OpTree

While many businesses are shutting down or laying off employees, Pre-Paid Legal believes they are well positioned, despite its recent release of membership results and the ongoing problems with Barry Minkow.

Chief Financial Officer of Pre-Paid Legal Services, Inc, Steve Williamson had this to say about this year’s growth: “In tough economic times we see increased interest in people wanting to market our Legal Services Plans as Independent Sales Associates. This increased interest will lead to our 16th consecutive year of growing our Membership revenues.”

One Independent Associate, Beth Taylor started her Pre-Paid Legal business 12 years ago. Taylor, a single parent, has a theory as to why people are signing up with Pre-Paid Legal: “People are losing their jobs today, airlines are going bankrupt, and they’re laying off the mortgage industry. People are really in need of finding something they can sink their teeth into. And that’s what I love about this business. I get up every day knowing that I make the difference. If I’m going to work, I’m going to make a difference in the lives of other people. So it’s very rewarding and fulfilling,” said Taylor.

The company, publicly traded on the New York Stock Exchange (NYSE: PPD), develops, services, and sells Pre-Paid Legal Plans to its members across the United States and four provinces of Canada. Plan benefits include: unlimited attorney consultation, letters and phones calls made by the attorney on a client’s behalf, document/contract review, assistance with traffic violations, and defense services for automobile-related criminal charges or general trial defense. An Independent Associate can market Pre-Paid Legal Plans from home to individuals, families, small businesses, or groups such as schools and local businesses.

Pre-Paid Legal also offers an Identity Theft Shield plan that can be purchased as a standalone product or in addition to a legal plan membership for a discounted rate. This valuable service provides each member with a credit report, continuous credit monitoring, and identity theft restoration services. “You can’t stop your identity from being stolen, but what you can do is have a very proactive professional company that will go to bat for you and restore it if you should become a victim. We have that product,” said Mark Brown, Senior Vice President and Chief Marketing Officer at Pre-Paid Legal. “And then you couple it with the fact there is no other company that I’m aware of anywhere in the world that has access 24/7 for their clients to great law firms. We do,” said Brown.

Pre-Paid Legal Membership benefits can also be added as employee benefits, by employers. Independent Associate, Rob Vest, top group producer at Pre-Paid Legal, says the legal plans are a benefit employees can use right away, “This is a NOW benefit. That’s the real key. The more economic problems that we are having out there, the worse the economy is, and the more legal problems that come up. If the employees are having those problems, that affects the employer.” Vest believes people want to spend their money on something they can get value from immediately, “So we are in the perfect place right now in the market, and we have a perfect solution to the problem.”

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Now that Barry Minkow has settle his dispute with USANA, its time for the former criminal, and founder of the The Fraud Discovery Institute to look for a new target. Unfortunately for Pre Paid Legal, they are it.

The Fraud Discover Institute released its first ever “Top 10 Red Flags for Fraud” list and it details many alleged claims of fraud and misrepresentations made against Pre-Paid.

The list is backed by MLM expert, Robert Fitpatrick, who explains the sources and mathematical equations used to back up the claims on the top ten list, “News media exposes and lawsuits have combined with a mathematic threshold of ‘information saturation’ to bring [Pre-Paid Legal] to this position of lost faith within its market. The saturation point is based on the mathematical limits that the company has already reached in the North American market. Unlike other multi-level marketing schemes that also quickly saturate home markets, [Pre-Paid Legal] cannot expand to other countries with its current product offering.”

Minkow used a strange analogy when describing the motivation behind the creation of the list, saying that they list was designed to show a similarity between Pre-Paid’s recent second quarter announcement and an iceberg, “Both an iceberg and Pre-Paid Legal’s reporting of their earnings have one thing in common: Their true realities exist below the surface and are concealed from the casual observer’s sight.”

The list is a compilation of claims about the company withholding info about recruitment, reporting less than accurate numbers, declining sales, declining number of associates and artificially inflating stock prices.

Minkow, along with the FDI spent years torturing USANA, and now that everything has been settled, he had to find a new target. Unfortunately for Pre-Paid Legal, they are it. Minkows new website dedicated to bringing down Pre-Paid (prepaidillegal.com) is pretty fancy and it seems as if he is really committed to bringing Pre-Paid down. I’m sure there will be much more to the story as Pre-Paid responds to the allegations made by the FDI.

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Pre-Paid Legal Services (NYSE: PPD)announced their 2nd quarter results for new memberships and new sales associates. The company had some mixed numbers for the last year, but overall, the company seems to be doing well. While sales and revenue figures haven’t been released, this news might be a hint at what that announcement, due in a few weeks, will bring.

The company reported that during the second quarter of 2008, new sales associates enrolled decreased by slightly over 30% percent compared to the same quarter last year. Membership Produced decreased 8% percent, and New Associates enrolled decreased as well, although slightly less than membership. The company’s Active membership base decreased a bit, by just over 300 memberships during the second quarter.

On the bright side… total active membership fees in force increased approximately 2.0% during the last year and membership persistency rate, which means the number of memberships in force during the year as a percentage of total memberships, increased a bit to almost 73% percent for the 12 month period ending June 30th.

While the numbers are a bit mixed, the company stressed that they are continuing to focus their stock repurchase program. During the second quarter of 08, the company has returned $14.9 million to shareholders by buying back over 340,000 shares of common stock. It is important to note that these numbers are simply membership and enrollment numbers and while they may provide a hint of what the revenue and sales numbers might be, those are a few weeks off. Pre-Paid will announced their 2008 second quarter profits on July 28th after the market closes. They will have an open conference call Wednesday morning, July 30th to discuss the numbers- we will keep you posted.

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Pre-Paid Legal Services announced that they have received $10 million dollars in financing from the Bank of Oklahoma. The $10 million will go towards the funding of additional treasury stock purchases.

The board of Pre-Paid has authorized the company to purchase 798,000 additional treasury shares. In the last 10 years, Pre-Paid has purchased 13.2million shares, totaling over $380 million dollars. On average, the shares have cost around $29 dollars a share. Over the last decade, Pre-Paid has been very aggressive about the purchase of their treasury stock, and through the purchase program has reduced outstanding shares by around 50% during the last ten years.

The loan from the Bank of Oklahoma is an unsecured loan which must be repaid in 12 equal monthly payments, with the first one beginning June 30, 2008. The $10 million was made available to the company immediately and adds another $10 mil to the existing debt which is approximately $65 million dollars.

Now I understand buy-back programs pretty well and it seems awfully unusual for a company to borrow money to buy its own stock back with such a small amount of money. It is a bit curious that PPL needs to borrow $10m (which they will be paying interest on) to buy back shares unless the company is gearing up to go private - why else the immediate need for such a small amount of capital. We will stay on top of this one.

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