PPD - note paragraph about stock buybacks ->
"Harp said the company will continue to buy back its shares -- starting as soon as today -- as it generates cash. In 2002, Pre-Paid produced $52 million in cash from operations and spent $50 million to repurchase shares at an average price of $21.76. "
February 20, 2003 01:54
Drop in Commissions Boosts Pre-Paid Legal Services Income 33 Percent
By Don Mecoy, The Daily Oklahoman
Feb. 19--ADA, Okla.--Slowing growth in customers and sales associates and a corresponding drop in commission expenses produced higher revenue and profits at Pre-Paid Legal Services Inc. in 2002, the Ada company said Tuesday.
"Any time our new membership sales slow down that just means more cash flow and more earnings," said Randy Harp, Pre-Paid chief operating officer. "Our new sales slipped by 6 percent in fourth quarter, and so we knew that cash flow would be good and earnings would be good -- and they were."
Net income rose 33 percent in 2002 to $36 million from $27.1 million in 2001. Earnings per diluted share increased 44 percent to $1.82 per share from $1.26 per share, partly due to an 8 percent decrease in outstanding shares as the company continued to aggressively repurchase its stock.
Membership revenues grew 17 percent in 2002, to $308.4 million from $263.5 million in the preceding year.
In the fourth quarter, the company's profits were up 25 percent to $9.7 million from $7.8 million in the year-ago quarter. Membership revenues increased 14 percent to $79.3 million from $69.7 million when compared to the same period the prior year.
Pre-Paid shares jumped 8 percent Tuesday ahead of the company's after-hours earnings report, closing at $18 on the New York Stock Exchange. The stock set a new 52-week low Thursday, continuing a downward trend that began with a 25 percent drop in early January after the company announced that new membership growth had slowed.
Harp said the company will continue to buy back its shares -- starting as soon as today -- as it generates cash. In 2002, Pre-Paid produced $52 million in cash from operations and spent $50 million to repurchase shares at an average price of $21.76.
Harp said Pre-Paid directors likely will authorize further buy-backs when the company completes its currently authorized repurchase of up to 1 million shares.
"We will continue to spend the majority of our positive cash flow buying back our stock," he said.
Pre-Paid has about 19 million shares outstanding, and more than half of those shares are in the hands of short sellers who are betting that the company's share price will fall. Short sellers borrow shares and sell them, hoping to replace the shares after prices fall.
Pre-Paid sells a package of legal services for a monthly fee through multilevel marketing, with many members who double as sales associates to earn commissions. The company's plans provide legal consultation ranging from drawing up a will to traffic violation defense.
The stock is down 41 percent from its December high, set soon after New York hedge fund Gotham Partners issued a bullish report on the stock. Regulatory filings show Gotham Partners sold about half of its 1 million shares of Pre-Paid in December. Gotham Partners later wrote a letter to its clients disclosing that it is under investigation by the Securities and Exchange Commission and the New York attorney general.
On Dec. 4, Harp earned about $1.3 million in sales of Pre-Paid stock to repay a loan to the company.
On Jan. 30, Pre-Paid disclosed that it was under scrutiny from the SEC and the U.S. attorney general for New York's Southern District about stock trades ahead of the company's January announcement that knocked 25 percent off the share price.
Harp said he expects the probes will find no wrongdoing by him or the company. He said the company is cooperating with the information requests from the SEC and a subpoena from the U.S. attorney, which he termed "document requests."
"I think it will be resolved both personally and corporately. I certainly hope it will be resolved in the short term," he said. "No, we don't expect anything negative to come of it."
Harp said, overall, he was pleased with the company's 2002 numbers.
"2002 was our 10th consecutive year of growing the membership base, the 10th consecutive year of increased membership revenue, a record from a cash flow standpoint, a record from the number of shares repurchased," he said.
"What we have to look forward to is continued very positive cash flow and very aggressive share repurchases."
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(c) 2003, The Daily Oklahoman. Distributed by Knight Ridder/Tribune Business News. PPD, |
