UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~January~~	July 31, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 1-06089

H&R Block, Inc.

(Exact name of registrant as specified in its charter)



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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	HRB	New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑ No ☐

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

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares outstanding of the registrant's Common Stock, without par value, at the close of business on ~~February 28,~~August 31, 2020: ~~192,475,284~~192,898,471 shares.

Table of Contents

Form 10-Q for the Period Ended ~~January~~July 31, 2020

Table of Contents



	PART I

Item 1.	Consolidated Statements of Operations and Comprehensive ~~Loss~~Income(Loss)
	Three ~~and nine~~ months ended ~~January~~July 31, 2020 and 2019	1

	Consolidated Balance Sheets
	As of ~~January~~July 31, 2020, ~~January~~July 31, 2019 and April 30, ~~2019~~2020	2

	Consolidated Statements of Cash Flows
	~~Nine~~Three months ended ~~January~~July 31, 2020 and 2019	3

	Consolidated Statements of Stockholders' Equity
	Three ~~and nine~~ months ended ~~January~~July 31, 2020 and ~~the fiscal year ended April 30,~~ 2019	4

	Notes to Consolidated Financial Statements	65

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2918

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3726

Item 4.	Controls and Procedures	3726

	PART II
Item 1.	Legal Proceedings	3726

Item 1A.	Risk Factors	3726

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3827

Item 3.	Defaults Upon Senior Securities	3827

Item 4.	Mine Safety Disclosures	3827

Item 5.	Other Information	3827

Item 6.	Exhibits	3827

	Signatures	3929

Table of Contents

PART I FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS							(unaudited, in 000s, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)													CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)	(unaudited, in 000s, except per share amounts)
	Three months ended January 31,						Nine months ended January 31,							Three months ended July 31,
	2020			2019			2020			2019				2020			2019

REVENUES:
Service revenues	$	419,955		$	373,659		$	691,762		$	627,786			$	550,951		$	132,159
Royalty, product and other revenues	99,250			94,725			138,606			134,652				50,079			18,203
	519,205			468,384			830,368			762,438				601,030			150,362
OPERATING EXPENSES:
Costs of revenues	462,521			421,026			945,119			893,401				315,036			229,392
Selling, general and administrative	209,288			185,458			475,758			404,517				133,038			116,136
Total operating expenses	671,809			606,484			1,420,877			1,297,918				448,074			345,528

Other income (expense), net	1,879			2,269			13,741			11,275				3,211			9,123
Interest expense on borrowings	(26,305		)	(22,833		)	(68,682		)	(65,214		)		(32,125		)	(21,071		)
Loss from continuing operations before income tax benefit	(177,030		)	(158,664		)	(645,450		)	(589,419		)
Income tax benefit	(49,004		)	(38,885		)	(188,146		)	(149,906		)
Net loss from continuing operations	(128,026		)	(119,779		)	(457,304		)	(439,513		)
Net loss from discontinued operations, net of tax benefits of $488 and $1,962, $3,173 and $4,731	(1,657		)	(6,675		)	(10,625		)	(15,887		)
NET LOSS	$	(129,683	)	$	(126,454	)	$	(467,929	)	$	(455,400	)
Income (loss) from continuing operations before income taxes (benefit)														124,042			(207,114		)
Income taxes (benefit)														30,486			(61,390		)
Net income (loss) from continuing operations														93,556			(145,724		)
Net loss from discontinued operations, net of tax benefits of $685 and $1,358														(2,297		)	(4,523		)
NET INCOME (LOSS)														$	91,259		$	(150,247	)

BASIC AND DILUTED LOSS PER SHARE:
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations	$	(0.66	)	$	(0.58	)	$	(2.31	)	$	(2.13	)		$	0.48		$	(0.72	)
Discontinued operations	(0.01		)	(0.04		)	(0.05		)	(0.08		)		(0.01		)	(0.02		)
Consolidated	$	(0.67	)	$	(0.62	)	$	(2.36	)	$	(2.21	)		$	0.47		$	(0.74	)

DIVIDENDS DECLARED PER SHARE	$	0.26		$	0.25		$	0.78		$	0.75			$	0.26		$	0.26

COMPREHENSIVE LOSS:
Net loss	$	(129,683	)	$	(126,454	)	$	(467,929	)	$	(455,400	)
Change in foreign currency translation adjustments and other	(3,574		)	1,238			(4,975		)	(3,339		)
COMPREHENSIVE INCOME (LOSS):
Net income (loss)														$	91,259		$	(150,247	)
Change in foreign currency translation adjustments														17,539			(2,320		)
Other comprehensive income (loss)	(3,574		)	1,238			(4,975		)	(3,339		)		17,539			(2,320		)
Comprehensive loss	$	(133,257	)	$	(125,216	)	$	(472,904	)	$	(458,739	)
Comprehensive income (loss)														$	108,798		$	(152,567	)

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	1

Table of Contents


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, 2020			January 31, 2019			April 30, 2019			July 31, 2020			July 31, 2019			April 30, 2020

ASSETS
Cash and cash equivalents	$	192,340		$	203,226		$	1,572,150		$	2,598,570		$	607,668		$	2,661,914
Cash and cash equivalents - restricted	169,447			101,903			135,577			208,015			157,786			211,106
Receivables, less allowance for doubtful accounts of $45,254, $44,033 and $67,228	819,946			758,217			138,965
Receivables, less allowance for credit losses of $67,636, $66,652 and $64,648										97,222			76,128			133,197
Prepaid expenses and other current assets	120,229			171,306			146,667			93,538			105,123			80,519
Total current assets	1,301,962			1,234,652			1,993,359			2,997,345			946,705			3,086,736
Property and equipment, at cost, less accumulated depreciation and amortization of $803,272, $800,834 and $745,761	197,569			220,505			212,092
Property and equipment, at cost, less accumulated depreciation and amortization of $817,280, $764,891 and $796,192										168,830			199,679			184,367
Operating lease right of use asset	463,777			—			—			492,195			486,147			494,788
Intangible assets, net	433,074			356,952			342,493			400,025			419,391			414,976
Goodwill	838,830			520,005			519,937			724,288			821,278			712,138
Deferred tax assets and income taxes receivable	134,901			141,366			141,979			153,274			142,416			151,195
Other noncurrent assets	82,317			95,326			90,085			61,479			94,384			67,847
Total assets	$	3,452,430		$	2,568,806		$	3,299,945		$	4,997,436		$	3,110,000		$	5,112,047
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	156,766		$	202,101		$	249,525		$	128,690		$	122,156		$	203,103
Accrued salaries, wages and payroll taxes	117,459			140,902			196,527			69,346			48,166			116,375
Accrued income taxes and reserves for uncertain tax positions	36,242			49,009			271,973			156,557			182,928			209,816
Current portion of long-term debt	649,022			—			—			—			—			649,384
Operating lease liabilities	187,890			—			—			209,556			186,355			195,537
Deferred revenue and other current liabilities	190,242			195,634			204,976			201,809			193,364			201,401
Total current liabilities	1,337,621			587,646			923,001			765,958			732,969			1,575,616
Long-term debt and line of credit borrowings	1,880,589			1,876,989			1,492,629			3,495,918			1,493,289			2,845,873
Deferred tax liabilities and reserves for uncertain tax positions	172,954			214,217			197,906			185,687			199,714			182,441
Operating lease liabilities	289,299			—			—			297,518			292,818			312,566
Deferred revenue and other noncurrent liabilities	90,346			103,545			144,882			117,078			100,406			124,510
Total liabilities	3,770,809			2,782,397			2,758,418			4,862,159			2,819,196			5,041,006
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 228,206,684, 241,501,278 and 238,336,760	2,282			2,415			2,383
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 228,206,684, 236,744,360 and 228,206,684										2,282			2,367			2,282
Additional paid-in capital	769,990			764,982			767,636			772,782			759,449			775,387
Accumulated other comprehensive loss	(25,391		)	(17,642		)	(20,416		)	(34,037		)	(22,736		)	(51,576		)
Retained earnings (deficit)	(367,218		)	(254,277		)	499,386
Less treasury shares, at cost, of 35,732,666, 36,460,305 and 36,377,441	(698,042		)	(709,069		)	(707,462		)
Total stockholders' equity (deficiency)	(318,379		)	(213,591		)	541,527
Retained earnings										82,933			250,740			42,965
Less treasury shares, at cost, of 35,308,213, 35,785,391 and 35,731,376										(688,683		)	(699,016		)	(698,017		)
Total stockholders' equity										135,277			290,804			71,041
Total liabilities and stockholders' equity	$	3,452,430		$	2,568,806		$	3,299,945		$	4,997,436		$	3,110,000		$	5,112,047

See accompanying notes to consolidated financial statements.



2	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

Table of Contents


CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)						(unaudited, in 000s)
Nine months ended January 31,	2020			2019
Three months ended July 31,							2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(467,929	)	$	(455,400	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	91,259		$	(150,247	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	125,409			126,013			39,508			38,605
Provision for bad debt	37,517			35,009
Provision							2,809			552
Deferred taxes	10,795			20,557			(1,368		)	6,825
Stock-based compensation	22,699			18,009			7,597			6,674
Changes in assets and liabilities, net of acquisitions:
Receivables	(684,323		)	(641,157		)	26,052			60,519
Prepaid expenses, other current and noncurrent assets	(1,990		)	(56,160		)	(8,460		)	(9,917		)
Accounts payable, accrued expenses, salaries, wages and payroll taxes	(166,204		)	(47,975		)	(123,011		)	(284,643		)
Deferred revenue, other current and noncurrent liabilities	(55,064		)	(66,804		)	(7,136		)	(45,769		)
Income tax receivables, accrued income taxes and income tax reserves	(282,488		)	(277,240		)	(46,964		)	(99,929		)
Other, net	(6,213		)	(2,308		)	(786		)	(6,499		)
Net cash used in operating activities	(1,467,791		)	(1,347,456		)	(20,500		)	(483,829		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(66,510		)	(79,982		)	(8,311		)	(15,181		)
Payments made for business acquisitions, net of cash acquired	(450,282		)	(42,428		)	(13		)	(394,411		)
Franchise loans funded	(32,890		)	(16,875		)	(128		)	(2,806		)
Payments from franchisees	14,604			15,149			14,150			2,647
Other, net	45,376			4,877			(1,318		)	50,944
Net cash used in investing activities	(489,702		)	(119,259		)
Net cash provided by (used in) investing activities							4,380			(358,807		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(285,000		)	(230,000		)
Proceeds from line of credit borrowings	1,320,000			615,000
Dividends paid	(154,827		)	(154,866		)	(50,044		)	(52,512		)
Repurchase of common stock, including shares surrendered	(256,199		)	(102,152		)	(2,913		)	(36,456		)
Proceeds from exercise of stock options	2,074			2,527			1,147			1,206
Other, net	(14,136		)	(20,126		)	(4,910		)	(12,431		)
Net cash provided by financing activities	611,912			110,383
Net cash used in financing activities							(56,720		)	(100,193		)

Effects of exchange rate changes on cash	(359		)	(2,217		)	6,405			556

Net decrease in cash and cash equivalents, including restricted balances	(1,345,940		)	(1,358,549		)	(66,435		)	(942,273		)
Cash, cash equivalents and restricted cash, beginning of period	1,707,727			1,663,678			2,873,020			1,707,727
Cash, cash equivalents and restricted cash, end of period	$	361,787		$	305,129		$	2,806,585		$	765,454

SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	84,872		$	103,789		$	79,138		$	36,138
Interest paid on borrowings	65,972			55,581			26,457			15,519
Accrued purchase of common stock							0			16,801
Accrued additions to property and equipment	1,662			2,241			1,716			127
Accrued purchase of common stock	—			12,301
New operating right of use assets and related lease liabilities							52,171			157,216

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	3

Table of Contents


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY	CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY														(amounts in 000s, except per share amounts)													CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY											(amounts in 000s, except per share amounts)
		Common Stock					Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings (Deficit)				Treasury Stock						Total Stockholders’ Equity (Deficiency)				Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock					Total Stockholders’ Equity
		Shares		Amount						Shares	Accumulated Other Comprehensive Income (Loss)				Retained Earnings (Deficit)				Amount				Shares		Total Stockholders’ Equity (Deficiency)				Amount			Additional Paid-in Capital			Shares	Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Amount					Total Stockholders’ Equity
Balances as of May 1, 2019		238,337		$	2,383		Additional Paid-in Capital			$	767,636			$	(20,416	)		$	499,386		(36,377	)		$	(707,462	)		$	541,527
Net loss		—		—			—				—				(150,247		)		—		—				(150,247		)
Other comprehensive loss		—		—			—				(2,320		)		—				—		—				(2,320		)
Stock-based compensation		—		—			6,557				—				—				—		—				6,557
Stock-based awards exercised or vested		—		—			(13,789		)		—				(2,786		)		906		17,631				1,056
Acquisition of treasury shares		—		—			—				—				—				(314	)	(9,185		)		(9,185		)
Repurchase and retirement of common shares		(1,593	)	(16		)	(955		)		—				(43,101		)		—		—				(44,072		)
Cash dividends declared - $0.26 per share		—		—			—				—				(52,512		)		—		—				(52,512		)
Balances as of July 31, 2019		236,744		$	2,367		$	759,449			$	(22,736	)		$	250,740			(35,785	)	$	(699,016	)		$	290,804
Net loss		—		—			—				—				(187,999		)		—		—				(187,999		)
Balances as of May 1, 2020																													228,207	$	2,282	$	775,387			$	(51,576	)	$	42,965		(35,731	)	$	(698,017	)	$	71,041
Net income																													—	—		—				—			91,259			—		—			91,259
Other comprehensive income		—		—			—				919				—				—		—				919				—	—		—				17,539			—			—		—			17,539
Stock-based compensation		—		—			9,331				—				—				—		—				9,331				—	—		7,422				—			—			—		—			7,422
Stock-based awards exercised or vested		—		—			(127		)		—				(276		)		13		264				(139		)		—	—		(10,027		)		—			(1,247		)	627		12,247			973
Acquisition of treasury shares		—		—			—				—				—				(6	)	(173		)		(173		)		—	—		—				—			—			(204	)	(2,913		)	(2,913		)
Repurchase and retirement of common shares		(5,720	)	(57		)	(3,433		)		—				(133,449		)		—		—				(136,939		)
Cash dividends declared - $0.26 per share		—		—			—				—				(51,551		)		—		—				(51,551		)		—	—		—				—			(50,044		)	—		—			(50,044		)
Balances as of October 31, 2019		231,024		$	2,310		$	765,220			$	(21,817	)		$	(122,535	)		(35,778	)	$	(698,925	)		$	(75,747	)
Net loss		—		—			—				—				(129,683		)		—		—				(129,683		)
Other comprehensive loss		—		—			—				(3,574		)		—				—		—				(3,574		)
Stock-based compensation		—		—			6,529				—				—				—		—				6,529
Stock-based awards exercised or vested		—		—			(69		)		—				(180		)		47		939				690
Acquisition of treasury shares		—		—			—				—				—				(2	)	(56		)		(56		)
Repurchase and retirement of common shares		(2,817	)	(28		)	(1,690		)		—				(64,056		)		—		—				(65,774		)
Cash dividends declared - $0.26 per share		—		—			—				—				(50,764		)		—		—				(50,764		)
Balances as of January 31, 2020		228,207		$	2,282		$	769,990			$	(25,391	)		$	(367,218	)		(35,733	)	$	(698,042	)		$	(318,379	)
Balances as of July 31, 2020																													228,207	$	2,282	$	772,782			$	(34,037	)	$	82,933		(35,308	)	$	(688,683	)	$	135,277



	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock					Total Stockholders’ Equity
	Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Shares		Amount			Total Stockholders’ Equity
Balances as of May 1, 2019	238,337		$	2,383		$	767,636		$	(20,416	)	$	499,386		(36,377	)	$	(707,462	)	$	541,527
Net loss	—		—			—			—			(150,247		)	—		—			(150,247		)
Other comprehensive loss	—		—			—			(2,320		)	—			—		—			(2,320		)
Stock-based compensation	—		—			6,557			—			—			—		—			6,557
Stock-based awards exercised or vested	—		—			(13,789		)	—			(2,786		)	906		17,631			1,056
Acquisition of treasury shares	—		—			—			—			—			(314	)	(9,185		)	(9,185		)
Repurchase and retirement of common shares	(1,593	)	(16		)	(955		)	—			(43,101		)	—		—			(44,072		)
Cash dividends declared - $0.26 per share	—		—			—			—			(52,512		)	—		—			(52,512		)
Balances as of July 31, 2019	236,744		$	2,367		$	759,449		$	(22,736	)	$	250,740		(35,785	)	$	(699,016	)	$	290,804

See accompanying notes to consolidated financial statements.



4	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

~~Table of Contents~~

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except per share amounts)
Common Stock Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings (Deficit)
Treasury Stock Total
Stockholders’
Equity (Deficiency)
Shares
Amount
Shares
Amount

Balances as of May 1, 2018 246,199
$ 2,462
$ 760,250
$ (14,303 ) $ 362,980
(36,945 ) $ (717,678 ) $ 393,711
Net loss —
—
—
—
(152,670 ) —
—
(152,670 )
Cumulative effect of ASU 2016-16 ⁽¹⁾
—
—
—
—
100,950
—
—
100,950
Other comprehensive loss —
—
—
(1,731 ) —
—
—
(1,731 )
Stock-based compensation —
—
4,307
—
—
—
—
4,307
Stock-based awards exercised or vested —
—
(9,945 ) —
(1,029 ) 627
12,185
1,211
Acquisition of treasury shares —
—
—
—
—
(200 ) (4,560 ) (4,560 )
Repurchase and retirement of common shares (4,173 ) (42 ) (2,503 ) —
(94,560 ) —
—
(97,105 )
Cash dividends declared - $0.25 per share —
—
—
—
(52,104 ) —
—
(52,104 )
Balances as of July 31, 2018 242,026
$ 2,420
$ 752,109
$ (16,034 ) $ 163,567
(36,518 ) $ (710,053 ) $ 192,009
Net loss —
—
—
—
(176,276 ) —
—
(176,276 )
Other comprehensive loss —
—
—
(2,846 ) —
—
—
(2,846 )
Stock-based compensation —
—
7,352
—
—
—
—
7,352
Stock-based awards exercised or vested —
—
(226 ) —
(202 ) 35
675
247
Acquisition of treasury shares —
—
—
—
—
(16 ) (431 ) (431 )
Cash dividends declared - $0.25 per share —
—
—
—
(51,380 ) —
—
(51,380 )
Balances as of October 31, 2018 242,026
$ 2,420
$ 759,235
$ (18,880 ) $ (64,291 ) (36,499 ) $ (709,809 ) $ (31,325 )
Net loss —
—
—
—
(126,454 ) —
—
(126,454 )
Other comprehensive income —
—
—
1,238
—
—
—
1,238
Stock-based compensation —
—
6,067
—
—
—
—
6,067
Stock-based awards exercised or vested —
—
(5 ) —
(169 ) 41
796
622
Acquisition of treasury shares —
—
—
—
—
(2 ) (56 ) (56 )
Repurchase and retirement of common shares (525 ) (5 ) (315 ) —
(11,981 ) —
—
(12,301 )
Cash dividends declared - $0.25 per share —
—
—
—
(51,382 ) —
—
(51,382 )
Balances as of January 31, 2019 241,501
$ 2,415
$ 764,982
$ (17,642 ) $ (254,277 ) (36,460 ) $ (709,069 ) $ (213,591 )
Net income —
—
—
—
877,909
—
—
877,909
Other comprehensive loss —
—
—
(2,774 ) —
—
—
(2,774 )
Stock-based compensation —
—
5,784
—
—
—
—
5,784
Stock-based awards exercised or vested —
—
(1,231 ) —
(150 ) 84
1,634
253
Acquisition of treasury shares —
—
—
—
—
(1 ) (27 ) (27 )
Repurchase and retirement of common shares (3,164 ) (32 ) (1,899 ) —
(73,501 ) —
—
(75,432 )
Cash dividends declared - $0.25 per share —
—
—
—
(50,595 ) —
—
(50,595 )
Balances as of April 30, 2019 238,337
$ 2,383
$ 767,636
$ (20,416 ) $ 499,386
(36,377 ) $ (707,462 ) $ 541,527


⁽¹⁾	ASU 2016-16 was effective on May 1, 2018 and we adopted using the modified retrospective transition method. We recognized a $101.0 million cumulative effect adjustment to increase the opening balance of retained earnings and increase deferred tax assets resulting from intra-entity transfers of intellectual property in fiscal year 2018.



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	5

Table of Contents

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, 2020 and 2019, the consolidated statements of operations and comprehensive ~~loss~~income (loss) for the three ~~and nine~~ months ended ~~January~~July 31, 2020 and 2019, the consolidated statements of cash flows for the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, and the consolidated statements of stockholders' equity for the three ~~and nine~~ months ended ~~January~~July 31, 2020 and ~~the quarterly periods within the fiscal year ended April 30,~~ 2019 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, 2020 and 2019 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 United States (GAAP) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, ~~2019~~2020 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, ~~2019~~2020 or for the year then ended are derived from our Annual Report 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, reserves for uncertain tax positions, fair value of reporting units, 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~~Because the majority of our clients file their tax returns during the period from February through April in a typical year, a substantial majority of our revenues from income tax return preparation and related services and products are ~~seasonal in nature with peak revenues typically occurring~~earned during this period. As a result, we generally operate at a loss through the first three quarters of our fiscal year. As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the ~~months~~United States (U.S.) for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020. Substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. These extensions have impacted the typical seasonality of ~~February through April. Therefore, results~~our business and the comparability of our financial results. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first quarter of fiscal year 2021. Results for interim periods are not indicative of results to be expected for the full fiscal 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 9 and 11~~note 10 for additional information on litigation, claims, and other loss contingencies related to our discontinued operations.

~~WAVE ACQUISITION~~ –On June 28, 2019, we acquired Wave HQ Inc. (formerly known as Wave Financial Inc.) and its subsidiaries (collectively, Wave) and during the quarter ended October 31, 2019 we finalized the post-closing working capital adjustment and made an additional payment of $1.4 million, resulting in a total payment of $408.4 million. The acquisition was funded with available cash. Wave is a provider of software solutions and related services specifically designed to help small business owners manage their finances. Major revenue sources include fees earned by providing payment processing, payroll services, and bookkeeping services. We believe the acquisition of Wave enhances our position in the small business market.

Included in the transaction price is $8.2 million which will be treated as compensation expense over the next two years as certain key employees are required to remain employees to receive payment. Additionally, key employees are participating in a management incentive program consisting of cash performance incentives and stock-based compensation which will be earned over the next three years and is not considered part of the purchase price.

~~As of January 31, 2020 we have completed the purchase price allocation related to the acquisition.~~



6	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

~~The assets acquired, net of liabilities assumed on the acquisition date, and the identified intangible assets and goodwill, are as follows:~~

($ in 000s)
Amount Acquired
Weighted-Average Life (in years)
Assets acquired and liabilities assumed, net $ 3,928

Deferred tax liability (8,126 )
Purchased technology 68,000
10
Customer relationships 23,000
5
Noncompete agreements 7,070
5
Trade name 5,800
10
Total identifiable net assets 99,672

Goodwill 300,560

Total identifiable assets and goodwill $ 400,232

~~The acquired identifiable assets and goodwill are only tax deductible for Global Intangible Low-Taxed Income (GILTI) purposes.~~

Revenues of $25.7 million and pretax losses of $36.3 million were recognized by Wave from the period of June 28, 2019 through January 31, 2020, which are included in our consolidated statement of operations for the nine months ended January 31, 2020. Had we acquired Wave as of May 1, 2018, we would have reported, on a pro-forma basis, consolidated revenues of $836.9 million and $784.9 million for the nine months ended January 31, 2020 and 2019, respectively, and consolidated pretax losses from continuing operations of $655.5 million and $623.9 million, respectively. Pro-forma adjustments primarily include amortization of intangible assets and certain compensation expenses.

NEW ACCOUNTING PRONOUNCEMENTS –

~~Leases.~~ In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” (ASU 2016-02), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for leases previously classified as operating leases. We adopted this guidance and related amendments as of May 1, 2019 using the alternative transition method, which allows companies the option of using the effective date of the new standard as the initial application date (at the beginning of the period in which it adopted, rather than at the beginning of the earliest comparative period).

We have recognized operating lease right-of-use (ROU) assets and operating lease liabilities on our balance sheet as part of adopting the standard and pre-existing liabilities for deferred rent, and various lease incentives were reclassified as a component of the lease assets. We elected the package of practical expedients which allows us to not reassess historical lease classification, initial direct costs or contracts related to leases. For leases with an initial term of twelve months or less we have elected to only recognize retail office leases on our balance sheet. We elected the practical expedient to account for lease and non-lease components (such as common area maintenance, utilities, insurance and taxes) as a single lease component for all classes of underlying assets. We also elected the practical expedient to not reassess whether land easement contracts meet the definition of a lease. We did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.

~~The adoption of the new standard did not materially affect our consolidated statement of operations or cash flows. See note 10, Leases, for additional information.~~

Current Expected Credit Losses. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), "Measurement of Credit Losses on Financial Instruments," which replaces the existing incurred credit loss model for an expected credit loss model. ~~This guidance will be effective for us on~~We adopted ASU 2016-13 as of May 1, 2020, ~~with early adoption permitted. We are currently evaluating the~~which did not have a material impact ~~of ASU 2016-13~~ on our consolidated financial statements.



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	75

Table of Contents

NOTE 2: REVENUE RECOGNITION

The majority of our revenues are from our U.S. Tax Services business. The following table disaggregates our U.S. Tax Services revenues by major service line, with revenues from our international ~~Tax Services~~tax services businesses and from Wave included as separate lines:


							(in 000s)				(in 000s)
	Three months ended January 31,				Nine months ended January 31,				Three months ended July 31,
	2020		2019		2020		2019		2020		2019
Revenues:
U.S. assisted tax preparation	$	283,956	$	256,813	$	358,174	$	329,569	$	337,728	$	32,992
U.S. royalties	44,965		42,265		59,644		57,898		35,949		6,859
U.S. DIY tax preparation	34,089		31,996		42,040		37,771		67,595		3,410
International	11,804		12,304		97,311		96,980		67,818		40,581
Refund Transfers	50,494		47,482		52,794		49,466		10,553		1,509
Emerald Card®	16,657		14,980		39,128		38,704		17,055		13,855
Peace of Mind® Extended Service Plan	16,954		16,596		75,451		77,491		31,995		32,837
Tax Identity Shield®	8,138		7,655		17,308		17,639		9,367		4,522
Interest and fee income on Emerald Advance^TM	32,741		30,924		33,780		31,768		663		554
Wave	11,213		—		25,740		—		12,067		3,625
Other	8,194		7,369		28,998		25,152		10,240		9,618
Total revenues	$	519,205	$	468,384	$	830,368	$	762,438	$	601,030	$	150,362

Wave revenues primarily consist of fees received to process payment transactions and are generally calculated as a percentage of the transaction amounts processed. Revenues are recognized upon authorization of the transaction.

Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows:


										(in 000s)												(in 000s)
POM	Deferred Revenue						Deferred Wages						Deferred Revenue						Deferred Wages
Nine months ended January 31,	2020			2019			2020			2019
Three months ended July 31,													2020			2019			2020			2019
Balance, beginning of the period	$	212,511		$	218,274		$	27,306		$	32,683		$	183,685		$	212,511		$	21,618		$	27,306
Amounts deferred	28,686			27,711			1,827			1,773			18,217			1,723			128			23
Amounts recognized on previous deferrals	(87,850		)	(90,439		)	(12,134		)	(13,569		)	(37,205		)	(38,212		)	(4,348		)	(5,324		)
Balance, end of the period	$	153,347		$	155,546		$	16,999		$	20,887		$	164,697		$	176,022		$	17,398		$	22,005

As of ~~January~~July 31, 2020, deferred revenue related to POM was ~~$153.3~~$164.7 million. We expect that ~~$104.4~~$102.4 million will be recognized over the next twelve months, while the remaining balance will be recognized over the following sixty months.

As of ~~January~~July 31, 2020 and 2019, Tax Identity Shield® (TIS) deferred revenue was ~~$21.2~~$24.8 million and ~~$21.3~~$25.4 million, respectively. Deferred revenue related to TIS was ~~$29.7~~$30.8 million and ~~$36.4~~$29.7 million at April 30, ~~2019~~2020 and ~~2018,~~2019, respectively. All deferred revenue related to TIS will be recognized within the next ~~fifteen~~nine months.

NOTE 3: ~~LOSS~~EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS' EQUITY

~~LOSS~~EARNINGS (LOSS) PER SHARE – Basic and diluted ~~loss~~earnings (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 or loss 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 1.3 million shares for the three months ended July 31, 2020 as the effect would be antidilutive, and 3.7 million shares for the three ~~and nine~~ months ended ~~January~~July 31, ~~2020, and~~ ~~3.4 million~~ ~~shares~~2019, as the effect would be antidilutive due to the net loss from continuing operations during the period.



86	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

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~~for the three and nine months ended January 31, 2019, as the effect would be antidilutive due to the net loss from continuing operations during those periods.~~

The computations of basic and diluted ~~loss~~earnings (loss) 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,
		2020			2019			2020			2019				2020			2019
Net loss from continuing operations attributable to shareholders		$	(128,026	)	$	(119,779	)	$	(457,304	)	$	(439,513	)
Net earnings (loss) from continuing operations attributable to shareholders															$	93,556		$	(145,724	)
Amounts allocated to participating securities		(169		)	(160		)	(468		)	(446		)		(327		)	(149		)
Net loss from continuing operations attributable to common shareholders		$	(128,195	)	$	(119,939	)	$	(457,772	)	$	(439,959	)
Net earnings (loss) from continuing operations attributable to common shareholders															$	93,229		$	(145,873	)

Basic weighted average common shares		194,077			205,532			198,064			206,242				192,598			202,037
Potential dilutive shares		—			—			—			—				1,469			0
Dilutive weighted average common shares		194,077			205,532			198,064			206,242				194,067			202,037

Loss per share from continuing operations attributable to common shareholders:
Earnings (loss) per share from continuing operations attributable to common shareholders:														Earnings (loss) per share from continuing operations attributable to common shareholders:
Basic		$	(0.66	)	$	(0.58	)	$	(2.31	)	$	(2.13	)		$	0.48		$	(0.72	)
Diluted		(0.66		)	(0.58		)	(2.31		)	(2.13		)		0.48			(0.72		)

The weighted average shares outstanding for the three ~~and nine~~ months ended ~~January~~July 31, 2020 decreased to ~~194.1~~192.6 million ~~and 198.1~~from 202.0 million ~~respectively, from 205.5 million and 206.2 million, respectively,~~ for the three ~~and nine~~ months ended ~~January~~July 31, 2019. The decrease is due to share repurchases completed in the ~~current and~~ prior ~~years.~~year.

STOCK-BASED COMPENSATION – During the ~~nine~~three months ended ~~January~~July 31, 2020, we ~~also~~ acquired ~~0.3~~0.2 million shares of our common stock at an aggregate cost of $~~9.4~~2.9 million, which 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, 2019, we acquired ~~0.2~~0.3 million shares at an aggregate cost of $~~5.0~~9.2 million for similar purposes.

During the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, we issued ~~1.0~~0.6 million and ~~0.7~~0.9 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, 2020, we granted ~~equity~~ awards equivalent to ~~1.5~~1.8 million shares under our stock-based compensation plans, consisting ~~primarily~~ of nonvested units. Stock-based compensation expense of our continuing operations totaled ~~$6.6 million and $22.7~~$7.6 million for the three ~~and nine~~ months ended ~~January~~July 31, 2020 ~~respectively~~ and ~~$6.2 million and $18.0~~$6.7 million for the three ~~and nine~~ months ended ~~January~~July 31, ~~2019, respectively.~~2019. As of ~~January~~July 31, 2020, unrecognized compensation cost ~~for stock options totaled~~ ~~$0.3 million, and~~ for nonvested shares and units totaled $~~40.6~~53.8 million.



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	97

Table of Contents

NOTE 4: RECEIVABLES

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


(in 000s)	(in 000s)													(in 000s)
As of		January 31, 2020				January 31, 2019				April 30, 2019					July 31, 2020				July 31, 2019				April 30, 2020
		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		$	36,372	$	42,079	$	28,941	$	41,669	$	22,427	$	35,325		$	10,981	$	31,360	$	12,301	$	45,542	$	25,397	$	31,329
Receivables for U.S. assisted and DIY tax preparation and related fees		316,987		3,716		281,266		5,503		34,284		3,716			34,586		3,112		19,686		3,716		47,030		3,112
H&R Block Instant Refund^TM receivables		6,733		563		5,822		247		37,319		1,701			1,129		1,596		880		1,780		15,031		1,325
H&R Block Emerald Advance^TM lines of credit		373,271		6,179		362,400		7,667		8,546		12,418
H&R Block Emerald Advance® lines of credit															9,372		10,478		8,136		10,249		10,001		14,081
Software receivables from retailers		8,101		—		8,396		—		9,354		—			2,004		0		1,395		0		7,341		0
Royalties and other receivables from franchisees		55,645		67		54,907		733		11,888		97			20,135		39		7,834		99		9,861		42
Wave payment processing receivables		3,363		—		—		—		—		—			2,324		0		3,041		0		3,200		0
Other		19,474		1,444		16,485		2,698		15,147		2,382			16,691		1,646		22,855		2,251		15,336		1,828
Total		$	819,946	$	54,048	$	758,217	$	58,517	$	138,965	$	55,639		$	97,222	$	48,231	$	76,128	$	63,637	$	133,197	$	51,717

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

LOANS TO FRANCHISEES – Franchisee loan balances consist of term loans made primarily to finance the purchase of franchises and ~~short–term loans and~~ revolving lines of credit ~~which are used to fund off–season~~primarily for the purpose of funding working capital needs. As of ~~January~~July 31, 2020 ~~and~~loans with a principal balance of $0.1 million were more than 90 days past due. As of July 31, 2019, loans with a principal balance of ~~$0.4~~$2.0 million ~~and $0.9 million, respectively,~~ were more than 90 days past due. We had no loans to franchisees on non-accrual status.

H&R BLOCK INSTANT REFUND^TM PROGRAM – H&R Block Instant Refund^TM ~~(formerly Instant Cash Back®)~~ amounts are generally received from the Canada Revenue Agency (CRA) within 60 days of filing the client's return, with the remaining balance collectible from the client.

We review the credit quality of our Instant Refund receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid. Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by year of origination, as of ~~January~~July 31, 2020 are as follows:


				(in 000s)					(in 000s)
Year of Origination	Current Balance			Non-Accrual		Balance			Non-Accrual

2020	$	6,321		$	—	$	4,737		$	366
2019 and prior	1,006			1,006		241			241
	7,327			$	1,006	4,978			$	607
Allowance	(31		)			(2,253		)
Net balance	$	7,296				$	2,725



108	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

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H&R BLOCK EMERALD ADVANCE^TM® LINES OF CREDIT – We review the credit quality of our purchased participation interests in Emerald Advance^TM (EA) receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid. Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, as of ~~January~~July 31, 2020, by year of origination, are as follows:


(in 000s)	(in 000s)						(in 000s)
Year of origination:		Balance			Non-Accrual			Balance			Non-Accrual
2020		$	370,879		$	—		$	29,176		$	29,176
2019 and prior		12,729			12,729			4,886			4,886
Revolving loans		23,966			12,628			14,962			13,729
		407,574			$	25,357		49,024			$	47,791
Allowance		(28,124		)				(29,174		)
Net balance		$	379,450					$	19,850

ALLOWANCE FOR ~~DOUBTFUL ACCOUNTS~~CREDIT LOSSES – Activity in the allowance for ~~doubtful accounts~~credit losses for our EA and all other short-term and long-term receivables for the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019 is as follows:


(in 000s)	(in 000s)										(in 000s)
		EAs			All Other			Total				EAs			All Other			Total
Balances as of April 30, 2020												$	32,034		$	50,446		$	82,480
Provision												(2,860		)	5,669			2,809
Charge-offs, recoveries and other												0			(2,214		)	(2,214		)
Balances as of July 31, 2020												$	29,174		$	53,901		$	83,075

Balances as of April 30, 2019		$	27,535		$	53,938		$	81,473			$	27,535		$	53,938		$	81,473
Provision		17,862			19,655			37,517				0			552			552
Charge-offs, recoveries and other		(17,273		)	(55,101		)	(72,374		)		0			(322		)	(322		)
Balances as of January 31, 2020		$	28,124		$	18,492		$	46,616
Balances as of July 31, 2019												$	27,535		$	54,168		$	81,703

Balances as of April 30, 2018		$	26,622		$	55,191		$	81,813
Provision		18,254			16,755			35,009
Charge-offs, recoveries and other		(16,359		)	(55,459		)	(71,818		)
Balances as of January 31, 2019		$	28,517		$	16,487		$	45,004

NOTE 5: GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019 are as follows:


(in 000s)	(in 000s)										(in 000s)
		Goodwill			Accumulated Impairment Losses			Net				Goodwill			Accumulated Impairment Losses			Net
Balances as of April 30, 2019		$	552,234		$	(32,297	)	$	519,937
Acquisition of Wave		300,560			—			300,560
Other Acquisitions		23,421			—			23,421
Disposals and foreign currency changes, net		(5,088		)	—			(5,088		)
Impairments		—			—			—
Balances as of January 31, 2020		$	871,127		$	(32,297	)	$	838,830

Balances as of April 30, 2018		$	540,168		$	(32,297	)	$	507,871
Balances as of April 30, 2020												$	850,435		$	(138,297	)	$	712,138
Acquisitions		13,076			—			13,076				0			—			0
Disposals and foreign currency changes, net		(942		)	—			(942		)		12,150			—			12,150
Impairments		—			—			—				—			0			0
Balances as of January 31, 2019		$	552,302		$	(32,297	)	$	520,005
Balances as of July 31, 2020												$	862,585		$	(138,297	)	$	724,288

Balances as of April 30, 2019												$	552,234		$	(32,297	)	$	519,937
Acquisition of Wave ⁽¹⁾												303,359			—			303,359
Other acquisitions												1,083			—			1,083
Disposals and foreign currency changes, net												(3,101		)	—			(3,101		)
Impairments												—			0			0
Balances as of July 31, 2019												$	853,575		$	(32,297	)	$	821,278


⁽¹⁾	At July 31, 2019, the fair value of the acquired goodwill related to our acquisition of Wave was provisional pending the final purchase price allocation.

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



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	119

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Components of intangible assets 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, 2020:
As of July 31, 2020:
Reacquired franchise rights										$	365,506	$	(165,721	)	$	199,785
Customer relationships										314,920		(235,645		)	79,275
Internally-developed software										159,195		(115,976		)	43,219
Noncompete agreements										41,112		(34,193		)	6,919
Franchise agreements										19,201		(14,934		)	4,267
Purchased technology										122,700		(61,313		)	61,387
Trade name										5,800		(627		)	5,173
										$	1,028,434	$	(628,409	)	$	400,025
As of July 31, 2019:
Reacquired franchise rights		$	364,376	$	(153,392	)	$	210,984		$	350,679	$	(141,954	)	$	208,725
Customer relationships		313,521		(219,664		)	93,857			300,156		(203,283		)	96,873
Internally-developed software		154,962		(116,383		)	38,579			144,768		(111,892		)	32,876
Noncompete agreements		41,386		(33,151		)	8,235			40,358		(31,980		)	8,378
Franchise agreements		19,201		(14,294		)	4,907			19,201		(13,654		)	5,547
Purchased technology		122,801		(53,525		)	69,276			104,700		(45,166		)	59,534
Trade name		5,800		(338		)	5,462			5,800		(48		)	5,752
Acquired assets pending final allocation ⁽¹⁾		1,774		—			1,774			1,706		0			1,706
		$	1,023,821	$	(590,747	)	$	433,074		$	967,368	$	(547,977	)	$	419,391
As of January 31, 2019:
As of April 30, 2020:
Reacquired franchise rights		$	350,459	$	(130,618	)	$	219,841		$	365,062	$	(159,754	)	$	205,308
Customer relationships		274,293		(187,080		)	87,213			314,191		(227,445		)	86,746
Internally-developed software		147,465		(119,664		)	27,801			154,083		(113,698		)	40,385
Noncompete agreements		33,369		(31,040		)	2,329			41,072		(33,639		)	7,433
Franchise agreements		19,201		(13,014		)	6,187			19,201		(14,614		)	4,587
Purchased technology		54,700		(42,082		)	12,618			122,700		(57,548		)	65,152
Acquired assets pending final allocation ⁽¹⁾		963		—			963
		$	880,450	$	(523,498	)	$	356,952
As of April 30, 2019:
Reacquired franchise rights		$	350,410	$	(136,345	)	$	214,065
Customer relationships		274,838		(195,174		)	79,664
Internally-developed software		139,239		(109,885		)	29,354
Noncompete agreements		33,376		(31,446		)	1,930
Franchise agreements		19,201		(13,334		)	5,867
Purchased technology		54,700		(43,518		)	11,182
Trade name										5,800		(483		)	5,317
Acquired assets pending final allocation ⁽¹⁾		431		—			431			48		0			48
		$	872,195	$	(529,702	)	$	342,493		$	1,022,157	$	(607,181	)	$	414,976

⁽¹⁾ Represents franchisee and competitor business acquisitions for which final purchase price allocations have not yet been determined.

We made payments to acquire ~~franchisee and competitor tax~~ businesses totaling ~~$53.7 million~~$13 thousand and ~~$42.4~~$394.4 million during the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, respectively. ~~From the current period acquisitions, we have acquired approximately 224 U.S. franchisee and competitor tax offices.~~ The ~~amounts and weighted-average lives of intangible assets acquired during the~~ ~~nine~~three months ended ~~January~~July 31, ~~2020, including amounts capitalized~~2019 included the acquisition of Wave HQ Inc. (formerly known as Wave Financial Inc.) and ~~placed in service related to internally-developed software, are as follows:~~its subsidiaries (collectively, "Wave").

(dollars in 000s)
Amount
Weighted-Average Life (in years)
Reacquired franchise rights $ 13,940
5
Customer relationships 18,079
5
Internally-developed software 12,659
3
Noncompete agreements 642
5
Total $ 45,320
4

Amortization of intangible assets for the three ~~and nine~~ months ended ~~January~~July 31, 2020 was ~~$21.5~~$20.9 million ~~and $61.3~~compared to $18.2 million ~~respectively. Amortization~~for the three months ended July 31, 2019. Estimated amortization of intangible assets for ~~the three~~fiscal years 2021, 2022, 2023, 2024 and ~~nine months ended January 31, 2019~~2025 is $76.1 million, $59.8 million, $41.9 million, $31.0 million and $17.9 million, respectively.



1210	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

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was $18.7 million and $54.5 million, respectively. Estimated amortization of intangible assets for fiscal years 2020, 2021, 2022, 2023 and 2024 is $83.0 million, $75.0 million, $58.9 million, $41.3 million and $30.8 million, respectively.

NOTE 6: LONG-TERM DEBT

The components of long-term debt are as follows:


							(in 000s)									(in 000s)
As of	January 31, 2020			January 31, 2019			April 30, 2019			July 31, 2020			July 31, 2019			April 30, 2020
Senior Notes, 4.125%, due October 2020	$	650,000		$	650,000		$	650,000		$	650,000		$	650,000		$	650,000
Senior Notes, 5.500%, due November 2022	500,000			500,000			500,000			500,000			500,000			500,000
Senior Notes, 5.250%, due October 2025	350,000			350,000			350,000			350,000			350,000			350,000
Committed line of credit borrowings	1,035,000			385,000			—			2,000,000			0			2,000,000
Debt issuance costs and discounts	(5,389		)	(8,011		)	(7,371		)	(4,082		)	(6,711		)	(4,743		)
	2,529,611			1,876,989			1,492,629			3,495,918			1,493,289			3,495,257
Less: Current portion	(649,022		)	—			—			0			0			(649,384		)
	$	1,880,589		$	1,876,989		$	1,492,629		$	3,495,918		$	1,493,289		$	2,845,873

UNSECURED COMMITTED LINE OF CREDIT – Our unsecured committed line of credit (CLOC) provides for an unsecured senior revolving credit facility in the aggregate principal amount of $2.0 billion, which includes a $200.0 million sublimit for swingline loans and a $50.0 million sublimit for standby letters of credit. We may request increases in the aggregate principal amount of the revolving credit facility of up to $500.0 million, subject to obtaining commitments from lenders and meeting certain other conditions. The CLOC will mature on September 21, 2023, unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due and payable. Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.

The CLOC is subject to various conditions, triggers, events or occurrences that could result in earlier termination and contains customary representations, warranties, covenants and events of default, including, without limitation: (1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio calculated on a consolidated basis of no greater than (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on April 30, July 31, and October 31 of each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on January 31 of each year; (2) a covenant requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) calculated on a consolidated basis of not less than 2.50 to 1.00 as of the last date of any fiscal quarter; and (3) covenants restricting our ability to incur certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive agreements. The CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with these requirements as of ~~January~~July 31, 2020.

In order to strengthen our liquidity and ensure maximum flexibility, during the fourth quarter of fiscal year 2020, we drew the full amount of our $2.0 billion CLOC. We had an$2.0 billion outstanding ~~balance of $1.0 billion under the~~on our CLOC as of ~~January~~July 31, 2020, ~~and amounts available~~which we expect to ~~borrow were limited by the debt-to-EBITDA covenant to approximately $751 million as of January 31,~~repay in full in September 2020.

Our Senior Notes due in October 2020 are classified as a current liability as of January 31, 2020 because such amounts are due within one year. We are considering various financing options in regard to the maturing Senior Notes. The estimated fair value of our long-term debt, including the current portion of long-term debt, as of ~~January~~July 31, 2020 and 2019 and April 30, ~~2019~~2020 totaled ~~$2.6~~$3.6 billion, ~~$1.9~~$1.6 billion and ~~$1.6~~$3.5 billion, respectively.

On August 7, 2020, we issued $650.0 million of 3.875% Senior Notes due August 15, 2030 (2030 Senior Notes). The 2030 Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. As of April 30, 2020, our $650.0 million notes due in October 2020 (October 2020 Senior Notes) were classified as a current liability. As we intend to use the net proceeds from the 2030 Senior Notes to repay our October 2020 Senior Notes, our October 2020 Senior Notes have been reclassified to long-term as of July 31, 2020.

NOTE 7: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. Our U.S. federal income tax returns for 2017 and ~~2018~~later years remain open for examination. Our U.S. federal income tax returns for 2016 and all prior periods are closed. With respect to state and local jurisdictions



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	13

~~Table of Contents~~

and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	11

Table of Contents

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

A discrete income tax expense of $0.6 million was recorded in the three months ended July 31, 2020 compared to a discrete tax benefit of $8.3 million in the same period of the prior year. The discrete tax expense recorded in the current period primarily resulted from interest recorded on existing uncertain tax benefits. The discrete tax benefit recorded in the prior year resulted primarily from favorable audit settlements and valuation allowance changes related to utilization of foreign losses.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 24.6% and 29.6% for the three months ended July 31, 2020 and 2019, respectively. Discrete items increased the effective tax rate for the three months ended July 31, 2020 and 2019 by 0.5% and 4.0%, respectively. The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate through our first quarter to be significantly different than the rate for our full fiscal year.

We had gross unrecognized tax benefits of ~~$148.7~~$171.6 million, ~~$178.1~~$179.2 million and ~~$185.1~~$168.1 million as of ~~January~~July 31, 2020 and 2019 and April 30, ~~2019,~~2020, respectively. The gross unrecognized tax benefits ~~decreased $36.4~~increased $3.5 million and ~~$8.0~~decreased$5.9 million during the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, respectively. The decrease in unrecognized tax benefits during the nine months ending January 31, 2020 is primarily related to federal and state statute of limitation periods expiring in the fiscal year and favorable audit settlements. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately ~~$14.9~~$12.1 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various ~~state~~tax matters currently under exam. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

Consistent with prior years, our pretax loss for the nine months ended January 31, 2020 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 within our fiscal year. The amount of tax benefit recorded for the nine months ended January 31, 2020 reflects management’s estimate of the annual effective tax rate applied to the year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.

A discrete income tax benefit of $27.7 million was recorded in the nine months ended January 31, 2020 compared to a discrete tax benefit of $8.9 million in the same period of the prior year. The discrete tax benefit recorded in the current period primarily resulted from the settlement of various matters, including expiration of statute of limitations and resolution with tax authorities, and valuation allowance changes related to utilization of foreign losses. The discrete tax benefit recorded in the prior year resulted primarily from favorable audit settlements.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 29.2% and 25.4% for the nine months ended January 31, 2020 and 2019, respectively. Discrete items increased the effective tax rate for the nine months ended January 31, 2020 and 2019 by 4.3% and 1.5%, 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. The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate through our third quarter to be significantly different than the rate for our full fiscal year.

NOTE 8: OTHER INCOME AND OTHER EXPENSES

The following table shows the components of other income (expense), net:


(in 000s)	(in 000s)													(in 000s)
		Three months ended January 31,						Nine months ended January 31,							Three months ended July 31,
		2020			2019			2020			2019				2020		2019
Interest income		$	2,397		$	2,258		$	12,648		$	11,260			$	1,159	$	8,026
Foreign currency gains (losses), net		(139		)	33			(25		)	(94		)		392		9
Other, net		(379		)	(22		)	1,118			109				1,660		1,088
		$	1,879		$	2,269		$	13,741		$	11,275			$	3,211	$	9,123



14	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

NOTE 9: COMMITMENTS AND CONTINGENCIES

Assisted tax returns, as well as services provided under Tax Pro Go^SMand Tax Pro ~~Review~~^SMReview®,are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a return. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the IRS that a client would otherwise not have been required to pay. Our liability related to estimated losses under the 100% accuracy guarantee was ~~$7.0~~$10.1 million, ~~$7.0~~$8.8 million and ~~$9.9~~$9.4 million as of ~~January~~July 31, 2020 and 2019 and April 30, ~~2019~~2020, respectively. The short-term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated balance sheets.

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were ~~$11.4~~$13.3 million, ~~$11.3~~$9.6 million and ~~$11.1~~$14.2 million as of ~~January~~July 31, 2020 and 2019 and April 30, ~~2019,~~2020, respectively, with amounts recorded in deferred revenue and other liabilities. Should actual results differ from our estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.

We have contractual commitments to fund certain franchises with approved ~~short-term loans and~~ revolving lines of credit. Our total obligation under these lines of credit was ~~$40.0~~$41.1 million at ~~January~~July 31, 2020, and net of amounts drawn and outstanding, our remaining commitment to fund totaled ~~$14.2~~$38.6 million.



12	Q1 FY2021 Form 10-Q \| H&R Block, Inc.

~~Emerald Advance~~^TM ~~lines~~Table of credit (EAs) are originated by Axos Bank, a federal savings Bank (Axos). We purchase a 90% participation interest, at par, in all EAs originated by Axos in accordance with our participation agreement. At January 31, 2020, the principal balance of purchased participation interests for the current year totaled $367.8 million.Contents

On October 8, 2019, we entered into a Refund Advance Program Agreement and certain ancillary agreements with Axos, pursuant to which they originate and fund Refund Advance loans, and provide technology, software, and underwriting support services related to such loans during the 2020 tax season. Refund Advance loans are offered to certain assisted U.S. tax preparation clients, based on client eligibility as determined by the loan originator. We pay loan origination fees based on loan size and customer type. The loan origination fees are intended to cover expected loan losses and payments to capital providers, among other items.

We have provided two limited guarantees related to ~~this agreement.~~our 2020 tax season Refund Advance Program Agreement. We have provided a limited guarantee up to $7.5 million related to loans to clients prior to the IRS accepting electronic filing. ~~At January 31, 2020, we~~We accrued an estimated liability of ~~$1.9~~$2.5 million at April 30, 2020 related to this guarantee. As of July 31, 2020, we have accrued $2.2 million related to this ~~guarantee, compared to $1.4 million at January 31, 2019.~~guarantee. Additionally, we provided a limited guarantee for the remaining loans, up to $57 million in the aggregate, which would cover certain incremental loan losses. We ~~were not required~~accrued an estimated liability of $2.9 million at April 30, 2020 related to ~~make a payment in connection with~~this guarantee. We have 0 amounts accrued related to this guarantee ~~for~~as of July 31, 2020 as collections exceeded our expectations during the ~~fiscal year 2019 tax season, and we do not expect that a material amount will be paid for this guarantee under anticipated loss scenarios related to the fiscal year 2020~~extended tax season.

~~LOSS CONTINGENCIES PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS~~ ~~– SCC ceased originating mortgage loans in December 2007~~

Both the U.S. and Canada implemented emergency economic relief programs as a way of minimizing the economic impact of the global COVID-19 pandemic. In the U.S., the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes, among other items, provisions relating to refundable payroll tax credits and deferment of certain tax payments through the end of calendar 2020. In Canada the COVID-19 Economic Response Plan includes the Canada Emergency Wage Subsidy (CEWS). For our U.S. businesses we have elected to defer the employer-paid portion of social security taxes and are evaluating the employee retention credit, and in April 2008, sold its servicing assets and discontinued its remaining operations. Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized such loans, orCanada we have received $14.6 million in wage subsidies during the form of residential mortgage-backed securities (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."

SCC accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable. SCC’s loss estimate is based on the best information currently available, management judgment, developments in relevant case law, and the terms of bulk settlements. In periods when a liability is accrued for such loss contingencies, the liability is included in deferred revenue and other current liabilities on the consolidated balance sheets. SCC had 0 liability accrued for these losses as of Januaryquarter ended July 31, 2020 ~~and 2019 or April 30, 2019.~~

~~See note 11,~~ which ~~addresses contingent losses that may be incurred with respect~~has been treated as a government subsidy to ~~various indemnification or contribution claims by underwriters, depositors, and securitization trustees in securitization transactions in which SCC participated.~~



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	15

~~Table of Contents~~

~~NOTE 10: LEASES~~

As discussed in note 1, we adopted ASU 2016-02 on May 1, 2019. The majority of our lease portfolio consists of retail office space in the U.S., Canada, and Australia. The contract terms for these retail offices generally are from May 1 to April 30. We recordoffset related operating lease right of use (ROU) assets and operating lease liabilities based on the discounted future minimum lease payments over the term of the lease. We generally do not include renewal options in the term of the lease. As the rates implicit in our leases are not readily determinable, we used our incremental borrowing rate based on the lease term and geographic location in calculating the discounted future minimum lease payments.

We recognize lease expenses for our operating leases on a straight-line basis. For lease payments that are subject to adjustments based on indexes or rates, the most current index or rate adjustments were included in the measurement of our ROU assets and lease liabilities at adoption. Variable lease costs, including non-lease components (such as common area maintenance, utilities, insurance, and taxes) and certain index-based changes in lease payments, are expensed as incurred.

~~For the three and nine months ended January 31, 2020, our lease costs consist of the following:~~

(in 000s)
Three months ended January 31, 2020
Nine months ended January 31, 2020
Operating lease costs $ 59,804
$ 180,734
Variable lease costs 17,822
50,272
Subrental income (330 ) (1,015 )
Total lease costs $ 77,296
$ 229,991

~~Other information related to operating leases for the nine months ended January 31, 2020 is as follows:~~

($ in 000s)
Cash paid for operating lease costs $ 160,769
Operating lease right of use assets obtained in exchange for operating lease liabilities ⁽¹⁾
251,284
Weighted-average remaining operating lease term (years) 3
Weighted-average operating lease discount rate 3.5 %

⁽¹⁾~~This balance excludes the initial impacts of the adoption of ASU 2016-02.~~

~~Aggregate operating lease maturities as of January 31, 2020 are as follows:~~

(in 000s)
Remainder of 2020 $ 61,713
2021 190,233
2022 130,637
2023 73,433
2024 34,988
2025 and thereafter 19,573
Total future undiscounted operating lease payments 510,577
Less imputed interest (33,388 )
Total operating lease liabilities $ 477,189

~~As disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, our future undiscounted operating lease commitments under the previous accounting standard was $573.3 million.~~expenses.

NOTE ~~11:~~10: LITIGATION AND OTHER 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



16	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

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, including indemnification and contribution claims, and other related loss contingencies and any related settlements (each referred to, individually, as a "matter" and, collectively, as "matters") when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. 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, 2020. While the potential future liabilities could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we do not believe any such liabilities are likely to have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. As of ~~January~~July 31, 2020 and 2019 and April 30, ~~2019,~~2020, our total accrued liabilities were $1.6 million, ~~$3.1~~$1.6 million and ~~$1.9~~$1.6 million, respectively.

Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where



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a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range only represents those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure.

Matters for which we are not currently able to estimate the reasonably possible loss or range of loss are not included in this range. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the reasonably possible loss or range of loss, such as precise information about the amount of damages or other remedies being asserted, the defenses to the claims being asserted, discovery from other parties and investigation of factual allegations, rulings by courts on motions or appeals, analysis by experts, or the status or terms of any settlement negotiations.

The estimated range of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. As of ~~January~~July 31, 2020, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, is not material.

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 recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable and reasonably estimable.



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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~~vigorously. The amounts claimed in the matters are substantial, however, and there can be no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

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

Free File Litigation. On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No. 19STCV15742). The case is styled The People of the State of California v. ~~H&R Block, Inc.,~~HRB Digital LLC, et al. The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period starting 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the case ~~was removed~~and amended its complaint to ~~the United States District Court for the Central District of California on June 6, 2019 (Case No. 2:19-cv-04933-ODW-AS). A~~add HRB Tax Group, Inc. We filed a motion to ~~remand was filed,~~stay the case based on the primary jurisdiction doctrine, which ~~was granted on February 11, 2020.~~remains pending. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

On May 17, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc. and HRB Digital LLC in the Superior Court of the State of California, County of San Francisco (Case No. CGC-19576093). The case is styled ~~Olosoni and~~ Snarr v. ~~H&R Block,~~HRB Tax Group, Inc., et al. The case was removed to the United States District Court for the Northern District of California on June 21, 2019 (Case No. 3:19-cv-03610-SK). The plaintiffs filed a first amended complaint on August 9, 2019, dropping H&R Block, Inc. from the case. In ~~their~~the amended complaint, the plaintiffs seek to represent classes of all persons, between May 17, 2015 and the present, who (1) paid to file one or more federal tax returns through H&R Block’s internet-based filing system, (2) were eligible to file those tax returns for free through the H&R Block Free File offer of the IRS Free File Program, and (3) resided in and were citizens of California at the time of the payments. The plaintiffs generally allege unlawful, unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Consumers Legal Remedies Act, California Civil Code §§1750, et seq., California False Advertising Law, California Business and Professions Code §§17500, et seq., and California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The plaintiffs seek declaratory and injunctive relief, restitution, compensatory damages, punitive damages, interest, attorneys’ fees and



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costs. We filed a motion to stay the proceedings based on the primary jurisdiction doctrine and a motion to compel arbitration, both of which were denied. An appeal of the denial of the motion to compel arbitration is pending. ~~The court denied our motion to transfer venue to the United States District Court for the Western District of Missouri.~~ We filed a motion to stay the claims pending the outcome of the appeal, as well as a motion to dismiss the claims, ~~both~~which also were denied. We filed an answer to the amended complaint on April 7, 2020. The parties filed a stipulation of ~~which remain pending.~~voluntary dismissal of the claims of plaintiff Olosoni, without prejudice, and the termination of plaintiff Olosoni as a named plaintiff in the action on July 21, 2020. A trial date has been set for October 18, 2022. 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 26, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc., HRB Digital LLC and Free File, Inc. in the United States District Court for the Western District of Missouri (Case No. 4:19-cv-00788-GAF) styled Swanson v. H&R Block, Inc., et al. The plaintiff seeks to represent both a nationwide class and a California subclass of all persons eligible for the IRS Free File Program who paid to use an H&R Block product to file an online tax return for the 2002 through 2018 tax filing years. The plaintiff generally alleges unlawful, unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Consumers Legal Remedies Act, California Civil Code §§1750, et seq., California False Advertising Law, California Business and Professions Code §§17500, et seq., California Unfair Competition Law, California Business and Professions Code §§17200, et seq., in addition to breach of contract and fraud. The plaintiff seeks injunctive relief, disgorgement, compensatory damages, statutory damages, punitive damages, interest, attorneys’ fees and costs. The court granted a motion to dismiss filed by defendant Free File, Inc. for lack of personal jurisdiction. We filed a motion to stay the proceedings based on the primary jurisdiction doctrine and a motion to compel arbitration. The court granted our motion to compel arbitration ~~both~~on July 27, 2020 and stayed the case pending the outcome of ~~which remain pending.~~arbitration. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

We have also received and are responding to certain governmental inquiries relating to the IRS Free File Program.



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LITIGATION, CLAIMS, INCLUDING INDEMNIFICATION AND CONTRIBUTION CLAIMS, OR OTHER LOSS CONTINGENCIES PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS – Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has been, remains, and may in the future be, subject to litigation, claims, including indemnification and contribution claims, and other loss contingencies pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. These lawsuits, claims, and other loss contingencies include actions by regulators, third parties seeking indemnification or contribution, including depositors, underwriters, and securitization trustees, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other things, these lawsuits, claims, and contingencies 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 or contribution, breach of contract, violations of securities laws, and violations of 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. It is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters. In many of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these matters, some of which are beyond the Company's control, and the indeterminate damages sought in some of these matters.

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.~~residential mortgage-backed securities (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." The statute of limitations for a contractual claim to enforce a representation and warranty obligation is generally six years or such shorter limitations period that may apply under the law of a state where the economic injury occurred. On June 11, 2015, the New York Court of Appeals, New York’s highest court, held in ACE Securities Corp. v. DB Structured Products, Inc., that the six-year statute of limitations under New York law starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the RMBS transactions into which SCC entered. However, this decision would



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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 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 have sought, and may in the future seek, to distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against other contractual parties such as securitization trustees. For example, a 2016 ruling by a New York intermediate appellate court, followed by the federal district court in the second Homeward case described below, allowed a counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. Additionally, plaintiffs in litigation to which SCC is not party have alleged breaches of an independent contractual duty to provide notice of material breaches of representations and warranties and pursued separate claims to which, they argue, the statute of limitations ruling in the ACE case does not apply. The impact on SCC from alternative legal theories seeking to avoid or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear. SCC has not accrued liabilities for claims not subject to a tolling arrangement or not relating back to timely filed litigation.

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 trust was originally collateralized with approximately 7,500 loans. 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



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declaratory judgment. The case is proceeding on the remaining claims. Representatives of a holder of certificates in the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims against H&R Block, Inc. based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court denied the motion to intervene. Discovery in the case closed on September 30, 2019. Motions for summary judgment were filed on December 6, 2019 and remain pending, with briefing on the motions ~~continuing through~~concluded in March 2020. A mediation session between the parties was held on January 28, 2020, which did not result in resolution of the case. A trial date has not yet been set. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

On September 28, 2012, a second lawsuit was filed by Homeward in the United States District Court for the Southern District of New York against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 12-cv-7319). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to the trust. The trust was originally collateralized with approximately 7,500 loans. 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. On September 30, 2016, the court granted a motion allowing the plaintiff to file a second amended complaint to include breach of contract claims with respect to 649 additional loans in the trust and to allow such claims with respect to other loans in the trust proven to be in material breach of SCC’s representations and warranties. SCC filed a motion for reconsideration, followed by a motion for leave to appeal the ruling, both of which were denied. On October 6, 2016, the plaintiff filed its second amended complaint. In response to a motion filed by SCC, the court dismissed the plaintiff's claim for breach of one of the representations. The case is proceeding on the remaining claims. Representatives of a holder of certificates in the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims against H&R Block, Inc. based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court denied the motion to intervene. The settlement payments that were made in fiscal year 2018 for representation and



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warranty claims are related to some of the loans in this case. Discovery in the case closed on September 30, 2019. Motions for summary judgment were filed on December 6, 2019 and remain pending, with briefing on the motions ~~continuing through~~concluded in March 2020. A mediation session between the parties was held on January 28, 2020, which did not result in resolution of the case. A trial date has not yet been set. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter.

~~Underwriters~~Parties, including underwriters, depositors, and ~~depositors~~securitization trustees, are, or have been, involved in multiple lawsuits, threatened lawsuits, and settlements related to securitization transactions in which SCC participated. A variety of claims are alleged in these matters, including violations of federal and state securities laws and common law fraud, based on alleged materially inaccurate or misleading disclosures, or that originators, depositors, ~~servicers,~~securitization trustees, or ~~other parties~~servicers breached their representations and warranties or otherwise failed to fulfill their ~~obligations.~~obligations, or that securitization trustees violated statutory requirements by failing to properly protect the certificate holders’ interests. SCC has received notices of claims for indemnification or potential indemnification obligations relating to such matters, including lawsuits or settlements to which underwriters, depositors, or ~~depositors~~securitization trustees are party. Based on information currently available to SCC, it believes that the 21 underwriter lawsuits in which notice of a claim has been made involve 39 securitization transactions with original investments of approximately $14 billion (of which the outstanding principal amount is approximately $2.9 billion). Additional lawsuits against the ~~underwriters or depositors~~parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of claims for indemnification, contribution or ~~contribution from underwriters or depositors~~similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims. Certain of the notices received included, and future notices may include, a reservation of rights to assert claims for contribution, which are referred to herein as "contribution claims." Contribution claims 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 or contribution ~~claims is probable, nor have we accrued a liability related to any of these claims.~~

Securitization trustees also are, or have been, involved in lawsuits related to securitization transactions in which SCC participated. Plaintiffs in these lawsuits allege, among other things, that originators, depositors, servicers, or other parties breached their representations and warranties or otherwise failed to fulfill their obligations, including that securitization trustees breached their contractual obligations, breached their fiduciary duties, or violated statutory requirements by failing to properly protect the certificate holders’ interests. SCC has received notices from



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securitization trustees of potential indemnification obligations, and may receive additional notices with respect to existing or new lawsuits or settlements of such lawsuits, in its capacity as originator, depositor, or servicer. We have not concluded that a loss related to any of these indemnification claims is probable, nor have we accrued a liability related to any of these claims.

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, other potential claimants, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. Claimants may also attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of ~~January~~July 31, 2020, total approximately ~~$278~~$274 million and consist of an intercompany note receivable. We believe our legal position is strong on any potential corporate veil-piercing arguments; however, if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

OTHER – We are from time to time a party to litigation, 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 others who may be 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 and 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 business and our consolidated financial position, results of operations, and cash flows.



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~~NOTE 12: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

Block Financial LLC (Block Financial) is a 100% owned subsidiary of the Company. Block Financial is the Issuer and the Company is the full and unconditional Guarantor of the Senior Notes, our 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.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Three months ended January 31, 2020 H&R Block, Inc.
(Guarantor)
Block Financial
(Issuer)
Other
Subsidiaries
Eliminations
Consolidated
H&R Block
Total revenues $ —
$ 58,231
$ 478,704
$ (17,730 ) $ 519,205
Cost of revenues —
35,598
439,061
(12,138 ) 462,521
Selling, general and administrative 128
7,132
207,620
(5,592 ) 209,288
Total operating expenses 128
42,730
646,681
(17,730 ) 671,809
Other income (expense), net (137,783 ) 11,086
8,519
120,057
1,879
Interest expense on borrowings —
(26,300 ) (5 ) —
(26,305 )
Income (loss) from continuing operations before income tax benefit (137,911 ) 287
(159,463 ) 120,057
(177,030 )
Income tax benefit (8,228 ) (37 ) (40,739 ) —
(49,004 )
Net income (loss) from continuing operations (129,683 ) 324
(118,724 ) 120,057
(128,026 )
Net loss from discontinued operations —
(1,037 ) (620 ) —
(1,657 )
Net loss (129,683 ) (713 ) (119,344 ) 120,057
(129,683 )
Other comprehensive loss (3,574 ) —
(3,574 ) 3,574
(3,574 )
Comprehensive loss $ (133,257 ) $ (713 ) $ (122,918 ) $ 123,631
$ (133,257 )

(in 000s)
Three months ended January 31, 2019 H&R Block, Inc.
(Guarantor)
Block Financial
(Issuer)
Other
Subsidiaries
Eliminations
Consolidated
H&R Block
Total revenues $ —
$ 53,461
$ 433,144
$ (18,221 ) $ 468,384
Cost of revenues —
34,533
396,672
(10,179 ) 421,026
Selling, general and administrative —
10,347
183,153
(8,042 ) 185,458
Total operating expenses —
44,880
579,825
(18,221 ) 606,484
Other income (expense), net (134,984 ) 8,903
348
128,002
2,269
Interest expense on borrowings —
(22,833 ) —
—
(22,833 )
Loss from continuing operations before income taxes (benefit) (134,984 ) (5,349 ) (146,333 ) 128,002
(158,664 )
Income taxes (benefit) (8,530 ) 75
(30,430 ) —
(38,885 )
Net loss from continuing operations (126,454 ) (5,424 ) (115,903 ) 128,002
(119,779 )
Net loss from discontinued operations —
(6,675 ) —
—
(6,675 )
Net loss (126,454 ) (12,099 ) (115,903 ) 128,002
(126,454 )
Other comprehensive income 1,238
—
1,238
(1,238 ) 1,238
Comprehensive loss $ (125,216 ) $ (12,099 ) $ (114,665 ) $ 126,764
$ (125,216 )



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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Nine months ended January 31, 2020
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Total revenues $ —
$ 86,515
$ 768,544
$ (24,691 ) $ 830,368
Cost of revenues —
45,680
912,272
(12,833 ) 945,119
Selling, general and administrative 1,666
15,319
470,631
(11,858 ) 475,758
Total operating expenses 1,666
60,999
1,382,903
(24,691 ) 1,420,877
Other income (expense), net (477,932 ) 31,578
23,596
436,499
13,741
Interest expense on borrowings —
(68,656 ) (26 ) —
(68,682 )
Loss from continuing operations before income tax benefit (479,598 ) (11,562 ) (590,789 ) 436,499
(645,450 )
Income tax benefit (11,669 ) (3,047 ) (173,430 ) —
(188,146 )
Net loss from continuing operations (467,929 ) (8,515 ) (417,359 ) 436,499
(457,304 )
Net loss from discontinued operations —
(10,005 ) (620 ) —
(10,625 )
Net loss (467,929 ) (18,520 ) (417,979 ) 436,499
(467,929 )
Other comprehensive loss (4,975 ) —
(4,975 ) 4,975
(4,975 )
Comprehensive loss $ (472,904 ) $ (18,520 ) $ (422,954 ) $ 441,474
$ (472,904 )

(in 000s)
Nine months ended January 31, 2019
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Total revenues $ —
$ 81,751
$ 706,775
$ (26,088 ) $ 762,438
Cost of revenues —
46,580
859,759
(12,938 ) 893,401
Selling, general and administrative 1,476
16,444
399,747
(13,150 ) 404,517
Total operating expenses 1,476
63,024
1,259,506
(26,088 ) 1,297,918
Other income (expense), net (465,085 ) 27,748
6,498
442,114
11,275
Interest expense on borrowings —
(65,082 ) (132 ) —
(65,214 )
Loss from continuing operations before income tax benefit (466,561 ) (18,607 ) (546,365 ) 442,114
(589,419 )
Income tax benefit (11,161 ) (5,942 ) (132,803 ) —
(149,906 )
Net loss from continuing operations (455,400 ) (12,665 ) (413,562 ) 442,114
(439,513 )
Net loss from discontinued operations —
(15,887 ) —
—
(15,887 )
Net loss (455,400 ) (28,552 ) (413,562 ) 442,114
(455,400 )
Other comprehensive loss (3,339 ) —
(3,339 ) 3,339
(3,339 )
Comprehensive loss $ (458,739 ) $ (28,552 ) $ (416,901 ) $ 445,453
$ (458,739 )



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CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of January 31, 2020 H&R Block, Inc.
(Guarantor)
Block Financial
(Issuer)
Other
Subsidiaries
Eliminations
Consolidated
H&R Block
Cash & cash equivalents $ —
$ 6,306
$ 186,034
$ —
$ 192,340
Cash & cash equivalents - restricted —
—
169,447
—
169,447
Receivables, net —
410,920
409,026
—
819,946
Prepaid expenses and other current assets 2,811
2,628
114,790
—
120,229
Total current assets 2,811
419,854
879,297
—
1,301,962
Property and equipment, net —
316
197,253
—
197,569
Operating lease right of use asset —
257
463,520
—
463,777
Intangible assets, net —
—
433,074
—
433,074
Goodwill —
—
838,830
—
838,830
Deferred tax assets and income taxes receivable 3,261
15,953
115,687
—
134,901
Investments in subsidiaries 2,955,158
—
119,213
(3,074,371 ) —
Amounts due from affiliates —
2,212,575
3,253,034
(5,465,609 ) —
Other noncurrent assets —
53,975
28,342
—
82,317
Total assets $ 2,961,230
$ 2,702,930
$ 6,328,250
$ (8,539,980 ) $ 3,452,430

Accounts payable and accrued expenses 1,952
14,407
140,407
—
156,766
Accrued salaries, wages and payroll taxes —
1,676
115,783
—
117,459
Accrued income taxes and reserves for uncertain tax positions —
1,060
35,182
—
36,242
Current portion of long-term debt —
649,022
—
—
649,022
Operating lease liabilities —
153
187,737
—
187,890
Deferred revenue and other current liabilities —
30,695
159,547
—
190,242
Total current liabilities 1,952
697,013
638,656
—
1,337,621
Long-term debt and line of credit borrowings —
1,880,589
—
—
1,880,589
Deferred tax liabilities and reserves for uncertain tax positions 24,623
1,486
146,845
—
172,954
Operating lease liabilities —
108
289,191
—
289,299
Deferred revenue and other noncurrent liabilities —
4,521
85,825
—
90,346
Amounts due to affiliates 3,253,034
—
2,212,575
(5,465,609 ) —
Total liabilities 3,279,609
2,583,717
3,373,092
(5,465,609 ) 3,770,809
Stockholders' equity (deficiency) (318,379 ) 119,213
2,955,158
(3,074,371 ) (318,379 )
Total liabilities and stockholders' equity $ 2,961,230
$ 2,702,930
$ 6,328,250
$ (8,539,980 ) $ 3,452,430



24	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of January 31, 2019
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Cash & cash equivalents $ —
$ 4,722
$ 198,504
$ —
$ 203,226
Cash & cash equivalents - restricted —
—
101,903
—
101,903
Receivables, net —
392,257
365,960
—
758,217
Prepaid expenses and other current assets 2,811
2,637
165,858
—
171,306
Total current assets 2,811
399,616
832,225
—
1,234,652
Property and equipment, net —
466
220,039
—
220,505
Intangible assets, net —
—
356,952
—
356,952
Goodwill —
—
520,005
—
520,005
Deferred tax assets and income taxes receivable 1,794
17,941
121,631
—
141,366
Investments in subsidiaries 2,485,857
—
102,763
(2,588,620 ) —
Amounts due from affiliates —
1,559,416
2,679,945
(4,239,361 ) —
Other noncurrent assets —
57,230
38,096
—
95,326
Total assets $ 2,490,462
$ 2,034,669
$ 4,871,656
$ (6,827,981 ) $ 2,568,806

Accounts payable and accrued expenses $ 14,823
$ 18,475
$ 168,803
$ —
$ 202,101
Accrued salaries, wages and payroll taxes —
1,333
139,569
—
140,902
Accrued income taxes and reserves for uncertain tax positions —
1,060
47,949
—
49,009
Deferred revenue and other current liabilities —
28,441
167,193
—
195,634
Total current liabilities 14,823
49,309
523,514
—
587,646
Long-term debt and line of credit borrowings —
1,876,989
—
—
1,876,989
Deferred tax liabilities and reserves for uncertain tax positions 9,285
3,989
200,943
—
214,217
Deferred revenue and other noncurrent liabilities —
1,619
101,926
—
103,545
Amounts due to affiliates 2,679,945
—
1,559,416
(4,239,361 ) —
Total liabilities 2,704,053
1,931,906
2,385,799
(4,239,361 ) 2,782,397
Stockholders' equity (deficiency) (213,591 ) 102,763
2,485,857
(2,588,620 ) (213,591 )
Total liabilities and stockholders' equity $ 2,490,462
$ 2,034,669
$ 4,871,656
$ (6,827,981 ) $ 2,568,806



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	25

~~Table of Contents~~

CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of April 30, 2019
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Cash & cash equivalents $ —
$ 4,109
$ 1,568,041
$ —
$ 1,572,150
Cash & cash equivalents - restricted —
—
135,577
—
135,577
Receivables, net —
35,901
103,064
—
138,965
Prepaid expenses and other current assets 2,812
1,695
142,160
—
146,667
Total current assets 2,812
41,705
1,948,842
—
1,993,359
Property and equipment, net —
552
211,540
—
212,092
Intangible assets, net —
—
342,493
—
342,493
Goodwill —
—
519,937
—
519,937
Deferred tax assets and income taxes receivable 3,218
15,953
122,808
—
141,979
Investments in subsidiaries 3,378,009
—
137,733
(3,515,742 ) —
Amounts due from affiliates —
1,562,958
2,815,617
(4,378,575 ) —
Other noncurrent assets —
54,976
35,109
—
90,085
Total assets $ 3,384,039
$ 1,676,144
$ 6,134,079
$ (7,894,317 ) $ 3,299,945

Accounts payable and accrued expenses $ 2,272
$ 19,735
$ 227,518
$ —
$ 249,525
Accrued salaries, wages and payroll taxes —
1,564
194,963
—
196,527
Accrued income taxes and reserves for uncertain tax positions —
1,060
270,913
—
271,973
Deferred revenue and other current liabilities —
21,144
183,832
—
204,976
Total current liabilities 2,272
43,503
877,226
—
923,001
Long-term debt —
1,492,629
—
—
1,492,629
Deferred tax liabilities and reserves for uncertain tax positions 24,623
1,486
171,797
—
197,906
Deferred revenue and other noncurrent liabilities —
793
144,089
—
144,882
Amounts due to affiliates 2,815,617
—
1,562,958
(4,378,575 ) —
Total liabilities 2,842,512
1,538,411
2,756,070
(4,378,575 ) 2,758,418
Stockholders' equity 541,527
137,733
3,378,009
(3,515,742 ) 541,527
Total liabilities and stockholders' equity $ 3,384,039
$ 1,676,144
$ 6,134,079
$ (7,894,317 ) $ 3,299,945



26	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~ 17

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in 000s)
Nine months ended January 31, 2020
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Net cash used in operating activities $ —
$ (354,155 ) $ (1,113,636 ) $ —
$ (1,467,791 )
Cash flows from investing:
Capital expenditures —
(12 ) (66,498 ) —
(66,510 )
Payments made for business acquisitions, net of cash acquired —
—
(450,282 ) —
(450,282 )
Franchise loans funded —
(32,676 ) (214 ) —
(32,890 )
Payments from franchisees —
14,135
469
—
14,604
Intercompany borrowings (payments) —
(649,617 ) (408,952 ) 1,058,569
—
Other, net —
(10,478 ) 55,854
—
45,376
Net cash used in investing activities —
(678,648 ) (869,623 ) 1,058,569
(489,702 )
Cash flows from financing:
Repayments of line of credit borrowings —
(285,000 ) —
—
(285,000 )
Proceeds from line of credit borrowings —
1,320,000
—
—
1,320,000
Dividends paid (154,827 ) —
—
—
(154,827 )
Repurchase of common stock, including shares surrendered (256,199 ) —
—
—
(256,199 )
Proceeds from exercise of stock options 2,074
—
—
—
2,074
Intercompany borrowings (payments) 408,952
—
649,617
(1,058,569 ) —
Other, net —
—
(14,136 ) —
(14,136 )
Net cash provided by financing activities —
1,035,000
635,481
(1,058,569 ) 611,912
Effects of exchange rates on cash —
—
(359 ) —
(359 )
Net increase (decrease) in cash, including restricted balances —
2,197
(1,348,137 ) —
(1,345,940 )
Cash, cash equivalents and restricted cash, beginning of period —
4,109
1,703,618
—
1,707,727
Cash, cash equivalents and restricted cash, end of period $ —
$ 6,306
$ 355,481
$ —
$ 361,787



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	27

~~Table of Contents~~

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in 000s)
Nine months ended January 31, 2019
H&R Block, Inc.
(Guarantor)

Block Financial
(Issuer)

Other
Subsidiaries

Eliminations

Consolidated
H&R Block

Net cash used in operating activities $ —
$ (359,101 ) $ (988,355 ) $ —
$ (1,347,456 )
Cash flows from investing:
Capital expenditures —
(166 ) (79,816 ) —
(79,982 )
Payments made for business acquisitions, net of cash acquired —
—
(42,428 ) —
(42,428 )
Franchise loans funded —
(16,198 ) (677 ) —
(16,875 )
Payments from franchisees —
14,834
315
—
15,149
Intercompany borrowings (payments) —
(18,579 ) (254,491 ) 273,070
—
Other, net —
(4,746 ) 9,623
—
4,877
Net cash used in investing activities —
(24,855 ) (367,474 ) 273,070
(119,259 )
Cash flows from financing:
Repayments of line of credit borrowings —
(230,000 ) —
—
(230,000 )
Proceeds from line of credit borrowings —
615,000
—
—
615,000
Dividends paid (154,866 ) —
—
—
(154,866 )
Repurchase of common stock, including shares surrendered (102,152 ) —
—
—
(102,152 )
Proceeds from exercise of stock options 2,527
—
—
—
2,527
Intercompany borrowings (payments) 254,491
—
18,579
(273,070 ) —
Other, net —
(668 ) (19,458 ) —
(20,126 )
Net cash provided by (used in) financing activities —
384,332
(879 ) (273,070 ) 110,383
Effects of exchange rates on cash —
—
(2,217 ) —
(2,217 )
Net increase (decrease) in cash, including restricted balances —
376
(1,358,925 ) —
(1,358,549 )
Cash, cash equivalents and restricted cash, beginning of period —
4,346
1,659,332
—
1,663,678
Cash, cash equivalents and restricted cash, end of period $ —
$ 4,722
$ 300,407
$ —
$ 305,129



28	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~


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

RECENT DEVELOPMENTS

On July 1, 2020, we provided written notice to Axos Bank ("Axos") of the termination of the Program Management Agreement by and between Emerald Financial Services, LLC , a wholly–owned indirect subsidiary of the Company, and Axos, effective July 1, 2020. On August 5, 2020, we entered into a Program Management Agreement with MetaBank, N.A. (“Meta”), a wholly-owned subsidiary of Meta Financial Group, Inc. Under the Meta Program Management Agreement and its ancillary agreements and related product schedules, Meta will act as the bank provider of H&R Block-branded financial products, including Emerald Advance^TM, Emerald Card, Emerald Savings, Refund Advance, and Refund Transfer in the United States.

On August 7, 2020, we issued $650.0 million of 3.875% Senior Notes due August 15, 2030 (2030 Senior Notes). The 2030 Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. We intend to use the net proceeds from the 2030 Senior Notes to repay, at maturity, the $650.0 million in principal outstanding of our 4.125% notes due 2020, which mature on October 1, 2020, and for general corporate purposes.

FINANCIAL OVERVIEW

As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the U.S. for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. In addition, governments around the world have taken a variety of actions to contain the spread of COVID-19. Jurisdictions in which we operate imposed, and continue to impose, various restrictions on our business, including capacity and other operational limitations, social distancing requirements, and in limited instances required us to close certain offices. One of our top priorities has been providing for the health and safety of our clients, associates, and franchisees, while still providing taxpayers access to help in getting their refunds during this difficult economic time. These events have impacted the typical seasonality of our business and the comparability of our financial results. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first quarter of fiscal year 2021.

As we continued to finish out the tax season in our first quarter of fiscal year 2021, we had more offices open, increased office hours, and had more tax professionals than we would typically have in the first quarter. However, this was less than we would typically have during a tax season to serve clients.

Due to the extension of the tax season, our revenues increased $450.7 million, or 299.7% and we recorded pretax income during the quarter of $124.0 million compared to a loss of $207.1 million in the prior year.

For more detail on the entire U.S. individual 2019 tax filing season volumes see our Form 8-K filed on July 28, 2020.

RESULTS OF OPERATIONS

Our subsidiaries provide assisted, DIY, and ~~virtual~~digital tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded products and services, including those of our financial partners, to the general public primarily in the U.S., Canada, Australia, and their respective territories. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business financial solutions through our company-owned or franchise offices and online through Wave. We report a single segment that includes all of our continuing operations.

~~RECENT DEVELOPMENTS~~

~~On June 28, 2019, we acquired Wave HQ Inc. (formerly known as Wave Financial Inc.) and its subsidiaries (collectively, Wave). See additional discussion in Item 1, note 1.~~



18	Q1 FY2021 Form 10-Q \| H&R Block, Inc.

Table of Contents

~~RESULTS OF OPERATIONS~~


Operating Statistics (U.S. only)
Nine months ended January 31,	2020		2019		Change			% Change
U.S. Operating Statistics
Three months ended July 31,										Three months ended July 31,	2020		2019		Change			% Change
Tax returns prepared: (in 000s) ⁽¹⁾
Company-owned operations	1,476		1,310		166			12.7	%		1,439		136		1,303			958.1	%
Franchise operations	676		657		19			2.9	%		548		74		474			640.5	%
Total assisted	2,152		1,967		185			9.4	%		1,987		210		1,777			846.2	%

Desktop	133		128		5			3.9	%		489		19		470			2,473.7	%
Online	1,308		1,164		144			12.4	%		1,019		51		968			1,898.0	%
Total DIY	1,441		1,292		149			11.5	%		1,508		70		1,438			2,054.3	%

IRS Free File	142		101		41			40.6	%
Total U.S. Returns	3,735		3,360		375			11.2	%		3,495		280		3,215			1,148.2	%

Net Average Charge: ⁽²⁾
Company-owned operations	$	244.87	$	252.60	$	(7.73	)	(3.1	)%		$	234.82	$	254.53	$	(19.71	)	(7.7	)%
Franchise operations ⁽³⁾	242.76		244.08		(1.32		)	(0.5	)%		220.78		244.06		(23.28		)	(9.5	)%
DIY	29.17		29.15		0.02			0.1	%		44.83		48.31		(3.48		)	(7.2	)%

As of January 31,	2020		2019		Change			% Change
Tax offices:
Company-owned offices	6,552		6,356		196			3.1	%
Franchise offices	2,909		3,148		(239		)	(7.6	)%
Total U.S. offices	9,461		9,504		(43		)	(0.5	)%

⁽¹⁾

An assisted tax return is defined as a current or prior year individual tax return that has been accepted and paid for by the client. Also included are Tax Pro Go^SM, Tax Pro Review^SM®, and business returns. A DIY return is defined as a return that has been electronically filed and accepted by the ~~IRS. Also included are~~IRS, including online returns paid and printed. Returns of 193 thousand and 11 thousand for the periods ending July 31, 2020 and 2019, respectively, filed using the IRS Free File program have been excluded as we will no longer participate in the program after October 2020.


⁽²⁾	Net average charge is calculated as tax preparation fees divided by tax returns prepared. ~~For DIY, net average charge excludes IRS Free File.~~


⁽³⁾	Net average charge related to H&R Block Franchise operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices. H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

We provide net average charge as a key operating metric because we consider it an important supplemental measure useful to analysts, investors, and other interested parties as it provides insights into pricing and tax return mix relative to our customer base, which are significant drivers of revenue. Our definition of net average charge may not be comparable to similarly titled measures of other companies.



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	2919

Table of Contents

~~RESULTS OF OPERATIONS~~


Consolidated – Financial Results				(in 000s, except per share amounts)
Three months ended January 31,	2020			2019			$ Change			% Change
Consolidated - Financial Results															(in 000s, except per share amounts)
Three months ended July 31,												2020			2019			$ Change			% Change
Revenues:
U.S. assisted tax preparation	$	283,956		$	256,813		$	27,143		10.6	%	$	337,728		$	32,992		$	304,736		923.7	%
U.S. royalties	44,965			42,265			2,700			6.4	%	35,949			6,859			29,090			424.1	%
U.S. DIY tax preparation	34,089			31,996			2,093			6.5	%	67,595			3,410			64,185			1,882.3	%
International	11,804			12,304			(500		)	(4.1	)%	67,818			40,581			27,237			67.1	%
Refund Transfers	50,494			47,482			3,012			6.3	%	10,553			1,509			9,044			599.3	%
Emerald Card®	16,657			14,980			1,677			11.2	%	17,055			13,855			3,200			23.1	%
Peace of Mind® Extended Service Plan	16,954			16,596			358			2.2	%	31,995			32,837			(842		)	(2.6	)%
Tax Identity Shield®	8,138			7,655			483			6.3	%	9,367			4,522			4,845			107.1	%
Interest and fee income on Emerald Advance^TM	32,741			30,924			1,817			5.9	%	663			554			109			19.7	%
Wave	11,213			—			11,213			**		12,067			3,625			8,442			232.9	%
Other	8,194			7,369			825			11.2	%	10,240			9,618			622			6.5	%
Total revenues	519,205			468,384			50,821			10.9	%	601,030			150,362			450,668			299.7	%

Compensation and benefits:
Field wages	165,435			153,764			11,671			7.6	%	118,542			53,803			64,739			120.3	%
Other wages	63,808			54,243			9,565			17.6	%	60,694			53,837			6,857			12.7	%
Benefits and other compensation	45,397			42,778			2,619			6.1	%	33,798			26,474			7,324			27.7	%
	274,640			250,785			23,855			9.5	%	213,034			134,114			78,920			58.8	%
Occupancy	102,788			94,407			8,381			8.9	%	99,300			92,152			7,148			7.8	%
Marketing and advertising	84,760			72,876			11,884			16.3	%	18,811			6,779			12,032			177.5	%
Depreciation and amortization	44,147			44,088			59			0.1	%	39,508			38,605			903			2.3	%
Bad debt	36,527			33,861			2,666			7.9	%	1,856			(968		)	2,824			**
Other ⁽¹⁾	128,947			110,467			18,480			16.7	%	75,565			74,846			719			1.0	%
Total operating expenses	671,809			606,484			65,325			10.8	%	448,074			345,528			102,546			29.7	%
Other income (expense), net	1,879			2,269			(390		)	(17.2	)%	3,211			9,123			(5,912		)	(64.8	)%
Interest expense on borrowings	(26,305		)	(22,833		)	(3,472		)	(15.2	)%	(32,125		)	(21,071		)	(11,054		)	(52.5	)%
Pretax loss	(177,030		)	(158,664		)	(18,366		)	(11.6	)%
Income tax benefit	(49,004		)	(38,885		)	10,119			26.0	%
Net loss from continuing operations	(128,026		)	(119,779		)	(8,247		)	(6.9	)%
Pretax income (loss)												124,042			(207,114		)	331,156			**
Income taxes (benefit)												30,486			(61,390		)	(91,876		)	**
Net income (loss) from continuing operations												93,556			(145,724		)	239,280			**
Net loss from discontinued operations	(1,657		)	(6,675		)	5,018			75.2	%	(2,297		)	(4,523		)	2,226			49.2	%
Net loss	$	(129,683	)	$	(126,454	)	$	(3,229	)	(2.6	)%
Net income (loss)												$	91,259		$	(150,247	)	$	241,506		**

BASIC AND DILUTED LOSS PER SHARE:
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations	$	(0.66	)	$	(0.58	)	$	(0.08	)	(13.8	)%	$	0.48		$	(0.72	)	$	1.20		**
Discontinued operations	(0.01		)	(0.04		)	0.03			75.0	%	(0.01		)	(0.02		)	0.01			50.0	%
Consolidated	$	(0.67	)	$	(0.62	)	$	(0.05	)	(8.1	)%	$	0.47		$	(0.74	)	$	1.21		**

EBITDA from continuing operations ⁽²⁾⁽¹⁾	$	(106,578	)	$	(91,743	)	$	(14,835	)	(16.2	)%	$	195,675		$	(147,438	)	$	343,113		**


⁽¹⁾ ⁽¹⁾See "Non-GAAP FInancial Information" at the end of this item for a reconciliation of non-GAAP measures.	~~We reclassified $10.0 million of supplies expense from its own financial statement line to other expenses for fiscal year 2019 to conform to the current year presentation.~~


⁽²⁾	~~See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.~~

Three months ended ~~January~~July 31, 2020 compared to ~~January~~July 31, 2019

~~Revenues increased $50.8~~Due to the extension of the tax season related to the COVID-19 pandemic, we had significant increases in the number of tax returns prepared in all categories compared to the prior year. This resulted in increases in almost all categories of our revenues, with total revenues increasing $450.7 million, or ~~10.9%, from the prior year period.~~

~~Revenues for U.S. assisted tax preparation~~299.7% International revenues increased ~~$27.1~~$27.2 million, or ~~10.6% primarily~~67.1% due to higher tax ~~return volumes and slightly offset by lower net average charge. U.S. Royalties~~returns prepared in our Canadian operations due to the extension of the Canadian tax season as described above.

Wave revenues increased ~~$2.7~~$8.4 million, or 6.4% mostly due to higher franchise tax return volume. Revenues from U.S. DIY tax preparation increased $2.1 million, or 6.5%, primarily due to higher online volumes. Revenues from Refund Transfers increased $3.0 million, or 6.3%, due to higher volumes.232.9%. We acquired Wave on June 28, 2019, and Wave's results have been included in our results of operations since that date.



3020	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

Table of Contents

~~Revenues of $11.2~~Total operating expenses increased $102.5 million, ~~were recognized by Wave, which we acquired on June 28, 2019, and therefore were not included in our results of operations in~~or 29.7%, from the prior year period.

~~Total operating expenses increased $65.3 million, or 10.8%, from the prior year.~~ Field wages increased ~~$11.7~~$64.7 million, or ~~7.6%~~120.3%, primarily ~~due to higher wages~~ due to the increase in tax return ~~volumes.~~volumes, which was partially offset by Canadian wage subsidies. Other wages increased ~~$9.6~~$6.9 million, or ~~17.6%~~12.7%, primarily due to higher ~~information technology wages,~~bonus accruals based on the results of the extended tax season and the acquisition of Wave. ~~Marketing~~Benefits and other compensation increased $7.3 million, or 27.7% primarily due to higher payroll taxes as a result of higher wages. Occupancy expenses increased ~~$11.9~~$7.1 million, or ~~16.3%~~7.8%, due to additional office related expenses as a result of the extension of the tax season and higher rent due to an increase in the number of offices over the prior year. Marketing expense increased $12.0 million, or 177.5%, due to the ~~timing~~extension of ~~online advertising expenses. Occupancy increased $8.4 million, or 8.9%, primarily due to facilities repairs, telecommunication expenses and higher rental rates.~~the tax season.

Other expenses increased ~~$18.5~~$0.7 million, or ~~16.7%~~1.0%. The components of other expenses are as follows:


Three months ended January 31,	2020		2019		$ Change			% Change
Three months ended July 31,										2020			2019		$ Change			% Change
Consulting and outsourced services	$	32,124	$	24,812	$	7,312		29.5	%	$	20,365		$	18,189	$	2,176		12.0	%
Bank partner fees	29,448		23,461		5,987			25.5	%	(1,039		)	1,482		(2,521		)	**
Client claims and refunds	6,604		6,063		541			8.9	%	5,727			9,244		(3,517		)	(38.0	)%
Employee travel and related expenses	10,921		9,309		1,612			17.3	%	2,713			8,425		(5,712		)	(67.8	)%
Technology-related expenses	19,199		14,255		4,944			34.7	%	16,607			17,410		(803		)	(4.6	)%
Credit card/bank charges	10,627		3,274		7,353			224.6	%	14,226			3,992		10,234			256.4	%
Insurance	3,309		4,680		(1,371		)	(29.3	)%	3,899			4,394		(495		)	(11.3	)%
Legal fees and settlements	4,838		4,842		(4		)	(0.1	)%	4,061			3,273		788			24.1	%
Supplies	6,412		9,950		(3,538		)	(35.6	)%	3,694			3,286		408			12.4	%
Other	5,465		9,821		(4,356		)	(44.4	)%	5,312			5,151		161			3.1	%
	$	128,947	$	110,467	$	18,480		16.7	%	$	75,565		$	74,846	$	719		1.0	%

Consulting expenses increased $7.3 million due primarily to additional resources for our technology initiatives, while technology-related expenses increased $4.9 million primarily due to expenses related to cloud computing services. Bank partner fees ~~increased $6.0~~decreased $2.5 million due to ~~higher~~a reduction in the credit loss guarantee related to Refund ~~Advance origination fees.~~Advances. Credit card and bank charges increased ~~$7.4~~$10.2 million as a result of higher transaction volumes for assisted tax preparation and DIY tax preparation and higher Wave payment processing fees resulting from the acquisition of Wave.

We recorded an income ~~tax benefit~~taxes in the current year of ~~$49.0~~$30.5 million compared to ~~$38.9~~income tax benefits of $61.4 million in the prior year. See Item 1, note 7 to the consolidated financial statements for additional discussion.



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	31

~~Table of Contents~~

~~RESULTS OF OPERATIONS~~

Consolidated - Financial Results (in 000s, except per share amounts)
Nine months ended January 31, 2020 2019 $ Change % Change
Revenues:
U.S. assisted tax preparation $ 358,174
$ 329,569
$ 28,605
8.7 %
U.S. royalties 59,644
57,898
1,746
3.0 %
U.S. DIY tax preparation 42,040
37,771
4,269
11.3 %
International 97,311
96,980
331
0.3 %
Refund Transfers 52,794
49,466
3,328
6.7 %
Emerald Card®
39,128
38,704
424
1.1 %
Peace of Mind® Extended Service Plan 75,451
77,491
(2,040 ) (2.6 )%
Tax Identity Shield® 17,308
17,639
(331 ) (1.9 )%
Interest and fee income on Emerald Advance^TM
33,780
31,768
2,012
6.3 %
Wave 25,740
—
25,740
**
Other 28,998
25,152
3,846
15.3 %
Total revenues 830,368
762,438
67,930
8.9 %

Compensation and benefits:
Field wages 280,231
262,792
17,439
6.6 %
Other wages 178,389
152,111
26,278
17.3 %
Benefits and other compensation 100,579
89,887
10,692
11.9 %
559,199
504,790
54,409
10.8 %
Occupancy 292,470
290,013
2,457
0.8 %
Marketing and advertising 101,190
88,356
12,834
14.5 %
Depreciation and amortization 125,409
126,013
(604 ) (0.5 )%
Bad debt 37,594
33,191
4,403
13.3 %
Other ⁽¹⁾
305,015
255,555
49,460
19.4 %
Total operating expenses 1,420,877
1,297,918
122,959
9.5 %
Other income (expense), net 13,741
11,275
2,466
21.9 %
Interest expense on borrowings (68,682 ) (65,214 ) (3,468 ) (5.3 )%
Pretax loss (645,450 ) (589,419 ) (56,031 ) (9.5 )%
Income tax benefit (188,146 ) (149,906 ) 38,240
25.5 %
Net loss from continuing operations (457,304 ) (439,513 ) (17,791 ) (4.0 )%
Net loss from discontinued operations (10,625 ) (15,887 ) 5,262
33.1 %
Net loss $ (467,929 ) $ (455,400 ) $ (12,529 ) (2.8 )%

BASIC AND DILUTED LOSS PER SHARE:
Continuing operations $ (2.31 ) $ (2.13 ) $ (0.18 ) (8.5 )%
Discontinued operations (0.05 ) (0.08 ) 0.03
37.5 %
Consolidated $ (2.36 ) $ (2.21 ) $ (0.15 ) (6.8 )%

EBITDA from continuing operations ⁽²⁾
$ (451,359 ) $ (398,192 ) $ (53,167 ) (13.4 )%


⁽¹⁾	~~We reclassified $15.3 million of supplies expense from its own financial statement line to other expenses for fiscal year 2019 to conform to the current year presentation.~~

⁽²⁾~~See "Non-GAAP FInancial Information" at the end of this item for a reconciliation of non-GAAP measures.~~

~~Nine months ended January 31, 2020 compared to January 31, 2019~~

Revenues increased $67.9 million, or 8.9%, from the prior year period. U.S. assisted tax preparation fees increased $28.6 million, or 8.7%, due to higher tax return volumes and slightly offset by lower net average charge. Revenues from U.S. DIY tax preparation increased $4.3 million, or 11.3%, primarily due to higher online volumes. Revenues from Refund Transfers increased $3.3 million, or 6.7%, due to higher volumes.



32	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

~~Revenues of $25.7 million were recognized by Wave, which we acquired on June 28, 2019, and therefore were not included in our results of operations in the prior year period.~~

Total operating expenses increased $123.0 million, or 9.5%, from the prior year period. Field wages increased $17.4 million, or 6.6%, primarily due to higher wages due to the increase in return volumes. Other wages increased $26.3 million, or 17.3%, primarily due to higher information technology wages and the acquisition of Wave. Benefits and other compensation increased $10.7 million, or 11.9% primarily due to higher stock based compensation, retirement savings plan contributions and employee insurance expenses. Marketing expense increased $12.8 million, or 14.5%, due to the timing of online advertising expenses. Bad debt increased $4.4 million, or 13.3%, due to higher refund transfer volumes.

~~Other expenses increased $49.5 million, or 19.4%. The components of other expenses are as follows:~~

Nine months ended January 31, 2020 2019 $ Change % Change
Consulting and outsourced services $ 74,597
$ 63,444
$ 11,153
17.6 %
Bank partner fees 32,303
26,294
6,009
22.9 %
Client claims and refunds 25,305
28,783
(3,478 ) (12.1 )%
Employee travel and related expenses 33,159
29,515
3,644
12.3 %
Technology-related expenses 50,178
44,932
5,246
11.7 %
Credit card/bank charges 24,455
8,420
16,035
190.4 %
Insurance 11,548
10,979
569
5.2 %
Legal fees and settlements 21,139
8,331
12,808
153.7 %
Supplies 14,958
15,343
(385 ) (2.5 )%
Other 17,373
19,514
(2,141 ) (11.0 )%
$ 305,015
$ 255,555
$ 49,460
19.4 %

Consulting and outsourced services increased $11.2 million primarily due to additional resources for our technology initiatives. Bank partner fees increased $6.0 million due to higher Refund Advance origination fees. Credit card and bank charges increased $16.0 million as a result of the acquisition of Wave, while legal fees increased $12.8 million due to fees associated with ongoing legal matters, as discussed in Item 1, note 11 to the consolidated financial statements.

We recorded an income tax benefit in the current year of $188.1 million compared to $149.9 million in the prior year. See Item 1, note 7 to the consolidated financial statements for additional discussion.

Total U.S. return volume increased 1.4% through February 28, 2020 compared to the prior year period due to an increase in DIY online and IRS Free File returns, which was slightly offset by a decrease in assisted returns. Our business is highly seasonal and results for the nine months ended January 31, as well as results for the period ended February 28, may not be indicative of results for the entire fiscal year.

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), draws on our CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.

Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through ~~April.~~April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically ~~rely~~have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our ~~off-season liquidity needs.~~



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	33

~~Table~~first three quarters. As a result of ~~Contents~~

the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. These extensions have impacted the typical seasonality of our business and the comparability of our financial results.

Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of ~~January~~July 31, 2020 are sufficient to meet our operating, investing and financing needs.



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	21

Table of Contents

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, 2020 and 2019. See Item 1 for the complete consolidated statements of cash flows for these periods.


	(in 000s)						(in 000s)
Nine months ended January 31,	2020			2019
Three months ended July 31,							2020			2019
Net cash provided by (used in):
Operating activities	$	(1,467,791	)	$	(1,347,456	)	$	(20,500	)	$	(483,829	)
Investing activities	(489,702		)	(119,259		)	4,380			(358,807		)
Financing activities	611,912			110,383			(56,720		)	(100,193		)
Effects of exchange rates on cash	(359		)	(2,217		)	6,405			556
Net change in cash, cash equivalents and restricted cash	$	(1,345,940	)	$	(1,358,549	)	$	(66,435	)	$	(942,273	)

Operating Activities. Cash used in operations ~~increased,~~decreased, primarily due to the ~~timing~~extension of ~~payments for accounts payable, accrued expenses, salaries, wages and payroll taxes combined with an increase in receivables, which is slightly offset by a decline in prepaid expenses.~~the 2019 tax season into our fiscal first quarter due to COVID-19.

Investing Activities. Cash ~~used in~~provided by investing activities totaled $~~489.7~~4.4 million for the ~~nine~~three months ended ~~January~~July 31, 2020 compared to cash used in investing activities of $~~119.3~~358.8 million in the prior year period. This change ~~resulted primarily from~~is due to the prior year acquisition of ~~Wave, partially offset by the receipt of cash on an available-for-sale debt security in the current year.~~Wave.

Financing Activities. Cash ~~provided by~~used in financing activities totaled ~~$611.9~~$56.7 million for the ~~nine~~three months ended ~~January~~July 31, 2020 compared to ~~$110.4~~$100.2 million in the prior year period. This change resulted primarily from ~~borrowings on our CLOC partially offset by higher~~ share repurchases ~~completed~~ in the ~~current~~prior year.

CASH REQUIREMENTS –

Dividends and Share Repurchases. 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 $~~154.8~~50.0 million and $~~154.9~~52.5 million for the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, 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.

Our current share repurchase program has remaining authorization of $751.8 million which is effective through June 2022. We did not repurchase any shares during the current year period. In the prior year period, we repurchased $44.1 million of our common stock at an average price of $27.68 per share.

Share repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend, or extend the period for the purchase of shares at any time. Any repurchases will be funded primarily through available cash and cash from operations. Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full Board authorization.

Capital Investment. Capital expenditures totaled ~~$66.5~~$8.3 million and ~~$80.0~~$15.2 million for the ~~nine~~three months ended ~~January~~July 31, 2020 and 2019, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. In addition to our capital expenditures, we also made payments to acquire businesses. We acquired franchisee and competitor businesses totaling $13 thousand in the current year compared to Wave and franchisee and competitor businesses totaling ~~$450.3 million in the current year compared to franchisee and competitor businesses totaling $42.4~~$394.4 million in the prior year. See Item 1, ~~note 1 and~~ note 5 for additional information on our acquisitions.

FINANCING RESOURCES – ~~We had an outstanding balance~~In the fourth quarter of ~~$1.0~~fiscal year 2020, we drew down the full $2.0 billion available under our CLOC to increase our cash position and maximize flexibility in light of the ~~CLOC as~~uncertainty surrounding the impact of ~~January 31,~~the COVID-19 pandemic, which we expect to repay in full in September 2020. ~~Amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $751 million as of January 31, 2020. See Item 1, note 6 to the consolidated financial statements.~~

~~Our~~On August 7, 2020, we issued the 2030 Senior ~~Notes~~Notes. As of April 30, 2020, our $650.0 million notes due in October 2020 ~~are~~(October 2020 Senior Notes) were classified as a current ~~liability~~liability. As we intend to use the net proceeds from the 2030 Senior Notes to repay our October 2020 Senior Notes, our October 2020 Senior Notes have been reclassified to long-term as of ~~January~~July 31, 2020. ~~We are considering various financing options in regard to the maturing Senior Notes and anticipate these options will provide adequate liquidity to fund the cash requirements at or prior to maturity.~~



3422	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

Table of Contents

If we elect to obtain new debt or refinance existing debt in the future, the terms and availability of such financing may be impacted by economic and financial market conditions, as well as our financial condition, results of operations, and credit ratings at the time we seek additional financing. Though we expect to be able to obtain any desired debt financing in the future, there can be no assurances that we will be able to obtain such financing on terms that will be acceptable or advantageous to us.

The following table provides ratings for debt issued by Block Financial as of ~~January~~July 31, 2020 and April 30, ~~2019:~~2020:

As of

~~January~~July 31, 2020

April 30, ~~2019~~2020

Short-term

Long-term

Outlook

Short-term

Long-term

Outlook

Moody's

P-3

Baa3

~~Negative~~Stable

P-3

Baa3

Negative

S&P

A-2

BBB

~~Stable~~Negative

A-2

BBB

~~Stable~~Negative

Other than described above, there have been no material changes in our borrowings from those reported as of April 30, ~~2019~~2020 in our Annual Report on Form 10-K.

CASH AND OTHER ASSETS – As of ~~January~~July 31, 2020, we held cash and cash equivalents, excluding restricted amounts, of ~~$192.3 million,~~$2.6 billion, including ~~$103.7~~$152.7 million held by our foreign subsidiaries.

Foreign Operations. When necessary, our international businesses are 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, 2020.

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~~increase of ~~$0.4~~$6.4 million during the ~~nine~~three months ended ~~January~~July 31, 2020 compared to a ~~decrease~~increase of ~~$2.2~~$0.6 million in the prior year.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – ~~EAs are originated by Axos. We purchase a 90% participation interest, at par,~~Except as described in ~~all EAs originated by Axos in accordance with our participation agreement. At January 31, 2020, the principal balance of purchased participation interests totaled $367.8 million.~~

~~We have provided limited guarantees under our Refund Advance Program Agreement of up to $7.5 million~~Recent Developments related to ~~loans to clients prior to~~ the IRS accepting electronic filing, with additional limited guarantees for the remaining loans, up to $57 million in the aggregate, which would cover certain incremental loan losses. See Item 1, note 9 to the consolidated financial statements for additional discussion.

~~Other than as described above,~~Axos Program Management Agreement, Meta Program Management Agreement, and 2030 Senior Notes issuance, there have been no material changes in our contractual obligations and commercial commitments from those reported as of April 30, ~~2019~~2020 in our Annual Report on Form 10-K.

SUMMARIZED GUARANTOR FINANCIAL STATEMENTS –Block Financial is a 100% owned subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time.

The following table presents summarized financial information for H&R Block, Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after intercompany eliminations and excludes investments in and equity earnings in non-guarantor subsidiaries.



SUMMARIZED BALANCE SHEET	(in 000s)
As of July 31, 2020	Guarantor and Issuer

Current assets	$	52,836
Noncurrent assets	3,632,226
Current liabilities	48,854
Noncurrent liabilities	3,504,209



SUMMARIZED STATEMENTS OF OPERATIONS	(in 000s)
Three months ended July 31, 2020	Guarantor and Issuer

Total revenues	$	21,015
Loss from continuing operations before income taxes	(12,725		)
Net loss from continuing operations	(9,793		)
Net loss	(12,090		)

The table above reflects $3.6 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries.



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	23

Table of Contents

REGULATORY ENVIRONMENT

On November 17, 2017, the CFPB published its final rule changing the regulation of certain consumer credit products, including payday loans, vehicle title loans, and high-cost installment loans (Payday Rule). Certain limited provisions of the Payday Rule became effective on January 16, 2018, but most provisions were scheduled to go into effect on August 19, 2019. On November 6, 2018, a judge from the U.S. District Court for the Western District of Texas issued a stay of the Payday Rule's August 19, 2019 compliance date, which stay remains in effect until further notice from the Court. On July 7, 2020, the CFPB issued a final rule revoking the mandatory underwriting provisions of the Payday Rule.

Given these developments, we are unsure whether, when, or in what form the Payday Rule will go into effect. The timing to resolve the litigation is unclear. We do not currently expect the Payday Rule to have a material adverse impact on the Emerald Advance^TM product, our business, or our consolidated financial position, results of operations, and cash flows. We will continue to monitor and analyze the potential impact of any further Payday Rule developments on the Company.

There have been no other material changes in our regulatory environment from what was reported as of April 30, ~~2019~~2020 in our Annual Report on Form 10-K.

NON-GAAP FINANCIAL INFORMATION

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.

We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business.

We make adjustments for certain non-GAAP financial measures related to amortization of intangibles from ~~acquisitions.~~acquisitions and goodwill impairments. We believe removing the impacts of amortization of acquired intangibles and goodwill impairments provides a more meaningful indicator of performance and will assist in understanding our financial results.

We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	35

~~Table of Contents~~

We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, EBITDA margin from continuing operations, adjusted EBITDA margin from continuing operations, adjusted diluted earnings per share from continuing operations and free cash flow. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	24

Table of Contents

The following is a reconciliation of net ~~loss~~income (loss) to EBITDA from continuing operations, which is a non-GAAP financial measure:


										(in 000s)					(in 000s)
	Three months ended January 31,						Nine months ended January 31,						Three months ended July 31,
	2020			2019			2020			2019			2020		2019
Net loss - as reported	$	(129,683	)	$	(126,454	)	$	(467,929	)	$	(455,400	)
Net income (loss) - as reported													$	91,259	$	(150,247	)
Discontinued operations, net	1,657			6,675			10,625			15,887			2,297		4,523
Net loss from continuing operations - as reported	(128,026		)	(119,779		)	(457,304		)	(439,513		)
Net income (loss) from continuing operations - as reported													93,556		(145,724		)
Add back:
Income taxes of continuing operations	(49,004		)	(38,885		)	(188,146		)	(149,906		)
Income taxes (benefit) of continuing operations													30,486		(61,390		)
Interest expense of continuing operations	26,305			22,833			68,682			65,214			32,125		21,071
Depreciation and amortization of continuing operations	44,147			44,088			125,409			126,013			39,508		38,605
	21,448			28,036			5,945			41,321			102,119		(1,714		)
EBITDA from continuing operations	$	(106,578	)	$	(91,743	)	$	(451,359	)	$	(398,192	)	$	195,675	$	(147,438	)

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


(in 000s, except per share amounts)	(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,
		2020			2019			2020			2019				2020			2019

Net loss from continuing operations		$	(128,026	)	$	(119,779	)	$	(457,304	)	$	(439,513	)
Net income (loss) from continuing operations - as reported															$	93,556		$	(145,724	)

Adjustments:
Amortization of intangibles related to acquisitions (pretax)		19,179			16,142			54,997			46,453				18,577			16,239
Tax effect of adjustments ⁽¹⁾		(4,956		)	(3,820		)	(13,667		)	(11,116		)		(4,400		)	(4,162		)
Adjusted net loss from continuing operations		$	(113,803	)	$	(107,457	)	$	(415,974	)	$	(404,176	)
Adjusted net income (loss) from continuing operations															$	107,733		$	(133,647	)

Diluted loss per share (GAAP)		$	(0.66	)	$	(0.58	)	$	(2.31	)	$	(2.13	)
Diluted earnings (loss) per share - as reported															$	0.48		$	(0.72	)
Adjustments, net of tax		0.07			0.06			0.21			0.17				0.07			0.06
Adjusted loss per share (non-GAAP)		$	(0.59	)	$	(0.52	)	$	(2.10	)	$	(1.96	)
Adjusted earnings (loss) per share															$	0.55		$	(0.66	)

⁽¹⁾Tax effect of adjustments is ~~computed as~~ the ~~pretax effect of~~difference between the ~~adjustments multiplied by our effective~~ tax ~~rate before discrete items.~~provision calculated on a GAAP basis and on an adjusted non-GAAP basis.

FORWARD-LOOKING INFORMATION

This report and other documents filed with the SEC may contain forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "goal," "could," "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management's plans or objectives for future operations, services or products, or descriptions of assumptions



36	~~Q3 FY2020 Form 10-Q \|~~ ~~H&R Block, Inc.~~

~~Table of Contents~~

underlying any of the above. They may also include the expected impact of the coronavirus (COVID–19) pandemic, including, without limitation, the impact on economic and financial markets, the Company's capital resources and financial condition, future expenditures, potential regulatory actions, such as extensions of tax filing deadlines or other related relief, changes in consumer behaviors and modifications to the Company's operations relating thereto.

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,



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	25

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the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law.

By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, operational and regulatory factors, many of which are beyond the Company's control. In addition, factors that may cause the Company’s actual effective tax rate to differ from estimates include the Company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the Company has made, and future actions of the Company. 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.

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, ~~2019~~2020 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, ~~2019.~~2020.


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, ~~2019~~2020 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, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, 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)). 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 1110 to the consolidated financial statements.

ITEM 1A. RISK FACTORS

~~There~~We face legal actions in connection with our various business activities, and current or future legal actions may damage our reputation, impair our product offerings, or result in material liabilities and losses.

We have been named, and from time to time will likely continue to be named, in various legal actions, including arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. For example, as previously reported, we are subject to litigation and have received and are responding to certain governmental inquiries relating to the IRS Free File program. These inquiries include requests for information and, in some cases, subpoenas from regulators and state attorneys general. On July 15, 2020, the New York State Department of Financial Services issued a press release and report on its investigation of certain tax preparers, including us, related to the IRS Free File program. We cannot predict whether this report or other inquiries could lead to further inquiries, further litigation, fines, injunctions or other regulatory or legislative actions or impacts on our brand, reputation and business. See discussion in Part I, Item 1, note 10 to the consolidated financial statements, and Item 8, note 13 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020. We also grant our franchisees a limited license to use our registered trademarks and, accordingly,



26	Q1 FY2021 Form 10-Q \| H&R Block, Inc.

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there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from our or our franchisees’ actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.

Except as indicated above, there have been no material changes in our risk factors from those reported at April 30, ~~2019~~2020 in our Annual Report on Form 10-K.



~~H&R Block, Inc.~~ ~~\| Q3 FY2020 Form 10-Q~~	37

~~Table of Contents~~

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 ~~2020~~2021 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 —
$ —
—
$ 817,568
December 1 - December 31 1,945
$ 23.29
1,945
$ 772,278
January 1 - January 31 874
$ 23.43
872
$ 751,837
2,819
$ 23.33
2,817



(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	—	$	—	—	$	751,837
June 1 - June 30	166	$	14.28	—	$	751,837
July 1 - July 31	38	$	14.25	—	$	751,837
	204	$	14.28	—


⁽¹⁾	We purchased approximately 2204 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted share units.


⁽²⁾	In September 2015, we announced that our Board of Directors approved a $3.5 billion share repurchase program, effective through June 2019. In June 2019, our Board of Directors extended the share repurchase program through June 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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:

4.1

Third Supplemental Indenture, dated August 7, 2020, among H&R Block, Inc., Block Financial LLC (formerly known as Block Financial Corporation), Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) and U.S. Bank National Association, as separate trustee, filed as Exhibit 4.1 to the Company's current report on Form 8–K filed August 7, 2020, file number 1–06089, is incorporated herein by reference.


4.2	Officers’ Certificate, dated August 7, 2020, of Block Financial LLC (including the Form of the 3.875% Notes due 2030), filed as Exhibit 4.2 to the Company's current report on Form 8–K filed August 7, 2020, file number 1–06089, is incorporated herein by reference.


10.1	~~H&R Block, Inc. 2000 Employee Stock Purchase Plan, as amended~~Program Management Agreement, dated August 5, 2020, by and ~~restated on March 2, 2020.~~between Emerald Financial Services, LLC and MetaBank, N.A.


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.



H&R Block, Inc. \| Q1 FY2021 Form 10-Q	27

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101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document


101.SCH	Inline XBRL Taxonomy Extension Schema


101.CAL	Inline XBRL Extension Calculation Linkbase


101.LAB	Inline XBRL Taxonomy Extension Label Linkbase


101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase


101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase


104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



3828	~~Q3 FY2020~~Q1 FY2021 Form 10-Q \| H&R Block, Inc.

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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/ Jeffrey J. Jones II

Jeffrey J. Jones II

President and Chief Executive Officer

~~March 9,~~September 3, 2020

/s/ Tony G. Bowen

Tony G. Bowen

Chief Financial Officer

~~March 9,~~September 3, 2020

/s/ Kellie J. Logerwell

Kellie J. Logerwell

Chief Accounting Officer

~~March 9,~~September 3, 2020



H&R Block, Inc. \| ~~Q3 FY2020~~Q1 FY2021 Form 10-Q	3929



($ in 000s)
	Amount Acquired			Weighted-Average Life (in years)
Assets acquired and liabilities assumed, net	$	3,928
Deferred tax liability	(8,126		)
Purchased technology	68,000			10
Customer relationships	23,000			5
Noncompete agreements	7,070			5
Trade name	5,800			10
Total identifiable net assets	99,672
Goodwill	300,560
Total identifiable assets and goodwill	$	400,232



(dollars in 000s)
	Amount		Weighted-Average Life (in years)
Reacquired franchise rights	$	13,940	5
Customer relationships	18,079		5
Internally-developed software	12,659		3
Noncompete agreements	642		5
Total	$	45,320	4



				(in 000s)
	Three months ended January 31, 2020			Nine months ended January 31, 2020
Operating lease costs	$	59,804		$	180,734
Variable lease costs	17,822			50,272
Subrental income	(330		)	(1,015		)
Total lease costs	$	77,296		$	229,991



	($ in 000s)
Cash paid for operating lease costs	$	160,769
Operating lease right of use assets obtained in exchange for operating lease liabilities ⁽¹⁾	251,284
Weighted-average remaining operating lease term (years)	3
Weighted-average operating lease discount rate	3.5		%



	(in 000s)
Remainder of 2020	$	61,713
2021	190,233
2022	130,637
2023	73,433
2024	34,988
2025 and thereafter	19,573
Total future undiscounted operating lease payments	510,577
Less imputed interest	(33,388		)
Total operating lease liabilities	$	477,189



													(in 000s)
Three months ended January 31, 2019	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Total revenues	$	—		$	53,461		$	433,144		$	(18,221	)	$	468,384
Cost of revenues	—			34,533			396,672			(10,179		)	421,026
Selling, general and administrative	—			10,347			183,153			(8,042		)	185,458
Total operating expenses	—			44,880			579,825			(18,221		)	606,484
Other income (expense), net	(134,984		)	8,903			348			128,002			2,269
Interest expense on borrowings	—			(22,833		)	—			—			(22,833		)
Loss from continuing operations before income taxes (benefit)	(134,984		)	(5,349		)	(146,333		)	128,002			(158,664		)
Income taxes (benefit)	(8,530		)	75			(30,430		)	—			(38,885		)
Net loss from continuing operations	(126,454		)	(5,424		)	(115,903		)	128,002			(119,779		)
Net loss from discontinued operations	—			(6,675		)	—			—			(6,675		)
Net loss	(126,454		)	(12,099		)	(115,903		)	128,002			(126,454		)
Other comprehensive income	1,238			—			1,238			(1,238		)	1,238
Comprehensive loss	$	(125,216	)	$	(12,099	)	$	(114,665	)	$	126,764		$	(125,216	)



													(in 000s)
Nine months ended January 31, 2019	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)			Other Subsidiaries			Eliminations			Consolidated H&R Block
Total revenues	$	—		$	81,751		$	706,775		$	(26,088	)	$	762,438
Cost of revenues	—			46,580			859,759			(12,938		)	893,401
Selling, general and administrative	1,476			16,444			399,747			(13,150		)	404,517
Total operating expenses	1,476			63,024			1,259,506			(26,088		)	1,297,918
Other income (expense), net	(465,085		)	27,748			6,498			442,114			11,275
Interest expense on borrowings	—			(65,082		)	(132		)	—			(65,214		)
Loss from continuing operations before income tax benefit	(466,561		)	(18,607		)	(546,365		)	442,114			(589,419		)
Income tax benefit	(11,161		)	(5,942		)	(132,803		)	—			(149,906		)
Net loss from continuing operations	(455,400		)	(12,665		)	(413,562		)	442,114			(439,513		)
Net loss from discontinued operations	—			(15,887		)	—			—			(15,887		)
Net loss	(455,400		)	(28,552		)	(413,562		)	442,114			(455,400		)
Other comprehensive loss	(3,339		)	—			(3,339		)	3,339			(3,339		)
Comprehensive loss	$	(458,739	)	$	(28,552	)	$	(416,901	)	$	445,453		$	(458,739	)



CONDENSED CONSOLIDATING BALANCE SHEETS											(in 000s)
As of January 31, 2020	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
Cash & cash equivalents	$	—		$	6,306	$	186,034	$	—		$	192,340
Cash & cash equivalents - restricted	—			—		169,447		—			169,447
Receivables, net	—			410,920		409,026		—			819,946
Prepaid expenses and other current assets	2,811			2,628		114,790		—			120,229
Total current assets	2,811			419,854		879,297		—			1,301,962
Property and equipment, net	—			316		197,253		—			197,569
Operating lease right of use asset	—			257		463,520		—			463,777
Intangible assets, net	—			—		433,074		—			433,074
Goodwill	—			—		838,830		—			838,830
Deferred tax assets and income taxes receivable	3,261			15,953		115,687		—			134,901
Investments in subsidiaries	2,955,158			—		119,213		(3,074,371		)	—
Amounts due from affiliates	—			2,212,575		3,253,034		(5,465,609		)	—
Other noncurrent assets	—			53,975		28,342		—			82,317
Total assets	$	2,961,230		$	2,702,930	$	6,328,250	$	(8,539,980	)	$	3,452,430

Accounts payable and accrued expenses	1,952			14,407		140,407		—			156,766
Accrued salaries, wages and payroll taxes	—			1,676		115,783		—			117,459
Accrued income taxes and reserves for uncertain tax positions	—			1,060		35,182		—			36,242
Current portion of long-term debt	—			649,022		—		—			649,022
Operating lease liabilities	—			153		187,737		—			187,890
Deferred revenue and other current liabilities	—			30,695		159,547		—			190,242
Total current liabilities	1,952			697,013		638,656		—			1,337,621
Long-term debt and line of credit borrowings	—			1,880,589		—		—			1,880,589
Deferred tax liabilities and reserves for uncertain tax positions	24,623			1,486		146,845		—			172,954
Operating lease liabilities	—			108		289,191		—			289,299
Deferred revenue and other noncurrent liabilities	—			4,521		85,825		—			90,346
Amounts due to affiliates	3,253,034			—		2,212,575		(5,465,609		)	—
Total liabilities	3,279,609			2,583,717		3,373,092		(5,465,609		)	3,770,809
Stockholders' equity (deficiency)	(318,379		)	119,213		2,955,158		(3,074,371		)	(318,379		)
Total liabilities and stockholders' equity	$	2,961,230		$	2,702,930	$	6,328,250	$	(8,539,980	)	$	3,452,430



CONDENSED CONSOLIDATING BALANCE SHEETS											(in 000s)
As of January 31, 2019	H&R Block, Inc. (Guarantor)			Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
Cash & cash equivalents	$	—		$	4,722	$	198,504	$	—		$	203,226
Cash & cash equivalents - restricted	—			—		101,903		—			101,903
Receivables, net	—			392,257		365,960		—			758,217
Prepaid expenses and other current assets	2,811			2,637		165,858		—			171,306
Total current assets	2,811			399,616		832,225		—			1,234,652
Property and equipment, net	—			466		220,039		—			220,505
Intangible assets, net	—			—		356,952		—			356,952
Goodwill	—			—		520,005		—			520,005
Deferred tax assets and income taxes receivable	1,794			17,941		121,631		—			141,366
Investments in subsidiaries	2,485,857			—		102,763		(2,588,620		)	—
Amounts due from affiliates	—			1,559,416		2,679,945		(4,239,361		)	—
Other noncurrent assets	—			57,230		38,096		—			95,326
Total assets	$	2,490,462		$	2,034,669	$	4,871,656	$	(6,827,981	)	$	2,568,806

Accounts payable and accrued expenses	$	14,823		$	18,475	$	168,803	$	—		$	202,101
Accrued salaries, wages and payroll taxes	—			1,333		139,569		—			140,902
Accrued income taxes and reserves for uncertain tax positions	—			1,060		47,949		—			49,009
Deferred revenue and other current liabilities	—			28,441		167,193		—			195,634
Total current liabilities	14,823			49,309		523,514		—			587,646
Long-term debt and line of credit borrowings	—			1,876,989		—		—			1,876,989
Deferred tax liabilities and reserves for uncertain tax positions	9,285			3,989		200,943		—			214,217
Deferred revenue and other noncurrent liabilities	—			1,619		101,926		—			103,545
Amounts due to affiliates	2,679,945			—		1,559,416		(4,239,361		)	—
Total liabilities	2,704,053			1,931,906		2,385,799		(4,239,361		)	2,782,397
Stockholders' equity (deficiency)	(213,591		)	102,763		2,485,857		(2,588,620		)	(213,591		)
Total liabilities and stockholders' equity	$	2,490,462		$	2,034,669	$	4,871,656	$	(6,827,981	)	$	2,568,806



CONDENSED CONSOLIDATING BALANCE SHEETS										(in 000s)
As of April 30, 2019	H&R Block, Inc. (Guarantor)		Block Financial (Issuer)		Other Subsidiaries		Eliminations			Consolidated H&R Block
Cash & cash equivalents	$	—	$	4,109	$	1,568,041	$	—		$	1,572,150
Cash & cash equivalents - restricted	—		—		135,577		—			135,577
Receivables, net	—		35,901		103,064		—			138,965
Prepaid expenses and other current assets	2,812		1,695		142,160		—			146,667
Total current assets	2,812		41,705		1,948,842		—			1,993,359
Property and equipment, net	—		552		211,540		—			212,092
Intangible assets, net	—		—		342,493		—			342,493
Goodwill	—		—		519,937		—			519,937
Deferred tax assets and income taxes receivable	3,218		15,953		122,808		—			141,979
Investments in subsidiaries	3,378,009		—		137,733		(3,515,742		)	—
Amounts due from affiliates	—		1,562,958		2,815,617		(4,378,575		)	—
Other noncurrent assets	—		54,976		35,109		—			90,085
Total assets	$	3,384,039	$	1,676,144	$	6,134,079	$	(7,894,317	)	$	3,299,945

Accounts payable and accrued expenses	$	2,272	$	19,735	$	227,518	$	—		$	249,525
Accrued salaries, wages and payroll taxes	—		1,564		194,963		—			196,527
Accrued income taxes and reserves for uncertain tax positions	—		1,060		270,913		—			271,973
Deferred revenue and other current liabilities	—		21,144		183,832		—			204,976
Total current liabilities	2,272		43,503		877,226		—			923,001
Long-term debt	—		1,492,629		—		—			1,492,629
Deferred tax liabilities and reserves for uncertain tax positions	24,623		1,486		171,797		—			197,906
Deferred revenue and other noncurrent liabilities	—		793		144,089		—			144,882
Amounts due to affiliates	2,815,617		—		1,562,958		(4,378,575		)	—
Total liabilities	2,842,512		1,538,411		2,756,070		(4,378,575		)	2,758,418
Stockholders' equity	541,527		137,733		3,378,009		(3,515,742		)	541,527
Total liabilities and stockholders' equity	$	3,384,039	$	1,676,144	$	6,134,079	$	(7,894,317	)	$	3,299,945