Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) 
þ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended January
July 31, 20182020
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
hrbnewlogo.jpg
H&R Block, Inc.
(Exact name of registrant as specified in its charter)
MISSOURIMissouri 44-0607856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One H&R Block Way, Kansas City, Missouri64105
(Address of principal executive offices, including zip code)
(816) (816) 854-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, without par valueHRBNew 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.
Yesþ☑     No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesþ☑     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 filerþ☑           Accelerated filer ¨ ☐        Non-accelerated filer ¨☐          Smaller reporting company ¨☐Emerging growth company ¨☐
(Do not check if a smaller reporting 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  þ☑
The number of shares outstanding of the registrant's Common Stock, without par value, at the close of business on February 28, 2018: 209,202,224August 31, 2020: 192,898,471 shares.
 



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Form 10-Q for the Period Ended JanuaryJuly 31, 20182020
Table of Contents
 
PART I
 
   
Item 1.
Consolidated Statements of Operations and Comprehensive LossIncome(Loss) 
 Three and nine months ended JanuaryJuly 31, 20182020 and 20172019
1
   
 Consolidated Balance Sheets 
 As of JanuaryJuly 31, 2018, January2020, July 31, 20172019 and April 30, 20172020
2
   
 Consolidated Statements of Cash Flows 
 NineThree months ended JanuaryJuly 31, 20182020 and 20172019
3
Consolidated Statements of Stockholders' Equity
Three months ended July 31, 2020 and 2019
4
   
 Notes to Consolidated Financial Statements
45
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
   
Item 3.4.
QuantitativeControls and Qualitative Disclosures About Market RiskProcedures
34
Item 4.
Controls and Procedures
3426
   
 
PART II
 
Item 1.
Legal Proceedings
3426
   
Item 1A.
Risk Factors
3426
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3527
   
Item 3.Defaults Upon Senior Securities
3527
   
Item 4.Mine Safety Disclosures
3527
   
Item 5.
Other Information
3527
   
Item 6.
Exhibits
3527
   
 
Signatures
3629




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PART I    FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS		(unaudited, in 000s, except 
per share amounts)		 
  Three months ended January 31, Nine months ended January 31,
  2018
 2017
 2018
 2017
         
REVENUES:        
Service revenues $388,771
 $361,397
 $641,389
 $592,721
Royalty, product and other revenues 99,655
 90,485
 125,693
 115,678
  488,426
 451,882
 767,082
 708,399
OPERATING EXPENSES:        
Cost of revenues:        
Compensation and benefits 181,958
 165,015
 303,434
 275,098
Occupancy and equipment 107,981
 104,094
 311,752
 297,586
Provision for bad debt 29,191
 28,348
 33,429
 29,634
Depreciation and amortization 32,046
 29,828
 90,391
 87,206
Other 65,425
 61,492
 145,329
 136,041
  416,601
 388,777
 884,335
 825,565
Selling, general and administrative:        
Marketing and advertising 64,209
 84,101
 82,875
 103,663
Compensation and benefits 66,942
 58,408
 185,453
 174,223
Depreciation and amortization 16,442
 15,332
 46,487
 44,986
Other selling, general and administrative 21,505
 30,056
 66,378
 77,500

 169,098
 187,897
 381,193
 400,372
Total operating expenses 585,699
 576,674
 1,265,528
 1,225,937
         
Other income (expense), net 1,028
 134
 3,259
 4,948
Interest expense on borrowings (24,560) (25,940) (67,102) (70,026)
Loss from continuing operations before income taxes (benefit) (120,805) (150,598) (562,289) (582,616)
Income taxes (benefit) 122,120
 (49,386) (43,234) (216,963)
Net loss from continuing operations (242,925) (101,212) (519,055) (365,653)
Net loss from discontinued operations, net of tax benefits of $1,422 and $1,919, $6,094 and $5,120 (2,720) (3,302) (10,723) (8,754)
NET LOSS $(245,645) $(104,514) $(529,778) $(374,407)
         
BASIC AND DILUTED LOSS PER SHARE:        
Continuing operations $(1.16) $(0.49) $(2.49) $(1.71)
Discontinued operations (0.02) (0.01) (0.05) (0.04)
Consolidated $(1.18) $(0.50) $(2.54) $(1.75)
         
DIVIDENDS DECLARED PER SHARE $0.24
 $0.22
 $0.72
 $0.66
         
COMPREHENSIVE LOSS:        
Net loss $(245,645) $(104,514) $(529,778) $(374,407)
Unrealized gains (losses) on securities, net of taxes        
Unrealized holding gains (losses) arising during
the period, net of tax benefits of $ - , $ 2 , $ - and $8		 —
 (3) 1
 (14)
Change in foreign currency translation adjustments 4,848
 1,762
 5,924
 (4,116)
Other comprehensive income (loss) 4,848
 1,759
 5,925
 (4,130)
Comprehensive loss $(240,797) $(102,755) $(523,853) $(378,537)
         
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)		(unaudited, in 000s, except 
per share amounts)		 
  Three months ended July 31,
  2020
 2019
     
REVENUES:    
Service revenues $550,951
 $132,159
Royalty, product and other revenues 50,079
 18,203
  601,030
 150,362
OPERATING EXPENSES:    
Costs of revenues 315,036
 229,392
Selling, general and administrative 133,038
 116,136
Total operating expenses 448,074
 345,528
     
Other income (expense), net 3,211
 9,123
Interest expense on borrowings (32,125) (21,071)
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 EARNINGS (LOSS) PER SHARE:    
Continuing operations $0.48
 $(0.72)
Discontinued operations (0.01) (0.02)
Consolidated $0.47
 $(0.74)
     
DIVIDENDS DECLARED PER SHARE $0.26
 $0.26
     
COMPREHENSIVE INCOME (LOSS):    
Net income (loss) $91,259
 $(150,247)
Change in foreign currency translation adjustments 17,539
 (2,320)
Other comprehensive income (loss) 17,539
 (2,320)
Comprehensive income (loss) $108,798
 $(152,567)
     
See accompanying notes to consolidated financial statements.


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CONSOLIDATED BALANCE SHEETS 
(unaudited, in 000s, except 
share and per share amounts)
  (unaudited, in 000s, except 
share and per share amounts)		 
As of January 31, 2018
 January 31, 2017
 April 30, 2017
 July 31, 2020
 July 31, 2019
 April 30, 2020
 

 

   

 

  
ASSETS            
Cash and cash equivalents $187,366
 $221,172
 $1,011,331
 $2,598,570
 $607,668
 $2,661,914
Cash and cash equivalents - restricted 83,033
 70,166
 106,208
 208,015
 157,786
 211,106
Receivables, less allowance for doubtful accounts of $45,215, $47,731 and $55,296 791,618
 787,865
 162,775
Income taxes receivable 72,775
 38,032
 —
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 149,349
 85,599
 65,725
 93,538
 105,123
 80,519
Total current assets 1,284,141
 1,202,834
 1,346,039
 2,997,345
 946,705
 3,086,736
Property and equipment, at cost, less accumulated depreciation and amortization of $757,809, $673,594 and $678,161 249,911
 282,358
 263,827
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 492,195
 486,147
 494,788
Intangible assets, net 390,993
 434,720
 409,364
 400,025
 419,391
 414,976
Goodwill 504,789
 483,320
 491,207
 724,288
 821,278
 712,138
Deferred tax assets and income taxes receivable 25,305
 71,639
 83,728
 153,274
 142,416
 151,195
Other noncurrent assets 106,161
 102,760
 99,943
 61,479
 94,384
 67,847
Total assets $2,561,300
 $2,577,631
 $2,694,108
 $4,997,436
 $3,110,000
 $5,112,047
LIABILITIES AND STOCKHOLDERS' EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses $163,653
 $239,085
 $217,028
 $128,690
 $122,156
 $203,103
Accrued salaries, wages and payroll taxes 135,626
 123,457
 183,856
 69,346
 48,166
 116,375
Accrued income taxes and reserves for uncertain tax positions 164,246
 7,537
 348,199
 156,557
 182,928
 209,816
Current portion of long-term debt 1,015
 942
 981
 —
 —
 649,384
Operating lease liabilities 209,556
 186,355
 195,537
Deferred revenue and other current liabilities 201,988
 183,616
 189,216
 201,809
 193,364
 201,401
Total current liabilities 666,528
 554,637
 939,280
 765,958
 732,969
 1,575,616
Long-term debt and line of credit borrowings 2,284,231
 2,592,622
 1,493,017
 3,495,918
 1,493,289
 2,845,873
Deferred tax liabilities and reserves for uncertain tax positions 201,384
 109,557
 159,085
 185,687
 199,714
 182,441
Operating lease liabilities 297,518
 292,818
 312,566
Deferred revenue and other noncurrent liabilities 107,226
 121,631
 163,609
 117,078
 100,406
 124,510
Total liabilities 3,259,369
 3,378,447
 2,754,991
 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 246,198,878 2,462
 2,462
 2,462
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 758,361
 752,748
 754,912
 772,782
 759,449
 775,387
Accumulated other comprehensive loss (9,374) (15,363) (15,299) (34,037) (22,736) (51,576)
Retained deficit (729,578) (785,823) (48,206)
Less treasury shares, at cost, of 37,079,700, 39,032,420 and 39,027,573 (719,940) (754,840) (754,752)
Total stockholders' equity (deficiency) (698,069) (800,816) (60,883)
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 $2,561,300
 $2,577,631
 $2,694,108
 $4,997,436
 $3,110,000
 $5,112,047
            
See accompanying notes to consolidated financial statements.


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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)  (unaudited, in 000s) 
Nine months ended January 31, 2018
 2017
Three months ended July 31, 2020
 2019
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(529,778) $(374,407)
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 136,878
 132,192
 39,508
 38,605
Provision for bad debt 33,429
 29,634
Provision 2,809
 552
Deferred taxes 113,345
 6,128
 (1,368) 6,825
Stock-based compensation 17,065
 16,945
 7,597
 6,674
Changes in assets and liabilities, net of acquisitions:        
Receivables (651,200) (646,290) 26,052
 60,519
Prepaid expenses and other current assets (83,201) (23,208)
Other noncurrent assets 8,310
 7,575
Accounts payable and accrued expenses (36,608) (33,560)
Accrued salaries, wages and payroll taxes (49,255) (37,978)
Deferred revenue and other current liabilities 10,113
 (44,243)
Deferred revenue and other noncurrent liabilities (58,695) (57,216)
Prepaid expenses, other current and noncurrent assets (8,460) (9,917)
Accounts payable, accrued expenses, salaries, wages and payroll taxes (123,011) (284,643)
Deferred revenue, other current and noncurrent liabilities (7,136) (45,769)
Income tax receivables, accrued income taxes and income tax reserves (255,650) (378,987) (46,964) (99,929)
Other, net (12,454) (6,444) (786) (6,499)
Net cash used in operating activities (1,357,701) (1,409,859) (20,500) (483,829)
        
CASH FLOWS FROM INVESTING ACTIVITIES:        
Principal payments and sales of mortgage loans and real estate owned, net —
 207,174
Capital expenditures (77,865) (73,924) (8,311) (15,181)
Payments made for business acquisitions, net of cash acquired (39,397) (52,825) (13) (394,411)
Franchise loans funded (20,226) (31,788) (128) (2,806)
Payments received on franchise loans 13,391
 20,816
Payments from franchisees 14,150
 2,647
Other, net 1,524
 (4,711) (1,318) 50,944
Net cash provided by (used in) investing activities (122,573) 64,742
 4,380
 (358,807)
        
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings (40,000) (445,000)
Proceeds from line of credit borrowings 830,000
 1,545,000
Dividends paid (150,258) (141,537) (50,044) (52,512)
Repurchase of common stock, including shares surrendered (7,746) (322,782) (2,913) (36,456)
Proceeds from exercise of stock options 28,268
 2,403
 1,147
 1,206
Other, net (28,922) 373
 (4,910) (12,431)
Net cash provided by financing activities 631,342
 638,457
Net cash used in financing activities (56,720) (100,193)
        
Effects of exchange rate changes on cash 1,792
 (2,913) 6,405
 556
        
Net decrease in cash, cash equivalents and restricted cash (847,140) (709,573)
Net decrease in cash and cash equivalents, including restricted balances (66,435) (942,273)
Cash, cash equivalents and restricted cash, beginning of period 1,117,539
 1,000,911
 2,873,020
 1,707,727
Cash, cash equivalents and restricted cash, end of period $270,399
 $291,338
 $2,806,585
 $765,454
        
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received $102,755
 $158,656
 $79,138
 $36,138
Interest paid on borrowings 57,834
 59,809
 26,457
 15,519
Accrued purchase of common stock 0
 16,801
Accrued additions to property and equipment 1,078
 5,959
 1,716
 127
New operating right of use assets and related lease liabilities 52,171
 157,216
        
See accompanying notes to consolidated financial statements.


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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000s, except per share amounts) 
  Common Stock Additional
Paid-in
Capital
 Accumulated Other
Comprehensive
Income (Loss)
 Retained
Earnings
 Treasury Stock Total
Stockholders’
Equity
  Shares
 Amount
    Shares
 Amount
 
Balances as of May 1, 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 —
 —
 —
 17,539
 —
 —
 —
 17,539
Stock-based compensation —
 —
 7,422
 —
 —
 —
 —
 7,422
Stock-based awards exercised or vested —
 —
 (10,027) —
 (1,247) 627
 12,247
 973
Acquisition of treasury shares —
 —
 —
 —
 —
 (204) (2,913) (2,913)
Cash dividends declared - $0.26 per share —
 —
 —
 —
 (50,044) —
 —
 (50,044)
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
    Shares
 Amount
 
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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  (unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION–The consolidated balance sheets as of JanuaryJuly 31, 20182020 and 2017,2019, the consolidated statements of operations and comprehensive lossincome (loss) for the three and nine months ended JanuaryJuly 31, 20182020 and 2017, and2019, the consolidated statements of cash flows for the ninethree months ended JanuaryJuly 31, 20182020 and 20172019, and the consolidated statements of stockholders' equity for the three months ended July 31, 2020 and 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 JanuaryJuly 31, 20182020 and 20172019 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, 20172020 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, 20172020 or for the year then ended are derived from our April 30, 2017Annual Report to Shareholders on Form 10-K.
MANAGEMENT ESTIMATES–The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, the impactfair value of legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Legislation),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. See note 7 for additional discussion
SEASONALITY OF BUSINESS – 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 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 impact ofCOVID-19 pandemic, on March 21, 2020, the Tax Legislation.
SEASONALITY OF BUSINESS –Our operating revenues are seasonal in nature with peak revenues typically occurringfederal tax filing deadline in the monthsUnited 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, resultsour 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 andnote 10 for additional information on litigation, claims, and other loss contingencies related to our discontinued operations.
NEW ACCOUNTING PRONOUNCEMENTS – 
Restricted Cash in Statement of Cash Flows.Current Expected Credit Losses. In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-18, "Restricted Cash (a consensus of the FASB Emerging Issues Task Force)," (ASU 2016-18). This guidance requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. This guidance must be applied retrospectively to all periods presented. We adopted ASU 2016-18 effective May 1, 2017. All prior periods have been adjusted to conform to the current period presentation, which resulted in an increase in cash used in operations of $33.9 million for the nine months ended January 31, 2017.
Stock-Based Compensation. In MarchJune 2016, the FASB issued Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting,2016-13 (ASU 2016-13), "Measurement of Credit Losses on Financial Instruments," (ASU 2016-09). This guidance requires that, among other things: (1) all excess tax benefits and tax deficiencies would be recognized as income tax expense or benefit inwhich replaces the income statement; and (2) excess tax benefits would not be separated from other income tax cash flows and, thus, would be classified along with other cash flows asexisting incurred credit loss model for an operating activity. The transition requirements for this guidance varies by component, but the changes applicable to us were applied prospectively.expected credit loss model. We adopted ASU 2016-09 effective2016-13 as of May 1, 2017. We recorded2020, which did not have a discrete tax benefit of $4.6 million related to stock-based compensation during the nine months ended January 31, 2018.material impact on our consolidated financial statements.


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Revenue Recognition. In May 2014,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 businesses and from Wave included as separate lines:
    (in 000s)
  Three months ended July 31,
  2020 2019
Revenues:    
U.S. assisted tax preparation $337,728
 $32,992
U.S. royalties 35,949
 6,859
U.S. DIY tax preparation 67,595
 3,410
International 67,818
 40,581
Refund Transfers 10,553
 1,509
Emerald Card®
 17,055
 13,855
Peace of Mind® Extended Service Plan 31,995
 32,837
Tax Identity Shield® 9,367
 4,522
Interest and fee income on Emerald AdvanceTM
 663
 554
Wave 12,067
 3,625
Other 10,240
 9,618
Total revenues $601,030
 $150,362
     

Changes in the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," (ASU 2014-09) which is a comprehensive new revenue recognition model that requires an entity to recognize the amountbalances of revenue which reflects the consideration it expects to receive in exchange for the transfer of the promised goods or services to customers. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty ofdeferred revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract, and clarifies guidancewages for multiple-element arrangements. This guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for us on May 1, 2018. The standard permits the use of either the full retrospective or modified retrospective transition method.
We have substantially completed our evaluation of the impact of ASU 2014-09 on our United States (U.S.) assisted tax preparation fees, U.S. royalties, U.S. DIY tax preparation fees, revenues from Peace of Mind® Extended Service Plan (POM), revenues from Refund Transfers (RTs), revenues from H&R Block Emerald Prepaid MasterCard® (Emerald Card), interest are as follows:
        (in 000s)
POM Deferred Revenue Deferred Wages
Three months ended July 31, 2020
 2019
 2020
 2019
Balance, beginning of the period $183,685
 $212,511
 $21,618
 $27,306
Amounts deferred 18,217
 1,723
 128
 23
Amounts recognized on previous deferrals (37,205) (38,212) (4,348) (5,324)
Balance, end of the period $164,697
 $176,022
 $17,398
 $22,005
         

As of July 31, 2020, deferred revenue related to POM was $164.7 million. We expect that $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 July 31, 2020 and fee income from H&R Block Emerald Advance® lines of credit (EAs) and fees from2019, Tax Identity Shield® (TIS) deferred revenue was $24.8 million and based on the preliminary results of our evaluation, we do not expect the application of this guidance to have a material impact on the recognition of$25.4 million, respectively. Deferred revenue related to these services. Changes to our client agreements or service design before adoption of the new standard could change our preliminary conclusions. We are still evaluating the impact of this guidance as it relates to otherTIS was $30.8 million and $29.7 million at April 30, 2020 and 2019, respectively. All deferred revenue streams, as well as certain associated expenses. Depending on the results of our review, there could be changes to the classification and timing of recognition of revenues and expenses related to other revenue streams. We currently expect to adopt usingTIS will be recognized within the full retrospective transition method, under which we will recast prior periods to comply with this new guidance. We are continuing our assessment, including evaluating the standard's impact on our internal controls.
Income Taxes. In October 2016, the FASB issued Accounting Standards Update No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Asset Transfers of Assets Other than Inventory," (ASU 2016-16). The new guidance eliminates the exception for intra-entity transfers other than inventory and requires the recognition of current and deferred income taxes resulting from such a transfer when the transfer occurs. We will adopt this guidance on May 1, 2018 on a modified retrospective basis. We estimate that we will recognize a cumulative-effect adjustment to retained earnings between $95 million and $110 million, which will also result in increases in deferred tax assets and income tax reserves. However, future transactions and law changes prior to adoption could significantly change the impact of adoption.next nine months.
NOTE 2: LOSS3: EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS' EQUITY
LOSSEARNINGS (LOSS) PER SHARE – Basic and diluted lossearnings (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 3.31.3 million shares for the three and nine months ended JanuaryJuly 31, 2018,2020 as the effect would be antidilutive, and 4.53.7 million shares for the three and nine months ended JanuaryJuly 31, 2017,2019, as the effect would be antidilutive due to the net loss from continuing operations during those periods.the period.


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The computations of basic and diluted lossearnings (loss) per share from continuing operations are as follows:
(in 000s, except per share amounts) 
  Three months ended July 31,
  2020
 2019
Net earnings (loss) from continuing operations attributable to shareholders $93,556
 $(145,724)
Amounts allocated to participating securities (327) (149)
Net earnings (loss) from continuing operations attributable to common shareholders $93,229
 $(145,873)
     
Basic weighted average common shares 192,598
 202,037
Potential dilutive shares 1,469
 0
Dilutive weighted average common shares 194,067
 202,037
     
Earnings (loss) per share from continuing operations attributable to common shareholders:
Basic $0.48
 $(0.72)
Diluted 0.48
 (0.72)
     
(in 000s, except per share amounts) 
  Three months ended January 31, Nine months ended January 31,
  2018
 2017
 2018
 2017
Net loss from continuing operations attributable to shareholders $(242,925) $(101,212) $(519,055) $(365,653)
Amounts allocated to participating securities (177) (143) (498) (410)
Net loss from continuing operations attributable to common shareholders $(243,102) $(101,355) $(519,553) $(366,063)
         
Basic weighted average common shares 209,080
 207,862
 208,693
 214,627
Potential dilutive shares —
 —
 —
 —
Dilutive weighted average common shares 209,080
 207,862
 208,693
 214,627
         
Loss per share from continuing operations attributable to common shareholders:
Basic $(1.16) $(0.49) $(2.49) $(1.71)
Diluted (1.16) (0.49) (2.49) (1.71)
         

The weighted average shares outstanding for the three and nine months ended JanuaryJuly 31, 2018 increased to 209.1 million and2020 decreased to 208.7192.6 million respectively, from 207.9202.0 million and 214.6 million, respectively, for the three and nine months ended JanuaryJuly 31, 2017.2019. The decrease during the nine month period is due to share repurchases completed in the prior year. We did not repurchase and retire any shares during the nine months ended January 31, 2018. During the nine months ended January 31, 2017, we purchased and immediately retired 14.0 million shares at an aggregate cost of $317.0 million (average price of $22.61 per share).
STOCK-BASED COMPENSATION – During the ninethree months ended JanuaryJuly 31, 2018,2020, we acquired 0.30.2 million shares of our common stock at an aggregate cost of $7.72.9 million. These shares, which represent shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards. During the ninethree months ended JanuaryJuly 31, 20172019, we acquired 0.3 million shares at an aggregate cost of $5.89.2 million for similar purposes.
During the ninethree months ended JanuaryJuly 31, 20182020 and 20172019, we issued 2.20.6 million and 0.9 million shares of common stock, respectively, due to the vesting or exercise of stock-based awards.
During the ninethree months ended JanuaryJuly 31, 20182020, we granted equity awards equivalent to 1.21.8 million shares under our stock-based compensation plans, consisting primarily of nonvested units. Stock-based compensation expense of our continuing operations totaled $5.4 million and $17.1$7.6 million for the three and nine months ended JanuaryJuly 31, 2018,2020 and $4.5 million and $16.9$6.7 million for the three and nine months ended JanuaryJuly 31, 2017.2019. As of JanuaryJuly 31, 2018,2020, unrecognized compensation cost for stock options totaled $1.2 million, and for nonvested shares and units totaled $35.753.8 million.


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NOTE 3:4: RECEIVABLES
Receivables, net of their related allowance, consist of the following:
(in 000s) 
As of July 31, 2020 July 31, 2019 April 30, 2020
  Short-term Long-term Short-term Long-term Short-term Long-term
Loans to franchisees $10,981
 $31,360
 $12,301
 $45,542
 $25,397
 $31,329
Receivables for U.S. assisted and DIY tax preparation and related fees 34,586
 3,112
 19,686
 3,716
 47,030
 3,112
H&R Block Instant RefundTM receivables
 1,129
 1,596
 880
 1,780
 15,031
 1,325
H&R Block Emerald Advance® lines of credit
 9,372
 10,478
 8,136
 10,249
 10,001
 14,081
Software receivables from retailers 2,004
 0
 1,395
 0
 7,341
 0
Royalties and other receivables from franchisees 20,135
 39
 7,834
 99
 9,861
 42
Wave payment processing receivables 2,324
 0
 3,041
 0
 3,200
 0
Other 16,691
 1,646
 22,855
 2,251
 15,336
 1,828
Total $97,222
 $48,231
 $76,128
 $63,637
 $133,197
 $51,717
             
(in 000s) 
As of January 31, 2018 January 31, 2017 April 30, 2017
  Short-term Long-term Short-term Long-term Short-term Long-term
Loans to franchisees $41,062
 $47,434
 $62,603
 $50,021
 $39,911
 $36,614
Receivables for U.S assisted and DIY tax preparation and related fees 299,805
 6,316
 263,822
 5,528
 23,025
 6,316
Instant Cash Back® receivables 6,848
 —
 4,590
 —
 34,940
 —
H&R Block Emerald Advance® lines of credit
 353,972
 9,081
 354,027
 6,398
 16,202
 5,069
Software receivables from retailers 7,744
 —
 11,864
 —
 16,715
 —
Royalties and other receivables from franchisees 56,149
 788
 64,929
 —
 13,275
 1,585
Other 26,038
 3,608
 26,030
 4,304
 18,707
 3,314
  $791,618
 $67,227
 $787,865
 $66,251
 $162,775
 $52,898
             

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 consistedconsist of term loans made primarily to finance the purchase of franchises and revolving lines of credit primarily for the purpose of funding off-season working capital needs and term loans made primarily to finance the purchase of franchises.needs. As of JanuaryJuly 31, 2018 and 2017 and April 30, 2017,2020 loans with a principal balance of $1.3 million, $0.1 million and $0.1were more than 90 days past due. As of July 31, 2019, loans with a principal balance of $2.0 million respectively, were more than 90 days past due. We had no loans to franchisees on non-accrual status.
H&R BLOCK INSTANT CASH BACK®REFUNDTM PROGRAM –Refunds advanced under theH&R Block Instant Cash Back® program in Canada are not subject to credit approval. Instant Cash Back®RefundTM amounts are generally received from the Canada Revenue Agency (CRA) within 60 days of filing the client's return.return, with the remaining balance collectible from the client.
H&R BLOCK EMERALD ADVANCE® LINES OF CREDIT –We review the credit quality of our purchased participation interests in EAInstant Refund receivables based on pools, which are segregated by the year of origination, with older years being deemed more unlikely to be repaid. TheseCurrent balances and amounts as of January 31, 2018, by year of origination, are as follows:
(in 000s) 
Credit Quality Indicator – Year of origination:  
2018 $352,591
2017 8,342
2016 and prior 6,634
Revolving loans 23,291
  390,858
Allowance (27,805)
Net balance $363,053
   
As of January 31, 2018 and 2017 and April 30, 2017, $27.8 million, $25.3 million and $28.0 million of EAs were on non-accrual status and classified as impaired, or more than 60 days past due, respectively.by year of origination, as of July 31, 2020 are as follows:

    (in 000s)
Year of Origination Balance Non-Accrual
     
2020 $4,737
 $366
2019 and prior 241
 241
  4,978
 $607
Allowance (2,253)  
Net balance $2,725
  
     


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H&R BLOCK EMERALD ADVANCE® LINES OF CREDIT –We review the credit quality of our purchased participation interests in Emerald AdvanceTM (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 July 31, 2020, by year of origination, are as follows:
(in 000s) 
Year of origination: Balance
 Non-Accrual
2020 $29,176
 $29,176
2019 and prior 4,886
 4,886
Revolving loans 14,962
 13,729
  49,024
 $47,791
Allowance (29,174)  
Net balance $19,850
  
     

ALLOWANCE FOR DOUBTFUL ACCOUNTS CREDIT LOSSES –Activity in the allowance for doubtful accountscredit losses for our EA and all other short-term and long-term receivables for the ninethree months ended JanuaryJuly 31, 20182020 and 20172019 is as follows:
(in 000s) 
  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
Provision 0
 552
 552
Charge-offs, recoveries and other 0
 (322) (322)
Balances as of July 31, 2019 $27,535
 $54,168
 $81,703
       
(in 000s) 
  EAs
 All Other
 Total
Balances as of April 30, 2017 $10,123
 $45,173
 $55,296
Provision 17,682
 15,747
 33,429
Charge-offs —
 (43,510) (43,510)
Balances as of January 31, 2018 $27,805
 $17,410
 $45,215
       
Balances as of April 30, 2016 $9,007
 $48,004
 $57,011
Provision 22,479
 7,155
 29,634
Charge-offs —
 (38,914) (38,914)
Balances as of January 31, 2017 $31,486
 $16,245
 $47,731
       

NOTE 4:5: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the ninethree months ended JanuaryJuly 31, 20182020 and 20172019 are as follows:
(in 000s) 
  Goodwill
 Accumulated Impairment Losses
 Net
Balances as of April 30, 2020 $850,435
 $(138,297) $712,138
Acquisitions 0
 —
 0
Disposals and foreign currency changes, net 12,150
 —
 12,150
Impairments —
 0
 0
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
       

(in 000s) 
  Goodwill
 Accumulated Impairment Losses
 Net
Balances as of April 30, 2017 $523,504
 $(32,297) $491,207
Acquisitions 11,579
 —
 11,579
Disposals and foreign currency changes, net 2,003
 —
 2,003
Impairments —
 —
 —
Balances as of January 31, 2018 $537,086
 $(32,297) $504,789
       
Balances as of April 30, 2016 $503,054
 $(32,297) $470,757
Acquisitions 13,346
 —
 13,346
Disposals and foreign currency changes, net (783) —
 (783)
Impairments —
 —
 —
Balances as of January 31, 2017 $515,617
 $(32,297) $483,320
       
(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.


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Components of intangible assets are as follows:
(in 000s) 
  
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net
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 $350,679
 $(141,954) $208,725
Customer relationships 300,156
 (203,283) 96,873
Internally-developed software 144,768
 (111,892) 32,876
Noncompete agreements 40,358
 (31,980) 8,378
Franchise agreements 19,201
 (13,654) 5,547
Purchased technology 104,700
 (45,166) 59,534
Trade name 5,800
 (48) 5,752
Acquired assets pending final allocation (1)
 1,706
 0
 1,706
  $967,368
 $(547,977) $419,391
As of April 30, 2020:      
Reacquired franchise rights $365,062
 $(159,754) $205,308
Customer relationships 314,191
 (227,445) 86,746
Internally-developed software 154,083
 (113,698) 40,385
Noncompete agreements 41,072
 (33,639) 7,433
Franchise agreements 19,201
 (14,614) 4,587
Purchased technology 122,700
 (57,548) 65,152
Trade name 5,800
 (483) 5,317
Acquired assets pending final allocation (1)
 48
 0
 48
  $1,022,157
 $(607,181) $414,976
       

(in 000s) 
  
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net
As of January 31, 2018:      
Reacquired franchise rights $339,544
 $(108,063) $231,481
Customer relationships 251,792
 (156,234) 95,558
Internally-developed software 151,095
 (123,309) 27,786
Noncompete agreements 32,853
 (29,195) 3,658
Franchise agreements 19,201
 (11,734) 7,467
Purchased technology 54,700
 (36,329) 18,371
Acquired assets pending final allocation (1)
 6,672
 —
 6,672
  $855,857
 $(464,864) $390,993
As of January 31, 2017:      
Reacquired franchise rights $328,321
 $(85,127) $243,194
Customer relationships 216,449
 (124,771) 91,678
Internally-developed software 142,571
 (108,047) 34,524
Noncompete agreements 31,821
 (27,033) 4,788
Franchise agreements 19,201
 (10,454) 8,747
Purchased technology 54,700
 (30,457) 24,243
Acquired assets pending final allocation (1)
 27,546
 —
 27,546
  $820,609
 $(385,889) $434,720
As of April 30, 2017:      
Reacquired franchise rights $331,150
 $(90,877) $240,273
Customer relationships 234,603
 (133,207) 101,396
Internally-developed software 139,709
 (108,379) 31,330
Noncompete agreements 32,408
 (27,559) 4,849
Franchise agreements 19,201
 (10,774) 8,427
Purchased technology 54,700
 (31,973) 22,727
Acquired assets pending final allocation (1)
 362
 —
 362
  $812,133
 $(402,769) $409,364
       
(1)    Represents franchisee and competitor business acquisitions for which final purchase price allocations have not yet been determined.
During the nine months ended January 31, 2018 and 2017, weWe made payments to acquire franchisee and competitor businesses totaling $39.4$13 thousand and $394.4 million during the three months ended July 31, 2020and $52.8 million,2019, respectively. The three months ended July 31, 2019 included the acquisition of Wave HQ Inc. (formerly known as Wave Financial Inc.) and its subsidiaries (collectively, "Wave").
Amortization of intangible assets for the three and nine months ended JanuaryJuly 31, 20182020 was $20.8$20.9 million and $59.5compared to $18.2 million respectively. Amortization for the three and nine months ended JanuaryJuly 31, 2017 was $19.3 million and $57.3 million, respectively.2019. Estimated amortization of intangible assets for fiscal years 2018, 2019, 2020, 2021, 2022, 2023, 2024 and 20222025 is $79.2$76.1 million, $67.3$59.8 million, $50.6$41.9 million, $35.6$31.0 million and $24.3$17.9 million, respectively.


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NOTE 5:6: LONG-TERM DEBT
The components of long-term debt are as follows:
      (in 000s)
As of July 31, 2020
 July 31, 2019
 April 30, 2020
Senior Notes, 4.125%, due October 2020 $650,000
 $650,000
 $650,000
Senior Notes, 5.500%, due November 2022 500,000
 500,000
 500,000
Senior Notes, 5.250%, due October 2025 350,000
 350,000
 350,000
Committed line of credit borrowings 2,000,000
 0
 2,000,000
Debt issuance costs and discounts (4,082) (6,711) (4,743)
  3,495,918
 1,493,289
 3,495,257
Less: Current portion 0
 0
 (649,384)
  $3,495,918
 $1,493,289
 $2,845,873
       

      (in 000s)
As of January 31, 2018
 January 31, 2017
 April 30, 2017
Senior Notes, 4.125%, due October 2020 $650,000
 $650,000
 $650,000
Senior Notes, 5.500%, due November 2022 500,000
 500,000
 500,000
Senior Notes, 5.250%, due October 2025 350,000
 350,000
 350,000
Committed line of credit borrowings 790,000
 1,100,000
 —
Capital lease obligation 5,878
 6,820
 6,610
Debt issuance costs and discounts (10,632) (13,256) (12,612)
  2,285,246
 2,593,564
 1,493,998
Less: Current portion (1,015) (942) (981)
  $2,284,231
 $2,592,622
 $1,493,017
       
On September 22, 2017, we entered into a Second Amended and Restated Credit and Guarantee Agreement (2017 CLOC), which further amended our First Amended and Restated Credit and Guarantee Agreement (2016 CLOC), extending the scheduled maturity date from September 22, 2021 to September 22, 2022. Other material terms remain unchanged from the 2016 CLOC. The 2017 CLOCUNSECURED 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 2017 CLOC will mature on September 22, 2022,21, 2023, unless extended pursuant to the terms of the 2017 CLOC, at which time all outstanding amounts thereunder will be due and payable. The 2017Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.
The 2017 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 2017 CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. Proceeds under the 2017 CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with these requirements as of JanuaryJuly 31, 2018.2020.
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 $790.0 million under the 2017on our CLOC as of JanuaryJuly 31, 2018,2020, which we expect to repay in full in September 2020.
The estimated fair value of our long-term debt, including the current portion of long-term debt, as of July 31, 2020 and may borrow up2019 and April 30, 2020 totaled $3.6 billion, $1.6 billion and $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 full capacitynet 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 $2.0 billion.July 31, 2020.

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NOTE 6: FAIR VALUE
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying amounts and estimated fair values of our financial instruments are as follows:
(in 000s) 
As of January 31, 2018 January 31, 2017 April 30, 2017
  Carrying
Amount
 Estimated
Fair Value
 Carrying
Amount
 Estimated
Fair Value
 Carrying
Amount
 Estimated
Fair Value
Assets:            
Cash and cash equivalents $187,366
 $187,366
 $221,172
 $221,172
 $1,011,331
 $1,011,331
Cash and cash equivalents - restricted 83,033
 83,033
 70,166
 70,166
 106,208
 106,208
Receivables, net - short-term 791,618
 791,618
 787,865
 787,865
 162,775
 162,775
Receivables, net - long-term 67,227
 67,227
 66,251
 66,251
 52,898
 52,898
Liabilities:            
Long-term debt (excluding debt issuance costs) 2,292,612
 2,365,881
 2,593,564
 2,672,370
 1,502,735
 1,569,033
Contingent consideration 11,906
 11,906
 9,332
 9,332
 10,428
 10,428
             
Fair value estimates, methods and assumptions are set forth below. Fair value was not estimated for assets and liabilities that are not considered financial instruments.
▪Cash and cash equivalents, including restricted - Fair value approximates the carrying amount (Level 1).
▪Receivables, net - short-term - For short-term balances the carrying values reported in the balance sheet approximate fair market value due to the relative short-term nature of the respective instruments (Level 1).
▪Receivables, net - long-term - The carrying values for the long-term portion of loans to franchisees approximate fair market value due to variable interest rates, low historical delinquency rates and franchise territories serving as collateral (Level 1). Long-term EA receivables and tax preparation receivables are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined based on historical collection rates.
▪Long-term debt - The fair value of our Senior Notes is based on quotes from multiple financial institutions (Level 2). For outstanding balances on the 2017 CLOC and 2016 CLOC, fair value approximates the carrying amount (Level 1).
▪Contingent consideration - Fair value approximates the carrying amount (Level 3).
NOTE 7: INCOME TAXES
We file a consolidated federal income tax return in the U.S. with the Internal Revenue Service (IRS)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. The Company’sOur U.S. federal income tax returnreturns for 2014 is currently under2017 and later years remain open for examination. Our U.S. federal income tax returns for 2015 and 2016 have not been audited and remain open to examination. Our U.S. federal income tax returns for 2013 and all prior periods are closed. With respect to state and local jurisdictions and countries outside of the United States,U.S., we are typically subject to examination for three to six years after the income tax

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returns have been filed. Although the outcome of the 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.
On December 22, 2017, the U.S. government enacted the Tax Legislation, which makes broad and complex changes to the U.S.A discrete income tax code that impacted our financial statements, the most significant being a reductionexpense of $0.6 million was recorded in the U.S. federal corporate income tax rate from 35% to 21% and the imposition of a one-time transition tax on certain earnings of foreign subsidiaries. In addition, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Legislation. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Legislation’s enactment date for companies to complete their analysis and apply the provisions of the Tax Legislation to their financial statements. To the extent

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a company’s accounting for certain income tax effects of the Tax Legislation is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Legislation.
We have completed an initial assessment of the corporate income tax impact expected to result from the Tax Legislation. Our financial statements reflect reasonable provisional estimates of the effects of the Tax Legislation in computing our deferred taxes, the one-time transition tax, which is payable in installments over a period of up to eight years, unrecognized tax benefits, and, among other items, the indirect impacts of the Tax Legislation on state taxes. We are in the process of finalizing our assessment of the impact of the Tax Legislation and our provisional estimates may be impacted by additional regulatory guidance that clarifies the interpretations of the Tax Legislation.
For the ninethree months ended JanuaryJuly 31, 2018, we recorded an income2020 compared to a discrete tax benefit of $43.2 million. Consistent with prior years, our pretax loss for the nine months ended January 31, 2018 is expected to be offset by income$8.3 million in the fourth quarter due tosame period of the established pattern of seasonality in our primary business operations. As such, management has determined that it is at least more-likely-than-not that realization ofprior year. The discrete tax benefitsexpense recorded in our financial statements will occur within our fiscal year.the current period primarily resulted from interest recorded on existing uncertain tax benefits. The amount ofdiscrete tax benefit recorded forin the nine months ended January 31, 2018 reflects management’s estimateprior year resulted primarily from favorable audit settlements and valuation allowance changes related to utilization of the annual effective tax rate applied to the year-to-date loss from continuing operations.foreign losses.
Our effective tax rate fromfor continuing operations, including the effects of discrete income tax items, was 7.7%24.6% and 37.2%29.6% for the nine months ended January 31, 2018 and 2017, respectively. Rate reconciliations between the statutory U.S. federal corporate income rates and the effective tax rates for continuing operations are below:
Nine months ended January 31, 2018
 2017
U.S. statutory tax rate 21.0 % 35.0 %
Change in tax rate resulting from:    
State income taxes, net of federal income tax benefit 2.2 % 1.6 %
Earnings taxed in foreign jurisdictions (2.3)% (5.3)%
Permanent differences 0.3 % (0.5)%
Uncertain tax positions 6.0 % 6.5 %
Remeasurement of deferred tax assets and liabilities 2.4 % — %
Tax benefit due to effective date of statutory rate change (16.4)% — %
One-time transition tax (2.4)% — %
Other (3.1)% (0.1)%
Effective tax rate 7.7 % 37.2 %
     
The reduced effective tax rate results primarily from the decrease in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. The impact of the rate decrease is exaggerated in fiscal year 2018 due to the seasonality of our business and our differing year ends for corporate income tax filing and financial reporting purposes, which is included as "tax benefit due to effective date of statutory rate change" in the table above. Our tax returns for the U.S. are filed on a calendar year-end basis. Therefore, pretax losses for the eight months ended December 31, 2017 result in income tax benefits based on the statutory rate of 35%, while the pretax income we generate in the four months ending April 30, 2018 will be taxed at the statutory rate of 21%.
For the three months ended JanuaryJuly 31, 2018, we reported a pretax loss from continuing operations of $120.8 million. As a result of applying2020 and 2019, respectively. Discrete items increased the effects of the Tax Legislation to our year-to-date results, we recorded income tax expense during the quarter on our loss from continuing operations. This caused a negative effective tax rate for the quarter and increased our loss from continuing operations. For the sixthree months ended OctoberJuly 31, 2017, we reported a pretax loss from continuing operations2020 and 2019 by 0.5% and 4.0%, respectively. The impact of $441.5 million and adiscrete tax benefititems combined with the seasonal nature of $165.4 million, resulting in anour business can cause the effective tax rate of 37.5%. For the nine months ended January 31, 2018, we reported a pretax loss of $562.3 million. Applying a 7.7% year to date effective tax rate to this pretax loss results in a tax benefit of $43.2 million. As a result, we recorded income tax expense of $122.1 million in the thirdthrough our first quarter to reflectbe significantly different than the impact the Tax Legislation had onrate for our year-to-date results.

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full fiscal year.
We had gross unrecognized tax benefits of $163.1$171.6 million, $97.1$179.2 million and $149.9$168.1 million as of JanuaryJuly 31, 20182020 and 20172019 and April 30, 2017,2020, respectively. The gross unrecognized tax benefits increased $13.1$3.5 million and decreased $14.4decreased$5.9 million during the ninethree months ended JanuaryJuly 31, 20182020 and 2017,2019, respectively. The increase in unrecognized tax benefits during the nine months ending January 31, 2018 is related to additional uncertain tax positions related to our 2017 tax returns, offset by favorable audit settlements and federal statute of limitation periods ending in the current quarter. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $17.4$12.1 million inwithin the next twelve months. The anticipated decrease in unrecognized tax benefits is due to the expiration of statutes of limitations and anticipated closure of various tax matters currently under examination.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. The portion of unrecognized benefits expected to be cash settled within the next twelve months amounts to $15.1 million and is included in accrued income taxes on our consolidated balance sheet. The remaining liability for uncertain tax positions is classified as long-term and is included in other noncurrent liabilities in the consolidated balance sheet.
Deferred tax assets and income taxes receivable decreased by $58.4 million from April 30, 2017 primarily due to a change in tax accounting method related to our deferred POM revenue and intercompany transfers of intangible assets.
While we believe we have identified all material implications the Tax Legislation is expected to have on our financial statements and were able to record a reasonable estimate of the impacts as provisional amounts as of and for the nine months ended January 31, 2018, we are continuing to evaluate the impacts of the Tax Legislation and do not consider these provisional estimates to be final. The final impacts may differ from the estimates provided, and could have a material impact on our financial statements. Given the significant complexity of the Tax Legislation, we anticipate changes may result due to further analyzing the impact of the provisions on our federal and state estimates. In addition, anticipated guidance from the IRS about implementing the Tax Legislation and the potential for additional guidance from the SEC or the FASB related to the Tax Legislation, may cause these estimates to be adjusted.
NOTE 8: OTHER INCOME AND OTHER EXPENSES
The following table shows the components of other income (expense), net:
(in 000s) 
  Three months ended July 31,
  2020
 2019
Interest income $1,159
 $8,026
Foreign currency gains (losses), net 392
 9
Other, net 1,660
 1,088
  $3,211
 $9,123
     
(in 000s) 
  Three months ended January 31, Nine months ended January 31,
  2018
 2017
 2018
 2017
Mortgage loans and real estate owned, net $—
 $(377) $—
 $2,668
Interest income 699
 574
 3,454
 2,364
Foreign currency gains (losses), net 21
 80
 35
 53
Other, net 308
 (143) (230) (137)
  $1,028
 $134
 $3,259
 $4,948
         

NOTE 9: COMMITMENTS AND CONTINGENCIES
ChangesAssisted tax returns, as well as services provided under Tax Pro GoSM and Tax Pro Review®,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 deferred revenue balances relatedpayment of penalties and/or interest to our POM for both company-owned and franchise offices, which is included in deferred revenue and other liabilities in the consolidated balance sheets, are as follows:
(in 000s) 
Nine months ended January 31, 2018
 2017
Balance, beginning of the period $211,223
 $204,342
Amounts deferred for new extended service plans issued 29,023
 28,391
Revenue recognized on previous deferrals (86,347) (80,651)
Balance, end of the period $153,899
 $152,082
     
IRS that a client would otherwise not have been required to pay. Our liability related to estimated losses under the standard100% accuracy guarantee was $3.3$10.1 million, $5.7$8.8 million and $6.8$9.4 million as of JanuaryJuly 31, 20182020 and 20172019 and April 30, 20172020, respectively, and is included as part of our assisted tax preparation services.respectively. The short-term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated balance sheets.

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Our liabilityLiabilities related to acquisitions for (1) estimated contingent consideration was $11.9 million, $9.3 million and $10.4 million as of January 31, 2018 and 2017 and April 30, 2017, respectively, with amounts recorded in deferred revenue and other liabilities. Estimates of contingent payments are typically based on expected financial performance of the acquired business and economic conditions at the time of acquisition.acquisition and (2) estimated accrued compensation related to continued employment of key employees were $13.3 million, $9.6 million and $14.2 million as of July 31, 2020 and 2019 and April 30, 2020, respectively, with amounts recorded in deferred revenue and other liabilities. Should actual results differ from our assumptions,estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.
We have contractual commitments to fund certain franchises with approved revolving lines of credit. Our total obligation under these lines of credit was $41.5$41.1 million at JanuaryJuly 31, 20182020, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $12.6$38.6 million.
In connection with our agreement with BofI Federal Bank, a federal savings bank (BofI), we are required to purchase a 90% participation interest, at par, in all EAs originated by our lending partner. At January 31, 2018, the principal balance
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Table of purchased participation interests for current year totaled $345.0 million.Contents
On July 27, 2017, we entered into a Refund Advance Program Agreement and certain ancillary agreements with BofI, pursuant to which they will originate and fund Refund Advance loans, and provide technology, software, and underwriting support services related to such loans during the 2018 tax season. The Refund Advance Program Agreement was subsequently amended on November 9, 2017. 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 volume 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 $10$7.5 million related to loans to clients prior to the IRS accepting electronic filing. At January 31, 2018 we hadWe accrued an estimated liability of $1.6$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 $0.6 million at January 31, 2017. We paid $0.4 million related to this guarantee for the fiscal year 2017 tax season.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 do not expect that a material amount will be paid foraccrued an estimated liability of $2.9 million at April 30, 2020 related to this guarantee. We have 0 amounts accrued related to this guarantee under anticipated loss scenarios.as of July 31, 2020 as collections exceeded our expectations during the 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 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 as of January 31, 2018, 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. A rollforward of SCC’s accrued liability for these loss contingencies is as follows:
(in 000s) 
Nine months ended January 31, 2018
 2017
Balance, beginning of the period $4,500
 $65,265
Loss provisions —
 235
Payments (4,500) (61,000)
Balance, end of the period $—
 $4,500
     
Settlement payments were madewage subsidies during the current fiscal quarter pursuantended July 31, 2020 which has been treated as a government subsidy to a settlement agreement entered into in fiscal year 2016.offset related operating expenses.
See note 10, which addresses contingent losses that may be incurred with respect to various indemnification or contribution claims by underwriters, depositors, and securitization trustees in securitization transactions in which SCC participated.

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NOTE 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 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. Liabilities have been accrued for certain of the matters noted below. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range.
For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made. It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of JanuaryJuly 31, 2018.2020. 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 JanuaryJuly 31, 20182020 and 20172019 and April 30, 2017,2020, our total accrued liabilities were $2.5$1.6 million, $1.7$1.6 million and $2.3$1.6 million, respectively, for matters addressed in this note.respectively.
Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a loss is believed to be reasonably possible, but

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a liability has not been accrued.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. 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 31, 2018, we believe the aggregate range of reasonably possible losses in excess of amounts accrued is not material.
For other matters,Matters for which we are not currently able to estimate the reasonably possible loss or range of loss.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 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

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on such reviews. Costs incurred with defending matters are expensed as incurred. Any receivable for insurance recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable and reasonably estimable.
We believe we have meritorious defenses to the claims asserted in the various matters described in this note, and we intend to defend them vigorously, butvigorously. 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. HRB Digital LLC, et al. The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period starting 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the case and amended its complaint to add HRB Tax Group, Inc. We filed a motion to stay the case based on the primary jurisdiction doctrine, which 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 Snarr v. 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 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. We filed a motion to stay the claims pending the outcome of the appeal, as well as a motion to dismiss the claims, which also were denied. We filed an answer to the amended complaint on April 7, 2020. The parties filed a stipulation of 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 on July 27, 2020 and stayed the case pending the outcome of 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.
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 contingencies,lawsuits, claims, and lawsuitsother 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 contingencies,lawsuits, claims, and lawsuitscontingencies 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

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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 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 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 as disclosed in note 9, 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 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 lawsuitmatter is probable, nor have we accrued a liability related to this lawsuit.matter.
UnderwritersParties, including underwriters, depositors, and depositorssecuritization trustees, are, or have been, involved in multiple lawsuits, threatened lawsuits, and settlements related to securitization transactions in which SCC participated. These lawsuits allege or alleged aA 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.disclosures, that originators, depositors, securitization trustees, or servicers breached their representations and warranties or otherwise failed to fulfill their 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 depositorssecuritization trustees are party. Based on information currently available to SCC, it believes that the 21 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 $3.4 billion). Additional lawsuits against the underwriters or depositorsparties 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 depositorssimilar obligations with respect to existing or new lawsuits or settlements of such lawsuits.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 securitization trustees of potential indemnification obligations, and may receive additional notices with respect to

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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 JanuaryJuly 31, 2018,2020, total approximately $303$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.
LITIGATION, CLAIMS AND OTHER LOSS CONTINGENCIES PERTAINING TO OTHER DISCONTINUED OPERATIONS –
Express IRA Litigation. On January 2, 2008, the Mississippi Attorney General in the Chancery Court of Hinds County, Mississippi First Judicial District (Case No. G 2008 6 S 2) filed a lawsuit regarding our former Express IRA product that is styled Jim Hood, Attorney for the State of Mississippi v. H&R Block, Inc., H&R Block Financial Advisors, Inc., et al. The complaint alleges fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the sale of the product in Mississippi and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We have not concluded that a loss related to this matter is probable, nor have we accrued a loss contingency related to this matter.
Although we sold H&R Block Financial Advisors, Inc. (HRBFA) effective November 1, 2008, we remain responsible for any liabilities relating to the Express IRA litigation through an indemnification agreement.
OTHER – We are from time to time a party to litigation, claims and other loss contingencies not discussed herein arising out of our business operations. These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent 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.
NOTE 11: 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 2017 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.

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Three months ended January 31, 2018 H&R Block, Inc.
(Guarantor)
 Block Financial
(Issuer)
 Other
Subsidiaries
 Eliminations
 Consolidated
H&R Block
Total revenues $—
 $55,795
 $449,608
 $(16,977) $488,426
Cost of revenues —
 33,805
 391,772
 (8,976) 416,601
Selling, general and administrative —
 10,823
 166,276
 (8,001) 169,098
Total operating expenses —
 44,628
 558,048
 (16,977) 585,699
Other income (expense), net (250,732) 7,819
 (20,071) 264,012
 1,028
Interest expense on external borrowings —
 (24,491) (69) —
 (24,560)
Loss from continuing operations before income taxes (benefit) (250,732) (5,505) (128,580) 264,012
 (120,805)
Income taxes (benefit) (5,087) 15,600
 111,607
 —
 122,120
Net loss from continuing operations (245,645) (21,105) (240,187) 264,012
 (242,925)
Net loss from discontinued operations —
 (2,720) —
 —
 (2,720)
Net loss (245,645) (23,825) (240,187) 264,012
 (245,645)
Other comprehensive income 4,848
 —
 4,848
 (4,848) 4,848
Comprehensive loss $(240,797) $(23,825) $(235,339) $259,164
 $(240,797)
           
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Three months ended January 31, 2017 H&R Block, Inc.
(Guarantor)
 Block Financial
(Issuer)
 Other
Subsidiaries
 Eliminations
 Consolidated
H&R Block
Total revenues $—
 $53,990
 $411,099
 $(13,207) $451,882
Cost of revenues —
 33,242
 364,286
 (8,751) 388,777
Selling, general and administrative —
 10,693
 181,660
 (4,456) 187,897
Total operating expenses —
 43,935
 545,946
 (13,207) 576,674
Other income (expense), net (106,332) 14,978
 (1,777) 93,265
 134
Interest expense on external borrowings —
 (25,858) (82) —
 (25,940)
Loss from continuing operations before tax benefit (106,332) (825) (136,706) 93,265
 (150,598)
Income tax benefit (1,818) (2,939) (44,629) —
 (49,386)
Net income (loss) from continuing operations (104,514) 2,114
 (92,077) 93,265
 (101,212)
Net loss from discontinued operations —
 (3,282) (20) —
 (3,302)
Net loss (104,514) (1,168) (92,097) 93,265
 (104,514)
Other comprehensive income 1,759
 —
 1,759
 (1,759) 1,759
Comprehensive loss $(102,755) $(1,168) $(90,338) $91,506
 $(102,755)
           


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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Nine months ended January 31, 2018 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Total revenues $—
 $85,056
 $704,762
 $(22,736) $767,082
Cost of revenues —
 46,769
 846,685
 (9,119) 884,335
Selling, general and administrative —
 17,614
 377,196
 (13,617) 381,193
Total operating expenses —
 64,383
 1,223,881
 (22,736) 1,265,528
Other income (expense), net (538,995) 20,884
 (33,710) 555,080
 3,259
Interest expense on external borrowings —
 (66,873) (229) —
 (67,102)
Loss from continuing operations before income taxes (benefit) (538,995) (25,316) (553,058) 555,080
 (562,289)
Income taxes (benefit) (9,217) 9,987
 (44,004) —
 (43,234)
Net loss from continuing operations (529,778) (35,303) (509,054) 555,080
 (519,055)
Net loss from discontinued operations —
 (10,721) (2) —
 (10,723)
Net loss (529,778) (46,024) (509,056) 555,080
 (529,778)
Other comprehensive income 5,925
 —
 5,925
 (5,925) 5,925
Comprehensive loss $(523,853) $(46,024) $(503,131) $549,155
 $(523,853)
           
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (in 000s)
Nine months ended January 31, 2017 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Total revenues $—
 $80,428
 $641,322
 $(13,351) $708,399
Cost of revenues —
 47,514
 786,946
 (8,895) 825,565
Selling, general and administrative —
 14,905
 389,923
 (4,456) 400,372
Total operating expenses —
 62,419
 1,176,869
 (13,351) 1,225,937
Other income (expense), net (379,767) 17,011
 (24,601) 392,305
 4,948
Interest expense on external borrowings —
 (69,420) (606) —
 (70,026)
Loss from continuing operations before tax benefit (379,767) (34,400) (560,754) 392,305
 (582,616)
Income tax benefit (5,360) (14,695) (196,908) —
 (216,963)
Net loss from continuing operations (374,407) (19,705) (363,846) 392,305
 (365,653)
Net loss from discontinued operations —
 (8,733) (21) —
 (8,754)
Net loss (374,407) (28,438) (363,867) 392,305
 (374,407)
Other comprehensive loss (4,130) —
 (4,130) 4,130
 (4,130)
Comprehensive loss $(378,537) $(28,438) $(367,997) $396,435
 $(378,537)
           

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CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of January 31, 2018 H&R Block, Inc.
(Guarantor)
 Block Financial
(Issuer)
 Other
Subsidiaries
 Eliminations
 Consolidated
H&R Block
Cash & cash equivalents $—
 $4,475
 $182,891
 $—
 $187,366
Cash & cash equivalents - restricted —
 —
 83,033
 —
 83,033
Receivables, net —
 396,046
 395,572
 —
 791,618
Income taxes receivable 3,250
 —
 69,525
 —
 72,775
Prepaid expenses and other current assets —
 2,908
 146,441
 —
 149,349
Total current assets 3,250
 403,429
 877,462
 —
 1,284,141
Property and equipment, net —
 814
 249,097
 —
 249,911
Intangible assets, net —
 —
 390,993
 —
 390,993
Goodwill —
 —
 504,789
 —
 504,789
Deferred tax assets and income taxes receivable —
 20,427
 4,878
 —
 25,305
Investments in subsidiaries 1,655,160
 —
 67,690
 (1,722,850) —
Amounts due from affiliates —
 1,910,351
 2,335,670
 (4,246,021) —
Other noncurrent assets —
 66,497
 39,664
 —
 106,161
Total assets $1,658,410
 $2,401,518
 $4,470,243
 $(5,968,871) $2,561,300
           
Accounts payable and accrued expenses $2,516
 $15,514
 $145,623
 $—
 $163,653
Accrued salaries, wages and payroll taxes —
 954
 134,672
 —
 135,626
Accrued income taxes and reserves for uncertain tax positions —
 —
 164,246
 —
 164,246
Current portion of long-term debt —
 —
 1,015
 —
 1,015
Deferred revenue and other current liabilities —
 29,052
 172,936
 —
 201,988
Total current liabilities 2,516
 45,520
 618,492
 —
 666,528
Long-term debt —
 2,279,368
 4,863
 —
 2,284,231
Deferred tax liabilities and reserves for uncertain tax positions 18,293
 8,037
 175,054
 —
 201,384
Deferred revenue and other noncurrent liabilities —
 903
 106,323
 —
 107,226
Amounts due to affiliates 2,335,670
 —
 1,910,351
 (4,246,021) —
Total liabilities 2,356,479
 2,333,828
 2,815,083
 (4,246,021) 3,259,369
Stockholders' equity (deficiency) (698,069) 67,690
 1,655,160
 (1,722,850) (698,069)
Total liabilities and stockholders' equity $1,658,410
 $2,401,518
 $4,470,243
 $(5,968,871) $2,561,300
           


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CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of January 31, 2017 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Cash & cash equivalents $—
 $4,272
 $216,900
 $—
 $221,172
Cash & cash equivalents - restricted —
 8,052
 62,114
 —
 70,166
Receivables, net —
 422,034
 365,831
 —
 787,865
Income taxes receivable —
 —
 38,032
 —
 38,032
Prepaid expenses and other current assets —
 3,217
 82,382
 —
 85,599
Total current assets —
 437,575
 765,259
 —
 1,202,834
Property and equipment, net —
 81
 282,277
 —
 282,358
Intangible assets, net —
 —
 434,720
 —
 434,720
Goodwill —
 —
 483,320
 —
 483,320
Deferred tax assets and income taxes receivable 3,330
 54,777
 13,532
 —
 71,639
Investments in subsidiaries 1,370,585
 —
 80,699
 (1,451,284) —
Amounts due from affiliates —
 2,168,620
 2,166,873
 (4,335,493) —
Other noncurrent assets —
 67,619
 35,141
 —
 102,760
Total assets $1,373,915
 $2,728,672
 $4,261,821
 $(5,786,777) $2,577,631
           
Accounts payable and accrued expenses $1,941
 $15,051
 $222,093
 $—
 $239,085
Accrued salaries, wages and payroll taxes —
 461
 122,996
 —
 123,457
Accrued income taxes and reserves for uncertain tax positions —
 —
 7,537
 —
 7,537
Current portion of long-term debt —
 —
 942
 —
 942
Deferred revenue and other current liabilities —
 33,872
 149,744
 —
 183,616
Total current liabilities 1,941
 49,384
 503,312
 —
 554,637
Long-term debt and line of credit borrowings —
 2,586,744
 5,878
 —
 2,592,622
Deferred tax liabilities and reserves for uncertain tax positions 5,917
 10,786
 92,854
 —
 109,557
Deferred revenue and other noncurrent liabilities —
 1,059
 120,572
 —
 121,631
Amounts due to affiliates 2,166,873
 —
 2,168,620
 (4,335,493) —
Total liabilities 2,174,731
 2,647,973
 2,891,236
 (4,335,493) 3,378,447
Stockholders' equity (deficiency) (800,816) 80,699
 1,370,585
 (1,451,284) (800,816)
Total liabilities and stockholders' equity $1,373,915
 $2,728,672
 $4,261,821
 $(5,786,777) $2,577,631
           




22
Q3 FY2018 Form 10-Q | H&R Block, Inc.
Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS (in 000s)
As of April 30, 2017 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Cash & cash equivalents $—
 $4,486
 $1,006,845
 $—
 $1,011,331
Cash & cash equivalents - restricted —
 8,060
 98,148
 —
 106,208
Receivables, net —
 61,250
 101,525
 —
 162,775
Prepaid expenses and other current assets —
 2,280
 63,445
 —
 65,725
Total current assets —
 76,076
 1,269,963
 —
 1,346,039
Property and equipment, net —
 78
 263,749
 —
 263,827
Intangible assets, net —
 —
 409,364
 —
 409,364
Goodwill —
 —
 491,207
 —
 491,207
Deferred tax assets and income taxes receivable 5,587
 30,743
 47,398
 —
 83,728
Investments in subsidiaries 2,158,234
 —
 113,714
 (2,271,948) —
Amounts due from affiliates —
 1,493,195
 2,194,294
 (3,687,489) —
Other noncurrent assets —
 51,829
 48,114
 —
 99,943
Total assets $2,163,821
 $1,651,921
 $4,837,803
 $(5,959,437) $2,694,108
           
Accounts payable and accrued expenses $2,086
 $14,218
 $200,724
 $—
 $217,028
Accrued salaries, wages and payroll taxes —
 851
 183,005
 —
 183,856
Accrued income taxes and reserves for uncertain tax positions —
 —
 348,199
 —
 348,199
Current portion of long-term debt —
 —
 981
 —
 981
Deferred revenue and other current liabilities —
 26,759
 162,457
 —
 189,216
Total current liabilities 2,086
 41,828
 895,366
 —
 939,280
Long-term debt —
 1,487,389
 5,628
 —
 1,493,017
Deferred tax liabilities and reserves for uncertain tax positions 28,324
 8,037
 122,724
 —
 159,085
Deferred revenue and other noncurrent liabilities —
 953
 162,656
 —
 163,609
Amounts due to affiliates 2,194,294
 —
 1,493,195
 (3,687,489) —
Total liabilities 2,224,704
 1,538,207
 2,679,569
 (3,687,489) 2,754,991
Stockholders' equity (deficiency) (60,883) 113,714
 2,158,234
 (2,271,948) (60,883)
Total liabilities and stockholders' equity $2,163,821
 $1,651,921
 $4,837,803
 $(5,959,437) $2,694,108
           

H&R Block, Inc. | Q3 FY2018 Form 10-Q
23
Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in 000s)
Nine months ended January 31, 2018 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Net cash used in operating activities $—
 $(353,081) $(1,004,620) $—
 $(1,357,701)
Cash flows from investing:          
Capital expenditures —
 (794) (77,071) —
 (77,865)
Payments made for business acquisitions, net of cash acquired —
 —
 (39,397) —
 (39,397)
Franchise loans funded —
 (20,080) (146) —
 (20,226)
Payments received on franchise loans —
 13,058
 333
 —
 13,391
Intercompany borrowings (payments) —
 (427,473) (129,736) 557,209
 —
Other, net —
 (9,039) 10,563
 —
 1,524
Net cash used in investing activities —
 (444,328) (235,454) 557,209
 (122,573)
Cash flows from financing:          
Repayments of line of credit borrowings —
 (40,000) —
 —
 (40,000)
Proceeds from line of credit borrowings —
 830,000
 —
 —
 830,000
Dividends paid (150,258) —
 —
 —
 (150,258)
Repurchase of common stock, including shares surrendered (7,746) —
 —
 —
 (7,746)
Proceeds from exercise of stock options 28,268
 —
 —
 —
 28,268
Intercompany borrowings (payments) 129,736
 —
 427,473
 (557,209) —
Other, net —
 (662) (28,260) —
 (28,922)
Net cash provided by financing activities —
 789,338
 399,213
 (557,209) 631,342
Effects of exchange rates on cash —
 —
 1,792
 —
 1,792
Net decrease in cash, cash equivalents and restricted cash —
 (8,071) (839,069) —
 (847,140)
Cash, cash equivalents and restricted cash, beginning of period —
 12,546
 1,104,993
 —
 1,117,539
Cash, cash equivalents and restricted cash, end of period $—
 $4,475
 $265,924
 $—
 $270,399
           

24
Q3 FY2018 Form 10-Q | H&R Block, Inc.
Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in 000s)
Nine months ended January 31, 2017 
H&R Block, Inc.
(Guarantor)

 
Block Financial
(Issuer)

 
Other
Subsidiaries

 Eliminations
 
Consolidated
H&R Block

Net cash used in operating activities $—
 $(420,319) $(989,540) $—
 $(1,409,859)
Cash flows from investing:          
Principal payments on mortgage loans and sale of real estate owned, net —
 207,174
 —
 —
 207,174
Capital expenditures —
 (14) (73,910) —
 (73,924)
Payments made for business acquisitions, net of cash acquired —
 —
 (52,825) —
 (52,825)
Franchise loans funded —
 (31,568) (220) —
 (31,788)
Payments received on franchise loans —
 20,605
 211
 —
 20,816
Intercompany borrowings (payments) —
 (891,350) (461,916) 1,353,266
 —
Other, net —
 (10,233) 5,522
 —
 (4,711)
Net cash provided by (used in) investing activities —
 (705,386) (583,138) 1,353,266
 64,742
Cash flows from financing:          
Repayments of line of credit borrowings —
 (445,000) —
 —
 (445,000)
Proceeds from line of credit borrowings —
 1,545,000
 —
 —
 1,545,000
Dividends paid (141,537) —
 —
 —
 (141,537)
Repurchase of common stock, including shares surrendered (322,782) —
 —
 —
 (322,782)
Proceeds from exercise of stock options 2,403
 —
 —
 —
 2,403
Intercompany borrowings (payments) 461,916
 —
 891,350
 (1,353,266) —
Other, net —
 —
 373
 —
 373
Net cash provided by financing activities —
 1,100,000
 891,723
 (1,353,266) 638,457
Effects of exchange rates on cash —
 —
 (2,913) —
 (2,913)
Net decrease in cash, cash equivalents and restricted cash —
 (25,705) (683,868) —
 (709,573)
Cash, cash equivalents and restricted cash, beginning of period —
 38,029
 962,882
 —
 1,000,911
Cash, cash equivalents and restricted cash, end of period $—
 $12,324
 $279,014
 $—
 $291,338
           



H&R Block, Inc. | Q3 FY2018 Form 10-Q
25
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 AdvanceTM, 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 do-it-yourself (DIY)digital tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded financial 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 virtually via the internet)an internet review) or prepared and filed by our clients through our DIY tax solutions. We operate asalso offer small business 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, which are designed to enable clients to obtain tax preparation and related services seamlessly.operations.

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 31,2018
 2017
 Change
 % Change
Tax returns prepared: (in 000s) (1)
        
Company-owned operations 1,424
 1,349
 75
 5.6 %
Franchise operations 736
 731
 5
 0.7 %
Total assisted 2,160
 2,080
 80
 3.8 %
         
Desktop 151
 155
 (4) (2.6)%
Online 1,126
 1,056
 70
 6.6 %
Total DIY Tax Software 1,277
 1,211
 66
 5.5 %
  

 

    
IRS Free File 94
 96
 (2) (2.1)%
Total U.S. returns 3,531
 3,387
 144
 4.3 %
         
Net Average Charge: (2)
        
Company-Owned Operations $235.57
 $226.96
 $8.61
 3.8 %
Franchise Operations (3)
 226.07
 219.26
 6.81
 3.1 %
Total DIY Tax Software 30.39
 30.35
 0.04
 0.1 %
         
As of January 31, 2018
 2017
 Change
 % Change
Tax offices:        
Company-owned offices 6,690
 6,650
 40
 0.6 %
Franchise offices 3,291
 3,386
 (95) (2.8)%
Total U.S. offices 9,981
 10,036
 (55) (0.5)%
         
U.S. Operating Statistics      
Three months ended July 31,2020
 2019
 Change
 % Change
Tax returns prepared: (in 000s) (1)
        
Company-owned operations 1,439
 136
 1,303
 958.1 %
Franchise operations 548
 74
 474
 640.5 %
Total assisted 1,987
 210
 1,777
 846.2 %
         
Desktop 489
 19
 470
 2,473.7 %
Online 1,019
 51
 968
 1,898.0 %
Total DIY 1,508
 70
 1,438
 2,054.3 %
         
Total U.S. Returns 3,495
 280
 3,215
 1,148.2 %
         
Net Average Charge: (2)
        
Company-owned operations $234.82
 $254.53
 $(19.71) (7.7)%
Franchise operations (3)
 220.78
 244.06
 (23.28) (9.5)%
DIY 44.83
 48.31
 (3.48) (7.2)%
         
(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 GoSM, Tax Pro Review®, and business returns. A DIY Tax software return is defined as a return that has been electronically filed and accepted by the IRS.  Also included areIRS, 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 Tax Software, net average charge excludes IRS Free File.
(3) 
Net average charge related to H&R Block Franchise Operationsoperations 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.

26
Q3 FY2018 Form 10-Q | H&R Block, Inc.
Table of Contents


Consolidated – Financial Results   (in 000s, except per share amounts) 
Three months ended January 31, 2018 2017 $ Change % Change
Revenues:        
U.S. assisted tax preparation fees $267,328
 $245,262
 $22,066
 9.0 %
U.S. royalties 45,420
 43,254
 2,166
 5.0 %
U.S. DIY tax preparation fees 31,322
 30,745
 577
 1.9 %
International revenues 12,308
 10,914
 1,394
 12.8 %
Revenues from Refund Transfers 50,770
 47,323
 3,447
 7.3 %
Revenues from Emerald Card® 16,125
 14,100
 2,025
 14.4 %
Revenues from Peace of Mind® Extended Service Plan 19,967
 18,135
 1,832
 10.1 %
Interest and fee income on Emerald Advance 31,075
 30,060
 1,015
 3.4 %
Other 14,111
 12,089
 2,022
 16.7 %
Total revenues 488,426
 451,882
 36,544
 8.1 %
         
Compensation and benefits:        
Field wages 156,027
 142,084
 13,943
 9.8 %
Other wages 50,717
 45,172
 5,545
 12.3 %
Benefits and other compensation 42,156
 36,167
 5,989
 16.6 %
  248,900
 223,423
 25,477
 11.4 %
Occupancy and equipment 107,731
 103,867
 3,864
 3.7 %
Marketing and advertising 64,209
 84,101
 (19,892) (23.7)%
Depreciation and amortization 48,488
 45,160
 3,328
 7.4 %
Provision for bad debt 29,191
 28,348
 843
 3.0 %
Supplies 4,950
 4,453
 497
 11.2 %
Other 82,230
 87,322
 (5,092) (5.8)%
Total operating expenses 585,699
 576,674
 9,025
 1.6 %
Other income (expense), net 1,028
 134
 894
 **
Interest expense on borrowings (24,560) (25,940) 1,380
 5.3 %
Pretax loss (120,805) (150,598) 29,793
 19.8 %
Income taxes (benefit) 122,120
 (49,386) (171,506) **
Net loss from continuing operations (242,925) (101,212) (141,713) (140.0)%
Net loss from discontinued operations (2,720) (3,302) 582
 17.6 %
Net loss $(245,645) $(104,514) $(141,131) (135.0)%
         
Basic and diluted loss per share:        
Continuing operations $(1.16) $(0.49) $(0.67) (136.7)%
Discontinued operations (0.02) (0.01) (0.01) (100.0)%
Consolidated $(1.18) $(0.50) $(0.68) (136.0)%
         
EBITDA from continuing operations (1)
 $(47,757) $(79,498) $31,741
 39.9 %
         
(1)
See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.
Three months ended January 31, 2018 compared to January 31, 2017
Revenues increased $36.5 million, or 8.1%, from the prior year. U.S. assisted tax preparation fees increased $22.1 million, or 9.0%, primarily due to a 5.6% increase in tax return volumes and a 3.8% increase inWe provide net average charge in the current year. U.S. royalties increased $2.2 million, or 5.0%, as a key operating metric because we sawconsider it an increase inimportant 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 and royalties from our franchisees relatedmay not be comparable to their offeringsimilarly titled measures of Refund Advance loans, while tax return volumes were essentially flat.other companies.
International revenues increased $1.4 million, or 12.8%, primarily due to higher volumes of tax returns and favorable exchange rates in our Canadian and Australian operations.


H&R Block, Inc. | Q3 FY2018Q1 FY2021 Form 10-Q
2719
Table of Contents

Consolidated - Financial Results   (in 000s, except per share amounts) 
Three months ended July 31, 2020 2019 $ Change % Change
Revenues:        
U.S. assisted tax preparation $337,728
 $32,992
 $304,736
 923.7 %
U.S. royalties 35,949
 6,859
 29,090
 424.1 %
U.S. DIY tax preparation 67,595
 3,410
 64,185
 1,882.3 %
International 67,818
 40,581
 27,237
 67.1 %
Refund Transfers 10,553
 1,509
 9,044
 599.3 %
Emerald Card®
 17,055
 13,855
 3,200
 23.1 %
Peace of Mind® Extended Service Plan 31,995
 32,837
 (842) (2.6)%
Tax Identity Shield® 9,367
 4,522
 4,845
 107.1 %
Interest and fee income on Emerald AdvanceTM
 663
 554
 109
 19.7 %
Wave 12,067
 3,625
 8,442
 232.9 %
Other 10,240
 9,618
 622
 6.5 %
Total revenues 601,030
 150,362
 450,668
 299.7 %
         
Compensation and benefits:        
Field wages 118,542
 53,803
 64,739
 120.3 %
Other wages 60,694
 53,837
 6,857
 12.7 %
Benefits and other compensation 33,798
 26,474
 7,324
 27.7 %
  213,034
 134,114
 78,920
 58.8 %
Occupancy 99,300
 92,152
 7,148
 7.8 %
Marketing and advertising 18,811
 6,779
 12,032
 177.5 %
Depreciation and amortization 39,508
 38,605
 903
 2.3 %
Bad debt 1,856
 (968) 2,824
 **
Other 75,565
 74,846
 719
 1.0 %
Total operating expenses 448,074
 345,528
 102,546
 29.7 %
Other income (expense), net 3,211
 9,123
 (5,912) (64.8)%
Interest expense on borrowings (32,125) (21,071) (11,054) (52.5)%
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 (2,297) (4,523) 2,226
 49.2 %
Net income (loss) $91,259
 $(150,247) $241,506
 **
         
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:        
Continuing operations $0.48
 $(0.72) $1.20
 **
Discontinued operations (0.01) (0.02) 0.01
 50.0 %
Consolidated $0.47
 $(0.74) $1.21
 **
        

EBITDA from continuing operations (1)
 $195,675
 $(147,438) $343,113
 **
         
(1) See "Non-GAAP FInancial Information" at the end of this item for a reconciliation of non-GAAP measures.
Three months ended July 31, 2020 compared to July 31, 2019
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 299.7% International revenues increased $27.2 million, or 67.1% due to higher tax returns prepared in our Canadian operations due to the extension of the Canadian tax season as described above.
Wave revenues increased $8.4 million, or 232.9%. We acquired Wave on June 28, 2019, and Wave's results have been included in our results of operations since that date.

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Revenues from RTs increased $3.4 million, or 7.3%, primarily due to a price increase in retail office locations, while revenues from Emerald Card transactions increased $2.0 million, or 14.4%, due primarily to higher fees and higher volumes from our Refund Advance offering.
Other revenues increased $2.0 million, or 16.7%, primarily due to increased units sold in prior years of tax identity protection services to our clients.
Total operating expenses increased $9.0$102.5 million, or 1.6%29.7%, from the prior year.year period. Field wages increased $13.9$64.7 million, or 9.8%120.3%, primarily due to the increase in tax return volumes, which was partially offset by Canadian wage subsidies. Other wages increased $6.9 million, or 12.7%, primarily due to higher commission-based wages resulting from higherbonus accruals based on the results of the extended tax return volumes. Other wages increased $5.5 million, or 12.3%, due to increased headcount primarily related to information technology resources.season and the acquisition of Wave. Benefits and other compensation increased $6.0$7.3 million, or 16.6%,27.7% primarily due to higher payroll taxes onas a result of higher wages. Occupancy expenses increased wages, along with higher stock-based compensation and medical liability reserves. Occupancy and equipment costs increased $3.9$7.1 million, or 3.7%7.8%, primarily due to additional office related expenses as a result of the extension of the tax season and higher rent rates anddue to an increase in the number of company-owned tax offices due toover the acquisition of franchisees.prior year. Marketing and advertising decreased $19.9expense increased $12.0 million, or 23.7%177.5%, due to the timingextension of these expenses, as certain expenses shifted to our fourth quarter. Depreciation and amortization increased $3.3 million, or 7.4%, primarily due to amortization resulting from acquisition of franchisee and competitor businesses.the tax season.
Other expenses decreased $5.1increased $0.7 million, or 5.8%1.0%. The components of other expenses are as follows:
Three months ended January 31, 2018 2017 $ Change % Change
Three months ended July 31, 2020 2019 $ Change % Change
Consulting and outsourced services $23,515
 $28,505
 $(4,990) (17.5)% $20,365
 $18,189
 $2,176
 12.0 %
Bank partner fees 24,239
 20,539
 3,700
 18.0 % (1,039) 1,482
 (2,521) **
Client claims and refunds 7,282
 5,122
 2,160
 42.2 % 5,727
 9,244
 (3,517) (38.0)%
Employee travel and related expenses 12,849
 11,472
 1,377
 12.0 % 2,713
 8,425
 (5,712) (67.8)%
Technology-related expenses 16,607
 17,410
 (803) (4.6)%
Credit card/bank charges 3,682
 3,567
 115
 3.2 % 14,226
 3,992
 10,234
 256.4 %
Insurance (348) 3,898
 (4,246) **
 3,899
 4,394
 (495) (11.3)%
Legal fees and settlements 703
 2,741
 (2,038) (74.4)% 4,061
 3,273
 788
 24.1 %
Supplies 3,694
 3,286
 408
 12.4 %
Other 10,308
 11,478
 (1,170) (10.2)% 5,312
 5,151
 161
 3.1 %
 $82,230
 $87,322
 $(5,092) (5.8)% $75,565
 $74,846
 $719
 1.0 %
                
Income taxes increased $171.5Bank partner fees decreased $2.5 million from the prior year. For the three months ended January 31, 2018, we recorded income tax expense of $122.1 million compared to an income tax benefit of $49.4 million for the three months ended January 31, 2017. This increase is primarily due to our provisional estimates of the impacts of the Tax Legislation in relation to the seasonality of our business. Income tax expense recorded during the three months ended January 31, 2018 includes $149.4 million related to the impacts of the Tax Legislation. See Item 1, note 7 to the consolidated financial statements for additional discussion.
Tax returns prepared in company-owned and franchise offices through February 28, 2018 increased 0.7% from the prior year. Our business is highly seasonal and results for the quarter ended January 31, as well as results for the period ended February 28, may not be indicative of results for the entire fiscal year.

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Consolidated – Financial Results   (in 000s, except per share amounts) 
Nine months ended January 31, 2018 2017 $ Change % Change
Revenues:        
U.S. assisted tax preparation fees $333,956
 $306,030
 $27,926
 9.1 %
U.S. royalties 59,395
 56,607
 2,788
 4.9 %
U.S. DIY tax preparation fees 38,811
 36,748
 2,063
 5.6 %
International revenues 100,659
 93,328
 7,331
 7.9 %
Revenues from Refund Transfers 54,721
 51,314
 3,407
 6.6 %
Revenues from Emerald Card® 40,292
 35,809
 4,483
 12.5 %
Revenues from Peace of Mind® Extended Service Plan 76,495
 67,855
 8,640
 12.7 %
Interest and fee income on Emerald Advance 32,333
 31,519
 814
 2.6 %
Other 30,420
 29,189
 1,231
 4.2 %
Total revenues 767,082
 708,399
 58,683
 8.3 %
         
Compensation and benefits:        
Field wages 261,866
 237,223
 24,643
 10.4 %
Other wages 140,637
 129,479
 11,158
 8.6 %
Benefits and other compensation 86,384
 82,619
 3,765
 4.6 %
  488,887
 449,321
 39,566
 8.8 %
Occupancy and equipment 311,335
 297,275
 14,060
 4.7 %
Marketing and advertising 82,875
 103,663
 (20,788) (20.1)%
Depreciation and amortization 136,878
 132,192
 4,686
 3.5 %
Provision for bad debt 33,429
 29,634
 3,795
 12.8 %
Supplies 12,052
 11,467
 585
 5.1 %
Other 200,072
 202,385
 (2,313) (1.1)%
Total operating expenses 1,265,528
 1,225,937
 39,591
 3.2 %
Other income (expense), net 3,259
 4,948
 (1,689) (34.1)%
Interest expense on borrowings (67,102) (70,026) 2,924
 4.2 %
Pretax loss (562,289) (582,616) 20,327
 3.5 %
Income tax benefit (43,234) (216,963) (173,729) (80.1)%
Net loss from continuing operations (519,055) (365,653) (153,402) (42.0)%
Net loss from discontinued operations (10,723) (8,754) (1,969) (22.5)%
Net loss $(529,778) $(374,407) $(155,371) (41.5)%
         
Basic and diluted loss per share:        
Continuing operations $(2.49) $(1.71) $(0.78) (45.6)%
Discontinued operations (0.05) (0.04) (0.01) (25.0)%
Consolidated $(2.54) $(1.75) $(0.79) (45.1)%
         
EBITDA from continuing operations (1)
 $(358,309) $(380,398) $22,089
 5.8 %
         
(1)
See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.
Nine months ended January 31, 2018 compared to January 31, 2017
Revenues increased $58.7 million, or 8.3%, from the prior year. U.S. assisted tax preparation fees increased $27.9 million, or 9.1%, primarily due to a 5.6% increase in tax return volumes and a 3.8% increase in net average charge. U.S. royalties increased $2.8 million, or 4.9%, as we saw an increase in net average charge and royalties from our franchisees related to their offering of Refund Advance loans, while tax return volumes were essentially flat. U.S. DIY fees increased $2.1 million, or 5.6%, primarily due to higher online tax return volumes.

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International revenues increased $7.3 million, or 7.9%, primarily due to higher volumes of tax returns and favorable exchange rates in our Australian operations.
Revenues from RTs increased $3.4 million, or 6.6%, primarily due to a price increase, while revenues from Emerald Card transactions increased $4.5 million, or 12.5%, primarily due to higher fees and interchange income.
Revenues from POM increased $8.6 million, or 12.7%, due to an increase in units sold in prior years and changes in the timing of forecasted claims.
Total operating expenses increased $39.6 million, or 3.2%, from the prior year. Field wages increased $24.6 million, or 10.4%, primarily due to higher commission-based wages resulting from higher tax return volumes and higher office labor in our Australian operations. Other wages increased $11.2 million, or 8.6%, due to increased headcount primarily related to information technology resources and inflationary increases in corporate support wages. Occupancy and equipment costs increased $14.1 million, or 4.7%, primarily due to higher rent rates and an increase in the number of company-owned tax offices due to the acquisition of franchisees. Marketing and advertising decreased $20.8 million, or 20.1%, due to the timing of these expenses, as certain expenses shifted to our fourth quarter. Bad debt expense increased $3.8 million primarily due to recoveries made on older EA balances in the prior year, partially offset by a reduction in the overall bad debt rate oncredit loss guarantee related to Refund Advances. Credit card and bank charges increased $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 income taxes in the current year balances.
Other expenses decreased $2.3 million, or 1.1%. The components of other expenses are as follows:
Nine months ended January 31, 2018 2017 $ Change % Change
Consulting and outsourced services $61,607
 $67,794
 $(6,187) (9.1)%
Bank partner fees 27,235
 23,682
 3,553
 15.0 %
Client claims and refunds 33,647
 31,500
 2,147
 6.8 %
Employee travel and related expenses 29,284
 29,478
 (194) (0.7)%
Credit card/bank charges 10,904
 8,492
 2,412
 28.4 %
Insurance 6,765
 11,587
 (4,822) (41.6)%
Legal fees and settlements 8,600
 7,468
 1,132
 15.2 %
Other 22,030
 22,384
 (354) (1.6)%
  $200,072
 $202,385
 $(2,313) (1.1)%
         
The income tax benefit decreased $173.7$30.5 million compared to income tax benefits of $61.4 million in the prior year to $43.2 million primarily due to our provisional estimates of the impacts of the Tax Legislation in relation to the seasonality of our business. The income tax benefit recorded during the nine months ended January 31, 2018 includes $149.4 million of additional tax expense related to the impacts of the Tax Legislation.
We currently estimate that our annual effective tax rate for fiscal year 2018 will be in a range of approximately 6% to 9%. While we believe we have identified all material implications the Tax Legislation is expected to have on our financial statements and were able to record a reasonable estimate of the impacts as provisional amounts as of and for the nine months ended January 31, 2018, we are continuing to evaluate the impacts of the Tax Legislation and do not consider these provisional estimates to be final. The final impacts may differ from the estimates provided, and could have a material impact on our financial statements. Given the significant complexity of the Tax Legislation, we anticipate changes may result due to further analyzing the impact of the provisions on our federal and state estimates. In addition, anticipated guidance from the IRS about implementing the Tax Legislation and the potential for additional guidance from the SEC or the FASB related to the Tax Legislation, may cause these estimates to be adjusted.year. See Item 1, note 7 to the consolidated financial statements for additional discussion.
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 2017 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.

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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, andJanuary. We typically relyhave relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our off-season liquidity needs.first three quarters. As a result of 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 JanuaryJuly 31, 20182020 are sufficient to meet our operating, investing and financing needs.

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DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the ninethree months ended JanuaryJuly 31, 20182020 and 20172019. See Item 1 for the complete consolidated statements of cash flows for these periods.
 (in 000s)  (in 000s) 
Nine months ended January 31, 2018
 2017
Three months ended July 31, 2020
 2019
Net cash provided by (used in):        
Operating activities $(1,357,701) $(1,409,859) $(20,500) $(483,829)
Investing activities (122,573) 64,742
 4,380
 (358,807)
Financing activities 631,342
 638,457
 (56,720) (100,193)
Effects of exchange rates on cash 1,792
 (2,913) 6,405
 556
Net change in cash, cash equivalents and restricted cash $(847,140) $(709,573) $(66,435) $(942,273)
        
Operating Activities. Cash used in operations decreased, primarily due to changes inthe extension of the 2019 tax balances resulting from the Tax Legislation and prior year settlement payments relatedseason into our fiscal first quarter due to representation and warranty claims, partially offsetCOVID-19.
Investing Activities. Cash provided by an increased lossinvesting activities totaled $4.4 million for the period.
Investing Activities. Cashthree months ended July 31, 2020 compared to cash used in investing activities totaled $122.6 million for the nine months ended January 31, 2018 compared to cash provided of $64.7358.8 million in the prior year period. This change resulted primarily from cash received from our portfolio of mortgage loans inis due to the prior year which was sold in fiscal year 2017.acquisition of Wave.
Financing Activities. Cash provided byused in financing activities totaled $631.3$56.7 million for the ninethree months ended JanuaryJuly 31, 20182020 compared to $638.5$100.2 million in the prior year period. This change resulted primarily from lower borrowings on our CLOC in the current year and share repurchases in the prior year period.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 $150.350.0 million and $141.552.5 million for the ninethree months ended JanuaryJuly 31, 20182020 and 20172019, 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 $77.9$8.3 million and $73.9$15.2 million for the ninethree months ended JanuaryJuly 31, 20182020 and 2017,2019, 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 $39.4$13 thousand in the current year compared to Wave and franchisee and competitor businesses totaling $394.4 million and $52.8 million forin the nine months ended January 31, 2018 and 2017, respectively.
FINANCING RESOURCES – Our 2017 CLOC has capacity up to $2.0 billion, and is scheduled to expire in September 2022. Proceeds under the 2017 CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with our 2017 CLOC covenants and had an outstanding balance of $790.0 million as of January 31, 2018.prior year. See Item 1, note 5 for additional information on our acquisitions.
FINANCING RESOURCES – In the fourth quarter of fiscal year 2020, we drew down the full $2.0 billion available under our CLOC to the consolidated financial statements for discussionincrease our cash position and maximize flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic, which we expect to repay in full in September 2020.
On August 7, 2020, we issued the 2030 Senior Notes. 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 andto repay our 2017 CLOC.October 2020 Senior Notes, our October 2020 Senior Notes have been reclassified to long-term as of July 31, 2020.


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The following table provides ratings for debt issued by Block Financial as of JanuaryJuly 31, 20182020 and April 30, 2017:2020:
As of JanuaryJuly 31, 20182020 April 30, 20172020
  Short-term Long-term Outlook Short-term Long-term Outlook
Moody's P-3 Baa3 Stable P-3 Baa3 StableNegative
S&P A-2 BBB StableNegative A-2 BBB Negative
Other than as described above, there have been no material changes in our borrowings from those reported as of April 30, 20172020 in our Annual Report on Form 10-K.
CASH AND OTHER ASSETS – As of JanuaryJuly 31, 20182020, we held cash and cash equivalents, excluding restricted amounts, of $187.4 million,$2.6 billion, including $94.4$152.7 million held by our foreign subsidiaries.
Foreign Operations. Seasonal borrowing needs of When necessary, our Canadian operationsinternational businesses are typically funded by our U.S. operations. To mitigate foreign currency exchange rate risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of JanuaryJuly 31, 2018.2020.
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 ana increase of $1.8$6.4 million during the ninethree months ended JanuaryJuly 31, 20182020 compared to a decreaseincrease of $2.9$0.6 million in the prior year.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – In connection with our agreement with BofI, we are required to purchase a 90% participation interest, at par,Except as described in all EAs originated by our lending partner. At January 31, 2018, the principal balance of purchased participation interests totaled $345.0 million.
As discussed further in Item 1, note 9Recent Developments related to the consolidated financial statements, we have provided limited guarantees under our Refund AdvanceAxos Program Management Agreement, of up to $10 million 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.
ThereMeta Program Management Agreement, and 2030 Senior Notes issuance, there have been no other material changes in our contractual obligations and commercial commitments from those reported as of April 30, 20172020 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.



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REGULATORY ENVIRONMENT– The Tax Legislation, which was signed into law on December 22, 2017, includes major changes to the U.S. federal income taxation of individuals and corporations. For a discussion of the impact of the corporate tax law changes included in the Tax Legislation on our consolidated financial statements, see Item 1, note 7 to the consolidated financial statements. With respect to the individual income tax changes within the Tax Legislation, we do not anticipate any material impact to our business or our consolidated financial position, results of operations, or cash flows for fiscal year 2018. We are continuing to evaluate the impact, which may be material, that the individual income tax changes in the Tax Legislation could have on our business and consolidated financial position, results of operations, and cash flows in the fiscal year ending April 30, 2019 and beyond.
On November 17, 2017, the Consumer Financial Protection Bureau (CFPB) officiallyCFPB published its final rule changing the regulation of certain consumer credit products, including payday loans, vehicle title loans, and high-cost installment loans (the “Payday Rule”)(Payday Rule). Certain limited provisions of the Payday Rule became effective on January 16, 2018, but most provisions do not become effective untilwere scheduled to go into effect on August 19, 2019. However, on January 16,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 stated its intention to engage inissued a rulemaking process so thatfinal rule revoking the CFPB may reconsidermandatory underwriting provisions of the Payday Rule.
Given this development,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 will be revised. Depending on the outcome of that rulemaking process, which may include the Payday Rule becoming effective in its current form, the Payday Rule mayto have a material adverse impact on the EAEmerald AdvanceTM product, our business, andor 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 as the CFPB’s rulemaking process progresses.

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On October 5, 2016, the CFPB released its final rule regulating certain prepaid products (the “Prepaid Card Rule”). The Prepaid Card Rule was scheduled to take effect on April 1, 2018. However, on January 25, 2018, the CFPB amended the Prepaid Card Rule and extended the general effective date until April 1, 2019. Once effective, the Prepaid Card Rule will apply to the H&R Block Emerald Prepaid MasterCard®, but we do not believe the rule will apply to the EA or Refund Advance products because they are non-covered separate credit products. The Prepaid Card Rule, among other things: (i) requires consumer disclosures to be made prior to acquiring a prepaid account; (ii) requires periodic statements or online access to specified account information; and (iii) requires online posting of the Cardholder Agreement and submission of new and revised Cardholder Agreements to the CFPB. We are continuing to assess the impact of these changes on the H&R Block Emerald Prepaid MasterCard®, but we do not currently expect that the Prepaid Card Rule will have a material adverse effect on our business or our consolidated financial position, results of operations, and cash flows.Company.
There have been no other material changes in our regulatory environment from what was reported as of April 30, 20172020 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 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.
We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations.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.

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The following is a reconciliation of net income (loss) to EBITDA from continuing operations, to net loss: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,
 2018
 2017
 2018
 2017
 2020
 2019
Net loss - as reported $(245,645) $(104,514) $(529,778) $(374,407)
Net income (loss) - as reported $91,259
 $(150,247)
Discontinued operations, net 2,720
 3,302
 10,723
 8,754
 2,297
 4,523
Net loss from continuing operations - as reported (242,925) (101,212) (519,055) (365,653)
Net income (loss) from continuing operations - as reported 93,556
 (145,724)
Add back:            
Income taxes of continuing operations 122,120
 (49,386) (43,234) (216,963)
Income taxes (benefit) of continuing operations 30,486
 (61,390)
Interest expense of continuing operations 24,560
 25,940
 67,102
 70,026
 32,125
 21,071
Depreciation and amortization of continuing operations 48,488
 45,160
 136,878
 132,192
 39,508
 38,605
 195,168
 21,714
 160,746
 (14,745) 102,119
 (1,714)
EBITDA from continuing operations $(47,757) $(79,498) $(358,309) $(380,398) $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) 
  Three months ended July 31,
  2020
 2019
     
Net income (loss) from continuing operations - as reported $93,556
 $(145,724)
     
Adjustments:    
Amortization of intangibles related to acquisitions (pretax) 18,577
 16,239
Tax effect of adjustments (1)
 (4,400) (4,162)
Adjusted net income (loss) from continuing operations $107,733
 $(133,647)
     
Diluted earnings (loss) per share - as reported $0.48
 $(0.72)
Adjustments, net of tax 0.07
 0.06
Adjusted earnings (loss) per share $0.55
 $(0.66)
     
(1)    Tax effect of adjustments is the difference between the tax provision calculated on a GAAP basis and on an adjusted non-GAAP basis.
FORWARD-LOOKING INFORMATION
This report and other documents filed with the Securities and Exchange Commission (SEC)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

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or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, stock repurchase,share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management's plans or objectives for future operations, services or products, or descriptions of assumptions underlying any of the above. 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,

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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, guidance from the IRS, SEC, or the FASB about the Tax Legislation, 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, 20172020 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, 2017 and Item 1A, Risk Factors in any subsequently-filed Quarterly Reports on Form 10-Q.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, 20172020 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 10 to the consolidated financial statements.
ITEM 1A.    RISK FACTORS
ExceptWe 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 describedpreviously 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 2, Regulatory Environment,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,

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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, 20172020 in our Annual Report on Form 10-K.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
A summary of our purchases of H&R Block common stock during the thirdfirst quarter of fiscal year 20182021 is as follows:
(in 000s, except per share amounts) 
  
Total Number of
Shares Purchased (1)

 Average
Price Paid
per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plans 
or Programs (2)

 
Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans 
or Programs (2)

November 1 - November 30 —
 $—
 —
 $1,183,190
December 1 - December 31 3
 $27.22
 —
 $1,183,190
January 1 - January 31 3
 $26.69
 —
 $1,183,190
  6
 $26.80
 —
  
         
(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 6204 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted shares and restricted share units.
(2) 
In September 2015, we announced that our Board of Directors approved a $3.5$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:


12.14.1
Computation of Ratio of Earnings to Fixed Charges forThird 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.
12.24.2
ComputationOfficers’ Certificate, dated August 7, 2020, of Ratio of Earnings to Fixed Charges for Block Financial LLC.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
Program Management Agreement, dated August 5, 2020, by and 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.

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101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Extension Calculation Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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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 7, 2018September 3, 2020
 
/s/ Tony G. Bowen
Tony G. Bowen
Chief Financial Officer
March 7, 2018September 3, 2020
 
/s/ Kellie J. Logerwell
Kellie J. Logerwell
Chief Accounting Officer
March 7, 2018September 3, 2020


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