##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended January 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number 1-32215





Jackson Hewitt Tax Service Inc.

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-0779692                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3 Sylvan Way

Parsippany, New Jersey 07054

(Address of principal executive offices including zip code)

(973) 630-1040

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  | x |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) Yes  ̈ No x

The number of shares
outstanding of the registrants common stock was 28,791,958 (net of 10,498,460 shares held in treasury) as of February 28, 2009.









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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS



|         |  |                                                                                                       |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                       |  | Page
|         |  |                                                                                                      
|         |  | PART 1 - FINANCIAL INFORMATION                                                                        |  | 1   
|         |  |                                                                                                      
|Item 1.  |  | Financial Statements (Unaudited):                                                                     |  | 1   
|         |  |                                                                                                      
|         |  | Condensed Consolidated Balance Sheets                                                                 |  | 1   
|         |  |                                                                                                      
|         |  | Condensed Consolidated Statements of Operations                                                       |  | 2   
|         |  |                                                                                                      
|         |  | Condensed Consolidated Statements of Cash Flows                                                       |  | 3   
|         |  |                                                                                                      
|         |  | Notes to Condensed Consolidated Financial Statements                                                  |  | 4   
|         |  |                                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 20  
|         |  |                                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                            |  | 35  
|         |  |                                                                                                      
|Item 4.  |  | Controls and Procedures                                                                               |  | 35  
|         |  |                                                                                                      
|         |  | PART II - OTHER INFORMATION                                                                           |  | 36  
|         |  |                                                                                                      
|Item 1.  |  | Legal Proceedings                                                                                     |  | 36  
|         |  |                                                                                                      
|Item 1A. |  | Risk Factors                                                                                          |  | 36  
|         |  |                                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities |  | 37  
|         |  |                                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                                       |  | 37  
|         |  |                                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                   |  | 37  
|         |  |                                                                                                      
|Item 5.  |  | Other Information                                                                                     |  | 37  
|         |  |                                                                                                      
|Item 6.  |  | Exhibits                                                                                              |  | 37  
|         |  |                                                                                                      
|         |  | Signatures                                                                                            |  | 38  



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##### Table of Contents

PART 1  FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)



|                                                                                                                      |  |                 |          |   |               |   |          |  
|--------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                      |  | As of           |         
|                                                                                                                      |  | January 31,2009 |          |   | April 30,2008 |  
|Assets                                                                                                                |  |                 |          |   |               |   |          |  
|Current assets:                                                                                                       |  |                 |          |   |               |   |          |  
|Cash and cash equivalents                                                                                             |  | $               | 1,031    |   |               | $ | 4,594    |  
|Accounts receivable, net of allowance for doubtful accounts of $2,385 and $694, respectively                          |  |                 | 69,211   |   |               |   | 17,850   |  
|Notes receivable, net                                                                                                 |  |                 | 8,247    |   |               |   | 6,033    |  
|Prepaid expenses and other                                                                                            |  |                 | 17,503   |   |               |   | 13,241   |  
|Deferred income taxes                                                                                                 |  |                 | 3,544    |   |               |   | 200      |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current assets                                                                                                  |  |                 | 99,536   |   |               |   | 41,918   |  
|                                                                                                                      |  |                
|Property and equipment, net                                                                                           |  |                 | 29,223   |   |               |   | 32,099   |  
|Goodwill                                                                                                              |  |                 | 418,134  |   |               |   | 414,887  |  
|Other intangible assets, net                                                                                          |  |                 | 87,367   |   |               |   | 86,458   |  
|Notes receivable, net                                                                                                 |  |                 | 6,736    |   |               |   | 6,035    |  
|Other non-current assets, net                                                                                         |  |                 | 17,584   |   |               |   | 18,668   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total assets                                                                                                          |  | $               | 658,580  |   |               | $ | 600,065  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|                                                                                                                      |  |                
|Liabilities and Stockholders Equity                                                                                  |  |                 |          |   |               |   |          |  
|Current liabilities:                                                                                                  |  |                 |          |   |               |   |          |  
|Accounts payable and accrued liabilities                                                                              |  | $               | 37,311   |   |               | $ | 34,851   |  
|Income taxes payable                                                                                                  |  |                 | 17,394   |   |               |   | 48,531   |  
|Deferred revenues                                                                                                     |  |                 | 7,366    |   |               |   | 8,264    |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current liabilities                                                                                             |  |                 | 62,071   |   |               |   | 91,646   |  
|                                                                                                                      |  |                
|Long-term debt                                                                                                        |  |                 | 356,000  |   |               |   | 231,000  |  
|Deferred income taxes                                                                                                 |  |                 | 25,556   |   |               |   | 27,298   |  
|Other non-current liabilities                                                                                         |  |                 | 13,547   |   |               |   | 13,604   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities                                                                                                     |  |                 | 457,174  |   |               |   | 363,548  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|                                                                                                                      |  |                
|Commitments and Contingencies (Note 12)                                                                               |  |                 |          |   |               |   |          |  
|Stockholders equity:                                                                                                 |  |                 |          |   |               |   |          |  
|Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 39,290,418 and 38,867,231 shares, respectively |  |                 | 393      |   |               |   | 389      |  
|Additional paid-in capital                                                                                            |  |                 | 387,360  |   |               |   | 383,084  |  
|Retained earnings                                                                                                     |  |                 | 120,678  |   |               |   | 158,011  |  
|Accumulated other comprehensive loss                                                                                  |  |                 | (4,350   | ) |               |   | (2,306   | )
|Less: Treasury stock, at cost: 10,498,460 and 10,440,491 shares, respectively                                         |  |                 | (302,675 | ) |               |   | (302,661 | )
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total stockholders equity                                                                                            |  |                 | 201,406  |   |               |   | 236,517  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                            |  | $               | 658,580  |   |               | $ | 600,065  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



1



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)



|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ----------------------------- | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months EndedJanuary 31, |        |   | Nine Months EndedJanuary 31, |  
|                                                      |  | 2009                          |        |   | 2008                         |   |        | 2009 |  |   | 2008    |  
|Revenues                                              |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Franchise operations revenues:                        |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Royalty                                               |  | $                             | 29,620 |   |                              | $ | 27,132 |      |  | $ | 30,893  |   |  | $ | 28,464  |  
|Marketing and advertising                             |  |                               | 13,089 |   |                              |   | 12,161 |      |  |   | 13,653  |   |  |   | 12,736  |  
|Financial product fees                                |  |                               | 21,182 |   |                              |   | 24,451 |      |  |   | 26,256  |   |  |   | 29,777  |  
|Other                                                 |  |                               | 2,027  |   |                              |   | 3,170  |      |  |   | 3,624   |   |  |   | 6,554   |  
|Service revenues from company-owned office operations |  |                               | 31,872 |   |                              |   | 30,641 |      |  |   | 32,720  |   |  |   | 31,545  |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total revenues                                        |  |                               | 97,790 |   |                              |   | 97,555 |      |  |   | 107,146 |   |  |   | 109,076 |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|                                                      |  |                               |        |  
|Expenses                                              |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Cost of franchise operations                          |  |                               | 8,980  |   |                              |   | 8,135  |      |  |   | 24,933  |   |  |   | 26,197  |  
|Marketing and advertising                             |  |                               | 20,530 |   |                              |   | 22,620 |      |  |   | 30,139  |   |  |   | 31,330  |  
|Cost of company-owned office operations               |  |                               | 19,887 |   |                              |   | 20,727 |      |  |   | 37,827  |   |  |   | 33,242  |  
|Selling, general and administrative                   |  |                               | 6,680  |   |                              |   | 8,509  |      |  |   | 30,580  |   |  |   | 39,789  |  
|Depreciation and amortization                         |  |                               | 3,296  |   |                              |   | 3,352  |      |  |   | 9,689   |   |  |   | 9,946   |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total expenses                                        |  |                               | 59,373 |   |                              |   | 63,343 |      |  |   | 133,168 |   |  |   | 140,504 |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|                                                      |  |                               |        |  
|Income (loss) from operations                         |  |                               | 38,417 |   |                              |   | 34,212 |      |  |   | (26,022 | ) |  |   | (31,428 | )
|Other income/(expense):                               |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Interest and other income                             |  |                               | 454    |   |                              |   | 421    |      |  |   | 1,234   |   |  |   | 1,369   |  
|Interest expense                                      |  |                               | (4,197 | ) |                              |   | (4,621 | )    |  |   | (11,422 | ) |  |   | (11,112 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |                               | 34,674 |   |                              |   | 30,012 |      |  |   | (36,210 | ) |  |   | (41,171 | )
|Provision for (benefit from) income taxes             |  |                               | 13,763 |   |                              |   | 11,765 |      |  |   | (14,371 | ) |  |   | (16,139 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                                     |  | $                             | 20,911 |   |                              | $ | 18,247 |      |  | $ | (21,839 | ) |  | $ | (25,032 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|                                                      |  |                               |        |  
|Earnings (loss) per share:                            |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                 |  | $                             | 0.73   |   |                              | $ | 0.61   |      |  | $ | (0.77   | ) |  | $ | (0.83   | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                               |  | $                             | 0.73   |   |                              | $ | 0.61   |      |  | $ | (0.77   | ) |  | $ | (0.83   | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|                                                      |  |                               |        |  
|Weighted average shares outstanding:                  |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                 |  |                               | 28,489 |   |                              |   | 29,690 |      |  |   | 28,478  |   |  |   | 30,041  |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                               |  |                               | 28,545 |   |                              |   | 30,061 |      |  |   | 28,478  |   |  |   | 30,041  |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Cash dividends declared per share (Note 1):           |  | $                             | 0.18   |   |                              | $ | 0.18   |      |  | $ | 0.54    |   |  | $ | 0.54    |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



2



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                            |  |                              |         |   |      |   |          |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | -------- | -
|                                                                            |  | Nine Months EndedJanuary 31, |        
|                                                                            |  | 2009                         |         |   | 2008 |  
|Operating activities:                                                       |  |                              |         |   |      |   |          |  
|Net loss                                                                    |  | $                            | (21,839 | ) |      | $ | (25,032  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |         |   |      |   |          |  
|Depreciation and amortization                                               |  |                              | 9,689   |   |      |   | 9,946    |  
|Amortization of development advances                                        |  |                              | 1,457   |   |      |   | 1,190    |  
|Provision for uncollectible receivables, net                                |  |                              | 2,316   |   |      |   | 1,360    |  
|Share-based compensation                                                    |  |                              | 2,663   |   |      |   | 6,468    |  
|Deferred income taxes                                                       |  |                              | (3,723  | ) |      |   | 1,374    |  
|Excess tax benefit on stock options exercised                               |  |                              |        |   |      |   | (3,881   | )
|Other                                                                       |  |                              | 263     |   |      |   | 152      |  
|Changes in assets and liabilities, excluding the impact of acquisitions:    |  |                              |         |   |      |   |          |  
|Accounts receivable                                                         |  |                              | (53,770 | ) |      |   | (48,997  | )
|Notes receivable                                                            |  |                              | (1,322  | ) |      |   | (1,729   | )
|Prepaid expenses and other                                                  |  |                              | (1,546  | ) |      |   | (5,473   | )
|Accounts payable, accrued and other liabilities                             |  |                              | 8,285   |   |      |   | 1,122    |  
|Income taxes payable                                                        |  |                              | (29,568 | ) |      |   | (46,548  | )
|Deferred revenues                                                           |  |                              | (3,345  | ) |      |   | (5,174   | )
|                                                                            |  |                              |         |   |      |   |          |  
|Net cash used in operating activities                                       |  |                              | (90,440 | ) |      |   | (115,222 | )
|                                                                            |  |                              |         |   |      |   |          |  
|                                                                            |  |                             
|Investing activities:                                                       |  |                              |         |   |      |   |          |  
|Capital expenditures                                                        |  |                              | (5,535  | ) |      |   | (5,163   | )
|Funding provided to franchisees                                             |  |                              | (4,848  | ) |      |   | (8,997   | )
|Proceeds from repayment of franchisee notes                                 |  |                              | 513     |   |      |   | 465      |  
|Cash paid for acquisitions                                                  |  |                              | (13,440 | ) |      |   | (17,101  | )
|                                                                            |  |                              |         |   |      |   |          |  
|Net cash used in investing activities                                       |  |                              | (23,310 | ) |      |   | (30,796  | )
|                                                                            |  |                              |         |   |      |   |          |  
|                                                                            |  |                             
|Financing activities:                                                       |  |                              |         |   |      |   |          |  
|Common stock repurchases                                                    |  |                              |        |   |      |   | (94,841  | )
|Borrowings under revolving credit facility                                  |  |                              | 205,000 |   |      |   | 412,000  |  
|Repayments of borrowings under revolving credit facility                    |  |                              | (80,000 | ) |      |   | (188,000 | )
|Dividends paid to stockholders                                              |  |                              | (15,341 | ) |      |   | (16,226  | )
|Proceeds from issuance of common stock                                      |  |                              | 10      |   |      |   | 12,004   |  
|Debt issuance costs                                                         |  |                              | (881    | ) |      |   | (110     | )
|Excess tax benefit on stock options exercised                               |  |                              |        |   |      |   | 3,881    |  
|Change in cash overdrafts                                                   |  |                              | 1,399   |   |      |   | 16,127   |  
|                                                                            |  |                              |         |   |      |   |          |  
|Net cash provided by financing activities                                   |  |                              | 110,187 |   |      |   | 144,835  |  
|                                                                            |  |                              |         |   |      |   |          |  
|Net decrease in cash and cash equivalents                                   |  |                              | (3,563  | ) |      |   | (1,183   | )
|Cash and cash equivalents, beginning of period                              |  |                              | 4,594   |   |      |   | 1,693    |  
|                                                                            |  |                              |         |   |      |   |          |  
|Cash and cash equivalents, end of period                                    |  | $                            | 1,031   |   |      | $ | 510      |  
|                                                                            |  |                              |         |   |      |   |          |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Description of Business

Jackson Hewitt Tax Service Inc. provides computerized preparation of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and company-owned
offices operating under the brand name Jackson Hewitt Tax Service®. The Company provides its customers with convenient, fast and quality tax return preparation services and electronic
filing. In connection with their tax return preparation experience, the Companys customers may select various financial products to suit their needs, including refund anticipation loans (RALs). Jackson Hewitt and the
Company are used interchangeably in these notes to the Condensed Consolidated Financial Statements to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Jackson Hewitt Tax Service Inc. was incorporated in Delaware in February 2004 as the parent corporation in connection with the Companys June 2004
initial public offering (IPO) pursuant to which Cendant Corporation, now known as Avis Budget Group, Inc. (Cendant), divested 100% of its ownership interest in Jackson Hewitt Tax Service Inc. Jackson Hewitt Inc.
(JHI) is a wholly-owned subsidiary of Jackson Hewitt Tax Service Inc. Jackson Hewitt Technology Services LLC is a wholly-owned subsidiary of JHI that supports the technology needs of the Company. Company-owned office operations are
conducted by Tax Services of America, Inc. (TSA), which is a wholly-owned subsidiary of JHI. The Consolidated Financial Statements include the accounts and transactions of Jackson Hewitt and its subsidiaries.

Basis of Presentation

The accompanying
unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) for interim financial statements. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and other financial information
included in the Companys Annual Report on Form 10-K which was filed with the SEC on June 30, 2008.

In presenting the Condensed
Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could
differ from those estimates. In the opinion of management, the accompanying interim Condensed Consolidated Financial Statements contain all normal and recurring adjustments necessary for a fair presentation of the Companys financial position,
results of operations and cash flows. The results of operations for the interim periods reported are not necessarily indicative of the results of operations that may be expected for any future interim periods or for the full fiscal year.

Gold Guarantee is an extended warranty that a customer may purchase whereby the taxpayer may be reimbursed up to a set limit for any additional tax
liability owed due to an error in the preparation of the customers tax return. Revenues and expenses from the Gold Guarantee product are earned ratably over the products life, which approximates 36 months. The amortization of Gold
Guarantee product in the prior periods Condensed Consolidated Statement of Cash Flows has been reclassified within Operating Activities to conform to the current period presentation with no effect on previously reported net income (loss) or
stockholders equity.

Comprehensive Income (Loss)

The Companys comprehensive income (loss) is comprised of net income (loss) from the Companys results of operations and changes in the fair value of derivatives. The components of comprehensive income
(loss), net of tax, are as follows:



|                                     |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------ |  | ----------------------------- | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                     |  | Three Months EndedJanuary 31, |        |   | Nine Months EndedJanuary 31, |  
|                                     |  | (in thousands)                |        |   | (in thousands)               |  
|                                     |  | 2009                          |        |   | 2008                         |   |        | 2009 |  |   | 2008    |  
|Net income (loss)                    |  | $                             | 20,911 |   |                              | $ | 18,247 |      |  | $ | (21,839 | ) |  | $ | (25,032 | )
|Changes in fair value of derivatives |  |                               | (2,151 | ) |                              |   | (2,792 | )    |  |   | (2,044  | ) |  |   | (3,103  | )
|                                     |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total comprehensive income (loss)    |  | $                             | 18,760 |   |                              | $ | 15,455 |      |  | $ | (23,883 | ) |  | $ | (28,135 | )
|                                     |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  



4



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Computation of earnings (loss) per share

Basic earnings (loss) per share is calculated as net income (loss) divided by the weighted average number of common shares and vested shares of restricted
stock outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by an adjusted weighted average number of common shares outstanding during the period assuming conversion of potentially dilutive
securities arising from stock options outstanding and shares of unvested restricted stock. In loss periods, basic net loss per share and diluted net loss per share are identical since the effect of potential common shares is anti-dilutive and
therefore excluded.

For the three and nine months ended January 31, 2009, both basic and dilutive earnings (loss) per share
computations exclude all performance vesting awards since the performance conditions had not been met for those periods. See Note 6  Share-Based Payments for additional information on the Companys performance vesting
awards.

The following table summarizes the basic and diluted weighted average shares outstanding for the earnings per share calculation:



|                                               |  |                               |  |       
|---------------------------------------------- |  | ----------------------------- |  | ------
|                                               |  | Three Months EndedJanuary 31,
|(in thousands)                                 |  | 2009                          |  | 2008  
|Weighted average shares outstanding - basic    |  | 28,489                        |  | 29,690
|Effective of dilutive securities:              |  |                               |  |       
|Stock options                                  |  | 10                            |  | 369   
|Shares of restricted stock                     |  | 46                            |  | 2     
|                                               |  |                               |  |       
|Weighted average shares outstanding - dilutive |  | 28,545                        |  | 30,061
|                                               |  |                               |  |       

The following table summarizes the anti-dilutive securities that were excluded from the
computation of the effect of dilutive securities on earnings (loss) per share:



|                               |  |                               |  |                              |  |       |  |      
|------------------------------ |  | ----------------------------- |  | ---------------------------- |  | ----- |  | -----
|                               |  | Three Months EndedJanuary 31, |  | Nine Months EndedJanuary 31,
|(in thousands)                 |  | 2009                          |  | 2008                         |  | 2009  |  | 2008 
|Stock options (1)              |  | 2,495                         |  | 1,122                        |  | 2,644 |  | 1,371
|Shares of restricted stock (1) |  | 9                             |  | 15                           |  | 49    |  | 7    
|                               |  |                               |  |                              |  |       |  |      
|Total anti-dilutive securities |  | 2,504                         |  | 1,137                        |  | 2,693 |  | 1,378
|                               |  |                               |  |                              |  |       |  |      

| | 
| | 

| | (1) | For periods with net income, exercise prices for stock options were greater than the average market prices for the Companys common stock or shares of restricted stock are
anti-dilutive due to the impact of the unrecognized compensation cost on the calculation of assumed proceeds in the application of the treasury stock method. For periods with net loss, also includes in-the-money stock options.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividend

On
March 12, 2009, the Company announced that its Board of Directors had voted to suspend the Companys $0.18 per share quarterly common stock dividend.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 defers the implementation of SFAS
No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS No. 157
beginning May 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not impact the Companys financial condition, results of operations or cash flow, the Company is now required to provide additional disclosures as part
of its financial statements. The additional disclosure can be found in Note 4, Fair Value Measurements to the Condensed Consolidated Financial Statements. The aspects that have been deferred by FSP FAS 157-2 will be effective for
the Company beginning May 1, 2009 and the Company is currently assessing the potential impact of its adoption on its Consolidated Financial Statements.



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In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active (FSP FAS 157-3), which clarifies the application of SFAS 157 and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market
for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157. FSP FAS 157-3 was effective for the Company
upon issuance on October 10, 2008 and the adoption did not have a material impact on the Companys Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) which permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair value. SFAS 159 was effective for the Company beginning May 1, 2008. The Company has not elected the fair value measurement option for any financial assets or
liabilities that were not previously recorded at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interests in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS
141R is effective for the Company as of May 1, 2009 and will then be applied prospectively to business combinations that have an acquisition date on or after May 1, 2009. The Company is currently assessing the potential impact on its
Consolidated Financial Statements of adopting SFAS 141R.

In June 2007, the FASB ratified EITF 06-11 Accounting for the Income Tax
Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 provides that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF 06-11
was effective, on a prospective basis, on May 1, 2008. The implementation of this standard did not have a material impact on the Companys Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133 (SFAS 161), which modifies and expands the disclosure requirements for derivative instruments and hedging activities. SFAS 161 requires that objectives for using derivative instruments be disclosed in
terms of underlying risk and accounting designation and requires quantitative disclosures about fair value amounts and gains and losses on derivative instruments. It also requires disclosures about credit-related contingent features in
derivative agreements. SFAS 161 was effective for the Company beginning February 1, 2009. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The principal impact of SFAS 161 requires
the Company to expand its disclosure regarding its derivative and hedging activities.

In April 2008, the FASB issued Staff Position FSP
142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142
and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. FSP 142-3 is effective for the Company beginning May 1, 2009. The Company is currently assessing the potential impact on its
Consolidated Financial Statements of adopting FSP 142-3.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable
dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the calculation of basic EPS. FSP EITF 03-6-1 is effective for the Company beginning May 1, 2009. The
Company does not grant share-based payment awards that entitle their holders to receive non-forfeitable dividends before vesting therefore this EITF is not expected to have any impact to the Company when adopted.



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3. FINANCIAL PRODUCT AGREEMENTS

MetaBank

On November 17, 2008, the Company entered into an Amended and Restated
Marketing Agreement (Marketing Agreement) with MetaBank d/b/a Meta Payment Systems (MetaBank), and a First Addendum (Addendum) to the Marketing Agreement with MetaBank dated the same date. The Marketing Agreement
amends and supersedes a prior agreement with MetaBank. The Marketing Agreement expires on October 31, 2011. The Addendum expires on the later of July 15, 2009 or the date upon which the parties obligations under the Addendum have
been fulfilled.

Under the Marketing Agreement, MetaBank is responsible for issuing and managing the Companys prepaid debit card
program and providing line of credit products related to the card. The Company receives payment from MetaBank based on certain levels of revenues and gross profits.

The Addendum provides that in the event MetaBanks loan losses related to one of the line of credit products provided under the Marketing Agreement significantly exceed MetaBanks projected losses, the
Company will make payments to MetaBank to offset such losses. The Companys payment obligations will not arise unless MetaBanks actual loan losses are in excess of two times the level of MetaBanks projected losses under the program.
The Companys maximum payment obligation is approximately $13 million, which will occur in the event that MetaBanks actual loan losses are in excess of four times MetaBanks projected losses. In the event the Company is required to
make such payment to MetaBank, the Company intends for these payment obligations to be shared among the Company and its franchisees. As of January 31, 2009, the Company considered the likelihood to be remote of a material payment having to be
made to MetaBank to offset actual loan losses.

Republic Bank

On December 2, 2008, the Company entered into the First Amendment to Program Agreement (the Republic Program Agreement Amendment) with
Republic Bank & Trust Company (Republic) and the First Amendment to Technology Services Agreement (the Republic Technology Services Agreement Amendment and, together with the Republic Program Agreement Amendment, the
Republic Amendments) with Republic. The primary purposes of the Republic Amendments are to establish the number of Jackson Hewitt Tax Service locations during the 2009 tax season in which Republic will offer, process and administer
certain financial products, including refund anticipation loans, to Jackson Hewitt Tax Service customers (the Republic Program), the fees to be paid by Republic to the Company for the 2009 tax season and certain compliance parameters
regarding the Republic Program. The Republic Program Agreement Amendment provides Republic with the right to retain certain monies otherwise payable to the Company by Republic in the event that Republic fails to attain a minimum level of
profitability or number of financial products or if Republic incurs costs in connection with the Companys failure to maintain a minimum level of compliance with Republics policies and procedures. Republic must initially measure the
profitability and compliance thresholds by July 31, 2009. As of the date of this filing, the Company has satisfied the minimum level of financial products contingency.

4. FAIR VALUE MEASUREMENTS

Financial assets and liabilities subject to fair value measurements on a
recurring basis are classified according to a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Level 1 represents observable inputs such as quoted prices in active markets. Level 2 is defined as inputs
other than quoted prices in active markets that are either directly or indirectly observable. Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. There
were no changes to the Companys valuation techniques used to measure asset and liabilities fair values on a recurring basis during the nine months ended January 31, 2009.

The Companys investments that are held in trust for payment of non-qualified deferred compensation to certain employees consist primarily of
investments that are either publicly traded or for which market prices are readily available. These funds are held in registered investment funds and common/collateral trusts.

The Companys derivative contracts represent interest rate swap and collar agreements to convert a notional amount of floating-rate borrowings into
fixed rate debt. The fair value of the Companys derivative contracts was derived from third party service providers utilizing proprietary models based on current market indices and estimates about relevant future market conditions.



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The accompanying condensed consolidated balance sheet includes financial instruments that are recorded at
fair value as noted below:



|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|-------------------------------------- |  | -------------------------------- | ----- | -------------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ----- |  | - | -
|                                       |  |                                  |       | Fair Value at Reporting Date Using                            
|                                       |  | Fair ValueAs of January 31, 2009 |       | Quoted Prices inActive Marketsfor IdenticalSecurities(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | UnobservableInputs(Level 3)
|Assets                                 |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Investments held in trust, current     |  | $                                | 265   |                                                                | $ | 123                                       |  | $                           | 142   |  | $ | 
|                                       |  |                                  |       |                                                               
|Investments held in trust, non-current |  |                                  | 180   |                                                                |   | 126                                       |  |                             | 54    |  |   | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 445   |                                                                | $ | 249                                       |  | $                           | 196   |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|                                       |  |                                  |       |                                                               
|Liabilities                            |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Derivative contracts                   |  | $                                | 7,249 |                                                                | $ |                                          |  | $                           | 7,249 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 7,249 |                                                                | $ |                                          |  | $                           | 7,249 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  

5. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by segment were as follows:



|                                |  |                     |         |                               |   |        |       |  |   |         |  
|------------------------------- |  | ------------------- | ------- | ----------------------------- | - | ------ | ----- |  | - | ------- | -
|                                |  | FranchiseOperations |         | Company-OwnedOfficeOperations |   |        | Total | 
|                                |  | (In thousands)      |        
|Balance as of April 30, 2008    |  | $                   | 336,767 |                               | $ | 78,120 |       |  | $ | 414,887 |  
|Additions (Note 7 )             |  |                     |        |                               |   | 3,696  |       |  |   | 3,696   |  
|Purchase accounting adjustments |  |                     |        |                               |   | (449   | )     |  |   | (449    | )
|                                |  |                     |         |                               |   |        |       |  |   |         |  
|Balance as of January 31, 2009  |  | $                   | 336,767 |                               | $ | 81,367 |       |  | $ | 418,134 |  
|                                |  |                     |         |                               |   |        |       |  |   |         |  

Other intangible assets consisted of:



|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|------------------------------------------- |  | ---------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | ------
|                                            |  | As of January 31, 2009 |        | As of April 30, 2008   
|                                            |  | GrossCarryingAmount    |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetCarryingAmount
|                                            |  | (In thousands)        
|Amortizable other intangible assets:        |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Franchise agreements(a)                     |  | $                      | 16,052 |                         | $ | (15,578 | )                 |  | $                   | 474    |                         | $ | 16,052 |                   | $ | (15,500 | ) |  | $ | 552   
|Customer relationships(b)                   |  |                        | 12,161 |                         |   | (8,868  | )                 |  |                     | 3,293  |                         |   | 10,784 |                   |   | (7,903  | ) |  |   | 2,881 
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total amortizable other intangible assets   |  | $                      | 28,213 |                         | $ | (24,446 | )                 |  |                     | 3,767  |                         | $ | 26,836 |                   | $ | (23,403 | ) |  |   | 3,433 
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|                                            |  |                        |        |                         |   |        
|Unamortizable other intangible assets:      |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Jackson Hewitt trademark                    |  |                        |        |                         |   |         |                   |  |                     | 81,000 |                         |   |        |                   |   |         |   |  |   | 81,000
|Reacquired franchise rights (Note 7)        |  |                        |        |                         |   |         |                   |  |                     | 2,600  |                         |   |        |                   |   |         |   |  |   | 2,025 
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total unamortizable other intangible assets |  |                        |        |                         |   |         |                   |  |                     | 83,600 |                         |   |        |                   |   |         |   |  |   | 83,025
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total other intangible assets, net          |  |                        |        |                         |   |         |                   |  | $                   | 87,367 |                         |   |        |                   |   |         |   |  | $ | 86,458
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       



|(a) | Amortized using the straight-line method over a period of ten years.
|--- | --------------------------------------------------------------------

|(b) | Consists of customer lists and non-compete agreements. Customer lists are amortized using the double declining method over a period of five years and non-compete agreements are
amortized using the straight-line method over a period of two to six years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The changes in the carrying amount of other intangible assets, net, by segment were as follows:



|                               |  |                     |        |   |                               |   |       |       |  |   |        |  
|------------------------------ |  | ------------------- | ------ | - | ----------------------------- | - | ----- | ----- |  | - | ------ | -
|                               |  | FranchiseOperations |        |   | Company-OwnedOfficeOperations |   |       | Total | 
|                               |  | (In thousands)      |       
|Balance as of April 30, 2008   |  | $                   | 83,577 |   |                               | $ | 2,881 |       |  | $ | 86,458 |  
|Additions (Note 7)             |  |                     | 575    |   |                               |   | 1,377 |       |  |   | 1,952  |  
|Amortization                   |  |                     | (78    | ) |                               |   | (965  | )     |  |   | (1,043 | )
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  
|Balance as of January 31, 2009 |  | $                   | 84,074 |   |                               | $ | 3,293 |       |  | $ | 87,367 |  
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  

Amortization expense relating to other intangible assets was as follows:



|                       |  |                               |     |                              |   |      |  |      |       |  |   |      
|---------------------- |  | ----------------------------- | --- | ---------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                       |  | Three Months EndedJanuary 31, |     | Nine Months EndedJanuary 31,
|                       |  | 2009                          |     | 2008                         |   | 2009 |  | 2008
|Franchise agreements   |  | $                             | 25  |                              | $ | 275  |  | $    | 78    |  | $ | 1,079
|Customer relationships |  |                               | 372 |                              |   | 312  |  |      | 965   |  |   | 775  
|                       |  |                               |     |                              |   |      |  |      |       |  |   |      
|Total                  |  | $                             | 397 |                              | $ | 587  |  | $    | 1,043 |  | $ | 1,854
|                       |  |                               |     |                              |   |      |  |      |       |  |   |      

Estimated amortization expense related to other intangible assets for each of the fiscal years
ended April 30 is as follows:



|                                      |  |                |      
|------------------------------------- |  | -------------- | -----
|                                      |  | Amount        
|                                      |  | (In thousands)
|Remaining three months of fiscal 2009 |  | $              | 394  
|2010                                  |  |                | 1,282
|2011                                  |  |                | 964  
|2012                                  |  |                | 620  
|2013                                  |  |                | 374  
|2014 and thereafter                   |  |                | 133  
|                                      |  |                |      
|Total                                 |  | $              | 3,767
|                                      |  |                |      

6. SHARE-BASED PAYMENTS

The Companys share-based payments through January 31, 2009 under the Jackson Hewitt Tax Service Inc. Amended and Restated 2004 Equity and Incentive Plan (the Amended and Restated Plan) included
the following:



| | (i) | Time-Based Vesting Stock Options (TVOs);
| | --- | ------------------------------------------



| | (ii) | Performance-Based Vesting Stock Options (PVOs);
| | ---- | -------------------------------------------------



| | (iii) | Time-Based Vesting Shares of Restricted Stock (TVRSs);
| | ----- | --------------------------------------------------------



| | (iv) | Performance-Based Vesting Shares of Restricted Stock (PVRSs); and
| | ---- | -------------------------------------------------------------------



| | (v) | Restricted Stock Units (RSUs).
| | --- | --------------------------------

Effective
November 3, 2008, Mark L. Heimbouch, formerly Chief Operating Officer, resigned. In connection with his resignation, Mr. Heimbouch forfeited 210,452 unvested equity awards, which consisted of 122,319 TVOs, 36,182 PVOs, 24,253 TVRSs and
27,698 PVRSs.

(i) Time-Based Vesting Stock Options

TVOs are granted, with the exception of certain TVOs granted at the time of the Companys IPO, with an exercise price equal to the New York Stock
Exchange (NYSE) closing price of a share of common stock on the date of grant and have a contractual term of ten years. TVOs granted through April 30, 2007 become exercisable with respect to 25% of the shares on each of the first
four anniversaries of the date of grant. TVOs granted in fiscal 2008 become exercisable with respect to 20% of the shares on each of the first five anniversaries of the date of grant. TVOs granted after April 30, 2008 become exercisable with
respect to one-third of the shares on each of the first three anniversaries of the date of grant. All TVOs granted are subject to continued employment on the vesting date.



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The Company incurred share-based compensation expense of $0.4 million and $0.95 million in the third
quarter of fiscal 2009 and fiscal 2008, respectively, in connection with the vesting of TVOs. The Company incurred share-based compensation expense of $1.7 million and $6.15 million in the nine months ended January 31, 2009 and January 31,
2008, respectively, in connection with the vesting of TVOs. The share-based compensation in the nine months ended January 31, 2008 included expense of $2.9 million related to the accelerated vesting of 415,894 TVOs attributed to the
departure of the Companys former Chief Executive Officer in October 2007.

The weighted average grant date fair value for TVOs
granted in the nine months ended January 31, 2009 and 2008 was $3.02 and $8.86, respectively. The fair value of each TVO award was estimated on the date of grant using the Black-Scholes option-pricing model. The Company uses the method
permitted under SEC Staff Accounting Bulletin (SAB) No. 110 (SAB 110), which amends SAB No. 107, Share-Based Payment, to determine the expected holding period and will continue to do so until the Company
is able to accumulate a sufficient number of years of employee exercise behavior to make a more refined estimate of expected term. Expected volatility was based on the Companys historical publicly-traded stock price. The risk-free interest
rate assumption was determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected holding period of the award being valued.

The following table sets forth the weighted average assumptions used to determine compensation cost for TVOs granted during the nine months ended
January 31, 2009 and 2008, respectively:



|                                   |  |                               |   |  |      |  
|---------------------------------- |  | ----------------------------- | - |  | ---- | -
|                                   |  | Nine Months Ended January 31, |  
|                                   |  | 2009                          |   |  | 2008 |  
|Expected holding period (in years) |  | 6.0                           |   |  | 6.5  |  
|Expected volatility                |  | 39.7                          | % |  | 30.7 | %
|Dividend yield                     |  | 5.6                           | % |  | 2.4  | %
|Risk-free interest rate            |  | 3.3                           | % |  | 4.7  | %

The following table summarizes information about TVO activity for the nine months ended
January 31, 2009:



|                                   |  |               |   |  |                              |      
|---------------------------------- |  | ------------- | - |  | ---------------------------- | -----
|                                   |  | Number ofTVOs |   |  | WeightedAverageExercisePrice
|Balance as of April 30, 2008       |  | 2,669,161     |   |  | $                            | 23.78
|Granted                            |  | 347,463       |   |  | $                            | 12.79
|Exercised                          |  | (1,000        | ) |  | $                            | 9.22 
|Forfeited                          |  | (232,991      | ) |  | $                            | 26.54
|Expired                            |  | (554,014      | ) |  | $                            | 24.97
|                                   |  |               |   |  |                              |      
|Balance as of January 31, 2009     |  | 2,228,619     |   |  | $                            | 21.49
|                                   |  |               |   |  |                              |      
|Exercisable as of January 31, 2009 |  | 1,221,046     |   |  | $                            | 21.69
|                                   |  |               |   |  |                              |      

Outstanding in-the-money TVOs as of January 31, 2009 had an aggregate intrinsic value of $0.1
million. Outstanding TVOs as of January 31, 2009 had an average remaining contractual life of 7.2 years. Exercisable in-the-money TVOs as of January 31, 2009 had an aggregate intrinsic value of approximately $0.01 million. Exercisable TVOs
as of January 31, 2009 had an average remaining contractual life of 5.9 years.

The following table summarizes information about
unvested TVO activity for the nine months ended January 31, 2009:



|                                |  |               |   |  |                                               |     
|------------------------------- |  | ------------- | - |  | --------------------------------------------- | ----
|                                |  | Number ofTVOs |   |  | Weighted AverageGrant DateFair ValuePer Share
|Unvested as of April 30, 2008   |  | 1,316,476     |   |  | $                                             | 7.34
|Granted                         |  | 347,463       |   |  | $                                             | 3.02
|Vested                          |  | (423,375      | ) |  | $                                             | 7.89
|Forfeited                       |  | (232,991      | ) |  | $                                             | 5.27
|                                |  |               |   |  |                                               |     
|Unvested as of January 31, 2009 |  | 1,007,573     |   |  | $                                             | 6.10
|                                |  |               |   |  |                                               |     



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As of January 31, 2009, there was $5.8 million of total unrecognized compensation cost related to
unvested TVOs, which is expected to be recognized over a weighted average period of 2.4 years. The total fair value of stock options vested in the nine months ended January 31, 2009 and January 31, 2008 was $3.3 million and $4.6 million,
respectively.

(ii) Performance-Based Vesting Stock Options

In July 2008, the Company granted PVOs to certain key employees with an exercise price equal to the NYSE closing price of a share of common stock on the
date of grant. PVOs have a contractual term of ten years. These PVOs only vest if the Company achieves certain pre-established levels of diluted EPS for fiscal 2009. The award is based upon a diluted EPS range with a minimum threshold below which
all PVOs would be forfeited and a maximum of 180% of target diluted EPS at which the maximum number of PVOs would remain eligible for vesting. PVOs are granted at the maximum under the program. If the required level of diluted EPS is achieved within
the range, that portion of the award meeting the criteria would be subject to a three year vesting period commencing from the date of grant. The remainder of the award would be forfeited.

In the third quarter of fiscal 2009, the Company determined that estimated diluted EPS for fiscal 2009 would fall below the low end of the range required
for vesting and the Company therefore believes that all PVOs will be forfeited by the first anniversary of the date of grant. As a result, in the three months ended January 31, 2009, the Company recorded a credit to share-based compensation
expense of $0.04 million representing a reversal of the share-based compensation recorded in the six months ended October 31, 2008. Compensation expense related to these awards had been recognized ratably over the three year requisite service
period beginning from the date of grant based on the Companys estimate of achieving target diluted EPS.

The weighted average grant
date fair value for PVOs granted in the nine months ended January 31, 2009 was $3.70. The fair value of each PVO award was estimated on the date of grant using the Black-Scholes option-pricing model. The expected holding period, expected
volatility and risk-free interest rate assumptions were determined using the same methodology as the TVOs discussed earlier.

The following
table sets forth the weighted average assumptions used to determine compensation cost for PVOs granted during the nine months ended January 31, 2009:



|                                   |  |      |  
|---------------------------------- |  | ---- | -
|Expected holding period (in years) |  | 6.0  |  
|Expected volatility                |  | 39.5 | %
|Dividend yield                     |  | 5.0  | %
|Risk-free interest rate            |  | 3.5  | %

The following table summarizes information about PVO activity during the nine months ended
January 31, 2009:



|                                   |  |               |   |  |                                |      
|---------------------------------- |  | ------------- | - |  | ------------------------------ | -----
|                                   |  | Number ofPVOs |   |  | Weighted AverageExercise Price
|Outstanding as of April 30, 2008   |  |              |   |  | $                              |     
|Granted                            |  | 243,728       |   |  | $                              | 14.50
|Exercised                          |  |              |   |  | $                              |     
|Forfeited                          |  | (36,182       | ) |  | $                              | 14.50
|Expired                            |  |              |   |  | $                              |     
|                                   |  |               |   |  |                                |      
|Outstanding as of January 31, 2009 |  | 207,546       |   |  | $                              | 14.50
|                                   |  |               |   |  |                                |      

There were no outstanding in-the-money PVOs as of January 31, 2009. Outstanding PVOs as of
January 31, 2009 had an average remaining contractual life of 9.5 years.



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The following table summarizes information about unvested PVO activity for the nine months ended
January 31, 2009:



|                                |  |               |   |  |                                               |     
|------------------------------- |  | ------------- | - |  | --------------------------------------------- | ----
|                                |  | Number ofPVOs |   |  | Weighted AverageGrant DateFair ValuePer Share
|Unvested as of April 30, 2008   |  |              |   |  | $                                             |    
|Granted                         |  | 243,728       |   |  | $                                             | 3.70
|Vested                          |  |              |   |  | $                                             |    
|Forfeited                       |  | (36,182       | ) |  | $                                             | 3.70
|                                |  |               |   |  |                                               |     
|Unvested as of January 31, 2009 |  | 207,546       |   |  | $                                             | 3.70
|                                |  |               |   |  |                                               |     

(iii) Time-Based Vesting Shares of Restricted Stock

The fair value of each TVRS grant is measured by the NYSE closing price of the Companys common stock on the date of grant. Compensation expense
related to the fair value of TVRSs is recognized on a straight-line basis over the requisite service period based on those restricted stock grants that are expected to ultimately vest. One third of the shares of restricted stock vest on each of the
first three anniversaries of the date of grant, subject to continued employment on the vesting date.

In the three months ended
January 31, 2009 and 2008, Company incurred share-based compensation expense of $0.24 million and $0.05 million, respectively, in connection with the vesting of TVRSs. In the nine months ended January 31, 2009 and 2008, the Company
incurred share-based compensation expense of $0.7 million and $0.05 million, respectively, in connection with the vesting of TVRSs. As of January 31, 2009, there was $2.2 million of total unrecognized compensation cost related to unvested
TVRSs, which is expected to be recognized over a weighted average period of 1.3 years.

The following table summarizes information about
TVRS activity during the nine months ended January 31, 2009:



|                                   |  |                |   |  |                                      |      
|---------------------------------- |  | -------------- | - |  | ------------------------------------ | -----
|                                   |  | Number ofTVRSs |   |  | Weighted AverageGrant Date FairValue
|Outstanding as of April 30, 2008   |  | 22,651         |   |  | $                                    | 29.80
|Granted                            |  | 235,608        |   |  | $                                    | 12.72
|Vested                             |  | (7,549         | ) |  | $                                    | 29.80
|Forfeited                          |  | (29,051        | ) |  | $                                    | 16.67
|                                   |  |                |   |  |                                      |      
|Outstanding as of January 31, 2009 |  | 221,659        |   |  | $                                    | 13.37
|                                   |  |                |   |  |                                      |      

As of January 31, 2009, outstanding TVRSs had an aggregate intrinsic value of $2.9 million
with those TVRSs expected to vest having an intrinsic value of $2.8 million.

(iv) Performance-Based Vesting Shares of Restricted
Stock

In July 2008, the Company granted PVRSs to certain key employees. These PVRSs only vest if the Company achieves certain
pre-established levels of diluted EPS for fiscal 2009. The award is based upon a diluted EPS range with a minimum threshold below which all PVRSs would be forfeited and a maximum of 180% of target diluted EPS at which the maximum number of PVRSs
would remain eligible for vesting. PVRSs are granted at the maximum under the program. If the required level of diluted EPS is achieved within the range, that portion of the award meeting the criteria would be subject to a three year vesting period
commencing from the date of grant. The remainder of the award would be forfeited.

In the third quarter of fiscal 2009, the Company
determined that estimated diluted EPS for fiscal 2009 would fall below the low end of the range required for vesting and the Company believes that all PVRSs will be forfeited by the first anniversary of the date of grant. As a result, in the three
months ended January 31, 2009, the Company recorded a credit to share-based compensation expense of $0.12 million representing a reversal of the share-based compensation recorded in the six months ended October 31, 2008. Compensation
expense related to these awards had been recognized ratably over the three year requisite service period beginning from the date of grant based on the Companys estimate of achieving target diluted EPS. The fair value of these grants was
measured by the NYSE closing price of the Companys common stock on the date of the grant.



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The following table summarizes information about PVRS activity during the nine months ended
January 31, 2009:



|                                   |  |                |   |  |                                      |      
|---------------------------------- |  | -------------- | - |  | ------------------------------------ | -----
|                                   |  | Number ofPVRSs |   |  | Weighted AverageGrant DateFair
Value
|Outstanding as of April 30, 2008   |  |               |   |  | $                                    |     
|Granted                            |  | 186,579        |   |  | $                                    | 14.50
|Vested                             |  |               |   |  | $                                    |     
|Forfeited                          |  | (27,698        | ) |  | $                                    | 14.50
|                                   |  |                |   |  |                                      |      
|Outstanding as of January 31, 2009 |  | 158,881        |   |  | $                                    | 14.50
|                                   |  |                |   |  |                                      |      

As of January 31, 2009, outstanding PVRSs had an aggregate intrinsic value of $2.1 million,
however, the Company believes that all such awards will be forfeited by the first anniversary of the date of grant.

(v) Restricted
Stock Units

The Company incurred share-based compensation expense of $0.1 million in the three months ended January 31, 2009
and 2008, respectively, in connection with the issuance of fully vested and non-forfeitable RSUs to certain non-employee directors that are payable in shares of the Companys common stock as a one-time distribution upon termination of services.
For the nine months ended January 31, 2009 and 2008, respectively, the Company incurred share-based compensation expense of $0.26 million. In the nine months ended January 31, 2009, the Company granted 21,328 RSUs at a weighted average
grant price of $13.92 resulting in 84,556 RSUs outstanding as of January 31, 2009 with a weighted average grant price of $20.52.

7. ACQUISITIONS

Assets acquired and liabilities assumed in business combinations were recorded on the Condensed Consolidated Balance Sheets as of the
respective acquisition dates based upon their estimated fair values at such dates. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. The results of
operations of businesses acquired by the Company have been included in the Condensed Consolidated Statements of Operations since their respective dates of acquisition.

In the nine months ended January 31, 2009, the Company acquired substantially all of the assets of nine tax return preparation businesses and began operating these stores as company-owned locations in the current
tax season. Three of these businesses were acquired from franchisees. The Company evaluated the preexisting business relationships with these franchisees and determined that there was no settlement loss from unfavorable franchise rights. The total
purchase price of all acquisitions during the nine months ended January 31, 2009 amounted to $5.9 million, of which $3.9 million was paid at closings, $0.2 million was applied to reduce certain receivables and the remainder due of $1.8 million
was included as a current liability as of January 31, 2009. The total purchase price was allocated (i) $0.2 million to furniture, fixtures and equipment, (ii) $2.0 million to intangible assets including $0.6 million in reacquired
franchise rights and (iii) $3.7 million to goodwill.

All goodwill associated with acquisitions in fiscal 2009 was allocated to the
company-owned office operations segment and is deductible for tax purposes.

8. CREDIT FACILITY

On May 21, 2008, the Company amended its five-year unsecured credit facility (the Amended and Restated $450 Million Credit Facility) to
provide for additional flexibility in connection with the allowable maximum consolidated leverage ratio under the credit facility covenants. This credit facility expires on October 6, 2011. Borrowings under the Amended and Restated $450 Million
Credit Facility are to be used to finance working capital needs, general corporate purposes, potential acquisitions and repurchases of the Companys common stock.

The maximum consolidated leverage ratio was amended from 3.0:1.0 to (i) 3.5:1.0 for the fiscal quarters ending July 31, 2008 through January 31, 2009; (ii) 3.15:1.0 for the fiscal quarters ending
April 30, 2009 through October 31, 2009; and (iii) 3.0:1.0 for the fiscal quarters ending January 31, 2010 through July 31, 2011. Additionally, the credit facility was amended to include limitations with regard to share
repurchases and acquisitions. The Company is restricted from repurchasing shares until it achieves a consolidated leverage ratio of 2.5:1.0 or lower for two consecutive fiscal quarters. Thereafter, achievement of a consolidated leverage ratio of
3.0:1.0 or below is required for continued share repurchases. The Company is also limited to annual acquisitions of $15.0 million when the consolidated leverage ratio is greater than 3.0:1.0. As of January 31, 2009, the Companys
consolidated leverage ratio was 3.1:1.0. Furthermore, Eurodollar borrowings now



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bear interest at the London Inter-Bank Offer Rate (LIBOR), plus a credit spread ranging from 0.50% to 2.00% per annum; Base Rate borrowings
now bear interest at the Prime Rate plus a credit spread up to 1.00%; and the annual fee now ranges from 0.10% to 0.40% of the unused portion of the credit facility.

The Amended and Restated $450 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Prior to the May 21, 2008 amendment: (i) Eurodollar borrowings bore interest at
LIBOR, as defined in the Amended and Restated $450 Million Credit Facility, plus a credit spread as defined in the Amended and Restated $450 Million Credit Facility, ranging from 0.50% to 0.75% per annum; (ii) Base Rate borrowings, as
defined in the Amended and Restated $450 Million Credit Facility, bore interest primarily at the Prime Rate, as defined in the Amended and Restated $450 Million Credit Facility; and (iii) the Amended and Restated $450 Million Credit Facility
carried an annual fee ranging from 0.10% to 0.15% of the unused portion of the Amended and Restated $450 Million Credit Facility.

As of
January 31, 2009, the Company had $356.0 million in borrowings outstanding under the Amended and Restated $450 Million Credit Facility.

The Amended and Restated $450 Million Credit Facility contains the requirement that the Company meet certain financial covenants, such as the maximum consolidated leverage ratio (discussed above) and a minimum consolidated interest coverage
ratio of 4.0:1.0. The consolidated leverage ratio is the ratio of consolidated debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), each as defined in the Amended and Restated $450 Million
Credit Facility, with consolidated debt being measured on a trailing four-quarter basis. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense, each as defined in the Amended and Restated $450
Million Credit Facility.

The Amended and Restated $450 Million Credit Facility contains various customary restrictive covenants that
limits the Companys ability to, among other things; (i) incur additional indebtedness or guarantees; (ii) create liens or other encumbrances on the Companys property; (iii) enter into a merger or similar transaction;
(iv) sell or transfer property except in the ordinary course of business; and (v) make dividend and other restricted payments.

The Company has initiated discussions with the lead agent under its Amended and Restated $450 Million Credit Facility, and informed all of the other banks in its lending syndicate, that it intends to seek relief in connection with its
current consolidated leverage ratio financial covenant in advance of the fiscal 2009 fourth quarter measurement date. The Company has met its consolidated leverage ratio financial covenant for the period ending January 31, 2009, reporting a
consolidated leverage ratio of 3.1:1.0 versus the current maximum consolidated leverage ratio of 3.5:1.0. As discussed above, under its Amended and Restated $450 Million Credit Facility, the current consolidated leverage ratio financial covenant
steps down from 3.5:1.0 to 3.15:1.0 for the period ending April 30, 2009.

As of January 31, 2009, the Company was not aware of
any instances of non-compliance with such financial or restrictive covenants.

9. TERMINATION CHARGES

In the first quarter of fiscal 2009, the Company recorded termination charges of $3.0 million as discussed below. The Company recorded additional
termination charges of $0.2 million in each of the second and third fiscal quarters as well.

Employee Termination and Related Expenses

As part of an initiative to achieve a lower cost structure for the 2009 tax season, the Companys overall consolidated workforce
was reduced by approximately 10% during the first quarter of fiscal 2009. In connection with this action and certain employee terminations, a $1.4 million charge was recorded in selling, general and administrative expense in the first quarter of
fiscal 2009. In the third quarter of fiscal 2009, the Company recorded additional charges of $0.06 million. For the nine months ended January 31, 2009, the Companys reportable segments included employee termination and related expenses of
$0.5 million in Company-Owned Office Operations and $0.3 million in Franchise Operations with $0.8 million in Corporate and Other. As of January 31, 2009, $0.65 million of such expenses remained unpaid and are included in accounts payable and
accrued liabilities in the accompanying Condensed Consolidated Balance Sheet.



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Lease Termination and Related Expenses

As part of an overall effort to optimize company-owned store locations and improve profitability, 200 under-performing store locations were closed during
the first quarter of fiscal 2009. In connection with this action, a charge of $1.6 million was recorded in cost of company-owned office operations expense related to lease termination and related expenses, including a $0.1 million write-down of
leasehold improvements, associated with 52 of these store location closures. Costs to terminate these contractual operating leases before the end of their term were measured at fair value and reduced by an amount of estimated sublease rental income
that the Company believes it can reasonably obtain for the properties. In the third quarter of fiscal 2009, the Company recorded in cost of company-owned operations accretion expense of $0.01 million offset by a credit of $0.13 million to adjust the
fair value of this lease termination liability primarily due to favorable negotiations with landlords to buy out certain leases early. The Company expects to continue to adjust the fair value of this lease termination liability due to the passage of
time as an increase in the liability and as an operating expense (accretion) over the remaining terms of the leases. As of January 31, 2009, the remaining lease termination liability consisted of $0.28 million in accounts payable and accrued
liabilities and $0.06 million in other non-current liabilities in the accompanying Condensed Consolidated Balance Sheet.

10. INCOME TAXES

Under the tax sharing and tax indemnification provisions of the transitional agreement with Cendant, adjustment to the amounts of taxes
due in prior periods as a result of temporary differences existing at the date of the Companys IPO are to be recorded as an adjustment to the Special Dividend paid to Cendant immediately prior to the Companys IPO. In October 2008, the
Internal Revenue Service (IRS) completed its audit of the Companys federal income tax returns for the calendar years 2005 and 2006. Upon closing the audit for those periods, the Company made a payment of $0.3 million in connection
with certain accelerated deductions that were disallowed by the IRS as current deductions. In addition, the Company recorded a $3.4 million adjustment increasing additional paid-in-capital to reflect the reversal of deferred tax liabilities that
represented accelerated deductions taken in years prior to the Companys IPO which, in accordance with the transitional agreement, are the responsibility of Cendant.



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11. SEGMENT INFORMATION

The Company manages and evaluates the operating results of the business in two segments:



| |  |  | Franchise operationsThis segment consists of the operations of the Companys franchise business, including royalty and marketing and advertising
revenues, financial product fees and other revenues; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Company-owned office operationsThis segment consists of the operations of the company-owned offices for which the Company recognizes service revenues
primarily for the preparation of tax returns.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management evaluates the operating results of each of its reportable
segments based upon revenues and income before income taxes. Intersegment transactions approximate fair market value and are not significant.



|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|----------------------------------- |  | ------------------- | ------ | ----------------------------- | - | ---------------------- |  | - | ------- | - |  | - | ------
|                                    |  | FranchiseOperations |        | Company-OwnedOfficeOperations |   | Corporateand Other (a) |  |   | Total  
|                                    |  | (In thousands)     
|Three months ended January 31, 2009 |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|Revenues                            |  | $                   | 65,918 |                               | $ | 31,872                 |  | $ |        |   |  | $ | 97,790
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|Income (loss) before income taxes   |  | $                   | 36,584 |                               | $ | 7,359                  |  | $ | (9,269  | ) |  | $ | 34,674
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|                                    |  |                     |        |                              
|Three months ended January 31, 2008 |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|Revenues                            |  | $                   | 66,914 |                               | $ | 30,641                 |  | $ |        |   |  | $ | 97,555
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |       
|Income (loss) before income taxes   |  | $                   | 35,405 |                               | $ | 5,716                  |  | $ | (11,109 | ) |  | $ | 30,012
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |       



|                                   |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|---------------------------------- |  | ------------------- | ------ | ----------------------------- | - | ------- | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                   |  | FranchiseOperations |        | Company-OwnedOfficeOperations |   |         | Corporateand Other (a) |  |   | Total   |  
|                                   |  | (In thousands)      |       
|Nine months ended January 31, 2009 |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                           |  | $                   | 74,426 |                               | $ | 32,720  |                        |  | $ |        |   |  | $ | 107,146 |  
|                                   |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|Income (loss) before income taxes  |  | $                   | 14,121 |                               | $ | (14,717 | )                      |  | $ | (35,614 | ) |  | $ | (36,210 | )
|                                   |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|                                   |  |                     |        |                              
|Nine months ended January 31, 2008 |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                           |  | $                   | 77,531 |                               | $ | 31,545  |                        |  | $ |        |   |  | $ | 109,076 |  
|                                   |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  
|Income (loss) before income taxes  |  | $                   | 13,300 |                               | $ | (9,761  | )                      |  | $ | (44,710 | ) |  | $ | (41,171 | )
|                                   |  |                     |        |                               |   |         |                        |  |   |         |   |  |   |         |  



|(a) | Corporate and other expenses include unallocated corporate overhead supporting both segments including legal, finance, human resources, real estate facilities and strategic
development activities, as well as share-based compensation and financing costs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12. COMMITMENTS AND CONTINGENCIES

The Company is required to provide various types of surety bonds, such as tax return preparer bonds and performance bonds, which are irrevocable
undertakings by the Company to make payment in the event the Company fails to perform certain of its obligations to third parties. These bonds vary in duration although most are issued and outstanding from one to two years. If the Company fails to
perform under its obligations, the maximum potential payment under these surety bonds is $2.6 million as of January 31, 2009. Historically, no surety bonds have been drawn upon and there is no future expectation that these surety bonds will be
drawn upon.

The Company, through TSA, provides customers of company-owned offices
with a guarantee in connection with the preparation of tax returns that may require in certain circumstances the Company to pay penalties and interest assessed by a taxing authority. The Company has a liability of $0.1 million as of January 31,
2009 and April 30, 2008, for the fair value of the obligation undertaken in issuing the guarantee. Such liabilities were included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. In addition, the Company
may be required to pay additional tax (or refund shortfall) assessed by a taxing authority for all customers that purchase the Companys Gold Guarantee® product. The Company may incur
a liability to the extent that the total customer Gold Guarantee claims exceed maximum thresholds pursuant to the contract between the Company and the third party program provider. There have been no amounts paid by the Company under this
arrangement in the past relating to such potential liability and the Company does not expect to be required to make payment in the future.



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The transitional agreement with Cendant provides that the Company continues to indemnify Cendant and its
affiliates against potential losses based on, arising out of or resulting from, among other things, claims by third parties relating to the ownership or the operation of the Companys assets or properties and the operation or conduct of the
Companys business, whether in the past or future, including any currently pending litigation against Cendant and any claims arising out of or relating to the Companys IPO. Additionally, the transitional agreement provides that the
Company is responsible for the respective tax liabilities imposed on or attributable to the Company and any of the Companys subsidiaries relating to all taxable periods. Accordingly, the Company is required to indemnify Cendant and its
subsidiaries against any such tax liabilities imposed on or attributable to the Company and any of the Companys subsidiaries. While there have not been any indemnification claims against the Company under these arrangements since the
Companys IPO, the Company could be obligated to make payments in the future.

The Company routinely enters into contracts that
include indemnification provisions that serve to protect the contracting parties from losses such parties suffer as a result of acts or omissions of the Company and/or its affiliates, including in particular indemnity obligations relating to
(a) tax, legal and other risks related to the sale of businesses or the provision of services; (b) indemnification of the Companys directors and officers; (c) indemnities of various lessors in connection with facility leases for
certain claims arising from such facility or lease; and (d) third-party claims, including those from franchisees, relating to various arrangements in the normal course of business. There is no stated maximum payment related to these
indemnities, and the term of indemnities may vary and in many cases is limited only by the applicable statute of limitations. The likelihood of any claims being asserted against the Company and the ultimate liability related to any such claims, if
any, is difficult to predict. While there had not been any indemnification claims against the Company under these arrangements prior to 2008, there can be no assurance that the Company will not be obligated to make payments in the future. Certain of
our franchisees have filed purported class action lawsuits against Santa Barbara Bank & Trust, a division of Pacific Capital Bank, N.A. (SBB&T) and HSBC Taxpayer Financial Service, Inc. (HSBC) relating to the
terms of the contracts between the franchisees and the financial product providers and the manner in which financial products are facilitated. SBB&T and HSBC have submitted indemnification claims to the Company in regards to these lawsuits. One
such lawsuit remains pending.

Legal Proceedings

On March 18, 2003, Canieva Hood and Congress of California Seniors brought a purported class action suit against Santa Barbara Bank & Trust (SBB&T) and the Company in the Superior Court
of California (Santa Barbara, following a transfer from San Francisco) seeking declaratory relief in connection with the provision of RALs, as to the lawfulness of the practice of cross-lender debt collection, as to the validity of SBB&Ts
cross-lender debt collection provision and as to whether the method of disclosure to customers with respect to the provision is unlawful or fraudulent, and seeking injunctive relief, restitution, disgorgement, compensatory damages, statutory
damages, punitive damages, attorneys fees, and expenses. The Company is a party in the action for allegedly collaborating, and aiding and abetting, in the actions of SBB&T. The Congress of California Seniors was subsequently removed, and
Tyree Bowman was added, as a plaintiff. On December 18, 2003, Ms. Hood also filed a separate suit against the Company in the Ohio Court of Common Pleas (Montgomery County) and is seeking to certify a class in the action. The allegations of
negligence, breach of fiduciary duty, and violation of certain Ohio law relate to the same set of facts as the California action. Plaintiff seeks equitable and declaratory relief, damages, attorneys fees, and expenses. The Company believes it
has meritorious defenses and has been contesting these matters vigorously.

In order to avoid the costs and inconvenience of continued
litigation, the Company has agreed to a settlement in the Hood California matter in connection with an overall settlement by the other defendant, SBB&T, and the third-party bank cross-defendants. On January 7, 2009, the Court preliminarily
approved the settlement. The settlement is subject to final approval by the Court, and would provide for a payment by the Company of $2.8 million as part of an overall settlement amount. In connection with the settlement of the Hood California
matter, the Hood Ohio matter will be dismissed with prejudice. There can be no assurance of final approval by the Court. In the event final Court approval is not received, the Company will continue to contest these matters vigorously, as the Company
believes it has meritorious defenses. As of January 31, 2009, the Company has a liability of $2.8 million included in accounts payable and accrued liabilities for settlement of this matter.

On September 26, 2006, Willie Brown brought a purported class action complaint against the Company in the Ohio Court of Common Pleas, Cuyahoga
County, on behalf of Ohio customers who obtained RALs facilitated by the Company, for an alleged failure to comply with Ohios Credit Services Organization Act, and for alleged unfair and deceptive acts in violation of Ohios Consumer
Sales Practices Act, and seeking damages and injunctive relief. On November 10, 2008, the Company filed a motion to dismiss, or alternatively, to stay proceedings and to compel arbitration. The Company believes it has meritorious defenses and
is contesting this matter vigorously.



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On October 30, 2006, Linda Hunter brought a purported class action complaint against the Company in
the United States District Court, Southern District of West Virginia, on behalf of West Virginia customers who obtained RALs facilitated by the Company, seeking damages for an alleged breach of fiduciary duty, for alleged breach of West
Virginias Credit Service Organization Act, for alleged breach of contract, and for alleged unfair or deceptive acts or practices in connection with our RAL facilitation activities. On November 22, 2006, the Company filed a motion to
dismiss. On November 6, 2007, the Court partially granted the Companys motion to dismiss. On November 21, 2007, the Company answered the complaint. On March 13, 2008, the Court granted the Companys partial motion for
summary judgment on plaintiffs breach of contract claim. On June 30, 2008, the Court granted permission for Christian Harper, Elizabeth Harper, and Donna Wright to be substituted in the case as new proposed class representatives. Upon
substitution, the Court dismissed Linda Hunters claims with prejudice. On July 15, 2008, the Company answered the first amended complaint. The case is in its discovery and pretrial stage. The Company believes it has meritorious defenses
and is contesting this matter vigorously.

On April 20, 2007, Brent Wooley brought a purported class action complaint against the
Company and certain unknown franchisees in the United States District Court, Northern District of Illinois. The complaint, which was subsequently amended, was brought on behalf of customers who obtained tax return preparation services that allegedly
included false deductions without support by the customer that resulted in penalties being assessed by the IRS against the taxpayer for violations of the Illinois Consumer Fraud and Deceptive Practices Act, and the Racketeering and Corrupt
Organizations Act, and alleging unjust enrichment and breach of contract, seeking compensatory and punitive damages, restitution, and attorneys fees. The alleged violations of the Illinois Consumer Fraud and Deceptive Practices Act relate to
representations regarding tax return preparation, Basic Guarantee and Gold Guarantee coverage and denial of Gold Guarantee claims. On August 1, 2007, the Company filed a motion to dismiss which, on September 5, 2007, was denied without
prejudice to permit the plaintiff to further amend the complaint. On October 5, 2007, plaintiff filed a second amended complaint to add additional parties. On November 20, 2007, the Company filed a motion to dismiss the second amended
complaint. On March 25, 2008, the Court dismissed all claims. On April 11, 2008, plaintiff filed a motion for leave to file a third amended complaint. The Company opposed that motion. On June 19, 2008, the Court denied
plaintiffs motion, and permitted the plaintiff to file a fourth amended complaint consistent with the Courts March 25, 2008 decision. On July 28, 2008, the Company filed a motion to dismiss the fourth amended complaint. On
December 24, 2008, the Company answered Plaintiffs complaint with respect to the remaining breach of contract claim. The case is in its discovery and pretrial stage. The Company believes it has meritorious defenses and is contesting this
matter vigorously.

On January 17, 2008, an attorney with the New York State Division of Human Rights (the Division) filed
with the Division a Division-initiated administrative complaint against the Company for allegedly marketing loan products to individuals in New York based on their race and military status in violation of New York States Human Rights Law, and
seeking injunctive and other relief. On February 19, 2008, the Company filed a response to the complaint with the Division. On June 30, 2008, the Division issued a determination of probable cause on the matter and determined that it had
jurisdiction. The matter will be set for an administrative hearing. The Company believes that no jurisdiction exists, that it has meritorious defenses and is contesting this matter vigorously. On October 15, 2008, the Company filed a Complaint
in the United States District Court, Southern District of New York against the Commissioner of the Division for injunctive and declaratory relief. On October 20, 2008, the Company filed a motion for a preliminary injunction against the
Commissioner of the Division to prevent the Division from proceeding with its administrative complaint.

On February 16, 2009, Alicia
Gomez brought a purported class action complaint against the Company in the Circuit Court of Maryland, Montgomery County, on behalf of Maryland customers who obtained RALs facilitated by the Company, for an alleged failure to comply with
Marylands Credit Services Businesses Act, and for an alleged violation of Marylands Consumer Protection Act, and seeking damages and injunctive relief. The Company believes it has meritorious defenses and is contesting this matter
vigorously.

The Company is from time to time subject to other legal proceedings and claims in the ordinary course of business, none of
which the Company believes is likely to have a material adverse effect on its financial position, results of operations or cash flows.



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13. SUBSEQUENT EVENT

On March 4, 2009, the Company announced that Wal-Mart had selected the Company to be the exclusive provider of tax preparation services in Wal-Mart stores beginning in the 2010 tax season. On March 11, 2009,
JHI and TSA entered into the Kiosk License Agreement (the Wal-Mart Agreement) with Wal-Mart Stores East, LP, Wal-Mart Stores, Inc., Wal-Mart Louisiana, LLC, Wal-Mart Stores Arkansas, LLC and Wal-Mart Stores Texas, LLC, pursuant to which
the Company was granted the exclusive right to provide tax preparation services within Wal-Mart stores during the 2010 and 2011 tax seasons. The Wal-Mart Agreement expires on May 30, 2011 and it may be renewed for three additional one-year
terms upon the mutual agreement of the parties. The Wal-Mart Agreement contains certain early termination rights and indemnity obligations.

Compensation to Wal-Mart consists of fixed license fees for each Wal-Mart store in which a Jackson Hewitt Tax Service office operates, additional fees based on the number of tax returns prepared by each office in the applicable tax seasons
and additional fees based on the preparation and filing of tax returns through the Companys on-line tax preparation software for customers who accessed such on-line tax preparation software via walmart.com (collectively, the Fees).
Franchised offices operating Jackson Hewitt Tax Service offices in Wal-Mart stores pursuant to the Wal-Mart Agreement are obligated under their Franchise Agreements with the Company to reimburse the Company for all Fees paid on their behalf by the
Company to Wal-Mart.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and
Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on June 30, 2008.

FORWARD-LOOKING STATEMENTS

Certain statements in
this report, including, but not limited to, those contained in Part I. Item 1Financial Statements and notes thereto, Part I. Item 2Managements Discussion and Analysis of Financial Condition and
Results of Operations and Part II. Item 1Legal Proceedings included in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect
to the financial condition, results of operations, cash flows, plans, objectives, future performance and business of Jackson Hewitt Tax Service Inc. All statements in this report, other than statements that are purely historical, are
forward-looking statements. Forward-looking statements include statements preceded by, followed by or that otherwise include the words believes, expects, anticipates, intends, projects,
estimates, plans, may increase, may fluctuate and similar expressions or future or conditional verbs such as will, should, would, may, and
could. These forward-looking statements involve risks and uncertainties.

Actual results may differ materially from those
contemplated (expressed or implied) by such forward-looking statements, because of, among other things, the following potential risks and uncertainties: our ability to timely or effectively respond to customer trends and attract new customers,
develop and make new products available through our offices, improve our distribution system or reduce our cost structure; our ability to successfully attract and retain key personnel; government initiatives that simplify tax return
preparation or reduce the need for a third party tax return preparer, improve the timing and efficiency of processing tax returns or decrease the number of tax returns filed; delays in the passage of tax laws and their implementation; the trend of
tax payers filing their tax returns later in the tax season; the success of our franchised offices; our responsibility to third parties, regulators or courts for the acts of, or failures to act by, our franchisees or their employees; government
legislation and regulation of the tax return preparation industry and related financial products, including refund anticipation loans, and the failure by us, or the financial institutions which provide financial products to our customers, to comply
with such legal and regulatory requirements; the effectiveness of our tax return preparation compliance program; increased regulation of tax return preparers; our exposure to litigation; the failure of our insurance to cover all the risks associated
with our business; our ability to protect our customers personal and financial information; the effectiveness of our marketing and advertising programs and franchisee support of these programs; disruptions in our relationships with our
franchisees; changes in our relationships with financial product providers that could reduce the revenues we derive from our agreements with these financial institutions as well as affect our customers ability to obtain financial products
through our tax return preparation offices; changes in our relationships with retailers and shopping malls that could affect our growth and profitability; the seasonality of our business and its effect on our stock price; competition from tax return
preparation service providers, volunteer organizations and the government; our reliance on technology systems and electronic communications to perform the core functions of our business; our ability to protect our intellectual property rights or
defend against any third party allegations of infringement by us; our reliance on cash flow from subsidiaries; our compliance with credit facility covenants; our exposure to increases in prevailing market interest rates; our quarterly results not
being indicative of our performance as a result of tax season being relatively short and straddling two quarters; our ability to pay dividends in the future; certain provisions that may hinder, delay or prevent third party takeovers; changes in
accounting policies or practices and our ability to maintain an effective system of internal controls; impairment charges related to goodwill and other intangible assets; and the effect of market conditions, general conditions in the tax return
preparation industry or general economic conditions.

Other factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict
accurately and are generally beyond our control. As a result of these factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or
circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any
obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.



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OVERVIEW

We manage and evaluate the operating results of our business in two segments:



| |  |  | Franchise operations: This segment consists of the operations of our franchise business, including royalty and marketing and advertising revenues, financial product
fees and other revenues; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Company-owned office operations: This segment consists of the operations of our company-owned offices for which we recognize service revenues primarily for the
preparation of tax returns.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Jackson Hewitt Tax Service Inc. is the second largest paid individual tax return preparer in
the United States based upon the number of individual tax returns prepared and filed with the Internal Revenue Service (IRS). As of January 31, 2009 our network consisted of approximately 6,600 franchised and company-owned offices
and prepared 1.16 million returns year-to-date. Our revenues consist of fees paid by our franchisees, service revenues earned at company-owned offices and financial product fees.

During the 2009 tax season, the paid return preparer industry has been adversely affected by significant growth in the on-line tax return preparation
market. We believe this is due to customers continuing to seek lower priced channels in the market for their tax preparation needs. In order to attract and retain these customers, we plan to offer our own on-line tax preparation product
for the 2010 tax season and we will continue to investigate other less expensive options for our customers.

Jackson Hewitt,
the Company, we, our, and us are used interchangeably in this report to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Seasonality of Operations

The tax return
preparation business is highly seasonal, and we historically generate substantially all of our revenues during the period from January 1 through April 30. In fiscal 2008, we earned 95% of our revenues during this period. We generally
operate at a loss during the period from May 1 through December 31, during which we incur costs associated with preparing for the upcoming tax season.

Amended Bank Agreements

MetaBank

On November 17, 2008, we entered into an Amended and Restated Marketing Agreement (Marketing Agreement) with MetaBank d/b/a Meta Payment
Systems (MetaBank), and a First Addendum (Addendum) to the Marketing Agreement with MetaBank dated the same date. The Marketing Agreement amends and supersedes a prior agreement with MetaBank. The Marketing Agreement expires
on October 31, 2011. The Addendum expires on the later of July 15, 2009 or the date upon which the parties obligations under the Addendum have been fulfilled.

Under the Marketing Agreement, MetaBank is responsible for issuing and managing our prepaid debit card program and providing line of credit products
related to the card. We receive payment from MetaBank based on certain levels of revenues and gross profits.

The Addendum provides that in
the event MetaBanks loan losses related to one of the line of credit products provided under the Marketing Agreement significantly exceed MetaBanks projected losses, we will make payments to MetaBank to offset such losses. Our payment
obligations will not arise unless MetaBanks actual loan losses are in excess of two times the level of MetaBanks projected losses under the program. Our maximum payment obligation is approximately $13 million, which will occur in the
event that MetaBanks actual loan losses are in excess of four times MetaBanks projected losses. In the event we are required to make such payment to MetaBank, we intend for these payment obligations to be shared among us and our
franchisees. As of January 31, 2009, we considered the likelihood to be remote of a material payment having to be made to MetaBank to offset actual loan losses.

Republic

On December 2, 2008, we entered into the First Amendment to Program Agreement (the
Republic Program Agreement Amendment) with Republic Bank & Trust Company (Republic) and the First Amendment to Technology Services Agreement (the Republic Technology Services Agreement Amendment and,
together with the Republic Program Agreement Amendment, the Republic Amendments) with Republic. The primary purposes of the Republic Amendments are to establish the number of Jackson Hewitt Tax Service locations during the 2009 tax
season in which Republic will offer,



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##### Table of Contents

process and administer certain financial products, including refund anticipation loans, to Jackson Hewitt Tax Service customers (the Republic
Program), the fees to be paid by Republic to us for the 2009 tax season and certain compliance parameters regarding the Republic Program. The Republic Program Agreement Amendment provides Republic with the right to retain certain monies
otherwise payable to us by Republic in the event that Republic fails to attain a minimum level of profitability or number of financial products or if Republic incurs costs in connection with our failure to maintain a minimum level of compliance with
Republics policies and procedures. Republic must initially measure the profitability and compliance thresholds by July 31, 2009. As of the date of this filing, the company has satisfied the minimum level of financial products contingency.

During the 2009 tax season, Republic and Santa Barbara Bank & Trust, a division of Pacific Capital Bank, N.A. (SBBT),
will collectively provide financial products to the entire network of Jackson Hewitt Tax Service offices. SBBT will provide a majority of the financial products in Jackson Hewitt Tax Service offices in each of the 2009 and 2010 tax seasons.

The agreements with SBB&T also provides them with termination rights in the event of certain circumstances. In lieu of these
termination rights, the fees paid to us may be adjusted during the tax season. Any such change could reduce the revenues we derive from our agreements with this financial product provider.

Walmart

On March 4, 2009, we announced that
Wal-Mart had selected us to be the exclusive provider of tax preparation services in Wal-Mart stores beginning in the 2010 tax season. On March 11, 2009, JHI and TSA entered into the Kiosk License Agreement (the Wal-Mart Agreement) with
Wal-Mart Stores East, LP, Wal-Mart Stores, Inc., Wal-Mart Louisiana, LLC, Wal-Mart Stores Arkansas, LLC and Wal-Mart Stores Texas, LLC, pursuant to which we were granted the exclusive right to provide tax preparation services within Wal-Mart stores
during the 2010 and 2011 tax seasons. The Wal-Mart Agreement expires on May 30, 2011 and it may be renewed for three additional one-year terms upon the mutual agreement of the parties. The Wal-Mart Agreement contains certain early termination rights
and indemnity obligations.

Compensation to Wal-Mart consists of fixed license fees for each Wal-Mart store in which a Jackson Hewitt Tax
Service office operates, additional fees based on the number of tax returns prepared by each office in the applicable tax seasons and additional fees based on the preparation and filing of tax returns through our on-line tax preparation software for
customers who accessed such on-line tax preparation software via walmart.com (collectively, the Fees). Franchised offices operating Jackson Hewitt Tax Service offices in Wal-Mart stores pursuant to the Wal-Mart Agreement are obligated
under their Franchise Agreements with us to reimburse us for all Fees paid on their behalf by us to Wal-Mart.

Termination Charges

In the first quarter of fiscal 2009, we recorded termination charges of $3.0 million as discussed below. We recorded additional
termination charges of $0.2 million in each of the second and third fiscal quarters as well.

Employee Termination and Related Expenses

As part of an initiative to achieve a lower cost structure in advance of the 2009 tax season, our overall consolidated workforce was
reduced by approximately 10% during the first quarter of fiscal 2009. In connection with this action and certain employee terminations, a $1.4 million charge was recorded in selling, general and administrative expense in the first quarter of fiscal
2009. In the third quarter of fiscal 2009, we recorded additional charges of $0.06 million. For the nine months ended January 31, 2009, our reportable segments included employee termination and related expenses of $0.5 million in Company-Owned
Office Operations and $0.3 million in Franchise Operations with $0.8 million in Corporate and Other.

Lease Termination and Related
Expenses

As part of an overall effort to optimize company-owned store locations and improve profitability, 200 under-performing store
locations were closed during the first quarter of fiscal 2009. In connection with this action, a charge of $1.6 million was recorded in cost of company-owned operations expense related to lease termination and related expenses, including a $0.1
million write-down of leasehold improvements, associated with 52 of these store location closures. Costs to terminate these contractual operating leases before the end of their term were measured at fair value and reduced by an amount of estimated
sublease rental income that we believe we can reasonably obtain for the properties. In the third quarter of fiscal 2009, we recorded in cost of company-owned operations accretion expense of $0.01 million offset by a credit of $0.13 million to adjust
the fair value of this lease termination liability primarily due to favorable negotiations with landlords to buy out certain leases early. We expect to continue to adjust the fair value of this lease termination liability due to the passage of time
as an increase in the liability and as an operating expense (accretion) over the remaining terms of the leases. As of January 31, 2009, the remaining lease termination liability consisted of $0.28 million in accounts payable and accrued
liabilities and $0.06 million in other non-current liabilities in the accompanying Condensed Consolidated Balance Sheet.



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Restructuring Considerations

Subsequent to the end of the third quarter of fiscal 2009, we continued to experience a much slower than anticipated start to the tax season, including within our company-owned office locations, with decreases in our
year over year tax return counts and revenues as well as unfavorable movements in our stock price. Despite our disappointing third quarter results and the challenging economic environment, we believe that opportunities exist in our operational
execution to increase customer traffic in our stores, realize growth with our new Walmart and online initiatives and improve our overall profitability.

In the fourth quarter of fiscal 2009, we will evaluate whether additional steps are required to restructure our business operations in an effort to further improve financial results, which may include closing
unprofitable company-owned office locations, executing on cost reduction initiatives and implementing workforce reductions. These evaluations could lead to restructuring charges within fiscal year 2009.

Management Changes

Effective November 3,
2008, Mark Heimbouch, formerly Chief Operating Officer, resigned. On March 12, 2009, Douglas K. Foster, our Chief Marketing Officers employment was terminated.

RESULTS OF OPERATIONS

Our consolidated results of operations are set forth below and are followed by
a more detailed discussion of each of our business segments, as well as a detailed discussion of certain corporate and other expenses.

Consolidated
Results of Operations



|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ----------------------------- | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months EndedJanuary 31, |        |   | Nine Months EndedJanuary 31, |  
|                                                      |  | 2009                          |        |   | 2008                         |   |        | 2009 |  |   | 2008    |  
|                                                      |  | (in thousands)                |        |   | (in thousands)               |  
|Revenues                                              |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Franchise operations revenues:                        |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Royalty                                               |  | $                             | 29,620 |   |                              | $ | 27,132 |      |  | $ | 30,893  |   |  | $ | 28,464  |  
|Marketing and advertising                             |  |                               | 13,089 |   |                              |   | 12,161 |      |  |   | 13,653  |   |  |   | 12,736  |  
|Financial product fees                                |  |                               | 21,182 |   |                              |   | 24,451 |      |  |   | 26,256  |   |  |   | 29,777  |  
|Other                                                 |  |                               | 2,027  |   |                              |   | 3,170  |      |  |   | 3,624   |   |  |   | 6,554   |  
|Service revenues from company-owned office operations |  |                               | 31,872 |   |                              |   | 30,641 |      |  |   | 32,720  |   |  |   | 31,545  |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total revenues                                        |  |                               | 97,790 |   |                              |   | 97,555 |      |  |   | 107,146 |   |  |   | 109,076 |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|                                                      |  |                               |        |  
|Expenses                                              |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Cost of franchise operations                          |  |                               | 8,980  |   |                              |   | 8,135  |      |  |   | 24,933  |   |  |   | 26,197  |  
|Marketing and advertising                             |  |                               | 20,530 |   |                              |   | 22,620 |      |  |   | 30,139  |   |  |   | 31,330  |  
|Cost of company-owned office operations               |  |                               | 19,887 |   |                              |   | 20,727 |      |  |   | 37,827  |   |  |   | 33,242  |  
|Selling, general and administrative                   |  |                               | 6,680  |   |                              |   | 8,509  |      |  |   | 30,580  |   |  |   | 39,789  |  
|Depreciation and amortization                         |  |                               | 3,296  |   |                              |   | 3,352  |      |  |   | 9,689   |   |  |   | 9,946   |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total expenses                                        |  |                               | 59,373 |   |                              |   | 63,343 |      |  |   | 133,168 |   |  |   | 140,504 |  
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) from operations                         |  |                               | 38,417 |   |                              |   | 34,212 |      |  |   | (26,022 | ) |  |   | (31,428 | )
|Other income/(expense):                               |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Interest and other income                             |  |                               | 454    |   |                              |   | 421    |      |  |   | 1,234   |   |  |   | 1,369   |  
|Interest expense                                      |  |                               | (4,197 | ) |                              |   | (4,621 | )    |  |   | (11,422 | ) |  |   | (11,112 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |                               | 34,674 |   |                              |   | 30,012 |      |  |   | (36,210 | ) |  |   | (41,171 | )
|Provision for (benefit from) income taxes             |  |                               | 13,763 |   |                              |   | 11,765 |      |  |   | (14,371 | ) |  |   | (16,139 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                                     |  | $                             | 20,911 |   |                              | $ | 18,247 |      |  | $ | (21,839 | ) |  | $ | (25,032 | )
|                                                      |  |                               |        |   |                              |   |        |      |  |   |         |   |  |   |         |  



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The following table presents selected key operating statistics for our franchise and company-owned office
operations.



|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|-------------------------------------------------------- |  | ----------------------------- | ------ | ---------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                         |  | Three Months EndedJanuary 31, |        | Nine Months EndedJanuary 31,
|                                                         |  | 2009                          |        | 2008                         |   | 2009   |  | 2008
|Offices:                                                 |  |                               |        |                              |   |        |  |      |        |  |   |       
|Franchise operations                                     |  |                               | 5,637  |                              |   | 5,786  |  |      | 5,637  |  |   | 5,786 
|Company-owned office operations                          |  |                               | 962    |                              |   | 1,002  |  |      | 962    |  |   | 1,002 
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Total officessystem                                     |  |                               | 6,599  |                              |   | 6,788  |  |      | 6,599  |  |   | 6,788 
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|                                                         |  |                               |        |                             
|Tax returns prepared (in thousands):                     |  |                               |        |                              |   |        |  |      |        |  |   |       
|Franchise operations                                     |  |                               | 962    |                              |   | 996    |  |      | 1,017  |  |   | 1,051 
|Company-owned office operations                          |  |                               | 142    |                              |   | 151    |  |      | 147    |  |   | 155   
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Total tax returns preparedsystem                        |  |                               | 1,104  |                              |   | 1,147  |  |      | 1,164  |  |   | 1,206 
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|                                                         |  |                               |        |                             
|Average revenues per tax return prepared:                |  |                               |        |                              |   |        |  |      |        |  |   |       
|Franchise operations (1)                                 |  | $                             | 226.73 |                              | $ | 203.48 |  | $    | 223.71 |  | $ | 202.02
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Company-owned office operations (2)                      |  | $                             | 224.74 |                              | $ | 203.51 |  | $    | 223.01 |  | $ | 203.78
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Average revenues per tax return preparedsystem          |  | $                             | 226.47 |                              | $ | 203.49 |  | $    | 223.63 |  | $ | 202.24
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Financial products (in thousands) (3)                    |  |                               | 1,003  |                              |   | 1,157  |  |      | 1,028  |  |   | 1,181 
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       
|Average financial product fees per financial product (4) |  | $                             | 21.12  |                              | $ | 21.13  |  | $    | 25.54  |  | $ | 25.22 
|                                                         |  |                               |        |                              |   |        |  |      |        |  |   |       



|(1) | Calculated as total revenues earned by our franchisees, which does not represent revenues earned by us, divided by the number of tax returns prepared by our franchisees (see
calculation below). We earn royalty and marketing and advertising revenues, which represent a percentage of the revenues received by our franchisees.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Calculated as tax preparation revenues and related fees earned by company-owned offices (as reflected in the Condensed Consolidated Statements of Operations) divided by the number
of tax returns prepared by company-owned offices.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of refund anticipation loans, assisted refunds and Gold Guarantee products.
|--- | ------------------------------------------------------------------------------------

|(4) | Calculated as revenues earned from financial product fees (as reflected in the Condensed Consolidated Statements of Operations) divided by the number of financial products.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Calculation of average revenues per tax return prepared in Franchise Operations:



|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                             |  | Three Months EndedJanuary 31, |         |   | Nine Months EndedJanuary 31, |  
|(dollars in thousands, except per tax return data)                           |  | 2009                          |         |   | 2008                         |   |         | 2009 |  |   | 2008    |  
|Total revenues earned by our franchisees (A)                                 |  | $                             | 218,150 |   |                              | $ | 202,672 |      |  | $ | 227,555 |   |  | $ | 212,261 |  
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Average royalty rate (B)                                                     |  |                               | 13.58   | % |                              |   | 13.39   | %    |  |   | 13.58   | % |  |   | 13.41   | %
|Marketing and advertising rate (C)                                           |  |                               | 6.00    | % |                              |   | 6.00    | %    |  |   | 6.00    | % |  |   | 6.00    | %
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Combined royalty and marketing and advertising rate (B plus C)               |  |                               | 19.58   | % |                              |   | 19.39   | %    |  |   | 19.58   | % |  |   | 19.41   | %
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Royalty revenues (A times B)                                                 |  | $                             | 29,620  |   |                              | $ | 27,132  |      |  | $ | 30,893  |   |  | $ | 28,464  |  
|Marketing and advertising revenues (A times C)                               |  |                               | 13,089  |   |                              |   | 12,160  |      |  |   | 13,653  |   |  |   | 12,736  |  
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total royalty and marketing and advertising revenues                         |  | $                             | 42,709  |   |                              | $ | 39,292  |      |  | $ | 44,546  |   |  | $ | 41,200  |  
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Number of tax returns prepared by our franchisees (D)                        |  |                               | 962     |   |                              |   | 996     |      |  |   | 1,017   |   |  |   | 1,051   |  
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Average revenues per tax return prepared by our franchisees (A divided by D) |  | $                             | 226.73  |   |                              | $ | 203.48  |      |  | $ | 223.71  |   |  | $ | 202.02  |  
|                                                                             |  |                               |         |   |                              |   |         |      |  |   |         |   |  |   |         |  

Amounts may not recalculate precisely due to rounding differences.



24



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##### Table of Contents

Three Months Ended January 31, 2009 as Compared to Three Months Ended January 31, 2008

Total Revenues

Total revenues
increased slightly by $0.2 million, due to higher average revenues per tax return prepared partially offset by (i) a decrease in the number of tax returns prepared by our network; (ii) lower financial product fees earned under the
agreements with the providers of financial products; and (iii) lower territory sales as compared to the same quarter last year. Average revenues per tax return prepared increased 11%. Our network of franchised and company-owned offices prepared
1.1 million tax returns in the third quarter of fiscal 2009, a decline of 4% as compared to the same quarter last year.

Subsequent to
the end of the third quarter of fiscal 2009, we continued to experience a much slower than anticipated start to the first half of the tax season particularly within our company-owned office locations. A variety of factors have been identified as
contributing to the significant decrease in the number of tax returns prepared and lower revenues, including



| | (i) | A trade-off of pricing and demand in an increasingly competitive market place;
| | --- | ------------------------------------------------------------------------------



| | (ii) | Local marketing and promotion activities that have not been as effective as originally envisioned;
| | ---- | --------------------------------------------------------------------------------------------------



| | (iii) | The impact related to our increased compliance efforts; and
| | ----- | -----------------------------------------------------------



| | (iv) | Certain execution issues involving our expanded debit card program.
| | ---- | -------------------------------------------------------------------

As a result, we have implemented select marketing, promotion and incentive actions, as well as taken certain cost control measures, to maximize our operating and financial performance over the remainder of the tax
season. Despite these efforts, we believe that for the full 2009 tax season, the total number of tax returns prepared by our network will decrease 12% to 13% and total revenues will decrease 8% to 10% as compared to fiscal 2008.

Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses decreased
$4.0 million, or 6%. Highlights were as follows:

Cost of franchise operations: Cost of franchise operations increased $0.8 million,
or 10%, primarily due to accrued franchisee incentives of $2.1 million in connection with the number of prepaid debit cards issued by MetaBank partially offset by lower compensation-related costs.

Marketing and Advertising: Marketing and advertising expenses decreased $2.1 million, or 9%, primarily due to lower media expense of $1.7 million
and the absence of a franchisee marketing incentive related to the 2008 tax season of $1.4 million partially offset by higher advertising agency fees of $0.9 million in connection with our new advertising agency.

Cost of company-owned office operations: Cost of company-owned office operations decreased $0.8 million, or 4%, primarily due to lower
compensation-related costs of $1.3 million partially offset by higher storefront occupancy costs of $0.4 million and a higher provision for uncollectible accounts receivable of $0.4 million.

Selling, general and administrative: Selling, general and administrative expenses decreased $1.8 million, or 22%, primarily due to (i) lower
compensation-related expenses of $1.7 million; (ii) a decrease in consulting fees of $0.6 million related to supporting our strategic initiatives in 2008; and (iii) lower share-based compensation of $0.5 million. Partially offsetting this
decrease was higher external legal fees $0.8 million.

Other income (expense)

Interest expense: Interest expense decreased $0.4 million, or 9%, primarily due to lower interest rates partially offset by higher average debt
balance. Our pre-tax average cost of debt was 4.7% and 5.6% in the third quarter of fiscal 2009 and third quarter of fiscal 2008, respectively.



25



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##### Table of Contents

Nine Months Ended January 31, 2009 as Compared to Nine Months Ended January 31, 2008

Total revenues decreased $1.9 million, or 2%, primarily due to the reasons discussed in the three month comparison. Average revenues per tax return
prepared increased 11%. Our network of franchised and company-owned offices prepared 1.16 million tax returns in the 2009 year-to-date period, a decrease of 3.5% compared to the same period last year.

Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses decreased
$7.3 million, or 5%. Highlights were as follows:

Cost of franchise operations: Cost of franchise operations decreased
$1.3 million, or 5%, primarily due to (i) lower compensation-related costs of $1.6 million; (ii) lower meetings and conference expenses of $0.6 million; and (iii) lower other miscellaneous expenses of $1.7 million (with none
individually in excess of $0.2 million) in connection with our overall improved productivity. Partially offsetting the overall decrease was accrued franchisee incentives of $2.1 million in connection with the number of prepaid debit cards issued by
MetaBank and a higher provision for uncollectible accounts receivable, net, of $0.6 million.

Marketing and advertising: Marketing
and advertising expenses decreased $1.2 million, or 4%, primarily due to (i) lower media expense of $1.7 million; (ii) the absence of a franchisee marketing incentive related to the 2008 tax season of $1.4 million; and (iii) lower
sponsorship related expenses of $0.4 million partially offset by higher advertising agency fees of $1.9 million in connection with our new advertising agency.

Cost of company-owned office operations: Cost of company-owned office operations increased $4.6 million, or 14%, primarily due to (i) higher storefront occupancy costs of $2.3 million; (ii) lease
termination and related costs of $1.7 million related to the closing of 200 under-performing stores; and (iii) a higher provision for uncollectible accounts receivable of $0.4 million.

Selling, general and administrative: Selling, general and administrative expenses decreased $9.2 million, or 23%, primarily due to:



| | (i) | The absence of previously disclosed Internal Review expenses of $5.8 million in connection with allegations set forth in the Department of Justice lawsuits against a former
frachisee;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The absence of a $5.6 million severance charge related to the departure of our former Chief Executive Officer in October 2007;
| | ---- | ------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Lower compensation-related expense of $2.0 million;
| | ----- | ---------------------------------------------------



| | (iv) | The favorable effect of a $1.5 million insurance recovery related to the settlement of the California Attorney General and Pierre Brailsford matters; and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Lower share-based compensation of $0.9 million.
| | --- | -----------------------------------------------

Partially offsetting the overall decrease in selling, general and administrative were:



| | (i) | A charge of $2.8 million related to a preliminarily approved legal settlement by us (California Hood Matter), see Note 12  Commitments and Contingencies 
Legal Proceedings for additional information;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Higher external legal fees (unrelated to the Internal Review) of $2.0 million; and
| | ---- | ----------------------------------------------------------------------------------



| | (iii) | Employee termination and related expenses of $1.6 million related primarily to a workforce reduction in the first quarter fiscal 2009.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------

Other income (expense)

Interest expense:
Interest expense increased $0.3 million, or 3%, primarily due to higher average debt balance partially offset by lower interest rates. Our pre-tax average cost of debt was 5.0% and 5.9% in the nine months ended January 31, 2009 and 2008,
respectively.



26



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##### Table of Contents

Segment Results and Corporate and Other

Franchise Operations



|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|----------------------------------- |  | ----------------------------- | ------ | ---------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                    |  | Three Months EndedJanuary 31, |        | Nine Months EndedJanuary 31,
|                                    |  | 2009                          |        | 2008                         |   | 2009   |  | 2008
|                                    |  | (in thousands)                |        | (in thousands)              
|Revenues                            |  |                               |        |                              |   |        |  |      |        |  |   |       
|Royalty                             |  | $                             | 29,620 |                              | $ | 27,132 |  | $    | 30,893 |  | $ | 28,464
|Marketing and advertising           |  |                               | 13,089 |                              |   | 12,161 |  |      | 13,653 |  |   | 12,736
|Financial product fees              |  |                               | 21,182 |                              |   | 24,451 |  |      | 26,256 |  |   | 29,777
|Other                               |  |                               | 2,027  |                              |   | 3,170  |  |      | 3,624  |  |   | 6,554 
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|Total revenues                      |  |                               | 65,918 |                              |   | 66,914 |  |      | 74,426 |  |   | 77,531
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|Expenses                            |  |                               |        |                              |   |        |  |      |        |  |   |       
|Cost of operations                  |  |                               | 8,980  |                              |   | 8,135  |  |      | 24,933 |  |   | 26,197
|Marketing and advertising           |  |                               | 17,581 |                              |   | 20,260 |  |      | 26,904 |  |   | 28,461
|Selling, general and administrative |  |                               | 915    |                              |   | 1,057  |  |      | 2,991  |  |   | 3,080 
|Depreciation and amortization       |  |                               | 2,249  |                              |   | 2,411  |  |      | 6,607  |  |   | 7,587 
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|Total expenses                      |  |                               | 29,725 |                              |   | 31,863 |  |      | 61,435 |  |   | 65,325
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|Income from operations              |  |                               | 36,193 |                              |   | 35,051 |  |      | 12,991 |  |   | 12,206
|Other income/(expense):             |  |                               |        |                              |   |        |  |      |        |  |   |       
|Interest and other income           |  |                               | 391    |                              |   | 354    |  |      | 1,130  |  |   | 1,094 
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       
|Income before income taxes          |  | $                             | 36,584 |                              | $ | 35,405 |  | $    | 14,121 |  | $ | 13,300
|                                    |  |                               |        |                              |   |        |  |      |        |  |   |       

Three Months Ended January 31, 2009 as Compared to Three Months Ended January 31, 2008

Total Revenues

Total revenues
decreased $1.0 million, or 1.5%. Highlights were as follows:

Royalty and marketing and advertising:Royalty revenues increased $2.5
million, or 9%, and marketing and advertising revenues increased $0.9 million, or 8%, both due to an 11% increase in average revenues per tax return prepared partially offset by a 3% decrease in the number of tax returns prepared by our franchisees.

Financial product fees:Financial product fees decreased $3.3 million, or 13%, principally due to a reduction in the total
contractual fixed fees (which are accounted for on a percentage of completion method over the tax season) and the deferral of revenues due to contingencies contained in this years amended agreements.

Other revenues: Other revenues decreased $1.1 million, or 36%, primarily due to lower territory sales. Other revenues included the sale of five
territories as compared to 30 in the same quarter last year. We believe the decline in territory sales is due in part to the ongoing difficult economic environment.

Total Expenses

Total operating expenses decreased $2.1 million, or 7%. Highlights were as
follows:

Cost of operations: Cost of operations increased as discussed in the Condensed Consolidated Results of Operations.

Marketing and Advertising: Marketing and advertising expenses decreased $2.7 million, or 13%, as discussed in the Condensed
Consolidated Results of Operations.



27



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##### Table of Contents

Nine Months Ended January 31, 2009 as Compared to Nine Months Ended January 31, 2008

Total Revenues

Total revenues decreased $3.1
million, or 4%. Highlights were as follows:

Royalty and marketing and advertising:Royalty revenues increased $2.4 million, or 9%,
and marketing and advertising revenues increased $0.9 million, or 7%, due to the same reasons as discussed in the three month comparison.

Financial product fees:Financial product fees decreased $3.5 million, or 12%, principally due to the same reasons as discussed in the three month comparison.

Other revenues: Other revenues decreased $2.9 million, or 45%, primarily due to lower territory sales. Other revenues included the sale of 70
territories as compared to 123 in the same period last year.

Total Expenses

Total operating expenses decreased $3.9 million, or 6%. Highlights were as follows:

Cost of operations: Cost of operations decreased as discussed in the Condensed Consolidated Results of Operations.

Marketing and Advertising:Marketing and advertising expenses decreased $1.6 million, or 6%, as discussed in the Condensed Consolidated Results of
Operations.

Depreciation and amortization:Depreciation and amortization decreased $1.0 million, or 13%, primarily due to certain
intangible assets becoming fully amortized in December 2007.

Company-Owned Office Operations



|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|----------------------------------- |  | ----------------------------- | ------ | ---------------------------- | - | ------ |  | - | ------- | - |  | - | ------ | -
|                                    |  | Three Months EndedJanuary 31, |        | Nine Months EndedJanuary 31, |  
|                                    |  | 2009                          |        | 2008                         |   | 2009   |  |   | 2008    |  
|                                    |  | (in thousands)                |        | (in thousands)               |  
|Revenues                            |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|Service revenues from operations    |  | $                             | 31,872 |                              | $ | 30,641 |  | $ | 32,720  |   |  | $ | 31,545 |  
|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|                                    |  |                               |        |                             
|Expenses                            |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|Cost of operations                  |  |                               | 19,887 |                              |   | 20,727 |  |   | 37,827  |   |  |   | 33,242 |  
|Marketing and advertising           |  |                               | 2,949  |                              |   | 2,360  |  |   | 3,235   |   |  |   | 2,869  |  
|Selling, general and administrative |  |                               | 630    |                              |   | 897    |  |   | 3,293   |   |  |   | 2,836  |  
|Depreciation and amortization       |  |                               | 1,047  |                              |   | 941    |  |   | 3,082   |   |  |   | 2,359  |  
|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|Total expenses                      |  |                               | 24,513 |                              |   | 24,925 |  |   | 47,437  |   |  |   | 41,306 |  
|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|Income (loss) from operations       |  |                               | 7,359  |                              |   | 5,716  |  |   | (14,717 | ) |  |   | (9,761 | )
|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  
|Income (loss) before income taxes   |  | $                             | 7,359  |                              | $ | 5,716  |  | $ | (14,717 | ) |  | $ | (9,761 | )
|                                    |  |                               |        |                              |   |        |  |   |         |   |  |   |        |  

Three Months Ended January 31, 2009 as Compared to Three Months Ended January 31, 2008

Revenues

Total revenues increased $1.2
million, or 4%, primarily due to revenues generated during the November/December 2008 time period of $0.6 million related to early season financial product offerings and higher tax preparation revenues of $0.5 million. The number of tax returns
prepared was approximately 142,000 as compared to 151,000 during the same quarter last year. The average revenue earned per tax return was $224.74 as compared to $203.51 during the same quarter last year.

Total Expenses

Total operating expenses decreased
$0.4 million, or 2%. Highlights were as follows:

Cost of operations: Cost of operations decreased as discussed in the Condensed
Consolidated Results of Operations.

Marketing and Advertising:Marketing and advertising expenses increased $0.6 million, or 25%,
primarily due to higher media expense.



28



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##### Table of Contents

Nine Months Ended January 31, 2009 as Compared to Nine Months Ended January 31, 2008

Revenues

Total revenues increased $1.2 million,
or 4%, primarily due to the reasons discussed in the three month comparison.

Total Expenses

Total operating expenses increased $6.1 million, or 15%. Highlights were as follows:

Cost of operations: Cost of operations increased as discussed in the Condensed Consolidated Results of Operations.

Marketing and Advertising:Marketing and advertising expenses increased $0.4 million, or 13%, primarily due to the same reasons discussed in the
three month comparison.

Selling, general and administrative: Selling, general and administrative increased $0.5 million, or 16%,
primarily due to charges in connection with employee termination and related expenses.

Depreciation and amortization:Depreciation
and amortization increased $0.7 million, or 31%, primarily as a result of incremental depreciation and amortization related to our asset acquisitions over the past 12 months.

Corporate and Other

Corporate and other expenses include unallocated corporate overhead supporting
both segments, including legal, finance, human resources, real estate facilities and strategic development activities, as well as share-based compensation and financing costs.



|                                          |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ----------------------------- | ------ | - | ---------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                          |  | Three Months EndedJanuary 31, |        |   | Nine Months EndedJanuary 31, |  
|                                          |  | 2009                          |        |   | 2008                         |   |         | 2009 |  |   | 2008    |  
|                                          |  | (in thousands)                |        |   | (in thousands)               |  
|Expenses (a)                              |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|General and administrative                |  | $                             | 4,332  |   |                              | $ | 5,205   |      |  | $ | 19,477  |   |  | $ | 18,361  |  
|Insurance settlement                      |  |                               |       |   |                              |   |        |      |  |   | (1,500  | ) |  |   |        |  
|Internal Review                           |  |                               |       |   |                              |   | 257     |      |  |   |        |   |  |   | 5,845   |  
|Litigation matter                         |  |                               |       |   |                              |   |        |      |  |   | 2,833   |   |  |   |        |  
|Employee termination and related expenses |  |                               | 226    |   |                              |   |        |      |  |   | 823     |   |  |   | 6,108   |  
|Share-based compensation                  |  |                               | 577    |   |                              |   | 1,093   |      |  |   | 2,663   |   |  |   | 3,559   |  
|                                          |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                            |  |                               | 5,135  |   |                              |   | 6,555   |      |  |   | 24,296  |   |  |   | 33,873  |  
|                                          |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                      |  |                               | (5,135 | ) |                              |   | (6,555  | )    |  |   | (24,296 | ) |  |   | (33,873 | )
|Other income/(expense):                   |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                 |  |                               | 63     |   |                              |   | 67      |      |  |   | 104     |   |  |   | 275     |  
|Interest expense                          |  |                               | (4,197 | ) |                              |   | (4,621  | )    |  |   | (11,422 | ) |  |   | (11,112 | )
|                                          |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                  |  | $                             | (9,269 | ) |                              | $ | (11,109 | )    |  | $ | (35,614 | ) |  | $ | (44,710 | )
|                                          |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  



|(a) | Included in selling, general and administrative in the Condensed Consolidated Statements of Operations.
|--- | -------------------------------------------------------------------------------------------------------

Three Months Ended January 31, 2009 as Compared to Three Months Ended January 31, 2008

Loss from
operations

Loss from operations decreased $1.4 million, or 22%, primarily due to (i) lower compensation-related expense of $1.4
million; (ii) a decrease in consulting fees of $0.6 million related to supporting our strategic initiatives in 2008; and (iii) lower share-based compensation of $0.5 million. Partially offsetting this decrease was higher external legal
fees (unrelated to the previously disclosed Internal Review) of $0.8 million.

Other income/(expense)

Interest expense:Interest expense decreased as discussed in the Condensed Consolidated Results of Operations.



29



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##### Table of Contents

Nine Months Ended January 31, 2009 as Compared to Nine Months Ended January 31, 2008

Loss from operations

Loss from operations
decreased $9.6 million, or 28%, primarily due to (i) the absence of previously disclosed Internal Review expenses of $5.8 million; (ii) the absence of a $5.6 million severance charge related to the departure of our former Chief Executive
Officer in October 2007; (iii) lower compensation-related expenses of $1.8 million; (iv) the favorable effect of a $1.5 million insurance recovery related to the settlement of the California Attorney General and Pierre Brailsford matters;
and (v) lower share-based compensation of $0.9 million. Partially offsetting this decrease was (i) a charge of $2.8 million related to the California Hood Matter; (ii) higher external legal fees (unrelated to the previously disclosed
Internal Review) of $2.0 million; and (iii) employee termination and related expenses of $0.8 million.

Other income/(expense)

Interest expense:Interest expense increased as discussed in the Condensed Consolidated Results of Operations.

Liquidity and Capital Resources

Historical Sources and Uses of
Cash from Operations

Seasonality of Cash Flows

The tax return preparation business is highly seasonal resulting in substantially all of our revenues and cash flow being generated during the period from
January 1 through April 30. Following the tax season, from May 1 through December 31, we primarily rely on excess operating cash flow from the previous tax season and our credit facility to fund our operating expenses and to
reinvest in our business to support future growth. Given the nature of the franchise business model, our business is generally not capital intensive and has historically generated strong operating cash flow from operations on an annual basis.

Credit Facility

Borrowings under our Amended and Restated $450 Million Credit Facility, which expires in October 2011, are to be used to finance working capital needs, general corporate purposes, potential acquisitions and repurchases of our common stock.
We may also use this credit facility to issue letters of credit for general corporate purposes. As of January 31, 2009, we had $356.0 million in borrowings outstanding under our credit facility.

The Amended and Restated $450 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Eurodollar borrowings bear
interest at the London Inter-Bank Offer Rate (LIBOR), as defined in the Amended and Restated $450 Million Credit Facility, plus a credit spread ranging from 0.50% to 2.00% per annum. Base Rate borrowings bear interest at the
Prime Rate plus a credit spread of up to 1.00%. The Amended and Restated $450 Million Credit Facility carries an annual fee ranging from 0.10% to 0.40% of the unused portion of the credit facility.

The Amended and Restated $450 Million Credit Facility contains the requirement that the Company meet certain financial covenants, such as a maximum
consolidated leverage ratio and a minimum consolidated interest coverage ratio. The consolidated leverage ratio is the ratio of consolidated debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA),
each as defined in the Amended and Restated $450 Million Credit Facility, with consolidated debt being measured on a trailing four-quarter basis. The maximum consolidated leverage ratio is (i) 3.5:1.0 for the fiscal quarters ending
July 31, 2008 through January 31, 2009; (ii) 3.15:1.0 for the fiscal quarters ending April 30, 2009 through October 31, 2009; and (iii) 3.0:1.0 for the fiscal quarters ending January 31, 2010 through July 31,
2011. As of January 31, 2009, our consolidated leverage ratio was 3.1:1.0. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense, each as defined in the Amended and Restated $450 Million
Credit Facility. Under the Amended and Restated $450 Million Credit Facility, the minimum allowable consolidated interest coverage ratio is 4.0:1.0.

The Amended and Restated $450 Million Credit Facility contains various customary restrictive covenants that limits our ability to, among other things; (i) incur additional indebtedness or guarantees;
(ii) create liens or other encumbrances on our property; (iii) enter into a merger or similar transaction; (iv) sell or transfer property except in the ordinary course of business; and (v) make dividend and other restricted
payments. Specifically, the credit facility includes limitations with regard to share repurchases and acquisitions. We are restricted from repurchasing shares until we achieve a consolidated leverage ratio of 2.5:1.0 or lower for two consecutive
fiscal quarters. Thereafter, achievement of a consolidated leverage ratio of 3.0:1.0 or below is required for continued share repurchases. We are limited to annual acquisitions of $15.0 million when the consolidated leverage ratio is greater than
3.0:1.0.



30



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##### Table of Contents

We have initiated discussions with the lead agent under our Amended and Restated Credit $450 Million
Credit Facility, and informed all of the other banks in our lending syndicate, that we intend to seek relief in connection with our current consolidated leverage ratio financial covenant under our Amended and Restated $450 Million Credit Facility in
advance of the fiscal 2009 fourth quarter measurement date. We have met our consolidated leverage ratio financial covenant for the period ending January 31, 2009, reporting a consolidated leverage ratio of 3.1:1 versus the current maximum ratio
of 3.5:1. Under our Amended and Restated $450 Million Credit Facility, the current consolidated leverage ratio financial covenant steps down from 3.5:1 to 3.15:1 for the period ending April 30, 2009 during which our projections indicate that
our 2009 fourth quarter EBITDA will be insufficient to achieve compliance. We currently believe that we will be able to successfully amend our Amended and Restated $450 Million Credit Facility in advance of the fiscal 2009 fourth quarter measurement
date, however, there can be no assurance that we will be able to do so. Once successfully amended, we expect to incur higher interest expense under the Amended and Restated $450 Million Credit Facility, and other potential restrictions, but we
believe such amended facility will be at commitment levels that will continue to support our ongoing operations and will provide sufficient liquidity to meet our cash needs during the next 12 months.

In the future, we may require additional financing to meet our capital needs. Our liquidity position may be negatively affected by unfavorable conditions
in the market in which we operate. In addition, our inability to generate sufficient profits during tax season may unfavorably impact our funding requirements.

Dividend

On March 12, 2009, we announced that our Board of Directors had voted to suspend our
$0.18 per share quarterly common stock dividend. This action will enable us to incrementally retain just over $20.0 million per year.

Credit Market Crisis

The credit markets have been experiencing unprecedented volatility and disruption causing many
lenders and institutional investors to cease providing funding to even the most credit worthy borrowers or to other financial institutions. The credit crisis could limit the ability of our financial partners to fund, securitize or sell
the financial products that are made available to our customers through our offices and negatively impact the ability of our lending syndicate to make funds available to us under our credit facility. For additional information on how the credit
market crisis may adversely affect our business and financial performance, please see Item 1A - Risk Factors.

Sources and Uses of
Cash

Operating activities

In the nine months ended January 31, 2009, we used $24.8 million less cash for operations as compared to the nine months ended January 31, 2008 due to the following:



| |  |  | The absence of $6.3 million in payments associated with Internal Review expenses;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Lower income tax payments of $4.9 million primarily due to the decrease in operating income between years;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Lower bonus payments for full-time and seasonal employees as we paid $4.8 million in the nine months ended January 31, 2009 (accrued in fiscal 2008) as
compared to $8.3 million in the nine months ended January 31, 2008 (accrued in fiscal 2007);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The absence of a $3.0 million severance payment to our former Chief Executive Officer in the second quarter of fiscal 2008;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash proceeds of $1.5 million from an insurance recovery related to the settlement of the California Attorney General and Pierre Brailsford matters; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The absence of a $1.4 million franchisee marketing incentive payment made in January 2008.
| | - |  | ------------------------------------------------------------------------------------------

Investing activities

In the
nine months ended January 31, 2009, we used $7.5 million less cash for investing activities as compared to the nine months ended January 31, 2008 due to lower net funding provided to franchisees of $4.2 million and lower cash paid for the
acquisition of tax return preparation businesses of $3.7 million.

Financing activities

In the nine months ended January 31, 2009, we received $34.6 million less cash from financing activities as compared to the nine months ended
January 31, 2008 primarily due to (i) a reduction of net borrowings under our credit facility of $99.0 million; (ii) a change in cash overdrafts of $14.7 million; and (iii) the absence of $12.0 million in proceeds from the
exercise of stock options primarily by our former Chief Executive Officer. Partially offsetting the above was the absence of $94.8 million used to repurchase shares of our common stock in the prior period last year.



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Future Cash Requirements and Sources of Cash

Future Cash Requirements

Over
the next 12 months, our primary cash requirements will be the funding of our operating activities (including contractual obligations and commitments), repaying outstanding borrowings under the Amended and Restated $450 Million Credit Facility,
making periodic interest payments on our debt outstanding, capital expenditure requirements, acquisitions and the funding of franchisee office expansion, as described more fully below.



| |  |  | Marketing and advertisingWe receive marketing and advertising payments from franchisees to fund our budget for most of these expenses. Marketing and
advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early season and late season customers. Such expenses are seasonal in nature and typically increase in our third and fourth
fiscal quarters when most of our revenues are earned.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Company-owned officesOur company-owned offices complement our franchise system and are focused primarily on organic growth through the opening of new
company-owned offices within existing territories as well as increasing office productivity. We also continue to pursue selective acquisition opportunities for our company-owned office segment in economically attractive, high growth markets adjacent
to our current operations. Expenses to operate our company-owned offices peak during the fourth fiscal quarter primarily due to the labor costs related to the seasonal employees who provide tax return preparation services to our customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expendituresWe anticipate spending on capital expenditures in fiscal 2009 primarily for information technology upgrades to support our growth,
which includes the purchase of computer equipment and the development of internal-use software.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchisee fundingWe anticipate providing franchisees with funding for Conversions and to open new storefront offices as we look to build a stronger
distribution system. We also expect to make incentive payments to eligible franchisees in connection with their performance during the 2009 tax season.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt serviceAs of February 28, 2009, we had $267.0 million outstanding under our Amended and Restated $450 Million Credit Facility, none of which
was scheduled to mature in the next 12 months. We anticipate generating operating cash flow during the remainder of the current tax season to partially repay these outstanding borrowings.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future Sources of Cash

For the remainder of
fiscal 2009, we expect our primary source of cash to be cash provided by operating activities, primarily from royalty and marketing advertising fees from franchisees, service revenues earned at company owned offices and financial product fees. We
anticipate continuing to borrow against our credit facility to fund operations with increases particularly during the first nine months of the fiscal year.

Critical Accounting Policies

In presenting our Condensed Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported therein. Events that are outside of our control cannot be predicted and, as such, they cannot be
contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity.
We believe that the estimates and assumptions we used when preparing our Condensed Consolidated Financial Statements were the most appropriate at that time. The following critical accounting policies may affect reported financial performance
resulting in variations in such performance both on an interim and fiscal year basis.

Goodwill

We test goodwill for impairment annually in our fourth fiscal quarter, or more frequently if circumstances indicate impairment may have
occurred. We review the carrying value of our goodwill by comparing the carrying value of our reporting units to their fair value. When determining fair value, we utilize various assumptions, including projections of future cash flows. A change in
these underlying assumptions would cause a change in the results of the tests and, as such, could cause fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact
results. An adverse change to our business would impact our consolidated results and may result in an impairment of our goodwill. We did not note any impairment indicators as of January 31, 2009. The aggregate carrying value of our goodwill was
$418.1 million as of January 31, 2009. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial StatementsNote 5 Goodwill and Other Intangible Assets for more information on
goodwill.



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Other Indefinite-Lived Intangible Assets

We test indefinite-lived intangible assets for impairment annually in our fourth fiscal quarter, or more frequently if circumstances
indicate impairment may have occurred. Indefinite-lived intangible assets are carried at the lower of cost or fair value. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss would be
recognized in an amount equal to the difference. An adverse change to our business would impact our consolidated results and may result in an impairment of our indefinite-lived intangible assets. We did not note any impairment indicators as of
January 31, 2009. The aggregate carrying value of our indefinite-lived intangible assets was $87.4 million as of January 31, 2009. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial
StatementsNote 5Goodwill and Other Intangible Assets for more information on indefinite-lived intangible assets.

Long-Lived Assets

Definite-lived intangible assets and long-lived assets are reviewed for impairment
whenever events or circumstances indicate that the carrying amount may not be recoverable. We test for impairment based on a comparison of the assets undiscounted cash flows to its carrying value and, if impaired, written down to fair value
based on either discounted cash flows or appraised values. We did not note any impairment indicators as of January 31, 2009.

Annual Impairment Testing

While the results from any potential restructuring, as previously disclosed,
would be expected to improve our estimated future operating profitability, we may reasonably determine during our annual impairment test that the affect on our projected future cash flows may not be sufficient to cover the entire carrying value of
our reporting units. Until our restructuring evaluation is complete, which is expected to be reflected in our fourth quarter of fiscal 2009 results, we are currently unable to reasonably determine the impact, if any, that a non-cash goodwill and/or
other intangible asset impairment charge might have on our Consolidated Financial Statements. Any significant non-cash impairment charge would not create a default under the financial covenants of our existing credit facility; however, it would
unfavorably affect our earnings and the costs associated with a restructuring could potentially affect our ability to pay future dividends.



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Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB
Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 defers the implementation of SFAS No. 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We adopted SFAS No. 157 beginning May 1, 2008, for financial instruments. Although the adoption
of SFAS 157 did not impact our financial condition, results of operations or cash flow, we are now required to provide additional disclosures as part of our financial statements. The additional disclosure can be found in Note 4, Fair Value
Measurements to the Condensed Consolidated Financial Statements. The aspects that have been deferred by FSP FAS 157-2 will be effective for us beginning May 1, 2009 and we are currently assessing the potential impact of its adoption on
our Consolidated Financial Statements.

In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active (FSP FAS 157-3), which clarifies the application of SFAS 157 and provides an example to illustrate key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157. FSP FAS 157-3 was effective for us
upon issuance on October 10, 2008 and the adoption did not have a material impact on our Consolidated Financial Statements.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) which permits entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value. SFAS 159 was effective for us beginning May 1, 2008. We have not elected the fair value measurement option for any financial assets or liabilities that were not
previously recorded at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interests in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for us
as of May 1, 2009 and will then be applied prospectively to business combinations that have an acquisition date on or after May 1, 2009. We are currently assessing the potential impact on our Consolidated Financial Statements of adopting
SFAS 141R.

In June 2007, the FASB ratified EITF 06-11 Accounting for the Income Tax Benefits of Dividends on Share-Based Payment
Awards (EITF 06-11). EITF 06-11 provides that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF 06-11 was effective, on a prospective basis, on
May 1, 2008. The implementation of this standard did not have a material impact on our Consolidated Financial Statements.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS 161), which modifies and expands the disclosure requirements for
derivative instruments and hedging activities. SFAS 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation and requires quantitative disclosures about fair value amounts
and gains and losses on derivative instruments. It also requires disclosures about credit-related contingent features in derivative agreements. SFAS 161 was effective for us beginning February 1, 2009. SFAS 161 encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. The principal impact of SFAS 161 requires us to expand our disclosure regarding our derivative and hedging activities.

In April 2008, the FASB issued Staff Position FSP 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP
142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R)
and other GAAP. FSP 142-3 is effective for us beginning May 1, 2009. We are currently assessing the potential impact on our Consolidated Financial Statements of adopting FSP 142-3.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends before vesting should be considered participating securities. As
participating securities, these instruments should be included in the calculation of basic EPS. FSP



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EITF 03-6-1 is effective for us beginning May 1, 2009. We do not grant share-based payment awards that entitle our holders to receive non-forfeitable
dividends before vesting therefore this EITF is not expected to have any impact on our Consolidated Financial Statements when adopted.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We have entered into interest rate swap agreements with financial institutions to convert a notional amount of $100.0 million of floating-rate borrowings into fixed-rate debt, with the intention of mitigating the
economic impact of changing interest rates. Under these interest rate swap agreements, the first $50.0 million of which became effective in October 2005 and the remaining $50.0 million in November 2007, we receive a floating interest rate based on
the three-month LIBOR (in arrears) and pay a fixed interest rate averaging from 4.4% to 4.5%. These interest rate swap agreements were determined to be cash flow hedges in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 137, No. 138 and No. 149.

In connection with extending the
maturity date under the amended and restated credit facility, in October 2006 we entered into interest rate collar agreements to become effective after the initial interest rate swap agreements terminate. The interest rate collar agreements were
entered into with financial institutions to limit the variability of expense/payments on $50.0 million of floating-rate borrowings during the period from July 2010 to October 2011 to a range of 5.5% (the cap) and 4.6% (the floor). These
interest rate collar agreements were determined to be cash flow hedges in accordance with SFAS No. 133, as amended.

We have financial
market risk exposure related primarily to changes in interest rates. As discussed above, we attempt to reduce this risk through the utilization of derivative financial instruments. A hypothetical 1% change in the interest rate on our floating-rate
borrowings outstanding as of January 31, 2009, excluding our $100.0 million of hedged borrowings whereby we fixed the interest rate, at an average ranging from 4.4% to 4.5%, would result in an annual increase or decrease in income before income
taxes of $2.6 million. The estimated increase or decrease is based upon the level of variable rate debt as of January 31, 2009 and assumes no changes in the volume or composition of debt.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of
Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b) Changes in
Internal Control over Financial Reporting.

During the third quarter of fiscal 2009, there were no changes that materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

See Part 1 
Item 1  Note 12  Commitments and Contingencies, to our Condensed Consolidated Financial Statements, which is incorporated by reference herein.



|Item 1A. | Risk Factors.
|-------- | -------------

The information presented below
includes any material changes to the description of the risk factors affecting our business as previously disclosed in Item 1A. to Part 1 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2008.

Our credit facility contains restrictive covenants and other requirements that may limit our business flexibility by imposing operating and financial restrictions on
our operations.

The agreement governing our credit facility imposes operating and financial restrictions on us, including restrictive
covenants that will require us to maintain specified financial ratios and satisfy financial condition tests. In addition, our credit facility contains various customary restrictive covenants that limit our ability to, among other things,
(i) incur additional indebtedness or guarantees, (ii) create liens or other encumbrances on our property, (iii) enter into a merger or similar transaction, (iv) sell or transfer property except in the ordinary course of business,
(v) make dividend and other restricted payments, (vi) make share repurchases and (vii) make acquisitions.

Our ability to
comply with the ratios or tests in our credit facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, ratios or tests could result in a default
under our credit facility. In addition, these covenants may prevent us from incurring additional indebtedness to expand our operations and execute our business strategy, including making acquisitions or share repurchases.

We have initiated discussions with the lead agent under our credit facility, and informed all of the other banks in our lending syndicate, that we intend
to seek relief in connection with our current leverage ratio financial covenant under our credit facility in advance of the 2009 fourth quarter measurement date. There is no guarantee that we will be able to amend the credit facility on terms
acceptable to us. Our failure to successfully amend our credit facility in advance of the 2009 fourth quarter measurement date, could result in a default under our credit facility. Such default may allow the creditors to accelerate the outstanding
debt. In addition, lenders may be able to terminate any commitments they had made to supply us with further funds which could adversely impact our ability to fund our operating expenses and to reinvest in our business to support future growth. Given
the uncertainty in the credit markets, there is no guarantee we would be able to enter into a new credit facility at current commitment levels or on terms acceptable to us and the failure to have a credit facility could have a material adverse
effect on our business, financial condition and results of operations. If we are able to amend the terms of our credit facility, such terms could result in an increased cost of borrowing, a reduction in the amount of credit available under the
facility and further restrictions on the operation of our business, included making dividend payments, each of which could have a material adverse effect on our business, financial condition and results of operations.

The credit market crisis may adversely affect our business and financial performance.

The credit markets have been experiencing unprecedented volatility and disruption causing many lenders and institutional investors to cease providing
funding to even the most credit worthy borrowers or to other financial institutions. The credit crisis could limit the ability of our financial partners to fund, securitize or sell the financial products that are made available to our
customers through our offices. The disruptions in the credit markets may also require us to take efforts to support our financial partners as we did in agreeing to make payments to MetaBank to offset loan losses significantly in excess of
MetaBanks projected losses it incurs related to one of the line of credit products it provides. If the credit crisis prevents our financial partners from providing financial products to our customers, limits the financial products offered or
results in us having to incur further financial obligations to support our financial partners, our revenues or profitability could decline. The cost and availability of funds could also adversely impact our franchisees ability to grow and
operate their businesses which could cause our revenues or profitability to decline. In addition, continued disruptions in the credit markets could adversely affect our ability to sell territories to new or existing franchisees, causing our
revenues or profitability to decline. Continued disruptions in the credit market could also negatively impact the ability of our lending syndicate to make funds available to us under our credit facility, or prevent us from successfully amending
our credit facility on terms acceptable to us, which could have a material adverse effect on our business, financial condition and results of operations. The terms of any amendment to our credit facility could result in an increased cost of
borrowing, a reduction in the amount of credit available under the facility and further restrictions on the operation of our business, included making dividend payments, each of which could have a material adverse effect on our business, financial
condition and results of operations.

Disruptions in our relationships with large retailers and shopping malls could negatively affect our growth and
profitability.

Our retail-partner locations are an important part of our location strategy. Our
ability to operate in these locations is dependent on our ability to negotiate favorable agreements with retailers and shopping malls and on the continued operation of these stores. Our agreements with retailers and shopping malls are of limited
duration, and we may not be able to renew them on similar terms or at all and many of these agreements are not exclusive. In addition, renewal of each individual location may be dependent of the conduct of the individual operator seeking to open a
Jackson Hewitt Tax Service office in the location. In the event we are unable to negotiate favorable agreements with these or comparable retailers or shopping malls or they close a significant number of stores, especially immediately prior to or
during the tax season, or our operators are unsuccessful in opening these locations, it could have a material adverse effect on our business, financial condition and results of operations. On March 11, 2009 we entered into an agreement with
Wal-Mart pursuant to which we were granted the exclusive right to provide tax preparation services within Wal-Mart stores during the 2010 and 2011 tax seasons. Our failure to successfully execute our operating plan under this agreement could have a
material adverse effect on our business, financial condition and results of operations.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities.
|------- | ------------------------------------------------------------------------------------------------------

Unregistered Sales of Equity Securities and Use of Proceeds:

There were no unregistered sales of equity securities during the three months ended January 31, 2009.

Issuer Purchases of Equity Securities:

There were no issuer purchases of equity securities during the three months
ended January 31, 2009.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

There were no
defaults upon senior securities during the three months ended January 31, 2009.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

There were no submissions of matters to a vote of security holders during the three months ended January 31, 2009.



|Item 5. | Other Information.
|------- | ------------------

Dividend

On March, 12, 2009, we announced that our Board of Directors had voted to suspend our $0.18 per share quarterly common stock
dividend.

Wal-Mart

On March 4, 2009, we announced that Wal-Mart had selected us to be the exclusive provider of tax preparation services in Wal-Mart stores beginning in the 2010 tax season. On March 11, 2009, JHI and TSA entered into the Kiosk License
Agreement (the Wal-Mart Agreement) with Wal-Mart Stores East, LP, Wal-Mart Stores, Inc., Wal-Mart Louisiana, LLC, Wal-Mart Stores Arkansas, LLC and Wal-Mart Stores Texas, LLC, pursuant to which we were granted the exclusive right to
provide tax preparation services within Wal-Mart stores during the 2010 and 2011 tax seasons. The Wal-Mart Agreement expires on May 30, 2011 and it may be renewed for three additional one-year terms upon the mutual agreement of the parties. The
Wal-Mart Agreement contains certain early termination rights and indemnity obligations.

Compensation to Wal-Mart consists of fixed license
fees for each Wal-Mart store in which a Jackson Hewitt Tax Service office operates, additional fees based on the number of tax returns prepared by each office in the applicable tax seasons and additional fees based on the preparation and filing of
tax returns through our on-line tax preparation software for customers who accessed such on-line tax preparation software via walmart.com (collectively, the Fees). Franchised offices operating Jackson Hewitt Tax Service offices in
Wal-Mart stores pursuant to the Wal-Mart Agreement are obligated under their Franchise Agreements with us to reimburse us for all Fees paid on their behalf by us to Wal-Mart.

Departure of Named Executive Officer

On March 12, 2009, Douglas K. Foster, the Companys Chief Marketing Officers employment was terminated.



|Item 6. | Exhibits.
|------- | ---------

Exhibits:We have filed the
following exhibits in connection with this report:



|     |  |                                                                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Kiosk License Agreement, dated March 11, 2009, between Wal-Mart Stores East, LP, Wal-Mart Stores, Inc., Wal-Mart Louisiana, LLC, Wal-Mart Stores Arkansas, LLC, Wal-Mart Stores Texas,
LLC, Jackson Hewitt Inc. and Tax Services of America, Inc.
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 12, 2009.



JACKSON HEWITT TAX SERVICE INC.By:

/s/ MICHAEL C. YERINGTONMichael C. YeringtonPresident and Chief Executive Officer(Principal Executive Officer)/s/ DANIEL P. OBRIENDaniel P. OBrienExecutive Vice President and Chief Financial Officer(Principal Financial Officer and Principal Accounting Officer)




38