The following discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2008, which describes, among other things, our basic business model, critical accounting policies, measures of Membership retention, and basic cash flow characteristics of our business. The following tables set forth changes in the principal categories of revenues and expenses and Membership and recruiting activity for the third quarter of 2009 compared to the third quarter of 2008 and the second quarter of 2009 (Table amounts in 000's). The sum of the percentages in the tables may not total due to rounding.

 Three Months Ended September 30, 2009     Three                         %        Three               Three
              compared to                 Months            % Change   Change     Months             Months
 Three Months Ended September 30, 2008     Ended     % of     from      from      Ended      % of     Ended     % of
            and compared to              Sept. 30,  Total    Prior   Sequential Sept. 30,   Total   June 30,   Total
    Three Months Ended June 30, 2009       2009    Revenue    Year     Period      2008    Revenue    2009    Revenue
--------------------------------------   --------- -------- -------- ---------- ---------- -------- --------- --------
Revenues:
  Membership fees....................     $105,435    92.5     (3.5)    (0.1)    $109,268     93.8   $105,516    93.9
  Associate services.................       7,624      6.7     22.3     29.0       6,236       5.3     5,908      5.2
  Other..............................         888      0.8    (12.9)    (8.4)      1,019       0.9       969      0.9
                                         --------- -------- -------- ---------- ---------- -------- --------- --------
                                          113,947    100.0     (2.2)    (1.4)    116,523     100.0   112,393    100.0
                                         --------- -------- -------- ---------- ---------- -------- --------- --------
Costs and expenses:
  Membership benefits................      35,991     31.5     (4.2)    (0.1)     37,587      32.3    36,013     32.0
  Commissions........................      36,676     32.2      8.9     25.0      33,678      28.9    29,335     26.1
  Associate services and direct             7,827      6.9     46.1     20.4       5,358       4.6     6,502      5.8
    marketing........................
  General and administrative.........      12,613     11.1      0.7     (2.4)     12,531      10.7    12,922     11.5
  Other, net.........................       2,361      2.1    (22.4)    28.0       3,043       2.6     1,845      1.6
                                         --------- -------- -------- ---------- ---------- -------- --------- --------
                                           95,468     83.8      3.5     10.2      92,197      79.1    86,617     77.0
                                         --------- -------- -------- ---------- ---------- -------- --------- --------

Income before income taxes...........      18,479     16.2    (24.0)   (28.3)     24,326      20.9    25,776     23.0
Provision for income taxes...........       7,648      6.7    (22.6)   (23.4)      9,884       8.5     9,985      8.9
                                         --------- -------- -------- ---------- ---------- -------- --------- --------
Net income...........................     $10,831      9.5    (25.0)   (31.4)    $14,442      12.4   $15,791     14.1
                                         --------- -------- -------- ---------- ---------- -------- --------- --------

                                                                                            Three Months Ended
New Memberships:                                                                  9/30/2009      6/30/2009      9/30/2008
----------------                                                                  ---------      ---------      ---------
New legal service membership sales..........................................        166,377        118,050        137,227
New "stand-alone" IDT membership sales......................................          8,645          4,180          7,814
                                                                                  ----------      ---------      ---------
         Total new membership sales.........................................        175,022        122,230        145,041
                                                                                  ----------      ---------      ---------

New "add-on" IDT membership sales...........................................        112,653         78,009         95,762
Average Annual Membership fee...............................................        $325.60        $328.79        $326.14
Active Memberships:
-------------------
Active legal service memberships at end of period...........................      1,455,492      1,419,092      1,488,259
Active "stand-alone" IDT memberships at end of period (see note below)......         90,063         86,779         87,634
                                                                                  ----------      ---------      ---------
         Total active memberships at end of period..........................      1,545,555      1,505,871      1,575,893
                                                                                  ----------      ---------      ---------

Active "add-on" IDT memberships at end of period (see note below)...........        710,795        670,769        681,118
New Sales Associates:
---------------------
New sales associates recruited..............................................         75,398         25,172         37,820
Average enrollment fee paid by new sales associates.........................         $79.31        $120.98         $56.17
Average Membership fee in force:
--------------------------------
Average Annual Membership fee...............................................        $302.86        $301.37        $301.40
Note - reflects 4,137 net transfers from "add-on" status to "stand-alone" status during the quarter

Identity Theft Shield ("IDT") memberships sold in conjunction with new legal plan memberships or "added-on" to existing legal plan memberships sell for $9.95 per month and are not counted as "new" memberships but do increase the average premium and related direct expenses (membership benefits and commissions) of our membership base, while "stand alone" Identity Theft Shield memberships are not attached to a legal plan membership and sell for $12.95 per month.

Recently Issued Accounting Pronouncements See Note 5 - Recently Issued Accounting Pronouncements in Item 1 above.

Results of Operations - Third Quarter of 2009 compared to Third Quarter of 2008
Net income decreased 25% for the third quarter of 2009 to $10.8 million from $14.4 million for the prior year's third quarter primarily due to a decrease in Membership fees of $3.8 million, an increase in commission expenses of $3.0 million, an increase in associate services and direct marketing expenses of $2.5 million, a decrease in other revenues of $131,000 and an increase in general and administrative expenses of $82,000 partially offset by a decrease in the provision for income taxes of $2.2 million, an increase in associate services revenue of $1.4 million, a decrease in Membership benefits of $1.6 million, and a decrease in other, net expenses of $682,000. Diluted earnings per share decreased 20% to $0.99 per share from $1.23 per share for the prior year's comparable quarter due to the 25% decrease in net income and an 8% decrease in the weighted average number of diluted shares outstanding.

Membership fees totaled $105.4 million during the 2009 third quarter compared to $109.3 million for 2008, a decrease of 4%. Membership fees and their impact on total revenues in any period are determined directly by the number of active Memberships in force during any such period and the monthly amount of such Memberships. The active Memberships in force are determined by both the number of new Memberships sold in any period together with the renewal rate of existing Memberships. New Membership sales increased 21% during the three months ended September 30, 2009 to 175,022 from 145,041 during the comparable period of 2008. At September 30, 2009, there were 1,545,555 active Memberships in force compared to 1,575,893 at September 30, 2008, a decrease of 2%. The average annual fee per Membership has increased from $301 for all Memberships in force at September 30, 2008 to $303 for all Memberships in force at September 30, 2009, primarily as a result of a larger number of Identity Theft Shield memberships.
Associate services revenue increased by approximately $1.4 million to $7.6 million during the third quarter of 2009 when compared to the 2008 quarter. New associates enrolled increased 99% to 75,398 during the 2009 period compared to 37,820 for the same period of 2008. The average enrollment fees paid by new sales associates were $79 and $56 for the respective periods. The eService fees decreased to $2.4 million for the third quarter of 2009 compared to $3.0 million for the 2008 quarter. Future revenues from associate services will depend primarily on the number of new associates enrolled, the price charged for new associates and the number who choose to participate in our eService program, but we expect that such revenues will continue to be offset by the direct and indirect cost to us of training, providing associate services and other direct marketing expenses.

Other revenue declined 13% from $1.0 million for the 2008 period to $888,000 for the 2009 period.

Total revenues decreased 2% to $113.9 million for the three months ended September 30, 2009 from $116.5 million during the comparable period of 2008 due to a $3.8 million decrease in Membership fees and a $131,000 decrease in other revenues offset by a $1.4 million increase in associate services revenue.

Membership benefits, which primarily represent payments to provider law firms and Kroll Background America, Inc., a subsidiary of Kroll Inc. ("Kroll"), totaled $36.0 million for the three months ended September 30, 2009 compared to $37.6 million for the comparable period of 2008, and represented 34% of Membership fees for both periods. This Membership benefit ratio (Membership benefits as a percentage of Membership fees) should be reduced going forward as substantially all active Memberships provide for a capitated cost and we have reduced the capitated cost of the Identity Theft plan benefits effective April 1, 2007, with an additional reduction on January 1, 2010.

Commissions to associates increased 9% to $36.7 million for the three months ended September 30, 2009 compared to $33.7 million for the comparable period of 2008, and represented 35% and 31% of Membership fees for the respective periods. Commissions to associates are primarily dependent on the number of new Memberships sold during a period and the average fee of those Memberships. New Memberships sold during the third quarter of 2009 totaled 175,022, a 21% increase from the 145,041 for 2008, and the "add-on" IDT Membership sales which are not included in these totals increased 18% to 112,653 for the third quarter of 2009 from 95,762 for 2008. Our average Annual Membership fee written during the quarter of 2009 had a slight decrease to $325.60 from $326.14 during the 2008 period. Our new Membership fees written during the third quarter of 2009 decreased 4% from 2008. Average commission per new Membership decreased from $232 to $210 for the 2009 third quarter. The 21% increase in new Memberships sold resulted in an approximate 9% increase in commissions. Should we add additional commissions to our compensation plan or reduce the amount of chargebacks collected from our associates as we have from time to time, the commission cost per new Membership will increase accordingly.

Associate services and direct marketing expenses increased to $7.8 million for the three months ended September 30, 2009 from $5.4 million for the comparable period of 2008. The increase was primarily a result of increased costs for bonuses and increased costs for materials and related freight sent to new associates due to the increase in the number of new associates enrolled during the quarter. We offer the Player's Club incentive program to provide additional incentives to our associates as a reward for consistent, quality business. Associates can earn the right to receive additional monthly bonuses by meeting monthly qualification requirements for a 12 month period and maintaining certain personal retention rates for the Memberships sold during the 12 month period. These expenses also include the costs of providing associate services and marketing expenses.

General and administrative expenses during the three months ended September 30, 2009 increased to $12.6 from $12.5 for the comparable period of 2008 and represented 12% and 11%, respectively, of Membership fees for the two periods. The increase in general and administrative expenses included bank service charges, other taxes and consulting fees associated with Payment Card Industry compliance which were partially offset by decreases in depreciation, employee expenses and legal fees.
Other expenses, net, which include depreciation and amortization, litigation accruals, interest expense and premium taxes reduced by interest income, were $2.4 million for the three months ended September 30, 2009 compared to $3.0 million for the 2008 comparable period. Depreciation expense was $2.0 million for the three months ended September 30, 2009 and $2.2 million for the 2008 comparable period. Interest expense decreased to $261,000 during the 2009 period from $924,000 during the comparable period of 2008 as a result of the reduction in debt and lower interest rates. Premium taxes decreased from $455,000 for the three months ended September 30, 2008 to $444,000 for the comparable period of 2009. Interest income decreased from $532,000 for the three months ended September 30, 2008 to $389,000 for the three months ended September 30, 2009, due to a decrease in interest rates.

We have recorded a provision for income taxes of $7.6 million (41.4% of pretax income) and $9.9 million (40.6% of pretax income) for the three months ended September 30, 2009 and 2008, respectively.

Results of Operations - Third Quarter of 2009 compared to Second Quarter of 2009
Third quarter 2009 membership fees decreased approximately $81,000 to $105.4 million from $105.5 million for the second quarter of 2009. Associate services revenues increased during the 2009 third quarter by approximately $1.7 million to $7.6 million from $5.9 million for the 2009 second quarter and associate services and direct marketing expenses increased by $1.3 million during the same period. Membership benefits totaled $36.0 million for both periods and represented 34% of membership fees for the two periods. Commissions to associates totaled $36.7 million in the 2009 third quarter compared to $29.3 million for the 2009 second quarter and represented 35% and 28%, respectively, of membership fees for the two periods. General and administrative expenses decreased $309,000 during the 2009 third quarter to $12.6 million compared to $12.9 million for the 2009 second quarter and represented 12% of membership fees for the two periods. The decrease in general and administrative expenses included decreases in legal fees, employee costs and consulting fees which were partially offset by increases in postage and bank service charges.

Results of Operations - First Nine Months of 2009 compared to First Nine Months
of 2008

Membership revenues decreased 3% in the first nine months of 2009 to $317.9 million compared to $327.8 million for the first nine months of 2008. Net income decreased 4% for the first nine months of 2009 to $43.7 million from $45.4 million for the prior year's comparable period primarily due to the decrease of $9.9 million in Membership revenues, a $3.1 million increase in associate services and direct marketing expenses, a decrease in other revenues of $425,000 and an increase in general and administrative expenses of $52,000 partially offset by a decrease in Membership benefits of $4.5 million, a $2.7 million decrease in commissions, a decrease in other, net expenses of $3.6 million, a decrease in the provision for income taxes of $791,000 and an increase in Associate services revenues of $232,000. Diluted earnings per share increased 5% to $3.95 per share from $3.77 per share for the prior year's comparable nine month period. The 5% increase in diluted earnings per share is due to a 4% decrease in net income and an approximate 7% decrease in the weighted average number of diluted shares outstanding.

Membership fees and their impact on total revenues in any period are determined directly by the number of active Memberships in force during any such period. The active Memberships in force are determined by both the number of new Memberships sold in any period together with the renewal rate of existing Memberships. New Membership sales increased less than one percent during the nine months ended September 30, 2009 to 419,847 from 419,686 during the comparable period of 2008. At September 30, 2009, there were 1,545,555 active Memberships in force compared to 1,575,893 at September 30, 2008, a decrease of 2%. The average annual fee per Membership has increased from $301 for all Memberships in force at September 30, 2008 to $303 for all Memberships in force at September 30, 2009.

Associate services revenue increased 1% from $18.6 million for the first nine months of 2008 to $18.8 million during the comparable period of 2009 due to a increase in associate enrollment fees offset partially by a decrease in eService fees. Total new associates enrolled increased 39% during the first nine months of 2009 to 124,441 compared to 89,722 for the same period of 2008 and average enrollment fees paid by new sales associates increased from $83 during the 2008 period to $106 during the 2009 nine months due to a higher average enrollment fee available during the 2009 period. The eService fees decreased to $7.5 million during the first nine months of 2009 compared to $9.2 million for the comparable period of 2008. Future revenues from associate services will depend primarily on the number of new associates enrolled, the price charged and the number who choose to participate in the Company's eService program, but the Company expects that such revenues will continue to be offset by the direct and indirect cost to the Company of training (including training bonuses paid), providing associate services and other direct marketing expenses.
Other revenue decreased $425,000 from $3.2 million for the nine month period ending September 30, 2008 to $2.8 million for the same period of 2009.

Primarily as a result of the decrease in Membership fees, total revenues decreased to $339.5 million for the nine months ended September 30, 2009 from $349.6 million during the comparable period of 2008, a decrease of 3%.

Membership benefits totaled $108.2 million for the nine months ended September 30, 2009 compared to $112.7 million for the comparable period of 2008, and represented 34% of Membership fees for both periods. This Membership benefit ratio (Membership benefits as a percentage of Membership fees) should be reduced going forward as substantially all active Memberships provide for a capitated cost and we have reduced the capitated cost of the Identity Theft plan benefits effective April 1, 2007 with subsequent additional reductions on January 1, 2010.

Commissions to associates decreased 3% to $93.0 million for the nine months ended September 30, 2009 compared to $95.7 million for the comparable period of 2008, and represented 29% of Membership fees for both periods. Commissions to associates are primarily dependent on the number of new Memberships sold during a period and the average fee of those Memberships. New Memberships sold during the first nine months of 2009 increased slightly to 419,847 for the nine months ended September 30, 2009 from 419,686 for the comparable period of 2008, and the "add-on" IDT Membership sales which are not included in these totals increased 1% to 263,512 for the third quarter of 2009 from 259,648 for 2008. Our average Annual Membership fee written during the first nine months of 2009 decreased less than one percent to $324.96 from $325.80 for 2008. Our new Membership fees written during the first nine months of 2009 decreased 3% from 2008. Should we add additional commissions to our compensation plan or reduce the amount of chargebacks collected from its associates as it has from time to time, the commission cost per new Membership will increase accordingly.

Associate services and direct marketing expenses increased to $21.1 million for the nine months ended September 30, 2009 from $18.0 million for the comparable period of 2008. The increase was primarily a result of increased cost for Fast Start bonuses, incentive trip expenses and increased costs for materials and related freight sent to new associates due to the increase in the number of new associates enrolled during the period partially offset by a decline in direct marketing expenses. We offer the Player's Club incentive program to provide additional incentives to our associates as a reward for consistent, quality business. Associates can earn the right to receive additional monthly bonuses by meeting monthly qualification requirements for the entire calendar year and maintaining certain personal retention rates for the Memberships sold during the calendar year. These expenses also include the costs of providing associate services and marketing expenses.

General and administrative expenses during the nine months ended September 30, 2009 and 2008 were unchanged at $38.9 million for both periods and represented 12% of Membership fees for the two periods.

Other expenses, net, which include depreciation and amortization, litigation accruals, interest expense and premium taxes reduced by interest income, was $6.5 million for the nine months ended September 30, 2009 compared to $10.1 million for the 2008 comparable period. Depreciation decreased to $6.1 million for the first nine months of 2009 from $6.6 million for the comparable period of 2008. Litigation accruals decreased by $450,000 for the first nine months of 2009 from an increase of $888,000 in the 2008 period including a $450,000 reduction in previously accrued amounts for the nine months ended September 30, 2009. Interest expense decreased to $925,000 during the 2009 period from $3.1 million during the comparable period of 2008 as a result of lower indebtedness and lower interest rates. Premium taxes were $1.3 million for the nine months ended September 30, 2009 and $1.4 million for the comparable period of 2008. Interest income decreased $248,000 to $1.5 million for the nine months ended September 30, 2009 from $1.8 million for the comparable period of 2008, due to lower interest rates.
We have recorded a provision for income taxes of $28.0 million (39.0% of pretax income) and $28.8 million (38.8% of pretax income) for the first nine months ended September 30, 2009 and 2008, respectively.

Liquidity and Capital Resources

General
Net cash flow provided by operating activities was $48.4 million for the nine months ended September 30, 2009 compared to $44.3 million for the same period in 2008. This $4.1 million increase was primarily the result of a $3.4 million decrease in income tax payments, a $4.5 million decrease in cash paid to our providers for the delivery of benefits associates, and a $2.2 million decrease in cash paid for interest reduced by a $10.1 million decrease in cash receipts from our members.

Consolidated net cash used by investing activities was $3.3 million for the first nine months of 2009 compared to net cash used of $4.3 million for the comparable period of 2008. This $1.0 million change in investing activities resulted from a $1.9 million decrease in additions to property and equipment and a $36.7 million decrease in the investment purchases partially offset by $37.6 million in maturities and sales of investments.

Net cash used in financing activities during the first nine months of 2009 was $32.8 million compared to $43.6 million for the comparable period of 2008. This $10.8 million change was primarily comprised of a $10.0 million decrease in proceeds from issuance of debt and an $834,000 increase in debt repayments offset by a $22.1 million decreased treasury stock purchases.

We purchased and formally retired 451,486 shares of our common stock during the first nine months of 2009 for $14.8 million, or an average price of $32.84 per share, reducing our common stock by $4,515 and our retained earnings by $14.8 million. We had working capital of $8.8 million at September 30, 2009, an increase of $11.1 million compared to our negative working capital of $2.3 million at December 31, 2008. The increase was primarily due to a $12.4 million increase in cash and cash equivalents, a $3.5 million increase in refundable income taxes, a $3.5 million increase in deferred member and associate service costs, a $4.2 million decrease in the current portion of notes payable partially offset by a $7.2 million decrease in the current portion of available-for-sale investments, an increase of $3.0 million in deferred revenues and fees and a $1.9 million increase in accounts payable and accrued expenses. The $8.8 million working capital at September 30, 2009 would have been a $19.0 million in working capital excluding the current portion of deferred revenue and fees in excess of the current portion of deferred member and associate service costs. These amounts will be eliminated by the passage of time without the utilization of other current assets or us incurring other current liabilities. We do not expect any difficulty in meeting our financial obligations in the next 12 months.

At September 30, 2009 we reported $73.5 million in cash and cash equivalents and unpledged investments compared to $60.0 million at December 31, 2008. Our investments typically consist of obligations of state and political subdivisions, certificates of deposit and government guaranteed bank debt.

We generally advance significant commissions at the time a Membership is sold. During the nine months ended September 30, 2009, we advanced commissions, net of chargebacks, of $94.0 million on new Membership sales compared to $94.7 million for the same period of 2008. Since approximately 95% of Membership fees are collected on a monthly basis, a significant cash flow deficit is created on a per Membership basis at the time a Membership is sold. Since there are no further commissions paid on a Membership during the advance period, we typically derive significant positive cash flow from the Membership over its remaining life.
We expense advance commissions ratably over the first month of the related Membership. As a result of this accounting policy, our commission expenses are all recognized over the first month of a Membership and there is no commission expense recognized for the same Membership during the remainder of the advance period. We track our unearned advance commission balances outstanding in order to ensure the advance commissions are recovered before any renewal commissions are paid and for internal purposes of analyzing our commission advance program. While not recorded as an asset, unearned advance commission balances from . . .