HR Block 2009 Annual Report Download - page 13

their contractual agreements. These events could potentially result in financial losses or other damages. We utilize
internally developed processes, internal and external information and technological systems to manage our
operations. We are exposed to risk of loss resulting from breaches in the security or other failures of these
processes and systems. Our ability to recover or replace our major operational systems and processes could have a
significant impact on our core business operations and increase our risk of loss due to disruptions of normal
operating processes and procedures that may occur while re-establishing or implementing information and
transaction systems and processes. As our businesses are seasonal, our systems must be capable of processing
high volumes during peak season. Therefore, service interruptions resulting from system failures could negatively
impact our ability to serve our customers, which in turn could damage our brand and reputation, or adversely
impact our profitability.
We also face the risk that the design of our controls and procedures may prove to be inadequate or that our
controls and procedures may be circumvented, thereby causing delays in detection of errors or inaccuracies in
data and information. It is possible that any lapses in the effective operations of controls and procedures could
materially affect earnings or harm our reputation. Lapses or deficiencies in internal control over financial
reporting could also be material to us.
TAX SERVICES
Government initiatives that simplify tax return preparation could reduce the need for our services as a
third-party tax return preparer. In addition, changes in government regulations or processes regarding
the preparation and filing of tax returns may increase our operating costs or reduce our revenues.
Many taxpayers seek assistance from paid tax return preparers such as us because of the level of complexity
involved in the tax return preparation and filing process. From time to time, government officials propose
measures seeking to simplify the preparation and filing of tax returns or to provide additional assistance with
respect to preparing and filing such tax returns. The passage of any measures that significantly simplify tax return
preparation or otherwise reduce the need for a third-party tax return preparer could reduce demand for our
services, causing our revenues or results of operations to decline.
Governmental regulations and processes affect how we provide services to our clients. Changes in these
regulations and processes may require us to make corresponding changes to our client service systems and
procedures. The degree and timing of changes in governmental regulations and processes may impair our ability to
serve our clients in an effective and cost-efficient manner or reduce demand for our services, causing our revenues
or results of operations to decline.
Federal and state legislators and regulators have increasingly taken an active role in regulating financial
products such as RALs. In addition, we are dependent on third-party financial institutions to provide
certain of these financial products to our clients and these institutions could cease or significantly reduce
the offering of such products. These trends or potential developments could impede our ability to
facilitate these financial products, reduce demand for our services and harm our business.
Changes in government regulation related to RALs could limit the offering of RALs to our clients or our ability to
purchase participation interests. In addition, third-party financial institutions currently originating RALs and
similar products could decide to cease or significantly limit such offerings and related collection practices.
Changes in IRS practices could impair our ability to limit our bad debt exposure. Changes in any of these, as well as
possible litigation related to financial products offered through our distribution channels, may cause our revenues
or profitability to decline. See discussion of RAL litigation in Item 3, “Legal Proceedings.” In addition to the loss of
revenues and income directly attributable to the RAL program, the inability to offer RALs could indirectly result in
the loss of retail tax clients and associated tax preparation revenues, unless we were able to take mitigating
actions.
Total revenues related directly to the RAL program (including revenues from participation interests) were
$141.0 million for the year ended April 30, 2009, representing 3.5% of consolidated revenues and contributed
$56.8 million to the Tax Services segment’s pretax results. Revenues related directly to the RAL program totaled
$189.8 million for the year ended April 30, 2008, representing 4.6% of consolidated revenues and contributed
$87.0 million to pretax results.
Increased competition for tax preparation clients in our retail offices and our online and software
channels could adversely affect our current market share and profitability, and could limit our ability to
grow our client base. Offers of free tax preparation services could adversely affect our revenues and
profitability.
The retail tax services business is highly competitive. There are a substantial number of tax return preparation
firms and accounting firms offering tax return preparation services. Many tax return preparation firms and many
firms not otherwise in the tax return preparation business are involved in providing electronic filing, RALs and
H&R BLOCK 2009 Form 10K 9