UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~January~~July 31, 2015
		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 1-6089

H&R Block, Inc.

(Exact name of registrant as specified in its charter)



MISSOURI		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)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

(Do not check if a smaller reporting company)

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 number of shares outstanding of the registrant's Common Stock, without par value, at the close of business on ~~February 28,~~August 31, 2015: ~~275,248,147~~276,359,906 shares.

Table of Contents

Form 10-Q for the Period Ended ~~January~~July 31, 2015

Table of Contents



	PART I

Item 1.	Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss
	Three ~~and nine~~ months ended ~~January~~July 31, 2015 and 2014	1

	Consolidated Balance Sheets
	As of ~~January~~July 31, 2015, ~~January~~July 31, 2014 and April 30, ~~2014~~2015	2

	Condensed Consolidated Statements of Cash Flows
	~~Nine~~Three months ended ~~January~~July 31, 2015 and 2014	3

	Notes to Consolidated Financial Statements	4

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3428

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4537

Item 4.	Controls and Procedures	4537

	PART II
Item 1.	Legal Proceedings	4537

Item 1A.	Risk Factors	4537

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4537

Item 3.	Defaults Upon Senior Securities	4538

Item 4.	Mine Safety Disclosures	4538

Item 5.	Other Information	4638

Item 6.	Exhibits	4638

	Signatures	4740

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PART I FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS							(unaudited, in 000s, except per share amounts)						CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS	(unaudited, in 000s, except per share amounts)
		Three months ended January 31,						Nine months ended January 31,
		2015			2014			2015			2014
Three months ended July 31,															2015			2014

REVENUES:
Service revenues		$	406,441		$	138,613		$	637,356		$	358,845			$	118,434		$	115,473
Royalty, product and other revenues		63,335			23,788			81,905			43,268				10,906			8,814
Interest income		39,298			37,369			58,027			59,192				8,378			9,299
		509,074			199,770			777,288			461,305				137,718			133,586
OPERATING EXPENSES:
Cost of revenues:
Compensation and benefits		186,656			160,830			307,892			267,668				55,789			51,855
Occupancy and equipment		92,303			88,387			263,235			249,481				89,855			83,306
Provision for bad debt and loan losses		39,283			31,420			44,032			45,760				2,005			4,364
Depreciation and amortization		29,181			25,267			82,695			65,982				27,084			25,085
Other		47,255			43,761			116,247			124,087				38,775			33,116
		394,678			349,665			814,101			752,978				213,508			197,726
Selling, general and administrative:
Marketing and advertising		87,569			77,943			108,227			98,667				8,531			8,145
Compensation and benefits		60,380			60,211			175,697			168,076				54,669			60,964
Depreciation and amortization		14,110			6,544			33,211			15,371				13,010			8,601
Other selling, general and administrative		27,488			29,750			66,991			83,123				21,982			19,490
		189,547			174,448			384,126			365,237				98,192			97,200
Total operating expenses		584,225			524,113			1,198,227			1,118,215				311,700			294,926

Other expense, net		6,666			9,610			9,629			13,295
Other income															433			523
Interest expense on borrowings		9,048			13,872			36,686			41,476				(8,575		)	(13,795		)
Other expenses															(4,985		)	(1,204		)
Loss from continuing operations before income tax benefit		(90,865		)	(347,825		)	(467,254		)	(711,681		)		(187,109		)	(175,816		)
Income tax benefit		(55,554		)	(135,074		)	(209,865		)	(282,645		)		(90,604		)	(66,965		)
Net loss from continuing operations		(35,311		)	(212,751		)	(257,389		)	(429,036		)		(96,505		)	(108,851		)
Net income (loss) from discontinued operations, net of tax (benefits) of $(1,016), ($1,164), $(4,814) and ($3,591)		(1,637		)	(1,960		)	(7,789		)	(5,805		)
Net loss from discontinued operations, net of tax benefits of $1,889 and $4,564															(3,154		)	(7,381		)
NET LOSS		$	(36,948	)	$	(214,711	)	$	(265,178	)	$	(434,841	)		$	(99,659	)	$	(116,232	)

BASIC AND DILUTED LOSS PER SHARE:
Continuing operations		$	(0.13	)	$	(0.78	)	$	(0.94	)	$	(1.57	)		$	(0.35	)	$	(0.40	)
Discontinued operations		—			—			(0.03		)	(0.02		)		(0.01		)	(0.02		)
Consolidated		$	(0.13	)	$	(0.78	)	$	(0.97	)	$	(1.59	)		$	(0.36	)	$	(0.42	)

DIVIDENDS DECLARED PER SHARE		$	0.20		$	0.20		$	0.60		$	0.60			$	0.20		$	0.20

COMPREHENSIVE INCOME (LOSS):
COMPREHENSIVE LOSS:
Net loss		$	(36,948	)	$	(214,711	)	$	(265,178	)	$	(434,841	)		$	(99,659	)	$	(116,232	)
Unrealized gains (losses) on securities, net of taxes:
Unrealized holding gains (losses) arising during the period		2,147			(2,926		)	6,917			(9,503		)
Unrealized holding losses arising during the period															(1,360		)	(723		)
Reclassification adjustment for gains included in income		—			—			(15		)	—				141			574
Change in foreign currency translation adjustments		(9,987		)	(3,313		)	(13,342		)	(5,823		)		(8,755		)	455
Other comprehensive loss		(7,840		)	(6,239		)	(6,440		)	(15,326		)
Other comprehensive income (loss)															(9,974		)	306
Comprehensive loss		$	(44,788	)	$	(220,950	)	$	(271,618	)	$	(450,167	)		$	(109,633	)	$	(115,926	)

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| ~~Q3 FY2015~~Q1 FY2016 Form 10-Q	1

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CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)									(unaudited, in 000s, except share and per share amounts)
As of	January 31, 2015			January 31, 2014			April 30, 2014			July 31, 2015			July 31, 2014			April 30, 2015

ASSETS
Cash and cash equivalents	$	1,321,134		$	437,404		$	2,185,307		$	1,299,382		$	1,429,489		$	2,007,190
Cash and cash equivalents - restricted	51,085			44,855			115,319			61,040			71,917			91,972
Receivables, less allowance for doubtful accounts of $49,859, $42,716 and $52,578	777,453			677,221			191,618
Receivables, less allowance for doubtful accounts of $53,771, $51,400 and $54,527										103,194			122,315			167,964
Deferred tax assets and income taxes receivable										160,390			190,323			174,267
Prepaid expenses and other current assets	260,802			345,231			198,267			80,993			74,343			70,283
Investments in available-for-sale securities	367,845			—			423,495			406,360			403,774			439,625
Total current assets	2,778,319			1,504,711			3,114,006			2,111,359			2,292,161			2,951,301
Mortgage loans held for investment, less allowance for loan losses of $9,375, $11,563 and $11,272	245,663			282,149			268,428
Investments in available-for-sale securities	7,883			443,770			4,329
Property and equipment, at cost less accumulated depreciation and amortization of $509,039, $469,733 and $446,049	308,805			314,565			304,911
Mortgage loans held for investment, less allowance for loan losses of $7,659, $10,561 and $7,886										230,130			259,732			239,338
Property and equipment, at cost less accumulated depreciation and amortization of $538,823, $468,372 and $518,797										297,321			314,531			311,387
Intangible assets, net	443,329			318,719			355,622			417,009			347,890			432,142
Goodwill	442,961			437,386			436,117			454,394			478,845			441,831
Other assets	151,981			213,987			210,116
Deferred tax assets and income taxes receivable										11,377			46,953			13,461
Other noncurrent assets										111,101			150,707			125,960
Total assets	$	4,378,941		$	3,515,287		$	4,693,529		$	3,632,691		$	3,890,819		$	4,515,420
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Commercial paper borrowings	$	591,486		$	194,984		$	—
Customer banking deposits	1,286,216			806,887			769,785			$	476,732		$	482,975		$	744,241
Accounts payable, accrued expenses and other current liabilities	472,490			520,121			569,007
Accounts payable and accrued expenses										116,855			127,912			231,322
Accrued salaries, wages and payroll taxes	118,512			108,583			167,032			33,447			30,996			144,744
Accrued income taxes	1,619			23,375			406,655			245,541			284,038			434,684
Current portion of long-term debt	781			400,570			400,637			799			400,705			790
Deferred revenue and other current liabilities										316,880			357,293			322,508
Total current liabilities	2,471,104			2,054,520			2,313,116			1,190,254			1,683,919			1,878,289
Long-term debt	505,460			505,959			505,837			505,197			505,714			505,298
Other noncurrent liabilities	255,992			268,049			318,027
Deferred tax liabilities and reserves for uncertain tax positions										137,603			167,914			142,586
Deferred revenue and other noncurrent liabilities										130,210			136,072			156,298
Total liabilities	3,232,556			2,828,528			3,136,980			1,963,264			2,493,619			2,682,471
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 316,628,110	3,166			3,166			3,166			3,166			3,166			3,166
Convertible preferred stock, no par, stated value $0.01 per share, 500,000 shares authorized	—			—			—
Additional paid-in capital	778,845			762,102			766,654			773,783			766,014			783,793
Accumulated other comprehensive income (loss)	(1,263		)	(4,776		)	5,177			(8,234		)	5,483			1,740
Retained earnings	1,158,376			734,233			1,589,297			1,679,234			1,418,124			1,836,442
Less treasury shares, at cost	(792,739		)	(807,966		)	(807,745		)	(778,522		)	(795,587		)	(792,192		)
Total stockholders' equity	1,146,385			686,759			1,556,549			1,669,427			1,397,200			1,832,949
Total liabilities and stockholders' equity	$	4,378,941		$	3,515,287		$	4,693,529		$	3,632,691		$	3,890,819		$	4,515,420

See accompanying notes to consolidated financial statements.



2	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)						(unaudited, in 000s)
Nine months ended January 31,	2015			2014
Three months ended July 31,							2015			2014

NET CASH USED IN OPERATING ACTIVITIES	$	(1,247,200	)	$	(1,120,322	)	$	(378,246	)	$	(381,585	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(100		)	(45,158		)
Maturities of and payments received on available-for-sale securities	68,013			72,502			32,103			18,484
Principal payments on mortgage loans held for investment, net	18,098			35,320			8,537			6,250
Capital expenditures	(98,876		)	(125,654		)	(8,689		)	(25,841		)
Payments made for business acquisitions, net of cash acquired	(112,163		)	(37,865		)	(12,271		)	(40,533		)
Proceeds received on notes receivable	—			64,865
Franchise loans:
Loans funded	(48,013		)	(62,039		)	(2,582		)	(7,398		)
Payments received	34,164			17,893			11,434			18,674
Other, net	6,179			12,227			3,562			4,030
Net cash used in investing activities	(132,698		)	(67,909		)
Net cash provided by (used in) investing activities							32,094			(26,334		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of commercial paper and other short-term borrowings	(457,576		)	(80,930		)
Proceeds from issuance of commercial paper and other short-term borrowings	1,049,062			275,914
Repayments of long-term debt	(400,000		)	—
Customer banking deposits, net	515,015			(124,947		)	(268,532		)	(287,609		)
Dividends paid	(164,905		)	(164,134		)	(55,063		)	(54,852		)
Repurchase of common stock, including shares surrendered							(17,756		)	(9,397		)
Proceeds from exercise of stock options	16,026			28,083			13,015			13,368
Other, net	(26,348		)	(35,919		)	(22,413		)	(9,919		)
Net cash provided by (used in) financing activities	531,274			(101,933		)
Net cash used in financing activities							(350,749		)	(348,409		)

Effects of exchange rate changes on cash	(15,549		)	(20,016		)	(10,907		)	510

Net decrease in cash and cash equivalents	(864,173		)	(1,310,180		)	(707,808		)	(755,818		)
Cash and cash equivalents at beginning of the period	2,185,307			1,747,584			2,007,190			2,185,307
Cash and cash equivalents at end of the period	$	1,321,134		$	437,404		$	1,299,382		$	1,429,489

SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	201,374		$	87,672		$	75,358		$	88,924
Interest paid on borrowings	43,561			43,297			15,381			15,415
Interest paid on deposits	523			1,696			136			201
Transfers of foreclosed loans to other assets	3,240			6,389			624			1,818
Accrued additions to property and equipment	1,986			4,113			5,977			11,988
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

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| ~~Q3 FY2015~~Q1 FY2016 Form 10-Q	3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of ~~January~~July 31, 2015 and 2014, the consolidated statements of operations and comprehensive ~~income (loss)~~loss for the three ~~and nine~~ months ended ~~January~~July 31, 2015 and 2014, and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 have been prepared by the Company, without audit. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows as of ~~January~~July 31, 2015 and 2014 and for all periods presented have been made.

"H&R Block," "the Company," "we," "our" and "us" are used interchangeably to refer to H&R Block, Inc. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U. S. (GAAP) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, ~~2014~~2015 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, ~~2014~~2015 or for the year then ended are derived from our April 30, ~~2014~~2015 Annual Report to Shareholders on Form 10-K.

MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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. 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.

SEASONALITY OF BUSINESS – Our operating revenues are seasonal in nature with peak revenues typically occurring in the months of January through April. Therefore, results for interim periods are not indicative of results to be expected for the full year.

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 1312 and 1413 for additional information on litigation, claims and other loss contingencies related to our discontinued operations.

NOTE 2: SUBSEQUENT EVENTS

DIVESTITURE OF H&R BLOCK BANK

– In April 2014, our subsidiaries, H&R Block Bank (HRB Bank) and Block Financial LLC, the sole shareholder of HRB Bank (Block Financial), entered into a definitive Purchase and Assumption Agreement ~~(P&A Agreement)~~ with BofI Federal Bank, a federal savings bank (BofI)~~. The P&A Agreement is subject~~, pursuant to various closing conditions, including the receipt of certain required approvals, entry into certain additional agreements, and the fulfillment of various other customary conditions. If the closing conditions (including regulatory approvals) are satisfied, we will complete a transaction in which we ~~will~~agreed to sell certain assets and ~~assign certain~~ liabilities, including all of ~~HRB Bank's~~the deposit liabilities of HRB Bank, to BofI (P&A Transaction). ~~As previously disclosed,~~On August 4, 2015, HRB Bank, Block Financial and BofI received regulatory approvals for the ~~parties~~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 one-time cash payment to BofI of approximately $419 million, which is approximately equal to the ~~P&A Agreement entered into a Letter Agreement, effective October 23, 2014 (October Letter Agreement),~~carrying value of the liabilities (including all deposit liabilities) assumed by BofI. In connection with the closing, we intend to liquidate the available-for-sale (AFS) securities previously held by HRB Bank, which ~~among other things, extended~~totaled $404 million at July 31, 2015.

On the closing date ~~after which any party is permitted to terminate~~of the P&A ~~Agreement~~Transaction, HRB Bank converted from ~~October~~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, as of August 31, ~~2014~~2015, neither we nor any of our subsidiaries is subject to ~~May 31, 2015. The October Letter Agreement was filed as an exhibit~~minimum regulatory capital requirements or to regulation 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 ~~Current Report on Form 8-K on October 23, 2014. The parties to~~Holding Companies) were Savings and Loan Holding Companies (SLHCs) because they controlled HRB Bank. As a result of the P&A ~~Agreement entered into another Letter Agreement, effective February 12, 2015 (February Letter Agreement), which, among other things, extended~~Transaction and related actions, our Holding Companies have ceased to be SLHCs and have deregistered as SLHCs under Section 10(b) of the date after which any party is permitted to terminate the P&A Agreement from May 31, 2015 to July 31, 2015 and set the date of closing as June 30, 2015, unless otherwise agreed by the parties. The February Letter Agreement was filed as an exhibit to our Current Report on Form 8-K on February 13, 2015.

~~Due to the lack of regulatory approval, we continue to offer financial services products to our clients through HRB Bank during the 2015 tax season.~~



4	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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~~Upon the closing~~Home Owner's Loan Act. As of the P&A Transaction, we will make a cash payment to BofI for the difference in the carrying value of assets sold and the carrying value of liabilities (including deposit liabilities) transferred. The amount of the cash payment made at closing will primarily be equal to the carrying value of the liabilities to be transferred since the carrying value of the assets to be transferred is immaterial. Pursuant to the February Letter Agreement, the parties have set the date of closing as June 30,August 31, 2015, unless otherwise agreed by the parties. Due to the seasonality of our business, the timing of any closing of the P&A Transaction will impact the amount of deposit liabilities transferred. Assuming the P&A Transaction closes on June 30, 2015, we estimate that our cash payment to BofI will equal approximately $425 million to $575 million. In connection with the closing we intend to liquidate the available-for-sale (AFS) securities held by HRB Bank, which totaled $368 million at January 31, 2015.

In connection with the additional agreements expected to be entered into upon the closing of the P&A Transaction, BofI would offer H&R Block-branded financial products distributed by the Company to the Company's clients. An operating subsidiary of the Company would provide certain marketing, servicing and operational support to BofI with respect to such financial products.

The P&A Transaction is part of a three-step transaction pursuant to which the Company plans to divest HRB Bank (Divestiture Transaction), including: (1) the conversion of HRB Bank from a federal savings bank to a national bank; (2) the sale of certain HRB Bank assets to and assignment of certain liabilities (including all deposit liabilities) to BofI in the P&A Transaction; and (3) the merger of HRB Bank with and into Block Financial.

H&R Block, Inc., H&R Block Group, Inc. and Block Financial (our Holding Companies) are savings and loan holding companies (SLHCs) because they control HRB Bank. By consummating the Divestiture Transaction, our Holding Companies ~~would cease to be SLHCs and would~~are no longer be subject to regulatory capital requirements applicable to SLHCs or regulation by the Board of Governors of the Federal Reserve System (Federal Reserve) ~~as SLHCs or to~~.

Additional information about the ~~regulatory capital requirements applicable to SLHCs.~~

~~The obligations~~closing of ~~the parties to complete~~ the P&A Transaction and the agreements executed at the closing are ~~subject~~set forth in Part 1, Item 2 under "Recent Developments."

CAPITAL STRUCTURE – On September 1, 2015, we announced our intent to ~~the fulfillment~~establish a new capital structure, which includes a new $3.5 billion share repurchase program approved by our Board of numerous conditions, including regulatory approval. We cannot be certain when or if the conditions to the P&A Transaction will be satisfied, or whether the P&A Transaction will be completed. In addition, there may be changes to the termsDirectors, a new unsecured committed line of credit (CLOC) and ~~conditions of the P&A Agreement and other contemplated agreements as~~incremental debt. As a part of this new capital structure, we also announced our intent to take near-term action on the ~~regulatory approval process.~~planned capital structure changes, including:


▪	Our plans to launch a "modified Dutch auction" tender offer to purchase up to $1.5 billion of our common stock under our new share repurchase program, at a price per share of not less than $32.25 and not greater than $37.00, which will be contingent upon, among other customary items, the successful closing of a new CLOC, and satisfaction of other customary conditions;


▪	Our intent to replace our existing five-year $1.5 billion CLOC (2012 CLOC) with the new CLOC; and


▪	Our intent to incur additional incremental debt through other debt issuances as a part of the capital structure changes, which will fund stock repurchases under our new share repurchase program, together with available cash, borrowings under the new CLOC and funds from ongoing business operations.

On September 2, 2015, we commenced the tender offer described above to purchase up to $1.5 billion of our common stock, at a price per share of not less than $32.25 and not greater than $37.00.

Additional information about our new capital structure, including our new share repurchase program and related tender offer, is set forth in Part 1, Item 2 under "Recent Developments."

NOTE 3: LOSS PER SHARE AND STOCKHOLDERS' EQUITY

LOSS PER SHARE – Basic and diluted loss 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 dilutive effect of potential common shares is included in diluted earnings per share except in those periods with a loss from continuing operations. 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 ~~5.3~~5.0 million shares for the three ~~and nine~~ months ended ~~January~~July 31, 2015, and ~~5.7~~5.5 million shares for the three ~~and nine~~ months ended ~~January~~July 31, 2014,, as the effect would be antidilutive due to the net loss from continuing operations during those periods.



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	5

~~Table of Contents~~

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)													(in 000s, except per share amounts)
		Three months ended January 31,						Nine months ended January 31,
Three months ended July 31,															2015			2014
		2015			2014			2015			2014
Net loss from continuing operations attributable to shareholders		$	(35,311	)	$	(212,751	)	$	(257,389	)	$	(429,036	)		$	(96,505	)	$	(108,851	)
Amounts allocated to participating securities		(105		)	(88		)	(291		)	(242		)		(102		)	(89		)
Net loss from continuing operations attributable to common shareholders		$	(35,416	)	$	(212,839	)	$	(257,680	)	$	(429,278	)		$	(96,607	)	$	(108,940	)

Basic weighted average common shares		275,190			274,110			274,957			273,699				275,765			274,575
Potential dilutive shares		—			—			—			—				—			—
Dilutive weighted average common shares		275,190			274,110			274,957			273,699				275,765			274,575

Loss per share from continuing operations attributable to common shareholders:
Basic		$	(0.13	)	$	(0.78	)	$	(0.94	)	$	(1.57	)		$	(0.35	)	$	(0.40	)
Diluted		(0.13		)	(0.78		)	(0.94		)	(1.57		)		(0.35		)	(0.40		)



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	5

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STOCK-BASED COMPENSATION – During the ~~nine~~three months ended ~~January~~July 31, 2015, we acquired ~~0.3~~0.6 million shares of our common stock at an aggregate cost of $~~10.4~~17.8 million. These shares represent shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards. During the ~~nine~~three months ended ~~January~~July 31, 2014, we acquired ~~0.2~~0.3 million shares at an aggregate cost of $~~6.0~~9.4 million for similar purposes.

During the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014, we issued ~~1.3~~1.6 million and ~~1.8~~1.1 million shares of common stock, respectively, due to the vesting or exercise of stock-based awards.

During the ~~nine~~three months ended ~~January~~July 31, 2015, we granted equity awards equivalent to ~~1.0~~0.9 million shares under our stock-based compensation plans, consisting primarily of nonvested units. Nonvested units generally either vest over a three-year period with one-third vesting each year or cliff vest at the end of a three-year period. Stock-based compensation expense of our continuing operations totaled ~~$6.1 million and~~ $~~20.7~~6.0 million for the three ~~and nine~~ months ended ~~January~~July 31, 2015,~~, respectively, and $4.7 million~~ and $~~15.5~~7.5 million for the three ~~and nine~~ months ended ~~January~~July 31, ~~2014, respectively.~~2014. As of ~~January~~July 31, 2015, unrecognized compensation cost for stock options totaled $~~0.3~~0.1 million, and for nonvested shares and units totaled $~~37.2~~50.2 million.



6	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

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)	(in 000s)										(in 000s)
		Foreign Currency Translation Adjustments			Unrealized Gain (Loss) on AFS Securities			Total				Foreign Currency Translation Adjustments			Unrealized Gain (Loss) on AFS Securities			Total
Balances as of May 1, 2015												$	(6,789	)	$	8,529		$	1,740
Other comprehensive income (loss) before reclassifications:
Gross losses arising during the period												(8,755		)	(2,235		)	(10,990		)
Income taxes												—			(875		)	(875		)
												(8,755		)	(1,360		)	(10,115		)
Amounts reclassified to net income:
Gross amount reclassified												—			230			230
Income taxes												—			89			89
												—			141			141
Net other comprehensive loss												(8,755		)	(1,219		)	(9,974		)
Balances as of July 31, 2015												$	(15,544	)	$	7,310		$	(8,234	)

Balances as of May 1, 2014		$	3,334		$	1,843		$	5,177			$	3,334		$	1,843		$	5,177
Other comprehensive income (loss) before reclassifications:
Gross gains (losses) arising during the year		(13,342		)	11,389			(1,953		)
Gross gains (losses) arising during the period												455			(1,183		)	(728		)
Income taxes		—			4,472			4,472				—			(460		)	(460		)
		(13,342		)	6,917			(6,425		)		455			(723		)	(268		)
Amounts reclassified to net income:
Gross amount reclassified		—			(24		)	(24		)		—			941			941
Income taxes		—			(9		)	(9		)		—			367			367
		—			(15		)	(15		)		—			574			574
Net other comprehensive income (loss)		(13,342		)	6,902			(6,440		)		455			(149		)	306
Balances as of January 31, 2015		$	(10,008	)	$	8,745		$	(1,263	)
Balances as of July 31, 2014												$	3,789		$	1,694		$	5,483

Balances as of May 1, 2013		$	6,809		$	3,741		$	10,550
Other comprehensive income (loss) before reclassifications:
Gross losses arising during the year		(5,823		)	(15,709		)	(21,532		)
Income taxes		—			(6,206		)	(6,206		)
Net other comprehensive loss		(5,823		)	(9,503		)	(15,326		)
Balances as of January 31, 2014		$	986		$	(5,762	)	$	(4,776	)

Gross ~~amounts~~gains and losses reclassified out of accumulated other comprehensive income are included in other income and other expense, ~~net~~respectively, in the consolidated statements of ~~operations.~~operations and comprehensive loss.



6	Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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NOTE 4: RECEIVABLES

Receivables consist of the following:


(in 000s)	(in 000s)																	(in 000s)
As of		January 31, 2015					January 31, 2014						April 30, 2014						July 31, 2015					July 31, 2014					April 30, 2015
		Short-term			Long-term		Short-term			Long-term			Short-term			Long-term			Short-term			Long-term		Short-term			Long-term		Short-term			Long-term
Loans to franchisees		$	71,420		$	84,770	$	104,841		$	114,676		$	63,716		$	90,747		$	56,277		$	57,792	$	62,195		$	83,013	$	56,603		$	64,472
Receivables for tax preparation and related fees		234,056			—		73,575			—			45,619			—			39,927			6,103		38,204			—		48,864			6,103
Cash Back® receivables		7,130			—		10,099			—			48,812			—			2,777			—		4,170			—		42,680			—
Emerald Advance lines of credit		370,041			2,254		444,590			5,555			20,577			3,862			20,321			598		20,239			2,839		21,908			1,913
Royalties from franchisees		68,486			—		30,309			—			9,978			—			4,509			—		4,278			—		8,206			—
Other		76,179			15,404		56,523			23,384			55,494			17,186			33,154			7,934		44,629			15,294		44,230			8,379
		827,312			102,428		719,937			143,615			244,196			111,795			156,965			72,427		173,715			101,146		222,491			80,867
Allowance for doubtful accounts		(49,859		)	—		(42,716		)	(2,531		)	(52,578		)	—			(53,771		)	—		(51,400		)	—		(54,527		)	—
		$	777,453		$	102,428	$	677,221		$	141,084		$	191,618		$	111,795		$	103,194		$	72,427	$	122,315		$	101,146	$	167,964		$	80,867

~~We recognize revenue for tax preparation services when tax returns are electronically filed. As of January 31, 2014, we did not recognize revenue and related receivables for 1.8 million tax returns.~~ Balances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets.

LOANS TO FRANCHISEES – Franchisee loan balances as of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~2015, consisted of ~~$100.3~~$75.7 million, ~~$132.3~~$99.7 million and ~~$109.1~~$80.8 million, respectively, in term loans made primarily to finance the purchase



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	7

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of franchises and ~~$55.9~~$38.4 million, ~~$87.2~~$45.5 million and ~~$45.4~~$40.3 million, respectively, in revolving lines of credit primarily for the purpose of funding off-season working capital needs.

As of ~~January~~July 31, 2015 and 2014, and April 30, 2015, loans with a principal balance of ~~$1.4~~$1.5 million, $0.8 million and ~~$0.6~~$0.1 million, respectively, were more than 30 days past ~~due, while we had no loans more than 30 days past due at~~ ~~April 30, 2014~~.due. We had no loans to franchisees on non-accrual status.

CANADIAN CASH BACK® PROGRAM – Refunds advanced under the Cash Back program are not subject to credit approval, therefore the primary indicator of credit quality is the age of the receivable amount. Cash Back amounts are generally received within 60 days of filing the client's return. As of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~2015, ~~$0.3~~$0.6 million, ~~$0.5~~$1.1 million and ~~$1.9~~$1.3 million of Cash Back balances were more than 60 days old, respectively.

H&R BLOCK EMERALD ADVANCE® LINES OF CREDIT – We review the credit quality of our H&R Block Emerald Advance® lines of credit (EA) receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid. These amounts as of ~~January~~July 31, 2015, by year of origination, are as follows:


(in 000s)	(in 000s)			(in 000s)
Credit Quality Indicator – Year of origination:
2015		$	342,461		$	5,348
2014		3,374			92
2013		1,472			1,699
2012 and prior		4,171
Revolving loans		20,817			13,780
		$	372,295		$	20,919

As of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~2015, $~~19.5~~17.4 million, $~~25.7~~20.0 million and $~~20.7~~18.7 million of EAs were on non-accrual status and classified as impaired, or more than 60 days past due, respectively.



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	7

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ALLOWANCE FOR DOUBTFUL ACCOUNTS – Activity in the allowance for doubtful accounts for our short-term ~~and long-term~~ receivables for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 is as follows:


(in 000s)	(in 000s)															(in 000s)
		EAs		Loans to Franchisees			Cash Back ®			All Other			Total				EAs		All Other			Total
Balances as of May 1, 2015																	$	7,353	$	47,174		$	54,527
Provision																	—		713			713
Charge-offs																	—		(1,469		)	(1,469		)
Balances as of July 31, 2015																	$	7,353	$	46,418		$	53,771

Balances as of May 1, 2014		$	7,530	$	—		$	3,002		$	42,046		$	52,578			$	7,530	$	45,048		$	52,578
Provision		28,521		—			199			12,944			41,664				—		2,842			2,842
Charge-offs		—		—			(1,521		)	(42,862		)	(44,383		)		—		(4,020		)	(4,020		)
Balances as of January 31, 2015		$	36,051	$	—		$	1,680		$	12,128		$	49,859
Balances as of July 31, 2014																	$	7,530	$	43,870		$	51,400

Balances as of May 1, 2013		$	7,390	$	—		$	2,769		$	47,544		$	57,703
Provision		24,787		42			248			12,202			37,279
Charge-offs		—		(2		)	(1,667		)	(48,066		)	(49,735		)
Balances as of January 31, 2014		$	32,177	$	40		$	1,350		$	11,680		$	45,247



8	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

NOTE 5: MORTGAGE LOANS HELD FOR INVESTMENT

The composition of our mortgage loan portfolio is as follows:


(dollars in 000s)	(dollars in 000s)																(dollars in 000s)
As of		January 31, 2015					January 31, 2014					April 30, 2014						July 31, 2015					July 31, 2014					April 30, 2015
		Amount			% of Total		Amount			% of Total		Amount			% of Total			Amount			% of Total		Amount			% of Total		Amount			% of Total
Adjustable-rate loans		$	135,481		54	%	$	158,369		54	%	$	149,480		54	%		$	124,752		53	%	$	144,096		54	%	$	130,182		53	%
Fixed-rate loans		117,484			46	%	132,956			46	%	127,943			46	%		111,096			47	%	123,991			46	%	115,034			47	%
		252,965			100	%	291,325			100	%	277,423			100	%		235,848			100	%	268,087			100	%	245,216			100	%
Unamortized deferred fees and costs		2,073					2,387					2,277						1,941					2,206					2,008
Less: Allowance for loan losses		(9,375		)			(11,563		)			(11,272		)				(7,659		)			(10,561		)			(7,886		)
		$	245,663				$	282,149				$	268,428					$	230,130				$	259,732				$	239,338

Our loan loss allowance as a percent of mortgage loans was ~~3.7%~~3.2% as of ~~January~~July 31, 2015, compared to ~~4.0%~~3.9% as of ~~January~~July 31, 2014 and ~~4.1%~~3.2% as of April 30, ~~2014~~2015.

Activity in the allowance for loan losses for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 is as follows:

(in 000s)
Nine months ended January 31, 2015
2014
Balance at beginning of the period $ 11,272
$ 14,314
Provision 1,090
7,224
Recoveries 1,155
3,250
Charge-offs (4,142 ) (13,225 )
Balance at end of the period $ 9,375
$ 11,563

~~When determining our allowance for loan losses, we evaluate loans less than~~ 60 ~~days past due on a pooled basis, while loans we consider impaired, including those loans more than~~ 60 ~~days past due or modified as a troubled debt restructuring (TDR), are evaluated individually. The balance of these loans and the related allowance is as follows:~~

(in 000s)
As of January 31, 2015 January 31, 2014 April 30, 2014
Portfolio
Balance
Related
Allowance
Portfolio
Balance
Related
Allowance
Portfolio
Balance
Related
Allowance
Pooled (less than 60 days past due) $ 144,144
$ 3,629
$ 169,404
$ 4,979
$ 158,496
$ 4,508
Impaired:
Individually (TDRs) 38,782
4,083
44,635
4,371
43,865
4,346
Individually (60 days or more past due) 70,039
1,663
77,286
2,213
75,062
2,418
$ 252,965
$ 9,375
$ 291,325
$ 11,563
$ 277,423
$ 11,272

~~Detail of our mortgage loans held for investment and the related allowance as of~~ ~~January 31, 2015~~ ~~is as follows:~~

(dollars in 000s)
Outstanding Principal Balance
Loan Loss Allowance
% 30+ Days
Past Due

Amount
% of Principal

Purchased from SCC $ 145,812
$ 7,292
5.0 % 28.4 %
All other 107,153
2,083
1.9 % 6.8 %
$ 252,965
$ 9,375
3.7 % 19.2 %



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	9

~~Table of Contents~~

~~Credit quality indicators as of~~ ~~January 31, 2015~~ ~~include the following:~~

(in 000s)
Credit Quality Indicators Purchased from SCC
All Other
Total Portfolio
Occupancy status:
Owner occupied $ 107,581
$ 70,670
$ 178,251
Non-owner occupied 38,231
36,483
74,714
$ 145,812
$ 107,153
$ 252,965
Documentation level:
Full documentation $ 47,314
$ 76,095
$ 123,409
Limited documentation 4,607
11,745
16,352
Stated income 82,252
11,857
94,109
No documentation 11,639
7,456
19,095
$ 145,812
$ 107,153
$ 252,965
Internal risk rating:
High $ 41,216
$ —
$ 41,216
Medium 104,596
—
104,596
Low —
107,153
107,153
$ 145,812
$ 107,153
$ 252,965

Loans given our internal risk rating of "high" generally had no documentation or were based on stated income. Loans given our internal risk rating of "medium" generally had full documentation or were based on stated income, with loan-to-value ratios at origination of more than ~~80%, and were made to borrowers with credit scores below~~ ~~700~~ ~~at origination. Loans given our internal risk rating of "low" generally had loan-to-value ratios at origination of less than~~ ~~80%~~ ~~and were made to borrowers with credit scores greater than~~ ~~700~~ ~~at origination.~~

Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately ~~52%~~ ~~of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California and New York.~~



(in 000s)
Three months ended July 31,	2015			2014
Balance at beginning of the period	$	7,886		$	11,272
Provision	(28		)	725
Recoveries	365			679
Charge-offs	(564		)	(2,115		)
Balance at end of the period	$	7,659		$	10,561

Detail of the aging of the mortgage loans in our portfolio as of ~~January~~July 31, 2015 is as follows:


(in 000s)	(in 000s)													(in 000s)
		Less than 60 Days Past Due		60 – 89 Days Past Due		90+ Days Past Due⁽¹⁾		Total Past Due		Current		Total			Less than 60 Days Past Due		60 – 89 Days Past Due		90+ Days Past Due⁽¹⁾		Total Past Due		Current		Total
Purchased from SCC		$	11,305	$	238	$	45,864	$	57,407	$	88,405	$	145,812		$	8,525	$	985	$	45,957	$	55,467	$	83,894	$	139,361
All other		5,416		302		7,408		13,126		94,027		107,153			2,790		488		6,346		9,624		86,863		96,487
		$	16,721	$	540	$	53,272	$	70,533	$	182,432	$	252,965		$	11,315	$	1,473	$	52,303	$	65,091	$	170,757	$	235,848


⁽¹⁾	We do not accrue interest on loans past due 90 days or more.



108	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

~~Table of Contents~~

~~Information related to our non-accrual loans is as follows:~~

(in 000s)
As of January 31, 2015
January 31, 2014
April 30, 2014
Loans:
Purchased from SCC $ 59,452
$ 64,573
$ 61,767
Other 11,117
12,325
12,528
70,569
76,898
74,295
TDRs:
Purchased from SCC 4,928
4,221
4,648
Other 817
957
951
5,745
5,178
5,599
Total non-accrual loans $ 76,314
$ 82,076
$ 79,894

~~Information related to impaired loans is as follows:~~

(in 000s)
Balance
With Allowance
Balance
With No Allowance
Total
Impaired Loans
Related Allowance
As of January 31, 2015:
Purchased from SCC $ 24,318
$ 67,320
$ 91,638
$ 4,772
Other 3,388
13,797
17,185
974
$ 27,706
$ 81,117
$ 108,823
$ 5,746
As of January 31, 2014:
Purchased from SCC $ 28,037
$ 73,873
$ 101,910
$ 5,341
Other 5,030
14,982
20,012
1,243
$ 33,067
$ 88,855
$ 121,922
$ 6,584
As of April 30, 2014:
Purchased from SCC $ 27,924
$ 71,075
$ 98,999
$ 3,239
Other 5,176
14,752
19,928
3,525
$ 33,100
$ 85,827
$ 118,927
$ 6,764

~~Information related to the allowance for impaired loans is as follows:~~

(in 000s)
As of January 31, 2015
January 31, 2014
April 30, 2014
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method $ 1,663
$ 2,213
$ 2,418
Based on discounted cash flow method 4,083
4,371
4,346
$ 5,746
$ 6,584
$ 6,764

~~Information related to activities of our non-performing assets is as follows:~~

(in 000s)
Nine months ended January 31, 2015
2014
Average impaired loans:
Purchased from SCC $ 96,767
$ 116,061
All other 18,683
22,607
$ 115,450
$ 138,668



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	11

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NOTE 6: INVESTMENTS

The amortized cost and fair value of securities classified as AFS are summarized below:


(in 000s)	(in 000s)										(in 000s)
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of January 31, 2015:
As of July 31, 2015:
Mortgage-backed securities												$	392,285	$	11,936	$	—		$	404,221
Municipal bonds												3,025		80		—			3,105
U.S. treasury bills												100		—		—			100
												$	395,410	$	12,016	$	—		$	407,426
As of July 31, 2014:
Mortgage-backed securities												$	401,092	$	2,582	$	—		$	403,674
Municipal bonds												4,106		183		—			4,289
U.S. treasury bills												100		—		—			100
												$	405,298	$	2,765	$	—		$	408,063
As of April 30, 2015:
Mortgage-backed securities		$	352,179	$	15,566	$	—		$	367,745		$	421,035	$	13,889	$	—		$	434,924
Municipal bonds		4,077		135		(17		)	4,195			4,062		109		(24		)	4,147
Common stock		5,000		—		(1,312		)	3,688			2,491		47		—			2,538
U.S. treasury bills		100		—		—			100			100		—		—			100
		$	361,356	$	15,701	$	(1,329	)	$	375,728		$	427,688	$	14,045	$	(24	)	$	441,709
As of January 31, 2014:
Mortgage-backed securities		449,097		3,201		(12,903		)	439,395
Municipal bonds		4,134		241		—			4,375
		$	453,231	$	3,442	$	(12,903	)	$	443,770
As of April 30, 2014:
Mortgage-backed securities		$	420,697	$	2,798	$	—		$	423,495
Municipal bonds		4,120		209		—			4,329
		$	424,817	$	3,007	$	—		$	427,824

Substantially all AFS debt securities held as of ~~January~~July 31, 2015 mature after five years.

NOTE 7: GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill of our Tax Services segment for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 are as follows:


(in 000s)	(in 000s)										(in 000s)
												Goodwill			Accumulated Impairment Losses			Net
Balances as of April 30, 2015												$	474,128		$	(32,297	)	$	441,831
Acquisitions												14,030			—			14,030
Disposals and foreign currency changes, net												(1,467		)	—			(1,467		)
Impairments												—			—			—
Balances as of July 31, 2015												$	486,691		$	(32,297	)	$	454,394
		Goodwill			Accumulated Impairment Losses			Net
Balances as of April 30, 2014		$	468,414		$	(32,297	)	$	436,117			$	468,414		$	(32,297	)	$	436,117
Acquisitions		9,614			—			9,614				42,274			—			42,274
Disposals and foreign currency changes, net		(2,770		)	—			(2,770		)		454			—			454
Impairments		—			—			—				—			—			—
Balances as of January 31, 2015		$	475,258		$	(32,297	)	$	442,961
Balances as of July 31, 2014												$	511,142		$	(32,297	)	$	478,845

Balances as of April 30, 2013		$	467,079		$	(32,297	)	$	434,782
Acquisitions		5,206			—			5,206
Disposals and foreign currency changes, net		(2,602		)	—			(2,602		)
Impairments		—			—			—
Balances as of January 31, 2014		$	469,683		$	(32,297	)	$	437,386

The increase in goodwill resulted from acquired franchisee and competitor businesses during the period. We expect the purchase price allocation to be finalized during fiscal year 2016.

We test goodwill for impairment annually or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.



12	~~Q3 FY2015 Form 10-Q \|~~ H&R Block, Inc. \| Q1 FY2016 Form 10-Q	9

Table of Contents

Components of the intangible assets of our Tax Services segment are as follows:


(in 000s)	(in 000s)								(in 000s)
		Gross Carrying Amount		Accumulated Amortization			Net			Gross Carrying Amount		Accumulated Amortization			Net
As of January 31, 2015:
As of July 31, 2015:
Reacquired franchise rights		$	294,587	$	(39,954	)	$	254,633		$	294,918	$	(51,233	)	$	243,685
Customer relationships		169,058		(71,799		)	97,259			169,998		(83,471		)	86,527
Internally-developed software		114,447		(78,063		)	36,384			120,522		(84,215		)	36,307
Noncompete agreements		30,546		(23,171		)	7,375			30,576		(24,091		)	6,485
Franchise agreements		19,201		(7,894		)	11,307			19,201		(8,534		)	10,667
Purchased technology		54,700		(18,329		)	36,371			54,700		(21,362		)	33,338
		$	682,539	$	(239,210	)	$	443,329		$	689,915	$	(272,906	)	$	417,009
As of January 31, 2014:
As of July 31, 2014:
Reacquired franchise rights		$	233,675	$	(23,120	)	$	210,555		$	233,749	$	(29,152	)	$	204,597
Customer relationships		121,055		(56,283		)	64,772			123,130		(62,514		)	60,616
Internally-developed software		98,012		(70,964		)	27,048			104,580		(75,243		)	29,337
Noncompete agreements		24,573		(22,028		)	2,545			24,697		(22,408		)	2,289
Franchise agreements		19,201		(6,614		)	12,587			19,201		(7,254		)	11,947
Purchased technology		14,800		(13,588		)	1,212			54,974		(15,870		)	39,104
		$	511,316	$	(192,597	)	$	318,719		$	560,331	$	(212,441	)	$	347,890
As of April 30, 2014:
As of April 30, 2015:
Reacquired franchise rights		$	233,749	$	(26,136	)	$	207,613		$	294,647	$	(46,180	)	$	248,467
Customer relationships		123,110		(59,521		)	63,589			170,851		(78,157		)	92,694
Internally-developed software		101,162		(72,598		)	28,564			118,865		(80,689		)	38,176
Noncompete agreements		24,694		(22,223		)	2,471			30,630		(23,666		)	6,964
Franchise agreements		19,201		(6,934		)	12,267			19,201		(8,214		)	10,987
Purchased technology		54,900		(13,782		)	41,118			54,700		(19,846		)	34,854
		$	556,816	$	(201,194	)	$	355,622		$	688,894	$	(256,752	)	$	432,142

Amortization of intangible assets for the three ~~and nine~~ months ended ~~January~~July 31, 2015 was $~~16.7~~16.6 million ~~and~~ ~~$41.2 million, respectively.~~. Amortization of intangible assets for the three ~~and nine~~ months ended ~~January~~July 31, 2014 was ~~$8.8 million and $21.4 million, respectively.~~$11.2 million. Estimated amortization of intangible assets for fiscal years ~~2015~~, 2016, 2017, 2018, 2019 and ~~2019~~2020 is $~~58.8~~64.1 million, $~~60.2~~55.7 million, $~~51.0~~48.6 million, $~~44.2~~36.9 million and $~~36.0~~26.2 million, respectively.

~~The increase in intangible assets resulted primarily from acquired franchisee and competitor businesses during the period. The weighted-average life of the acquired assets is as follows:~~



~~Assets acquired~~		~~Weighted-Average Life (in years)~~
~~Reacquired franchise rights~~		6
~~Customer relationships~~		6
~~Internally-developed software~~		3
~~Noncompete agreements~~		5
~~Total~~		5



10	Q1 FY2016 Form 10-Q \| H&R Block, Inc. ~~\| Q3 FY2015 Form 10-Q~~	13

Table of Contents

NOTE 8: ~~LONG-TERM DEBT~~

~~The components of long-term debt are as follows:~~

(in 000s)
As of January 31, 2015
January 31, 2014
April 30, 2014
Senior Notes, 5.500%, due November 2022 $ 497,823
$ 497,541
$ 497,612
Senior Notes, 5.125%, due October 2014 —
399,824
399,882
Capital lease obligation 8,418
9,164
8,980
506,241
906,529
906,474
Less: Current portion (781 ) (400,570 ) (400,637 )
$ 505,460
$ 505,959
$ 505,837

~~Our 5.125% Senior Notes with a principal balance of $400 million matured in October 2014 and, utilizing available cash on hand, we repaid them according to their terms.~~

~~In addition to our long-term debt obligations, we also had commercial paper borrowings of $591.5 million at~~ ~~January 31, 2015, compared to $195.0 million at the same time last year. These borrowings were used to fund our seasonal working capital needs.~~

~~NOTE 9:~~ FAIR VALUE

FAIR VALUE MEASUREMENT

–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. Our investments in AFS securities are carried at fair value on a recurring basis with gains and losses reported as a component of other comprehensive income, except for losses assessed to be other than temporary. Our AFS securities include certain agency and agency-sponsored mortgage-backed securities and municipal bonds. Quoted market prices are not available for these securities, as they are not actively traded and have fewer observable transactions. As a result, we use third-party pricing services to determine fair value and classify the securities as Level 2. The third-party pricing services' models are based on market data and utilize available trade, bid and other market information for similar securities. Quarterly, we compare the prices obtained from our third-party pricing services to other available independent pricing information to validate the reasonableness of the valuations provided. In addition, we also 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 services.

There were no transfers of AFS securities between hierarchy levels during the ~~nine~~three months ended ~~January~~July 31, 2015 and ~~2014~~.2014. See note 6 for details of our AFS securities that were remeasured at fair value on a recurring basis during the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 and the unrealized gains or losses on those remeasurements.

The following table presents the assets that were remeasured at fair value on a non-recurring basis during the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 and the losses on those remeasurements:


(dollars in 000s)	(dollars in 000s)																(dollars in 000s)
		Total			Level 1			Level 2			Level 3			Losses				Total			Level 1			Level 2			Level 3			Losses
As of January 31, 2015:
As of July 31, 2015:
Impaired mortgage loans held for investment		$	57,314		$	—		$	—		$	57,314		$	(1,756	)		$	57,951		$	—		$	—		$	57,951		$	(88	)
As a percentage of total assets		1.3		%	—		%	—		%	1.3		%					1.6		%	—		%	—		%	1.6		%

As of January 31, 2014:
As of July 31, 2014:
Impaired mortgage loans held for investment		$	71,053		$	—		$	—		$	71,053		$	(4,022	)		$	59,635		$	—		$	—		$	59,635		$	(842	)
As a percentage of total assets		2.0		%	—		%	—		%	2.0		%					1.5		%	—		%	—		%	1.5		%



14	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

The fair value of impaired mortgage loans held for investment is generally based on the net present value of discounted cash flows for TDR loans or the appraised value of the underlying collateral for all other loans. Impaired and TDR loans are required to be remeasured at least annually, based on HRB Bank's loan policy. These loans are classified as Level 3.

We have established various controls and procedures to ensure that the unobservable inputs used in the fair value measurement of these instruments are appropriate. Appraisals are obtained from certified appraisers and reviewed internally by HRB Bank's asset management group. The inputs and assumptions used in our discounted cash flow model for TDRs are reviewed and approved by HRB Bank management each time the balances are remeasured. Significant changes in fair value from the previous measurement are presented to HRB Bank management for approval. There were no changes to the unobservable inputs used in determining the fair values of our Level 3 financial assets.



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	11

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The following table presents the quantitative information about our Level 3 fair value measurements, which utilize significant unobservable internally-developed inputs:

(in 000s)

Fair Value as of January 31, 2015

Valuation

Technique

Unobservable Input

Range

(Weighted Average)

Fair Value as of July 31, 2015

Valuation

Technique

Unobservable Input

Range

(Weighted Average)

Impaired mortgage loans held for investment – non TDRs

68,376

Collateral-

based

Cost to list/sell

Time to sell (months)

Collateral depreciation

Loss severity

0% – 193%(10%)

24 (24)

(166%) – 100%(38%)

0% – 100%(61%)

Impaired mortgage loans held for investment �� non TDRs

68,368

Collateral-

based

Cost to list/sell

Time to sell (months)

Collateral depreciation

Loss severity

0% – 171%(10%)

12 (12)

(128%) – 100%(32%)

0% – 100%(61%)

Impaired mortgage loans held for investment – TDRs

34,699

Discounted

cash flow

Aged default performance

Loss severity

23% – 37%(30%)

0% – 23%(6%)

29,925

Discounted

cash flow

Aged default performance

Loss severity

23% – 36%(29%)

0% – 23%(7%)

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

– The carrying amounts and estimated fair values of our financial instruments are as follows:


(in 000s)	(in 000s)													(in 000s)
As of		January 31, 2015				January 31, 2014				April 30, 2014					July 31, 2015				July 31, 2014				April 30, 2015
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents		$	1,321,134	$	1,321,134	$	437,404	$	437,404	$	2,185,307	$	2,185,307		$	1,299,382	$	1,299,382	$	1,429,489	$	1,429,489	$	2,007,190	$	2,007,190
Cash and cash equivalents - restricted		51,085		51,085		44,855		44,855		115,319		115,319			61,040		61,040		71,917		71,917		91,972		91,972
Receivables, net - short-term		777,453		777,453		677,221		679,590		191,618		191,618			103,194		103,194		122,315		122,315		167,964		167,964
Mortgage loans held for investment, net		245,663		190,422		282,149		195,282		268,428		192,281			230,130		184,277		259,732		193,920		239,338		190,196
Investments in AFS securities		375,728		375,728		443,770		443,770		427,824		427,824			407,426		407,426		408,063		408,063		441,709		441,709
Receivables, net - long-term		102,428		102,428		141,084		140,661		111,795		111,795			72,427		72,427		101,146		101,146		80,867		80,867
Liabilities:
Customer banking deposits		1,286,582		1,273,283		808,008		810,486		770,288		765,376			477,145		473,720		483,477		480,729		744,699		737,261
Long-term debt		506,241		558,693		906,529		953,944		906,474		955,050			505,996		552,431		906,419		965,650		506,088		556,769
Contingent consideration payments		12,848		12,848		10,523		10,523		9,206		9,206			10,650		10,650		9,168		9,168		10,667		10,667

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).

▪

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 (Level 3).



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	15

~~Table of Contents~~

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 (Level 3).


▪	Investments in AFS securities - For mortgage-backed securities, we use 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 is 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 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.



12	Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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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, is equal to the amount payable on demand (Level 1). The fair value of IRAs and other time deposits is estimated by discounting the future cash flows using the rates currently 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 (Level 2).


▪	Contingent consideration payments - Fair value approximates the carrying amount (Level 3).

NOTE ~~10:~~9: INCOME TAXES

We file a consolidated federal income tax return in the United States (U.S.) with the Internal Revenue Service (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 exam level or through the appeals process.

In December 2014, we received written notice from our IRS exam team of the completion of the examination of our 2011 and 2012 federal income tax returns for which we agreed to all proposed adjustments. We recorded the impact of the completed audit in the current quarter. The Company currently does not have a U.S. federal return under examination; however, our calendar 2013 federal return and federal returns for all periods after this date remain open to examination. Additionally, the Company is either currently under examination or open to examination in all U.S. states that impose a corporate income tax.

We had gross unrecognized tax benefits of $~~79.3~~76.5 million, $~~127.5~~128.1 million and $~~111.5~~86.3 million as of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~2015, respectively. The gross unrecognized tax benefits decreased ~~$32.2~~$9.8 million and ~~decreased $18.9~~increased $16.6 million during the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014, respectively. The decrease in unrecognized tax benefits during the ~~nine~~three months ending ~~January~~July 31, 2015 is primarily related to a law change enacted in the state of Missouri which allowed the Company to release prior year income tax ~~positions expiring due to statutes of limitations and the settlement of our federal 2011 and 2012 audit, partially offset by changes for various current year federal and state positions.~~reserves. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $8$15 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations and anticipated ~~settlements~~closure of various state ~~audit issues.~~matters currently under exam. The portion of unrecognized benefits expected to be cash settled within the next twelve months amounts to $~~1.9~~8.7 million and is included in accrued income taxes on our consolidated balance sheet. The remaining liability for uncertain tax positions is classified as long-term and is included in ~~other noncurrent~~deferred tax liabilities ~~in the consolidated balance sheet.~~

~~We had income taxes receivable of~~ ~~$40.9 million~~and ~~$57.6 million~~ ~~as of~~ ~~January 31, 2015~~ ~~and~~ ~~2014, respectively. These receivables were included in prepaid expenses and other current assets~~reserves for uncertain tax positions on the consolidated balance sheet. ~~As of~~ ~~April 30, 2014, the balance in accrued income taxes was a payable of~~ ~~$407 million~~. Due to the seasonality of our core business, in which we incur operating losses in the first three fiscal quarters, tax benefits are recorded through the first nine months which reduces the tax payable balance. In the fourth quarter, the company realizes substantial operating income which more than offsets the losses incurred in the first three quarters. This results in a significant increase in our income taxes payable late in the fiscal year.

Consistent with prior years, our pretax loss for the ~~nine~~three months ended ~~January~~July 31, 2015 is expected to be offset by income in the fourth quarter due to the established pattern of seasonality in our primary business operations. As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur inwithin our fiscal year. The amount of tax benefit recorded reflects management's estimate



16	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

of the annual effective tax rate applied to the year-to-date loss from continuing operations. Certain discrete tax adjustments are also reflected in income tax expense for the periods presented.

A discrete income tax benefit of ~~$18.7~~$20.6 million was recorded in the three months ended ~~January~~July 31, 2015, ~~while~~ compared to a discrete tax ~~expense~~benefit of ~~$3.2 million~~ ~~was recorded~~less than $100 thousand in the same period of the prior year. The discrete tax benefit recorded in the current period resulted primarily from ~~the settlement of our 2011-2012 federal audit and revised state income tax positions. During the nine months ended~~ ~~January 31, 2015~~, a ~~net discrete tax benefit of $30.9 million was recorded. In addition to discrete tax benefits recorded~~law change enacted in the ~~current quarter,~~state of Missouri which provides us the ~~expiration of statutes of limitation contributed~~ability to ~~the year-to-date discrete~~reduce tax ~~benefits. We recorded a net discrete~~expense related to income from our two prior fiscal years that will be included on timely filed state tax ~~benefit of $3.7 million during the nine months ended~~ ~~January 31,~~returns for calendar years 2014. and 2015.

Excluding discrete items, management's estimate of the annualized effective tax rate for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014 was ~~38.3%~~37.4% and ~~39.2%~~38.1%, respectively. Our effective tax rate for continuing operations, including the effects of discrete income tax items was ~~44.9%~~48.4% and ~~39.7%~~38.1% for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014, respectively. Due to the loss in both periods, a discrete tax benefit in either period increases the tax rate while an item of discrete tax expense decreases the tax rate. ~~Due to~~The impact of the discrete tax items combined with the seasonal nature of our business can cause the effective tax rate through our ~~third~~first quarter ~~may not~~to be ~~indicative of~~significantly different than the rate for our full fiscal year.



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	13

Table of Contents

NOTE ~~11:~~10: INTEREST INCOME AND INTEREST EXPENSE

The following table shows the components of interest income and expense:


(in 000s)	(in 000s)									(in 000s)
		Three months ended January 31,				Nine months ended January 31,
		2015		2014		2015		2014
Three months ended July 31,											2015		2014
Interest income:
Emerald Advance lines of credit		$	30,288	$	27,656	$	31,439	$	28,602
Mortgage loans, net		3,103		3,409		9,070		10,582			$	2,812	$	2,978
Loans to franchisees		2,260		2,396		6,221		7,069			1,654		2,071
AFS securities		2,063		2,430		6,466		7,284			2,058		2,270
Other		1,584		1,478		4,831		5,655			1,854		1,980
		$	39,298	$	37,369	$	58,027	$	59,192		$	8,378	$	9,299
Interest expense:
Borrowings		$	9,048	$	13,872	$	36,686	$	41,476		$	8,575	$	13,795
Deposits		224		571		509		1,727			136		145
		$	9,272	$	14,443	$	37,195	$	43,203		$	8,711	$	13,940

The presentation of interest expense from borrowings in the amount of ~~$13.9 million and $41.5~~$13.8 million for the three ~~and nine~~ months ended ~~January~~July 31, 2014, ~~respectively,~~ has been restated to correct errors in presentation. We reclassified such interest expense from cost of revenues to a separate caption in the consolidated statements of operations and comprehensive loss.

NOTE ~~12:~~11: COMMITMENTS AND CONTINGENCIES

Changes in deferred revenue balances related to our Peace of Mind® Extended Service Plan (POM) ~~program, the current portion of~~, which is included in ~~accounts payable, accrued expenses~~deferred revenue and other ~~current liabilities and the long-term portion of which is included in other noncurrent~~ liabilities in the consolidated balance sheets, are as follows:


(in 000s)	(in 000s)							(in 000s)
Nine months ended January 31,		2015			2014
Three months ended July 31,									2015			2014
Balance, beginning of the period		$	145,237		$	146,286			$	158,169		$	145,237
Amounts deferred for new guarantees issued		17,658			16,686
Amounts deferred for new extended service plans issued									920			873
Revenue recognized on previous deferrals		(54,308		)	(59,661		)		(27,703		)	(24,253		)
Balance, end of the period		$	108,587		$	103,311			$	131,386		$	121,857



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We accrued $~~9.0~~7.6 million, $~~15.2~~10.6 million and $~~11.4~~8.4 million as of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~2015, respectively, related to estimated losses under our standard guarantee, which is included with our standard in-office tax preparation services. The ~~current portion~~short-term and long-term portions of this liability isare included in ~~accounts payable, accrued expenses~~deferred revenue and other ~~current liabilities and the long-term portion is included in other noncurrent~~ liabilities in the consolidated balance sheets. For POM in franchise offices, we deferred revenue of $0.1 million, and recognized revenue of $3.4 million during the three months ended July 31, 2015. At July 31, 2015, our deferred revenue related to POM in franchise offices totaled $28.3 million.

We have accrued estimated contingent consideration payments totaling ~~$12.8~~$10.7 million,, ~~$10.5~~ $9.2 million and ~~$9.2~~$10.7 million as of ~~January~~July 31, 2015 and 2014 and April 30, ~~2014~~,2015, respectively, related to acquisitions, with the short-term amount recorded in ~~accounts payable, accrued expenses~~deferred revenue and other ~~current liabilities and the long-term portion included in other noncurrent~~ liabilities. Estimates of contingent payments are typically based on expected financial performance of the acquired business and economic conditions at the time of acquisition. Should actual results differ from our assumptions, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.

We have contractual commitments to fund certain franchises with approved revolving lines of credit. Our total obligation under these lines of credit was $~~79.2~~77.4 million at ~~January~~July 31, 2015, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $~~23.2~~38.8 million.

We maintain compensating balances with certain financial institutions that are creditors in our ~~$1.5 billion~~ ~~unsecured committed line of credit governed by a Credit and Guarantee Agreement (2012 CLOC),~~2012 CLOC, which are not legally restricted as to withdrawal. We had no ~~material~~ compensating balances totaling $225.0 million as of ~~January~~July 31, 2015. These balances may fluctuate significantly over the course of any fiscal year.



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NOTE ~~13:~~12: LITIGATION AND RELATED CONTINGENCIES

We are a defendant in numerous litigation matters, arising both in the ordinary course of business and otherwise, including as described below. The matters described below are not all of the lawsuits to which we are subject. In some of the matters, very large or indeterminate amounts, including punitive damages, are sought. 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. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. We believe that the monetary relief which may be specified in a lawsuit or a claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in litigating or resolving through settlement of numerous claims over an extended period of time.

The outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Among other things, uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.

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

We accrue liabilities for litigation, claims and other 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 ~~January~~July 31, ~~2015~~.2015. 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 consolidated financial position, results of operations and cash flows. As of ~~January~~July 31,



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2015 and 2014 and April 30, ~~2014~~,2015, we accrued liabilities of ~~$8.9~~$9.3 million,, ~~$20.9~~ $23.7 million and ~~$23.7~~$8.9 million,, respectively, for ~~matters other than those described~~such litigation addressed in ~~note 14~~.this note.

For some matters where a liability has not been accrued, we are able to estimate a reasonably possible loss or range of loss. This 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 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, as of ~~January~~July 31, 2015, 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 estimate 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 assessment 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, we review relevant information with respect to litigation and other loss contingencies and update our accruals, disclosures and estimates of reasonably possible loss or range of loss based on such reviews. Costs incurred with defending matters are expensed as incurred. Any receivable for insurance



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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 have been, remain, or may in the future be subject to litigation, claims, including indemnification 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 and underwriters, 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 October 15, 2010, the Federal Home Loan Bank of Chicago (FHLB-Chicago) filed a lawsuit in the Circuit Court of Cook County, Illinois (Case No. 10CH45033) styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation, et al. against multiple defendants, including various SCC-related entities, H&R Block, Inc. and other entities, arising out of FHLB-Chicago's purchase of residential mortgage-backed securities (RMBSs). The plaintiff seeks rescission and damages under state securities law and for common law negligent misrepresentation in connection with its purchase of two securities collateralized by loans originated and securitized by SCC. These two securities had a total initial principal amount of approximately ~~$50~~$50 million,, of which approximately ~~$33~~$32 million remains outstanding.



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The plaintiff agreed to voluntarily dismiss H&R Block, Inc. from the suit. The remaining defendants, including SCC, filed motions to dismiss, which the court denied. The defendants moved for leave to appeal and the circuit court denied the motion. ~~A portion of our loss contingency accrual is related~~On August 31, 2015, the parties reached an agreement to ~~this matter~~settle the claims for ~~the~~an amount ~~of loss that we consider probable and reasonably estimable.~~fully covered by prior accruals.

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 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).



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

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

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. Based on information currently available to SCC, it believes that the 1920 lawsuits in which ~~SCC received~~ notice of a claim ~~for indemnification of losses and expenses, involved~~has been made involve 38 securitization transactions with original investments of approximately ~~$14~~$14 billion (of which the outstanding principal amount is approximately ~~$4 billion~~)$4 billion). 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 case discussed ~~above)~~in this note) 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



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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.~~claims or rights.

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

~~RAL and RAC Litigation.~~ A series of putative class action lawsuits were filed against us in various federal courts beginning on November 17, 2011 concerning the refund anticipation loan (RAL) and refund anticipation check (RAC) products. The plaintiffs generally allege we engaged in unfair, deceptive or fraudulent acts in violation of various state consumer protection laws by facilitating RALs that were accompanied by allegedly inaccurate TILA disclosures, and by offering RACs without any TILA disclosures. Certain plaintiffs also allege violation of disclosure requirements of various state statutes expressly governing RALs and provisions of those statutes prohibiting tax preparers from charging or retaining certain fees. Collectively, the plaintiffs seek to represent clients who purchased RAL or RAC products in up to forty-two states and the District of Columbia during timeframes ranging from 2007 to the present. The plaintiffs seek equitable relief, disgorgement of profits, compensatory and statutory damages, restitution, civil penalties, attorneys' fees and costs. These cases were consolidated by the Judicial Panel on Multidistrict Litigation in the United States District Court for the Northern District of Illinois for coordinated pretrial proceedings, in a matter styled IN RE: H&R Block Refund Anticipation Loan Litigation (MDL No. 2373/No: 1:12-CV-02973-JBG ). On July 23, 2014, the MDL court granted our motion to compel arbitration of the claims of the named plaintiffs and stayed the cases pending arbitration. The MDL court certified its arbitration order for interlocutory appeal. Plaintiffs filed a petition for permission to appeal with the Seventh Circuit Court of Appeals, which was denied on January 30, 2015. The cases remain stayed pending arbitration. We have not concluded that a loss related to this matter is probable, nor have we accrued a loss contingency related to this matter.

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 appeal, 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 seeks to represent all persons nationwide (excluding citizens of Missouri) who were charged the compliance fee, and asserts claims of



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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. OnIn June ~~20,~~ 2014, the court denied class certification of the remaining 2012 claims. Plaintiff filed an appeal ~~of the denial of class certification to~~with the Eighth Circuit Court of Appeals, which ~~remains pending.~~was denied on June 18, 2015. The Eighth Circuit denied plaintiff's subsequent petition for rehearing on August 7, 2015. 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,



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2015. The cases remain stayed with respect to the individual plaintiffs who agreed to arbitration. ~~We have not concluded that a~~A portion of our loss contingency accrual is related to this matter isfor the amount of loss that we consider probable ~~nor have we accrued a liability related to this matter.~~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 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.

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, among other things, through an indemnification agreement. A portion of our accrual is related to these indemnity obligations.

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 ~~14:~~13: 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.



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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. SCC also would assert that it has no liability for the failure to repurchase any mortgage loan that has been liquidated prior to a repurchase demand, although there is conflicting case law on the liquidated loan defense ~~issue. These decisions are from lower courts, are inconsistent in their analysis and receptivity to this defense, and may be subject to appeal.~~

issue as described below.



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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 ~~$2.2~~$2.6 billion since May 1, 2008, of which ~~$1.8~~$1.9 billion were received prior to fiscal year 2013.

SETTLEMENT ACTIONS – SCC has entered into tolling agreements with ~~the~~ counterparties that have made ~~and are expected to assert~~ a significant ~~majority~~portion of previously denied ~~and possible future~~ representation and warranty claims. These tolling agreements toll the running of any applicable statute of limitations related to potential lawsuits regarding representation and warranty claims and other claims against SCC.

Beginning in the fourth quarter of fiscal year 2013 and continuing through the ~~third~~first quarter of fiscal year ~~2015,~~2016, SCC has been engaged in discussions with these counterparties regarding the bulk settlement of previously denied and potential future claims. 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 representation and warranty and other claims that are the subject of these discussions. On December 5, 2014, SCC entered into a settlement agreement to resolve certain of these claims. The amount paid under the settlement agreement was 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 ~~January~~July 31, 2015, 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



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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 ~~accounts payable, accrued expenses~~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)	(in 000s)						(in 000s)
Nine months ended January 31,		2015			2014
Three months ended July 31,								2015		2014
Balance, beginning of the period		$	183,765		$	158,765		$	149,765	$	183,765
Provisions		10,000			—			—		10,000
Payments		(50,000		)	—			—		—
Balance, end of the period		$	143,765		$	158,765		$	149,765	$	193,765

~~In December 2013, a decision by~~On June 11, 2015, the New York Court of Appeals, New York's highest appellate court, upheld the New York intermediate appellate court in ACE Securities Corp. v. DB Structured Products, Inc., ~~held~~ that ~~under New York law, which governs many RMBS transactions into which SCC entered,~~ 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. ~~That~~This decision ~~has been applied by the state and federal courts in several RMBS lawsuits not involving SCC, resulting in the dismissal of claims involving representations and warranties made~~



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~~more than six years prior to the initiation of the lawsuit. Unless overturned by New York's highest appellate court, which has taken the case for review, this decision would apply~~applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the RMBS transactions into which SCC entered. However this decision would not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by agreement or a suit was timely filed. ~~In addition, if the~~ ~~ACE~~ ~~decision is overturned, it could result in representation and warranty claims being asserted that were previously thought to be time-barred.~~ It is ~~also~~ 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 pursue alternate legal theories of recovery or assert claims against other contractual parties. 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. The impact on SCC, if any, ~~of the~~ ~~ACE~~ ~~decision being overturned or~~ from alternative legal theories or assertions is unclear.

SCC is taking the legal position, where appropriate, for both contractual representation and warranty claims and similar claims in litigation, that a valid representation and warranty claim cannot be made with respect to a mortgage loan that has been liquidated. There is conflicting case law on this issue. These decisions are from lower courts, are inconsistent in their analysis and receptivity to this defense, and may be subject to appeal. It is anticipated that the liquidated mortgage loan defense will be the subject of future judicial decisions. In the event the liquidated loan defense is further clarified by the courts or other developments occur, the liquidated loan defense may be a factor in the future in SCC's estimated accrual for representation and warranty claims where such defense may be applicable.

SCC believes it is reasonably possible that future losses related to representation and warranty ~~losses~~claims may vary from amounts accrued for these exposures. SCC currently believes the aggregate range of reasonably 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 13,12, losses may also be incurred with respect to various indemnification claims or reserved contribution rights by underwriters and depositors in securitization transactions in which SCC participated. Losses from 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.~~claims or rights. Accordingly, neither the accrued liability described above totaling ~~$143.8~~$149.8 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.~~claims or reserved contribution rights. There can be no assurances as to the outcome or impact of these indemnification ~~claims.~~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.



20	Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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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, may attempt to assert claims against us for payment of SCC's obligations. Claimants may also attempt to assert claims or seek payment directly from the Company even if SCC's assets exceed its liabilities.SCC's principal assets, as of ~~January~~July 31, 2015,, total approximately ~~$470~~$480 million and consist primarily of an intercompany note receivable and a deferred tax asset. 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.



24	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

~~NOTE 15: REGULATORY CAPITAL REQUIREMENTS~~

~~The following table sets forth HRB Bank's regulatory capital requirements calculated in its Call Report, as filed with the Federal Financial Institutions Examination Council (FFIEC):~~

(dollars in 000s)
Actual
Minimum
Capital Requirement

Minimum to be
Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2014:
Total risk-based capital ratio ⁽¹⁾
$ 611,704
87.4 % $ 55,964
8.0 % $ 69,955
10.0 %
Tier 1 risk-based capital ratio ⁽²⁾
602,908
86.2 % N/A
N/A
41,973
6.0 %
Tier 1 capital ratio (leverage) ⁽³⁾
602,908
49.6 % 145,865
12.0 %
⁽⁵⁾
60,777
5.0 %
Tangible equity ratio ⁽⁴⁾
602,908
49.6 % 18,233
1.5 % N/A
N/A
As of December 31, 2013:
Total risk-based capital ratio ⁽¹⁾
$ 517,031
72.5 % $ 57,023
8.0 % $ 71,279
10.0 %
Tier 1 risk-based capital ratio ⁽²⁾
508,015
71.3 % N/A
N/A
42,768
6.0 %
Tier 1 capital ratio (leverage) ⁽³⁾
508,015
37.1 % 164,404
12.0 %
⁽⁵⁾
68,502
5.0 %
Tangible equity ratio ⁽⁴⁾
508,015
37.1 % 20,550
1.5 % N/A
N/A
As of March 31, 2014:
Total risk-based capital ratio ⁽¹⁾
$ 563,899
168.5 % $ 26,771
8.0 % $ 33,464
10.0 %
Tier 1 risk-based capital ratio ⁽²⁾
559,572
167.2 % N/A
N/A
20,079
6.0 %
Tier 1 capital ratio (leverage) ⁽³⁾
559,572
32.1 % 209,041
12.0 %
⁽⁵⁾
87,101
5.0 %
Tangible equity ratio ⁽⁴⁾
559,572
32.1 % 26,130
1.5 % N/A
N/A


⁽¹⁾	~~Total risk-based capital divided by risk-weighted assets.~~


⁽²⁾	~~Tier 1 (core) capital less deduction for low-level recourse and residual interest divided by risk-weighted assets.~~


⁽³⁾	~~Tier 1 (core) capital divided by adjusted total assets.~~


⁽⁴⁾	~~Tangible capital divided by tangible assets.~~


⁽⁵⁾	~~Effective April 5, 2012, the minimum capital requirement was changed to~~ 4% ~~by the OCC, although HRB Bank plans to maintain a minimum of~~ ~~12.0%~~ ~~leverage capital at the end of each calendar quarter.~~

Quantitative measures established by regulation to ensure capital adequacy require HRB Bank to maintain minimum amounts and ratios of tangible equity, total risk-based capital and Tier 1 capital, as set forth in the table above. As of ~~January 31, 2015, HRB Bank's leverage ratio was~~ ~~31.2%~~.

To the extent our Holding Companies continue to be SLHCs, our first Federal Reserve regulatory filing disclosing our SLHC regulatory capital ratios will be due in May 2015 with respect to the calendar quarter ending March 31, 2015. Consistent with our past practice regarding HRB Bank’s regulatory capital ratios, we will include H&R Block, Inc.'s regulatory capital ratios in the periodic filing immediately following our quarterly regulatory filing with the Federal Reserve.



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	25

~~Table of Contents~~

NOTE ~~16:~~14: SEGMENT INFORMATION

Results of our continuing operations by reportable segment are as follows:


(in 000s)	(in 000s)													(in 000s)
		Three months ended January 31,						Nine months ended January 31,
		2015			2014			2015			2014
Three months ended July 31,															2015			2014
REVENUES :
Tax preparation fees:
U.S. assisted		$	283,692		$	72,108		$	341,107		$	123,145			$	27,285		$	25,489
International		10,021			9,253			94,308			82,915				35,718			41,456
U.S. digital		36,720			17,339			42,545			23,211				3,179			2,932
		330,433			98,700			477,960			229,271				66,182			69,877
Royalties		52,284			15,061			68,508			31,150				9,695			7,642
Revenues from Refund Transfers		50,899			15,542			56,472			21,282				3,415			3,419
Revenues from Emerald Card®		13,910			12,689			39,479			37,299				15,689			14,045
Revenues from Peace of Mind® guarantees		13,492			12,684			54,308			59,661
Revenues from Peace of Mind® Extended Service Plan															27,703			24,253
Interest and fee income on Emerald Advance		30,288			27,656			31,439			28,602				314			607
Other		11,702			11,664			32,605			36,462				9,576			9,237
Total Tax Services		503,008			193,996			760,771			443,727				132,574			129,080
Corporate and eliminations		6,066			5,774			16,517			17,578				5,144			4,506
		$	509,074		$	199,770		$	777,288		$	461,305			$	137,718		$	133,586
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES :
Tax Services		$	(75,428	)	$	(322,099	)	$	(402,630	)	$	(625,807	)		$	(169,438	)	$	(150,560	)
Corporate and eliminations		(15,437		)	(25,726		)	(64,624		)	(85,874		)		(17,671		)	(25,256		)
		$	(90,865	)	$	(347,825	)	$	(467,254	)	$	(711,681	)		$	(187,109	)	$	(175,816	)

NOTE ~~17:~~15: 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 issued on October 25, 2012, our 2012 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.

~~Certain amounts included in the following statements of operations for the three and nine months ended January 31, 2014, the statements of cash flows for the~~ ~~nine~~ months ended January 31, 2014, and the balance sheet as of January 31, 2014 have been restated to correct errors in presentation. The statements of operations have been corrected to properly reflect equity earnings in subsidiaries of H&R Block, Inc. (Guarantor) in "Other income (expense), net" to include income taxes and discontinued operations which were previously shown on separate lines. The balance sheet has been corrected to properly reflect a classified balance sheet and to show the investment in Block Financial by Other Subsidiaries. The statements of cash flows have been corrected to properly reflect intercompany borrowings and payments as either investing or financing activities, as appropriate. These restatements impacted disclosures required by this note, but had no impact on the consolidated financial statements as of and for the three and nine months ended January 31, 2014.

~~Additionally, as~~As discussed in note ~~11,~~10, the presentation of interest expense on borrowings for the three ~~and nine~~ months ended ~~January~~July 31, 2014 has been restated to correct errors in presentation. We reclassified such interest expense from cost of revenues to a separate caption.



26	~~Q3 FY2015 Form 10-Q \|~~ H&R Block, Inc. \| Q1 FY2016 Form 10-Q	21

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Three months ended January 31, 2015
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Total revenues $ —
$ 62,482
$ 448,444
$ (1,852 ) $ 509,074
Cost of revenues —
43,405
353,125
(1,852 ) 394,678
Selling, general and administrative —
3,401
186,146
—
189,547
Total operating expenses —
46,806
539,271
(1,852 ) 584,225
Other expense (income), net 31,053
1,216
(6,198 ) (19,405 ) 6,666
Interest expense on borrowings —
8,952
96
—
9,048
Income (loss) from continuing operations before tax benefit (31,053 ) 5,508
(84,725 ) 19,405
(90,865 )
Income tax expense (benefit) 5,895
(9,823 ) (51,626 ) —
(55,554 )
Net income (loss) from continuing operations (36,948 ) 15,331
(33,099 ) 19,405
(35,311 )
Net income (loss) from discontinued operations —
(2,615 ) 978
—
(1,637 )
Net income (loss) (36,948 ) 12,716
(32,121 ) 19,405
(36,948 )
Other comprehensive income (loss) (7,840 ) 3,504
(7,840 ) 4,336
(7,840 )
Comprehensive income (loss) $ (44,788 ) $ 16,220
$ (39,961 ) $ 23,741
$ (44,788 )



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS													(in 000s)
Three months ended July 31, 2015	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Total revenues	$	—		$	24,767		$	113,044		$	(93	)	$	137,718
Cost of revenues	—			11,755			201,846			(93		)	213,508
Selling, general and administrative	—			4,376			93,816			—			98,192
Total operating expenses	—			16,131			295,662			(93		)	311,700
Other income	909			495			554			(1,525		)	433
Interest expense on external borrowings	—			(8,436		)	(139		)	—			(8,575		)
Other expenses	(102,593		)	(468		)	(12,255		)	110,331			(4,985		)
Income (loss) from continuing operations before tax (benefit)	(101,684		)	227			(194,458		)	108,806			(187,109		)
Income tax expense (benefit)	(2,025		)	3,286			(91,865		)	—			(90,604		)
Net loss from continuing operations	(99,659		)	(3,059		)	(102,593		)	108,806			(96,505		)
Net loss from discontinued operations	—			(3,154		)	—			—			(3,154		)
Net loss	(99,659		)	(6,213		)	(102,593		)	108,806			(99,659		)
Other comprehensive loss	(9,974		)	(1,187		)	(9,974		)	11,161			(9,974		)
Comprehensive loss	$	(109,633	)	$	(7,400	)	$	(112,567	)	$	119,967		$	(109,633	)


Three months ended January 31, 2014	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Three months ended July 31, 2014																H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Total revenues	$	—		$	54,455		$	146,755		$	(1,440	)	$	199,770		$	—		$	23,860		$	109,809		$	(83	)	$	133,586
Cost of revenues	—			41,871			309,234			(1,440		)	349,665			—			11,808			185,998			(80		)	197,726
Selling, general and administrative	—			10,346			164,102			—			174,448			—			3,343			93,860			(3		)	97,200
Total operating expenses	—			52,217			473,336			(1,440		)	524,113			—			15,151			279,858			(83		)	294,926
Other expense (income), net ⁽¹⁾	214,711			(232		)	9,842			(214,711		)	9,610
Interest expense on borrowings ⁽¹⁾	—			13,763			109			—			13,872
Other income																1,226			1,006			659			(2,368		)	523
Interest expense on external borrowings ⁽¹⁾																—			(13,693		)	(102		)	—			(13,795		)
Other expenses																(120,219		)	(1,842		)	(1,730		)	122,587			(1,204		)
Loss from continuing operations before tax benefit	(214,711		)	(11,293		)	(336,532		)	214,711			(347,825		)	(118,993		)	(5,820		)	(171,222		)	120,219			(175,816		)
Income tax expense (benefit) ⁽¹⁾	—			7,602			(142,676		)	—			(135,074		)
Income tax benefit																(2,761		)	(2,643		)	(61,561		)	—			(66,965		)
Net loss from continuing operations	(214,711		)	(18,895		)	(193,856		)	214,711			(212,751		)	(116,232		)	(3,177		)	(109,661		)	120,219			(108,851		)
Net income (loss) from discontinued operations ⁽¹⁾	—			(2,118		)	158			—			(1,960		)
Net loss from discontinued operations																—			(7,209		)	(172		)	—			(7,381		)
Net loss	(214,711		)	(21,013		)	(193,698		)	214,711			(214,711		)	(116,232		)	(10,386		)	(109,833		)	120,219			(116,232		)
Other comprehensive loss	(6,239		)	(3,052		)	(3,187		)	6,239			(6,239		)
Other comprehensive income (loss)																306			(121		)	306			(185		)	306
Comprehensive loss	$	(220,950	)	$	(24,065	)	$	(196,885	)	$	220,950		$	(220,950	)	$	(115,926	)	$	(10,507	)	$	(109,527	)	$	120,034		$	(115,926	)


⁽¹⁾	Amounts have been restated, including the presentation of interest expense on borrowings ~~and equity~~as discussed in ~~earnings of subsidiaries net of income taxes and discontinued operations.~~note 10.



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	27

~~Table of Contents~~

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Nine months ended January 31, 2015
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Total revenues $ —
$ 107,233
$ 672,000
$ (1,945 ) $ 777,288
Cost of revenues —
66,063
749,978
(1,940 ) 814,101
Selling, general and administrative —
12,598
371,533
(5 ) 384,126
Total operating expenses —
78,661
1,121,511
(1,945 ) 1,198,227
Other expense (income), net 264,699
(180 ) 12,878
(267,768 ) 9,629
Interest expense on borrowings —
36,388
298
—
36,686
Loss from continuing operations before tax benefit (264,699 ) (7,636 ) (462,687 ) 267,768
(467,254 )
Income tax expense (benefit) 479
(19,486 ) (190,858 ) —
(209,865 )
Net income (loss) from continuing operations (265,178 ) 11,850
(271,829 ) 267,768
(257,389 )
Net income (loss) from discontinued operations —
(11,458 ) 3,669
—
(7,789 )
Net income (loss) (265,178 ) 392
(268,160 ) 267,768
(265,178 )
Other comprehensive income (loss) (6,440 ) 7,765
(6,440 ) (1,325 ) (6,440 )
Comprehensive income (loss) $ (271,618 ) $ 8,157
$ (274,600 ) $ 266,443
$ (271,618 )

Nine months ended January 31, 2014
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Total revenues $ —
$ 102,840
$ 360,095
$ (1,630 ) $ 461,305
Cost of revenues —
80,777
673,831
(1,630 ) 752,978
Selling, general and administrative —
25,753
339,484
—
365,237
Total operating expenses —
106,530
1,013,315
(1,630 ) 1,118,215
Other expense (income), net ⁽¹⁾
434,841
(1,938 ) 15,233
(434,841 ) 13,295
Interest expense on borrowings ⁽¹⁾
—
41,148
328
—
41,476
Loss from continuing operations before tax benefit (434,841 ) (42,900 ) (668,781 ) 434,841
(711,681 )
Income tax benefit ⁽¹⁾
—
(3,999 ) (278,646 ) —
(282,645 )
Net loss from continuing operations (434,841 ) (38,901 ) (390,135 ) 434,841
(429,036 )
Net loss from discontinued operations ⁽¹⁾
—
(4,834 ) (971 ) —
(5,805 )
Net loss (434,841 ) (43,735 ) (391,106 ) 434,841
(434,841 )
Other comprehensive loss (15,326 ) (9,668 ) (5,658 ) 15,326
(15,326 )
Comprehensive loss $ (450,167 ) $ (53,403 ) $ (396,764 ) $ 450,167
$ (450,167 )


⁽¹⁾	~~Amounts have been restated, including the presentation of interest expense on borrowings, and equity in earnings of subsidiaries net of income taxes and discontinued operations.~~



2822	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

Table of Contents


CONDENSED CONSOLIDATING BALANCE SHEETS	CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)		CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)
As of January 31, 2015		H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
As of July 31, 2015														H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
Cash & cash equivalents		$	—	$	969,387	$	352,015	$	(268	)	$	1,321,134		$	—	$	286,165	$	1,013,707	$	(490	)	$	1,299,382
Cash & cash equivalents - restricted		—		3,459		47,626		—			51,085			—		11,806		49,234		—			61,040
Receivables, net		—		436,907		340,546		—			777,453			1		77,539		25,654		—			103,194
Deferred tax assets and income taxes receivable														—		78,184		82,206		—			160,390
Prepaid expenses and other current assets		—		89,490		245,850		(74,538		)	260,802			—		6,817		74,176		—			80,993
Investments in AFS securities		—		367,745		100		—			367,845			—		404,221		2,139		—			406,360
Total current assets		—		1,866,988		986,137		(74,806		)	2,778,319			1		864,732		1,247,116		(490		)	2,111,359
Mortgage loans held for investment, net		—		245,663		—		—			245,663			—		230,130		—		—			230,130
Investments in AFS securities		—		—		7,883		—			7,883
Property and equipment, net		—		136		308,669		—			308,805			—		210		297,111		—			297,321
Intangible assets, net		—		—		443,329		—			443,329			—		—		417,009		—			417,009
Goodwill		—		—		442,961		—			442,961			—		—		454,394		—			454,394
Deferred tax assets and income taxes receivable														—		41,328		—		(29,951		)	11,377
Investments in subsidiaries		635,258		—		69,988		(705,246		)	—			1,259,110		—		108,582		(1,367,692		)	—
Amounts due from affiliates		513,204		459,955		1,029		(974,188		)	—			412,924		131,889		1,423		(546,236		)	—
Other assets		—		132,374		19,607		—			151,981
Other noncurrent assets														—		72,009		39,092		—			111,101
Total assets		$	1,148,462	$	2,705,116	$	2,279,603	$	(1,754,240	)	$	4,378,941		$	1,672,035	$	1,340,298	$	2,564,727	$	(1,944,369	)	$	3,632,691

Commercial paper borrowings		$	—	$	591,486	$	—	$	—		$	591,486
Customer banking deposits		—		1,286,484		—		(268		)	1,286,216			$	—	$	477,222	$	—	$	(490	)	$	476,732
Accounts payable, accrued expenses and other current liabilities		1,048		178,197		293,245		—			472,490
Accounts payable and accrued expenses														1,206		6,679		108,970		—			116,855
Accrued salaries, wages and payroll taxes		—		1,929		116,583		—			118,512			—		2,293		31,154		—			33,447
Accrued income taxes		—		53,655		22,502		(74,538		)	1,619			—		49,240		196,301		—			245,541
Current portion of long-term debt		—		—		781		—			781			—		—		799		—			799
Deferred revenue and other current liabilities														—		169,900		146,980		—			316,880
Total current liabilities		1,048		2,111,751		433,111		(74,806		)	2,471,104			1,206		705,334		484,204		(490		)	1,190,254
Long-term debt		—		497,823		7,637		—			505,460			—		497,964		7,233		—			505,197
Other noncurrent liabilities		—		25,554		230,438		—			255,992
Deferred tax liabilities and reserves for uncertain tax positions														—		26,737		140,817		(29,951		)	137,603
Deferred revenue and other noncurrent liabilities														—		1,660		128,550		—			130,210
Amounts due to affiliates		1,029		—		973,159		(974,188		)	—			1,402		21		544,813		(546,236		)	—
Total liabilities		2,077		2,635,128		1,644,345		(1,048,994		)	3,232,556			2,608		1,231,716		1,305,617		(576,677		)	1,963,264
Stockholders' equity		1,146,385		69,988		635,258		(705,246		)	1,146,385			1,669,427		108,582		1,259,110		(1,367,692		)	1,669,427
Total liabilities and stockholders' equity		$	1,148,462	$	2,705,116	$	2,279,603	$	(1,754,240	)	$	4,378,941		$	1,672,035	$	1,340,298	$	2,564,727	$	(1,944,369	)	$	3,632,691



H&R Block, Inc. \| ~~Q3 FY2015~~Q1 FY2016 Form 10-Q	2923

Table of Contents


CONDENSED CONSOLIDATING BALANCE SHEETS	CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)		CONDENSED CONSOLIDATING BALANCE SHEETS											(in 000s)
As of January 31, 2014		H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
As of July 31, 2014														H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries			Eliminations			Consolidated H&R Block
Cash & cash equivalents		$	—	$	181,483	$	256,541	$	(620	)	$	437,404		$	—	$	405,512	$	1,024,407		$	(430	)	$	1,429,489
Cash & cash equivalents - restricted		—		4,883		39,972		—			44,855			—		12,817		59,100			—			71,917
Receivables, net		—		529,954		147,267		—			677,221			15		86,968		35,332			—			122,315
Prepaid expenses and other current assets ⁽¹⁾		—		14,686		343,228		(12,683		)	345,231
Deferred tax assets and income taxes receivable														17		98,041		92,265			—			190,323
Prepaid expenses and other current assets														—		9,684		64,659			—			74,343
Investments in AFS securities														—		403,674		100			—			403,774
Total current assets		—		731,006		787,008		(13,303		)	1,504,711			32		1,016,696		1,275,863			(430		)	2,292,161
Mortgage loans held for investment, net		—		282,149		—		—			282,149			—		259,732		—			—			259,732
Investments in AFS securities		—		439,395		4,375		—			443,770
Property and equipment, net		—		126		314,439		—			314,565			—		209		314,322			—			314,531
Intangible assets, net		—		—		318,719		—			318,719			—		—		347,890			—			347,890
Goodwill		—		—		437,386		—			437,386			—		—		478,845			—			478,845
Investments in subsidiaries ⁽¹⁾		2,845,467		—		3,037		(2,848,504		)	—
Deferred tax assets and income taxes receivable														3,395		46,752		(3,194		)	—			46,953
Investments in subsidiaries														784,419		—		50,384			(834,803		)	—
Amounts due from affiliates		—		542,657		2,167,747		(2,710,404		)	—			616,578		322,339		983			(939,900		)	—
Other assets		9,708		144,759		59,520		—			213,987
Other noncurrent assets														—		103,178		47,529			—			150,707
Total assets		$	2,855,175	$	2,140,092	$	4,092,231	$	(5,572,211	)	$	3,515,287		$	1,404,424	$	1,748,906	$	2,512,622		$	(1,775,133	)	$	3,890,819

Commercial paper borrowings		$	—	$	194,984	$	—	$	—		$	194,984
Customer banking deposits		—		807,507		—		(620		)	806,887			$	—	$	483,405	$	—		$	(430	)	$	482,975
Accounts payable, accrued expenses and other current liabilities		669		190,857		328,595		—			520,121
Accounts payable and accrued expenses														846		4,639		122,427			—			127,912
Accrued salaries, wages and payroll taxes		—		1,823		106,760		—			108,583			—		2,129		28,867			—			30,996
Accrued income taxes ⁽¹⁾		—		36,058		—		(12,683		)	23,375
Accrued income taxes														—		30,944		253,094			—			284,038
Current portion of long-term debt		—		399,824		746		—			400,570			—		399,941		764			—			400,705
Deferred revenue and other current liabilities														—		220,324		136,969			—			357,293
Total current liabilities		669		1,631,053		436,101		(13,303		)	2,054,520			846		1,141,382		542,121			(430		)	1,683,919
Long-term debt		—		497,542		8,417		—			505,959			—		497,682		8,032			—			505,714
Other noncurrent liabilities		—		8,460		259,589		—			268,049
Deferred tax liabilities and reserves for uncertain tax positions														5,395		57,242		105,277			—			167,914
Deferred revenue and other noncurrent liabilities														—		2,216		133,856			—			136,072
Amounts due to affiliates		2,167,747		—		542,657		(2,710,404		)	—			983		—		938,917			(939,900		)	—
Total liabilities		2,168,416		2,137,055		1,246,764		(2,723,707		)	2,828,528			7,224		1,698,522		1,728,203			(940,330		)	2,493,619
Stockholders' equity ⁽¹⁾		686,759		3,037		2,845,467		(2,848,504		)	686,759
Stockholders' equity														1,397,200		50,384		784,419			(834,803		)	1,397,200
Total liabilities and stockholders' equity		$	2,855,175	$	2,140,092	$	4,092,231	$	(5,572,211	)	$	3,515,287		$	1,404,424	$	1,748,906	$	2,512,622		$	(1,775,133	)	$	3,890,819


~~Note:~~	~~Amounts have been restated to include the presentation of a classified balance sheet.~~


⁽¹⁾	~~Amounts have been restated, including the presentation of deferred tax assets and liabilities and the investment of Other Subsidiaries in Block Financial.~~



3024	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

Table of Contents


CONDENSED CONSOLIDATING BALANCE SHEETS	CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)		CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)
As of April 30, 2014		H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
As of April 30, 2015														H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
Cash & cash equivalents		$	—	$	612,376	$	1,574,031	$	(1,100	)	$	2,185,307		$	—	$	478,077	$	1,529,553	$	(440	)	$	2,007,190
Cash & cash equivalents - restricted		—		67,463		47,856		—			115,319			—		45,098		46,874		—			91,972
Receivables, net		—		89,975		101,643		—			191,618			—		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		—		10,202		188,065		—			198,267			—		7,771		62,512		—			70,283
Investments in AFS securities		—		423,495		—		—			423,495			—		434,924		4,701		—			439,625
Total current assets		—		1,203,511		1,911,595		(1,100		)	3,114,006			—		1,123,620		1,828,121		(440		)	2,951,301
Mortgage loans held for investment, net		—		268,428		—		—			268,428			—		239,338		—		—			239,338
Investments in AFS securities		—		—		4,329		—			4,329
Property and equipment, net		—		121		304,790		—			304,911			—		218		311,169		—			311,387
Intangible assets, net		—		—		355,622		—			355,622			—		—		432,142		—			432,142
Goodwill		—		—		436,117		—			436,117			—		—		441,831		—			441,831
Deferred tax assets and income taxes receivable														—		44,788		—		(31,327		)	13,461
Investments in subsidiaries		904,331		—		60,902		(965,233		)	—			1,371,677		—		116,870		(1,488,547		)	—
Amounts due from affiliates		642,101		386,818		397		(1,029,316		)	—			463,434		134,094		1,058		(598,586		)	—
Other assets		11,271		173,168		25,677		—			210,116
Other noncurrent assets														—		81,075		44,885		—			125,960
Total assets		$	1,557,703	$	2,032,046	$	3,099,429	$	(1,995,649	)	$	4,693,529		$	1,835,111	$	1,623,133	$	3,176,076	$	(2,118,900	)	$	4,515,420

Customer banking deposits		$	—	$	770,885	$	—	$	(1,100	)	$	769,785		$	—	$	744,681	$	—	$	(440	)	$	744,241
Accounts payable, accrued expenses and other current liabilities		757		223,677		344,573		—			569,007
Accounts payable and accrued expenses														1,104		7,672		222,546		—			231,322
Accrued salaries, wages and payroll taxes		—		2,190		164,842		—			167,032			—		1,946		142,798		—			144,744
Accrued income taxes		—		71,132		335,523		—			406,655			—		49,529		385,155		—			434,684
Current portion of long-term debt		—		399,882		755		—			400,637			—		—		790		—			790
Deferred revenue and other current liabilities														—		177,063		145,445		—			322,508
Total current liabilities		757		1,467,766		845,693		(1,100		)	2,313,116			1,104		980,891		896,734		(440		)	1,878,289
Long-term debt		—		497,612		8,225		—			505,837			—		497,893		7,405		—			505,298
Other noncurrent liabilities		—		5,766		312,261		—			318,027
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		397		—		1,028,919		(1,029,316		)	—			1,058		—		597,528		(598,586		)	—
Total liabilities		1,154		1,971,144		2,195,098		(1,030,416		)	3,136,980			2,162		1,506,263		1,804,399		(630,353		)	2,682,471
Stockholders' equity		1,556,549		60,902		904,331		(965,233		)	1,556,549			1,832,949		116,870		1,371,677		(1,488,547		)	1,832,949
Total liabilities and stockholders' equity		$	1,557,703	$	2,032,046	$	3,099,429	$	(1,995,649	)	$	4,693,529		$	1,835,111	$	1,623,133	$	3,176,076	$	(2,118,900	)	$	4,515,420



H&R Block, Inc. \| ~~Q3 FY2015~~Q1 FY2016 Form 10-Q	3125

Table of Contents


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS													(in 000s)			CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS													(in 000s)
Nine months ended January 31, 2015		H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Net cash used in operating activities:		$	—		$	(290,104	)	$	(957,096	)	$	—		$	(1,247,200	)
Three months ended July 31, 2015																		H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Net cash provided by (used in) operating activities:																		$	—		$	27,342		$	(405,588	)	$	—		$	(378,246	)
Cash flows from investing:
Purchases of AFS securities		—			—			(100		)	—			(100		)
Maturities of and payments received on AFS securities		—			68,013			—			—			68,013				—			28,339			3,764			—			32,103
Principal payments on mortgage loans held for investment, net		—			18,098			—			—			18,098				—			8,537			—			—			8,537
Capital expenditures		—			(119		)	(98,757		)	—			(98,876		)		—			(19		)	(8,670		)	—			(8,689		)
Payments made for business acquisitions, net of cash acquired		—			—			(112,163		)	—			(112,163		)		—			—			(12,271		)	—			(12,271		)
Loans made to franchisees		—			(47,835		)	(178		)	—			(48,013		)		—			(2,582		)	—			—			(2,582		)
Repayments from franchisees		—			33,927			237			—			34,164				—			11,288			146			—			11,434
Intercompany payments/investments in subsidiaries		—			(128,713		)	(159,234		)	287,947			—				—			2,226			(59,804		)	57,578			—
Other, net		—			(1,925		)	8,104			—			6,179				—			1,439			2,123			—			3,562
Net cash used in investing activities		—			(58,554		)	(362,091		)	287,947			(132,698		)
Net cash provided by (used in) investing activities																		—			49,228			(74,712		)	57,578			32,094
Cash flows from financing:
Repayments of commercial paper and other short-term borrowings		—			(457,576		)	—			—			(457,576		)
Proceeds from commercial paper and other short-term borrowings		—			1,049,062			—			—			1,049,062
Repayments of long-term debt		—			(400,000		)	—			—			(400,000		)
Customer banking deposits, net		—			514,183			—			832			515,015				—			(268,482		)	—			(50		)	(268,532		)
Dividends paid		(164,905		)	—			—			—			(164,905		)		(55,063		)	—			—			—			(55,063		)
Repurchase of common stock																		(17,756		)	—			—			—			(17,756		)
Proceeds from exercise of stock options		16,026			—			—			—			16,026				13,015			—			—			—			13,015
Intercompany borrowings		159,234			—			128,713			(287,947		)	—				59,804			—			(2,226		)	(57,578		)	—
Other, net		(10,355		)	—			(15,993		)	—			(26,348		)		—			—			(22,413		)	—			(22,413		)
Net cash provided by (used in) financing activities		—			705,669			112,720			(287,115		)	531,274
Net cash used in financing activities																		—			(268,482		)	(24,639		)	(57,628		)	(350,749		)
Effects of exchange rates on cash		—			—			(15,549		)	—			(15,549		)		—			—			(10,907		)	—			(10,907		)
Net increase (decrease) in cash and cash equivalents		—			357,011			(1,222,016		)	832			(864,173		)
Net decrease in cash and cash equivalents																		—			(191,912		)	(515,846		)	(50		)	(707,808		)
Cash and cash equivalents at beginning of the period		—			612,376			1,574,031			(1,100		)	2,185,307				—			478,077			1,529,553			(440		)	2,007,190
Cash and cash equivalents at end of the period		$	—		$	969,387		$	352,015		$	(268	)	$	1,321,134			$	—		$	286,165		$	1,013,707		$	(490	)	$	1,299,382



3226	~~Q3 FY2015~~Q1 FY2016 Form 10-Q \| H&R Block, Inc.

Table of Contents


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS													(in 000s)			CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS													(in 000s)
Nine months ended January 31, 2014		H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Three months ended July 31, 2014																		H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Net cash used in operating activities:		$	(309	)	$	(347,188	)	$	(772,825	)	$	—		$	(1,120,322	)		$	—		$	(20,669	)	$	(360,916	)	$	—		$	(381,585	)
Cash flows from investing:
Purchases of AFS securities		—			(45,158		)	—			—			(45,158		)
Maturities of and payments received on AFS securities		—			72,502			—			—			72,502				—			18,484			—			—			18,484
Principal payments on mortgage loans held for investment, net		—			35,320			—			—			35,320				—			6,250			—			—			6,250
Capital expenditures		—			(59		)	(125,595		)	—			(125,654		)		—			(116		)	(25,725		)	—			(25,841		)
Payments made for business acquisitions, net of cash acquired		—			—			(37,865		)	—			(37,865		)		—			—			(40,533		)	—			(40,533		)
Proceeds received on notes receivable		—			—			64,865			—			64,865
Loans made to franchisees		—			(62,039		)	—			—			(62,039		)		—			(7,398		)	—			—			(7,398		)
Repayments from franchisees		—			17,893			—			—			17,893				—			18,674			—			—			18,674
Intercompany payments/investments in subsidiaries ⁽¹⁾		—			(122,216		)	(142,407		)	264,623			—
Intercompany payments/investments in subsidiaries																		—			64,322			(50,881		)	(13,441		)	—
Other, net		—			6,384			5,843			—			12,227				—			1,868			2,162			—			4,030
Net cash used in investing activities		—			(97,373		)	(235,159		)	264,623			(67,909		)
Net cash provided by (used in) investing activities																		—			102,084			(114,977		)	(13,441		)	(26,334		)
Cash flows from financing:
Repayments of commercial paper and other short-term borrowings		$	—		$	(80,930	)	$	—		$	—		$	(80,930	)
Proceeds from commercial paper and other short-term borrowings		—			275,914			—			—			275,914
Customer banking deposits, net		—			(127,050		)	—			2,103			(124,947		)		—			(288,279		)	—			670			(287,609		)
Dividends paid		(164,134		)	—			—			—			(164,134		)		(54,852		)	—			—			—			(54,852		)
Repurchase of common stock																		(9,397		)	—			—			—			(9,397		)
Proceeds from exercise of stock options		28,083			—			—			—			28,083				13,368			—			—			—			13,368
Intercompany borrowings⁽¹⁾		142,407			—			122,216			(264,623		)	—
Intercompany borrowings																		50,881			—			(64,322		)	13,441			—
Other, net		(6,047		)	—			(29,872		)	—			(35,919		)		—			—			(9,919		)	—			(9,919		)
Net cash provided by (used in) financing activities		309			67,934			92,344			(262,520		)	(101,933		)
Net cash used in financing activities																		—			(288,279		)	(74,241		)	14,111			(348,409		)
Effects of exchange rates on cash		—			—			(20,016		)	—			(20,016		)		—			—			510			—			510
Net decrease in cash and cash equivalents		—			(376,627		)	(935,656		)	2,103			(1,310,180		)		—			(206,864		)	(549,624		)	670			(755,818		)
Cash and cash equivalents at beginning of the period		—			558,110			1,192,197			(2,723		)	1,747,584				—			612,376			1,574,031			(1,100		)	2,185,307
Cash and cash equivalents at end of the period		$	—		$	181,483		$	256,541		$	(620	)	$	437,404			$	—		$	405,512		$	1,024,407		$	(430	)	$	1,429,489


⁽¹⁾	~~Amounts have been restated, including the presentation of intercompany borrowings (payments) as either investing or financing activities.~~



H&R Block, Inc. \| ~~Q3 FY2015~~Q1 FY2016 Form 10-Q	3327

Table of Contents


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our subsidiaries provide tax preparation ~~retail banking~~and other services, and ~~other services.~~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 H&R Block tax software, either online or using our software or mobile applications.

RECENT DEVELOPMENTS

DIVESTITURE OF H&R BLOCK BANK – In April 2014, our subsidiaries, HRB Bank and Block Financial, the sole shareholder of HRB Bank, entered into a ~~P&A~~definitive Purchase and Assumption Agreement with BofI pursuant to which ~~was amended in October 2014 and again in February 2015 as described in Item 1, note 2~~we agreed to ~~the consolidated financial statements above. Pursuant to the P&A Agreement, HRB Bank will~~ sell certain assets and ~~assign certain~~ liabilities, including all of ~~HRB Bank's~~the deposit liabilities of HRB Bank, to BofI ~~subject~~(referred to ~~various closing conditions, including~~herein as the ~~receipt of certain required~~P&A Transaction). On August 4, 2015, HRB Bank, Block Financial and BofI received regulatory approvals ~~entry into certain additional agreements, and~~for the ~~fulfillment of various other customary conditions. See below under "Financial Condition - HRB Bank" for additional information.~~

~~Due to the lack of regulatory approval, we continue to offer financial services products to our clients through~~P&A Transaction. On August 5, 2015, HRB Bank, ~~during the~~Block Financial and BofI entered into an Amended and Restated Purchase and Assumption Agreement.

On August 31, 2015, ~~tax season.~~

~~The obligations of the parties to complete~~we completed the P&A Transaction ~~are subject~~and made a one-time cash payment to BofI of approximately $419 million, which is approximately equal to the ~~fulfillment of numerous conditions including regulatory approval. We cannot be certain when or if the conditions to and other components~~carrying value of the ~~P&A Transaction will be satisfied, or whether~~liabilities (including all deposit liabilities) assumed by BofI. In connection with the ~~P&A Transaction will be completed. In addition, there may be changes~~closing, we intend to liquidate the ~~terms and conditions of the P&A Agreement and other contemplated agreements as part of the regulatory approval process.~~AFS securities previously held by HRB Bank, which totaled $404 million at July 31, 2015.

In connection with ~~additional agreements expected to be entered into upon~~ the closing of the P&A ~~Transaction,~~Transaction: (i) Emerald Financial Services, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (EFS), and BofI ~~would~~entered into the Program Management Agreement, dated August 31, 2015 (PMA); (ii) the Company, EFS, HRB Participant I, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, and BofI entered into the Emerald Receivables Participation Agreement, dated August 31, 2015 (RPA); and (iii) the Company and BofI entered into the Guaranty Agreement, dated August 31, 2015 (Guaranty Agreement).

The PMA, RPA and Guaranty Agreement set forth the terms under which BofI will offer H&R Block-branded financial products and services distributed by the Company to the Company's clients. ~~An operating subsidiary of the Company would~~Under these agreements, EFS will also provide 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 ~~products. We expect~~Guaranty Agreement is set forth under Item 1.01 of the ~~net, ongoing annual financial impact~~Company's Current Report on Form 8-K filed with the SEC on April 10, 2014, as supplemented by the description of ~~these agreements~~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, each of which is incorporated herein by reference.

The foregoing description of the PMA, RPA and Guaranty Agreement (including the description incorporated herein by reference) does not purport to be ~~dilutive~~complete and is subject to, and is qualified in its entirety by, ~~approximately $0.07~~reference to ~~$0.09 per share beginning in fiscal year 2016, based~~the PMA, RPA and Guaranty Agreement, as executed by the parties thereto, which were attached as Exhibits 10.1, 10.2 and 10.3, respectively, to Company's Current Report on ~~current fully diluted shares outstanding. Results will vary based upon~~Form 8-K filed with the ~~volume~~SEC on September 1, 2015, each of ~~financial services products sold and the actual~~which is incorporated herein by reference.

Upon closing ~~date.~~

~~Given~~of the P&A Transaction, ~~was pending but not yet consummated at the end of calendar year 2014, H&R~~HRB Bank merged with and into its parent company, Block ~~Inc. became subject~~Financial, surrendered its bank charter and ceased to ~~the new SLHC regulatory capital requirements, effective January 1, 2015. Although no SLHC regulatory capital filings have been required or completed~~exist as a bank. As a result, as of ~~the date~~August 31, 2015, neither we nor any of ~~this report,~~ our ~~internal computations show that H&R Block, Inc. exceeded the~~subsidiaries is subject to minimum regulatory capital requirements or to regulation by the OCC.

In addition, 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 ~~January 1,~~the Home Owner's Loan Act. As of August 31, 2015, ~~(the date on which the new SLHC~~our Holding Companies are no longer subject to regulatory capital requirements ~~became effective). Until~~applicable to SLHCs or to regulation by the Federal Reserve.

CAPITAL STRUCTURE – On September 1, 2015, we ~~divest HRB Bank~~announced our intent to establish a new capital structure, which includes a new $3.5 billion share repurchase program approved by our Board of Directors, a new CLOC and ~~cease~~incremental debt, as well as our intent to take near-term action on the planned capital structure changes, as discussed below.

Share Repurchase Program. Consistent with our long-standing philosophy on shareholder returns, we announced that our Board of Directors approved a new $3.5 billion share repurchase program, effective through June 2019. We



28	Q1 FY2016 Form 10-Q \| H&R Block, Inc.

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currently intend to repurchase shares of our common stock over time through a combination of the tender offer referred to below and open market purchases, and we may also repurchase shares through private transactions, exchange offers, additional tender offers or other means. We intend to fund this program through available cash, borrowings under the new CLOC and incremental debt as described below, and funds from ongoing business operations.

Our announcement of our new share repurchase program does not obligate us to repurchase any specific dollar amount or number of shares of common stock. We will determine when, if and how to proceed with any repurchase transactions under the program, as well as the amount of any such repurchase transactions, based upon, among other things, the results of the tender offer and our evaluation of our liquidity and capital needs (including for strategic and other opportunities), our business, results of operations, and financial position and prospects, our credit ratings, general financial, economic and market conditions, prevailing market prices for our shares of common stock, corporate, regulatory and legal requirements, and other conditions and factors deemed relevant by our management and Board of Directors from time to time. The share repurchase program may be ~~an SLHC, H&R Block, Inc. will remain subject~~suspended or discontinued at any time. There can be no assurance as to the ~~minimum regulatory~~actual volume of any share repurchases in any given period or over the term of the program or as to the manner or terms of any such repurchases. Our failure to maintain investment grade ratings metrics or obtain incremental debt financing as contemplated could adversely impact us and our ability to implement the share repurchase program as currently contemplated.

"Modified Dutch Auction" Tender Offer. On September 2, 2015, we commenced a "modified Dutch auction" tender offer to purchase up to $1.5 billion of our common stock, at a price per share of not less than $32.25 and not greater than $37.00. The tender offer is contingent upon, among other customary items, the successful closing of a new CLOC, as described below, and satisfaction of other customary conditions. Repurchases under the tender offer will be part of our new share repurchase program. As of August 31, 2015, we had approximately 276.4 million shares outstanding. We intend to fund the tender offer and related expenses with a combination of available cash, borrowings under the new CLOC and incremental debt as described below.

Information Regarding the Tender Offer. The information above relating to the tender offer is for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any shares of our common stock. The solicitation and offer to buy our common stock is being made only pursuant to the Offer to Purchase, the Letter of Transmittal and the other offer materials that we have filed with the SEC and sent to our shareholders. Shareholders and investors are urged to read our Tender Offer Statement on Schedule TO, the Offer to Purchase, the related Letter of Transmittal and the other offer materials, as well as any amendments or supplements to the Schedule TO that we file with the SEC, because they contain important information, including various terms and conditions of the tender offer.

New Committed Line of Credit. We also announced that we intend to replace our 2012 CLOC with a new CLOC. The new CLOC facility amount and terms will be determined based on market conditions at the time of closing of the new CLOC. As described above, the tender offer is contingent upon, among other customary items, the successful closing of the new CLOC and as such, we intend to complete the new CLOC prior to the completion of the tender offer. It is also our intention to utilize the new CLOC to fund our future seasonal working capital ~~requirements which will likely restrict~~needs rather than issuing commercial paper. Our ability to enter into the new CLOC is dependent on, among other things, market conditions and the agreement of the lenders, and our ability to borrow under any new CLOC is dependent on our performance and ability to satisfy the borrowing conditions thereunder.

Incremental Debt. We also announced that we intend to incur incremental debt through other debt issuances as part of the capital structure changes described above. The amount and composition of the incremental debt will be dependent on market conditions and capital allocation ~~strategies~~considerations at the time the debt is incurred. We intend to use the incremental debt to fund stock repurchases under our new share repurchase program, together with available cash, borrowings under the new CLOC and funds from ongoing business operations. Our ability to ~~us. See additional discussion below under "Regulatory Environment."~~take on incremental debt is dependent on, among other things, market conditions, our performance, and satisfaction of other customary financing conditions.



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	29

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RESULTS OF OPERATIONS

TAX SERVICES – This segment consists primarily of our assisted and DIY income tax preparation offerings - in-person, online, software and mobile applications - including tax operations primarily in the U.S. and its territories, Canada, and Australia. This segment also includes the distribution of H&R Block-branded financial products and services of BofI after closing of the P&A Transaction, which were previously offered through the activities of HRB Bank ~~that~~in support of our U.S. tax preparation business.

CORPORATE AND ELIMINATIONS – Corporate operating results include net interest income and gains or losses relating to mortgage loans held for investment and residual interests in securitizations, interest expense on borrowings, other corporate expenses, and eliminations of intercompany activities.



34	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

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Tax Services – Operating Statistics (U.S. only)
Nine months ended January 31, 2015
2014
Tax returns prepared: (in 000s) ⁽¹⁾

Company-owned operations 1,532
1,516
Franchise operations 947
1,037
Total assisted 2,479
2,553

Desktop 180
137
Online 1,027
654
Total Tax Software 1,207
791

Free File Alliance 129
64
Total U.S. returns 3,815
3,408

As of January 31, 2015
2014
Tax offices:
Company-owned offices 6,270
6,012
Company-owned shared locations ⁽²⁾
95
74
Total company-owned offices 6,365
6,086
Franchise offices 3,894
4,266
Franchise shared locations ⁽²⁾
27
26
Total franchise offices 3,921
4,292
Total U.S. offices 10,286
10,378


⁽¹⁾	Assisted returns at January 31, 2014 include 1.8 million returns which were completed as of that date but not yet electronically filed. Revenue for these returns was recognized in the fourth quarter of fiscal year 2014.


⁽²⁾	~~Shared locations include offices located within third-party businesses.~~



30	Q1 FY2016 Form 10-Q \| H&R Block, Inc. ~~\| Q3 FY2015 Form 10-Q~~	35

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A summary of the financial results for our operations is as follows:


Consolidated – Financial Results														(in 000s)																			(in 000s)
Three months ended January 31,		2015									2014
Three months ended July 31,																					2015									2014
		Tax Services			Corporate and Eliminations			Total			Tax Services			Corporate and Eliminations			Total				Tax Services			Corporate and Eliminations			Total			Tax Services			Corporate and Eliminations			Total
Tax preparation fees:
U.S. assisted		$	283,692		$	—		$	283,692		$	72,108		$	—		$	72,108			$	27,285		$	—		$	27,285		$	25,489		$	—		$	25,489
International		10,021			—			10,021			9,253			—			9,253				35,718			—			35,718			41,456			—			41,456
U.S. digital		36,720			—			36,720			17,339			—			17,339				3,179			—			3,179			2,932			—			2,932
		330,433			—			330,433			98,700			—			98,700				66,182			—			66,182			69,877			—			69,877
Royalties		52,284			—			52,284			15,061			—			15,061				9,695			—			9,695			7,642			—			7,642
Revenues from Refund Transfers		50,899						50,899			15,542			—			15,542				3,415						3,415			3,419			—			3,419
Revenues from Emerald Card®		13,910			—			13,910			12,689			—			12,689				15,689			—			15,689			14,045			—			14,045
Revenues from Peace of Mind® guarantees		13,492			—			13,492			12,684			—			12,684
Revenues from Peace of Mind® Extended Service Plan																					27,703			—			27,703			24,253			—			24,253
Interest and fee income on Emerald Advance		30,288			—			30,288			27,656			—			27,656				314			—			314			607			—			607
Other		11,702			6,066			17,768			11,664			5,774			17,438				9,576			5,144			14,720			9,237			4,506			13,743
Total revenues		503,008			6,066			509,074			193,996			5,774			199,770				132,574			5,144			137,718			129,080			4,506			133,586

Compensation and benefits:
Field wages		161,921			—			161,921			136,885			—			136,885				45,938			—			45,938			45,997			—			45,997
Other wages		41,157			4,826			45,983			41,629			4,682			46,311				37,202			4,667			41,869			38,717			4,476			43,193
Benefits and other compensation		35,625			3,507			39,132			34,696			3,149			37,845				18,738			3,913			22,651			18,822			4,807			23,629
		238,703			8,333			247,036			213,210			7,831			221,041				101,878			8,580			110,458			103,536			9,283			112,819
Occupancy and equipment		92,700			155			92,855			88,148			201			88,349				89,379			420			89,799			83,098			11			83,109
Marketing and advertising		87,569			—			87,569			77,852			91			77,943				7,789			742			8,531			7,387			758			8,145
Depreciation and amortization		43,287			4			43,291			31,808			3			31,811				40,076			18			40,094			33,683			3			33,686
Bad debt		38,928			355			39,283			31,420			—			31,420				2,033			(28		)	2,005			3,639			725			4,364
Supplies		6,963			18			6,981			7,387			17			7,404				2,389			10			2,399			3,057			16			3,073
Other		63,012			4,198			67,210			58,982			7,163			66,145				53,176			5,238			58,414			43,858			5,872			49,730
Total operating expenses		571,162			13,063			584,225			508,807			15,306			524,113				296,720			14,980			311,700			278,258			16,668			294,926
Other expense (income), net		6,751			(85		)	6,666			6,756			2,854			9,610
Other income																					253			180			433			350			173			523
Interest expense on borrowings		523			8,525			9,048			532			13,340			13,872				(532		)	(8,043		)	(8,575		)	(528		)	(13,267		)	(13,795		)
Other expenses																					(5,013		)	28			(4,985		)	(1,204		)	—			(1,204		)
Pretax loss		$	(75,428	)	$	(15,437	)	(90,865		)	$	(322,099	)	$	(25,726	)	$	(347,825	)		$	(169,438	)	$	(17,671	)	(187,109		)	$	(150,560	)	$	(25,256	)	(175,816		)
Income tax benefit								(55,554		)							(135,074		)								(90,604		)							(66,965		)
Net loss from continuing operations								(35,311		)							(212,751		)								(96,505		)							(108,851		)
Net loss from discontinued operations	Net loss from discontinued operations							(1,637		)							(1,960		)	Net loss from discontinued operations							(3,154		)							(7,381		)
Net loss								$	(36,948	)							$	(214,711	)								$	(99,659	)							$	(116,232	)

Basic and diluted loss per share:
Continuing operations								$	(0.13	)							$	(0.78	)								$	(0.35	)							$	(0.40	)
Discontinued operations								—									—										(0.01		)							(0.02		)
Consolidated								$	(0.13	)							$	(0.78	)								$	(0.36	)							$	(0.42	)

EBITDA from continuing operations ⁽¹⁾	EBITDA from continuing operations ⁽¹⁾							$	(38,302	)							$	(301,571	)	EBITDA from continuing operations ⁽¹⁾							$	(138,304	)							$	(128,190	)
EBITDA from continuing operations - adjusted ⁽¹⁾	EBITDA from continuing operations - adjusted ⁽¹⁾							(36,508		)							(300,578		)	EBITDA from continuing operations - adjusted ⁽¹⁾							(137,346		)							(126,183		)


⁽¹⁾	See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.



36	~~Q3 FY2015 Form 10-Q \|~~ H&R Block, Inc. \| Q1 FY2016 Form 10-Q	31

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Three months ended ~~January~~July 31, 2015 compared to ~~January~~July 31, 2014

Tax Services – Revenues increased ~~$309.0~~$3.5 million, or ~~159.3%~~2.7%, over the prior year, due primarily ~~due~~ to ~~revenue we were unable to recognize in~~higher revenues for our POM and royalties, partially offset by the prior year for returns that were completed at January 31, 2014 but that had not yet been electronically filed with the IRS. Unearned revenue at January 31, 2014, which was recognized in the fourth quarter of fiscal 2014, totaled $276.7 million and impacted comparability with fiscal 2015 as shown in the table below. There was no similar unearned revenue at January 31, 2015.

(in 000s)
Three months ended January 31, 2015
2014
Change
2014 Unearned Revenue
U.S. assisted tax preparation fees $ 283,692
$ 72,108
$ 211,584
$ 192,405
U.S. digital 36,720
17,339
19,381
7,816
Royalties from franchisees 52,284
15,061
37,223
37,699
Revenues from Refund Transfers 50,899
15,542
35,357
38,827
Total $ 423,595
$ 120,050
$ 303,545
$ 276,747

~~In addition to the~~negative impact of unearned revenue in the prior year, U.S. tax preparation fees increased as a result of price increases, higher complexity of returns, and favorable mix. The number of tax returns prepared in company-owned offices during the third quarter of fiscal 2015 was flat compared with 2014. U.S. digital revenues also increased as a result of increases in desktop and online returns prepared, as well as improved mix.foreign currency rates.

Total operating expenses ~~of our Tax Services segment~~ increased ~~$62.4~~$18.5 million, or ~~12.3%~~6.6%, from the prior year. ~~Total compensation and benefits~~Occupancy costs increased $25.5 million due to higher labor in our U.S. operations primarily related to incremental investments in training and increases in field wages resulting from acquired tax practices and changes in staffing levels. Marketing and advertising expenses increased $9.7$6.3 million, or ~~12.5%~~7.6%, ~~due to planned increases in our marketing spend for the current year. Depreciation~~and depreciation and amortization expense increased ~~$11.5~~$6.4 million, ~~or 36.1%,~~ due primarily to acquisitions of franchisee and competitor businesses and improvements to existing offices. ~~Bad debt expense~~Other expenses increased ~~$7.5~~$9.3 million ~~or 23.9%,~~from the prior year, primarily due to ~~the timing of loss provisions in the prior period as a result of the unearned revenue previously mentioned.~~

~~Tax returns prepared in company-owned~~higher consulting and franchise offices through February 28, 2015 decreased 8.7% from the prior year. Paid returns prepared using our digital products increased 6.7% through February 28, 2015 from the prior year. The business of our Tax Services segment is highly seasonal and results for the quarter ended January 31, as well as results for the period ended February 28, may not be indicative of results for the entire fiscal year.processing fees.

Corporate and Eliminations – Interest expense on borrowings declined ~~$4.8~~$5.2 million due to the repayment of our 5.125% Senior Notes.

See Item 1, note ~~10 for discussion of the impact of income taxes for the period.~~



~~H&R Block, Inc.~~ ~~\| Q3 FY2015 Form 10-Q~~	37

~~Table of Contents~~

Consolidated – Financial Results (in 000s)
Nine months ended January 31, 2015 2014
Tax Services
Corporate and Eliminations Total Tax Services Corporate and Eliminations Total
Tax preparation fees:
U.S. assisted $ 341,107
$ —
$ 341,107
$ 123,145
$ —
$ 123,145
International 94,308
—
94,308
82,915
—
82,915
U.S. digital 42,545
—
42,545
23,211
—
23,211
477,960
—
477,960
229,271
—
229,271
Royalties 68,508
—
68,508
31,150
—
31,150
Revenues from Refund Transfers 56,472
56,472
21,282
—
21,282
Revenues from Emerald Card® 39,479
—
39,479
37,299
—
37,299
Revenues from Peace of Mind® guarantees 54,308
—
54,308
59,661
—
59,661
Interest and fee income on Emerald Advance 31,439
31,439
28,602
—
28,602
Other 32,605
16,517
49,122
36,462
17,578
54,040
Total revenues 760,771
16,517
777,288
443,727
17,578
461,305

Compensation and benefits:
Field wages 264,822
—
264,822
226,320
—
226,320
Other wages 117,598
13,946
131,544
112,029
14,220
126,249
Benefits and other compensation 74,349
12,874
87,223
72,811
10,364
83,175
456,769
26,820
483,589
411,160
24,584
435,744
Occupancy and equipment 260,016
215
260,231
250,332
1,022
251,354
Marketing and advertising 106,477
1,750
108,227
97,435
1,232
98,667
Depreciation and amortization 115,896
10
115,906
81,242
111
81,353
Bad debt 42,942
1,090
44,032
38,535
7,225
45,760
Supplies 17,534
48
17,582
14,355
50
14,405
Other 152,204
16,456
168,660
160,505
30,427
190,932
Total operating expenses 1,151,838
46,389
1,198,227
1,053,564
64,651
1,118,215
Other expense (income), net 9,986
(357 ) 9,629
14,366
(1,071 ) 13,295
Interest expense on borrowings 1,577
35,109
36,686
1,604
39,872
41,476
Pretax loss $ (402,630 ) $ (64,624 ) $ (467,254 ) $ (625,807 ) $ (85,874 ) $ (711,681 )
Income tax benefit (209,865 ) (282,645 )
Net loss from continuing operations (257,389 ) (429,036 )
Net loss from discontinued operations (7,789 ) (5,805 )
Net loss $ (265,178 ) $ (434,841 )

Basic and diluted loss per share:
Continuing operations $ (0.94 ) $ (1.57 )
Discontinued operations (0.03 ) (0.02 )
Consolidated $ (0.97 ) $ (1.59 )

EBITDA from continuing operations ⁽¹⁾
$ (314,153 ) $ (587,125 )
EBITDA from continuing operations - adjusted ⁽¹⁾
(311,845 ) (581,268 )


⁽¹⁾	~~See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.~~

~~Nine months ended~~ ~~January 31, 2015~~ ~~compared to~~ ~~January 31, 2014~~

~~Tax Services~~ ~~– Revenues increased $317.0 million, or 71.5%, from the prior year, due primarily to the unearned revenue in the prior year, as previously discussed.~~



38	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

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In addition to the impact of unearned revenue in the prior year, U.S. tax preparation fees increased as a result of price increases, higher complexity of returns, and favorable mix. The number of tax returns prepared in company-owned offices during fiscal 2015 was flat compared with 2014. U.S. digital revenues also increased as a result of increases in desktop and online returns prepared, as well as improved mix.

Total operating expenses increased $98.3 million, or 9.3%, from the prior year. Total compensation and benefits increased $45.6 million due to incremental investments in training and increases in field wages resulting from acquired tax practices and changes in staffing levels. Occupancy costs increased $9.7 million, or 3.9%, and depreciation and amortization expense increased $34.7 million, due primarily to acquisitions of franchisee and competitor businesses and improvements to existing offices. Marketing and advertising expenses increased $9.0 million, or 9.3%, due to planned increases in our marketing spend for the current year. Other expenses decreased $8.3 million from the prior year, primarily due to lower legal expenses and lower costs associated with our financial product offerings.

~~Corporate and Eliminations~~ – Bad debt expense decreased $6.1 million, or 84.9%, due to a decline in our provision for loan losses resulting from improvement in collateral values. Other expenses declined $14.0 million from the prior year primarily due to lower legal and insurance expenses. Interest expense on borrowings declined $4.8 million due to the repayment of our 5.125% Senior Notes.

~~See Item 1, note 10~~9 for discussion of the impact of income taxes for the period.

DISCONTINUED OPERATIONS

Discontinued operations include our discontinued mortgage operations.

CONTINGENT LOSSES – SCC has accrued a liability as of ~~January~~July 31, 2015, for estimated contingent losses arising from representation and warranty claims of $~~143.8~~149.8 million. See note 1413 for changes in this accrual. 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. 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 and depositors in securitization transactions in which SCC participated. SCC has not concluded that a loss is probable or reasonably estimable related to these indemnification claims, therefore there is no accrued liability for these contingent losses as of ~~January~~July 31, 2015.

See additional discussion of risks and sensitivity of estimates in Item 1A, "Risk Factors" and Item 7, under "Critical Accounting Estimates" in our Annual Report on Form 10-K.

FINANCIAL CONDITION

These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Part 1, Item 1.

CAPITAL RESOURCES AND LIQUIDITY – OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital) 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 short-term borrowings to meet our off-season liquidity needs.

Given the likely availability of a number of liquidity options discussed herein, ~~including borrowing capacity~~as well as the liquidity options contemplated under ~~the 2012 CLOC or the issuance of commercial paper,~~our new capital structure discussed above under "Recent Developments – Capital Structure," we believe that, in the absence of any unexpected developments, our existing sources of capital as of ~~January~~July 31, 2015 are, and our expected sources of capital under our new capital structure will be, sufficient to meet our operating and financing needs.



32	Q1 FY2016 Form 10-Q \| H&R Block, Inc. ~~\| Q3 FY2015 Form 10-Q~~	39

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DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014. See Item 1 for the complete statements of cash flows for these periods.


	(in 000s)						(in 000s)
Nine months ended January 31,	2015			2014
Three months ended July 31,							2015			2014
Net cash provided by (used in):
Operating activities	$	(1,247,200	)	$	(1,120,322	)	$	(378,246	)	$	(381,585	)
Investing activities	(132,698		)	(67,909		)	32,094			(26,334		)
Financing activities	531,274			(101,933		)	(350,749		)	(348,409		)
Effects of exchange rates on cash	(15,549		)	(20,016		)	(10,907		)	510
Net change in cash and cash equivalents	$	(864,173	)	$	(1,310,180	)	$	(707,808	)	$	(755,818	)

Operating Activities. Cash used in operations ~~increased~~ ~~$126.9 million~~ ~~from~~was essentially flat compared to the prior ~~year period primarily due to higher income tax payments.~~year.

Investing Activities. Cash ~~used in~~provided by investing activities totaled $~~132.7~~32.1 million for the ~~nine~~three months ended ~~January 31, 2015~~ ~~compared to~~ ~~$67.9 million~~ in the prior year period. An increase of $74.3 million in payments for business acquisitions was partially offset by a decline of $45.1 million in purchases of available for sale securities. In addition, in the prior year we received payment in full of a note receivable, totaling $64.9 million.

~~Financing Activities.~~ ~~Cash provided by financing activities totaled~~ ~~$531.3 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~January~~July 31, 2015 compared to a use of $~~101.9~~26.3 million in the prior year period. This change resulted from a decrease of $28.3 million in payments for business acquisitions, a decline of $17.2 million in capital expenditures and an increase in cash received on AFS securities of $13.6 million.

Financing Activities. Cash used in financing activities totaled $350.7 million for the three months ended July 31, 2015 compared to $348.4 million in the prior year period. The ~~increase over the prior year period resulted from the earlier funding~~impacts of ~~Emerald Card deposits compared to the prior year, which was partially~~changes in deposit balances were offset by ~~the closing~~shares of ~~broker~~stock surrendered and ~~time deposit accounts due to the pending P&A Transaction.~~changes in book overdrafts.

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 $~~164.9~~55.1 million and $~~164.1~~54.9 million for the ~~nine~~three months ended ~~January~~July 31, 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.

~~Although we~~We have not completed any open-market repurchases of outstanding shares of our common stock since fiscal year 2013 primarily due to the regulatory limitations that were applicable to us while we ~~currently have~~were registered as a SLHC. As discussed above under "Recent Developments - Capital Structure," on September 1, 2015, we announced that our Board of ~~Directors' authorization~~Directors approved a new $3.5 billion share repurchase program, effective through June 2019, and on September 2, 2015, we commenced a "modified Dutch auction" tender offer to purchase up to ~~$2.0~~$1.5 billion of our common stock ~~through June 2015. There was $857.5 million remaining~~ under this ~~authorization as~~program, at a price per share of ~~January 31, 2015. Although we have historically from time to time repurchased common stock,~~not less than $32.25 and not greater than $37.00. As discussed above, there can be no ~~assurances that circumstances will allow us~~assurance as to ~~continue to repurchase common stock~~the actual volume of any share repurchases in any given period or over the ~~future. As long as we remain subject to regulatory supervision~~term of the ~~Federal Reserve, our share repurchase~~ program ~~will be closely supervised and we will likely be restricted from repurchasing outstanding shares.~~or as to the manner or terms of any such repurchases.

Divestiture of HRB Bank. ~~In April 2014, we entered into~~As discussed above under "Recent Developments – Divestiture of H&R Block Bank," at the P&A Agreement with BofI, which was amended in October 2014 and again in February 2015 as described in Item 1, note 2 to the consolidated financial statements above. The P&A Agreement is subject to various closing conditions, including the receipttime of certain required approvals, entry into certain additional agreements, and the fulfillment of various other customary conditions. If the closing conditions (including regulatory approvals) are satisfied, we will complete a closing of the P&A Transaction, including the sale of certain assets and transfer of certain liabilities (principally deposit liabilities) to BofI.

~~Due to the lack of regulatory approval, we continue to offer financial services products to our clients through HRB Bank during the 2015 tax season.~~

~~Upon~~ the closing of the P&A Transaction, we ~~will make~~made a one-time cash payment to BofI ~~for the difference in the carrying value~~ of ~~assets sold and the carrying value of liabilities (including deposit liabilities) transferred. The amount of the cash payment made at closing will primarily be~~approximately $419 million, which is approximately equal to the carrying value of the liabilities ~~to be transferred since the carrying value of the assets to be transferred is immaterial. Pursuant to the February Letter Agreement, the parties~~



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~~have set the date of closing as June 30, 2015, unless otherwise agreed~~(including all deposit liabilities) assumed by the parties. Due to the seasonality of our business, the timing of any closing of the P&A Transaction will impact the amount of deposit liabilities transferred. Assuming the P&A Transaction closes on June 30, 2015, we estimate that our cash payment to BofI will equal approximately $425 million to $575 million.BofI. In connection with the closing, we intend to liquidate the AFS securities previously held by HRB Bank, which totaled ~~$368~~$404 million ~~as of January~~at July 31, 2015.

See additional discussion in Item 1, note 2 to the consolidated financial statements, and below under "Regulatory Environment."

Capital Investment. Our business is not capital intensive. Capital expenditures totaled ~~$98.9~~$8.7 million and ~~$125.7~~$25.8 million for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. We also made payments to acquire franchisee and competitor businesses totaling ~~$112.2~~$12.3 million and ~~$37.9~~$40.5 million for the ~~nine~~three months ended ~~January~~July 31, 2015 and 2014, respectively.



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FINANCING RESOURCES – Our 2012 CLOC has capacity up to $1.5 billion, and is scheduled to expire in August 2017. As discussed above under "Recent Developments – Capital Structure," we intend to enter into a new CLOC and incur additional incremental debt. As discussed above, our ability to enter into a new CLOC and make borrowings thereunder and incur additional incremental debt is dependent on number of conditions, including market conditions, as well as our performance.

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 ~~January~~July 31, 2015 and April 30, ~~2014~~2015:



	Short-term	Long-term	Outlook
Moody's⁽¹⁾	P-2	Baa2	Stable
S&P⁽²⁾	A-2	BBB	Negative

~~We had commercial paper borrowings~~⁽¹⁾ Short-term rating of ~~$591.5 million at~~ P-3, long-term rating of Baa3 and outlook of stable effective September 2, 2015.

⁽²⁾~~January 31, 2015, compared to $195.0 million at the same time last year. These borrowings were used to fund our seasonal working capital needs.~~ Short-term rating of A-2, long-term rating of BBB and outlook of stable effective September 2, 2015.

There have been no other material changes in our borrowings from those reported as of April 30, ~~2014~~2015 in our Annual Report on Form 10-K.

CASH AND INVESTMENT SECURITIES – As of ~~January~~July 31, 2015, we held cash and cash equivalents of $1.3 billion, including ~~$962.2~~$283.2 million held by HRB Bank and ~~$115.9~~$154.2 million held by our foreign subsidiaries.

~~Dividends of cash balances held by HRB Bank would be subject to regulatory approval and are therefore not available for general corporate purposes.~~

As of ~~January~~July 31, 2015,, we also held investments, primarily mortgage backed securities, with a carrying value of ~~$375.7~~$407.4 million which we classified as available for sale. As discussed above, ~~it is our intent (subject to market conditions)~~we intend to liquidate the majority of these securities in connection with a closing of the P&A ~~Transaction.~~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 ~~January~~July 31, 2015.

As of ~~January~~July 31, 2015, our Canadian operations had approximately $52 million of U.S. dollar denominated borrowings owed to various U.S. subsidiaries. These borrowings may be repaid in full or in part at any time. 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 ~~$15.5~~$10.9 million during the ~~nine~~three months ended ~~January~~July 31, 2015 compared to ~~$20.0~~$0.5 million in the prior year.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – There have been no material changes in our contractual obligations and commercial commitments from those reported as of April 30, ~~2014~~2015 in our Annual Report on Form 10-K.



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REGULATORY ENVIRONMENT

~~Given~~Divestiture of HRB Bank. As discussed above under "Recent Developments - Divestiture of H&R Bank," on August 31, 2015, we completed the P&A Transaction ~~was pending but not yet consummated at~~and related actions, pursuant to which we divested HRB Bank. On the ~~end~~closing date of the ~~2014 calendar year, H&R Block, Inc. became~~P&A Transaction, HRB Bank converted from a federal savings bank to a national banking association. At closing, HRB Bank sold certain assets and liabilities, including all of the deposit liabilities of HRB Bank, to BofI. On the same date, HRB Bank merged with and into its parent company (Block Financial), surrendered its charter and ceased to exist as a bank. As a result of the P&A Transaction and related actions, neither we nor any of our subsidiaries is subject to ~~the new SLHC regulatory capital requirements, effective January 1, 2015. Under the SLHC regulatory capital requirements, the minimum regulatory capital ratios as of January 1, 2015 were as follows:~~

▪~~4.5% Common Equity Tier 1 to risk-weighted assets~~

▪~~6.0% Tier 1 Capital to risk-weighted assets~~

▪~~8.0% Total Capital to risk-weighted assets~~

▪~~4.0% Leverage Ratio~~

~~Although no SLHC regulatory capital filings have been required or completed as of the date of this report, our internal computations show that H&R Block, Inc. exceeded the~~ minimum regulatory capital requirements or to regulation by the OCC.

Deregistration as SLHCs. As discussed above under "Recent Developments - Divestiture of ~~January 1,~~H&R Bank," as a result of the P&A Transaction and related actions on August 31, 2015, ~~(the date on which the new SLHC regulatory capital requirements became effective). To the extent~~ our Holding Companies ~~continue~~have ceased to be SLHCs and have deregistered as SLHCs under Section 10(b) of the Home Owners Loan Act. As of August 31, 2015, our ~~first Federal Reserve regulatory filing disclosing our SLHC regulatory capital ratios will be due in May 2015 with respect~~Holding Companies are not subject to ~~the calendar quarter ending March 31, 2015. Based upon current projections, we expect that H&R Block, Inc. will exceed the~~ minimum regulatory capital requirements on March 31, 2015. Consistent with our past practice regarding HRB Bank’s regulatory capital ratios, we will include H&R Block, Inc.'s regulatory capital ratios in the periodic filing immediately following our quarterly regulatory filing withor to regulation by the Federal Reserve. Until we divest HRB Bank and cease to be an SLHC, H&R Block, Inc. will remain subject to the minimum regulatory capital requirements which will likely restrict the capital allocation strategies available to us.

Additional ~~discussion~~information about the closing of the ~~SLHC regulatory capital requirements can be found in our Annual Report on Form 10-K for~~P&A Transaction and related actions and the ~~fiscal year ended April 30, 2014.~~

~~There~~end to regulation of the Company by the OCC and Federal Reserve is set forth above under "Recent Developments - Divestiture of H&R Bank." Except as set forth above, there have been no other material changes in our regulatory environment from those reported at April 30, ~~2014~~2015 in our Annual Report on Form 10-K, as supplemented by our other periodic filings.

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 non-GAAP financial measures to be 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 of adjustments we make for our 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.


▪	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.

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 earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA and other adjusted financial metrics as identified in the table below. The adjusted financial metrics eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial



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results, analyzing trends in our underlying business, and assessing our prospects for future performance. Additionally, we use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.



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The following is a reconciliation of our reported results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:

(in 000s)
Three months ended January 31, 2015
EBITDA Pretax loss Net loss Diluted EPS

As reported - from continuing operations $ (38,302 ) $ (90,865 ) $ (35,311 ) $ (0.13 )

Adjustments:
Loss contingencies - litigation 337
337
207
—
Professional fees related to HRB Bank transaction 6
6
3
—
Loss on sales of tax offices/businesses 1,451
1,451
901
—
1,794
1,794
1,111
—

As adjusted - from continuing operations $ (36,508 ) $ (89,071 ) $ (34,200 ) $ (0.13 )

(in 000s)
Three months ended January 31, 2014
EBITDA Pretax loss Net loss Diluted EPS

As reported - from continuing operations $ (301,571 ) $ (347,825 ) $ (212,751 ) $ (0.78 )

Adjustments:
Loss contingencies - litigation 346
346
207
—
Severance 1,092
1,092
648
—
Professional fees related to HRB Bank transaction 171
171
95
—
Gain on sales of tax offices/businesses (616 ) (616 ) (372 ) —
993
993
578
—

As adjusted - from continuing operations $ (300,578 ) $ (346,832 ) $ (212,173 ) $ (0.78 )

(in 000s)
Nine months ended January 31, 2015
EBITDA Pretax loss Net loss Diluted EPS

As reported - from continuing operations $ (314,153 ) $ (467,254 ) $ (257,389 ) $ (0.94 )

Adjustments:
Loss contingencies - litigation 609
609
376
—
Severance 1,051
1,051
654
—
Professional fees related to HRB Bank transaction 120
120
74
—
Gain on sales of AFS securities (24 ) (24 ) (15 ) —
Loss on sales of tax offices/businesses 552
552
342
—
2,308
2,308
1,431
—

As adjusted - from continuing operations $ (311,845 ) $ (464,946 ) $ (255,958 ) $ (0.94 )



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				(in 000s)												(in 000s)
	Nine months ended January 31, 2014
Three months ended July 31,													2015						2014
	EBITDA			Pretax loss			Net loss			Diluted EPS			EBITDA			Loss			EBITDA			Loss

As reported - from continuing operations	$	(587,125	)	$	(711,681	)	$	(429,036	)	$	(1.57	)	$	(138,304	)	$	(96,505	)	$	(128,190	)	$	(108,851	)

Adjustments:
Adjustments (pretax):
Loss contingencies - litigation	1,069			1,069			650			—			618			618			228			228
Severance	4,025			4,025			2,447			0.01			—			—			813			813
Professional fees related to HRB Bank transaction	1,978			1,978			1,203			—			52			52			25			25
Gain on sales of tax offices/businesses	(1,215		)	(1,215		)	(739		)	—
Impairment of AFS securities													288			288			941			941
Tax effect of adjustments													—			(358		)	—			(764		)
	5,857			5,857			3,561			0.01			958			600			2,007			1,243

As adjusted - from continuing operations	$	(581,268	)	$	(705,824	)	$	(425,475	)	$	(1.56	)	$	(137,346	)	$	(95,905	)	$	(126,183	)	$	(107,608	)

																$	(0.35	)				$	(0.40	)

The following is a reconciliation of EBITDA:


										(in 000s)						(in 000s)
	Three months ended January 31,						Nine months ended January 31,
	2015			2014			2015			2014
Three months ended July 31,													2015			2014
Net loss - as reported	$	(36,948	)	$	(214,711	)	$	(265,178	)	$	(434,841	)	$	(99,659	)	$	(116,232	)
Add back:
Discontinued operations	1,637			1,960			7,789			5,805			3,154			7,381
Income taxes of continuing operations	(55,554		)	(135,074		)	(209,865		)	(282,645		)	(90,604		)	(66,965		)
Interest expense of continuing operations	9,272			14,443			37,195			43,203			8,711			13,940
Depreciation and amortization of continuing operations	43,291			31,811			115,906			81,353			40,094			33,686
	(1,354		)	(86,860		)	(48,975		)	(152,284		)	(38,645		)	(11,958		)
EBITDA from continuing operations	$	(38,302	)	$	(301,571	)	$	(314,153	)	$	(587,125	)	$	(138,304	)	$	(128,190	)

FORWARD-LOOKING INFORMATION

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," "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, income, earnings per share, capital expenditures, dividends, stock repurchase, liquidity, capital structure 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. All forward-looking statements 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



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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.



44	~~Q3 FY2015 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table~~ There can be no assurances regarding when or if the contemplated transactions described in this report will occur, or the final terms and conditions of ~~Contents~~the various agreements involved with such transactions.

Details about risks, uncertainties and assumptions that could affect various aspects of our business are included throughout our Annual Report on Form 10-K for the fiscal year ended April 30, ~~2014~~2015 and are also described from time to time in other filings with the SEC. Investors should carefully consider all of these risks, and should pay particular attention to Item 1A, "Risk Factors," and Item 7 under "Critical Accounting Policies" of our Annual Report on Form 10-K for the fiscal year ended April 30, ~~2014.~~2015.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risks from those reported at April 30, ~~2014~~2015 in our Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES – As of the end of the period covered by this Form 10-Q, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). 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 that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING – There were no changes during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see discussion in Part I, Item 1, note 1312 to the consolidated financial statements.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those reported at April 30, ~~2014~~2015 in our Annual Report on Form ~~10-K, as supplemented in our Quarterly Report on Form 10-Q for the fiscal quarter ending October 31, 2014.~~10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

A summary of our purchases of H&R Block common stock during the ~~third~~first quarter of fiscal year ~~2015~~2016 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 Yet Be
Purchased Under the Plans
or Programs ⁽²⁾

November 1 – November 30 1
$ 32.31
—
$ 857,504
December 1 – December 31 2
$ 34.36
—
$ 857,504
January 1 – January 31 —
$ —
—
$ 857,504
3
$ 33.53



(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 Yet Be Purchased Under the Plans or Programs ⁽²⁾
May 1 – May 31	4	$	31.55	—	$	857,504
June 1 – June 30	591	$	29.67	—	$	857,504
July 1 – July 31	3	$	29.78	—	$	—
	598	$	29.68


⁽¹⁾	We purchased approximately 3598 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted shares and restricted share units. There were no open-market repurchases.

⁽²⁾

In June 2008, our Board of Directors approved an authorization to purchase up to $2.0 billion of our common stock through June 2012. In June 2012, our Board of Directors extended this authorization through June ~~2015.~~2015 at which time it expired. As discussed in Part 1, Item 2 under "Recent Developments – Capital Structure," on September 1, 2015, we announced that our Board of Directors approved a new $3.5 billion share repurchase program, effective through June 2019, and on September 2, 2015, we commenced a "modified Dutch auction" tender offer to purchase up to $1.5 billion of our common stock under this program, at a price per share of not less than $32.25 and not greater than $37.00.



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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:


3.1	Amended and Restated Bylaws of H&R Block, Inc., as amended through July 14, 2015, filed as Exhibit 3.1 to the Company's current report on Form 8-K filed July 16, 2015, file number 1-06089, is incorporated herein by reference.


10.1	Letter Agreement, dated as of June 18, 2015, by and among the Company, H&R Block ~~Bank, Block Financial~~Management, LLC, and ~~BofI Federal Bank, effective February 12, 2015,~~William C. Cobb, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed ~~February 13,~~June 19, 2015, file number ~~1-6089,~~1-06089, is incorporated herein by reference.


10.2	Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units, filed as Exhibit 10.2 to the Company's current report on Form 8-K filed June 19, 2015, file number 1-06089, is incorporated herein by reference.


10.3	Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, filed as Exhibit 10.3 to the Company's current report on Form 8-K filed June 19, 2015, file number 1-06089, is incorporated herein by reference.


10.4	Alternate Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units, filed as Exhibit 10.4 to the Company's current report on Form 8-K filed June 19, 2015, file number 1-06089, is incorporated herein by reference.


10.5	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.


10.6	Amended and Restated Purchase and Assumption Agreement, dated August 5, 2015, by and among H&R Block Bank, Block Financial LLC, and BofI Federal Bank, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed August 5, 2015, file number 1-06089, is incorporated herein by reference.


10.7	Program Management Agreement, dated August 31, 2015, by and between Emerald Financial Services, LLC and BofI Federal Bank, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed September 1, 2015, file number 1-06089, is incorporated herein by reference.


10.8	Emerald Advance Receivables Participation Agreement, dated as of August 31, 2015, by and among Emerald Financial Services, LLC, BofI Federal Bank, HRB Participant I, LLC and H&R Block, Inc., 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.


10.9	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.


12.2	Computation of Ratio of Earnings to Fixed Charges for Block Financial LLC.


31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.


32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document


101.SCH	XBRL Taxonomy Extension Schema


101.CAL	XBRL Extension Calculation Linkbase



H&R Block, Inc. \| Q1 FY2016 Form 10-Q	38

Table of Contents


101.LAB	XBRL Taxonomy Extension Label Linkbase


101.PRE	XBRL Taxonomy Extension Presentation Linkbase


101.DEF	XBRL Taxonomy Extension Definition Linkbase



46	~~Q3 FY2015 Form 10-Q \|~~ H&R Block, Inc. \| Q1 FY2016 Form 10-Q	39

Table of Contents

SIGNATURES

Pursuant to the requirements 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

~~March 5,~~September 4, 2015

/s/ Gregory J. Macfarlane

Gregory J. Macfarlane

Chief Financial Officer

~~March 5,~~September 4, 2015

/s/ Jeffrey T. Brown

Jeffrey T. Brown

Chief Accounting and Risk Officer

~~March 5,~~September 4, 2015



40	Q1 FY2016 Form 10-Q \| H&R Block, Inc. ~~\| Q3 FY2015 Form 10-Q~~	47



(dollars in 000s)
	Outstanding Principal Balance		Loan Loss Allowance				% 30+ Days Past Due
	Outstanding Principal Balance		Amount		% of Principal		% 30+ Days Past Due
Purchased from SCC	$	145,812	$	7,292	5.0	%	28.4	%
All other	107,153		2,083		1.9	%	6.8	%
	$	252,965	$	9,375	3.7	%	19.2	%



(in 000s)
Credit Quality Indicators	Purchased from SCC		All Other		Total Portfolio
Occupancy status:
Owner occupied	$	107,581	$	70,670	$	178,251
Non-owner occupied	38,231		36,483		74,714
	$	145,812	$	107,153	$	252,965
Documentation level:
Full documentation	$	47,314	$	76,095	$	123,409
Limited documentation	4,607		11,745		16,352
Stated income	82,252		11,857		94,109
No documentation	11,639		7,456		19,095
	$	145,812	$	107,153	$	252,965
Internal risk rating:
High	$	41,216	$	—	$	41,216
Medium	104,596		—		104,596
Low	—		107,153		107,153
	$	145,812	$	107,153	$	252,965



(in 000s)
	Balance With Allowance		Balance With No Allowance		Total Impaired Loans		Related Allowance
As of January 31, 2015:
Purchased from SCC	$	24,318	$	67,320	$	91,638	$	4,772
Other	3,388		13,797		17,185		974
	$	27,706	$	81,117	$	108,823	$	5,746
As of January 31, 2014:
Purchased from SCC	$	28,037	$	73,873	$	101,910	$	5,341
Other	5,030		14,982		20,012		1,243
	$	33,067	$	88,855	$	121,922	$	6,584
As of April 30, 2014:
Purchased from SCC	$	27,924	$	71,075	$	98,999	$	3,239
Other	5,176		14,752		19,928		3,525
	$	33,100	$	85,827	$	118,927	$	6,764



(dollars in 000s)
	Actual				Minimum Capital Requirement					Minimum to be Well Capitalized
	Amount		Ratio		Amount		Ratio			Amount		Ratio
As of December 31, 2014:
Total risk-based capital ratio ⁽¹⁾	$	611,704	87.4	%	$	55,964	8.0	%		$	69,955	10.0	%
Tier 1 risk-based capital ratio ⁽²⁾	602,908		86.2	%	N/A		N/A			41,973		6.0	%
Tier 1 capital ratio (leverage) ⁽³⁾	602,908		49.6	%	145,865		12.0	%	⁽⁵⁾	60,777		5.0	%
Tangible equity ratio ⁽⁴⁾	602,908		49.6	%	18,233		1.5	%		N/A		N/A
As of December 31, 2013:
Total risk-based capital ratio ⁽¹⁾	$	517,031	72.5	%	$	57,023	8.0	%		$	71,279	10.0	%
Tier 1 risk-based capital ratio ⁽²⁾	508,015		71.3	%	N/A		N/A			42,768		6.0	%
Tier 1 capital ratio (leverage) ⁽³⁾	508,015		37.1	%	164,404		12.0	%	⁽⁵⁾	68,502		5.0	%
Tangible equity ratio ⁽⁴⁾	508,015		37.1	%	20,550		1.5	%		N/A		N/A
As of March 31, 2014:
Total risk-based capital ratio ⁽¹⁾	$	563,899	168.5	%	$	26,771	8.0	%		$	33,464	10.0	%
Tier 1 risk-based capital ratio ⁽²⁾	559,572		167.2	%	N/A		N/A			20,079		6.0	%
Tier 1 capital ratio (leverage) ⁽³⁾	559,572		32.1	%	209,041		12.0	%	⁽⁵⁾	87,101		5.0	%
Tangible equity ratio ⁽⁴⁾	559,572		32.1	%	26,130		1.5	%		N/A		N/A



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS													(in 000s)
Three months ended January 31, 2015	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Total revenues	$	—		$	62,482		$	448,444		$	(1,852	)	$	509,074
Cost of revenues	—			43,405			353,125			(1,852		)	394,678
Selling, general and administrative	—			3,401			186,146			—			189,547
Total operating expenses	—			46,806			539,271			(1,852		)	584,225
Other expense (income), net	31,053			1,216			(6,198		)	(19,405		)	6,666
Interest expense on borrowings	—			8,952			96			—			9,048
Income (loss) from continuing operations before tax benefit	(31,053		)	5,508			(84,725		)	19,405			(90,865		)
Income tax expense (benefit)	5,895			(9,823		)	(51,626		)	—			(55,554		)
Net income (loss) from continuing operations	(36,948		)	15,331			(33,099		)	19,405			(35,311		)
Net income (loss) from discontinued operations	—			(2,615		)	978			—			(1,637		)
Net income (loss)	(36,948		)	12,716			(32,121		)	19,405			(36,948		)
Other comprehensive income (loss)	(7,840		)	3,504			(7,840		)	4,336			(7,840		)
Comprehensive income (loss)	$	(44,788	)	$	16,220		$	(39,961	)	$	23,741		$	(44,788	)