BLOCK H&R: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

FINANCIAL OVERVIEW
With the economic impact of the pandemic being felt across the U.S., we remain
committed to helping people gain access to their refunds while shifting how we
operate to help promote the safety and well-being of associates and clients. We
continue to provide in-person appointments and have implemented safety protocols
in our tax offices pursuant to applicable state and local orders and consistent
with Centers for Disease Control and Prevention recommendations. Clients may
also choose to drop-off at one of our locations nationwide, to file with a tax
professional virtually, or to utilize one of our DIY or software tax return
preparation solutions.
As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing
deadline in the U.S. for individual 2019 tax returns was extended from April 15,
2020 to July 15, 2020, and substantially all U.S. states with an April 15
individual state income tax filing requirement extended their respective
deadlines. In Canada, the deadline for individuals to file was extended to June
1, 2020. In addition, governments around the world took a variety of actions to
contain the spread of COVID-19. Jurisdictions in which we operate imposed
various restrictions on our business, including capacity and other operational
limitations, social distancing requirements, and in limited instances required
us to close certain offices. Consequently, a portion of revenues and expenses
that would have normally been recognized in our fourth quarter of fiscal year
2020 shifted to the first two quarters of fiscal year 2021.
On March 17, 2021, the IRS extended the federal tax filing deadline in the U.S.
for individual 2020 tax returns from April 15, 2021 to May 17, 2021.
Consequently, a portion of revenues and expenses that would have normally been
recognized in our fourth quarter of fiscal year 2021 shifted to our next fiscal
period.
These events have impacted the typical seasonality of our business and the
comparability of our financial results.
                                                                                                                                                                                           Fiscal Year 2021 Compared to 2020

                                                             Revenues                                                                                                                                   Operating Expenses                                                                                                               Net Income from Continuing Operations
             $3.41B                 [[Image Removed: hrb-20210430_g9.jpg]]                             29%                                               $2.64B                                  [[Image Removed: hrb-20210430_g10.jpg]]                                 3%                                            $590.2M                         [[Image Removed: hrb-20210430_g9.jpg]]            9,488%

             Increase is due to the extension of tax season 2020 and higher tax preparation volume in tax season 2021.                           

The increase is due to the compensation expense related to the increase in the volume of tax returns, partially offset by the impairment of goodwill from the previous year.

            Increase is due to higher revenues, partially offset by

operating expenses and tax expense.

                                                                                   Diluted EPS From Continuing Operations                                                                                                                                                                                                 EBITDA(1)
                                    $3.11                                                           Reported:                                            10,267%                                                                                                      $932.5M                                         Reported:                                                      256%
                                                                                      [[Image Removed: hrb-20210430_g9.jpg]]                                                                                                                                                                           [[Image 

Deleted: hrb-20210430_g9.jpg]]

                                    $3.39                                                          Adjusted(1):                                           304%                                                                                                        $932.5M                                         Adjusted:                                                      153%
                                                                                      [[Image Removed: hrb-20210430_g9.jpg]]                                                                                                                                                                           [[Image

Deleted: hrb-20210430_g9.jpg]]

                                                      Increase is due to 

higher net profit combined with a decrease in the number of shares outstanding during the current year.

                                                                                                            Increase is due to the higher 

income. The increase in Adjusted EBITDA is partially offset by the impairment of goodwill from the previous year.


(1) See "  Non-GAAP Financial Information  " section within this filing for a
reconciliation of non-GAAP measures.
RESULTS OF OPERATIONS
Our subsidiaries provide assisted and DIY tax preparation solutions through
multiple channels (including in-person, online and mobile applications, virtual,
and desktop software) and distribute H&R Block-branded products and

22 2021 Form 10-K | H&R Block, Inc.

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services, including those of our bank partner, to the general public primarily
in the U.S., Canada and Australia. Tax returns are either prepared by H&R Block
tax professionals (in company-owned or franchise offices, virtually or via an
internet review) or prepared and filed by our clients through our DIY tax
solutions. We also offer small business financial solutions through our
company-owned and franchise offices and online through Wave. We report a single
segment that includes all of our continuing operations.
Operating Statistics
                                                                                                                         % Change
                                                                                                                          Better/
Year ended April 30,                                                 2021                     2020                        (Worse)
                                                           Represents two             Represents a
                                                              partial tax              partial tax
                                                               seasons(1)                season(2)
TAX RETURNS PREPARED : (in 000s) (3)
United States:
Company-owned operations                                         9,120                    6,745                           35.2  %
Franchise operations                                             3,507                    2,798                           25.3  %
Total assisted                                                  12,627                    9,543                           32.3  %

Desktop                                                          2,002                    1,553                           28.9  %
Online                                                           6,976                    5,932                           17.6  %
Total DIY                                                        8,978                    7,485                           19.9  %
Total U.S. returns                                              21,605                   17,028                           26.9  %

International operations:
Canada                                                           2,901                    1,908                           52.0  %
Australia                                                          672                      745                           (9.8) %
Other                                                                -                       73                                **
Total international operations returns                           3,573                    2,726                           31.1  %
Tax returns prepared worldwide                                  25,178                   19,754                           27.5  %

NET AVERAGE CHARGE (U.S. ONLY): (4)
Company-owned operations                               $        223.14          $        227.83                           (2.1) %
Franchise operations (5)                               $        211.27          $        217.07                           (2.7) %
DIY                                                    $         34.87          $         27.91                           24.9  %

TAX OFFICES (as of January 31):
U.S. offices:

Company-owned offices                                            6,512                    6,552                           (0.6) %

Franchise offices                                                2,759                    2,909                           (5.2) %
Total U.S. offices                                               9,271                    9,461                           (2.0) %
International offices:
Canada                                                             983                    1,086                           (9.5) %
Australia                                                          421                      464                           (9.3) %
Total international offices                                      1,404                    1,550                           (9.4) %
Tax offices worldwide                                           10,675                   11,011                           (3.1) %


(1) Represents a partial 2019 individual tax filing season, which was extended
until July 15, 2020 and a partial 2020 individual tax filing season, which was
extended until May 17, 2021.
(2) Represents a partial 2019 individual tax filing season, which was extended
until July 15, 2020.
(3) An assisted tax return is defined as a current or prior year individual or
business tax return that has been accepted by the client. A DIY online return is
defined as a current year individual or business tax return that has been
accepted by the client. A DIY desktop return is defined as a current year
individual or business tax return that has been electronically submitted to the
IRS.
(4) Net average charge is calculated as total tax preparation fees divided by
tax returns prepared.
(5) Net average charge related to H&R Block Franchise operations represents tax
preparation fees collected by H&R Block franchisees divided by returns prepared
in franchise offices. H&R Block will recognize a portion of franchise revenues
as franchise royalties based on the terms of franchise agreements.

We provide Net Average Charge as a key operating metric because we consider it
an important supplemental measure useful to analysts, investors, and other
interested parties as it provides insights into pricing and tax return mix
relative to our customer base, which are significant drivers of revenue. Our
definition of Net Average Charge may not be comparable to similarly titled
measures of other companies.
                                                H&R Block, Inc. | 2021 Form 10-K  23

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Consolidated - Financial Results                                                                            (in 000s, except per share amounts)
                                                                                                        $ Change                       % Change
Year ended April 30,                                      2021                 2020               Better/(Worse)                 Better/(Worse)
Revenues:
U.S. assisted tax preparation                   $ 2,035,107          $ 1,533,303          $        501,804                              32.7  %
U.S. royalties                                      226,253              193,411                    32,842                              17.0  %
U.S. DIY tax preparation                            313,055              208,901                   104,154                              49.9  %
International                                       249,868              180,065                    69,803                              38.8  %
Refund Transfers                                    163,329              154,687                     8,642                               5.6  %
Emerald Card®                                       136,717               92,737                    43,980                              47.4  %
Peace of Mind® Extended Service Plan                 98,882              105,185                    (6,303)                             (6.0) %
Tax Identity Shield®                                 40,624               31,797                     8,827                              27.8  %
Interest and fee income on Emerald
AdvanceSM                                            53,430               60,867                    (7,437)                            (12.2) %
Wave                                                 58,277               36,711                    21,566                              58.7  %
Other                                                38,445               42,056                    (3,611)                             (8.6) %
Total revenues                                    3,413,987            2,639,720                   774,267                              29.3  %

Compensation and benefits:
Field wages                                         797,262              678,813                  (118,449)                            (17.4) %
Other wages                                         272,664              218,548                   (54,116)                            (24.8) %
Benefits and other compensation                     208,147              175,535                   (32,612)                            (18.6) %
                                                  1,278,073            1,072,896                  (205,177)                            (19.1) %
Occupancy                                           414,389              410,402                    (3,987)                             (1.0) %
Marketing and advertising                           261,960              255,094                    (6,866)                             (2.7) %
Depreciation and amortization                       156,852              169,536                    12,684                               7.5  %
Bad debt                                             78,763               77,470                    (1,293)                             (1.7) %
Impairment of goodwill                                    -              106,000                   106,000                             100.0  %
Other                                               454,323              471,239                    16,916                               3.6  %
Total operating expenses                          2,644,360            2,562,637                   (81,723)                             (3.2) %
Other income (expense), net                           5,979               15,637                    (9,658)                            (61.8) %
Interest expense on borrowings                     (106,870)             (96,094)                  (10,776)                            (11.2) %
Income (loss) from continuing operations
before income taxes (benefit)                       668,736               (3,374)                  672,110                                   **
Income taxes (benefit)                               78,524               (9,530)                  (88,054)                                  **
Net income from continuing operations               590,212                6,156                   584,056                           9,487.6  %
Net loss from discontinued operations                (6,421)             (13,682)                    7,261                              53.1  %
Net income (loss)                               $   583,791          $    (7,526)         $        591,317                                   **

Basic earnings (loss) per share:
Continuing operations                           $      3.15          $      0.03          $           3.12                          10,400.0  %
Discontinued operations                               (0.04)               (0.07)                     0.03                              42.9  %
Consolidated                                    $      3.11          $     (0.04)         $           3.15                                   **

Diluted earnings (loss) per share:
Continuing operations                           $      3.11          $      0.03          $           3.08                          10,266.7  %
Discontinued operations                               (0.03)               (0.07)                     0.04                              57.1  %
Consolidated                                    $      3.08          $     (0.04)         $           3.12                                   **

Adjusted diluted EPS(1)                         $      3.39          $      0.84          $           2.55                             303.6  %
EBITDA(1)                                           932,458              262,256                   670,202                             255.6  %
Adjusted EBITDA (1)                                 932,458              368,256                   564,202                             153.2  %
Adjusted EBITDA margin(1)                              27.3  %              14.0  %                   13.3     %                        95.0  %


(1) All non-GAAP measures are results from continuing operations. See “Non-GAAP Financial Information” at the end of this article for a reconciliation of non-GAAP measures.

24 2021 Form 10-K | H&R Block, Inc.

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FISCAL 2021 COMPARED TO FISCAL 2020
Due to the extension of the 2020 tax season related to the COVID-19 pandemic, we
had significant increases in the number of tax returns prepared in all
categories during the first half of fiscal year 2021. Additionally, while the
2021 tax season filing deadline was also extended, we prepared more tax returns
through April 30 than we did in the prior fiscal year. As a result of these
increases in volume during the fiscal year, U.S. assisted and DIY tax
preparation revenues and royalties increased compared to the prior year.
International revenues increased $69.8 million, or 38.8%, due to higher tax
returns prepared by our Canadian operations primarily due to the extension of
the 2020 tax season and favorable foreign currency exchange rates. Emerald Card®
revenues increased $44.0 million, or 47.4%, due to higher card activity from an
increase in tax refunds loaded on to cards, as well as some Economic Impact
Payments loaded on to cards. Wave revenues increased $21.6 million, or 58.7%,
due to higher small business payment processing volumes over the prior year as
small business owners shift to online payment options and an additional two
months of revenue in the current year, as we acquired Wave on June 28, 2019.
Total operating expenses increased $81.7 million or 3.2% from the prior year.
Field wages increased $118.4 million, or 17.4%, due to higher tax preparation
volumes. Other wages increased $54.1 million, or 24.8%, due primarily to higher
bonus accruals. Benefits and other compensation increased $32.6 million, or
18.6%, primarily due to higher payroll taxes as a result of higher wages.
Depreciation and amortization expense decreased $12.7 million, or 7.5%, due to
lower depreciation on leasehold improvements and lower amortization of acquired
intangibles. Additionally, we recorded an impairment of goodwill of $106.0
million related to Wave in the prior year.
Other operating expenses decreased $16.9 million, or 3.6%. The components of
other expenses are as follows:
                                                                                                         $ Change                       % Change
Year ended April 30,                                             2021               2020           Better/(Worse)                 Better/(Worse)
Consulting and outsourced services                       $ 127,262          $ 118,267          $        (8,995)                          (7.6) %
Bank partner fees                                           23,681             55,633                   31,952                           57.4  %
Client claims and refunds                                   28,756             35,498                    6,742                           19.0  %
Employee travel and related expenses                        21,704             40,892                   19,188                           46.9  %
Technology-related expenses                                 80,766             68,907                  (11,859)                         (17.2) %
Credit card/bank charges                                    81,154             48,826                  (32,328)                         (66.2) %
Insurance                                                   11,420             15,015                    3,595                           23.9  %
Legal fees and settlements                                  22,172             27,436                    5,264                           19.2  %
Supplies                                                    31,843             31,290                     (553)                          (1.8) %
Other                                                       25,565             29,475                    3,910                           13.3  %
                                                         $ 454,323          $ 471,239          $        16,916                            3.6  %


Bank partner fees decreased $32.0 million, or 57.4%, due to lower RA and RT
volumes, lower fees paid to our bank partner, and lower accruals for our RA
credit loss guarantees. Employee travel and related expenses decreased $19.2
million, or 46.9%, due to COVID-19 travel restrictions. Technology-related
expenses increased $11.9 million, or 17.2%, due to increased investments in
information technology. Credit card and bank charges increased $32.3 million, or
66.2%, as a result of higher transaction volumes for assisted and DIY tax
preparation, higher Wave payment processing fees and fees related to the Emerald
Card®.
We prepared 2.9 million U.S. assisted and DIY returns from May 1, 2021 to May
18, 2021 due to the extension of the current tax season.
Losses of our discontinued mortgage operations are primarily related to legal
expenses which are lower in the current year. See the discussion of the risk of
contingent losses related to our discontinued operations in   Item 1A, Risk
Factors   and in   Item 8, note     12   to the consolidated financial
statements.
FISCAL 2020 COMPARED TO FISCAL 2019
The comparison of fiscal year 2020 to 2019 has been omitted from this Form 10-K,
but can be found in our Form 10-K for the fiscal year ended April 30, 2020,
filed on June 16, 2020.
                                                H&R Block, Inc. | 2021 Form 10-K  25

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FINANCIAL CONDITION
These comments should be read in conjunction with the consolidated balance
sheets and consolidated statements of cash flows included in   Item 8  .
CAPITAL RESOURCES AND LIQUIDITY -
OVERVIEW - Our primary sources of capital and liquidity include cash from
operations (including changes in working capital), draws on our CLOC, and
issuances of debt. We use our sources of liquidity primarily to fund working
capital, service and repay debt, pay dividends, repurchase shares of our common
stock, and acquire businesses.
Our operations are highly seasonal and substantially all of our revenues and
cash flow are generated during the period from February through April in a
typical year. Therefore, we normally require the use of cash to fund losses and
working capital needs, periodically resulting in a working capital deficit, from
May through January. We typically have relied on available cash balances from
the prior tax season and borrowings to meet liquidity needs in our first three
quarters.
Given the likely availability of a number of liquidity options discussed herein,
we believe that in the absence of any unexpected developments, our existing
sources of capital as of April 30, 2021 are sufficient to meet our future
operating and financing needs.
DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS - The following table
summarizes our statements of cash flows for fiscal years 2021 and 2020. See
  Item 8   for the complete consolidated statements of cash flows for these
periods.
                                                                      (in 000s)
Year ended April 30,                                      2021             2020
Net cash provided by (used in):
Operating activities                            $    625,928      $   108,961
Investing activities                                 (45,523)        (470,231)
Financing activities                              (2,408,823)       1,531,848
Effects of exchange rate changes on cash              18,318           

(5,285)

Net change in cash and cash equivalents $ (1,810,100) $ 1,165,293


  Operating Activities. Cash provided by operating activities increased $517.0
million from fiscal year 2020. The increase is primarily due to net income in
the current year compared to a net loss in the prior year.
  Investing Activities. Cash used in investing activities totaled $45.5 million
compared to $470.2 million in the prior year. The decrease is primarily due to
the acquisition of Wave in the prior year.
  Financing Activities. Cash used in financing activities totaled $2.4 billion
compared to cash provided of $1.5 billion in the prior year, the change is
primarily due to a $2.0 billion draw on our CLOC in the prior year which was
paid off in the current year.

CASH REQUIREMENTS –

  Dividends and Share Repurchase. Returning capital to shareholders in the form
of dividends and the repurchase of outstanding shares has historically been a
significant component of our capital allocation plan.
  We have consistently paid quarterly dividends. Dividends paid totaled $195.1
million and $204.9 million in fiscal years 2021 and 2020, respectively. Although
we have historically paid dividends and plan to continue to do so, there can be
no assurances that circumstances will not change in the future that could affect
our ability or decisions to pay dividends.
Our current share repurchase program has remaining authorization of $563.8
million which is effective through June 2022. As a part of the repurchase
program, in the current year, we purchased $188.2 million of our common stock at
an average price of $16.29 per share.

26 2021 Form 10-K | H&R Block, Inc.

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Share repurchases may be effectuated through open market transactions, some of
which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend,
or extend the time period for the purchase of shares at any time. Any
repurchases will be funded primarily through available cash and cash from
operations. Although we may continue to repurchase shares, there is no assurance
that we will purchase up to the full Board authorization.
The following table summarizes our shares outstanding, shares repurchased, and
annual dividends per share:
                                                             (in 000s, except per share amounts)
As of April 30,                 2021           2020           2019           2018           2017
Shares outstanding         181,466        192,475        201,959        209,254        207,171
Shares Repurchased            11,551         10,130          7,862              -         14,020
Dividends per share      $    1.04      $    1.04      $    1.00      $    0.96      $    0.88


  Capital Investment. Capital expenditures totaled $52.8 million and $81.7
million in fiscal years 2021 and 2020, respectively. Our capital expenditures
relate primarily to recurring improvements to retail offices, as well as
investments in computers, software and related assets. In addition to our
capital expenditures, we also made payments to acquire businesses. We acquired
franchise and competitor businesses totaling $15.6 million during the year ended
April 30, 2021, compared to $450.2 million for the year ended April 30, 2020,
which also includes the acquisition of Wave. See   Item 8, note 6   for
additional information on our acquisitions.
Contractual Obligations. We are party to many contractual obligations involving
commitments to make payments to third parties, which impact our short-term and
long-term liquidity and capital resource needs. Our contractual obligations
primarily consist of operating leases, contingent acquisition payments, and
long-term debt and related interest payments. See   Item 8, note 7  ,   10  ,
and   11   to the consolidated financial statements for additional information.
  FINANCING RESOURCES - In the fourth quarter of fiscal year 2020, we drew down
the full $2.0 billion available under our CLOC to increase our cash position and
maximize flexibility in light of the uncertainty surrounding the impact of the
COVID-19 pandemic, which we repaid in full in September 2020. We had no
outstanding balance under the CLOC as of April 30, 2021.
On August 7, 2020, we issued $650.0 million of 3.875% Senior Notes due August
15, 2030 (2030 Senior Notes). We used the net proceeds from the 2030 Senior
Notes to repay our $650 million Senior Notes that matured on October 1, 2020.
  See   Item 8,     note 7   to the consolidated financial statements for
discussion of our CLOC and Senior Notes and   note 13   for discussion of an
amendment to our CLOC effective June 11, 2021.
The following table provides ratings for debt issued by Block Financial LLC
(Block Financial) as of April 30, 2021 and 2020:
As of                                                 April 30, 2021                                                       April 30, 2020
                                     Short-term             Long-term                Outlook              Short-term             Long-term                Outlook
Moody's                                     P-3                  Baa3                 Stable                     P-3                  Baa3               Negative
S&P                                         A-2                   BBB               Negative                     A-2                   BBB               Negative


CASH AND OTHER ASSETS - As of April 30, 2021, we held cash and cash equivalents,
excluding restricted amounts, of $934.3 million, including $157.8 million held
by our foreign subsidiaries.
Foreign Operations. Seasonal borrowing needs of our Canadian operations are
typically funded by our U.S. operations. To mitigate foreign currency risk, we
sometimes enter into foreign exchange forward contracts. There were no forward
contracts outstanding as of April 30, 2021.
We do not currently intend to repatriate non-borrowed funds held by our foreign
subsidiaries in a manner that would trigger a material tax liability.
The impact of changes in foreign exchange rates during the period on our
international cash balances resulted in an increase of $18.3 million during
fiscal year 2021 compared to a decrease of $5.3 million in fiscal year 2020.
                                                H&R Block, Inc. | 2021 Form 10-K  27

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SUMMARIZED GUARANTOR FINANCIAL STATEMENTS - Block Financial is a 100% owned
indirect subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R
Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC
and other indebtedness issued from time to time.
The following table presents summarized financial information for H&R Block,
Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after
intercompany eliminations and excludes investments in and equity earnings in
non-guarantor subsidiaries.
SUMMARIZED BALANCE SHEET                    (in 000s)
As of April 30, 2021             GUARANTOR AND ISSUER

Current assets                $              49,615
Noncurrent assets                         1,664,311
Current liabilities                          38,471
Noncurrent liabilities                    1,500,970


SUMMARIZED STATEMENTS OF OPERATIONS                                       (in 000s)
Year ended April 30, 2021                                      GUARANTOR AND ISSUER

Total revenues                                              $             228,097
Income from continuing operations before income taxes                      

49,705

Net income from continuing operations                                      45,133
Net income                                                                 38,625


The table above reflects $1.6 billion of non-current intercompany receivables
due to the Issuer from non-guarantor subsidiaries.
CRITICAL ACCOUNTING ESTIMATES
We consider the estimates discussed below to be critical to understanding our
financial statements, as they require the use of significant judgment and
estimation in order to measure, at a specific point in time, matters that are
inherently uncertain. Specific methods and assumptions for these critical
accounting estimates are described in the following paragraphs. We have reviewed
and discussed each of these estimates with the Audit Committee of our Board of
Directors. For all of these estimates, we caution that future events rarely
develop precisely as forecasted and estimates routinely require adjustment and
may require material adjustment.
See   Item 8, note 1   to the consolidated financial statements for discussion
of our significant accounting policies.
LITIGATION AND OTHER RELATED CONTINGENCIES -
Nature of Estimates Required. We accrue liabilities related to certain legal
matters for which we believe it is probable that a loss has been incurred and
the amount of such loss can be reasonably estimated. Assessing the likely
outcome of pending or threatened litigation, indemnification and contribution
claims, and other related loss contingencies, including the amount of potential
loss, if any, is highly subjective.
Assumptions and Approach Used. We are subject to pending or threatened
litigation claims and claims for indemnification and contribution, and other
related loss contingencies, which are described in   Item 8, note 12   to the
consolidated financial statements. It is our policy to routinely assess the
likelihood of any adverse judgments or outcomes related to legal matters, as
well as ranges of probable losses. A determination of the amount of the
liability required to be accrued, if any, for these contingencies is made after
analysis of each known issue and an analysis of historical experience. In cases
where we have concluded that a loss is only reasonably possible or remote, or is
not reasonably estimable, no liability is accrued.
Sensitivity of Estimate to Change. It is reasonably possible that future
litigation and other related loss contingencies may vary from the amounts
accrued. Our estimate of the aggregate range of reasonably possible losses
includes (1) matters where a liability has been accrued and there is a
reasonably possible loss in excess of the amount accrued for that liability, and
(2) matters where a liability has not been accrued but we believe a loss is
reasonably possible. This aggregate range represents only those losses as to
which we are currently able to

28 2021 Form 10-K | H&R Block, Inc.

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estimate a reasonably possible loss or range of loss. It does not represent our
maximum loss exposure. As of April 30, 2021, we believe the estimate of the
aggregate range of reasonably possible losses in excess of amounts accrued,
where the range of loss can be estimated, was not material.
However, our judgments on whether a loss is probable, reasonably possible, or
remote, and our estimates of probable loss amounts may differ from actual
results due to difficulties in predicting changes in, or interpretations of,
laws, predicting the outcome of jury trials, arbitration hearings, settlement
discussions and related activity, predicting the outcome of class certification
actions, and numerous other uncertainties. Due to the number of claims which are
periodically asserted against us, and the magnitude of damages sought in those
claims, actual losses in the future may significantly differ from our current
estimates.
Our accrued liabilities for litigation and other related contingencies are
disclosed in   Item 8, note 12   to the consolidated financial statements.
INCOME 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 matters. However, our future results may
include favorable or unfavorable adjustments to our estimated tax liabilities in
the period the assessments are made or resolved, or when statutes of limitation
on potential assessments expire. As a result, our effective tax rate may
fluctuate on a quarterly basis.
A schedule of changes in our uncertain tax positions during the last three years
is included in   Item 8, note 9   to the consolidated financial statements.
GOODWILL -
Nature of Estimates Required. We test goodwill for impairment annually in the
fourth quarter or more frequently if events occur or circumstances change which
would, more likely than not, reduce the fair value of a reporting unit below its
carrying value. Our goodwill impairment analysis utilizes both the income and
market approaches, which includes revenue and expense forecasts, changes in
working capital and selection of a discount rate, all of which are highly
subjective.
Assumptions and Approach Used. Our goodwill impairment analysis is performed at
the reporting unit level. Our valuation methods include a discounted cash flow
model for the income approach and the guideline public company and market
capitalization methods for the market approach. The income approach requires
significant management judgment with respect to revenue and expense forecasts,
anticipated changes in working capital and selection of an appropriate discount
rate. Changes in projections or assumptions could materially affect our estimate
of reporting unit fair values. The use of different assumptions could increase
or decrease estimated
                                                H&R Block, Inc. | 2021 Form 10-K  29

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discounted future operating cash flows and could affect our conclusion regarding
the existence or amount of potential impairment.
Sensitivity of Estimate to Change. Estimates of fair value may be adversely
impacted by declining economic conditions and changes in the industries and
markets in which we operate. Additionally, if future operating results of our
reporting units are below our current modeled expectations, fair value estimates
may decline. Any of these factors could result in future impairments, and those
impairments could be significant.
A schedule of changes in our goodwill balances, including any impairment
charges, is included in   Item 8, note 6   to the consolidated financial
statements.
NEW ACCOUNTING PRONOUNCEMENTS
See   Item 8, note 1   to the consolidated financial statements for any recently
issued accounting pronouncements.
REGULATORY ENVIRONMENT
The federal government, various state, local, provincial and foreign
governments, and some self-regulatory organizations have enacted statutes and
ordinances, or adopted rules and regulations, regulating aspects of our
business. These aspects include, but are not limited to, commercial income tax
return preparers, income tax courses, the electronic filing of income tax
returns, the offering of RTs, privacy and data security, consumer protection,
marketing and advertising, franchising, antitrust and competition, sales methods
and banking. We work to comply with those laws that are applicable to us or our
services or products, and we continue to monitor developments in the regulatory
environment in which we operate. See further discussion of these items in our
  Item 1A. Risk Factors under "Lega    l and     Regulatory Risks"   of this
Form 10-K.
On November 17, 2017, the CFPB published its final rule changing the regulation
of certain consumer credit products, including payday loans, vehicle title
loans, and high-cost installment loans (Payday Rule). Certain limited provisions
of the Payday Rule became effective on January 16, 2018, but most provisions
were scheduled to go into effect on August 19, 2019. On November 6, 2018, a
judge from the U.S. District Court for the Western District of Texas issued a
stay of the August 19, 2019 compliance date, which stay remains in effect until
further notice from the Court. On July 7, 2020, the CFPB issued a final rule
revoking the mandatory underwriting provisions of the Payday Rule.
  Given these developments and the recent change in administration, we are
unsure whether, when, or in what form the Payday Rule will go into effect. The
timing to resolve the litigation is unclear. We do not currently expect the
Payday Rule to have a material adverse impact on the Emerald AdvanceSM product,
our business, or our consolidated financial position, results of operations, and
cash flows. We will continue to monitor and analyze the potential impact of any
further Payday Rule developments on the Company.
From time to time, we receive inquiries from governmental authorities regarding
the applicability of laws to our services and products and other matters
relating to our business. We cannot predict what effect future laws, changes in
interpretations of existing laws or the results of future governmental inquiries
with respect to services and products or other matters relating to our business
may have on our consolidated financial position, results of operations and cash
flows. We have received certain governmental inquiries relating to the IRS Free
File Program. We may also be subject to future inquiries or other proceedings
regarding this program or other aspects of our business. Regulatory inquiries
may result in us incurring additional expense, diversion of management's
attention, adverse judgments, settlements, fines, penalties, injunctions or
other relief. See additional discussion of legal matters in   Item 8, note 12
to the consolidated financial statements.
NON-GAAP FINANCIAL INFORMATION
Non-GAAP financial measures should not be considered as a substitute for, or
superior to, measures of financial performance prepared in accordance with GAAP.
Because these measures are not measures of financial performance under GAAP and
are susceptible to varying calculations, they may not be comparable to similarly
titled measures for other companies.
We consider our non-GAAP financial measures to be performance measures and a
useful metric for management and investors to evaluate and compare the ongoing
operating performance of our business. We make adjustments for certain non-GAAP
financial measures related to amortization of intangibles from acquisitions

30 2021 Form 10-K | H&R Block, Inc.

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and goodwill impairments. We may consider whether other significant items that
arise in the future should be excluded from our non-GAAP financial measures.
We measure the performance of our business using a variety of metrics, including
earnings before interest, taxes, depreciation and amortization (EBITDA) from
continuing operations, adjusted EBITDA from continuing operations, EBITDA margin
from continuing operations, adjusted EBITDA margin from continuing operations,
adjusted diluted earnings per share from continuing operations and free cash
flow. We also use EBITDA from continuing operations and pretax income of
continuing operations, each subject to permitted adjustments, as performance
metrics in incentive compensation calculations for our employees.
The following is a reconciliation of net income (loss) to EBITDA from continuing
operations and adjusted EBITDA from continuing operations, which are non-GAAP
financial measures:
                                                                                 (in 000s)
   Year ended April 30,                                               2021            2020
   Net income (loss) - as reported                            $ 583,791       $  (7,526)
   Discontinued operations, net                                   6,421          13,682
   Net income from continuing operations - as reported          590,212           6,156
   Add back:
   Income taxes (benefit)                                        78,524          (9,530)
   Interest expense                                             106,870          96,094
   Depreciation and amortization                                156,852         169,536
                                                                342,246         256,100

   EBITDA from continuing operations                          $ 932,458       $ 262,256
   Adjustments:
   Impairment of goodwill                                             -         106,000
   Adjusted EBITDA from continuing operations                 $ 932,458       $ 368,256

   EBITDA margin from continuing operations (1)                    27.3  %          9.9  %
   Adjusted EBITDA margin from continuing operations (2)           27.3  %         14.0  %


(1) EBITDA margin from continuing operations is computed as EBITDA from
continuing operations divided by revenues from continuing operations.
(2) Adjusted EBITDA margin from continuing operations is computed as adjusted
EBITDA from continuing operations divided by revenues from continuing
operations.
The following is a reconciliation of our results from continuing operations to
our adjusted results from continuing operations, which are non-GAAP financial
measures:
                                                                  (in 000s, except per share amounts)
Year ended April 30,                                                        2021                 2020

Net income from continuing operations - as reported               $   

590 212 $ 6,156

Adjustments:

Amortization of intangible assets related to acquisitions (before tax)

                                                               68,387               74,561
Impairment of goodwill (pretax)                                             -              106,000
Tax effect of adjustments(1)                                          (15,884)             (19,126)
Adjusted net income from continuing operations                    $   

642 715 $ 167,591

Diluted earnings per share from continuing operations – as published

                                                          $      3.11          $      0.03
Adjustments, net of tax                                                  0.28                 0.81

Adjusted diluted earnings per share from continuing operations

                                                        $      

3.39 $ 0.84

(1) The tax effect of the adjustments is the difference between the calculation of the tax provision on a GAAP basis and on an adjusted non-GAAP basis.

                                                H&R Block, Inc. | 2021 Form 

10-K 31

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