HR Block 2015 Annual Report Download - page 39

32 2015 Form 10-K | H&R Block, Inc.
Sensitivity of Estimate to Change. It is reasonably possible that future representation and warranty losses may
vary from the amounts accrued for these exposures. SCC currently believes the aggregate range of reasonably possible
losses in excess of amounts accrued is not material. This estimated range is based on the best information currently
available, significant management judgment and a number of factors that are subject to change, including
developments in case law and the factors listed above. The actual loss that may be incurred could differ materially
from our accrual or the estimate of reasonably possible losses.
SCC has accrued a liability as of April 30, 2015 for estimated contingent losses arising from representation and
warranty claims of $149.8 million. SCC accrued incremental loss provisions of $16 million in fiscal year 2015, $25
million in fiscal year 2014 and $40 million in fiscal year 2013.
If the amount that SCC is ultimately required to pay with respect to claims and litigation related to its past sales
and securitizations of mortgage loans, together with payment of SCC's related administration and legal expense,
exceeds SCC's net assets, the creditors of SCC, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy,
may attempt to assert claims against us for payment of SCC's obligations. Claimants may also attempt to assert claims
or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of April
30, 2015, total approximately $480 million and consist primarily of an intercompany note receivable and a deferred
tax asset. We believe our legal position is strong on any potential corporate veil-piercing arguments; however, if this
position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated
financial position, results of operations and cash flows.
The accrued liability does not include potential losses related to litigation and indemnification matters discussed
in Item 1A, "Risk Factors" and in Item 8, note 17 to the consolidated financial statements. Also see Item 8, note 18 to
the consolidated financial statements.
LITIGATION AND RELATED CONTINGENCIES –
Nature of Estimates Required. We accrue liabilities related to certain legal matters for which we believe it is probable
that a loss has been incurred and the amount of such loss can be reasonably estimated. Assessing the likely outcome
of pending or threatened litigation, including the amount of potential loss, if any, is highly subjective.
Assumptions and Approach Used. We are subject to pending or threatened litigation claims and indemnification
claims, which are described in Item 8, note 17 to the consolidated financial statements. It is our policy to routinely
assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable
losses. A determination of the amount of the liability required to be accrued, if any, for these contingencies is made
after analysis of each known issue and an analysis of historical experience. In cases where we have concluded that a
loss is only reasonably possible or remote, or is not reasonably estimable, no liability is accrued.
Sensitivity of Estimate to Change. It is reasonably possible that future litigation and related contingent losses may
vary from the amounts accrued. For some matters where a liability has not been accrued, we are able to estimate a
reasonably possible loss or range of loss. Those matters for which an estimate is not reasonably possible are not
included within this estimated range. Therefore, this estimated range of reasonably possible loss represents what we
believe to be an estimate of reasonably possible loss only for certain matters meeting these criteria. It does not
represent our maximum loss exposure. For those matters, and for matters where a liability has been accrued, as of
April 30, 2015, we believe the aggregate range of reasonably possible losses in excess of amounts accrued is not
material. However, our judgments on whether a loss is probable, reasonably possible or remote and our estimates of
probable loss amounts may differ from actual results due to difficulties in predicting the outcome of jury trials,
arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions
and numerous other uncertainties. Due to the number of claims which are periodically asserted against us, and the
magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current
estimates.
INCOME TAXES – UNCERTAIN TAX POSITIONS –
Nature of Estimates Required. The income tax laws of jurisdictions in which we operate are complex and subject to
different interpretations by the taxpayer and applicable government taxing authorities. Income tax returns filed by
us are based on our interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by
federal, state and foreign tax authorities, which may result in proposed assessments, including assessments of interest