2020 Annual Report
Our
Purpose:
To provide help and inspire confidence in
our clients and communities everywhere.
Strategic Pillars:
ELEVATE OUR TALENT
AND CULTURE
OWN A SUSTAINABLE
BRAND POSITION
WIN ON CUSTOMER
EXPERIENCE
• Make talent a core competitive
• Develop compelling value
• Reimagine our customers’
advantage
• Shape and grow a winning
culture true to our heritage,
purpose and passion
propositions that distinguish our
brands and create preference
experience for a mobile-first world
• Leverage and compete on our
• Help our clients realize more value
cross-channel strength
from H&R Block
• Dramatically improve our DIY and
• Strengthen empowerment and
• Create partnerships that grow
virtual tax products
accountability to unleash potential
distribution and relevance
• Create a pipeline of innovation
• Be a leading voice and advocate
for and with our communities
• Modernize our approach
and partnerships
to marketing
BUILD OPERATIONAL
EXCELLENCE
INVEST FOR THE
LONG TERM
• Create greater quality and
consistency of execution
• Modernize our core technology
systems
• Eliminate waste in all facets of
• Acquire skills and capabilities to
our business
enable growth
• Simplify how work gets done
across the company
• Rethink and improve how we
support franchisees
• Develop adjacent businesses that
leverage our core competencies
• Fund research and development
as well as strategic investments
Fellow Shareholders:
Fiscal year 2020 was a truly unique year for H&R Block. We headed into
the year focused on continuing the transformation of our business as we
drive toward sustainable, long-term growth. At the beginning of the year,
we made a significant step forward in our efforts to grow in small business
through our acquisition of Wave, an innovative financial solutions platform
for small businesses. We then outlined plans to digitally enable every aspect
of our business as we entered the tax season.
We made significant progress toward this objective
Enhanced Liquidity: We drew down on our
and were on track to deliver on our financial
$2 billion line of credit to provide liquidity and
outlook when we faced challenges beyond
maximum flexibility. We believe we have sufficient
anything we’ve experienced due to the disruption
funds to support the business through the start of
caused by the COVID-19 pandemic. I couldn’t
tax season 2021.
be prouder of how we responded as a company,
continuing to live out our Purpose of providing
help and inspiring confidence in our clients and
communities everywhere. We’ve taken what has
been a challenging situation and are using it as an
opportunity to accelerate efforts already underway
to digitally enable every facet of our business and to
reprioritize our work on our transformation journey.
Modified Operations: In our retail tax locations,
the landscape of the various city and state orders
required us to modify our operations on a very
local basis. At the pandemic’s peak, nearly 20%
of our office network was closed to the public.
For those offices that remained open, we made
significant changes by limiting in-person service,
including requiring drop off in nearly half of our
Given the events of the past several months, I’d
network, and increasing the use of our virtual
like to share how we’ve navigated through the
capabilities.
challenges presented during these times and
provide an update on our efforts to transform
H&R Block.
OUR RESPONSE TO THE PANDEMIC
In mid-March, as the spread of the virus began
to impact our business, we quickly turned to
our crisis playbook, which enabled us to react
effectively and efficiently. We took several steps to
Regardless of how we operated, one of our top
priorities during this time has been providing
for the health and safety of our associates,
franchisees, and clients, while providing clients
access to their refunds. Our teams worked
diligently to keep our offices clean, followed
social-distancing protocols, and complied with
ever-changing city and state guidelines.
ensure we remained financially strong and well
Provided for Our Seasonal Workforce: Beyond
equipped to help clients gain access to their much-
taking care of our clients, we also took significant
needed refunds and assist small business owners
measures to take care of our associates. Our tax
as they navigated the financial uncertainty caused
professionals are our greatest asset and I’m proud
by the pandemic.
H&R Block, Inc. | 2020 Annual Report
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of the investment we made to create a leading
DIY: We continued to utilize AI and machine
benefit program for our seasonal associates who
learning to improve ease, speed, and
were directly impacted by the pandemic.
personalization in our product. We also
Continued Commitment to our Communities:
I’m also proud of how we’ve responded in our
continuing commitment to our communities. We
joined the American Express “Stand for Small”
delivered tremendous value through our Online
Assist product, providing clients with on-demand
access to tax pros to help as they complete their
tax return.
coalition in support of small businesses as they
Small Business: Following the acquisition of
navigate the impacts of COVID-19. At Wave, we
Wave, we continued to innovate to simplify the
provided Instant Payouts to all of our payments
financial lives of small business owners. We
customers for free, to give them immediate access
opened up our API to third-party developers to
to their money. And we offered free tax preparation
extend the functionality and reach of our tools
to frontline workers through Tax Pro GoSM in
and released new integrations to make it easier
May and June, which received overwhelmingly
for small businesses to track all of their
positive feedback.
transactions from various sources in a single
system. We also just rolled out Wave Money, the
PROGRESS ON OUR STRATEGIC INITIATIVES
first-to-market, software-powered small business
Our efforts this year to digitally enable every
bank account, which provides several unique
aspect of our business, which were accelerated
benefits to Wave customers.
as a result of the pandemic, have allowed us to
meet the needs of our clients using methods we
didn’t have in the past. This work is essential to our
We’re seeing the impacts of these efforts in our
results, including:
success in the long term as we launch innovative
• Significant increase in the percentage of our
new products, modernize how we deliver expertise
returns leveraging our digital capabilities,
and care, and ensure the best-trained tax
including Tax Pro GoSM, Tax Pro ReviewSM,
professionals in the industry can help clients
and our Approve Online feature;
in better and easier ways.
• Strong client feedback with service quality
myBlock: We made significant improvements to
scores improving 2 points in Assisted and 5
myBlock, the digital hub of our clients’ experience
points in DIY, building on significant increases
with H&R Block. Through this platform, clients
in both areas in fiscal year 2019;
can upload and store their tax documents, access
prior year returns, set appointments, manage their
Emerald card, and use our tax estimator for help
with planning.
Tax Professionals: We enhanced the digital
capabilities of our tax professionals by improving
WorkCenter, a tool that digitizes how our tax
• A number of third-party accolades for our DIY
product, including #1 in TheStreet.com’s rankings
of the best online tax software and NerdWallet’s
best software for simple returns; and
• Wave revenue growth of over 40% prior to the
pandemic.
professionals serve and communicate with
In addition to these efforts, in December 2019 we
clients, modernizing our work and enhancing the
launched a new community impact platform, Make
relevance of our brand. Also, in response to the
Every Block Better, that focuses on increasing
pandemic, we created a work-from-home model,
human connections, supporting entrepreneurship,
allowing thousands of tax professionals to prepare
and combating loneliness in our communities.
returns without having to come into the office.
In doing so, we are continuing the legacy left
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H&R Block, Inc. | 2020 Annual Report
behind by our co-founders, Henry and Richard
IN CLOSING….
Bloch, by being a force for positive change in our
I’d like to thank our franchisees, associates, and tax
communities.
OUR FUTURE
professionals for continuing to live our Purpose.
We’ve been challenged unlike any other time in
our history. The resilience and dedication of our
As we continue to transform our business in light
team, our strong financial foundation, and our
of the pandemic, we are more focused than ever
ability to adjust our operating model has enabled
on the future. We are taking this opportunity to
us to continue delivering tremendous value to
thoroughly and objectively evaluate our progress,
our clients at a time when they need us most. I’m
determine what we can do better, and reinforce
confident we’ll come out of this crisis stronger
our sense of urgency in these efforts.
than ever in many ways, as we continue the work
We’re in the process of evaluating and re-
to transform our business.
prioritizing our strategic imperatives while
Thank you for your investment in H&R Block and
simultaneously examining our expense structure to
your continued support.
identify areas where we can save to help fund the
future. This work is ongoing and will remain fluid
Sincerely yours,
given our current operating environment.
Jeffrey J. Jones II
Jeffrey J. Jones II
President & CEO
H&R Block, Inc. | 2020 Annual Report
3
We believe that in every community there is a virtuous cycle of
entrepreneurship and community engagement. Because we’re in
thousands of communities and on Main Streets across America, we
believe we have a responsibility to take action to help our neighbors
and small business owners connect and thrive. When we’re successful,
we’ll see vibrant, inclusive communities lifting up our neighbors, our
associates, small businesses, our own company, all of us.
In December 2019, H&R Block launched a
new community impact platform, Make Every
Block Better, that focuses on increasing human
connections, supporting entrepreneurship, and
combating loneliness in our communities. As
part of this initiative, H&R Block has partnered
with various organizations to support community
building efforts, cultivate entrepreneurship, and
provide direct relief in the following areas:
KCRise Fund II: In December 2019, we announced
a $2 million investment over the next five years in
KCRise Fund II, the second venture capital fund
of KCRise that invests in high-growth, early-stage
technology companies. KCRise Fund’s investors
include local corporations, family offices, and
prominent business leaders, and H&R Block’s
investment is one of the largest by a local
Kansas City corporation to date. By helping early-
stage companies achieve success, we help
communities thrive.
Nextdoor: In November 2019, we announced a new
partnership with Nextdoor, the neighborhood hub,
to ask Americans to nominate an improvement
project in their neighborhood. The winning
projects would revitalize neighborhoods large and
small, rural and urban, ultimately fostering more
conversations and building the opportunity for
connections that will help them thrive.
Before the end of fiscal year 2020, the nomination
website received more than 55,000 site visits and
the companies received nearly 2,000 nominations
from neighbors in all 50 states. The selection of the
10 winning projects will occur in fiscal year 2021.
Habitat for Humanity: In November 2019, we
announced a partnership with Habitat for Humanity
aimed at improving quality of life for communities
nationwide through collaboration and dialogue.
The partnership will bring together local residents,
Habitat for Humanity affiliates, and H&R Block’s
10,000 offices and 70,000 associates to partner
with one another and find ways to improve the
quality of life in neighborhoods across the
United States.
We committed to initially fund a series of 16 local
grants, 10 of which would be a part of Habitat for
Humanity’s Neighborhood Revitalization focus.
The investment and involvement of H&R Block
associates will result in a holistic approach based
on the input and aspirations of each community
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H&R Block, Inc. | 2020 Annual Report
and bring to life Habitat’s Quality of Life Framework
in a number of communities nationwide.
Urban Neighborhood Initiative (UNI): In April 2020,
H&R Block and the H&R Block Foundation finalized
a joint commitment to the Urban Neighborhood
Initiative. The H&R Block Foundation funded a
grant that will go toward hosting community-
building events that promote meaningful
connections among residents, hiring staff to
connect resources to residents, and making
home repairs possible throughout an underserved
10-neighborhood area in urban Kansas City.
The Kauffman Foundation: Cultivating and
supporting the ecosystem in which small
business owners and entrepreneurs navigate is
essential to the Make Every Block Better ideal of
connecting and supporting entrepreneurship in
communities. The Kauffman Foundation is one of
the preeminent organizations dedicated to help
grow communities and support the development
of this essential ecosystem. H&R Block and the
Kauffman Foundation are committed to continuing
to explore ways they can work together to impact
entrepreneurial ecosystems throughout the H&R
Block office footprint and ultimately support
entrepreneurs everywhere, helping them access
the help they need.
Associate Volunteering: H&R Block associates
are essential to the success of Make Every Block
Better, and to how the company gives back in
general. Throughout the year, associates lead
multiple efforts to identify and support local
nonprofits in their communities. It’s nothing
new to H&R Block associates, who have always
volunteered, donated, and found ways to give back
to their local communities, making them stronger
and more resilient.
Community Disaster Relief: Fiscal year 2020
presented H&R Block and our associates several
unique challenges. Whether the Australian
bushfires or the COVID-19 global pandemic—
we sought to take an empathetic approach to
responding to these disasters and took action
where we could, as fast as we could.
H&R Block and H&R Block Australia made a joint
donation of AU$100,000 to the Australian Red
Cross to support those impacted by the Australian
bushfires. As it relates to the COVID-19 global
pandemic, H&R Block, the H&R Block Foundation,
and our associates donated nearly $200,000 to
the Kansas City Regional COVID-19 Rapid Response
and Recovery Fund, which supports charitable
organizations that serve those impacted by the
pandemic. Additionally, the H&R Block Foundation
donated $100,000 to the United Way of Greater
Kansas City to support the expansion of a 211 call
center, which connects individuals in need to the
most-appropriate local resources.
Hardship and Disaster Relief Fund: The Make
Every Block Better platform also gives us the
opportunity to help our own associates. This
summer, we introduced a new Hardship and
Disaster Relief Fund for our associates, helping
them overcome short-term financial challenges
and getting them back on their feet faster. The
Fund allows associates to apply for financial relief
when facing unexpected financial difficulties
related to federally declared disasters or personal
hardships such as domestic violence, spousal job
loss, medical expenses, funeral expenses, or even
vehicle repairs.
In total, during fiscal year 2020, H&R Block, the
H&R Block Foundation, and our associates donated
more than $5 million in support of these efforts.
H&R Block, Inc. | 2020 Annual Report
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H&R Block, Inc. | 2020 Annual Report
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-06089
H&R Block, Inc.
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction of
incorporation or organization)
44-0607856
(I.R.S. Employer
Identification No.)
One H&R Block Way, Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 854-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, without par value
Trading Symbol(s)
HRB
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller
reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant's Common Stock (all voting stock) held by non-affiliates of the registrant, computed
by reference to the price at which the stock was sold on October 31, 2019, was $4,866,442,857.
Number of shares of the registrant's Common Stock, without par value, outstanding on May 29, 2020: 192,475,308.
Documents incorporated by reference
The definitive proxy statement for the registrant's 2020 Annual Meeting of Shareholders, to be filed no later than 120 days after
April 30, 2020, is incorporated by reference in Part III to the extent described therein.
2020 FORM 10-K AND ANNUAL REPORT
TABLE OF CONTENTS
INTRODUCTION AND FORWARD-LOOKING STATEMENTS
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
PART I
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
ITEM 7.
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
SIGNATURES
EXHIBIT INDEX
1
1
7
(cid:1006)(cid:1004)
(cid:1006)(cid:1004)
(cid:1006)(cid:1005)
(cid:1006)(cid:1005)
(cid:1006)(cid:1005)
2(cid:1007)
2(cid:1008)
(cid:1007)(cid:1009)
(cid:1007)(cid:1011)
(cid:1010)(cid:1012)
(cid:1010)(cid:1012)
(cid:1010)(cid:1013)
(cid:1010)(cid:1013)
(cid:1010)(cid:1013)
(cid:1011)(cid:1004)
(cid:1011)(cid:1004)
(cid:1011)(cid:1004)
(cid:1011)(cid:1004)
(cid:1011)(cid:1005)
(cid:1011)(cid:1006)
INTRODUCTION
"H&R Block," "the Company," "we," "our" and "us" are used interchangeably to refer to H&R Block, Inc. or to H&R
Block, Inc. and its subsidiaries, as appropriate to the context.
Specified portions of our proxy statement are "incorporated by reference" in response to certain items. Our proxy
statement will be made available to shareholders no later than 120 days after April 30, 2020, and will also be available
on our website at www.hrblock.com.
FORWARD-LOOKING STATEMENTS
This report and other documents filed with the Securities and Exchange Commission (SEC) may contain forward-
looking statements. In addition, our senior management may make forward-looking statements orally to analysts,
investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates,"
"intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will,"
"should," "could," "may" or other similar expressions. Forward-looking statements provide management's current
expectations or predictions of future conditions, events or results. All statements that address operating performance,
events or developments that we expect or anticipate will occur in the future are forward-looking statements. They
may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital
expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other
financial items, descriptions of management's plans or objectives for future operations, services or products, or
descriptions of assumptions underlying any of the above. They may also include the expected impact of the coronavirus
(COVID-19) pandemic, including, without limitation, the impact on economic and financial markets, the Company's
capital resources and financial condition, future expenditures, potential regulatory actions, such as extensions of tax
filing deadlines or other related relief, changes in consumer behaviors and modifications to the Company's operations
relating thereto.
All forward-looking statements speak only as of the date they are made and reflect the Company's good faith
beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore,
the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes
in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes,
except as required by law.
By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences
include, but are not limited to, a variety of economic, competitive, operational and regulatory factors, many of which
are beyond the Company's control. In addition, factors that may cause the Company’s actual effective tax rate to differ
from estimates include the Company’s actual results from operations compared to current estimates, future discrete
items, changes in interpretations and assumptions the Company has made and future actions of the Company. Investors
should understand that it is not possible to predict or identify all such factors and, consequently, should not consider
any such list to be a complete set of all potential risks or uncertainties.
Details about risks, uncertainties and assumptions that could affect various aspects of our business are included
throughout this Form 10-K. Investors should carefully consider all of these risks, and should pay particular attention
to Item 1A, "Risk Factors," and Item 7 under "Critical Accounting Estimates" of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
H&R Block, Inc. was organized as a corporation in 1955 under the laws of the State of Missouri and has subsidiaries
that provide tax preparation and other services and products. A complete list of our subsidiaries as of April 30, 2020
can be found in Exhibit 21.
H&R Block, Inc. | 2020 Form 10-K
1
RECENT DEVELOPMENTS
COVID-19 IMPACTS – As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the
United States (U.S.) for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially
all U.S. states with an April 15 individual state income tax filing requirement similarly extended their respective
deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. In addition, governments
around the world have taken a variety of actions to contain the spread of COVID-19. Jurisdictions in which we operate
imposed, and continue to impose, various restrictions on our business, including capacity and other operational
limitations, social distancing requirements, and in limited instances required us to close certain offices. One of our
top priorities has been providing for the health and safety of our clients, associates, and franchisees, while still providing
taxpayers access to help in getting their refunds during this difficult economic time. These events have impacted the
typical seasonality of our business and the comparability of our financial results. Consequently, a portion of revenues
and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 is expected to shift
to the first quarter of fiscal year 2021, however, due to our modified operating model, office closures, and competitive
pressures, we may not recover all tax returns we lost in the fourth quarter in our first quarter.
We have been navigating the ever-changing landscape of the various state and local orders regarding whether our
offices could stay open and how we could help our clients. We evaluated these orders on an individual basis, which
at its peak resulted in nearly 20% of our office network closing to the public. In the offices that remained open, we
made changes to our operating model to encourage and/or require clients to drop off their documents and approve
online, complete virtually by uploading their documents and approve online or in-office with social distancing
guidelines. See Item 7, under “Results of Operations” and “Financial Condition,” for further discussion regarding the
impact of the COVID-19 pandemic on our business.
In order to strengthen our liquidity and ensure maximum flexibility, during our fourth quarter we drew the full
amount of our $2.0 billion unsecured committed line of credit (CLOC).
Our financial results for fiscal year 2020 were negatively impacted by the extension of the tax filing season due to
the COVID-19 pandemic and as of April 30, 2020, we were not in compliance with the debt-to-EBITDA ratio covenant
related to our CLOC. On May 22, 2020 we obtained a waiver of the debt-to-EBITDA ratio covenant for the period ended
April 30, 2020. As of April 30, 2020 we had cash balances of $2.7 billion, which includes the CLOC draw. We believe
we have sufficient liquidity to support our business through next tax season and we expect to be in compliance with
our CLOC covenants each quarter in fiscal year 2021.
WAVE – During the fiscal year ended April 30, 2020, we acquired Wave HQ Inc. (formerly known as Wave Financial
Inc.) and its subsidiaries (collectively, Wave) for $408.4 million. The acquisition was funded with available cash. Wave
is a provider of software solutions and related services specifically designed to help small business owners manage
their finances. Major revenue sources include fees earned by providing payment processing, payroll services, and
bookkeeping services. We believe the acquisition of Wave enhances our position in the small business market.
As a result of the COVID-19 pandemic and its impact on Wave’s small business customers, we evaluated the Wave
reporting unit’s goodwill for impairment during our fourth quarter. The fair value was less than the carrying value,
therefore resulting in a goodwill impairment loss of $106.0 million. See Item 8, note 6 to the consolidated financial
statements for additional information.
FINANCIAL SERVICES OFFERINGS – Many of our financial products are provided to our clients through an agreement
with Axos Bank (Axos), a federal savings bank. We have announced our intent to terminate our agreement with Axos
on or after July 1, 2020.
We have signed a non-binding letter of intent with MetaBank, N.A., a wholly-owned subsidiary of Meta Financial
Group, Inc. (Meta), to enter into a new multi-year program management agreement pursuant to which Meta would
offer certain financial products to H&R Block clients. See our Current Report filed on Form 8-K dated May 15, 2020
for additional information.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We report a single segment that includes all of our continuing operations, which are designed to enable clients to
obtain tax preparation and small business services seamlessly. See discussion below and in Item 8, within the notes
to the consolidated financial statements.
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2020 Form 10-K | H&R Block, Inc.
DESCRIPTION OF BUSINESS
GENERAL – We provide assisted, do-it-yourself (DIY), and virtual tax return preparation solutions through multiple
channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-
branded services and products, including those of our financial partners, to the general public primarily in the U.S.,
Canada, Australia, and their respective territories. We also offer small business financial solutions through our
company-owned or franchise offices and online through Wave. Major revenue sources include fees earned for tax
preparation via our assisted, DIY, and virtual channels, royalties from franchisees, and fees from related services and
products.
Tax Returns Prepared. During fiscal year 2020, 20.3 million tax returns were prepared by and through H&R Block
worldwide, including those prepared by our franchisees, and through our DIY and virtual solutions. This is a 14.0%
decrease from the 23.6 million prepared in fiscal year 2019. We prepared 23.3 million tax returns in fiscal year 2018.
In the U.S., 17.6 million tax returns were prepared by and through H&R Block during fiscal year 2020, a decrease of
13.2% from 20.3 million in 2019, and 20.0 million in 2018. Due to the extension of the tax filing deadlines because of
the COVID-19 pandemic, this does not include the full filing season and is not comparable to prior year return volumes.
Through April 30, 2020 the IRS has reported total tax filings are down 9.6% compared to the prior year.
U.S. tax returns prepared by and through us during the fiscal year 2020, including those prepared by our franchisees,
and through our DIY and virtual solutions, constituted approximately 12.5% of an Internal Revenue Service (IRS)
estimate of total individual income tax returns filed through April 30, 2020. See Item 7, under "Results of Operations,"
for further discussion of changes in the number of tax returns prepared.
ASSISTED – Assisted income tax return preparation and related services are provided by tax professionals via a
system of retail offices operated directly by us or our franchisees.
Assisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties
and interest attributable to an H&R Block error on a tax return.
Offices. As of January 31, 2020, we, together with our franchisees, operated in 9,461 offices across the U.S.
compared to 9,504 in the prior year. A summary of our company-owned and franchise offices is included in Item 7,
under "Operating Statistics." Due to the COVID-19 pandemic and various restrictions put in place during March and
April of 2020, we leveraged digital capabilities and modified our retail operating model to continue to deliver expertise
and care to our clients amidst COVID-19 restrictions. During this time, up to 20% of our office network was closed to
the public.
Franchises. We offer franchises as a way to expand our presence in certain geographic areas. Our franchise
arrangements provide us with certain rights designed to protect our brand. Most of our franchisees receive, among
other things, the right to use our trademarks and software, access to product offerings and expertise, signs, specialized
forms, advertising, and initial and ongoing training and advisory services. In the U.S., our franchisees pay us
approximately 30% of gross tax return preparation and related service revenues as a franchise royalty. Our franchise
arrangements typically include a ten-year term and do not provide for automatic renewal.
From time to time, we have sold certain company-owned offices to existing franchisees or have acquired the assets
of existing franchisees and other tax return preparation businesses, and may continue to do so if future conditions
warrant and satisfactory terms can be negotiated.
DO-IT-YOURSELF – We develop and market DIY income tax preparation software. We offer a comprehensive range
of DIY tax services, including federal and state income tax return solutions, access to tax tips, advice and tax-related
news, use of calculators for tax planning, error checking and electronic filing. Our online software may be accessed
through our website at www.hrblock.com or in a mobile application, while our desktop software may be purchased
online, through third-party retail stores or via direct mail. DIY tax returns are covered by our 100% accuracy guarantee,
whereby we will reimburse a client up to a maximum of $10,000 if our software makes an arithmetic error that results
in payment of penalties and/or interest to the IRS that the client would otherwise not have been required to pay.
We are a member of Free File, Inc. We will continue in that status through October 2020, at which time our
membership will terminate. This organization was created by the tax return preparation industry and the IRS, and
allows qualified filers with an adjusted gross income of $69,000 or less to prepare and file their federal return online
at no charge.
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VIRTUAL – Virtual income tax return preparation and related services are provided by our tax professionals in three
distinct ways. First, we offer a fully assisted experience for consumers called Tax Pro GoSM. Second, Tax Pro ReviewSM
is a product for the DIY consumer who wants an expert review before submitting their return. And finally, Online
AssistSM is an on-demand service for DIY filers to get their tax questions answered as they complete their return. Our
virtual offerings may be accessed through our website at www.hrblock.com or in a mobile application. Virtual tax
returns are covered by our 100% accuracy guarantee. Tax Pro GoSM and Tax Pro ReviewSM returns are included in our
assisted return counts. Returns in which a DIY client has chosen to use Online AssistSM are included in our DIY return
counts.
OTHER OFFERINGS – We also offer U.S. clients a number of additional services, including Refund Transfers (RTs),
our Peace of Mind® Extended Service Plan (POM), H&R Block Emerald Prepaid Mastercard® (Emerald Card), H&R Block
Emerald Advance® lines of credit (EAs), Tax Identity Shield® (TIS), Refund Advance loans (RAs), and small business
financial solutions. For our Canadian clients we also offer POM, H&R Block Instant RefundTM, H&R Block Pay With
Refund®, and small business financial solutions.
Refund Transfers. RTs enable clients to receive their tax refunds by their chosen method of disbursement and
include a feature enabling clients to deduct tax preparation and service fees from their tax refunds. Depending on
circumstances, clients may choose to receive their RT proceeds by a load to their Emerald Card, by receiving a check
or by direct deposit to an existing account. RTs are available to U.S. clients and are frequently obtained by those who
(1) do not have bank accounts into which the IRS can direct deposit their refunds; (2) like the convenience and benefits
of a temporary account for receipt of their refund; and/or (3) prefer to have their tax preparation fees paid directly
out of their refunds. RTs are offered through our relationship with Axos. We offer a similar program to our Canadian
clients through a Canadian chartered bank, referred to as H&R Block Pay With Refund®.
Peace of Mind® Extended Service Plan. We offer POM to U.S. and Canadian clients, whereby we (1) represent our
clients if they are audited by a taxing authority, and (2) assume the cost, subject to certain limits, of additional taxes
owed by a client resulting from errors attributable to H&R Block. The additional taxes paid under POM have a cumulative
limit of $6,000 for U.S. clients and $3,000CAD for Canadian clients with respect to the federal, state/provincial and
local tax returns we prepared for applicable clients during the taxable year protected by POM.
H&R Block Emerald Prepaid Mastercard®. The Emerald Card® enables clients to receive their tax refunds from the
IRS directly on a prepaid debit card, or to direct RT, EA or RA proceeds to the card. The card can be used for everyday
purchases, bill payments and ATM withdrawals anywhere Mastercard® (Mastercard is a registered trademark of
Mastercard International Incorporated) is accepted. Additional funds can be added to the card year-round through
direct deposit or at participating retail locations. We distribute the Emerald Card® issued by Axos.
H&R Block Emerald Advance® Lines of Credit. EAs are lines of credit offered to clients in our offices, typically from
mid-November through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain
criteria as agreed in the loan terms, the line of credit can be utilized year-round. In addition to the required monthly
payments, borrowers may elect to pay down balances on EAs with their tax refunds. These lines of credit are offered
by Axos, and we subsequently purchase a participation interest in all EAs originated by Axos.
Tax Identity Shield®. Our TIS program offers clients assistance in helping protect their tax identity and access to
services to help restore their tax identity, if necessary. Protection services include a daily scan of the dark web for
personal information, a monthly scan for social security number in credit header data, notifying clients if their
information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections
when eligible.
Refund Advance Loans. RAs are interest-free loans offered by Axos, which are available to eligible U.S. assisted
clients in company-owned and participating franchise locations. In tax season 2020, RAs were offered in amounts of
$250, $500, $750, $1,250 and $3,500, based on client eligibility as determined by Axos.
H&R Block Instant RefundTM. Our Canadian operations advance refunds due to certain clients from the Canada
Revenue Agency (CRA), for a fee. The fee charged for this service is mandated by federal legislation which is
administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the
refund amount is then sent by the CRA directly to us.
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2020 Form 10-K | H&R Block, Inc.
Small Business Financial Solutions. We also offer small business financial solutions through our company-owned
or franchise offices and online through Wave. Fees are earned from providing payment processing, payroll services,
and bookkeeping services.
SEASONALITY OF BUSINESS – Because the majority of our clients file their tax returns during the period from
February through April in a typical year, a substantial majority of our revenues from income tax return preparation
and related services and products are earned during this period. As a result, we generally operate at a loss through
the first three quarters of our fiscal year. As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax
filing deadline in the U.S. for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020. Substantially
all U.S. states with an April 15 individual state income tax filing requirement similarly extended their respective
deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. These extensions have impacted
the typical seasonality of our business and the comparability of our financial results. Consequently, a portion of
revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 is expected
to shift to the first quarter of fiscal year 2021, however, due to our modified operating model, office closures, and
competitive pressures, we may not recover all tax returns we lost in the fourth quarter in our first quarter.
COMPETITIVE CONDITIONS – We provide assisted, DIY, and virtual tax preparation services and products, as well
as small business financial solutions, and face substantial competition in and across each category. There are a
substantial number of tax return preparation firms and accounting firms offering tax return preparation services, and
we face significant competition from independent tax preparers and certified public accountants. Many tax return
preparation firms are involved in providing RTs and RAs or similar services to the public. Tax return preparation firms
are highly competitive with regard to price and service, and many firms offer services that may include preparation
of tax returns at no charge.
Our DIY and virtual tax preparation services include various forms of digital electronic assistance, including online
and mobile applications and desktop software. Many other companies offer DIY and virtual tax preparation services,
including Intuit Inc., our largest competitor offering such services. Price and marketing competition for DIY tax
preparation services is intense among value and premium product offerings and many firms offer DIY services and
products at no charge.
Our assisted tax preparation business faces competition from firms offering DIY and virtual tax preparation services
and products, while our DIY and virtual tax preparation services also compete with in-office tax preparation services.
U.S. federal and certain state and foreign taxing authorities also currently offer, or facilitate the offering of, tax return
preparation and filing options to taxpayers at no charge.
In terms of the number of offices and revenues, we believe we are the largest single provider of tax return
preparation solutions and electronic filing services in the U.S. In terms of the number of tax returns prepared by and
through H&R Block, we believe we are the second largest provider in the U.S. We also believe we operate the largest
tax return preparation businesses in Canada and Australia.
GOVERNMENT REGULATION – TAX PREPARERS – Our tax preparation business is subject to various forms of
government regulation, including the following:
U.S. Federal Tax Preparer Regulations. U.S. federal legislation requires income tax return preparers to, among
other things, set forth their signatures and identification numbers, including their Preparer Tax Identification Number
(PTIN), on all tax returns prepared by them and retain all tax returns prepared by them for three years. U.S. federal
laws also subject income tax return preparers to accuracy-related penalties in connection with the preparation of
income tax returns. Preparers may be prohibited from continuing to act as income tax return preparers if they
repeatedly engage in specified misconduct.
The U.S. federal government regulates the electronic filing of income tax returns in part by requiring electronic
filers to comply with all publications and notices of the IRS applicable to electronic filing. We are required to provide
certain electronic filing information to taxpayers and comply with advertising standards for electronic filers. We are
also subject to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties,
including suspension from the IRS electronic filing program.
Financial Consumer Protection and Privacy Regulations. The Gramm-Leach-Bliley Act and related Consumer
Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) regulations require income tax preparers to
H&R Block, Inc. | 2020 Form 10-K
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(1) adopt and disclose consumer privacy notices, (2) provide consumers a reasonable opportunity to control (via "opt-
out") whether their nonpublic personal information is disclosed to unaffiliated third-parties (subject to certain
exceptions), and (3) implement reasonable safeguards to protect the security and confidentiality of nonpublic personal
information. In addition, the IRS generally prohibits the use or disclosure of taxpayer information by tax return
preparers for purposes other than tax return preparation without the prior written consent of the taxpayer. The CFPB
or state regulators may issue regulations that apply to our subsidiaries, or certain of our third party service providers
that provide consumer financial services and products. The CFPB or state regulators may examine, and take
enforcement actions against, our subsidiaries or our third party service providers. See Item 1A, "Risk Factors," and
Item 7, "Regulatory Environment," for further information on the CFPB and its recent actions.
State Regulations. Certain states have privacy laws and regulations in addition to the U.S. federal regulations
described above. For example, the State of California has adopted the California Consumer Privacy Act (CCPA) which
became effective January 1, 2020. Subject to certain exceptions, the CCPA imposes new requirements on how
businesses collect, process,manage, and retain certain personal information of California residents and provides
California residents with various rights regarding personal information collected by a business. Several other states
have proposed and may adopt their own, different consumer privacy laws. All states have passed data security breach
notice laws which may require notice to impacted individuals and others if there is unauthorized access to certain
sensitive personal information. Several states require income tax return preparers to, among other things, register as
a return preparer and comply with certain registration requirements such as testing and continuing education. State
regulations may also subject income tax return preparers to accuracy-related penalties in connection with the
preparation of income tax returns, and may prohibit preparers from continuing to act as income tax return preparers
if they engage in specified misconduct. Certain states have regulations and requirements relating to offering income
tax courses. These requirements may include licensing, bonding and certain restrictions on advertising.
Franchise Regulations. Many of the income tax return preparation offices operating in the U.S. under the name
"H&R Block" are operated by franchisees. Our franchising activities are subject to the rules and regulations of the FTC,
potential enforcement by the CFPB, and various state laws regulating the offer and sale of franchises. The FTC and
various state laws require us to furnish to prospective franchisees a franchise disclosure document containing certain
prescribed information. A number of states in which we are currently franchising regulate the sale of franchises and
require registration of the franchise disclosure document with certain state authorities. We are currently operating
under exemptions from registration in several of these states based on our net worth and experience. Substantive
state laws regulating the franchisor/franchisee relationship presently exist in a large number of states, and bills have
been introduced in Congress from time to time that would provide for federal regulation of the franchisor/franchisee
relationship in certain respects. The state laws often limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a
franchisor to designate sources of supply. From time to time, we may make appropriate amendments to our franchise
disclosure document to comply with our disclosure obligations under U.S. federal and state laws.
FOREIGN REGULATIONS – We are also subject to a variety of other regulations in various foreign markets, including
anti-corruption laws, and regulations concerning privacy, data protection and data retention. Foreign regulations and
laws potentially affecting our business are evolving rapidly. We rely on external and internal counsel in the countries
in which we do business to advise us regarding compliance with applicable laws and regulations. We continue to
develop and enhance our internal legal and operational compliance programs that guide our businesses in complying
with laws and regulations applicable in the countries in which we do business.
SERVICE MARKS, TRADEMARKS AND PATENTS
We have made a practice of offering our services and products under service marks and trademarks and of securing
registration for many of these marks in the U.S. and other countries where our services and products are marketed.
We consider these service marks and trademarks, in the aggregate, to be of material importance to our business,
particularly our businesses providing services and products under the "H&R Block" brand. The initial duration of U.S.
federal trademark registrations is 10 years. Most U.S. federal registrations can be renewed perpetually at 10-year
intervals and remain enforceable so long as the marks continue to be used.
We hold a small but growing patent portfolio that we believe is important to our overall competitive position,
although we are not materially dependent on any one patent or particular group of patents in our portfolio at this
time. Our patents have remaining terms generally ranging from one to 20 years.
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2020 Form 10-K | H&R Block, Inc.
EMPLOYEES
We had approximately 3,500 regular full-time employees as of April 30, 2020. Our business is dependent on the
availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these
employees. The highest number of persons we employed during the fiscal year ended April 30, 2020, including seasonal
employees, was approximately 80,500.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Name, age
Jeffrey J. Jones II,
age 52
Current position
President and Chief
Executive Officer
Tony G. Bowen,
age 45
Kellie J. Logerwell,
age 50
Chief Financial Officer
Chief Accounting Officer
Thomas A. Gerke,
age 64
General Counsel and Chief
Administrative Officer
Business experience since May 1, 2015
President and Chief Executive Officer since October 2017; President and Chief
Executive Officer-Designate from August 2017 to October 2017; President of
Ridesharing at Uber Technologies, Inc. from October 2016 until March 2017;
Executive Vice President and Chief Marketing Officer of Target Corporation
from April 2012 until September 2016.
Chief Financial Officer since May 2016; Vice President, U.S. Tax Services Finance
from May 2013 through April 2016.
Chief Accounting Officer since July 2016; Vice President of Corporate and Field
Accounting from December 2014 until July 2016; Assistant Controller from
December 2010 until December 2014.
General Counsel and Chief Administrative Officer since May 2016; served as
Chief Executive Officer (in an interim capacity) from August 2017 until October
2017; Chief Legal Officer (formerly titled Senior Vice President and General
Counsel) from January 2012 through April 2016; Executive Vice President,
General Counsel and Secretary of YRC Worldwide from January 2011 until April
2011; Executive Vice Chairman, Century Link, Inc. from July 2009 until
December 2010; President and Chief Executive Officer, Embarq Corporation
(in an interim capacity from December 2007 until March 2008 and by
appointment from March 2008 until June 2009).
Karen Orosco,
age 49
Senior Vice President, U.S.
Retail
Senior Vice President, U.S. Retail since May 2016; Vice President of Retail
Operations from May 2011 until May 2016.
AVAILABILITY OF REPORTS AND OTHER INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments
to those reports filed with or furnished to the SEC are available, free of charge, through our website at www.hrblock.com
as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The SEC
maintains a website at www.sec.gov containing reports, proxy and information statements and other information
regarding issuers who file electronically with the SEC.
The following corporate governance documents are posted on our website at www.hrblock.com:
The Amended and Restated Articles of Incorporation of H&R Block, Inc.;
The Amended and Restated Bylaws of H&R Block, Inc.;
The H&R Block, Inc. Corporate Governance Guidelines;
The H&R Block, Inc. Code of Business Ethics and Conduct;
The H&R Block, Inc. Board of Directors Independence Standards;
The H&R Block, Inc. Audit Committee Charter;
The H&R Block, Inc. Compensation Committee Charter;
The H&R Block, Inc. Finance Committee Charter; and
The H&R Block, Inc. Governance and Nominating Committee Charter.
If you would like a printed copy of any of these corporate governance documents, please send your request to H&R
Block, Inc., One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary.
Information contained on our website does not constitute any part of this report.
ITEM 1A. RISK FACTORS
Our business activities expose us to a variety of risks. Identification, monitoring, and management of these risks are
essential to the success of our operations and the financial soundness of H&R Block. Senior management and the
Board of Directors, acting as a whole and through its committees, take an active role in our risk management process
H&R Block, Inc. | 2020 Form 10-K
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and have delegated certain activities related to the oversight of risk management to the Company's enterprise risk
management team and the Enterprise Risk Committee, which is comprised of Vice Presidents of major business and
control functions and members of the Enterprise Risk Management team. The Company’s enterprise risk management
team, working in coordination with the Enterprise Risk Committee, is responsible for identifying and monitoring risk
exposures and related mitigation and leading the continued development of our risk management policies and
practices.
An investment in our securities involves risk, including the risk that the value of that investment may decline or
that returns on that investment may fall below expectations. There are a number of significant factors that could cause
actual conditions, events, or results to differ materially from those described in forward-looking statements, many of
which are beyond management's control or its ability to accurately estimate or predict, or that could adversely affect
our financial position, results of operations, cash flows, and the value of an investment in our securities.
RISKS RELATING TO CONTINUING OPERATIONS
Our financial condition and results of operations have been, and may continue to be, adversely affected by the
recent COVID-19 pandemic, and may be impacted by a resurgence of COVID-19 or a future outbreak of another
highly infectious or contagious disease.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. To date,
this outbreak, which has surfaced in nearly all regions around the world, including all jurisdictions where the Company
operates, and preventative measures taken to contain or mitigate the outbreak, have caused and are continuing to
cause, business slowdowns or shutdowns in affected areas and disruption in the financial markets. Globally,
governments have taken a variety of actions to contain the spread of COVID-19, including prohibitions on congregating
in groups, business closure orders, shelter-in-place orders, or other similar measures.
In the U.S., state, county, and municipal jurisdictions in which we operate issued, and continue to issue, a high
volume of emergency orders intended to contain the spread of COVID-19, which imposed various restrictions on our
business, including capacity and other operational limitations, social distancing requirements, and in limited instances
required us to close certain offices. The requirements of the various emergency orders often differ and, even where
similar, may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current or future operations,
policies, and practices may be determined to be inconsistent with those requirements, interpretations, or applications
in certain jurisdictions.
We took a variety of actions to address the impacts of the COVID-19 pandemic on our business, including
implementing our crisis response process, initiating other efforts to facilitate compliance with the various emergency
orders (while maintaining continuity of operations as much as practicable), and implementing certain initiatives
designed to slow and/or reduce the impact of COVID-19 and to meet the health and safety needs of our clients,
associates, and franchisees. Though we were able to continue to provide a reduced number of in-person appointments,
in late March 2020 we implemented operational changes across our U.S. assisted locations to increase the number
of clients who drop off their documents and approve online. While this allowed clients to obtain professional assisted
tax preparation from a tax office with minimal in-person interactions, these changes, along with the extension of the
tax season described below, adversely impacted the Company’s results of operations, financial condition, and cash
flows for the fiscal year ended April 30, 2020.
Notwithstanding the above-described efforts and our attempts to comply with COVID-19-related requirements,
there is no certainty that we will be able to consistently do so or that the measures we have implemented, or implement
in the future, will be sufficient to mitigate the risks posed by the virus. Alleged failures in this regard could result in
additional negative impacts, including regulatory investigations, claims, legal actions, harm to our reputation and
brands, fines, penalties, and other damages.
The extent to which the COVID-19 pandemic impacts our business, operations, and financial results going forward
will depend on numerous evolving factors that we may not be able to accurately predict, including COVID-19 orders
that continue for indefinite periods, modifications to orders resulting in more stringent requirements, or increased
regulations regarding workplace conditions and benefits. Establishing systems and processes, or making changes to
our existing policies, to achieve compliance with any of these, or other, complex and evolving requirements may
increase our costs or restrict our business operations. In addition, the unprecedented nature of the COVID-19 pandemic
makes it difficult to predict how the demand for our services will be affected. It is unclear how quickly or if clients will
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2020 Form 10-K | H&R Block, Inc.
return to our offices to file during the remainder of tax season 2020 and in future years, which may be a function of
continued concerns over safety or a permanent shift by consumers to DIY or virtual tax preparation methods. We may
make changes in our operations to react to, or in anticipation of, such a shift in consumer behaviors, but such changes
may not be successful in retaining current clients or attracting new clients to our brand.
The further spread of COVID-19 or a new global or national outbreak, the requirements to take action to help limit
the spread of illness, and the other risks described above may further impact our ability to carry out our business and
may materially adversely impact global economic conditions, our business, results of operations, cash flows, and
financial condition.
Our access to liquidity may be negatively impacted by disruptions in credit markets due to COVID-19 or otherwise,
by downgraded credit ratings, or by our failure to meet certain covenants. Our funding costs could increase, further
impacting earnings.
We need liquidity to meet our working capital requirements, to service debt obligations including refinancing of
maturing obligations, and for general corporate purposes. Our access to and the cost of liquidity could be negatively
impacted by the COVID-19 pandemic, in the event of credit rating downgrades, or due to our failure to meet financial
covenants. On March 26, 2020, we drew down the full $2.0 billion available under our CLOC to increase our cash
position and maximize flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. The
increase in the amount borrowed under the CLOC led to increased interest expense for the fiscal year ended April 30,
2020, which will remain elevated until such amounts are repaid. In addition, $650 million in principal of our Senior
Notes are due in October 2020. Additional events may occur which could increase our need for liquidity above current
levels. We may need to obtain additional sources of funding to meet these liquidity needs, which may not be available
or may only be available under unfavorable terms. In addition, if rating agencies downgrade our credit rating, the cost
of debt under our existing financing arrangements, as well as future financing arrangements, could increase and capital
market access could decrease or become unavailable.
Our CLOC is subject to various covenants, and, as of April 30, 2020, we were not in compliance with the debt-to-
EBITDA ratio covenant due to the impacts of the COVID-19 pandemic described above. Though the lenders under the
CLOC waived non-compliance with this covenant as of April 30, 2020, there is no guarantee that they would waive
any future covenant violations. If we violate this or other covenants in the CLOC in the future and are unable to obtain
a waiver from our lenders, our debt under the CLOC would be in default and could be accelerated by our lenders. An
acceleration of the indebtedness under the CLOC would cause a cross default under the indenture governing our
Senior Notes. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or
refinance our debt obligations on commercially reasonable terms, or at all.
The impacts of the COVID-19 pandemic, including a potential worsening of global economic conditions and the
continued disruptions to, and volatility in, the credit and financial markets remain unknown. If current sources of
liquidity were to become unavailable, we would need to obtain additional sources of funding, which may not be
available or may only be available under less favorable terms. This could have a material adverse effect on our business
and our consolidated financial position, results of operations, and cash flows.
Changes in applicable tax laws have had, and may in the future have, a negative impact on the demand for and
pricing of our services, adversely affecting our business and our consolidated financial position, results of operations,
and cash flows.
The U.S. government has in the past made, and may in the future make, changes to the individual income tax provisions
of the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and
regulations. In addition, taxing authorities in various state, local, and foreign jurisdictions in which we operate may
change the income tax laws in their respective jurisdictions. As a result of the COVID-19 pandemic, on March 21, 2020,
the U.S. Department of the Treasury (Treasury) and the IRS announced that the federal tax filing deadline for individual
2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15
individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for
individuals to file was extended to June 1, 2020. These delays negatively impacted the demand for our services in our
fiscal year ended April 30, 2020, resulting in a substantial decrease in the number of tax returns prepared by or through
H&R Block, impacting our revenue, cash flows, and earnings for the fiscal year ended April 30, 2020. Treasury, the IRS,
and state or foreign officials may determine to further extend tax deadlines or take other actions, which could have
H&R Block, Inc. | 2020 Form 10-K
9
an additional material adverse effect on our business and our consolidated financial position, results of operations,
and cash flows in future years.
It is difficult to predict the manner in which future changes to the Internal Revenue Code, tax regulations, and the
rules and procedures for implementing such laws and regulations, and state, local, and foreign tax laws may impact
us and the tax return preparation industry. Such future changes could decrease the demand or the amount we charge
for our services, and, in turn, have a material adverse effect on our business and our consolidated financial position,
results of operations, and cash flows.
There are various other initiatives from time to time seeking to modify the Internal Revenue Code or otherwise
simplify tax return preparation. In addition, taxing authorities in various state, local, and foreign jurisdictions in which
we operate have also introduced measures seeking to simplify or otherwise modify the preparation and filing of tax
returns in their respective jurisdictions. The adoption or expansion of any measures that significantly simplify tax
return preparation, or otherwise reduce the need for third-party tax return preparation services could reduce demand
for our services and products and could have a material adverse effect on our business and our consolidated financial
position, results of operations and cash flows.
Increased competition for tax preparation and small business clients could adversely affect our current market
share and profitability. Offers of free services or products could adversely affect our revenues and profitability.
We provide assisted, DIY, and virtual tax preparation services and products and face substantial competition throughout
our businesses. All categories in the tax return preparation industry are highly competitive and additional competitors
have entered, and in the future may enter, the market to provide tax preparation services or products. In the assisted
tax services category, there are a substantial number of tax return preparation firms and accounting firms offering tax
return preparation services. Commercial tax return preparers are highly competitive with regard to price and service.
In the DIY and virtual categories, options include various forms of digital electronic assistance, including online and
mobile applications, and desktop software, all of which we offer. Our DIY and virtual services and products compete
with a number of online and software companies, primarily on price and functionality. Individual tax filers may elect
to change their tax preparation method, choosing from among various assisted, DIY, and virtual offerings, and
technology increasingly makes switching among tax preparers and tax preparation methods easier for those
consumers. In addition, as discussed above, the COVID-19 pandemic may increase the number of taxpayers switching
from assisted tax preparation to DIY or virtual methods.
Technology advances quickly and in new and unexpected ways, and it is difficult to predict the manner in which
these changes will impact the tax return preparation industry, the problems we may encounter in enhancing our
services and products or the time and resources we may need to devote to the creation, support, and maintenance
of technological enhancements. If we are slow to enhance our services, products, or technologies, if our competitors
are able to achieve results more quickly than us, or if there are new and unexpected entrants into the industry, we
may fail to capture, or lose, a significant share of the market.
Additionally, we and many other tax return preparation firms compete by offering one or more of RTs, prepaid
cards, RAs, other financial services and products, and other tax-related services and products, many of which are
subject to regulatory scrutiny, litigation, and other risks. We can make no assurances that we will be able to offer, or
continue to offer, all of these services and products and a failure to do so could negatively impact our financial results
and ability to compete. Intense competition could result in a reduction of our market share, lower revenues, lower
margins, and lower profitability. In addition, Wave faces intense competition with its small business financial solutions.
Wave may be unsuccessful in competing with other providers, which may diminish our revenue and profitability, and
harm our ability to acquire and retain clients.
U.S. federal, state and foreign governmental authorities in certain jurisdictions in which we operate currently offer,
or facilitate the offering of, tax return preparation and electronic filing options to taxpayers at no charge, and certain
volunteer organizations also prepare tax returns at no charge for low-income taxpayers. In addition, many of our
competitors offer certain tax preparation services and products, and other financial services and products, at no
charge. In order to compete, we have offered certain, and may in the future offer additional, services and products
at no charge. There can be no assurance that we will be able to attract clients or effectively ensure the migration of
clients from our free offerings to those for which we receive fees, and clients who have formerly paid for our offerings
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2020 Form 10-K | H&R Block, Inc.
may elect to use free offerings instead. These competitive factors may diminish our revenue and profitability, or harm
our ability to acquire and retain clients.
Government tax authorities, volunteer organizations, our competitors, and potential new market entrants may
also elect to implement or expand free offerings in the future. Free File, Inc., which operates under an agreement
that expires in October 2021, is currently the sole means through which the IRS offers DIY tax software to taxpayers,
however the IRS is not prohibited from offering competing services. In addition, from time to time, U.S. federal and
state governments have considered various proposals through which the respective governmental taxing authorities
would use taxpayer information provided by employers, financial institutions, and other payers to "pre-populate,"
prepare and calculate tax returns and distribute them to taxpayers. Under this approach, the taxpayer could then
review and contest the return or sign and return it, reducing the need for third-party tax return preparation services
and the demand for our services and products. There are various initiatives from time to time seeking to expedite
refunds, which could reduce the demand for RTs. In addition, the IRS has in the past explored the possibility of allowing
taxpayers to allocate a portion of their tax refunds to pay tax preparation fees, but the IRS has not advanced this
initiative.
We believe that governmental encroachment at both the U.S. federal and state levels, as well as comparable
government levels in foreign jurisdictions in which we operate, could present a continued competitive threat to our
business for the foreseeable future, which in turn could have a material adverse effect on our business and our
consolidated financial position, results of operations, and cash flow.
Compliance with the complex and evolving laws, regulations, standards, and contractual requirements regarding
privacy and data protection could require changes in our business practices and increase costs of operation; failure
to comply could result in significant claims, fines, penalties, and damages.
In the course of our business, we collect, use, and retain large amounts of personal information and data from our
clients, including tax return information, financial product and service information, and social security numbers. In
addition, we collect, use, and retain personal information and data of our employees in the ordinary course of our
business.
We are subject to laws, rules, and regulations relating to the collection, use, disclosure, and security of such
consumer and employee personal information, which have drawn increased attention from U.S. federal, state, and
foreign governmental authorities in jurisdictions in which we operate. In the U.S., the IRS generally requires a tax
return preparer to obtain the prior written consent of the taxpayer to use or disclose the taxpayer's information for
certain purposes other than tax return preparation, which may limit our ability to market revenue-generating products
to our clients. In addition, other regulations require financial institutions to adopt and disclose their consumer privacy
notice and generally provide consumers with a reasonable opportunity to "opt-out" of having nonpublic personal
information disclosed to unaffiliated third parties.
Numerous jurisdictions have passed, and may in the future pass, new laws related to the use and retention of
consumer or employee information and this area continues to be an area of interest for U.S. federal, state, and foreign
governmental authorities. For example, the State of California adopted the CCPA, which became effective January 1,
2020. Subject to certain exceptions, the CCPA imposes new requirements on how businesses collect, process, manage,
and retain certain personal information of California residents and provides California residents with various rights
regarding personal information collected by a business. Several other states have proposed and may adopt their own,
different privacy laws. These laws may contain different requirements or may be interpreted and applied inconsistently
from jurisdiction to jurisdiction. Our current privacy and data protection policies and practices may not be consistent
with all of those requirements, interpretations, or applications. In addition, changes in U.S. federal and state regulatory
requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we
operate, could result in more stringent requirements and in a need to change business practices, including the types
of information we can use and the manner in which we can use such information. Establishing systems and processes,
or making changes to our existing policies, to achieve compliance with these complex and evolving requirements may
increase our costs or limit our ability to pursue certain business opportunities. There can be no assurance that we will
successfully comply in all cases, which could result in regulatory investigations, claims, legal actions, harm to our
reputation and brands, fines, penalties, and other damages.
H&R Block, Inc. | 2020 Form 10-K
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We have incurred, and may continue to incur, significant expenses to comply with existing privacy and security
standards and protocols imposed by law, regulation, industry standards or contractual obligations.
A security breach of our systems, or third-party systems on which we rely, resulting in unauthorized access to
personal information of our clients or employees or other sensitive, nonpublic information, may adversely affect
the demand for our services and products, our reputation, and financial performance.
We offer a range of services and products to our clients, including assisted, DIY, and virtual tax return preparation
solutions, financial services and products, and small business financial solutions through our company-owned or
franchise offices and online through Wave. Due to the nature of these services and products, we use multiple digital
technologies to collect, transmit, and store high volumes of client personal information. We also collect, use, and
retain other sensitive, nonpublic information, such as employee social security numbers, healthcare information, and
payroll information, as well as confidential, nonpublic business information. Certain third parties and vendors have
access to personal information to help deliver client benefits, services and products, or may host certain of our and
our clients’ sensitive and personal information and data. Information security risks continue to increase due in part
to the increased adoption of and reliance upon digital technologies by companies and consumers. Our risk and exposure
to these matters remain heightened due to a variety of factors including, among other things, the evolving nature of
these threats and related regulation, the increased activity and sophistication of nation states, organized crime, cyber
criminals, and hackers, the prominence of our brand, our and our franchisees' extensive office footprint, our plans to
continue to implement strategies for our online and mobile applications and our desktop software, our use of third-
party vendors, and the increasing usage of remote working arrangements by our associates, franchisees, and third-
party vendors, which has significantly expanded due to the COVID-19 pandemic.
Cybersecurity risks may result from fraud or malice (a cyberattack), human error, or accidental technological failure.
Cyberattacks are designed to electronically circumvent network security for malicious purposes such as unlawfully
obtaining personal information, disrupting our ability to offer services, damaging our brand and reputation, stealing
our intellectual property, or advancing social or political agendas. We face a variety of cyberattack threats including
computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, ransomware,
and other sophisticated attacks.
Although we use security and business controls to limit access to and use of personal information and expend
significant resources to maintain multiple levels of protection in order to address or otherwise mitigate the risk of a
security breach, such measures cannot provide absolute security. We regularly test our systems to discover and address
potential vulnerabilities, and we rely on training and testing of our employees regarding heightened phishing and
social engineering threats. We also conduct certain background checks on our employees, as allowed by law, and limit
access to systems and data. Due to the structure of our business model, we also rely on our franchisees and other
private and governmental third parties to maintain secure systems and respond to cybersecurity risks. Where
appropriate, we impose certain requirements and controls on these third parties, but it is possible that they may not
appropriately employ these controls or that such controls (or their own separate requirements and controls) may be
insufficient to protect personal information. Cybersecurity and the continued development and enhancement of our
controls, processes, and practices designed to protect our systems, computers, software, data, and networks from
attack, damage, or unauthorized access remain a priority for us. As risks and regulations continue to evolve, we may
be required to expend significant additional resources to continue to modify or enhance our protective measures or
to investigate and remediate information security vulnerabilities. Notwithstanding these efforts, there can be no
assurance that a security breach, intrusion, or loss or theft of personal information will not occur. In addition, the
techniques used to obtain unauthorized access change frequently, become more sophisticated, and are often difficult
to detect until after a successful attack, causing us to be unable to anticipate these techniques or implement adequate
preventive measures in all cases. Although we generally seek to maintain insurance from time to time that might
mitigate some of our damages in the event of a significant security breach or cyberattack, we would still be exposed
to damages in the amounts of our deductibles, retentions, and for losses outside of the scope of our policies (e.g.,
reputational harm). Furthermore, insurance against cybersecurity risks may cease to be available to us in the future
or the pricing of such insurance may be prohibitively expensive.
A breach of our security measures or those of our franchisees or third parties on whom we rely, or other fraudulent
activity, could result in unauthorized access to personal information of our clients or employees or other sensitive,
nonpublic information. If such an event were to occur, it could have serious short- and long-term negative
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2020 Form 10-K | H&R Block, Inc.
consequences. Unauthorized access to personal information could cause us to determine that it is required or advisable
for us to notify affected individuals, regulators, or others under applicable privacy laws and regulations. Security breach
remediation could also require us to expend significant resources to assist impacted individuals, repair damaged
systems, implement modified information security measures, and maintain client and business relationships. Other
consequences could include reduced client demand for our services and products, loss of valuable intellectual property,
reduced growth and profitability and negative impacts to future financial results, loss of our ability to deliver one or
more services or products (e.g., inability to provide financial services and products or to accept and process client
credit card transactions or tax returns), modifying or stopping existing business practices, legal actions, harm to our
reputation and brands, fines, penalties, and other damages, and further regulation and oversight by U.S. federal, state,
or foreign governmental authorities.
A security breach or other unauthorized access to our systems could have a material adverse effect on our business
and our consolidated financial position, results of operations, and cash flows.
Identity theft or other fraud that impedes our clients' ability to file their tax returns and receive their tax refunds
could diminish consumers' perceptions of the security and reliability of our services and products, resulting in
negative publicity.
A person with malicious intent could obtain user account and password information from our clients through hacking,
phishing, or other means of cyberattack, in order to electronically file fraudulent federal and state tax returns through
our systems. Though we offer assistance in the refund recovery process and offer our TIS product to help protect
clients, stolen identity refund fraud or other fraud could impede our clients' ability to timely and successfully file their
returns and receive their tax refunds, and could diminish consumers' perceptions of the security and reliability of our
services and products, resulting in negative publicity, despite there having been no breach in the security of our
systems.
Federal, state, and foreign governmental authorities in jurisdictions in which we operate have taken action, and
may in the future take additional action, in an attempt to combat identity theft or other fraud, which may require
changes to our systems and business practices, that we cannot anticipate. These actions may have a material adverse
effect on our business and our consolidated financial position, results of operations, and cash flows.
A number of companies, including some in the tax return preparation industry, have reported instances where
criminals gained unauthorized and illegal access to consumer information or user accounts maintained on their systems
by using stolen identity information (e.g., email, username, password information, or credit history) obtained from
third-party sources. We have experienced, and in the future may continue to experience, this form of unauthorized
and illegal access to our systems, despite there having been no breach in the security of our systems. Such events
could negatively impact our clients and harm our revenue, results of operations, and reputation. Additionally, if such
unauthorized or illegal access occurs, we may be subject to claims and litigation by clients, non-clients, or governmental
agencies.
An interruption in our information systems, or those of our franchisees or a third party on which we rely, or an
interruption in the internet, could have a material adverse effect on our business and our consolidated financial
position, results of operations, and cash flows.
We, our franchisees, and other third parties involved in our business operations rely heavily upon communications,
networks, and information systems and the internet to conduct our business, including third-party internet-based or
cloud computing services. These networks, systems, and operations are potentially vulnerable to damage or
interruption from upgrades and maintenance, network failure, hardware failure, software failure, power or
telecommunications failures, cyberattacks (e.g., through computer viruses and worms, malicious code, phishing
attacks, denial of service attacks, information security breaches, or other negative disruptions to the operation of the
internet), human error, and natural disasters. As our businesses are seasonal, our systems must be capable of
processing high volumes during our peak periods. Therefore, any failure or interruption in our information systems,
or information systems of our franchisees or a private or government third party on which we rely, or an interruption
in the internet or other critical business capability, could negatively impact our business operations and reputation,
and increase our risk of loss.
There can be no assurance that system or internet failures or interruptions in critical business capabilities will not
occur, or, if they do occur, that we, our franchisees or the private or governmental third parties on whom we rely, will
H&R Block, Inc. | 2020 Form 10-K
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adequately address them. The precautionary measures that we have implemented to avoid systems outages and to
minimize the effects of any data or communication systems interruptions or failures may not be adequate in all
circumstances, and we may not have anticipated or addressed all of the potential events that could threaten or
undermine our information systems or other critical business capabilities. We do not have redundancy for all of our
systems and our disaster recovery planning may not account for all eventualities. Our software and computer systems
utilize data processing and storage capabilities provided by Microsoft Corporation. If the Microsoft Azure Cloud is
unavailable for any reason, it could negatively impact our ability to deliver our services and products and our clients
may not be able to access certain of our cloud products or features, any of which could significantly impact our
operations, business, and financial results.
The occurrence of any systems or internet failure, or business interruption could negatively impact our ability to
serve our clients, which in turn could have a material adverse effect on our business and our consolidated financial
position, results of operations, and cash flows.
The Dodd-Frank Act created the CFPB to administer and, in some cases, enforce U.S. federal financial consumer
protection laws and expanded the role of state regulators with respect to consumer protection laws. Regulations
promulgated by the CFPB or other regulators may affect our financial services businesses in ways we cannot predict,
which may require changes to our financial products, services, and contracts.
The Dodd-Frank Act created the CFPB and gave it broad powers to administer, investigate compliance with, and, in
some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a
wide range of financial consumer protection laws that apply to banks and other financial services companies, including
the authority to prohibit "unfair, deceptive, or abusive" acts and practices.
The CFPB and state regulators may examine, investigate, and take enforcement actions against our subsidiaries
that provide consumer financial services and products, as well as financial institutions and service providers upon
which our subsidiaries rely to provide consumer financial services and products. The Dodd-Frank Act also expanded
the role of state regulators in enforcing and promulgating financial consumer protection laws, the results of which
could be (i) states issuing new and broader financial consumer protection laws, some of which could be more
comprehensive than existing U.S. federal regulations, or (ii) state attorneys general bringing actions to enforce federal
consumer protection laws in the absence of CFPB action.
Currently proposed or new CFPB and state regulations may require changes to our financial products, services and
contracts, and this could have a material adverse effect on our business and our consolidated financial position, results
of operations, and cash flows.
The nature of our tax service and product offerings requires timely product launches. Any significant delays in
launching our tax service and product offerings, changes in government regulations or processes that affect how
we provide such offerings to our clients, or significant problems with such offerings or the manner in which we
provide them to our clients may harm our revenue, results of operations, and reputation.
Tax laws and tax forms are subject to change each year, and the nature and timing of such changes are unpredictable.
As a part of our business, we must incorporate any changes to tax laws and tax forms into our tax service and product
offerings, including our online and mobile applications and desktop software. The unpredictable nature, timing and
effective dates of changes to tax laws and tax forms can result in condensed development cycles for our tax service
and product offerings because our clients expect high levels of accuracy and a timely launch of such offerings to
prepare and file their taxes by the tax filing deadline and, in turn, receive any tax refund amounts on a timely basis.
In addition, governmental authorities regularly change their processes for accepting tax filings and related tax forms.
Further, changes in governmental administrations or regulations could result in a delay of the start of the tax season
or in further and unanticipated changes in requirements or processes. New or changed governmental regulations and
processes that affect how we provide services and products to our clients may require us to make corresponding
changes to our client service systems and procedures. Furthermore, unanticipated changes in governmental processes,
or newly implemented processes, for (1) accepting tax filings and related forms, including the ability of taxing
authorities to accept electronic tax return filings, or (2) distributing tax refunds or other amounts to clients may result
in delays in our processing of our clients' tax filings, or delays in tax authorities accepting electronic tax return filings,
and, in turn, delay any tax refund or other amounts to which such clients may be entitled. From time to time, we
review and enhance our quality controls for preparing accurate tax returns, but there can be no assurance that we
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2020 Form 10-K | H&R Block, Inc.
will be able to prevent all inaccuracies. Any significant delays in launching our tax service and product offerings, changes
in government regulations or processes that affect how we provide such offerings to our clients, or significant problems
with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations,
and reputation.
If we encounter development challenges or discover errors in our systems, services or products, we may elect to
delay or suspend our offerings. Any major defects or launch delays, or unanticipated changes in governmental
processes, or newly implemented processes, for (1) accepting tax filings and related forms, or (2) distributing tax
refunds or other amounts to clients may lead to loss of clients and revenue, negative publicity, client and employee
dissatisfaction, a deterioration in our business relationships with our franchisees, reduced retailer shelf space and
promotions, exposure to litigation, and increased operating expenses, even if any such launch delays or defects are
not caused by us. Any of the risks described above could have a material adverse effect on our business and our
consolidated financial position, results of operations, and cash flows.
Regulatory actions could have an adverse effect on our business and our consolidated financial position, results of
operations, and cash flows.
The Company is subject to additional federal, state, local, and foreign laws and regulations, including, without
limitation, in the areas of franchise, labor, immigration, advertising, consumer protection, financial services and
products, payment processing, privacy and data security, anti-competition, environmental, health and safety,
insurance, and healthcare. There have been significant new regulations and heightened focus by the government in
some of these areas, including, for example, consumer financial services and products, restrictive covenants, and
labor, including overtime and exemption regulations and state and local laws on minimum wage and other labor-
related issues. There may be additional regulatory actions or enforcement priorities, or new interpretations of existing
requirements that differ from ours. These developments could impose unanticipated limitations or require changes
to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct,
and may require us to modify our current or future services or products, which effects may be heightened given the
nature, broad geographic scope, and seasonality of our business.
We rely on a single vendor or a limited number of vendors to provide certain key services or products, and the
inability of these key vendors to meet our needs could have a material adverse effect on our business and our
consolidated financial position, results of operations, and cash flows.
Historically, we have contracted, and in the future we will likely continue to contract, with a single vendor or a limited
number of vendors to provide certain key services or products for our tax, financial, and other services and products.
A few examples of this type of reliance are our relationships with Fidelity National Information Services, Inc. (FIS), for
data processing and card production services, our banking partner, for the issuance of RTs, EAs, RAs and Emerald
Cards, and Microsoft Corporation, for cloud computing services. In certain instances, we are vulnerable to vendor
error, service inefficiencies, service interruptions, or service delays. Our sensitivity to any of these issues may be
heightened (1) due to the seasonality of our business, (2) with respect to any vendor that we utilize for the provision
of any product or service that has specialized expertise, (3) with respect to any vendor that is a sole or exclusive
provider, or (4) with respect to any vendor whose indemnification obligations are limited or that does not have the
financial capacity to satisfy its indemnification obligations. Some of our vendors are subject to the oversight of
regulatory bodies and, as a result, our product or service offerings may be affected by the actions or decisions of such
regulatory bodies. Vendor failures could occur in various ways including (1) vendor error, (2) inability to meet our
needs in a timely manner, or (3) termination or delay in the services or products provided by a vendor because the
vendor fails to perform adequately, is no longer in business, experiences shortages, or discontinues a certain product
or service that we utilize. If our vendors are unable to meet our needs and we are not able to develop alternative
sources for these services and products quickly and cost-effectively, it could result in a material and adverse impact
on our business and our consolidated financial position, results of operations, and cash flows.
The specialized and highly seasonal nature of our business presents financial risks and operational and human
capital challenges, which, if not satisfactorily addressed, could materially affect our business and our consolidated
financial position, results of operations, and cash flows.
Our business is highly seasonal, with the substantial portion of our revenue generally earned in the fourth quarter of
our fiscal year. The concentration of our revenue-generating activity during this relatively short period presents a
H&R Block, Inc. | 2020 Form 10-K
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number of challenges for us, including (1) cash and resource management during the first nine months of our fiscal
year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season,
(2) ensuring compliance with financial covenants under our CLOC, particularly if the timing of our revenue generation
deviates from this seasonal period, (3) responding to changes in competitive conditions, including marketing, pricing,
and new product offerings, which could affect our position during the tax season, (4) disruptions in a tax season,
including any pandemics, such as the COVID-19 outbreak, which may disproportionately affect us compared to other
companies if they occur during our fiscal fourth quarter, (5) client dissatisfaction issues or negative social media
campaigns, which may not be timely discovered or satisfactorily addressed, and (6) ensuring optimal uninterrupted
operations and service delivery during the tax season. If we experience significant business disruptions during the tax
season or if we are unable to satisfactorily address the challenges described above and related challenges associated
with a seasonal business, we could experience a loss, disruption, or change in timing of business, which could have a
material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.
Our business depends on our ability to attract, develop, motivate, and retain key personnel in a timely manner,
including members of our executive team and those in seasonal tax preparation positions or with other required
specialized expertise, including technical positions. The market for such personnel is extremely competitive, and there
can be no assurance that we will be successful in our efforts to attract and retain the required personnel within
necessary timeframes. If we are unable to attract, develop, motivate, and retain key personnel, our business,
operations, and financial results could be negatively impacted. In addition, if our costs of labor or related costs increase
for other reasons or if new or revised labor laws, rules or regulations are adopted or implemented that impact our
seasonal workforce and increase our labor costs, there could be a material adverse effect on our business and our
consolidated financial position, results of operations, and cash flows.
We face legal actions in connection with our various business activities, and current or future legal actions may
damage our reputation, impair our product offerings, or result in material liabilities and losses.
We have been named, and from time to time will likely continue to be named, in various legal actions, including
arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and
other litigation arising in connection with our various business activities, including relating to our various service and
product offerings. For example, we are subject to litigation and have received and are responding to certain
governmental inquiries relating to the IRS Free File program. See additional discussion in Item 8, note 13 to the
consolidated financial statements. We also grant our franchisees a limited license to use our registered trademarks
and, accordingly, there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties,
regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse
outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative
public opinion could also result from our or our franchisees' actual or alleged conduct in such claims, possibly damaging
our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities
to decline.
The continued payment of dividends on our common stock and repurchases of our common stock are dependent
on a number of factors, and future payments and repurchases cannot be assured.
We need liquidity sufficient to fund payments of dividends on our common stock and repurchases of our common
stock. In addition, holders of our common stock are only entitled to receive such dividends as our Board of Directors
may declare out of funds legally available for such payments, and our Board of Directors may only authorize the
Company to repurchase shares of our common stock with funds legally available for such repurchases. The payment
of future dividends and future repurchases will depend upon our earnings, economic conditions, liquidity and capital
requirements, and other factors, including our debt leverage. Even if we have sufficient resources to pay dividends
and to repurchase shares of our common stock, the Board of Directors may determine to use such resources to fund
other Company initiatives. Accordingly, we cannot make any assurance that future dividends will be paid, or future
repurchases will be made, at levels comparable to our historical practices, if at all. In addition, payments of dividends
negatively impact net worth. Due to the seasonal nature of our business and the fact that our business is not asset-
intensive, we have had, and are likely to continue to have, a negative net worth under U.S. generally accepted
accounting principles (GAAP) at various times throughout the year. Therefore, the payment of dividends or stock
repurchases at such times would cause us to further increase that GAAP negative net worth.
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2020 Form 10-K | H&R Block, Inc.
Our businesses may be adversely affected by difficult economic conditions and high unemployment levels, including
those resulting from the COVID-19 pandemic.
Given that the COVID-19 pandemic has caused a significant economic slowdown, it appears increasingly likely that it
could cause a global recession, which could be of an unknown duration. Difficult economic conditions are frequently
characterized by high unemployment levels and declining consumer and business spending. The COVID-19 pandemic
has resulted in increased levels of unemployment globally, which may be sustained. These poor economic conditions
may negatively affect demand and pricing for our services and products. In the event of difficult economic conditions
that include high unemployment levels, especially within the client segments we serve, clients may elect not to file
tax returns or utilize lower cost preparation and filing alternatives.
In addition, difficult economic conditions may disproportionately impact small business owners. Wave’s revenues
have been negatively impacted, and may continue to be negatively impacted if there is a sustained economic slowdown
or recession as a result of the pandemic. Difficult economic conditions, including an economic recession resulting
from the COVID-19 pandemic, could have a material adverse effect on our business and our consolidated financial
position, results of operations, and cash flows.
Our business depends on our strong reputation and the value of our brands.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing
and future services and products and is an important element in attracting new clients. In addition, our franchisees
may operate their businesses under our brands. Adverse publicity (whether or not justified) relating to events or
activities involving or attributed to us, our franchisees, employees, or agents or our services or products, which may
be enhanced due to the nature of social media, may tarnish our reputation and reduce the value of our brands. Damage
to our reputation and loss of brand equity may reduce demand for our services and products and thus have an adverse
effect on our future financial results, as well as require additional resources to rebuild our reputation and restore the
value of our brands.
Failure to protect our intellectual property rights may harm our competitive position and litigation to protect our
intellectual property rights or defend against third party allegations of infringement may be costly.
Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so
effectively in all cases. Our intellectual property could be wrongfully acquired as a result of a cyberattack, other
wrongful conduct by employees or third parties, or human error. To the extent that our intellectual property is not
protected effectively by trademarks, copyrights, patents, or other means, other parties with knowledge of our
intellectual property, including former employees, may seek to exploit our intellectual property for their own or others'
advantage. Competitors may also misappropriate our trademarks, copyrights or other intellectual property rights or
duplicate our technology and products. Any significant impairment or misappropriation of our intellectual property
or proprietary information could harm our business and our brand, and may adversely affect our ability to compete.
In addition, third parties may allege we are infringing their intellectual property rights, and we may face intellectual
property challenges from other parties. We may not be successful in defending against any such challenges or in
obtaining licenses to avoid or resolve any intellectual property disputes and, in that event, we could lose significant
revenues, incur significant royalty or technology development expenses, suffer harm to our reputation, or pay
significant monetary damages.
Failure to maintain sound business relationships with our franchisees may have a material adverse effect on our
business and our consolidated financial position, results of operations, and cash flows.
Our financial success depends in significant part on our ability to maintain sound business relationships with our
franchisees. The support of our franchisees is also critical for the success of our ongoing operations. Deterioration in
our relationships with our franchisees could have a material adverse effect on our business and our consolidated
financial position, results of operations, and cash flows.
Our international operations are subject to risks which may harm our business and our consolidated financial
position, results of operations, and cash flows.
We have international operations, including tax preparation businesses in Canada and Australia, technology centers
in India and Ireland, and Wave in Canada. We may consider expansion opportunities in additional countries in the
H&R Block, Inc. | 2020 Form 10-K
17
future and there is uncertainty about our ability to generate revenues from new or emerging foreign operations and
expand into other international markets. Additionally, there are risks inherent in doing business internationally,
including: (1) changes in trade regulations; (2) difficulties in managing foreign operations as a result of distance,
language, and cultural differences; (3) profit repatriation restrictions, and fluctuations in foreign currency exchange
rates; (4) geopolitical events, including acts of war and terrorism, and economic and political instability; (5) compliance
with U.S. laws such as the Foreign Corrupt Practices Act and other applicable foreign anti-corruption laws; (6)
compliance with U.S. and international laws and regulations, including those concerning privacy, and data protection
and retention; and (7) risks related to other government regulation or required compliance with local laws. These
risks inherent in our international operations and expansion could increase our costs of doing business internationally
and could have a material adverse effect on our business and our consolidated financial position, results of operations,
and cash flows.
In addition, we prepare U.S. federal and state tax returns for taxpayers residing in foreign jurisdictions, including
the European Union (EU), and we operate and have franchisees who operate in foreign jurisdictions. As a result, certain
aspects of our operations are subject, or may in the future become subject, to the laws, regulations, and policies of
those jurisdictions that regulate the collection, use, and transfer of personal information, which may be more stringent
than those of the U.S. For example, in May 2018, the EU implemented a privacy and data protection regulation, referred
to as the General Data Protection Regulation.
Costs for us to comply with such laws, regulations, and policies that are applicable to us could be significant. We
may also face audits or investigations by one or more foreign government agencies relating to these laws, regulations,
and policies that could result in the imposition of penalties or fines.
Changes in tax laws or regulations, or in the interpretations of tax laws or regulations, could materially affect our
financial condition, cash flows, and operating results.
As a multinational corporation, we are subject to taxes in the U.S. and numerous foreign jurisdictions where our
subsidiaries are organized and conduct their operations. Significant judgment is required in determining our worldwide
provision for income taxes and other tax liabilities. The amount of tax due in various jurisdictions may change
significantly as a result of political or economic factors beyond our control, including changes to tax laws or new
interpretations of existing laws that are inconsistent with previous interpretations or positions taken by taxing
authorities on which we have relied. For example, in 2017, the U.S. government enacted the Tax Cuts and Jobs Act
(Tax Legislation), which made broad and complex changes to the U.S. tax code. Given the lack of regulatory guidance
regarding the Tax Legislation, regulatory interpretations that differ from our existing interpretations of the Tax
Legislation could materially affect our effective tax rates or value of deferred tax assets and liabilities. More recently,
the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 as a result of
the COVID-19 pandemic. The CARES Act includes, among other items, provisions relating to refundable payroll tax
credits, deferment of certain tax payments, and modifications to the net interest deduction limitations. We are
currently evaluating the impact of the CARES Act and expect additional regulations, interpretations, and rulings may
be forthcoming that could further impact our consolidated financial statements. In addition, legislatures and taxing
authorities in jurisdictions in which we operate may propose additional changes to their tax rules in response to
COVID-19. The impact of these potential new rules could be material.
In addition, projects undertaken by international organizations may change international tax norms relating to
each country’s jurisdiction to tax cross-border international trade. Given the unpredictability of these and other
possible changes to tax laws and related regulations, it is difficult to assess the overall effect of such potential changes,
but any such changes could, if adopted and applicable to us, adversely impact our effective tax rates and other tax
liabilities.
Our tax returns and other tax matters are periodically examined by tax authorities and governmental bodies,
including the IRS, which may disagree with positions taken by us in determining our tax liability. There can be no
assurance as to the outcome of these examinations. We regularly assess the likelihood of an adverse outcome resulting
from these examinations to determine the adequacy of our provision for taxes.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in
excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely
affected.
18
2020 Form 10-K | H&R Block, Inc.
RISKS RELATING TO DISCONTINUED OPERATIONS
Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries,
collectively, SCC) is subject to litigation and other claims, including potential contingent losses related to
securitization transactions in which SCC participated, which may result in significant financial losses.
Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in
April 2008, SCC has been, remains, and may in the future be, subject to litigation, claims, including indemnification
and contribution claims, and other loss contingencies pertaining to SCC's mortgage business activities that occurred
prior to such termination and sale. See Item 8, note 13 to the consolidated financial statements for a description of
litigation and other claims to which SCC may be subject.
Between January 2005 and November 2007, SCC originated mortgage loans totaling approximately $80 billion.
Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally securitized
such loans, or in the form of residential mortgage-backed securities (RMBSs). SCC estimates approximately 90% of
the loans it originated in 2005, 2006, and 2007 were securitized in approximately 110 securitization transactions.
In connection with the sale of loans or RMBSs, SCC made certain representations and warranties. Claims under
these representations and warranties together with any settlement arrangements related to these losses are
collectively referred to as "representation and warranty claims."
The statute of limitations for a contractual claim to enforce a representation and warranty obligation is generally
six years or such shorter limitations period that may apply under the law of a state where the economic injury occurred.
On June 11, 2015, the New York Court of Appeals, New York's highest court, held in ACE Securities Corp. v. DB Structured
Products, Inc. (ACE), that the six-year statute of limitations under New York law starts to run at the time the
representations and warranties are made, not the date when the repurchase demand was denied. This decision applies
to claims and lawsuits brought against SCC where New York law governs. New York law governs many, though not all,
of the transactions into which SCC entered. However, this decision would not affect representation and warranty
claims and lawsuits SCC has received or may receive, for example, where the statute of limitations has been tolled by
agreement or a suit was timely filed.
In response to the statute of limitations rulings in the ACE case and similar rulings in other state and federal courts,
parties seeking to pursue representation and warranty claims or lawsuits have sought, and may in the future seek, to
distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against
other contractual parties such as securitization trustees.
For example, a 2016 ruling by a New York intermediate appellate court, followed by the federal district court in
the second Homeward case described in Item 8, note 13 to the consolidated financial statements, allowed a
counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied
with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. Additionally, plaintiffs
in litigation to which SCC is not party have alleged breaches of an independent contractual duty to provide notice of
material breaches of representations and warranties and pursued separate claims to which, they argue, the statute
of limitations ruling in the ACE case does not apply. The impact on SCC from alternative legal theories seeking to avoid
or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear.
In most of the securitization transactions in which SCC participated, SCC agreed, subject to certain conditions and
limitations, to indemnify contracting parties, including underwriters, depositors, or securitization trustees for certain
losses and expenses that such parties may incur as a result of certain claims made against them relating to loans
originated by SCC, including certain legal expenses they may incur in their defense of such claims.
Some underwriters, depositors, and securitization trustees are, or have been, defendants in lawsuits, threatened
lawsuits, and settlements related to securitization transactions in which SCC participated. A variety of claims are
alleged in these matters, including violations of U.S. federal and state securities law and common law fraud based on
alleged materially inaccurate or misleading disclosures, that originators, depositors, securitization trustees, servicers,
or other parties breached their representations and warranties or otherwise failed to fulfill their obligations, or that
securitization trustees violated statutory requirements by failing to properly protect the certificate holders’ interests.
SCC has received notices of claims for indemnification or potential indemnification obligations relating to such matters.
Certain of the notices received included, and future notices may include, a reservation of rights to assert claims for
H&R Block, Inc. | 2020 Form 10-K
19
contribution, which are referred to herein as "contribution claims." Contribution claims may become operative if
indemnification is unavailable or insufficient to cover all of the losses and expenses involved. These indemnification
and contribution claims are frequently not subject to a contractual term or limit. Additional lawsuits against parties
to the securitization transactions may be filed in the future, and SCC may receive additional notices of claims for
indemnification, contribution, or similar obligations with respect to existing or new lawsuits or settlements of such
lawsuits or other claims.
In addition, other counterparties to the securitization transactions, including certificate holders and monoline
insurance companies, have filed or may file lawsuits, or may assert indemnification or contribution claims, directly
against depositors and loan originators in securitization transactions alleging a variety of claims, including U.S. federal
and state securities law violations, common law torts and fraud and breach of contract claims, among others. Additional
or new lawsuits or claims may be filed or asserted against SCC in the future.
We have not concluded that a loss related to these matters is probable, nor have we accrued a liability for these
claims as of April 30, 2020. However, if SCC were required to pay material amounts with respect to these matters, it
could have a material adverse effect on our business and our consolidated financial position, results of operations
and cash flows, as SCC's financial condition, results of operations, and cash flows are included in our consolidated
financial statements. See Item 8, note 13 to the consolidated financial statements for additional information.
H&R Block guaranteed the payment of certain limited claims against SCC.
SCC has been subject to representation and warranty claims by counterparties to SCC whole loan sales and
securitization transactions, including certificate holders, securitization trustees, and subsequent purchasers of whole
loans. In certain limited circumstances, H&R Block guaranteed payment if claims are successfully asserted by such
counterparties.
In addition, as is customary in divestiture transactions, H&R Block guaranteed the payment of any indemnification
claims from the purchaser of SCC's servicing business, including claims relating to pre-closing services (closing occurred
in 2008).
We could be subject to claims by the creditors of SCC.
As discussed above, SCC is subject to representation and warranty claims, indemnification and contribution claims,
and other claims and litigation related to its past sales and securitizations of mortgage loans. Additional claims and
litigation may be asserted in the future. If the amount that SCC is ultimately required to pay with respect to these
claims and litigation, together with related administration and legal expense, exceeds its net assets, the creditors of
SCC, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us
for payment of SCC's obligations. Claimants have also attempted, and may in the future attempt, to assert claims or
seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of April 30,
2020, total approximately $276 million and consist of an intercompany note receivable. We believe our legal position
is strong on any potential corporate veil-piercing arguments; however, if this position is challenged and not upheld,
it could have a material adverse effect on our business and our consolidated financial position, results of operations,
and cash flows. In addition, in certain limited instances, H&R Block guaranteed amounts as outlined in the above risk
factor.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Most of our tax offices are operated under leases throughout the U.S., Canada and Australia.
We own our corporate headquarters, which is located in Kansas City, Missouri. Our Canadian executive offices are
located in a leased office in Calgary, Alberta. Our Australian executive offices are located in a leased office in Thornleigh,
New South Wales. Wave's headquarters are located in a leased office in Toronto, Ontario.
All current leased and owned facilities are in reasonably good repair and adequate to meet our needs.
20
2020 Form 10-K | H&R Block, Inc.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see discussion in Item 8, note 13 to the consolidated
financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
MARKET INFORMATION AND HOLDERS – H&R Block's common stock is traded on the New York Stock Exchange (NYSE)
under the symbol HRB. On May 29, 2020, there were 14,915 shareholders of record and the closing stock price on
the NYSE was $17.00 per share.
DIVIDENDS – Although we have historically paid dividends and plan to continue to do so, there can be no assurances
that circumstances will not change in the future that could affect our ability or decisions to pay dividends.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER – A summary of our purchases of H&R Block common stock
during the fourth quarter of fiscal year 2020 is as follows:
Total Number of
(1)
Shares Purchased
1
$
— $
— $
1
$
Average
Price Paid
per Share
20.67
—
—
20.70
(in 000s, except per share amounts)
Total Number of Shares
Purchased as Part of
Publicly Announced
(2)
Plans or Programs
Maximum Dollar Value of
Shares that May be Purchased
(2)
Under the Plans or Programs
— $
— $
— $
—
751,837
751,837
751,837
February 1 – February 29
March 1 – March 31
April 1 – April 30
(1) We purchased approximately 1 thousand shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on
restricted share units.
(2) In September 2015, we announced that our Board of Directors approved a $3.5 billion share repurchase program, effective through June 2019. In June 2019, our
Board of Directors extended the share repurchase program through June 2022.
H&R Block, Inc. | 2020 Form 10-K
21
PERFORMANCE GRAPH – The following graph compares the cumulative five-year total return provided to
shareholders on H&R Block, Inc.'s common stock relative to the cumulative total returns of the S&P 500 index and a
selected peer group. The peer group used is based on companies with similar market capitalization or public companies
in the tax return preparation industry.
An investment of $100, with reinvestment of all dividends, is assumed to have been made in our common stock
and in each of the indexes on April 30, 2015, and its relative performance is tracked through April 30, 2020.
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.
22
2020 Form 10-K | H&R Block, Inc.
ITEM 6. SELECTED FINANCIAL DATA
We derived the selected financial data presented below from our audited consolidated financial statements as of and
for each of the five annual periods ending April 30, 2020. Results of operations of fiscal years 2020 and 2019 are
presented in Item 7. The data set forth below should be read in conjunction with Item 7 and the consolidated financial
statements in Item 8. We adopted Accounting Standards Update No. 2016-02, “Leases” (ASU 2016-02) on May 1,
2019, and as of April 30, 2020, we recorded operating lease assets of $494.8 million and operating lease liabilities
of $508.1 million on our consolidated balance sheet. See Item 8, note 1 to the consolidated financial statements for
details on the adoption of ASU 2016-02. During the fourth quarter of fiscal year 2020, we drew the full amount of our
$2.0 billion CLOC, which remained outstanding as of April 30, 2020. See Item 8, note 9 to the consolidated financial
statements for details on the impact of the Tax Legislation in fiscal year 2018.
April 30,
Revenues
2020
2019
2018
2017
2016
$
2,639,720
$
3,094,881
$
3,159,931
$
3,036,314
$
3,038,153
(in 000s, except per share amounts)
Net income from continuing
operations
Net income (loss)
Basic earnings (loss) per share:
Net income from continuing
operations
Net income (loss)
Diluted earnings (loss) per share:
Net income from continuing
operations
Net income (loss)
Total assets
Long-term debt (1)
Stockholders’ equity (deficiency)
Shares outstanding
Dividends per share
$
$
$
$
(1) Includes current portion of long-term debt.
6,156
(7,526)
445,256
422,509
626,909
613,149
420,917
408,945
383,553
374,267
0.03
$
(0.04)
$
$
0.03
(0.04)
5,112,047
3,495,257
71,041
192,475
$
$
$
2.16
2.05
2.15
2.04
3,299,945
1,492,629
541,527
201,959
$
$
$
2.99
2.93
2.98
2.91
3,140,949
1,495,635
393,711
209,254
$
$
$
1.97
1.92
1.96
1.91
2,694,108
1,493,998
(60,883)
207,171
1.04
$
1.00
$
0.96
$
0.88
$
1.54
1.50
1.53
1.49
2,847,225
1,492,201
23,103
220,517
0.80
H&R Block, Inc. | 2020 Form 10-K
23
QUARTERLY FINANCIAL DATA
(Unaudited)
(in 000s, except per share amounts)
April 30,
January 31,
October 31,
July 31,
2020
2019
2020
2019
2019
2018
2019
2018
Revenues
$ 1,809,352
$ 2,332,443
$
519,205
$
468,384
$
160,801
$
148,871
$
150,362
$
145,183
Income (loss) from
continuing
operations before
taxes (benefit)
Net income (loss)
from continuing
operations
Net loss from
discontinued
operations
642,076
1,134,579
(177,030)
(158,664)
(261,306)
(231,990)
(207,114)
(198,765)
463,460
884,769
(128,026)
(119,779)
(183,554)
(170,937)
(145,724)
(148,797)
(3,057)
(6,860)
(1,657)
(6,675)
(4,445)
(5,339)
(4,523)
(3,873)
Net income (loss)
460,403
877,909
(129,683)
(126,454)
(187,999)
(176,276)
(150,247)
(152,670)
Basic earnings (loss)
per share:
Continuing
operations
Consolidated
Diluted earnings
(loss) per share:
Continuing
operations
Consolidated
Dividends paid per
share
$
$
$
$
$
2.40
2.39
2.39
2.37
0.26
$
$
$
$
$
4.36
4.32
4.32
4.29
0.25
$
$
$
$
$
(0.66) $
(0.58) $
(0.93) $
(0.83) $
(0.72) $
(0.67) $
(0.62) $
(0.95) $
(0.86) $
(0.74) $
(0.66) $
(0.58) $
(0.93) $
(0.83) $
(0.72) $
(0.67) $
(0.62) $
(0.95) $
(0.86) $
(0.74) $
(0.72)
(0.74)
(0.72)
(0.74)
0.26
$
0.25
$
0.26
$
0.25
$
0.26
$
0.25
Because the majority of our clients file their tax returns during the period from February through April in a typical
year, a substantial majority of our revenues from income tax return preparation and related services and products
are earned during this period. As a result, we generally operate at a loss through the first three quarters of our fiscal
year. As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the U.S. for individual
2019 tax returns was extended from April 15, 2020 to July 15, 2020. Substantially all U.S. states with an April 15
individual state income tax filing requirement similarly extended their respective deadlines. In Canada, the deadline
for individuals to file was extended to June 1, 2020. These extensions have impacted the typical seasonality of our
business and the comparability of our financial results for the fourth quarter.
The accumulation of four quarters in fiscal years 2020 and 2019 for earnings per share may not equal the related
per share amounts for the years ended April 30, 2020 and 2019 due to the timing of the exercise of stock options and
lapse of certain restrictions on nonvested shares and share units and deferred stock units and the antidilutive effect
of stock options and nonvested shares and share units in periods which report a loss.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL OVERVIEW
As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the U.S. for individual 2019
tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15 individual
state income tax filing requirement similarly extended their respective deadlines. In Canada, the deadline for
individuals to file was extended to June 1, 2020. In addition, governments around the world have taken a variety of
actions to contain the spread of COVID-19. Jurisdictions in which we operate imposed, and continue to impose, various
restrictions on our business, including capacity and other operational limitations, social distancing requirements, and
in limited instances required us to close certain offices. One of our top priorities has been providing for the health
and safety of our clients, associates, and franchisees, while still providing taxpayers access to help in getting their
refunds during this difficult economic time. These events have impacted the typical seasonality of our business and
the comparability of our financial results. Consequently, a portion of revenues and expenses that would have normally
been recognized in our fourth quarter of fiscal year 2020 is expected to shift to the first quarter of fiscal year 2021,
24
2020 Form 10-K | H&R Block, Inc.
however, due to our modified operating model, office closures, and competitive pressures, we may not recover all
tax returns we lost in the fourth quarter in our first quarter.
We have been navigating the ever-changing landscape of the various state and local orders regarding whether our
offices could stay open and how we could help our clients. We evaluated these orders on an individual basis, which
at its peak resulted in nearly 20% of our office network closing to the public. In the offices that remained open, we
made changes to our operating model to encourage or require clients to drop off their documents and approve online,
complete virtually by uploading their documents and approve online or in-office with social distancing guidelines.
As we continue to finish out this tax season in our first quarter of fiscal year 2021 we have more offices open,
increased office hours, more tax professionals, and more marketing costs than we would typically have in the first
quarter. In addition, with the $2.0 billion draw on our CLOC, we will incur additional interest expense in fiscal year
2021.
In the United States, the U.S. government enacted the CARES Act on March 27, 2020. We continue to evaluate
the impacts the CARES Act and other global COVID-19 relief legislation could have on our operating results, cash flows
and financial condition.
A summary of our fiscal year 2020 results is as follows:
Revenues decreased $455.2 million, or 14.7%, compared to the prior year, primarily as a result of the extension
of the tax filing season due to the COVID-19 pandemic.
Operating expenses increased $83.5 million, or 3.4%, primarily due to an impairment of goodwill, coupled with
higher credit card and bank charges, higher legal fees and consulting costs. These increases were partially offset
by a decline in commission-based wages and bonuses due to the decline in tax return volumes.
We recorded a pretax loss of $3.4 million due to the revenue and expense changes mentioned above.
Income tax expense decreased $109.4 million due to the pretax loss we reported for fiscal year 2020. See Item
8, note 9 to the consolidated financial statements for further discussion.
Net income from continuing operations was $6.2 million compared to $445.3 million in the prior year.
Diluted earnings per share from continuing operations totaled $0.03, a decrease from $2.15 in the prior year
due to the extension of the tax filing season and share repurchases.
Adjusted earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA)
decreased $430.7 million, or 53.9%, to $368.3 million. See "Non-GAAP Financial Information" at the end of this
item for a reconciliation of non-GAAP measures.
RESULTS OF OPERATIONS
Our subsidiaries provide assisted, DIY, and virtual tax preparation solutions through multiple channels (including in-
person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and
products, including those of our financial partners, to the general public primarily in the U.S., Canada, Australia, and
their respective territories. Tax returns are either prepared by H&R Block tax professionals (in company-owned or
franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions.
We also offer small business financial solutions through our company-owned or franchise offices and online through
Wave. We report a single segment that includes all of our continuing operations.
H&R Block, Inc. | 2020 Form 10-K
25
Operating Statistics
Year ended April 30,
TAX RETURNS PREPARED : (in 000s) (1)
United States:
Company-owned operations
Franchise operations
Total assisted
Desktop
Online
Total DIY
IRS Free File
Total U.S. returns
International operations:
Canada
Australia
Other
Total international operations returns
Tax returns prepared worldwide
NET AVERAGE CHARGE (U.S. ONLY): (2)
Company-owned operations
Franchise operations (3)
DIY
TAX OFFICES (as of January 31):
U.S. offices:
Company-owned offices
Franchise offices
Total U.S. offices
International offices:
Canada
Australia
Total international offices
Tax offices worldwide
2020
2019
% Change
(Partial tax filing
season, extension to
July 15)
(Full tax filing season)
6,745
2,798
9,543
1,500
5,700
7,200
845
17,588
1,908
745
73
2,726
20,314
$
$
$
227.83
217.07
29.01
$
$
$
6,552
2,909
9,461
1,086
464
1,550
11,011
8,033
3,583
11,616
1,969
6,012
7,981
665
20,262
2,465
747
142
3,354
23,616
231.60
216.61
32.59
6,356
3,148
9,504
1,116
466
1,582
11,086
(16.0)%
(21.9)%
(17.8)%
(23.8)%
(5.2)%
(9.8)%
27.1 %
(13.2)%
(22.6)%
(0.3)%
(48.6)%
(18.7)%
(14.0)%
(1.6)%
0.2 %
(11.0)%
3.1 %
(7.6)%
(0.5)%
(2.7)%
(0.4)%
(2.0)%
(0.7)%
(1) An assisted tax return is defined as a current or prior year individual tax return that has been accepted and paid for by the client. Also included are Tax Pro GoSM,
Tax Pro ReviewSM, and business returns. A DIY return is defined as a return that has been electronically filed and accepted by the IRS. Also included are online returns
paid and printed.
(2) Net average charge is calculated as tax preparation fees divided by tax returns prepared. For DIY, net average charge excludes IRS Free File.
(3) Net average charge related to H&R Block Franchise Operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in
franchise offices. H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.
We provide Net Average Charge as a key operating metric because we consider it an important supplemental
measure useful to analysts, investors, and other interested parties as it provides insights into pricing and tax return
mix relative to our customer base, which are significant drivers of revenue. Our definition of Net Average Charge may
not be comparable to similarly titled measures of other companies.
26
2020 Form 10-K | H&R Block, Inc.
Consolidated – Financial Results
Year ended April 30,
Revenues:
U.S. assisted tax preparation
U.S. royalties
U.S. DIY tax preparation
International
Refund Transfers
Emerald Card®
Peace of Mind® Extended Service Plan
Tax Identity Shield®
Interest and fee income on Emerald AdvanceTM
Wave
Other
Total revenues
Compensation and benefits:
Field wages
Other wages
Benefits and other compensation
Occupancy
Marketing and advertising
Depreciation and amortization
Bad debt
Impairment of goodwill
Other
Total operating expenses
Other income (expense), net
Interest expense on borrowings
Income (loss) from continuing operations before income
taxes (benefit)
Income taxes (benefit)
Net income from continuing operations
Net loss from discontinued operations
Net income (loss)
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Consolidated
Diluted earnings (loss) per share:
Continuing operations
Discontinued operations
Consolidated
Adjusted EBITDA from continuing operations (1)
Adjusted EBITDA margin of continuing operations (1)
2020
2019
$ Change
% Change
(in 000s, except per share amounts)
$
$
$
$
$
$
$
1,533,303
193,411
208,901
180,065
154,687
92,737
105,185
31,797
60,867
36,711
42,056
2,639,720
678,813
218,548
175,535
1,072,896
410,402
255,094
169,536
77,470
106,000
471,239
2,562,637
15,637
(96,094)
(3,374)
(9,530)
6,156
(13,682)
(7,526)
0.03
(0.07)
(0.04)
0.03
(0.07)
(0.04)
368,256
14.0%
$
$
$
$
$
$
$
1,858,998
243,541
261,413
220,562
169,985
98,256
108,114
35,661
58,182
—
40,169
3,094,881
751,392
217,061
180,276
1,148,729
401,341
269,807
166,695
70,695
—
421,822
2,479,089
16,419
(87,051)
545,160
99,904
445,256
(22,747)
422,509
2.16
(0.11)
2.05
2.15
(0.11)
2.04
798,906
25.8%
$
$
$
$
$
$
$
(325,695)
(50,130)
(52,512)
(40,497)
(15,298)
(5,519)
(2,929)
(3,864)
2,685
36,711
1,887
(455,161)
(72,579)
1,487
(4,741)
(75,833)
9,061
(14,713)
2,841
6,775
106,000
49,417
83,548
(782)
(9,043)
(548,534)
(109,434)
(439,100)
9,065
(430,035)
(2.13)
0.04
(2.09)
(2.12)
0.04
(2.08)
(430,650)
(11.8)%
(17.5)%
(20.6)%
(20.1)%
(18.4)%
(9.0)%
(5.6)%
(2.7)%
(10.8)%
4.6 %
**
4.7 %
(14.7)%
(9.7)%
0.7 %
(2.6)%
(6.6)%
2.3 %
(5.5)%
1.7 %
9.6 %
**
11.7 %
3.4 %
(4.8)%
(10.4)%
**
**
(98.6)%
39.9 %
**
(98.6)%
36.4 %
**
(98.6)%
36.4 %
**
(53.9)%
(45.7)%
(1) See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.
H&R Block, Inc. | 2020 Form 10-K
27
FISCAL 2020 COMPARED TO FISCAL 2019
Revenues decreased $455.2 million, or 14.7%, compared to the prior year primarily due to the extension of the tax
filing deadlines as a result of the COVID-19 pandemic. U.S. assisted tax preparation fees decreased $325.7 million, or
17.5%, and U.S. royalties decreased $50.1 million, or 20.6%, due to decreases in tax returns prepared and net average
charge. U.S. DIY tax preparation fees decreased $52.5 million, or 20.1%, due to lower online volumes and lower
software sales, and international revenues declined $40.5 million, or 18.4%, due to lower tax returns prepared in our
Canadian operations.
Revenues of $36.7 million were recognized by Wave, which we acquired on June 28, 2019, and therefore were not
included in our results of operations in the prior year period.
Total operating expenses increased $83.5 million or 3.4% from the prior year. Total compensation and benefits
decreased $75.8 million, or 6.6%, due to lower commission-based wages in our field related to the decline in tax return
volumes, lower bonus accruals and payroll taxes, somewhat offset by additional wages related to the acquisition of
Wave in the current year. Marketing expenses decreased $14.7 million, or 5.5%, based on planned decreases in our
marketing spend. Also due to the economic impacts of the COVID-19 pandemic, we recorded an impairment of goodwill
of $106.0 million related to Wave. See discussion in Item 8, note 6 for additional information.
Other expenses increased $49.4 million, or 11.7%. The components of other expenses are as follows:
Year ended April 30,
Consulting and outsourced services
Bank partner fees
Client claims and refunds
Employee travel and related expenses
Software and IT maintenance expenses
Credit card/bank charges
Insurance
Legal fees and settlements
Supplies
Other
2020
2019
$ Change
% Change
$
$
118,267
55,633
35,498
40,892
68,907
48,826
15,015
27,436
31,290
29,475
471,239
$
$
107,907
47,746
40,538
40,369
64,483
30,681
14,219
10,469
32,790
32,620
421,822
$
$
10,360
7,887
(5,040)
523
4,424
18,145
796
16,967
(1,500)
(3,145)
49,417
9.6 %
16.5 %
(12.4)%
1.3 %
6.9 %
59.1 %
5.6 %
162.1 %
(4.6)%
(9.6)%
11.7 %
Consulting and outsourced services increased $10.4 million primarily due to additional resources for our technology
initiatives. Bank partner fees increased $7.9 million due to higher Refund Advance origination fees and accruals for
our credit loss guarantees. Credit card and bank charges increased $18.1 million primarily due to the acquisition of
Wave which were slightly offset by lower fees in our tax operations due to the decline in tax returns. Legal fees increased
$17.0 million due to fees associated with ongoing legal matters, as discussed in Item 8, note 13 to the consolidated
financial statements.
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 13 to the consolidated financial statements.
FISCAL 2019 COMPARED TO FISCAL 2018
The comparison of fiscal year 2019 to 2018 has been omitted from this Form 10–K, but can be found in our Form
10–K for the fiscal year ended April 30, 2019, filed on June 14, 2019.
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.
28
2020 Form 10-K | H&R Block, Inc.
See Item 8, note 1 to the consolidated financial statements, which discusses accounting policies and new or
proposed accounting standards that may affect our financial reporting in the future.
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 13 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 estimate a reasonably possible
loss or range of loss. It does not represent our maximum loss exposure. As of April 30, 2020, we believe the estimate
of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be
estimated, 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.
INCOME TAXES – UNCERTAIN 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
H&R Block, Inc. | 2020 Form 10-K
29
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.
See the additional discussion 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 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.
We recorded a goodwill impairment loss of $106.0 million related to our Wave reporting unit in the fourth quarter
of fiscal year 2020. The remaining balance of goodwill for the Wave reporting unit, inclusive of unrealized foreign
currency translation losses, was $169.8 million. As a result of the COVID-19 pandemic and its impact on small
businesses, Wave has experienced lower than expected revenues since mid-March. To the extent the small business
market does not rebound as expected there could be further impairment in future years.
See the additional discussion in Item 8, note 6 to the consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
See Item 8, note 1 to the consolidated financial statements for a discussion of recently issued accounting
pronouncements.
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. As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline for individual
2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S. states with an April 15
individual state income tax filing requirement similarly extended their respective deadlines. In Canada, the deadline
for individuals to file was extended to June 1, 2020. These extensions have impacted the typical seasonality of our
business and the comparability of our financial results.
30
2020 Form 10-K | H&R Block, Inc.
In our fiscal fourth quarter, 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.
In the absence of any unexpected developments, our existing sources of capital as of April 30, 2020 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 2020 and 2019. See Item 8 for the complete consolidated statements of cash flows for
these periods.
Year ended April 30,
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effects of exchange rate changes on cash
Net change in cash and cash equivalents
2020
108,961
$
(470,231)
1,531,848
(5,285)
1,165,293
$
$
$
(in 000s)
2019
606,538
(155,131)
(403,695)
(3,663)
44,049
Operating Activities. Cash provided by operating activities decreased $497.6 million from fiscal year 2019. The
decrease from the prior year was primarily due to a net loss in the current year, compared to net income in the prior
year.
Investing Activities. Cash used in investing activities totaled $470.2 million compared to $155.1 million in the prior
year. This change resulted primarily from the acquisition of Wave, partially offset by the receipt of cash on an available-
for-sale debt security in the current year.
Financing Activities. Cash provided by financing activities totaled $1.5 billion compared to cash used of $403.7
million in the prior year, primarily due to a $2.0 billion draw on our CLOC 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 $204.9 million and $205.5 million in fiscal
years 2020 and 2019, respectively. Although we have historically paid dividends and plan to continue to do so, there
can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay
dividends.
Our current share repurchase program has remaining authorization of $751.8 million which is effective through
June 2022. As a part of the repurchase program, in the current year, we purchased $246.8 million of our common
stock at an average price of $24.36 per share.
Share repurchases may be effectuated through open market transactions, some of which may be effectuated under
SEC Rule 10b5-1. The Company may cancel, suspend, or extend the 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.
Capital Investment. Capital expenditures totaled $81.7 million and $95.5 million in fiscal years 2020 and 2019,
respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as
investments in computers, software and related assets. In addition to our capital expenditures, we also made payments
to acquire businesses. We acquired Wave and franchisee and competitor businesses totaling $450.2 million in the
current year compared to franchisee and competitor businesses totaling $43.6 million in the prior year. See Item 8,
note 6 for additional information on our acquisitions.
FINANCING RESOURCES – In order to strengthen our liquidity and ensure maximum flexibility, during our fourth
quarter we drew the full amount of our $2.0 billion CLOC. We had $2.0 billion outstanding on our CLOC as of April 30,
2020, and therefore will incur additional interest expense in fiscal year 2021.
H&R Block, Inc. | 2020 Form 10-K
31
Our financial results for fiscal year 2020 were negatively impacted by the extension of the tax filing season due to
the COVID-19 pandemic and as of April 30, 2020, we were not in compliance with the debt-to-EBITDA ratio covenant
related to the CLOC. On May 22, 2020 we obtained a waiver of the debt-to-EBITDA ratio covenant for the period ended
April 30, 2020. We expect to be in compliance with our CLOC covenants each quarter in fiscal year 2021.
Our Senior Notes due in October 2020 are classified as a current liability as of April 30, 2020. We are considering
various financing options in regard to the maturing Senior Notes and anticipate these options will provide adequate
liquidity to refinance the Senior Notes due in October 2020 at or prior to maturity. If we elect to obtain new debt or
refinance existing debt in the future, the terms and availability of such financing may be impacted by economic and
financial market conditions, as well as our financial condition, results of operations, and credit ratings at the time we
seek additional financing. Though we expect to be able to obtain any desired debt financing in the future, there can
be no assurances that we will be able to obtain such financing on terms that will be acceptable or advantageous to
us.
See Item 8, note 7 to the consolidated financial statements for discussion of the Senior Notes and our CLOC.
The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of April 30, 2020 and
2019:
As of
Moody's
S&P
April 30, 2020
April 30, 2019
Short-term
Long-term
Outlook
Short-term
Long-term
Outlook
P-3
A-2
Baa3
BBB
Negative
Negative
P-3
A-2
Baa3
BBB
Negative
Stable
CASH AND OTHER ASSETS – As of April 30, 2020, we held cash and cash equivalents, excluding restricted amounts,
of $2.7 billion, including $107.6 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, 2020.
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
a decrease of $5.3 million during fiscal year 2020 compared to $3.7 million in fiscal year 2019.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – A summary of our borrowings and known
or estimated contractual obligations as of April 30, 2020, and the timing and effect that such commitments are expected
to have on our liquidity and capital requirements in future periods is as follows:
Long-term debt (including future interest payments) (1)
Contingent acquisition payments
Operating leases
Guaranty on Refund Advance loans
Total contractual cash obligations
(in 000s)
Total
Less Than
1 Year
1 - 3 Years
4 - 5 Years
After 5 Years
$ 3,717,911
$
730,681
$
591,292
$ 2,036,750
$
359,188
14,152
534,466
5,400
8,117
217,088
5,400
6,035
245,697
—
—
65,145
—
—
6,536
—
$ 4,271,929
$
961,286
$
843,024
$ 2,101,895
$
365,724
(1) The interest rate on the outstanding CLOC draw is fixed through September 21, 2020, and if not repaid by that time would reprice based on rates available to us at
that time. Interest has only been included for the known amount due September 21, 2020.
The table above does not reflect unrecognized tax benefits of $168.1 million due to the high degree of uncertainty
regarding the future cash flows associated with these amounts.
EAs are originated by Axos and are offered from mid-November to mid-January. We purchase a 90% participation
interest, at par, in all EAs originated by Axos in accordance with our participation agreement.
32
2020 Form 10-K | H&R Block, Inc.
See discussion of contractual obligations and commitments in Item 8, within the notes to the consolidated financial
statements.
SUMMARIZED GUARANTOR FINANCIAL STATEMENTS – Block Financial is a 100% owned subsidiary of the 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
As of April 30, 2020
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
SUMMARIZED STATEMENTS OF OPERATIONS
Year ended April 30, 2020
Total revenues
Income from continuing operations before income taxes
Net income from continuing operations
Net income
Guarantor and Issuer
Guarantor and Issuer
$
$
(in 000s)
53,865
3,644,369
697,797
2,854,211
(in 000s)
184,415
30,231
23,559
10,497
The table above reflects$3.6 billion of non-current intercompany receivables due to the Issuer from non-guarantor
subsidiaries.
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, 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.
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 until further notice from the Court. On February 6, 2019, the
CFPB issued a notice of proposed rulemaking to delay the August 19, 2019 compliance date for the mandatory
underwriting provisions of the Payday Rule for 15 months, until November 19, 2020. Also on February 6, 2019, the
CFPB issued a separate notice of proposed rulemaking to rescind the Payday Rule’s mandatory underwriting
requirements, including the ability to repay determination, for certain loans. On June 6, 2019, the CFPB issued a final
rule delaying the August 19, 2019 compliance date for the mandatory underwriting provisions until November 19,
2020.
Given these judicial and regulatory developments, we are unsure whether, when, or in what form the Payday Rule
may go into effect. The outcomes of the rulemaking process and litigation are unclear. Depending on how the Payday
Rule is revised during the pending rulemaking process, the Payday Rule may have a material adverse impact on the
Emerald AdvanceTM product, our business, and our consolidated financial position, results of operations, and cash
H&R Block, Inc. | 2020 Form 10-K
33
flows. We will continue to analyze the potential impact on the Company as the court case and the CFPB’s pending
rulemaking process progress.
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 the incurrence of 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 13
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 and goodwill impairments. We believe removing the impacts of amortization of acquired intangibles and
goodwill impairments provides a more meaningful indicator of performance and will assist in understanding our
financial results.
We may consider whether other significant items that arise in the future should be excluded from our non-GAAP
financial measures.
We measure the performance of our business using a variety of metrics, including earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing operations, 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.
34
2020 Form 10-K | H&R Block, Inc.
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:
Year ended April 30,
Net income (loss) - as reported
Discontinued operations, net
Net income from continuing operations - as reported
Add back:
Income taxes (benefit) of continuing operations
Interest expense of continuing operations
Depreciation and amortization of continuing operations
EBITDA from continuing operations
Adjustments:
Impairment of goodwill
Adjusted EBITDA from continuing operations
EBITDA margin from continuing operations (1)
Adjusted EBITDA margin from continuing operations (2)
2020
$
(7,526)
$
13,682
6,156
(9,530)
96,094
169,536
256,100
(in 000s)
2019
422,509
22,747
445,256
99,904
87,051
166,695
353,650
262,256
798,906
106,000
—
$
368,256
$
798,906
9.9%
14.0%
25.8 %
25.8 %
(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:
Year ended April 30,
Net income from continuing operations - as reported
Adjustments:
Amortization of intangibles related to acquisitions (pretax)
Impairment of goodwill (pretax)
Tax effect of adjustments(1)
Adjusted net income from continuing operations
Diluted income per share - as reported
Adjustments, net of tax
Adjusted income per share
(in 000s, except per share amounts)
2020
2019
6,156
$
445,256
74,561
106,000
(19,126)
167,591
0.03
0.81
0.84
$
$
$
62,751
—
(14,891)
493,116
2.15
0.24
2.39
$
$
$
$
(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.
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.
H&R Block, Inc. | 2020 Form 10-K
35
Generally, our CLOC borrowings are seasonal, and interest rate risk typically increases through our third fiscal
quarter and is largely eliminated by fiscal year end. In order to strengthen our liquidity and ensure maximum flexibility,
during our fourth quarter we drew the full amount of our $2.0 billion CLOC, which remained outstanding as of April
30, 2020. The interest rate on the outstanding CLOC draw is fixed through September 21, 2020, and if not repaid by
that time would reprice based on rates available to us at that time. 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.
A portion of our long-term debt consists 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. Our Senior Notes due in October
2020 are classified as a current liability as of April 30, 2020. We are considering various financing options in regard to
the maturing Senior Notes and anticipate these options will provide adequate liquidity to refinance the Senior Notes
due in October 2020 at or prior to maturity. If we elect to obtain new debt or refinance existing debt in the future,
the terms and availability of such financing may be impacted by economic and financial market conditions, as well as
our financial condition, results of operations, and credit ratings at the time we seek additional financing.
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 prevailing 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 a decrease of $5.3 million during fiscal year 2020 compared to $3.7 million in fiscal year 2019.
We estimate a 10% change in foreign exchange rates by itself would impact consolidated pretax income in fiscal years
2020 and 2019 by $12.2 million and $2.5 million, respectively, and cash balances, excluding restricted balances, as of
April 30, 2020 and 2019 by $9.9 million and $9.4 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, 2020 or 2019.
36
2020 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 2020, 2019 and 2018. 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,
2020.
Based on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of April 30,
2020, 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
Jeffrey J. Jones II
President and Chief Executive Officer
/s/ Tony G. Bowen
Tony G. Bowen
Chief Financial Officer
H&R Block, Inc. | 2020 Form 10-K
37
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, 2020 and 2019, 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, 2020,
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, 2020 and
2019, and the results of its operations and its cash flows for each of the three years in the period ended April 30,
2020, 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, 2020, 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 16, 2020, 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 US
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.
Goodwill - Wave Reporting Unit - Refer to Note 6 to the consolidated financial statements
Critical Audit Matter Description
The Company tests 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. The Company uses a discounted cash flow model for the income approach valuation method and the
guideline public company and market capitalization methods for the market approach valuation method. 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. On June 28, 2019, the
Company acquired Wave for approximately $408 million of which $301 million was allocated goodwill. As a result
of the COVID-19 pandemic, during the fourth quarter, the Company evaluated the Wave reporting unit and
38
2020 Form 10-K | H&R Block, Inc.
determined its fair value was below its carrying value and recorded a $106 million pretax impairment. At April 30,
2020, after recording the impairment, the Company’s goodwill balance was $712 million of which $170 million
relates to the Wave reporting unit.
We identified the Company’s evaluation of goodwill impairment for the Wave reporting unit as a critical audit
matter because of the projected impacts of COVID-19 including reductions in revenues used to estimate cash flows.
The current year acquisition by the Company resulted in a fair value that approximated carrying value. Because of
inherent uncertainty around the timing of economic recovery, significant management judgment was required to
project future revenues utilized to estimate the fair value of the Wave reporting unit. A high degree of auditor
judgment was required when performing audit procedures to evaluate the reasonableness of management’s
estimates and assumptions related to the forecast of future revenues and the selection of the discount rate, which
included the involvement of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s evaluation of impairment for the Wave reporting unit included the
following, among others:
• We tested the effectiveness of the control over management’s evaluation and determination of estimates
and assumptions related to forecast of future revenues and selection of the discount rate.
• We evaluated the reasonableness of management’s forecast of future revenues by comparing to:
Historical revenue growth and the Company’s planned revenue growth at the time of Wave’s
acquisition in June 2019,
The Company’s analysis of the expected impact of COVID-19 business disruption and recovery on
its small business customers, and
Current external economic recovery and industry forecasts.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the Company’s
valuation methodology and its mathematical accuracy. Our fair value specialists also assisted in developing
an independent range estimating the discount rate and comparing to the discount rate selected by
management.
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
position, and the possible settlement outcomes to determine the amount of liability to record. The Company’s
unrecognized tax benefits as of April 30, 2020, were $168 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
H&R Block, Inc. | 2020 Form 10-K
39
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 13 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.
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 16, 2020
We have served as the Company's auditor since 2007.
40
2020 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, 2020, 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, 2020, 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, 2020, of the Company
and our report dated June 16, 2020, expressed an unqualified opinion on those financial statements and included
an explanatory paragraph regarding the Company's adoption of FASB Accounting Standards Update 2016-02,
Leases.
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 16, 2020
H&R Block, Inc. | 2020 Form 10-K
41
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Year ended April 30,
(in 000s, except per share amounts)
2020
2019
2018
$
2,327,323
$
2,691,727
$
312,397
2,639,720
1,712,276
106,000
744,361
2,562,637
15,637
(96,094)
(3,374)
(9,530)
6,156
403,154
3,094,881
1,756,922
—
722,167
2,479,089
16,419
(87,051)
545,160
99,904
445,256
(13,682)
(7,526) $
(22,747)
422,509
$
0.03
$
(0.07)
(0.04) $
0.03
$
(0.07)
(0.04) $
2.16
$
(0.11)
2.05
$
2.15
$
(0.11)
2.04
$
2,766,426
393,505
3,159,931
1,739,729
—
668,152
2,407,881
6,054
(89,372)
668,732
41,823
626,909
(13,760)
613,149
2.99
(0.06)
2.93
2.98
(0.07)
2.91
(7,526) $
422,509
$
613,149
(31,160)
(31,160)
(6,113)
(6,113)
996
996
(38,686) $
416,396
$
614,145
See accompanying notes to consolidated financial statements.
REVENUES:
Service revenues
Royalty, product and other revenues
OPERATING EXPENSES:
Costs of revenues
Impairment of goodwill
Selling, general and administrative
Total operating expenses
Other income (expense), net
Interest expense on borrowings
Income (loss) from continuing operations before income
taxes (benefit)
Income taxes (benefit)
Net income from continuing operations
Net loss from discontinued operations, net of tax benefits
of $4,085, $6,788 and $7,016
NET INCOME (LOSS)
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Consolidated
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations
Discontinued operations
Consolidated
COMPREHENSIVE INCOME (LOSS):
Net income (loss)
Change in foreign currency translation adjustments and
other
Other comprehensive income (loss)
Comprehensive income (loss)
$
$
$
$
$
$
$
42
2020 Form 10-K | H&R Block, Inc.
CONSOLIDATED BALANCE SHEETS
As of April 30,
ASSETS
Cash and cash equivalents
Cash and cash equivalents - restricted
Receivables, less allowance for doubtful accounts of $64,648 and $67,228
Prepaid expenses and other current assets
Total current assets
Property and equipment, at cost, less accumulated depreciation and amortization of
(in 000s, except share and
per share amounts)
2020
2019
$
2,661,914
$
1,572,150
211,106
133,197
80,519
135,577
138,965
146,667
3,086,736
1,993,359
$796,192 and $745,761
Operating lease right of use asset
Intangible assets, net
Goodwill
Deferred tax assets and income taxes receivable
Other noncurrent assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses
Accrued salaries, wages and payroll taxes
Accrued income taxes and reserves for uncertain tax positions
Current portion of long-term debt
Operating lease liabilities
Deferred revenue and other current liabilities
Total current liabilities
Long-term debt and line of credit borrowings
Deferred tax liabilities and reserves for uncertain tax positions
Operating lease liabilities
Deferred revenue and other noncurrent liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $.01 per share, 800,000,000 shares
authorized, shares issued of 228,206,684 and 238,336,760
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury shares, at cost, of 35,731,376 and 36,377,441
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
184,367
494,788
414,976
712,138
151,195
67,847
212,092
—
342,493
519,937
141,979
90,085
5,112,047
$
3,299,945
203,103
$
116,375
209,816
649,384
195,537
201,401
1,575,616
2,845,873
182,441
312,566
124,510
5,041,006
2,282
775,387
(51,576)
42,965
(698,017)
71,041
249,525
196,527
271,973
—
—
204,976
923,001
1,492,629
197,906
—
144,882
2,758,418
2,383
767,636
(20,416)
499,386
(707,462)
541,527
$
5,112,047
$
3,299,945
See accompanying notes to consolidated financial statements.
H&R Block, Inc. | 2020 Form 10-K
43
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended April 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
2020
2019
(in 000s)
2018
Net income (loss)
$
(7,526) $
422,509
$
613,149
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization
Provision for bad debt
Deferred taxes
Stock-based compensation
Impairment of goodwill
Changes in assets and liabilities, net of acquisitions:
Receivables
Prepaid expenses, other current and noncurrent assets
Accounts payable, accrued expenses, salaries, wages and payroll taxes
Deferred revenue, other current and noncurrent liabilities
Income tax receivables, accrued income taxes and income tax reserves
Other, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Payments made for business acquisitions, net of cash acquired
Franchise loans funded
Payments from franchisees
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings
Proceeds from line of credit borrowings
Dividends paid
Repurchase of common stock, including shares surrendered
Proceeds from exercise of stock options
Other, net
Net cash provided by (used in) financing activities
169,536
166,695
76,621
(8,300)
28,045
106,000
(66,896)
39,377
(124,019)
(9,096)
(87,423)
(7,358)
108,961
(81,685)
(450,242)
(35,264)
39,919
57,041
70,569
1,129
23,767
—
(73,648)
(4,503)
54,827
(13,758)
(36,824)
(4,225)
606,538
(95,490)
(43,637)
(19,922)
32,671
(28,753)
183,295
74,489
112,140
21,954
—
(63,935)
(6,453)
(10,532)
9,127
(75,491)
(7,740)
850,003
(98,583)
(42,539)
(22,320)
39,968
11,417
(470,231)
(155,131)
(112,057)
(1,335,000)
(720,000)
(830,000)
3,335,000
(204,870)
(256,214)
2,075
(9,143)
1,531,848
720,000
(205,461)
(189,912)
2,532
(10,854)
(403,695)
830,000
(200,469)
(9,147)
28,340
(9,388)
(190,664)
Effects of exchange rate changes on cash
(5,285)
(3,663)
(1,143)
Net increase in cash and cash equivalents, including restricted balances
Cash, cash equivalents and restricted cash, beginning of the year
1,165,293
1,707,727
44,049
546,139
1,663,678
1,117,539
Cash, cash equivalents and restricted cash, end of the year
$
2,873,020
$
1,707,727
$
1,663,678
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received
Interest paid on borrowings
Accrued additions to property and equipment
$
89,204
$
132,982
$
87,426
1,185
82,442
6,159
8,276
84,320
3,010
See accompanying notes to consolidated financial statements.
44
2020 Form 10-K | H&R Block, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS – Our subsidiaries provide assisted, do-it-yourself (DIY), and virtual tax return preparation
solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop
software) and distribute H&R Block-branded services and products, including those of our financial partners, to the
general public primarily in the United States (U.S.), Canada, Australia, and their respective territories. Tax returns are
either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet
review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business financial
solutions through our company-owned or franchise offices and online through Wave.
"H&R Block," "the Company," "we," "our," and "us" are used interchangeably to refer to H&R Block, Inc. or to H&R
Block, Inc. and its subsidiaries, as appropriate to the context.
PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of the Company
and our subsidiaries. Intercompany transactions and balances have been eliminated.
DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon
Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC),
which exited its mortgage business in fiscal year 2008. See note 13 for additional information on litigation, claims,
and other loss contingencies related to our discontinued operations.
SEGMENT INFORMATION – We report a single segment that includes all of our continuing operations.
MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates,
assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage
business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, and
fair value of reporting units. Estimates have been prepared based on the best information available as of each balance
sheet date. As such, actual results could differ materially from those estimates.
CASH AND CASH EQUIVALENTS – All non-restricted highly liquid instruments purchased with an original maturity
of three months or less are considered to be cash equivalents.
Outstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $15.2
million and $20.9 million as of April 30, 2020 and 2019, respectively.
CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of cash
held by our captive insurance subsidiary that is expected to be used to pay claims and client funds held by our Canadian
tax operations related to client prepaid debit cards.
RECEIVABLES AND RELATED ALLOWANCES – Our trade receivables consist primarily of accounts receivable from
tax clients for tax return preparation and related fees. The allowance for doubtful accounts for these receivables
requires management's judgment regarding collectibility and current economic conditions to establish an amount
considered by management to be adequate to cover estimated losses as of the balance sheet date. Credit losses from
tax clients for tax return preparation and related fees are not specifically identified and charged off; instead they are
evaluated on a pooled basis. At the end of the fiscal year the outstanding balances on these receivables are evaluated
based on collections received and expected collections over subsequent tax seasons. We establish an allowance for
doubtful accounts at an amount that we believe represents the net realizable value. In December of each year we
charge-off the receivables to an amount we believe represents the net realizable value.
Our financing receivables consist primarily of participations in H&R Block Emerald Advance® lines of Credit (EAs),
loans made to franchisees, and amounts due under H&R Block Instant RefundTM (Instant Refund).
Our accounting policies related to receivables and related allowances are discussed further in note 4.
INVESTMENTS – Our investments in equity and debt securities are reported at fair value. Realized and unrealized
gains and losses are reported within earnings. The fair value of our investments totaled $11.2 million and $40.0 million
46
2020 Form 10-K | H&R Block, Inc.
at April 30, 2020 and 2019, respectively, and was included in prepaid and other current assets in the consolidated
balance sheet.
PROPERTY AND EQUIPMENT – Buildings and equipment are initially recorded at cost and are depreciated over the
estimated useful life of the assets using the straight-line method. Leasehold improvements are initially recorded at
cost and are amortized over the estimated useful life, using the straight-line method. Estimated useful lives are
generally 15 to 40 years for buildings, two to five years for computers and other equipment, three to five years for
purchased software and up to eight years for leasehold improvements.
GOODWILL AND INTANGIBLE ASSETS – Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired businesses. Goodwill is not amortized, but rather is tested for impairment annually during our
fourth quarter, or more frequently if indications of potential impairment exist.
Intangible assets, including internally-developed software, with finite lives are amortized over their estimated
useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying
amount may not be recoverable. Intangible assets are typically amortized over the estimated useful life of the assets
using the straight-line method.
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair
value of a reporting unit is less than its carrying value, we perform a quantitative analysis. If the quantitative analysis
indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as
the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount
of goodwill allocated to that reporting unit. See additional discussion in note 6.
LEASES – We adopted Accounting Standards Update No. 2016-02, “Leases” (ASU 2016-02) on May 1, 2019.
Operating lease right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and operating
lease liabilities represent our obligation to make lease payments arising from the lease. The majority of our lease
portfolio consists of retail office space in the U.S., Canada, and Australia. The contract terms for these retail offices
generally are from May 1 to April 30, and generally run three to five years.
We record operating lease ROU assets and operating lease liabilities based on the discounted future minimum
lease payments over the term of the lease. We generally do not include renewal options in the term of the lease. As
the rates implicit in our leases are not readily determinable, we use our incremental borrowing rate based on the
lease term and geographic location in calculating the discounted future minimum lease payments.
We recognize lease expenses for our operating leases on a straight-line basis. For lease payments that are subject
to adjustments based on indexes or rates, the most current index or rate adjustments were included in the
measurement of our ROU assets and lease liabilities at adoption or commencement of the lease. Variable lease costs,
including non-lease components (such as common area maintenance, utilities, insurance, and taxes) and certain index-
based changes in lease payments, are expensed as incurred. Our ROU assets are reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amount may not be recoverable.
TREASURY SHARES – We record shares of common stock repurchased by us as treasury shares, at cost, resulting
in a reduction of stockholders' equity. Periodically, we may retire shares held in treasury as determined by our Board
of Directors. We typically reissue treasury shares as part of our stock-based compensation programs. When shares
are reissued, we determine the cost using the average cost method.
FAIR VALUE MEASUREMENT – We use the following classification of financial instruments pursuant to the fair
value hierarchy methodologies for assets measured at fair value:
Level 1 – inputs to the valuation are quoted prices in an active market for identical assets.
Level 2 – inputs to the valuation include quoted prices for similar assets in active markets utilizing a third-party
pricing service to determine fair value.
Level 3 – valuation is based on significant inputs that are unobservable in the market and our own estimates
of assumptions that we believe market participants would use in pricing the asset.
Assets measured on a recurring basis are initially measured at fair value and are required to be remeasured at fair
value in the financial statements at each reporting date.
H&R Block, Inc. | 2020 Form 10-K
47
Fair value estimates, methods and assumptions are set forth below. The fair value was not estimated for assets
and liabilities that are not considered financial instruments.
Cash and cash equivalents, including restricted - Fair value approximates the carrying amount (Level 1).
Receivables, net - short-term - For short-term balances the carrying values reported in the balance sheet
approximate fair market value due to the relative short-term nature of the respective instruments (Level 1).
Receivables, net - long-term - The carrying values for the long-term portion of loans to franchisees
approximate fair market value due to variable interest rates, low historical delinquency rates and franchise
territories serving as collateral (Level 1). Long-term EA, Refund Transfer (RT) and Instant Refund receivables
are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined
based on historical and projected collection rates.
Investments - The fair value of our investment in equity securities are based on quoted prices in an active
market for identical assets (Level 1).
Long-term debt - The fair value of our Senior Notes is based on quotes from multiple banks (Level 2). See
note 7 for fair value.
Contingent consideration - Fair value approximates the carrying amount (Level 3). See note 11 for the carrying
amount.
REVENUE RECOGNITION - Revenue is recognized upon satisfaction of performance obligations by the transfer of
a product or service to the customer. Revenue is the amount of consideration we expect to receive for our services
and products and excludes sales taxes. The majority of our services and products have multiple performance
obligations. For our tax preparation services, the various performance obligations are generally provided
simultaneously at a point in time, and revenue is recognized at that time. We have certain services and products where
we have multiple performance obligations that are provided at various points in time. For these services and products,
we allocate the transaction price to the various performance obligations based on relative standalone selling prices
and recognize the revenue when the respective performance obligations have been satisfied. We have determined
that our contracts do not contain a significant financing component.
Service revenues consist of assisted and online tax preparation revenues, fees for electronic filing, revenues from
refund transfers (RTs), Emerald Card, POM, TIS and Wave.
Assisted tax preparation revenues are recorded when a completed return is electronically filed or accepted by the
customer. The value of point-of-sale discounts and coupons are recorded as a reduction of revenue.
Royalties are based on contractual percentages of franchise gross receipts and are generally recorded in the period
in which the services are provided by the franchisee to the customer.
DIY tax preparation revenues consist of online tax preparation fees, desktop software and fees for electronic filing.
Online tax preparation revenues are recorded when a completed return is electronically filed or accepted by
the customer.
Revenue from the sale of DIY desktop software is recognized when the product is sold to the end user. Rebates
and other incentives paid in connection with these sales are recorded as a reduction of revenue.
Fees for electronic filing of tax returns are recorded when the return is electronically filed.
Refund Transfer revenues are recognized when the Internal Revenue Service (IRS) acknowledgment is received
and the bank account is established at Axos Bank, a federal savings bank (Axos).
Emerald Card® revenues consist of interchange income from the use of debit cards and fees from the use of ATM
networks, net of volume-based amounts retained by Axos in connection with our agreement. Interchange income is
a fee paid by merchants to Axos through the interchange network. Net revenue associated with our Emerald Card®
is recognized based on authorization of cardholder transactions.
Peace of Mind® Extended Service Plan (POM) revenues are initially deferred and recognized over the term of the
plan, based on the historical pattern of actual claims paid, as claims paid represent the transfer of POM services to
the customer. The plan is effective for the life of the tax return, which can be up to six years; however, the majority
of claims are incurred in years two and three after the sale of POM. POM has multiple performance obligations where
we represent our clients if they are audited by a taxing authority, and assume the cost, subject to certain limits, of
48
2020 Form 10-K | H&R Block, Inc.
additional taxes owed by a client resulting from errors attributable to H&R Block. Incremental wages are also deferred
and recognized over the term of the plan, in conjunction with the revenues earned.
Tax Identity Shield (TIS) revenues are initially deferred and are recognized as the various services are provided to
the client, either by us or a third party, throughout the term of the contract, which generally ends on April 30th of the
following year. TIS has multiple performance obligations where we provide 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.
Interest and fee income on Emerald AdvanceTM lines of credit (EAs) is recorded over the life of the underlying
loan.
Wave revenues primarily consist of fees received to process payment transactions and are generally calculated as
a percentage of the transaction amounts processed. Revenues are recognized upon authorization of the transaction.
ADVERTISING EXPENSE – Advertising costs for radio and television ads are expensed over the course of the tax
season, with online, print and mailing advertising expensed as incurred. Marketing and advertising expenses totaled
$255.1 million, $269.8 million and $249.1 million in fiscal years 2020, 2019 and 2018, respectively.
EMPLOYEE BENEFIT PLANS – We have a 401(k) defined contribution plan covering eligible full-time and seasonal
employees following the completion of an eligibility period. Employer contributions to this plan are discretionary and
totaled $18.8 million, $19.3 million and $16.4 million for continuing operations in fiscal years 2020, 2019 and 2018,
respectively.
We have severance plans covering executives and eligible regular full-time or part-time active employees who incur
a qualifying termination. Expenses related to severance benefits of continuing operations totaled $2.5 million, $5.0
million and $4.0 million in fiscal years 2020, 2019 and 2018, respectively.
NEW ACCOUNTING PRONOUNCEMENTS –
Leases. In February 2016, the FASB issued ASU 2016-02, which requires the recognition of lease assets and lease
liabilities on the balance sheet by lessees for leases previously classified as operating leases. We adopted this guidance
and related amendments as of May 1, 2019 using the alternative transition method, which allows companies the
option of using the effective date of the new standard as the initial application date (at the beginning of the period
in which it adopted, rather than at the beginning of the earliest comparative period).
We have recognized operating lease (ROU) assets and operating lease liabilities on our balance sheet as part of
adopting the standard and pre-existing liabilities for deferred rent, and various lease incentives were reclassified as
a component of the lease assets. We elected the package of practical expedients which allows us to not reassess
historical lease classification, initial direct costs or contracts related to leases. For leases with an initial term of twelve
months or less we have elected to only recognize retail office leases on our balance sheet. We elected the practical
expedient to account for lease and non-lease components (such as common area maintenance, utilities, insurance
and taxes) as a single lease component for all classes of underlying assets. We also elected the practical expedient to
not reassess whether land easement contracts meet the definition of a lease. We did not elect the practical expedient
of hindsight when determining the lease term of existing contracts at the effective date.
As of April 30, 2020, we recorded operating lease assets of $494.8 million and operating lease liabilities of $508.1
million on our consolidated balance sheet. The adoption of the new standard did not materially affect our consolidated
statements of operations or cash flows. See note 12 for additional information.
Current Expected Credit Losses. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU
2016-13), "Measurement of Credit Losses on Financial Instruments," which replaces the existing incurred credit loss
model for an expected credit loss model. This guidance will be effective for us on May 1, 2020. The adoption of ASU
2016-13 will not have a material impact on our financial statements.
H&R Block, Inc. | 2020 Form 10-K
49
NOTE 2: REVENUE RECOGNITION
The majority of our revenues are from our U.S. Tax Services business. The following table disaggregates our U.S. Tax
Services revenues by major service line, with revenues from our international Tax Services businesses and from Wave
included as separate lines:
Year ended April 30,
Revenues:
U.S. assisted tax preparation
U.S. royalties
U.S. DIY tax preparation
International
Refund Transfers
Emerald Card®
Peace of Mind® Extended Service Plan
Tax Identity Shield®
Interest and fee income on Emerald AdvanceTM
Wave
Other
Total revenues
2020
2019
(in 000s)
2018
$
1,533,303
$
1,858,998
$
1,947,160
193,411
208,901
180,065
154,687
92,737
105,185
31,797
60,867
36,711
42,056
243,541
261,413
220,562
169,985
98,256
108,114
35,661
58,182
—
40,169
245,444
243,159
227,266
171,959
102,640
101,572
28,823
56,986
—
34,922
$
2,639,720
$
3,094,881
$
3,159,931
Changes in the balances of deferred revenue and wages for POM are as follows:
POM
Year ended April 30,
Balance, beginning of the year
Amounts deferred
Amounts recognized on previous deferrals
Balance, end of the year
Deferred Revenue
Deferred Wages
2020
2019
2020
212,511
$
218,274
$
27,306
$
95,032
(123,858)
120,163
(125,926)
10,708
(16,396)
183,685
$
212,511
$
21,618
$
$
$
(in 000s)
2019
32,683
13,336
(18,713)
27,306
As of April 30, 2020, deferred revenue related to POM was $183.7 million. We expect that $105.8 million will be
recognized over the next twelve months, while the remaining balance will be recognized over the following sixty
months. The related liabilities are included in deferred revenue and other liabilities in the consolidated balance sheets.
The related assets are included in prepaid expenses and other current assets or other noncurrent assets.
As of April 30, 2020, and 2019, TIS deferred revenue was $30.8 million and $29.7 million, respectively. The related
liabilities are included in deferred revenue and other current liabilities in the consolidated balance sheets. All deferred
revenue related to TIS as of April 30, 2020 will be recognized within the next twelve months.
A significant portion of our accounts receivable balances arise from services and products that we provide to our
customers, with the exception of those related to EAs, which arise from purchased participation interests with Axos.
The majority of our services and products must be paid for at the time of service, and therefore no receivable is
recorded unless an RT is purchased. Generally the prices of our services and products are fixed and determinable at
the time of sale. For our RT product, we record a receivable for our fees which is then collected at the time the IRS
issues the client’s refund. Our receivables from customers are generally collected on a periodic basis during and
subsequent to the tax season. See note 4 for our accounts receivable balances.
NOTE 3: EARNINGS PER SHARE
Basic and diluted earnings (loss) per share is computed using the two-class method. The two-class method is an
earnings allocation formula that determines net income per share for each class of common stock and participating
security according to dividends declared and participation rights in undistributed earnings. Per share amounts are
50
2020 Form 10-K | H&R Block, Inc.
computed by dividing net income (loss) from continuing operations attributable to common shareholders by the
weighted average shares outstanding during each period.
The computations of basic and diluted earnings (loss) per share from continuing operations are as follows:
Year ended April 30,
Net income from continuing operations attributable to shareholders
Amounts allocated to participating securities
Net income from continuing operations attributable to common shareholders
Basic weighted average common shares
Potential dilutive shares
Dilutive weighted average common shares
Earnings per share from continuing operations attributable to common
shareholders:
Basic
Diluted
(in 000s, except per share amounts)
2020
6,156
(639)
5,517
$
$
196,701
1,407
198,108
2019
445,256
(1,040)
444,216
$
$
205,372
1,352
206,724
2018
626,909
(1,492)
625,417
208,824
1,389
210,213
$
0.03
0.03
$
2.16
2.15
2.99
2.98
$
$
$
Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain
restrictions or the exercise of options to purchase 0.9 million, 0.4 million and 0.6 million shares of stock for fiscal years
2020, 2019 and 2018, respectively, as the effect would be antidilutive.
NOTE 4: RECEIVABLES
Receivables, net of their related allowance, consist of the following:
As of April 30,
2020
2019
Loans to franchisees
$
25,397
$
31,329
$
22,427
$
35,325
Short-term
Long-term
Short-term
Long-term
(in 000s)
Receivables for U.S. assisted and DIY tax preparation and
related fees
H&R Block Instant RefundTM receivables
H&R Block Emerald Advance® lines of credit
Software receivables from retailers
Royalties and other receivables from franchisees
Wave payment processing receivables
Other
47,030
15,031
10,001
7,341
9,861
3,200
15,336
3,112
1,325
14,081
—
42
—
1,828
34,284
37,319
8,546
9,354
11,888
—
15,147
$
133,197
$
51,717
$
138,965
$
3,716
1,701
12,418
—
97
—
2,382
55,639
Balances presented above as short-term are included in receivables, while the long-term portions are included in
other noncurrent assets in the consolidated balance sheets.
Loans to Franchisees. Franchisee loan balances consist of term loans made primarily to finance the purchase of
franchises and revolving lines of credit primarily for the purpose of funding working capital needs. As of April 30, 2020
and 2019, loans with a principal balance of $0.2 million and $0.8 million, respectively, were more than 90 days past
due. We had no loans to franchisees on non-accrual status as of April 30, 2020 or 2019.
The credit quality of these receivables is assessed at origination at an individual franchisee level. Payment history
is monitored on a regular basis. Based upon our internal analysis and underwriting activities, we believe all loans to
franchisees are of similar credit quality. Loans are evaluated for collectibility when they become delinquent or more
than 90 days past due. Amounts deemed to be uncollectible are written off to bad debt expense and bad debt related
to these loans has typically been immaterial. Additionally, the franchise territory serves as additional protection in
the event a franchisee defaults on the loan, as we may revoke franchise rights, write off the remaining balance of the
loan and refranchise the territory or begin operating it as company-owned.
H&R Block, Inc. | 2020 Form 10-K
51
H&R Block Instant RefundTM. Our Canadian operations advance refunds due to certain clients from the Canada
Revenue Agency (CRA), in exchange for a fee. The total fee we charge for this service is mandated by 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 is then sent by the CRA directly to us. The amount we advance to clients under this program is the amount of
their estimated refund, less our fees, any amounts expected to be withheld by the CRA for amounts the client may
owe to government authorities and any amounts owed to us from prior years. The CRA system for tracking amounts
due to various government agencies also indicates if the client has already filed a return, does not exist in CRA records,
or is bankrupt. This serves to greatly reduce the amounts of uncollectible receivables and the risk of fraudulent returns.
H&R Block Instant RefundTM amounts are generally received from the CRA within 60 days of filing the client's return,
with the remaining balance collectible from the client.
Credit losses from these receivables are not specifically identified and charged off; instead we review the credit
quality of these receivables on a pooled basis, segregated by the year of origination with older years being deemed
more unlikely to be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated
based on collections received and expected collections over subsequent tax seasons. We establish an allowance for
doubtful accounts at an amount that we believe represents the net realizable value. In December of each year we
charge-off the receivables to an amount we believe represents the net realizable value.
Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due,
by year of origination, as of April 30, 2020 are as follows:
Year of Origination
2020
2019 and prior
Allowance
Net balance
Current Balance
Non-Accrual
$
$
$
$
17,920
338
18,258
(1,902)
16,356
(in 000s)
1,629
338
1,967
H&R Block Emerald Advance® lines of credit. EAs are typically offered to clients in our offices from mid-November
through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed
in the loan terms, the line of credit can be utilized year-round. EA balances require an annual paydown on February 15th,
and any amounts unpaid are placed on non-accrual status as of March 1st. Payments on past due amounts are applied
to principal. These lines of credit are offered by Axos. We purchase participation interests in their loans, as discussed
further in note 11.
Credit losses from EAs are not specifically identified and charged off; instead we review the credit quality of these
receivables on a pooled basis, segregated by the year of origination with older years being deemed more unlikely to
be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated based on collections
received and expected collections over subsequent tax seasons. We establish an allowance for doubtful accounts at
an amount that we believe represents the net realizable value. In December of each year we charge-off the receivables
to an amount we believe represents the net realizable value.
Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due,
by year of origination as of April 30, 2020, are as follows:
Year of Origination
2020
2019 and prior
Revolving loans
Allowance
Net balance
52
2020 Form 10-K | H&R Block, Inc.
Current Balance
Non-Accrual
$
$
36,146
$
5,773
14,197
56,116
$
(32,034)
24,082
(in 000s)
36,146
5,773
11,766
53,685
Allowance for Doubtful Accounts. Activity in the allowance for doubtful accounts for EAs and all other short-term
and long-term receivables for the years ended April 30, 2020 , 2019, and 2018 is as follows:
Balances as of May 1, 2017
Provision
Charge-offs, recoveries and other (1)
Balances as of April 30, 2018
Provision
Charge-offs, recoveries and other
Balances as of April 30, 2019
Provision
Charge-offs, recoveries and other
Balances as of April 30, 2020
$
EAs
10,123
$
All Other
46,552
$
16,499
—
26,622
17,272
(16,359)
27,535
21,771
(17,272)
57,990
(49,351)
55,191
53,297
(54,550)
53,938
54,850
(58,342)
$
32,034
$
50,446
$
(in 000s)
Total
56,675
74,489
(49,351)
81,813
70,569
(70,909)
81,473
76,621
(75,614)
82,480
(1) There were no charge-offs related to EAs in fiscal year 2018 based on the timing of when charge-offs were performed.
NOTE 5: PROPERTY AND EQUIPMENT
The components of property and equipment, net of accumulated depreciation and amortization, are as follows:
As of April 30,
Buildings
Computers and other equipment
Leasehold improvements
Purchased software
Land and other non-depreciable assets
2020
50,308
$
77,483
52,631
2,569
1,376
(in 000s)
2019
59,943
87,102
59,941
3,728
1,378
184,367
$
212,092
$
$
Depreciation and amortization expense of property and equipment for continuing operations for fiscal years 2020,
2019 and 2018 was $85.9 million, $93.5 million and $103.4 million, respectively.
The carrying value of long-lived assets held outside the U.S., which is comprised primarily of property and
equipment, totaled $19.1 million, $23.6 million and $24.5 million as of April 30, 2020, 2019 and 2018, respectively.
NOTE 6: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the years ended April 30, 2020 and 2019 are as follows:
Balances as of May 1, 2018
Acquisitions
Disposals and foreign currency changes, net
Impairments
Balances as of April 30, 2019
Acquisition of Wave
Other acquisitions
Disposals and foreign currency changes, net
Impairments
Balances as of April 30, 2020
Goodwill
Accumulated
Impairment Losses
$
540,168
$
(32,297) $
13,656
(1,590)
—
552,234
300,560
23,795
(26,154)
—
—
—
—
(32,297)
—
—
—
(106,000)
$
850,435
$
(138,297) $
(in 000s)
Net
507,871
13,656
(1,590)
—
519,937
300,560
23,795
(26,154)
(106,000)
712,138
H&R Block, Inc. | 2020 Form 10-K
53
We tested goodwill for impairment in the fourth quarter of fiscal year 2020, and, except as discussed below, no
impairment was identified.
As a result of the COVID-19 pandemic and its impact on Wave’s small business customers, we evaluated the Wave
reporting unit’s goodwill for impairment during our fourth quarter. Wave has experienced lower than expected
revenues since mid-March and we expect lower revenues than originally projected to continue in the near term. In
evaluating goodwill for impairment, we compared the estimated fair value of this reporting unit, which was determined
using both an income and market approach, to its carrying value. The fair value was less than the carrying value,
therefore resulting in a goodwill impairment loss of $106.0 million. The remaining balance of goodwill for the Wave
reporting unit, inclusive of unrealized foreign currency translation losses, was $169.8 million as of April 30, 2020.
Components of intangible assets are as follows:
As of April 30,
2020
Gross
Carrying
Amount
Accumulated
Amortization
2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
(in 000s)
Net
Reacquired franchise rights
$
365,062
$
(159,754) $
205,308
$
350,410
$
(136,345) $
214,065
Customer relationships
Internally-developed software
Noncompete agreements
Franchise agreements
Purchased technology
Trade name
Acquired assets pending final
allocation (1)
314,191
154,083
41,072
19,201
122,700
5,800
(227,445)
(113,698)
(33,639)
(14,614)
(57,548)
(483)
48
—
86,746
40,385
7,433
4,587
65,152
5,317
48
274,838
139,239
33,376
19,201
54,700
—
431
(195,174)
(109,885)
(31,446)
(13,334)
(43,518)
—
—
79,664
29,354
1,930
5,867
11,182
—
431
$
1,022,157
$
(607,181) $
414,976
$
872,195
$
(529,702) $
342,493
(1) Represents recent business acquisitions for which final purchase price allocations have not yet been determined.
Amortization of intangible assets of continuing operations for the years ended April 30, 2020, 2019 and 2018 was
$83.6 million, $73.2 million and $79.9 million, respectively. Estimated amortization of intangible assets for fiscal years
2021, 2022, 2023, 2024 and 2025 is $76.0 million, $59.6 million, $41.8 million, $30.9 million and $17.7 million,
respectively.
TAX OFFICE ACQUISITIONS – We acquired approximately 238 offices which were added to our company-owned
and franchise network for the fiscal year ended April 30, 2020. The amounts and weighted-average lives of assets
acquired during fiscal year 2020, including amounts capitalized and placed in service related to internally-developed
software, are as follows:
Reacquired franchise rights
Customer relationships
Internally-developed software
Noncompete agreements
Total
$
$
Amount
Weighted-Average Life (in years)
(dollars in 000s)
14,756
19,080
14,196
679
48,711
4
5
3
5
4
WAVE ACQUISITION – During the fiscal year ended April 30, 2020, we acquired Wave HQ Inc. (formerly known as
Wave Financial Inc.) and its subsidiaries (collectively, Wave) for $408.4 million. The acquisition was funded with
available cash. Wave is a provider of software solutions and related services specifically designed to help small business
owners manage their finances. Major revenue sources include fees earned by providing payment processing, payroll
services, and bookkeeping services. We believe the acquisition of Wave enhances our position in the small business
market.
54
2020 Form 10-K | H&R Block, Inc.
Included in the transaction price is $8.2 million which will be treated as compensation expense over the next two
years as certain key employees are required to remain employees to receive payment. Additionally, key employees
are participating in a management incentive program consisting of cash performance incentives and stock-based
compensation which will be earned over the next three years and is not considered part of the purchase price.
The assets acquired, net of liabilities assumed on the acquisition date, and the identified intangible assets and
goodwill, are as follows:
Amount Acquired
Weighted-Average Life (in years)
($ in 000s)
Assets acquired and liabilities assumed, net
Deferred tax liability
Purchased technology
Customer relationships
Non-compete agreements
Trade name
Total identifiable net assets
Goodwill (1)
Total identifiable assets and goodwill
(1) See discussion of Wave's goodwill impairment of $106.0 million above.
$
$
3,928
(8,126)
68,000
23,000
7,070
5,800
99,672
300,560
400,232
10
5
5
10
The acquired identifiable assets and goodwill are only tax deductible for Global Intangible Low-Taxed Income (GILTI)
purposes.
Revenues of $36.7 million and pretax losses of $154.7 million were recognized by Wave from the period of June 28,
2019 through April 30, 2020, which are included in our consolidated statement of operations for the year ended
April 30, 2020. Had we acquired Wave as of May 1, 2018, we would have reported, on a pro-forma basis, consolidated
revenues of $2.65 billion and $3.13 billion for the years ended April 30, 2020 and 2019, respectively, and consolidated
pretax loss from continuing operations of $13.4 million in fiscal year 2020 and pretax income from continuing
operations of $496.9 million in 2019. Pro-forma adjustments primarily include amortization of intangible assets and
certain compensation expenses.
NOTE 7: LONG-TERM DEBT
The components of long-term debt are as follows:
As of April 30,
Senior Notes, 4.125%, due October 2020 (1)
Senior Notes, 5.500%, due November 2022 (1)
Senior Notes, 5.250%, due October 2025 (1)
Committed line of credit borrowings
Debt issuance costs and discounts
Less: Current portion
2020
$
650,000
$
500,000
350,000
2,000,000
(4,743)
3,495,257
(649,384)
(in 000s)
2019
650,000
500,000
350,000
—
(7,371)
1,492,629
—
$
2,845,873
$
1,492,629
(1) The Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified
redemption prices. The interest rates on our Senior Notes are subject to adjustment based upon our credit ratings.
UNSECURED COMMITTED LINE OF CREDIT – Our unsecured committed line of credit (CLOC) provides for an
unsecured senior revolving credit facility in the aggregate principal amount of $2.0 billion, which includes a $200.0
million sublimit for swingline loans and a $50.0 million sublimit for standby letters of credit. We may request increases
in the aggregate principal amount of the revolving credit facility of up to $500.0 million, subject to obtaining
commitments from lenders and meeting certain other conditions. The CLOC will mature on September 21, 2023,
unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due
and payable. Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.
H&R Block, Inc. | 2020 Form 10-K
55
The CLOC is subject to various conditions, triggers, events or occurrences that could result in earlier termination
and contains customary representations, warranties, covenants and events of default, including, without limitation:
(1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio calculated on a consolidated basis of no
greater than (a) 3.50 to 1.00 as of the last day of each fiscal quarter ending on April 30, July 31, and October 31 of
each year and (b) 4.50 to 1.00 as of the last day of each fiscal quarter ending on January 31 of each year; (2) a covenant
requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) calculated on a consolidated basis of
not less than 2.50 to 1.00 as of the last date of any fiscal quarter; and (3) covenants restricting our ability to incur
certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including
equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive
agreements. The CLOC includes provisions for an equity cure which could potentially allow us to independently cure
certain defaults. Proceeds under the CLOC may be used for working capital needs or for other general corporate
purposes. As of April 30, 2020, we were not in compliance with the debt-to-EBITDA ratio covenant related to the CLOC.
On May 22, 2020 we obtained a waiver of the debt-to-EBITDA ratio covenant for the period ended April 30, 2020. We
expect to be in compliance with our CLOC covenants each quarter in fiscal year 2021.
In order to strengthen our liquidity and ensure maximum flexibility, during our fourth quarter we drew the full
amount of our $2.0 billion CLOC. We had $2.0 billion outstanding on our CLOC as of April 30, 2020.
Our Senior Notes due in October 2020 are classified as a current liability as of April 30, 2020 because such amounts
are due within one year. We are considering various financing options in regard to the maturing Senior Notes and
anticipate these options will provide adequate liquidity to refinance the Senior Notes due in October 2020 at or prior
to maturity. The estimated fair value of our long-term debt, including the current portion of long-term debt, as of
April 30, 2020 and 2019 totaled $3.5 billion and $1.6 billion, respectively.
OTHER INFORMATION – The aggregate payments required to retire long-term debt are $650.0 million in fiscal year
2021, $500.0 million in fiscal year 2023, $2.0 billion in fiscal year 2024, and $350.0 million in fiscal year 2026.
NOTE 8: STOCK-BASED COMPENSATION
We have a stock-based Long Term Incentive Plan (Plan), under which we can grant stock options, restricted shares,
performance-based share units, restricted share units, deferred stock units and other forms of equity to employees,
non-employee directors and consultants. Stock-based compensation expense of our continuing operations totaled
$28.0 million, $23.8 million and $22.0 million in fiscal years 2020, 2019 and 2018, respectively, net of related tax
benefits of $7.2 million, $6.1 million and $6.9 million, respectively. We realized tax benefits of $5.9 million, $3.4 million
and $15.3 million in fiscal years 2020, 2019 and 2018, respectively.
As of April 30, 2020, we had 12.8 million shares reserved for future awards under our Plan. We issue shares from
our treasury stock to satisfy the exercise or vesting of stock-based awards and believe we have adequate treasury
stock balances available for future issuances.
We measure the fair value of options on the grant date or modification date using the Black-Scholes-Merton (Black-
Scholes) option valuation model based upon the expected term of the options. We measure the fair value of nonvested
shares and share units (other than performance-based nonvested share units) based on the closing price of our
common stock on the grant date. We measure the fair value of performance-based nonvested share units based on
the Monte Carlo valuation model, taking into account as necessary those provisions of the performance-based
nonvested share units that are characterized as market conditions. We generally expense the grant-date fair value,
net of estimated forfeitures, over the vesting period on a straight-line basis.
Options, nonvested shares and nonvested share units (other than performance-based nonvested share units)
granted to employees typically vest pro-rata based upon service over a three-year period with a portion vesting each
year. Performance-based nonvested share units granted to employees typically cliff vest at the end of a three-year
period based upon satisfaction of both service-based and performance-based requirements. The number of
performance-based share units that ultimately vest can range from zero up to 200 percent of the number granted,
based on the form of the award, which can vary by year of grant. The performance metrics for these awards typically
consist of earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA growth, return on invested
capital, total shareholder return or our stock price. Deferred stock units granted to non-employee directors vest when
they are granted and are settled six months after the director separates from service as a director of the Company,
except in the case of death.
56
2020 Form 10-K | H&R Block, Inc.
All share units granted to employees and non-employee directors receive cumulative dividend equivalents to the
extent of the units ultimately vesting at the time of distribution. Options granted under our Plan have a maximum
contractual term of ten years.
NONVESTED SHARES AND SHARE UNITS – A summary of nonvested shares, nonvested share units and deferred
stock units, including those that are performance-based, for the year ended April 30, 2020, is as follows:
Outstanding, beginning of the year
Granted
Released
Forfeited
Outstanding, end of the year
Nonvested Shares, Nonvested
Share Units, and Deferred
Stock Units
Performance-Based
Nonvested Share Units
(shares in 000s)
Weighted-
Average
Grant Date
Fair Value
Shares
$
1,583
1,093
(424)
(172)
2,080
$
24.34
28.50
25.30
27.45
25.94
Weighted-
Average
Grant Date
Fair Value
26.89
32.01
25.36
30.09
29.12
Shares
1,238
$
483
(450)
(26)
1,245
$
The total fair value of shares and units vesting during fiscal years 2020, 2019 and 2018 was $22.1 million, $17.9
million and $22.6 million, respectively. As of April 30, 2020, we had $31.0 million of total unrecognized compensation
cost related to these shares. This cost is expected to be recognized over a weighted-average period of two years.
When valuing our performance-based nonvested share units on the grant date, we typically estimate the expected
volatility using historical volatility for H&R Block, Inc. and selected comparable companies. The dividend yield is
calculated based on the current dividend and the market price of our common stock on the grant date. The risk-free
interest rate is based on the U.S. Treasury zero-coupon yield curve in effect on the grant date. Both expected volatility
and the risk-free interest rate are based on a period that approximates the expected term. The following assumptions
were used to value performance-based nonvested share units using the Monte Carlo valuation model during the
periods:
Year ended April 30,
Expected volatility
Expected term
Dividend yield (1)
Risk-free interest rate
Weighted-average fair value
2020
2019
2018
13.47% - 66.33%
13.16% - 66.47%
13.33% - 81.19%
3 years
0% - 3.55%
3 years
0% - 4.39%
3 years
0% - 3.23%
$
1.70%
32.01
$
2.61%
1.42% - 1.55%
24.48
$
32.66
(1) The valuation model assumes that dividends are reinvested by the Company on a continuous basis.
STOCK OPTIONS – A summary of options for the fiscal year ended April 30, 2020, is as follows:
Outstanding, beginning of the year
Granted
Exercised
Forfeited or expired
Outstanding, end of the year
Exercisable, end of the year
Exercisable and expected to vest
Shares
439
$
—
(11)
—
428
337
423
$
$
$
(in 000s, except per share amounts)
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
25.47
—
16.89
—
25.68
24.58
25.63
6 years
5 years
6 years
$
$
$
13
13
13
H&R Block, Inc. | 2020 Form 10-K
57
The total intrinsic value of options exercised during fiscal years 2020, 2019 and 2018 was $0.1 million, $0.4 million
and $18.9 million, respectively. As of April 30, 2020, we had $0.2 million of total unrecognized compensation cost
related to outstanding options. The cost is expected to be recognized over a weighted-average period of four months.
When valuing our options on the grant date, we typically estimate the expected volatility using our historical stock
price data. We also use historical exercise and forfeiture behaviors to estimate the options expected term and our
forfeiture rate. The dividend yield is calculated based on the current dividend and the market price of our common
stock on the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve in effect on
the grant date. Both expected volatility and the risk-free interest rate are based on a period that approximates the
expected term.
No stock options were granted in fiscal years 2020 and 2019. The weighted-average fair value for stock options
granted during fiscal year 2018 was $5.02.
NOTE 9: INCOME TAXES
We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and
foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or
through the appeals process. Our U.S. federal income tax returns for 2017 and later years remain open for examination.
Our U.S. federal income tax returns for 2016 and all prior periods are closed. With respect to state and local jurisdictions
and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax
returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts
of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any
adjustments that might be incurred due to federal, state, local or foreign audits.
On December 22, 2017, the U.S. government enacted legislation commonly referred to as the Tax Cuts and Jobs
Act (Tax Legislation), which made broad and complex changes to the U.S. tax code that impacted our financial
statements, the most significant being a reduction in the U.S. federal corporate income tax rate from 35% to 21% and
the imposition of a one-time transition tax on certain earnings of foreign subsidiaries. In addition, the Securities and
Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118 (SAB 118), which provided guidance on
accounting for the tax effects of Tax Legislation. SAB 118 provided a measurement period that should not extend
beyond one year from the Tax Legislation’s enactment date for companies to complete their analysis and apply the
provisions of Tax Legislation to their financial statements. We completed our analysis of the Tax Legislation in fiscal
2019.
More recently, both the United States and Canada implemented emergency economic relief programs as a way of
minimizing the economic impact of the global COVID-19 pandemic during our fourth fiscal quarter. In the U.S., the
Coronavirus Aid, Relief, and Economic Security (CARES) Act includes, among other items, provisions relating to
refundable payroll tax credits, deferment of certain tax payments, modifications to the net interest deduction
limitations and net operating loss carrybacks, and technical corrections to tax depreciation methods for qualified
improvement property (QIP). As of April 24, 2020, we have elected to defer the employer-paid portion of social security
taxes. Additionally, as a result of the technical amendments made by the CARES Act to QIP, we are presently estimating
the acceleration of tax depreciation expenses of $8.5 million. Canada’s COVID-19 legislation, includes, among other
items, a Canada Emergency Wage Subsidy (CEWS). We continue to evaluate the impacts the CARES Act, CEWS, and
other global COVID-19 relief legislation could have on our operating results, cash flows and financial condition. Further,
we will record the associated tax impacts in future periods as they occur, generally when guidance is finalized, new
information is obtained, the Company is able to estimate an impact, or when we realize any non-income tax benefits.
The components of income (loss) from continuing operations upon which domestic and foreign income taxes have
been provided are as follows:
Year ended April 30,
Domestic
Foreign
58
2020 Form 10-K | H&R Block, Inc.
2020
56,121
$
(59,495)
(3,374) $
2019
389,319
155,841
545,160
$
$
$
$
(in 000s)
2018
547,101
121,631
668,732
We operate 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 companies and predictions of future economic conditions. Although these
intercompany transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, transfer
pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes
may impact our mix of earnings in countries with differing statutory tax rates.
The reconciliation between the income tax provision and the amount computed by applying the statutory U.S.
federal tax rate to income taxes of continuing operations is as follows:
Year ended April 30,
U.S. statutory tax rate
Change in tax rate resulting from:
State income taxes, net of federal income tax benefit
Earnings taxed in foreign jurisdictions
Permanent differences
Impairment of Goodwill
Uncertain tax positions
U.S. tax on income from foreign affiliates
Remeasurement of deferred tax assets and liabilities
Changes in prior year estimates
Federal income tax credits
Tax impacts of stock-based compensation vesting
Tax benefit due to effective date of statutory rate change
Change in valuation allowance - domestic
Change in valuation allowance - foreign
Other
Effective tax rate
2020
21.0 %
20.4 %
619.4 %
(257.5)%
(832.5)%
508.3 %
(247.4)%
117.6 %
55.5 %
216.3 %
44.8 %
— %
37.1 %
20.6 %
(41.2)%
282.4 %
2019
21.0 %
2.3 %
(2.7)%
0.3 %
— %
(2.3)%
— %
0.2 %
— %
— %
— %
— %
0.4 %
(0.8)%
(0.1)%
18.3 %
2018
21.0 %
2.2 %
(4.9)%
0.4 %
— %
3.6 %
— %
(2.6)%
— %
— %
— %
(15.9)%
1.1 %
2.9 %
(1.5)%
6.3 %
During fiscal year 2020, we recorded a goodwill impairment related to our Wave reporting unit of $106.0 million.
We have made the tax accounting policy election to first allocate the impairment to our nondeductible goodwill based
on each legal entity's pre-impairment nondeductible goodwill balance.
Our effective tax rate for continuing operations was 282.4% and 18.3% for 2020 and 2019, respectively. The increase
in the effective tax rate in 2020 compared to 2019 is primarily due to the near break-even loss in the current year of
$3.4 million, which causes an exaggerated rate impact for nearly all adjustments. The largest increases in the effective
tax rate over prior year are tax benefits from statute of limitations expiring on certain uncertain tax positions and the
mix of earnings in foreign jurisdictions, partially offset by the adverse tax impacts associated with the nondeductible
goodwill impairment to the Wave reporting unit. For fiscal year 2020, tax benefits increase the effective tax rate while
tax expense decreases the effective tax rate.
The increase in the effective tax rate in 2019 compared to 2018 is due to the impact of the reduction in the U.S.
corporate income tax rate from 35% to 21% in fiscal year 2018. The effects of the rate change were exaggerated in
fiscal year 2018 due to the seasonality of our business and differing year ends for corporate income tax filing and
financial reporting purposes.
H&R Block, Inc. | 2020 Form 10-K
59
The components of income tax expense (benefit) for continuing operations are as follows:
Year ended April 30,
2020
2019
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
$
18,048
$
74,993
$
(16,614)
1,991
3,425
1,703
(1,516)
(13,142)
(12,955)
12,345
6,711
94,049
6,625
(1,070)
300
5,855
Total income tax expense (benefit)
$
(9,530) $
99,904
$
(in 000s)
2018
(53,630)
25,240
9,953
(18,437)
50,505
24,666
(14,911)
60,260
41,823
The negative current state income tax expense in fiscal year 2020 is primarily driven by the release of uncertain
tax benefits due to statute of limitations, settlements with taxing authorities and domestic legal entity income mix.
The negative current federal income tax expense in fiscal year 2018 was primarily driven by the decrease in the
federal income tax rate with the seasonality of our business and the differing year ends for corporate income tax filing
and financial reporting purposes.
The net loss from discontinued operations for fiscal years 2020, 2019 and 2018 totaled $13.7 million, $22.7 million
and $13.8 million, respectively, and was net of tax benefits of $4.1 million, $6.8 million and $7.0 million, respectively.
The significant components of deferred tax assets and liabilities are reflected in the following table:
As of April 30,
Deferred tax assets:
Accrued expenses
Deferred revenue
Allowance for credit losses and related reserves
Internally-developed software
Deferred and stock-based compensation
Net operating loss carry-forward
Lease liabilities
Federal tax benefits related to state unrecognized tax benefits
Intangibles - intellectual property
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Prepaid expenses and other
Lease right of use asset
Property and equipment
Intangibles
Total deferred tax liabilities
Net deferred tax assets
60
2020 Form 10-K | H&R Block, Inc.
2020
(in 000s)
2019
$
4,646
$
11,082
29,666
—
6,669
86,213
126,505
16,729
85,688
(45,124)
322,074
(5,189)
(123,900)
(12,221)
(64,252)
(205,562)
4,479
9,603
25,849
4,588
5,970
72,618
—
20,141
93,300
(47,070)
189,478
(8,592)
—
(9,726)
(59,477)
(77,795)
$
116,512
$
111,683
(in 000s)
2019
130,609
(18,926)
111,683
(in 000s)
2018
22,844
26,371
—
—
A reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the
consolidated balance sheets is as follows:
As of April 30,
Deferred income tax assets
Deferred tax liabilities
Net deferred tax asset
$
$
2020
138,527
(22,015)
116,512
$
$
Changes in our valuation allowance for fiscal years 2020, 2019 and 2018 are as follows:
Year ended April 30,
Balance, beginning of the year
Additions:
Charged to costs and expenses
Charged to other accounts
Deductions
Balance, end of the year
$
$
2020
2019
47,070
$
49,215
$
2,151
—
(4,097)
2,302
—
(4,447)
45,124
$
47,070
$
49,215
Our valuation allowance on deferred tax assets has a net decrease of $1.9 million during the current period. The
gross decrease in valuation allowance of $4.1 million is due to the ability to utilize NOLs in future periods we were
previously unable to utilize. The decrease is offset by a $2.2 million increase to valuation allowance for NOL DTAs
related to current year foreign losses that are not expected to be utilized in future years.
Certain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join
in filing consolidated or combined returns in such jurisdictions. As of April 30, 2020, we had NOLs in various states
and foreign jurisdictions. The amount of state and foreign NOLs vary by taxing jurisdiction. We maintain a valuation
allowance of $22.8 million on state NOLs and $22.2 million on foreign NOLs for the portion of such losses that, more
likely than not, will not be realized. Of the $45.0 million of net NOL DTAs, $5.9 million will expire in varying amounts
during fiscal years 2021 through 2040 and the remaining $39.1 million has no expiration.
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; therefore, no provision has been made for income taxes that might be payable
upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected
foreign tax credits, is immaterial as of April 30, 2020.
Changes in unrecognized tax benefits for fiscal years 2020, 2019 and 2018 are as follows:
Year ended April 30,
Balance, beginning of the year
Additions based on tax positions related to prior years
Reductions based on tax positions related to prior years
Additions based on tax positions related to the current year
Reductions related to settlements with tax authorities
Expiration of statute of limitations
Other
Balance, end of the year
2020
2019
$
185,144
$
186,061
$
1,501
(10,128)
12,093
(980)
(19,568)
—
9,937
(42,647)
38,611
(2,025)
(4,793)
—
(in 000s)
2018
149,943
6,657
(25,259)
68,292
(637)
(12,936)
1
$
168,062
$
185,144
$
186,061
The total gross unrecognized tax benefit ending balance as of April 30, 2020, 2019 and 2018, includes $132.3 million,
$122.5 million and $132.4 million, respectively, which if recognized, would impact our effective tax rate. The difference
results from adjusting the gross balances for such items as federal, state and foreign deferred items, interest and
H&R Block, Inc. | 2020 Form 10-K
61
deductible taxes. Reductions from prior year are primarily related to settlements with taxing authorities and expirations
of statute of limitations.
We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately
$12.2 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations,
anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such
matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate
has been included.
Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The
total gross interest and penalties accrued as of April 30, 2020, 2019 and 2018 totaled $22.0 million, $22.4 million and
$18.7 million, respectively.
NOTE 10: OTHER INCOME AND OTHER EXPENSES
The following table shows the components of other income (expense), net:
Year ended April 30,
Interest income
Foreign currency losses, net
Other, net
2020
2019
14,254
$
16,512
$
(223)
1,606
(233)
140
15,637
$
16,419
$
$
$
(in 000s)
2018
6,861
(165)
(642)
6,054
NOTE 11: COMMITMENTS AND CONTINGENCIES
Assisted tax returns, as well as services provided under Tax Pro GoSM and Tax Pro ReviewSM, are covered by our 100%
accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error
on a return. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a
maximum of $10,000, if our software makes an arithmetic error that results in payment of penalties and/or interest
to the IRS that a client would otherwise not have been required to pay. Our liability related to estimated losses under
the 100% accuracy guarantee was $9.4 million and $9.9 million as of April 30, 2020 and 2019, respectively. The short-
term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated
balance sheets.
Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial
performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued
compensation related to continued employment of key employees were $14.2 million and $11.1 million as of April 30,
2020 and 2019, respectively, with amounts recorded in deferred revenue and other liabilities. Should actual results
differ from our estimates, future payments made will differ from the above estimate and any differences will be
recorded in results from continuing operations.
We have contractual commitments to fund certain franchises with approved revolving lines of credit. Our total
obligation under these lines of credit was $41.0 million as of April 30, 2020, and net of amounts drawn and outstanding,
our remaining commitment to fund totaled $26.0 million.
We are self-insured for certain risks, including, employer provided medical benefits, workers' compensation,
property and casualty, tax errors and omissions, and claims related to POM. These programs maintain various self-
insured retentions. For all but POM in company-owned offices, commercial insurance is purchased in excess of the
self-insured retentions. We accrue estimated losses for self-insured retentions using actuarial models and assumptions
based on historical loss experience.
We have a deferred compensation plan that permits certain employees to defer portions of their compensation
and accrue income on the deferred amounts. Included in deferred revenue and other liabilities is $15.1 million and
$19.9 million as of April 30, 2020 and 2019, respectively, reflecting our obligation under these plans.
Emerald AdvanceTM lines of credit are originated by Axos and are offered from mid-November to mid-January. We
purchase a 90% participation interest, at par, in all EAs originated by Axos in accordance with our participation
agreement. See note 4 for additional information about these balances.
62
2020 Form 10-K | H&R Block, Inc.
On October 8, 2019, we entered into a Refund Advance Program Agreement and certain ancillary agreements with
Axos, pursuant to which they originate and fund Refund Advance loans, and provide technology, software, and
underwriting support services related to such loans during the 2020 tax season. Refund Advance loans are offered to
certain assisted U.S. tax preparation clients, based on client eligibility as determined by the loan originator. We pay
loan origination fees based on loan size and customer type. The loan origination fees are intended to cover expected
loan losses and payments to capital providers, among other items. We have provided two limited guarantees related
to this agreement. We have provided a limited guarantee up to $7.5 million related to loans to clients prior to the IRS
accepting electronic filing. We accrued an estimated liability of $2.5 million at April 30, 2020 related to this guarantee,
compared to $1.6 million at April 30, 2019. We paid $1.5 million related to this guarantee for the fiscal year 2019 tax
season. Additionally, we provided a limited guarantee for the remaining loans, up to $57 million in the aggregate,
which would cover certain incremental loan losses. We accrued an estimated liability of $2.9 million at April 30, 2020
related to this guarantee. We had no balance accrued related to this guarantee at April 30, 2019. We were not required
to make a payment in connection with this guarantee for the fiscal year 2019 tax season.
We offer POM to U.S. and Canadian clients, whereby we (1) represent our clients if they are audited by a taxing
authority, and (2) assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors
attributable to H&R Block. The additional taxes paid under POM have a cumulative limit of $6,000 for U.S. clients and
$3,000CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for
applicable clients during the taxable year protected by POM. A loss on POM would be recognized if the sum of expected
costs for services exceeded unearned revenue.
NOTE 12: LEASES
For the year ended April 30, 2020, our lease costs consisted of the following:
Year ended April 30,
Operating lease costs
Variable lease costs
Subrental income
Total lease costs
2020
$
$
Other information related to operating leases for the year ended April 30, 2020 is as follows:
Cash paid for operating lease costs
Operating lease right of use assets obtained in exchange for operating lease liabilities (1)
Weighted-average remaining operating lease term (years)
Weighted-average operating lease discount rate
(1)
This balance excludes the initial impacts of the adoption of ASU 2016-02.
Aggregate operating lease maturities as of April 30, 2020 are as follows:
2021
2022
2023
2024
2025
2026 and thereafter
Total future undiscounted operating lease payments
Less imputed interest
Total operating lease liabilities
$
$
$
$
(in 000s)
242,314
71,319
(1,277)
312,356
($ in 000s)
223,080
345,079
3
3.3%
(in 000s)
217,088
152,441
93,256
46,302
18,843
6,536
534,466
(26,363)
508,103
H&R Block, Inc. | 2020 Form 10-K
63
As disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, our rent expense totaled
$255.0 million and our future undiscounted operating lease commitments under the previous accounting standard
totaled $573.3 million, as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total future undiscounted operating lease payments
$
$
(in 000s)
232,175
160,414
102,379
49,095
20,005
9,243
573,311
NOTE 13: LITIGATION AND OTHER RELATED CONTINGENCIES
We are a defendant in numerous litigation matters, arising both in the ordinary course of business and otherwise,
including as described below. The matters described below are not all of the lawsuits to which we are subject. In some
of the matters, very large or indeterminate amounts, including punitive damages, are sought. U.S. jurisdictions permit
considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not
to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient
to invoke the jurisdiction of the court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in
amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. We believe that the
monetary relief which may be specified in a lawsuit or a claim bears little relevance to its merits or disposition value
due to this variability in pleadings and our experience in litigating or resolving through settlement of numerous claims
over an extended period of time.
The outcome of a litigation matter and the amount or range of potential loss at particular points in time may be
difficult to ascertain. Among other things, uncertainties can include how fact finders will evaluate documentary
evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the
law. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves
view the relevant evidence and applicable law.
In addition to litigation matters, we are also subject to claims and other loss contingencies arising out of our business
activities, including as described below.
We accrue liabilities for litigation, claims, including indemnification and contribution claims, and other related loss
contingencies and any related settlements (each referred to, individually, as a "matter" and, collectively, as "matters")
when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If a range
of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within
that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than
any other amount, we accrue the minimum amount in the range.
For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be
reasonably estimated, no accrual has been made. It is possible that such matters could require us to pay damages or
make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of April 30, 2020.
While the potential future liabilities could be material in the particular quarterly or annual periods in which they are
recorded, based on information currently known, we do not believe any such liabilities are likely to have a material
adverse effect on our business and our consolidated financial position, results of operations, and cash flows. As of
April 30, 2020 and 2019, our total accrued liabilities were $1.6 million and $1.9 million, respectively.
Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been
accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where
a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range only represents
those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not
represent our maximum loss exposure.
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2020 Form 10-K | H&R Block, Inc.
Matters for which we are not currently able to estimate the reasonably possible loss or range of loss are not included
in this range. We are often unable to estimate the possible loss or range of loss until developments in such matters
have provided sufficient information to support an assessment of the reasonably possible loss or range of loss, such
as precise information about the amount of damages or other remedies being asserted, the defenses to the claims
being asserted, discovery from other parties and investigation of factual allegations, rulings by courts on motions or
appeals, analysis by experts, or the status or terms of any settlement negotiations.
The estimated range of reasonably possible loss is based upon currently available information and is subject to
significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters
underlying the estimated range will change from time to time, and actual results may vary significantly from the
current estimate. As of April 30, 2020, we believe the estimate of the aggregate range of reasonably possible losses
in excess of amounts accrued, where the range of loss can be estimated, is not material.
On a quarterly and annual basis, we review relevant information with respect to litigation and other loss
contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss based
on such reviews. Costs incurred with defending matters are expensed as incurred. Any receivable for insurance
recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable
and reasonably estimable.
We believe we have meritorious defenses to the claims asserted in the various matters described in this note, and
we intend to defend them vigorously. The amounts claimed in the matters are substantial, however, and there can be
no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our
operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be
substantial and could have a material adverse impact on our business and our consolidated financial position, results
of operations, and cash flows.
LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS –
Free File Litigation. On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the
State of California in the Superior Court of California, County of Los Angeles (Case No. 19STCV15742) styled The People
of the State of California v. H&R Block, Inc., et al. The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged
in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation
of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The complaint
seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible
to file under the IRS Free File Program for the time period starting 4 years prior to the date of the filing of the complaint,
pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the
case and amended its complaint to add HRB Tax Group, Inc. We filed a motion to strike certain allegations of the
complaint seeking relief beyond the geographic boundaries of the City of Los Angeles, as well as a motion to stay the
case based on the primary jurisdiction doctrine, both of which remain pending. We have not concluded that a loss
related to this matter is probable, nor have we accrued a liability related to this matter.
On May 17, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc. and HRB
Digital LLC in the Superior Court of the State of California, County of San Francisco (Case No. CGC-19576093) styled
Olosoni and Snarr v. H&R Block, Inc., et al. The case was removed to the United States District Court for the Northern
District of California on June 21, 2019 (Case No. 3:19-cv-03610-SK). The plaintiffs filed a first amended complaint on
August 9, 2019, dropping H&R Block, Inc. from the case. In their amended complaint, the plaintiffs seek to represent
classes of all persons, between May 17, 2015 and the present, who (1) paid to file one or more federal tax returns
through H&R Block’s internet-based filing system, (2) were eligible to file those tax returns for free through the H&R
Block Free File offer of the IRS Free File Program, and (3) resided in and were citizens of California at the time of the
payments. The plaintiffs generally allege unlawful, unfair, fraudulent and deceptive business practices and acts in
connection with the IRS Free File Program in violation of the California Consumers Legal Remedies Act, California Civil
Code §§1750, et seq., California False Advertising Law, California Business and Professions Code §§17500, et seq., and
California Unfair Competition Law, California Business and Professions Code §§17200 et seq. The plaintiffs seek
declaratory and injunctive relief, restitution, compensatory damages, punitive damages, interest, attorneys’ fees and
costs. We filed a motion to stay the proceedings based on the primary jurisdiction doctrine and a motion to compel
arbitration, both of which were denied. An appeal of the denial of the motion to compel arbitration is pending. We
filed a motion to stay the claims pending the outcome of the appeal, as well as a motion to dismiss the claims, which
H&R Block, Inc. | 2020 Form 10-K
65
also were denied. We filed an answer to the amended complaint on April 7, 2020. We have not concluded that a loss
related to this matter is probable, nor have we accrued a liability related to this matter.
On September 26, 2019, a putative class action complaint was filed against H&R Block, Inc., HRB Tax Group, Inc.,
HRB Digital LLC and Free File, Inc. in the United States District Court for the Western District of Missouri (Case No.
4:19-cv-00788-GAF) styled Swanson v. H&R Block, Inc., et al. The plaintiff seeks to represent both a nationwide class
and a California subclass of all persons eligible for the IRS Free File Program who paid to use an H&R Block product
to file an online tax return for the 2002 through 2018 tax filing years. The plaintiff generally alleges unlawful, unfair,
fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the
California Consumers Legal Remedies Act, California Civil Code §§1750, et seq., California False Advertising Law,
California Business and Professions Code §§17500, et seq., California Unfair Competition Law, California Business and
Professions Code §§17200, et seq., in addition to breach of contract and fraud. The plaintiff seeks injunctive relief,
disgorgement, compensatory damages, statutory damages, punitive damages, interest, attorneys’ fees and costs. We
filed a motion to stay the proceedings based on the primary jurisdiction doctrine and a motion to compel arbitration,
both of which remain pending. We have not concluded that a loss related to this matter is probable, nor have we
accrued a liability related to this matter.
We have also received and are responding to certain governmental inquiries relating to the IRS Free File Program.
INCLUDING
LITIGATION, CLAIMS,
INDEMNIFICATION AND CONTRIBUTION CLAIMS, OR OTHER LOSS
CONTINGENCIES PERTAINING TO DISCONTINUED MORTGAGE OPERATIONS – Although SCC ceased its mortgage loan
origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has
been, remains, and may in the future be, subject to litigation, claims, including indemnification and contribution
claims, and other loss contingencies pertaining to SCC's mortgage business activities that occurred prior to such
termination and sale. These lawsuits, claims, and other loss contingencies include actions by regulators, third parties
seeking indemnification or contribution, including depositors, underwriters, and securitization trustees, individual
plaintiffs, and cases in which plaintiffs seek to represent a class of others alleged to be similarly situated. Among other
things, these lawsuits, claims, and contingencies allege or may allege discriminatory or unfair and deceptive loan
origination and servicing (including debt collection, foreclosure, and eviction) practices, other common law torts,
rights to indemnification or contribution, breach of contract, violations of securities laws, and violations of a variety
of federal statutes, including the Truth in Lending Act (TILA), Equal Credit Opportunity Act, Fair Housing Act, Real Estate
Settlement Procedures Act (RESPA), Home Ownership & Equity Protection Act (HOEPA), as well as similar state statutes.
It is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters. In many
of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things,
the inherent uncertainties involved in these matters, some of which are beyond the Company's control, and the
indeterminate damages sought in some of these matters.
Mortgage loans originated by SCC were sold either as whole loans to single third-party buyers, who generally
securitized such loans, or in the form of residential mortgage-backed securities (RMBSs). In connection with the sale
of loans and/or RMBSs, SCC made certain representations and warranties. Claims under these representations and
warranties together with any settlement arrangements related to these losses are collectively referred to as
"representation and warranty claims." The statute of limitations for a contractual claim to enforce a representation
and warranty obligation is generally six years or such shorter limitations period that may apply under the law of a
state where the economic injury occurred. On June 11, 2015, the New York Court of Appeals, New York’s highest court,
held in ACE Securities Corp. v. DB Structured Products, Inc., that the six-year statute of limitations under New York law
starts to run at the time the representations and warranties are made, not the date when the repurchase demand
was denied. This decision applies to claims and lawsuits brought against SCC where New York law governs. New York
law governs many, though not all, of the RMBS transactions into which SCC entered. However, this decision would
not affect representation and warranty claims and lawsuits SCC has received or may receive, for example, where the
statute of limitations has been tolled by agreement or a suit was timely filed.
In response to the statute of limitations rulings in the ACE case and similar rulings in other state and federal courts,
parties seeking to pursue representation and warranty claims or lawsuits have sought, and may in the future seek, to
distinguish certain aspects of the ACE decision, pursue alternate legal theories of recovery, or assert claims against
other contractual parties such as securitization trustees. For example, a 2016 ruling by a New York intermediate
appellate court, followed by the federal district court in the second Homeward case described below, allowed a
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2020 Form 10-K | H&R Block, Inc.
counterparty to pursue litigation on additional loans in the same trust even though only some of the loans complied
with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. Additionally, plaintiffs
in litigation to which SCC is not party have alleged breaches of an independent contractual duty to provide notice of
material breaches of representations and warranties and pursued separate claims to which, they argue, the statute
of limitations ruling in the ACE case does not apply. The impact on SCC from alternative legal theories seeking to avoid
or distinguish the ACE decision, or judicial limitations on the ACE decision, is unclear. SCC has not accrued liabilities
for claims not subject to a tolling arrangement or not relating back to timely filed litigation.
On May 31, 2012, a lawsuit was filed by Homeward Residential, Inc. (Homeward) in the Supreme Court of the State
of New York, County of New York, against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Index
No. 651885/2012). SCC removed the case to the United States District Court for the Southern District of New York on
June 28, 2012 (Case No. 12-cv-5067). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan
Trust 2006-2 and for the benefit of the trustee and the certificate holders of such trust, asserts claims for breach of
contract, anticipatory breach, indemnity, and declaratory judgment in connection with alleged losses incurred as a
result of the breach of representations and warranties relating to SCC and to loans sold to the trust. The trust was
originally collateralized with approximately 7,500 loans. The plaintiff seeks specific performance of alleged repurchase
obligations or damages to compensate the trust and its certificate holders for alleged actual and anticipated losses,
as well as a repurchase of all loans due to alleged misrepresentations by SCC as to itself and as to the loans' compliance
with its underwriting standards and the value of underlying real estate. In response to a motion filed by SCC, the court
dismissed the plaintiff's claims for breach of the duty to cure or repurchase, anticipatory breach, indemnity, and
declaratory judgment. The case is proceeding on the remaining claims. Representatives of a holder of certificates in
the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims against H&R Block, Inc.
based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court denied the motion to
intervene. Discovery in the case closed on September 30, 2019. Motions for summary judgment were filed on
December 6, 2019 and remain pending, with briefing on the motions concluded in March 2020. A mediation session
between the parties was held on January 28, 2020, which did not result in resolution of the case. A trial date has not
yet been set. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability
related to this matter.
On September 28, 2012, a second lawsuit was filed by Homeward in the United States District Court for the Southern
District of New York against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 12-cv-7319).
The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of
the trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection
with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to
the trust. The trust was originally collateralized with approximately 7,500 loans. The plaintiff seeks specific performance
of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual
and anticipated losses. In response to a motion filed by SCC, the court dismissed the plaintiff's claims for breach of
the duty to cure or repurchase and for indemnification of its costs associated with the litigation. On September 30,
2016, the court granted a motion allowing the plaintiff to file a second amended complaint to include breach of
contract claims with respect to 649 additional loans in the trust and to allow such claims with respect to other loans
in the trust proven to be in material breach of SCC’s representations and warranties. SCC filed a motion for
reconsideration, followed by a motion for leave to appeal the ruling, both of which were denied. On October 6, 2016,
the plaintiff filed its second amended complaint. In response to a motion filed by SCC, the court dismissed the plaintiff's
claim for breach of one of the representations. The case is proceeding on the remaining claims. Representatives of a
holder of certificates in the trust filed a motion to intervene to add H&R Block, Inc. to the lawsuit and assert claims
against H&R Block, Inc. based on alter ego, corporate veil-piercing, and agency law. On February 12, 2018, the court
denied the motion to intervene. The settlement payments that were made in fiscal year 2018 for representation and
warranty claims are related to some of the loans in this case. Discovery in the case closed on September 30, 2019.
Motions for summary judgment were filed on December 6, 2019 and remain pending, with briefing on the motions
concluded in March 2020. A mediation session between the parties was held on January 28, 2020, which did not result
in resolution of the case. A trial date has not yet been set. We have not concluded that a loss related to this matter
is probable, nor have we accrued a liability related to this matter.
Parties, including 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. A
H&R Block, Inc. | 2020 Form 10-K
67
variety of claims are alleged in these matters, including violations of federal and state securities laws and common
law fraud, based on alleged materially inaccurate or misleading disclosures, that originators, depositors, securitization
trustees, or servicers breached their representations and warranties or otherwise failed to fulfill their obligations, or
that securitization trustees violated statutory requirements by failing to properly protect the certificate holders’
interests. SCC has received notices of claims for indemnification or potential indemnification obligations relating to
such matters, including lawsuits or settlements to which underwriters, depositors, or securitization trustees are party.
Additional lawsuits against the parties to the securitization transactions may be filed in the future, and SCC may receive
additional notices of claims for indemnification, contribution or similar obligations with respect to existing or new
lawsuits or settlements of such lawsuits or other claims. Certain of the notices received included, and future notices
may include, a reservation of rights to assert claims for contribution, which are referred to herein as "contribution
claims." Contribution claims may become operative if indemnification is unavailable or insufficient to cover all of the
losses and expenses involved. We have not concluded that a loss related to any of these indemnification or contribution
claims is probable, nor have we accrued a liability related to any of these claims.
If the amount that SCC is ultimately required to pay with respect to claims and litigation related to its past sales
and securitizations of mortgage loans, together with payment of SCC's related administration and legal expense,
exceeds SCC's net assets, the creditors of SCC, other potential claimants, or a bankruptcy trustee if SCC were to file
or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. Claimants may
also attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its
liabilities. SCC's principal assets, as of April 30, 2020, total approximately $276 million and consist of an intercompany
note receivable. We believe our legal position is strong on any potential corporate veil-piercing arguments; however,
if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated
financial position, results of operations, and cash flows.
OTHER – We are from time to time a party to litigation, claims and other loss contingencies not discussed herein
arising out of our business operations. These matters may include actions by state attorneys general, other state
regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent others who may be
similarly situated.
While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any,
we are required to pay to discharge or settle these other matters will not have a material adverse impact on our
business and our consolidated financial position, results of operations, and cash flows.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements or reportable events requiring disclosure pursuant to Item 304(b) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES – We have established disclosure controls and
procedures (Disclosure Controls) to ensure that information required to be disclosed in the Company's reports filed
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure Controls are also
designed to ensure that such information is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our Disclosure Controls were designed to provide reasonable assurance that the controls and procedures would meet
their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect
that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable assurance of achieving the designed control objectives and management is
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of
two or more people or by management override of the control. Because of the inherent limitations in a cost-effective,
maturing control system, misstatements due to error or fraud may occur and not be detected.
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2020 Form 10-K | H&R Block, Inc.
As of the end of the period covered by this Form 10-K, management, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of
our Disclosure Controls. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
our Disclosure Controls were effective as of the end of the period covered by this Annual Report on Form 10-K.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING – Management is responsible
for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is
defined in Exchange Act Rules 13a-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 as of April 30, 2020 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.
Based on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of April 30,
2020, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO.
The Company's external auditors that audited the consolidated financial statements included in Item 8, Deloitte &
Touche LLP, an independent registered public accounting firm, have issued an audit report on the effectiveness of the
Company's internal control over financial reporting. This report appears near the beginning of Item 8.
(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING – During the quarter ended April 30, 2020,
there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers is included under the caption "Information About Our Executive Officers" in
Item 1 of this report on Form 10-K.
The following information appearing in our definitive proxy statement, to be filed no later than 120 days after
April 30, 2020, is incorporated herein by reference:
Information appearing under the heading "Proposal 1 – Election of Directors";
Information appearing under the heading "Delinquent Section 16(a) Reports" (if applicable); and
Information appearing under the heading "Board of Directors' Meetings and Committees" regarding
identification of the Audit Committee and Audit Committee financial experts.
We have adopted a Code of Business Ethics and Conduct that applies to our directors, officers and employees,
including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar
functions. A copy of the Code of Business Ethics and Conduct is available on our website at www.hrblock.com. We
intend to provide information on our website regarding amendments to, or waivers under, the Code of Business Ethics
and Conduct.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2020, in the sections entitled "Director Compensation," "Director Compensation
Table," "Compensation Discussion and Analysis," "Compensation Committee Report," "Compensation Committee
Interlocks and Insider Participation," "Risk Assessment in Compensation Programs," and "Executive Compensation,"
and is incorporated herein by reference.
H&R Block, Inc. | 2020 Form 10-K
69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2020, in the sections entitled "Equity Compensation Plans" and "Information
Regarding Security Holders," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2020, in the sections entitled "Employment Agreements, Change in Control and
Other Arrangements," "Review of Related Person Transactions," and "Corporate Governance," and is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2020, in the section entitled "Audit Fees," and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1.
The following financial statements appearing in Item 8: "Consolidated Statements of Operations and
Comprehensive Income(Loss)," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows"
and "Consolidated Statements of Stockholders' Equity."
2.
Exhibits – The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.
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2020 Form 10-K | H&R Block, Inc.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
H&R BLOCK, INC.
/s/ Jeffrey J. Jones II
Jeffrey J. Jones II
President and Chief Executive Officer
June 16, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated on June 16, 2020.
/s/ Jeffrey J. Jones II
/s/ Tony G. Bowen
/s/ Kellie J. Logerwell
Jeffrey J. Jones II
President, Chief Executive Officer
and Director
(principal executive officer)
Tony G. Bowen
Chief Financial Officer
(principal financial officer)
Kellie J. Logerwell
Chief Accounting Officer
(principal accounting officer)
/s/ Robert A. Gerard
Robert A. Gerard
/s/ Angela N. Archon
Angela N. Archon
Director, Chairman of the Board
Director
/s/ Anuradha Gupta
Anuradha Gupta
Director
/s/ Richard A. Johnson
Richard A. Johnson
Director
/s/ Paul J. Brown
Paul J. Brown
Director
/s/ David B. Lewis
David B. Lewis
Director
/s/ Victoria J. Reich
Victoria J. Reich
Director
/s/ Bruce C. Rohde
Bruce C. Rohde
Director
/s/ Matthew E. Winter
Matthew E. Winter
Director
/s/ Christianna Wood
Christianna Wood
Director
H&R Block, Inc. | 2020 Form 10-K
71
EXHIBIT INDEX
The following exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
Share Purchase Agreement, dated June 10, 2019, by and among Blue Fountains International, ULC, HRB Tax Group,
Inc., Wave Financial Inc., the Shareholders of Wave Financial Inc., and Shareholder Representative Services LLC, a
Colorado limited liability company (as the Shareholders' Representative), filed as Exhibit 2.1 to the Company's current
report on Form 8-K filed June 11, 2019, file number 1-06089, is incorporated herein by reference.
Amended and Restated Articles of Incorporation of H&R Block, Inc., as amended through September 12, 2013, filed
as Exhibit 3.1 to the Company's current report on Form 8-K filed September 16, 2013, file number 1-06089, is
incorporated herein by reference.
Amended and Restated Bylaws of H&R Block, Inc., as amended through July 14, 2015, filed as Exhibit 3.1 to the
Company's current report on Form 8-K filed July 16, 2015, file number 1-06089, is incorporated herein by reference.
Indenture dated as of October 20, 1997, among H&R Block, Inc., Block Financial Corporation and Bankers Trust Company,
as Trustee, filed as Exhibit 4(a) to the Company's quarterly report on Form 10-Q for the quarter ended October 31,
1997, file number 1-06089, is incorporated herein by reference.
First Supplemental Indenture, dated as of April 18, 2000, among H&R Block, Inc., Block Financial Corporation, Bankers
Trust Company and the Bank of New York, filed as Exhibit 4(a) to the Company's current report on Form 8-K filed April
17, 2000, file number 1-06089, is incorporated herein by reference.
Second Supplemental Indenture, dated September 30, 2015, among H&R Block, Inc., Block Financial LLC (formerly
known as Block Financial Corporation), Deutsche Bank Trust Company Americas (formerly known as Bankers Trust
Company) and U.S. Bank National Association, as separate trustee, filed as Exhibit 4.1 to the Company's current report
on Form 8-K filed September 30, 2015, file number 1-06089, is incorporated herein by reference.
Officer's Certificate, dated October 25, 2012, in respect of 5.50% Notes due 2022 of Block Financial LLC, filed as Exhibit
4.1 to the Company's current report on Form 8-K filed October 25, 2012, file number 1-06089, is incorporated herein
by reference.
Officers’ Certificate, dated September 30, 2015, of Block Financial LLC (including the Form of the 4.125% Note due
2020 and the Form of the 5.250% Note due 2025), filed as Exhibit 4.2 to the Company's current report on Form 8-K
filed September 30, 2015, file number 1-06089, is incorporated herein by reference.
Form of 5.50% Note due 2022 of Block Financial LLC, filed as Exhibit 4.2 to the Company's current report on Form 8-
K filed October 25, 2012, file number 1-06089, is incorporated herein by reference.
Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock of H&R Block, Inc., filed as
Exhibit 4(e) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1995, file number 1-06089,
is incorporated herein by reference.
Form of Certificate of Amendment of Certificate of Designation, Preferences and Rights of Participating Preferred Stock
of H&R Block, Inc., filed as Exhibit 4(j) to the Company's annual report on Form 10-K for the fiscal year ended April 30,
1998, file number 1-06089, is incorporated herein by reference.
Form of Certificate of Designation, Preferences and Rights of Delayed Convertible Preferred Stock of H&R Block, Inc.,
filed as Exhibit 4(f) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1995, file number
1-06089, is incorporated herein by reference.
Description of Securities.
* 2013 Long-Term Incentive Plan, as amended and restated on March 6, 2013, filed as Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the quarter ended January 31, 2013, file number 1-06089, is incorporated herein
by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June 19, 2013,
filed as Exhibit 10.3 to the Company's current report on Form 8-K filed June 21, 2013, file number 1-06089, is
incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Deferred Stock Units, as approved on September 12,
2013, filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2013,
file number 1-06089, is incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, as approved on July 18,
2016, filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed July 22, 2016, file number 1-06089, is
incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June 19, 2017,
filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089, is
incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 19, 2017, filed
as Exhibit 10.2 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089, is incorporated
herein by reference.
72
2020 Form 10-K | H&R Block, Inc.
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
* Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on June 19,
2017, filed as Exhibit 10.3 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089, is
incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, as approved on June 19,
2017, filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089, is
incorporated herein by reference.
* Alternate Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June
19, 2017, filed as Exhibit 10.5 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089,
is incorporated herein by reference.
* Alternate Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 19,
2017, filed as Exhibit 10.6 to the Company’s current report on Form 8-K filed June 23, 2017, file number 1-06089, is
incorporated herein by reference.
* Alternate Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on
June 19, 2017, filed as Exhibit 10.7 to the Company’s current report on Form 8-K filed June 23, 2017, file number
1-06089, is incorporated herein by reference.
* The Company's 2003 Long-Term Executive Compensation Plan, as amended September 30, 2010, filed as Exhibit 10.2
to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2010, file number 1-06089, is
incorporated herein by reference.
* First Amendment to the Company's 2003 Long-Term Executive Compensation Plan, effective May 10, 2012, filed as
Exhibit 10.1 to the Company's current report on Form 8-K filed May 11, 2012, file number 1-06089, is incorporated
herein by reference.
* Form of 2003 Long-Term Executive Compensation Plan Grant Agreement for Stock Options, filed as Exhibit 10.2 to
the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2011, file number 1-06089, is incorporated
herein by reference.
* Form of 2003 Long-Term Executive Compensation Plan Grant Agreement for Stock Options as approved on June 20,
2012, filed as Exhibit 10.3 to the Company's current report on Form 8-K filed June 26, 2012, file number 1-06089, is
incorporated herein by reference.
* H&R Block Deferred Compensation Plan for Executives, as amended and restated on November 9, 2012, filed as
Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2012, file number
1-06089, is incorporated herein by reference.
* The Amended and Restated H&R Block Executive Performance Plan, filed as Exhibit 10.8 to the Company's quarterly
report on Form 10-Q for the quarter ended July 31, 2019, file number 1-06089, is incorporated herein by reference.
* The H&R Block, Inc. 2000 Employee Stock Purchase Plan, as amended and restated on March 2, 2020, filed as Exhibit
10.1 to the Company's quarterly report on Form 10-Q for the quarter ended January 31, 2020, file number 1-06089,
is incorporated herein by reference.
* The H&R Block, Inc. Executive Survivor Plan (as Amended and Restated January 1, 2001) filed as Exhibit 10.4 to the
Company's quarterly report on Form 10-Q for the quarter ended October 31, 2000, file number 1-06089, is
incorporated herein by reference.
* First Amendment to the H&R Block, Inc. Executive Survivor Plan (as Amended and Restated) effective as of July 1,
2002, filed as Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended April 30, 2002, file
number 1-06089, is incorporated herein by reference.
* Second Amendment to the H&R Block, Inc. Executive Survivor Plan (as Amended and Restated), effective as of March
12, 2003, filed as Exhibit 10.12 to the Company's annual report on Form 10-K for the fiscal year ended April 30, 2003,
file number 1-06089, is incorporated herein by reference.
* H&R Block Severance Plan, as amended and restated on March 29, 2013, filed as Exhibit 10.29 to the Company's
annual report on Form 10-K for the fiscal year ended April 30, 2013, file number 1-06089, is incorporated herein by
reference.
* H&R Block Inc. Executive Severance Plan, as amended and restated effective November 7, 2019, filed as Exhibit 10.1
to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2019, file number 1-06089, is
incorporated herein by reference.
* Form of Indemnification Agreement with Directors and Officers, filed as Exhibit 10.2 to the Company's quarterly
report on Form 10-Q for the quarter ended January 31, 2012, file number 1-06089, is incorporated herein by reference.
* 2008 Deferred Stock Unit Plan for Outside Directors, as amended on September 14, 2011, filed as Exhibit 10.27 to
the Company's annual report on Form 10-K for the year ended April 30, 2012, file number 1-06089, is incorporated
herein by reference.
10.26
* Letter to Thomas A. Gerke, dated May 15, 2017 filed as Exhibit 10.2 to the Company's current report on Form 8-K filed
on May 16, 2017, file number 1-06089, is incorporated herein by reference.
10.27
* Employment Agreement dated August 21, 2017, between H&R Block, Inc., HRB Professional Resources LLC, and Jeffrey
J. Jones II, including the 2013 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options for the
Initial Option attached as Exhibit A, and the 2013 Long Term Incentive Plan Award Agreement for Restricted Share
H&R Block, Inc. | 2020 Form 10-K
73
10.28
10.29
10.30
10.31
Units for the Initial RSU Agreement attached as Exhibit B, filed as Exhibit 10.1 to the Company’s current report on Form
8-K filed August 22, 2017, file number 1-06089, is incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Market Stock Units between H&R Block, Inc. and Jeffrey
J. Jones II, dated as of August 21, 2017, filed as Exhibit 10.2 to the Company’s current report on Form 8-K filed August
22, 2017, file number 1-06089, is incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Performance Share Units, between H&R Block, Inc. and
Jeffrey J. Jones II, dated as of August 21, 2017, filed as Exhibit 10.3 to the Company’s current report on Form 8-K filed
August 22, 2017, file number 1-06089, is incorporated herein by reference.
* Form of 2013 Long Term Incentive Plan Award Agreement for Restricted Share Units, between H&R Block, Inc. and
Jeffrey J. Jones II, dated as of August 21, 2017, filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed
August 22, 2017, file number 1-06089, is incorporated herein by reference.
* Waiver and Acknowledgment dated June 25, 2018, between H&R Block, Inc., HRB Professional Resources, LLC, and
Jeffrey J. Jones II, filed as Exhibit 10.8 to the Company’s quarterly report on Form 10-Q filed September 7, 2018, file
number 1-06089, is incorporated herein by reference.
10.32
* H&R Block, Inc. 2018 Long Term Incentive Plan, filed as Exhibit 10.1 to the Company’s current report on Form 8-K
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
filed September 14, 2017, file number 1-06089, is incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Deferred Stock Units, as approved on November 3,
2017, filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended October 31, 2017,
file number 1-06089, is incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Restricted Share Units, filed as Exhibit 10.2 to the
Company’s current report on Form 8-K filed September 14, 2017, file number 1-06089, is incorporated herein by
reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, filed as Exhibit 10.3 to
the Company’s current report on Form 8-K filed September 14, 2017, file number 1-06089, is incorporated herein by
reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June 25, 2018,
filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089, is
incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 25, 2018, filed
as Exhibit 10.2 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089, is incorporated
herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on June 25,
2018, filed as Exhibit 10.3 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089, is
incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Non-Qualified Stock Options, as approved on June 25,
2018, filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089, is
incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June
25, 2018, filed as Exhibit 10.5 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089,
is incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 25,
2018, filed as Exhibit 10.6 to the Company’s current report on Form 8-K filed June 28, 2018, file number 1-06089, is
incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on
June 25, 2018, filed as Exhibit 10.7 to the Company’s current report on Form 8-K filed June 28, 2018, file number
1-06089, is incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 20, 2019, filed
as Exhibit 10.1 to the Company’s current report on Form 8-K filed June 24, 2019, file number 1-06089, is incorporated
herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on June 20,
2019, filed as Exhibit 10.2 to the Company’s current report on Form 8-K filed June 24, 2019, file number 1-06089, is
incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Restricted Share Units, as approved on June
20, 2019, filed as Exhibit 10.3 to the Company’s current report on Form 8-K filed June 24, 2019, file number 1-06089,
is incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Market Stock Units, as approved on June 20,
2019, filed as Exhibit 10.4 to the Company’s current report on Form 8-K filed June 24, 2019, file number 1-06089, is
incorporated herein by reference.
74
2020 Form 10-K | H&R Block, Inc.
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
21
22
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Performance Share Units, as approved on
June 20, 2019, filed as Exhibit 10.5 to the Company’s current report on Form 8-K filed June 24, 2019, file number
1-06089, is incorporated herein by reference.
* Form of 2018 Long Term Incentive Plan Award Agreement for Two-Year Restricted Share Units, as approved on June
20, 2019, filed as Exhibit 10.6 to the Company’s current report on Form 8-K filed June 24, 2019, file number 1-06089,
is incorporated herein by reference.
* Alternate Form of 2018 Long Term Incentive Plan Award Agreement for Two-Year Restricted Share Units, as approved
on June 20, 2019, filed as Exhibit 10.7 to the Company’s current report on Form 8-K filed June 24, 2019, file number
1-06089, is incorporated herein by reference.
Third Amended and Restated Credit and Guarantee Agreement dated September 21, 2018, by and among Block
Financial LLC, H&R Block, Inc., the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as
administrative agent, filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed September 24, 2018,
file number 1-06089, is incorporated herein by reference.
Amended and Restated Purchase and Assumption Agreement, dated August 5, 2015, by and among H&R Block Bank,
Block Financial LLC, and BofI Federal Bank, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed
August 5, 2015, file number 1-06089, is incorporated herein by reference.
Program Management Agreement, dated August 31, 2015, by and between Emerald Financial Services, LLC and BofI
Federal Bank, filed as Exhibit 10.1 to the Company's current report on Form 8-K filed September 1, 2015, file number
1-06089, is incorporated herein by reference.
First Amendment to Program Management Agreement dated as of July 27, 2017, by and between Emerald Financial
Services, LLC and BofI Federal Bank filed as Exhibit 10.8 to the Company’s quarterly report on Form 10-Q for the quarter
ended July 31, 2017, file number 1-06089, is incorporated herein by reference.
Emerald Advance Receivables Participation Agreement, dated as of August 31, 2015, by and among Emerald Financial
Services, LLC, BofI Federal Bank, HRB Participant I, LLC and H&R Block, Inc., filed as Exhibit 10.2 to the Company's
current report on Form 8-K filed September 1, 2015, file number 1-06089, is incorporated herein by reference.
Guaranty Agreement, dated as of August 31, 2015, by and between H&R Block, Inc. and BofI Federal Bank, filed as
Exhibit 10.3 to the Company's current report on Form 8-K filed September 1, 2015, file number 1-06089, is incorporated
herein by reference.
Subsidiaries of the Company.
List of Guarantor and Issuer Subsidiaries.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002.
XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document
XBRL Taxonomy Extension Schema
XBRL Extension Calculation Linkbase
XBRL Taxonomy Extension Label Linkbase
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XBRL Taxonomy Extension Definition Linkbase
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Indicates management contracts, compensatory plans or arrangements.
H&R Block, Inc. | 2020 Form 10-K
75
Corporate Information
HEADQUARTERS
H&R Block Center
One H&R Block Way
Kansas City, Missouri 64105
816.854.3000
TRANSFER AGENT & REGISTRAR
EQ Shareowner Services
P.O. Box 64874
St. Paul, Minnesota 55164-0874
or
1110 Centre Pointe Curve, Suite 101
Mendota Heights, Minnesota 55120-4100
1.888.213.0968
shareowneronline.com
FORM 10-K REQUESTS
Upon request, we will furnish, without charge, to
our shareowners a copy of our 2020 Form 10-K as
filed with the Securities and Exchange
Commission. Requests should be directed by
telephone to Investor Rela tions, 1.800.869.9220,
or by e-mail to investorrelations@hrblock.com.
For more information about H&R Block, visit our
website at www.hrblock.com.
CERTIFICATIONS FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO THE
SARBANES-OXLEY ACT OF 2002
The certifications of the Chief Executive Officer
EQ Shareowner Services maintains the records
and Chief Financial Officer of the company
for registered shareowners and provides a
required by Section 302 of the Sarbanes-Oxley
variety of shareowner-related services at no
Act of 2002 have been filed as exhibits 31.1 and
charge, including change of name or address,
31.2, respectively, in the company’s Form 10-K for
consolidation of accounts, duplicate mailings,
the fiscal year ended April 30, 2020.
dividend reinvestment enrollment, and transfer
of stock to another person.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1100 Walnut Street, Suite 3300
Kansas City, Missouri 64106-2129
COMMON STOCK
Traded on the New York Stock Exchange
Ticker symbol: HRB
CERTIFICATION SUBMITTED TO THE
NEW YORK STOCK EXCHANGE
The certification of the Chief Executive Officer
required by the New York Stock Exchange Listing
Standards, Section 303A.12(a), relating to the
company’s compliance with the New York Stock
Exchange Corporate Governance Listing
Standards, was submitted to the New York Stock
Exchange on September 26, 2019.
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H&R BLOCK, INC.
One H&R Block Way
Kansas City, MO 64105
816.854.3000
www.hrblock.com