HR Block 2015 Annual Report Download - page 27

20 2015 Form 10-K | H&R Block, Inc.
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 marketing programs and any new
strategic initiatives we seek to undertake. Deterioration in our relationships with our franchisees or the failure of our
franchisees to support our marketing programs and strategic initiatives 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 in Canada, Australia, India, and Brazil, and may consider expansion
opportunities in additional countries in the future. 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.
We may be adversely impacted by changes in corporate tax rates, the adoption of new tax legislation in the
jurisdictions in which we operate, and exposure to additional tax liabilities.
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. Tax rates in the various jurisdictions in which our subsidiaries are
organized and conduct their operations may change significantly as a result of political or economic factors beyond
our control. Additionally, our future effective tax rates could be adversely affected by changes in the valuation of
deferred tax assets and liabilities or changes in tax laws or their interpretation. Our tax returns and other tax matters
are periodically examined by tax authorities and governmental bodies, including the IRS, which may disagree with
positions taken by us in determining our tax liability. There can be no assurance as to the outcome of these
examinations. We regularly assess the likelihood of an adverse outcome resulting from these examinations to
determine the adequacy of our provision for taxes. If our effective tax rates were to increase, or if the ultimate
determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results,
cash flows, and financial condition could be adversely affected.
RISKS RELATING TO DISCONTINUED OPERATIONS
SCC is subject to potential contingent losses related to representation and warranty claims, which may have an
adverse effect on our business and our consolidated financial condition, results of operations, and cash flows. SCC
has accrued an estimated liability related to these contingent losses that may not be adequate.
SCC remains exposed to losses relating to mortgage loans it previously originated. Mortgage loans originated by SCC
were sold either as whole loans to single third-party buyers or in the form of residential mortgage-backed securities
(RMBSs).
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." These representations and warranties varied based
on the nature of the transaction and the buyer's or insurer's requirements, but generally pertained to the ownership
of the loan, the validity of the lien securing the loan, borrower fraud, the loan's compliance with the criteria for
inclusion in the transaction, including compliance with SCC's underwriting standards or loan criteria established by
the buyer, ability to deliver required documentation, and compliance with applicable laws. Representations and