HR Block 2012 Annual Report Download - page 24

existing clients to leave, thereby impairing our ability to grow and maintain profitability and, possibly, our
ability to continue delivering our products and services through the internet. Although we, with the help of
third-party service providers, intend to continue to implement security technology and establish operational
procedures to prevent security breaches, these measures may not be successful.
An interruption in or breach of our information systems, those of a third party on which we
rely, or the internet may result in lost business.
We rely heavily upon communications and information systems and the internet to conduct our business. Our
systems and operations are potentially vulnerable to damage or interruption from network failure, hardware
failure, software failure, power or telecommunications failures, computer viruses and worms, negative
disruptions to the operation of the internet, penetration of our network by hackers or other unauthorized users
and natural disasters. Any failure, interruption or breach in security of our information systems, the third-party
information systems on which we rely, or the internet could negatively impact our core business operations and
increase our risk of loss. As our businesses are seasonal, our systems must be capable of processing high
volumes during peak season. Therefore, service interruptions resulting from system or internet failures could
negatively impact our ability to serve our clients, which in turn could damage our brand and reputation, or
adversely impact our profitability.
We cannot make assurances that system or internet failures, interruptions or breaches will not occur, or if
they do occur that we or the third parties on whom we rely will adequately address them. The precautionary
measures that we have implemented to avoid systems outages and to minimize the effects of any data or
communication systems interruptions may not be adequate, and we may not have anticipated or addressed all
of the potential events that could threaten or undermine our information systems. The occurrence of any
systems or internet failure, interruption or breach could significantly impair the reputation of our brand,
diminish the attractiveness of our services and harm our business.
Government initiatives that simplify tax return preparation or expedite refunds could reduce the
need for our services as a third-party tax return preparer, and cause our revenues or results of
operations to decline.
Many taxpayers seek assistance from paid tax return preparers such as us not only because of the level of
complexity involved in the tax return preparation and filing process, but also because of paid tax return
preparers’ ability to expedite refund proceeds under certain circumstances. 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 or expediting refunds. During tax season 2011,
the U.S. Department of the Treasury (the Treasury) introduced a prepaid debit card pilot program designed to
facilitate the refund process. HRB Bank also provides this type of service through its H&R Block Prepaid
Emerald MasterCard
®
. Additionally, during tax season 2011, the IRS increased its emphasis on a process to
allow taxpayers to allocate their refunds to multiple accounts. The adoption or expansion of any measures that
significantly simplify tax return preparation, expedite refunds or otherwise reduce the need for a third-party tax
return preparer could reduce demand for our services, and cause our revenues or results of operations to
decline.
The Dodd-Frank Act is expected to increase capital requirements for savings and loan holding
companies. Compliance with these new capital requirements could adversely affect our Holding
Companies and could alter our strategic plans.
The Dodd-Frank Act made extensive changes to the laws regulating banks, holding companies and financial
services firms, and requires various federal agencies to adopt a broad range of new implementing rules and
regulations and prepare numerous studies and reports for Congress. Among other changes, the Dodd-Frank Act
imposes consolidated capital requirements on SLHCs. These requirements may have a significant long term
effect on our Holding Companies. The Dodd-Frank Act requires the Federal Reserve to promulgate minimum
capital requirements for SLHCs, including leverage (Tier 1) and risk based capital requirements that are no less
stringent than those applicable to banks.
On June 7, 2012, the Federal Reserve issued a 250 page notice of proposed rulemaking on increased capital
requirements, implementing changes required by the Dodd-Frank Act and portions of the Basel III regulatory
capital reforms, portions of which would apply to top-tier SLHCs including H&R Block, Inc. We are still
analyzing the proposed capital regulations, which would not become fully implemented until January 1, 2015,
and the effect they would have on us and our business.
10 H&R BLOCK 2012 Form 10K