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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 endedApril 30, 2021
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)
Missouri44-0607856
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, without par valueHRBNew 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No
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 30, 2020, was $3,215,128,609.
Number of shares of the registrant's Common Stock, without par value, outstanding on May 28, 2021: 181,466,003.
Documents incorporated by reference
The definitive proxy statement for the registrant's 2021 Annual Meeting of Shareholders, to be filed no later than 120 days after April 30, 2021, is incorporated by reference in Part III to the extent described therein.



2021 FORM 10-K AND ANNUAL REPORT
TABLE OF CONTENTS





INTRODUCTION
"H&R Block," "the Company," "we," "our" and "us" are used interchangeably to refer to H&R Block, Inc., to H&R Block, Inc. and its subsidiaries, or to H&R Block, Inc.'s operating subsidiaries, as appropriate to the context.
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, 2021, 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.





H&R Block, Inc. | 2021 Form 10-K
1


PART I
ITEM 1. BUSINESS
OVERVIEW
At H&R Block, our purpose is to provide help and to inspire confidence in our clients and communities everywhere through global tax preparation, financial products and small business solutions. We blend digital innovation with the human expertise and care of our associates and franchisees as we help people get the best outcome at tax time, and better manage and access their money year-round. Through Block Advisors and Wave, we help small business owners thrive with innovative products.
H&R Block, Inc. was organized as a corporation in 1955 under the laws of the State of Missouri. A complete list of our subsidiaries as of April 30, 2021 can be found in Exhibit 21.
RECENT DEVELOPMENTS
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. As a result of the COVID-19 pandemic, 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. 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. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021.

During fiscal year 2021, we prepared
21.6 million U.S. tax returns(1)
which contributed to our consolidated revenues of
$3.4 billion,
net income from continuing operations of
$590.2 million,
and EBITDA(2) from continuing operations of
$932.5 million.
In fiscal year 2021, we, together with our franchisees, operated
9,271 offices across the U.S.
(1)    U.S. Tax returns prepared includes tax returns prepared in U.S. company and franchise office locations, virtually, and through our DIY solutions.
(2) See "Non-GAAP Financial Information" section within this filing for a reconciliation of non-GAAP measures.

hrb-20210430_g1.jpg
Due to the ongoing impacts of the pandemic, on March 17, 2021, the IRS extended the federal tax filing deadline in the U.S. for individual 2020 tax returns from April 15, 2021 to May 17, 2021. Substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2021 shifted to our next fiscal period.
These extensions impacted the typical seasonality of our business and the comparability of our financial results.
During fiscal year 2021, we changed our bank partner from Axos Bank to MetaBank®, N.A. (Meta). On August 5, 2020, we entered into a Program Management Agreement with Meta. Under the Meta Program Management Agreement and its ancillary agreements and related product schedules, Meta acts as the bank provider of H&R Block-branded financial products, including Emerald AdvanceSM (EA), Emerald Card®, Emerald Savings, Refund Advance (RA), and Refund Transfer (RT) in the U.S. See our Current Report filed on Form 8-K dated May 15, 2020 for additional information.
2
2021 Form 10-K | H&R Block, Inc.


On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30, effective immediately. The Company plans to file a transition report on Form 10-QT for the transition period of May 1, 2021 through June 30, 2021. The Company's 2022 fiscal year will begin on July 1, 2021 and end on June 30, 2022.
On June 11, 2021, we entered into a Fourth Amended and Restated Credit and Guarantee Agreement, which amended and restated the existing unsecured committed line of credit (CLOC), extending the scheduled maturity date to June 11, 2026, decreasing the aggregate principal amount to $1.5 billion, revising the applicable rate table, and adjusting the covenant measurement dates due to our fiscal year end change. Other material terms remain substantially unchanged from our existing CLOC. See our Current Report filed on Form 8-K dated June 15, 2021 for additional information.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We report a single segment that includes all of our continuing operations, which includes tax preparation and small business services. See discussion below and in Item 8, within the notes to the consolidated financial statements.
During fiscal year 2021, we introduced our Block Horizons Strategy, the next phase of our strategic transformation, which builds on previous work to strengthen our foundation and position us for long term sustainable growth.
OUR STRATEGY: BLOCK HORIZONS 2025
Block Horizons is a five year strategy that will leverage our human expertise and technological infrastructure to deliver growth by driving tax solution innovation, helping small businesses to thrive and to ease the financial burden on underbanked individuals.
Block Horizons 2025 Imperatives:
Small Business - Strengthen the spirit of entrepreneurship and enable small business owners to thrive.
Financial Products - Develop new products and experiences that create confidence and ease the financial burden.
Block Experience - Reimagine our experience for customers and tax professionals in a digital-first world by blending technology and data with human expertise and care.
Block Horizons 2025 Enablers:
Talent - Attract and retain people who act boldly, demand high standards, crave tough problems and value winning as a team.
Digital and Data - Accelerate our digital and data capabilities to drive innovation in all facets of our business.
Fund the Future - Tip the scale toward future-focused investments of resources – people and dollars – and celebrate those who drive efficiency.
We provide assisted and do-it-yourself (DIY) tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our bank partner, to the general public primarily in the U.S., Canada and Australia. 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 and DIY channels, royalties from franchisees, and fees from related services and products.
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TAX PREPARATION SERVICES
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. Our tax professionals provide assistance to our clients either in person or virtually in a number of ways. Clients can come into an office, digitally "drop off" their documents for their tax professional, approve their return online, have a tax professional review a return they prepared themselves through Tax Pro Review or get their questions answered as they complete their own return through Online Assist.
We offer a comprehensive range of DIY tax services and products, 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 and through third-party retail stores.
Assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a tax return. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the IRS that the client would otherwise not have been required to pay.
We offer franchises as a way to expand our presence in certain geographic areas. In the U.S., our franchisees pay us approximately 30% of gross tax return preparation and related service revenues as a franchise royalty.
OTHER OFFERINGS
We also offer U.S. clients a number of additional services, including RTs, our Peace of Mind® Extended Service Plan (POM), H&R Block Emerald Prepaid Mastercard® (Emerald Card), EAs, Tax Identity Shield® (TIS), RAs, and small business financial solutions. For our Canadian clients we also offer POM, H&R Block Instant RefundSM, H&R Block Pay With Refund®, and small business financial solutions.
Refund Transfers. RTs enable clients to receive their tax refunds by their chosen method of disbursement and include a feature enabling clients to deduct tax preparation and related 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 our bank partner. We offer a similar program, H&R Block Pay With Refund®, to our Canadian clients through a Canadian chartered bank.
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 $3,000 CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM.
H&R Block Emerald Prepaid Mastercard®. The Emerald Card® enables clients to receive their tax refunds from the IRS directly on a prepaid debit card, or to direct RT, EA or RA proceeds to the card. The card can be used for everyday purchases, bill payments and ATM withdrawals anywhere Debit Mastercard® (Mastercard is a registered trademark of Mastercard International Incorporated) is accepted. Additional funds can be added to the card year-round, such as through direct deposit or at participating retail reload providers, and the Emerald Card can be added to clients' mobile wallets. We distribute the Emerald Card® issued by our bank partner.
H&R Block Emerald Advance® Lines of Credit. EAs are lines of credit offered to clients in our offices, from mid-November through mid-January, in amounts up to $1,000. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. In addition to the required monthly payments, borrowers may elect to pay down balances on EAs with their tax refunds. These lines of credit are offered by our bank partner, and we subsequently purchase a participation interest in all EAs originated by our bank partner.
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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 our bank partner, which are available to eligible U.S. assisted clients in company-owned and participating franchise locations, including virtual clients. In tax season 2021, RAs were offered in amounts of $250, $500, $750, $1,250 and $3,500, based on client eligibility as determined by our bank partner.
H&R Block Instant RefundSM. Our Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), for a fee. The fee charged for this service is mandated by federal legislation which is administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the refund amount is then sent by the CRA directly to us.
Small Business Financial Solutions. Our Block Advisor certified tax professionals provide small businesses with financial expertise in taxes, bookkeeping, payroll and financial audit support through our office network. Wave provides small business owners with an online solution to manage their finances, including payment processing, payroll and bookkeeping services.
SEASONALITY OF BUSINESS
Because 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 and delayed federal tax filing deadlines in both the current and prior fiscal years, there has been a shift in the typical seasonality of our business and the comparability of our financial results.
COMPETITIVE CONDITIONS
We provide assisted and DIY tax preparation services and products, as well as small business financial solutions, and face substantial competition in and across each category from tax return preparation firms and software providers, accounting firms, independent tax preparers, and certified public accountants.
We are one of the largest providers of tax return preparation solutions and electronic filing services in the U.S., Canada, and Australia with over 25.2 million returns filed by or through H&R Block in fiscal year 2021 via 10,675 tax offices and our virtual tax preparation services, mobile applications, and online and desktop DIY solutions.
GOVERNMENT REGULATION
Our business is subject to various forms of government regulation, including U.S. Federal and state tax preparer regulations, financial consumer protection and privacy regulations, state regulations, franchise regulations and foreign regulations. See further discussion of these items in our Item 1A. Risk Factors and Item 7 under "Regulatory Environment" of this Form 10-K.
HUMAN CAPITAL
Fulfilling our purpose extends to helping and inspiring confidence in our associates. We are committed to our associates’ total well-being—physical, mental, financial, career, team and community. Together, when we balance these components, we achieve personal, team and organizational strength. These commitments extend to both our year-round and seasonal associates.
Associates. We had approximately 3,600 regular full-time associates as of April 30, 2021. Our business is dependent on the availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these associates. The highest number of persons we employed during the fiscal year ended April 30, 2021, including seasonal associates, was approximately 72,400.
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Associate Engagement. We administer an annual survey to all associates to better understand their levels of engagement and identify areas where we can improve. We are pleased with our overall engagement score, meeting or exceeding the global benchmark in all measured categories, and will continue to explore new ways to advance our engagement efforts in the future.
Compensation and Benefits. Our compensation programs are designed to attract and retain top talent that act boldly, demand high standards, crave tough problems and value winning as a team. Our equitable and comprehensive benefits offerings provide access to benefits to help both regular and seasonal associates plan for the health and security of their families. H&R Block provides comprehensive medical insurance to our associates, and extends the opportunity for medical insurance to our seasonal workforce who satisfy the eligibility guidelines of the Affordable Care Act (ACA). Subject to meeting eligibility requirements, associates can also choose to participate in the H&R Retirement Savings Plan 401(k) and Employee Stock Purchase Plan.
Training and Development. We offer a variety of development opportunities for our associates, including in-person classes, online courses, assessments, and a learning library. Our tax professionals receive extensive annual tax training on topics including recent tax code changes and filing practices, and we offer additional education opportunities for tax professionals to enhance their knowledge and skills. In preparation for the upcoming tax season, our tax professionals receive training on H&R Block products, soft skills and tax office best practices. Each year, our tax professionals receive on average over 30 hours of Tax Education and over 16 hours of Continuing Professional Education.
Diversity, Inclusion and Belonging. We continually evaluate our management approaches to improving diversity and inclusion, which includes looking at how we can provide a sense of belonging in the workplace for our associates. We materialized these efforts through our Belonging@Block program which is a council of associates from multiple departments across the organization with the responsibility to represent and improve our diverse and inclusive culture. Because of our efforts to foster a culture of belonging, we are consistently recognized as a top employer in many different categories.
SERVICE MARKS AND TRADEMARKS
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.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
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Jeffrey J. Jones II, 53, became our President and Chief Executive Officer in October 2017 and was our President and Chief Executive Officer-Designate from August 2017 to October 2017. Before joining the Company, he served as the President of Ridesharing at Uber Technologies, Inc. from October 2016 until March 2017. He also served as the Executive Vice President and Chief Marketing Officer of Target Corporation from April 2012 until September 2016.
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Tony G. Bowen, 46, became our Chief Financial Officer in May 2016. Prior to that, he served as our Vice President, U.S. Tax Services Finance from May 2013 through April 2016.
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Kellie J. Logerwell, 51, became our Chief Accounting Officer in July 2016. Prior to that, she served as our Vice President of Corporate and Field Accounting from December 2014 until July 2016 and as our Assistant Controller from December 2010 until December 2014.
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Thomas A. Gerke, 65, became our General Counsel and Chief Administrative Officer in May 2016. Prior to that, he served as our Chief Executive Officer (in an interim capacity) from August 2017 until October 2017; our Chief Legal Officer (formerly titled Senior Vice President and General Counsel) from January 2012 through April 2016. Before joining the Company, he served as the 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).
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Karen Orosco, 50, became our President, Global Consumer Tax and Service Delivery in June 2021. Prior to that she served as our Senior Vice President, U.S. Retail beginning in May 2016, and our 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.
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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 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 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.
OPERATIONAL AND EXECUTION RISKS
Our financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic, and may be impacted by a resurgence of COVID-19 or a future outbreak of another highly infectious or contagious disease.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, and the impacts of the pandemic have been felt since that time. Jurisdictions in which we operate issued a high volume of orders related to COVID-19, which imposed various restrictions on our business at various times over the past fiscal year, including occupancy restrictions and other operational limitations, and social distancing requirements. We took a variety of actions to address the impacts of the COVID-19 pandemic on our business, including implementing operational changes across our U.S. assisted locations to increase the number of clients who drop off their documents and approve online and providing multiple virtual solutions to enable clients to engage with us in whatever way they felt most comfortable. We also implemented safety measures throughout our office network, including requiring social distancing and face coverings, frequent disinfecting of high-contact surfaces, and use of protective shields. Notwithstanding the above-described efforts, there is no certainty that the measures we implemented, or may implement in the future, are or will be sufficient to mitigate the risks posed by COVID-19. Alleged failures in this regard could result in negative impacts, including regulatory investigations, claims, legal actions, harm to our reputation and brands, fines, penalties, and other damages.
As a result of the COVID-19 pandemic, the U.S. federal and state deadlines for individual 2019 tax returns were extended from April 15, 2020 to July 15, 2020. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021. Due to the ongoing impacts of the COVID-19 pandemic, the IRS extended the deadline for individual 2020 tax returns from April 15, 2021 to May 17, 2021, and substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. Due to these delays, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2021 shifted to the next fiscal period. These extensions impacted the typical seasonality of our business and the comparability of our financial results. Treasury, the IRS, and state or foreign officials may determine to extend future tax deadlines or take other actions, which could have an additional material adverse effect on our business and our consolidated financial position, results of operations, and cash flows in future years.
The extent to which the COVID-19 pandemic impacts our business, operations, and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict. The further spread of COVID-19 or a new global or national outbreak of COVID-19 or another highly infectious or contagious
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disease, the requirements to take action to help limit the spread of illness, and the other risks described above may further impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, results of operations, cash flows, and financial condition.
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, human error, and natural disasters. As our tax preparation business is seasonal, our systems must be capable of processing high volumes during our peak periods. Therefore, any failure or interruption in our information systems, or information systems of our franchisees or a private or government third party on which we rely, or an interruption in the internet or other critical business capability, could negatively impact our business operations and reputation, and increase our risk of loss.
There can be no assurance that system or internet failures or interruptions in critical business capabilities will not occur, or, if they do occur, that we, our franchisees or the private or governmental third parties on whom we rely, will adequately address them. The precautionary measures that we have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions or failures may not be adequate, 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 cloud computing services provided by Microsoft Corporation. If the Microsoft Azure Cloud is unavailable for any reason, it could negatively impact our ability to deliver our services and products and our clients may not be able to access certain of our 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.
Any significant delays in launching our tax service and product offerings, changes in government regulations or processes (including the acceptance of tax returns and the issuance of refunds and other amounts to clients by the IRS) 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. Further, changes in governmental administrations or regulations could result in further and unanticipated changes in requirements or processes, which may require us to make corresponding changes to our client service systems and procedures. Certain of our financial products are dependent on the IRS following the client’s directions to direct deposit the tax refund. If the IRS disregards this direction, and sends the tax refund via check, then it could result in a loss of tax preparation and financial product revenue, negative publicity, and client dissatisfaction. In addition, 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 processing delays by us or applicable taxing authorities. From time to time, we review and enhance our quality controls for preparing accurate tax returns, but there can be no assurance that we will be able to prevent all inaccuracies.
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Any major defects or delays caused by the above-described complexities may lead to loss of clients and loss of or delay in revenue, negative publicity, client dissatisfaction, a deterioration in our business relationships with our partners or our franchisees, reduced retailer shelf space and promotions, exposure to litigation, and increased operating expenses, even if any such launch delays or defects are not caused by us. Any of the risks described above could have a material adverse effect on our business, our reputation, and our consolidated financial position, results of operations, and cash flows.
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,) or similar vendors, for data processing and card production services, MetaBank®, N.A. (Meta), 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. 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.
Our business is highly seasonal, with the substantial portion of our revenue earned from February through April in a typical year. The concentration of our revenue-generating activity during this relatively short period presents a number of challenges for us, including (1) cash and resource management during the remainder of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season, (2) ensuring compliance with financial covenants under our CLOC, particularly if the timing of our revenue generation deviates from this seasonal period such as has occurred in our two previous fiscal years, (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 or delays in a tax season, including those caused by 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 during this short period, 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 (which may be required on short notice during any extended tax season) 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
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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.
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 maintain sound business relationships with our franchisees may have a material adverse effect on our business and we may be subject to legal and other challenges resulting from our franchisee relationships.
Our financial success depends in part on our ability to maintain sound business relationships with our franchisees. The support of our franchisees is also critical for the success of our ongoing operations. Deterioration in our relationships with our franchisees could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
We also grant our franchisees a limited license to use our registered trademarks and, accordingly, there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from our or our franchisees’ actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.
Our international operations are subject to risks that may harm our business and our consolidated financial position, results of operations, and cash flows.
We have international operations, including tax preparation businesses in Canada and Australia, technology centers in India and Ireland, and Wave in Canada. We may consider expansion opportunities in additional countries in the future and there is uncertainty about our ability to generate revenues from new or emerging foreign operations 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 and certain of our franchisees operate and provide other services in foreign jurisdictions. As a result, certain aspects of our operations are subject, or may in the future become subject, to the laws, regulations, and policies of those jurisdictions that regulate the collection, use, and transfer of personal information, which may be more stringent than those of the U.S., including, but not limited to the EU General Data Protection Regulation, the Canadian Personal Information Protection and Electronic Documents Act, and Canadian Provincial legislation.
Costs for us to comply with such laws, regulations, and policies that are applicable to us could be significant. We may also face audits or investigations by one or more foreign government agencies relating to these laws, regulations, and policies that could result in the imposition of penalties or fines.
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STRATEGIC AND INDUSTRY RISKS
Changes in applicable tax laws have had, and may in the future have, a negative impact on the demand for and pricing of our services. Government changes in tax filing processes may adversely affect our business and our consolidated financial position, results of operations, and cash flows.
The U.S. government has in the past made, and may in the future make, changes to the individual income tax provisions of the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations. In addition, taxing authorities in various state, local, and foreign jurisdictions in which we operate may change the income tax laws in their respective jurisdictions. It is difficult to predict the manner in which future changes to the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations, and state, local, and foreign tax laws may impact us and the tax return preparation industry. Such future changes could decrease the demand or the amount we charge for our services, and, in turn, have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
In addition, there are various initiatives from time to time seeking to simplify the tax return preparation filing process. 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 or the issuance of refunds in their respective jurisdictions. For example, from time to time, U.S. federal and state governments have considered various proposals through which the respective governmental taxing authorities would use taxpayer information provided by employers, financial institutions, and other payers to "pre-populate," prepare and calculate tax returns and distribute them to taxpayers. There are various initiatives from time to time seeking to expedite, reduce, or change the timing of refunds, such as the new monthly child tax credit, which could reduce the demand for certain of our services or financial products.
The adoption or expansion of any measures that significantly simplify tax return preparation, or otherwise reduce the need for third-party tax return preparation services or financial products, including governmental encroachment at the U.S. federal and state levels, as well as in foreign jurisdictions, could reduce demand for our services and products and could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows.
Increased competition for clients could adversely affect our current market share and profitability, and we may not be effective in achieving our strategic and operating objectives.
We face substantial competition throughout our businesses. All categories in the tax return preparation industry are highly competitive and we recently announced our new strategy, to focus on small businesses, financial products, and improving our tax client experience, to differentiate ourselves from those competitors. However, 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 DIY and virtual, 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. While we believe that our new strategic objectives reflect opportunities that are appropriate and achievable, it is possible that our objectives may not deliver projected long-term growth in revenue and profitability due to competition, inadequate execution, incorrect assumptions, sub-optimal resource allocation, or other reasons, including any of the other risks described in this “Risk Factors” section. If we are unable to realize the desired benefits from our business strategy, our ability to compete across our business and our consolidated financial position, results of operations, and cash flows could be adversely affected.
Technology advances quickly and in new and unexpected ways, and it is difficult to predict the manner in which these changes will impact the tax return preparation industry, the problems we may encounter in enhancing our 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.
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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, we face intense competition with our small business financial solutions. We may be unsuccessful in competing with other providers, which may diminish our revenue and profitability, and harm our ability to acquire and retain clients.
Offers of free services or products could adversely affect our revenues and profitability.
U.S. federal, state and foreign governmental authorities in certain jurisdictions in which we operate currently offer, or facilitate the offering of, tax return preparation and electronic filing options to taxpayers at no charge, and certain volunteer organizations also prepare tax returns at no charge for low-income taxpayers. In addition, many of our competitors offer certain tax preparation services and products, and other financial services and products, at no charge. 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 is currently set to expire in October 2022, 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 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 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, resulting in a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our businesses may be adversely affected by difficult economic conditions and high unemployment levels.
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 were negatively impacted during the start of the COVID-19 pandemic, and may again be negatively impacted in the event of a sustained economic slowdown or recession. 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.
INFORMATION SECURITY, CYBERSECURITY, AND DATA PRIVACY RISKS
Compliance with the complex and evolving laws, regulations, standards, and contractual requirements regarding privacy and data protection could require changes in our business practices and increase costs of operation; failure to comply could result in significant claims, fines, penalties, and damages.
Due to the nature of our business, we collect, use, and retain large amounts of personal information and data 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 written consent of the taxpayer prior to using or disclosing 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
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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 California Consumer Privacy Act (CCPA), which became effective January 1, 2020, as amended by the California Privacy Rights Act (CPRA), which will be effective January 1, 2023. Subject to certain exceptions, these laws impose new requirements on how businesses collect, process, manage, and retain certain personal information of California residents and provide California residents with various rights regarding personal information collected by a business. Other states have adopted or may in the future adopt their own, different privacy laws. These laws may contain different requirements or may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current privacy and data protection policies and practices may not be consistent with all of those requirements, interpretations, or applications. In addition, changes in U.S. federal and state regulatory requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we operate, could result in more stringent requirements and 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.
We have incurred, and may continue to incur, significant expenses to comply with existing privacy and data security standards and protocols imposed by law, regulation, industry standards or contractual obligations.
A security breach of our systems, or third-party systems on which we rely, resulting in unauthorized access to personal information of our clients or employees or other sensitive, nonpublic information, may adversely affect the demand for our services and products, our reputation, and financial performance.
We offer a range of services and products to our clients, including tax return preparation solutions, financial services and products, and small business financial solutions through our company-owned or franchise offices and online. Due to the nature of these services and products, we use multiple digital technologies to collect, transmit, and store high volumes of client personal information. We also collect, use, and retain other sensitive, nonpublic information, such as employee social security numbers, healthcare information, and payroll information, as well as confidential, nonpublic business information. Certain third parties and vendors have access to personal information to help deliver client benefits, services and products, or may host certain of our and our clients’ sensitive and personal information and data. Information security risks continue to increase due in part to the increased adoption of and reliance upon digital technologies by companies and consumers. Our risk and exposure to these matters remain heightened due to a variety of factors including, among other things, (1) the evolving nature of these threats and related regulation, (2) the increased activity and sophistication of nation states, organized crime, cyber criminals, and hackers, (3) the prominence of our brand, (4) our and our franchisees' extensive office footprint, (5) our plans to continue to implement strategies for our online and mobile applications and our desktop software, (6) our use of third-party vendors, and the (7) usage of remote working arrangements by our associates, franchisees, and third-party vendors, which significantly expanded due to the COVID-19 pandemic.
Cybersecurity risks may result from fraud or malice (a cyberattack), human error, or accidental technological failure. Cyberattacks are designed to electronically circumvent network security for malicious purposes such as unlawfully obtaining personal information, disrupting our ability to offer services, damaging our brand and reputation, stealing our intellectual property, or advancing social or political agendas. We face a variety of cyberattack threats including computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, ransomware, and other sophisticated attacks.
Although we use security and business controls to limit access to and use of personal information and expend significant resources to maintain multiple levels of protection 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
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phishing and social engineering threats. We also conduct certain background checks on our employees, as allowed by law. Due to the structure of our business model, we also rely on our franchisees 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.
Unauthorized access to personal information as a result of a security breach could cause us to determine that it is required or advisable for us to notify affected individuals, regulators, or others under applicable privacy laws and regulations. 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 may unlawfully take user account and password information from our clients in order to electronically file fraudulent federal and state tax returns which could impede our clients' ability to file their tax returns and receive refunds, or other amounts and diminish consumers' perceptions of the security and reliability of our services and products, despite no breach in the security of our systems.
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 access to consumer information or user accounts maintained on their systems by using stolen identity information (e.g., email, username, password information, or credit history) obtained from third-party sources. We have experienced, and in the future may continue to experience, this form of unauthorized and illegal access to our systems, despite no breach in the security of our systems. Additionally, if such unauthorized or illegal access occurs, we may be subject to claims and litigation by clients, non-clients, or governmental agencies. Such events could negatively impact our clients and harm our financial position, results of operations, and reputation.
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LEGAL AND REGULATORY RISKS
Regulations promulgated by the Consumer Financial Protection Bureau (CFPB) or other regulators may affect our financial services businesses in ways we cannot predict, which may require changes to the financial products we offer, our services and contracts.
The CFPB has broad powers to administer, investigate compliance with, and, in some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a wide range of financial consumer protection laws that apply to certain of the financial products we offer, including the authority to prohibit "unfair, deceptive, or abusive" acts and practices. Given the recent change in administration, including in the leadership and direction of the CFPB, it is more difficult to predict how currently proposed or new regulations may impact the financial products we offer.
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. State regulators also have certain authority in enforcing and promulgating financial consumer protection laws, the results of which could be (i) states issuing new and broader financial consumer protection laws, some of which could be more comprehensive than existing U.S. federal regulations, or (ii) state attorneys general bringing actions to enforce federal consumer protection laws.
Currently proposed or new CFPB and state regulations may require changes to the financial products we offer, our services or contracts, and this could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Laws and regulations or other regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our tax preparation business is subject to various forms of government regulation, including U.S. federal requirements regarding the signature and inclusion of identification numbers on tax returns and tax return retention requirements. U.S. federal laws also subject income tax return preparers to accuracy-related penalties, and preparers may be prohibited from continuing to act as income tax return preparers if they repeatedly engage in specified misconduct. We are also subject to, among other things, advertising standards for electronic tax return filers, and to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties, including suspension from the IRS electronic filing program. Many states and local jurisdictions have laws regulating tax professionals or the offering of income tax courses, which are in addition to and may be different than federal requirements.
In addition, our franchising activities are subject to various rules and regulations, including requirements to furnish prospective franchisees with a prescribed franchise disclosure document. Substantive state laws regulating the franchisor/franchisee relationship presently exist in a large number of states. These state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. In addition, bills have been introduced from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects or that would impact the traditional nature of the relationship between franchisors and franchisees.
Given the nature of our businesses, we are subject to various additional federal, state, local, and foreign laws and regulations, including, without limitation, in the areas of labor, immigration, marketing and advertising, consumer protection, financial services and products, payment processing, privacy and data security, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new regulations and/or heightened focus by the government and others in some of these areas, including, for example, consumer financial services and products, telemarketing, restrictive covenants, and labor, including overtime and exemption regulations, state and local laws on minimum wage, worker classification, and other labor-related issues.
The above requirements and business implications are subject to change and evolving application, including by means of new legislation, legislative changes, and/or executive orders, and there may be additional regulatory
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2021 Form 10-K | H&R Block, Inc.


actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.
We face legal actions in connection with our various business activities, and current or future legal actions may damage our reputation, impair our product offerings, or result in material liabilities and losses.
We have been named, and from time to time will likely continue to be named, in various legal actions, including arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. For example, as previously reported, we are subject to litigation and have received and are responding to certain governmental inquiries relating to the IRS Free File program. These inquiries include requests for information and, in some cases, subpoenas from various regulators and state attorneys general. We cannot predict whether these legal actions could lead to further inquiries, further litigation, fines, injunctions or other regulatory or legislative actions or impacts on our brand, reputation and business. See discussion in Item 8, note 12 to the consolidated financial statements for additional information.
Failure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly.
Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases. Our intellectual 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.
FINANCIAL RISKS
Our access to liquidity may be negatively impacted by disruptions in credit markets, 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 operations are highly seasonal and substantially all of our revenues and cash flows are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our first three quarters. Events may occur that could increase our need for liquidity above current levels. We may need to obtain additional sources of funding to meet these needs, which may not be available or may only be available under unfavorable terms. In addition, if rating agencies downgrade our credit rating, the cost of debt under our existing financing arrangements, as well as future financing arrangements, could increase and our capital market access could decrease or become unavailable.
Our CLOC is subject to various covenants, and we previously obtained waivers from lenders under the CLOC for our non-compliance with the debt-to-EBITDA ratio covenant as of April 30, 2020 due to the impacts of the COVID-19 pandemic. However, there is no guarantee that our lenders would waive any future covenant violations.
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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.
If current sources of liquidity were to become unavailable, we would need to obtain additional sources of funding, which may not be available or may only be available under less favorable terms. This could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
The continued payment of dividends on our common stock and repurchases of our common stock are dependent on a number of factors, and 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, and the Company may repurchase shares, as our Board of Directors may authorize out of funds legally available for such payments. Due to the seasonal nature of our business and the fact that our 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.
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, our 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.
Changes in corporate 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 profitable multinational corporation, we are subject to a material amount of taxes in the U.S. and numerous foreign jurisdictions where our subsidiaries are organized and conduct their operations. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. 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 (TCJA), which made broad and complex changes to the U.S. tax code. New regulatory guidance on the TCJA, or regulatory interpretations that differ from our existing interpretations, 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, the Consolidated Appropriations Act (CAA), and the American Rescue Plan Act of 2021 (ARPA) were signed into law as a result of the COVID-19 pandemic. These laws include, among other items, provisions relating to refundable payroll tax credits, deferment of certain tax payments, modifications to the net interest deduction limitations, and expanded utilization periods for net operating losses. We continue to evaluate the impact of the CARES Act, CCA, and ARPA, and expect additional regulations, interpretations, and rulings may be forthcoming that could further impact our consolidated financial statements.
Legislatures and taxing authorities in jurisdictions in which we operate may propose additional changes to their tax rules in response to COVID-19, or as part of broader tax reformation initiatives. Recently, the current administration committed to increasing the corporate income tax rate from 21 percent to 28 percent, and to increasing the tax rate applied to profits earned outside the United States. If enacted, the impact of these potential new rules could be material to our tax provision and value of deferred tax assets and liabilities.
In addition, projects undertaken by international organizations may change international tax norms relating to each country’s jurisdiction to tax cross-border international trade. Given the unpredictability of these and other possible changes to tax laws and related regulations, it is difficult to assess the overall effect of such potential
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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.
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.
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. 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 12 to the consolidated financial statements for a description of litigation and other claims to which SCC may be subject.
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.
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, 2021, total approximately $270 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.
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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.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see discussion in Item 8, note 12 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 28, 2021, there were 13,993 shareholders of record and the closing stock price on the NYSE was $24.82 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 2021 is as follows:
(in 000s, except per share amounts)
Total Number of
Shares Purchased (1)
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (2)
Maximum Dollar Value of
Shares that May be Purchased
Under the Plans or Programs (2)
February 1 – February 282,065 $18.43 2,064 $563,797 
March 1 – March 311 $19.77  $563,797 
April 1 – April 301 $22.28  $563,797 
2,067 $18.43 2,064 
(1)We purchased approximately 3 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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2021 Form 10-K | H&R Block, Inc.


PERFORMANCE GRAPH – The following graph compares the cumulative five-year total return provided to shareholders of H&R Block, Inc.'s common stock relative to the cumulative total returns of the S&P Midcap 400 index, 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. In fiscal year 2021 we began measuring the Company’s relative performance against the S&P Midcap 400 index, of which the Company is included. We compared against the S&P 500 in previous years and have included it in the graph below for comparison purposes only.
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, 2016, and its relative performance is tracked through April 30, 2021.
hrb-20210430_g8.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.
H&R Block, Inc. | 2021 Form 10-K
21


ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL OVERVIEW
With the economic impact of the pandemic being felt across the U.S., we remain committed to helping people gain access to their refunds while shifting how we operate to help promote the safety and well-being of associates and clients. We continue to provide in-person appointments and have implemented safety protocols in our tax offices pursuant to applicable state and local orders and consistent with Centers for Disease Control and Prevention recommendations. Clients may also choose to drop-off at one of our locations nationwide, to file with a tax professional virtually, or to utilize one of our DIY or software tax return preparation solutions.
As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the U.S. for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. In addition, governments around the world took a variety of actions to contain the spread of COVID-19. Jurisdictions in which we operate 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. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021.
On March 17, 2021, the IRS extended the federal tax filing deadline in the U.S. for individual 2020 tax returns from April 15, 2021 to May 17, 2021. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2021 shifted to our next fiscal period.
These events have impacted the typical seasonality of our business and the comparability of our financial results.
Fiscal Year 2021 Compared to 2020
RevenuesOperating ExpensesNet Income from Continuing Operations
$3.41B
hrb-20210430_g9.jpg
29%
$2.64B
hrb-20210430_g10.jpg
3%
$590.2M
hrb-20210430_g9.jpg
9,488%
Increase is due to the extension of tax season 2020 and higher tax preparation volume in tax season 2021. Increase is due to compensation expense related to higher tax return volume, partially offset by prior year goodwill impairment.Increase is due to higher revenues, partially offset by operating expenses and tax expense.
Diluted EPS From Continuing Operations
EBITDA(1)
$3.11
Reported:
10,267%
$932.5M
Reported:
256%
hrb-20210430_g9.jpg
hrb-20210430_g9.jpg
$3.39
Adjusted(1):
304%
$932.5M
Adjusted:
153%
hrb-20210430_g9.jpg
hrb-20210430_g9.jpg
Increase is due to higher net income combined with lower outstanding shares in the current year.Increase is due to the higher revenues. Increase in Adjusted EBITDA is partially offset by prior year goodwill impairment.
(1) See "Non-GAAP Financial Information" section within this filing for a reconciliation of non-GAAP measures.
RESULTS OF OPERATIONS
Our subsidiaries provide assisted and DIY tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded products and
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2021 Form 10-K | H&R Block, Inc.


services, including those of our bank partner, to the general public primarily in the U.S., Canada and Australia. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or 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 and franchise offices and online through Wave. We report a single segment that includes all of our continuing operations.
Operating Statistics
Year ended April 30,20212020% Change
Better/
(Worse)
Represents two partial tax seasons(1)
Represents a partial tax season(2)
TAX RETURNS PREPARED : (in 000s) (3)
United States:
Company-owned operations9,120 6,745 35.2 %
Franchise operations3,507 2,798 25.3 %
Total assisted12,627 9,543 32.3 %
Desktop2,002 1,553 28.9 %
Online6,976 5,932 17.6 %
Total DIY8,978 7,485 19.9 %
Total U.S. returns21,605 17,028 26.9 %
International operations:
Canada2,901 1,908 52.0 %
Australia672 745 (9.8)%
Other 73 **
Total international operations returns3,573 2,726 31.1 %
Tax returns prepared worldwide25,178 19,754 27.5 %
NET AVERAGE CHARGE (U.S. ONLY): (4)
Company-owned operations$223.14 $227.83 (2.1)%
Franchise operations (5)
$211.27 $217.07 (2.7)%
DIY$34.87 $27.91 24.9 %
TAX OFFICES (as of January 31):
U.S. offices:
Company-owned offices6,512 6,552 (0.6)%
Franchise offices2,759 2,909 (5.2)%
Total U.S. offices9,271 9,461 (2.0)%
International offices:
Canada983 1,086 (9.5)%
Australia421 464 (9.3)%
Total international offices1,404 1,550 (9.4)%
Tax offices worldwide10,675 11,011 (3.1)%
(1) Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020 and a partial 2020 individual tax filing season, which was extended until May 17, 2021.
(2) Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020.
(3) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted by the client. A DIY online return is defined as a current year individual or business tax return that has been accepted by the client. A DIY desktop return is defined as a current year individual or business tax return that has been electronically submitted to the IRS.
(4) Net average charge is calculated as total tax preparation fees divided by tax returns prepared.
(5) 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.
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Consolidated – Financial Results(in 000s, except per share amounts)
Year ended April 30,20212020$ Change
Better/(Worse)
% Change
Better/(Worse)
Revenues:
U.S. assisted tax preparation$2,035,107 $1,533,303 $501,804 32.7 %
U.S. royalties226,253 193,411 32,842 17.0 %
U.S. DIY tax preparation313,055 208,901 104,154 49.9 %
International 249,868 180,065 69,803 38.8 %
Refund Transfers163,329 154,687 8,642 5.6 %
Emerald Card®136,717 92,737 43,980 47.4 %
Peace of Mind® Extended Service Plan98,882 105,185 (6,303)(6.0)%
Tax Identity Shield®40,624 31,797 8,827 27.8 %
Interest and fee income on Emerald AdvanceSM
53,430 60,867 (7,437)(12.2)%
Wave58,277 36,711 21,566 58.7 %
Other38,445 42,056 (3,611)(8.6)%
Total revenues3,413,987 2,639,720 774,267 29.3 %
Compensation and benefits:
Field wages797,262 678,813 (118,449)(17.4)%
Other wages272,664 218,548 (54,116)(24.8)%
Benefits and other compensation208,147 175,535 (32,612)(18.6)%
1,278,073 1,072,896 (205,177)(19.1)%
Occupancy414,389 410,402 (3,987)(1.0)%
Marketing and advertising261,960 255,094 (6,866)(2.7)%
Depreciation and amortization156,852 169,536 12,684 7.5 %
Bad debt78,763 77,470 (1,293)(1.7)%
Impairment of goodwill 106,000 106,000 100.0 %
Other454,323 471,239 16,916 3.6 %
Total operating expenses2,644,360 2,562,637 (81,723)(3.2)%
Other income (expense), net5,979 15,637 (9,658)(61.8)%
Interest expense on borrowings(106,870)(96,094)(10,776)(11.2)%
Income (loss) from continuing operations before income taxes (benefit)668,736 (3,374)672,110 **
Income taxes (benefit)78,524 (9,530)(88,054)**
Net income from continuing operations590,212 6,156 584,056 9,487.6 %
Net loss from discontinued operations(6,421)(13,682)7,261 53.1 %
Net income (loss)$583,791 $(7,526)$591,317 **
Basic earnings (loss) per share:
Continuing operations$3.15 $0.03 $3.12 10,400.0 %
Discontinued operations(0.04)(0.07)0.03 42.9 %
Consolidated$3.11 $(0.04)$3.15 **
Diluted earnings (loss) per share:
Continuing operations$3.11 $0.03 $3.08 10,266.7 %
Discontinued operations(0.03)(0.07)0.04 57.1 %
Consolidated$3.08 $(0.04)$3.12 **
Adjusted diluted EPS(1)
$3.39 $0.84 $2.55 303.6 %
EBITDA(1)
932,458 262,256 670,202 255.6 %
Adjusted EBITDA (1)
932,458 368,256 564,202 153.2 %
Adjusted EBITDA margin(1)
27.3 %14.0 %13.3 %95.0 %
(1)    All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.

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2021 Form 10-K | H&R Block, Inc.


FISCAL 2021 COMPARED TO FISCAL 2020
Due to the extension of the 2020 tax season related to the COVID-19 pandemic, we had significant increases in the number of tax returns prepared in all categories during the first half of fiscal year 2021. Additionally, while the 2021 tax season filing deadline was also extended, we prepared more tax returns through April 30 than we did in the prior fiscal year. As a result of these increases in volume during the fiscal year, U.S. assisted and DIY tax preparation revenues and royalties increased compared to the prior year.
International revenues increased $69.8 million, or 38.8%, due to higher tax returns prepared by our Canadian operations primarily due to the extension of the 2020 tax season and favorable foreign currency exchange rates. Emerald Card® revenues increased $44.0 million, or 47.4%, due to higher card activity from an increase in tax refunds loaded on to cards, as well as some Economic Impact Payments loaded on to cards. Wave revenues increased $21.6 million, or 58.7%, due to higher small business payment processing volumes over the prior year as small business owners shift to online payment options and an additional two months of revenue in the current year, as we acquired Wave on June 28, 2019.
Total operating expenses increased $81.7 million or 3.2% from the prior year. Field wages increased $118.4 million, or 17.4%, due to higher tax preparation volumes. Other wages increased $54.1 million, or 24.8%, due primarily to higher bonus accruals. Benefits and other compensation increased $32.6 million, or 18.6%, primarily due to higher payroll taxes as a result of higher wages. Depreciation and amortization expense decreased $12.7 million, or 7.5%, due to lower depreciation on leasehold improvements and lower amortization of acquired intangibles. Additionally, we recorded an impairment of goodwill of $106.0 million related to Wave in the prior year.
Other operating expenses decreased $16.9 million, or 3.6%. The components of other expenses are as follows:
Year ended April 30,20212020$ Change
Better/(Worse)
% Change
Better/(Worse)
Consulting and outsourced services$127,262 $118,267 $(8,995)(7.6)%
Bank partner fees23,681 55,633 31,952 57.4 %
Client claims and refunds28,756 35,498 6,742 19.0 %
Employee travel and related expenses21,704 40,892 19,188 46.9 %
Technology-related expenses80,766 68,907 (11,859)(17.2)%
Credit card/bank charges81,154 48,826 (32,328)(66.2)%
Insurance11,420 15,015 3,595 23.9 %
Legal fees and settlements22,172 27,436 5,264 19.2 %
Supplies31,843 31,290 (553)(1.8)%
Other25,565 29,475 3,910 13.3 %
$454,323 $471,239 $16,916 3.6 %
Bank partner fees decreased $32.0 million, or 57.4%, due to lower RA and RT volumes, lower fees paid to our bank partner, and lower accruals for our RA credit loss guarantees. Employee travel and related expenses decreased $19.2 million, or 46.9%, due to COVID-19 travel restrictions. Technology-related expenses increased $11.9 million, or 17.2%, due to increased investments in information technology. Credit card and bank charges increased $32.3 million, or 66.2%, as a result of higher transaction volumes for assisted and DIY tax preparation, higher Wave payment processing fees and fees related to the Emerald Card®.
We prepared 2.9 million U.S. assisted and DIY returns from May 1, 2021 to May 18, 2021 due to the extension of the current tax season.
Losses of our discontinued mortgage operations are primarily related to legal expenses which are lower in the current year. See the discussion of the risk of contingent losses related to our discontinued operations in Item 1A, Risk Factors and in Item 8, note 12 to the consolidated financial statements.
FISCAL 2020 COMPARED TO FISCAL 2019
The comparison of fiscal year 2020 to 2019 has been omitted from this Form 10-K, but can be found in our Form 10–K for the fiscal year ended April 30, 2020, filed on June 16, 2020.
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FINANCIAL CONDITION
These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Item 8.
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.
Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our first three quarters.
Given the likely availability of a number of liquidity options discussed herein, we believe that in the absence of any unexpected developments, our existing sources of capital as of April 30, 2021 are sufficient to meet our future operating and financing needs.
DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for fiscal years 2021 and 2020. See Item 8 for the complete consolidated statements of cash flows for these periods.
(in 000s)
Year ended April 30,20212020
Net cash provided by (used in):
Operating activities$625,928 $108,961 
Investing activities(45,523)(470,231)
Financing activities(2,408,823)1,531,848 
Effects of exchange rate changes on cash18,318 (5,285)
Net change in cash and cash equivalents$(1,810,100)$1,165,293 
    Operating Activities. Cash provided by operating activities increased $517.0 million from fiscal year 2020. The increase is primarily due to net income in the current year compared to a net loss in the prior year.
    Investing Activities. Cash used in investing activities totaled $45.5 million compared to $470.2 million in the prior year. The decrease is primarily due to the acquisition of Wave in the prior year.
    Financing Activities. Cash used in financing activities totaled $2.4 billion compared to cash provided of $1.5 billion in the prior year, the change is primarily due to a $2.0 billion draw on our CLOC in the prior year which was paid off in the current year.
    CASH REQUIREMENTS
    Dividends and Share Repurchase. Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan.
    We have consistently paid quarterly dividends. Dividends paid totaled $195.1 million and $204.9 million in fiscal years 2021 and 2020, respectively. Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.
Our current share repurchase program has remaining authorization of $563.8 million which is effective through June 2022. As a part of the repurchase program, in the current year, we purchased $188.2 million of our common stock at an average price of $16.29 per share.
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2021 Form 10-K | H&R Block, Inc.


Share repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend, or extend the time period for the purchase of shares at any time. Any repurchases will be funded primarily through available cash and cash from operations. Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full Board authorization.
The following table summarizes our shares outstanding, shares repurchased, and annual dividends per share:
(in 000s, except per share amounts)
As of April 30, 20212020201920182017
Shares outstanding181,466 192,475 201,959 209,254 207,171 
Shares Repurchased11,55110,1307,86214,020
Dividends per share$1.04 $1.04 $1.00 $0.96 $0.88 
    Capital Investment. Capital expenditures totaled $52.8 million and $81.7 million in fiscal years 2021 and 2020, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. In addition to our capital expenditures, we also made payments to acquire businesses. We acquired franchise and competitor businesses totaling $15.6 million during the year ended April 30, 2021, compared to $450.2 million for the year ended April 30, 2020, which also includes the acquisition of Wave. See Item 8, note 6 for additional information on our acquisitions.
Contractual Obligations. We are party to many contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of operating leases, contingent acquisition payments, and long-term debt and related interest payments. See Item 8, note 7, 10, and 11 to the consolidated financial statements for additional information.
    FINANCING RESOURCES – In the fourth quarter of fiscal year 2020, we drew down the full $2.0 billion available under our CLOC to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic, which we repaid in full in September 2020. We had no outstanding balance under the CLOC as of April 30, 2021.
On August 7, 2020, we issued $650.0 million of 3.875% Senior Notes due August 15, 2030 (2030 Senior Notes). We used the net proceeds from the 2030 Senior Notes to repay our $650 million Senior Notes that matured on October 1, 2020.
    See Item 8, note 7 to the consolidated financial statements for discussion of our CLOC and Senior Notes and note 13 for discussion of an amendment to our CLOC effective June 11, 2021.
The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of April 30, 2021 and 2020:
As ofApril 30, 2021April 30, 2020
Short-termLong-termOutlookShort-termLong-termOutlook
Moody'sP-3Baa3StableP-3Baa3Negative
S&PA-2BBBNegativeA-2BBBNegative
CASH AND OTHER ASSETS – As of April 30, 2021, we held cash and cash equivalents, excluding restricted amounts, of $934.3 million, including $157.8 million held by our foreign subsidiaries.
Foreign Operations. Seasonal borrowing needs of our Canadian operations are typically funded by our U.S. operations. To mitigate foreign currency risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of April 30, 2021.
We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a material tax liability.
The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an increase of $18.3 million during fiscal year 2021 compared to a decrease of $5.3 million in fiscal year 2020.
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SUMMARIZED GUARANTOR FINANCIAL STATEMENTS Block Financial is a 100% owned indirect subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time.
The following table presents summarized financial information for H&R Block, Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after intercompany eliminations and excludes investments in and equity earnings in non-guarantor subsidiaries.
SUMMARIZED BALANCE SHEET(in 000s)
As of April 30, 2021GUARANTOR AND ISSUER
Current assets$49,615 
Noncurrent assets1,664,311 
Current liabilities38,471 
Noncurrent liabilities1,500,970 
SUMMARIZED STATEMENTS OF OPERATIONS(in 000s)
Year ended April 30, 2021GUARANTOR AND ISSUER
Total revenues$228,097 
Income from continuing operations before income taxes49,705 
Net income from continuing operations45,133 
Net income38,625 
The table above reflects $1.6 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries.
CRITICAL ACCOUNTING ESTIMATES
We consider the estimates discussed below to be critical to understanding our financial statements, as they require the use of significant judgment and estimation in order to measure, at a specific point in time, matters that are inherently uncertain. Specific methods and assumptions for these critical accounting estimates are described in the following paragraphs. We have reviewed and discussed each of these estimates with the Audit Committee of our Board of Directors. For all of these estimates, we caution that future events rarely develop precisely as forecasted and estimates routinely require adjustment and may require material adjustment.
See Item 8, note 1 to the consolidated financial statements for discussion of our significant accounting policies.
LITIGATION AND OTHER RELATED CONTINGENCIES
Nature of Estimates Required. We accrue liabilities related to certain legal matters for which we believe it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Assessing the likely outcome of pending or threatened litigation, indemnification and contribution claims, and other related loss contingencies, including the amount of potential loss, if any, is highly subjective. 
Assumptions and Approach Used. We are subject to pending or threatened litigation claims and claims for indemnification and contribution, and other related loss contingencies, which are described in Item 8, note 12 to the consolidated financial statements. It is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required to be accrued, if any, for these contingencies is made after analysis of each known issue and an analysis of historical experience. In cases where we have concluded that a loss is only reasonably possible or remote, or is not reasonably estimable, no liability is accrued.
Sensitivity of Estimate to Change. It is reasonably possible that future litigation and other related loss contingencies may vary from the amounts accrued. Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range represents only those losses as to which we are currently able to
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2021 Form 10-K | H&R Block, Inc.


estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure. As of April 30, 2021, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, was not material.
However, our judgments on whether a loss is probable, reasonably possible, or remote, and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in, or interpretations of, laws, predicting the outcome of jury trials, arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions, and numerous other uncertainties. Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current estimates.
Our accrued liabilities for litigation and other related contingencies are disclosed in Item 8, note 12 to the consolidated financial statements.
INCOME TAXESUNCERTAIN TAX POSITIONS
Nature of Estimates Required. The income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and applicable government taxing authorities. Income tax returns filed by us are based on our interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments, including interest or penalties. We accrue a liability for unrecognized tax benefits arising from uncertain tax positions reflecting our judgment as to the ultimate resolution of the applicable issues.
Assumptions and Approach Used. Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recorded in our financial statements result in unrecognized tax benefits. Unrecognized tax benefits are recorded in the balance sheet as either a liability or reductions to recorded tax assets as applicable. Our uncertain tax positions arise from items such as apportionment of income for state purposes, transfer pricing, and the deductibility of related party transactions. We evaluate each uncertain tax position based on its technical merits. For each position, we consider all applicable information including relevant tax laws, the taxing authorities' potential position, our tax return position, and the possible settlement outcomes to determine the amount of liability to record. In making this determination, we assume the tax authority has all relevant information at its disposal.
Sensitivity of Estimate to Change. Our assessment of the technical merits and measurement of tax benefits associated with uncertain tax positions is subject to a high degree of judgment and estimation. Actual results may differ from our current judgments due to a variety of factors, including changes in law, interpretations of law by taxing authorities that differ from our assessments, changes in the jurisdictions in which we operate and results of routine tax examinations. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate on a quarterly basis.
A schedule of changes in our uncertain tax positions during the last three years is included in Item 8, note 9 to the consolidated financial statements.
GOODWILL
Nature of Estimates Required. We test goodwill for impairment annually in the fourth quarter or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value. Our goodwill impairment analysis utilizes both the income and market approaches, which includes revenue and expense forecasts, changes in working capital and selection of a discount rate, all of which are highly subjective. 
Assumptions and Approach Used. Our goodwill impairment analysis is performed at the reporting unit level. Our valuation methods include a discounted cash flow model for the income approach and the guideline public company and market capitalization methods for the market approach. The income approach requires significant management judgment with respect to revenue and expense forecasts, anticipated changes in working capital and selection of an appropriate discount rate. Changes in projections or assumptions could materially affect our estimate of reporting unit fair values. The use of different assumptions could increase or decrease estimated
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discounted future operating cash flows and could affect our conclusion regarding the existence or amount of potential impairment.
Sensitivity of Estimate to Change. Estimates of fair value may be adversely impacted by declining economic conditions and changes in the industries and markets in which we operate. Additionally, if future operating results of our reporting units are below our current modeled expectations, fair value estimates may decline. Any of these factors could result in future impairments, and those impairments could be significant.
A schedule of changes in our goodwill balances, including any impairment charges, is included in Item 8, note 6 to the consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
See Item 8, note 1 to the consolidated financial statements for any recently issued accounting pronouncements.
REGULATORY ENVIRONMENT
The federal government, various state, local, provincial and foreign governments, and some self-regulatory organizations have enacted statutes and ordinances, or adopted rules and regulations, regulating aspects of our business. These aspects include, but are not limited to, commercial income tax return preparers, income tax courses, the electronic filing of income tax returns, the offering of RTs, privacy and data security, consumer protection, marketing and advertising, franchising, antitrust and competition, sales methods and banking. We work to comply with those laws that are applicable to us or our services or products, and we continue to monitor developments in the regulatory environment in which we operate. See further discussion of these items in our Item 1A. Risk Factors under "Legal and Regulatory Risks" of this Form 10-K.
On November 17, 2017, the CFPB published its final rule changing the regulation of certain consumer credit products, including payday loans, vehicle title loans, and high-cost installment loans (Payday Rule). Certain limited provisions of the Payday Rule became effective on January 16, 2018, but most provisions were scheduled to go into effect on August 19, 2019. On November 6, 2018, a judge from the U.S. District Court for the Western District of Texas issued a stay of the August 19, 2019 compliance date, which stay remains in effect until further notice from the Court. On July 7, 2020, the CFPB issued a final rule revoking the mandatory underwriting provisions of the Payday Rule.
    Given these developments and the recent change in administration, we are unsure whether, when, or in what form the Payday Rule will go into effect. The timing to resolve the litigation is unclear. We do not currently expect the Payday Rule to have a material adverse impact on the Emerald AdvanceSM product, our business, or our consolidated financial position, results of operations, and cash flows. We will continue to monitor and analyze the potential impact of any further Payday Rule developments on the Company.
From time to time, we receive inquiries from governmental authorities regarding the applicability of laws to our services and products and other matters relating to our business. We cannot predict what effect future laws, changes in interpretations of existing laws or the results of future governmental inquiries with respect to services and products or other matters relating to our business may have on our consolidated financial position, results of operations and cash flows. We have received certain governmental inquiries relating to the IRS Free File Program. We may also be subject to future inquiries or other proceedings regarding this program or other aspects of our business. Regulatory inquiries may result in us incurring additional expense, diversion of management's attention, adverse judgments, settlements, fines, penalties, injunctions or other relief. See additional discussion of legal matters in Item 8, note 12 to the consolidated financial statements.
NON-GAAP FINANCIAL INFORMATION
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.
We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business. We make adjustments for certain non-GAAP financial measures related to amortization of intangibles from acquisitions
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2021 Form 10-K | H&R Block, Inc.


and goodwill impairments. We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.
We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, EBITDA margin from continuing operations, adjusted EBITDA margin from continuing operations, adjusted diluted earnings per share from continuing operations and free cash flow. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.
The following is a reconciliation of net income (loss) to EBITDA from continuing operations and adjusted EBITDA from continuing operations, which are non-GAAP financial measures:
(in 000s)
Year ended April 30,20212020
Net income (loss) - as reported$583,791 $(7,526)
Discontinued operations, net6,421 13,682 
Net income from continuing operations - as reported590,212 6,156 
Add back:
Income taxes (benefit)78,524 (9,530)
Interest expense106,870 96,094 
Depreciation and amortization156,852 169,536 
342,246 256,100 
EBITDA from continuing operations$932,458 $262,256 
Adjustments:
Impairment of goodwill 106,000 
Adjusted EBITDA from continuing operations$932,458 $368,256 
EBITDA margin from continuing operations (1)
27.3 %9.9 %
Adjusted EBITDA margin from continuing operations (2)
27.3 %14.0 %
(1) EBITDA margin from continuing operations is computed as EBITDA from continuing operations divided by revenues from continuing operations.
(2) Adjusted EBITDA margin from continuing operations is computed as adjusted EBITDA from continuing operations divided by revenues from continuing operations.
The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:
(in 000s, except per share amounts)
Year ended April 30,20212020
Net income from continuing operations - as reported$590,212 $6,156 
Adjustments:
Amortization of intangibles related to acquisitions (pretax)68,387 74,561 
Impairment of goodwill (pretax) 106,000 
Tax effect of adjustments(1)
(15,884)(19,126)
Adjusted net income from continuing operations$642,715 $167,591 
Diluted earnings per share from continuing operations - as reported$3.11 $0.03 
Adjustments, net of tax0.28 0.81 
Adjusted diluted earnings per share from continuing operations$3.39 $0.84 
(1)    The tax effect of adjustments is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.
H&R Block, Inc. | 2021 Form 10-K
31


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
GENERAL – We have a formal investment policy that strives to minimize the market risk exposure of our cash equivalents, which are primarily affected by credit quality and movements in interest rates. The guidelines in our investment policy focus on managing liquidity and preserving principal and earnings.
Our cash equivalents are primarily held for liquidity purposes and are comprised of high quality, short-term investments, including money market funds. Because our cash and cash equivalents have a short maturity, our portfolio's market value is relatively insensitive to interest rate changes.
As our CLOC borrowings are generally seasonal, interest rate risk typically increases during the months of November through March. While the market value of our CLOC borrowings is relatively insensitive to interest rate changes, interest expense on CLOC borrowings will increase and decrease with changes in the underlying short-term interest rates. We had no outstanding balance on our CLOC as of April 30, 2021.
Our long-term debt as of April 30, 2021, consists primarily of fixed-rate Senior Notes; therefore, a change in interest rates would have no impact on consolidated pretax earnings until these notes mature or are refinanced. The fixed-rate interest payable on our Senior Notes is subject to adjustment based upon our credit ratings. See Item 8, note 7 to the consolidated financial statements.
FOREIGN EXCHANGE RATE RISK
Our operations in international markets are exposed to movements in currency exchange rates. The currencies primarily involved are the Canadian dollar and the Australian dollar. We translate revenues and expenses related to these operations at the average of exchange rates in effect during the period. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at exchange rates at the end of the year. Translation adjustments are recorded as a separate component of other comprehensive income in stockholders' equity. Translation of financial results into U.S. dollars does not presently materially affect, and has not historically materially affected, our consolidated financial results, although such changes do affect the year-to-year comparability of the operating results in U.S. dollars of our international businesses. The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an increase of $18.3 million during fiscal year 2021 compared to a decrease of $5.3 million in fiscal year 2020. We estimate a 10% change in foreign exchange rates by itself would impact consolidated pretax income in fiscal years 2021 and 2020 by $5.5 million and $12.2 million, respectively, and cash balances, excluding restricted balances, as of April 30, 2021 and 2020 by $14.9 million and $9.9 million, respectively.
We generally use foreign exchange forward contracts to mitigate foreign currency exchange rate risk for loans we advance to our Canadian operations. We had no forward contracts outstanding at April 30, 2021 or 2020.
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2021 Form 10-K | H&R Block, Inc.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DISCUSSION OF FINANCIAL RESPONSIBILITY
H&R Block's management is responsible for the integrity and objectivity of the information contained in this document. Management is responsible for the consistency of reporting this information and for ensuring that accounting principles generally accepted in the U.S. are properly applied. In discharging this responsibility, management maintains an extensive program of internal audits and requires members of management to certify financial information within their scope of management. Our system of internal control over financial reporting also includes formal policies and procedures, including a Code of Business Ethics and Conduct that reinforces our commitment to ethical business conduct and is designed to encourage our employees and directors to act with high standards of integrity in all that they do.
The Audit Committee of the Board of Directors, composed solely of independent outside directors, meets periodically with management, the independent auditor and the Vice President, Audit Services (our chief internal auditor) to review matters relating to our financial statements, internal audit activities, internal accounting controls and non-audit services provided by the independent auditors. The independent auditor and the Vice President, Audit Services have full access to the Audit Committee and meet with the committee, both with and without management present, to discuss the scope and results of their audits, including internal controls and financial matters.
Deloitte & Touche LLP audited our consolidated financial statements for fiscal years 2021, 2020 and 2019. The audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 12a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), using the 2013 framework, as of April 30, 2021.
Based on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of April 30, 2021, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO, using the 2013 framework. The Company's external auditor, Deloitte & Touche LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting.
/s/ Jeffrey J. Jones II/s/ Tony G. Bowen
Jeffrey J. Jones IITony G. Bowen
President and Chief Executive OfficerChief Financial Officer

H&R Block, Inc. | 2021 Form 10-K
33


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of H&R Block, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of H&R Block, Inc. and subsidiaries (the "Company") as of April 30, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended April 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America .
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 15, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective May 1, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Income Taxes - Uncertain Tax Positions - Refer to Note 9 to the consolidated financial statements
Critical Audit Matter Description
The Company operates in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable third-party companies and predictions of future economic conditions. Transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact the mix of earnings in countries with differing statutory tax rates. The Company accrues a liability for unrecognized tax benefits arising from uncertain tax positions reflecting their judgment as to the ultimate resolution of the applicable issues. For each position, management considers all applicable information including relevant tax laws, the taxing authorities' potential position, management’s tax return
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2021 Form 10-K | H&R Block, Inc.


position, and the possible settlement outcomes to determine the amount of liability to record. The Company’s unrecognized tax benefits as of April 30, 2021, were $265 million.
We identified the Company’s determination of uncertain tax positions measured in accordance with the Company’s transfer pricing policies as a critical audit matter because of the significant judgment in the application of the tax law in applying the arm’s length standard to intercompany transactions and scrutiny by local tax authorities. The significant level of judgment increases the uncertainty in evaluating the valuation of tax balances, including any uncertain tax positions that relate to the Company’s transfer pricing. As a result, we utilized a high degree of auditor judgment and increased the extent of work performed, including involving our income tax specialists to evaluate whether management’s judgments in interpreting and applying tax laws were appropriate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s uncertain tax positions for transfer pricing included the following, among others:
• We tested the effectiveness of controls over management’s evaluation and determination of uncertain tax positions. This evaluation includes management’s assessment of tax positions taken by the Company on its tax returns, including transfer pricing terms and conditions, and the related recorded amounts for uncertain tax positions.
• With the assistance of our income tax specialists, we evaluated the Company’s transfer pricing methodologies and performed the following:
◦ Evaluated the appropriateness of management’s application of jurisdictional tax regulations in applying the arm’s length standard to intercompany transactions.
◦ Evaluated the application of the transfer pricing method to transactions subject to transfer pricing.
◦ Tested the application of the transfer pricing policies by legal entity through an independent return on investment calculation.
◦ Evaluated management’s approach to identifying uncertain tax positions related to changes in the transfer pricing terms and conditions and tested the calculation of the tax positions at the individual legal entity level and at the consolidated level.
Litigation and Other Related Contingencies - Indemnification Claims - Refer to Note 12 to the consolidated financial statements
Critical Audit Matter Description
Sand Canyon Corporation (SCC), originated mortgage loans until 2007 that 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. 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 indemnification claims pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. Other contracting parties, such as underwriters, depositors, and securitization trustees are, or have been, involved in multiple lawsuits, threatened lawsuits, and settlements related to securitization transactions in which SCC participated. SCC has received notices of claims for indemnification or potential indemnification obligations relating to such matters, including lawsuits to which underwriters, depositors, or securitization trustees are party. The Company has not established a liability because they have not determined that it is probable that a liability for a loss contingency has been incurred.
We have identified the potential liability and disclosure of indemnification claims as a critical audit matter because of the significant amount of judgment required by management in 1) assessing the completeness of available information used in its loss contingency analysis, 2) interpreting and applying relevant laws, 3) predicting outcomes of a litigation and 4) determining SCC’s contractual responsibilities related to the securitization transactions. Given the subjective nature of audit evidence available for indemnification claims, auditing the Company’s conclusion required significant auditor judgment.
H&R Block, Inc. | 2021 Form 10-K
35


How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the potential liabilities for the indemnification claims included the following, among others:
• We tested the effectiveness of management’s internal controls related to the evaluation of potential liabilities from indemnification claims, including controls over the completeness of management’s evaluation of indemnification claims and the disclosure of such matters.
• We evaluated the reasonableness of the Company’s determination of potential liabilities from indemnification claims and their conclusion that it is not probable that a liability for a loss contingency has been incurred or that the amount of loss or range of loss cannot be reasonably estimated.
• We tested the completeness of management’s evaluation by independently obtaining legal inquiry letters and searching external sources for corroborating and contradictory evidence.
• We evaluated the Company’s disclosures for completeness and clarity of the information disclosed.

/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 15, 2021

We have served as the Company's auditor since 2007.
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2021 Form 10-K | H&R Block, Inc.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of H&R Block, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of H&R Block, Inc. and subsidiaries (the “Company”) as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended April 30, 2021, of the Company and our report dated June 15, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 15, 2021



H&R Block, Inc. | 2021 Form 10-K
37


CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in 000s, except per share amounts)
Year ended April 30,202120202019
REVENUES:
Service revenues$3,067,223 $2,327,323 $2,691,727 
Royalty, product and other revenues346,764 312,397 403,154 
3,413,987 2,639,720 3,094,881 
OPERATING EXPENSES:
Costs of revenues1,842,092 1,712,276 1,756,922 
Impairment of goodwill 106,000  
Selling, general and administrative802,268 744,361 722,167 
Total operating expenses2,644,360 2,562,637 2,479,089 
Other income (expense), net5,979 15,637 16,419 
Interest expense on borrowings(106,870)(96,094)(87,051)
Income (loss) from continuing operations before income taxes (benefit)
668,736 (3,374)545,160 
Income taxes (benefit)78,524 (9,530)99,904 
Net income from continuing operations590,212 6,156 445,256 
Net loss from discontinued operations, net of tax benefits of $3,883, $4,085 and $6,788
(6,421)(13,682)(22,747)
NET INCOME (LOSS)$583,791 $(7,526)$422,509 
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations$3.15 $0.03 $2.16 
Discontinued operations(0.04)(0.07)(0.11)
Consolidated$3.11 $(0.04)$2.05 
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations$3.11 $0.03 $2.15 
Discontinued operations(0.03)(0.07)(0.11)
Consolidated$3.08 $(0.04)$2.04 
COMPREHENSIVE INCOME (LOSS):
Net income (loss)$583,791 $(7,526)$422,509 
Change in foreign currency translation adjustments56,362 (31,160)(6,113)
Other comprehensive income (loss)56,362 (31,160)(6,113)
Comprehensive income (loss)$640,153 $(38,686)$416,396 
See accompanying notes to consolidated financial statements.
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2021 Form 10-K | H&R Block, Inc.


CONSOLIDATED BALANCE SHEETS(in 000s, except share and 
per share amounts)
As of April 30,20212020
ASSETS
Cash and cash equivalents$934,251 $2,661,914 
Cash and cash equivalents - restricted128,669 211,106 
Receivables, less allowance for doubtful accounts of $70,689 and $64,648
197,876 133,197 
Income taxes receivable333,366 28,477 
Prepaid expenses and other current assets105,562 52,042 
Total current assets1,699,724 3,086,736 
Property and equipment, at cost, less accumulated depreciation and amortization of $832,885 and $796,192
148,490 184,367 
Operating lease right of use asset437,246 494,788 
Intangible assets, net360,148 414,976 
Goodwill757,659 712,138 
Deferred tax assets and income taxes receivable182,848 151,195 
Other noncurrent assets67,531 67,847 
Total assets$3,653,646 $5,112,047 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses$198,084 $203,103 
Accrued salaries, wages and payroll taxes270,982 116,375 
Accrued income taxes and reserves for uncertain tax positions287,404 209,816 
Current portion of long-term debt 649,384 
Operating lease liabilities206,393 195,537 
Deferred revenue and other current liabilities200,216 201,401 
Total current liabilities1,163,079 1,575,616 
Long-term debt and line of credit borrowings1,490,039 2,845,873 
Deferred tax liabilities and reserves for uncertain tax positions279,351 182,441 
Operating lease liabilities242,626 312,566 
Deferred revenue and other noncurrent liabilities126,150 124,510 
Total liabilities3,301,245 5,041,006 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $.01 per share, 800,000,000 shares
authorized, shares issued of 216,655,616 and 228,206,684
2,167 2,282 
Additional paid-in capital783,292 775,387 
Accumulated other comprehensive income (loss)4,786 (51,576)
Retained earnings248,506 42,965 
Less treasury shares, at cost, of 35,189,707 and 35,731,376
(686,350)(698,017)
Total stockholders' equity352,401 71,041 
Total liabilities and stockholders' equity$3,653,646 $5,112,047 
See accompanying notes to consolidated financial statements.
H&R Block, Inc. | 2021 Form 10-K
39


CONSOLIDATED STATEMENTS OF CASH FLOWS(in 000s)
Year ended April 30,202120202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$583,791 $(7,526)$422,509 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization156,852 169,536 166,695 
Provision for bad debt73,451 76,621 70,569 
Deferred taxes(22,583)(8,300)1,129 
Stock-based compensation28,271 28,045 23,767 
Impairment of goodwill 106,000  
Changes in assets and liabilities, net of acquisitions:
Receivables(150,933)(66,896)(73,648)
Prepaid expenses, other current and noncurrent assets(49,498)39,377 (4,503)
Accounts payable, accrued expenses, salaries, wages and payroll taxes150,635 (124,019)54,827 
Deferred revenue, other current and noncurrent liabilities(1,160)(9,096)(13,758)
Income tax receivables, accrued income taxes and income tax reserves(138,152)(87,423)(36,824)
Other, net(4,746)(7,358)(4,225)
Net cash provided by operating activities625,928 108,961 606,538 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures(52,792)(81,685)(95,490)
Payments made for business acquisitions, net of cash acquired(15,576)(450,242)(43,637)
Franchise loans funded(26,917)(35,264)(19,922)
Payments from franchisees41,215 39,919 32,671 
Other, net8,547 57,041 (28,753)
Net cash used in investing activities(45,523)(470,231)(155,131)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings(3,275,000)(1,335,000)(720,000)
Proceeds from line of credit borrowings1,275,000 3,335,000 720,000 
Repayments of long-term debt(650,000)  
Proceeds from issuance of long-term debt647,965   
Dividends paid(195,068)(204,870)(205,461)
Repurchase of common stock, including shares surrendered(191,294)(256,214)(189,912)
Proceeds from exercise of stock options2,140 2,075 2,532 
Other, net(22,566)(9,143)(10,854)
Net cash provided by (used in) financing activities(2,408,823)1,531,848 (403,695)
Effects of exchange rate changes on cash18,318 (5,285)(3,663)
Net increase (decrease) in cash and cash equivalents, including restricted balances(1,810,100)1,165,293 44,049 
Cash, cash equivalents and restricted cash, beginning of the year
2,873,020 1,707,727 1,663,678 
Cash, cash equivalents and restricted cash, end of the year$