HR Block 2014 Annual Report Download - page 25

H&R Block, Inc. | 2014 Form 10-K 17
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
of business, which could have a material adverse effect on our business and our consolidated financial position, results
of operations and cash flows.
We face substantial litigation in connection with our various business activities, and such litigation 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, as a defendant in various legal actions,
including arbitrations, class actions, actions or inquiries by state attorneys general, and other litigation arising in
connection with our various business activities, including relating to our various service and product offerings. We
also grant our franchisees a limited license to use our registered service marks and, accordingly, there is risk that one
or more of the franchisees may be identified as being 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 litigation could
result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from
our subsidiaries' 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.
In addition, we have been sued, and certain of our competitors have been sued, in connection with the offering
of different types of refund transfer products. In one court's issued ruling, which is not subject to appellate review,
the court held that a competitor's specific version of a refund transfer product should be considered a loan, and subject
to truth-in-lending and other related laws. We believe there are factual and legal differences that distinguish us and
our RAC product from the various refund transfer services offered by our competitors. Revenues from our RAC product
totaled $181 million in fiscal year 2014; any requirement that materially alters our offering of RACs, including limitations
on the fees we charge or disclosure requirements that could reduce the demand for these products, could have a
material adverse impact on our business and our consolidated financial position, results of operations and cash flows.
Our access to liquidity may be negatively impacted as disruptions in credit markets occur, if credit rating downgrades
occur or if we fail to meet certain covenants. Funding costs may increase, leading to reduced earnings.
We need liquidity to meet our off-season 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 in the event of credit rating downgrades or if we fail to meet existing debt covenants. In
addition, events could occur which could increase our need for liquidity above current levels.
If rating agencies downgrade our credit rating, the cost of debt under our existing financing arrangements, as well
as future financing arrangements and borrowings under our commercial paper program, could increase and capital
market access could decrease or become unavailable. Our unsecured committed line of credit (2012 CLOC) is subject
to various covenants, and a violation of a covenant could impair our access to liquidity currently available through
the 2012 CLOC. The 2012 CLOC includes provisions that allow for the issuance of equity to comply with the financial
covenant calculations as a means to avoid a shortfall. 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.
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. Accordingly, we cannot make any assurances that future
dividends will be paid, or future repurchases will be made, at levels comparable to our historical practices, if at all.
Due to the seasonal nature of our business, and the fact that our business is not asset-intensive, there may be periods
of time during our fiscal year in which the payment of dividends or stock repurchases may cause us to have a negative
net worth under accounting principles generally accepted in the U.S. (GAAP). See additional discussion regarding our