
DATE: Tuesday, July 29, 1997                TAG: 9707290250

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

DATELINE: VIRGINIA BEACH                    LENGTH:   96 lines

JACKSON HEWITT TO SELL SHARES STOCK OFFERING COMES IN THE WAKE OF A STRONG FINANCIAL PERFORMANCE FOR THE FISCAL YEAR.

The tax-preparation service Jackson Hewitt Inc. is scheduled to tap the stock market Thursday for capital to finance an expansion drive and reduce its dependence on borrowed funds.

A planned offering of one million new common shares could raise about $18 million for the Virginia Beach-based company. The stock will be priced Wednesday evening and offered Thursday, said Scott & Stringfellow Inc., one of two securities firms managing the underwriting.

Jackson Hewitt already has 5.2 million common shares, which are traded in the Nasdaq National Market System under the ticker symbol JTAX. Its shares closed Monday at $18.50, down 75 cents for the day.

As part of the public offering, five existing shareholders will sell 130,790 shares. These include Linda L. Hewitt of Virginia Beach, who is selling 70,790 shares, and Paul Grunberg of Valatie, N.Y., who will sell 20,000 shares.

In addition, the trustees of Jackson Hewitt's 401(k) retirement plan will sell 20,917 shares, the offering circular for prospective investors said.

Co-managers Scott & Stringfellow and Janney Montgomery Scott Inc. and other securities firms participating in the stock offering have an option to buy as many as 169,364 new shares on top of the one million being offered.

In its offering circular, Jackson Hewitt said it expects to use the proceeds to reduce its reliance on borrowed funds, to increase working capital, and for general corporate purposes. The funds also could be used to promote sales of additional franchises and to open several more company-owned stores.

During the recent tax-filing season, Jackson Hewitt operated 76 offices, while its franchisees operated 1,296 offices under the Jackson Hewitt banner.

The drive to open additional offices is a change in the company's strategy for the past year. Under Chairman and President Keith E. Alessi, Jackson Hewitt emphasized boosting the volume of tax returns prepared at existing offices.

The number of returns handled during the past filing season climbed 21 percent to 875,000, while the number of Jackson Hewitt offices grew only 2 percent to 1,372.

Jackson Hewitt promotes itself as the nation's second largest tax-preparation service after H&R Block. However, Jackson Hewitt is a distant second, with fewer than one-quarter of the 8,000 stores that Block operates in the United States.

Jackson Hewitt's stock offering comes in the wake of a strong financial performance for the fiscal year ended April 30. The company reported net income of $4.98 million, or 91 cents per share, for the year. That was more than twice its fiscal 1996 income of $2.4 million, or 40 cents per share, in fiscal 1996.

The earnings improvement came on a 26 percent rise in annual revenue, which totaled $31.43 million in fiscal 1997. Jackson Hewitt derived almost 60 percent of last year's revenue from sales of franchises and royalties and advertising fees paid by franchisees.

Another 30 percent of its revenue for 1997 came from fees on refund anticipation loans and other bank products.

Driven partly by the improvements in Jackson Hewitt's efficiency and earnings, the company's share price has quadrupled from $4.25 at the beginning of the year. Since the beginning of July, the price has climbed 68 percent.

Jackson Hewitt draws the bulk of its business from lower-income and middle-income households that are seeking quick refunds and are willing to pay to have their returns filed electronically. Some customers agree to pay high interest rates and additional fees for short-term loans based on the size of the refunds they are due.

In its offering circular, Jackson Hewitt acknowledged that it could suffer if the department-store chain Montgomery Ward & Co. closes a significant number of stores immediately before or during the next tax-filing season. During the latest tax-filing season, Jackson Hewitt operated 167 offices in Montgomery Ward stores.

Montgomery Ward, based in Chicago, recently sought protection from its creditors under Chapter 11 of the federal bankruptcy code.

Jackson Hewitt also disclosed that it was notified by the Internal Revenue Service last year that it was barred from operating company-owned stores in New York City during the 1997 and 1998 tax-filing seasons. The ban stemmed from violations of IRS rules regarding electronic filing identification numbers, the company said. Jackson Hewitt said it adopted procedures to prevent these types of violations from occurring again.

Jackson Hewitt said it expects to retain future earnings and has no plans to pay a dividend. In addition, an agreement with its primary lender bars the payment of any dividend without the lender's permission, Jackson Hewitt said. ILLUSTRATION: Jackson Hewitt

Graphic

What's Happening

The company is scheduled to offer one million new common shares

Thursday to raise about $18 million for the Virginia Beach-based

firm.

What's Next

The stock offering is part of an expansion drive that could include

opening more stores. The capital will also reduce the company's

reliance on borrowed funds.