UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number: 1-32215

Jackson Hewitt Tax Service Inc.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Act: None.

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates as of October 31, 2004 was $789.0 million, based on the last sales price of the registrant's common stock reported on the New York Stock Exchange on that date.

        The number of shares outstanding of the registrant's common stock was 37,282,533 (net of 417,300 shares held in treasury) as of June 30, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

        The definitive proxy statement relating to the registrant's 2005 Annual Meeting of Stockholders, to be held on September 20, 2005, is incorporated by reference into Part III of this report.

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS

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PART I

FORWARD-LOOKING STATEMENTS

        Certain statements in this report, including but not limited to those contained in "Part I. Item 1—Business", "Part I. Item 2—Properties", "Part I. Item 3—Legal Proceedings", "Part II. Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II. Item 8—Consolidated Financial Statements and Supplementary Data" and notes thereto 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 achieve the same level of growth in revenues and profits that we have in the past; government initiatives that simplify tax return preparation, improve the timing and efficiency of processing tax returns or decrease the number of tax returns filed or the size of the refunds; government legislation and regulation of the tax preparation industry and related products and services offered or facilitated, including refund anticipation loans ("RALs"); our exposure to litigation; our ability to protect our customers' personal information; the success of our franchised offices; our responsibility to third parties for the acts of our franchisees; disruptions in our relationships with our franchisees; changes in our relationships with financial product providers that could affect our ability to facilitate the sale of financial products; changes in our relationships with retailers that could affect our growth and profitability; seasonality of our business and its effect on our stock price; competition from tax return preparation service providers; our ability to offer innovative new products and services; our reliance on electronic communications to perform the core functions of our business; our reliance on cash flow from subsidiaries; our compliance with credit facility covenants; our exposure to increases in prevailing market interest rates; the effect of market conditions, general conditions in the tax return preparation industry or general economic conditions; and changes in accounting policies or practices.

        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.

ITEM 1.    BUSINESS.

Business Overview

        Jackson Hewitt is the second largest paid tax return preparer in the United States based on the number of individual tax returns filed by paid preparers. In 2005, we operated a nationwide network comprised of 4,871 franchised offices and 613 company-owned offices under the Jackson Hewitt Tax Service® brand. In 2005, our network filed 3.3 million tax returns, which we estimate represented less

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than 5% of the total individual paid tax return preparer industry in the United States. We generate revenues from fees paid by our franchisees, service revenues earned at company-owned offices and revenues earned in connection with our facilitation of the sale of financial products. "Jackson Hewitt," "we," "our," and "us," are used interchangeably to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

        On June 25, 2004, Cendant Corporation ("Cendant") divested 100% of its ownership interest in us through an initial public offering ("IPO"). We did not receive any proceeds from the sale of our common stock by Cendant. In contemplation of our IPO, we declared a stock dividend, which increased the number of common shares outstanding from 100 to 37,500,000.

        In 2005, our total revenues were $232.5 million, which were generated from revenues from franchisees including royalty and marketing and advertising fees and other revenues (43% of total revenues), service revenues including tax return preparation and related service fees provided at company-owned offices (27% of total revenues), and fees and other revenues received from financial institutions in connection with our facilitation of the sale of financial products (30% of total revenues). Because of the higher profit margins inherent in the franchise model, our franchise revenues contribute a higher percentage of our income from operations than those of our company-owned offices.

        The core of our business is our franchise system. Royalty and marketing and advertising fees are, collectively, our largest and fastest growing source of revenues. In 2005, revenues from royalty and marketing and advertising fees were $86.8 million. We earn royalty and marketing and advertising revenues, which represent a fixed percentage of the revenues received by our franchisees, for which we provide support and services, as well as national and regional advertising programs, designed to increase their revenues. Our franchise model enables us to grow more quickly with less capital investment and lower operating expenses than if we directly operated all of the offices in our network. Tax returns filed by our franchised offices represented 88% of the total number of tax returns filed by our network in 2005.

        Complementing our franchise system are our company-owned offices. Service revenues from our company-owned offices were $63.0 million in 2005. Company-owned offices provide us with the opportunity to demonstrate the benefits of new products and services develop and implement new initiatives that may be made available to our franchise system. Tax returns prepared by our company- owned offices represented 12% of the total number of tax returns prepared by our network in 2005.

        Annual income tax refunds represent an important source of funds for many of our customers. As a result, those customers typically file their tax returns early in the tax season, shortly after Form W-2s are available, in order to receive their income tax refunds as quickly as possible. In 2005, approximately 74% of our customers filed their tax returns by the end of February. These customers are referred to as early-season filers. To meet the needs of early-season filers, we provide convenient tax return preparation services and electronic filing of tax returns. We also facilitate the sale of financial products such as RALs.

        In 2005, our customers purchased 3.1 million financial products in conjunction with having their tax returns prepared by our network. Of these financial products, 1.2 million were RALs. We earn revenues in connection with our facilitation of the sale of financial products.

Industry Overview

        According to the Internal Revenue Service ("IRS"), approximately 132 million individual tax returns were filed in the United States in 2004. Of these tax returns, 79 million, or 60%, were prepared with the assistance of a paid tax return preparer. In 2004, H&R Block was the largest paid tax return preparer, with an approximate 20% share, and Jackson Hewitt was the second largest, with an approximate 4% share. We believe that no other paid tax return preparer has greater than an

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approximate 1% share. Excluding H&R Block and us, the paid tax return preparer industry represents approximately 60 million annual tax returns and is highly fragmented, consisting of tens of thousands of paid tax return preparers.

        The increasing use of electronically-filed tax returns has been a significant development for taxpayers and the tax return preparation industry. To reduce administrative costs, the IRS has set a target of increasing the number of tax returns filed electronically to 80% by 2007. Through April 30, 2005, 55% of tax returns were filed electronically. Our network filed 90% of our tax returns electronically in 2005, making us a leader in electronic filing. We believe that taxpayers have an incentive to file electronically because of the associated benefits, including acknowledgment of receipt of the filing, better accuracy and faster refund processing.

Customer Segments

        The table below shows the breakdown of tax returns filed in 2004 by adjusted gross income ("AGI"), for all individual tax returns in the United States and tax returns filed by us.

        In 2005, approximately 40% of all tax returns filed with the IRS were filed by the end of February, representing early-season filers. In 2005, 98% of our early-season filers were eligible to receive a refund. Reflecting their focus on speed, approximately 84% of our early-season filers in 2005 purchased a refund-related financial product. Our late-season filers tend to have a higher AGI on average and are less concerned with the early receipt of their refunds, leading to a lower penetration rate for financial products; approximately 39% of our late-season filers purchased a refund-related financial product in 2005. Late-season filers also tend to have more complex tax return preparation needs, which typically generate higher tax return preparation fees.

Business Description

Tax Return Preparation Services

        Our network provides our customers with fast and accurate tax return preparation services and electronic filing. We provide one of the most comprehensive computerized individual tax return preparation services in the industry. Our tax return preparation process is designed to ensure accuracy at each step. We use our software, ProFiler®, which features built-in error detection, to prepare customers' tax returns. We also check tax returns through our systems before electronically filing our customers' tax returns with the IRS and the appropriate state departments of revenue. The cost of the tax preparation service is generally based upon the complexity of the tax return. We offer our customers the option of receiving their tax refund directly from the IRS, or if they prefer, we also offer our customers various financial products to suit their needs.

        We believe that customers choose Jackson Hewitt Tax Service offices because: (i) our offices are conveniently located; (ii) our customers prefer not to prepare their own tax returns; (iii) our customers wish to obtain funds associated with their tax refunds quickly; (iv) our products and services are priced competitively; and (v) our customers find value in our services and our brand.

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Financial Products

        We facilitate the sale of financial products, certain of which enable our customers to have access to funds more quickly than if they filed their tax returns on their own and waited to receive a tax refund directly from the IRS. Many of these products also enable our customers to have their tax returns prepared by us with no cash outlay at the time of filing. To obtain these products, our customers typically pay fees and charges to the financial institution providing the financial product, and in certain cases, a fee to franchisees and company-owned offices. Most of the financial products offered to our customers are provided by Santa Barbara Bank & Trust, a division of Pacific Capital Bank, N.A. ("SBB&T") and Household Tax Masters, Inc. ("Household").

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RALs.    Our customers may apply for loans in the amount of and secured by their anticipated federal income tax refunds up to a certain maximum determined by the lending bank. For 2005, the maximum RAL offered was $7,000. The loan amount, less applicable fees and charges, are generally disbursed to customers within one to three days from the time their tax returns are electronically filed with the IRS. RALs are offered to our customers through contractual arrangements with our financial institution partners, SBB&T and Household.



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Money Now^SM Loans.    If our customer elects to apply for a RAL, our customer may also apply for a Money Now loan. A Money Now loan provides qualifying customers with the ability to receive an unsecured advance loan on their applied for RAL. For 2005, the maximum Money Now Loan offered was $1,100. The loan amount, less applicable fees and charges, are available to the customer on the same day that the customer's tax return is filed with the IRS. Money Now Loans are offered to customers by the same financial institution providing the customer with the RAL.



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Accelerated Check Refunds ("ACRs").    ACRs are available to our customers to provide them with the ability to receive their federal and state income tax refunds quickly, even though they do not have a bank account for the IRS to directly deposit a refund check, and they wish to have their tax preparation and other fees and charges withheld directly from their tax refund. With an ACR, a customer's tax refund is deposited by the taxing authority directly into a bank account established for this purpose by the financial institution partner. A bank check in the amount of the tax refund, less applicable fees and charges, is directly dispensed to the customer generally within two to three weeks of filing their tax returns. An ACR is not a loan. Customers that apply but are not approved for a RAL receive an ACR.



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Assisted Direct Deposits ("ADDs").    ADDs are available to our customers to provide them with the ability to receive their federal and state income tax refunds direct deposited into their own bank account, but wish to have their tax preparation and other fees and charges withheld directly from their tax refund. With an ADD, a customer's tax refund is deposited by the taxing authority directly into a bank account established for this purpose by the financial institution partner. The financial institution then directly deposits the amount of the tax refund, less applicable fees and charges, into the customer's own bank account. An ADD is not a loan.



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Holiday Express Loan Program® ("HELP").    HELP® is an unsecured loan offered by our financial institution partners through our offices during the months of November and December. In November and December 2004, the maximum loan offered was $575.



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Jackson Hewitt CashCard®.    The Jackson Hewitt CashCard is a MasterCard-branded debit card that provides the customer with an alternative to receiving a check when a customer chooses certain financial products. Customers may use the card to obtain cash at many automated teller machines or to make retail purchases at most locations that accept MasterCard.



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Gold Guarantee®.    Gold Guarantee is an extended warranty that a customer may purchase whereby we agree to pay up to a certain amount for any additional taxes owed if our tax return

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preparer makes an error in preparing the customer's tax return, subject to certain exclusions. For 2005, the Gold Guarantee limit was $6,000. The Gold Guarantee is in addition to our Basic Guarantee that we provide with each paid tax return preparation which covers penalties and interest in the event our tax return preparer makes an error in preparing the customer's tax return, subject to certain exclusions.

        We continue to work with our financial partners to develop and offer additional products designed to attract and retain customers and generate incremental revenues.

Business Strategy

        Our business strategy is to grow our revenues and net income through six strategic initiatives: (i) increase the number of offices in our network; (ii) increase the number of tax returns filed by our existing offices; (iii) increase our profitability by using our franchise model; (iv) increase the profitability of company-owned offices; (v) offer innovative financial products; and (vi) expand into new markets.

Offices

        Our core business strategy is to expand the number of offices in our network each year. We attempt to accomplish this goal by increasing offices in existing territories, including through retail locations, and through franchise sales of new territories.

        Increase penetration of existing markets.    Within territories our network currently serves, we believe we have the opportunity to increase the number of offices significantly without saturation. In 2005, our existing territories were largely under-penetrated, with only 25% of our territories having reached our target of at least three offices per territory. On average, we had 1.9 offices per territory in 2005.

        Expand our presence in the retailer channel.    We currently have relationships with national and large regional retailers and shopping malls, including Wal-Mart Stores, Inc. ("Wal-Mart"), KMart Corporation, Simon Property Group, and General Growth Property, Inc. and other chains, whose customer demographics overlap with ours. Our agreements with these retailers allow Jackson Hewitt Tax Service offices to be located within the retail stores in high-traffic areas during the tax season at relatively modest costs. During 2005, our network had approximately 1,600 offices in retailer locations nationwide, including approximately 1,200 in Wal-Mart stores. We continually pursue similar opportunities with other retailers to expand our network of offices.

        Franchise sales.    We attempt to increase the number of our franchised offices each year through the sale of new franchises. We divide the country into specific territories. Most territories have a population of more than 50,000. We have identified a total of approximately 4,600 territories in the United States of which approximately 1,600 territories, or 35%, remain available to expand our network. We focus on selling new territories to high-quality franchisees already in our franchise system and to tax preparers or entrepreneurs new to our franchise system.

        Conversions.    Conversions of third party tax return preparation businesses to Jackson Hewitt Tax Service offices present the opportunity for established tax preparation businesses to join our franchise system. Conversions involve both independent tax return preparers joining our franchise system directly and our existing franchisees acquiring these companies. Through conversions, we are able to add a mature base of customers to our franchise system. Typically, we will provide funds to the franchisee to convert the business to a Jackson Hewitt Tax Service office. Conversions added 50 offices and approximately 31,000 tax returns to our network in 2005.

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        Acquisitions.    Through acquisitions we add established third-party tax return preparation businesses to our company-owned office network. In 2005 we completed four acquisitions adding seven offices and approximately 9,000 tax returns to our operational results.

Tax Returns

        We attempt to increase the number of tax returns filed in our network's existing offices through customer acquisition and customer retention. In 2005, we increased same-store tax return volume by 2%, despite limited growth in the overall market for tax returns filed by paid tax return preparers. We attribute this growth to office maturation, operational improvements and improved marketing efforts, including sponsorships and increased marketing to late-season filers.

        Our experience indicates that mature offices generally outperform newer offices. More mature offices increase the number of tax returns prepared by building brand awareness and customer recognition in a given location, improving tax preparer productivity, reinvesting in and expanding office operations and capturing new and retaining existing customers. In 2005, we increased the number of offices in our network by 549 (net of office closings of 334) and 54% of our network's current offices have been a part of our network for fewer than five years. The following chart identifies the average number of tax returns prepared by offices in our network in 2005 at various maturity levels:

        Customer acquisition and retention.    Our customer focus is the hourly worker, large employers and specific occupational categories that fit our core demographic. While our core customers remain early-season filers, we continue to increase our efforts to reach more late-season filers. In 2005, our network prepared approximately 829,000 tax returns during the period from March 1st through April 15th, as compared to approximately 760,000 tax returns for late-season filers during the comparable period in the prior year. We also focus on retaining existing customers who have previously used our services and products. Our customer retention efforts include enhancing our product offering, improving customer service, and maintaining office appearance.

        Brand recognition.    We intend to increase our share of the tax preparation industry by focusing our advertising and marketing efforts on improving the recognition of the Jackson Hewitt Tax Service brand name with targeted national, regional and local marketing.

        Improve operational efficiencies.    We also focus on making operational and functional improvements to increase productivity, capacity and the volume of tax returns prepared. Our managers assist our franchisees in office site selection to maximize traffic flow and improve operations and managerial decision-making. Functional improvements include upgraded system performance to increase productivity, management tools to increase the volume of tax returns prepared and operational efficiencies and improved tax return preparer training to increase retention of seasonal tax preparers and enhance quality of service.

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Franchise Operations

        Franchise Development.    Our historical growth has been largely attributable to the expansion of our franchise system. In 2005, we sold 219 new territories and increased the number of our franchised offices by 541.

        The franchise model has an inherently higher profit margin than that of our company-owned offices, as our existing infrastructure permits additional franchise growth without significant additional fixed cost investment. We therefore intend to continue to adopt and explore management initiatives that promote growth and improve our technology infrastructure, product offering and marketing efforts. These initiatives have generated significant increases in franchisees' revenues.

        We attempt to grow our franchise operations through the development of our existing franchisee relationships and through the selective recruitment of new franchisees. In addition, we are actively engaged in an effort to add new franchisees through our conversion program.

        We believe that our franchise arrangements provide incentives to franchisees to increase the number of offices in their territory, because we charge an initial franchise fee of up to $25,000 for a territory and do not charge this fee again when a franchisee adds new offices within its territory. In addition, our franchise agreement establishes performance standards for franchisees. These performance standards give our franchisees an incentive to invest in their growth and increase their market penetration.

        We believe franchisees are attracted to us because we: (i) are a well-known, national franchise; (ii) facilitate the sale of financial products sought by customers; (iii) offer low-cost financing and start-up costs are relatively low; (iv) have a reputation for quality; (v) provide marketing and advertising support; and (vi) have been recognized as an outstanding franchise opportunity by Entrepreneur magazine.

        In 2005, Entrepreneur magazine named us as one of the top four franchise opportunities. In 2005, approximately 77% of our sales of territories were sold to our existing franchisees and the remaining territories were sold to new franchisees. For our recruitment of new franchisees, we advertise in select publications that target entrepreneurs who are interested in new franchise opportunities. We also respond to inquiries from potential franchisees that contact us through our website or are referred to us by our existing franchisees.

        The Franchise Agreement.    Under the terms of our franchise agreement, each franchisee receives the right to operate Jackson Hewitt Tax Service offices within their designated geographic territory. Franchisees are permitted to operate as many offices within a specified territory as they choose. The term of our typical franchise agreement is 10 years. In 1999 and 2000, we offered our franchisees the opportunity to renew their franchise relationship with us before their franchise agreement expired. In this early renewal program, 93% of our franchisees entered into our new franchise agreement for a new 10-year term, and, less than 1% of our franchise agreements come up for renewal before 2009.

        Upon executing the franchise agreement, the franchisee is required to pay an application fee and an initial franchise fee. We will, at our discretion, finance a portion of the initial franchise fee. In addition, our franchise agreements require new franchisees to pay us royalties equal to 15% of their revenues (12% for most franchises who joined our network before 2000 and who signed a new franchise agreement under our early renewal programs) and marketing and advertising fees equal to 6% of their revenues. We also charge franchisees a $2.00 fee for each tax return that they file electronically with the IRS.

        Pursuant to our franchise agreements, we may spend in any year an amount greater or less than the aggregate contributions of marketing and advertising fees for that year. We may carry over unused marketing and advertising fees from year to year, and we are under no obligation to refund any

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unspent marketing and advertising fees to our franchisees if their franchise agreements terminate or expire.

        We require our franchisees to maintain required levels of business standards and customer service in various aspects of conducting their business, including in their choice of office location, office appearance, equipment and computer hardware, employee training, customer service and minimum opening hours. Each franchisee must obtain and continuously maintain the proper permits and certificates required by law, including an Electronic Filing Identification Number required in order to file federal and state tax returns electronically, as well as conduct its business in compliance with applicable laws. We monitor the quality of service, office appearance, accuracy of tax returns and training of personnel for all Jackson Hewitt offices.

        Franchisee Support.    We provide our franchisees with services designed to increase their revenues, including training, administrative support, access to our proprietary ProFiler tax return preparation software and financial products, product development, quality assurance, toll-free tax preparer support service and a dedicated field staff to advise and monitor their business. We also provide our franchisees assistance with their marketing programs, the advantage of being linked to a toll-free office locator service and information based on our market research. We believe that our franchise system gives our franchisees a competitive advantage over other local and regional tax services in their market.

        We believe our ProFiler software and support enable our franchisees to retain existing customers once marketing efforts have helped to bring them into their offices. The technological backbone of our operating system is our ProFiler software, which offers both an interview-based and a forms-based tax return preparation system. The forms-based aspect of ProFiler allows for easier integration of acquired and converted tax return preparation businesses and allows our network to attract experienced tax return preparers as employees. ProFiler also enables franchised office managers to view reports that allow them to better manage the office. Developing, monitoring and updating our software are all services we provide to our franchisees.

        We offer extensive training courses including initial franchisee training and ProFiler training for new franchisees as well as more advanced training for general managers of our large operators. Throughout the year, we offer numerous workshops that address such topics as how to train tax return preparers, tax updates, recruiting and staffing, new product updates and local advertising. We prepare and update our course materials as necessary. Our training department develops computer-based training courses on a number of tax-related topics and distributes them to our franchisees. Additionally, we provide each franchisee with field support to aid in site selection, market analysis and business strategies. We also provide access to a franchise service manager at our corporate headquarters who is available to provide information on research, updates and upcoming events. By joining our network, a franchisee is also given the opportunity to benefit from our buying power through our vendor relationships.

Company-Owned Offices

        In 2002, we began our company-owned operations strategy by acquiring some of our largest franchisees. Since then, we have continued to expand this operation by acquiring independent tax preparation businesses. These operations are held by Tax Services of America, Inc. ("TSA"), a wholly owned indirect subsidiary of Jackson Hewitt Tax Service Inc. While we will continue to pursue acquisition opportunities for our company-owned office network, we are focused primarily on organic growth through the opening of new company-owned offices within existing territories as well as increasing office productivity. We intend to improve the profitability of our company-owned offices by taking advantage of our previous investments in infrastructure.

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Seasonality

        Given the seasonal nature of the tax preparation business, we have generated and expect to continue to generate substantially all our revenues during the tax season period from January through April of each year. In 2005, we generated approximately 91% of our revenues during this period. We generally operate at a loss from May through December, during which we incur costs associated with preparing for the upcoming tax season.

Marketing and Advertising

        In 2005, we incurred $33.0 million in marketing and advertising expense, including national, regional and local campaigns designed to increase brand awareness and attract both early-season and late-season filers. Our marketing efforts include national advertising and sponsorships, regional advertising and partnering with large, high-traffic retailers to drive customer awareness and increase customer traffic. The national advertising program targets early-season and late-season filers through network television advertisements, direct mail marketing, promotions and sponsorship of sports organizations whose fan base closely mirrors our core customer demographic group, including the Professional Bowlers Association and the NASCAR Nextel Cup Series. At the regional level, we customize marketing plans in all of our key markets, using primarily spot and cable television, radio, direct mail and outdoor advertising.

Tax Courses

        We offer income tax courses in many states as a way of developing interest in tax preparation in general and create public awareness of our brand. In addition, many of the individuals taking these courses develop an interest in tax preparation as a career and often become tax preparers for franchisees or our company-owned offices.

New Markets

        One of our long-term strategies is to expand into markets with income tax systems similar to that of the United States, such as in Canada and Puerto Rico. We also plan to develop products and services to capture customers in the growing online segment. These initiatives are still in an early stage and we continue to review them in light of changing business conditions. We may change our plans, and future developments could differ from those we intend or expect to occur.

Intellectual Property

        We regard our intellectual property as critical to our success, and we rely on patent, trademark, copyright and trade secret laws in the United States to protect our proprietary rights. We pursue the protection of our trademarks by applying to register the trademarks in the United States. In addition, we seek to protect our proprietary rights through the use of confidentiality agreements with employees, consultants, advisors and others.

        We have obtained federal trademark registration of a number of marks, including Jackson Hewitt®, Jackson Hewitt Tax Service, Gold Guarantee, Get More in Return®, Jackson Hewitt CashCard, HELP, Holiday Express Loan Program, ProFiler and SuperFast Refunds®. We also assert a common law right to Money Now.

Employees

        As of April 30, 2005, we employed 377 full-time employees, consisting of 131 employees at our corporate headquarters located in Parsippany, New Jersey, 146 employees at our technology facility located in Sarasota, Florida, 75 employees at our company-owned offices and 25 other full-time

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employees. In addition, our company-owned offices employed approximately 5,200 seasonal employees during 2005.

Competition

        Our business focuses on two customer bases: the consumer of our tax return preparation services and the individual or other entity ready to operate a Jackson Hewitt Tax Service franchise. We believe the basis for competition for consumers of our tax return preparation services includes product mix, price, service and a reputation for quality. Our network competes with tens of thousands of paid tax return preparers, including H&R Block, the largest tax preparation service company, Liberty Tax Service, regional and local tax return preparation companies, most of which are independent and some of which are franchised, and regional and national accounting firms and financial service institutions that prepare tax returns as part of their businesses. We also face competition from the Free File Alliance, a consortium of the IRS and online preparation services that provides free online tax preparation and filing and from volunteer organizations that prepare tax returns at no cost for low-income taxpayers. Our ability to compete in the tax return preparation business depends on the geographical area, specific site location, local economic conditions, quality of on-site office management, the ability to file tax returns electronically with the IRS and our ability to facilitate our customers' obtaining financial products.

        We also compete for the sale of tax preparation franchises with H&R Block, Liberty Tax Service and other regional franchisors. To some extent, we also compete with franchisors of other high-margin services that attract entrepreneurs seeking to become franchisees.

Regulation

        We and our franchisees must comply with laws and regulations relating to our business. Regulations specific to our business are described below.

Tax Return Preparation

        Federal legislation requires tax preparers to, among other things, set forth their signatures and identification numbers on all tax returns prepared by them, and retain for three years all tax returns prepared. Federal laws also subject tax preparers to accuracy-related penalties in connection with the preparation of tax returns. Preparers may be enjoined from further acting as tax preparers if they continually or repeatedly engage in specified misconduct. Additionally, all authorized IRS e-file providers must adhere to IRS e-file rules and requirements to continue participation in IRS e-file. Adherence to all rules and regulations is expected of all providers regardless of where published, and includes, but is not limited to, those described in IRS Publication 1345, Handbook for Authorized IRS e-file providers.

        With certain exceptions, the IRS prohibits the use or disclosure by income tax preparers of income tax return information without the prior written consent of the taxpayer. In addition, the Gramm-Leach-Bliley Act and related Federal Trade Commission regulations require income tax return preparers to adopt and disclose consumer privacy policies, and provide consumers a reasonable opportunity to opt out of having personal information disclosed to unaffiliated third parties for marketing purposes. Some states have adopted or proposed stricter opt-in requirements in connection with use or disclosure of consumer information.

        The IRS requires any tax return preparer with respect to any tax return or claim for refund who fails to comply with due diligence requirements imposed by regulations with respect to determining eligibility for or the amount of the earned income tax credit to pay a penalty of $100 for each failure. We have put systems and processes in place to comply with this due diligence obligation.

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Financial Product Regulation

        Federal and state statutes and regulations, as well as certain municipalities, regulate our facilitation of RALs. These laws require us, among other things, to clearly explain that the RAL is a loan and not a substitute for, or a quicker way of receiving, an income tax refund. These laws may also place restrictions on the fees we may charge in connection with our facilitation of RALs and the disclosures required in connection with offering RALs. Certain states are also interpreting existing laws in a manner that could effectively limit the annual percentage rate on RALs or restrict our ability to receive fees in connection with these loans. There are also many states that have statutes regulating, through licensing and other requirements, the activities of brokering loans, providing credit services and offering credit repair services to consumers.

        If, in any particular state, RALs made to our customers were actually held to be subject to local usury laws or reduced fees because our assistance rendered us a loan broker under state law, or if additional regulation was passed with respect to RALs, then the transactions could be less attractive to the financial institution and could affect our compensation from that financial institution in that state.

        The Federal government also regulates our financial partners with respect to the offering of financial products such as RALs.

        In addition, we are subject to federal and state laws that govern the marketing of our services and the financial products we facilitate. These laws prohibit deceptive claims, and require that our marketing practices are fair and not misleading.

        Many states have statutes requiring the licensing of persons offering contracts of insurance. We have received inquiries from certain state insurance regulators about our Gold Guarantee program and the applicability of the state insurance statutes. In those states where the inquiries are closed, the regulators affirmed our position that the Gold Guarantee is not a contract of insurance and is therefore not subject to state insurance licensing laws.

        In March 2003, the Attorney General's Office of the State of California ("California Attorney General") initiated an inquiry into our business practices. The California Attorney General has requested information about industry practices in general and our practices specifically. We have been in discussions with the California Attorney General. Areas of discussion include, but are not limited to, the manner in which services are marketed, and financial products are facilitated. The California Attorney General has expressed concerns that certain business practices may violate law. Given the status of the inquiry, we are not in a position to predict the likely outcome, or the financial cost or impact on business practices, of this inquiry.

Franchise Regulations

        Our franchising activities are subject both to federal and state laws and regulations. Federal Trade Commission Trade Regulation Rules requires a franchisor to provide information in specific areas in a specific format. This information is contained in an offering circular. This regulation also permits a franchisor to prepare an offering circular in accordance with the format designed by the North American Securities Administrators Association, called the Uniform Franchise Offering Circular ("UFOC"). We have selected the UFOC format for our franchise offering circular because it is accepted in all states with franchise registration and disclosure laws, eliminating the need to prepare multiple forms of offering circulars.

        Federal regulation governs franchisor conduct in all states; however, certain states have enacted state franchise investment laws or franchise registration and disclosure laws as well. The federal regulation permits state laws to govern franchising if they provide protection that is equal to or greater than that provided by federal regulation. Most of these state laws require franchisors to provide specific information to franchisees, generally in the UFOC format or with state-specific modifications to the UFOC format. As a general rule, these formats are similar to the UFOC and impose no significant

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additional requirements on franchisors. Most state laws provide a franchisee with a private right of action to seek direct recourse against a franchisor, in addition to administrative penalties, if a franchisor fails to comply with a state's franchising laws.

        The Federal Trade Commission Trade Regulation Rules, the state franchise investment laws and the UFOC format require a franchisor to update its offering circular to include new financial statements. Federal regulation and the UFOC format also require a franchisor to update its offering circular in the event of material changes, such as significant changes in financial condition, changes to major fee structures, or changes in business opportunities being offered.

Tax Course Regulations

        Certain states have regulations and requirements relating to the offering of income tax courses. These requirements may include licensing, bonding and certain restrictions on advertising. Failure to obtain or maintain the appropriate license could affect our revenues and limit our ability to develop interest in tax return preparation as a career.

Risks Factors

        We may not achieve the same levels of growth in revenues and profits in the future as we have in the past.

        Historically, our business has experienced rapid growth in the number of franchises, office locations and revenues. Our ability to continue to grow our business will be subject to a number of risks and uncertainties and will depend in large part on: (i) finding new opportunities in our existing and new markets; (ii) continuing to facilitate the sale of financial products; (iii) attracting capable franchisees; (iv) hiring, training and retaining skilled managers and seasonal employees; (v) expanding and improving the efficiency of our operations and systems; and (vi) maintaining cost, quality and product innovation to attract customers.

        Accordingly, we may not achieve the same levels of growth in revenues and profits as we have historically.

Because demand for our products is related to the complexity of tax return preparation, government initiatives that simplify tax return preparation or reduce the need for a third party tax return preparer may decrease demand for our financial products and services.

        Many taxpayers seek assistance from paid tax return preparers such as Jackson Hewitt because of the level of complexity involved in tax return preparation and filing. From time to time, politicians and government officials propose measures seeking to simplify the preparation and filing of tax returns or provide additional assistance with respect to preparing and filing such tax returns. The passage of any measures that significantly simplify tax return preparation or reduce the need for a third party tax return preparer may be highly detrimental to our business.

Initiatives that improve the timing and efficiency of processing tax returns could reduce the attractiveness of the financial products offered to our customers and demand for our services.

        Our performance depends on our ability to offer access to financial products that increase the speed and efficiency by which our customers can receive funds associated with their tax returns. The federal government and various state and local municipalities have, from time to time, announced initiatives designed to modernize their operations and improve the timing and efficiency of processing tax returns. If tax authorities are able to increase the speed and efficiency with which they process tax returns, the value and attractiveness of the financial products offered to our customers and demand for our services could be reduced.

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Changes in the tax law that result in a decreased number of tax returns filed or a reduced size of tax refunds could harm our business.

        Over the past three years, on average, approximately 93% of our customers were entitled to receive a tax refund. From time to time, the United States Treasury Department and the IRS adopt policy and rule changes and other initiatives that result in a decrease in the number of tax returns filed or reduce the size of the tax refunds. Similar changes in the tax law could reduce demand for our products and services, causing our revenues or profitability to decline.

The Federal government and State and local legislators have increasingly taken an active role in regulating RALs and the continuation of such trend could impede our ability to facilitate the sale of RALs and reduce our profitability.

        In 2005, approximately 28% of our total revenues were directly or indirectly derived from the facilitation of RALs by our network. Because RALs are short-term loans, their effective annual percentage rate is relatively high compared to other consumer loans. Several bills have been proposed at the Federal level as well as in various states and municipalities proposing to regulate the facilitation of RALs. Certain of the proposed legislation, could, if adopted, increase costs to us, our franchisees and the financial institutions that provide our financial products, or could render RALs too costly to market.

        Consumer advocacy groups have increasingly called for a legislative and regulatory response to the perceived inequity of these types of loans. One consumer group has proposed model legislation and advocates adoption by various states of regulations that would place significant limitations on annual percentage rates and impose costly bonding requirements, among other things.

        In addition, various jurisdictions such as Connecticut, the City of New York, Illinois, Minnesota, Nevada, North Carolina, Oregon, Washington and Wisconsin have imposed regulatory restraints on the marketing of RALs. These restraints include requirements regarding specific disclosures that must be made to customers. We operate in each of these jurisdictions.

        Some states, such as Massachusetts and Mississippi, have interpreted existing loan broker and similar statutes to apply to RALs. While we currently operate, and plan to continue to operate, in these states, we and our franchisees are and will be restricted in our ability to receive fees based upon the RALs facilitated in such states.

Our failure to comply with legal and regulatory requirements, particularly those applicable to the facilitation of tax refund related financial products, could result in substantial sanctions against us which would harm our profitability and reputation.

        Our tax return preparation business, franchise operations, and our facilitation of the sale of financial products are subject to extensive regulation and oversight in the United States by the IRS, the Federal Trade Commission, and by state regulatory and law enforcement agencies. Certain states, such as Maryland, Massachusetts and Mississippi, have publicly expressed a concern that paid tax preparers facilitating RALs are subject to loan broker statutes. Loan broker statutes vary from state to state, but typically require paid tax return preparers to register with local regulatory authorities and pay a licensing fee. Loan broker statutes, if applicable, also typically subject brokered loans, such as RALs, to lower state usury requirements and reduced fees. If, in any particular state, RALs made to our customers were actually held to be subject to local usury laws or reduced fees because our assistance rendered us a loan broker under state law, then the transactions could be less attractive to the financial institution and our compensation from the financial institution in connection with the program in that state could be reduced.

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        In 2004, we settled a complaint by the New York City Department of Consumer Affairs and paid a $125,000 fine and contributed $100,000 to New York City's EITC Campaign, a program to raise public awareness of the earned income tax credit, relating to charges that we played a part in promoting RALs in a way that was confusing to customers.

        In March 2003, the California Attorney General initiated an inquiry into our business practices. The California Attorney General has requested information about industry practices in general and our practices specifically. We have been in discussions with the California Attorney General. Areas of discussion include, but are not limited to, the manner in which services are marketed, and financial products are facilitated. The California Attorney General has expressed concerns that certain business practices may violate law. Given the status of the inquiry, we are not in a position to predict the likely outcome, or the financial cost or impact on business practices, of this inquiry.

        If states or other governmental agencies having jurisdiction over our operations were to conclude that our business practices violate applicable laws, we may become subject to sanctions which could have a material adverse effect on our business, financial condition and results of operations. These sanctions may include, without limitation: (i) civil monetary damages and penalties; (ii) criminal penalties; and (iii) injunctions or other restrictions on the manner in which we conduct our business.

        In addition, the financial institutions that provide services to us and our customers as service providers and lenders of RALs and other financial products are subject to significant regulation and oversight by federal and state banking regulators. The failure of these financial institutions to comply with the regulatory requirements of federal and state government regulatory bodies, including consumer protection laws, could affect their ability to continue to provide services to us and our customers, which could have a material adverse effect on our business, financial condition and results of operations.

Our facilitation of RALs and other financial products exposes us to the risk of significant losses as a result of litigation defense and resolution costs.

        Tax return preparers who facilitate the sale of RALs have been subject, from time to time, to individual and class action lawsuits concerning their role in facilitating these loans. These lawsuits have alleged, among other claims, collusion between the tax return preparers and lenders in violation of federal law and fraud on the part of the tax return preparers for failing to disclose the nature of the loan or that the tax return preparer receives a fee from the lender in connection with the loan. We have been named as a defendant in several purported class action lawsuits in connection with our facilitation of RALs. See discussion in "Item 3—Legal Proceedings." Given the large number of RALs we facilitate every year and the inherent uncertainties of the United States legal system, we could experience significant losses as a result of litigation defense and resolution costs, which would have a significant adverse impact on our business.

Failure to comply with laws and regulations that protect our customers' personal information could result in significant fines and harm our brand and reputation.

        Privacy concerns relating to the disclosure of consumer financial information have drawn increased attention from federal and state governments. The IRS generally prohibits the use or disclosure by tax return preparers of taxpayers' information without the prior written consent of the taxpayer. In addition, the Gramm-Leach-Bliley Act and other Federal Trade Commission regulations require financial service providers, including tax return preparers, to adopt and disclose consumer privacy policies and provide consumers with a reasonable opportunity to opt out of having personal information disclosed to unaffiliated third parties for marketing purposes. Although we have established security procedures to protect against identity theft, breaches of our customers' privacy may occur. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our brand and reputation.

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Our success is tied to the operations of our franchisees, yet our ability to exercise control over their operations is limited.

        In 2005, we derived 37% of our total revenues from the receipt of royalty and marketing and advertising fees from our franchisees. The amount of these fees is based on the revenues generated by franchised offices. Accordingly, our financial success depends on our franchisees and the manner in which they operate and develop their offices. Our ability to control the operations of our franchisees is limited because their businesses are independently owned and operated. Our franchisees may not operate their offices in a manner consistent with our philosophy and standards or may not increase the level of revenues generated compared to prior tax seasons.

We may be held responsible by third parties, regulators or courts for the actions of, or failures to act by, our franchisees, which exposes us to possible fines, other liabilities and bad publicity.

        Our franchisees are independently owned and operated. Our agreements with our franchisees require that they understand and comply with all laws and regulations applicable to their businesses. Under our franchise agreements, our franchisees retain control over the employment and management of all personnel, including the large number of seasonal employees required during the tax season. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Although our compliance program seeks to monitor the activities of our franchisees, it is unlikely to detect all problems in our network. In addition, we are parties to agreements with retailers and, to a certain extent, financial institutions under which we indemnify third parties for our and our franchisees' failure to comply with laws and regulations applicable to us or them. Our agreements with SBB&T, Household and Wal-Mart are material commercial agreements under which we indemnify third parties. There are occasions when our and our franchisees' activities are not clearly distinguishable. In 2004, we settled a complaint by the New York City Department of Consumer Affairs related to RALs which related primarily to acts of our franchisees, but where the Department of Consumer Affairs attributed certain responsibilities to us. Failure to comply with laws and regulations by our franchisees may expose us to liability and damages that may adversely affect our business.

Disruptions in our relationships with our franchisees could adversely affect our business.

        The continued success and growth of our franchise system depend on our maintaining a satisfactory working relationship with our franchisees. Lawsuits and other disputes with our franchisees could discourage our franchisees from expanding their business within our network or lead to negative publicity, which would discourage new franchisees from entering our network. In 2004 we settled a lawsuit brought by 154 of our franchisees in which they alleged, among other things, that we should have made payments to them in connection with their facilitation of RALs. We settled this action by agreeing to make a $2.0 million cash payment, spend an additional $2.0 million in regional advertising from 2004 through 2006, pay additional rebates to franchisees of up to $3.00 per RAL processed during the 2004 through 2006 tax seasons, subject to performance criteria, and implement a temporary royalty fee reduction program for certain new franchise offices. In 2005 we made payments of $3.0 million toward to the litigation settlement reserve that was established in 2004. One franchisee continues to litigate this matter. See discussion in "Item 3—Legal Proceedings."

Because we are not a financial institution, we can only facilitate the sale of financial products through our arrangements with financial institutions, and if such arrangements were terminated for any reason, we may not be able to replace them on acceptable terms or at all.

        In 2005, approximately 39% of our total revenues were directly or indirectly derived from our facilitation of the sale of financial products provided to our customers by financial institutions. In addition, our tax return preparation business is, to some extent, dependent on our ability to facilitate the sale of these products, because our customers are often attracted to our business by the availability of these products. The financial products we facilitate are specialized financial products, and relatively

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few financial institutions offer them. We currently have agreements with SBB&T and Household. Our agreement with Household terminates December 31, 2005 and our agreement with SBB&T terminates on August 1, 2008. We may not be able to renew these agreements on similar terms or at all. If our arrangements with the financial institutions that provide our financial products were to terminate and we were unable to enter into an alternative relationship with one or more other financial institutions on acceptable terms or at all, our financial results would be adversely affected.

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

        During 2005, our network had approximately 1,600 offices located within national and large regional retailers and shopping malls, which generated approximately 16% of the tax returns prepared by our network. Of these offices, approximately 1,200 were located within Wal-Mart locations. In 2005 Wal-Mart locations generated approximately 13% of the tax returns prepared by our network. Our ability to operate in these stores is dependent on our ability to negotiate favorable agreements with retailers and on the continued operation of these stores. Our agreements with retailers are of limited duration, typically two years, and we may not be able to renew them on similar terms or at all. In addition, many of these agreements are not exclusive. In the event we are unable to negotiate favorable agreements with these or comparable retailers or they close a significant number of stores, especially immediately prior to or during the tax season, our business could incur significant short-term loss of revenues and, for our company-owned offices, costs for office relocation.

The highly seasonal nature of our business presents a number of financial risks and operational challenges.

        Our business is highly seasonal. We generate substantially all our revenues during the tax season, which is the period from January 1 through April 15. Additionally, the majority of our revenues are generated in late January and February. The concentration of our revenue-generating activity during this relatively short period presents a number of operational challenges for us and our franchisees, including: (i) cash and resource management during the first eight months of our year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season; (ii) flexible staffing, because the number of employees at our network's offices during the peak of the tax season is exponentially higher than at any other time; (iii) accurate forecasting of revenues and expenses; and (iv) ensuring optimal uninterrupted operations during peak season.

        If we were unable to meet these challenges or we were to experience significant business interruptions during the tax season, which may be caused by labor shortages, systems failures, work stoppages, adverse weather or other events, many of which are beyond our control, we could experience a loss of business, which would have a material adverse effect on our business and results of operations.

We rely on Cendant to provide transitional services to us and may not be able to replace those services at the same cost.

        Upon completion of our IPO, we entered into a transitional agreement with Cendant to provide for an orderly transition to being an independent company and to govern the continuing arrangements between us and Cendant. We also entered into a sublease agreement for our corporate headquarters in Parsippany, New Jersey which expires in September of 2005 and a sublease assignment and assumption agreement for our technology facility in Sarasota, Florida. We pay rent directly to the landlord of the Sarasota, Florida facility under Cendant's lease, which expires in May of 2006. Under the transitional agreement, Cendant agreed to provide us with various services, including services relating to facilities, human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable services, tax support, event marketing, revenue audit services, public and regulatory affairs, telecommunications services, information technology services and call support

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services. The transitional agreement also contains agreements relating to indemnification, tax sharing and tax indemnification, access to information and non-solicitation of employees. Under the transitional agreement, the cost of each transitional service generally reflects the same payment terms and is calculated using the same cost allocation methodologies for the particular service as those associated with the costs in our historical consolidated financial statements. The transitional agreement was negotiated in the context of a parent-subsidiary relationship. The provisions of many of the services were transitioned at similar costs to those allocated by Cendant historically. There are no fixed or minimum contractual purchase obligations under the transitional agreement and other related agreements. On May 1, 2005 we signed a new lease with a new lessor for office space located in Parsippany, New Jersey. We plan to relocate our current corporate headquarters to this office space in September of 2005. We completed most transition agreements with Cendant during 2005 and are now predominantly operational on our own financial systems and infrastructure. We have completed the implementation of our own back office systems including human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable and tax support. Remaining relationships, for which we rely on Cendant and which we are continuing to evaluate, include information technology services, telecommunications services, call support services, events marketing services and revenue audit services.

We may incur significant liability to Cendant pursuant to the indemnification provisions of the transitional agreement.

        Our transitional agreement with Cendant provides that we continue 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 our assets or properties and the operation or conduct of our business, whether in the past or future, including any currently pending litigation against Cendant with respect thereto and any claims arising out of or relating to our IPO. The only currently pending litigation against us and Cendant are the suits brought by Canieva Hood in Ohio and California discussed in this report under "Item 3—Legal Proceedings."

Our network faces significant competition in the tax return preparation business and faces a competitive threat from software providers and Internet businesses that increasingly enable and encourage taxpayers to prepare their own returns.

        The tax return preparation business is highly competitive. Our network competes with tens of thousands of paid tax return preparers, including H&R Block, the largest tax preparation service company, Liberty Tax Service, regional and local tax return preparation companies, most of which are independent and some of which are franchised, and regional and national accounting firms and financial service institutions that prepare tax returns as part of their businesses. We also compete with volunteer organizations that prepare tax returns at no cost for low-income taxpayers. Online filing alternatives and service providers and software vendors offer products and services that enable untrained individuals to prepare and file their own tax returns. We also face competition from the Free File Alliance, a consortium of the IRS and online preparation services that provides free online tax preparation and filing and from volunteer organizations that prepare tax returns at no cost for low-income taxpayers. The availability of these alternatives may reduce demand for our products and limit the amount of fees that we can charge. Competitors may develop or offer more attractive or lower cost products and services than ours which could erode our customer base.

An increase in the use of free tax preparation services offered by volunteer organizations to low-income taxpayers could result in a loss of our customers and could negatively impact our financial performance.

        In 2005, approximately 78% of the tax returns that our network prepared were for taxpayers with an AGI of less than $35,000. These taxpayers may qualify as low-income taxpayers eligible for free tax

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preparation through volunteer organizations. An increase in the use by low-income taxpayers of free tax preparation services offered by volunteer organizations could result in a loss of our customers and could negatively impact our financial performance.

Our business relies on technology systems and electronic communications, which, if disrupted, could significantly affect our business.

        Our ability to file tax returns electronically and to facilitate the sale of financial products depends on our ability to electronically communicate with all of our network's offices, the IRS and the financial institutions that provide the financial products we offer. Our electronic communications network is subject to disruptions of various magnitudes and durations. Any severe disruption of our network or electronic communications, especially during the tax season, could impair our ability to complete our customers' tax filings, to facilitate the sale of financial products or to maintain our operations, which, in turn, could have a material adverse effect on our business and results of operations.

We are a holding company that depends on cash flow from our subsidiaries to meet our obligations.

        We are a holding company with no material assets other than the stock of our subsidiaries. Accordingly, all our operations are conducted by our subsidiaries. As a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements or to pay dividends. If our subsidiaries are unable to pay us dividends and make other payments to us when needed, we will be unable to pay dividends or satisfy our obligations.

Our $250.0 million five-year unsecured credit facility contains restrictive covenants and other requirements that may limit our business flexibility by imposing operating and financial restrictions on our operations.

        On June 29, 2005, we established a $250.0 million five-year unsecured credit facility ("the $250 Million Credit Facility"). The agreement governing our $250 Million Credit Facility replaced the $100.0 million five-year revolving credit facility and imposes operating and financial restrictions on us. Our $250 Million Credit Facility includes restrictive covenants that will require us to maintain specified financial ratios and satisfy financial condition tests. Specifically, our $250 Million Credit Facility contains financial covenants requiring us to maintain a maximum consolidated leverage ratio of 2.5 to 1.0 and a minimum consolidated interest coverage ratio of 4.0 to 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 $250 Million Credit Facility. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense. The maximum leverage ratio and minimum interest coverage ratio remain fixed through the five-year term of the $250 Million Credit Facility. In addition, the $250 Million Credit Facility contains various customary restrictive covenants that limit our ability to, among other things, (i) create liens or other encumbrances on our property, (ii) enter into a merger or similar transaction, (iii) sell or transfer our property except in the ordinary course of business, and (iv) make dividend and other restricted payments, unless we are in pro forma compliance with our financial ratios. With respect to purchases, redemptions or retirement of our capital stock, we are required to have $10.0 million of availability under our $250 Million Credit Facility. We do not believe that the limitations contained in the $250 Million Credit Facility will limit our ability to pay our quarterly cash dividend of $0.08 per share of common stock.

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

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Our floating rate debt financing exposes us to interest rate risk.

        As of April 30, 2005, we had $175.0 million of floating rate debt outstanding, which was subsequently repaid. As of July 22, 2005, we had $110.0 million outstanding under our $250 Million Credit Facility. We may borrow additional amounts under our $250 Million Credit Facility and borrowings may bear interest at rates that vary with prevailing market interest rates. Accordingly, a rise in market interest rates will adversely affect our financial results. We expect to draw most heavily on this credit facility from May through February of each year and then repay a significant portion of the borrowings by the end of each tax season. Therefore, a significant rise in interest rates during our off-season will have a disproportionate impact on our profitability.

Because the tax season is relatively short and straddles two quarters, our quarterly results may not be indicative of our performance, which may increase the volatility of the trading price of our common stock.

        We experience quarterly variations in revenues and operating income as a result of many factors, including the highly seasonal nature of the tax return preparation business, the timing of off-season activities and the hiring of personnel. Due to the foregoing factors, our quarter-to-quarter results vary significantly. In addition, because our peak period straddles the third and fourth quarters and a variety of factors may result in a delay or acceleration in the number of tax returns processed in January, year-to-year quarterly comparisons are not as meaningful as year-to-year tax season comparisons. To the extent our quarterly results vary significantly from year to year, our stock price may be subject to significant volatility.

Although we intend to pay dividends in the future, our financial condition, debt covenants or Delaware law may prohibit us from doing so.

        On July 15, 2005 we paid a quarterly cash dividend of $0.08 per share of common stock totaling $3.0 million. In addition, in 2005 we paid quarterly dividends totaling $7.9 million. However, the payment of dividends, in the future, will be at the discretion of our board of directors and will depend, among other things, on our earnings, capital requirements and financial condition. Our ability to pay dividends will be subject to compliance with customary financial covenants that are contained in the $250 Million Credit Facility. Dividends may also be limited or prohibited by any future borrowings or issuances of preferred stock. In addition, applicable law requires that our board of directors determine that we have adequate surplus prior to the declaration of dividends. We cannot assure you that we will pay dividends at the levels currently anticipated or at all.

There may be a limited public market for our common stock, and our stock price may experience volatility.

        There can be no assurance that an active trading market for our common stock will be sustained in the future. In addition, the stock market has from time to time experienced extreme price and volume fluctuations that often have been unrelated to the operating performance of particular companies. Changes in earnings estimates by analysts and economic and other external factors may have a significant impact on the market price of our common stock. Fluctuations or decreases in the trading price of our common stock may adversely affect the liquidity of the trading market for our common stock and our ability to raise capital through future equity financing.

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

        Our certificate of incorporation, by-laws and our rights plan contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions include, among other things, a classified board of directors, the elimination

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of stockholder action by written consent, advance notice for raising business or making nominations at meetings and "blank check" preferred stock. Blank check preferred stock enables our board of directors, without stockholder approval, to designate and issue additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on conversion, as our board of directors may determine, including rights to dividends and proceeds in a liquidation that are senior to the common stock.

        These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding voting common stock. We are also subject to certain provisions of Delaware law which could delay, deter or prevent us from entering into an acquisition, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in a business combination with an interested stockholder unless specific conditions are met. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock.

Our stockholder rights plan could prevent you from receiving a premium over the market price for your shares of common stock from a potential acquirer.

        Our stockholder rights plan entitles our stockholders to acquire shares of our common stock at a price equal to 50% of the then current market value in limited circumstances when a third party acquires 15% or more of our outstanding common stock or announces its intent to commence a tender offer for at least 15% of our common stock, in each case, in a transaction that our board of directors does not approve. Because, under these limited circumstances, all of our stockholders would become entitled to affect discounted purchases of our common stock, other than the person or group that caused the rights to become exercisable, the existence of these rights would significantly increase the cost of acquiring control of our company without the support of our board of directors. The existence of the rights plan could therefore deter potential acquirers and thereby reduce the likelihood that you will receive a premium for your common stock in an acquisition.

Available Information

        We make available free of charge on or through our website, www.jacksonhewitt.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and, if applicable, amendments to those reports as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission. Also available on our website are certain of our corporate governance policies, including the charters for the Board of Directors' audit, compensation and corporate governance committees, and our Code of Conduct, Code of Ethics for Senior Executive and Financial Officers, Code of Business Conduct and Ethics for Directors, and corporate governance guidelines. A copy of any of these materials will be provided to any person, free of charge, upon written request to our Corporate Secretary at Jackson Hewitt Tax Service Inc., 7 Sylvan Way, Parsippany, New Jersey 07054.

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ITEM 2.    PROPERTIES.

        All of our company-owned offices are leased. We are currently a party to a sublease agreement with Cendant for 38,886 square feet for our corporate headquarter space in Parsippany, New Jersey which expires in September of 2005 and a sublease assignment and assumption agreement for our 27,000 square foot technology facility in Sarasota, Florida. On May 1, 2005, we entered into a Lease Agreement with Dun & Bradstreet, Inc. for the rental of approximately 45,000 square feet of office space in a building located at 3 Sylvan Way in Parsippany, New Jersey. We plan to relocate our current corporate headquarters to this office space in September of 2005.

ITEM 3.    LEGAL PROCEEDINGS.

        On August 27, 2002, a plaintiff group comprising of 154 franchisees filed an action against SBB&T and us in the Superior Court of New Jersey, Morris County. The suit alleged, among other things, that we breached an agreement with the plaintiffs by not paying them a portion of surpluses in RAL loss reserves. The plaintiffs sought a declaratory judgment, an accounting, payment of an incentive rebate, unspecified compensatory and punitive damages, treble damages and attorneys' fees. By an order dated December 6, 2002, the court dismissed the conversion and fraud counts of the complaint with prejudice. The plaintiffs filed an amended complaint on March 17, 2003. The parties submitted the matter to mediation in July 2003, which resulted in a settlement in which we agreed, among other things, to make a $2.0 million cash payment, spend an additional $2.0 million on regional advertising from 2004 through 2006, pay additional rebates to franchisees of up to $3.00 per RAL processed during the 2004 through 2006 tax seasons, subject to performance criteria, and implement a temporary royalty fee reduction program for certain new franchise offices. On December 19, 2003, the court issued a ruling enforcing the settlement and dismissed the action with prejudice. As of April 30, 2005, 152 plaintiffs in the action have executed the settlement agreement. One plaintiff has appealed the enforcement order of December 19, 2003. On May 17, 2005, the Superior Court of New Jersey Appellate Division reversed the trial court's December 19, 2003 ruling as to the one who appealed, and remanded for further proceedings. We have filed a petition for certification with the New Jersey Supreme Court, which has not ruled on the petition.

        On or about April 4, 2003, Canieva Hood and Congress of California Seniors brought a purported class action suit against SBB&T and us, subsequently adding Cendant, in the Superior Court of California (Santa Barbara) in connection with the provision of RALs, seeking declaratory relief as to the lawfulness of the practice of cross-lender debt collection, the validity of SBB&T's cross-lender debt collection provision and whether the method of disclosure to customers with respect to the provision is unlawful or fraudulent. We were joined in the action for allegedly collaborating, and aiding and abetting, in the actions of SBB&T. We filed a demurrer and subsequently answered the amended complaint, denying any liability. The Court has granted a motion to dismiss SBB&T and other banks who are third-party defendants on the ground that the claims are preempted by federal law. Plaintiffs have appealed that decision. The Court, sitting in Santa Barbara, has stayed all other proceedings, pending appeal. We believe we have meritorious defenses to the claims and are defending against them vigorously. Ms. Hood has also filed a separate suit against us and Cendant on December 18, 2003 in the Ohio Court of Common Pleas (Montgomery County) and is seeking to certify a class in the action. The allegations relate to the same set of facts as the California action. We filed a motion to stay or dismiss, which was denied, and subsequently answered the Complaint, denying any liability. The case is in its discovery and pretrial stage. We believe we have meritorious defenses to the claims and are defending against the case vigorously.

        On June 18, 2004, Myron Benton brought a purported class action against SBB&T and us in the Supreme Court of the State of New York (County of New York) in connection with disclosures made in connection with the provision of RALs, alleging that the disclosures and related practices are fraudulent and otherwise unlawful, and seeking equitable and monetary relief. We filed a motion to

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dismiss that complaint. In response, Benton withdrew his original complaint and filed an amended complaint on January 3, 2005. We filed a motion to dismiss the amended complaint, which is currently pending. While this matter is at a preliminary stage, we believe we have meritorious defenses to the claims and we intend to defend them vigorously.

        We are from time to time subject to other legal proceedings and claims in the ordinary course of business, none of which we believe are likely to have a material adverse effect on our financial position, results of operations or cash flows. However, there can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2005. Information regarding executive officers is contained in Item 10 of this report.

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Price Range of Common Stock

        The principal market in the United States for our common stock is the New York Stock Exchange ("NYSE"). The only class of our securities that is traded is our common stock. Our common stock has traded on the NYSE since June 22, 2004, under the symbol JTX. The following table sets forth the quarterly high and low closing sales prices of the common stock for the period indicated as reported by the NYSE. These prices do not include retail mark-ups, markdowns, or commissions.

Approximate Number of Equity Security Holders

        As of April 30, 2005, there were approximately 21 record holders of our common stock.

Dividends

        On July 15, 2005 we paid a quarterly cash dividend of $0.08 per share of common stock totaling $3.0 million. In addition, in fiscal 2005 we paid three quarterly dividends of $0.07 per share of common stock totaling $7.9 million. We intend to continue the payment of quarterly cash dividends to holders of common stock in the foreseeable future.

        Upon completion of our IPO in June 2004, we declared a special dividend to Cendant in the amount of $306.9 million (the "Special Dividend"). The $175.0 million cash portion of this Special Dividend was funded entirely from the net proceeds of five-year floating rate senior unsecured notes (the "Notes"). The remaining $131.9 million represents the distribution of a receivable from Cendant. We recorded the Special Dividend as a reduction to retained earnings of $175.3 million and a reduction to additional paid-in capital of $131.6 million. The amount by which retained earnings was reduced represents the accumulation of all earnings by us up to our IPO date at which time we began operating as a separate public company.

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Equity Compensation Plan Information

        The information contained in our proxy statement for our 2005 Annual Meeting of Stockholders ("Proxy Statement") under the section titled "Executive Compensation and Other Information—Equity Compensation Plan Information," is incorporated herein by reference in response to this item. All of our equity compensation plans have been approved by our stockholders.

Issuer Purchases of Equity Securities: None.

ITEM 6.    SELECTED FINANCIAL DATA.

        The following table sets forth our selected historical consolidated financial data as of and for each of the years in the five-year period ended April 30, 2005. You should read this information in conjunction with the information under "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations," "Item 1—Business" and our historical consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K. Our historical consolidated statement of operations data and consolidated balance sheet data as of and for each of the years in the five-year period ended April 30, 2005 has been derived from our audited consolidated financial statements. Our historical consolidated financial statements as of April 30, 2005 and 2004 and for each of the years in the three-year period ended April 30, 2005 and Deloitte & Touche LLP's report on these historical consolidated financial statements have been included elsewhere in this Form 10-K.

        Our results of operations for the period from May 1, 2004 through the IPO date and our results of operations and cash flows for the fiscal years ended April 30, 2004, 2003, 2002 and 2001, respectively, reflect the historical results of operations and cash flows of the business divested by Cendant in our IPO. As a result, the accompanying Consolidated Financial Statements may not necessarily reflect our results of operations and cash flows in the future or what our results of operations and cash flows would have been had we been a stand-alone public company during these periods.

        Certain amounts in our prior years' consolidated financial statements have been reclassified to conform to the current year presentation.

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(1)

In fiscal 2004, we incurred a litigation settlement charge of $10.4 million in connection with an action filed by 154 of our franchisees against us and SBB&T alleging, among other things, that we breached an agreement with them by not paying them a portion of other financial product revenues.

(2)

In fiscal 2005, we incurred a stock-based compensation charge of $4.5 million related to the issuance to employees of vested stock options and common stock in exchange for Cendant stock options and unvested RSUs that were held by such employees prior to our IPO.

(3)

In fiscal 2005, we incurred $4.9 million in costs related to being an independent public company, such as additional insurance costs and stock-based compensation.

(4)

On January 1, 2002, we adopted the non-amortization provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Accordingly, our results of operations before January 1, 2002 reflect the amortization of goodwill and indefinite-lived intangible assets, while our results of operations on and after January 1, 2002 do not reflect this amortization. Amortization of goodwill and indefinite-lived intangible assets amounted to $7.8 million and $11.6 million in 2002 and 2001, respectively.

(5)

Interest expense increased in fiscal 2005 primarily as a result of the Notes issuance in June 2004 of $175.0 million in connection with our IPO.

(6)

In connection with our IPO in June 2004, we paid a special dividend to Cendant of $306.9 million. The $175.0 million cash portion of the dividend was funded entirely from the net proceeds of Notes issuance and the remaining $131.9 million represents the cancellation of a receivable due from Cendant.

(7)

In June 2005, we repaid in full the $175.0 million that was outstanding as of April 30, 2005 and established a $250.0 million five-year unsecured credit facility. Borrowings outstanding under the $250 Million Credit Facility as of July 22, 2005 were $110.0 million.

(8)

On January 18, 2002 we acquired all of the outstanding common stock of TSA for $3.6 million in cash. The results of operations of TSA have been included in the Consolidated Statements of Operations since the date of acquisition.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        The following discussion may be understood more fully by reference to the consolidated financial statements and notes to the consolidated financial statements included elsewhere in this Form 10-K.

Overview

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

•

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



•

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

        Revenues that we earn consist of the following components:

        Franchise operations revenues:

•

Royalty revenues: We earn royalty revenues from our franchisees. Our franchise agreements require franchisees to pay us a royalty fee of 15% of their revenues (12% for most franchises that joined our system before 2000). In fiscal 2005, our average royalty rate was 13.0%. Franchisees earn revenues primarily from the preparation of tax returns and from fees charged in conjunction with the facilitation of financial products. We recognize royalty revenues upon the completion and filing of tax returns by our franchisees.



•

Marketing and advertising revenues: In addition to royalty revenues, franchisees pay us a marketing and advertising fee equal to 6% of their revenues. We recognize marketing and advertising revenues upon the completion and filing of tax returns by our franchisees.



•

Financial product fees: We earn fixed fees from the financial institutions that provide our financial products for the facilitation of the sale of tax refund-based financial products to customers throughout our network, including RALs, ACRs and ADDs. The fixed fees that we earn from the financial institutions originate from a fee (typically $25.00) paid by the customer to the financial institution upon approval and funding of the respective financial products. We earn a portion of this fee depending upon the product facilitated, with the fees that we earn varying in amounts up to $14.55 per product. These financial products are offered pursuant to our contractual arrangements with financial institutions. We recognize revenues for the fixed fees we earn at the time financial products are approved by the financial institution. In addition, our network offers other products which include the Jackson Hewitt CashCard and our Gold Guarantee product. Revenues from our Gold Guarantee product are earned ratably over the product's 36-month life.



•

Other financial product revenues: Other financial product revenues represent a portion of the revenues we earn from the facilitation of RALs. SBB&T provided approximately 80% of the RALs facilitated by us in fiscal 2005, with the remainder provided by Household.

                        SBB&T in Fiscal 2005

        In fiscal 2005 we renegotiated our agreement with SBB&T which became effective with refund anticipation loans facilitated by our network beginning in January 2005. In lieu of earning revenues based upon the amount of finance fees and uncollected loans, the new agreement with SBB&T provides for the following:

•

A fee of $19.00 for each RAL facilitated by our network.

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If the amount of uncollected loans exceeds the net finance fees received by SBB&T, then we have agreed to reimburse SBB&T in an amount equal to 50% of such difference.

•

The greater of an additional fee of $2.00 for each RAL facilitated by our network in 2005 or a portion of RALs collected in 2005 that were originated prior to 2005.

        Beginning in 2006, this additional fee of $2.00 will be subject to a threshold by which net finance fees received by SBB&T must exceed uncollected loans by an amount ranging from 0.5% to 0.6% of the aggregate principal amount of RALs facilitated by our network. Revenues will be recognized when, and if, this threshold is exceeded.

•

A variable fee equal to 50% of the amount by which the net finance fees received by SBB&T exceeds uncollected loans by a threshold amount of at least 1.0% of the aggregate principal amount of RALs facilitated by our network. No such revenues were recognized in fiscal 2005. Revenues will be recognized in fiscal 2006 when, and if, this threshold is exceeded.

        We will continue to receive a portion of the collections with respect to RALs facilitated by SBB&T in prior years, although we expect such amounts from prior year loans facilitated by SBB&T to diminish.

                        SBB&T in Fiscal 2004 and 2003 and Household in 2005, 2004 and 2003

        Other financial product revenues represent revenues we earned equal to a portion (ranging from 59% to 100%) of the difference between finance fees paid by customers to the financial institutions and loan amounts that the financial institutions are unable to collect. These revenues were in addition to the fixed fees recorded in financial product fees earned from the facilitation of RALs. The finance fee was calculated as a percentage of the total loan amount (subject to a minimum and maximum fee). The finance fees were maintained by the financial institutions as a reserve against uncollected loans. Other financial product revenues were recognized only to the extent that the reserves maintained by the lending financial institutions exceeded the uncollected loans made by these financial institutions at the end of each reporting period.

•

Other revenues: Other revenues include ancillary fees we earn from franchisees, including a $2.00 fee per tax return prepared paid by franchisees for the processing of each electronically-transmitted tax return. We recognize revenues from processing fees at the time the tax returns are filed. Approximately 90% of all tax returns filed by our network are filed electronically. Other revenues also include revenues that we earn from the sale or transfer of our franchise territories. Revenues are recognized when all material services or conditions relating to the sale have been performed, generally upon completion of a mandatory training program for new franchisees.

        Company-owned office operations revenues:

•

Service revenues: Service revenues include only revenues earned at our company-owned offices and primarily consists of fees that we earn directly from our customers for the preparation of tax returns. These fees include base fees for the preparation of tax returns and fees for the facilitation of financial products earned by our company-owned offices. Fees varied in amounts up to $30.00 per product in fiscal 2005. We recognize service revenues upon the completion and filing of tax returns by our company-owned offices.

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        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.

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

(1)

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

(2)

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

(3)

Consist of refund-based financial products and Gold Guarantee products.

(4)

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

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

Amounts may not recalculate precisely due to rounding differences.

Fiscal Year Ended April 30, 2005 as Compared to the Fiscal Year Ended April 30, 2004

Total Revenues

        Total revenues increased $26.9 million, or 13%, primarily due to the increase of 6% in the number of tax returns prepared in our network as well as due to the increase of 7% in the average revenues per tax return prepared in our network. The number of tax returns prepared increased primarily due to the expansion of our network as the average number of offices per territory increased to 1.9 as of April 30, 2005 from 1.8 as of April 30, 2004. Average revenues per tax return prepared increased primarily as a result of annual price increases, increased financial product penetration and increased complexity of tax returns prepared.

        Same store sales growth of 2% in fiscal 2005 was lower than the past two fiscal years driven primarily by a delayed start to the tax season that led to lower new customer growth. The delay may have been caused by a delay in the receipt of Form W-2's as consumers filed their tax returns with the IRS later in the tax season. The shortened filing period led to longer than expected wait times at some of our locations, which given the demands of the early-season filer to file quickly, may have resulted in potential customers choosing other competitors. Prior year existing customers continued to choose our network at comparable rates with retention rates remaining just under 60%.

        The impact caused by the delay in the early season resulted in a lower average number of tax returns prepared by age of office. To address this type of issue in the future, we are evaluating the growth opportunity within existing and new territories given such dynamic. We are working with franchisees and our company-owned office operations to better identify opportunities for investment to further expand the business and to improve the level of brand awareness. Furthermore, we have invested in additional tools and resources to improve the site selection process.

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        Please see Franchise Results of Operations and Company-Owned Office Results of Operations for the highlights regarding the respective revenues recognized by each segment.

Total Expenses

        Total expenses increased $9.7 million, or 7%. The more notable highlights with respect to expenses incurred were as follows:

        Cost of franchise operations:    Cost of franchise operations increased $5.5 million, or 25%, primarily due to the increase in the number of Gold Guarantee products sold in the tax season in our fiscal 2004. Gold Guarantee product costs are amortized ratably in conjunction with the associated revenues over the product's 36-month life. Also contributing to the increase was a reduction in bad debt reserves of $2.0 million in fiscal 2004 as a result of improved collection performance.

        Marketing and advertising:    Marketing and advertising expenses increased $3.5 million, or 12%, in conjunction with our growth, as they are closely tied to the marketing and advertising revenues earned from franchisees.

        Cost of company-owned office operations:    Costs of company-owned office operations increased $1.3 million, or 3%, primarily due to increased facilities costs. Despite this increase, cost of company-owned office operations as a percentage of service revenues from company-owned office operations actually decreased due to the successful implementation in fiscal 2005 of strategic initiatives to increase profitability, such as closure of underperforming offices and improved management of expenses.

        Selling, general and administrative:    Selling, general and administrative decreased slightly. Included in fiscal 2005 was a stock-based compensation charge of $4.5 million related to the issuance to employees of 903,935 vested stock options and 100,880 shares of common stock in exchange for Cendant stock options and unvested restricted stock units that were held by such employees prior to our IPO. Also included in fiscal 2005 were expenses of $4.9 million related to being an independent public company, such as additional insurance costs and stock-based compensation, and a recovery of $0.6 million in connection with a $10.4 million litigation settlement charge in fiscal 2004 in connection with an action filed by 154 of our franchisees.

Other expenses

        Interest expense:    Interest expense increased $6.3 million primarily as a result of the $175.0 million floating rate senior unsecured Notes issuance in June 2004 to fund the special dividend to Cendant in connection with our IPO.

Fiscal Year Ended April 30, 2004 as Compared to the Fiscal Year Ended April 30, 2003

Total Revenues

        Total revenues increased $34.1 million, or 20%, primarily due to the increase of 11%, in the number of tax returns prepared in our network as well as due to the increase of 6% in the average revenues per tax return prepared in our network. The number of tax returns prepared increased primarily due to the expansion of our network as the average number of offices per territory increased to 1.8 as of April 30, 2004 from 1.7 as of April 30, 2003. Average revenues per tax return prepared increased primarily as a result of annual price increases. Please see Franchise Results of Operations and Company-Owned Office Results of Operations for the highlights regarding the respective revenues recognized by each segment.

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Total Expenses

        Total expenses increased $30.7 million, or 29%. The more notable highlights with respect to expenses incurred were as follows:

        Cost of franchise operations:    Cost of franchise operations increased $3.0 million, or 16%, primarily due to the increase in the number of Gold Guarantee products sold in the tax season in our fiscal 2003. In addition we incurred higher personnel costs to support our growing base of franchise offices. These increases were partially offset by a reduction in bad debt reserves of $2.0 million in fiscal 2004 as a result of improved collection performance.

        Marketing and advertising:    Marketing and advertising expenses increased $4.4 million, or 17%, in conjunction with our growth, as they are closely tied to the marketing and advertising revenues earned from franchisees.

        Cost of company-owned office operations:    Cost of company-owned office operations increased $7.4 million, or 22%, as we experienced higher costs due to the growth in the number of offices.

        Selling, general and administrative:    Selling, general and administrative increased $15.5 million, or 103%. Included in selling, general and administrative in fiscal 2004 was a $10.4 million litigation settlement charge. In addition, we saw increases in training and support infrastructure expenses.

Segment Results and Corporate and Other

Franchise Operations

        At the core of our business strategy is the growth and development of our franchise system. We derive a significant portion of our revenues during our third and fourth fiscal quarters from royalty and marketing and advertising fees. Tax returns prepared by our franchise system represented 88% of the total tax returns prepared by our network in fiscal 2005.

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Fiscal Year Ended April 30, 2005 as Compared to the Fiscal Year Ended April 30, 2004

Total Revenues

        Total revenues increased $20.4 million, or 14%, primarily due to the increase of 7% in the number of tax returns prepared as well as due to the increase of 6% in the average revenues per tax return prepared. The number of tax returns prepared increased primarily due to the increase of 541, or 12%, in the number of franchised offices. Average revenues per tax return prepared increased primarily as a result of annual price increases, increased financial product penetration and increased complexity of tax returns prepared. The more notable highlights with respect to the revenues recognized by our franchise operations segment were as follows:

        Royalty and marketing and advertising:    Royalty revenues increased $7.7 million, or 15%, and marketing and advertising revenues increased $3.2 million, or 13%, both primarily due to the increase in the total revenues earned by our franchisees. In addition, in fiscal 2005 we benefited from a slight increase in the average royalty rate we earn from our franchise segment, which was 13.0% as compared to 12.8% in fiscal 2004 as the network included more territories at the 15% royalty fee rate.

        Financial product fees:    Financial product fees increased $5.6 million, or 18%. The number of refund-based financial products facilitated increased 8% to 2.4 million, primarily due to the increase in the number of tax returns prepared and an increase in the financial product attachment rate. Included in refund-based financial products are RALs, which increased 7% to 1.2 million. We earned financial product fees in connection with the facilitation of RALs of $17.0 million in fiscal 2005 as compared to $15.9 million in fiscal 2004. Average financial product fees per financial product increased 7% primarily due to the increase in the number of Gold Guarantee products sold in the tax season in fiscal 2004 as compared to the previous tax season. Franchisees facilitated the sale of 2.6 million financial products in fiscal 2005 as compared with 2.4 million in fiscal 2004, for which we earned royalty and marketing and advertising revenues of $15.7 million in fiscal 2005 and $14.3 million in fiscal 2004.

        Other financial product revenues:    Other financial product revenues increased $3.7 million, or 12%. Other financial product revenues in connection with SBB&T increased $1.6 million, or 6%.

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In fiscal 2005 we renegotiated our agreement with SBB&T which became effective with RALs facilitated beginning in January 2005. In lieu of earning revenues based upon the amount of finance fees and uncollected loans, the new agreement with SBB&T provided for the following other financial product revenues beginning in January 2005:

•

A fee of $19.00 for each RAL facilitated by our network in the fiscal 2005 tax season which amounted to $18.1 million in other financial product revenues;



•

An additional fee of $2.00 for each RAL facilitated by our network in the fiscal 2005 tax season which amounted to $1.9 million in other financial product revenues.

        In addition, we earned other financial product revenues in connection with SBB&T in fiscal 2005 of $10.8 million with respect to RALs facilitated in prior years.

        Other financial product revenues related to our agreement with Household increased $2.1 million due to the increase in RALs facilitated by the financial institution in fiscal 2005 as well due to the increase in collections with respect to RALs facilitated in prior years.

        Other revenues:    Other revenues increased $0.2 million, or 2%, primarily due to the higher revenues from franchisees ($2.00 per tax return) related to the increase in the number of electronically-transmitted tax returns processed. Offsetting this increase was the decrease in revenues related to new territories sold in fiscal 2005. We sold 219 new territories in fiscal 2005 as compared to 240 in fiscal 2004.

Total Expenses

        Total expenses increased $9.3 million, or 16%. The more notable highlights with respect to expenses incurred were as follows:

        Cost of operations:    Cost of operations increased $5.5 million, or 25%, primarily due to the increase in the number of Gold Guarantee products sold in the tax season in fiscal 2004 as compared to the prior tax season and increased labor costs to support our franchisees. Also contributing to the increase was a reduction in bad debt reserves of $2.0 million in fiscal 2004 as a result of improved collection performance.

        Marketing and advertising:    Marketing and advertising expenses increased $3.2 million, or 13%, as we increased our marketing in conjunction with our growth, as they are closely tied to the marketing and advertising revenues earned from franchisees. Franchise Operations recognized marketing and advertising expenses equal to 6% of total revenues earned by our franchisees.

Fiscal Year Ended April 30, 2004 as Compared to the Fiscal Year Ended April 30, 2003

Total Revenues

        Total revenues increased $25.9 million, or 21%, primarily due to the increase of 11% in the number of tax returns prepared as well as due to the increase of 6% in the average revenues per tax return prepared. The number of tax returns prepared increased primarily due to the increase of 554, or 15%, in the number of franchised offices that were open. Average revenues per tax return prepared increased primarily as a result of annual price increases. The more notable highlights with respect to revenues recognized by our franchise operations segment were as follows:

        Royalty and marketing and advertising:    Royalty revenues increased $8.4 million, or 19%, and marketing and advertising revenues increased $3.5 million, or 17%, both primarily due to the increase in the total revenues earned by our franchisees. In addition, in fiscal 2004 we benefited from a slight increase in the average royalty rate we earn from our franchise segment, which was 12.8% as compared to 12.6% as the network included more territories at the 15% royalty fee rate.

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        Financial product fees:    Financial product fees increased $5.3 million, or 21%. The number of refund-based financial products facilitated, including RALs, increased primarily due to the increase in the number of tax returns prepared and an increase in the financial product attachment rates Our network facilitated 1.1 million RALs in fiscal 2004 as compared to 1.0 million in the prior year. We earned financial product fees in connection with the facilitation of RALs of $15.9 million in fiscal 2004 as compared to $14.1 million in fiscal 2003. Average financial product fees per financial product increased 5% primarily due to the increase in the number of Gold Guarantee products sold in the tax season in fiscal 2003 as compared to the previous tax season. Franchisees facilitated the sale of 2.4 million financial products in fiscal 2004 as compared with 2.1 million in fiscal 2003, for which we earned royalty and marketing and advertising revenues of $14.3 million in fiscal 2004 and $11.6 million in fiscal 2003.

        Other financial product revenues:    Other financial product revenues increased $7.1 million, or 31%. The increase in other financial product revenues was due to the increase in RALs facilitated in fiscal 2004 as well as due to the increase in collections in fiscal 2004 with respect to RALs facilitated in prior years by the financial institutions.

        Other revenues:    Other revenues increased $1.4 million, or 13%, primarily due to higher revenues from franchisees ($2.00 per tax return) related to the increase in the number of electronically-transmitted tax returns processed. Offsetting this increase was the decrease in revenues related to new territories sold in fiscal 2004. We sold 240 new territories in fiscal 2004 as compared to 251 in fiscal 2003.

Total Expenses

        Total expenses increased by $7.1 million, or 14%. The more notable highlights with respect to expenses incurred were as follows:

        Cost of operations:    Cost of operations increased $3.0 million, or 16%, primarily due to costs related to increased personnel to support franchisees and expense attributable to growth in the Gold Guarantee program. These increases were partially offset by a reduction in bad debt reserves of $2.0 million in fiscal 2004 as a result of improved collection performance.

        Marketing and advertising:    Marketing and advertising expenses increased $3.6 million, or 17%, in conjunction with our growth, as they are closely tied to the marketing and advertising revenues earned from franchisees.

Company-Owned Office Operations

        Complementing our franchise system are our company-owned offices. Tax returns prepared by our company-owned offices represented 12% of the total tax returns filed within our network in fiscal 2005.

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Fiscal Year Ended April 30, 2005 as Compared to the Fiscal Year Ended April 30, 2004

Revenues

        Service revenues from operations increased $6.4 million, or 11%. The number of tax returns prepared increased slightly and average revenues per tax return prepared increased 10%. Average revenues per tax return prepared increased primarily as a result of increases in pricing, increased financial product penetration and increased complexity of tax returns prepared. Company-owned offices facilitated the sale of 413,000 financial products in fiscal 2005 as compared with 374,000 in fiscal 2004, for which we earned $10.2 million in fiscal 2005 and $12.2 million in fiscal 2004. This decline was due to a reduction or elimination of fees in certain markets, which we expect to continue in fiscal 2006, though we do not expect it to have a material impact on average revenue per return or on our service revenues from operations.

Total Expenses

        Total expenses increased $1.5 million in fiscal 2005. The more notable highlights with respect to expenses incurred were as follows:

        Cost of operations:    Cost of operations increased $1.3 million, or 3%, primarily due to increased facilities costs. Despite this increase, cost of operations as a percentage of service revenues from operations actually decreased due to the successful implementation in fiscal 2005 of strategic initiatives to increase profitability, such as closure of underperforming offices and improved management of expenses.

        Depreciation and amortization:    Depreciation and amortization decreased $0.6 million primarily due to certain property and equipment becoming fully depreciated in fiscal 2005.

        Marketing and advertising:    Marketing and advertising increased $0.3 million, or 6%, and was closely tied to the expansion of offices and growth in the number of tax returns prepared. Company-Owned Office Operations recognized marketing and advertising expenses equal to 6% of service revenues from operations, similar to that of Franchise Operations, which recognized marketing and advertising expenses equal to 6% of total revenues earned by franchisees. In addition, Company-Owned Office Operations also recognized regional and local marketing and advertising expenses.

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Fiscal Year Ended April 30, 2004 as Compared to the Fiscal Year Ended April 30, 2003

Revenues

        Service revenues from operations increased $8.2 million, or 17%. The number of tax returns prepared increased 10% primarily due to the number of offices increasing by 82, or 16%, and average revenues per tax return prepared increased 7% primarily as a result of annual price increases. Company-owned offices facilitated the sale of 374,000 financial products in fiscal 2004 as compared with 311,000 in fiscal 2003, for which we earned service revenues of $12.2 million in fiscal 2004 and $10.0 million in fiscal 2003.

Total Expenses

        Total expenses increased $8.9 million, or 20%. The more notable highlights with respect to expenses incurred were as follows:

        Cost of operations:    Cost of operations increased $7.5 million, or 22%, as we increased the number of company-owned offices.

        Marketing and advertising:    Marketing and advertising increased $0.8 million, or 18%, and was closely tied to the expansion of offices and growth in the number of tax returns prepared. Marketing and advertising expenses include an allocation from Franchise Operations equal to 6% of service revenues from operations.

        Selling, general and administrative:    Selling, general and administrative increased $0.6 million primarily due to increased expenses in training and support infrastructure.

Corporate and Other

        Corporate and other expenses consist of unallocated overhead supporting both segments, including legal, finance, human resources, real estate facilities and strategic development activities, as well as interest expense. Beginning in fiscal 2005, corporate and other expenses include incremental costs related to being an independent public company, including additional insurance costs and stock-based compensation.

(a)

Included in selling, general and administrative in the Consolidated Statements of Operations.

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Fiscal Year Ended April 30, 2005 as Compared to the Fiscal Year Ended April 30, 2004

        Corporate and other total expenses, excluding interest income and expense, decreased $1.1 million primarily due to the following:

•

We incurred a $4.5 million stock-based compensation charge related to our IPO;



•

We incurred independent public company costs of $4.9 million in fiscal 2005, such as additional insurance costs and stock-based compensation;



•

We incurred a $10.4 million litigation settlement charge in fiscal 2004. In fiscal 2005, we recognized a $0.6 million recovery in the related litigation settlement liability to reflect updated information based on historical experience;

        Interest expense increased as a result of the $175.0 million Notes issuance in June 2004.

Fiscal Year Ended April 30, 2004 as Compared to the Fiscal Year Ended April 30, 2003

        Corporate and other total expenses increased $14.6 million primarily due to $10.4 million litigation settlement charge incurred in fiscal 2004 and an increase in general and administrative expenses due to increased headcount.

Seasonality of Operations

        Given the seasonal nature of the tax preparation business, we have generated and expect to continue to generate substantially all our revenues during the tax season period from January through April of each year, which overlaps our third and fourth fiscal quarters. During fiscal 2005, we generated approximately 91% of our revenues during this period. We generally operate at a loss through the first eight months of each fiscal year, during which we incur costs associated with preparing for the upcoming tax season.

Refund Anticipation Loan Risk-Sharing

        Our network facilitates the sale of RALs pursuant to agreements with SBB&T and Household. In fiscal 2005, approximately 80% of RALs facilitated by our network were sold pursuant to our contractual relationship with SBB&T. Under our existing agreements with Household and with respect to RALs facilitated by SBB&T in prior years (please refer to Overview section of Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for additional detail), we share the risks of non-collection on RALs. If actual loan losses exceed anticipated loan losses, we are obligated to reimburse these financial institutions for a majority of the deficit. Conversely, if actual loan losses are less than anticipated, we receive a majority of the surplus. We have experienced considerable variability in the amount of revenues we earned under these agreements. We will continue to receive a portion of the collections with respect to RALs facilitated by SBB&T in prior years as well as RALs facilitated by Household although we expect such amounts from prior year loans facilitated by SBB&T to diminish.

        As discussed in greater detail in the Overview section of Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations, under the renegotiated agreement with SBB&T, if the amount of uncollected loans exceeds the net finance fees received by SBB&T, we have agreed to reimburse SBB&T in an amount equal to 50% of such difference. However, based upon our historical experience, we do not currently expect that this potential reimbursement obligation will have a material impact on our business.

Separation from Cendant and Related Party Transactions

        Upon completion of our IPO, we entered into a transitional agreement with Cendant to provide for an orderly transition to being an independent company and to govern the continuing arrangements

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between us and Cendant. We also entered into a sublease agreement for our corporate headquarters in Parsippany, New Jersey which expires in September 2005 and a sublease assignment and assumption agreement for our technology facility in Sarasota, Florida. We pay rent directly to the landlord of the Sarasota, Florida facility under Cendant's lease, which expires in May 2006. Our rent and related costs under these agreements were $1.9 million, $1.5 million and $1.0 million in fiscals 2005, 2004 and 2003, respectively. Under the transitional agreement, Cendant agreed to provide us with various services, including services relating to facilities, human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable services, tax support, event marketing, revenue audit services, public and regulatory affairs, telecommunications services, information technology services and call support services. The transitional agreement also contains agreements relating to indemnification, tax sharing and tax indemnification, access to information and non-solicitation of employees.

        In fiscal 2005, we incurred an aggregate of $2.5 million of expenses related to such transitional and other related agreements with Cendant.

        Under the transitional agreement, the cost of each transitional service generally reflects the same payment terms and is calculated using the same cost allocation methodologies for the particular service as those associated with the costs in our historical consolidated financial statements. The transitional agreement was negotiated in the context of a parent-subsidiary relationship. The provisions of many of the services were transitioned at similar costs to those allocated by Cendant historically. There are no fixed or minimum contractual purchase obligations under the transitional agreement and other related agreements.

        On May 1, 2005 we signed a new lease with a new lessor for office space located in Parsippany, New Jersey. We plan to relocate our current corporate headquarters to this office space in the second quarter of fiscal 2006. In addition, we expect to incur approximately $2.0 million in capital costs in order to build out our new office space.

        We completed most transition agreements with Cendant during fiscal 2005 and are now predominantly operational on our own financial systems and infrastructure. We have completed the implementation of our own back office systems including human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable and tax support. Remaining relationships, for which we rely on Cendant and which we are continuing to evaluate, include the following:

Information Technology Services

        Since our IPO, Cendant has provided us with information technology support and services at their data center in Denver, Colorado through a contract with a third party, which was expected to continue under the transitional agreement until June 2006. On June 30, 2005, we entered into a five-year arrangement with another service provider at a cost of $0.7 million annually and notified Cendant of our intention to terminate these services as of September 30, 2005. As a result, we are required to pay Cendant an estimated early-termination penalty of $0.1 million representing the unamortized lease costs of computer hardware specific to our mainframe environment and unpaid actual costs incurred by Cendant with respect to these services. Cendant had allocated costs for these services to us under the transitional agreement based on usage and the level of support we received from this service provider. Our costs for these services were $0.8 million in fiscal 2005, $1.1 million in fiscal 2004 and $1.7 million in fiscal 2003.

Telecommunications Services

        Since our IPO, Cendant has provided us with telecommunications services, including our local and long distance rate per minute charges, through arrangements it has with third-party providers and will continue doing so under the transitional agreement as an unaffiliated entity until June 30, 2007. Both

40

Cendant and we may terminate the provision of telecommunications services by Cendant, without penalty, upon 180 days written notice by the terminating party. We paid the third party providers directly for these services and our equipment use, and will continue to pay them in this manner under the transitional agreement. We have also paid, and will continue under the transitional agreement to pay for a period of up to three years, Cendant a management fee of approximately $8,000 per month for use of the Cendant telecommunications group's services. Our costs for telecommunications services, including the management fees, was $0.4 million in fiscal 2005, $0.5 million in fiscal 2004 (net of vendor credits totaling $0.1 million) and $0.6 million in fiscal 2003.

Call Support Services

        Since our IPO, Cendant has provided us with customer service support through its Aberdeen, South Dakota call center and will continue to do so under the transitional agreement until December 31, 2005. We may terminate the provision of these services without penalty upon 60 days prior written notice to Cendant. Cendant may terminate providing these services to us, without penalty, after June 30, 2005 upon 120 days prior written notice to us. Prior to our IPO, Cendant allocated the costs for call support based on the number of calls serviced for us in the call center. Since our IPO, and under the transitional agreement, Cendant has allocated costs to us based on the number of minutes incurred for the calls serviced for us. Our costs for call support was $0.2 million in fiscal 2005 and $0.1 million in both fiscal 2004 and 2003.

Event Marketing

        Since our IPO, Cendant has provided us with event marketing services, such as arranging our annual franchisee conventions and other franchisee events, and will continue doing so under the transitional agreement through December 31, 2005. Neither Cendant nor we have the ability to terminate these services prior to the expiration of the transitional agreement. Cendant has allocated the cost of these services to us based on the number of meetings and the number of attendees at meetings planned by Cendant for us and will continue to allocate costs to us in this manner under the transitional agreement. Our allocated share of the cost for these services was $0.1 million in each of fiscals 2005, 2004 and 2003.

Revenue Audit Services

        Since our IPO, Cendant has provided us with revenue audit services by their internal auditors and will continue doing so under the transitional agreement through December 31, 2005. We may terminate the provision of these services without penalty upon 30 days prior written notice to Cendant. Cendant may terminate providing these services to us, without penalty, upon 120 days prior written notice to us. Cendant has allocated the cost of these services to us based on the number of audits performed on us and will continue to allocate costs to us in this manner under the transitional agreement. Our costs for these services were $0.1 million in each of fiscals 2005, 2004 and 2003.

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Contractual Obligations

        The following table presents pro forma future contractual obligations due by period:

(1)

In June 2005, we repaid in full $175.0 million of Notes that were outstanding as of April 30, 2005 and established the $250 million Credit Facility. Borrowings outstanding under the $250 Million Credit Facility as of July 22, 2005 were $110.0 million.

(2)

Represents total estimated costs associated with the transitional agreement for those periods presented. The estimate is based on the pricing terms of the transitional agreement and historical volumes.

Liquidity and Capital Resources

Historical Sources and Uses of Cash from Operations

Background

        Prior to our IPO, funds that we generated from our operations were regularly transferred to Cendant. In addition, Cendant funded expenses on our behalf. As an independent public company, we now maintain our cash and cash equivalents, fund our operations and enter into investing and financing activities independently.

        With respect to financing activities, Cendant historically received the benefit of our operating cash flow and funded our operations following the end of the tax season. Consequently, until the completion of our IPO in June 2004, our financing activities had consisted solely of the settlement of intercompany transactions with Cendant.

Seasonality of Cash Flows

        Our revenues have been and are expected to continue to be highly seasonal. As a result, we generate most of our operating funds during the tax season that consists of the period from January through April. Certain of our expenses are also highly seasonal in nature including our marketing and advertising expenses as well as the costs to operate our company-owned offices, both of which increase shortly before and continue through the tax filing season. During the off-peak season, we require funds to cover our operating expenses as well as to reinvest in our business for future growth. We expect to fund our operations through our operating cash flow and through our credit facility, as required.

Repayment of Long-Term Debt and the Establishment of a $250 Million Credit Facility

        On June 27, 2005, we repaid in full $175.0 million of five-year floating rate senior unsecured notes ("Notes") that were outstanding as of April 30, 2005. On June 25, 2004, in conjunction with our IPO, we had issued the $175.0 million in Notes through a private placement to fund the cash portion of the

42

Special Dividend paid to Cendant upon Cendant's divestiture of its entire ownership interest in us. To repay the Notes, we used cash provided by operating activities of $76.0 million and borrowed $99.0 million from our $100.0 million five-year revolving credit facility (the "$100 Million Credit Facility") that was established in June 2004. We incurred a non-cash charge of $2.7 million related to the write-off of deferred financing costs associated with the repayment of the Notes and termination of our $100 Million Credit Facility noted below.

        On June 29, 2005, we established a $250.0 million five-year unsecured credit facility (the "$250 Million Credit Facility") that made many of the covenants less restrictive than the covenants in our prior debt agreements and reduced the cost of debt. We repaid in full $99.0 million that was outstanding under our $100 Million Credit Facility with proceeds from our $250 Million Credit Facility and then terminated the $100 Million Credit Facility. Borrowings under the $250 Million Credit Facility are to be used to finance working capital needs, potential acquisitions and other general corporate purposes including repurchases of our common stock. The $250 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Eurodollar borrowings bear interest at the LIBOR, as defined in the $250 Million Credit Facility, plus a credit spread as defined in the $250 Million Credit Facility, currently 0.95% per annum. Base Rate borrowings bear interest primarily at the Prime Rate, as defined in the agreement. We may also use the $250 Million Credit Facility to issue letters of credit for general corporate purposes. The $250 Million Credit Facility carries an annual unused fee currently at 0.175% of the total commitment amount of $250.0 million, which is payable quarterly.

        The $250 Million Credit Facility agreement contains covenants, including the requirement that we maintain certain financial covenants, such as a maximum consolidated leverage ratio of 2.5 to 1.0 and a minimum consolidated interest coverage ratio of 4.0 to 1.0. The consolidated leverage ratio is the ratio of consolidated debt to consolidated EBITDA, each as defined in the $250 Million Credit Facility. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense. The maximum leverage ratio and minimum interest coverage ratio remains fixed through the five-year term of the $250 Million Credit Facility.

        The $250 Million 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 our property except in the ordinary course of business, and (v) make dividend and other restricted payments.

        On May 26, 2005, we and a financial institution entered into a bridge credit agreement ("Bridge Agreement"), pursuant to which the financial institution agreed to establish a revolving line of credit in favor of us in the aggregate principal amount of up to $50.0 million to temporarily supplement our $100 Million Credit Facility after repaying the Notes. The interest payable on the unpaid principal amount of any amount borrowed under the Bridge Agreement was calculated at a rate equal to the LIBOR Market Index Rate plus 1.25% from the date of the loan until such principal amount was paid in full. The Bridge Agreement incorporated by reference certain terms and conditions set forth in the $100 Million Credit Facility. The Bridge Agreement was scheduled to terminate by no later than January 31, 2006, but was terminated upon the execution of the $250 Million Credit Facility on June 29, 2005. We did not borrow against the $50.0 million that temporarily supplemented our $100 Million Credit Facility.

        To the extent we complete any acquisitions, we may require additional debt or equity 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.

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        For a more detailed discussion of our Notes and our credit facilities, including a description of financial covenants which we were required to maintain under the Notes and $100 Million Credit Facility, please refer to Item 8—Note 12, "Long-Term Debt and Credit Facility" to our Consolidated Financial Statements included in this Annual Report on Form 10-K. As of April 30, 2005, we were in compliance with these covenants.

Sources and Uses of Cash

        Operating activities:    In fiscal 2005 net cash provided by operating activities was $115.0 million. Described below are some of the more significant items that contributed to, or partially offset, our net cash provided by operating activities in fiscal 2005:

•

Collection of accounts receivable—Our transition to the new agreement with SBB&T resulted in the collection of cash in fiscal 2005 for financial products facilitated in fiscal 2005 as well as fiscal 2004 as compared with the prior agreement in which similar receivables were collected in the following fiscal year.



•

Payments related to litigation settlement—We made payments of $3.0 million related to the litigation settlement reserve that was established in fiscal 2004.



•

Interest payments—We made interest payments of $5.0 million relating to Notes and borrowings under our $100 Million Credit Facility, both of which were established in fiscal 2005.



•

Marketing and advertising payments—We made marketing and advertising payments of $31.0 million relating to increasing awareness of our brand to drive customer growth.

        Net cash provided by operating activities was $63.6 million in fiscal 2004. Described below are some of the more significant items that contributed to, or partially offset, our net cash provided by operating activities in fiscal 2004:

•

Accounts receivable—The increase in our accounts receivable balance was primarily related to higher revenues earned from RALs facilitated in the fiscal 2004 tax season which was subsequently collected in fiscal 2005.



•

Payments related to litigation settlement—We made payments of $2.0 million related to the litigation settlement reserve established during the same year.



•

Marketing and advertising payments—We made marketing and advertising payments of $30.0 million relating to us increasing awareness of our brand to drive customer growth.

        Net cash provided by operating activities was $64.4 million in fiscal 2003. Some of the more significant items that contributed to, or partially offset, our net cash provided by operating activities in fiscal 2003 included the decrease in our accounts receivable balance and marketing and advertising payments.

        Investing activities:    Net cash used in investing activities was $9.5 million in fiscal 2005. Our investing activities included the funding of development advances by which we provide funds to independent tax practices for the conversion of such operations to the Jackson Hewitt brand as franchisees and/or to provide funds to existing franchisees to assist in their business expansion through the acquisition of independent tax practices. We expect to continue to make such funding in the future. Capital expenditures were primarily related to upgrades on our information technology systems. Cash paid for acquisitions included $1.0 million related to acquisitions completed in fiscal 2005, $1.4 million related to settlement of accrued purchase price obligations and $0.2 million related to the resolution of post-acquisition contingencies by entities that achieved specified revenue levels in fiscal 2005.

        Net cash used in investing activities was $9.4 million in fiscal 2004. Our investing activities included capital expenditures, funding of development advances and the acquisitions of six independent tax practices and one franchise business.

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        Net cash used in investing activities was $13.8 million in fiscal 2003. Our investing activities included capital expenditures, funding of development advances and the acquisitions of thirteen independent tax practices.

        Financing activities:    Net cash provided by financing activities was $2.4 million in fiscal 2005. In connection with our IPO, we issued $175.0 million of Notes and used the entire proceeds to fund the cash portion of the Special Dividend to Cendant. We borrowed and repaid $20.0 million under our $100 Million Credit Facility. We made dividend payments to shareholders of $7.9 million. We also paid fees of $3.3 million to issue the Notes as well as to establish the $100 Million Credit Facility. The decrease in due from Cendant includes the cash settlement of intercompany transactions with Cendant including our federal and state income tax obligations as we were included in the consolidated income tax returns of Cendant up until our IPO date.

        In addition to the cash portion of the Special Dividend paid to Cendant in fiscal 2005, we settled our remaining intercompany balance with Cendant, including our federal and state income tax obligations, through a non-cash distribution of amounts due from Cendant on the date of disposition of $131.9 million.

        Net cash used in financing activities was $50.3 million in fiscal 2004 which represents the cash settlement of intercompany transactions with Cendant.

        Net cash used in financing activities was $51.3 million in fiscal 2003 which represents the cash settlement of intercompany transactions with Cendant.

Future Cash Requirements and Sources of Cash

Future Cash Requirements

        Our primary future cash requirements will be to fund operating activities, credit facility borrowings, development advances, capital expenditures, acquisitions, quarterly dividends and repurchases of our common stock. In fiscal 2006 our primary cash requirements are as follows:

•

Credit facility repayments—As of July 22, 2005 we had $110.0 million outstanding under our $250 Million Credit Facility. We anticipate generating operating cash flow in the fourth quarter of fiscal 2006 to partially repay outstanding borrowings under the $250 Million Credit Facility.



•

Debt service—In June 2005 we made a final interest payment of $2.1 million related to our $175.0 million Notes, which were repaid in full in June 2005.



•

Quarterly dividends—On July 15, 2005, we made a quarterly cash dividend payment of $0.08 per share to our common stockholders of record on June 28, 2005. The total dividend payment was $3.0 million. In addition, we intend to make quarterly cash dividend payments over the remainder of fiscal 2006.



•

Marketing and advertising expenses—Cash outlays for marketing and advertising expenses are seasonal in nature and typically increase in our third and fourth fiscal quarters consistent with the tax season. Marketing and advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early-season and late-season tax filers. Cash collections from marketing and advertising royalties from our franchise operations segment largely fund our budget for these types of expenses. We intend to increase spending in fiscal 2006 as we continue to increase awareness of our brand to drive customer growth.



•

Costs to operate company-owned offices—Our company-owned offices complement our franchise system and are focused primarily on organic growth through the opening of new company-owned offices within existing territories as well as increasing office productivity. Costs to operate our company-owned offices begin to increase during the third fiscal quarter and peak during the

45

fourth fiscal quarter primarily due to the labor costs related to the seasonal employees who provide tax-filing services to our customers.

•

Repurchase of shares of our common stock—As of July 6, 2005 we had repurchased 500,000 shares of our common stock under a previously authorized share repurchase program. In July 2005, our Board of Directors authorized a new $50.0 million share repurchase program. As of July 22, 2005 we had repurchased, in the aggregate, 825,900 shares of common stock totaling $19.4 million, including commissions, under both programs. Such repurchases to date have been made in open market purchases. In the future, such repurchases may be made through open market purchases or privately negotiated transactions. Such repurchases depend on the prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Future Sources of Cash

        We expect our primary sources of cash to be positive net cash provided by operating activities beginning in January and our $250 Million Credit Facility, which will both be used to fund future cash requirements in fiscal 2006.

Critical Accounting Policies

        In presenting our 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 consolidated financial statements were the most appropriate at that time. The following accounting policy may affect reported results resulting in variations in our financial results both on an interim and fiscal year end basis.

Goodwill

        We have reviewed the carrying value of our goodwill as required by SFAS No. 142, by comparing the carrying value of our reporting units to their fair value and determined that the carrying amount of our reporting units did not exceed their respective fair value in fiscal 2005. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions will 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 earnings. We will continue to review the carrying value of goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. An adverse change to our business will impact our consolidated results and may result in an impairment of our goodwill. The aggregate carrying value of our goodwill was $392.7 million as of April 30, 2005. See Item 8—Note 5—"Goodwill and Other Intangible Assets, Net" to our Consolidated Financial Statements for more information on goodwill.

Other Intangible Assets

        In accordance with the provisions of SFAS No. 142, 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. We will continue to review the carrying value of indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. An adverse change to our business will impact our consolidated results and may result in an impairment of our indefinite-lived

46

intangible assets. The aggregate carrying value of our indefinite-lived intangible assets was $81.0 million as of April 30, 2005. See Item 8—Note 5—"Goodwill and Other Intangible Assets, Net" to our Consolidated Financial Statements for more information on indefinite-lived intangible assets.

Recent Accounting Pronouncement

        In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R"), which eliminates the alternative to measure stock-based compensation awards using the intrinsic value approach permitted by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). We are required to adopt the provisions of SFAS No. 123R on May 1, 2006. On January 1, 2003, we adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123 and the transitional provisions of SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." As a result, we have been recording stock-based compensation expense since January 1, 2003 for employee stock awards that were granted or modified subsequent to December 31, 2002. In addition, our current practice with respect to forfeitures is to recognize the related benefit upon forfeiture of the award. Upon adoption of SFAS No. 123R, we will be required to recognize compensation expense net of estimated forfeitures upon the issuance of the award. We are currently evaluating the remaining provisions of SFAS No. 123R to determine the effect, if any, it may have on our financial position, results of operations or cash flows.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        A 1% change in the interest rate on our Notes outstanding as of April 30, 2005 would result in an increase or decrease in interest expense of $1.8 million annually. On June 27, 2005 we repaid in full $175.0 million of Notes and on June 29, 2005 we established a $250.0 Million Credit Facility. Borrowings outstanding under the $250 Million Credit Facility as of July 22, 2005 were $110.0 million. A 1% change in the interest rate on our borrowings outstanding as of July 22, 2005 would result in an increase or decrease in interest expense of $1.1 million annually.

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ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Jackson Hewitt Tax Service Inc.:

        We have audited the accompanying consolidated balance sheets of Jackson Hewitt Tax Service Inc. and subsidiaries (the "Company") as of April 30, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended April 30, 2005. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

        As discussed in Note 2 in the consolidated financial statements, on January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation.

/s/ Deloitte & Touche LLP
Parsippany, New Jersey
July 22, 2005

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JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)