HR Block 2016 Annual Report Download - page 21

H&R Block, Inc. | 2016 Form 10-K 13
We rely on a single vendor or a limited number of vendors to provide certain key services or products, and the
inability of these key vendors to meet our needs could have a material adverse effect on our business and our
consolidated financial position, results of operations, and cash flows.
Historically, we have contracted, and in the future we will likely continue to contract, with a single vendor or a limited
number of vendors to provide certain key services or products for our tax, financial, and other services and products.
Two examples of this type of reliance are our relationships with FIS, for data processing and card production services,
and BofI, as discussed in Item 1. In certain instances, we are vulnerable to vendor error, service inefficiencies, service
interruptions, or service delays. Our sensitivity to any of these issues may be heightened (1) due to the seasonality
of our business, (2) with respect to any vendor that we utilize for the provision of any product or service that has
specialized expertise, (3) with respect to any vendor that is a sole or exclusive provider, or (4) with respect to any
vendor whose indemnification obligations are limited or that does not have the financial capacity to satisfy its
indemnification obligations. Some of our vendors are subject to the oversight of regulatory bodies and, as a result,
our product or service offerings may be affected by the actions or decisions of such regulatory bodies. Vendor failures
could occur in various ways including (1) vendor error, (2) inability to meet our needs in a timely manner, or (3)
termination or delay in the services or products provided by a vendor because the vendor fails to perform adequately,
is no longer in business, experiences shortages, or discontinues a certain product or service that we utilize. If our
vendors are unable to meet our needs and we are not able to develop alternative sources for these services and
products quickly and cost-effectively, it could result in a material and adverse impact on our business and our
consolidated financial position, results of operations, and cash flows.
The specialized and highly seasonal nature of our business presents financial risks and operational challenges,
which, if not satisfactorily addressed, could materially affect our business and our consolidated financial position,
results of operations, and cash flows.
Success in our industry depends on our ability to attract, develop, and retain key personnel in a timely manner, including
members of our executive team, and those in seasonal tax preparation positions or with other required specialized
expertise, including technical positions. The market for such personnel is extremely competitive, and there can be no
assurance that we will be successful in our efforts to attract and retain the required personnel within necessary
timeframes. If we are unable to attract, develop, and retain key personnel, our business, operations and financial
results could be negatively impacted.
Our business is highly seasonal, with the substantial portion of our revenue earned in the fourth quarter of our
fiscal year. The concentration of our revenue-generating activity during this relatively short period presents a number
of challenges for us, including (1) cash and resource management during the first nine months of our fiscal year, when
we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season, (2) ensuring
compliance with financial covenants under our unsecured committed line of credit (2015 CLOC), particularly if the
timing of our revenue generation deviates from this seasonal period, (3) the availability of a seasonal workforce,
including tax professionals, and our ability to attract, hire, train, supervise, motivate, and retain these employees, (4)
responding to changes in competitive conditions, including marketing, pricing, and new product offerings, which could
affect our position during the tax season, (5) disruptions in a tax season, including any customer dissatisfaction issues,
which may not be timely discovered, and (6) ensuring optimal uninterrupted operations and service delivery during
peak season. If we 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 litigation in connection with our various business activities, and current or future 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 trademarks 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