The following discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements beginning on page 49 in this Annual Report on 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 and other revenues; and

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

Revenues that we earn consist of the following components:

Franchise operations revenues:

Our standard franchise agreement is for a term of 10 years. In 1999 and 2000, we offered our franchisees the opportunity to renew their franchise relationship with us before their franchise agreement expired. These new agreements were for a new 10-year term and approximately a third of these existing franchise agreements will come up for renewal in 2009 or 2010. We are currently working with elected representatives of our franchisee community on the development of a new franchise agreement and anticipate that this will be completed by September 30, 2009. The economic terms outlined below and other operating requirements may change in the new agreement.

Royalty Revenues: We earn royalty revenues from our franchisees. Our current franchise agreements require franchisees to pay us a royalty fee of 15% of their revenues (12% for most territories sold before mid-year 2000). In fiscal 2009, our average royalty rate was 13.65%. Franchisees earn revenues from the preparation of tax returns and from related products and services.

Marketing and Advertising Revenues: In addition to royalty revenues, franchisees pay us a marketing and advertising fee equal to 6% of their revenues.

Financial Product Fees: We earn financial product fees primarily from financial institutions that collectively provide financial products, including refund anticipation loans, to the entire network of Jackson Hewitt Tax Service offices during the tax season in the third and fourth fiscal quarters. We have agreements under which these financial institutions pay us a fixed fee to offer, process and administer such financial products through Jackson Hewitt Tax Service locations as well as variable payments upon the attainment of certain contractual growth thresholds. These Agreements expire on October 31, 2010.

We earn financial product fees from a financial institution responsible for issuing and managing our prepaid debit card program and providing line of credit products related to the card. Fees earned are based on achieving certain levels of revenues and gross profits under the program.

We earn financial product fees in connection with our Gold Guarantee product, which is an extended warranty that a customer may purchase whereby the taxpayer may be reimbursed up to a set limit for any additional tax liability owed due to an error in the preparation of the customer's tax return.

Other Revenues: Other revenues include ancillary fees we earn from franchisees, including a $2.00 fee per tax return 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. In fiscal 2009, over 90% of all tax returns filed by our franchisees were filed electronically. Other revenues also include revenues that we earn from the sale or transfer of our franchise territories.

Company-owned office operations revenues:

Service Revenues: Service revenues include only revenues earned at our company-owned offices and primarily consist of fees that we earn directly from our customers for the preparation of tax returns.

Wal-Mart

On March 11, 2009, we entered into an agreement with Wal-Mart that grants us the exclusive right to provide tax preparation services within Wal-Mart stores during the 2010 and 2011 tax seasons. The Wal-Mart agreement expires on May 30, 2011 and it may be renewed for three additional one-year terms upon the mutual agreement of the parties. The Wal-Mart agreement contains certain early termination rights and indemnity obligations.

Compensation to Wal-Mart consists of fixed license fees for each Wal-Mart store in which a Jackson Hewitt Tax Service office operates, additional fees based on the number of tax returns prepared by each office in the applicable tax seasons and additional fees based on the preparation and filing of tax returns through our on-line tax preparation software, that we intend to introduce beginning in the 2010 tax season, for customers who accessed such on-line tax preparation software via walmart.com (collectively, the "Fees"). Franchised offices operating Jackson Hewitt Tax Service offices in Wal-Mart stores pursuant to the Wal-Mart Agreement are obligated under their franchise agreements with us to reimburse us for all Fees paid on their behalf to Wal-Mart.

We have been involved with Wal-Mart for many years prior to this exclusive agreement and it has historically represented a cost effective and efficient retail distribution channel from which to generate incremental tax returns. In fiscal 2009, approximately 12% of the tax returns prepared by our network were generated in stores located in Wal-Mart. Under our arrangement with Wal-Mart, with an increased level of collaboration and an aggressive joint marketing and promotion plan, the overall Wal-Mart opportunity, not just the incremental portion, offers substantial growth for us. We are in the process of adding a significant number of new, incremental Wal-Mart store locations for the 2010 tax season. We expect that a majority of these locations will be run by our franchisees and the remaining locations will be part of our company-owned operations. We believe this exclusive arrangement will help grow our network and increase our revenues.

Restructuring Actions and Other Termination Charges

Lease Termination and Related Expenses: As part of an overall effort to optimize company-owned store locations and improve profitability, in fiscal 2009, approximately 303 under-performing store locations were either closed, or we decided to exit in connection with our April 2009 restructuring action, which resulted in lease termination and related expenses of $6.8 million.

Employee Termination Expenses: As part of an initiative to achieve a lower cost structure and in connection with other personnel changes, our overall consolidated workforce was reduced by approximately 21% which resulted in employee termination expenses of $3.4 million in fiscal 2009.

Management Changes

On June 4, 2009, the employment of Michael C. Yerington, formerly our Chief Executive Officer and President, was terminated. Upon termination, Mr. Yerington also resigned as a director of our Board. On the same day, our Board of Directors announced that Harry W. Buckley was appointed Chief Executive Officer, President and a director on our Board.

On March 12, 2009, the employment of Douglas K. Foster, formerly our Chief Marketing Officer, was terminated.

Effective November 3, 2008, Mark L. Heimbouch, formerly our Chief Operating Officer, resigned.

2008 Economic Stimulus

In February 2008, President Bush signed into law the Economic Stimulus Act of 2008. The new law allowed a refundable credit against tax to low and middle-income individuals for 2008. We prepared approximately 63,000 Economic Stimulus Program ("ESP") tax returns in fiscal 2008, which were tax returns filed by customers that had no legal requirement to file a tax return but filed a tax return solely to receive an economic stimulus payment from the IRS. We have presented certain tax return data excluding the impact of ESP tax returns in order to help investors compare, on an equivalent basis, our financial results for fiscal 2008 as compared to fiscal 2009 and fiscal 2007.

2007 Internal Review

On September 20, 2007, we reached an agreement with the IRS resolving its examination of our internal tax return preparation compliance systems and processes. In connection with closing the audit, we agreed to make a voluntary compliance payment of $1.5 million.

In September 2007, the Department of Justice ("DOJ") announced that it had reached a settlement of the civil injunction suits it had filed in April 2007 against a franchisee and other named defendants operating in four states based upon allegations involving fraudulent tax return preparation ("DOJ Lawsuits"). We were not named as a defendant in these suits. In October 2007, the franchisee named in the DOJ Lawsuits exited the Jackson Hewitt system.

We retained outside counsel to conduct an internal review (the "Internal Review") of the allegations set forth in the DOJ Lawsuits and of our policies, practices and procedures in connection with such tax return preparation activities. The Internal Review's examination determined that there was no corporate involvement in the allegations made against the franchisee. It also resulted in recommendations which were implemented for the 2008 tax season and enhanced certain systems and processes, including the development of additional compliance requirements such as enhanced monitoring tools and increased training of franchisees and tax return preparers.

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.

                                                                Fiscal Year Ended April 30,
                                                           2009            2008            2007
                                                                      (In thousands)
Consolidated Results of Operations:
Revenues
Franchise operations revenues:
Royalty                                                  $  72,567       $  76,549       $  83,060
Marketing and advertising                                   31,994          33,994          37,159
Financial product fees                                      59,871          71,496          80,011
Other                                                        6,227           9,934          12,776
Service revenues from company-owned office operations       77,662          86,532          80,190

Total revenues                                             248,321         278,505         293,196

Expenses
Cost of franchise operations                                35,059          35,383          33,435
Marketing and advertising                                   43,828          48,388          44,247
Cost of company-owned office operations                     68,681          65,886          51,706
Selling, general and administrative                         41,618          48,895          35,792
Depreciation and amortization                               13,194          13,233          12,266

Total expenses                                             202,380         211,785         177,446

Income from operations                                      45,941          66,720         115,750
Other income/(expense):
Interest income                                              1,686           1,835           1,856
Interest expense                                           (14,577 )       (14,402 )        (9,972 )
Write-off of deferred financing costs                         (135 )            -             (108 )

Income before income taxes                                  32,915          54,153         107,526
Provision for income taxes                                  13,451          21,726          42,146

Net income                                               $  19,464       $  32,427       $  65,380

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

                                                            Fiscal Year Ended April 30,
                                                      2009        2008      2008(1)       2007
Operating Statistics
Offices:
Franchise operations                                   5,610       5,763       5,763       5,778
Company-owned office operations(2)                       974       1,000       1,000         723

Total offices-system(2)                                6,584       6,763       6,763       6,501

Tax returns prepared (in thousands):
Franchise operations                                   2,572       2,995       2,942       3,229
Company-owned office operations                          383         461         451         420

Total tax returns prepared-system                      2,955       3,456       3,393       3,649

Average revenues per tax return prepared:
Franchise operations(3)                             $ 206.65    $ 189.15    $ 191.98    $ 191.82

Company-owned office operations(4)                  $ 202.90    $ 187.69    $ 191.23    $ 190.74

Average revenues per tax return prepared-system     $ 206.17    $ 188.96    $ 191.88    $ 191.69

Financial products (in thousands)(5)                   2,749       3,108       3,108       3,412

Average financial product fees per financial
product(6)                                          $  21.78    $  23.00    $  23.00    $  23.45

(1) Excludes the impact of fiscal 2008 ESP tax returns.

(2) Includes 103 offices that we intend to exit in connection with our April 2009 restructuring action.

(3) 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.

(4) Calculated as tax return 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.

(5) Consists of RALs, assisted refunds and Gold Guarantee products.

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

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

                                                           Fiscal Year Ended April 30,
                                              2009            2008           2008(1)          2007
                                                          (Dollars in thousands, except
                                                          per tax return prepared data)
Total revenues earned by our
franchisees(A)                              $ 531,605       $ 566,562       $ 564,875       $ 619,319

Average royalty rate(B)                         13.65 %         13.53 %         13.53 %         13.41 %
Marketing and advertising rate(C)                6.00 %          6.00 %          6.00 %          6.00 %

Combined royalty and marketing and
advertising rate(B plus C)                      19.65 %         19.53 %         19.53 %         19.41 %

Royalty revenues(A times B)                 $  72,573       $  76,549       $  76,428       $  83,060
Marketing and advertising revenues(A
times C)                                       31,997          33,994          33,892          37,159

Total royalty and marketing and
advertising revenues                        $ 104,570       $ 110,543       $ 110,320       $ 120,219

Number of tax returns prepared by our
franchisees(D)                                  2,572           2,995           2,942           3,229

Average revenues per tax return prepared
by our franchisees(A divided by D)          $  206.65       $  189.15       $  191.98       $  191.82

(1) Excludes the impact of fiscal 2008 ESP tax returns.

Amounts may not recalculate precisely due to rounding differences.

Fiscal Year Ended April 30, 2009 as Compared to the Fiscal Year Ended April 30, 2008

Total Revenues

Total revenues decreased $30.2 million, or 11%, primarily due to (i) a decrease in the number of tax returns prepared by our network; (ii) lower financial product fees impacted by a lower relative fixed fee component in fiscal 2009 under our current agreements with the providers of financial products; and
(iii) lower territory sales as compared to fiscal 2008. Our network of franchised and company-owned offices prepared 2.96 million tax returns in fiscal 2009, a decline of 13% as compared to fiscal 2008 excluding prior year ESP tax returns (a decline of 14% including prior year ESP tax returns).

Excluding prior year ESP tax returns, average revenues per tax return prepared increased 7% as compared to last year (increased 9% including prior year ESP tax returns). Customer retention was 56% in fiscal 2009 as compared to just under 58% in fiscal 2008. Same store tax return volume decreased 12%, excluding prior year ESP tax returns (decreased 13% including prior year ESP tax returns).

We believe that a series of factors contributed towards impeding our ability to compete in the market place during the 2009 tax season. As a result, we have engaged a management consulting firm to assist us with defining the root causes of our poor performance and to assist us in formulating a strategy that will set us on a path to sustainable improved performance. An important part of the assessment process is determining the degree to which the following factors adversely affected our business in the 2009 tax season: (i) our customers' overall experience; (ii) our locations; (iii) our pricing; (iv) our overall marketing effectiveness, especially our local marketing; (v) online encroachment; and (vi) our early season product execution. By better understanding which factors contributed most to our difficult 2009 tax season, we will be able to direct our attention and resources to improve our performance in the 2010 tax season.

An important element of our location strategy is that the maturation of our offices from which the average number of tax returns prepared per office increases as offices age. Our retail-partner locations typically prepare fewer tax returns as they tend to be smaller in size than typical storefront locations. Due to the factors discussed above, the average number of tax returns prepared per office presented in the table below decreased in most age categories as compared to fiscal 2008. The following table includes, for fiscal 2009, the average number of tax returns prepared by offices in our network, including the percentage of retail-partner locations as a percentage of total offices by age category, based upon the number of years in our network:

                                          Retail-Partner
                                        Locations as a % of      Average Number of Tax
Number of Years    Offices as a %        Total Offices By         Returns Prepared per
in our Network    of Total Offices              Age              Office (Total Offices)
1                                7 %                     20 %                       205
2                                7 %                     19 %                       235
3                                9 %                     14 %                       274
4                                9 %                     15 %                       305
5                               10 %                     29 %                       348
6                               10 %                     39 %                       405
7+                              48 %                     21 %                       558

                               100 %

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

Total Expenses

Total operating expenses decreased $9.4 million, or 4%. Highlights were as follows:

Cost of franchise operations: Cost of franchise operations decreased $0.3 million, or 1%, primarily due to (i) lower compensation-related costs of $2.6 million; (ii) lower meetings and conferences expenses of $0.9 million; (iii) the absence of a $0.4 million charge related to the termination of franchise agreements in connection with the October 4, 2007 Acquisitions (See "Note 10-Acquisitions"); (iv) lower Gold Guarantee program costs of $0.4 million; and
(v) lower miscellaneous expenses of $1.1 million (with none individually in excess of $0.3 million) due to overall improved productivity. These expenses were partially offset by a higher provision for uncollectible receivables of $4.4 million and higher amortization on development advance notes ("DANs") of $0.7 million.

Marketing and advertising: Marketing and advertising expenses decreased $4.6 million, or 9%, primarily due to (i) lower media expense of $3.8 million;
(ii) lower sponsorship-related expenses of $1.6 million; and (iii) the absence of a franchise marketing incentive related to the 2008 tax season of $1.4 million. These expenses were partially offset by higher advertising agency fees of approximately $3.0 million in connection with using a new advertising agency.

Cost of company-owned office operations: Cost of company-owned office operations increased $2.8 million, or 4%, primarily due to lease termination and related costs of $6.8 million and higher storefront occupancy costs of $2.4 million. These costs were partially offset by (i) lower seasonal labor costs of $3.5 million; (ii) lower provision for uncollectible accounts receivable of $2.3 million; and (iii) a recovery of previously written off accounts receivable of $0.7 million.

Selling, general and administrative: Selling, general and administrative expenses decreased $7.3 million, or 15%, primarily due to (i) the absence of Internal Review expenses of $5.8 million; (ii) the absence of a $5.7 million severance charge related to the departure of our former Chief Executive Officer in October 2007; (iii) lower bonus and commission expense of $1.7 million;
(iv) the favorable effect of a $1.5 million insurance recovery related to a legal settlement; (v) lower share-based compensation of $1.3 million; and
(vi) lower insurance premiums of $0.4 million. These costs were partially offset by (i) employee termination and related expenses of $3.4 million related to workforce reductions in the first and fourth quarters of fiscal 2009 and certain other employee terminations; (ii) higher external legal fees, net (unrelated to the Internal Review) of $3.0 million; and (iii) a charge of $2.8 million related to a legal settlement.

Other Income/(Expense)

Interest expense: Interest expense increased $0.2 million, or 1%, primarily due to a higher average debt balance, the higher credit spread and amortization of deferred financing costs related to May 2008 amendment. Partially offsetting the overall increase were lower market interest rates. Our average cost of debt was 4.9% and 5.6% in fiscal 2009 and fiscal 2008, respectively.

Provision for Income Taxes

Our effective tax rate was slightly higher in fiscal 2009 as compared to fiscal 2008 (40.87% versus 39.69%) due to a larger percentage of taxable income earned in states with higher corporate income tax rates.

Fiscal Year Ended April 30, 2008 as Compared to the Fiscal Year Ended April 30, 2007

Total Revenues

Total revenues decreased $14.7 million, or 5%, primarily due to a decrease in the number of tax returns prepared by our network, lower financial product fees earned under agreements with financial institutions and lower territory sales as compared to fiscal 2007. Excluding ESP tax returns, our network of franchised and company-owned offices prepared 3.39 million tax returns in fiscal 2008 (3.46 million total tax returns), a decline of 7% as compared to fiscal 2007 (a decline of 5% for total tax returns). These reductions were partially offset by service revenues of $15.2 million earned at the 182 company-owned offices we added in fiscal 2008 through acquisitions.

Excluding ESP tax returns, average revenues per tax return prepared remained essentially flat as compared to fiscal 2007 (a decrease of 1% for total returns). Customer retention was just under 58% in fiscal 2008 as compared to just over 60% in fiscal 2007. Same store tax return volume decreased approximately 9% excluding ESP tax returns (and was down 7% for all tax returns).

Contributors to the overall decline in the number of tax returns prepared were as follows: (i) lack of a pre-season product to help attract customers into our stores in the January and early February timeframe; (ii) the continued negative publicity surrounding the DOJ Lawsuits and the ineffectiveness of marketing messages; and (iii) the impact of our increased compliance efforts.

Due to the factors discussed above, the average number of tax returns prepared per office presented in the table below decreased in most age categories as compared to fiscal 2007. The following table includes, for fiscal 2008, the average number of tax returns prepared by offices in our network, including the percentage of retail-partner locations as a percentage of total offices by age category, based upon the number of years in our network:

                                                                                            Average Number of Tax
                                                             Retail-Partner                 Returns Prepared per             Average Number of Tax
                                                           Locations as a % of              Office Excluding ESP             Returns Prepared per
Number of Years               Offices as a %                Total Offices By                 Tax Returns (Total                 Office-All Tax
in our Network               of Total Offices                      Age                            Offices)                  Returns (Total Offices)
1                                           8 %                             27 %                              228                               234
2                                          10 %                             15 %                              267                               273
3                                          10 %                             18 %                              315                               322
4                                          10 %                             32 %                              366                               374
. . .