocols imposed by law, regulation, industry standards or contractual obligations.
A security breach of our systems, or third-party systems on which we rely, resulting in unauthorized access to personal information of our clients or employees or other sensitive, nonpublic information, may adversely affect the demand for our services and products, our reputation, and financial performance.
We offer a range of services and products to our clients, including tax return preparation solutions, financial services and products, and small business solutions through our company-owned or franchise offices and online. Due to the nature of these services and products, we use multiple digital technologies to collect, transmit, and store high volumes of client personal information. We also collect, use, and retain other sensitive, nonpublic information, such as employee social security numbers, healthcare information, and payroll information, as well as confidential, nonpublic business information. Certain third parties and vendors have access to personal information to help deliver client benefits, services and products, or may host certain of our and our clients’ sensitive and personal information and data. Information security risks continue to increase due in part to the increased adoption of and reliance upon digital technologies by companies and consumers. Our risk and exposure to these matters remain heightened due to a variety of factors including, among other things, (1) the evolving nature of these threats and related regulation, (2) the increased activity and sophistication of hostile foreign governments, organized crime, cyber criminals, and hackers that may initiate cyberattacks against us or third-party systems on which we rely, (3) the prominence of our brand, (4) our and our franchisees' extensive office footprint, (5) our plans to continue to implement strategies for our online and mobile applications and our desktop software, (6) our use of third-party vendors, (7) our use of certain new technologies, such as artificial intelligence and
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 15 |
machine learning, and (8) the usage of remote working arrangements by our associates, franchisees, and third-party vendors, which significantly expanded due to the COVID-19 pandemic.
Cybersecurity risks may result from fraud or malice (a cyberattack), human error, or accidental technological failure. Cyberattacks are designed to electronically circumvent network security for malicious purposes such as unlawfully obtaining personal information, disrupting our ability to offer services, damaging our brand and reputation, stealing our intellectual property, or advancing social or political agendas. We face a variety of cyberattack threats including computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, ransomware, and other sophisticated attacks.
Although we use security and business controls to limit access to and use of personal information and expend significant resources to maintain multiple levels of protection to address or otherwise mitigate the risk of a security breach, such measures cannot provide absolute security. We regularly test our systems to discover and address potential vulnerabilities, and we rely on training and testing of our employees regarding heightened phishing and social engineering threats. We also conduct certain background checks on our employees, as allowed by law. Due to the structure of our business model, we also rely on our franchisees, vendors, and other private and governmental third parties to maintain secure systems and respond to cybersecurity risks. Where appropriate, we impose certain requirements and controls on these third parties, but it is possible that they may not appropriately employ these controls or that such controls (or their own separate requirements and controls) may be insufficient to protect personal information.
Cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a top priority for us. As risks and regulations continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Notwithstanding these efforts, there can be no assurance that a security breach, intrusion, or loss or theft of personal information will not occur. In addition, the techniques used to obtain unauthorized access change frequently, become more sophisticated, and are often difficult to detect until after a successful attack, causing us to be unable to anticipate these techniques or implement adequate preventive measures in all cases.
Unauthorized access to personal information as a result of a security breach could cause us to determine that it is required or advisable for us to notify affected individuals, regulators, or others under applicable privacy laws and regulations or otherwise. Security breach remediation could also require us to expend significant resources to assist impacted individuals, repair damaged systems, implement modified information security measures, and maintain client and business relationships. Other consequences could include reduced client demand for our services and products, loss of valuable intellectual property, reduced growth and profitability and negative impacts to future financial results, loss of our ability to deliver one or more services or products (e.g., inability to provide financial services and products or to accept and process client credit card transactions or tax returns), modifying or stopping existing business practices, legal actions, harm to our reputation and brands, fines, penalties, and other damages, and further regulation and oversight by U.S. federal, state, or foreign governmental authorities.
A security breach or other unauthorized access to our systems, or third-party systems on which we rely, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
LEGAL AND REGULATORY RISKS
Regulations promulgated by the Consumer Financial Protection Bureau (CFPB) or other regulators may affect our financial services businesses in ways we cannot predict, which may require changes to the financial products we offer, our services and contracts.
The CFPB has broad powers to administer, investigate compliance with, and, in some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a wide range of financial consumer protection laws that apply to certain of the financial products we offer, including the authority to
| | | | | |
| 16 | 2023 Form 10-K | H&R Block, Inc. |
prohibit or allege "unfair, deceptive, or abusive" acts and practices. It is difficult to predict how currently proposed or new regulations may impact the financial products we offer.
The CFPB and other federal or state regulators may examine, investigate, and take enforcement actions against our subsidiaries that offer consumer financial services and products, as well as financial institutions and other third parties upon which our subsidiaries rely to provide consumer financial services and products. State regulators also have certain authority in enforcing and promulgating financial consumer protection laws, the results of which could be (i) states issuing new and broader financial consumer protection laws, some of which could be more comprehensive than existing U.S. federal regulations, or (ii) state attorneys general bringing actions to enforce federal consumer protection laws.
Currently proposed or new federal and state laws and regulations, or expanded interpretations of current laws and regulations, may require changes to the financial products we offer, our services or contracts, and this could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Laws and regulations or other regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our tax preparation business and operations are subject to various forms of government regulation, including U.S. federal requirements regarding the signature and inclusion of identification numbers on tax returns and tax return retention requirements. U.S. federal laws also subject income tax return preparers to accuracy-related penalties, and preparers may be prohibited from continuing to act as income tax return preparers if they repeatedly engage in specified misconduct. We are also subject to, among other things, advertising standards for electronic tax return filers, and to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties, including suspension from the IRS electronic filing program. Many states and local jurisdictions have laws regulating tax professionals or the offering of income tax courses, which are in addition to and may be different than federal requirements.
In addition, our franchising activities are subject to various rules and regulations, including requirements to furnish prospective franchisees with a prescribed franchise disclosure document. Substantive state laws regulating the franchisor/franchisee relationship presently exist in a large number of states. These state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise contract and the ability of a franchisor to designate sources of supply. In addition, bills have been introduced from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects or that would impact the traditional nature of the relationship between franchisors and franchisees.
Additionally, our offering of consumer financial products and services are subject to various rules and regulations, including potential limitations or restrictions on the amount of interchange fees. There can be no assurance that future regulation or changes by the payment networks will not impact interchange revenues substantially. If interchange rates decline, whether due to actions by the payment networks or future regulation, it could impact the profitability of our consumer financial products and services or our ability to offer such products or services.
Given the nature of our businesses, we are subject to various additional federal, state, local, and foreign laws and regulations, including, without limitation, in the areas of labor, immigration, marketing and advertising, consumer protection, financial services and products, payment processing, privacy and data security, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new or proposed regulations and/or heightened focus by the government and others in some of these areas, including, for example, privacy and data security, climate change, interchange fees, consumer financial services and products, endorsements and testimonials, telemarketing, web and wireless marketing technologies, restrictive covenants, and labor, including overtime and exemption regulations, state and local laws on minimum wage, worker classification, and other labor-related issues. In addition, as we continue to incorporate additional or emerging technologies into our business, such as in the areas of artificial intelligence and machine learning, we may become subject to increased government regulation or regulatory scrutiny.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 17 |
The above requirements and business implications are subject to change and evolving application, including by means of new legislation, legislative changes, and/or executive orders, and there may be additional regulatory actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.
We face legal actions in connection with our various business activities, and current or future legal actions may damage our reputation, impair our product offerings, or result in material liabilities and losses.
We have been named and, in the future will likely continue to be named, in various legal actions, including class or representative actions, individual or mass arbitrations, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. For example, as previously reported, we are subject to litigation and have received and are responding to certain governmental inquiries relating to the IRS Free File program and our DIY tax preparation services. These inquiries include, among other things, requests for information and subpoenas from various regulators and state attorneys general. We cannot predict whether these legal actions could lead to further inquiries, further litigation, fines, injunctions or other regulatory or legislative actions or impacts on our brand, reputation and business. See discussion in Item 8, note 12 to the consolidated financial statements for additional information. Failure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly.
Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases. Our intellectual properlyproperty could be wrongfully acquired as a result of a cyber attack orcyberattack, other wrongful conduct by employees or third parties.parties, or human error. To the extent that our intellectual property is not protected effectively by trademarks, copyrights, patents, or other means, other parties with knowledge of our intellectual property, including former employees, may seek to exploit our intellectual property for their own or others' advantage. Competitors may also misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our technology and products. Any significant impairment or misappropriation of our intellectual property or proprietary information could harm our business and our brand, and may adversely affect our ability to compete.
In addition, third-partiesthird parties may allege we are infringing on their intellectual property rights, and we may face intellectual property challenges from other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes and, in that event, we could lose significant revenues, incur significant license, royalty or technology development expenses, suffer harm to our reputation, or pay significant monetary damages.
FailureFINANCIAL RISKS
Our access to maintain sound business relationships withliquidity may be negatively impacted by disruptions in credit markets, downgraded credit ratings, increased interest rates or our franchisees may have a material adverse effect onfailure to meet certain covenants. Our funding costs could increase, further impacting earnings.
We need liquidity to meet our businessworking capital requirements, to service debt obligations, including refinancing of maturing obligations, and for general corporate purposes. Our operations are highly seasonal and substantially all of our consolidated financial position, results of operations,revenues and cash flows.
Our financial success dependsflows are generated during the period from February through April in significant parta typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs during this time period. Events may occur that could increase our abilityneed for liquidity above current levels. We may need to maintain sound business relationships withobtain additional sources of funding to meet these needs, which may not be available or may only be available under unfavorable terms. In addition, if rating agencies downgrade our franchisees. The supportcredit rating or interest rates increase, the cost of debt under our franchisees is also critical for the success of our marketing programs and any new strategic initiatives we seek to undertake. Deterioration in our relationships with our franchisees or the failure of our
existing financing
|
| | | | |
| 18 | 2023 Form 10-K |H&R Block, Inc. | 2016 Form 10-K | 15 |
arrangements, as well as future financing arrangements, could increase and our capital market access could decrease or become unavailable.
Our unsecured committed line of Contents
credit (CLOC) is subject to various covenants, and a violation of a covenant could impair our access to liquidity currently available through the CLOC. In addition, if we violate a covenant in the CLOC and are unable to obtain a waiver from our lenders, our debt under the CLOC would be in default and could be accelerated by our lenders. An acceleration of the indebtedness under the CLOC would cause a cross default under the indenture governing our Senior Notes. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.
franchiseesIf current sources of liquidity were to support our marketing programs and strategic initiativesbecome unavailable, we would need to obtain additional sources of funding, which may not be available or may only be available under less favorable terms. This could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our international operationsThe continued payment of dividends on our common stock and repurchases of our common stock are subjectdependent on a number of factors, and cannot be assured.
We need liquidity sufficient to risks whichfund payments of dividends on our common stock and repurchases of our common stock. In addition, holders of our common stock are only entitled to receive such dividends, and the Company may harmonly repurchase shares, as our Board of Directors may authorize out of funds legally available for such payments. Due to the seasonal nature of our business and the fact that our consolidated financial position, resultsbusiness is not asset-intensive, we have had, and are likely to continue to have, a negative net worth under U.S. generally accepted accounting principles (GAAP) at various times throughout the year. Therefore, the payment of operations,dividends or stock repurchases at such times would cause us to further increase that GAAP negative net worth.
The payment of future dividends and cash flows.
We have international operations, including in Canada, Australia,future repurchases will depend upon our earnings, economic conditions, liquidity and India, and may consider expansion opportunities in additional countries in the future. There is uncertainty about our ability to generate revenues from new or emerging foreign operations and expand into other international markets. Additionally, there are risks inherent in doing business internationally, including: (1) changes in trade regulations; (2) difficulties in managing foreign operations as a result of distance, language, and cultural differences; (3) profit repatriation restrictions, and fluctuations in foreign currency exchange rates; (4) geopolitical events, including acts of war and terrorism, and economic and political instability; (5) compliance with U.S. laws such as the Foreign Corrupt Practices Actcapital requirements, and other applicable foreign anti-corruption laws; (6) compliance with U.S.factors, including our debt leverage. Even if we have sufficient resources to pay dividends and international laws and regulations, including those concerning privacy, and data protection and retention; and (7) risks related to repurchase shares of our common stock, our Board of Directors may determine to use such resources to fund other government regulationCompany initiatives. Accordingly, we cannot make any assurance that future dividends will be paid, or required compliance with local laws. These risks inherent infuture repurchases will be made, at levels comparable to our international operations and expansion could increase our costs of doing business internationally and could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.historical practices, if at all.
We may be adversely impacted by changesChanges in corporate tax rates, the adoption of new tax legislationlaws or regulations, or in the jurisdictions in which we operate,interpretations of tax laws or regulations, could materially affect our financial condition, cash flows, and exposure to additional tax liabilities.operating results.
As a profitable multinational corporation, we are subject to a material amount of taxes in the U.S. and numerous foreign jurisdictions where our subsidiaries are organized and conduct their operations. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Tax ratesThe amount of tax due in the various jurisdictions in which our subsidiaries are organized and conduct their operations may change significantly as a result of political or economic factors beyond our control. Additionally,control, including changes to tax laws or new interpretations of existing laws that are inconsistent with previous interpretations or positions taken by taxing authorities on which we have relied. New regulatory guidance, or regulatory interpretations that differ from our futureexisting interpretations, could materially affect our effective tax rates could be adversely affected by changes in the valuationor value of deferred tax assets and liabilitiesliabilities.
Legislatures and taxing authorities in jurisdictions in which we operate may propose additional changes to their tax rules in response to economic conditions, or as part of broader tax reformation initiatives. The current administration previously committed to increasing the corporate income tax rate from 21 percent to 28 percent, and to increasing the tax rate applied to profits earned outside the United States. If enacted, the impact of these potential new rules could be material to our tax provision and value of deferred tax assets and liabilities.
In addition, projects undertaken by international organizations may change international tax norms relating to each country’s jurisdiction to tax cross-border international trade. Given the unpredictability of these and other possible changes into tax laws or their interpretation. and related regulations, it is difficult to assess the overall effect of such potential changes, but any such changes could, if adopted and applicable to us, adversely impact our effective tax rates and other tax liabilities.
Our tax returns and other tax matters are periodically examined by tax authorities and governmental bodies, including the IRS, which may disagree with positions taken by us in determining our tax liability. There can be no
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 19 |
assurance as to the outcome of these examinations. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.
RISKS RELATING TO DISCONTINUED OPERATIONS
SCCSand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC), is subject to potential contingent losses related to representationloss contingencies, including indemnification and warrantycontribution claims, which may have an adverse effect on our business and our consolidated financial condition, results of operations, and cash flows. SCC has accrued an estimated liability related to these contingent losses that may not be adequate.
SCC remains exposed to losses relating to mortgage loans it previously originated. Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers or in the form of residential mortgage-backed securities (RMBSs).
In connection with the sale of loans or RMBSs, SCC made certain representations and warranties. Claims under these representations and warranties together with any settlement arrangements related to these losses are collectively referred to as "representation and warranty claims." These representations and warranties varied based on the nature of the transaction and the buyer's or insurer's requirements, but generally pertained to the ownership of the loan, the validity of the lien securing the loan, borrower fraud, the loan's compliance with the criteria for inclusion in the transaction, including compliance with SCC's underwriting standards or loan criteria established by the buyer, ability to deliver required documentation, and compliance with applicable laws. Representations and warranties related to borrower fraud in whole loan sale transactions to institutional investors, which were generally securitized by such investors and represented approximately 68% of the disposal of loans originated in calendar years 2005, 2006 and 2007, included a "knowledge qualifier" limiting SCC's liability to those instances where SCC had knowledge of the fraud at the time the loans were sold. Representations and warranties made in other sale transactions effectively did not include a knowledge qualifier as to borrower fraud. SCC believes it would have an obligation to
|
| |
16 | 2016 Form 10-K | H&R Block, Inc.
|
repurchase a loan only if it breached a representation and warranty and such breach materially and adversely affects the value of the mortgage loan or certificate holder's interest in the mortgage loan.
The statute of limitations for a contractual claim to enforce a representation and warranty obligation is generally six years or such shorter limitations period that may apply under the law of a state where the economic injury occurred. On June 11, 2015, the New York Court of Appeals, New York's highest court, held in ACE Securities Corp. v. DB Structured Products, Inc., that the six-year statute of limitations under New York law starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the transactions into which SCC entered. However this decision would not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by agreement or a suit was timely filed.
It is possible that in response to the statute of limitations rulings in the ACE case and similar rulings in other state and federal courts, parties seeking to pursue representation and warranty claims or lawsuits with respect to trusts where the statute of limitations for representation and warranty claims against the originator has run, may seek to distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against other contractual parties such as securitization trustees.
For example, a recent ruling by a New York intermediate appellate court allowed a counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. The impact on SCC, if any, from alternative legal theories seeking to avoid or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear.
SCC entered into tolling agreements with counterparties that made a significant portion of previously denied representation and warranty claims. While these tolling agreements remain in effect, they toll the running of any applicable statute of limitations related to potential lawsuits regarding representation and warranty claims and other claims against SCC.
Development of loss estimates is subject to a high degree of management judgment and estimates may vary significantly period to period. SCC accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable. SCC has developed its estimate of losses related to representation and warranty claims based on the best information currently available, significant management judgment, and a number of factors that are subject to change, including developments in case law and the factors mentioned in Item 7, "Critical Accounting Estimates." Changes in any one of these factors could significantly impact the estimate.
SCC has accrued a liability as of April 30, 2016, for estimated contingent losses arising from representation and warranty claims of $65.3 million. If future losses are in excess of SCC's accrued liability, those losses could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows, as SCC's financial condition, results of operations and cash flows are included in our consolidated financial statements. Except where specified, the accrued liability does not include potential losses related to litigation matters discussed in the risk factor below and in Item 8, note 15 to the consolidated financial statements. Also see Item 8, note 16 to the consolidated financial statements.
SCC is subject to potential contingent losses related to securitization transactions in which SCC participated as a depositor or loan originator, which may result in significant financial losses.
Between January 2005 and November 2007, SCC originated mortgage loans totaling approximately $80 billion. Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized such loans, or in the form of RMBSs. SCC estimates approximately 90% of the loans it originated in 2005, 2006, and 2007 were securitized in approximately 110 securitization transactions. In most of these securitization transactions, SCC agreed, subject to certain conditions and limitations, to indemnify the underwriters or depositors for certain losses and expenses that the underwriters or depositors may incur as a result of certain claims made against them relating to loans originated by SCC, including certain legal expenses the underwriters or depositors incur in their defense of such claims. Some of those underwriters and depositors are defendants in lawsuits where various other parties allege a variety of claims, including violations of U.S. federal and state securities law and common law fraud based on alleged materially inaccurate or misleading disclosures, arising out of the activities of such underwriters or
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 17 |
depositors in their sale of RMBSs or mortgage loans. Based on information currently available to SCC, it believes that the 22 lawsuits in which notice of a claim for indemnification has been made involve 39 securitization transactions with original investments of approximately $14 billion (of which the outstanding principal amount is approximately $4 billion). Certain of the notices received included, and future notices may include, a reservation of rights, which are referred to as "reserved contribution rights," that encompasses a right of contribution which may become operative if indemnification is unavailable or insufficient to cover all of the losses and expenses involved. Securitization trustees also are, or have been, involved in lawsuits related to securitization transactions in which SCC participated. Plaintiffs in these lawsuits allege, among other things, that originators, depositors, servicers or other parties breached their representations and warranties or otherwise failed to fulfill their obligations, including that securitization trustees breached their contractual obligations, breached their fiduciary duties, or violated statutory requirements by failing to properly protect the certificate holders’ interests.
Because SCC has not been a party to these lawsuits (with the exception of the Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation, et al., filed in the Circuit Court of Cook County, Illinois (Case No. 10CH45033), and settled as to SCC in August 2015, and has not had control of the litigation or settlements thereof, SCC does not have precise information about the amount of damages or other remedies being asserted, the defenses to the claims in such lawsuits, or the terms of any settlements of such lawsuits. SCC therefore cannot reasonably estimate the amount of potential losses or associated fees and expenses that may be incurred in connection with such lawsuits, which may be material. Additional lawsuits against the underwriters, depositors, or securitization trustees may be filed in the future, and SCC may receive additional notices of claims for indemnification or contribution from underwriters, depositors, or securitization trustees with respect to existing or new lawsuits or settlements of such lawsuits.
In addition, other counterparties to the securitization transactions, including certificate holders and monoline insurance companies, have filed or may file lawsuits, or may assert indemnification claims, directly against depositors and loan originators in securitization transactions alleging a variety of claims, including U.S. federal and state securities law violations, common law torts and fraud and breach of contract claims, among others. Additional or new lawsuits or claims may be filed or asserted against SCC in the future.
We have not concluded that a loss related to any of these indemnification claims or reserved contribution rights is probable, have not accrued a liability for these claims or rights, and are not able to estimate a reasonably estimable possible loss or range of loss for these claims or rights. However, if SCC were required to pay material amounts with respect to these matters, it could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows, as SCC's financial condition, operating results, and cash flows are included in our consolidated financial statements. See Item 8, note 15 to the consolidated financial statements for additional information.
H&R Block has guaranteed the payment of certain limited claims against SCC.
SCC is subject to representation and warranty claims by counterparties to SCC whole loan sales and securitization transactions, including certificate holders, securitization trustees, monoline insurance companies, and subsequent purchasers of whole loans. In certain limited circumstances described below, H&R Block has outstanding guarantees of payment if claims are successfully asserted by such counterparties.
These guarantees include representation and warranty claims with respect to a limited number of whole loan sales by SCC with an aggregate outstanding principal and liquidated amount of approximately $1.0 billion as of April 30, 2016, based on the data available to SCC. There have been a total of approximately $41 million of representation and warranty claims with respect to these whole loan sales.
These guarantees also cover limited representation and warranty claims on other outstanding securitization transactions, with a potential claims exposure of less than $200 million. In addition, as is customary in divestiture transactions, H&R Block guaranteed the payment of any indemnification claims from the purchaser of SCC's servicing business, including claims relating to pre-closing services (closing occurred in 2008).
We Additionally, we could be subject to claims by the creditors of SCC.
As discussed above,Although SCC isceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC has been and may in the future be, subject to representationloss contingencies, including indemnification and warrantycontribution claims, pertaining to SCC's mortgage business activities that occurred prior to such termination and other claims and litigation related to its past sales and securitizations of mortgage loans. Additional claims and proceedings may be made in the future.sale. If
|
| |
18 | 2016 Form 10-K | H&R Block, Inc.
|
the amount that SCC is ultimately required to pay with respect to these claims, and litigation, together with related administration and legal expense, exceeds its 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 have also attempted, and may alsoin the future attempt, to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities. liabilities. SCC's principal assets, as of AprilJune 30, 2016,2023, total approximately $386$262 million and consist primarily 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. In addition, in certain limited instances, H&R Block guaranteed amounts as outlined in the above risk factor.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Most of our tax offices are operated under leases or similar agreements throughout the U.S., Canada and Australia.
We own our corporate headquarters, which is located in Kansas City, Missouri. Our Canadian executive offices are located in a leased office in Calgary, Alberta. Our Australian executive offices are located in a leased office in Thornleigh, New South Wales. Wave's headquarters are located in leased offices in Toronto, Ontario.
All current leased and owned facilities are in reasonably good repair and adequate to meet our needs.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see discussion in Item 8, note 1512 to the consolidated financial statements. ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION AND HOLDERS -– H&R Block's common stock is traded on the New York Stock Exchange (NYSE) under the symbol HRB. On MayJuly 31, 2016,2023, there were 17,70412,788 shareholders of record and the closing stock price on the NYSE was $21.36$33.61 per share.
QUARTERLY STOCK PRICES AND | | | | | |
| 20 | 2023 Form 10-K | H&R Block, Inc. |
DIVIDENDS - The quarterly information regarding H&R Block's common stock prices and dividends appears in Item 8, note 18 to the consolidated financial statements.– Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER - – A summary of our purchases of H&R Block common stock during the fourth quarter of fiscal year 20162023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in 000s, except per share amounts) |
| | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Dollar Value of Shares that May be Purchased Under the Plans or Programs (2) |
| April 1 – April 30 | | 1 | | | $ | 35.24 | | | — | | | $ | 900,000 | |
| May 1 - May 31 | | 3,024 | | | $ | 30.09 | | | 3,015 | | | $ | 809,310 | |
| June 1 - June 30 | | 3,536 | | | $ | 31.66 | | | 3,452 | | | $ | 700,000 | |
| | 6,561 | | | $ | 30.94 | | | 6,467 | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| (in 000s, except per share amounts) | |
| | | Total Number of Shares Purchased (1) |
| | Average Price Paid per Share |
| | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
| | Maximum Dollar Value of Shares that May be Purchased Under the Plans or Programs (2) |
|
| February 1 – February 29 | | — |
| | $ | 34.47 |
| | — |
| | $ | 1,608,342 |
|
| March 1 – March 31 | | 3,901 |
| | $ | 27.80 |
| | 3,899 |
| | $ | 1,500,002 |
|
| April 1 – April 30 | | 5 |
| | $ | 21.86 |
| | — |
| | $ | 1,500,002 |
|
| | | 3,906 |
| | $ | 27.80 |
| | 3,899 |
| | |
| | | | | | | | | |
| |
(1)
| We purchased approximately 7 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted shares and restricted share units.
|
| |
(2)
| In September 2015, we announced that our Board of Directors approved a $3.5 billion share repurchase program, effective through June 2019.
|
(1)We purchased approximately 94 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted share units.
(2)In August 2022, we announced that our Board of Directors approved a $1.25 billion share repurchase program, effective through June 2025. |
| |
H&R Block, Inc. | 2016 Form 10-K
| 19 |
PERFORMANCE GRAPH – The following graph compares the cumulative five-year total return provided to shareholders onof H&R Block, Inc.'s common stock relative to the cumulative total returns of the S&P 500Midcap 400 index and a selected peer group. TheWe previously used a self-selected peer group usedthat consisted of the compensation peer group disclosed in our proxy statement. Beginning in fiscal year 2023, we are using the S&P 400 Consumer Services Industry index as the included industry or line-of-business index. We believe using an index will provide more consistency than the compensation peer group disclosed in our proxy statement that is basedselected on companies with similar market capitalization or public companies in the tax return preparation industry.an annual basis.
An investment of $100, with reinvestment of all dividends, is assumed to have been made in our common stock and in each of the indexes on AprilJune 30, 2011,2018, and its relative performance is tracked through AprilJune 30, 2016.2023.
| |
Note: | The peer group includes the following companies: Intuit Inc., Blucora, Inc., Liberty Tax, Inc., CBIZ, Inc., Resources Connection, Inc., ICF International, Inc., Towers Watson & Co., Navigant Consulting, Inc., and Huron Consulting Group Inc. |
Note: The Current Year Peer Group is the S&P 400 Consumer Services Industry Index. The Prior Year Peer Group includes the following companies: ACI Worldwide Inc., Equifax Inc., Euronet Worldwide, Inc., Gartner, Inc., Genpact Limited, Global Payments Inc., Insperity, Inc., Intuit Inc., Jack Henry & Associates, Inc., Paychex, Inc., TransUnion, TriNet Group, Inc., Unisys Corporation, The Western Union Company, WEX Inc, and Workday, Inc. ITEM 6. SELECTED FINANCIAL DATA
We derived the selected consolidated financial data presented below from our audited consolidated financial statements as of and for each of the five annual periods ending April 30, 2016. Results of operations of fiscal years 2016, 2015 and 2014 are discussed in Item 7. The data set forth below should be read in conjunction with Item 7 and the consolidated financial statements in Item 8. During fiscal year 2012, we sold our previously reported Business Services segment and recorded a loss on the sale.
Not applicable.
|
| |
20 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | | | | | | |
| (in 000s, except per share amounts) | |
| April 30, | | 2016 |
| | 2015 |
| | 2014 |
| | 2013 |
| | 2012 |
|
| Revenues | | $ | 3,038,153 |
| | $ | 3,078,658 |
| | $ | 3,024,295 |
| | $ | 2,905,943 |
| | $ | 2,893,771 |
|
| Net income from continuing operations | | 383,553 |
| | 486,744 |
| | 500,097 |
| | 465,158 |
| | 345,968 |
|
| Net income | | 374,267 |
| | 473,663 |
| | 475,157 |
| | 433,948 |
| | 265,932 |
|
| Basic earnings per share: | | | | | | | | | | |
| Net income from continuing operations | | $ | 1.54 |
| | $ | 1.77 |
| | $ | 1.82 |
| | $ | 1.70 |
| | $ | 1.16 |
|
| Net income | | 1.50 |
| | 1.72 |
| | 1.73 |
| | 1.59 |
| | 0.89 |
|
| Diluted earnings per share: | | | | | | | | | | |
| Net income from continuing operations | | $ | 1.53 |
| | $ | 1.75 |
| | $ | 1.81 |
| | $ | 1.69 |
| | $ | 1.16 |
|
| Net income | | 1.49 |
| | 1.71 |
| | 1.72 |
| | 1.58 |
| | 0.89 |
|
| Total assets | | $ | 2,857,775 |
| | $ | 4,515,420 |
| | $ | 4,693,529 |
| | $ | 4,537,779 |
| | $ | 4,649,567 |
|
Long-term debt (1) | | 1,502,751 |
| | 506,088 |
| | 906,474 |
| | 906,680 |
| | 1,040,549 |
|
| Stockholders’ equity | | 23,103 |
| | 1,832,949 |
| | 1,556,549 |
| | 1,263,547 |
| | 1,325,892 |
|
| Shares outstanding | | 220,517 |
| | 275,275 |
| | 274,228 |
| | 272,635 |
| | 292,119 |
|
| Dividends per share | | $ | 0.80 |
| | $ | 0.80 |
| | $ | 0.80 |
| | $ | 0.80 |
| | $ | 0.70 |
|
| | | | | | | | | | | |
| |
(1)H&R Block, Inc. | 2023 Form 10-K
| Includes current portion of long-term debt.21 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
DIVESTITURE OF H&R BLOCK BANK – On August 31, 2015 we completed the P&A Transaction. Subsequent to the closing of the P&A Transaction, neither we nor any of our subsidiaries is subject to minimum regulatory capital requirements or to regulation as a bank by the OCC, nor are our Holding Companies subject to regulatory capital requirements applicable to SLHCs or to regulation by the Federal Reserve.
Subsequent to the closing of the P&A Transaction, BofI began to offer certain H&R Block-branded financial products and services that we distribute to our clients. As a result of agreements we entered into with BofI for the offering of such products and services, and our sale of AFS securities previously held by HRB Bank, our fiscal year 2016 revenues declined approximately $20 million and pretax income from continuing operations declined approximately $35 million compared with the prior year. In addition, as a result of the deregistration of our Holding Companies as SLHCs (see Item 1, under "Recent Developments"), effective September 1, 2015 we began to report interest income on investments as other income rather than revenue. This financial reporting change had no impact on earnings, but reduced fiscal 2016 revenues by approximately $9 million when compared to fiscal 2015, resulting in a total revenue decline of $29 million related to the divestiture of HRB Bank.
See additional discussion of the P&A Transaction in Item 1 under "Recent Developments" and in Item 8, note 2 to the consolidated financial statements.
CAPITAL STRUCTURE – On September 1, 2015, we announced our intent to establish a new capital structure, including the repurchase of shares, the issuance of debt and entering into a new CLOC. In connection with that plan, we issued Senior Notes in the principal amount of $1.0 billion and repurchased 56.4 million shares of our common stock during fiscal year 2016.
See additional discussion of our new capital structure in Item 1 under "Recent Developments," in Item 7 under "Capital Resources and Liquidity" and in Item 8 note 8 and note 10 to the consolidated financial statements.
FINANCIAL OVERVIEW
A summary of our fiscal year 2016 results is as follows:
| |
▪ | Revenues decreased $40.5 million, or 1.3%, compared to the prior year. Revenues were negatively impacted by a 5.8% decline in assisted tax returns prepared (company-owned and franchise offices combined), changes in foreign currency exchange rates, and the operational and financial reporting impacts of our divestiture of
|
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 21 |
HRB Bank, as described above. These negative impacts were partially offset by our acquisition of franchisee businesses and favorable pricing and mix changes.
| |
▪ | Pretax earnings fell $173.3 million, or 23.3%, due primarily to lower client volumes, operational impacts of BofI offering certain financial products and services, incremental marketing spend, and costs associated with changes to our capital structure including the divestiture of HRB Bank.
|
| |
▪ | Net income from continuing operations declined $103.2 million or 21.2% compared with the prior year. Diluted earnings per share from continuing operations decreased 12.6% from the prior year to $1.53 due to a 21.2% decline in net income, partially offset by a 9.5% decline in weighted average shares outstanding.
|
| |
▪ | Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) decreased $136.3 million, or 14.4%, to $812.2 million. Adjusted EBITDA decreased $112.4 million, or 11.8%, to $838.7 million. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.
|
RESULTS OF OPERATIONS
Our subsidiaries provide assisted and DIY tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute the H&R Block-branded financial products and services, including those of BofI.our bank partners, to the general public primarily in the U.S., Canada and Australia. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or virtually via the internet)an internet review) or prepared and filed by our clients through our DIY tax solutions. We operate asalso offer small business solutions through our company-owned and franchise offices and online through Wave. We report a single segment that includes all of our continuing operations, which are designedoperations.
This year's tax filing season was expected to enable clientsreturn to obtainnormal with the pandemic largely behind us, no new federal programs, a large number of stimulus filers having left the industry in the prior year, and strong employment. Generally, tax return volume was expected to increase compared to the prior year, however, the industry volume declined year over year due to more stimulus filers not returning and the tax deadline being extended in certain states due to natural disasters.
In fiscal year 2023, revenue increased $8.9 million over the prior year, despite the decline in industry volume. U.S. assisted tax preparation revenues were higher $72.5 million primarily due to an increase in net average charge. Lower Emerald Card® revenues, which is the result of the discontinuance of prior year federal programs, and lower Refund Transfer volume partially offset this increase. Operating expenses increased $5.1 million primarily due to higher labor costs, which was partially offset by lower consulting and outsourced services seamlessly.expenses. Higher interest income and lower interest expense on borrowings resulted in an increase in income from continuing operations before income taxes of $52.1 million, or 7.9%. Income tax expense increased $51.0 million, or 51.8%, due to a higher effective tax rate in the current year. Net income from continuing operations of $561.8 million increased $1.2 million from the prior year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year 2023 Compared to Fiscal Year 2022 |
| | | | | | | | | | | | |
| Revenues | | Operating Expenses | | Net Income from Continuing Operations |
| $3.47B | | 0.3% | | $2.72B | | 0.2% | | $561.8M | | 0.2% |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Diluted EPS from Continuing Operations | | EBITDA(1) from Continuing Operations |
| $3.56 | Reported: | | 9.2% | | | $914.7M | | | 2.8% | |
| | | | | |
| $3.82 | Adjusted(1): | | 8.8% | | | | |
| | | | | |
| | | | | | | | | | | | |
| | |
| | | | | | | | | | | | |
Fiscal Year End
On June 9, 2021, the Board of Directors approved a change in the Company's fiscal year end from April 30 to June 30. The Company's transition period was from May 1, 2021 to June 30, 2021 (Transition Period).
|
| | | | | | | | | |
| Operating Statistics | | | | | | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
TAX RETURNS PREPARED : (in 000s) | | | | | | |
| United States: | | | | | | |
| Company-owned operations | | 8,103 |
| | 8,327 |
| | 8,342 |
|
| Franchise operations | | 4,159 |
| | 4,688 |
| | 5,268 |
|
| Total assisted returns | | 12,262 |
| | 13,015 |
| | 13,610 |
|
| Desktop | | 2,085 |
| | 2,168 |
| | 2,026 |
|
| Online | | 4,670 |
| | 4,765 |
| | 4,389 |
|
| Free File Alliance | | 678 |
| | 676 |
| | 767 |
|
| Total tax software | | 7,433 |
| | 7,609 |
| | 7,182 |
|
| Total U.S. returns | | 19,695 |
| | 20,624 |
| | 20,792 |
|
| International operations: | | | | | | |
Canada (1) | | 2,551 |
| | 2,658 |
| | 2,642 |
|
| Australia | | 769 |
| | 768 |
| | 746 |
|
| Other | | 153 |
| | 115 |
| | 21 |
|
| Total international operations | | 3,473 |
| | 3,541 |
| | 3,409 |
|
| Tax returns prepared worldwide | | 23,168 |
| | 24,165 |
| | 24,201 |
|
| | | | | | | |
TAX OFFICES (at the peak of the tax season): | | | | | | |
| U.S. offices: | | | | | | |
| Total company-owned offices | | 6,614 |
| | 6,365 |
| | 6,086 |
|
| Total franchise offices | | 3,599 |
| | 3,921 |
| | 4,292 |
|
| Total U.S. offices | | 10,213 |
| | 10,286 |
| | 10,378 |
|
International offices: | | | | | | |
| Canada | | 1,282 |
| | 1,231 |
| | 1,179 |
|
| Australia | | 438 |
| | 433 |
| | 409 |
|
| Total international offices | | 1,720 |
| | 1,664 |
| | 1,588 |
|
| Tax offices worldwide | | 11,933 |
| | 11,950 |
| | 11,966 |
|
| | | | | | | |
| |
(1)
| In fiscal years 2016, 2015 and 2014, the end of the Canadian tax season was extended from April 30 into May. Tax returns prepared in Canada in fiscal years 2016, 2015 and 2014 includes approximately 93 thousand, 131 thousand and 141 thousand returns, respectively, in both company-owned and franchise offices which were accepted by the client after April 30. The revenues related to these returns were recognized in fiscal years 2017, 2016 and 2015, respectively. |
|
| | | | |
| 22 | 20162023 Form 10-K | H&R Block, Inc.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated – Financial Results | | | | | | (in 000s, except per share amounts) |
| Year ended June 30, | | 2023 | | 2022 | | $ Change | | % Change |
| Revenues: | | | | | | | | |
| U.S. tax preparation and related services: | | | | | | | | |
| Assisted tax preparation | | $ | 2,167,138 | | | $ | 2,094,612 | | | $ | 72,526 | | | 3.5 | % |
| Royalties | | 210,631 | | | 225,242 | | | (14,611) | | | (6.5) | % |
| DIY tax preparation | | 314,758 | | | 319,086 | | | (4,328) | | | (1.4) | % |
| Refund Transfers | | 143,310 | | | 162,893 | | | (19,583) | | | (12.0) | % |
| Peace of Mind® Extended Service Plan | | 95,181 | | | 94,637 | | | 544 | | | 0.6 | % |
| Tax Identity Shield® | | 38,265 | | | 39,114 | | | (849) | | | (2.2) | % |
| Other | | 45,252 | | | 45,961 | | | (709) | | | (1.5) | % |
| Total U.S. tax preparation and related services | | 3,014,535 | | | 2,981,545 | | | 32,990 | | | 1.1 | % |
| Financial services: | | | | | | | | |
Emerald Card® and SpruceSM | | 84,651 | | | 125,444 | | | (40,793) | | | (32.5) | % |
Interest and fee income on Emerald AdvanceSM | | 47,554 | | | 43,981 | | | 3,573 | | | 8.1 | % |
| Total financial services | | 132,205 | | | 169,425 | | | (37,220) | | | (22.0) | % |
| International | | 235,131 | | | 231,335 | | | 3,796 | | | 1.6 | % |
| Wave | | 90,314 | | | 80,965 | | | 9,349 | | | 11.5 | % |
| Total revenues | | $ | 3,472,185 | | | $ | 3,463,270 | | | $ | 8,915 | | | 0.3 | % |
| Compensation and benefits: | | | | | | | | |
| Field wages | | 841,742 | | | 808,903 | | | (32,839) | | | (4.1) | % |
| Other wages | | 273,850 | | | 284,689 | | | 10,839 | | | 3.8 | % |
| Benefits and other compensation | | 220,530 | | | 206,902 | | | (13,628) | | | (6.6) | % |
| | 1,336,122 | | | 1,300,494 | | | (35,628) | | | (2.7) | % |
| Occupancy | | 428,167 | | | 413,162 | | | (15,005) | | | (3.6) | % |
| Marketing and advertising | | 286,255 | | | 284,244 | | | (2,011) | | | (0.7) | % |
| Depreciation and amortization | | 130,501 | | | 142,178 | | | 11,677 | | | 8.2 | % |
| Bad debt | | 60,401 | | | 71,778 | | | 11,377 | | | 15.9 | % |
| | | | | | | | |
| Other | | 482,041 | | | 506,517 | | | 24,476 | | | 4.8 | % |
| Total operating expenses | | 2,723,487 | | | 2,718,373 | | | (5,114) | | | (0.2) | % |
| Other income (expense), net | | 35,492 | | | 2,454 | | | 33,038 | | | 1,346.3 | % |
| Interest expense on borrowings | | (72,978) | | | (88,282) | | | 15,304 | | | 17.3 | % |
| Income from continuing operations before income taxes | | 711,212 | | | 659,069 | | | 52,143 | | | 7.9 | % |
| Income taxes | | 149,412 | | | 98,423 | | | (50,989) | | | (51.8) | % |
| Net income from continuing operations | | 561,800 | | | 560,646 | | | 1,154 | | | 0.2 | % |
| Net loss from discontinued operations | | (8,100) | | | (6,972) | | | (1,128) | | | (16.2) | % |
| Net income | | $ | 553,700 | | | $ | 553,674 | | | $ | 26 | | | — | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| DILUTED EARNINGS PER SHARE: | | | | | | | | |
| Continuing operations | | $ | 3.56 | | | $ | 3.26 | | | $ | 0.30 | | | 9.2 | % |
| Discontinued operations | | (0.05) | | | (0.04) | | | (0.01) | | | (25.0) | % |
| Consolidated | | $ | 3.51 | | | $ | 3.22 | | | $ | 0.29 | | | 9.0 | % |
Adjusted diluted EPS(1) | | $ | 3.82 | | | $ | 3.51 | | | $ | 0.31 | | | 8.8 | % |
EBITDA(1) | | $ | 914,691 | | | $ | 889,529 | | | $ | 25,162 | | | 2.8 | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Consolidated – Financial Results | | | | | | (in 000s, except per share amounts) | |
| Year ended April 30, | | 2016 | | 2015 | | $ Change | | % Change |
| Tax preparation fees: | | | | | | | | |
| U.S. assisted | | $ | 1,890,175 |
| | $ | 1,865,438 |
| | $ | 24,737 |
| | 1.3 | % |
| International | | 190,527 |
| | 207,772 |
| | (17,245 | ) | | (8.3 | )% |
| U.S. DIY | | 234,341 |
| | 231,854 |
| | 2,487 |
| | 1.1 | % |
| | | 2,315,043 |
| | 2,305,064 |
| | 9,979 |
| | 0.4 | % |
| Royalties | | 266,418 |
| | 292,743 |
| | (26,325 | ) | | (9.0 | )% |
| Revenues from Refund Transfers | | 165,152 |
| | 171,094 |
| | (5,942 | ) | | (3.5 | )% |
| Revenues from Emerald Card® | | 92,608 |
| | 103,300 |
| | (10,692 | ) | | (10.4 | )% |
| Revenues from Peace of Mind® Extended Service Plan | | 86,830 |
| | 81,551 |
| | 5,279 |
| | 6.5 | % |
| Interest and fee income on Emerald Advance | | 57,268 |
| | 57,202 |
| | 66 |
| | 0.1 | % |
| Other | | 54,834 |
| | 67,704 |
| | (12,870 | ) | | (19.0 | )% |
| Total revenues | | 3,038,153 |
| | 3,078,658 |
| | (40,505 | ) | | (1.3 | )% |
| | | | | | | | | |
| Compensation and benefits: | | | | | | | | |
| Field wages | | 724,019 |
| | 731,309 |
| | (7,290 | ) | | (1.0 | )% |
| Other wages | | 166,445 |
| | 176,697 |
| | (10,252 | ) | | (5.8 | )% |
| Benefits and other compensation | �� | 183,512 |
| | 183,001 |
| | 511 |
| | 0.3 | % |
| | | 1,073,976 |
| | 1,091,007 |
| | (17,031 | ) | | (1.6 | )% |
| Occupancy and equipment | | 405,493 |
| | 375,743 |
| | 29,750 |
| | 7.9 | % |
| Marketing and advertising | | 297,762 |
| | 273,682 |
| | 24,080 |
| | 8.8 | % |
| Depreciation and amortization | | 173,598 |
| | 159,804 |
| | 13,794 |
| | 8.6 | % |
| Bad debt | | 75,395 |
| | 74,993 |
| | 402 |
| | 0.5 | % |
| Supplies | | 36,340 |
| | 42,872 |
| | (6,532 | ) | | (15.2 | )% |
| Other | | 342,397 |
| | 265,891 |
| | 76,506 |
| | 28.8 | % |
| Total operating expenses | | 2,404,961 |
| | 2,283,992 |
| | 120,969 |
| | 5.3 | % |
| Other income | | 17,701 |
| | 1,314 |
| | 16,387 |
| | ** |
|
| Interest expense on borrowings | | (68,962 | ) | | (45,246 | ) | | (23,716 | ) | | (52.4 | )% |
| Other expenses | | (12,452 | ) | | (7,929 | ) | | (4,523 | ) | | (57.0 | )% |
| Pretax income | | 569,479 |
| | 742,805 |
| | (173,326 | ) | | (23.3 | )% |
| Income taxes | | 185,926 |
| | 256,061 |
| | (70,135 | ) | | (27.4 | )% |
| Net income from continuing operations | | 383,553 |
| | 486,744 |
| | (103,191 | ) | | (21.2 | )% |
| Net loss from discontinued operations | | (9,286 | ) | | (13,081 | ) | | 3,795 |
| | 29.0 | % |
| Net income | | $ | 374,267 |
| | $ | 473,663 |
| | $ | (99,396 | ) | | (21.0 | )% |
| | | | | | | | | |
| Basic earnings (loss) per share: | | | | | | | | |
| Continuing operations | | $ | 1.54 |
| | $ | 1.77 |
| | $ | (0.23 | ) | | (13.0 | )% |
| Discontinued operations | | (0.04 | ) | | (0.05 | ) | | 0.01 |
| | 20.0 | % |
| Consolidated | | $ | 1.50 |
| | $ | 1.72 |
| | $ | (0.22 | ) | | (12.8 | )% |
| | | | | | | | | |
| Diluted earnings (loss) per share: | | | | | | |
| Continuing operations | | $ | 1.53 |
| | $ | 1.75 |
| | $ | (0.22 | ) | | (12.6 | )% |
| Discontinued operations | | (0.04 | ) | | (0.04 | ) | | — |
| | — | % |
| Consolidated | | $ | 1.49 |
| | $ | 1.71 |
| | $ | (0.22 | ) | | (12.9 | )% |
| | | | | | | | | |
EBITDA from continuing operations (1) | | $ | 812,218 |
| | $ | 948,537 |
| | $ | (136,319 | ) | | (14.4 | )% |
EBITDA from continuing operations - adjusted (1) | | 838,654 |
| | 951,006 |
| | (112,352 | ) | | (11.8 | )% |
| | | | | | | | | |
| |
(1)
| See "Non-GAAP Financial Information"(1) All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures. |
FISCAL 2016 COMPARED TO FISCAL 2015
Revenues decreased $40.5 million, or 1.3%, compared to the prior year.
U.S. assisted tax preparation fees increased $24.7 million, or 1.3%, while royalty revenues declined $26.3 million, or 9.0%. We acquiredend of this item for a numberreconciliation of franchisee businesses during the year, and declines in royalty revenues are due
non-GAAP measures.
|
| | | | |
H&R Block, Inc. | 20162023 Form 10-K | 23 |
FISCAL YEAR 2023 COMPARED TO FISCAL YEAR 2022
primarily to the associated loss of royalties when those businesses are acquired, and to a lesser extent a decline in client volumes served by franchise offices. The increase in U.S. assisted tax preparation fees is primarily the result of revenues from acquired franchise businesses and price increases, offset by a decline in tax returns prepared in company-owned offices. Return counts in our company-owned offices, excluding the impact of returns prepared in those offices resulting from acquired franchisee businesses, declined 6.2% from the prior year. We acquired 260 franchise offices in fiscal year 2016 and 350 franchise offices in fiscal year 2015. We expect to continue to acquire franchisee businesses in the future, but at levels below fiscal years 2016 and 2015.
International tax preparation fees decreased $17.2Revenues increased $8.9 million, or 8.3%. The decrease was driven by a $23.0 million decline resulting from unfavorable changes in foreign currency exchange rates, partially offset by favorable volume and price changes.
Fees from our U.S. DIY business increased $2.5 million, or 1.1%, as improved monetization for new and existing clients coupled with an increase in product attach rates were partially offset by a 2.6% decrease in paid returns.
Fees earned on RTs decreased $5.9 million, or 3.5%, primarily due to lower assisted return volumes.
Revenues from H&R Block Emerald Prepaid MasterCard® transactions decreased $10.7 million, or 10.4%, primarily due to our agreement with BofI and lower assisted return volumes.
Revenue from fees for our POM is initially deferred, and recognized over the term of the service plan based on actual claims paid in relation to projected claims. Revenue increased $5.3 million, or 6.5%, primarily due to a change in projected claims that resulted in an increase in revenue recognized last year.
Other revenues declined $12.9 million, or 19.0%, primarily due to the presentation of income from our mortgage loan portfolio and investments in AFS securities as other income in the current year rather than as revenue in the prior year. See Item 8, note 1 to the consolidated financial statements.
Total operating expenses increased $121.0 million, or 5.3%0.3%, from the prior year. Total compensation and benefits decreased $17.0 million primarily due to a decline in short-term incentive compensation and the impact of changes in foreign currency exchange rates. Occupancy and equipment expensesU.S. assisted tax preparation revenues increased $29.8$72.5 million, or 7.9%3.5%, primarily due to a 4.0% increase in company-owned offices resulting from acquisitions of franchisee and competitor businesses. Marketing and advertising expenses increased $24.1net average charge, partially offset by lower tax return volumes in the current year. U.S. royalties revenue decreased $14.6 million, or 6.5%, due to planned increaseslower volumes, partially offset by a higher net average charge in the current year. During the year we purchased franchise offices which results in increasing tax season spend, includingpreparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition. Through the year ended June 30, 2023, our sweepstakes campaign. Depreciationtotal assisted tax return volume, which includes both company-owned and amortization expense increased $13.8franchise offices, decreased 3.2% from the prior year.
U.S. DIY tax preparation revenues decreased $4.3 million, or 8.6%1.4%, due to a decline in online paid returns and lower software sales in the current year. Refund Transfer revenues decreased $19.6 million, or 12.0%, due to fewer Refund Transfers in the current year.
Emerald Card® and SpruceSM revenues decreased $40.8 million, or 32.5%, primarily due to acquisitions of franchisee and competitor businesses. Other expenses increased $76.5 million, or 28.8%, primarily due to costs totaling $20.7 million associated with capital transactions and the divestiture of HRB Bank, fees paid to BofI for products and services they offer to our clients, and increased litigation and consulting expenses.
Other income increased $16.4 million primarily due to the inclusion of interest income on our mortgage loan portfolio and AFS securities (reported as revenue in the prior period), as discussed above and in Item 8, note 1 to the consolidated financial statements. Interest expense increased $23.7 million, or 52.4%, due primarily to issuance of our Senior Notes in September 2015 in the aggregate principal amount of $1.0 billion.
Pretax income for fiscal year 2016 decreased $173.3 million, or 23.3%, over the prior year. The pretax margin decreased to 18.7% in fiscal year 2016 from 24.1% in fiscal year 2015. Net income from continuing operations declined $103.2 million or 21.2% compared with the prior year. Diluted earnings per share from continuing operations decreased 12.6% from the prior year to $1.53 due to a 21.2% decline in net income, partially offset by a 9.5% decline in weighted average shares outstanding.
The net loss from our discontinued operations totaled $9.3 million for the current year, compared to a net loss of $13.1 million in the prior year. Pretax losses of mortgage operations totaled $18.6 million, compared to $27.1 millionhigher Emerald Card® activity in the prior year, which was the result of the IRS loading Child Tax Credits monthly to Emerald Cards® and resulted primarily from litigation expenses and provisions related to SCC's estimated contingent losses for representation and warranty claims of $4.0 million and $16.0 million for fiscal years 2016 and 2015, respectively.
|
| |
24 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | |
| Consolidated – Financial Results | | | | | | (in 000s, except per share amounts) | |
| Year ended April 30, | | 2015 | | 2014 | | $ Change | | % Change |
| Tax preparation fees: | | | | | | | | |
| U.S. assisted | | $ | 1,865,438 |
| | $ | 1,794,043 |
| | $ | 71,395 |
| | 4.0 | % |
| International | | 207,772 |
| | 200,152 |
| | 7,620 |
| | 3.8 | % |
| U.S. DIY | | 231,854 |
| | 206,516 |
| | 25,338 |
| | 12.3 | % |
| | | 2,305,064 |
| | 2,200,711 |
| | 104,353 |
| | 4.7 | % |
| Royalties | | 292,743 |
| | 316,153 |
| | (23,410 | ) | | (7.4 | )% |
| Revenues from Refund Transfers | | 171,094 |
| | 181,394 |
| | (10,300 | ) | | (5.7 | )% |
| Revenues from Emerald Card® | | 103,300 |
| | 103,730 |
| | (430 | ) | | (0.4 | )% |
| Revenues from Peace of Mind® Extended Service Plan | | 81,551 |
| | 89,685 |
| | (8,134 | ) | | (9.1 | )% |
| Interest and fee income on Emerald Advance | | 57,202 |
| | 56,877 |
| | 325 |
| | 0.6 | % |
| Other | | 67,704 |
| | 75,745 |
| | (8,041 | ) | | (10.6 | )% |
| Total revenues | | 3,078,658 |
| | 3,024,295 |
| | 54,363 |
| | 1.8 | % |
| | | | | | | | | |
| Compensation and benefits: | | | | | | | | |
| Field wages | | 731,309 |
| | 702,312 |
| | 28,997 |
| | 4.1 | % |
| Other wages | | 176,697 |
| | 192,580 |
| | (15,883 | ) | | (8.2 | )% |
| Benefits and other compensation | | 183,001 |
| | 171,510 |
| | 11,491 |
| | 6.7 | % |
| | | 1,091,007 |
| | 1,066,402 |
| | 24,605 |
| | 2.3 | % |
| Occupancy and equipment | | 375,743 |
| | 365,036 |
| | 10,707 |
| | 2.9 | % |
| Marketing and advertising | | 273,682 |
| | 238,763 |
| | 34,919 |
| | 14.6 | % |
| Depreciation and amortization | | 159,804 |
| | 115,604 |
| | 44,200 |
| | 38.2 | % |
| Bad debt | | 74,993 |
| | 80,007 |
| | (5,014 | ) | | (6.3 | )% |
| Supplies | | 42,872 |
| | 36,527 |
| | 6,345 |
| | 17.4 | % |
| Other | | 265,891 |
| | 303,466 |
| | (37,575 | ) | | (12.4 | )% |
| Total operating expenses | | 2,283,992 |
| | 2,205,805 |
| | 78,187 |
| | 3.5 | % |
| Other income | | 1,314 |
| | 36,315 |
| | (35,001 | ) | | (96.4 | )% |
| Interest expense on borrowings | | (45,246 | ) | | (55,279 | ) | | 10,033 |
| | 18.1 | % |
| Other expenses | | (7,929 | ) | | (32,410 | ) | | 24,481 |
| | 75.5 | % |
| Pretax income | | 742,805 |
| | 767,116 |
| | (24,311 | ) | | (3.2 | )% |
| Income taxes | | 256,061 |
| | 267,019 |
| | (10,958 | ) | | (4.1 | )% |
| Net income from continuing operations | | 486,744 |
| | 500,097 |
| | (13,353 | ) | | (2.7 | )% |
| Net loss from discontinued operations | | (13,081 | ) | | (24,940 | ) | | 11,859 |
| | 47.6 | % |
| Net income | | $ | 473,663 |
| | $ | 475,157 |
| | $ | (1,494 | ) | | (0.3 | )% |
| | | | | | | �� | | |
| Basic earnings (loss) per share: | | | | | | | | |
| Continuing operations | | $ | 1.77 |
| | $ | 1.82 |
| | $ | (0.05 | ) | | (2.7 | )% |
| Discontinued operations | | (0.05 | ) | | (0.09 | ) | | 0.04 |
| | 44.4 | % |
| Consolidated | | $ | 1.72 |
| | $ | 1.73 |
| | $ | (0.01 | ) | | (0.6 | )% |
| | | | | | | | | |
| Diluted earnings (loss) per share: | | | | | | | | |
| Continuing operations | | $ | 1.75 |
| | $ | 1.81 |
| | $ | (0.06 | ) | | (3.3 | )% |
| Discontinued operations | | (0.04 | ) | | (0.09 | ) | | 0.05 |
| | 55.6 | % |
| Consolidated | | $ | 1.71 |
| | $ | 1.72 |
| | $ | (0.01 | ) | | (0.6 | )% |
| | | | | | | | | |
EBITDA from continuing operations (1) | | $ | 948,537 |
| | $ | 940,108 |
| | $ | 8,429 |
| | 0.9 | % |
EBITDA from continuing operations - adjusted (1) | | 951,006 |
| | $ | 932,329 |
| | 18,677 |
| | 2.0 | % |
| | | | | | | | | |
| |
(1)
| See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures. |
FISCAL 2015 COMPARED TO FISCAL 2014
Revenueslower Refund Transfer volume in the current year. Wave revenues increased $54.4$9.3 million, or 1.8%11.5%, compared to fiscal year 2014. U.S. assisted tax preparation fees increased $71.4 million, or 4.0%, while royalty revenues declined $23.4 million, or 7.4%, almost entirely due to acquisitions of franchisee businesses. Return counts in our company-owned offices, excluding returns prepared in those offices acquired during fiscal year 2015, declined 4.6% from fiscal year 2014.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 25 |
International tax preparation fees increased $7.6 million, or 3.8%, due primarily to pricing changes, partially offset by unfavorable exchange rates.
Tax preparation fees from our U.S. DIYhigher small business increased $25.3 million, or 12.3%, primarily due to an 8.1% increase in paid returns. The remaining increase was due to better monetization of new and existing clients and a higher number of more complicated returns.
Fees earned on RTs decreased $10.3 million, or 5.7%, primarily due to lower assisted returnpayments processing volumes.
Revenue from fees for our POM is initially deferred, and recognized over the term of the service plan based on actual claims paid in relation to projected claims. Revenue decreased $8.1 million, or 9.1%, in fiscal year 2015 primarily due to a change in projected claims that resulted in an increase in revenue recognized in fiscal year 2014.
Total operating expenses increased $78.2$5.1 million, or 3.5%0.2%, from fiscal year 2014. Total compensation and benefitsthe prior year. Field wages increased $24.6$32.8 million, or 4.1%, primarily due to higher variable field wages resulting from increased revenues and increased training costs. Occupancy and equipment expenses increased $10.7in the current year. Other wages decreased $10.8 million, or 2.9%3.8%, due to lower corporate bonuses in the current year. Benefits and other compensation increased $13.6 million, or 6.6%, due to higher payroll taxes and employee insurance.
Occupancy expense increased $15.0 million or 3.6%, primarily due to a 4.6% increase in company-owned offices resulting from franchise acquisitions. Marketinghigher rent and advertising expenses increased $34.9 million due to a planned increase in national advertising.office repairs. Depreciation and amortization expense increased $44.2decreased $11.7 million, or 38.2%8.2%, due primarily to lower amortization of acquired intangibles. Bad debt expense decreased $11.4 million, or 15.9%, primarily due to acquisitions of franchiseefewer Refund Transfers and competitor businesses and improvementslower bad debt rates compared to existing offices. the prior year.
Other operating expenses decreased $37.6$24.5 million, or 12.4%4.8%. The components of other expenses are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | (in 000s) |
| Year ended June 30, | | 2023 | | 2022 | | $ Change | | % Change |
| Consulting and outsourced services | | $ | 109,120 | | | $ | 136,397 | | | $ | 27,277 | | | 20.0 | % |
| Bank partner fees | | 24,108 | | | 26,648 | | | 2,540 | | | 9.5 | % |
| Client claims and refunds | | 29,484 | | | 31,814 | | | 2,330 | | | 7.3 | % |
| Employee and travel expenses | | 39,262 | | | 31,714 | | | (7,548) | | | (23.8) | % |
| Technology-related expenses | | 102,753 | | | 97,934 | | | (4,819) | | | (4.9) | % |
| Credit card/bank charges | | 96,074 | | | 90,209 | | | (5,865) | | | (6.5) | % |
| Insurance | | 8,806 | | | 15,224 | | | 6,418 | | | 42.2 | % |
| Legal fees and settlements | | 12,058 | | | 19,625 | | | 7,567 | | | 38.6 | % |
| Supplies | | 29,278 | | | 28,846 | | | (432) | | | (1.5) | % |
| Other | | 31,098 | | | 28,106 | | | (2,992) | | | (10.6) | % |
| | $ | 482,041 | | | $ | 506,517 | | | $ | 24,476 | | | 4.8 | % |
| | | | | | | | |
Consulting and outsourced services expense decreased $27.3 million, or 20.0%, primarilydue to higher spend in the prior year related to our strategic imperatives, and lower call center volumes and Emerald Card® data processing in the current year. Employee and travel expenses increased $7.5 million, or 23.8%, due to more travel in the current year. Insurance expense decreased $6.4 million, or 42.2%, due to due to favorable developments in insurance loss reserves. Legal fees and settlements expense decreased $7.6 million, or 38.6%, due to lower litigation and consulting costsfees in the current year.
Other income declined $35.0(expense), net increased $33.0 million primarily due to higher interest income and income from a gainlegal settlement in the current year. Interest expense on borrowings decreased $15.3 million, or 17.3%, due to the repayment of $18.3our $500 million 5.500% Senior Notes in May 2022, partially offset by higher interest expense on our CLOC borrowings in the salecurrent year.
| | | | | |
| 24 | 2023 Form 10-K | H&R Block, Inc. |
We recorded income tax expense of residual interests$149.4 million in mortgage securitizationsthe current year compared to $98.4 million in the prior year. The increase is due to higher pretax income and a $10.1 million gain oneffective tax rate in the salecurrent year. The effective tax rate for the year ended June 30, 2023, and 2022 was 21.0% and 14.9%, respectively. See Item 8, note 9 to the consolidated financial statements for additional discussion. See the discussion of an intangible customer list, which were both recognizedloss contingencies related to our discontinued operations inItem 1A, Risk Factors and in Item 8, note 12 to the consolidated financial statements. YEAR ENDED APRIL 30, 2021 COMPARED TO YEAR ENDED APRIL 30, 2020
The comparison of the year ended April 30, 2021 to April 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year 2014. Interest expense declined $10.0ended June 30, 2022, filed on August 16, 2022.
TWO MONTHS ENDED JUNE 30, 2021 COMPARED TO TWO MONTHS ENDED JUNE 30, 2020
The comparison of the two months ended June 30, 2021 to the two months ended June 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2022, filed on August 16, 2022.
FINANCIAL CONDITION
These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Item 8. CAPITAL RESOURCES AND LIQUIDITY –
OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.
Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs.
Given the likely availability of a number of liquidity options discussed herein, we believe that in the absence of any unexpected developments, our existing sources of capital as of June 30, 2023 are sufficient to meet our future operating and financing needs.
DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for fiscal year 2023 and 2022. See Item 8 for the complete consolidated statements of cash flows for these periods. | | | | | | | | | | | | | | | | |
| | (in 000s) | | |
| Year ended June 30, | | 2023 | | 2022 | | |
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 821,841 | | | $ | 808,537 | | | |
| Investing activities | | (101,389) | | | (76,541) | | | |
| Financing activities | | (750,992) | | | (1,257,346) | | | |
| Effects of exchange rates on cash | | (4,857) | | | (8,101) | | | |
| Net decrease in cash and cash equivalents, including restricted balances | | $ | (35,397) | | | $ | (533,451) | | | |
| | | | | | |
Operating Activities. Cash provided by operating activities totaled $821.8 million or 18.1%, for the year ended June 30, 2023 compared to $808.5 million in the prior year period. The change is primarily due to the receipt of income tax receivables in the current year, partially offset by lower bonus accruals in the current year.
Investing Activities. Cash used in investing activities totaled $101.4 million for the year ended June 30, 2023 compared to $76.5 million for the prior year period. The increase is primarily due to higher payments to acquire businesses and capital expenditures in the current year.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 25 |
Financing Activities. Cash used in financing activities totaled $751.0 million for the year ended June 30, 2023 compared to $1.3 billion for the prior year period. The change is primarily due to repayment of our $500 million 5.500% Senior Notes in the prior year.
CASH REQUIREMENTS –
Dividends and Share Repurchase. Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan.
We have consistently paid quarterly dividends. Dividends paid totaled $177.9 million and $186.5 million in the years ended June 30, 2023 and 2022, respectively. Although we have historically paid dividends and plan to continue to do so, there can be no assurances that maturedcircumstances will not change in October 2014. Other expenses declined $24.5 million primarily duethe future that could affect our ability or decisions to an other-than-temporary impairment on AFS securitiespay dividends.
In August 2022, the Board of $12.4 million recorded inDirectors approved a $1.25 billion share repurchase program, effective through fiscal year 2014, coupled with a decline2025. During the year ended June 30, 2023, we repurchased $550.2 million of $12.3our common stock at an average price of $37.59 per share. In the prior year, we repurchased $550.3 million in foreign currency losses.
The net loss fromof our discontinued operations totaled $13.1common stock at an average price of $23.84 per share. Our share repurchase program has remaining authorization of $700.0 million forwhich is effective through fiscal year 2015, compared2025.
Share repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend, or extend the time period for the purchase of shares at any time. Any repurchases will be funded primarily through available cash and cash from operations. Although we may continue to a net loss of $24.9 million in fiscal year 2014. Pretax losses of mortgage operations totaled $27.1 million, compared to $38.5 million in fiscal year 2014, and resulted primarily from loss provisions related to SCC's estimated contingent losses for representation and warranty claims of $16.0 million and $25.0 million for fiscal years 2015 and 2014, respectively.
DISCONTINUED OPERATIONS
Discontinued operations include our discontinued mortgage operations.
CONTINGENT LOSSES –SCC has accrued a liability as of April 30, 2016 for estimated contingent losses arising from representation and warranty claims of $65.3 million. The estimate of accrued loss is based on the best information currently available, significant management judgment, and a number of factors that are subject to change, including developments in case law and other factors, including those mentioned in "Critical Accounting Estimates" below. Changes in any one of these factors could significantly impact the estimate.
Losses may also be incurred with respect to various indemnification claims by underwriters, depositors, and securitization trustees in securitization transactions in which SCC participated. SCC has not concluded that a loss is probable or reasonably estimable related to these indemnification claims, thereforerepurchase shares, there is no accrued liabilityassurance that we will purchase up to the full Board authorization.
The following table summarizes our shares outstanding, shares repurchased, and annual dividends per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | Year ended
April 30, 2020 |
| Shares outstanding | | 146,150 | | | 159,930 | | | 181,813 | | | 181,466 | | | 192,475 | |
| Shares repurchased | | 14,635 | | | 23,085 | | | — | | | 11,551 | | 10,130 |
| Dividends declared per share | | $ | 1.16 | | | $ | 1.08 | | | $ | 0.27 | | | $ | 1.04 | | | $ | 1.04 | |
Capital Investment. Capital expenditures totaled $69.7 million and $62.0 million for these contingent lossesthe years ended June 30, 2023 and 2022, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as of Aprilwell as investments in computers, software and related assets. In addition to our capital expenditures, we also made payments to acquire businesses. We acquired franchise and competitor businesses totaling $48.2 million and $35.9 million during the years ended June 30, 2016.
2023 and 2022, respectively.See additional discussion in Item 1A, "Risk Factors," "Critical Accounting Estimates" below and in Item 8, note 166 for additional information on our acquisitions. Contractual Obligations. We are party to many contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of operating leases, contingent acquisition payments, and long-term debt and related interest payments. See Item 8, note 7, 10, and 11 to the consolidated financial statements.statements for additional information. FINANCING RESOURCES – Our CLOC has capacity up to $1.5 billion and is scheduled to expire in June 2026. Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with our CLOC covenants as of June 30, 2023. As of June 30, 2023, amounts available to borrow under the CLOC were not limited by the debt-to-EBITDA covenant. We had no balance outstanding under our CLOC as of June 30, 2023.
See Item 8, note 7 to the consolidated financial statements for discussion of our CLOC and Senior Notes. | | | | | |
| 26 | 2023 Form 10-K | H&R Block, Inc. |
The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | June 30, 2023 | | June 30, 2022 |
| | Short-term | | Long-term | | Outlook | | Short-term | | Long-term | | Outlook |
| Moody's | | P-3 | | Baa3 | | Positive | | P-3 | | Baa3 | | Stable |
| S&P | | A-2 | | BBB | | Stable | | A-2 | | BBB | | Stable |
CASH AND OTHER ASSETS – As of June 30, 2023, we held cash and cash equivalents, excluding restricted amounts, of $987.0 million, including $293.4 million held by our foreign subsidiaries.
Foreign Operations. Seasonal borrowing needs of our Canadian operations are typically funded by our U.S. operations. To mitigate foreign currency risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of June 30, 2023.
We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability.
The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $4.9 million and$8.1 million during the years ended June 30, 2023 and 2022, respectively.
SUMMARIZED GUARANTOR FINANCIAL STATEMENTS –Block Financial is a 100% owned indirect subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time.
The following table presents summarized financial information for H&R Block, Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after intercompany eliminations and excludes investments in and equity earnings in non-guarantor subsidiaries.
| | | | | | | | |
| SUMMARIZED BALANCE SHEET | | (in 000s) |
| As of June 30, 2023 | | GUARANTOR AND ISSUER |
| | |
| Current assets | | $ | 37,407 | |
| Noncurrent assets | | 1,725,234 | |
| Current liabilities | | 78,259 | |
| Noncurrent liabilities | | 1,494,010 | |
| | |
| | | | | | | | |
| SUMMARIZED STATEMENTS OF OPERATIONS | | (in 000s) |
| Year ended June 30, 2023 | | GUARANTOR AND ISSUER |
| | |
| Total revenues | | $ | 160,236 | |
| Income from continuing operations before income taxes | | 40,285 | |
| Net income from continuing operations | | 31,713 | |
| Net income | | 23,613 | |
| | |
The table above reflects $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 27 |
CRITICAL ACCOUNTING ESTIMATES
We consider the estimates discussed below to be critical to understanding our financial statements, as they require the use of significant judgment and estimation in order to measure, at a specific point in time, matters that are inherently uncertain. Specific methods and assumptions for these critical accounting estimates are described in the following paragraphs. We have reviewed and discussed each of these estimates with the Audit Committee of our Board of Directors. For all of these estimates, we caution that future events rarely develop precisely as forecasted and estimates routinely require adjustment and may require material adjustment.
|
| |
26 | 2016 Form 10-K | H&R Block, Inc.
|
See Item 8, note 1 to the consolidated financial statements which discussesfor discussion of our significant accounting policies and new or proposed accounting standards that may affect our financial reporting in the future.policies. LOSSES ARISING FROM REPRESENTATIONSLITIGATION AND WARRANTIES OTHER RELATED CONTINGENCIES –
Nature of Estimates Required.SCC accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable. Development of loss estimates is subject to a high degree of management judgment, and estimates may vary significantly period to period.
Assumptions and Approach Used. SCC has entered into tolling agreements with counterparties that have made a significant portion of previously denied representation and warranty claims. While these tolling agreements remain in effect, they toll the running of any applicable statute of limitations related to potential lawsuits regarding representation and warranty claims and other claims against SCC.
SCC has engaged in discussions with these counterparties since fiscal year 2013 regarding the bulk settlement of previously denied and potential future representation and warranty and other claims against SCC. Based on settlement discussions with these counterparties, SCC believes a bulk settlement approach, rather than the loan-by-loan resolution process, will be needed to resolve all of the claims that are the subject of these discussions. On December 5, 2014, SCC entered into a settlement agreement to resolve certain of these claims. On December 18, 2015, SCC entered into settlement agreements with two additional counterparties to resolve certain additional claims, subject to the terms and conditions set forth in the settlement agreements. The amounts paid under the settlement agreements were fully covered by prior accruals. In the event that the ongoing efforts to settle are not successful, SCC believes claim volumes may increase or litigation may result.
SCC will continue to vigorously contest any request for repurchase when it has concluded that a valid basis for repurchase does not exist. SCC's decision whether to engage in bulk settlement discussions is based on factors that vary by counterparty or type of counterparty, and include the considerations (described below) used by SCC in determining its loss estimate.
SCC's loss estimate for representation and warranty claims is based on the best information currently available, significant management judgment, and a number of factors that are subject to change, including developments in case law and the factors mentioned below. These factors include the terms of prior bulk settlements, the terms expected to result from ongoing bulk settlement discussions, and an assessment of, among other things, historical claim results, threatened claims, terms and provisions of related agreements, counterparty willingness to pursue a settlement, legal standing of counterparties to provide a comprehensive settlement, bulk settlement methodologies used and publicly disclosed by other market participants, the potential pro-rata realization of the claims as compared to all claims, and other relevant facts and circumstances when developing its estimate of probable loss. SCC believes that the most significant of these factors are the terms expected to result from ongoing bulk settlement discussions, which have been primarily influenced by the bulk settlement methodologies used and publicly disclosed by other market participants, and the anticipated pro-rata realization of the claims of particular counterparties as compared to the anticipated realization if all claims and litigation were resolved together with payment of SCC's related administration and legal expense. Changes in any one of the factors mentioned above could significantly impact the estimate.
Sensitivity of Estimate to Change. It is reasonably possible that future losses related to representation and warranty claims may vary from the amounts accrued for these exposures. SCC currently believes the aggregate range of reasonably estimable possible losses in excess of amounts accrued is not material. This estimated range is based on the best information currently available, significant management judgment and a number of factors that are subject to change, including developments in case law and the factors mentioned above. The actual loss that may be incurred could differ materially from our accrual or the estimate of reasonably possible losses.
SCC has accrued a liability as of April 30, 2016, for estimated contingent losses arising from representation and warranty claims of $65.3 million. SCC accrued incremental loss provisions of $4 million in fiscal year 2016, $16 million in fiscal year 2015, and $25 million in fiscal year 2014.
If the amount that SCC is ultimately required to pay with respect to claims and litigation related to its past sales and securitizations of mortgage loans, together with payment of SCC's related administration and legal expense, exceeds SCC's net assets, the creditors of SCC, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy,
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 27 |
may attempt to assert claims against us for payment of SCC's obligations. Claimants may also attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of April 30, 2016, total approximately $386 million and consist primarily 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.
The accrued liability does not include potential losses related to litigation and indemnification matters discussed in Item 1A, "Risk Factors" and in Item 8, note 15 to the consolidated financial statements. Also see Item 8, note 16 to the consolidated financial statements.
LITIGATION AND RELATED CONTINGENCIES –
Nature of Estimates Required. We accrue liabilities related to certain legal matters for which we believe it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Assessing the likely outcome of pending or threatened litigation or other related loss contingencies, including the amount of potential loss, if any, is highly subjective.
Assumptions and Approach Used. We are subject to pending or threatened litigation claims and indemnification claims,other related loss contingencies, which are described in Item 8, note 1512 to the consolidated financial statements. It is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required to be accrued, if any, for these contingencies is made after analysis of each known issue and an analysis of historical experience. In cases where we have concluded that a loss is only reasonably possible or remote, or is not reasonably estimable, no liability is accrued. Sensitivity of Estimate to Change. It is reasonably possible that pending or future litigation and other related contingent lossesloss contingencies may vary from the amounts accrued. For someOur 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 represents only those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. Those matters for which an estimate is not reasonably possible are not included within this estimated range. Therefore, this estimated range of reasonably possible loss represents what we believe to be an estimate of reasonably possible loss only for certain matters meeting these criteria. It does not represent our maximum loss exposure. For those matters, and for matters where a liability has been accrued, asAs of AprilJune 30, 2016,2023, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, iswhere the range of loss can be estimated, was not material.
However, our judgments on whether a loss is probable, reasonably possible, or remote, and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in or interpretations of, laws, predicting the outcome of jurycourt trials, arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions, and numerous other uncertainties. Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current estimates.
Our accrued liabilities for litigation and other related contingencies are disclosed in Item 8, note 12 to the consolidated financial statements. INCOME TAXES – UNCERTAIN TAX POSITIONS –
Nature of Estimates Required. The income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and applicable government taxing authorities. Income tax returns filed by us are based on our interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments, including assessments of interest or penalties. We have accruedaccrue a liability for unrecognized tax benefits arising from uncertain tax positions that reflectsreflecting our judgment as to the ultimate resolution of the applicable issues if subject to judicial review or other settlement.issues.
Assumptions and Approach Used. We evaluate each uncertain tax position based on its technical merits. If we determine it is more likely than not a tax position will be sustained based on its technical merits, we record the impact of the position in our consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. We do not record a tax benefit for tax positions where we have concluded it is not more likely than not to be sustained. Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recognized and measuredrecorded in theour financial statements result in unrecognized tax benefits. Unrecognized tax benefits which are recorded in the balance sheet as either a liability for unrecognized tax benefits or reductions to recorded tax assets as applicable. Our uncertain tax positions arise from items such as apportionment of income for state purposes, transfer pricing, and the deductibility of intercompany transactions. We evaluate each uncertain tax
| | | | | |
| 28 | 2023 Form 10-K | H&R Block, Inc. |
position based on its technical merits. For each position, we consider all applicable information including relevant tax laws, the taxing authorities' potential position, our tax return position, and the possible settlement outcomes to determine the amount of liability to record. In making this determination, we assume the tax authority has all relevant information at its disposal.
Sensitivity of Estimate to Change. Our assessment of the technical merits and measurement of tax benefits associated with uncertain tax positions is subject to a high degree of judgment and estimation. Actual results may
|
| |
28 | 2016 Form 10-K | H&R Block, Inc.
|
differ from our current judgments due to a variety of factors, including changes in law, interpretations of law by taxing authorities that differ from our assessments, changes in the jurisdictions in which we operate and results of routine tax examinations. We believe we have adequately provided for any reasonably foreseeable outcomeoutcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate on a quarterly basis.
AsA schedule of April 30, 2016, we accrued liabilities for unrecognized tax benefits onchanges in our uncertain tax positions of approximately $112 million. Ofduring the total gross unrecognized tax benefit as of April 30, 2016, approximately $82 million would impact our effective tax rate if ultimately recognized.last three years is included in Item 8, note 9 to the consolidated financial statements.INCOME TAXES GOODWILL – VALUATION OF DEFERRED TAX ASSETS –
Nature of Estimates Required. We accounttest goodwill for income taxes underimpairment annually in the asset and liability method,third quarter or more frequently if events occur or circumstances change 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.
We record a valuation allowance to reduce our deferred tax assets to the estimated amount that we believe iswould, more likely than not, to be realized. Determinationreduce the fair value 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.
Assumptions and Approach Used. Our deferred tax assets include state and foreign tax loss carry-forwards, which in some cases have been reduced by a valuation allowance.reporting unit below its carrying value. We have considered taxable income in carry-back periods, historical and forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and tax planning strategies in determining the need for a valuation allowance and the estimated amount of these deferred tax assets that will more likely than not be realized.
Sensitivity of Estimatefirst assess qualitative factors to Change. To the extent that actual results differ from our current assumptions, valuation allowances for deferred tax assets will increase or decrease. In the event we determine that we could not realize all or part of our deferred tax assets in the future, an adjustment would be charged to earnings in the period in which we make such determination. Likewise, if we later determinewhether 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. Our goodwill impairment analysis utilizes both income and market approaches, which includes revenue and expense forecasts, changes in working capital and selection of a discount rate, all of which are highly subjective.
Assumptions and Approach Used. Our goodwill impairment analysis is performed at the reporting unit level. Our valuation methods include a discounted cash flow model for the income approach and the guideline public company and market capitalization methods for the market approach. The income approach requires significant management judgment with respect to revenue and expense forecasts, anticipated changes in working capital and selection of an appropriate discount rate. Changes in projections or assumptions could realizematerially affect our estimate of reporting unit fair values. The use of different assumptions could increase or decrease estimated discounted future operating cash flows and could affect our conclusion regarding the deferred tax assets,existence or amount of potential impairment.
Sensitivity of Estimate to Change. Estimates of fair value may be adversely impacted by declining economic conditions and changes in the industries and markets in which we would reverse the applicable portionoperate. Additionally, if future operating results of the previously provided valuation allowance.our reporting units are below our current modeled expectations, fair value estimates may decline. Any of these factors could result in future impairments, and those impairments could be significant.
As of April 30, 2016, valuation allowances for our deferred tax assets totaled $22 million. As a resultA schedule of changes in deferred tax valuation allowances, our effective tax rate decreased 0.5% and increased 0.2%goodwill balances, including any impairment charges, is included in fiscal years 2016 and 2015, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
See Item 8, note 1 to the consolidated financial statements for a discussion ofany recently issued accounting pronouncements. FINANCIAL CONDITION
These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Item 8.
CAPITAL RESOURCES AND LIQUIDITY –
OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our 2015 CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.
Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from January through April. Therefore, we require the use of cash to fund losses from May through December, and typically rely on available cash balances from the prior tax season and borrowings to meet our off-season liquidity needs.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 29 |
Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of April 30, 2016 are sufficient to meet our future operating and financing needs.
DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for fiscal years 2016, 2015 and 2014. See Item 8 for the complete consolidated statements of cash flows for these periods.
|
| | | | | | | | | | | | |
| | | | | | | (in 000s) |
|
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 532,394 |
| | $ | 626,608 |
| | $ | 809,581 |
|
| Investing activities | | 329,515 |
| | (148,932 | ) | | 10,690 |
|
| Financing activities | | (1,961,729 | ) | | (645,807 | ) | | (364,930 | ) |
| Effects of exchange rate changes on cash | | (10,569 | ) | | (9,986 | ) | | (17,618 | ) |
| Net change in cash and cash equivalents | | $ | (1,110,389 | ) | | $ | (178,117 | ) | | $ | 437,723 |
|
| | | | | | | |
Operating Activities. Cash provided by operating activities decreased $94.2 million from fiscal year 2015. The decrease from the prior year was primarily due to lower net income and $88.5 million in settlement payments related to representations and warranties, partially offset by a decline in income taxes paid of $71.5 million.
Investing Activities. Cash provided by investing activities totaled $329.5 million compared to cash used of $148.9 million in the prior year. This change is principally due to sales of investment securities totaling $436.5 million resulting primarily from our decision to sell substantially all AFS securities following the divestiture of HRB Bank. In addition, there was a decrease of $24.5 million in payments for business acquisitions, and a decrease of $23.2 million in capital expenditures.
Financing Activities. Cash used in financing activities increased $1.3 billion. As described more fully below, changes in cash from financing activities resulted primarily from share repurchase activity and changes in customer deposit balances including the sale of deposits to BofI, partially offset by the issuance of new debt.
CASH REQUIREMENTS –
Dividends and Share Repurchase. Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan.
We have consistently paid quarterly dividends. Dividends paid totaled $201.7 million, $220.0 million and $219.0 million in fiscal years 2016, 2015 and 2014, respectively. Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.
In September 2015, we announced that our Board of Directors approved a new $3.5 billion share repurchase program, effective through June 2019. As a part of the repurchase program, in the current year, we purchased $2.0 billion of our common stock at an average price of $35.46 per share. See Item 8, note 10 to the consolidated financial statements for additional information. Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full board authorization.
Divestiture of HRB Bank. At the time of the closing of the P&A Transaction, we made a one-time cash payment to BofI of $419 million, which was approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI. In connection with the closing, we liquidated the AFS securities previously held by HRB Bank and received proceeds of $388 million on the sale.
In connection with the P&A Transaction we entered into the RPA dated August 31, 2015 with BofI. Pursuant to the RPA, we are required to purchase a 90% participation interest, at par, in all EAs originated by BofI throughout the term of the RPA. At April 30, 2016 the principal balance of purchased participation interests totaled $13.4 million.
See additional discussion in Item 1, under "Recent Developments," and in Item 8, note 2 to the consolidated financial statements.
|
| |
30 | 2016 Form 10-K | H&R Block, Inc.
|
Capital Investment. Our business is not capital intensive. Capital expenditures totaled $99.9 million and $123.2 million in fiscal years 2016 and 2015, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. We expended net cash totaling $88.8 million and $113.3 million in fiscal years 2016 and 2015 in connection with acquired businesses. We routinely acquire competitor tax businesses and franchisees, and recurring capital allocated to acquisitions consists primarily of this activity. In fiscal year 2014, we also acquired the assets, primarily purchased technology, of a business for $30.3 million.
FINANCING RESOURCES – On September 25, 2015, we issued $650.0 million of 4.125% Senior Notes due October 1, 2020, and $350.0 million of 5.250% Senior Notes due October 1, 2025. Proceeds of these Senior Notes, and cash on hand, were used to repurchase shares, as discussed in Item 8, note 10 to the consolidated financial statements.
Our new 2015 CLOC has capacity up to $2.0 billion, and is scheduled to expire in September 2020. We intend to borrow amounts under the 2015 CLOC from time to time, rather than issuing commercial paper, to support our working capital needs or for other general corporate purposes. As of April 30, 2016, amounts available to borrow under the 2015 CLOC were limited by the debt-to-EBITDA covenant in the 2015 CLOC Agreement to approximately $1.2 billion, however, our cash needs at April 30 generally do not require us to borrow on our CLOC at that time. We had no outstanding balance under the 2015 CLOC as of April 30, 2016. See Item 8, note 8 to the consolidated financial statements for discussion of the Senior Notes and our 2015 CLOC.
Our 5.125% Senior Notes with a principal amount of $400 million matured in October 2014 and, utilizing available cash on hand, we repaid them according to their terms.
The following table provides ratings for debt issued by Block Financial as of April 30, 2016 and 2015:
|
| | | | | | | | | | | | |
As of | | April 30, 2016 | | April 30, 2015 |
| | Short-term | | Long-term | | Outlook | | Short-term | | Long-term | | Outlook |
Moody's | | P-3 | | Baa3 | | Stable | | P-2 | | Baa2 | | Stable |
S&P (1)
| | A-2 | | BBB | | Stable | | A-2 | | BBB | | Negative |
(1) Outlook of Negative effective June 10, 2016.
CASH AND INVESTMENT SECURITIES – As of April 30, 2016, we held cash and cash equivalents of $896.8 million, including $104.5 million held by our foreign subsidiaries.
As discussed above, we liquidated the AFS securities previously held by HRB Bank in connection with the closing of the P&A Transaction on August 31, 2015.
Foreign Operations. Seasonal borrowing needs of our Canadian operations are typically funded by our U.S. operations. To mitigate foreign currency exchange rate risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of April 30, 2016.
As of April 30, 2016, our Canadian operations had repaid their U.S. dollar denominated borrowings owed to various U.S. subsidiaries. Non-borrowed funds would have to be repatriated to be available to fund domestic operations, and in certain circumstances this would trigger additional income taxes on those amounts. We do not currently intend to repatriate any non-borrowed funds held by our foreign subsidiaries.
The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $10.6 million during fiscal year 2016 compared to decreases of $10.0 million and $17.6 million in fiscal years 2015 and 2014, respectively. This change resulted primarily from a decline in Canadian exchange rates.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 31 |
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – A summary of our borrowings and known contractual obligations as of April 30, 2016, and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| (in 000s) | |
| | | Total |
| | Less Than 1 Year |
| | 1 - 3 Years |
| | 4 - 5 Years |
| | After 5 Years |
|
| Long-term debt (including interest) | | $ | 1,982,578 |
| | $ | 72,688 |
| | $ | 145,375 |
| | $ | 780,098 |
| | $ | 984,417 |
|
| Contingent acquisition payments | | 8,657 |
| | 7,881 |
| | 776 |
| | — |
| | — |
|
| Capital lease obligations | | 7,435 |
| | 826 |
| | 2,007 |
| | 2,197 |
| | 2,405 |
|
| Operating leases | | 680,816 |
| | 213,523 |
| | 290,031 |
| | 113,381 |
| | 63,881 |
|
| Total contractual cash obligations | | $ | 2,679,486 |
| | $ | 294,918 |
| | $ | 438,189 |
| | $ | 895,676 |
| | $ | 1,050,703 |
|
| | | | | | | | | | | |
The table above does not reflect unrecognized tax benefits of approximately $112 million due to the high degree of uncertainty regarding the future cash flows associated with these amounts.
See discussion of contractual obligations and commitments in Item 8, within the notes to the consolidated financial statements.
REGULATORY ENVIRONMENT–
The federal government, various state, local, provincial and foreign governments, and some self-regulatory organizations have enacted statutes and ordinances, or adopted rules and regulations, regulating many aspects of our business. These aspects include, but are not limited to, commercial income tax return preparers,preparation, income tax courses, the electronic filing of income tax returns, the offering of RTs, privacy and data security, consumer protection, marketing and advertising, franchising, antitrust and competition, sales methods, and banking.financial services and products. We determine the applicability of such statutes, ordinances, rules and regulations (collectively, Laws) and work to comply with those Lawslaws that are applicable to us or our services or products.products, and we continue to monitor developments in the regulatory environment in which we operate. See further discussion of these items in our Item 1A. Risk Factors under "Legal and Regulatory Risks" of this Form 10-K. | | | | | |
H&R Block, Inc. | 2023 Form 10-K | 29 |
As previously disclosed, in 2017 the Consumer Financial Protection Bureau (CFPB) published its final rule regulating certain consumer credit products (Payday Rule), which the CFPB later limited by removing the mandatory underwriting provisions. Certain limited provisions of the Payday Rule became effective in 2018, but most provisions were scheduled to go into effect in 2019. Litigation in a federal district court in Texas had stayed that effective date, but on August 31, 2021 the judge in that litigation ruled in favor of the CFPB. The plaintiffs appealed, and, on October 14, 2021, the United States Court of Appeals for the Fifth Circuit extended the compliance deadline until after the appeal is resolved. On October 19, 2022, the appellate court found that the funding mechanism for the CFPB was unconstitutional and vacated the Payday Rule. On November 14, 2022, the CFPB filed a petition for review with the United States Supreme Court, which the Supreme Court granted on February 27, 2023.
We are unsure whether, when, or in what form the Payday Rule will go into effect. Though we do not currently expect the Payday Rule to have a material adverse impact on Emerald AdvanceSM, our business, or our consolidated financial position, results of operations, and cash flows, we will continue to monitor and analyze the potential impact of any further developments on the Company.
From time to time, in the ordinary course of business, we receive inquiries from governmental and self-regulatory agenciesauthorities regarding the applicability of Lawslaws to our services and products. In responseproducts and other matters relating to past inquiries, we have demonstrated that we comply with such Laws, convinced the authorities that such Laws were not applicable or that compliance already exists, or modified our activities in the applicable jurisdiction to avoid the application of all or certain parts of such Laws. We believe the past resolution of such inquiries and our ongoing compliance with Laws has not had a material effect on our consolidated financial statements.business. We cannot predict what effect future Laws,laws, changes in interpretations of existing Lawslaws or the results of future regulatorygovernmental inquiries with respect to the applicability of Lawsservices and products or other matters relating to our business may have on our consolidated financial position, results of operations and cash flows. We have received certain governmental inquiries related to the IRS Free File Program and our DIY tax preparation services. We may also be subject to future inquiries or other proceedings regarding these programs or other aspects of our business. Regulatory inquiries may result in us incurring additional expense, diversion of management's attention, adverse judgments, settlements, fines, penalties, injunctions or other relief. See additional discussion of legal matters in Item 8, note 1512 to the consolidated financial statements. NON-GAAP FINANCIAL INFORMATION
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.
We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.
The following are descriptions ofbusiness. We make adjustments we make for ourcertain non-GAAP financial measures:
| |
▪ | We exclude losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs. |
| |
▪
| We exclude non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values. |
| |
▪
| We exclude severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs. |
|
| |
32 | 2016 Form 10-K | H&R Block, Inc.
|
| |
▪
| We exclude the gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions. |
| |
▪
| We exclude the gains and losses on extinguishment of debt. |
intangibles from acquisitions and goodwill impairments. We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.
We measure the performance of our business using a variety of metrics, including EBITDAearnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA and EBITDA margin from continuing operations, adjusted pretax and net income of continuing operations, and adjusted diluted earnings per share from continuing operations. Adjusted EBITDA from continuing operations, adjusted pretax and net income from continuing operations, and adjusted diluted earnings per share from continuing operations, eliminate the impact of items that we do not consider indicative of our core operating performancefree cash flow and we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance.free cash flow yield. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.
| | | | | |
| 30 | 2023 Form 10-K | H&R Block, Inc. |
The following is a reconciliation of net income to EBITDA from continuing operations, to net income:which is a non-GAAP financial measure:
|
| | | | | | | | | | | | |
| | | | | | | (in 000s) |
|
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Net income - as reported | | $ | 374,267 |
| | $ | 473,663 |
| | $ | 475,157 |
|
| Add back: | | | | | | |
| Discontinued operations, net | | 9,286 |
| | 13,081 |
| | 24,940 |
|
| Income taxes of continuing operations | | 185,926 |
| | 256,061 |
| | 267,019 |
|
| Interest expense of continuing operations | | 69,141 |
| | 45,928 |
| | 57,388 |
|
| Depreciation and amortization of continuing operations | | 173,598 |
| | 159,804 |
| | 115,604 |
|
| | | 437,951 |
| | 474,874 |
| | 464,951 |
|
| EBITDA from continuing operations | | $ | 812,218 |
| | $ | 948,537 |
| | $ | 940,108 |
|
| | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 33 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in 000s) | | | | | | | | | | | |
| Year ended | | June 30, 2023 | | June 30, 2022 | | | | | | | | | | | | | | | |
| Net income - as reported | | $ | 553,700 | | | $ | 553,674 | | | | | | | | | | | | | | | | |
| Discontinued operations, net | | 8,100 | | | 6,972 | | | | | | | | | | | | | | | | |
| Net income from continuing operations - as reported | | 561,800 | | | 560,646 | | | | | | | | | | | | | | | | |
| Add back: | | | | | | | | | | | | | | | | | | | |
| Income taxes | | 149,412 | | | 98,423 | | | | | | | | | | | | | | | | |
| Interest expense | | 72,978 | | | 88,282 | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | 130,501 | | | 142,178 | | | | | | | | | | | | | | | | |
| | 352,891 | | | 328,883 | | | | | | | | | | | | | | | | |
| EBITDA from continuing operations | | $ | 914,691 | | | $ | 889,529 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:
| | | | | | | | | | | | | | | | | | | | | | |
| (in 000s, except per share amounts) | | | | |
| Year ended | | June 30, 2023 | | June 30, 2022 | | | | | | | | |
| | | | | | | | | | | | |
| Net income from continuing operations - as reported | | $ | 561,800 | | | $ | 560,646 | | | | | | | | | |
| | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | |
| Amortization of intangibles related to acquisitions (pretax) | | 51,411 | | | 56,292 | | | | | | | | | |
| | | | | | | | | | | | |
Tax effect of adjustments(1) | | (10,797) | | | (13,358) | | | | | | | | | |
| Adjusted net income from continuing operations | | $ | 602,414 | | | $ | 603,580 | | | | | | | | | |
| | | | | | | | | | | | |
| Diluted earnings per share from continuing operations - as reported | | $ | 3.56 | | | $ | 3.26 | | | | | | | | | |
| Adjustments, net of tax | | 0.26 | | | 0.25 | | | | | | | | | |
| Adjusted diluted earnings per share from continuing operations | | $ | 3.82 | | | $ | 3.51 | | | | | | | | | |
| | | | | | | | | | | | |
(1) The tax effect of adjustments is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.
|
| | | | | | | | | | | | |
| | | (in 000s, except per share amounts) | |
| Year ended April 30, | | 2016 |
| | | Pretax Income | | Net Income | | EBITDA |
| | | | | | | |
| From continuing operations | | $ | 569,479 |
| | $ | 383,553 |
| | $ | 812,218 |
|
| | | | | | | |
| Adjustments (pretax): | | | | | | |
| Loss contingencies - litigation | | 1,978 |
| | 1,978 |
| | 1,978 |
|
| Severance | | 12,001 |
| | 12,001 |
| | 12,001 |
|
| Costs related to HRB Bank and recapitalization transactions | | 20,722 |
| | 20,722 |
| | 20,722 |
|
| Losses (gains) on AFS securities | | (8,138 | ) | | (8,138 | ) | | (8,138 | ) |
| Gain on sales of tax offices/businesses | | (127 | ) | | (127 | ) | | (127 | ) |
Tax effect of adjustments (1) | | — |
| | (10,176 | ) | | — |
|
| | | 26,436 |
| | 16,260 |
| | 26,436 |
|
| | | | | | | |
| As adjusted - from continuing operations | | $ | 595,915 |
| | $ | 399,813 |
| | $ | 838,654 |
|
| | | | | | | |
Adjusted EBITDA margin (2) | | | | | | 28 | % |
| Adjusted EPS | | | | $ | 1.59 |
| | |
| | | | | | | |
| Year ended April 30, | | 2015 |
| | | Pretax Income | | Net Income | | EBITDA |
| | | | | | | |
| From continuing operations | | $ | 742,805 |
| | $ | 486,744 |
| | $ | 948,537 |
|
| | | | | | | |
| Adjustments (pretax): | | | | | | |
| Loss contingencies - litigation | | (3,936 | ) | | (3,936 | ) | | (3,936 | ) |
| Severance | | 6,699 |
| | 6,699 |
| | 6,699 |
|
| Costs related to HRB Bank transaction | | 238 |
| | 238 |
| | 238 |
|
| Losses (gains) on AFS securities | | 124 |
| | 124 |
| | 124 |
|
| Gain on sales of tax offices/businesses | | (656 | ) | | (656 | ) | | (656 | ) |
Tax effect of adjustments (1) | | — |
| | (963 | ) | | — |
|
| | | 2,469 |
| | 1,506 |
| | 2,469 |
|
| | | | | | | |
| As adjusted - from continuing operations | | $ | 745,274 |
| | $ | 488,250 |
| | $ | 951,006 |
|
| | | | | | | |
Adjusted EBITDA margin (2) | | | | | | 31 | % |
| Adjusted EPS | | | | $ | 1.75 |
| | |
| | | | | | | |
| Year ended April 30, | | 2014 |
| | | Pretax Income | | Net Income | | EBITDA |
| | | | | | | |
| From continuing operations | | $ | 767,116 |
| | $ | 500,097 |
| | $ | 940,108 |
|
| | | | | | | |
| Adjustments (pretax): | | | | | | |
| Loss contingencies - litigation | | 1,844 |
| | 1,844 |
| | 1,844 |
|
| Severance | | 5,204 |
| | 5,204 |
| | 5,204 |
|
| Costs related to HRB Bank transaction | | 2,747 |
| | 2,747 |
| | 2,747 |
|
| Losses (gains) on AFS securities | | (5,836 | ) | | (5,836 | ) | | (5,836 | ) |
| Gain on sales of tax offices/businesses | | (11,738 | ) | | (11,738 | ) | | (11,738 | ) |
Tax effect of adjustments (1) | | — |
| | 3,045 |
| | — |
|
| | | (7,779 | ) | | (4,734 | ) | | (7,779 | ) |
| | | | | | | |
| As adjusted - from continuing operations | | $ | 759,337 |
| | $ | 495,363 |
| | $ | 932,329 |
|
| | | | | | | |
Adjusted EBITDA margin (2) | | | | | | 31 | % |
| Adjusted EPS | | | | $ | 1.79 |
| | |
| | | | | | | |
| |
1
| Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items. |
| |
2
| Adjusted EBITDA margin from continuing operations is computed as adjusted EBITDA from continuing operations divided by revenues from continuing operations. |
|
| |
34 | 2016 Form 10-K | H&R Block, Inc.
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
GENERAL – We have a formal investment policy that strives to minimize the market risk exposure of our cash equivalents, which are primarily affected by credit quality and movements in interest rates. The guidelines in our investment policy focus on managing liquidity and preserving principal and earnings.
Our cash equivalents are primarily held for liquidity purposes and are comprised of high quality, short-term investments, including money market funds.funds and U.S. Treasuries. Because our cash and cash equivalents have a short maturity, our portfolio's market value is relatively insensitive to interest rate changes.
Interest expense on our CLOC borrowings is determined based on short-term interest rates. As our CLOC borrowings are generally seasonal, interest rate risk typically increases during the months of November through our third fiscal quarter and declines to zero by fiscal year-end. While the market value of our CLOC borrowings is relatively insensitive to interest rate changes, interest expense on CLOC borrowings will increase and decrease with changes in the underlying short-term interest rates.March. We had no outstanding balance outstanding under the 2015on our CLOC as of AprilJune 30, 2016.2023.
Our long-term debt as of AprilJune 30, 2016,2023, consists primarily of fixed-rate Senior Notes; therefore, a change in interest rates would have no impact on consolidated pretax earnings until these notes mature or are refinanced. The fixed-rate interest payablewe pay on our Senior Notes is fixed and is subject to adjustment based upon our credit ratings. See Item 8, note 87 to the consolidated financial statements. FOREIGN EXCHANGE RATE RISK
Our operations in international markets are exposed to movements in currency exchange rates. The currencies primarily involved are the Canadian dollar and the Australian dollar. We translate revenues and expenses related to these operations at the average of exchange rates in effect during the period. Assets and liabilities of foreign
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 31 |
subsidiaries are translated into U.S. dollars at exchange rates prevailing at the end of the year. Translation adjustments are recorded as a separate component of other comprehensive income in stockholders' equity. Translation of financial results into U.S. dollars does not presently materially affect, and has not historically materially affected, our consolidated financial results, although such changes do affect the year-to-year comparability of the operating results in U.S. dollars of our international businesses. The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $10.6$4.9 million and $8.1 million during fiscal year 2016 compared to a decrease of $10.0 million and$17.6 million in fiscalthe years 2015ended June 30, 2023 and 2014, 2022, respectively. This change resulted primarily from a decline in Canadian exchange rates. We estimate a 10% change in foreign exchange rates by itself would impact consolidated pretax income in fiscalfor the years 2016ended June 30, 2023 and 20152022 by $2.5$3.8 million and $2.9$2.8 million, respectively, and cash balances, excluding restricted balances, as of AprilJune 30, 20162023 and 20152022 by $8.9$13.0 million and $13.0$18.5 million, respectively.
We generally use foreign exchange forward contracts to mitigate foreign currency exchange rate risk for seasonal loans we advance to our Canadian operations. As of AprilWe had no forward contracts outstanding at June 30, 2016, our Canadian operations had repaid their U.S. dollar denominated liabilities to various U.S. subsidiaries, which were exposed to exchange rate risk. Foreign currency losses totaled $7.8 million for fiscal year 2016, and are included in other expenses on our consolidated statements of income and comprehensive income.
2023 or 2022.
|
| | | | |
| 32 | 2023 Form 10-K |H&R Block, Inc. | 2016 Form 10-K | 35 |
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 control, auditcontrols and financial matters.
Deloitte & Touche LLP audited our consolidated financial statements for the fiscal years 2016ended June 30, 2023 and 2022, the two months ended June 30, 2021 (Transition Period), 2015and 2014.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 management, including 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 AprilJune 30, 2016.2023.
Based on our assessment, managementour Chief Executive Officer and Chief Financial Officer concluded that as of AprilJune 30, 2016,2023, 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/ William C. CobbJeffrey J. Jones II | | /s/ Tony G. Bowen |
William C. CobbJeffrey J. Jones II | | Tony G. Bowen |
| President and Chief Executive Officer | | Chief Financial Officer |
|
| | | | |
36 | 2016 Form 10-K |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.Inc.
Kansas City, MissouriOpinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of H&R Block, Inc. and subsidiaries (the "Company") as of AprilJune 30, 20162023, and 2015, andJune 30, 2022, the related consolidated statements of income,operations and comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years inended June 30, 2023, and June 30, 2022, the periodtwo months ended June 30, 2021 (Transition Period) and the year ended April 30, 2016. Our audits also included2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statement schedule listedstatements 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 Index at Item 15. 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 and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements and financial statement schedule 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 Public Company Accounting Oversight Board (United States).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. An audit includesmisstatement, 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 supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
InCritical 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 suchon 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 present fairly,
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 material respects,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 positionreporting of H&R Block, Inc. and subsidiaries (the “Company”) as of AprilJune 30, 2016 and 2015, and2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the resultsCommittee of their operations and their cash flows for eachSponsoring Organizations of the three years in the period ended April 30, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, inTreadway Commission (COSO). In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,Company maintained, in all material respects, the information set forth therein.
As discussed in Notes 1 and 12 to the consolidatedeffective internal control over financial statements, the Company has changed its method of accounting for the classification of deferred tax assets and liabilitiesreporting as of AprilJune 30, 2016 due to the adoption of Accounting Standard Update (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes.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 Company's internal control overconsolidated financial reportingstatements as of Apriland for the year ended June 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations2023, of the Treadway CommissionCompany and our report dated JuneAugust 17, 20162023, expressed an unqualified opinion on the Company's internal control overthose financial reporting.statements.
|
|
/s/ Deloitte & Touche LLP |
Kansas City, Missouri |
June 17, 2016 |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 37 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
H&R Block, Inc.
Kansas City, Missouri
We have audited the internal control over financial reporting of H&R Block, Inc. and subsidiaries (the "Company") as of April 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company'sCompany’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'sCompany’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 Public Company Accounting Oversight Board (United States).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'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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'scompany’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'scompany’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended April 30, 2016 of the Company and our report dated June/s/ Deloitte & Touche LLP
Kansas City, Missouri
August 17, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule, and includes an explanatory paragraph relating to a change in the method of accounting for classification of deferred tax assets and liabilities as of April 30, 2016 due to the adoption of Accounting Standard Update (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes.2023
|
|
/s/ Deloitte & Touche LLP |
Kansas City, Missouri |
June 17, 2016 |
|
| | | | |
3836 | 20162023 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | | (in 000s, except per share amounts) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| REVENUES: | | | | | | |
| Service revenues | | $ | 2,653,936 |
| | $ | 2,651,057 |
| | $ | 2,570,273 |
|
| Royalty, product and other revenues | | 384,217 |
| | 427,601 |
| | 454,022 |
|
| | | 3,038,153 |
| | 3,078,658 |
| | 3,024,295 |
|
| OPERATING EXPENSES: | | | | | | |
| Cost of revenues: | | | | | | |
| Compensation and benefits | | 845,197 |
| | 852,480 |
| | 816,623 |
|
| Occupancy and equipment | | 405,123 |
| | 378,624 |
| | 362,782 |
|
| Provision for bad debt and loan losses | | 75,395 |
| | 74,993 |
| | 80,007 |
|
| Depreciation and amortization | | 115,907 |
| | 111,861 |
| | 93,259 |
|
| Other | | 243,930 |
| | 212,532 |
| | 219,706 |
|
| | | 1,685,552 |
| | 1,630,490 |
| | 1,572,377 |
|
| Selling, general and administrative: | | | | | | |
| Marketing and advertising | | 297,762 |
| | 273,682 |
| | 238,763 |
|
| Compensation and benefits | | 228,778 |
| | 238,527 |
| | 249,779 |
|
| Depreciation and amortization | | 57,691 |
| | 47,943 |
| | 22,345 |
|
| Other selling, general and administrative | | 135,178 |
| | 93,350 |
| | 122,541 |
|
| | 719,409 |
| | 653,502 |
| | 633,428 |
|
| Total operating expenses | | 2,404,961 |
| | 2,283,992 |
| | 2,205,805 |
|
| | | | | | | |
| Other income | | 17,701 |
| | 1,314 |
| | 36,315 |
|
| Interest expense on borrowings | | (68,962 | ) | | (45,246 | ) | | (55,279 | ) |
| Other expenses | | (12,452 | ) | | (7,929 | ) | | (32,410 | ) |
| Income from continuing operations before income taxes | | 569,479 |
| | 742,805 |
| | 767,116 |
|
| Income taxes | | 185,926 |
| | 256,061 |
| | 267,019 |
|
| Net income from continuing operations | | 383,553 |
| | 486,744 |
| | 500,097 |
|
| Net loss from discontinued operations, net of tax benefits of $5,414, $8,125 and $15,422 | | (9,286 | ) | | (13,081 | ) | | (24,940 | ) |
| NET INCOME | | $ | 374,267 |
| | $ | 473,663 |
| | $ | 475,157 |
|
| | | | | | | |
| BASIC EARNINGS (LOSS) PER SHARE: | | | | | | |
| Continuing operations | | $ | 1.54 |
| | $ | 1.77 |
| | $ | 1.82 |
|
| Discontinued operations | | (0.04 | ) | | (0.05 | ) | | (0.09 | ) |
| Consolidated | | $ | 1.50 |
| | $ | 1.72 |
| | $ | 1.73 |
|
| | | | | | | |
| DILUTED EARNINGS (LOSS) PER SHARE: | | | | | | |
| Continuing operations | | $ | 1.53 |
| | $ | 1.75 |
| | $ | 1.81 |
|
| Discontinued operations | | (0.04 | ) | | (0.04 | ) | | (0.09 | ) |
| Consolidated | | $ | 1.49 |
| | $ | 1.71 |
| | $ | 1.72 |
|
| | | | | | | |
| COMPREHENSIVE INCOME: | | | | | | |
| Net income | | $ | 374,267 |
| | $ | 473,663 |
| | $ | 475,157 |
|
| Unrealized gains on securities, net of taxes: | | | | | | |
| Unrealized holding gains (losses) arising during the year, net | | (3,530 | ) | | 6,645 |
| | 1,807 |
|
| Reclassification adjustment for losses (gains) included in income | | (4,982 | ) | | 41 |
| | (3,705 | ) |
| Change in foreign currency translation adjustments | | (4,461 | ) | | (10,123 | ) | | (3,475 | ) |
| Other comprehensive loss | | (12,973 | ) | | (3,437 | ) | | (5,373 | ) |
| Comprehensive income | | $ | 361,294 |
| | $ | 470,226 |
| | $ | 469,784 |
|
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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. | 20162023 Form 10-K | 3937 |
| | | CONSOLIDATED BALANCE SHEETS | | (in 000s, except share and per share amounts) | | CONSOLIDATED BALANCE SHEETS | | (in 000s, except share and per share amounts) |
| As of April 30, | | 2016 |
| | 2015 |
| |
| As of | | As of | | June 30, 2023 | | June 30, 2022 |
| ASSETS | | | | | ASSETS | | | | |
| Cash and cash equivalents | | $ | 896,801 |
| | $ | 2,007,190 |
| Cash and cash equivalents | | $ | 986,975 | | | $ | 885,015 | |
| Cash and cash equivalents - restricted | | 104,110 |
| | 91,972 |
| Cash and cash equivalents - restricted | | 28,341 | | | 165,698 | |
| Receivables, less allowance for doubtful accounts of $57,011, and $54,527 | | 153,116 |
| | 167,964 |
| |
| Deferred tax assets and income taxes receivable | | — |
| | 174,267 |
| |
| Receivables, less allowance for credit losses of $55,502 and $65,351 | | Receivables, less allowance for credit losses of $55,502 and $65,351 | | 59,987 | | | 58,447 | |
| Income taxes receivable | | Income taxes receivable | | 35,910 | | | 202,838 | |
| Prepaid expenses and other current assets | | 67,138 |
| | 70,283 |
| Prepaid expenses and other current assets | | 76,273 | | | 72,460 | |
| Investments in available-for-sale securities | | 1,133 |
| | 439,625 |
| |
| Total current assets | | 1,222,298 |
| | 2,951,301 |
| Total current assets | | 1,187,486 | | | 1,384,458 | |
| Mortgage loans held for investment, less allowance for loan losses of $5,518 and $7,886 | | 202,385 |
| | 239,338 |
| |
Property and equipment, at cost, less accumulated depreciation and
amortization of $601,120 and $518,797 | | 293,565 |
| | 311,387 |
| |
| Property and equipment, at cost, less accumulated depreciation and amortization of $846,177 and $857,468 | | 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 | | Operating lease right of use asset | | 438,299 | | | 427,783 | |
| Intangible assets, net | | 433,885 |
| | 432,142 |
| Intangible assets, net | | 277,043 | | | 309,644 | |
| Goodwill | | 470,757 |
| | 441,831 |
| Goodwill | | 775,453 | | | 760,401 | |
| Deferred tax assets and income taxes receivable | | 120,123 |
| | 13,461 |
| Deferred tax assets and income taxes receivable | | 211,391 | | | 208,948 | |
| Other noncurrent assets | | 114,762 |
| | 125,960 |
| Other noncurrent assets | | 52,571 | | | 54,012 | |
| Total assets | | $ | 2,857,775 |
| | $ | 4,515,420 |
| Total assets | | $ | 3,072,258 | | | $ | 3,269,158 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| LIABILITIES: | | | | | LIABILITIES: | |
| Customer banking deposits | | $ | — |
| | $ | 744,241 |
| |
| Accounts payable and accrued expenses | | 259,586 |
| | 231,322 |
| Accounts payable and accrued expenses | | $ | 159,901 | | | $ | 160,929 | |
| Accrued salaries, wages and payroll taxes | | 161,786 |
| | 144,744 |
| Accrued salaries, wages and payroll taxes | | 95,154 | | | 154,764 | |
| Accrued income taxes | | 373,754 |
| | 434,684 |
| |
| Current portion of long-term debt | | 826 |
| | 790 |
| |
| Accrued income taxes and reserves for uncertain tax positions | | Accrued income taxes and reserves for uncertain tax positions | | 271,800 | | | 280,115 | |
| | Operating lease liabilities | | Operating lease liabilities | | 205,391 | | | 206,898 | |
| Deferred revenue and other current liabilities | | 243,653 |
| | 322,508 |
| Deferred revenue and other current liabilities | | 206,536 | | | 196,107 | |
| Total current liabilities | | 1,039,605 |
| | 1,878,289 |
| Total current liabilities | | 938,782 | | | 998,813 | |
| Long-term debt | | 1,501,925 |
| | 505,298 |
| Long-term debt | | 1,488,974 | | | 1,486,876 | |
| Deferred tax liabilities and reserves for uncertain tax positions | | 132,960 |
| | 142,586 |
| Deferred tax liabilities and reserves for uncertain tax positions | | 264,567 | | | 226,362 | |
| Operating lease liabilities | | Operating lease liabilities | | 240,543 | | | 228,820 | |
| Deferred revenue and other noncurrent liabilities | | 160,182 |
| | 156,298 |
| Deferred revenue and other noncurrent liabilities | | 107,328 | | | 116,656 | |
| Total liabilities | | 2,834,672 |
| | 2,682,471 |
| Total liabilities | | 3,040,194 | | | 3,057,527 | |
| | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | | COMMITMENTS AND CONTINGENCIES | | | | |
| | | | | | |
| STOCKHOLDERS' EQUITY: | | | | | STOCKHOLDERS' EQUITY: | |
Common stock, no par, stated value $.01 per share, 800,000,000 shares
authorized, shares issued of 260,218,666 and 316,628,110 | | 2,602 |
| | 3,166 |
| |
| Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 178,935,578 and 193,571,309 | | 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 | | 758,230 |
| | 783,793 |
| Additional paid-in capital | | 770,376 | | | 772,182 | |
| Accumulated other comprehensive income (loss) | | (11,233 | ) | | 1,740 |
| |
| Retained earnings | | 40,347 |
| | 1,836,442 |
| |
| Less treasury shares, at cost, of 39,701,409 and 41,353,479 | | (766,843 | ) | | (792,192 | ) | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (37,099) | | | (21,645) | |
| Retained earnings (deficit) | | Retained earnings (deficit) | | (48,677) | | | 120,405 | |
| Less treasury shares, at cost, of 32,785,658 and 33,640,988 | | Less treasury shares, at cost, of 32,785,658 and 33,640,988 | | (654,325) | | | (661,247) | |
| Total stockholders' equity | | 23,103 |
| | 1,832,949 |
| Total stockholders' equity | | 32,064 | | | 211,631 | |
| Total liabilities and stockholders' equity | | $ | 2,857,775 |
| | $ | 4,515,420 |
| Total liabilities and stockholders' equity | | $ | 3,072,258 | | | $ | 3,269,158 | |
| | | | | | | | | |
See accompanying notes to consolidated financial statements.
|
| | | | |
4038 | 20162023 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | (in 000s) |
|
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income | | $ | 374,267 |
| | $ | 473,663 |
| | $ | 475,157 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 173,598 |
| | 159,804 |
| | 115,604 |
|
| Provision for bad debt and loan losses | | 75,395 |
| | 74,993 |
| | 80,007 |
|
| Deferred taxes | | 36,276 |
| | (15,502 | ) | | 20,958 |
|
| Stock-based compensation | | 23,540 |
| | 26,068 |
| | 20,058 |
|
| Changes in assets and liabilities, net of acquisitions: | | | | | | |
| Cash and cash equivalents - restricted | | (12,159 | ) | | 23,252 |
| | 2,522 |
|
| Receivables | | (70,721 | ) | | (68,109 | ) | | (30,376 | ) |
| Prepaid expenses and other current assets | | 4,321 |
| | (8,542 | ) | | 2,293 |
|
| Other noncurrent assets | | 4,197 |
| | 2,260 |
| | (6,024 | ) |
| Accounts payable and accrued expenses | | 16,723 |
| | 681 |
| | 8,430 |
|
| Accrued salaries, wages and payroll taxes | | 17,388 |
| | (21,132 | ) | | 33,362 |
|
| Deferred revenue and other current liabilities | | (77,510 | ) | | (34,491 | ) | | 26,080 |
|
| Deferred revenue and other noncurrent liabilities | | 3,055 |
| | 3,289 |
| | (4,905 | ) |
| Income tax receivables, accrued income taxes and income tax reserves | | (12,499 | ) | | 33,410 |
| | 83,328 |
|
| Other, net | | (23,477 | ) | | (23,036 | ) | | (16,913 | ) |
| Net cash provided by operating activities | | 532,394 |
| | 626,608 |
| | 809,581 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Purchases of available-for-sale securities | | — |
| | (90,581 | ) | | (45,158 | ) |
| Sales, maturities and payments received on available-for-sale securities | | 436,471 |
| | 91,878 |
| | 107,101 |
|
| Principal payments on mortgage loans held for investment, net | | 33,721 |
| | 23,886 |
| | 46,664 |
|
| Capital expenditures | | (99,923 | ) | | (123,158 | ) | | (147,011 | ) |
| Payments made for business acquisitions, net of cash acquired | | (88,776 | ) | | (113,252 | ) | | (68,428 | ) |
| Proceeds from notes receivable | | — |
| | — |
| | 64,865 |
|
| Franchise loans funded | | (22,820 | ) | | (49,695 | ) | | (63,960 | ) |
| Payments received on franchise loans | | 55,007 |
| | 90,636 |
| | 87,220 |
|
| Other, net | | 15,835 |
| | 21,354 |
| | 29,397 |
|
| Net cash provided by (used in) investing activities | | 329,515 |
| | (148,932 | ) | | 10,690 |
|
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repayments of commercial paper and line of credit borrowings | | (1,465,000 | ) | | (1,049,136 | ) | | (316,000 | ) |
| Proceeds from issuance of commercial paper and line of credit borrowings | | 1,465,000 |
| | 1,049,136 |
| | 316,000 |
|
| Repayments of long-term debt | | — |
| | (400,000 | ) | | — |
|
| Proceeds from issuance of long-term debt | | 996,831 |
| | — |
| | — |
|
| Transfer of HRB Bank deposits | | (419,028 | ) | | — |
| | — |
|
| Customer banking deposits, net | | (326,705 | ) | | (28,544 | ) | | (163,952 | ) |
| Dividends paid | | (201,688 | ) | | (219,960 | ) | | (218,980 | ) |
| Repurchase of common stock, including shares surrendered | | (2,018,338 | ) | | (10,449 | ) | | (6,106 | ) |
| Proceeds from exercise of stock options | | 25,775 |
| | 16,522 |
| | 28,246 |
|
| Other, net | | (18,576 | ) | | (3,376 | ) | | (4,138 | ) |
| Net cash used in financing activities | | (1,961,729 | ) | | (645,807 | ) | | (364,930 | ) |
| | | | | | | |
| Effects of exchange rate changes on cash | | (10,569 | ) | | (9,986 | ) | | (17,618 | ) |
| | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | (1,110,389 | ) | | (178,117 | ) | | 437,723 |
|
| Cash and cash equivalents at beginning of the year | | 2,007,190 |
| | 2,185,307 |
| | 1,747,584 |
|
| Cash and cash equivalents at end of the year | | $ | 896,801 |
| | $ | 2,007,190 |
| | $ | 2,185,307 |
|
| | | | | | | |
| SUPPLEMENTARY CASH FLOW DATA: | | | | | | |
| Income taxes paid, net of refunds received | | $ | 165,154 |
| | $ | 236,624 |
| | $ | 155,735 |
|
| Interest paid on borrowings | | 59,058 |
| | 44,847 |
| | 55,221 |
|
| Transfers of foreclosed loans to other assets | | 3,863 |
| | 4,805 |
| | 7,644 |
|
| Accrued additions to property and equipment | | 2,822 |
| | 14,282 |
| | 5,257 |
|
| Conversion of investment in preferred stock to available-for-sale common stock | | — |
| | 5,000 |
| | — |
|
| Transfer of mortgage loans held for investment to held for sale | | — |
| | — |
| | 7,608 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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. | 20162023 Form 10-K | 4139 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | | (amounts in 000s, except per share amounts) | |
| | | Common Stock | | Additional
Paid-in
Capital |
| | Accumulated
Other
Comprehensive
Income (Loss) |
| | Retained
Earnings |
| | Treasury Stock | | Total
Stockholders’
Equity |
|
| | | Shares |
| | Amount |
| | | | | Shares |
| | Amount |
| |
| Balances as of May 1, 2013 | | 316,628 |
| | $ | 3,166 |
| | $ | 752,483 |
| | $ | 10,550 |
| | $ | 1,333,445 |
| | (43,993 | ) | | $ | (836,097 | ) | | $ | 1,263,547 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | 475,157 |
| | — |
| | — |
| | 475,157 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | (5,373 | ) | | — |
| | — |
| | — |
| | (5,373 | ) |
| Stock-based compensation | | — |
| | — |
| | 20,058 |
| | — |
| | — |
| | — |
| | — |
| | 20,058 |
|
| Stock-based awards exercised or vested | | — |
| | — |
| | (5,887 | ) | | — |
| | (325 | ) | | 1,811 |
| | 34,458 |
| | 28,246 |
|
| Acquisition of treasury shares | | — |
| | — |
| | — |
| | — |
| | — |
| | (218 | ) | | (6,106 | ) | | (6,106 | ) |
| Cash dividends declared - $0.80 per share | | — |
| | — |
| | — |
| | — |
| | (218,980 | ) | | — |
| | — |
| | (218,980 | ) |
| Balances as of April 30, 2014 | | 316,628 |
| | 3,166 |
| | 766,654 |
| | 5,177 |
| | 1,589,297 |
| | (42,400 | ) | | (807,745 | ) | | 1,556,549 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | 473,663 |
| | — |
| | — |
| | 473,663 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | (3,437 | ) | | — |
| | — |
| | — |
| | (3,437 | ) |
| Stock-based compensation | | — |
| | — |
| | 26,068 |
| | — |
| | — |
| | — |
| | — |
| | 26,068 |
|
| Stock awards exercised or vested | | — |
| | — |
| | (8,881 | ) | | — |
| | (942 | ) | | 1,359 |
| | 25,954 |
| | 16,131 |
|
| Acquisition of treasury shares | | — |
| | — |
| | — |
| | — |
| | — |
| | (315 | ) | | (10,449 | ) | | (10,449 | ) |
| Other | | — |
| | — |
| | (48 | ) | | — |
| | (5,616 | ) | | 3 |
| | 48 |
| | (5,616 | ) |
| Cash dividends declared - $0.80 per share | | — |
| | — |
| | — |
| | — |
| | (219,960 | ) | | — |
| | — |
| | (219,960 | ) |
| Balances as of April 30, 2015 | | 316,628 |
| | 3,166 |
| | 783,793 |
| | 1,740 |
| | 1,836,442 |
| | (41,353 | ) | | (792,192 | ) | | 1,832,949 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | 374,267 |
| | — |
| | — |
| | 374,267 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | (12,973 | ) | | — |
| | — |
| | — |
| | (12,973 | ) |
| Stock-based compensation | | — |
| | — |
| | 23,540 |
| | — |
| | — |
| | — |
| | — |
| | 23,540 |
|
| Stock awards exercised or vested | | — |
| | — |
| | (15,257 | ) | | — |
| | (2,848 | ) | | 2,262 |
| | 43,451 |
| | 25,346 |
|
| Acquisition of treasury shares | | — |
| | — |
| | — |
| | — |
| | — |
| | (610 | ) | | (18,102 | ) | | (18,102 | ) |
| Repurchase and retirement of common shares | | (56,409 | ) | | (564 | ) | | (33,846 | ) | | — |
| | (1,965,826 | ) | | — |
| | — |
| | (2,000,236 | ) |
| Cash dividends declared - $0.80 per share | | — |
| | — |
| | — |
| | — |
| | (201,688 | ) | | — |
| | — |
| | (201,688 | ) |
| Balances as of April 30, 2016 | | 260,219 |
| | $ | 2,602 |
| | $ | 758,230 |
| | $ | (11,233 | ) | | $ | 40,347 |
| | (39,701 | ) | | $ | (766,843 | ) | | $ | 23,103 |
|
| | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
|
| | | | |
4240 | 20162023 Form 10-K | H&R Block, Inc.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS – Our operating 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 relateddistribute 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 Australia, and their respective territories.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 100% owned 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 notes 15 and 16note 12 for additional information on litigation, claims and other 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.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, valuation allowances on deferred tax assets, reserves for uncertain tax positions, and related matters.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 purchased with an original maturity ofmaturing within three months or lessat acquisition are considered to be cash equivalents.
Outstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $43.1$3.3 million and $34.0$2.7 million as of AprilJune 30, 20162023 and 2015,2022, respectively.
CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of cash held by our captive insurance subsidiary and for the benefit of our discontinued mortgage operations.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.preparation and related fees. The allowance for doubtful accountscredit 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. Credit lossesLosses 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 each tax seasonthe 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 mortgage loans held for investment, participations in H&R Block Emerald Advance® lines of Credit (EAs), loans made to franchisees, and amounts due under our refund discount program in Canada (Cash Back®).
H&R Block Emerald Advance® lines of creditBlock's Instant RefundSM (Instant Refund). EAs are typically offered
Our accounting policies related to clients in our offices from late November through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be increasedreceivables and utilized year-round. EA balances require an annual paydown on February 15th, and any amounts unpaidrelated allowances are placed on non-accrual status as of March 1st. Payments on past due amounts are applied to principal. Beginning in fiscal year 2016, we no longer originate EAs. These lines of credit are offered by BofI Federal Bank, a federal savings bank (BofI). We purchase participation interests in their loans, as discussed further in note 14.4. Credit losses from EAs are not specifically identified; instead we review the credit quality of these receivables on a pooled basis, segregated by the year of origination and whether the credit was extended to a new or returning tax client. Credit losses are based on an analysis of collections received and expected collections over subsequent tax seasons. We charge-off receivables to an amount we believe represents the net realizable value.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 43 |
Loans made to franchisees. 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. 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 security in the event a franchisee defaults on the loan. In the event the franchisee is unable to repay the loan, we may revoke franchise rights, write off the remaining balance of the loan and refranchise the territory or begin operating it as company-owned.
Cash Back® receivables. During the tax season, 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. Interest is not charged on these balances, in accordance with CRA regulations. 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's system for tracking amounts due to various government agencies also indicates if the client has already filed a return, does not exist in the CRA's records, or is bankrupt. This serves to greatly reduce the amounts of uncollectible receivables and the risk of fraudulent returns.
We do not specifically identify credit losses for these receivables; instead we determine our allowance for these receivables based on a review of receipts taking into consideration historical experience. In September of each fiscal year, any balances remaining from the previous tax season are charged-off against the related allowance.
MORTGAGE LOANS HELD FOR INVESTMENT – Mortgage loans held for investment represent loans originated or acquired with the ability and current intent to hold to maturity. Loans held for investment are carried at amortized cost adjusted for charge-offs, net of allowance for loan losses, deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
We record an allowance representing our estimate of credit losses inherent in the loan portfolio at the balance sheet date. A current assessment of the value of the loan's underlying collateral is made when the loan is no later than 60 days past due and any loan balance in excess of the collateral value less costs to sell the property, is included in the provision for credit losses.
We evaluate mortgage loans less than 60 days past due on a pooled basis and record a loan loss allowance for those loans in the aggregate.
Loans are considered impaired when we believe it is probable we will be unable to collect all principal and interest due according to the contractual terms of the loan, or when the loan is 60 days past due. For loans over 60 days but less than 180 days past due we record a loan loss allowance. For loans 180 days or more past due we charge-off the loan to the value of the collateral less costs to sell.
We classify loans as non-accrual when full and timely collection of interest or principal becomes uncertain, or when they are 90 days past due. Interest previously accrued, but not collected, is reversed against current interest income when a loan is placed on non-accrual status. Loans are not placed back on accrual status until collection of principal and interest is reasonably assured as a result of the borrower bringing the loan into compliance with the contractual terms of the loan. Prior to restoring a loan to accrual status, management considers a borrower's prospects for continuing future contractual payments.
PROPERTY AND EQUIPMENT – Buildings, equipment and equipmentleasehold improvements are initially recorded at cost and are depreciated over the estimated useful life of the assets using the straight-line method. Leasehold improvements are initially recorded at cost and are amortized over the lesser of the remaining term of the respective lease or the estimated useful life, using the straight-line method. Estimated useful lives are generally 15 to 40 years for buildings, threetwo to five years for computers and other equipment, three to five years for purchased software and up to eight years for leasehold improvements.
Substantially all of the operations of our subsidiaries are conducted in leased premises. For all lease agreements, including those with escalating rent payments or rent holidays, we recognize rent expense on a straight-line basis.
|
| |
44 | 2016 Form 10-K | H&R Block, Inc.
|
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. The weighted-average life of intangible assets with finite lives is 19 years. Intangible assets except customer relationships, are typically amortized over the estimated useful life of the assets using the straight-line method. Customer relationships
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 typically amortized over a five-year period using an accelerated method which takes into consideration expected customer attrition rates.
We capitalize certain allowable costs associated with software developed for internal use. These costs are typically amortized over threefrom 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 usingended June 30, 2023, June 30, 2022, April 30, 2021 and the straight-line method.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 recognize revenueuse 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 each of the following four criteria is met: persuasive evidence of an arrangement exists; delivery has occurred or servicesrespective performance obligations have been rendered; the selling price is fixed or determinable; and collectibility is reasonably assured.satisfied. We have determined that our contracts do not contain a significant financing component.
Service revenues consist primarily 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 returns, both in officesreturn. Revenues from tax preparation and through our online programs, fees earned on refund transfers (RTs), interchange income associated with our H&R Block Emerald Prepaid MasterCard® programprinting for clients that choose to print and fees associated with our Peace of Mind® Extended Service Plan (POM). Service revenuesmail 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 service is performed as follows:services are provided by the franchisee to the customer.
| |
▪ | Assisted andDIY tax preparation services includes fees for online tax preparation revenues are recorded when a completed return is electronically filed or accepted by the customer. |
| |
▪ | Fees related to RTs are recognized when Internal Revenue Service (IRS) acknowledgment is received and the bank account is established at BofI. |
| |
▪ | Revenues associated with our H&R Block Emerald Prepaid MasterCard® program consist of interchange income from the use of debit cards and fees from the use of ATM networks, net of volume-based amounts retained by BofI in connection with the PMA. Interchange income is a fee paid by a merchant bank to BofI through the interchange network. Net revenue associated with our H&R Block Prepaid Mastercard® is recognized based on cardholder transactions.
|
| |
▪ | POM revenues are deferred and recognized over the term of the plan, based on actual claims paid in relation to projected claims. |
Royalty, product and other revenues include royalties from franchiseesdesktop tax preparation software and sales offor 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 products, and are recognized as follows:when the software is sold to the end user. Revenues for electronic filing are recognized when the return is electronically filed.
| |
▪ | Franchise royalties, which are based on contractual percentages of franchise revenues, are recorded in the period in which the services are provided to the customer. |
| |
▪ | Revenue from the sale of desktop software is recognized when the product is sold to the end user. Rebates, slotting fees and other incentives paid in connection with these sales are recorded as a reduction of revenue. |
| |
▪ | Participation revenue on EAs is recorded over the life of the underlying loan. |
| |
▪ | Interest on loans to franchisees is calculated using the average daily balance method and is recognized based on the principal amount outstanding until the outstanding balance is paid or becomes delinquent. |
Sales tax we collectRefund Transfer revenues are recognized when the Internal Revenue Service (IRS) filing acknowledgment is received and remit to taxing authoritiesthe bank account is recorded net in the consolidated statementsestablished at our bank partner, PathwardTM, N.A. (Pathward), a wholly-owned subsidiary of income.
In connection with the deregistration of H&R Block,Pathward Financial, Inc., H&R Block Group, Inc. and Block Financial, LLC as savings and loan holding companies (SLHCs), as discussed further in note 2, we no longer present interest income on mortgage
|
| | | | |
H&R Block, Inc. | 20162023 Form 10-K | 4543 |
Emerald Card® and SpruceSM revenues consist of Contents
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 SpruceSM 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.
loans heldTax 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 investmentpersonal 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 various other investments as revenues. Effective September 1, 2015, these amounts are prospectively reported in otherobtaining additional IRS identity protections when eligible.
Interest and fee income on Emerald AdvanceSMlines of credit is recorded over the consolidated statementslife of incomethe underlying loan.
Wave® revenues primarily consist of fees received to process payment transactions and comprehensive income.are generally calculated as a percentage of the transaction amounts processed. Revenues are recognized upon authorization of the transaction.
MARKETING AND ADVERTISING EXPENSE– 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. ContributionsEmployer contributions to this planthese plans are discretionary and totaled $14.3$25.6 million,, $14.8 $25.1 million and $11.8$26.6 million for continuing operations infor fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014, respectively.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 of a participating employer who incur a qualifying termination. Expenses related to severance benefits offor continuing operations totaled $12.0$6.9 million,, $6.7 $2.6 million and $5.2$8.4 million in for fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014, respectively.
FOREIGN CURRENCY TRANSLATION – Translation adjustments principally related to amounts outstanding under intercompany borrowings, resulted in foreign currency losses of $7.8April 30, 2021, respectively, and $1.2 million $5.9 million and $18.2 million in fiscal years 2016, 2015 and 2014 respectively.
NEW ACCOUNTING PRONOUNCEMENTS – In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-9, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-9), to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance will be effective for us on May 1, 2017, with early adoption permitted. We are currently evaluating the impact of ASU No. 2016-9 on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-2, "Leases" (ASU 2016-2), which will require the recognition of lease assets and lease liabilities by lessees for leases previously classified as operating leases. ASU 2016-2 also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. This guidance will be effective for us on May 1, 2019, with early adoption permitted, and requires the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We are currently evaluating the impact of ASU 2016-2 on our consolidated financial statements, although we expect the impact of this guidance on our consolidated financial statements could be significant.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, "Balance Sheet Classification of Deferred Taxes," (ASU 2015-17) which requires that deferred tax liabilities and assets be classified as noncurrent. We elected to adopt this guidance as of November 1, 2015, and applied it prospectively. As such, prior periods have not been adjusted.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," (ASU 2014-09) which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on May 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
NOTE 2: DIVESTITURE OF H&R BLOCK BANK
On August 4, 2015, H&R Block Bank (HRB Bank), Block Financial LLC, the sole shareholder of HRB Bank (Block Financial), and BofI, received regulatory approvals for a definitive Amended and Restated Purchase and Assumption Agreement pursuant to which we agreed to sell certain assets and liabilities, including all of the deposit liabilities of HRB Bank, to BofI (P&A Transaction). On August 31, 2015, we completed the P&A Transaction and made a net cash payment to BofI of $419 million, which was approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI. In connection with the closing, we sold the available-for-sale (AFS) securities previously held by HRB Bank.
Transition Period.
|
| | | | |
4644 | 20162023 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 SpruceSM | | 84,651 | | | 125,444 | | | 19,193 | | | 136,717 | |
Interest and fee income on Emerald AdvanceSM | | 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 |
On the closing date of the P&A Transaction, HRB Bank converted from a federal savings bank to a national banking association, merged with and into its parent company, Block Financial, surrendered its bank charter and ceased to exist as a bank. As a result, effective August 31, 2015, neither we nor anyA significant portion of our subsidiariesaccounts 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 subjectrelated to minimum regulatory capital requirements orour 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 regulation as a bank by the Office of the Comptroller of the Currency (OCC). In addition, H&R Block, Inc., H&R Block Group, Inc. and Block Financial (collectively,tax season. See note 4 for our Holding Companies) were SLHCs because they controlled HRB Bank. As a result of the P&A Transaction and related actions, our Holding Companies have ceased to be SLHCs and have deregistered as SLHCs under Section 10(b) of the Home Owner's Loan Act. Effective August 31, 2015, our Holding Companies are no longer subject to regulatory capital requirements applicable to SLHCs or regulation by the Board of Governors of the Federal Reserve System (Federal Reserve).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) | | (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 |
| | (in 000s, except per share amounts) | | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
| |
| Net income from continuing operations attributable to shareholders | | $ | 383,553 |
| | $ | 486,744 |
| | $ | 500,097 |
| Net income from continuing operations attributable to shareholders | | $ | 561,800 | | | $ | 560,646 | | | $ | 91,119 | | | $ | 590,212 | |
| Amounts allocated to participating securities | | (718 | ) | | (774 | ) | | (692 | ) | Amounts allocated to participating securities | | (2,272) | | | (2,468) | | | (402) | | | (2,413) | |
| Net income from continuing operations attributable to common shareholders | | $ | 382,835 |
| | $ | 485,970 |
| | $ | 499,405 |
| Net income from continuing operations attributable to common shareholders | | $ | 559,528 | | | $ | 558,178 | | | $ | 90,717 | | | $ | 587,799 | |
| | | | | | | | | | | | | | | |
| Basic weighted average common shares | | 249,009 |
| | 275,033 |
| | 273,830 |
| Basic weighted average common shares | | 154,044 | | | 168,519 | | | 181,473 | | | 186,832 | |
| Potential dilutive shares | | 1,809 |
| | 2,103 |
| | 2,197 |
| Potential dilutive shares | | 3,204 | | | 2,916 | | | 3,389 | | | 1,945 | |
| Dilutive weighted average common shares | | 250,818 |
| | 277,136 |
| | 276,027 |
| Dilutive weighted average common shares | | 157,248 | | | 171,435 | | | 184,862 | | | 188,777 | |
| | Earnings per share from continuing operations attributable to common shareholders: | | | | | | | Earnings per share from continuing operations attributable to common shareholders: | |
| Basic | | $ | 1.54 |
| | $ | 1.77 |
| | $ | 1.82 |
| Basic | | $ | 3.63 | | | $ | 3.31 | | | $ | 0.50 | | | $ | 3.15 | |
| Diluted | | 1.53 |
| | 1.75 |
| | 1.81 |
| 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 0.10.6 million, 0.4 million and 0.8 million shares of stock for each of our fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014,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 April 30, | | 2016 | | 2015 |
| | | Short-term |
| | Long-term |
| | Short-term |
| | Long-term |
|
| Loans to franchisees | | $ | 50,000 |
| | $ | 46,284 |
| | $ | 56,603 |
| | $ | 64,472 |
|
| Receivables for tax preparation and related fees | | 52,327 |
| | 5,528 |
| | 48,864 |
| | 6,103 |
|
Cash Back® receivables | | 37,663 |
| | — |
| | 42,680 |
| | — |
|
Emerald Advance lines of credit | | 25,092 |
| | 869 |
| | 21,908 |
| | 1,913 |
|
| Royalties from franchisees | | 9,997 |
| | — |
| | 8,206 |
| | — |
|
| Other | | 35,048 |
| | 7,726 |
| | 44,230 |
| | 8,379 |
|
| | | 210,127 |
| | 60,407 |
| | 222,491 |
| | 80,867 |
|
| Allowance for doubtful accounts | | (57,011 | ) | | — |
| | (54,527 | ) | | — |
|
| | | $ | 153,116 |
| | $ | 60,407 |
| | $ | 167,964 |
| | $ | 80,867 |
|
| | | | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 47 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 RefundSM 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. Loans made to franchisees asFranchisee loan balances consist of April 30, 2016 consisted of $61.2 million in term loans made primarily to finance the purchase of franchises and $35.1 million in revolvingshort-term lines of credit primarily for the purpose of funding off-seasonseasonal working capital needs. Loans madeAs 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 asare of April 30, 2015 consisted of $80.8 million in term loans and $40.3 million in revolving lines of credit.
As of April 30, 2016 and 2015, we had $0.3 million and $0.1 million of loans, respectively,similar credit quality. Loans are evaluated for collectibility when they become delinquent or more than 3090 days past due. We had noAmounts 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 RefundSM. Our Canadian operations advance refunds due to franchisees on non-accrual status ascertain 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 April 30, 2016 or 2015.
Canadian Cash Back® Program. Refunds advancedthe 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 the Cash Backthis program are not subject to credit approval, therefore the primary indicator of credit quality is the ageamount of their estimated refund, less our fees, any amounts expected to be withheld by the receivable amount. Cash BackCRA 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 RefundSM amounts are generally received from the CRA within 60 days of filing the client's return. As of April 30, 2016return, with the remaining balance collectible from the client.
Credit losses from these receivables are not specifically identified and 2015, $1.5 million and $1.3 million, respectively, of Cash Back balances were more than 60 days old.
H&R Block Emerald Advance® lines of credit. Beginning in fiscal year 2016,charged off; instead we no longer originate EAs. These lines of credit are originated by BofI, and we purchase a participation interest in them.
We review the credit quality of our EAthese receivables based on pools, which area pooled basis, segregated by the tax return year of origination with older years being deemed more unlikely to be repaid. These amounts asAt the end of April 30, 2016, bythe 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 origination, are as follows:each year we charge-off the receivables to an amount we believe represents the net realizable value.
|
| | | | |
| (in 000s) | |
| Credit Quality Indicator – Year of origination: | | |
| 2016 | | $ | 10,867 |
|
| 2015 | | 2,789 |
|
| 2014 and prior | | (2,127 | ) |
| Revolving loans | | 14,432 |
|
| | | $ | 25,961 |
|
| | | |
As of April 30, 2016 | | | | | |
H&R Block, Inc. | 2023 Form 10-K | 47 |
Balances and 2015, $21.1 million and $18.7 million of EAs wereamounts on non-accrual status and classified as impaired, or more than 60 days past due, respectively.by tax return year of origination, as of June 30, 2023 are as follows:
Allowance for Doubtful Accounts. Activity | | | | | | | | | | | | | | |
| | | | (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 15th, and any amounts unpaid are placed on non-accrual status as of March 1st. 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 doubtful accounts for ourcredit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables isto 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 June 30, 2023, are as follows:
|
| | | | | | | | | | | | |
| (in 000s) | |
| | | EAs |
| | All Other |
| | Total |
|
| Balances as of May 1, 2013 | | $ | 7,390 |
| | $ | 50,313 |
| | $ | 57,703 |
|
| Provision | | 24,619 |
| | 46,439 |
| | 71,058 |
|
| Charge-offs | | (24,479 | ) | | (51,704 | ) | | (76,183 | ) |
| Balances as of April 30, 2014 | | 7,530 |
| | 45,048 |
| | 52,578 |
|
| Provision | | 27,065 |
| | 44,002 |
| | 71,067 |
|
| Charge-offs | | (27,242 | ) | | (41,876 | ) | | (69,118 | ) |
| Balances as of April 30, 2015 | | 7,353 |
| | 47,174 |
| | 54,527 |
|
| Provision | | 24,939 |
| | 48,743 |
| | 73,682 |
|
| Charge-offs | | (23,285 | ) | | (47,913 | ) | | (71,198 | ) |
| Balances as of April 30, 2016 | | $ | 9,007 |
| | $ | 48,004 |
| | $ | 57,011 |
|
| | | | | | | |
| | | | | | | | | | | | | | |
| | (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 | 20162023 Form 10-K | H&R Block, Inc.
|
NOTE 5: MORTGAGE LOANS HELD FOR INVESTMENT
The composition of our mortgage loan portfolio is as follows:
|
| | | | | | | | | | | | | | |
| (dollars in 000s) | |
| As of April 30, | | 2016 | | 2015 |
| | | Amount |
| | % of Total |
| | Amount |
| | % of Total |
|
| Adjustable-rate loans | | $ | 108,251 |
| | 52 | % | | $ | 130,182 |
| | 53 | % |
| Fixed-rate loans | | 97,957 |
| | 48 | % | | 115,034 |
| | 47 | % |
| | | 206,208 |
| | 100 | % | | 245,216 |
| | 100 | % |
| Unamortized deferred fees and costs | | 1,695 |
| | | | 2,008 |
| | |
| Less: Allowance for loan losses | | (5,518 | ) | | | | (7,886 | ) | | |
| | | $ | 202,385 |
| | | | $ | 239,338 |
| | |
| | | | | | | | | |
Our loan loss allowance as a percent of mortgage loans was 2.7% and 3.2% as of April 30, 2016 and 2015, respectively.
Allowance for Credit Losses. Activity in the allowance for loancredit losses for EAs and all other short-term and long-term receivables for the yearsperiods ended June 30, 2023, June 30, 2022, June 30, 2021 and April 30, 2016, 2015 and 20142021 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 | |
| | | | | | | | |
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Balance as of the beginning of the year | | $ | 7,886 |
| | $ | 11,272 |
| | $ | 14,314 |
|
| Provision | | (1,173 | ) | | (10 | ) | | 8,271 |
|
| Recoveries | | 1,797 |
| | 1,393 |
| | 4,040 |
|
| Charge-offs | | (2,992 | ) | | (4,769 | ) | | (15,353 | ) |
| Balance as of the end of the year | | $ | 5,518 |
| | $ | 7,886 |
| | $ | 11,272 |
|
| | | | | | | |
Detail of the aging of the mortgage loans in our portfolio as of April 30, 2016 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in 000s) | |
| | | Less than 60
Days Past Due |
| | 60 – 89 Days
Past Due |
| | 90+ Days
Past Due(1) |
| | Total
Past Due |
| | Current |
| | Total |
|
| Purchased from SCC | | $ | 9,775 |
| | $ | 376 |
| | $ | 40,987 |
| | $ | 51,138 |
| | $ | 70,906 |
| | $ | 122,044 |
|
| All other | | 2,315 |
| | 131 |
| | 5,878 |
| | 8,324 |
| | 75,840 |
| | 84,164 |
|
| | | $ | 12,090 |
| | $ | 507 |
| | $ | 46,865 |
| | $ | 59,462 |
| | $ | 146,746 |
| | $ | 206,208 |
|
| | | | | | | | | | | | | |
| |
(1)
| We do not accrue interest on loans past due 90 days or more.
|
NOTE 6:5: 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 | | | |
| | | | | | |
|
| | | | | | | | |
| (in 000s) | |
| As of April 30, | | 2016 |
| | 2015 |
|
| Buildings | | $ | 76,289 |
| | $ | 88,273 |
|
| Computers and other equipment | | 128,815 |
| | 140,636 |
|
| Leasehold improvements | | 77,712 |
| | 68,114 |
|
| Purchased software | | 9,126 |
| | 12,741 |
|
| Land and other non-depreciable assets | | 1,623 |
| | 1,623 |
|
| | | $ | 293,565 |
| | $ | 311,387 |
|
| | | | | |
Depreciation and amortization expense of property and equipment for continuing operations for fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014April 30, 2021 was $100.8$58.5 million, $101.3$64.7 million and $84.7$73.4 million, respectively.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. | 20162023 Form 10-K | 49 |
NOTE 7:6: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the yearsperiods ended AprilJune 30, 20162023 and 20152022 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 | |
| | | | | | |
|
| | | | | | | | | | | | |
| (in 000s) | |
| | | Goodwill |
| | Accumulated Impairment Losses |
| | Net |
|
| Balances as of May 1, 2014 | | $ | 468,414 |
| | $ | (32,297 | ) | | $ | 436,117 |
|
| Acquisitions | | 7,628 |
| | — |
| | 7,628 |
|
| Disposals and foreign currency changes, net | | (1,914 | ) | | — |
| | (1,914 | ) |
| Impairments | | — |
| | — |
| | — |
|
| Balances as of April 30, 2015 | | 474,128 |
| | (32,297 | ) | | 441,831 |
|
| Acquisitions | | 27,765 |
| | — |
| | 27,765 |
|
| Disposals and foreign currency changes, net | | 1,161 |
| | — |
| | 1,161 |
|
| Impairments | | — |
| | — |
| | — |
|
| Balances as of April 30, 2016 | | $ | 503,054 |
| | $ | (32,297 | ) | | $ | 470,757 |
|
| | | | | | | |
We testedtest goodwill for impairment inannually as of February 1, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fourth quarterfair value of fiscal year 2016, and did not identify any impairment.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 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (in 000s) | |
| As of April 30, | | 2016 | | 2015 |
| | | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
|
| Reacquired franchise rights | | $ | 319,354 |
| | $ | (68,284 | ) | | $ | 251,070 |
| | $ | 294,647 |
| | $ | (46,180 | ) | | $ | 248,467 |
|
| Customer relationships | | 206,607 |
| | (104,072 | ) | | 102,535 |
| | 170,851 |
| | (78,157 | ) | | 92,694 |
|
| Internally-developed software | | 131,161 |
| | (95,768 | ) | | 35,393 |
| | 118,865 |
| | (80,689 | ) | | 38,176 |
|
| Noncompete agreements | | 31,499 |
| | (25,572 | ) | | 5,927 |
| | 30,630 |
| | (23,666 | ) | | 6,964 |
|
| Franchise agreements | | 19,201 |
| | (9,494 | ) | | 9,707 |
| | 19,201 |
| | (8,214 | ) | | 10,987 |
|
| Purchased technology | | 54,700 |
| | (25,909 | ) | | 28,791 |
| | 54,700 |
| | (19,846 | ) | | 34,854 |
|
Acquired assets pending final allocation (1) | | 462 |
| | — |
| | 462 |
| | — |
| | — |
| | — |
|
| | | $ | 762,984 |
| | $ | (329,099 | ) | | $ | 433,885 |
| | $ | 688,894 |
| | $ | (256,752 | ) | | $ | 432,142 |
|
| | | | | | | | | | | | | |
(1) Represents recent business acquisitions for which final purchase price allocations have not yet been determined.
The increase inAmortization of intangible assets resulted primarily from acquired franchiseefor continuing operations for the fiscal years ended June 30, 2023, June 30, 2022 and competitorApril 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 year 2016, which added approximately 260 offices to our company-owned network.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 or added during fiscal year 20162023, 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 |
| | | | |
|
| | | | | | |
| (dollars in 000s) |
| | | Amount |
| | Weighted-Average Life (in years) |
| Reacquired franchise rights | | $ | 23,412 |
| | 6 |
| Customer relationships | | 36,162 |
| | 6 |
| Internally-developed software | | 14,469 |
| | 3 |
| Noncompete agreements | | 812 |
| | 5 |
| Total | | $ | 74,855 |
| | 5 |
| | | | | |
Amortization of intangible assets of continuing operations for the years ended April 30, 2016, 2015 and 2014 was $72.8 million, $58.5 million and $30.9 million, respectively. Estimated amortization of intangible assets for fiscal years 2017, 2018, 2019, 2020 and 2021 is $75.6 million, $65.2 million, $50.8 million, $37.2 million and $26.1 million, respectively.
|
| |
50 | 2016 Form 10-K | H&R Block, Inc.
|
NOTE 8:7: 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 | | | | | |
| | | | | | | | |
|
| | | | | | | | |
| (in 000s) | |
| As of April 30, | | 2016 |
| | 2015 |
|
| Senior Notes, 4.125%, due October 2020 | | $ | 648,129 |
| | $ | — |
|
| Senior Notes, 5.500%, due November 2022 | | 498,175 |
| | 497,894 |
|
| Senior Notes, 5.250%, due October 2025 | | 349,012 |
| | — |
|
| Capital lease obligation, due over the next 7 years | | 7,435 |
| | 8,194 |
|
| | | 1,502,751 |
| | 506,088 |
|
| Less: Current portion | | (826 | ) | | (790 | ) |
| | | $ | 1,501,925 |
| | $ | 505,298 |
|
| | | | | |
UNSECURED COMMITTED LINE OF CREDIT – In September 2015, we terminated our previousOur unsecured committed line of credit agreement and entered into a new Credit and Guarantee Agreement (2015 CLOC). The 2015 CLOC(CLOC) provides for an unsecured senior revolving credit facility in the aggregate principal amount of $2.0$1.5 billion, which includes a $200.0$175.0 million sublimit for swingline loans and a $100.0$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 therefor and meeting certain other conditions. The 2015 CLOC will mature on September 21, 2020,June 11, 2026, unless extended pursuant to the terms of the 2015 CLOC, at which time all outstanding amounts thereunder will be due and payable. The 2015Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.
The 2015 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 AprilMarch 31, June 30, July 31, and October 31September 30 of each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on JanuaryDecember 31 of each year; (2) a covenant requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) ratio 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 2015 CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. Proceeds under the 2015 CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with these requirements as of AprilJune 30, 2016. As2023.
We had no outstanding balance under our CLOC as of AprilJune 30, 2016,2023 and amounts available to borrow under the 2015 CLOC were not limited by the debt-to-EBITDA covenant in the 2015 CLOC Agreement to approximately $1.2 billion, however, our cash needs at April 30 generally do not require us to borrow on our CLOC at that time. We had no balance outstanding under the 2015 CLOC as of AprilJune 30, 2016.2023.
SENIOR NOTES – On September 25, 2015, we issued $650.0 million of 4.125% Senior Notes due October 1, 2020 (2020 Senior Notes), and $350.0 million of 5.250% Senior Notes due October 1, 2025 (2025 Senior Notes). 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. Proceeds of the 2020 Senior Notes and 2025 Senior Notes, along with cash on hand, were used to repurchase shares, as discussed in note 10.
On October 25, 2012, we issued $500.0 million of 5.50% Senior Notes due November 1, 2022. The Senior Notes are not redeemable by the bondholders prior to maturity.
The interest rates on our Senior Notes are subject to adjustment based upon our credit ratings.
OTHER INFORMATION – The aggregate payments required to retire long-term debt are $0.8 million, $1.0 million, $1.0 million, $1.1 million, $649.3 million and $849.6$350.0 million in fiscal years 2017, 2018, 2019, 2020, 2021year 2026, $500.0 million in fiscal year 2029 and beyond, respectively.
$650.0 million in fiscal year 2031.
|
| | | | |
H&R Block, Inc. | 20162023 Form 10-K | 51 |
NOTE 9: FAIR VALUE
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. There were no transfers between hierarchy levels during the fiscal years ended April 30, 2016 and 2015.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying amounts and estimated fair values of our financial instruments are as follows:
|
| | | | | | | | | | | | | | | | | | |
| (in 000s) |
| As of April 30, | | 2016 | | 2015 | | Fair Value Hierarchy |
| | | Carrying
Amount |
| | Estimated
Fair Value |
| | Carrying Amount |
| | Estimated Fair Value |
| |
| Assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 896,801 |
| | $ | 896,801 |
| | $ | 2,007,190 |
| | $ | 2,007,190 |
| | Level 1 |
| Cash and cash equivalents - restricted | | 104,110 |
| | 104,110 |
| | 91,972 |
| | 91,972 |
| | Level 1 |
| Receivables, net - short-term | | 153,116 |
| | 153,116 |
| | 167,964 |
| | 167,964 |
| | Level 1 |
| Mortgage loans held for investment, net | | 202,385 |
| | 190,503 |
| | 239,338 |
| | 190,196 |
| | Level 3 |
| Investments in AFS securities | | 1,133 |
| | 1,133 |
| | 441,709 |
| | 441,709 |
| | Level 1 and 2 |
| Receivables, net - long-term | | 60,407 |
| | 60,407 |
| | 80,867 |
| | 80,867 |
| | Level 1 and 3 |
| Liabilities: | | | | | | | | | | |
| Customer banking deposits | | — |
| | — |
| | 744,699 |
| | 737,261 |
| | Level 1 and 3 |
| Long-term debt | | 1,502,751 |
| | 1,566,098 |
| | 506,088 |
| | 556,769 |
| | Level 2 |
| Contingent consideration | | 8,657 |
| | 8,657 |
| | 10,667 |
| | 10,667 |
| | Level 3 |
| | | | | | | | | | | |
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. |
| |
▪ | 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. |
| |
▪ | Mortgage loans held for investment, net - The fair value of mortgage loans held for investment is estimated using a third-party pricing service. The fair value is determined using the present value of expected future cash flows at the asset level, assuming future prepayments and using discount factors determined by prices obtained for residential loans with similar characteristics in the secondary market, as discounted for illiquid assets. Quarterly, we perform analytics to assess the reasonableness of the fair value received from the third-party pricing service based on changes in the portfolio and changes in market conditions. We evaluate whether adjustments to third-party pricing is necessary and historically, we have not made adjustments to prices obtained from our third-party pricing service. |
| |
▪ | Investments in AFS securities - For mortgage-backed securities, we historically used a third-party pricing service to determine fair value. The service's pricing model is based on market data and utilizes available trade, bid and other market information for similar securities (Level 2). The fair value of our investment in common stock was determined based on quoted market prices (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 |
|
| |
52 | 2016 Form 10-K | H&R Block, Inc.
|
territories serving as collateral (Level 1). Long-term EA receivables are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined based on historical collection rates.
| |
▪ | Customer banking deposits - The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, checking, money market and savings accounts, was equal to the amount payable on demand (Level 1). The fair value of IRAs and other time deposits was estimated by discounting the future cash flows using the rates offered by HRB Bank for products with similar remaining maturities (Level 3). |
| |
▪ | Long-term debt - The fair value of our Senior Notes is based on quotes from multiple banks. |
| |
▪ | Contingent consideration - Fair value approximates the carrying amount. |
NOTE 10: STOCKHOLDERS' EQUITY
COMMON STOCK – During fiscal year 2016, we repurchased and immediately retired 56.4 million shares of stock at an aggregate cost of $2.0 billion, or an average price of $35.46 per share. We had no similar repurchases or retirements of common stock in fiscal years 2015 or 2014.
OTHER COMPREHENSIVE INCOME –Components of other comprehensive income include foreign currency translation adjustments and the change in net unrealized gains or losses on AFS marketable securities, and are as follows:
|
| | | | | | | | | | | | |
| (in 000s) | |
| | | Foreign Currency Translation Adjustments |
| | Unrealized Gains (Losses) on AFS Securities |
| | Total |
|
| Balances as of May 1, 2013 | | $ | 6,809 |
| | $ | 3,741 |
| | $ | 10,550 |
|
| Other comprehensive income before reclassifications: | | | | | |
|
|
| Gross gains (losses) arising during the year | | (3,416 | ) | | 2,594 |
| | (822 | ) |
| Tax expense (benefit) | | 59 |
| | 787 |
| | 846 |
|
| | | (3,475 | ) | | 1,807 |
| | (1,668 | ) |
| Amounts reclassified to net income: | | | | | |
|
|
Amount reclassified (1) | | — |
| | (5,835 | ) | | (5,835 | ) |
| Tax expense (benefit) | | — |
| | (2,130 | ) | | (2,130 | ) |
| | | — |
| | (3,705 | ) | | (3,705 | ) |
| Net other comprehensive income (loss) | | (3,475 | ) | | (1,898 | ) | | (5,373 | ) |
| | | | | | | |
| Balances as of April 30, 2014 | | 3,334 |
| | 1,843 |
| | 5,177 |
|
| Other comprehensive income before reclassifications: | | | | | |
|
|
| Gross gains (losses) arising during the year | | (9,004 | ) | | 10,946 |
| | 1,942 |
|
| Tax expense (benefit) | | 1,119 |
| | 4,301 |
| | 5,420 |
|
| | | (10,123 | ) | | 6,645 |
| | (3,478 | ) |
| Amounts reclassified to net income: | | | | | | |
| Amount reclassified | | — |
| | 68 |
| | 68 |
|
| Tax expense (benefit) | | — |
| | 27 |
| | 27 |
|
| | | — |
| | 41 |
| | 41 |
|
| Net other comprehensive loss | | (10,123 | ) | | 6,686 |
| | (3,437 | ) |
| | | | | | | |
| Balances as of April 30, 2015 | | (6,789 | ) | | 8,529 |
| | 1,740 |
|
| Other comprehensive income before reclassifications: | | | | | | |
| Gross gains (losses) arising during the year | | (4,398 | ) | | (5,800 | ) | | (10,198 | ) |
| Tax expense (benefit) | | 63 |
| | (2,270 | ) | | (2,207 | ) |
| | | (4,461 | ) | | (3,530 | ) | | (7,991 | ) |
| Amounts reclassified to net income: | | | | | | |
| Amount reclassified | | — |
| | (8,196 | ) | | (8,196 | ) |
| Tax expense (benefit) | | — |
| | (3,214 | ) | | (3,214 | ) |
| | | — |
| | (4,982 | ) | | (4,982 | ) |
| Net other comprehensive income (loss) | | (4,461 | ) | | (8,512 | ) | | (12,973 | ) |
| | | | | | | |
| Balances as of April 30, 2016 | | $ | (11,250 | ) | | $ | 17 |
| | $ | (11,233 | ) |
| | | | | | | |
(1) Amount represents a gross realized gain of $18.3 million on the sale of residual interests in mortgage securitizations, net of other-than-temporary impairments on AFS securities of $12.4 million.
Gross gains and losses reclassified out of accumulated other comprehensive income are included in other income and other expense, respectively, in the consolidated statements of income and comprehensive income.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 53 |
NOTE 11:8: 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 of our continuing operations totaled $23.5 million, $26.1 million and $20.1 million in fiscal years 2016, 2015 and 2014, respectively, net of related tax benefits of $9.5 million, $9.9 million and $7.6 million, respectively. We realized tax benefits of $20.9 million, $12.5 million and $10.6 million in fiscal years 2016, 2015 and 2014, respectively.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 AprilJune 30, 2016,2023, we had 8.79.3 million shares reserved for future awards under our Plan. We issue shares from our treasury stockshares to satisfy the exercise or vesting of stock-based awards and believe we have adequate treasury stock balancesshares available for future issuances.
We measure the fair value of options on the grant date or modification date using the Black-Scholes-Merton (Black-Scholes) option valuation model based upon the expected term of the options. We measure the fair value of nonvested shares andrestricted 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 nonvested 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 nonvested shares and nonvestedrestricted share units (other than performance-based nonvested 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 nonvested 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 rangescan range from zero up to 250200 percent of the number granted, based on the form of the award, which can vary by year of grant. The performance metrics such asfor these awards typically consist of earnings before interest, taxes, depreciation and amortization (EBITDA), return on equity,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 after March 2013 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.
STOCK OPTIONS –A summary of options for the fiscal year ended April 30, 2016, is as follows:
|
| | | | | | | | | | | | | |
| (in 000s, except per share amounts) | |
| | | Shares |
| | Weighted-Average
Exercise Price |
| | Weighted-Average
Remaining
Contractual Term | | Aggregate
Intrinsic Value |
|
| Outstanding, beginning of the year | | 2,613 |
| | $ | 17.71 |
| | | | |
| Granted | | 112 |
| | 34.73 |
| | | | |
| Exercised | | (707 | ) | | 16.85 |
| | | | |
| Forfeited or expired | | (42 | ) | | 27.15 |
| | | | |
| Outstanding, end of the year | | 1,976 |
| | $ | 18.76 |
| | 5 years | | $ | 4,812 |
|
| | | | | | | | | |
| Exercisable, end of the year | | 1,871 |
| | $ | 17.85 |
| | 5 years | | $ | 4,812 |
|
| Exercisable and expected to vest | | 1,961 |
| | $ | 18.64 |
| | 5 years | | $ | 4,812 |
|
| | | | | | | | | |
The total intrinsic value of options exercised during fiscal years 2016, 2015 and 2014 was $11.7 million, $8.4 million and $13.6 million, respectively. As of April 30, 2016, we had $0.4 million of total unrecognized compensation cost related to outstanding options. The cost is expected to be recognized over a weighted-average period of two years.
When valuing our options on the grant date, we typically estimate the expected volatility using our historical stock price data. We also use historical exercise and forfeiture behaviors to estimate the options expected term and our forfeiture rate. 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
|
| |
54 | 2016 Form 10-K | H&R Block, Inc.
|
the grant date. Both expected volatility and the risk-free interest rate are based on a period that approximates the expected term.
The following assumptions were used to value options during the periods:
|
| | | | | | | | | | | | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Options - management and director: | | | | | | |
| Expected volatility | | 22.95%-24.87% |
| | 26.25% |
| | 30.89% - 31.57% |
|
| Expected term | | 4 years |
| | 4 years |
| | 4 years |
|
| Dividend yield | | 2.26%-2.69% |
| | 2.62% |
| | 2.77% - 2.87% |
|
| Risk-free interest rate | | 1.29%-1.43% |
| | 1.43% |
| | 1.06% - 1.31% |
|
| Weighted-average fair value | | $ | 5.28 |
| | $ | 5.18 |
| | $ | 5.57 |
|
| | | | | | | |
OTHER AWARDS – A summary of nonvested shares, nonvestedrestricted share units and deferred stock units, including those that are performance-based, for the year ended AprilJune 30, 2016,2023, 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 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| (shares in 000s) | |
| | | Nonvested Shares and Nonvested Share Units | | Performance-Based Nonvested Share Units |
| | | Shares | | Weighted-Average
Grant Date
Fair Value |
| | Shares | | Weighted-Average
Grant Date
Fair Value |
|
| Outstanding, beginning of the year | | 1,487 |
| | $ | 24.05 |
| | 1,192 |
| | $ | 26.26 |
|
| Granted | | 593 |
| | 30.58 |
| | 912 |
| | 30.00 |
|
| Released | | (511 | ) | | 24.26 |
| | (980 | ) | | 16.74 |
|
| Forfeited | | (56 | ) | | 30.11 |
| | (25 | ) | | 33.45 |
|
| Outstanding, end of the year | | 1,513 |
| | $ | 26.21 |
| | 1,099 |
| | $ | 31.86 |
|
| | | | | | | | | |
The total fair value of shares and units vesting during fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014April 30, 2021 was $28.8$33.6 million, $14.3$33.3 million and $8.6$16.1 million, respectively.respectively, and was $12.3 million for the Transition Period. As
| | | | | |
| 52 | 2023 Form 10-K | H&R Block, Inc. |
of AprilJune 30, 2016,2023, we had $32.1$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 nonvested 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 nonvested 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.
|
| | | | | | | | | | | | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Expected volatility | | 12.85% - 55.27% |
| | 12.28% - 78.42% |
| | 11.75% – 70.17% |
|
| Expected term | | 3 years |
| | 3 years |
| | 3 years |
|
Dividend yield (1) | | 0% - 2.70% |
| | 0% - 2.39% |
| | 0% – 2.88% |
|
| Risk-free interest rate | | 0.95 | % | | 0.81 | % | | 0.61 | % |
| Weighted-average fair value | | $ | 30.00 |
| | $ | 37.17 |
| | $ | 28.59 |
|
| | | | | | | |
| |
(1)
| The valuation model assumes that dividends are reinvested by the Company on a continuous basis. |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 55 |
NOTE 12:9: 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.
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Domestic | | $ | 513,746 |
| | $ | 682,744 |
| | $ | 754,036 |
|
| Foreign | | 55,733 |
| | 60,061 |
| | 13,080 |
|
| | | $ | 569,479 |
| | $ | 742,805 |
| | $ | 767,116 |
|
| | | | | | | |
| | | | | |
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 (benefit) for continuing operations are as follows:
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Current: | | | | | | |
| Federal | | $ | 167,233 |
| | $ | 245,473 |
| | $ | 195,277 |
|
| State | | (26,980 | ) | | 31,501 |
| | 33,274 |
|
| Foreign | | 8,735 |
| | 9,788 |
| | 6,749 |
|
| | | 148,988 |
| | 286,762 |
| | 235,300 |
|
| Deferred: | | | | | | |
| Federal | | 19,937 |
| | (30,181 | ) | | 28,624 |
|
| State | | 13,801 |
| | (4,040 | ) | | 5,475 |
|
| Foreign | | 3,200 |
| | 3,520 |
| | (2,380 | ) |
| | | 36,938 |
| | (30,701 | ) | | 31,719 |
|
| Total income taxes for continuing operations | | $ | 185,926 |
| | $ | 256,061 |
| | $ | 267,019 |
|
| | | | | | | |
The reconciliation between the income tax provision and the amount computed by applying the statutory federal tax rate of 35% to income taxes of continuing operations is as follows:
|
| | | | | | | | | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| U.S. statutory tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Change in tax rate resulting from: | | | | | | |
| State income taxes, net of federal income tax benefit | | 2.2 | % | | 3.5 | % | | 3.8 | % |
| Earnings taxed in foreign jurisdictions | | (2.0 | )% | | (1.8 | )% | | (0.2 | )% |
| Permanent differences | | (0.2 | )% | | (0.3 | )% | | 0.1 | % |
| Uncertain tax positions | | 2.8 | % | | (1.0 | )% | | (5.6 | )% |
| Change in valuation allowance | | (0.5 | )% | | 0.2 | % | | 1.5 | % |
| Significant state apportionment changes | | (4.3 | )% | | — | % | | — | % |
| Other | | (0.3 | )% | | (1.1 | )% | | 0.2 | % |
| Effective tax rate | | 32.7 | % | | 34.5 | % | | 34.8 | % |
| | | | | | | |
The effective tax rate for fiscal year 2016 decreased 1.8% compared to the prior year. This decrease was due largely to the tax effects of changes in state apportionment. The 4.3% decrease related to the changes in state apportionment were related to income from prior fiscal years for which tax returns were not yet filed when the apportionment change was made. The favorable impact of the change in state apportionment was offset by an increase in uncertain tax positions. The tax expense from uncertain tax positions resulted mainly from federal and state tax positions taken on current year income tax returns.
The net loss from discontinued operations for fiscal years 2016, 2015 and 2014 totaled $9.3 million, $13.1 million and $24.9 million, respectively, and was net of tax benefits of $5.4 million, $8.1 million and $15.4 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | | |
| | | | | | | | | | |
|
| | | | |
5654 | 20162023 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 Contents
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 | | | |
| | | | | | |
|
| | | | | | | | |
| (in 000s) | |
| As of April 30, | | 2016 |
| | 2015 |
|
| Deferred tax assets: | | | | |
| Accrued expenses | | $ | 7,919 |
| | $ | 9,301 |
|
| Deferred revenue | | 35,066 |
| | 39,604 |
|
| Allowance for credit losses and related reserves | | 69,347 |
| | 107,554 |
|
| Internally-developed software | | 51,998 |
| | 46,376 |
|
| Deferred and stock-based compensation | | 19,075 |
| | 21,776 |
|
| Net operating loss carry-forward | | 26,992 |
| | 27,285 |
|
| Federal tax benefits related to state unrecognized tax benefits | | 31,123 |
| | 26,862 |
|
| Other | | 10,187 |
| | 7,278 |
|
| Valuation allowance | | (21,515 | ) | | (24,937 | ) |
| Total deferred tax assets | | 230,192 |
| | 261,099 |
|
| | | | | |
| Deferred tax liabilities: | | | | |
| Prepaid expenses and other | | (3,225 | ) | | (7,295 | ) |
| Property and equipment | | (19,913 | ) | | (25,589 | ) |
| Intangibles | | (93,406 | ) | | (93,700 | ) |
| Total deferred tax liabilities | | (116,544 | ) | | (126,584 | ) |
| | | | | |
| Net deferred tax assets | | $ | 113,648 |
| | $ | 134,515 |
|
| | | | | |
Effective November 1, 2015, we adoptedA reconciliation of the provisions of ASU 2015-17 on a prospective basis. Accordingly, all net deferred tax assets and liabilities as of April 30, 2016 are classified as noncurrentand the corresponding amounts reported in the consolidated balance sheet. Amountssheets 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 prior periods have not been restated infiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 and for the consolidated financial statements.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 decreased $3.4has a net increase of $2.4 million during the current period. The decreasegross increase in the valuation allowance of $6.4 million is primarily related to management's assessment that it was now more likely than not that we could utilize ournet operating loss deferred tax assets relatedgenerated 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 tax credit carry-forwards, which were includednet operating losses utilized in other deferred tax assets asthe current fiscal year and changes in future projections of April 30, 2015.net operating loss utilization.
Certain of our subsidiaries file stand-alone returns in various statesstate, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of AprilJune 30, 2016,2023, we had net operating losses (NOLs) in various states and foreign jurisdictions. The amount of state NOLs varyand foreign net operating losses varies by taxing jurisdiction. We maintain a valuation allowance of $20.7$19.3 million on state net operating losses and $36.2 million on foreign net operating losses for the portion of such lossesloses that, more likely than not, will not be realized. If not used,Of the NOLs$117.0 million of net operating loss deferred tax assets, $25.7 million will expire in varying amounts during fiscal years 20172024 through 2034.2041 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 indefinitely reinvest the earnings ofrepatriate non-borrowed funds held by our foreign subsidiaries;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 not materialimmaterial as of AprilJune 30, 2016.2023.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 57 |
Changes in unrecognized tax benefits for fiscal years 2016, 2015ended June 30, 2023, June 30, 2022 and 2014April 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 | |
| | | | | | | | |
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Balance, beginning of the year | | $ | 86,268 |
| | $ | 111,491 |
| | $ | 146,391 |
|
| Additions based on tax positions related to prior years | | 29,294 |
| | 15,510 |
| | 9,743 |
|
| Reductions based on tax positions related to prior years | | (25,413 | ) | | (38,783 | ) | | (25,403 | ) |
| Additions based on tax positions related to the current year | | 27,220 |
| | 22,319 |
| | 7,399 |
|
| Reductions related to settlements with tax authorities | | (450 | ) | | (10,450 | ) | | (23,993 | ) |
| Expiration of statute of limitations | | (8,922 | ) | | (11,423 | ) | | (11,853 | ) |
| Other | | 3,517 |
| | (2,396 | ) | | 9,207 |
|
| Balance, end of the year | | $ | 111,514 |
| | $ | 86,268 |
| | $ | 111,491 |
|
| | | | | | | |
TheIncluded in the total gross unrecognized tax benefit ending balance as of June 30, 2023, June 30, 2022, June 30, 2021 and April 30, 2016, 2015 and 2014, includes $82.32021, are $209.0 million, $55.3$203.7 million, $224.5 million and $73.7$214.9 million, respectively, which if recognized, would impact our effective tax rate. The difference resultsIncreases from adjustingprior 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 gross balances for such items as federal, state and foreign deferred items, interest and deductible taxes. We do not expect a significant change in the amountbalance of unrecognized tax benefits as of the end of fiscal 2016could 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 AprilJune 30, 2016, 20152023 and 20142022 totaled $22.3 million, $24.7$32.6 million and $24.6$22.7 million, respectively.
We file a consolidated federal income tax return in the United States with the IRS and file tax returns in various state and foreign jurisdictions. Tax returns are typically examined and settled upon completion of the examination, with tax controversies settled either at the examination level or through the appeals process. The Company currently does not have a U.S. federal income tax return under examination. Our U.S. federal returns for 2011 and all prior periods have been audited by the IRS and are closed. Our return for 2012 has been audited by the IRS but remains open until the three year statute runs in fall of 2016. Our U.S. federal returns for 2013 and after have not been audited and remain open to examination. With respect to state and local jurisdictions and countries outside of the United States, we and our subsidiaries are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest and penalties have been provided for in the consolidated financial statements for any adjustments that might be incurred due to state, local or foreign audits.
NOTE 13: OTHER INCOME AND OTHER EXPENSES
The following table shows the components of other income and other expenses: |
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Other income, net: | | | | | | |
| Mortgage loans and real estate owned, net | | $ | 4,914 |
| | $ | — |
| | $ | — |
|
| Interest and gains on available-for-sale securities | | 8,548 |
| | — |
| | 19,918 |
|
| Other | | 4,239 |
| | 1,314 |
| | 16,397 |
|
| | | $ | 17,701 |
| | $ | 1,314 |
| | $ | 36,315 |
|
| Other expenses, net: | | | | | | |
| Foreign currency losses | | $ | (7,807 | ) | | $ | (5,878 | ) | | $ | (18,191 | ) |
| Impairment of investments | | (2,500 | ) | | (1,368 | ) | | (12,856 | ) |
| Other | | (2,145 | ) | | (683 | ) | | (1,363 | ) |
| | | $ | (12,452 | ) | | $ | (7,929 | ) | | $ | (32,410 | ) |
| | | | | | | |
In connection with our deregistration as an SLHC, as discussed further in note 1, we no longer present interest income on mortgage loans held for investment and various other investments as revenues. Effective September 1,
|
| |
58 | 2016 Form 10-K | H&R Block, Inc.
|
2015, these amounts are prospectively reported in other income on the consolidated statements of income and comprehensive income.
NOTE 14:10: COMMITMENTS AND CONTINGENCIES
We offer POM toAssisted tax clientsreturns are covered by our 100% accuracy guarantee, whereby we (1) representwill reimburse a client for penalties and interest attributable to an H&R Block error on a return. DIY tax returns are covered by our clients if they are audited by the IRS, and (2) assume the cost,100% accuracy guarantee, whereby we will reimburse a client up to a cumulative per client limitmaximum of $6,000,$10,000, if our software makes an arithmetic error that results in payment of additional taxes owed bypenalties and/or interest to the respective taxing authority that a client resulting from errors attributablewould otherwise not have been required to H&R Block. We defer all revenues and direct costs associated with these service plans, recognizing these amounts over the term of the service plan based on actual claims paid in relation to projected claims. The related short-term asset is included in prepaid expenses and other current assets. The relatedpay. Our liability is included in deferred revenue and other current liabilities in the consolidated balance sheets. The related long-term asset and liability are included in other noncurrent assets and deferred revenue and other noncurrent liabilities, respectively, in the consolidated balance sheets. A loss on POM would be recognized if the sum of expected costs for services exceeded unearned revenue. Changes in the related balance of deferred revenue for both company-owned and franchise POM are as follows:
|
| | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
|
| Balance, beginning of the year | | $ | 189,779 |
| | $ | 166,259 |
|
| Amounts deferred for new extended service plans issued | | 119,915 |
| | 113,849 |
|
| Revenue recognized on previous deferrals | | (105,352 | ) | | (90,329 | ) |
| Balance, end of the year | | $ | 204,342 |
| | $ | 189,779 |
|
| | | | | |
We accrued $7.0 million and $8.4 million as of April 30, 2016 and 2015, respectively, related to estimated losses under our standardthe 100% accuracy guarantee which is included with our standard in-office tax preparation services.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.
We have accruedLiabilities related to acquisitions for (1) estimated contingent consideration totaling $8.7 million and $10.7 million as of April 30, 2016 and 2015, respectively, related to acquisitions, with amounts recorded in deferred revenue and other liabilities. Estimates of contingent payments are typically based on expected financial performance of the acquired business and economic conditions at the time of acquisition.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 assumptions,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 revolvingshort-term lines of credit.credit for the purpose of meeting their seasonal working capital needs. Our total obligationobligation under these lines of credit was $69.4$0.4 million as of AprilJune 30, 2016,2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $34.3$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 providedprovided medical benefits, workers' compensation, property, general liability, tax errors and casualty, professional liabilityomissions, and claims related to POM. These programs maintain various self-insured retentions. In all but POM in company-owned offices,retentions and commercial insurance is purchased in excess of the self-insured retentions.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. IncludedAs of June 30, 2023 and 2022, $10.5 million is included in deferred revenue and other liabilities is $29.0 million and $33.8 million as of April 30, 2016 and 2015, respectively, reflecting our obligation under these plans.this plan.
In connection with the P&A TransactionEmerald Advances are originated by Pathward, and pursuant to our participation agreement, we entered into an Emerald Advance Receivables Participation Agreement (RPA) dated August 31, 2015 with BofI. Pursuant to the RPA, we are required to purchase a 90% participation interest at par, in all EAseach advance made by Pathward. See note 4 for additional information about these balances.Refund Advance loans are originated by BofI throughoutPathward 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 termIRS accepting electronic filing. We accrued an estimated liability of the RPA. At April$0.7 million at June 30, 2016 the principal balance2023 related to this guarantee. As of purchased participation interests totaled $13.4 million.
|
| | | | |
H&R Block, Inc. | 20162023 Form 10-K | 5957 |
June 30, 2022 we had $0.6 million accrued under the RA guarantee agreement, and we paid $0.5 million, net of Contents
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.
Substantially all
NOTE 11: LEASES
Our lease costs and other information related to operating leases consisted of the operations of our subsidiaries are conducted in leased premises. Most of the operating leases are for periods ranging from three years to five years, with renewal options, and provide for fixed monthly rentals. Future minimumfollowing:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | (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 commitmentsmaturities as of AprilJune 30, 2016,2023 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 | |
| | |
|
| | | |
| (in 000s) | |
| 2017 | $ | 213,523 |
|
| 2018 | 165,281 |
|
| 2019 | 124,750 |
|
| 2020 | 81,190 |
|
| 2021 | 32,191 |
|
| 2022 and beyond | 63,881 |
|
| | $ | 680,816 |
|
| | |
Rent expense of continuing operations for fiscal years 2016, 2015 and 2014 totaled $228.5 million, $213.1 million and $203.3 million, respectively.
See notes 15 and 16 to the consolidated financial statements for additional discussion regarding guarantees and indemnifications.
NOTE 15:12: 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, aremay 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 of the court.jurisdiction. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. We believe that the monetary relief which may be specified in a lawsuit or a claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in litigating orhandling and resolving through settlement of numerous claims over an extended period of time.
The outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Among other things, uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trialcourts and appellate courtsarbitrators 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 themselves view the relevant evidence and applicable law.
In addition to litigation and arbitration matters, we are also subject to claims and other loss contingencies arising out of our business activities, including as described below.
We accrue liabilities for litigation, claims,arbitration and other related loss contingencies and any related settlements (each referred to, individually, as a "matter" and, collectively, as "matters") when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been accrued for a number of the matters noted below. 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 AprilJune 30, 2016.2023. 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 AprilJune 30, 20162023 and 2015, we2022 our total accrued liabilities of $2.3were $0.2 million and $8.9$1.7 million, respectively,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 matters addressed in this note.
|
| |
60 | 2016 Form 10-K | H&R Block, Inc.
|
For somethat 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. ThisIt 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. Those matters for which an estimate is not reasonably possible are not included within this estimated range. Therefore, this estimated rangeAs of reasonably possible loss represents whatJune 30, 2023, we believe to be anthe estimate of reasonably possible loss only for certain matters meeting these criteria. It does not represent our maximum loss exposure. For those matters, and for matters where a liability has been accrued, as of April 30, 2016, we believe the aggregate range of reasonably possible losses in excess of amounts accrued, is not material.
For other matters, we are not currently able to estimatewhere the reasonably possible loss or range of loss. 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 assessmentcan be estimated, is not material.
At the end of the reasonably possible loss or range of loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by courts on motions or appeals, analysis by experts, or the status of any settlement negotiations.
On a quarterly and annual basis,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, but 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 consolidated financial position, results of operations and cash flows.
LITIGATION, CLAIMS, INCLUDING INDEMNIFICATION CLAIMS, OR OTHER LOSS CONTINGENCIES PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS – Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has been, remains, and may in the future be subject to litigation, claims, including indemnification and contribution claims, and other loss contingencies pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. These contingencies, claims, and lawsuits include actions by regulators, third parties seeking indemnification, including depositors, underwriters, and securitization trustees, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other things, these contingencies, claims, and lawsuits allege or may allege discriminatory or unfair and deceptive loan origination and servicing (including debt collection, foreclosure, and eviction) practices, other common law torts, rights to indemnification and contribution, breach of contract, violations of securities laws, and a variety of federal statutes, including the Truth in Lending Act (TILA), Equal Credit Opportunity Act, Fair Housing Act, Real Estate Settlement Procedures Act (RESPA), Home Ownership & Equity Protection Act (HOEPA), as well as similar state statutes. Given the impact of the financial crisis on the non-prime mortgage environment, the aggregate volume of these matters is substantial although it is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters. In many of these matters, including certain of the lawsuits and claims described below, it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these matters, some of which are beyond the Company's control, and the indeterminate damages sought in some of these matters.
On May 31, 2012, a lawsuit was filed by Homeward Residential, Inc. (Homeward) in the Supreme Court of the State of New York, County of New York, against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Index No. 651885/2012). SCC removed the case to the United States District Court for the Southern District of New York on June 28, 2012 (Case No. 12-cv-5067). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-2 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract, anticipatory breach, indemnity, and declaratory judgment in connection with alleged losses incurred as a result of the breach of representations and warranties relating to SCC and to loans sold to the trust. The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual and anticipated losses, as well as a repurchase of all loans due to alleged misrepresentations by SCC
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 61 |
as to itself and as to the loans' compliance with its underwriting standards and the value of underlying real estate. In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase, anticipatory breach, indemnity, and declaratory judgment. The case is proceeding on the remaining claims. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.
On September 28, 2012, a second lawsuit was filed by Homeward in the United States District Court for the Southern District of New York against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 12-cv-7319). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to the trust. The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual and anticipated losses. In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase and for indemnification of its costs associated with the litigation. The case is proceeding on the remaining claims. A portion of the accrual for representation and warranty claims, as discussed in note 16, is related to loans in this case. We have not concluded that a loss related to this lawsuit is probable, nor have we accrued a liability related to this lawsuit.
On April 5, 2013, a third lawsuit was filed by Homeward in the United States District Court for the Southern District of New York against SCC. The suit, styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 13-cv-2107), was filed as a related matter to the September 2012 Homeward suit mentioned above. In this April 2013 lawsuit, the plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2007-4 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses allegedly incurred as a result of the breach of representations and warranties relating to 159 loans sold to the trust. The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual and anticipated losses. In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase and for indemnification of its costs associated with the litigation. The case is proceeding on the remaining claims. A portion of the accrual for representation and warranty claims, as discussed in note 16, is related to loans in this case. We have not concluded that a loss related to this lawsuit is probable, nor have we accrued a liability related to this lawsuit.
Underwriters and depositors are, or have been, involved in multiple lawsuits related to securitization transactions in which SCC participated. These lawsuits allege or alleged a variety of claims, including violations of federal and state securities laws and common law fraud, based on alleged materially inaccurate or misleading disclosures. SCC has received notices of claims for indemnification relating to lawsuits to which underwriters or depositors are party. Based on information currently available to SCC, it believes that the 22 lawsuits in which notice of a claim has been made involve 39 securitization transactions with original investments of approximately $14 billion (of which the outstanding principal amount is approximately $4 billion). Because SCC has not been a party to these lawsuits (with the exception of Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation, et al., filed in the Circuit Court of Cook County, Illinois (Case No. 10CH45033) and settled as to SCC in August 2015), and has not had control of this litigation or any settlements thereof, SCC does not have precise information about the amount of damages or other remedies being asserted, the defenses to the claims in such lawsuits or the terms of any settlements of such lawsuits. SCC therefore cannot reasonably estimate the amount of potential losses or associated fees and expenses that may be incurred in connection with such lawsuits, which may be material. Additional lawsuits against the underwriters or depositors may be filed in the future, and SCC may receive additional notices of claims for indemnification from underwriters or depositors with respect to existing or new lawsuits or settlements of such lawsuits. Certain of the notices received included, and future notices may include, a reservation of rights, which are referred to as "reserved contribution rights," that encompasses a right of contribution which may become operative if indemnification is unavailable or insufficient to cover all of the losses and expenses involved. We have not concluded that a loss related to any of these indemnification claims or reserved contribution rights is probable, nor have we accrued a liability related to any of these claims or rights.
Securitization trustees also are, or have been, involved in lawsuits related to securitization transactions in which SCC participated. Plaintiffs in these lawsuits allege, among other things, that originators, depositors, servicers or other parties breached their representations and warranties or otherwise failed to fulfill their obligations, including that securitization trustees breached their contractual obligations, breached their fiduciary duties, or violated statutory requirements by failing to properly protect the certificate holders’ interests. SCC may receive notices for
|
| |
62 | 2016 Form 10-K | H&R Block, Inc.
|
indemnification with respect to existing or new lawsuits or settlements of such lawsuits in its capacity as originator, depositor, or servicer. We have not concluded that a loss related to any indemnification claims by securitization trustees is probable, nor have we accrued a liability for such claims.
LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS –
Compliance Fee Litigation. On April 16, 2012, a putative class action lawsuit was filed against us in the Circuit Court of Jackson County, Missouri styled Manuel H. Lopez III v. H&R Block, Inc., et al. (Case # 1216CV12290) concerning a compliance fee charged to retail tax clients in the 2011 and 2012 tax seasons. The plaintiff seeks to represent all Missouri citizens who were charged the compliance fee, and asserts claims of violation of the Missouri Merchandising Practices Act, money had and received, and unjust enrichment. We filed a motion to compel arbitration of the 2011 claims. The court denied the motion. We filed an appeal. On May 6, 2014, the Missouri Court of Appeals, Western District, reversed the ruling of the trial court and remanded the case for further consideration of the motion. On March 12, 2015, the trial court denied the motion on remand. We filed an additional appeal. On March 8, 2016, the appellate court affirmed the decision of the trial court. We filed an application for transfer of the appeal in the Supreme Court of Missouri, which remains pending. We have not concluded that a loss related to this matter is probable, nor have we accrued a loss contingency related to this matter.
On April 19, 2012, a putative class action lawsuit was filed against us in the United States District Court for the Western District of Missouri styled Ronald Perras v. H&R Block, Inc., et al. (Case No. 4:12-cv-00450-DGK)concerning a compliance fee charged to retail tax clients in the 2011 and 2012 tax seasons. The plaintiff originally sought to represent all persons nationwide (excluding citizens of Missouri) who were charged the compliance fee, and asserted claims of violation of various state consumer laws, money had and received, and unjust enrichment. In November 2013, the court compelled arbitration of the 2011 claims and stayed all proceedings with respect to those claims. In June 2014, the court denied class certification of the remaining 2012 claims. The plaintiff filed an appeal with the Eighth Circuit Court of Appeals, which was denied on June 18, 2015. In January 2016, the plaintiff filed an amended complaint asserting claims of violation of Missouri and California state consumer laws, money had and received, and unjust enrichment, along with a motion to certify a class of all persons (excluding citizens of Missouri) who were charged the compliance fee in the state of California. We subsequently filed a motion for summary judgment on all claims. On April 29, 2016, the court granted our motion for summary judgment on all claims and denied the plaintiff's motion for class certification as moot. The plaintiff filed an appeal with the Eighth Circuit Court of Appeals, which remains pending. We have not concluded that a loss related to this matter is probable, nor have we accrued a loss contingency related to this matter.
Form 8863 Litigation. A series of putative class action lawsuits were filed against us in various federal courts and one state court beginning on March 13, 2013. Taken together, the plaintiffs in these lawsuits purport to represent certain clients nationwide who filed Form 8863 during tax season 2013 through an H&R Block office or using H&R Block At Home® online tax services or desktop tax preparation software, and allege breach of contract, negligence and violation of state consumer laws in connection with transmission of the form. The plaintiffs seek damages, pre-judgment interest, attorneys' fees and costs. In August 2013, the plaintiff in the state court action voluntarily dismissed her case without prejudice. The Judicial Panel on Multidistrict Litigation subsequently granted our petition to consolidate the remaining federal lawsuits for coordinated pretrial proceedings in the United States District Court for the Western District of Missouri in a proceeding styled IN RE: H&R BLOCK IRS FORM 8863 LITIGATION (MDL No. 2474/Case No. 4:13-MD-02474-FJG). On July 11, 2014, the MDL court granted our motion to compel arbitration for those named plaintiffs who agreed to arbitrate their claims. Plaintiffs filed a consolidated class action complaint in October 2014. We filed a motion to strike the class allegations relating to those clients who agreed to arbitration, which the court granted on January 7, 2015. The parties subsequently reached an agreement to settle the remaining claims, subject to court approval. The court granted preliminary approval of the settlement on January 12, 2016 and final approval on May 23, 2016. A portion of our loss contingency accrual is related to this matter for the amount of loss that we consider probable and reasonably estimable.
LITIGATION, CLAIMS AND OTHER LOSS CONTINGENCIES PERTAINING TO OTHER DISCONTINUED OPERATIONS –
Express IRA Litigation. On January 2, 2008, the Mississippi Attorney General in the Chancery Court of Hinds County, Mississippi First Judicial District (Case No. G 2008 6 S 2) filed a lawsuit regarding our former Express IRA product that is styled Jim Hood, Attorney for the State of Mississippi v. H&R Block, Inc., H&R Block Financial Advisors, Inc., et al. The complaint alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 63 |
fiduciary duty with respect to the sale of the product in Mississippi and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We have not concluded that a loss related to this matter is probable, nor have we accrued a loss contingency related to this matter.
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible for any liabilities relating to the Express IRA litigation through an indemnification agreement.
OTHER – We are from time to time a party to litigation, claims and other loss contingencies not discussed herein arising out of our business operations. These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others similarly situated.
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 or our consolidated financial position, results of operations and cash flows.
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 consolidated financial position, results of operations and cash flows.
NOTE 16: LOSS CONTINGENCIES ARISING FROM REPRESENTATIONS AND WARRANTIES OF OUR DISCONTINUED MORTGAGE OPERATIONS
SCC ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued its remaining operations.
Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized such loans, or in the form of RMBSs. In connection with the sale of loans and/or RMBSs, SCC made certain representations and warranties. Claims under these representations and warranties together with any settlement arrangements related to these losses are collectively referred to as "representation and warranty claims." These representations and warranties varied based on the nature of the transaction and the buyer's or insurer's requirements, but generally pertained to the ownership of the loan, the validity of the lien securing the loan, borrower fraud, the loan's compliance with the criteria for inclusion in the transaction, including compliance with SCC's underwriting standards or loan criteria established by the buyer, ability to deliver required documentation, and compliance with applicable laws. Representations and warranties related to borrower fraud in whole loan sale transactions to institutional investors, which were generally securitized by such investors and represented approximately 68% of the disposal of loans originated in calendar years 2005, 2006 and 2007, included a "knowledge qualifier" limiting SCC's liability to those instances where SCC had knowledge of the fraud at the time the loans were sold. Representations and warranties made in other sale transactions effectively did not include a knowledge qualifier as to borrower fraud. SCC believes it would have an obligation to repurchase a loan only if it breached a representation and warranty and such breach materially and adversely affects the value of the mortgage loan or certificate holder's interest in the mortgage loan.
Representation and warranty claims received by SCC have primarily related to alleged breaches of representations and warranties related to a loan's compliance with the underwriting standards established by SCC at origination and borrower fraud for loans originated in calendar years 2006 and 2007. SCC has received claims representing an original principal amount of $2.6 billion since May 1, 2008, of which $1.9 billion were received prior to fiscal year 2013.
SETTLEMENT ACTIONS –SCC has entered into tolling agreements with counterparties that have made a significant portion of previously denied representation and warranty claims. While these tolling agreements remain in effect, they toll the running of any applicable statute of limitations related to potential lawsuits regarding representation and warranty claims and other claims against SCC.
SCC has engaged in discussions with these counterparties since fiscal year 2013 regarding the bulk settlement of previously denied and potential future representation and warranty and other claims against SCC. Based on settlement discussions with these counterparties, SCC believes a bulk settlement approach, rather than the loan-by-loan
|
| |
64 | 2016 Form 10-K | H&R Block, Inc.
|
resolution process, will be needed to resolve all of the claims that are the subject of these discussions. On December 5, 2014, SCC entered into a settlement agreement to resolve certain of these claims. On December 18, 2015, SCC entered into settlement agreements with two additional counterparties to resolve certain additional claims, subject to the terms and conditions set forth in the settlement agreements. The amounts paid under the settlement agreements were fully covered by prior accruals. In the event that the ongoing efforts to settle are not successful, SCC believes claim volumes may increase or litigation may result.
SCC will continue to vigorously contest any request for repurchase when it has concluded that a valid basis for repurchase does not exist. SCC's decision whether to engage in bulk settlement discussions is based on factors that vary by counterparty or type of counterparty and include the considerations used by SCC in determining its loss estimate, described below under "Liability for Estimated Contingent Losses."
LIABILITY FOR ESTIMATED CONTINGENT LOSSES –SCC accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable. Development of loss estimates is subject to a high degree of management judgment and estimates may vary significantly period to period. SCC's loss estimate as of April 30, 2016 is based on the best information currently available, significant management judgment, and a number of factors that are subject to change, including developments in case law and the factors mentioned below. These factors include the terms of prior bulk settlements, the terms expected to result from ongoing bulk settlement discussions, and an assessment of, among other things, historical claim results, threatened claims, terms and provisions of related agreements, counterparty willingness to pursue a settlement, legal standing of counterparties to provide a comprehensive settlement, bulk settlement methodologies used and publicly disclosed by other market participants, the potential pro-rata realization of the claims as compared to all claims and other relevant facts and circumstances when developing its estimate of probable loss. SCC believes that the most significant of these factors are the terms expected to result from ongoing bulk settlement discussions, which have been primarily influenced by the bulk settlement methodologies used and publicly disclosed by other market participants and the anticipated pro-rata realization of the claims of particular counterparties as compared to the anticipated realization if all claims and litigation were resolved together with payment of SCC's related administration and legal expense. Changes in any one of the factors mentioned above could significantly impact the estimate.
The liability is included in deferred revenue and other current liabilities on the consolidated balance sheets. A rollforward of SCC's accrued liability for these loss contingencies is as follows:
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| Balance, beginning of the year | | $ | 149,765 |
| | $ | 183,765 |
| | $ | 158,765 |
|
| Loss provisions | | 4,000 |
| | 16,000 |
| | 25,000 |
|
| Payments | | (88,500 | ) | | (50,000 | ) | | — |
|
| Balance, end of the year | | $ | 65,265 |
| | $ | 149,765 |
| | $ | 183,765 |
|
| | | | | | | |
On June 11, 2015, the New York Court of Appeals, New York's highest court, held in ACE Securities Corp. v. DB Structured Products, Inc., that the six-year statute of limitations under New York law starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the RMBS transactions into which SCC entered. However this decision would not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by agreement or a suit was timely filed. It is possible that in response to the statute of limitations rulings in the ACE case and similar rulings in other state and federal courts, parties seeking to pursue representation and warranty claims or lawsuits with respect to trusts where the statute of limitations for representation and warranty claims against the originator has run, may seek to distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against other contractual parties such as securitization trustees. For example, a recent ruling by a New York intermediate appellate court allowed a counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. The impact on SCC, if any, from alternative legal theories seeking to avoid or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear. SCC has not accrued liabilities for claims not subject to a tolling arrangement or not asserted prior to the expiration of the applicable statute of limitations.
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 65 |
SCC believes it is reasonably possible that future losses related to representation and warranty claims may vary from amounts accrued for these exposures. SCC currently believes the aggregate range of reasonably estimable possible losses in excess of amounts accrued is not material. This estimated range is based on the best information currently available, significant management judgment and a number of factors that are subject to change, including developments in case law and the factors mentioned above. The actual loss that may be incurred could differ materially from our accrual or the estimate of reasonably possible losses.
As described more fully in note 15, losses may also be incurred with respect to various indemnification claims or reserved contribution rights by underwriters, depositors, and securitization trustees in securitization transactions in which SCC participated. These indemnification claims or reserved contribution rights are frequently not subject to a stated term or limit. We have not concluded that a loss related to any of these indemnification claims or reserved contribution rights is probable, have not accrued a liability for these claims or rights and are not able to estimate a reasonably possible loss or range of loss for these claims or rights. Accordingly, neither the accrued liability described above totaling $65.3 million, nor the estimated range of reasonably possible losses in excess of the amount accrued described above, includes any possible losses which may arise from these indemnification claims or reserved contribution rights. There can be no assurances as to the outcome or impact of these indemnification claims or reserved contribution rights. In the event of unfavorable outcomes on these claims or rights, the amount required to discharge or settle them 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 starting 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. 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 claims and litigation related to its past sales and securitizations of mortgage loans,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 also attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities.liabilities. SCC's principal assets, as of AprilJune 30, 2016,2023, total approximately $386$262 million and consist primarily 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.
NOTE 17: SEGMENT INFORMATION
Our subsidiaries provide assistedOTHER — We are from time to time a party to litigation, arbitration and DIY tax return preparation through multiple channels (including in-person, online and mobile applications, and desktop software) and distribute the H&R Block-branded financial products and services of BofI. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices or virtually via the internet) or prepared and filed by our clients through our DIY tax solutions.
We operate as a single segment that includes allother loss contingencies not discussed herein arising out of our continuing operations,business operations. These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which are designedplaintiffs seek to enable clients to obtain tax preparation services seamlessly in our offices or through our tax software.
represent others who may be similarly situated.
|
| | | | |
6660 | 20162023 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 Contents
operations, and cash flows.
Revenues of our continuing operations are as follows:
|
| | | | | | | | | | | | |
| (in 000s) | |
| Year ended April 30, | | 2016 |
| | 2015 |
| | 2014 |
|
| REVENUES : | | | | | | |
| Tax preparation fees: | | | | | | |
| U.S. assisted | | $ | 1,890,175 |
| | $ | 1,865,438 |
| | $ | 1,794,043 |
|
| International | | 190,527 |
| | 207,772 |
| | 200,152 |
|
| U.S. DIY | | 234,341 |
| | 231,854 |
| | 206,516 |
|
| | | 2,315,043 |
| | 2,305,064 |
| | 2,200,711 |
|
| Royalties | | 266,418 |
| | 292,743 |
| | 316,153 |
|
| Revenues from Refund Transfers | | 165,152 |
| | 171,094 |
| | 181,394 |
|
| Revenues from Emerald Card® | | 92,608 |
| | 103,300 |
| | 103,730 |
|
| Revenues from Peace of Mind® Extended Service Plan | | 86,830 |
| | 81,551 |
| | 89,685 |
|
| Interest and fee income on Emerald Advance | | 57,268 |
| | 57,202 |
| | 56,877 |
|
| Other | | 54,834 |
| | 67,704 |
| | 75,745 |
|
| | | $ | 3,038,153 |
| | $ | 3,078,658 |
| | $ | 3,024,295 |
|
| | | | | | | |
Our international operations contributed $209.8 million, $231.7 million and $232.2 million in revenues for fiscal years 2016, 2015 and 2014, respectively. The carrying value of assets held outside the U.S. totaled $527.1 million, $284.5 million and $303.9 million as of April 30, 2016, 2015 and 2014, respectively.
NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | |
| (in 000s, except per share amounts) | |
| | | Fiscal Year 2016 |
| | Apr 30, 2016 |
| | Jan 31, 2016 |
| | Oct 31, 2015 |
| | Jul 31, 2015 |
|
| Revenues | | $ | 3,038,153 |
| | $ | 2,297,477 |
| | $ | 474,543 |
| | $ | 128,415 |
| | $ | 137,718 |
|
| Income (loss) from continuing operations before taxes (benefit) | | $ | 569,479 |
| | $ | 1,140,807 |
| | $ | (146,500 | ) | | $ | (237,719 | ) | | $ | (187,109 | ) |
| Income taxes (benefit) | | 185,926 |
| | 439,582 |
| | (67,851 | ) | | (95,201 | ) | | (90,604 | ) |
| Net income (loss) from continuing operations | | 383,553 |
| | 701,225 |
| | (78,649 | ) | | (142,518 | ) | | (96,505 | ) |
| Net loss from discontinued operations | | (9,286 | ) | | (563 | ) | | (3,080 | ) | | (2,489 | ) | | (3,154 | ) |
| Net income (loss) | | $ | 374,267 |
| | $ | 700,662 |
| | $ | (81,729 | ) | | $ | (145,007 | ) | | $ | (99,659 | ) |
| Basic earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 1.54 |
| | $ | 3.15 |
| | $ | (0.34 | ) | | $ | (0.54 | ) | | $ | (0.35 | ) |
| Discontinued operations | | (0.04 | ) | | — |
| | (0.01 | ) | | (0.01 | ) | | (0.01 | ) |
| Consolidated | | $ | 1.50 |
| | $ | 3.15 |
| | $ | (0.35 | ) | | $ | (0.55 | ) | | $ | (0.36 | ) |
| Diluted earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 1.53 |
| | $ | 3.13 |
| | $ | (0.34 | ) | | $ | (0.54 | ) | | $ | (0.35 | ) |
| Discontinued operations | | (0.04 | ) | | — |
| | (0.01 | ) | | (0.01 | ) | | (0.01 | ) |
| Consolidated | | $ | 1.49 |
| | $ | 3.13 |
| | $ | (0.35 | ) | | $ | (0.55 | ) | | $ | (0.36 | ) |
| | | | | | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 67 |
|
| | | | | | | | | | | | | | | | | | | | |
| (in 000s, except per share amounts) | |
| | | Fiscal Year 2015 |
| | Apr 30, 2015 |
| | Jan 31, 2015 |
| | Oct 31, 2014 |
| | Jul 31, 2014 |
|
| Revenues | | $ | 3,078,658 |
| | $ | 2,301,370 |
| | $ | 509,074 |
| | $ | 134,628 |
| | $ | 133,586 |
|
| Income (loss) from continuing operations before taxes (benefit) | | $ | 742,805 |
| | $ | 1,210,059 |
| | $ | (90,865 | ) | | $ | (200,573 | ) | | $ | (175,816 | ) |
| Income taxes (benefit) | | 256,061 |
| | 465,926 |
| | (55,554 | ) | | (87,346 | ) | | (66,965 | ) |
| Net income (loss) from continuing operations | | 486,744 |
| | 744,133 |
| | (35,311 | ) | | (113,227 | ) | | (108,851 | ) |
| Net income (loss) from discontinued operations | | (13,081 | ) | | (5,292 | ) | | (1,637 | ) | | 1,229 |
| | (7,381 | ) |
| Net income (loss) | | $ | 473,663 |
| | $ | 738,841 |
| | $ | (36,948 | ) | | $ | (111,998 | ) | | $ | (116,232 | ) |
| Basic earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 1.77 |
| | $ | 2.70 |
| | $ | (0.13 | ) | | $ | (0.41 | ) | | $ | (0.40 | ) |
| Discontinued operations | | (0.05 | ) | | (0.02 | ) | | — |
| | — |
| | (0.02 | ) |
| Consolidated | | $ | 1.72 |
| | $ | 2.68 |
| | $ | (0.13 | ) | | $ | (0.41 | ) | | $ | (0.42 | ) |
| Diluted earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 1.75 |
| | $ | 2.68 |
| | $ | (0.13 | ) | | $ | (0.41 | ) | | $ | (0.40 | ) |
| Discontinued operations | | (0.04 | ) | | (0.02 | ) | | — |
| | — |
| | (0.02 | ) |
| Consolidated | | $ | 1.71 |
| | $ | 2.66 |
| | $ | (0.13 | ) | | $ | (0.41 | ) | | $ | (0.42 | ) |
| | | | | | | | | | | |
Because most of our clients file their tax returns during the period from January through April of each year, substantially all of our revenues from income tax return preparation and related services and products are earned during this period. As a result, we generally operate at a loss through a majority of the fiscal year.
The accumulation of four quarters in fiscal years 2016 and 2015 for earnings per share may not equal the related per share amounts for the years ended April 30, 2016 and 2015 due to the timing of the exercise of stock options and lapse of certain restrictions on nonvested shares and share units and deferred stock units and the antidilutive effect of stock options and nonvested shares and share units in the first three quarters for those years.
Information regarding H&R Block's common stock prices and dividends for fiscal years 2016 and 2015 is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year |
| | Fourth Quarter |
| | Third Quarter |
| | Second Quarter |
| | First Quarter |
|
| Fiscal Year 2016: | | | | | | | | | | |
| Dividends paid per share | | $ | 0.80 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
| Stock price range: | | | | | | | | | | |
| High | | $ | 37.53 |
| | $ | 35.14 |
| | $ | 37.53 |
| | $ | 37.50 |
| | $ | 34.62 |
|
| Low | | 19.75 |
| | 19.75 |
| | 31.00 |
| | 31.03 |
| | 29.15 |
|
| Fiscal Year 2015: | | | | | | | | | | |
| Dividends paid per share | | $ | 0.80 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
| Stock price range: | | | | | | | | | | |
| High | | $ | 35.80 |
| | $ | 35.80 |
| | $ | 35.09 |
| | $ | 33.92 |
| | $ | 33.65 |
|
| Low | | 27.23 |
| | 30.10 |
| | 31.41 |
| | 27.42 |
| | 27.23 |
|
| | | | | | | | | | | |
NOTE 19: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Block Financial is a 100% owned subsidiary of the Company. Block Financial is the Issuer and the Company is the full and unconditional Guarantor of the Senior Notes, our 2015 CLOC and other indebtedness issued from time to time. These condensed consolidating financial statements have been prepared using the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Company's investment in subsidiaries account. The elimination entries eliminate investments in subsidiaries, related stockholders' equity and other intercompany balances and transactions.
|
| |
68 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING INCOME STATEMENTS | | (in 000s) |
|
| Year ended April 30, 2016 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Total revenues | | $ | — |
| | $ | 192,698 |
| | $ | 2,868,343 |
| | $ | (22,888 | ) | | $ | 3,038,153 |
|
| Cost of revenues | | — |
| | 102,707 |
| | 1,588,450 |
| | (5,605 | ) | | 1,685,552 |
|
| Selling, general and administrative | | 2,537 |
| | 30,780 |
| | 703,375 |
| | (17,283 | ) | | 719,409 |
|
| Total operating expenses | | 2,537 |
| | 133,487 |
| | 2,291,825 |
| | (22,888 | ) | | 2,404,961 |
|
| Other income | | 381,670 |
| | 25,420 |
| | 11,569 |
| | (400,958 | ) | | 17,701 |
|
| Interest expense on external borrowings | | — |
| | (68,531 | ) | | (431 | ) | | — |
| | (68,962 | ) |
| Other expenses | | (6,534 | ) | | (3,947 | ) | | (21,534 | ) | | 19,563 |
| | (12,452 | ) |
| Income from continuing operations before taxes | | 372,599 |
| | 12,153 |
| | 566,122 |
| | (381,395 | ) | | 569,479 |
|
| Income taxes (benefit) | | (1,668 | ) | | 1,411 |
| | 186,183 |
| | — |
| | 185,926 |
|
| Net income from continuing operations | | 374,267 |
| | 10,742 |
| | 379,939 |
| | (381,395 | ) | | 383,553 |
|
| Net loss from discontinued operations | | — |
| | (9,286 | ) | | — |
| | — |
| | (9,286 | ) |
| Net income | | 374,267 |
| | 1,456 |
| | 379,939 |
| | (381,395 | ) | | 374,267 |
|
| Other comprehensive loss | | (12,973 | ) | | (8,444 | ) | | (12,973 | ) | | 21,417 |
| | (12,973 | ) |
| Comprehensive income (loss) | | $ | 361,294 |
| | $ | (6,988 | ) | | $ | 366,966 |
| | $ | (359,978 | ) | | $ | 361,294 |
|
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended April 30, 2015 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Total revenues | | $ | — |
| | $ | 226,285 |
| | $ | 2,858,474 |
| | $ | (6,101 | ) | | $ | 3,078,658 |
|
| Cost of revenues | | — |
| | 96,493 |
| | 1,540,091 |
| | (6,094 | ) | | 1,630,490 |
|
| Selling, general and administrative | | — |
| | 19,053 |
| | 634,456 |
| | (7 | ) | | 653,502 |
|
| Total operating expenses | | — |
| | 115,546 |
| | 2,174,547 |
| | (6,101 | ) | | 2,283,992 |
|
| Other income | | 475,336 |
| | 2,726 |
| | 50,434 |
| | (527,182 | ) | | 1,314 |
|
| Interest expense on external borrowings | | — |
| | (44,884 | ) | | (362 | ) | | — |
| | (45,246 | ) |
| Other expenses | | — |
| | (953 | ) | | (14,976 | ) | | 8,000 |
| | (7,929 | ) |
| Income from continuing operations before taxes | | 475,336 |
| | 67,628 |
| | 719,023 |
| | (519,182 | ) | | 742,805 |
|
| Income taxes | | 1,673 |
| | 2,602 |
| | 251,786 |
| | — |
| | 256,061 |
|
| Net income from continuing operations | | 473,663 |
| | 65,026 |
| | 467,237 |
| | (519,182 | ) | | 486,744 |
|
| Net income (loss) from discontinued operations | | — |
| | (16,725 | ) | | 3,644 |
| | — |
| | (13,081 | ) |
| Net income | | 473,663 |
| | 48,301 |
| | 470,881 |
| | (519,182 | ) | | 473,663 |
|
| Other comprehensive income (loss) | | (3,437 | ) | | 6,738 |
| | (3,437 | ) | | (3,301 | ) | | (3,437 | ) |
| Comprehensive income | | $ | 470,226 |
| | $ | 55,039 |
| | $ | 467,444 |
| | $ | (522,483 | ) | | $ | 470,226 |
|
| | | | | | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 69 |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended April 30, 2014 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Total revenues | | $ | — |
| | $ | 235,075 |
| | $ | 2,795,562 |
| | $ | (6,342 | ) | | $ | 3,024,295 |
|
| Cost of revenues | | — |
| | 124,887 |
| | 1,453,832 |
| | (6,342 | ) | | 1,572,377 |
|
| Selling, general and administrative | | — |
| | 22,505 |
| | 610,923 |
| | — |
| | 633,428 |
|
| Total operating expenses | | — |
| | 147,392 |
| | 2,064,755 |
| | (6,342 | ) | | 2,205,805 |
|
| Other income | | 478,866 |
| | 20,925 |
| | 5,580 |
| | (469,056 | ) | | 36,315 |
|
| Interest expense on external borrowings | | — |
| | (54,892 | ) | | (387 | ) | | — |
| | (55,279 | ) |
| Other expenses | | — |
| | (12,888 | ) | | (19,522 | ) | | — |
| | (32,410 | ) |
| Income from continuing operations before taxes | | 478,866 |
| | 40,828 |
| | 716,478 |
| | (469,056 | ) | | 767,116 |
|
| Income taxes | | 3,709 |
| | 10,551 |
| | 252,759 |
| | — |
| | 267,019 |
|
| Net income from continuing operations | | 475,157 |
| | 30,277 |
| | 463,719 |
| | (469,056 | ) | | 500,097 |
|
| Net loss from discontinued operations | | — |
| | (23,771 | ) | | (1,169 | ) | | — |
| | (24,940 | ) |
| Net income | | 475,157 |
| | 6,506 |
| | 462,550 |
| | (469,056 | ) | | 475,157 |
|
| Other comprehensive loss | | (5,373 | ) | | (2,012 | ) | | (5,373 | ) | | 7,385 |
| | (5,373 | ) |
| Comprehensive income | | $ | 469,784 |
| | $ | 4,494 |
| | $ | 457,177 |
| | $ | (461,671 | ) | | $ | 469,784 |
|
| | | | | | | | | | | |
|
| |
70 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING BALANCE SHEETS | | (in 000s) |
|
| As of April 30, 2016 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Cash & cash equivalents | | $ | — |
| | $ | 9,025 |
| | $ | 887,776 |
| | $ | — |
| | $ | 896,801 |
|
| Cash & cash equivalents - restricted | | — |
| | 29,004 |
| | 75,106 |
| | — |
| | 104,110 |
|
| Receivables, net | | — |
| | 71,882 |
| | 81,234 |
| | — |
| | 153,116 |
|
| Prepaid expenses and other current assets | | — |
| | 8,622 |
| | 58,516 |
| | — |
| | 67,138 |
|
| Investments in available-for-sale securities | | — |
| | — |
| | 1,133 |
| | — |
| | 1,133 |
|
| Total current assets | | — |
| | 118,533 |
| | 1,103,765 |
| | — |
| | 1,222,298 |
|
| Mortgage loans held for investment, net | | — |
| | 202,385 |
| | — |
| | — |
| | 202,385 |
|
| Property and equipment, net | | — |
| | 136 |
| | 293,429 |
| | — |
| | 293,565 |
|
| Intangible assets, net | | — |
| | — |
| | 433,885 |
| | — |
| | 433,885 |
|
| Goodwill | | — |
| | — |
| | 470,757 |
| | — |
| | 470,757 |
|
| Deferred tax assets and income taxes receivable | | 5,917 |
| | 77,270 |
| | 36,936 |
| | — |
| | 120,123 |
|
| Investments in subsidiaries | | 1,738,643 |
| | — |
| | 108,995 |
| | (1,847,638 | ) | | — |
|
| Amounts due from affiliates | | — |
| | 1,307,612 |
| | 1,714,009 |
| | (3,021,621 | ) | | — |
|
| Other noncurrent assets | | — |
| | 71,659 |
| | 43,103 |
| | — |
| | 114,762 |
|
| Total assets | | $ | 1,744,560 |
| | $ | 1,777,595 |
| | $ | 4,204,879 |
| | $ | (4,869,259 | ) | | $ | 2,857,775 |
|
| | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 1,531 |
| | $ | 18,596 |
| | $ | 239,459 |
| | $ | — |
| | $ | 259,586 |
|
| Accrued salaries, wages and payroll taxes | | — |
| | 1,766 |
| | 160,020 |
| | — |
| | 161,786 |
|
| Accrued income taxes | | — |
| | 52,976 |
| | 320,778 |
| | — |
| | 373,754 |
|
| Current portion of long-term debt | | — |
| | — |
| | 826 |
| | — |
| | 826 |
|
| Deferred revenue and other current liabilities | | — |
| | 87,982 |
| | 155,671 |
| | — |
| | 243,653 |
|
| Total current liabilities | | 1,531 |
| | 161,320 |
| | 876,754 |
| | — |
| | 1,039,605 |
|
| Long-term debt | | — |
| | 1,495,316 |
| | 6,609 |
| | — |
| | 1,501,925 |
|
| Deferred tax liabilities and reserves for uncertain tax positions | | 5,917 |
| | 10,786 |
| | 116,257 |
| | — |
| | 132,960 |
|
| Deferred revenue and other noncurrent liabilities | | — |
| | 1,178 |
| | 159,004 |
| | — |
| | 160,182 |
|
| Amounts due to affiliates | | 1,714,009 |
| | — |
| | 1,307,612 |
| | (3,021,621 | ) | | — |
|
| Total liabilities | | 1,721,457 |
| | 1,668,600 |
| | 2,466,236 |
| | (3,021,621 | ) | | 2,834,672 |
|
| Stockholders' equity | | 23,103 |
| | 108,995 |
| | 1,738,643 |
| | (1,847,638 | ) | | 23,103 |
|
| Total liabilities and stockholders' equity | | $ | 1,744,560 |
| | $ | 1,777,595 |
| | $ | 4,204,879 |
| | $ | (4,869,259 | ) | | $ | 2,857,775 |
|
| | | | | | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 71 |
|
| | | | | | | | | | | | | | | | | | | | |
| As of April 30, 2015 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Cash & cash equivalents | | $ | — |
| | $ | 478,077 |
| | $ | 1,529,553 |
| | $ | (440 | ) | | $ | 2,007,190 |
|
| Cash & cash equivalents - restricted | | — |
| | 45,098 |
| | 46,874 |
| | — |
| | 91,972 |
|
| Receivables, net | | — |
| | 80,332 |
| | 87,632 |
| | — |
| | 167,964 |
|
| Deferred tax assets and income taxes receivable | | — |
| | 77,418 |
| | 96,849 |
| | — |
| | 174,267 |
|
| Prepaid expenses and other current assets | | — |
| | 7,771 |
| | 62,512 |
| | — |
| | 70,283 |
|
| Investments in available-for-sale securities | | — |
| | 434,924 |
| | 4,701 |
| | — |
| | 439,625 |
|
| Total current assets | | — |
| | 1,123,620 |
| | 1,828,121 |
| | (440 | ) | | 2,951,301 |
|
| Mortgage loans held for investment, net | | — |
| | 239,338 |
| | — |
| | — |
| | 239,338 |
|
| Property and equipment, net | | — |
| | 218 |
| | 311,169 |
| | — |
| | 311,387 |
|
| Intangible assets, net | | — |
| | — |
| | 432,142 |
| | — |
| | 432,142 |
|
| Goodwill | | — |
| | — |
| | 441,831 |
| | — |
| | 441,831 |
|
| Deferred tax assets and income taxes receivable | | — |
| | 44,788 |
| | — |
| | (31,327 | ) | | 13,461 |
|
| Investments in subsidiaries | | 1,371,677 |
| | — |
| | 116,870 |
| | (1,488,547 | ) | | — |
|
| Amounts due from affiliates | | 463,434 |
| | 134,094 |
| | 1,058 |
| | (598,586 | ) | | — |
|
| Other noncurrent assets | | — |
| | 81,075 |
| | 44,885 |
| | — |
| | 125,960 |
|
| Total assets | | $ | 1,835,111 |
| | $ | 1,623,133 |
| | $ | 3,176,076 |
| | $ | (2,118,900 | ) | | $ | 4,515,420 |
|
| | | | | | | | | | | |
| Customer banking deposits | | $ | — |
| | $ | 744,681 |
| | $ | — |
| | $ | (440 | ) | | $ | 744,241 |
|
| Accounts payable and accrued expenses | | 1,104 |
| | 7,672 |
| | 222,546 |
| | — |
| | 231,322 |
|
| Accrued salaries, wages and payroll taxes | | — |
| | 1,946 |
| | 142,798 |
| | — |
| | 144,744 |
|
| Accrued income taxes | | — |
| | 49,529 |
| | 385,155 |
| | — |
| | 434,684 |
|
| Current portion of long-term debt | | — |
| | — |
| | 790 |
| | — |
| | 790 |
|
| Deferred revenue and other current liabilities | | — |
| | 177,063 |
| | 145,445 |
| | — |
| | 322,508 |
|
| Total current liabilities | | 1,104 |
| | 980,891 |
| | 896,734 |
| | (440 | ) | | 1,878,289 |
|
| Long-term debt | | — |
| | 497,893 |
| | 7,405 |
| | — |
| | 505,298 |
|
| Deferred tax liabilities and reserves for uncertain tax positions | | — |
| | 25,696 |
| | 148,217 |
| | (31,327 | ) | | 142,586 |
|
| Deferred revenue and other noncurrent liabilities | | — |
| | 1,783 |
| | 154,515 |
| | — |
| | 156,298 |
|
| Amounts due to affiliates | | 1,058 |
| | — |
| | 597,528 |
| | (598,586 | ) | | — |
|
| Total liabilities | | 2,162 |
| | 1,506,263 |
| | 1,804,399 |
| | (630,353 | ) | | 2,682,471 |
|
| Stockholders' equity | | 1,832,949 |
| | 116,870 |
| | 1,371,677 |
| | (1,488,547 | ) | | 1,832,949 |
|
| Total liabilities and stockholders' equity | | $ | 1,835,111 |
| | $ | 1,623,133 |
| | $ | 3,176,076 |
| | $ | (2,118,900 | ) | | $ | 4,515,420 |
|
| | | | | | | | | | | |
|
| |
72 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | | (in 000s) |
|
| Year ended April 30, 2016 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Net cash provided by (used in) operating activities: | | $ | — |
| | $ | (55,689 | ) | | $ | 588,083 |
| | $ | — |
| | $ | 532,394 |
|
| Cash flows from investing: | | | | | | | | | | |
| Sales, maturities and payments received on AFS securities | | — |
| | 430,460 |
| | 6,011 |
| | — |
| | 436,471 |
|
| Mortgage loans held for investment, net | | — |
| | 33,721 |
| | — |
| | — |
| | 33,721 |
|
| Capital expenditures | | — |
| | (21 | ) | | (99,902 | ) | | — |
| | (99,923 | ) |
| Payments for business acquisitions, net | | — |
| | — |
| | (88,776 | ) | | — |
| | (88,776 | ) |
| Franchise loans funded | | — |
| | (22,479 | ) | | (341 | ) | | — |
| | (22,820 | ) |
| Payments received on franchise loans | | — |
| | 54,613 |
| | 394 |
| | — |
| | 55,007 |
|
| Intercompany borrowings (payments) | | — |
| | (1,147,985 | ) | | (2,197,954 | ) | | 3,345,939 |
| | — |
|
| Other, net | | — |
| | 6,952 |
| | 8,883 |
| | — |
| | 15,835 |
|
| Net cash provided by (used in) investing activities | | — |
| | (644,739 | ) | | (2,371,685 | ) | | 3,345,939 |
| | 329,515 |
|
| Cash flows from financing: | | | | | | | | | | |
| Repayments of line of credit borrowings | | — |
| | (1,465,000 | ) | | — |
| | — |
| | (1,465,000 | ) |
| Proceeds from line of credit borrowings | | — |
| | 1,465,000 |
| | — |
| | — |
| | 1,465,000 |
|
| Proceeds from long-term debt | | — |
| | 996,831 |
| | — |
| | — |
| | 996,831 |
|
| Customer banking deposits, net | | — |
| | (327,145 | ) | | — |
| | 440 |
| | (326,705 | ) |
| Transfer of HRB Bank deposits | | — |
| | (419,028 | ) | | — |
| | — |
| | (419,028 | ) |
| Dividends paid | | (201,688 | ) | | — |
| | — |
| | — |
| | (201,688 | ) |
| Repurchase of common stock | | (2,018,338 | ) | | — |
| | — |
| | — |
| | (2,018,338 | ) |
| Proceeds from exercise of stock options | | 25,775 |
| | — |
| | — |
| | — |
| | 25,775 |
|
| Intercompany borrowings (payments) | | 2,197,954 |
| | — |
| | 1,147,985 |
| | (3,345,939 | ) | | — |
|
| Other, net | | (3,703 | ) | | (19,282 | ) | | 4,409 |
| | — |
| | (18,576 | ) |
| Net cash provided by (used in) financing activities | | — |
| | 231,376 |
| | 1,152,394 |
| | (3,345,499 | ) | | (1,961,729 | ) |
| Effects of exchange rate changes on cash | | — |
| | — |
| | (10,569 | ) | | — |
| | (10,569 | ) |
| Net decrease in cash | | — |
| | (469,052 | ) | | (641,777 | ) | | 440 |
| | (1,110,389 | ) |
| Cash - beginning of the year | | — |
| | 478,077 |
| | 1,529,553 |
| | (440 | ) | | 2,007,190 |
|
| Cash - end of the year | | $ | — |
| | $ | 9,025 |
| | $ | 887,776 |
| | $ | — |
| | $ | 896,801 |
|
| | | | | | | | | | | |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 73 |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended April 30, 2015 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Net cash provided by operating activities: | | $ | — |
| | $ | 15,456 |
| | $ | 611,152 |
| | $ | — |
| | $ | 626,608 |
|
| Cash flows from investing: | | | | | | | | | | |
| Purchases of AFS securities | | — |
| | (90,381 | ) | | (200 | ) | | — |
| | (90,581 | ) |
| Sales, maturities and payments received on AFS securities | | — |
| | 87,922 |
| | 3,956 |
| | — |
| | 91,878 |
|
| Mortgage loans held for investment, net | | — |
| | 23,886 |
| | — |
| | — |
| | 23,886 |
|
| Capital expenditures | | — |
| | (224 | ) | | (122,934 | ) | | — |
| | (123,158 | ) |
| Payments for business acquisitions, net | | — |
| | — |
| | (113,252 | ) | | — |
| | (113,252 | ) |
| Franchise loans funded | | — |
| | (49,220 | ) | | (475 | ) | | — |
| | (49,695 | ) |
| Payments received on franchise loans | | — |
| | 90,199 |
| | 437 |
| | — |
| | 90,636 |
|
| Intercompany borrowings (payments) | | — |
| | 134,094 |
| | (285,049 | ) | | 150,955 |
| | — |
|
| Other, net | | — |
| | 12,011 |
| | 9,343 |
| | — |
| | 21,354 |
|
| Net cash provided by (used in) investing activities | | — |
| | 208,287 |
| | (508,174 | ) | | 150,955 |
| | (148,932 | ) |
| Cash flows from financing: | | | | | | | | | | |
| Repayments of short-term borrowings | | — |
| | (1,049,136 | ) | | — |
| | — |
| | (1,049,136 | ) |
| Proceeds from short-term borrowings | | — |
| | 1,049,136 |
| | — |
| | — |
| | 1,049,136 |
|
| Repayments of long-term debt | | — |
| | (400,000 | ) | | — |
| | — |
| | (400,000 | ) |
| Customer banking deposits, net | | — |
| | (29,204 | ) | | — |
| | 660 |
| | (28,544 | ) |
| Dividends paid | | (219,960 | ) | | — |
| | — |
| | — |
| | (219,960 | ) |
| Repurchase of common stock | | (10,449 | ) | | — |
| | — |
| | — |
| | (10,449 | ) |
| Proceeds from exercise of stock options | | 16,522 |
| | — |
| | — |
| | — |
| | 16,522 |
|
| Intercompany borrowings (payments) | | 213,887 |
| | 71,162 |
| | (134,094 | ) | | (150,955 | ) | | — |
|
| Other, net | | — |
| | — |
| | (3,376 | ) | | — |
| | (3,376 | ) |
| Net cash used in financing activities | | — |
| | (358,042 | ) | | (137,470 | ) | | (150,295 | ) | | (645,807 | ) |
| Effects of exchange rate changes on cash | | — |
| | — |
| | (9,986 | ) | | — |
| | (9,986 | ) |
| Net decrease in cash | | — |
| | (134,299 | ) | | (44,478 | ) | | 660 |
| | (178,117 | ) |
| Cash - beginning of the year | | — |
| | 612,376 |
| | 1,574,031 |
| | (1,100 | ) | | 2,185,307 |
|
| Cash - end of the year | | $ | — |
| | $ | 478,077 |
| | $ | 1,529,553 |
| | $ | (440 | ) | | $ | 2,007,190 |
|
| | | | | | | | | | | |
|
| |
74 | 2016 Form 10-K | H&R Block, Inc.
|
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended April 30, 2014 | | H&R Block, Inc.
(Guarantor) |
| | Block Financial
(Issuer) |
| | Other
Subsidiaries |
| | Eliminations |
| | Consolidated
H&R Block |
|
| Net cash provided by operating activities: | | $ | — |
| | $ | 35,034 |
| | $ | 774,547 |
| | $ | — |
| | $ | 809,581 |
|
| Cash flows from investing: | | | | | | | | | | |
| Purchases of AFS securities | | — |
| | (45,158 | ) | | — |
| | — |
| | (45,158 | ) |
| Sales, maturities and payments received on AFS securities | | — |
| | 106,873 |
| | 228 |
| | — |
| | 107,101 |
|
| Mortgage loans held for investment, net | | — |
| | 46,664 |
| | — |
| | — |
| | 46,664 |
|
| Capital expenditures | | — |
| | (75 | ) | | (146,936 | ) | | — |
| | (147,011 | ) |
| Payments for business acquisitions, net | | — |
| | — |
| | (68,428 | ) | | — |
| | (68,428 | ) |
| Proceeds from notes receivable | | — |
| | — |
| | 64,865 |
| | — |
| | 64,865 |
|
| Franchise loans funded | | — |
| | (63,960 | ) | | — |
| | — |
| | (63,960 | ) |
| Payments received on franchise loans | | — |
| | 87,220 |
| | — |
| | — |
| | 87,220 |
|
| Intercompany borrowings (payments) | | — |
| | 33,497 |
| | (196,840 | ) | | 163,343 |
| | — |
|
| Other, net | | — |
| | 19,746 |
| | 9,651 |
| | — |
| | 29,397 |
|
| Net cash provided by (used in) investing activities | | — |
| | 184,807 |
| | (337,460 | ) | | 163,343 |
| | 10,690 |
|
| Cash flows from financing: | | | | | | | | | | |
| Repayments of short-term borrowings | | — |
| | (316,000 | ) | | — |
| | — |
| | (316,000 | ) |
| Proceeds from short-term borrowings | | — |
| | 316,000 |
| | — |
| | — |
| | 316,000 |
|
| Customer banking deposits, net | | — |
| | (165,575 | ) | | — |
| | 1,623 |
| | (163,952 | ) |
| Dividends paid | | (218,980 | ) | | — |
| | — |
| | — |
| | (218,980 | ) |
| Repurchase of common stock | | (6,106 | ) | | — |
| | — |
| | — |
| | (6,106 | ) |
| Proceeds from exercise of stock options | | 28,246 |
| | — |
| | — |
| | — |
| | 28,246 |
|
| Intercompany borrowings (payments) | | 196,840 |
| | — |
| | (33,497 | ) | | (163,343 | ) | | — |
|
| Other, net | | — |
| | — |
| | (4,138 | ) | | — |
| | (4,138 | ) |
| Net cash used in financing activities | | — |
| | (165,575 | ) | | (37,635 | ) | | (161,720 | ) | | (364,930 | ) |
| Effects of exchange rate changes on cash | | — |
| | — |
| | (17,618 | ) | | — |
| | (17,618 | ) |
| Net increase in cash | | — |
| | 54,266 |
| | 381,834 |
| | 1,623 |
| | 437,723 |
|
| Cash - beginning of the year | | — |
| | 558,110 |
| | 1,192,197 |
| | (2,723 | ) | | 1,747,584 |
|
| Cash - end of the year | | $ | — |
| | $ | 612,376 |
| | $ | 1,574,031 |
| | $ | (1,100 | ) | | $ | 2,185,307 |
|
| | | | | | | | | | | |
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.
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES – We have established disclosure controls and procedures (Disclosure Controls) to ensure that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Disclosure Controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 75 |
two or more people or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.
As of the end of the period covered by this Form 10-K, wemanagement, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of our Disclosure Controls. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded our Disclosure Controls were effective as of the end of the period covered by this Annual Report on Form 10-K.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING – Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of AprilJune 30, 20162023 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.
Based on our assessment, managementour Chief Executive Officer and Chief Financial Officer concluded that, as of AprilJune 30, 2016,2023, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO.
The Company's external auditors that audited the consolidated financial statements included in Item 8, Deloitte & Touche LLP, an independent registered public accounting firm, have issued an audit report on the effectiveness of the Company's internal control over financial reporting. This report appears near the beginning of Item 8.8. (c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING – During the quarter ended AprilJune 30, 2016,2023, there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 61 |
ITEM 9B. OTHER INFORMATION
None.During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers is included under the caption "Employees and"Information About Our Executive Officers" in Item 1 of this report on Form 10-K. The following information appearing in our definitive proxy statement, to be filed no later than 120 days after AprilJune 30, 2016,2023, is incorporated herein by reference:
| |
▪ | Information appearing under the heading "Proposal 1 – Election of Directors"; |
| |
▪ | Information appearing under the heading "Section 16(a) Beneficial Ownership Reporting Compliance"; and |
| |
▪ | Information appearing under the heading "Board of Directors' Meetings and Committees" regarding identification of the Audit Committee and Audit Committee financial experts. |
▪Information appearing under the heading "Proposal 1 – Election of Directors";
▪Information appearing under the heading "Delinquent Section 16(a) Reports" (if applicable); and
▪Information appearing under the heading "Board of Directors' Meetings and Committees" regarding identification of the Audit Committee and Audit Committee financial experts.
We have adopted a Code of Business Ethics and Conduct that applies to our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, principal accounting officerChief Accounting Officer and persons performing similar functions. A copy of the Code of Business Ethics and Conduct is available on our website at www.hrblock.com. We intend to provide information on our website regarding amendments to, or waivers under, the Code of Business Ethics and Conduct.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is contained in our definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after AprilJune 30, 2016,2023, in the sections entitled "Director Compensation," "Director Compensation Table," "Compensation Discussion and Analysis," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Risk Assessment in Compensation Programs," and "Executive Compensation," and is incorporated herein by reference.
|
| |
76 | 2016 Form 10-K | H&R Block, Inc.
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information called for by this item is contained in our definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after AprilJune 30, 2016,2023, in the sections entitled "Equity Compensation Plans" and "Information Regarding Security Holders," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this item is contained in our definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after AprilJune 30, 2016,2023, in the sections entitled "Employment Agreements, Change-in-ControlChange in Control and Other Arrangements," "Review of Related Person Transactions," and "Corporate Governance," and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by this item relating to our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34) is contained in our definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after AprilJune 30, 2016,2023, in the section entitled "Audit Fees," and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
| |
1. | The following financial statements appearing in Item 8: "Consolidated Statements of Income and Comprehensive Income," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows" and "Consolidated Statements of Stockholders' Equity."
|
| |
2. | Financial Statement Schedule II - Valuation and Qualifying Accounts. All other schedules have been omitted because they were not applicable or because the required information has been included in the financial statements or notes thereto. |
| |
3. | Exhibits – The list of exhibits in the Exhibit Index to this report is incorporated herein by reference. |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 77 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
H&R BLOCK, INC. |
|
|
/s/ William C. Cobb |
William C. Cobb |
President and Chief Executive Officer |
June 17, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated on June 17, 2016.
|
| | | | |
| 62 | | | | |
| | | | |
/s/ William C. Cobb | | /s/ Tony G. Bowen | | /s/ Jeffrey T. Brown |
William C. Cobb | | Tony G. Bowen | | Jeffrey T. Brown |
President, Chief Executive Officer | | Chief Financial Officer | | Chief Accounting and Risk Officer |
and Director | | (principal financial officer) | | (principal accounting officer) |
(principal executive officer) | | | | 2023 Form 10-K | H&R Block, Inc. |
PART IV
|
| | | | |
| | | | |
/s/ Robert A. Gerard | | /s/ Angela N. Archon | | /s/ Paul J. Brown |
Robert A. Gerard | | Angela N. Archon | | Paul J. Brown |
Director, Chairman of the Board | | Director | | Director |
| | | | |
| | | | |
/s/ Richard A. Johnson | | /s/ David B. Lewis | | /s/ Victoria J. Reich |
Richard A. Johnson | | David B. Lewis | | Victoria J. Reich |
Director | | Director | | Director |
| | | | |
| | | | |
/s/ Bruce C. Rohde | | /s/ Tom D. Seip | | /s/ Christianna Wood |
Bruce C. Rohde | | Tom D. Seip | | Christianna Wood |
Director | | Director | | Director |
| | | | |
| | | | |
/s/ James F. Wright | | | | |
James F. Wright | | | | |
Director | | | | |
| | | | |
|
| |
78 | 2016 Form 10-K | H&R Block, Inc.
|
ITEM 15. EXHIBIT INDEX
The following exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:
| |
| 4.2 | | First Supplemental Indenture, dated as of April 18, 2000, among H&R Block, Inc., Block Financial Corporation, Bankers Trust Company and the Bank of New York, filed as Exhibit 4(a) to the Company's current report on Form 8-K filed April 17, 2000, file number 1-06089, is incorporated herein by reference. |
| |
| 4.3 | | Second Supplemental Indenture, dated September 30, 2015, among H&R Block, Inc., Block Financial LLC (formerly known as Block Financial Corporation), Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) and U.S. Bank National Association, as separate trustee, filed as Exhibit 4.1 to the Company's current report on Form 8-K filed September 30, 2015, file number 1-06089, is incorporated herein by reference. |
| |
| 4.4 | Officer's Certificate, | Third Supplemental Indenture, dated October 25, 2012, in respect of 5.50% Notes due 2022 ofAugust 7, 2020, among H&R Block, Inc., Block Financial LLC (formerly known as Block Financial Corporation), Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) and U.S. Bank National Association, as separate trustee, filed as Exhibit 4.1 to the Company's current report on Form 8–K filed August 7, 2020, file number 1–06089, is incorporated herein by reference. |
| 4.5 | | Fourth Supplemental Indenture, dated June 25, 2021, among H&R Block, Inc., Block Financial LLC (formerly known as Block Financial Corporation), Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) and U.S. Bank National Association, as separate trustee, filed as Exhibit 4.1 to the Company's current report on Form 8-K filed OctoberJune 25, 2012,2021, file number 1-06089, is incorporated herein by reference. |
| |
4.64.7 | Form of 5.50% Note due 2022 | |
| 4.8 | | |
| |
| 10.2 | * Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on March 6, 2013, filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended January 31, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.3 | * Form of 2013 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, as approved on March 6, 2013, filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended January 31, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.4 | * Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June 19, 2013, filed as Exhibit 10.3 to the Company's current report on Form 8-K filed June 21, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.5 | * Form of 2013 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, as approved on June 19, 2013, filed as Exhibit 10.4 to the Company's current report on Form 8-K filed June 21, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.6 | * Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on June 19, 2013, filed as Exhibit 10.2 to the Company's current report on Form 8-K filed June 21, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.7 | * Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 19, 2013, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed June 21, 2013, file number 1-06089, is incorporated herein by reference. |
|
| |
H&R Block, Inc. | 2016 Form 10-K
| 79 |
| |
10.8 | * Form of 2013 Long Term Incentive Plan Award Agreement for Deferred Stock Units, as approved on September 12, 2013, filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.910.3 | * Alternate Form of Market Stock Units Award Agreement, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed July 1, 2014, file number 1-06089, is incorporated herein by reference. |
| |
10.10 | * Alternate Form of Performance Share Units Award Agreement, filed as Exhibit 10.2 to the Company's current report on Form 8-K filed July 1, 2014, file number 1-06089, is incorporated herein by reference. |
| |
10.11 | * Alternate Form of Restricted Share Units Award Agreement, filed as Exhibit 10.3 to the Company's current report on Form 8-K filed July 1, 2014, file number 1-06089, is incorporated herein by reference. |
| | | | | |
10.13H&R Block, Inc. | 2023 Form 10-K | 63 |
| |
10.1510.6 | * | *Alternate Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, filed as Exhibit 10.5 to the Company's current report on Form 8-K filed June 19, 2015, file number 1-06089, is incorporated herein by reference.
|
| |
10.1810.8 | * Form of 2003 Long-Term Executive Compensation Plan Grant Agreement for Stock Options, filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2011, file number 1-06089, is incorporated herein by reference. |
| |
10.2010.9 | * Employment Agreement dated April 27, 2011, between | H&R Block Management, LLCDeferred Compensation Plan for Executives, as amended and William C. Cobb,restated effective January 1, 2022, filed as Exhibit 10.210.1 to the Company's currentquarterly report on Form 8-K filed April 29, 2011,10-Q for the quarter ended December 31, 2021, file number 1-06089, is incorporated herein by reference. |
| |
10.2110.10 | * Letter Agreement between the Company, | |
| 10.11 | * | |
| |
10.2210.12 | * Letter Agreement, dated as of July 15, 2014, by and among the Company, H&R Block Management, LLC, and William C. Cobb, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed July 17, 2014, file number 1-06089, is incorporated herein by reference. |
| |
10.23 | *Letter Agreement, dated as of June 18, 2015, by and among the Company, H&R Block Management, LLC, and William C. Cobb, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed June 19, 2015, file number 1-06089, is incorporated herein by reference.
|
| |
10.24 | * Agreement between H&R Block Management, LLC, H&R Block, Inc. and William C. Cobb as of January 3, 2013 in connection with certain corrective actions relating to the June 30, 2011 Option Award, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed January 4, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.25 | * H&R Block, Inc. 2013 Long Term Incentive Plan Non-Qualified Stock Option Award Agreement between H&R Block, Inc. and William C. Cobb dated January 4, 2013, filed as Exhibit 10.2 to the Company's current report on Form 8-K filed January 4, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.26 | * H&R Block, Inc. 2013 Long Term Incentive Plan Restricted Share Units Award Agreement between H&R Block, Inc. and William C. Cobb dated January 4, 2013, filed as Exhibit 10.3 to the Company's current report on Form 8-K filed January 4, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.27 | * Grant Agreement between H&R Block, Inc. and William C. Cobb in connection with award of Restricted Shares as of May 2, 2011, filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2011, file number 1-06089, is incorporated herein by reference. |
| |
10.28 | * Grant Agreement between H&R Block, Inc. and William C. Cobb in connection with award of Stock Options as of May 2, 2011, filed as Exhibit 10.5 to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2011, file number 1-06089, is incorporated herein by reference. |
|
| |
80 | 2016 Form 10-K | H&R Block, Inc.
|
| |
10.29 | * H&R Block Deferred Compensation Plan for Executives, as amended and restated on November 9, 2012, filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2012, file number 1-06089, is incorporated herein by reference. |
| |
10.30 | * The Amended and Restated H&R Block Executive Performance Plan, filed as Exhibit 10.1 to the Company's current report on Form 8-K, filed September 12, 2014, file number 1-06089, is incorporated herein by reference. |
| |
10.31 | * The H&R Block, Inc. 2000 Employee Stock Purchase Plan, as amended and restated effective November 7, 2013, filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2013, file number 1-06089, is incorporated herein by reference. |
| |
10.32 | * The H&R Block, Inc. Executive Survivor Plan (as Amended and Restated January 1, 2001) filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2000, file number 1-06089, is incorporated herein by reference. |
| |
10.3610.16 | * | H&R Block Inc. Executive Severance Plan, as amended and restated effective November 8, 2013,May 9, 2022, filed as Exhibit 10.1 to the Company's currentquarterly report on Form 8-K filed November 8, 2013,10-Q for the fiscal quarter ended March 31, 2022, file number 1-06089, is incorporated herein by reference. |
| |
10.3810.18 | * | |
| 10.19 | * | |
| 10.20 | * | |
| 10.21 | * | |
| 10.22 | * | |
| 10.23 | * | |
| 10.24 | * | |
| | | | | |
10.3964 | 2023 Form 10-K | H&R Block, Inc. |
| | | | | | | | |
| 10.25 | * | |
| 10.26 | * | |
| 10.27 | * | |
| 10.28 | * | |
| 10.29 | * | |
| 10.30 | * | |
| 10.31 | * | |
| 10.32 | * | |
| 10.33 | * | |
| 10.34 | * | |
| 10.35 | * | |
| 10.36 | | Fourth Amended and Restated Credit and Guarantee Agreement dated September 21, 2015,June 11, 2021, by and among Block Financial LLC, H&R Block, Inc., the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed September 21, 2015,June 15, 2021, file number 1-06089, is incorporated herein by reference. |
| |
10.4010.37 | | First Amendment to Fourth Amended and Restated PurchaseCredit and AssumptionGuarantee Agreement, dated August 5, 2015,May 25, 2023, by and among H&R Block Bank, Block Financial LLC, H&R Block, Inc., the lenders party thereto from time to time, and BofI FederalJPMorgan Chase Bank, N.A., as administrative agent, including Annex I, which is a conformed copy of the Fourth Amdended and Restated Credit and Guarantee Agreement as amended by the First Amendment, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed August 5, 2015,May 30, 2023, file number 1-06089, is incorporated herein by reference. |
| |
10.4110.38 | | Program Management Agreement, dated August 31, 2015,5, 2020, by and between Emerald Financial Services, LLC and BofI Federal Bank,Pathward, N.A. filed as Exhibit 10.1 to the Company's currentquarterly report on Form 8-K filed September 1, 2015,10-Q for the quarter ended July 31, 2020, file number 1-06089, is incorporated herein by reference. |
| |
10.4210.39 | Emerald Advance Receivables Participation | First Amendment to Program Management Agreement, dated as of August 31, 2015,December 20, 2021, by and amongbetween Emerald Financial Services, LLC BofI Federal Bank, HRB Participant I, LLC and H&R Block, Inc.,Pathward, N.A. filed as Exhibit 10.210.1 to the Company'sCompany’s current report on Form 8-K filed September 1, 2015,December 23, 2021, file number 1-06089, is incorporated herein by reference. |
| |
10.4321 | Guaranty Agreement, dated as of August 31, 2015, by and between H&R Block, Inc. and BofI Federal Bank, filed as Exhibit 10.2 to the Company's current report on Form 8-K filed September 1, 2015, file number 1-06089, is incorporated herein by reference. |
| |
12.1 | Computation of Ratio of Earnings to Fixed Charges for H&R Block, Inc. for the five years ended April 30, 2016. |
| |
12.2 | Computation of Ratio of Earnings to Fixed Charges for Block Financial LLC for the five years ended April 30, 2016. |
|
| | | | |
H&R Block, Inc. | 20162023 Form 10-K | 8165 |
| | | | | | | | |
| 101.INS | | XBRL Instance Document |
| - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | | XBRL Taxonomy Extension Schema |
| |
| 101.CAL | | XBRL Extension Calculation Linkbase |
| |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase |
| |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
| |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
| |
* Indicates management contracts, compensatory plans or arrangements.
| |
** | Confidential Information has been omitted from this exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2. |
** Furnished, not filed.
|
| | | | |
8266 | 20162023 Form 10-K | H&R Block, Inc.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| H&R BLOCK, INC. |
|
|
| /s/ Jeffrey J. Jones II |
| Jeffrey J. Jones II |
| President and Chief Executive Officer |
| August 17, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated on August 17, 2023.
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| /s/ Jeffrey J. Jones II | | /s/ Tony G. Bowen | | /s/ Kellie J. Logerwell |
| Jeffrey J. Jones II | | Tony G. Bowen | | Kellie J. Logerwell |
| President, Chief Executive Officer | | Chief Financial Officer | | Chief Accounting Officer |
| and Director | | (principal financial officer) | | (principal accounting officer) |
| (principal executive officer) | | | | |
| | | | | | | | | | | | | | |
| | | | |
| /s/ Robert A. Gerard | | /s/ Sean H. Cohan | | /s/ Anuradha Gupta |
| Robert A. Gerard | | Sean H. Cohan | | Anuradha Gupta |
| Director, Chairman of the Board | | Director | | Director |
| | | | |
| | | | |
| /s/ Richard A. Johnson | | /s/ Mia F. Mends | | /s/ Yolande G. Piazza |
| Richard A. Johnson | | Mia F. Mends | | Yolande G. Piazza |
| Director | | Director | | Director |
| | | | |
| | | | |
| /s/ Victoria J. Reich | | /s/ Matthew E. Winter | | |
| Victoria J. Reich | | Matthew E. Winter | | |
| Director | | Director | | |
|
| | | | | | | | | | | | | | | | | | | |
| H&R BLOCK, INC. |
| Schedule II - Valuation and Qualifying Accounts |
| Years ended 2016, 2015 and 2014 |
| (in 000s) |
| | | | | | | | | | | |
| | | | | Additions | | | | |
| Description | | Balance at Beginning of Period | | Charged to Costs and Expenses | | Charged to other accounts | | Deductions | | Balance at End of Period |
| | | | | | | | | | | |
| Deferred tax valuation allowance: | | | | | | | | | | |
| | | | | | | | | | | |
| Year ended April 30, 2016 | | $ | 24,937 |
| | $ | 3,207 |
| | $ | — |
| | $ | (6,629 | ) | | 21,515 |
|
| | | | | | | | | | | |
| Year ended April 30, 2015 | | $ | 19,176 |
| | $ | 6,788 |
| | $ | — |
| | $ | (1,027 | ) | | 24,937 |
|
| | | | | | | | | | | |
| Year ended April 30, 2014 | | $ | 54,613 |
| | $ | 12,467 |
| | $ | — |
| | $ | (47,904 | ) | | 19,176 |
|
| | | | | |
H&R Block, Inc. | 2023 Form 10-K | 67 |
