Company Quick10K Filing
H&R Block
Price23.64 EPS2
Shares200 P/E11
MCap4,729 P/FCF4
Net Debt1,278 EBIT362
TEV6,008 TEV/EBIT17
TTM 2019-10-31, in MM, except price, ratios
10-K 2020-04-30 Filed 2020-06-17
10-Q 2020-01-31 Filed 2020-03-09
10-Q 2019-10-31 Filed 2019-12-06
10-Q 2019-07-31 Filed 2019-09-06
10-K 2019-04-30 Filed 2019-06-14
10-Q 2019-01-31 Filed 2019-03-08
10-Q 2018-10-31 Filed 2018-12-07
10-Q 2018-07-31 Filed 2018-09-07
10-K 2018-04-30 Filed 2018-06-15
10-Q 2018-01-31 Filed 2018-03-08
10-Q 2017-10-31 Filed 2017-12-07
10-Q 2017-07-31 Filed 2017-09-01
10-K 2017-04-30 Filed 2017-06-16
10-Q 2017-01-31 Filed 2017-03-08
10-Q 2016-10-31 Filed 2016-12-08
10-Q 2016-07-31 Filed 2016-09-01
10-K 2016-04-30 Filed 2016-06-17
10-Q 2016-01-31 Filed 2016-03-11
10-Q 2015-10-31 Filed 2015-12-09
10-Q 2015-07-31 Filed 2015-09-04
10-K 2015-04-30 Filed 2015-06-17
10-Q 2015-01-31 Filed 2015-03-05
10-Q 2014-10-31 Filed 2014-12-09
10-Q 2014-07-31 Filed 2014-09-04
10-K 2014-04-30 Filed 2014-06-19
10-Q 2014-01-31 Filed 2014-03-06
10-Q 2013-10-31 Filed 2013-12-10
10-Q 2013-07-31 Filed 2013-09-05
10-K 2013-04-30 Filed 2013-06-26
10-Q 2013-01-31 Filed 2013-03-07
10-Q 2012-10-31 Filed 2012-12-06
10-Q 2012-07-31 Filed 2012-09-05
10-K 2012-04-30 Filed 2012-06-26
10-Q 2012-01-31 Filed 2012-03-07
10-Q 2011-10-31 Filed 2011-12-05
10-Q 2011-07-31 Filed 2011-09-01
10-K 2011-04-30 Filed 2011-06-23
10-Q 2011-01-31 Filed 2011-03-09
10-Q 2010-10-31 Filed 2010-12-08
10-Q 2010-07-31 Filed 2010-09-03
10-K 2010-04-30 Filed 2010-06-29
10-Q 2010-01-31 Filed 2010-03-08
8-K 2020-07-28 Regulation FD, Exhibits
8-K 2020-07-15 Officers
8-K 2020-07-01 Leave Agreement
8-K 2020-06-16
8-K 2020-05-15
8-K 2020-03-26
8-K 2020-03-17
8-K 2020-03-05
8-K 2019-12-04
8-K 2019-11-07
8-K 2019-09-12
8-K 2019-08-28
8-K 2019-06-28
8-K 2019-06-20
8-K 2019-06-11
8-K 2019-06-10
8-K 2019-04-24
8-K 2019-03-07
8-K 2018-12-06
8-K 2018-11-15
8-K 2018-09-21
8-K 2018-09-13
8-K 2018-08-28
8-K 2018-08-20
8-K 2018-07-09
8-K 2018-06-25
8-K 2018-06-12
8-K 2018-04-24
8-K 2018-03-06
8-K 2018-01-22
8-K 2018-01-03

HRB 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1: Summary of Significant Accounting Policies
Note 2: Revenue Recognition
Note 3: Earnings per Share
Note 4: Receivables
Note 5: Property and Equipment
Note 6: Goodwill and Intangible Assets
Note 7: Long - Term Debt
Note 8: Stock - Based Compensation
Note 9: Income Taxes
Note 10: Other Income and Other Expenses
Note 11: Commitments and Contingencies
Note 12: Leases
Note 13: Litigation and Other Related Contingencies
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
EX-4.10 hrb20200430exhibit410.htm
EX-21 hrb20200430exhibit21.htm
EX-22 hrb20200430exhibit22.htm
EX-23 hrb20200430exhibit23.htm
EX-31.1 hrb20200430exhibit311.htm
EX-31.2 hrb20200430exhibit312.htm
EX-32.1 hrb20200430exhibit321.htm
EX-32.2 hrb20200430exhibit322.htm

H&R Block Earnings 2020-04-30

Balance SheetIncome StatementCash Flow
10.07.95.93.81.8-0.32012201420172020
Assets, Equity
2.62.01.50.90.4-0.22012201420172020
Rev, G Profit, Net Income
2.31.60.90.1-0.6-1.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
 
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended
April 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from             to             
Commission file number 1-06089


H&R Block, Inc.
(Exact name of registrant as specified in its charter)
Missouri
 
44-0607856
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
One H&R Block Way, Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 854-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, without par value
HRB
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer      Accelerated filer      Non-accelerated filer       Smaller reporting company  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  
The aggregate market value of the registrant's Common Stock (all voting stock) held by non-affiliates of the registrant, computed by reference to the price at which the stock was sold on October 31, 2019, was $4,866,442,857.
Number of shares of the registrant's Common Stock, without par value, outstanding on May 29, 2020: 192,475,308.
Documents incorporated by reference
The definitive proxy statement for the registrant's 2020 Annual Meeting of Shareholders, to be filed no later than 120 days after April 30, 2020, is incorporated by reference in Part III to the extent described therein.
 



 
2020 FORM 10-K AND ANNUAL REPORT
TABLE OF CONTENTS

 
 
INTRODUCTION AND FORWARD-LOOKING STATEMENTS
1

 
 
 
 
 
ITEM 1.
BUSINESS
1

ITEM 1A.
RISK FACTORS
7

ITEM 1B.
UNRESOLVED STAFF COMMENTS
18

ITEM 2.
PROPERTIES
18

ITEM 3.
LEGAL PROCEEDINGS
18

ITEM 4.
MINE SAFETY DISCLOSURES
18

 
 
 
 
 
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
19

ITEM 6.
SELECTED FINANCIAL DATA
20

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
30

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
32

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
66

ITEM 9A.
CONTROLS AND PROCEDURES
66

ITEM 9B.
OTHER INFORMATION
67

 
 
 
 
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
67

ITEM 11.
EXECUTIVE COMPENSATION
67

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
68

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
68

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
68

 
 
 
 
 
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
68

 
SIGNATURES
69

 
EXHIBIT INDEX
70

 





INTRODUCTION
"H&R Block," "the Company," "we," "our" and "us" are used interchangeably to refer to H&R Block, Inc. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.
Specified portions of our proxy statement are "incorporated by reference" in response to certain items. Our proxy statement will be made available to shareholders no later than 120 days after April 30, 2020, and will also be available on our website at www.hrblock.com.
FORWARD-LOOKING STATEMENTS
This report and other documents filed with the Securities and Exchange Commission (SEC) may contain forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "could," "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, 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, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law.
By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, operational and regulatory factors, many of which are beyond the Company's control. In addition, factors that may cause the Company’s actual effective tax rate to differ from estimates include the Company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the Company has made and future actions of the Company. Investors should understand that it is not possible to predict or identify all such factors and, consequently, should not consider any such list to be a complete set of all potential risks or uncertainties.
Details about risks, uncertainties and assumptions that could affect various aspects of our business are included throughout this Form 10-K. Investors should carefully consider all of these risks, and should pay particular attention to Item 1A, "Risk Factors," and Item 7 under "Critical Accounting Estimates" of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
H&R Block, Inc. was organized as a corporation in 1955 under the laws of the State of Missouri and has subsidiaries that provide tax preparation and other services and products. A complete list of our subsidiaries as of April 30, 2020 can be found in Exhibit 21.

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RECENT DEVELOPMENTS
COVID-19 IMPACTS – As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the United States (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 similarly 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 is expected to shift to the first quarter of fiscal year 2021, however, due to our modified operating model, office closures, and competitive pressures, we may not recover all tax returns we lost in the fourth quarter in our first quarter.
We have been navigating the ever-changing landscape of the various state and local orders regarding whether our offices could stay open and how we could help our clients. We evaluated these orders on an individual basis, which at its peak resulted in nearly 20% of our office network closing to the public. In the offices that remained open, we made changes to our operating model to encourage and/or require clients to drop off their documents and approve online, complete virtually by uploading their documents and approve online or in-office with social distancing guidelines. See Item 7, under “Results of Operations” and “Financial Condition,” for further discussion regarding the impact of the COVID-19 pandemic on our business.
In order to strengthen our liquidity and ensure maximum flexibility, during our fourth quarter we drew the full amount of our $2.0 billion unsecured committed line of credit (CLOC).
Our financial results for fiscal year 2020 were negatively impacted by the extension of the tax filing season due to the COVID-19 pandemic and as of April 30, 2020, we were not in compliance with the debt-to-EBITDA ratio covenant related to our CLOC. On May 22, 2020 we obtained a waiver of the debt-to-EBITDA ratio covenant for the period ended April 30, 2020. As of April 30, 2020 we had cash balances of $2.7 billion, which includes the CLOC draw. We believe we have sufficient liquidity to support our business through next tax season and we expect to be in compliance with our CLOC covenants each quarter in fiscal year 2021.
WAVE – During the fiscal year ended April 30, 2020, we acquired Wave HQ Inc. (formerly known as Wave Financial Inc.) and its subsidiaries (collectively, Wave) for $408.4 million. The acquisition was funded with available cash. Wave is a provider of software solutions and related services specifically designed to help small business owners manage their finances. Major revenue sources include fees earned by providing payment processing, payroll services, and bookkeeping services. We believe the acquisition of Wave enhances our position in the small business market.
As a result of the COVID-19 pandemic and its impact on Wave’s small business customers, we evaluated the Wave reporting unit’s goodwill for impairment during our fourth quarter. The fair value was less than the carrying value, therefore resulting in a goodwill impairment loss of $106.0 million. See Item 8, note 6 to the consolidated financial statements for additional information.
FINANCIAL SERVICES OFFERINGS Many of our financial products are provided to our clients through an agreement with Axos Bank (Axos), a federal savings bank. We have announced our intent to terminate our agreement with Axos on or after July 1, 2020.
We have signed a non-binding letter of intent with MetaBank, N.A., a wholly-owned subsidiary of Meta Financial Group, Inc. (Meta), to enter into a new multi-year program management agreement pursuant to which Meta would offer certain financial products to H&R Block clients. See our Current Report filed on Form 8-K dated May 15, 2020 for additional information.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We report a single segment that includes all of our continuing operations, which are designed to enable clients to obtain tax preparation and small business services seamlessly. See discussion below and in Item 8, within the notes to the consolidated financial statements.

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DESCRIPTION OF BUSINESS
GENERAL – We provide assisted, do-it-yourself (DIY), and virtual tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our financial partners, to the general public primarily in the U.S., Canada, Australia, and their respective territories. We also offer small business financial solutions through our company-owned or franchise offices and online through Wave. Major revenue sources include fees earned for tax preparation via our assisted, DIY, and virtual channels, royalties from franchisees, and fees from related services and products.
Tax Returns Prepared. During fiscal year 2020, 20.3 million tax returns were prepared by and through H&R Block worldwide, including those prepared by our franchisees, and through our DIY and virtual solutions. This is a 14.0% decrease from the 23.6 million prepared in fiscal year 2019. We prepared 23.3 million tax returns in fiscal year 2018. In the U.S., 17.6 million tax returns were prepared by and through H&R Block during fiscal year 2020, a decrease of 13.2% from 20.3 million in 2019, and 20.0 million in 2018. Due to the extension of the tax filing deadlines because of the COVID-19 pandemic, this does not include the full filing season and is not comparable to prior year return volumes. Through April 30, 2020 the IRS has reported total tax filings are down 9.6% compared to the prior year.
U.S. tax returns prepared by and through us during the fiscal year 2020, including those prepared by our franchisees, and through our DIY and virtual solutions, constituted approximately 12.5% of an Internal Revenue Service (IRS) estimate of total individual income tax returns filed through April 30, 2020. See Item 7, under "Results of Operations," for further discussion of changes in the number of tax returns prepared.
ASSISTED – Assisted income tax return preparation and related services are provided by tax professionals via a system of retail offices operated directly by us or our franchisees.
Assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a tax return.
Offices. As of January 31, 2020, we, together with our franchisees, operated in 9,461 offices across the U.S. compared to 9,504 in the prior year. A summary of our company-owned and franchise offices is included in Item 7, under "Operating Statistics." Due to the COVID-19 pandemic and various restrictions put in place during March and April of 2020, we leveraged digital capabilities and modified our retail operating model to continue to deliver expertise and care to our clients amidst COVID-19 restrictions. During this time, up to 20% of our office network was closed to the public.
Franchises. We offer franchises as a way to expand our presence in certain geographic areas. Our franchise arrangements provide us with certain rights designed to protect our brand. Most of our franchisees receive, among other things, the right to use our trademarks and software, access to product offerings and expertise, signs, specialized forms, advertising, and initial and ongoing training and advisory services. In the U.S., our franchisees pay us approximately 30% of gross tax return preparation and related service revenues as a franchise royalty. Our franchise arrangements typically include a ten-year term and do not provide for automatic renewal.
From time to time, we have sold certain company-owned offices to existing franchisees or have acquired the assets of existing franchisees and other tax return preparation businesses, and may continue to do so if future conditions warrant and satisfactory terms can be negotiated.
DO-IT-YOURSELF – We develop and market DIY income tax preparation software. We offer a comprehensive range of DIY tax services, including federal and state income tax return solutions, access to tax tips, advice and tax-related news, use of calculators for tax planning, error checking and electronic filing. Our online software may be accessed through our website at www.hrblock.com or in a mobile application, while our desktop software may be purchased online, through third-party retail stores or via direct mail. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the IRS that the client would otherwise not have been required to pay.
We are a member of Free File, Inc. We will continue in that status through October 2020, at which time our membership will terminate. This organization was created by the tax return preparation industry and the IRS, and allows qualified filers with an adjusted gross income of $69,000 or less to prepare and file their federal return online at no charge.

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VIRTUAL – Virtual income tax return preparation and related services are provided by our tax professionals in three distinct ways. First, we offer a fully assisted experience for consumers called Tax Pro GoSM. Second, Tax Pro ReviewSM is a product for the DIY consumer who wants an expert review before submitting their return. And finally, Online AssistSM is an on-demand service for DIY filers to get their tax questions answered as they complete their return. Our virtual offerings may be accessed through our website at www.hrblock.com or in a mobile application. Virtual tax returns are covered by our 100% accuracy guarantee. Tax Pro GoSM and Tax Pro ReviewSM returns are included in our assisted return counts. Returns in which a DIY client has chosen to use Online AssistSM are included in our DIY return counts.
OTHER OFFERINGS – We also offer U.S. clients a number of additional services, including Refund Transfers (RTs), our Peace of Mind® Extended Service Plan (POM), H&R Block Emerald Prepaid Mastercard® (Emerald Card), H&R Block Emerald Advance® lines of credit (EAs), Tax Identity Shield® (TIS), Refund Advance loans (RAs), and small business financial solutions. For our Canadian clients we also offer POM, H&R Block Instant RefundTM, H&R Block Pay With Refund®, and small business financial solutions.
Refund Transfers. RTs enable clients to receive their tax refunds by their chosen method of disbursement and include a feature enabling clients to deduct tax preparation and service fees from their tax refunds. Depending on circumstances, clients may choose to receive their RT proceeds by a load to their Emerald Card, by receiving a check or by direct deposit to an existing account. RTs are available to U.S. clients and are frequently obtained by those who (1) do not have bank accounts into which the IRS can direct deposit their refunds; (2) like the convenience and benefits of a temporary account for receipt of their refund; and/or (3) prefer to have their tax preparation fees paid directly out of their refunds. RTs are offered through our relationship with Axos. We offer a similar program to our Canadian clients through a Canadian chartered bank, referred to as H&R Block Pay With Refund®.
Peace of Mind® Extended Service Plan. We offer POM to U.S. and Canadian clients, whereby we (1) represent our clients if they are audited by a taxing authority, and (2) assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. The additional taxes paid under POM have a cumulative limit of $6,000 for U.S. clients and $3,000CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM.
H&R Block Emerald Prepaid Mastercard®. The Emerald Card® enables clients to receive their tax refunds from the IRS directly on a prepaid debit card, or to direct RT, EA or RA proceeds to the card. The card can be used for everyday purchases, bill payments and ATM withdrawals anywhere Mastercard® (Mastercard is a registered trademark of Mastercard International Incorporated) is accepted. Additional funds can be added to the card year-round through direct deposit or at participating retail locations. We distribute the Emerald Card® issued by Axos.
H&R Block Emerald Advance® Lines of Credit. EAs are lines of credit offered to clients in our offices, typically from mid-November through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. In addition to the required monthly payments, borrowers may elect to pay down balances on EAs with their tax refunds. These lines of credit are offered by Axos, and we subsequently purchase a participation interest in all EAs originated by Axos.
Tax Identity Shield®. Our TIS program offers clients assistance in helping protect their tax identity and access to services to help restore their tax identity, if necessary. Protection services include a daily scan of the dark web for personal information, a monthly scan for social security number in credit header data, notifying clients if their information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections when eligible.
Refund Advance Loans. RAs are interest-free loans offered by Axos, which are available to eligible U.S. assisted clients in company-owned and participating franchise locations. In tax season 2020, RAs were offered in amounts of $250, $500, $750, $1,250 and $3,500, based on client eligibility as determined by Axos.
H&R Block Instant RefundTM. Our Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), for a fee. The fee charged for this service is mandated by federal legislation which is administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the refund amount is then sent by the CRA directly to us.

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2020 Form 10-K | H&R Block, Inc.



Small Business Financial Solutions. We also offer small business financial solutions through our company-owned or franchise offices and online through Wave. Fees are earned from providing payment processing, payroll services, and bookkeeping services.
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 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. Substantially all U.S. states with an April 15 individual state income tax filing requirement similarly 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. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 is expected to shift to the first quarter of fiscal year 2021, however, due to our modified operating model, office closures, and competitive pressures, we may not recover all tax returns we lost in the fourth quarter in our first quarter.
COMPETITIVE CONDITIONS – We provide assisted, DIY, and virtual tax preparation services and products, as well as small business financial solutions, and face substantial competition in and across each category. There are a substantial number of tax return preparation firms and accounting firms offering tax return preparation services, and we face significant competition from independent tax preparers and certified public accountants. Many tax return preparation firms are involved in providing RTs and RAs or similar services to the public. Tax return preparation firms are highly competitive with regard to price and service, and many firms offer services that may include preparation of tax returns at no charge.
Our DIY and virtual tax preparation services include various forms of digital electronic assistance, including online and mobile applications and desktop software. Many other companies offer DIY and virtual tax preparation services, including Intuit Inc., our largest competitor offering such services. Price and marketing competition for DIY tax preparation services is intense among value and premium product offerings and many firms offer DIY services and products at no charge.
Our assisted tax preparation business faces competition from firms offering DIY and virtual tax preparation services and products, while our DIY and virtual tax preparation services also compete with in-office tax preparation services. U.S. federal and certain state and foreign taxing authorities also currently offer, or facilitate the offering of, tax return preparation and filing options to taxpayers at no charge.
In terms of the number of offices and revenues, we believe we are the largest single provider of tax return preparation solutions and electronic filing services in the U.S. In terms of the number of tax returns prepared by and through H&R Block, we believe we are the second largest provider in the U.S. We also believe we operate the largest tax return preparation businesses in Canada and Australia.
GOVERNMENT REGULATIONTAX PREPARERS – Our tax preparation business is subject to various forms of government regulation, including the following:
U.S. Federal Tax Preparer Regulations. U.S. federal legislation requires income tax return preparers to, among other things, set forth their signatures and identification numbers, including their Preparer Tax Identification Number (PTIN), on all tax returns prepared by them and retain all tax returns prepared by them for three years. U.S. federal laws also subject income tax return preparers to accuracy-related penalties in connection with the preparation of income tax returns. Preparers may be prohibited from continuing to act as income tax return preparers if they repeatedly engage in specified misconduct.
The U.S. federal government regulates the electronic filing of income tax returns in part by requiring electronic filers to comply with all publications and notices of the IRS applicable to electronic filing. We are required to provide certain electronic filing information to taxpayers and comply with advertising standards for electronic filers. We are also subject to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties, including suspension from the IRS electronic filing program.
Financial Consumer Protection and Privacy Regulations. The Gramm-Leach-Bliley Act and related Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) regulations require income tax preparers to

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(1) adopt and disclose consumer privacy notices, (2) provide consumers a reasonable opportunity to control (via "opt-out") whether their nonpublic personal information is disclosed to unaffiliated third-parties (subject to certain exceptions), and (3) implement reasonable safeguards to protect the security and confidentiality of nonpublic personal information. In addition, the IRS generally prohibits the use or disclosure of taxpayer information by tax return preparers for purposes other than tax return preparation without the prior written consent of the taxpayer. The CFPB or state regulators may issue regulations that apply to our subsidiaries, or certain of our third party service providers that provide consumer financial services and products. The CFPB or state regulators may examine, and take enforcement actions against, our subsidiaries or our third party service providers. See Item 1A, "Risk Factors," and Item 7, "Regulatory Environment," for further information on the CFPB and its recent actions.
State Regulations. Certain states have privacy laws and regulations in addition to the U.S. federal regulations described above. For example, the State of California has adopted the California Consumer Privacy Act (CCPA) which became effective January 1, 2020. Subject to certain exceptions, the CCPA imposes new requirements on how businesses collect, process,manage, and retain certain personal information of California residents and provides California residents with various rights regarding personal information collected by a business. Several other states have proposed and may adopt their own, different consumer privacy laws. All states have passed data security breach notice laws which may require notice to impacted individuals and others if there is unauthorized access to certain sensitive personal information. Several states require income tax return preparers to, among other things, register as a return preparer and comply with certain registration requirements such as testing and continuing education. State regulations may also subject income tax return preparers to accuracy-related penalties in connection with the preparation of income tax returns, and may prohibit preparers from continuing to act as income tax return preparers if they engage in specified misconduct. Certain states have regulations and requirements relating to offering income tax courses. These requirements may include licensing, bonding and certain restrictions on advertising.
Franchise Regulations. Many of the income tax return preparation offices operating in the U.S. under the name "H&R Block" are operated by franchisees. Our franchising activities are subject to the rules and regulations of the FTC, potential enforcement by the CFPB, and various state laws regulating the offer and sale of franchises. The FTC and various state laws require us to furnish to prospective franchisees a franchise disclosure document containing certain prescribed information. A number of states in which we are currently franchising regulate the sale of franchises and require registration of the franchise disclosure document with certain state authorities. We are currently operating under exemptions from registration in several of these states based on our net worth and experience. Substantive state laws regulating the franchisor/franchisee relationship presently exist in a large number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects. The state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. From time to time, we may make appropriate amendments to our franchise disclosure document to comply with our disclosure obligations under U.S. federal and state laws.
FOREIGN REGULATIONS – We are also subject to a variety of other regulations in various foreign markets, including anti-corruption laws, and regulations concerning privacy, data protection and data retention. Foreign regulations and laws potentially affecting our business are evolving rapidly. We rely on external and internal counsel in the countries in which we do business to advise us regarding compliance with applicable laws and regulations. We continue to develop and enhance our internal legal and operational compliance programs that guide our businesses in complying with laws and regulations applicable in the countries in which we do business.
SERVICE MARKS, TRADEMARKS AND PATENTS
We have made a practice of offering our services and products under service marks and trademarks and of securing registration for many of these marks in the U.S. and other countries where our services and products are marketed. We consider these service marks and trademarks, in the aggregate, to be of material importance to our business, particularly our businesses providing services and products under the "H&R Block" brand. The initial duration of U.S. federal trademark registrations is 10 years. Most U.S. federal registrations can be renewed perpetually at 10-year intervals and remain enforceable so long as the marks continue to be used.
We hold a small but growing patent portfolio that we believe is important to our overall competitive position, although we are not materially dependent on any one patent or particular group of patents in our portfolio at this time. Our patents have remaining terms generally ranging from one to 20 years.

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EMPLOYEES
We had approximately 3,500 regular full-time employees as of April 30, 2020. Our business is dependent on the availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these employees. The highest number of persons we employed during the fiscal year ended April 30, 2020, including seasonal employees, was approximately 80,500.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Name, age
 
Current position
 
Business experience since May 1, 2015
Jeffrey J. Jones II,
age 52
 
President and Chief Executive Officer
 
President and Chief Executive Officer since October 2017; President and Chief Executive Officer-Designate from August 2017 to October 2017; President of Ridesharing at Uber Technologies, Inc. from October 2016 until March 2017; Executive Vice President and Chief Marketing Officer of Target Corporation from April 2012 until September 2016.
Tony G. Bowen,
age 45
 
Chief Financial Officer
 
Chief Financial Officer since May 2016; Vice President, U.S. Tax Services Finance from May 2013 through April 2016.
Kellie J. Logerwell,
age 50
 
Chief Accounting Officer
 
Chief Accounting Officer since July 2016; Vice President of Corporate and Field Accounting from December 2014 until July 2016; Assistant Controller from December 2010 until December 2014.
Thomas A. Gerke,
age 64
 
General Counsel and Chief Administrative Officer
 
General Counsel and Chief Administrative Officer since May 2016; served as Chief Executive Officer (in an interim capacity) from August 2017 until October 2017; Chief Legal Officer (formerly titled Senior Vice President and General Counsel) from January 2012 through April 2016; Executive Vice President, General Counsel and Secretary of YRC Worldwide from January 2011 until April 2011; Executive Vice Chairman, Century Link, Inc. from July 2009 until December 2010; President and Chief Executive Officer, Embarq Corporation (in an interim capacity from December 2007 until March 2008 and by appointment from March 2008 until June 2009).
Karen Orosco,
age 49
 
Senior Vice President, U.S. Retail
 
Senior Vice President, U.S. Retail since May 2016; Vice President of Retail Operations from May 2011 until May 2016.
AVAILABILITY OF REPORTS AND OTHER INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through our website at www.hrblock.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The SEC maintains a website at www.sec.gov containing reports, proxy and information statements and other information regarding issuers who file electronically with the SEC.
The following corporate governance documents are posted on our website at www.hrblock.com:
The Amended and Restated Articles of Incorporation of H&R Block, Inc.;
The Amended and Restated Bylaws of H&R Block, Inc.;
The H&R Block, Inc. Corporate Governance Guidelines;
The H&R Block, Inc. Code of Business Ethics and Conduct;
The H&R Block, Inc. Board of Directors Independence Standards;
The H&R Block, Inc. Audit Committee Charter;
The H&R Block, Inc. Compensation Committee Charter;
The H&R Block, Inc. Finance Committee Charter; and
The H&R Block, Inc. Governance and Nominating Committee Charter.
If you would like a printed copy of any of these corporate governance documents, please send your request to H&R Block, Inc., One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary.
Information contained on our website does not constitute any part of this report.
ITEM 1A. RISK FACTORS
Our business activities expose us to a variety of risks. Identification, monitoring, and management of these risks are essential to the success of our operations and the financial soundness of H&R Block. Senior management and the Board of Directors, acting as a whole and through its committees, take an active role in our risk management process

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and have delegated certain activities related to the oversight of risk management to the Company's enterprise risk management team and the Enterprise Risk Committee, which is comprised of Vice Presidents of major business and control functions and members of the Enterprise Risk Management team. The Company’s enterprise risk management team, working in coordination with the Enterprise Risk Committee, is responsible for identifying and monitoring risk exposures and related mitigation and leading the continued development of our risk management policies and practices.
An investment in our securities involves risk, including the risk that the value of that investment may decline or that returns on that investment may fall below expectations. There are a number of significant factors that could cause actual conditions, events, or results to differ materially from those described in forward-looking statements, many of which are beyond management's control or its ability to accurately estimate or predict, or that could adversely affect our financial position, results of operations, cash flows, and the value of an investment in our securities.
RISKS RELATING TO CONTINUING OPERATIONS
Our financial condition and results of operations have been, and may continue to be, adversely affected by the recent COVID-19 pandemic, and may be impacted by a resurgence of COVID-19 or a future outbreak of another highly infectious or contagious disease.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. To date, this outbreak, which has surfaced in nearly all regions around the world, including all jurisdictions where the Company operates, and preventative measures taken to contain or mitigate the outbreak, have caused and are continuing to cause, business slowdowns or shutdowns in affected areas and disruption in the financial markets. Globally, governments have taken a variety of actions to contain the spread of COVID-19, including prohibitions on congregating in groups, business closure orders, shelter-in-place orders, or other similar measures.
In the U.S., state, county, and municipal jurisdictions in which we operate issued, and continue to issue, a high volume of emergency orders intended to contain the spread of COVID-19, which imposed various restrictions on our business, including capacity and other operational limitations, social distancing requirements, and in limited instances required us to close certain offices. The requirements of the various emergency orders often differ and, even where similar, may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current or future operations, policies, and practices may be determined to be inconsistent with those requirements, interpretations, or applications in certain jurisdictions.
We took a variety of actions to address the impacts of the COVID-19 pandemic on our business, including implementing our crisis response process, initiating other efforts to facilitate compliance with the various emergency orders (while maintaining continuity of operations as much as practicable), and implementing certain initiatives designed to slow and/or reduce the impact of COVID-19 and to meet the health and safety needs of our clients, associates, and franchisees. Though we were able to continue to provide a reduced number of in-person appointments, in late March 2020 we implemented operational changes across our U.S. assisted locations to increase the number of clients who drop off their documents and approve online. While this allowed clients to obtain professional assisted tax preparation from a tax office with minimal in-person interactions, these changes, along with the extension of the tax season described below, adversely impacted the Company’s results of operations, financial condition, and cash flows for the fiscal year ended April 30, 2020.
Notwithstanding the above-described efforts and our attempts to comply with COVID-19-related requirements, there is no certainty that we will be able to consistently do so or that the measures we have implemented, or implement in the future, will be sufficient to mitigate the risks posed by the virus. Alleged failures in this regard could result in additional negative impacts, including regulatory investigations, claims, legal actions, harm to our reputation and brands, fines, penalties, and other damages.
The extent to which the COVID-19 pandemic impacts our business, operations, and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict, including COVID-19 orders that continue for indefinite periods, modifications to orders resulting in more stringent requirements, or increased regulations regarding workplace conditions and benefits. Establishing systems and processes, or making changes to our existing policies, to achieve compliance with any of these, or other, complex and evolving requirements may increase our costs or restrict our business operations. In addition, the unprecedented nature of the COVID-19 pandemic makes it difficult to predict how the demand for our services will be affected. It is unclear how quickly or if clients will

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return to our offices to file during the remainder of tax season 2020 and in future years, which may be a function of continued concerns over safety or a permanent shift by consumers to DIY or virtual tax preparation methods. We may make changes in our operations to react to, or in anticipation of, such a shift in consumer behaviors, but such changes may not be successful in retaining current clients or attracting new clients to our brand.
The further spread of COVID-19 or a new global or national outbreak, the requirements to take action to help limit the spread of illness, and the other risks described above may further impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, results of operations, cash flows, and financial condition.
Our access to liquidity may be negatively impacted by disruptions in credit markets due to COVID-19 or otherwise, by downgraded credit ratings, or by our failure to meet certain covenants. Our funding costs could increase, further impacting earnings.
We need liquidity to meet our working capital requirements, to service debt obligations including refinancing of maturing obligations, and for general corporate purposes. Our access to and the cost of liquidity could be negatively impacted by the COVID-19 pandemic, in the event of credit rating downgrades, or due to our failure to meet financial covenants. On March 26, 2020, we drew down the full $2.0 billion available under our CLOC to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. The increase in the amount borrowed under the CLOC led to increased interest expense for the fiscal year ended April 30, 2020, which will remain elevated until such amounts are repaid. In addition, $650 million in principal of our Senior Notes are due in October 2020. Additional events may occur which could increase our need for liquidity above current levels. We may need to obtain additional sources of funding to meet these liquidity needs, which may not be available or may only be available under unfavorable terms. In addition, if rating agencies downgrade our credit rating, the cost of debt under our existing financing arrangements, as well as future financing arrangements, could increase and capital market access could decrease or become unavailable.
Our CLOC is subject to various covenants, and, as of April 30, 2020, we were not in compliance with the debt-to-EBITDA ratio covenant due to the impacts of the COVID-19 pandemic described above. Though the lenders under the CLOC waived non-compliance with this covenant as of April 30, 2020, there is no guarantee that they would waive any future covenant violations. If we violate this or other covenants in the CLOC in the future and are unable to obtain a waiver from our lenders, our debt under the CLOC would be in default and could be accelerated by our lenders. An acceleration of the indebtedness under the CLOC would cause a cross default under the indenture governing our Senior Notes. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.
The impacts of the COVID-19 pandemic, including a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets remain unknown. If current sources of liquidity were to become unavailable, we would need to obtain additional sources of funding, which may not be available or may only be available under less favorable terms. This could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Changes in applicable tax laws have had, and may in the future have, a negative impact on the demand for and pricing of our services, adversely affecting our business and our consolidated financial position, results of operations, and cash flows.
The U.S. government has in the past made, and may in the future make, changes to the individual income tax provisions of the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations. In addition, taxing authorities in various state, local, and foreign jurisdictions in which we operate may change the income tax laws in their respective jurisdictions. As a result of the COVID-19 pandemic, on March 21, 2020, the U.S. Department of the Treasury (Treasury) and the IRS announced that 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 delays negatively impacted the demand for our services in our fiscal year ended April 30, 2020, resulting in a substantial decrease in the number of tax returns prepared by or through H&R Block, impacting our revenue, cash flows, and earnings for the fiscal year ended April 30, 2020. Treasury, the IRS, and state or foreign officials may determine to further extend tax deadlines or take other actions, which could have

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an additional material adverse effect on our business and our consolidated financial position, results of operations, and cash flows in future years.
It is difficult to predict the manner in which future changes to the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations, and state, local, and foreign tax laws may impact us and the tax return preparation industry. Such future changes could decrease the demand or the amount we charge for our services, and, in turn, have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
There are various other initiatives from time to time seeking to modify the Internal Revenue Code or otherwise simplify tax return preparation. In addition, taxing authorities in various state, local, and foreign jurisdictions in which we operate have also introduced measures seeking to simplify or otherwise modify the preparation and filing of tax returns in their respective jurisdictions. The adoption or expansion of any measures that significantly simplify tax return preparation, or otherwise reduce the need for third-party tax return preparation services could reduce demand for our services and products and could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows.
Increased competition for tax preparation and small business clients could adversely affect our current market share and profitability. Offers of free services or products could adversely affect our revenues and profitability.
We provide assisted, DIY, and virtual tax preparation services and products and face substantial competition throughout our businesses. All categories in the tax return preparation industry are highly competitive and additional competitors have entered, and in the future may enter, the market to provide tax preparation services or products. In the assisted tax services category, there are a substantial number of tax return preparation firms and accounting firms offering tax return preparation services. Commercial tax return preparers are highly competitive with regard to price and service. In the DIY and virtual categories, options include various forms of digital electronic assistance, including online and mobile applications, and desktop software, all of which we offer. Our DIY and virtual services and products compete with a number of online and software companies, primarily on price and functionality. Individual tax filers may elect to change their tax preparation method, choosing from among various assisted, DIY, and virtual offerings, and technology increasingly makes switching among tax preparers and tax preparation methods easier for those consumers. In addition, as discussed above, the COVID-19 pandemic may increase the number of taxpayers switching from assisted tax preparation to DIY or virtual methods.
Technology advances quickly and in new and unexpected ways, and it is difficult to predict the manner in which these changes will impact the tax return preparation industry, the problems we may encounter in enhancing our services and products or the time and resources we may need to devote to the creation, support, and maintenance of technological enhancements. If we are slow to enhance our services, products, or technologies, if our competitors are able to achieve results more quickly than us, or if there are new and unexpected entrants into the industry, we may fail to capture, or lose, a significant share of the market.
Additionally, we and many other tax return preparation firms compete by offering one or more of RTs, prepaid cards, RAs, other financial services and products, and other tax-related services and products, many of which are subject to regulatory scrutiny, litigation, and other risks. We can make no assurances that we will be able to offer, or continue to offer, all of these services and products and a failure to do so could negatively impact our financial results and ability to compete. Intense competition could result in a reduction of our market share, lower revenues, lower margins, and lower profitability. In addition, Wave faces intense competition with its small business financial solutions. Wave may be unsuccessful in competing with other providers, which may diminish our revenue and profitability, and harm our ability to acquire and retain clients.
U.S. federal, state and foreign governmental authorities in certain jurisdictions in which we operate currently offer, or facilitate the offering of, tax return preparation and electronic filing options to taxpayers at no charge, and certain volunteer organizations also prepare tax returns at no charge for low-income taxpayers. In addition, many of our competitors offer certain tax preparation services and products, and other financial services and products, at no charge. In order to compete, we have offered certain, and may in the future offer additional, services and products at no charge. There can be no assurance that we will be able to attract clients or effectively ensure the migration of clients from our free offerings to those for which we receive fees, and clients who have formerly paid for our offerings

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may elect to use free offerings instead. These competitive factors may diminish our revenue and profitability, or harm our ability to acquire and retain clients.
Government tax authorities, volunteer organizations, our competitors, and potential new market entrants may also elect to implement or expand free offerings in the future. Free File, Inc., which operates under an agreement that expires in October 2021, is currently the sole means through which the IRS offers DIY tax software to taxpayers, however the IRS is not prohibited from offering competing services. In addition, from time to time, U.S. federal and state governments have considered various proposals through which the respective governmental taxing authorities would use taxpayer information provided by employers, financial institutions, and other payers to "pre-populate," prepare and calculate tax returns and distribute them to taxpayers. Under this approach, the taxpayer could then review and contest the return or sign and return it, reducing the need for third-party tax return preparation services and the demand for our services and products. There are various initiatives from time to time seeking to expedite refunds, which could reduce the demand for RTs. In addition, the IRS has in the past explored the possibility of allowing taxpayers to allocate a portion of their tax refunds to pay tax preparation fees, but the IRS has not advanced this initiative.
We believe that governmental encroachment at both the U.S. federal and state levels, as well as comparable government levels in foreign jurisdictions in which we operate, could present a continued competitive threat to our business for the foreseeable future, which in turn could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flow.
Compliance with the complex and evolving laws, regulations, standards, and contractual requirements regarding privacy and data protection could require changes in our business practices and increase costs of operation; failure to comply could result in significant claims, fines, penalties, and damages.
In the course of our business, we collect, use, and retain large amounts of personal information and data from our clients, including tax return information, financial product and service information, and social security numbers. In addition, we collect, use, and retain personal information and data of our employees in the ordinary course of our business.
We are subject to laws, rules, and regulations relating to the collection, use, disclosure, and security of such consumer and employee personal information, which have drawn increased attention from U.S. federal, state, and foreign governmental authorities in jurisdictions in which we operate. In the U.S., the IRS generally requires a tax return preparer to obtain the prior written consent of the taxpayer to use or disclose the taxpayer's information for certain purposes other than tax return preparation, which may limit our ability to market revenue-generating products to our clients. In addition, other regulations require financial institutions to adopt and disclose their consumer privacy notice and generally provide consumers with a reasonable opportunity to "opt-out" of having nonpublic personal information disclosed to unaffiliated third parties.
Numerous jurisdictions have passed, and may in the future pass, new laws related to the use and retention of consumer or employee information and this area continues to be an area of interest for U.S. federal, state, and foreign governmental authorities. For example, the State of California adopted the CCPA, which became effective January 1, 2020. Subject to certain exceptions, the CCPA imposes new requirements on how businesses collect, process, manage, and retain certain personal information of California residents and provides California residents with various rights regarding personal information collected by a business. Several other states have proposed and may adopt their own, different privacy laws. These laws may contain different requirements or may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current privacy and data protection policies and practices may not be consistent with all of those requirements, interpretations, or applications. In addition, changes in U.S. federal and state regulatory requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we operate, could result in more stringent requirements and in a need to change business practices, including the types of information we can use and the manner in which we can use such information. Establishing systems and processes, or making changes to our existing policies, to achieve compliance with these complex and evolving requirements may increase our costs or limit our ability to pursue certain business opportunities. There can be no assurance that we will successfully comply in all cases, which could result in regulatory investigations, claims, legal actions, harm to our reputation and brands, fines, penalties, and other damages.

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We have incurred, and may continue to incur, significant expenses to comply with existing privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.
A security breach of our systems, or third-party systems on which we rely, resulting in unauthorized access to personal information of our clients or employees or other sensitive, nonpublic information, may adversely affect the demand for our services and products, our reputation, and financial performance.
We offer a range of services and products to our clients, including assisted, DIY, and virtual tax return preparation solutions, financial services and products, and small business financial solutions through our company-owned or franchise offices and online through Wave. Due to the nature of these services and products, we use multiple digital technologies to collect, transmit, and store high volumes of client personal information. We also collect, use, and retain other sensitive, nonpublic information, such as employee social security numbers, healthcare information, and payroll information, as well as confidential, nonpublic business information. Certain third parties and vendors have access to personal information to help deliver client benefits, services and products, or may host certain of our and our clients’ sensitive and personal information and data. Information security risks continue to increase due in part to the increased adoption of and reliance upon digital technologies by companies and consumers. Our risk and exposure to these matters remain heightened due to a variety of factors including, among other things, the evolving nature of these threats and related regulation, the increased activity and sophistication of nation states, organized crime, cyber criminals, and hackers, the prominence of our brand, our and our franchisees' extensive office footprint, our plans to continue to implement strategies for our online and mobile applications and our desktop software, our use of third-party vendors, and the increasing usage of remote working arrangements by our associates, franchisees, and third-party vendors, which has significantly expanded due to the COVID-19 pandemic.
Cybersecurity risks may result from fraud or malice (a cyberattack), human error, or accidental technological failure. Cyberattacks are designed to electronically circumvent network security for malicious purposes such as unlawfully obtaining personal information, disrupting our ability to offer services, damaging our brand and reputation, stealing our intellectual property, or advancing social or political agendas. We face a variety of cyberattack threats including computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, ransomware, and other sophisticated attacks.
Although we use security and business controls to limit access to and use of personal information and expend significant resources to maintain multiple levels of protection in order to address or otherwise mitigate the risk of a security breach, such measures cannot provide absolute security. We regularly test our systems to discover and address potential vulnerabilities, and we rely on training and testing of our employees regarding heightened phishing and social engineering threats. We also conduct certain background checks on our employees, as allowed by law, and limit access to systems and data. Due to the structure of our business model, we also rely on our franchisees and other private and governmental third parties to maintain secure systems and respond to cybersecurity risks. Where appropriate, we impose certain requirements and controls on these third parties, but it is possible that they may not appropriately employ these controls or that such controls (or their own separate requirements and controls) may be insufficient to protect personal information. Cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for us. As risks and regulations continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Notwithstanding these efforts, there can be no assurance that a security breach, intrusion, or loss or theft of personal information will not occur. In addition, the techniques used to obtain unauthorized access change frequently, become more sophisticated, and are often difficult to detect until after a successful attack, causing us to be unable to anticipate these techniques or implement adequate preventive measures in all cases. Although we generally seek to maintain insurance from time to time that might mitigate some of our damages in the event of a significant security breach or cyberattack, we would still be exposed to damages in the amounts of our deductibles, retentions, and for losses outside of the scope of our policies (e.g., reputational harm). Furthermore, insurance against cybersecurity risks may cease to be available to us in the future or the pricing of such insurance may be prohibitively expensive.
A breach of our security measures or those of our franchisees or third parties on whom we rely, or other fraudulent activity, could result in unauthorized access to personal information of our clients or employees or other sensitive, nonpublic information. If such an event were to occur, it could have serious short- and long-term negative

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consequences. Unauthorized access to personal information could cause us to determine that it is required or advisable for us to notify affected individuals, regulators, or others under applicable privacy laws and regulations. Security breach remediation could also require us to expend significant resources to assist impacted individuals, repair damaged systems, implement modified information security measures, and maintain client and business relationships. Other consequences could include reduced client demand for our services and products, loss of valuable intellectual property, reduced growth and profitability and negative impacts to future financial results, loss of our ability to deliver one or more services or products (e.g., inability to provide financial services and products or to accept and process client credit card transactions or tax returns), modifying or stopping existing business practices, legal actions, harm to our reputation and brands, fines, penalties, and other damages, and further regulation and oversight by U.S. federal, state, or foreign governmental authorities.
A security breach or other unauthorized access to our systems could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Identity theft or other fraud that impedes our clients' ability to file their tax returns and receive their tax refunds could diminish consumers' perceptions of the security and reliability of our services and products, resulting in negative publicity.
A person with malicious intent could obtain user account and password information from our clients through hacking, phishing, or other means of cyberattack, in order to electronically file fraudulent federal and state tax returns through our systems. Though we offer assistance in the refund recovery process and offer our TIS product to help protect clients, stolen identity refund fraud or other fraud could impede our clients' ability to timely and successfully file their returns and receive their tax refunds, and could diminish consumers' perceptions of the security and reliability of our services and products, resulting in negative publicity, despite there having been no breach in the security of our systems.
Federal, state, and foreign governmental authorities in jurisdictions in which we operate have taken action, and may in the future take additional action, in an attempt to combat identity theft or other fraud, which may require changes to our systems and business practices, that we cannot anticipate. These actions may have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
A number of companies, including some in the tax return preparation industry, have reported instances where criminals gained unauthorized and illegal access to consumer information or user accounts maintained on their systems by using stolen identity information (e.g., email, username, password information, or credit history) obtained from third-party sources. We have experienced, and in the future may continue to experience, this form of unauthorized and illegal access to our systems, despite there having been no breach in the security of our systems. Such events could negatively impact our clients and harm our revenue, results of operations, and reputation. Additionally, if such unauthorized or illegal access occurs, we may be subject to claims and litigation by clients, non-clients, or governmental agencies.
An interruption in our information systems, or those of our franchisees or a third party on which we rely, or an interruption in the internet, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We, our franchisees, and other third parties involved in our business operations rely heavily upon communications, networks, and information systems and the internet to conduct our business, including third-party internet-based or cloud computing services. These networks, systems, and operations are potentially vulnerable to damage or interruption from upgrades and maintenance, network failure, hardware failure, software failure, power or telecommunications failures, cyberattacks (e.g., through computer viruses and worms, malicious code, phishing attacks, denial of service attacks, information security breaches, or other negative disruptions to the operation of the internet), human error, and natural disasters. As our businesses are seasonal, our systems must be capable of processing high volumes during our peak periods. Therefore, any failure or interruption in our information systems, or information systems of our franchisees or a private or government third party on which we rely, or an interruption in the internet or other critical business capability, could negatively impact our business operations and reputation, and increase our risk of loss.
There can be no assurance that system or internet failures or interruptions in critical business capabilities will not occur, or, if they do occur, that we, our franchisees or the private or governmental third parties on whom we rely, will

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adequately address them. The precautionary measures that we have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions or failures may not be adequate in all circumstances, and we may not have anticipated or addressed all of the potential events that could threaten or undermine our information systems or other critical business capabilities. We do not have redundancy for all of our systems and our disaster recovery planning may not account for all eventualities. Our software and computer systems utilize data processing and storage capabilities provided by Microsoft Corporation. If the Microsoft Azure Cloud is unavailable for any reason, it could negatively impact our ability to deliver our services and products and our clients may not be able to access certain of our cloud products or features, any of which could significantly impact our operations, business, and financial results.
The occurrence of any systems or internet failure, or business interruption could negatively impact our ability to serve our clients, which in turn could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The Dodd-Frank Act created the CFPB to administer and, in some cases, enforce U.S. federal financial consumer protection laws and expanded the role of state regulators with respect to consumer protection laws. Regulations promulgated by the CFPB or other regulators may affect our financial services businesses in ways we cannot predict, which may require changes to our financial products, services, and contracts.
The Dodd-Frank Act created the CFPB and gave it broad powers to administer, investigate compliance with, and, in some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a wide range of financial consumer protection laws that apply to banks and other financial services companies, including the authority to prohibit "unfair, deceptive, or abusive" acts and practices.
The CFPB and state regulators may examine, investigate, and take enforcement actions against our subsidiaries that provide consumer financial services and products, as well as financial institutions and service providers upon which our subsidiaries rely to provide consumer financial services and products. The Dodd-Frank Act also expanded the role of state regulators in enforcing and promulgating financial consumer protection laws, the results of which could be (i) states issuing new and broader financial consumer protection laws, some of which could be more comprehensive than existing U.S. federal regulations, or (ii) state attorneys general bringing actions to enforce federal consumer protection laws in the absence of CFPB action.
Currently proposed or new CFPB and state regulations may require changes to our financial products, services and contracts, and this could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The nature of our tax service and product offerings requires timely product launches. Any significant delays in launching our tax service and product offerings, changes in government regulations or processes that affect how we provide such offerings to our clients, or significant problems with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations, and reputation.
Tax laws and tax forms are subject to change each year, and the nature and timing of such changes are unpredictable. As a part of our business, we must incorporate any changes to tax laws and tax forms into our tax service and product offerings, including our online and mobile applications and desktop software. The unpredictable nature, timing and effective dates of changes to tax laws and tax forms can result in condensed development cycles for our tax service and product offerings because our clients expect high levels of accuracy and a timely launch of such offerings to prepare and file their taxes by the tax filing deadline and, in turn, receive any tax refund amounts on a timely basis. In addition, governmental authorities regularly change their processes for accepting tax filings and related tax forms. Further, changes in governmental administrations or regulations could result in a delay of the start of the tax season or in further and unanticipated changes in requirements or processes. New or changed governmental regulations and processes that affect how we provide services and products to our clients may require us to make corresponding changes to our client service systems and procedures. Furthermore, unanticipated changes in governmental processes, or newly implemented processes, for (1) accepting tax filings and related forms, including the ability of taxing authorities to accept electronic tax return filings, or (2) distributing tax refunds or other amounts to clients may result in delays in our processing of our clients' tax filings, or delays in tax authorities accepting electronic tax return filings, and, in turn, delay any tax refund or other amounts to which such clients may be entitled. From time to time, we review and enhance our quality controls for preparing accurate tax returns, but there can be no assurance that we

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will be able to prevent all inaccuracies. Any significant delays in launching our tax service and product offerings, changes in government regulations or processes that affect how we provide such offerings to our clients, or significant problems with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations, and reputation.
If we encounter development challenges or discover errors in our systems, services or products, we may elect to delay or suspend our offerings. Any major defects or launch delays, or unanticipated changes in governmental processes, or newly implemented processes, for (1) accepting tax filings and related forms, or (2) distributing tax refunds or other amounts to clients may lead to loss of clients and revenue, negative publicity, client and employee dissatisfaction, a deterioration in our business relationships with our franchisees, reduced retailer shelf space and promotions, exposure to litigation, and increased operating expenses, even if any such launch delays or defects are not caused by us. Any of the risks described above could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The Company is subject to additional federal, state, local, and foreign laws and regulations, including, without limitation, in the areas of franchise, labor, immigration, advertising, consumer protection, financial services and products, payment processing, privacy and data security, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new regulations and heightened focus by the government in some of these areas, including, for example, consumer financial services and products, restrictive covenants, and labor, including overtime and exemption regulations and state and local laws on minimum wage and other labor-related issues. There may be additional regulatory actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.
We rely on a single vendor or a limited number of vendors to provide certain key services or products, and the inability of these key vendors to meet our needs could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Historically, we have contracted, and in the future we will likely continue to contract, with a single vendor or a limited number of vendors to provide certain key services or products for our tax, financial, and other services and products. A few examples of this type of reliance are our relationships with Fidelity National Information Services, Inc. (FIS), for data processing and card production services, our banking partner, for the issuance of RTs, EAs, RAs and Emerald Cards, and Microsoft Corporation, for cloud computing services. In certain instances, we are vulnerable to vendor error, service inefficiencies, service interruptions, or service delays. Our sensitivity to any of these issues may be heightened (1) due to the seasonality of our business, (2) with respect to any vendor that we utilize for the provision of any product or service that has specialized expertise, (3) with respect to any vendor that is a sole or exclusive provider, or (4) with respect to any vendor whose indemnification obligations are limited or that does not have the financial capacity to satisfy its indemnification obligations. Some of our vendors are subject to the oversight of regulatory bodies and, as a result, our product or service offerings may be affected by the actions or decisions of such regulatory bodies. Vendor failures could occur in various ways including (1) vendor error, (2) inability to meet our needs in a timely manner, or (3) termination or delay in the services or products provided by a vendor because the vendor fails to perform adequately, is no longer in business, experiences shortages, or discontinues a certain product or service that we utilize. If our vendors are unable to meet our needs and we are not able to develop alternative sources for these services and products quickly and cost-effectively, it could result in a material and adverse impact on our business and our consolidated financial position, results of operations, and cash flows.
The specialized and highly seasonal nature of our business presents financial risks and operational and human capital challenges, which, if not satisfactorily addressed, could materially affect our business and our consolidated financial position, results of operations, and cash flows.
Our business is highly seasonal, with the substantial portion of our revenue generally earned in the fourth quarter of our fiscal year. The concentration of our revenue-generating activity during this relatively short period presents a

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number of challenges for us, including (1) cash and resource management during the first nine months of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season, (2) ensuring compliance with financial covenants under our CLOC, particularly if the timing of our revenue generation deviates from this seasonal period, (3) responding to changes in competitive conditions, including marketing, pricing, and new product offerings, which could affect our position during the tax season, (4) disruptions in a tax season, including any pandemics, such as the COVID-19 outbreak, which may disproportionately affect us compared to other companies if they occur during our fiscal fourth quarter, (5) client dissatisfaction issues or negative social media campaigns, which may not be timely discovered or satisfactorily addressed, and (6) ensuring optimal uninterrupted operations and service delivery during the tax season. If we experience significant business disruptions during the tax season or if we are unable to satisfactorily address the challenges described above and related challenges associated with a seasonal business, we could experience a loss, disruption, or change in timing of business, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our business depends on our ability to attract, develop, motivate, and retain key personnel in a timely manner, including members of our executive team and those in seasonal tax preparation positions or with other required specialized expertise, including technical positions. The market for such personnel is extremely competitive, and there can be no assurance that we will be successful in our efforts to attract and retain the required personnel within necessary timeframes. If we are unable to attract, develop, motivate, and retain key personnel, our business, operations, and financial results could be negatively impacted. In addition, if our costs of labor or related costs increase for other reasons or if new or revised labor laws, rules or regulations are adopted or implemented that impact our seasonal workforce and increase our labor costs, there could be a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We face legal actions in connection with our various business activities, and current or future legal actions may damage our reputation, impair our product offerings, or result in material liabilities and losses.
We have been named, and from time to time will likely continue to be named, in various legal actions, including arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. For example, we are subject to litigation and have received and are responding to certain governmental inquiries relating to the IRS Free File program. See additional discussion in Item 8, note 13 to the consolidated financial statements. We also grant our franchisees a limited license to use our registered trademarks and, accordingly, there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from our or our franchisees' actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.
The continued payment of dividends on our common stock and repurchases of our common stock are dependent on a number of factors, and future payments and repurchases cannot be assured.
We need liquidity sufficient to fund payments of dividends on our common stock and repurchases of our common stock. In addition, holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments, and our Board of Directors may only authorize the Company to repurchase shares of our common stock with funds legally available for such repurchases. The payment of future dividends and future repurchases will depend upon our earnings, economic conditions, liquidity and capital requirements, and other factors, including our debt leverage. Even if we have sufficient resources to pay dividends and to repurchase shares of our common stock, the Board of Directors may determine to use such resources to fund other Company initiatives. Accordingly, we cannot make any assurance that future dividends will be paid, or future repurchases will be made, at levels comparable to our historical practices, if at all. In addition, payments of dividends negatively impact net worth. Due to the seasonal nature of our business and the fact that our business is not asset-intensive, we have had, and are likely to continue to have, a negative net worth under U.S. generally accepted accounting principles (GAAP) at various times throughout the year. Therefore, the payment of dividends or stock repurchases at such times would cause us to further increase that GAAP negative net worth.

16
2020 Form 10-K | H&R Block, Inc.



Our businesses may be adversely affected by difficult economic conditions and high unemployment levels, including those resulting from the COVID-19 pandemic.
Given that the COVID-19 pandemic has caused a significant economic slowdown, it appears increasingly likely that it could cause a global recession, which could be of an unknown duration. Difficult economic conditions are frequently characterized by high unemployment levels and declining consumer and business spending. The COVID-19 pandemic has resulted in increased levels of unemployment globally, which may be sustained. These poor economic conditions may negatively affect demand and pricing for our services and products. In the event of difficult economic conditions that include high unemployment levels, especially within the client segments we serve, clients may elect not to file tax returns or utilize lower cost preparation and filing alternatives.
In addition, difficult economic conditions may disproportionately impact small business owners. Wave’s revenues have been negatively impacted, and may continue to be negatively impacted if there is a sustained economic slowdown or recession as a result of the pandemic. Difficult economic conditions, including an economic recession resulting from the COVID-19 pandemic, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our business depends on our strong reputation and the value of our brands.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future services and products and is an important element in attracting new clients. In addition, our franchisees may operate their businesses under our brands. Adverse publicity (whether or not justified) relating to events or activities involving or attributed to us, our franchisees, employees, or agents or our services or products, which may be enhanced due to the nature of social media, may tarnish our reputation and reduce the value of our brands. Damage to our reputation and loss of brand equity may reduce demand for our services and products and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and restore the value of our brands.
Failure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly.
Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases. Our intellectual property could be wrongfully acquired as a result of a cyberattack, other wrongful conduct by employees or third parties, or human error. To the extent that our intellectual property is not protected effectively by trademarks, copyrights, patents, or other means, other parties with knowledge of our intellectual property, including former employees, may seek to exploit our intellectual property for their own or others' advantage. Competitors may also misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our technology and products. Any significant impairment or misappropriation of our intellectual property or proprietary information could harm our business and our brand, and may adversely affect our ability to compete.
In addition, third parties may allege we are infringing their intellectual property rights, and we may face intellectual property challenges from other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes and, in that event, we could lose significant revenues, incur significant royalty or technology development expenses, suffer harm to our reputation, or pay significant monetary damages.
Failure to maintain sound business relationships with our franchisees may have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our financial success depends in significant part on our ability to maintain sound business relationships with our franchisees. The support of our franchisees is also critical for the success of our ongoing operations. Deterioration in our relationships with our franchisees could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our international operations are subject to risks which may harm our business and our consolidated financial position, results of operations, and cash flows.
We have international operations, including tax preparation businesses in Canada and Australia, technology centers in India and Ireland, and Wave in Canada. We may consider expansion opportunities in additional countries in the

H&R Block, Inc. | 2020 Form 10-K
17



future and there is uncertainty about our ability to generate revenues from new or emerging foreign operations and expand into other international markets. Additionally, there are risks inherent in doing business internationally, including: (1) changes in trade regulations; (2) difficulties in managing foreign operations as a result of distance, language, and cultural differences; (3) profit repatriation restrictions, and fluctuations in foreign currency exchange rates; (4) geopolitical events, including acts of war and terrorism, and economic and political instability; (5) compliance with U.S. laws such as the Foreign Corrupt Practices Act and other applicable foreign anti-corruption laws; (6) compliance with U.S. and international laws and regulations, including those concerning privacy, and data protection and retention; and (7) risks related to other government regulation or required compliance with local laws. These risks inherent in our international operations and expansion could increase our costs of doing business internationally and could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
In addition, we prepare U.S. federal and state tax returns for taxpayers residing in foreign jurisdictions, including the European Union (EU), and we operate and have franchisees who operate in foreign jurisdictions. As a result, certain aspects of our operations are subject, or may in the future become subject, to the laws, regulations, and policies of those jurisdictions that regulate the collection, use, and transfer of personal information, which may be more stringent than those of the U.S. For example, in May 2018, the EU implemented a privacy and data protection regulation, referred to as the General Data Protection Regulation.
Costs for us to comply with such laws, regulations, and policies that are applicable to us could be significant.  We may also face audits or investigations by one or more foreign government agencies relating to these laws, regulations, and policies that could result in the imposition of penalties or fines.
Changes in tax laws or regulations, or in the interpretations of tax laws or regulations, could materially affect our financial condition, cash flows, and operating results.
As a multinational corporation, we are subject to taxes in the U.S. and numerous foreign jurisdictions where our subsidiaries are organized and conduct their operations. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. The amount of tax due in various jurisdictions may change significantly as a result of political or economic factors beyond our control, including changes to tax laws or new interpretations of existing laws that are inconsistent with previous interpretations or positions taken by taxing authorities on which we have relied. For example, in 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Legislation), which made broad and complex changes to the U.S. tax code. Given the lack of regulatory guidance regarding the Tax Legislation, regulatory interpretations that differ from our existing interpretations of the Tax Legislation could materially affect our effective tax rates or value of deferred tax assets and liabilities. More recently, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 as a result of the COVID-19 pandemic. The CARES Act includes, among other items, provisions relating to refundable payroll tax credits, deferment of certain tax payments, and modifications to the net interest deduction limitations. We are currently evaluating the impact of the CARES Act and expect additional regulations, interpretations, and rulings may be forthcoming that could further impact our consolidated financial statements. In addition, legislatures and taxing authorities in jurisdictions in which we operate may propose additional changes to their tax rules in response to COVID-19. The impact of these potential new rules could be material.
In addition, projects undertaken by international organizations may change international tax norms relating to each country’s jurisdiction to tax cross-border international trade. Given the unpredictability of these and other possible changes to tax laws and related regulations, it is difficult to assess the overall effect of such potential changes, but any such changes could, if adopted and applicable to us, adversely impact our effective tax rates and other tax liabilities.
Our tax returns and other tax matters are periodically examined by tax authorities and governmental bodies, including the IRS, which may disagree with positions taken by us in determining our tax liability. There can be no assurance as to the outcome of these examinations. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.

18
2020 Form 10-K | H&R Block, Inc.



RISKS RELATING TO DISCONTINUED OPERATIONS
Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC) is subject to litigation and other claims, including potential contingent losses related to securitization transactions in which SCC participated, which may result in significant financial losses.
Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC 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. See Item 8, note 13 to the consolidated financial statements for a description of litigation and other claims to which SCC may be subject.
Between January 2005 and November 2007, SCC originated mortgage loans totaling approximately $80 billion. Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized such loans, or in the form of residential mortgage-backed securities (RMBSs). SCC estimates approximately 90% of the loans it originated in 2005, 2006, and 2007 were securitized in approximately 110 securitization transactions.
In connection with the sale of loans or RMBSs, SCC made certain representations and warranties. Claims under these representations and warranties together with any settlement arrangements related to these losses are collectively referred to as "representation and warranty claims."
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. (ACE), that the six-year statute of limitations under New York law starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all, of the transactions into which SCC entered. However, this decision would not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by agreement or a suit was timely filed.
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 in Item 8, note 13 to the consolidated financial statements, 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.
In most of the securitization transactions in which SCC participated, SCC agreed, subject to certain conditions and limitations, to indemnify contracting parties, including underwriters, depositors, or securitization trustees for certain losses and expenses that such parties may incur as a result of certain claims made against them relating to loans originated by SCC, including certain legal expenses they may incur in their defense of such claims.
Some underwriters, depositors, and securitization trustees are, or have been, defendants in lawsuits, threatened lawsuits, and settlements related to securitization transactions in which SCC participated. A variety of claims are alleged in these matters, including violations of U.S. federal and state securities law and common law fraud based on alleged materially inaccurate or misleading disclosures, that originators, depositors, securitization trustees, servicers, or other parties 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. Certain of the notices received included, and future notices may include, a reservation of rights to assert claims for

H&R Block, Inc. | 2020 Form 10-K
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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. These indemnification and contribution claims are frequently not subject to a contractual term or limit. Additional lawsuits against parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of claims for indemnification, contribution, or similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims.
In addition, other counterparties to the securitization transactions, including certificate holders and monoline insurance companies, have filed or may file lawsuits, or may assert indemnification or contribution claims, directly against depositors and loan originators in securitization transactions alleging a variety of claims, including U.S. federal and state securities law violations, common law torts and fraud and breach of contract claims, among others. Additional or new lawsuits or claims may be filed or asserted against SCC in the future.
We have not concluded that a loss related to these matters is probable, nor have we accrued a liability for these claims as of April 30, 2020. However, if SCC were required to pay material amounts with respect to these matters, it could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows, as SCC's financial condition, results of operations, and cash flows are included in our consolidated financial statements. See Item 8, note 13 to the consolidated financial statements for additional information.
H&R Block guaranteed the payment of certain limited claims against SCC.
SCC has been subject to representation and warranty claims by counterparties to SCC whole loan sales and securitization transactions, including certificate holders, securitization trustees, and subsequent purchasers of whole loans. In certain limited circumstances, H&R Block guaranteed payment if claims are successfully asserted by such counterparties.
In addition, as is customary in divestiture transactions, H&R Block guaranteed the payment of any indemnification claims from the purchaser of SCC's servicing business, including claims relating to pre-closing services (closing occurred in 2008).
We could be subject to claims by the creditors of SCC.
As discussed above, SCC is subject to representation and warranty claims, indemnification and contribution claims, and other claims and litigation related to its past sales and securitizations of mortgage loans. Additional claims and litigation may be asserted in the future. If the amount that SCC is ultimately required to pay with respect to these claims and litigation, together with related administration and legal expense, exceeds its net assets, the creditors of SCC, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. Claimants have also attempted, and may in the future attempt, to assert claims or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of April 30, 2020, total approximately $276 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. In addition, in certain limited instances, H&R Block guaranteed amounts as outlined in the above risk factor.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Most of our tax offices are operated under leases throughout the U.S., Canada and Australia.
We own our corporate headquarters, which is located in Kansas City, Missouri. Our Canadian executive offices are located in a leased office in Calgary, Alberta. Our Australian executive offices are located in a leased office in Thornleigh, New South Wales. Wave's headquarters are located in a leased office in Toronto, Ontario.
All current leased and owned facilities are in reasonably good repair and adequate to meet our needs.

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2020 Form 10-K | H&R Block, Inc.



ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see discussion in Item 8, note 13 to the consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION AND HOLDERS – H&R Block's common stock is traded on the New York Stock Exchange (NYSE) under the symbol HRB. On May 29, 2020, there were 14,915 shareholders of record and the closing stock price on the NYSE was $17.00 per share.
DIVIDENDS – Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER – A summary of our purchases of H&R Block common stock during the fourth quarter of fiscal year 2020 is as follows:
(in 000s, except per share amounts)
 
 
 
Total Number of
Shares Purchased (1)

 
Average
Price Paid
per Share

 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (2)

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

February 1 – February 29
 
1

 
$
20.67

 

 
$
751,837

March 1 – March 31
 

 
$

 

 
$
751,837

April 1 – April 30
 

 
$

 

 
$
751,837

 
 
1

 
$
20.70

 

 
 
 
 
 
 
 
 
 
 
 
(1) 
We purchased approximately 1 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted share units.
(2) 
In September 2015, we announced that our Board of Directors approved a $3.5 billion share repurchase program, effective through June 2019. In June 2019, our Board of Directors extended the share repurchase program through June 2022.

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21



PERFORMANCE GRAPH – The following graph compares the cumulative five-year total return provided to shareholders on H&R Block, Inc.'s common stock relative to the cumulative total returns of the S&P 500 index and a selected peer group. The peer group used is based on companies with similar market capitalization or public companies in the tax return preparation industry.
An investment of $100, with reinvestment of all dividends, is assumed to have been made in our common stock and in each of the indexes on April 30, 2015, and its relative performance is tracked through April 30, 2020.
hrb201943010k_chart.jpg
Note:
The peer group includes the following companies: Intuit Inc., Blucora, Inc., Liberty Tax, Inc., ICF International, Inc., CBIZ, Inc., Resources Connection, Inc., Willis Towers Watson PLC, Navigant Consulting, Inc., and Huron Consulting Group Inc.

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2020 Form 10-K | H&R Block, Inc.



ITEM 6. SELECTED FINANCIAL DATA
We derived the selected financial data presented below from our audited consolidated financial statements as of and for each of the five annual periods ending April 30, 2020. Results of operations of fiscal years 2020 and 2019 are presented in Item 7. The data set forth below should be read in conjunction with Item 7 and the consolidated financial statements in Item 8. We adopted Accounting Standards Update No. 2016-02, “Leases” (ASU 2016-02) on May 1, 2019, and as of April 30, 2020, we recorded operating lease assets of $494.8 million and operating lease liabilities of $508.1 million on our consolidated balance sheet. See Item 8, note 1 to the consolidated financial statements for details on the adoption of ASU 2016-02. During the fourth quarter of fiscal year 2020, we drew the full amount of our $2.0 billion CLOC, which remained outstanding as of April 30, 2020. See Item 8, note 9 to the consolidated financial statements for details on the impact of the Tax Legislation in fiscal year 2018.
(in 000s, except per share amounts)
 
April 30,
 
2020

 
2019

 
2018

 
2017

 
2016

Revenues
 
$
2,639,720

 
$
3,094,881

 
$
3,159,931

 
$
3,036,314

 
$
3,038,153

Net income from continuing operations
 
6,156

 
445,256

 
626,909

 
420,917

 
383,553

Net income (loss)
 
(7,526
)
 
422,509

 
613,149

 
408,945

 
374,267

Basic earnings (loss) per share:
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
0.03

 
$
2.16

 
$
2.99

 
$
1.97

 
$
1.54

Net income (loss)
 
(0.04
)
 
2.05

 
2.93

 
1.92

 
1.50

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
0.03

 
$
2.15

 
$
2.98

 
$
1.96

 
$
1.53

Net income (loss)
 
(0.04
)
 
2.04

 
2.91

 
1.91

 
1.49

Total assets
 
$
5,112,047

 
$
3,299,945

 
$
3,140,949

 
$
2,694,108

 
$
2,847,225

Long-term debt (1)
 
3,495,257

 
1,492,629

 
1,495,635

 
1,493,998

 
1,492,201

Stockholders’ equity (deficiency)
 
71,041

 
541,527

 
393,711

 
(60,883
)
 
23,103

Shares outstanding
 
192,475

 
201,959

 
209,254

 
207,171

 
220,517

Dividends per share
 
$
1.04

 
$
1.00

 
$
0.96

 
$
0.88

 
$
0.80

 
 
 
 
 
 
 
 
 
 
 
(1) 
Includes current portion of long-term debt.

H&R Block, Inc. | 2020 Form 10-K
23



QUARTERLY FINANCIAL DATA
(Unaudited)
 
(in 000s, except per share amounts)
 
 
 
April 30,
 
January 31,
 
October 31,
 
July 31,
 
 
2020
 
2019
 
2020
 
2019
 
2019
 
2018
 
2019
 
2018
Revenues
 
$
1,809,352

 
$
2,332,443

 
$
519,205

 
$
468,384

 
$
160,801

 
$
148,871

 
$
150,362

 
$
145,183

Income (loss) from continuing operations before taxes (benefit)
 
642,076

 
1,134,579

 
(177,030
)
 
(158,664
)
 
(261,306
)
 
(231,990
)
 
(207,114
)
 
(198,765
)
Net income (loss) from continuing operations
 
463,460

 
884,769

 
(128,026
)
 
(119,779
)
 
(183,554
)
 
(170,937
)
 
(145,724
)
 
(148,797
)
Net loss from discontinued operations
 
(3,057
)
 
(6,860
)
 
(1,657
)
 
(6,675
)
 
(4,445
)
 
(5,339
)
 
(4,523
)
 
(3,873
)
Net income (loss)
 
460,403

 
877,909

 
(129,683
)
 
(126,454
)
 
(187,999
)
 
(176,276
)
 
(150,247
)
 
(152,670
)
Basic earnings (loss) per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
2.40

 
$
4.36

 
$
(0.66
)
 
$
(0.58
)
 
$
(0.93
)
 
$
(0.83
)
 
$
(0.72
)
 
$
(0.72
)
Consolidated
 
$
2.39

 
$
4.32

 
$
(0.67
)
 
$
(0.62
)
 
$
(0.95
)
 
$
(0.86
)
 
$
(0.74
)
 
$
(0.74
)
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
2.39

 
$
4.32

 
$
(0.66
)
 
$
(0.58
)
 
$
(0.93
)
 
$
(0.83
)
 
$
(0.72
)
 
$
(0.72
)
Consolidated
 
$
2.37

 
$
4.29

 
$
(0.67
)
 
$
(0.62
)
 
$
(0.95
)
 
$
(0.86
)
 
$
(0.74
)
 
$
(0.74
)
Dividends paid per share
 
$
0.26

 
$
0.25

 
$
0.26

 
$
0.25

 
$
0.26

 
$
0.25

 
$
0.26

 
$
0.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 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. Substantially all U.S. states with an April 15 individual state income tax filing requirement similarly 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 for the fourth quarter.
The accumulation of four quarters in fiscal years 2020 and 2019 for earnings per share may not equal the related per share amounts for the years ended April 30, 2020 and 2019 due to the timing of the exercise of stock options and lapse of certain restrictions on nonvested shares and share units and deferred stock units and the antidilutive effect of stock options and nonvested shares and share units in periods which report a loss.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 similarly 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 is expected to shift to the first quarter of fiscal year 2021,

24
2020 Form 10-K | H&R Block, Inc.



however, due to our modified operating model, office closures, and competitive pressures, we may not recover all tax returns we lost in the fourth quarter in our first quarter.
We have been navigating the ever-changing landscape of the various state and local orders regarding whether our offices could stay open and how we could help our clients. We evaluated these orders on an individual basis, which at its peak resulted in nearly 20% of our office network closing to the public. In the offices that remained open, we made changes to our operating model to encourage or require clients to drop off their documents and approve online, complete virtually by uploading their documents and approve online or in-office with social distancing guidelines.
As we continue to finish out this tax season in our first quarter of fiscal year 2021 we have more offices open, increased office hours, more tax professionals, and more marketing costs than we would typically have in the first quarter. In addition, with the $2.0 billion draw on our CLOC, we will incur additional interest expense in fiscal year 2021.
In the United States, the U.S. government enacted the CARES Act on March 27, 2020. We continue to evaluate the impacts the CARES Act and other global COVID-19 relief legislation could have on our operating results, cash flows and financial condition.
A summary of our fiscal year 2020 results is as follows:
Revenues decreased $455.2 million, or 14.7%, compared to the prior year, primarily as a result of the extension of the tax filing season due to the COVID-19 pandemic.
Operating expenses increased $83.5 million, or 3.4%, primarily due to an impairment of goodwill, coupled with higher credit card and bank charges, higher legal fees and consulting costs. These increases were partially offset by a decline in commission-based wages and bonuses due to the decline in tax return volumes.
We recorded a pretax loss of $3.4 million due to the revenue and expense changes mentioned above.
Income tax expense decreased $109.4 million due to the pretax loss we reported for fiscal year 2020. See Item 8, note 9 to the consolidated financial statements for further discussion.
Net income from continuing operations was $6.2 million compared to $445.3 million in the prior year.
Diluted earnings per share from continuing operations totaled $0.03, a decrease from $2.15 in the prior year due to the extension of the tax filing season and share repurchases.
Adjusted earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) decreased $430.7 million, or 53.9%, to $368.3 million. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.
RESULTS OF OPERATIONS
Our subsidiaries provide assisted, DIY, and virtual tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our financial partners, to the general public primarily in the U.S., Canada, Australia, and their respective territories. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business financial solutions through our company-owned or franchise offices and online through Wave. We report a single segment that includes all of our continuing operations.

H&R Block, Inc. | 2020 Form 10-K
25



Operating Statistics
 
 
 
 
 
 
Year ended April 30,
 
2020
 
2019
 
% Change
 
 
(Partial tax filing season, extension to July 15)
 
(Full tax filing season)
 
 
TAX RETURNS PREPARED : (in 000s) (1)
 
 
 
 
 
 
United States:
 
 
 
 
 
 
Company-owned operations
 
6,745

 
8,033

 
(16.0
)%
Franchise operations
 
2,798

 
3,583

 
(21.9
)%
Total assisted
 
9,543

 
11,616

 
(17.8
)%
 
 
 
 
 
 
 
Desktop
 
1,500

 
1,969

 
(23.8
)%
Online
 
5,700

 
6,012

 
(5.2
)%
Total DIY
 
7,200

 
7,981

 
(9.8
)%
 
 
 
 
 
 
 
IRS Free File
 
845

 
665

 
27.1
 %
Total U.S. returns
 
17,588

 
20,262

 
(13.2
)%
 
 
 
 
 
 
 
International operations:
 
 
 
 
 
 
Canada
 
1,908

 
2,465

 
(22.6
)%
Australia
 
745

 
747

 
(0.3
)%
Other
 
73

 
142

 
(48.6
)%
Total international operations returns
 
2,726

 
3,354

 
(18.7
)%
Tax returns prepared worldwide
 
20,314

 
23,616

 
(14.0
)%
 
 
 
 
 
 
 
NET AVERAGE CHARGE (U.S. ONLY): (2)
 
 
 
 
 
 
Company-owned operations
 
$
227.83

 
$
231.60

 
(1.6
)%
Franchise operations (3)
 
$
217.07

 
$
216.61

 
0.2
 %
DIY
 
$
29.01

 
$
32.59

 
(11.0
)%
 
 
 
 
 
 
 
TAX OFFICES (as of January 31):
 
 
 
 
 
 
U.S. offices:
 
 
 
 
 
 
Company-owned offices
 
6,552

 
6,356

 
3.1
 %
Franchise offices
 
2,909

 
3,148

 
(7.6
)%
Total U.S. offices
 
9,461

 
9,504

 
(0.5
)%
International offices:
 
 
 
 
 
 
Canada
 
1,086

 
1,116

 
(2.7
)%
Australia
 
464

 
466

 
(0.4
)%
Total international offices
 
1,550

 
1,582

 
(2.0
)%
Tax offices worldwide
 
11,011

 
11,086

 
(0.7
)%
 
 
 
 
 
 
 
(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 ReviewSM, and business returns. A DIY return is defined as a return that has been electronically filed and accepted by the IRS. Also included are online returns paid and printed.
(2) 
Net average charge is calculated as tax preparation fees divided by tax returns prepared. For DIY, net average charge excludes IRS Free File.
(3) 
Net average charge related to H&R Block Franchise Operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices. H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

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

26
2020 Form 10-K | H&R Block, Inc.



Consolidated – Financial Results
 
 
 
 
 
(in 000s, except per share amounts)
 
Year ended April 30,
 
2020
 
2019
 
$ Change
 
% Change
Revenues:
 
 
 
 
 
 
 
 
U.S. assisted tax preparation
 
$
1,533,303

 
$
1,858,998

 
$
(325,695
)
 
(17.5
)%
U.S. royalties
 
193,411

 
243,541

 
(50,130
)
 
(20.6
)%
U.S. DIY tax preparation
 
208,901

 
261,413

 
(52,512
)
 
(20.1
)%
International
 
180,065

 
220,562

 
(40,497
)
 
(18.4
)%
Refund Transfers
 
154,687

 
169,985

 
(15,298
)
 
(9.0
)%
Emerald Card®
 
92,737

 
98,256

 
(5,519
)
 
(5.6
)%
Peace of Mind® Extended Service Plan
 
105,185

 
108,114

 
(2,929
)
 
(2.7
)%
Tax Identity Shield®
 
31,797

 
35,661

 
(3,864
)
 
(10.8
)%
Interest and fee income on Emerald AdvanceTM
 
60,867

 
58,182

 
2,685

 
4.6
 %
Wave
 
36,711

 

 
36,711

 
**

Other
 
42,056

 
40,169

 
1,887

 
4.7
 %
Total revenues
 
2,639,720

 
3,094,881

 
(455,161
)
 
(14.7
)%
 
 
 
 
 
 
 
 
 
Compensation and benefits:
 
 
 
 
 
 
 
 
Field wages
 
678,813

 
751,392

 
(72,579
)
 
(9.7
)%
Other wages
 
218,548

 
217,061

 
1,487

 
0.7
 %
Benefits and other compensation
 
175,535

 
180,276

 
(4,741
)
 
(2.6
)%
 
 
1,072,896

 
1,148,729

 
(75,833
)
 
(6.6
)%
Occupancy
 
410,402

 
401,341

 
9,061

 
2.3
 %
Marketing and advertising
 
255,094

 
269,807

 
(14,713
)
 
(5.5
)%
Depreciation and amortization
 
169,536

 
166,695

 
2,841

 
1.7
 %
Bad debt
 
77,470

 
70,695

 
6,775

 
9.6
 %
Impairment of goodwill
 
106,000

 

 
106,000

 
**

Other
 
471,239

 
421,822

 
49,417

 
11.7
 %
Total operating expenses
 
2,562,637

 
2,479,089

 
83,548

 
3.4
 %
Other income (expense), net
 
15,637

 
16,419

 
(782
)
 
(4.8
)%
Interest expense on borrowings
 
(96,094
)
 
(87,051
)
 
(9,043
)
 
(10.4
)%
Income (loss) from continuing operations before income taxes (benefit)
 
(3,374
)
 
545,160

 
(548,534
)
 
**

Income taxes (benefit)
 
(9,530
)
 
99,904

 
(109,434
)
 
**

Net income from continuing operations
 
6,156

 
445,256

 
(439,100
)
 
(98.6
)%
Net loss from discontinued operations
 
(13,682
)
 
(22,747
)
 
9,065

 
39.9
 %
Net income (loss)
 
$
(7,526
)
 
$
422,509

 
$
(430,035
)
 
**

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.03

 
$
2.16

 
$
(2.13
)
 
(98.6
)%
Discontinued operations
 
(0.07
)
 
(0.11
)
 
0.04

 
36.4
 %
Consolidated
 
$
(0.04
)
 
$
2.05

 
$
(2.09
)
 
**

 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
Continuing operations
 
$
0.03

 
$
2.15

 
$
(2.12
)
 
(98.6
)%
Discontinued operations
 
(0.07
)
 
(0.11
)
 
0.04

 
36.4
 %
Consolidated
 
$
(0.04
)
 
$
2.04

 
$
(2.08
)
 
**

 
 
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations (1)
 
$
368,256

 
$
798,906

 
$
(430,650
)
 
(53.9
)%
Adjusted EBITDA margin of continuing operations (1)
 
14.0
%
 
25.8
%
 
(11.8
)%
 
(45.7
)%
 
 
 
 
 
 
 
 
 
(1) 
See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.


H&R Block, Inc. | 2020 Form 10-K
27



FISCAL 2020 COMPARED TO FISCAL 2019
Revenues decreased $455.2 million, or 14.7%, compared to the prior year primarily due to the extension of the tax filing deadlines as a result of the COVID-19 pandemic. U.S. assisted tax preparation fees decreased $325.7 million, or 17.5%, and U.S. royalties decreased $50.1 million, or 20.6%, due to decreases in tax returns prepared and net average charge. U.S. DIY tax preparation fees decreased $52.5 million, or 20.1%, due to lower online volumes and lower software sales, and international revenues declined $40.5 million, or 18.4%, due to lower tax returns prepared in our Canadian operations.
Revenues of $36.7 million were recognized by Wave, which we acquired on June 28, 2019, and therefore were not included in our results of operations in the prior year period.
Total operating expenses increased $83.5 million or 3.4% from the prior year. Total compensation and benefits decreased $75.8 million, or 6.6%, due to lower commission-based wages in our field related to the decline in tax return volumes, lower bonus accruals and payroll taxes, somewhat offset by additional wages related to the acquisition of Wave in the current year. Marketing expenses decreased $14.7 million, or 5.5%, based on planned decreases in our marketing spend. Also due to the economic impacts of the COVID-19 pandemic, we recorded an impairment of goodwill of $106.0 million related to Wave. See discussion in Item 8, note 6 for additional information.
Other expenses increased $49.4 million, or 11.7%. The components of other expenses are as follows:
Year ended April 30,
 
2020
 
2019
 
$ Change
 
% Change
Consulting and outsourced services
 
$
118,267

 
$
107,907

 
$
10,360

 
9.6
 %
Bank partner fees
 
55,633

 
47,746

 
7,887

 
16.5
 %
Client claims and refunds
 
35,498

 
40,538

 
(5,040
)
 
(12.4
)%
Employee travel and related expenses
 
40,892

 
40,369

 
523

 
1.3
 %
Software and IT maintenance expenses
 
68,907

 
64,483

 
4,424

 
6.9
 %
Credit card/bank charges
 
48,826

 
30,681

 
18,145

 
59.1
 %
Insurance
 
15,015

 
14,219

 
796

 
5.6
 %
Legal fees and settlements
 
27,436

 
10,469

 
16,967

 
162.1
 %
Supplies
 
31,290

 
32,790

 
(1,500
)
 
(4.6
)%
Other
 
29,475