Pre-Paid Legal Announces Third Quarter 2005 Financial Results

26 October 2005

Pre-Paid Legal Services,Inc. (NYSE: PPD) announced financial results for the third quarter and ninemonths ended September 30, 2005. Third quarter 2005 membership revenuesincreased 11% to a record $99.0 million vs. $89.3 million for the thirdquarter of 2004. Primarily due to a 24% increase ($7.3 million) incommissions, third quarter net income decreased 10% to $8.6 million vs.$9.7 million for the 2004 third quarter. Diluted earnings per share decreased5% to 55 cents vs. 58 cents. Diluted earnings per share declined less thannet income due to a 5% decrease in diluted shares outstanding. Membership revenues for the first nine months of 2005 increased 9% to arecord $288.6 million vs. $264.2 million for the 2004 comparable period.Primarily due to a 21% ($18.9 million) increase in commissions, net income forthe first nine months of 2005 decreased 19% to $24.4 million vs. $30.3 millionfor the first nine months of 2004. Diluted earnings per share decreased 15%to $1.55 vs. $1.82. Diluted earnings per share declined less than net incomedue to a 6% decrease in diluted shares outstanding. During 2005 we have had meaningful increases in new membership sales and"add-on" Identity Theft sales. We expense commission advances in the firstmonth. Increased sales thus reduce current earnings but increase futureearnings as the revenues are earned and recorded without the correspondingcommissions. This reporting model typically results in our net cash providedby operating activities exceeding our net income, as it did in each of theperiods reflected below. Net cash from operations for the nine months ended September 30, 2005increased 6% to $32.4 million vs. $30.5 million for the first nine months of2004. During the first nine months of 2005 we invested $11.7 million torepurchase 336,100 shares of our common stock at an average price of $34.73.We also paid out $12.4 million in dividends. Since April 1999 throughSeptember 30, 2005, we have repurchased 9.4 million shares, investing$222.5 million at an average per share cost of $23.64. Shares outstandinghave been reduced by approximately 35%. At September 30, 2005 our totalindebtedness was $33.7 million and we had unpledged cash and investmentbalances exceeding $48.3 million. Third quarter 2005 membership fees and associate services revenuesincreased 2% vs. the second quarter of 2005. Associate services and directmarketing expenses decreased approximately 3%. Membership benefits were 35%of membership fees in both periods. Commissions, as a percent of membershipfees, were 38% in the 2005 third quarter vs. 40% in the second quarter due toa 2% decline in new legal service membership sales partially offset by a 2%increase in "add-on" Identity Theft sales. General and administrativeexpenses were 12% vs. 13% of membership fees in the third and second quarters,respectively. We will conduct a conference call to present the third quarter results onWednesday, October 26, 2005, at 8:30 a.m. Eastern Time. The conference callwill be webcast on the investor relations' page of http://www.prepaidlegal.comor may be accessed by dialing (719) 457-2728. Audio replay will be availablebeginning at 11:30 a.m. Eastern Time on October 26, 2005 and will run throughmidnight Wednesday, November 2, 2005 by dialing (719) 457-0820; passcode forthe replay is 8268624. The presentation will be available on the web siteindefinitely by selecting "Earnings Calls" under the "Investor Relations"section. Questions may be submitted prior to the call via email toinvestor@pplsi.com . We expect to file our quarterly report on Form 10-Q for the period endedSeptember 30, 2005 later today. About Pre-Paid Legal Services We believe our products are one of a kind, life events legal serviceplans. Our plans provide for legal service benefits provided through anetwork of more than 50 independent law firms across the U.S. and Canada, andinclude unlimited attorney consultation, will preparation, traffic violationdefense, automobile-related criminal charges defense, letter writing, documentpreparation and review and a general trial defense benefit. We have anidentity theft restoration product we think is also one of a kind due to thecombination of our identity theft restoration partner and our provider lawfirms. More information about us and our products can be found at ourhomepage at http://www.prepaidlegal.com . Forward-Looking Statements Statements in this press release, other than purely historicalinformation, regarding our future plans and objectives and expected operatingresults, dividends and share repurchases and statements of the assumptionsunderlying such statements, constitute forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934. The forward-looking statements contained herein are based on certain assumptions that maynot be correct. They are subject to risks and uncertainties incident to ourbusiness that could cause actual results to differ materially from thosedescribed in the forward-looking statements. These risks and uncertaintiesare described in the reports and statements filed by us with the Securitiesand Exchange Commission, including (among others) those listed in ourForm 10-K, Form 10-Q and Form 8-K, and include the risks that our membershippersistency or renewal rates may decline, that we may not be able to continueto grow our memberships and earnings, that we are dependent on the continuedactive participation of our principal executive officer, that pending orfuture litigation may have a material adverse effect on us if resolvedunfavorably to us, that we could be adversely affected by regulatorydevelopments, that competition could adversely affect us, that we aresubstantially dependent on our marketing force, that our stock price may beaffected by short sellers, that we have been unable to increase significantlyour employee group membership sales, that our active premium in force is notindicative of future revenue as a result of changes in active memberships fromcancellations and additional membership sales and that we may have materialweaknesses in our internal control environment. Please refer to pages 38 and39 of our 2004 Form 10-K and pages 8 and 9 of the Company's June 30, 2005 Form10-Q for a more complete description of these risks. We undertake no duty toupdate any of the forward-looking statements in this release. PRE-PAID LEGAL SERVICES, INC. Financial Highlights (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Revenues: Membership fees $99,009 $89,317 $288,606 $264,187 Associate services 7,335 6,132 21,552 18,607 Other 1,238 1,404 3,938 4,097 107,582 96,853 314,096 286,891 Costs and expenses: Membership benefits 34,919 31,100 101,350 90,835 Commissions 37,374 30,097 107,871 88,960 Associate services and direct marketing 7,687 7,304 24,746 21,611 General and administrative 12,015 11,083 35,451 32,033 Other, net 2,390 2,526 7,357 7,215 94,385 82,110 276,775 240,654 Income before income taxes 13,197 14,743 37,321 46,237 Provision for income taxes 4,553 5,086 12,876 15,952 Net income $8,644 $9,657 $24,445 $30,285 Basic earnings per common share $.56 $.59 $1.58 $1.83 Diluted earnings per common share $.55 $.58 $1.55 $1.82 Weighted average number of shares: Basic 15,451 16,481 15,471 16,572 Diluted 15,726 16,581 15,753 16,677 Net cash provided by operating activities $11,329 $9,664 $32,367 $30,505 Net cash (used in) provided by investing activities $(4,685) $8,680 $(1,523) $1,895 Net cash (used in) provided by financing activities $(3,749) $15,121 $(31,646) $(2,877)

Source: PR Newswire

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