Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended October 31, 2005

OR

For the transition period from              to             

Commission file number 1-32215

Jackson Hewitt Tax Service Inc.

(Exact name of registrant as specified in its charter)

3 Sylvan Way

Parsippany, New Jersey 07054

(Address of principal executive offices including zip code)

(973) 630-1040

(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  ¨

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

The number of shares outstanding of the registrant’s common stock was 35,237,793 (net of 2,538,197 shares held in treasury) as of November 30, 2005.

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS

2

Table of Contents

PART 1 — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

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

3

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

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

4

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

5

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Description of Business

Jackson Hewitt Tax Service Inc. (“JHTS” or the “Company”), through its subsidiaries, provides computerized preparation of federal and state personal income tax returns through a network of franchised and company-owned offices under the brand name Jackson Hewitt Tax Service^®. Jackson Hewitt Inc. (“JHI”) is a 100% owned subsidiary of JHTS. Company-owned office operations are conducted by Tax Services of America, Inc. (“TSA”), which is a wholly-owned subsidiary of JHI. The Consolidated Financial Statements include the accounts and transactions of JHTS and its subsidiaries.

Initial Public Offering

On June 25, 2004, Cendant Corporation (“Cendant”) divested 100% of its ownership interest in JHTS through an initial public offering (“IPO”). JHTS did not receive any proceeds from the sale of the Company’s common stock by Cendant.

JHTS was incorporated in Delaware on February 20, 2004. Simultaneous with the incorporation, Cendant contributed all outstanding shares of JHI, a Virginia corporation, to JHTS. JHTS accounted for the contribution of outstanding shares as a change in reporting entities under common control and has recognized the outstanding shares at their carrying amounts at the date of transfer. Accordingly, the accompanying Consolidated Financial Statements have been prepared as though JHTS existed throughout the periods presented.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and other financial information included in the Company’s Annual Report on Form 10-K which was filed with the SEC on July 29, 2005.

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In the opinion of management, the accompanying interim Consolidated Financial Statements contain all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods reported are not necessarily indicative of the results of operations that may be expected for any future interim periods or for the full fiscal year.

The Company’s results of operations and cash flows for the period from May 1, 2004 through the Company’s IPO date, which is included in the six months ended October 31, 2004, reflect the historical results of operations and cash flows of the business divested by Cendant in the Company’s IPO. As a result, the accompanying Consolidated Financial Statements may not necessarily reflect the Company’s results of operations and cash flows in the future or what the Company’s results of operations and cash flows would have been had JHTS been a stand-alone public company during this period. See Note 8 - “Related Party Transactions” for a more detailed description of the Company’s transactions with Cendant.

Comprehensive Loss

The Company’s comprehensive loss is comprised of net loss from the Company’s results of operations and changes in the fair value of derivatives. The components of comprehensive loss, net of tax, are as follows:

6

Table of Contents

Reclassifications

Certain amounts presented in the prior periods’ consolidated financial statements have been reclassified to conform to the current periods’ presentation.

2. RECENT ACCOUNTING PRONOUNCEMENT AND SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncement

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

Derivatives and Hedging Activities

The Company has entered into interest rate swap agreements for the purpose of mitigating the Company’s exposure to floating interest rates on certain portions of the Company’s debt. The use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for trading purposes is strictly prohibited.

The Company’s interest rate swap agreements have been designated as cash flow hedges and are recorded on the Consolidated Balance Sheet at their fair value. Changes in the fair value of the interest rate swap agreements, to the extent that they remain highly effective, are recorded in other comprehensive income (loss). The Company formally assesses (both at inception of the hedge and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Any hedge ineffectiveness is recorded in current period results. See Note 10 – “Interest Rate Swap Agreements” for a more detailed discussion of the Company’s derivative transactions.

Rent Expense

Total rent payments in an operating lease are recognized straight-line over the lease term, including any rent holiday period(s). Reimbursements for leasehold improvements are accounted for as a deferred rental liability and recognized as a reduction to rent expense over the term of the lease.

3. COMPUTATION OF LOSS PER SHARE

The computation of basic loss per share is calculated by dividing net loss available to the Company’s common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net loss available to the Company’s common stockholders by an adjusted weighted average number of common shares outstanding assuming conversion of potentially dilutive securities arising from stock options outstanding. Common shares repurchased by the Company are excluded from the calculation of loss per share.

7

Table of Contents

The following table presents the computation of basic and diluted loss per share:

Stock options to purchase 2,361,527 and 2,011,140 shares of common stock were not included in the computation of diluted net loss per share for the three and six months ended October 31, 2005 and 2004, respectively, because the effect would have been antidilutive.

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The changes in the carrying amount of goodwill by segment were as follows:

Other intangible assets consist of:

8

Table of Contents

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

Amortization expense relating to other intangible assets was as follows:

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

5. NOTES RECEIVABLE, NET

Notes receivable, net consists of the following:

In the second quarter the Company provided financing to franchisees for 27 storefront locations in loan amounts of up to $25,000 each. These notes are typically due over a period of less than 30 months.

9

Table of Contents

6. DEVELOPMENT ADVANCES, NET

Development advances, net are included in other non-current assets, net and consist of the following:

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

8. RELATED PARTY TRANSACTIONS

Special Dividend Paid to Cendant

Upon completion of the Company’s IPO in June 2004, the Company declared a special dividend to Cendant in the amount of $306.9 million (the “Special Dividend”). The $175.0 million cash portion of this Special Dividend was funded entirely from the net proceeds of five-year floating rate senior unsecured notes, as discussed more fully in Note 9—”Long-Term Debt and Credit Facilities.” The remaining $131.9 million represented the distribution of a receivable from Cendant.

The Company recorded the Special Dividend as a reduction to retained earnings of $175.3 million and a reduction to additional paid-in capital of $131.6 million. The amount by which retained earnings was reduced represented the accumulation of all earnings by the Company up to the Company’s IPO date at which time the Company began operating as a separate public company.

Allocation and Funding of Expenses

Through the Company’s IPO date, the Company was allocated general corporate overhead expenses from Cendant for corporate-related functions as well as other expenses directly attributable to the Company. Cendant allocated corporate overhead to the Company based on a percentage of the Company’s forecasted revenues and allocated other expenses that directly benefited the Company based on the Company’s actual utilization of the services. Corporate expense allocations included executive management, finance, human resources, information technology, legal and real estate facility usage and were $0.8 million during the period from May 1, 2004 to the Company’s IPO date. This amount is included in selling, general and administrative expenses in the Consolidated Statement of Operations. The Company believes the assumptions and methodologies underlying the allocations of general corporate overhead and direct expenses from Cendant to the Company were reasonable and are consistent with the amounts that would have been incurred if the Company had performed these functions as a stand-alone company.

10

Table of Contents

All allocated overhead expenses as well as direct charges were included in Due from Cendant on the Consolidated Balance Sheet. No interest was charged by Cendant or received by the Company in any period presented with respect to intercompany balances. Prior to the Company’s IPO, Cendant used cash swept from the Company’s bank accounts to fund these disbursements.

The major categories of intercompany activity between the Company and Cendant were as follows:

Transitional Agreement and Other Related Agreements

Upon completion of the Company’s IPO, the Company entered into a transitional agreement with Cendant to provide for an orderly transition to being an independent company and to govern the continuing arrangements between the Company and Cendant. The Company also entered into a sublease agreement for its corporate headquarters in Parsippany, New Jersey which expired in September 2005, and a sublease assignment and assumption agreement for its technology facility in Sarasota, Florida. The Company pays rent directly to the landlord of the Sarasota facility as a sublessee under Cendant’s lease, which expires in May 2006. The Company’s rental expense under these agreements was $0.4 million in each of the three month periods ended October 31, 2005 and 2004, respectively. For the six months ended October 31, 2005 and 2004 such rental expense was $0.8 million and $0.7 million, respectively.

On May 1, 2005, the Company entered into a new lease with a different lessor for office space located in Parsippany and in September 2005 the Company relocated its corporate headquarters to this office space. The lease expires in October 2012. Annual base rental expense is $1.2 million.

On November 17, 2005, the Company entered into a new lease with a different lessor for office space located in Sarasota. The Company plans to relocate its current technology facility to this office space in the first quarter of fiscal 2007. The lease expires in June 2014. Annual base rental expense will be $0.7 million.

Under the transitional agreement, Cendant provided the Company with various services, including services relating to facilities, human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable services, tax support, event marketing, revenue audit services, public and regulatory affairs, telecommunications services, information technology services and call support services. The transitional agreement also contains provisions relating to indemnification, tax sharing and tax indemnification, access to information and non-solicitation of employees.

The Company incurred an aggregate of $0.5 million and $0.7 million of expenses related to such transitional and other related agreements with Cendant for the three months ended October 31, 2005 and 2004, respectively, which is included in cost of franchise operations and selling, general and administrative. For the six months ended October 31, 2005 and 2004, the Company incurred an aggregate of $1.2 million and $1.0 million of such expenses, respectively.

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

11

Table of Contents

The Company has completed most transition arrangements with Cendant and is now predominantly operational on its own financial systems and infrastructure. The Company has completed the implementation of its own back office systems including human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable, tax support and public and regulatory affairs. On June 30, 2005, the Company entered into a five-year agreement with a service provider at a cost of $0.7 million annually to provide information technology support services. Such services provided by Cendant under the transitional agreement were terminated as of September 30, 2005. As a result, the Company is required to pay Cendant an early-termination penalty of $0.1 million representing the unamortized lease costs of computer hardware specific to the Company’s mainframe environment and unpaid actual costs incurred by Cendant with respect to these services. Also, on September 30, 2005, Cendant discontinued providing revenue audit services to the Company. The Company is currently evaluating various alternatives to replace the revenue audit services.

Remaining transitional services from Cendant are as follows:

9. LONG-TERM DEBT AND CREDIT FACILITIES

$250 Million Credit Facility

On June 29, 2005, the Company established a $250.0 million five-year unsecured credit facility (the “$250 Million Credit Facility”) that made many of the covenants less restrictive than the covenants in the Company’s prior debt agreements and reduced the cost of debt. Borrowings under the $250 Million Credit Facility are to be used to finance working capital needs, potential acquisitions and other general corporate purposes including repurchases of the Company’s common stock. The $250 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Eurodollar borrowings bear interest at the London Inter-Bank Offer Rate, (“LIBOR”) as defined in the $250 Million Credit Facility, plus a credit spread as defined in the $250 Million Credit Facility, currently 0.95% per annum. Base Rate borrowings bear interest primarily at the Prime Rate, as defined in the $250 Million Credit Facility. The $250 Million Credit Facility carries an annual fee currently at 0.175% of the unused portion of the $250 Million Credit Facility, which is payable quarterly. The Company may also use the $250 Million Credit Facility to issue letters of credit for general corporate purposes. There was a $1.0 million letter of credit outstanding under the $250 Million Credit Facility as of October 31, 2005.

In connection with entering into the $250 Million Credit Facility, the Company incurred $0.7 million of financing fees, which were deferred and are being amortized to interest expense over the five-year term of the $250 Million Credit Facility. Amortization of financing fees under the $250 Million Credit Facility amounted to $34,000 and $45,000 for the three and six months ended October 31, 2005, respectively.

Interest expense associated with borrowings under the $250 Million Credit Facility was $1.8 million and $2.3 million for the three and six months ended October 31, 2005, respectively.

The $250 Million Credit Facility agreement contains covenants, including the requirement that the Company maintain certain financial covenants, such as a maximum consolidated leverage ratio of 2.5 to 1.0 and a minimum consolidated interest coverage ratio of 4.0 to 1.0. The consolidated leverage ratio is the ratio of consolidated debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), each as defined in the $250 Million Credit Facility. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense, each as defined in the $250 Million Credit Facility. The maximum leverage ratio and minimum interest coverage ratio remains fixed through the five-year term of the $250 Million Credit Facility. As of October 31, 2005, the Company was in compliance with these covenants.

12

Table of Contents

The $250 Million Credit Facility contains various customary restrictive covenants that limit the Company’s ability to, among other things, (i) incur additional indebtedness or guarantees, (ii) create liens or other encumbrances on the Company’s property, (iii) enter into a merger or similar transaction, (iv) sell or transfer property except in the ordinary course of business, and (v) make dividend and other restricted payments.

Floating Rate Senior Unsecured Notes

On June 27, 2005, the Company repaid in full $175.0 million of five-year floating-rate senior unsecured notes (“Notes”) that were outstanding as of April 30, 2005. To repay the Notes, the Company used cash provided by operations from the prior tax season of $76.0 million and borrowed $99.0 million under the $100.0 million five-year revolving credit facility (the “$100 Million Credit Facility”), discussed below.

The Company had issued the $175.0 million of five-year floating rate senior unsecured notes through a private placement on June 25, 2004 in connection with the Company’s IPO. The purpose of the Notes issuance was to fund the cash portion of the Special Dividend paid to Cendant upon Cendant’s divestiture of its entire ownership in the Company. The Notes bore interest based on the three-month LIBOR plus 1.5%.

In connection with the issuance of the Notes, the Company incurred $1.7 million of financing fees which were deferred and were being amortized to interest expense over the life of the Notes. Amortization of such fees amounted to $0.1 million for the three months ended October 31, 2004. For the six months ended October 31, 2005 and 2004, such amortization was $0.1 million in both periods. The Company incurred a non-cash charge of $1.4 million for the six months ended October 31, 2005 related to the write-off of deferred financing costs associated with the repayment of the Notes in June 2005.

The agreement governing the Notes contained substantially similar provisions and covenants to those contained in the $100 Million Credit Facility, as well as customary event of default provisions and other terms and conditions that were consistent with those contained in similar debt obligations of issuers with a credit quality similar to JHTS. The agreements that governed the Notes and $100 Million Credit Facility were amended on January 7, 2005 to permit the Company to repurchase additional shares of common stock.

Interest expense under the Notes amounted to $1.4 million for the three months ended October 31, 2004. For the six months ended October 31, 2005 and 2004, such expense was $1.3 million and $2.0 million, respectively.

$100 Million Credit Facility

On June 29, 2005, the Company repaid and then immediately terminated the $100 Million Credit Facility, which the Company had established on June 25, 2004. Borrowings under the $100 Million Credit Facility were available to finance working capital needs, acquisitions and other general corporate purposes. The $100 Million Credit Facility provided for loans in the form of Eurodollar or Alternate Base Rate borrowings. Eurodollar borrowings bore interest at the adjusted LIBOR, as defined in the $100 Million Credit Facility, plus 1.25% per annum. Alternate Base Rate borrowings bore interest primarily at the Prime Rate, as defined in the $100 Million Credit Facility, plus 0.25% per annum. The Company also was permitted to use the $100 Million Credit Facility to issue letters of credit for general corporate purposes. The $100 Million Credit Facility carried an annual facility fee of 0.25% of the total commitment amount which was payable quarterly.

In connection with entering into the $100 Million Credit Facility, the Company incurred $1.6 million of financing fees, which were deferred and were being amortized to interest expense over the five-year term of the $100 Million Credit Facility. Amortization of financing fees amounted to $0.1 million for the three months ended October 31, 2004. For the six months ended October 31, 2005 and 2004, such amortization was $0.1 million for both periods. The Company incurred a non-cash charge of $1.3 million for the six months ended October 31, 2005 related to the write-off of deferred financing costs associated with the termination of the $100 Million Credit Facility in June 2005.

As discussed above, on June 27, 2005, the Company borrowed $99.0 million from the $100 Million Credit Facility and two days later repaid this amount in full. Interest expense associated with borrowings under the $100 Million Credit Facility was $35,000 for the six months ended October 31, 2005.

Bridge Agreement

On May 26, 2005, the Company and a financial institution entered into a bridge credit agreement (the “Bridge Agreement”), pursuant to which the financial institution agreed to establish a revolving line of credit in favor of the Company

13

Table of Contents

in the aggregate principal amount of up to $50.0 million to temporarily supplement the Company’s $100 Million Credit Facility after repaying the Notes. The interest payable on the unpaid principal amount of any amount borrowed under the Bridge Agreement was calculated at a rate equal to the LIBOR, as defined in the Bridge Agreement, plus 1.25%. The Bridge Agreement incorporated by reference certain terms and conditions set forth in the $100 Million Credit Facility. The Bridge Agreement was scheduled to expire by no later than January 31, 2006, but was terminated upon the execution of the $250 Million Credit Facility on June 29, 2005. The Company did not borrow against the Bridge Agreement.

Average Cost of Debt

For the three months ended October 31, 2005 and 2004, the Company’s average cost of debt was 5.1% and 3.8%, respectively. For the six months ended October 31, 2005 and 2004, the Company’s average cost of debt was 5.2% and 3.8%, respectively.

10. INTEREST RATE SWAP AGREEMENTS

In August 2005, the Company entered into interest rate swap agreements with third parties to convert a notional amount of $50.0 million of floating-rate borrowings under the $250 Million Credit Facility into fixed-rate debt, with the intention of mitigating the economic impact of changing interest rates. Under these interest rate swap agreements, which became effective in October 2005, the Company receives a floating interest rate based on the three-month LIBOR (in arrears) and pays a fixed interest rate averaging 4.44%. These agreements mature in June 2010 and were determined to be cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137, No. 138 and No. 149 (“SFAS No. 133”). At October 31, 2005, the fair value of the interest rate swap agreements was an asset of $0.8 million which is recorded in other non-current assets on the Consolidated Balance Sheet. The change in fair value since inception to October 31, 2005 was $0.5 million, net of tax, and is recorded as a component of accumulated other comprehensive income. Since inception, no amounts have been recognized in the Consolidated Results of Operations due to ineffectiveness.

11. STOCK-BASED COMPENSATION

Exchange Transaction

Prior to the Company’s IPO, certain employees of the Company were granted stock options and restricted stock units (“RSUs”) under Cendant’s stock-based compensation plans. In connection with the Company’s IPO and pursuant to the consent of each holder, the Company issued to employees 903,935 vested stock options and 100,880 shares of common stock in exchange for their Cendant stock options and RSUs. The exchange transaction was structured to provide the same relative value to employees as the Cendant awards held by such employees prior to the Company’s IPO. As a result of the exchange transaction, the Company incurred stock-based compensation expense of $4.5 million for the six months ended October 31, 2004 which is included in selling, general and administrative expenses in the Consolidated Statement of Operations. Included in the $4.5 million charge was a $1.9 million charge related to the issuance to employees of vested stock options to purchase shares of common stock in exchange for their Cendant stock options. Additionally, Cendant RSUs held by the Company’s employees were cancelled and converted into JHTS awards. As a result, the Company issued to employees shares of the Company’s common stock in exchange for the unvested Cendant RSUs that were held by such employees prior to the Company’s IPO and incurred $2.6 million of stock-based compensation expense of which approximately $1.0 million represents the value of shares withheld to satisfy the employees’ income and payroll tax obligation.

Stock Options

In addition to the exchange transaction, the Company incurred stock-based compensation expense of $0.7 million and $0.4 million in the three months ended October 31, 2005 and 2004, respectively, in connection with stock options granted to employees. For the six months ended October 31, 2005 and 2004, the Company incurred such stock-based compensation expense of $1.1 million and $0.6 million, respectively.

Restricted Stock Units

In addition to the exchange transaction, the Company incurred stock-based compensation expense of $0.1 million in each of the three month periods ended October 31, 2005 and 2004, respectively, in connection with the issuance of fully vested and non-forfeitable RSUs to certain non-employee directors that are payable in shares of the Company’s common stock as a one-time distribution upon termination of services. For the six months ended October 31, 2005 and 2004, the Company incurred such stock-based compensation expense of $0.1 million and $0.3 million, respectively.

14

Table of Contents

12. SHARE REPURCHASE PROGRAMS

During the three months ended October 31, 2005, the Company paid $38.2 million, including commissions, to repurchase 1,562,300 shares of its common stock under a $50.0 million share repurchase program that was approved by the Company’s Board of Directors on July 5, 2005. For the six months ended October 31, 2005, the Company paid $58.5 million, including commissions, to repurchase 2,422,900 shares of its common stock of which 500,000 shares were acquired under a previously authorized repurchase program. No repurchased shares have been retired as of October 31, 2005.

In November 2005, the Company paid $2.8 million, including commissions, to repurchase 115,297 shares of its common stock, which completed the Company’s $50.0 million share repurchase program.

13. DISPOSITIONS

In October 2005, the Company sold selected company-owned office operations in Texas and Massachusetts to existing franchisees for total consideration of $2.2 million of which $0.3 million represented initial franchise fees for territory sales and $1.9 million was for the sale of the assets. As a result of the two sales, the Company recognized a $0.2 million net gain on sale of assets.

In November 2005, the Company sold additional selected company-owned office operations in Texas to an existing franchisee for consideration of $0.9 million of which $0.1 million represented initial franchise fees for territory sales and $0.8 million was for the sale of the assets.

14. SEGMENT INFORMATION

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

Management evaluates the operating results of each of its reportable segments based upon revenues and income (loss) before income taxes. Intersegment transactions approximate fair market value and are not significant.