jackson hewitt

Jackson Hewitt Tax Services expects that the number of tax returns prepared by the chain for the 2010 tax season will fall by 17 to 19 percent as the loss of funding for half of the company's refund anticipation loan program cut into financial results. The company also said results by the end of the fourth quarter ending April 30 would result in its violating financial covenants with its lender

In an earnings call this morning, the chain's CEO Harry Buckley said that markets in which RALS weren't available saw a 30-percent drop in returns prepared while those that had loans saw an 11-percent decline. The company reported revenue of $79.1 million, down 19.1 percent from $97.8 million for the third quarter ended January 31. The loss for the quarter was $279 million compared to net income of $20.9 million a year ago. The loss was largely caused by a $274.2 million charge for goodwill impairment which reflected the company's assessment of the decline in value of its company-owned stores and franchised operations.

The economy, combined with the loss of RAL funding, took their toll in a couple of ways, according to company studies. "In some of the survey work we’ve done, we have seen where people have gone to digital [preparation]. In areas where we were not offering RALs we saw where they were going to competitors," Buckley said. He also said that substantial growth in the number of independent preparers probably has had an impact.

While Jackson Hewitt did not violate financial ratios required by agreements with its lenders, it expect it will exceed the allowable ratios when the fourth quarter ends on April 30. "We will seek relief in connection with these financial covenants," said CFO Dan O'Brien. Jackson Hewitt does not expect to miss any debt payments. O’Brien said the company is looking its capital structure, but declined to discuss what actions might be considered. O'Brien is holding weekly meetings with lenders.

Meanwhile, the company shrank its location base as it closed more than 800 locations outside of Wal-Mart where it had expanded the number of locations. Franchisees closed 650 non-Wal-Mart locations with total locations down by 3 percent from the 2009 tax season.

The RAL difficulties stemmed from December's announcement by Santa Barbara Bank & Trust that the Office of the Comptroller of the Currency that the bank would not be allowed to offer a RAL program. Jackson Hewitt was able to secure funding from Republic Bank for half of its loan program.

Buckley said the RAL problem resulted in the company's halting the development of a new franchisee agreement in December but that it would proceed to work to complete a new agreement. About 25 percent of franchisee agreements are expected to expire before the end of calendar 2010.

The OCC had requested a meeting with Republic Bank and information from what executives termed a very small bank. However, Buckley said his original pessimism about the survival of RALs had improved as the OCC and the Federal Deposit Insurance Corp. appear to have changed their initial approach.

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
Last modified on Sunday, 02 June 2013
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