UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2013
OR
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number 000-54660
JTH Holding, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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27-3561876 |
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(State of incorporation) |
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(IRS employer identification no.) |
1716 Corporate Landing Parkway
Virginia Beach, Virginia 23464
(Address of principal executive offices)
(757) 493-8855
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s Common Stock, $0.01 par value, at the close of business on March 8, 2013 was 12,080,854 shares.
JTH HOLDING, INC.
Form 10-Q for the Period Ended January 31, 2013
JTH HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
January 31, 2013 (unaudited) and April 30, 2012
(In thousands except share data)
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(unaudited) |
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April 30, 2012 |
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Assets |
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Current assets: |
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|
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Cash and cash equivalents |
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$ |
849 |
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$ |
19,848 |
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Receivables (note 2): |
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Trade accounts |
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31,869 |
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38,321 |
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Notes |
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106,031 |
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41,889 |
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Interest |
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8,018 |
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1,610 |
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Allowance for doubtful accounts |
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(5,228 |
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(5,044 |
) | ||
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Total receivables, net |
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140,690 |
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76,776 |
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Prepaid expenses and other current assets |
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18,675 |
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5,328 |
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Income tax receivable |
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12,579 |
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286 |
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Deferred income taxes (note 8) |
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76 |
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41 |
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Total current assets |
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172,869 |
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102,279 |
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Property, equipment, and software, net of accumulated depreciation of $18,286 and $16,682 for January 31, 2013 and April 30, 2012, respectively |
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31,978 |
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23,948 |
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Notes receivable, excluding current portion, net of allowance for uncollectible amounts of $2,082 and $2,086 for January 31, 2013 and April 30, 2012, respectively, (note 2) |
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51,445 |
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35,863 |
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Goodwill |
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1,913 |
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1,913 |
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Other intangible assets, net of accumulated amortization of $6,256 and $5,654 for January 31, 2013 and April 30, 2012, respectively, (note 4) |
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24,561 |
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22,158 |
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Other assets, net (note 3) |
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5,706 |
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2,580 |
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Total assets |
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$ |
288,472 |
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$ |
188,741 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Current installments of long-term debt (note 6) |
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$ |
3,488 |
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$ |
2,736 |
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Accounts payable and accrued expenses (notes 7 and 13) |
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15,260 |
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14,170 |
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Due to area developers (note 2) |
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21,727 |
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21,893 |
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Income taxes payable (note 8) |
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— |
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6,689 |
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Deferred income taxes (note 8) |
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6 |
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1,222 |
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Deferred revenue |
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6,855 |
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3,270 |
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Total current liabilities |
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47,336 |
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49,980 |
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Long-term debt, excluding current installments (note 6) |
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132,880 |
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26,249 |
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Deferred income taxes (note 8) |
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18,199 |
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12,310 |
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Total liabilities |
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198,415 |
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88,539 |
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Stockholders’ equity (notes 7, 9, 10, and 12): |
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Class A preferred stock, $0.01 par value per share, 190,000 shares authorized, 0 and 170,320 shares issued and outstanding January 31, 2013 and April 30, 2012, respectively |
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— |
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2,129 |
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Special voting preferred stock, $0.01 par value per share, 10 shares authorized, issued and outstanding |
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— |
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— |
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Class A common stock, $0.01 par value per share, 21,200,000 shares authorized,12,078,854 and 10,343,957 shares issued and outstanding at January 31, 2013 and April 30, 2012, respectively |
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121 |
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103 |
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Class B common stock, $0.01 par value per share, 1,000,000 shares authorized, 900,000 shares issued and outstanding |
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9 |
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9 |
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Exchangeable shares, $0.01 par value, 100,000 shares issued and outstanding |
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1 |
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1 |
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Additional paid-in capital |
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6,752 |
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3,182 |
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Accumulated other comprehensive income, net of taxes |
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810 |
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676 |
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Retained earnings |
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82,364 |
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94,102 |
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Total stockholders’ equity |
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90,057 |
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100,202 |
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Commitments and contingencies (notes 5, 6, and 13) |
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Total liabilities and stockholders’ equity |
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$ |
288,472 |
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$ |
188,741 |
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See accompanying notes to condensed consolidated financial statements.
JTH HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months and nine months ended January 31, 2013 and 2012 (unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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Revenues: |
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Franchise fees, net of provision for refunds of $232 and $619 for the three and nine months ended January 31, 2013, and $198 and $713 for the three and nine months ended January 31, 2012 |
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$ |
1,760 |
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$ |
1,529 |
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$ |
6,422 |
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$ |
6,920 |
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Royalties and advertising fees |
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14,204 |
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16,789 |
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15,973 |
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18,617 |
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Financial products |
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8,039 |
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11,158 |
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8,510 |
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11,449 |
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Interest income (note 2) |
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3,544 |
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3,016 |
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9,169 |
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7,623 |
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Tax preparation fees, net of discounts |
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1,445 |
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1,909 |
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1,886 |
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2,154 |
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Net gain on sale of customer lists and other assets and other revenue |
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1,546 |
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1,249 |
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2,653 |
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2,548 |
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Total revenues |
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30,538 |
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35,650 |
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44,613 |
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49,311 |
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Operating expenses: |
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Employee compensation and benefits |
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10,285 |
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7,902 |
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24,566 |
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20,111 |
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General and administrative expenses |
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7,857 |
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8,655 |
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19,433 |
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17,713 |
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Advertising expense |
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7,687 |
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8,770 |
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12,786 |
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12,389 |
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Depreciation, amortization, and impairment charges |
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1,728 |
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1,647 |
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5,357 |
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4,965 |
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Total operating expenses |
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27,557 |
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26,974 |
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62,142 |
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55,178 |
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Income (loss) from operations |
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2,981 |
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8,676 |
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(17,529 |
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(5,867 |
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Other income (expense): |
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Foreign currency transaction gains (losses) |
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(1 |
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— |
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3 |
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(4 |
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Interest expense (notes 6 and 7) |
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(819 |
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(674 |
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(1,623 |
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(1,506 |
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Income (loss) before income taxes |
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2,161 |
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8,002 |
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(19,149 |
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(7,377 |
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Income tax expense (benefit) (note 8) |
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1,049 |
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3,325 |
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(7,411 |
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(2,749 |
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Net income (loss) |
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$ |
1,112 |
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$ |
4,677 |
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$ |
(11,738 |
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$ |
(4,628 |
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Net income (loss) per share of Class A and Class B common stock: |
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Basic |
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$ |
0.08 |
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$ |
0.33 |
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$ |
(0.92 |
) |
$ |
(0.41 |
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Diluted |
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0.08 |
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0.33 |
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(0.92 |
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(0.41 |
) | ||||
See accompanying notes to condensed consolidated financial statements.
JTH HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
Three months and nine months ended January 31, 2013 and 2012 (unaudited)
(In thousands)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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Net income (loss) |
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$ |
1,112 |
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$ |
4,677 |
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$ |
(11,738 |
) |
$ |
(4,628 |
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Interest rate swap agreements, net of taxes (note 7) |
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213 |
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205 |
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368 |
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161 |
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Unrealized gain (loss) on equity securities available for sale, net of taxes (note 3) |
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(42 |
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— |
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110 |
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— |
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Foreign currency translation adjustment |
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(197 |
) |
(43 |
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(390 |
) |
(460 |
) | ||||
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Forward contracts related to foreign currency exchange rates (note 7) |
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46 |
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(11 |
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46 |
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(11 |
) | ||||
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Comprehensive income (loss) |
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$ |
1,132 |
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$ |
4,828 |
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$ |
(11,604 |
) |
$ |
(4,938 |
) |
See accompanying notes to condensed consolidated financial statements.
JTH HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended January 31, 2013 and 2012 (unaudited)
(In thousands)
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2013 |
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2012 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(11,738 |
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$ |
(4,628 |
) |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Provision for doubtful accounts and franchise fee refunds |
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4,850 |
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3,801 |
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Depreciation and amortization |
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5,357 |
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4,965 |
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Amortization of deferred financing costs |
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217 |
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253 |
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Stock-based compensation |
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1,232 |
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1,203 |
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Gain on sale of customer lists and other assets |
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(170 |
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(23 |
) | ||
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Equity earnings in affiliate |
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118 |
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54 |
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Deferred tax expense |
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4,354 |
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1,864 |
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Changes in assets and liabilities increasing (decreasing) cash flows from operating activities: |
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Trade receivable |
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(17,230 |
) |
(20,776 |
) | ||
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Notes and interest receivable |
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(9,576 |
) |
(9,160 |
) | ||
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Prepaid expenses and other assets |
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(13,457 |
) |
(13,376 |
) | ||
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Accounts payable and accrued expenses |
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(484 |
) |
(3,499 |
) | ||
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Due to area developers |
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2,320 |
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3,149 |
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Income taxes |
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(18,982 |
) |
(11,703 |
) | ||
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Deferred revenue |
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1,374 |
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3,685 |
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Net cash used in operating activities |
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(51,815 |
) |
(44,191 |
) | ||
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Cash flows from investing activities: |
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|
|
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Issuance of operating loans to franchisees |
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(60,875 |
) |
(56,920 |
) | ||
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Payments received on operating loans from franchisees |
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1,536 |
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3,720 |
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Purchases of AD rights and customer lists |
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(3,741 |
) |
(3,574 |
) | ||
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Proceeds from sale of customer lists and other assets |
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2,252 |
|
788 |
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Purchase of marketable equity securities |
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(2,980 |
) |
— |
| ||
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Purchase of an equity method investment |
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— |
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(1,009 |
) | ||
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Purchase of property and equipment |
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(9,177 |
) |
(7,554 |
) | ||
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Net cash used in investing activities |
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(72,985 |
) |
(64,549 |
) | ||
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Cash flows from financing activities: |
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|
|
|
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Proceeds from the exercise of stock options |
|
1,592 |
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37 |
| ||
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Repurchase of common stock |
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(1,634 |
) |
(2,612 |
) | ||
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Repayment of long-term debt |
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(2,227 |
) |
(1,532 |
) | ||
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Borrowings under revolving credit facility |
|
108,582 |
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117,598 |
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Repayments under revolving credit facility |
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(478 |
) |
(4,799 |
) | ||
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Payment for debt issue costs |
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(281 |
) |
— |
| ||
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Tax benefit of stock option exercises |
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269 |
|
458 |
| ||
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Net cash provided by financing activities |
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105,823 |
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109,150 |
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Effect of exchange rate changes on cash, net |
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(22 |
) |
(94 |
) | ||
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Net increase (decrease) in cash and cash equivalents |
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(18,999 |
) |
316 |
| ||
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Cash and cash equivalents at beginning of period |
|
19,848 |
|
1,662 |
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Cash and cash equivalents at end of period |
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$ |
849 |
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$ |
1,978 |
|
See accompanying notes to condensed consolidated financial statements.
JTH HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended January 31, 2013 and 2012 (unaudited)
(In thousands)
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2013 |
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2012 |
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Supplemental disclosures of cash flow information: |
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|
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|
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Cash paid for interest, net of capitalized interest |
|
$ |
1,596 |
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$ |
1,322 |
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Cash paid for taxes, net of refunds |
|
6,958 |
|
7,090 |
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Supplemental disclosures of noncash investing and financing activities: |
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|
|
|
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During the nine months ended January 31, 2013 and 2012, the Company acquired AD rights and customer lists as follows: |
|
|
|
|
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Fair value of assets purchased |
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$ |
12,137 |
|
$ |
13,325 |
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|
Receivables applied |
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(9,526 |
) |
(11,818 |
) | ||
|
Accounts payable canceled |
|
2,528 |
|
2,291 |
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Notes payable issued |
|
(2,300 |
) |
(1,496 |
) | ||
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Elimination of related deferred revenue |
|
902 |
|
1,272 |
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Cash paid for AD rights and customer lists |
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$ |
3,741 |
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$ |
3,574 |
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|
During the nine months ended January 31, 2013 and 2012, the Company sold certain assets to franchisees as follows: |
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|
|
|
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Book value of assets sold |
|
$ |
6,932 |
|
$ |
7,479 |
|
|
Franchise fee revenue |
|
3,105 |
|
2,295 |
| ||
|
Gain on sale |
|
108 |
|
31 |
| ||
|
Deferred gain on sale |
|
3,180 |
|
2,117 |
| ||
|
Applied from acquisitions of franchise territories |
|
— |
|
(653 |
) | ||
|
Notes received |
|
(11,073 |
) |
(10,481 |
) | ||
|
Cash received from franchisees |
|
$ |
2,252 |
|
$ |
788 |
|
|
Accrued capitalized software costs included in accounts payable |
|
$ |
1,657 |
|
$ |
874 |
|
See accompanying notes to condensed consolidated financial statements.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
(1) Organization and Significant Accounting Policies
(a) Organization
JTH Holding, Inc. (the Company), a Delaware corporation, is a holding company engaged through its subsidiaries as a franchisor and operator of a system of income tax preparation offices located in the United States and Canada. The Company’s principal operations are conducted through JTH Tax, Inc. (d/b/a Liberty Tax Service) the Company’s largest subsidiary. Through this system of income tax preparation offices, the Company also facilitates for its customers’ refund-based tax settlement financial products such as instant cash advances, electronic refund checks, and personal income tax refund discounting. The Company also offers online tax preparation services.
Unless specifically noted otherwise, as used throughout these condensed consolidated financial statements, the term “Company” or “Liberty” refers to the consolidated entities of JTH Holding, Inc. and JTH Tax, Inc.
(b) Principles of Consolidation and Unaudited Financial Statements
The condensed consolidated financial statements include the accounts of JTH Holding, Inc. and its wholly owned subsidiaries. Assets and liabilities of the Company’s Canadian operations have been translated into U.S. dollars using the exchange rate in effect at the end of the period. Revenues and expenses have been translated using the average exchange rates in effect each month of the period. Transaction gains and losses are recognized in income when incurred. The Company also consolidates any variable interest entities of which it is the primary beneficiary. When the Company does not have a controlling interest in an entity, but exerts significant influence over the entity, the Company applies the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP) for interim financial information. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Consolidated balance sheet data as of April 30, 2012 was derived from the Company’s April 30, 2012 Annual Report to Shareholders on Form 10-K.
In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with US GAAP have been recorded. Such adjustments consisted only of normal recurring items. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in its April 30, 2012 Annual Report to Shareholders on Form 10-K.
(c) Use of Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period, to prepare these condensed consolidated financial statements and accompanying notes in conformity with US GAAP. Actual results could differ from those estimates.
(d) Recently Issued Accounting Standards
In June 2011, Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2011-05, Presentation of Comprehensive Income. This update changes the methods for presenting comprehensive income, and eliminates the method of including comprehensive income in the statement of stockholders’ equity. Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
statements. The amendments in this ASU did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company adopted this guidance in the first quarter of fiscal 2013. Because it only affects presentation, this guidance did not have a material effect on the Company’s consolidated financial statements.
In September 2011, FASB issued ASU 2011-08, Intangibles-Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment. This amendment provides the option of first using a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that it is more likely than not that fair value exceeds carrying value, the two-step test for impairment is not required. The amendment includes a revised list of considerations in completing the qualitative assessment. The Company adopted this ASU in fiscal 2013 but doing so did not have a material effect on the Company’s consolidated financial statements.
(e) Foreign Operations
Canadian operations contributed $334,000 and $1,115,000 in revenues for the three and nine months ended January 31, 2013, respectively, and $265,000 and $1,196,000 in revenues for the three and nine months ended January 31, 2012, respectively.
(f) Supplier Concentration
The Company has used a third-party financial institution to provide certain financial products to its customers, pursuant to an agreement that was scheduled to expire on October 16, 2014. For the year ended April 30, 2012, a significant portion of the Company’s customer’s financial products were provided by this financial institution. On August 27, 2012, the Company delivered a termination notice with respect to that agreement that became effective September 16, 2012. The parties have recently agreed to mediation regarding the termination. The Company believes the outcome of the mediation will not significantly impact its results of operations or financial position. The Company believes there will be little impact on its customers because the Company has been able to offer similar financial products through contractual relationships with other third-parties and internal capabilities.
(g) Seasonality of Business
The Company’s operating revenues are seasonal in nature with peak revenues occurring in the months of January through April. Therefore, results for interim periods are not indicative of results to be expected for the full year.
(2) Notes and Accounts Receivable
The Company provides financing to franchisees for the purchase of franchises, clusters of territories, company-owned offices and/or for working capital and equipment needs. The franchise-related notes generally are payable over five years and the working capital and equipment notes generally are due within one year. All notes bear interest at 12%. Activity related to notes receivable for the nine months ended January 31, 2013 and the year ended April 30, 2012 was as follows:
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
January 31, |
|
April 30, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Balance at beginning of period |
|
$ |
79,838 |
|
$ |
70,564 |
|
|
Notes received for: |
|
|
|
|
| ||
|
Sales of franchises and clusters of territories |
|
4,431 |
|
8,131 |
| ||
|
Sales of certain assets to franchisees |
|
11,073 |
|
12,554 |
| ||
|
Franchisee to franchisee note assumptions |
|
10,303 |
|
7,439 |
| ||
|
Working capital and equipment loans to franchisees |
|
60,875 |
|
67,969 |
| ||
|
Refinancing of accounts receivable |
|
18,486 |
|
16,787 |
| ||
|
|
|
105,168 |
|
112,880 |
| ||
|
Repayment of notes |
|
(6,515 |
) |
(82,258 |
) | ||
|
Notes canceled |
|
(18,806 |
) |
(21,188 |
) | ||
|
Foreign currency adjustment |
|
(127 |
) |
(160 |
) | ||
|
Balance at end of period |
|
$ |
159,558 |
|
$ |
79,838 |
|
All of the notes receivable are due from the Company’s franchisees and are collateralized by the underlying franchise and are guaranteed by the respective franchisee and franchise owner(s). The franchisees’ ability to repay the notes is dependent upon both the performance of the tax preparation industry as a whole and the individual franchise. Notes and accounts receivable include royalties billed and loans to franchisees for franchise fees that relate to territories located in area developers’ territories. The Company has recorded amounts payable to area developers for their share of these receivables of $21,727,000 and $21,893,000 at January 31, 2013 and April 30, 2012, respectively.
Activity in the allowance for doubtful accounts for the nine months ended January 31, 2013, and 2012 was as follows:
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Beginning balance |
|
$ |
7,130 |
|
$ |
6,835 |
|
|
Additions charged to expense |
|
4,231 |
|
3,088 |
| ||
|
Provision for franchise fee refunds |
|
619 |
|
713 |
| ||
|
Write-offs |
|
(4,639 |
) |
(4,511 |
) | ||
|
Foreign currency adjustment |
|
(31 |
) |
(95 |
) | ||
|
Ending balance |
|
$ |
7,310 |
|
$ |
6,030 |
|
Management considers accounts and notes receivable to be impaired if the amounts due exceed the fair value of the underlying franchise and estimates an allowance for doubtful accounts based on that excess. Amounts due include the recorded value of the accounts and notes receivable reduced by the allowance for uncollected interest, amounts due to area developers, the related deferred revenue and amounts owed to the franchisee by the Company. In establishing the fair value of the underlying franchise, management considers net fees of open offices and the number of unopened offices.
For accounts and notes receivable not impaired, management determines the allowance for doubtful accounts based on an estimate of expected refunds of the initial franchise fee, taking into consideration the number of unopened offices.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
Management believes that the recorded allowance is adequate based upon its consideration of the estimated value of the franchises supporting the receivables. Any adverse change in the tax preparation industry could affect the Company’s estimate of the allowance.
The allowance for doubtful accounts at January 31, 2013 and April 30, 2012 was allocated as follows:
|
|
|
January 31, |
|
April 30, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Impaired: |
|
|
|
|
| ||
|
Notes receivable |
|
$ |
7,804 |
|
$ |
9,775 |
|
|
Accounts receivable |
|
3,022 |
|
4,699 |
| ||
|
Less allowance for uncollected interest, amounts due ADs, related deferred revenue and amounts due franchisees |
|
(2,032 |
) |
(3,256 |
) | ||
|
Net amount due |
|
$ |
8,794 |
|
$ |
11,218 |
|
|
|
|
|
|
|
| ||
|
Allowance for doubtful accounts for impaired notes and accounts receivable |
|
$ |
(4,878 |
) |
$ |
(5,831 |
) |
|
|
|
|
|
|
| ||
|
Non-impaired: |
|
|
|
|
| ||
|
Notes receivable |
|
$ |
161,141 |
|
$ |
72,540 |
|
|
Accounts receivable |
|
30,660 |
|
34,935 |
| ||
|
Less allowance for uncollected interest, amounts due ADs, related deferred revenue and amounts due franchisees |
|
(29,159 |
) |
(26,469 |
) | ||
|
Net amount due |
|
$ |
162,642 |
|
$ |
81,006 |
|
|
|
|
|
|
|
| ||
|
Allowance for doubtful accounts for non-impaired notes and accounts receivable |
|
$ |
(2,432 |
) |
$ |
(1,299 |
) |
|
|
|
|
|
|
| ||
|
Total allowance for doubtful accounts |
|
$ |
(7,310 |
) |
$ |
(7,130 |
) |
The aging of accounts and notes receivable at January 31, 2013 was as follows:
|
|
|
|
|
Allowance |
|
|
|
|
| ||||
|
|
|
Total |
|
for Uncollected |
|
|
|
Total |
| ||||
|
|
|
Past Due |
|
Interest |
|
Current |
|
Receivables |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Accounts receivable |
|
$ |
10,090 |
|
$ |
(1,813 |
) |
$ |
23,592 |
|
$ |
31,869 |
|
|
Notes receivable |
|
10,040 |
|
(1,369 |
) |
158,905 |
|
167,576 |
| ||||
|
Total |
|
$ |
20,130 |
|
$ |
(3,182 |
) |
$ |
182,497 |
|
$ |
199,445 |
|
Accounts receivable are considered to be past due if unpaid after 30 days and notes receivable are considered past due if unpaid after 90 days, at which time the notes are put on nonaccrual status.
The Company’s average investment in impaired notes receivable during the nine months ended January 31, 2013 and 2012 was $8,790,000 and $10,467,000, respectively. Interest income related to impaired notes was $98,000 and $278,000 for the three and nine months ended January 31, 2013, respectively, and $83,000 and $229,000 for the three and nine months ended January 31, 2012, respectively. The Company’s investment in notes receivable on nonaccrual status at January 31, 2013 and April 30, 2012 was $8,671,000 and $8,009,000, respectively.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
At January 31, 2013 the Company had unfunded lending commitments for working capital loans to franchisees and area developers of $19,373,000.
(3) Investments
During the nine months ended January 31, 2013, the Company purchased corporate equity securities, as a strategic investment in a business partner, for $2,980,000. This investment is included in other assets, net in the accompanying condensed consolidated balance sheets. At January 31, 2013, the fair value of the investment was $3,162,000. The Company classifies this investment as available-for-sale and recognizes unrealized gain on the available-for-sale securities, net of tax, in accumulated other comprehensive income in the stockholders’ equity section of the balance sheets. The unrealized gain, net of tax, on the available-for-sale securities at January 31, 2013 was $110,000.
(4) Intangible Assets
During the nine months ended January 31, 2013, the Company acquired the assets of various franchisees for $5,232,000. These acquisitions were accounted for as business combinations, with all value allocated to the identifiable intangible assets. The acquired businesses are operated as Company-owned offices until a buyer is found.
In December 2012, the Company purchased certain assets of an online tax preparation software provider for $1,587,000, of which $794,000 was payable at January 31, 2013. The entire purchase price has been allocated to the identifiable intangible assets.
|
|
|
|
|
As of January 31, 2013 |
|
As of April 30, 2012 |
| ||||||||||||||
|
|
|
Amortization |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
| ||||||
|
Amortizable other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Customer lists |
|
5-7 years |
|
$ |
8,817 |
|
$ |
(1,617 |
) |
$ |
7,200 |
|
$ |
6,998 |
|
$ |
(1,457 |
) |
$ |
5,541 |
|
|
Area franchise rights |
|
10 years |
|
22,000 |
|
(4,639 |
) |
17,361 |
|
20,814 |
|
(4,197 |
) |
16,617 |
| ||||||
|
|
|
|
|
$ |
30,817 |
|
$ |
(6,256 |
) |
$ |
24,561 |
|
$ |
27,812 |
|
$ |
(5,654 |
) |
$ |
22,158 |
|
(5) Leases
The Company is obligated under various short-term operating leases for office space that expire at various dates. Total rent expense for operating leases, net of subleases, was $914,000 and $2,388,000 for the three and nine months ended January 31, 2013, respectively, and $770,000 and $1,808,000 for the three and nine months ended January 31, 2012, respectively.
(6) Debt
The Company has a credit facility that consists of a $25,000,000 term loan and a revolving credit facility that originally allowed borrowing of up to $105,000,000, with an accordion feature permitting the Company to request an increase in availability of up to an additional $70,000,000. On December 28, 2012, the Company utilized the accordion feature to increase the borrowing limit under the revolving credit facility by $38,350,000, increasing the maximum borrowings under that portion of its credit facility to $143,350,000. Outstanding borrowings accrue interest at one-month London Inter-Bank Offered Rate (LIBOR) plus a margin ranging from 1.50% to 2.25% depending on the Company’s leverage ratio. At January 31, 2013, the interest rate was 1.96%. The indebtedness is collateralized by substantially all the assets of the Company and both loans mature on April 30, 2017. The credit facility contains certain financial covenants that the Company must meet, including leverage and fixed charge coverage ratios as well as minimum net worth requirements. At January 31, 2013, the Company was not in compliance with its leverage ratio requirement due to an unprecedented delay in the start of the federal tax season attributable to the last minute fiscal cliff resolution by Congress. The Company has obtained a waiver from its
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
creditors for the leverage ratio covenant failure. The Company was in compliance with all of its debt covenants in prior quarters, and with all of its covenants other than the leverage ratio requirement at January 31, 2013.
Debt at January 31, 2013 and April 30, 2012 consisted of the following:
|
|
|
January 31, |
|
April 30, |
| ||
|
|
|
(In thousands) |
| ||||
|
Credit Facility: |
|
|
|
|
| ||
|
Revolver |
|
$ |
108,104 |
|
$ |
— |
|
|
Term loan |
|
24,064 |
|
25,000 |
| ||
|
|
|
132,168 |
|
25,000 |
| ||
|
Other debt |
|
4,200 |
|
3,985 |
| ||
|
|
|
136,368 |
|
28,985 |
| ||
|
Less: current portion |
|
(3,488 |
) |
(2,736 |
) | ||
|
Long-term debt |
|
$ |
132,880 |
|
$ |
26,249 |
|
(7) Derivative Instruments and Hedging Activities
The Company uses interest-rate-related derivative financial instruments to manage its exposure related to changes in interest rates on its variable-rate credit facility, and forward contracts to manage its exposure to foreign currency fluctuation related to short-term advances made to its Canadian subsidiary. The Company does not speculate using derivative instruments nor does it enter into derivative instruments for any purpose other than cash flow hedging.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty, and therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest rates is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rates that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding or forecasted debt obligations and forecasted revenues, as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates and foreign currency rates on the Company’s future cash flows.
It is the policy of the Company to enter into forward contracts at the time short-term advances are made to its Canadian subsidiary.
Interest rate swap agreements: The Company has interest rate swap agreements with a financial institution to manage fluctuations in cash flows resulting from changes in the one-month LIBOR interest rate on its credit facility. These swaps effectively change the variable-rate of the credit facility into a fixed-rate loan. For the notional amounts, the Company receives a variable interest rate based on the one-month LIBOR and pays a fixed interest rate
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
of 2.49% to 2.52%, depending on the agreement. The notional amounts of the interest rate swaps vary from $10,000,000 to $70,000,000 per month, in relation to the Company’s forecasted seasonal borrowings. These interest rate swaps are designated as cash flow hedges. At January 31, 2013 and April 30, 2012, the fair value of interest rate swaps was a liability of $115,000 and $694,000, respectively, and was included in accounts payable and accrued expenses. During the nine months ended January 31, 2013, no amount was recognized in the consolidated statements of operations due to the ineffectiveness of these interest rate swaps. During the nine months ended January 31, 2012, $49,000 of income was recognized in the consolidated statements of operations due to the ineffectiveness of these interest rate swaps. The interest rate swaps expire in March 2013.
Forward contracts related to foreign currency exchange rates: In connection with short-term advances made to its Canadian subsidiary related to personal income tax refund discounting, the Company enters into forward contracts to eliminate the exposure related to foreign currency fluctuations. Under the terms of the forward currency contracts, the exchange rate for repayments is fixed at the time an advance is made and the advances are repaid prior to April 30 of the year of the advance. These forward contracts are designated as cash flow hedges. At January 31, 2013, the fair value of foreign currency contracts was a liability of $46,000 that was included in accounts payable and accrued expenses. The company had no outstanding forward contracts at April 30, 2012. During the nine months ended January 31, 2013 and 2012, no amounts were recognized in the consolidated statements of operations due to the ineffectiveness of these foreign currency hedges.
At January 31, 2013, there are no deferred gains on derivative instruments accumulated in other comprehensive income that are expected to be reclassified to earnings during the next 12 months. There were no cash flow hedges discontinued during the nine months ended January 31, 2013.
(8) Income Taxes
For the three and nine months ended January 31, 2013, the Company recognized income tax expense of $1,049,000 and an income tax benefit of $7,411,000, respectively. For the three and nine months ended January 31, 2012, the Company recognized income tax expense of $3,325,000 and an income tax benefit of $2,749,000, respectively. Total gross deferred tax liabilities were $23,095,000 and $17,878,000 at January 31, 2013 and April 30, 2012, respectively. Total gross deferred tax assets were $4,966,000, and $4,387,000 at January 31, 2013 and April 30, 2012, respectively.
We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.
In January 2013 the American Taxpayer Relief Act of 2012 was signed into law. The Act includes a reinstatement of the Federal research and experimentation credit through December 31, 2013 that was retroactive to January 1, 2012. We recorded a discrete tax benefit of approximately $395,000 for the retroactive effect during the three months ended January 31, 2013.
The Company has determined no reserves for uncertain tax positions were required at January 31, 2013 or April 30, 2012.
(9) Stockholders’ Equity
During the nine months ended January 31, 2013 and 2012, activity in stockholders’ equity was as follows:
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
January 31, |
|
January 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Class A common shares issued from the exercise of stock options |
|
151 |
|
4 |
| ||
|
Proceeds from exercise of stock options |
|
$ |
1,592 |
|
$ |
37 |
|
|
Class A common shares repurchased |
|
119 |
|
177 |
| ||
|
Payments for repurchased shares |
|
$ |
1,634 |
|
$ |
2,612 |
|
|
Tax benefit of stock option exercises |
|
$ |
269 |
|
$ |
458 |
|
|
Class A common shares issued upon conversion of Class A preferred shares |
|
1,703 |
|
— |
| ||
(a) Net Income (Loss) per Share
Net income (loss) per share of Class A and Class B common stock is computed using the two-class method. Basic net income (loss) per share is computed by allocating undistributed earnings to common shares and participating securities (Class A preferred stock and exchangeable shares) and using the weighted-average number of common shares outstanding during the period. Undistributed losses are not allocated to these participating securities because they do not meet the required criteria for such allocation. During the nine months ended January 31, 2013, two of the Company’s major shareholders elected to convert 170,320 shares of the Class A preferred stock to 1,703,200 shares of Class A common stock. As a result of the conversion, 1,703,200 and 1,424,495 additional shares are included in the weighted-average number of Class A common shares used to calculate the income (loss) per share for the three and nine months ended January 31, 2013, respectively. If the Class A preferred stock had not been converted, these shares would not be included in the weighted-average number of Class A common shares used to calculate the income (loss) per share for the three and nine months ended January 31, 2013.
Diluted net income (loss) per share is computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method. Additionally, the computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock, Class A preferred stock and exchangeable shares, while the diluted net loss per share of Class B common stock does not assume conversion of those shares.
The rights, including liquidation and dividends rights, of the holders of Class A and Class B common stock are identical, with the exception of voting. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year had been distributed. Participating securities have dividend rights that are identical to Class A and Class B common stock.
The computation of basic and diluted net income (loss) per share for the three and nine months ended January 31, 2013 and 2012 was as follows:
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
Three Months Ended |
| ||||
|
|
|
January 31, 2013 |
| ||||
|
|
|
Class A |
|
Class B |
| ||
|
|
|
Common Stock |
|
Common Stock |
| ||
|
|
|
(in thousands, except for share and per |
| ||||
|
|
|
|
|
|
| ||
|
Basic net income per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed earnings |
|
$ |
1,035 |
|
$ |
77 |
|
|
Amounts allocated to participating securities: |
|
|
|
|
| ||
|
Exchangeable shares |
|
(74 |
) |
(5 |
) | ||
|
Net income attributable to common stockholders |
|
$ |
961 |
|
$ |
72 |
|
|
Denominator |
|
|
|
|
| ||
|
Weighted-average common shares outstanding |
|
12,090,238 |
|
900,000 |
| ||
|
|
|
|
|
|
| ||
|
Basic and diluted net income per share |
|
$ |
0.08 |
|
$ |
0.08 |
|
|
|
|
|
|
|
| ||
|
Diluted net income per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed earnings for basic computation |
|
$ |
961 |
|
$ |
72 |
|
|
Reallocation of undistributed earnings as a result of assumed conversion of: |
|
|
|
|
| ||
|
Class B common stock to Class A common stock |
|
72 |
|
— |
| ||
|
Exchangeable shares to Class A common stock |
|
79 |
|
— |
| ||
|
|
|
$ |
1,112 |
|
$ |
72 |
|
|
Denominator |
|
|
|
|
| ||
|
Number of shares used in basic computation |
|
12,090,238 |
|
900,000 |
| ||
|
Weighted-average effect of dilutive securities |
|
|
|
|
| ||
|
Class B common stock to Class A common stock |
|
900,000 |
|
— |
| ||
|
Exchangeable shares to Class A common stock |
|
1,000,000 |
|
— |
| ||
|
Employee stock options |
|
75,970 |
|
4,887 |
| ||
|
|
|
14,066,208 |
|
904,887 |
| ||
|
|
|
|
|
|
| ||
|
Diluted net income per share |
|
$ |
0.08 |
|
$ |
0.08 |
|
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
Nine Months Ended |
| ||||
|
|
|
January 31, 2013 |
| ||||
|
|
|
Class A |
|
Class B |
| ||
|
|
|
Common Stock |
|
Common Stock |
| ||
|
|
|
(in thousands, except for share and per |
| ||||
|
|
|
|
|
|
| ||
|
Basic and diluted net loss per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed losses |
|
$ |
(10,908 |
) |
$ |
(830 |
) |
|
Denominator |
|
|
|
|
| ||
|
Weighted-average common shares outstanding |
|
11,831,496 |
|
900,000 |
| ||
|
|
|
|
|
|
| ||
|
Basic and diluted net loss per share |
|
$ |
(0.92 |
) |
$ |
(0.92 |
) |
As a result of the net losses for the periods, diluted net loss per share excludes the impact of shares of potential common stock from the exercise of options to purchase 2,736,000 shares and 2,752,000 shares for the three and nine months ended January 31, 2013, respectively, because the effect would be antidilutive.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
Three Months Ended |
| ||||
|
|
|
January 31, 2012 |
| ||||
|
|
|
Class A |
|
Class B |
| ||
|
|
|
Common Stock |
|
Common Stock |
| ||
|
|
|
(in thousands, except for share and per |
| ||||
|
|
|
|
|
|
| ||
|
Basic net income per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed earnings |
|
$ |
4,304 |
|
$ |
373 |
|
|
Amounts allocated to participating securities: Class A preferred stock |
|
(525 |
) |
(45 |
) | ||
|
Exchangeable shares |
|
(308 |
) |
(27 |
) | ||
|
Net income attributable to common stockholders |
|
$ |
3,471 |
|
$ |
301 |
|
|
Denominator |
|
|
|
|
| ||
|
Weighted-average common shares outstanding |
|
10,362,397 |
|
900,000 |
| ||
|
|
|
|
|
|
| ||
|
Basic and diluted net income per share |
|
$ |
0.33 |
|
$ |
0.33 |
|
|
|
|
|
|
|
| ||
|
Diluted net income per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed earnings for basic computation |
|
$ |
3,471 |
|
$ |
301 |
|
|
Reallocation of undistributed earnings as a result of assumed conversion of: |
|
|
|
|
| ||
|
Class B common stock to Class A common stock |
|
301 |
|
— |
| ||
|
Class A preferred stock to Class A common stock |
|
570 |
|
— |
| ||
|
Exchangeable shares to Class A common stock |
|
335 |
|
— |
| ||
|
|
|
$ |
4,677 |
|
$ |
301 |
|
|
Denominator |
|
|
|
|
| ||
|
Number of shares used in basic computation |
|
10,362,397 |
|
900,000 |
| ||
|
Weighted-average effect of dilutive securities |
|
|
|
|
| ||
|
Class B common stock to Class A common stock |
|
900,000 |
|
— |
| ||
|
Class A preferred stock to Class A common stock |
|
1,703,200 |
|
— |
| ||
|
Exchangeable shares to Class A common stock |
|
1,000,000 |
|
— |
| ||
|
Employee stock options |
|
181,715 |
|
11,727 |
| ||
|
|
|
14,147,312 |
|
911,727 |
| ||
|
|
|
|
|
|
| ||
|
Diluted net income per share |
|
$ |
0.33 |
|
$ |
0.33 |
|
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
Nine Months Ended |
| ||||
|
|
|
January 31, 2012 |
| ||||
|
|
|
Class A |
|
Class B |
| ||
|
|
|
Common Stock |
|
Common Stock |
| ||
|
|
|
(in thousands, except for share and per |
| ||||
|
|
|
|
|
|
| ||
|
Basic and diluted net loss per share: |
|
|
|
|
| ||
|
Numerator |
|
|
|
|
| ||
|
Allocation of undistributed losses |
|
$ |
(4,260 |
) |
$ |
(368 |
) |
|
Denominator |
|
|
|
|
| ||
|
Weighted-average common shares outstanding |
|
10,403,374 |
|
900,000 |
| ||
|
|
|
|
|
|
| ||
|
Basic and diluted net loss per share |
|
$ |
(0.41 |
) |
$ |
(0.41 |
) |
As a result of the net losses for the periods, diluted net loss per share excludes the impact of shares of potential common stock from the exercise of options to purchase 2,282,000 shares and 2,659,000 shares for the three and nine months ended January 31, 2012, respectively, because the effect would be antidilutive.
(10) Stock Compensation Plans
(a) Stock Options
At January 31, 2013, 1,965,539 shares of Class A common stock are available for grant under the 2011 Equity and Cash Incentive Plan.
The following table summarizes the information for options granted in the nine months ended January 31, 2013:
|
Weighted average fair value of options granted |
|
$ |
1.80 |
|
|
Dividend yield |
|
0.0 |
% | |
|
Expected volatility |
|
13.0% - 14.9 |
% | |
|
Expected terms |
|
4 - 6 years |
| |
|
Risk-free interest rates |
|
0.6% - 1.0 |
% | |
Stock option activity during the nine months ended January 31, 2013 was as follows:
|
|
|
|
|
Weighted |
| |
|
|
|
Number of |
|
average |
| |
|
|
|
options |
|
exercise price |
| |
|
Outstanding at April 30, 2012 |
|
2,729,013 |
|
$ |
14.21 |
|
|
Granted |
|
332,035 |
|
15.00 |
| |
|
Exercised |
|
(150,571 |
) |
10.57 |
| |
|
Canceled |
|
(114,965 |
) |
12.93 |
| |
|
Outstanding at January 31, 2013 |
|
2,795,512 |
|
$ |
14.55 |
|
All of the stock options granted during the nine months ended January 31, 2013 were granted to employees of the Company, except for 43,000 options granted to nonemployee directors.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
The total intrinsic value of options exercised during the nine months ended January 31, 2013 was approximately $667,000.
Nonvested stock option (options that did not vest in the period in which granted) activity during the nine months ended January 31, 2013 was as follows:
|
|
|
|
|
Weighted |
| |
|
|
|
Nonvested |
|
average |
| |
|
|
|
options |
|
exercise price |
| |
|
Outstanding at April 30, 2012 |
|
452,500 |
|
$ |
15.00 |
|
|
Granted |
|
332,035 |
|
15.00 |
| |
|
Vested |
|
(286,935 |
) |
15.00 |
| |
|
Canceled |
|
(5,100 |
) |
15.00 |
| |
|
|
|
|
|
|
| |
|
Outstanding at January 31, 2013 |
|
492,500 |
|
$ |
15.00 |
|
At January 31, 2013, unrecognized compensation costs related to nonvested stock options are $721,000. These costs are expected to be recognized between 2013 and 2016.
The following table summarizes information about stock options outstanding and exercisable at January 31, 2013:
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |||
|
|
|
|
|
Weighted |
|
average |
|
|
|
Weighted |
| |||
|
Number of shares |
|
Range of |
|
average |
|
remaining |
|
Number of shares |
|
average |
| |||
|
outstanding |
|
exercise |
|
exercise |
|
contractual |
|
exercisable at |
|
exercise |
| |||
|
at January 31, 2013 |
|
prices |
|
price |
|
life |
|
January 31, 2013 |
|
price |
| |||
|
40,000 |
|
$ |
5.50 |
|
$ |
5.50 |
|
0.2 |
|
40,000 |
|
$ |
5.50 |
|
|
24,902 |
|
8.50 - 9.00 |
|
8.63 |
|
0.2 |
|
24,902 |
|
8.63 |
| |||
|
170,000 |
|
10.50 |
|
10.50 |
|
1.5 |
|
170,000 |
|
10.50 |
| |||
|
2,234,175 |
|
14.00 - 16.50 |
|
15.02 |
|
3.1 |
|
1,791,675 |
|
15.02 |
| |||
|
326,435 |
|
15.00 |
|
15.00 |
|
3.9 |
|
276,435 |
|
15.00 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
2,303,012 |
|
|
| |||
(b) Restricted Stock Units
During the nine months ended January 31, 2013, the Company awarded 15,971 shares of restricted stock units to its non-employee directors. The weighted average fair value at grant date was $13.50 and the vesting or service period is between 16-18 months. Compensation costs associated with these restricted shares are amortized over the service period and recognized as an increase in additional paid-in capital.
(11) Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the fair value of financial instruments.
Cash equivalents, receivables, other current assets, accounts payable and accrued expenses, and due to area developers: The carrying amounts approximate fair value because of the short maturity of these instruments. At January 31, 2013 and April 30, 2012 the Company had cash equivalents of:
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
January 31, |
|
April 30, |
| ||
|
|
|
(In thousands) |
| ||||
|
|
|
|
|
|
| ||
|
Money market account |
|
$ |
— |
|
$ |
18,848 |
|
Notes receivable: The carrying amount of the Company’s notes receivable approximates fair value based upon the present value of expected future cash flows discounted at the interest rate currently offered by the Company, which approximates rates currently offered by local lending institutions for loans of similar terms to individuals/entities with comparable credit risk.
Nonfinancial assets and liabilities: The fair value of customer lists is measured on a nonrecurring basis in the period that the Company deemed the assets impaired. Fair value is determined based on historical transactions involving sales of Company-owned offices.
Long-term debt: The carrying amount of the Company’s long-term debt approximates fair value based on the present value of expected future cash flows discounted at the interest rates offered by the lenders, which approximates rates currently offered by local lending institutions for loans of similar terms to companies with comparable credit risk.
Concentrations of credit risks: Financial instruments that could potentially subject the Company to concentrations of credit risks consist of accounts and notes receivable with its franchisees.
The Company maintains its cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash and cash equivalents balances.
The Company manages such risk by evaluating the financial position of the franchisee, value of the franchises, as well as the personal guarantee of the individual franchisees. At January 31, 2013 and April 30, 2012, there were no significant concentrations of credit risk associated with any individual franchisee or group of franchisees. The Company maintains an allowance for potential losses based on its expected collectability of the receivables, which the Company believes is adequate for its credit loss exposure.
The condensed consolidated financial statements include various estimated fair value information at January 31, 2013 and April 30, 2012.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities subject to fair value measurements on a recurring basis are classified according to a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
· Level 1 — quoted prices for identical assets and liabilities in active markets.
· Level 2 — quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
· Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
At January 31, 2013 and April 30, 2012, the following tables present, for each of the fair value hierarchy levels, the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis (in thousands):
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
|
|
|
|
|
January 31, 2013 |
| ||||||||
|
|
|
|
|
Fair value measurements using |
| ||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Recurring: |
|
|
|
|
|
|
|
|
| ||||
|
Equity securities, available for sale |
|
$ |
3,162 |
|
$ |
3,162 |
|
$ |
— |
|
$ |
— |
|
|
Nonrecurring: |
|
|
|
|
|
|
|
|
| ||||
|
Impaired accounts and notes receivable |
|
$ |
4,834 |
|
$ |
— |
|
$ |
— |
|
$ |
4,834 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Recurring: |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swap agreements |
|
$ |
115 |
|
$ |
— |
|
$ |
115 |
|
$ |
— |
|
|
Forward Contract related to foreign currency exchange rates |
|
46 |
|
— |
|
46 |
|
— |
| ||||
|
|
|
$ |
161 |
|
$ |
— |
|
$ |
161 |
|
$ |
— |
|
|
|
|
|
|
April 30, 2012 |
| ||||||||
|
|
|
|
|
Fair value measurements using |
| ||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Recurring: |
|
|
|
|
|
|
|
|
| ||||
|
Cash equivalents |
|
$ |
18,848 |
|
$ |
18,848 |
|
$ |
— |
|
$ |
— |
|
|
Nonrecurring: |
|
|
|
|
|
|
|
|
| ||||
|
Impaired accounts and notes receivable |
|
$ |
6,857 |
|
$ |
— |
|
$ |
— |
|
$ |
6,857 |
|
|
Impaired customer lists |
|
1,669 |
|
— |
|
— |
|
1,669 |
| ||||
|
|
|
$ |
8,526 |
|
$ |
— |
|
$ |
— |
|
$ |
8,526 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Recurring: |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swap agreements |
|
$ |
694 |
|
$ |
— |
|
$ |
694 |
|
$ |
— |
|
The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of level 1 or 2 requiring fair value measurements for the nine months ended January 31, 2013.
Management considers accounts and notes receivable to be impaired if the amount due exceeds the fair value of the underlying office. In establishing the estimated fair value of the underlying franchise, consideration is given to the net fees of open offices and the number of unopened offices.
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
Management considers a customer list to be impaired if the net carrying amount exceeds the fair value of the underlying office. In establishing the fair value of a customer list, consideration is given to historical transactions involving sales of company-owned offices and the net fees of the underlying office.
The fair value of the Company’s interest swap agreements is the difference between the present value of interest payments due under the current swap agreements and similar swap agreements using a market rate of interest on the date of valuation.
(12) Related Party Transactions
The Company considers directors and their affiliated companies, executive officers of the Company, and members of their immediate family to be related parties. For the nine months ended January 31, 2013 and 2012, the Company repurchased common stock from related parties as follows (all transactions occurred prior to going public):
|
|
|
2013 |
|
2012 |
| ||
|
Common stock repurchases: |
|
|
|
|
| ||
|
Shares repurchased |
|
20,077 |
|
29,000 |
| ||
|
Amount |
|
$ |
301,155 |
|
$ |
435,000 |
|
At January 31, 2013 and April 30, 2012, notes receivable from related parties are as follows:
|
|
|
January 31 |
|
April 30, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
Notes receivable |
|
$ |
21,219 |
|
$ |
21,000 |
|
|
Repayments received during the year |
|
1,800 |
|
971,000 |
| ||
Interest rates on these notes approximate prevailing market rates at the time of their issuance.
(13) Commitments and Contingencies
ERC class action litigation. The Company was sued in November 2011 in federal courts in Arkansas, California, Florida and Illinois, and additional lawsuits were filed in federal courts in January 2012 in Maryland and North Carolina, in February 2012 in Wisconsin, and in May 2012 in New York and in Minnesota. All of the cases were consolidated before a single judge in federal court in the Northern District of Illinois, and in June 2012, the plaintiffs filed a new complaint in the consolidated action. The consolidated complaint alleges that an electronic refund check (ERC) represents a form of refund anticipation loan (RAL) because the taxpayer is “loaned” the tax preparation fee, and that an ERC is therefore subject to federal truth-in-lending disclosure and state law requirements regulating RALs. The plaintiffs therefore allege violations of state-specific RAL and other consumer statutes. The lawsuit purports to be a class action, and the plaintiffs allege potential damages in excess of $5 million. The Company is aware that virtually identical lawsuits have been filed against several of its competitors. The Company believes at this time a loss related to this matter is not probable; consequently the Company has not recorded a loss contingency related to this matter. The Company believes it has meritorious defenses to the claims in this case, and intends to defend the case vigorously, but there can be no assurances as to the outcome or the impact on the Company’s consolidated financial position, results of operations and cash flows. The consolidated case is at a very early stage.
South Carolina litigation. In November 2010, several former customers of one of the Company’s South Carolina franchisees initiated a purported class action against the Company, its Chief Executive Officer and another of the Company’s employees in the United States District Court for the District of South Carolina, in a case styled Martin v. JTH Tax, Inc. In this case, the plaintiffs allege that the employees of the Company’s franchisees fraudulently increased customer tax refunds, and that this behavior was pursuant to a plan or scheme in which the Company and
JTH HOLDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 2013 and 2012 (Unaudited)
its employees were involved. In this case, the plaintiffs seek damages in excess of $5 million, certification of class action status, treble damages under a claim pursuant to The Racketeer Influenced and Corrupt Organizations Act of 1970, punitive damages, and other damages. This case is in the early stages of the proceeding, but in February 2013, the court issued a ruling denying certification of the case as a class action. The Company believes at this time a loss related to this matter is not probable; consequently the Company has not recorded a loss contingency related to this matter. The Company intends to defend this case vigorously, but there can be no assurances as to the outcome or the impact on the Company’s consolidated financial position, results of operations and cash flows.
The Company is also party to claims and lawsuits that are considered to be ordinary, routine litigation and investigations incidental to the business, including claims and lawsuits concerning the preparation of customers’ income tax returns, the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, the Company believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this quarterly report may turn out to be inaccurate. Factors that may cause such differences include, but are not limited to, the risks described under “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2012 and risks described in all other filings with the Securities and Exchange Commission, including:
· our possible inability to sustain growth at our historical pace;
· the seasonality of our business;
· our inability to secure reliable sources of the financial products we make available to our customers;
· the continued service of our senior management team;
· government regulation and oversight, including the regulation of our financial products such as electronic refund checks (“ERCs”) and Instant Cash Advance loans (“ICAs”);
· government initiatives that simplify tax return preparation, improve the timing and efficiency of processing tax returns, limit payments to tax preparers or decrease the number of tax returns filed or the size of the refunds;
· delays in the acceptance of tax filings by the federal and state government that adversely affect both tax preparers and tax payers;
· increased regulation of the products and services that we offer;
· the possible characterization of ERCs as a form of loan;
· changes in the financial products offered to our customers that make our services less attractive to customers or more costly to us;
· our ability to maintain relationships with our financial product service providers;
· our ability and the ability of our franchisees to comply with regulatory requirements;
· changes in our franchise sale model that may reduce our revenue;
· the ability of our franchisees to open new territories and operate them successfully;
· the ability of our franchisees to generate sufficient revenue to repay their indebtedness to us;
· our ability to manage an increasing number of company-owned offices and tax kiosks;
· our exposure to litigation;
· our ability and our franchisees’ ability to protect customers’ personal information;
· an ability to access the credit markets and satisfy our covenants to lenders;
· challenges in deploying accurate tax software in a timely way each tax season;
· competition in the tax preparation market;
· our reliance on technology systems, including the deployment of our NextGen project and systems essential to our offering of financial products, and electronic communications; and
· other factors, including the risk factors discussed in this quarterly report.
Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. These forward-looking statements speak only as of the date of this quarterly report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. A potential investor or other vendor should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC, after the date of this quarterly report.
Overview
We are one of the leading providers of tax preparation services in the United States and Canada. As measured by both the number of returns prepared and the number of retail offices, we are the third largest and fastest growing national retail preparer of individual tax returns in the United States and the second largest retail preparer of individual tax returns in Canada. From 2001 through 2012, we have grown the number of U.S. tax returns prepared in our offices from approximately 137,000 to nearly 1.8 million. Our tax preparation services and related financial products are offered primarily through franchised locations, although we operate a limited number of company-owned offices each tax season. All of the offices are operated under the Liberty Tax Service brand.
From 2001 through 2013, we grew our number of tax offices from 508 to more than 4,500. For the 2013 tax season, we and our franchisees operated 4,262 offices in the United States, a 8.7% increase over the 2012 tax season, when we operated 3,920 offices, which was itself a 9.2% increase over the number of offices operated in the 2011 tax season. Approximately 59% of our revenue for fiscal year 2012 was derived from franchise fees, royalties and advertising fees, and for this reason, continued growth in our franchise locations is viewed by management as the key to our future performance.
Historically, most income tax filings in the United States take place between January and mid-April, our results of operation are highly seasonal, with most revenues generated in our fiscal fourth quarter beginning February 1 each year but with significant revenue also earned during the second half of January during our fiscal third quarter, after the tax season begins in mid-January. As described further in this report, our fiscal 2013 third quarter was materially adversely affected by the significant delay in the 2013 tax filing season attributable to the delays in Congress’ adoption of the fiscal cliff legislation, which in turn resulted in an IRS announcement on January 8, 2013 that the IRS would not begin allowing tax filings until January 30, 2013, and that because of the unavailability of certain tax forms, the ability to file many tax returns would be delayed even further into February and March. In addition, many of the changes required to be made in state tax forms because of changes in federal tax law and forms caused additional delays in the commencement of tax filings in many states. As described in this report, these delays are expected to shift a significant portion of our royalty income and other revenue from our fiscal third quarter into our fiscal fourth quarter and affected our utilization of cash during the fiscal third quarter as we assisted our franchisees with their liquidity issues caused by the delay of their receipt of tax preparation revenue.
Our revenue primarily consists of the following components:
· Franchise Fees: We earn franchisee fees from our franchisees and area developers (“ADs”). Our standard franchise fee per territory is $40,000 and we offer our franchisees flexible structures and financing options for franchise fees. We recognize franchise fees, net of a provision for franchise fee refunds, when our obligations to prepare the franchise for operation have been substantially completed. When we finance franchise fees, we record the franchise fees as deferred revenue until the franchisee has made a significant financial commitment (payment of 20% of the franchise fee) and met certain other criteria. However, in 2011 we introduced a new “zero franchise fee” option that
forgoes the initial franchise fee payment in favor of a higher royalty rate. Our franchise fees for AD areas vary based on our assessment of the revenue potential of each AD area, and also depend on the performance of any existing franchisees within the AD area being sold. Our ADs generally receive 50% of the franchise fees derived from territories located in their area.
In October 2012, we announced that we would have the opportunity to offer tax preparation services in more than 300 Walmart stores beginning in the 2013 tax season. Many of our expanding franchisees chose our “rent to own” option for Walmart locations, and we expect this trend to delay the recognition of these territory sales to the fourth quarter of fiscal 2013, if the franchisee elects to purchase the territory at that time. Moreover, because many of the Walmart stores were in rural areas that were more difficult to sell, we are operating more company offices in the 2013 tax season than in prior years. Of the 264 company offices we operated in the United States and Canada at January 31, 2013, 154 were tax kiosks located in Walmart stores. However, from a longer term perspective, we believe that opening and operating these Walmart stores in hard to sell areas will give us the opportunity to sell these territories earlier than would otherwise have been possible and allow us to expand our footprint into these rural areas more quickly.
· Royalties: We earn royalty revenue from our franchisees. Our franchise agreement requires franchisees to pay us a base royalty equal to 14% of the franchisee’s tax preparation revenue, subject to certain specified minimums. Franchisees acquiring territories under our “zero franchise fee” alternative are required to pay us franchise royalties of 25% through their first five tax seasons, and thereafter 14% of their tax preparation revenue. Over time, as our offices continue to “season,” we expect that our growth in revenue from royalties will continue to outpace our growth in revenue from franchise fees. We also expect to see steadier growth from our royalty revenue, but our franchise fee revenue may decrease if franchisees choose our zero franchise fee alternative. Our ADs generally receive 50% of the royalties derived from territories located in their area.
The delay in the opening of the 2013 tax filing season and the additional delay of certain forms as described above adversely affected our revenue during our third fiscal quarter because the royalty income we receive is based on our franchisees’ tax preparation revenue. Because our franchisees do not earn their tax preparation revenue until returns are filed with the IRS (and often do not receive the related cash until the refund is processed, for which the IRS establishes a typical timeframe of 8-21 days following filing), a significant portion of our royalty income and related cash flow has been deferred from our fiscal third quarter to our fiscal fourth quarter because the IRS filing system was open for only two days in January 2013.
· Advertising Fees: We earn advertising fee revenue from our franchisees. Our franchise agreement requires all franchisees to pay us an advertising fee of 5% of the franchisee’s tax preparation revenue, which we use primarily to fund collective advertising efforts. As noted above with respect to royalty income, the delay in electronic filing for the 2013 tax season has affected the timing of our income and cash flow from advertising fees, deferring a significant portion of that revenue from the fiscal third quarter to the fiscal fourth quarter.
· Financial Products: We offer two types of financial products: a refund transfer product, the ERC, which involves providing a means by which a customer may receive his or her refund more quickly and conveniently, and a refund-based loan, the ICA. We earn fees from the use of these financial products. Because the remaining bank that offered refund-based loans ceased to do so after the end of the 2012 tax season, we no longer offer refund based loans through banks and other federally-insured financial institutions, and our ability to offer refund-based loans is therefore more limited than in the past. However, we believe the negative effect of fewer refund-based loans will be offset by three factors. First, we are offering our ICA loan in 27 states during the 2013 tax season. Second, we believe that most customers who previously would have obtained loans will elect to purchase an ERC, and that the continued availability of these products will enable us to experience similar financial product “attachment rates” as in prior years. Third, as we continue to offer more of our financial products through our JTH Financial subsidiary, we expect to be able to realize more of the fee income associated with financial products (although we will also incur greater expenses in connection with offering these products). As with our royalty and advertising fee revenue, a substantial portion of our income and cash flow associated with the offering of financial products was delayed to our fiscal fourth quarter because of the delay in the tax filing season.
· Tax Preparation Fees: We also earn tax preparation revenue directly from both the operation of company-owned offices and the provision of tax preparation services through our eSmartTax online product.
For purposes of this section and throughout this quarterly report, all references to “fiscal 2013” and “fiscal 2012” refer to our fiscal years ended April 30, 2013 and 2012, respectively, and corresponding references to fiscal quarters are references to quarters within those fiscal years. For purposes of this section and throughout this quarterly report, all references to “year” or “years” are the respective fiscal year or years ended April 30 unless otherwise noted in this quarterly report, and all references to “tax season” refer to the period between January 1 and April 30 of the referenced year.
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Nine Months Ended January 31, |
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Three Months Ended January 31, |
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|
|
|
|
Change |
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|
|
Change |
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|
|
2012 |
|
2013 |
|
$ |
|
% |
|
2012 |
|
2013 |
|
$ |
|
% |
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|
|
|
(dollars in thousands) |
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Results of Operations |
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|
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|
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| ||||||
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Total revenues |
|
$ |
49,311 |
|
$ |
44,613 |
|
$ |
(4,698 |
) |
(10 |
)% |
$ |
35,650 |
|
$ |
30,538 |
|
$ |
(5,112 |
) |
(14 |
)% |
|
Operating income (loss) |
|
(5,867 |
) |
(17,529 |
) |
(11,662 |
) |
199 |
% |
8,676 |
|
2,981 |
|
(5,695 |
) |
(66 |
)% | ||||||
|
Net income (loss) |
|
(4,628 |
) |
(11,738 |
) |
(7,110 |
) |
154 |
% |
4,677 |
|
1,112 |
|
(3,565 |
) |
(76 |
)% | ||||||
Results of Operations
Three months and nine months ended January 31, 2013 compared to three months and nine months ended January 31, 2012
Revenues. The table below sets forth the components and changes in our revenues for the three and nine months ended January 31, 2013 and 2012.
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|
Nine Months Ended January 31, |
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Three Months Ended January 31, |
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|
|
Change |
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|
|
Change |
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|
|
|
2012 |
|
2013 |
|
$ |
|
% |
|
2012 |
|
2013 |
|
$ |
|
% |
| ||||||
|
|
|
(dollars in thousands) |
| ||||||||||||||||||||
|
Franchise fees, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Area developer |
|
$ |
3,170 |
|
$ |
3,170 |
|
$ |
— |
|
0 |
% |
$ |
504 |
|
$ |
543 |
|
$ |
39 |
|
8 |
% |
|
Territory |
|
3,750 |
|
3,252 |
|
(498 |
) |
(13 |
)% |
1,025 |
|
1,217 |
|
192 |
|
19 |
% | ||||||
|
Royalties |
|
12,329 |
|
10,869 |
|
(1,460 |
) |
(12 |
)% |
11,072 |
|
9,676 |
|
(1,396 |
) |
(13 |
)% | ||||||
|
Advertising Fees |
|
6,288 |
|
5,104 |
|
(1,184 |
) |
(19 |
)% |
5,717 |
|
4,528 |
|
(1,189 |
) |
(21 |
)% | ||||||
|
Financial products |
|
11,449 |
|
8,510 |
|
(2,939 |
) |
(26 |
)% |
11,158 |
|
8,039 |
|
(3,119 |
) |
(28 |
)% | ||||||
|
Interest income |
|
7,623 |
|
9,169 |
|
1,546 |
|
20 |
% |
3,016 |
|
3,544 |
|
528 |
|
18 |
% | ||||||
|
Tax preparation fees, net of discounts |
|
2,154 |
|
1,886 |
|
(268 |
) |
(12 |
)% |
1,909 |
|
1,445 |
|
(464 |
) |
(24 |
)% | ||||||
|
Other |
|
2,548 |
|
2,653 |
|
105 |
|
4 |
% |
1,249 |
|
1,546 |
|
297 |
|
24 |
% | ||||||
|
Total revenues |
|
$ |
49,311 |
|
$ |
44,613 |
|
$ |
(4,698 |
) |
(10 |
)% |
$ |
35,650 |
|
$ |
30,538 |
|
$ |
(5,112 |
) |
(14 |
)% |
Our total revenues decreased by 10% and 14% in the first nine months and three months of fiscal 2013, respectively, compared to fiscal 2012, due to the following factors:
· A 26% and 28% decrease, respectively, in financial products revenue primarily attributable to the delay in the IRS acceptance of tax returns. However, the effect of the decrease in volume of ERCs due to the IRS delays was offset in part by increased revenue per product because we processed more ERCs through JTH Financial rather than through third-party partners, and because we shared fee revenue with the ERCs for which we used third-party partners. Additionally, due to a difference in this year’s contract with the non—bank lender for the ICA program, the program is accounted for on a net basis instead of on a gross basis, as in prior years.
· A 12% and 13% decrease, respectively, in royalties and a 19% and 21% decrease, respectively, in advertising fees, primarily due to the delay in the tax filing season.
· A 13% decrease in territory franchise fees for the nine months ended January 31, 2013 as compared to the same period last year, largely due to a decline in franchise sales. In the first nine months of fiscal 2013, 270 franchise territories were sold and recognized compared to 387 in the prior year period (120 of the sales were under our zero franchise fee model in 2013, compared to 212 such sales in 2012). In the third quarter of fiscal 2013, territory franchise fees increased 19% as compared to fiscal 2012; 96 franchise territories were sold and recognized compared to 181 in the prior year period (41 of the sales were under our zero franchise fee model in 2013, compared to 132 such sales in 2012). Moreover, the fact that a larger number of new franchisees purchased territories from existing franchisees contributed to the decline in franchise fee revenue.
· A 12% and 24% decrease, respectively, in tax preparation fees primarily due to the delay in the 2013 tax filing season, offset in part by an increase in the number of company-owned offices, including tax kiosks in Walmart stores. At January 31, 2013, we operated 264 company offices, an increase from 93 company offices operated at the same date in 2012. Of these company-owned offices, 154 were kiosks located at Walmart stores.
The decreases in financial products revenue, royalties, advertising fees and franchises fees were partially offset by a 20% and 18% increase, respectively, in interest income, reflecting additional lending we made to our franchisees and ADs for the acquisition of territories and areas and to our franchisees for working capital purposes.
Operating expenses. The table below details the amounts and changes in our operating expenses for the three and nine months ended January 31, 2013 and 2012.
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|
|
Nine Months Ended January 31, |
|
Three Months Ended January 31, |
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|
|
|
|
|
|
Change |
|
|
|
|
|
Change |
| ||||||||||
|
|
|
2012 |
|
2013 |
|
$ |
|
% |
|
2012 |
|
2013 |
|
$ |
|
% |
| ||||||
|
|
|
(dollars in thousands) |
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|
|
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|
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|
|
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|
| ||||||
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Employee compensation and benefits |
|
$ |
20,111 |
|
$ |
24,566 |
|
$ |
4,455 |
|
22 |
% |
$ |
7,902 |
|
$ |
10,285 |
|
$ |
2,383 |
|
30 |
% |
|
Advertising |
|
12,389 |
|
12,786 |
|
397 |
|
3 |
% |
8,770 |
|
7,687 |
|
(1,083 |
) |
(12 |
)% | ||||||
|
General and administrative |
|
17,713 |
|
19,433 |
|
1,720 |
|
10 |
% |
8,655 |
|
7,857 |
|
(798 |
) |
(9 |
)% | ||||||
|
Depreciation, amortization and impairment charges |
|
4,965 |
|
5,357 |
|
392 |
|
8 |
% |
1,647 |
|
1,728 |
|
81 |
|
5 |
% | ||||||
|
Total operating expenses |
|
$ |
55,178 |
</ | |||||||||||||||||||