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Non-Tech : PPD (Pre-paid Legal Services) on the move -- Ignore unavailable to you. Want to Upgrade?

To: Michael Burry who wrote (761)	2/13/2000 10:27:00 PM
From: robert read	Respond to of 801

I'll use your short money to buy me a few burgers.

To: Michael Burry who wrote (761)	2/14/2000 3:22:00 AM
From: SC	Read Replies (1) \| Respond to of 801

Mike, I appreciate that you are sharing your analysis. Again, is it possible for you to point out where you did or I can find the numbers that you gave, such as the cash flow number for the latest published quarter and the insider selling number. I was trying to find them on various web sites but couldn't. I would like to be able to verify these information myself or at least have them from another independent source. Shawn

To: Michael Burry who wrote (761)	2/14/2000 6:18:00 AM
From: SC	Read Replies (1) \| Respond to of 801

Regarding sales, I searched www.freeedgar.com as you mentioned the selling activities according to form 4's filed. Here are the insider transactions reported and the latest I can find, all related to directors of the company: STONECIPHER SHIRLEY, identified as director On 12/13/99 Desposed 12,800 shares Remaining shares 1,049,225 and his spouse has 17,356 BELSKY MARTIN H, director. On 9/24/99 Acquired 1,000 at $30.25 Disposed 1,000 at $36 (This seems to a stock option exercise) Remaining shares 350 GRUNEBAUM PETER, director On 08/03/99 Disposed 100 Remaining shares: 10,700 direct owned and indirectly 1200 by KEOGH plan SMITH WILBURN, director On 08/09/99 Disposed 22,000 Acquired 22,000 (This is a transfer to a family trust as indicated in the note) Remain shares: 27,266 direct, and 22,000 through family trust (probably acquired from the above transaction). STONECIPHER HARLAND CECIL, director On 5/19/99 Disposed 10,000 Remaining shares: 1,062,025 direct, indirect 17,356 HARP RANDY, director On 2/01/99 Acquired 2,500 remaing shares 15,100 and 1000 indirect GRUNEBAUM PETER, director On 01/25/99 Acquired 3,000 Remaining 18,000 and 15,445 indirect. And several remaining form 4's in the year (99) are specifying the acquired stock option rights to buy at between $26 to $30 or so. The only significant sale is by ONE director selling less than 2% and less than 1% of his holdings. Unless you have more data for other recent sales, I fail to see the need of making a big deal here regarding insider sales for this company, to be in perspective either comparing with other companies in general, and in particular regarding the share ownership of insiders in this company. I noticed that a few months ago you have been predicting more heavy insider sales due to coming growth problems of memberships, for the reasons you were shorting the stock. Is this what you have in mind? Shawn

To: Michael Burry who wrote (761)	2/16/2000 10:19:00 AM
From: SC	Read Replies (1) \| Respond to of 801

Regarding earnings and advance commission concerns that you raised, here is a post I just saw on FOOL.COM. Feel free to comment: =========================== boards.fool.com As many note in this thread, it seems the numbers of PPL reqire a bit deeper look to project future benefit, due to the advance commission issues. I hold a perspective as both an investor and associate with the company and offer the following thoughts just FYI. Commissions are advanced 3 years on any new membership sale. But, as noted in another post, it is an advance against future monthly payments by that member. If they leave before 3 years, the sales associate owes money back to the corporation. PPL is generous with this and only require the associate reimburse 50% of the remaining balance. Of course, both the associate and the company are banking on new members remaining members, which is the key to the long range profits. PPL has had excellent history with keeping members. Renewal rates are about 78% for first year and 95% for people keeping the plan more than one year. That says to me - satisfied life long customers and referrals to new customers. PPL has had 26 quarters of record earnings and new memberships. That leads to the paradox in the numbers. Paying commission up front means more members = more advances. And more initial $'s going out than $'s coming in on each of those new members. But, if after 3 years 78% of those customenrs are still sending in their $25 each month and now the commissions are only being paid as earned, the long term prospects look quite sunny. I think those of us investing in PPL also need to keep in mind this is essentially a "new" company in growth (albeit with the benefits of an old company in management, debt, and market position) and we're going to see this dynamic of advanced commissions related to earnings for some years. The annual percentage growth recently in members and associates is quite astounding, but still only a tiny percentage of the public has been exposed to the product. Personally, I expect the retention rates to drop a bit over the next few years as new associates "jump on the bandwagon" because of the numbers and make sales, but don't do quality follow through. But even so, the total number of memberships being retained past 3 years will continue to grow. So, I see PPL as a buy and hold. One other comment. From my personal involvement on the sales end I continue to be very impressed by the integrity of this company and it's management. From the quality of service they provide the customers to the attitude and actions toward their sales force. Combined with their 20+ year head start on competitors in this field, I believe they will be the company to beat for years to come. The only unknown is whether the public will want the product in large numbers. Obviously, I believe the answer is going to be "Yes". ===============

To: Michael Burry who wrote (761)	2/18/2000 8:17:00 AM
From: SC	Read Replies (1) \| Respond to of 801

Mike, <<This past quarter operating cash flow: $4.698 million Net income this past quarter: $10.426 million ? Really, one must think about that. And then think about the market cap at $650 million>> Do you imply it is an expensive stock? Compare to which one? Your were using a quarterly number for net income. As of today: Market share: 600.3. million Net income 38,953 million for 99 Net cash flow 17.6 million Thus P/E for 99 = 15.4 Even you discard anything in the net income only to include operating cash flow (which is questionable) it is still only: 34.1 99 EPS 35% 99 net income growth rate 46% 99 operating cash flow growth rate for 99 77% EPS for past 5 years 49.27% EPS projected for next 5 years 30% (Data from investor.msn.com) <<This stock isn't easy to figure out. >> More details about advanced commission and how the company makes money: boards.fool.com messages.yahoo.com boards.fool.com Feel free to refute them if you like and be specific. From the one of the links above, Regarding the commission advances that cannot be totally recovered: "But what about the OTHER half, the half the associate keeps?.... The amount corresponding to halves the associates keep amounts to quite a chunk of change?over $9 million in 1998, as you can easily calculate yourself from the retention rates Pre-Paid Legal quotes." Understandably you have problems with this. Another way to look at it, as long as the commission advances keep generating new memberships, this is a good and valid investment into their exact business, as long as the they can be recovered and gain some more through increasing new memberships, which they have been doing successfully. If the prospect of their business is certain, I don't think it is that different from what Warren Buffett, your hero and mine, does with is insurance "float", except instead of investing in associates to recruit more members thus making more money, he invest in other stocks. And PPD doesn't seem to have Mr. Buffett's problem of finding cheap investment at the current highly valued market. (From one of the links above, they advance $62.25 3-year commission for a $300 per year membership. Of course cancellations mean they will a lot make less $300x3 - $62.25 = $837.75 gross per $62.23 cost over 3 years and I cannot confirm this these numbers, but they are still very profitable so far. ) Besides, they can always change their commission advance structure and terms, the amount advanced or even change their sales model once their market is well established. So far their current model appears to be very attractive for signing up the associates and a very cost effective way to expand and create a relative new market and new demand at the moment. Another curious argument you have is that PPD will not do well if the economy goes back. But unless you can give me your logic leading to your conclusion, I can argue the other way: aren't those who signed up for a prepaid legal service because they need it and because it is cheaper than hiring their own lawyers? Wouldn't they more likely choose to pay less for the same services in a bad economy? Also wouldn't a restaurant owner be still worried of being sued by his customers either by the real risk of food poisoning or by some one who needs money even more badly in a bad economy? For the long term, the final concern should be how PPD's business prospect is. Of course you and I may disagree. Yet we may agree on one thing, it is costly to be wrong, and I might add, especially when you short a business that is doing pretty well and is sold quite cheaply. Of course I may be wrong too. From this link: boards.fool.com Article in Daily Oklahoman on 2-10-00 stated that decrease in cash flow was result of 41% more memberships in the third quarter. New memberships cause cash flow to decrease because commissions are advanced. Shawn