HR Block 2011 Annual Report Download - page 82

misrepresentation in connection with its purchase of two securities originated and securitized by SCC. These two
securities had a total initial principal amount of approximately $50 million, of which approximately $42 million
remains outstanding. We have not concluded that a loss related to this matter is probable nor have we established a
loss contingency related to this matter. We believe the claims in this case are without merit and we intend to defend
them vigorously. There can be no assurances, however, as to its outcome or its impact on our consolidated results
of operations.
OTHER CLAIMS AND LITIGATION – We have been named in several wage and hour class action lawsuits
throughout the country, including Alice Williams v. H&R Block Enterprises LLC, Case No.RG08366506 (Superior
Court of California, County of Alameda, filed January 17, 2008) (alleging improper classification of office managers
in California); Arabella Lemus v. H&R Block Enterprises LLC, et al., Case No. CGC-09-489251 (United States
District Court, Northern District of California, filed June 9, 2009) (alleging failure to timely pay compensation to
tax professionals in California and to include itemized information on wage statements); Delana Ugas v. H&R
Block Enterprises LLC, et al., Case No. BC417700 (United States District Court, Central District of California, filed
July 13, 2009) (alleging failure to compensate tax professionals in California and eighteen other states for all hours
worked and to provide meal periods); and Barbara Petroski v. H&R Block Eastern Enterprises, Inc., et al., Case
No. 10-CV-00075 (United States District Court, Western District of Missouri, filed January 25, 2010) (alleging failure
to compensate tax professionals nationwide for off-season training). A class was certified in the Lemus case in
December 2010 (consisting of tax professionals who worked in company-owned offices in California from 2007 to
2010) and in the Williams case in March 2011 (consisting of office managers who worked in company-owned
offices in California from 2004 to 2011). A conditional class was certified in the Petroski case in March 2011
(consisting of tax professionals who were not compensated for certain training courses occurring on or after
April 15, 2007).
The plaintiffs in the wage and hour class action lawsuits seek actual damages, pre-judgment interest and
attorneys’ fees, in addition to statutory penalties under California and federal law, which could equal up to 30 days
of wages per tax season for class members who worked in California. A portion of our loss contingency accrual is
related to these lawsuits for the amount of loss that we consider probable and estimable. For those wage and hour
class action lawsuits for which we are able to estimate a range of possible loss, the current estimated range is $0 to
$70 million in excess of the accrued liability related to those matters. This estimated range of possible loss is based
upon currently available information and is subject to significant judgment and a variety of assumptions and
uncertainties. The matters underlying the estimated range will change from time to time, and actual results may
vary significantly from the current estimate. Because this estimated range does not include matters for which an
estimate is not possible, the range does not represent our maximum loss exposure for the wage and hour class
action lawsuits. We believe we have meritorious defenses to the claims in these lawsuits and intend to defend them
vigorously. The amounts claimed in these matters are substantial in some instances and the ultimate liability with
respect to these matters is difficult to predict. There can be no assurances as to the outcome of these cases or their
impact on our consolidated results of operations, individually or in the aggregate.
In October 2010, we signed a definitive merger agreement to acquire all of the outstanding shares of 2SS
Holdings, Inc. (“2SS”), developer of TaxACT digital tax preparation solutions, for $287.5 million in cash. In May
2011, the United States Department of Justice (the “DOJ”) filed a civil antitrust lawsuit in the U.S. district court in
Washington, D.C., (Case No. 1:11-cv-00948) against H&R Block and 2SS styled United States v. H&R Block, Inc.,
2SS Holdings, Inc., and TA IX L.P., to block our proposed acquisition of 2SS. There are no assurances that the
DOJ’s lawsuit will be resolved in our favor or that the transaction will be consummated.
In addition, we are from time to time party to investigations, claims and lawsuits not discussed herein arising out
of our business operations. These investigations, claims and lawsuits include actions by state attorneys general,
other state regulators, individual plaintiffs, and cases in which plaintiffs seek to represent a class of others
similarly situated. We believe we have meritorious defenses to each of these investigations, claims and lawsuits,
and we are defending or intend to defend them vigorously. The amounts claimed in these matters are substantial in
some instances, however, the ultimate liability with respect to such matters is difficult to predict. In the event of an
unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could
have a material impact on our consolidated results of operations.
We are also party to claims and lawsuits that we consider to be ordinary, routine litigation incidental to our
business, including claims and lawsuits (collectively, “Other Claims”) concerning the preparation of customers’
income tax returns, the fees charged customers for various products and services, relationships with franchisees,
intellectual property disputes, employment matters and contract disputes. While we cannot provide assurance
that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay in the
discharge of liabilities or settlements in these Other Claims will not have a material impact on our consolidated
results of operations.
70 H&R BLOCK 2011 Form 10K