To say that 2007 was taxing for Jackson Hewitt Inc. and H&R Block is an understatement. Both tax-preparation companies have new CFOs in place after scandals tarnished their results.
In January, Daniel P. O'Brien, formerly the CFO at Hawaiian Telecom, Global Crossing, and GTE Corp., assumed the top finance spot at Jackson Hewitt. He must now shore up corporate finances in the wake of a fraud investigation involving 125 franchisees — a scandal that contributed to a 34 percent drop in net income in the third quarter.
Even though operators in several states were barred from preparing returns, the company got out legally unscathed, says Oppenheimer & Co. analyst Scott Shneeberger. Jackson Hewitt did, however, take a $1.5 million hit to resolve an audit with the Internal Revenue Service. But according to the company's recent Securities and Exchange Commission filing, the audit didn't reveal "evidence of corporate employee participation in, or knowledge of, the allegedly fraudulent tax return preparation activities.…"
H&R Block's management shake-up was another story. After the company felt the burn of the subprime meltdown and suffered huge losses in its mortgage arm, Option One Mortgage Corp., it lost a proxy battle to activist investors, resulting in the resignations of finance chief William Trubeck and CEO Mark Ernst.
The company's latest earnings may signal a less stressful tax season ahead for acting CFO Becky Shulman. It lost only $47.4 million in its third quarter compared with $60 million in the same period last year. "The company is in transition right now, so hopefully the people who do the taxes can hunker down and do the taxes," says Shneeberger.