Jackson HewittJackson Hewitt Tax Service, which got refund loan backing for only half its operations during the 2010 tax season, expects to have an agreement for full funding by September 15. The company made that announcement during its first-quarter conference call this morning. Having 100-percent funding is required by its new lending agreement, which mandates the chain notify lenders by that date. Jackson Hewitt also expects obtaining full funding will be crucial to franchisees deciding to accept a new franchisee agreement, which was completed this week.

CFO Daniel O'Brien said that it is possible the tax preparation chain would have to ask for an extension, which had already been contemplated in discussions with vendors. The company is required to present a letter about arrangements to lenders by mid-month. Failure to find funding could trigger a default on Jackson Hewitt's borrowings.

"We expect we will have the required letter in effect," he said. The company anticipates that Republic Bank will provide 50 percent of refund loan funding for the 2011 tax season as it did this year. During the 2010 tax season, funding was available only for 50 percent of stores after the chain had to find a new backer following the forced exit of Santa Barbara Bank & Trust from the RAL business. Lack of RALs caused customers to turn to other tax preparers and drove down tax season revenue.

The company declined to provide details of the franchise agreement until those have been presented to store operators. However, CEO Harry W. Buckley said the new agreement provides incentives to help store operators improve performance.

That came as the chain reported lost $19.2 million in the first quarter ended July 31, down from a loss of $21.8 million a year earlier. Revenue was also down, falling to $4.4 million 12 percent from $5 million in last year's corresponding period. The company typically loses money in this quarter and it said that less than 3 percent of operating revenue comes from the first and second quarters.

Although Jackson Hewitt trimmed expenses during the July quarter, the results were helped substantially due to the absence of two charges that were reported a year earlier. In the first quarter of fiscal 2010, there was a $4.3 million charge in connection with the departure of former CEO Michael C. Yarrington in June 2009. There was also a $1.6 million drop in external legal fees from last year.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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