Form 10-Q

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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):

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.

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

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.

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.

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:

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:

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:

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.

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.

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.

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.

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.

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.

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

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

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

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:

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.

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.

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:

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

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:

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.

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:

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

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.

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

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:

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.

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.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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,

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.

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.

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.

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.

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.

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.

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.

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.

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

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

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

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

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 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.

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.

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 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:

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

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.

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

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 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.

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

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 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.

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

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 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.

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

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

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

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.

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

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

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.

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

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.

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.

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.

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.

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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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.

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.

See “Part 1 – Item 1 – Note 12 – Commitments and Contingencies,” to our Condensed Consolidated Financial Statements, which is incorporated by reference herein.

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.

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

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

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

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

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

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.

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

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

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. YERINGTON
		Michael C. Yerington
		President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ DANIEL P. O’BRIEN
		Daniel P. O’Brien
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)


		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


	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


	Three Months Ended January 31,						Nine Months Ended January 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


	Nine Months Ended January 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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company


	Three Months Ended January 31,						Nine Months Ended January 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	)


			Fair Value at Reporting Date Using
	Fair Value As of January 31, 2009		Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (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	$	—


	Franchise Operations		Company-Owned Office Operations			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


	As of January 31, 2009							As of April 30, 2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(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


	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


	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	%


	Number of TVOs		Weighted Average Exercise Price
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


	Number of TVOs		Weighted Average Grant Date Fair Value Per 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


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


	Number of PVOs		Weighted Average Exercise 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


	Number of PVOs		Weighted Average Grant Date Fair Value Per 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


	Number of TVRSs		Weighted Average Grant Date Fair Value
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


	Number of PVRSs		Weighted Average Grant Date Fair 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


	Franchise Operations		Company-Owned Office Operations		Corporate and 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


	Three Months Ended January 31,						Nine Months Ended January 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	)


	Three Months Ended January 31,						Nine Months Ended January 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


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.