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Sophist, I have requested an explaination
I left a polite message for Janet Point requesting more specific information. When I get a response I will share it here. For those who don't trust someone from the dark side, please call for yourself.
1 800 no wires.
If management presented a use that would benefit the company beyond the dilution, I'd vote yes in a heart beat. But assuming they have these great plans is a step farther then I'm willing to go.
Kinda like the old saying, if you have to ask, you can't afford it.
BlueSkyWaves,
You are repeating your points from an earlier post, which I replied to in the referenced post. If you could explain what I'm missing, I'd appreciate it.
To me, the most compelling argument to vote no is in that post.
How long do you think it will take IDCC to collect royalties of that magnitude? 2-4 years? Consider also how the market would value IDCC if it exits 2003 with at least $200M in sales and $600M-$800M in cash/investement?
Assuming this includes $220M from the exercise of 10M shares I’d say (using rough numbers)
$200M/60M shares O/S x PE of 20 plus est cash above operating requirements of (700M-100M)/60M sh, which equals ~ $66.67 + $10.00 = $76.67 per share
Assuming no option exercise, instead using $10M cash to pay/bonus in place of options, I come up with
$190M/50M shares O/S x PE of 20 plus est cash above operating requirements of (700M-100M -220M-10M)/60M sh, which equals ~ $76.00 + $7.40 = $83.40 per share, about 8.7% more per share.
To me, this shows again why we want to pay in cash, not stock.
$83.40 vs. $76.67 a share. I like management, but I like me, my family and many of the posters here a lot more.
teecee, are you just blowing smoke?
From your post 22061
fmlt...youll pay a buck a share on on sixty dollar 10 year option?....in the parlance of the street...YOUR DONE ON AS MANY AS YOU WANT!!!!..
From my post 22106
teecee, after a quick and dirty analysis
I'm in for $5,000 if you're game, and I got a hunch you'll be done on as many as you want if you want to give others the opportunity.
Unless Once is right, a 3G license with a marginal rate should get IDCC to over $3.00 a share in earnings within 5 years. Gotta think recurring earnings in a growth sector would command a PE of at least 20. Good deal for you - if the options are exercised, you've got a 3 bagger, if not you picked up enough $$ for a nice vacation for your family.
I’ll keep it simple for you, select one of the two options…
1) damn right…you smart azz bean counter think you know something about the street…riiiiiight…just make sure you check clears…i will laugh as i spend your money you&%^$@#%
optional 1a) ...and if you or any of your cpa cabal want more than that…im still here.
or
2) i wasnt stating the truth…i was just trying to impress my friends…and shut you up…i lied, you aren’t even done on one…because the value of a 10 year option at 60 on idcc…is well over a dollar a share.
So, teecee, in the parlance of the third grade bully mentality you exhibit on this board, put up or shut up.
If you have a reply of substance, put it on the board. If you want to tear me a new one, put it on the coffee house board, but don’t send me a PM unless it’s to discuss the specifics of the transaction. Be a man.
Raymond, I'll try to explain
EconEli,fmilt,Corp-Buyer...please explain to me why the stock has gone up after idcc posted the option package...why are the buyers outnumbering the sellers if you folks are right...we are up a good positive percentage since anti option folks have been hammering mgmt...just asking..not going to do a firestorm again...just trying to get all thoughts out in the open...
There are many, many factors that go into the price of a stock. Some affect the price positively, some negatively. Right now investors see the potential of large 2G revenues and of 3G contracts, which I believe is the cause of the price increase. I don't believe the proxy issue has had much of an affect on the price at all yet. If it had, I can't see it having helped the price, can you? Regardless of whether additional options are deserved or not, issuing them can only decrease the share price.
To clarify, I am not anti-management. I think they have done a good job and been well compensated for it. They still have the most important part of the job to complete – 3G. I don't see the need for any shares to be freed up at this time, so unless management can give me an explanation that I believe will add to outside shareholder value, I will be voting against the proposal, not against management.
ed_ferrari, I'm not weeping a bit
read the numbers and weep:
Why would a holder of the stock weep at good results? One the other hand, I don't see them as being as great as you appear to. If I were to weep, it would be that our management did not achieve more sooner, but since I am relying on the analysis of others regarding the strength of the patents and the ERICY case, it would not be fair. Although management itself did indicate a 1%-3% range for 2G and the ERICY settlement turned that into a joke.
Our licensing program has generated over $400 million in cash since 1995.
That is half the story. How much has it cost us to run the company over those years? During on of the strongest markets in history in which telecom came of age, one would expect not only revenues, but significant income.
Our revenues for 2002 increased 67% over 2001.
The problem with this is that 2001 was artificially low because weren't collecting everything we should. Why do you select a one year performance when in the previous point you went back to 1995.
50% Stock price increase in 2002.
Stock price is based on the market. IDCC falling from $75 to $5 was a demonstration of a stock being greatly overvalued, then falling to being greatly undervalued. Investors analyze and make their investments. Their capital earns them their return. How much did management take in pay cuts and which of them gave salary back when the price collapsed? I don't know of any, nor would I think it was appropriate. They were doing their job and getting paid for it. They still are. End of story.
171% Royalty revenue growth over 2001.
Again, a one year comparison. Secondly, recurring royalties are the significant number to the street.
The management and employees of IDCC have made this happen, not investors like you.
They were hired to make it happen and have been paid and given options and allowed to by stock at a discount through ESPP. We have and expect to have plenty of cash. What's wrong with cash bonuses and raises to compensate them if they do exceptional work?
I'm voting yes!
Tis your right. I've always read your posts and found you to be balanced and well thought out. I've looked at your points on this issue and am not swayed, so I guess we'll have to agree to disagree. Please continue to contribute to the board as I for one value your opinions.
Frank
EconEli made a very good post saying much of what I said here. It was not posted when I drafted my post otherwise I wouldn't have piled on. Since I spent the time to write it, I'll leave the redundancy.
Corp_Buyer, don't dilute your point
IF anyone WANTS to send their stock to employees ...
please feel free to do so. Just sign the back of YOUR certificates and transfer YOUR shares to IDCC management and employees. YOUR donation will be greatly appreciated by management.
But, please DO NOT commit all the other investors in IDCC to send 40% of OUR shares to employees.
Vote NO on Proposition #2.
This statement is as silly as saying "If you don't like it, sell your stock."
Not relevant, ignores the substance of the issue, and gives opponents a weak argument to attack so that they can persuade others that you are not credible, and therefore your points should be ignored so that they don't have to address the substance of your stronger arguments.
I made the referenced post to show that I do understand that their are valid reasons for a yes vote to demonstrate that I am not a greedy whiner who selfishly begrudges management anything. If people believe any of the statements I listed, it would be proper for them to vote yes. A more convincing response would be to explain why you feel each of the statements are not accurate.
One reason not to vote yes on your proxy
The stock price has done exceptionally well, therefore I owe it to management.
Management is doing the job they are paid to do. They have very little effect on the stock price – they affect the company’s results. Investors look at the current and expected future of the company and buy stocks they feel are undervalued. With all the gambling talk on the board lately, let me put it this way.
I have been known to bet on sports on occasion. If I bet on the Giants and they win thanks to two home runs by Barry Bonds, I don’t feel any need to send him some money because I profited from expecting him and his team to succeed. My risk, my reward. If he struck out 4 times and lost I KNOW he would not feel any obligation to send me a few bucks, and neither would management (nor should they). My risk, my loss.
Reasons to vote yes on your proxy
1) You believe management has done an exceptional job with the situation they faced and have not been adequately compensated for their good work.
2) You believe management has plans for the stock other than grants to officers and employees and that the shares will only be used if the appropriate situation arises.
3) You believe management is uniquely qualified to run IDCC, and if they do not get what they are asking for, there may be folks leaving that will adversely affect IDCC in the future.
4) You believe out of fairness, they need the ability to increase compensation because the compensation levels will be too low if they achieve the success that is hoped for.
5) You believe that the current option plan does not adequately incent the management and employees to perform at their absolute best, and the cost of the additional dilution will be more than offset by additional productivity.
If you believe any of the above are true, and you are not greedy, then you should vote yes.
I do not agree with any of the above and have not heard any other reason that justifies a yes vote to me.
Dishfan, Good post. Thanks. eom
Deleted by fmilt - should be PM
JimLur, What a creative idea.
I think selling puts is a great idea. The company essentially is putting a buyback into place, but only at low prices, and it is picking up the juice from the buyers whether the puts are exercised or not. Sounds like a great idea for a company that has cash beyond operating needs and a bright future in front of it.
Blueskywaves, can you expand a bit
Many of the people like you who complain about the twin issues of dilution and executive compensation don't seem to have a very rational basis for comparison. That's because the IP operating model is very, very difficult to execute.
As an exercise, name one, just ONE company that has ever generated more than $7 per share in cumulative royalty income from the start of its corporate life to 12/31/2002.
Then name one, just ONE company that has a shot at generating more than $7 per share in cumulative royalty income during the next four years.
See what I mean?
I'm sorry, I don't. Anyone can pull out some specific stats on a company to show they have unique characteristics. But what is the point? If management was doing something that few others could accomplish with the company, then I agree one cannot compare to a cross section of companies. If you feel this management could not be reasonably replaced at the current compensation levels and you felt that current management might leave if the option proxy was voted down, that would justify a yes vote. I feel management is talented, but not uniquely talented. I don't care if they make money from patents or butterfingers or digging ditches. There job is to create growing revenues and income for the company.
Regarding dilution, compare IDCC (55M shares) with RMBS (98M shares) and ARMHY (338M shares) to see the flimsiness of this claim. At their respective peaks in 1999, ARMHY had a market cap of more than $5B, RMBS had a market cap of more than $25B while IDCC had a market cap of more than $1B. Needless to say, insider selling at IDCC, ARMHY and RMBS also peaked in 1999.
Blueskywaves, your posts seem to equate float with dilution. Float is the number of shares outstanding, and can be increased by stock splits, share sales by the company, which includes option grants that are exercised, secondary offerings and selling shares to existing shareholders, like ERICY did last year. Splits and shares offered to the existing shareholders based on their ownership increase the float, but are not dilutive because the existing shareholders maintain the same proportional ownership of the company.
As far as insider sales go, once they get the shares they should sell them when they choose (within SEC rules).
Regarding executive compensation, the only person to come up with a rational framework for judging the level of executive compensation was Ronny, but his analysis was flawed by the use of Fortune 500 levels of compensation as a starting point when other companies with significant royalty income like ARMHY, RMBS and even QCOM were available for comparison.
I think using Fortune 500 is actually putting them a league up. That's where IDCC wants to be. If our company earns royalty revenue as opposed to any other type of income, do we get a higher valuation on the street? They look at revenue, income and growth. The source is only a concern in their estimation of the future, but that's it.
As an example, here's a comparison of C-level salary and bonus levels (excluding options) at IDCC vs RMBS circa 2002.
RMBS IDCC..........Chairman of the Board -- --CEO $ 616K --President 577K $ 659K COO -- 339KCFO 441K NAGeneral Counsel 365K $ 354K
Note: Rambus has a CEO and President while IDCC has a President and a COO (Chief Operating Officer).
Why are you excluding options from this, since that is a significant part of officer compensation and the crux of the current debate. But regardless, choosing any single company is far less relevant then looking at a wider sample, like the Fortune 500.
Rambus has TTM revenue of $102M, 98M shares out and most of its major litigation (patent and anti-trust) in front of it.
IDCC has TTM revenue of $88M, 55M shares out and most of its 2G litigation behind it. As a result its revenue is expected to go from $88M in 2002 to $150M-$200M in 2003 and its cash/investment account is expected to go from $88M in 2002 to a projected $400M+ in 2003.
IDCC has its future (3G) in front of it, just like Rambus. 2G is settled, but lacking 3G success, then IDCC's price will not be this high long or in the future.
Lastly, compare the annual returns of both companies during each of the last 5 years, a period of time that includes the blow-off market top in early 2000 and the probable market bottom in mid-2002.
Management does not control the stock price, they control the results that theoretically the stock price is based on. The fact that the market undervalued IDCC does not prove management did an above average job. It definitely is a factor to use in judging them, but not an absolute. IDCC's management was not doing a terrible job in 2000, the stock price was overpriced and fell 90% which was not due to poor performance. You and others did research and decided that IDCC was undervalued and risked your capital by buying the stock. Don't ignore the value of your investment prowess and the value of risk taking. Yes, many have and hope to achieve exceptional returns on their investment in IDCC. Don't feel obligated to give away the store. If 3G is a bust, don't look to management to reimburse you for any of your losses.
Now tell any rational person that IDCC's compensation policies are excessive compared to its peers in the IP business.
Since you ignored stock compensation and did not delve into any of the contributions of the other management teams (did they help create the company or technology that their company licenses, have they gotten licenses, etc.), a comparison would be difficult. Secondly, what is the rationale for comparing only to IP companies? Unless only a select few can run them, it is not relevant.
blueskywaves, you are correct
IDCC would be a less attractive stock today if not for M&A. IDCC was a TDMA-only IP shop until they merged with Schilling's CDMA-only IP shop in the early 90s. At that time, the wireless industry was still making the transition from 1G (analog) to 2G (digital) and carriers were still choosing between the heavily favored GSM, a TDMA variant, and CDMA, the US underdog.
The rationale for this merger was sound. Schilling's CDMA-only IPR would enhance IDCC's ability to generate income from its TDMA-only IPR while allowing IDCC to hedge a CDMA future. Litigation, of course, sidetracked IDCC for much of the 90s.
The merger was done because it was a good situation for both companies. I just don't want IDCC to feel the need to be active in M&A just because it has a nice fat bank account.
I'm still not onboard with the need for a larger float. Others can correct me if I'm wrong, but I assume institutions invest a desired $ amount in a stock. So they just buy fewer shares. Also, as a holder I like a tighter supply when thinking of the supply/demand curve. Honestly, I don't think float has a significant affect on the long term price either way. Some funds won't buy stock priced under a certain dollar level, and some individuals don't like to buy high priced stock, which is the primary reason for splits. Really, its pretty much a non-issue to me UNLESS expanding the float is done by dilution, because that is a huge issue to me - but I think many people have guessed that by now!!!
Thanks for your thoughts,
Frank
hacitra, two names for the same thing
ESOP - Employee Stock Ownership Plan
ESPP - Employee Stock Purchase Plan
Raymond, I don't tell IDCC what to do
other than through my proxy. Blueskywaves stated that he felt M&A was a good area to get into and I countered with why I'd prefer IDCC to acquire IDCC than get into M&A. When asked to explain why, I did, being sure to let everyone know I was shooting from the hip. Just chat board conversation and sharing of perspectives. If IDCC does get into M&A activity, I will evaluate it and adjust my investment views on IDCC as I see fit. I will also look for intelligent posters to help me consider factors I may have missed.
I don't see this board as a method to influence management, I see it as a way to keep up on my investment and share with other investors. In this unique situation of a proxy, where the shareholders can do something which will affect the company, hopefully promote constructive dialogue about the issues that we can vote on so that each yes vote is a vote of conviction and not of ignorance or apathy (no action on proxy = yes vote).
Raymond, I got to tell you you're dead wrong on one thing - I could NOT run the butterfingers company. I'd eat up all the profits. Take care and have a good weekend. We might disagree on some issues, but I think you are a good man.
Sophist, you're exactly right, there are benefits
and as you stated they are very difficult to quantify. You are paying for services, and you are also adding incentive.
Have an ESPP program and limited option grants, which 80%-90% going to the rank and file. Let's assign a value to the options so that we see what the cost is. Valuation tough? Put 20,000 on the open market with the same terms and sell 'em, just like a treasuries. Offer the employees cash in lieu of the options if they choose. That will give you a good basis for valuation. Then we will maintain incentive, although not as wide, and we can see how much we are paying for the services we are buying. It should be a part of the pay package, not a lottery ticket on top of the pay.
mschere, you're right, M&A could be good
although if they came to me for M&A help, then I'd really be worried. If they find a company that is complimentary to IDCC and can add value, great. However I don't see that as being likely. My view is I think IDCC is the best investment around, so buy back shares of IDCC. Unless they come across a situation with great synergy, I'd hate for them to go looking for a company to buy. The money burns a hole in the pocket and the M&A folks feel the need to do something to justify their positions, so instead of buying a great opportunity, they go looking and buy the best opportunity they find. When I go shopping, I go due to a specific need and I get that item. It may not be at the best price, but if it is at a cost that is worth it to me, then I buy it. My wife, on the other hand, goes shopping when she has a few extra dollars in her purse. She always comes home and tells me how much money she saved me on all the bargains she bought, but if we didn't need it then I look at it as a waste rather than a savings. A rather simple minded analogy, but that is my fear. We buy a company because we can, we get it at a "good" price (free if we use stock, right guys?), it makes us feel good about ourselves, but in the long run does it enhance company value?
I could be completely wrong on this, as it is just off the cuff thinking without any background in M&A, nor any knowledge of the skill or experience of the M&A people with IDCC. However, my impression is that companies that achieve success then try to move to other areas tend to have some troubles.
Ken, from a greedy whiner
I hate to tell you, but if they continue to use options for executives as freely as they have in the past, I will be here and I won't be happy about the equity I lost due to dilution.
If management stopped taking options for the next three years, getting cash compensation instead. IDCC performed exceptionally well and the stock was at $150. They figure, hey, we've done great, we've got over $70 a share in cash, so we're going to take $50 per share for bonuses. Stock falls to $100. You would still be thrilled? I wouldn't. It's like the story about a frog in hot water. You drop him in some very hot water and he'll jump out, but if you put him in lukewarm water and slowly raise the temperature he'll cook to death.
If you think people are upset about paying taxes, imagine what it would be like if there was no withholding and everyone had to pay all the tax on April 15. By taking it slowly the long term affect becomes hidden, but it is there.
Reasonable, justifiable, proportional and fairness. That’s what I’m looking for.
mschere, I have to plead ignorance
Those are good statements to look at, but I cannot tell you what they mean. They seem promising, but I'm not knowledgeable enough about the technical aspects of IDCC's activities. I am not confident in my ability to extrapolate from the statements you listed what that means in products, licenses and finally revenues. Data, Infinite_Q, Corpgold and many others would be better able to respond than I.
It does sound very positive to me, but don't know how to analyze them. Sorry I couldn't give you a better answer, but I will be looking to see if anyone else responds because those are excellent issues to discuss.
Thanks,
Frank
blueskywaves, in an effort to get real...
Oh please, another armchair CEO getting lost in abstractions.
Get real, will you?
1) Until the current system is changed in early 2004, IDCC can still use its option program to attract engineering talent. True, there is a general glut of engineers in the marketplace but there is always a shortage of talented wireless engineers.
As I understand IDCC’s management’s staffing plan, they completed the ramp up and are staffed fully at the present time. Of course, if a quality person comes along I assume we’d make the effort to pursue them, but I do believe we have plenty of options still available for that eventuality.
For instance, Sony/Ericsson, Nokia and Samsung all plan to increase their CDMA chipset engineering effort this year after years of unproductive work. If IDCC somehow manages to attract a productive group of engineers from QCOM with its options program, wouldn't that increase its 3G negotiating leverage with Sony/Ericsson, Nokia and Samsung?
I don’t think so, because people are going to license with us based on what we have in patents, not what we might do in the future. It would increase our leverage in the future, or give us new patents to license but not for quite a while. Again, we have plenty of options remaining if this comes up, and at that time management could come back for additional stock, explaining that the previously approved shares were unexpectedly used for this purpose.
2) The exercise of an option results in a cash infusion, a tax benefit and stock dilution. IDCC has tax-loss carryforwards of around $150M that should come in real handy now that it is starting to make real money.
3) Again, the exercise of an option results in a cash infusion, a tax benefit and stock dilution. What's wrong with adding more cash to IDCC's balance sheet from the exercise of options? 10M shares @$22 per share would add $220M. 10M shares@$30 per share would add $300M. 10M shares@$40 per share would add $400M. Catch my drift?
A cash infusion is not a bad thing, but a company that is flush with cash and not anticipating cash flow problems for years to come does not need to sacrifice to gain cash flow. A company that is expecting the price to go up should use cash rather than stock. If they need cash in the future they can generate more later by selling the higher priced shares they did not issue earlier. If management feels the necessity of increasing cash, let them put out warrants to all the existing shareholders so we can fill the coffers and keep their relative share of the company if they chose. Might be a tough choice for management, as they are used to buying at prices below market when they exercise.
IDCC has a tax loss carryforward, but that is not relevant to this discussion. That is there regardless of what we do. The issuing of options instead of cash payments is tax neutral or a tax detriment. If an ISO is exercised and held for over a year, the company does not get any deduction for the salary compensation paid, so they end up paying more tax than if they had used cash compensation. If the option is non-qualified or there is a disqualifying sale of an ISO, then the company does get a write off equal to the difference between the value of the option and the exercise price.
How long do you think it will take IDCC to collect royalties of that magnitude? 2-4 years? Consider also how the market would value IDCC if it exits 2003 with at least $200M in sales and $600M-$800M in cash/investement?
Assuming this includes $220M from the exercise of 10M shares I’d say (using rough numbers)
$200M/60M shares O/S x PE of 20 plus est cash above operating requirements of (700M-100M)/60M sh, which equals ~ $66.67 + $10.00 = $76.67 per share
Assuming no option exercise, instead using $10M cash to pay/bonus in place of options, I come up with
$190M/50M shares O/S x PE of 20 plus est cash above operating requirements of (700M-100M -220M-10M)/60M sh, which equals ~ $76.00 + $7.40 = $83.40 per share, about 8.7% more per share.
To me, this shows again why we want to pay in cash, not stock.
4) A larger cash balance would also allow IDCC more M&A options since it can sweeten any bid by increasing the cash component.
I’d rather IDCC focus on their core business rather than M&A activity. Quite a few well run companies have lost a lot of money on M&A over the past few years – ask QCOM. Cash in the pocket gives them the ability to go into areas beyond their expertise. Personally, I’d prefer a stock buyback if there is no ongoing business need for the cash because I think IDCC is a great investment. I am not selling stock to pay bills personally because I believe I will be better off holding the stock. I wish my company had the same view.
5) It seems that many people think that dilution is inherently bad, but what is true for large established companies is not necessarily true for small companies just entering their high growth stage. Dilution is not yet a problem for IDCC. I even think that the tight float is actually preventing more mid-cap funds from establishing larger positions or from even opening new positions.
Generally when small companies are entering their growth stage they do not have cash and cash flow tends to be a big issue. It is important to conserve cash to insure that they can survive any bumps in the road to last until the revenue from the expected growth comes to fruition. IDCC does not have that problem. Stock (dilution) is used to conserve cash. Employees accept options because the expected value of the stock is greater than the cash. Otherwise, why would they accept options in place of cash?
I am really confused about your opinion that dilution is not an issue. I can’t imagine how owning 1,000/50,000,000 shares could not result in a better per share price that owning 1,000/60,000,000. As far as mid-cap funds staying away because of the float, split the shares or sell warrants, don’t give away a rapidly appreciating asset at current values. If one is not optimistic about the future of IDCC, stock options could make sense for the owners. But if one believes this stock is going to experience double digit growth over the next 5 years as I do, using options instead of cash is detrimental to your interests as a stockholder.
Another new paradigm from the oracle, teecee!
....ill make a prediction....we wont see fifty until fifty pct of this board sells and lifts the cloud of darkness they impose on the stock"
So having concerned shareholders that voice their opinion on the issues affecting the stock price, including (gasp) perceived negatives, pitfalls and who exercise their right to discuss and think about management’s proposals on the proxy hurts the share price, but having those same people SELL their shares would drive the price up. My goodness, I do have a lot to learn about investing. I always thought price had to do with supply and demand and that sellers, regardless of their attitude and ignorance, would drive the price lower. Foolish me.
I've also heard that some people who invest in stocks actually use things such as PE and PEG ratios (although I'm so ignorant that I don't understand how a Physical Education ratio is computed), discounted cash flow analysis and the like to determine their estimation of the fair value of the stock, and then buy if they see that the current market value is significantly below what they compute it to be. Nah, that would be silly. Institutions and other professional investors check to see if the holders of the stock are strong and loyal or weak kneed sissies by checking chat boards, then use that as a guide to their investing.
To quote the sage... rrrrrrrriiiiiiiiight
New mantra teecee
… thoughts … between… the… dots…
Learning2vest, Re: Interdigital going private
Interesting thought. Lack of liquidity of an investment decreases the price it can be sold for. You may want to hold for the dividends and trust that management unencumbered by SEC regulations and stockholder votes to be looking out for your best interests, but I don't see that as a value adding option for those poor meddling shareholders that remain.
If this IDCC's plan, using stock for compensation would definitely help them on the way - pay themselves in stock, conserving corporate cash and giving them more voting shares. Another reason not to vote yes.
Dishfan, If management would tell us
specifically what the stock would be used for along with a clearly defined plan for using stock options in the future, it might be something I could support. You may be right about uses that justify a yes vote, but I'm not willing to make the leap of faith at this point.
Thanks for the on point response, it helped me consider a perspective I hadn't before.
The other Frank
Dishfan, you make a good point
about what stock options do, but it leads me to a different conclusion...
Stock options accomplish the following: 1) a strong incentive for the employee to focus on stock appreciation, 2) improved employee retention, and, 3) highly efficient cash management, ie. an incentive plan that costs nothing and adds to cash balances.
1) They already hold enough shares and there are plenty of shares remaining to make stock appreciation a selfish motive (not meant as a slam, it is what makes capitalism work) as well as part of their job.
2) In the current economic situation, I don't see retention being the problem it was, and again we have plenty of stock still available to management if needed.
3) IDCC has plenty of cash and the cash flow should be very positive according to managements CC after the ERICY settlement. IDCC is not a cash strapped start up looking for capital. Why would someone want options instead of cash compensation? Because they believe it will be worth more. A company makes that deal when they have liquidity problems. It doesn't make sense for the company when its cash position is expected to be exceptionally strong already.
I have to take issue with the statement it costs nothing. It does not deplete cash, but there is a cost to the owners, it just does not (yet) hit the FS.
Dish, I don't disagree with your post
You are quite right, there is a synergy that comes from great team work. My view of the relative strength of their position and expectations based on that assumption may be too high, so I am disappointed in the ERICY settlement and the lack of 3G licenses. I am not saying that management is incompetent, corrupt or should be replaced. If that is what others are getting from my posts, I'm sorry for not communicating well. They do have very challenging issues to manage and I think they are doing respectable work. I also feel they are very well compensated for that work and HAVE ALREADY BEEN rewarded for success that they haven't yet achieved.
Management does not control stock price, they control the company. The market is now pricing in some future success, but if it fails to materialize, the price will fall hard. The company is not yet successful enough to justify the current price, but IF they execute, then the current price is cheap. If the company does well, compensate them well, but still maintain fairness, proportion, reasonableness and justification. If you were lucky enough to own the only McDonalds in Iraq, located right in the middle of the U.S. soldiers, would you give the manager 10% of the company because you are doing great? If he demanded it, would you look for another manager? If he’s doing a great job, giving him great pay, but don’t give away the company. I don't sense any of IDCC's management team walking away if they don't get everything they want. I don't think they are being underpaid, That's why I am against granting them further options for unspecified purposes that very well could be used for more management options.
Art, I'm not trying to be negative
I'm trying to be realistic. This is real money to me. I've bought IDCC, but it is not a lifetime commitment. When I perceive that the risk/reward ratio of the investment no longer tilts to the reward side, I will sell. The best way I know of to determine that is to ask the hard questions and analyze the information out there as objectively as I can. As a stockholder, my only contribution to the company is to exercise my right to vote on proposals put before us. I feel strongly about the stock option issue, so I'm trying to point out that the option and compensation package in place has been and is generous compensation for the skills, efforts and results achieved with what they had to work with. I'm not going to pay Jose Cruz the same money as Barry Bonds, even though they both play outfield and contribute to the success of the team. If they want to negotiate, I'd work to find a fair, reasonable, proportional and justifiable solution, but I would not just give them a blank contract because the Giants went to the World Series last year and are off to a great start this year.
Glad I'm not coming across as negative, because I am very long in IDCC and desperately want it to exceed Mickey's wildest dreams. However, wishing and cheering isn't going to make it happen. Other than my proxy, I have zero control over the future of the stock price. My intent is not use this forum to help my investment, it's to use this forum to help me understand as much as I can about IDCC so I can make wise decisions about when to buy AND when to sell my investment.
Raymond, you’ve got a good heart and I believe have discovered a great stock to invest in. Remember to be loyal to those that deserve it, your family and friends, by making the most out of your investment. Don’t be loyal to a stock – I promise you that no one at IDCC is thinking about loyalty to you when they make decisions, nor should they. If they were worried about being loyal to you, then they would be working against the person you bought from and sold to. Their job is to run the company to the best of their ability in an honest and ethical manner. Your job as an investor is to maximize your profits on your investments, taking into consideration your age, financial situation and risk tolerance. People who close their eyes to the bad things in life don’t avoid them, they’re just unprepared when they happen.
One last point about management comp
Let’s say any officer or director had to leave IDCC tomorrow, but it was clear to the market that the reason was personal, not related to the company.
Is there anyone who’s departure would have an adverse affect on the stock price? Anyone have any candidates? I wouldn’t sell my shares if any of the non-technical personal left under those circumstances, nor would I worry about their production being covered. Is there anyone in management who could not be adequately replaced with the current compensation package? Yes, I remember MG. Was the problem the lack of candidates? If so, this is a much better market for the employer. Was it current management unwillingness to upset the status quo? If that’s the problem, then I see that as a weakness in management.
If you can’t come up with an positive answer to the above, think real hard about why we need to give management everything they want.
teecee, after a quick and dirty analysis
I'm in for $5,000 if you're game, and I got a hunch you'll be done on as many as you want if you want to give others the opportunity.
Unless Once is right, a 3G license with a marginal rate should get IDCC to over $3.00 a share in earnings within 5 years. Gotta think recurring earnings in a growth sector would command a PE of at least 20. Good deal for you - if the options are exercised, you've got a 3 bagger, if not you picked up enough $$ for a nice vacation for your family.
I'm dead serious about this if you are. Let me know.
Learning2vest, we agree!
Another line of thought goes down the path of what these same folks would be doing if THEY were the "big dogs eating first" as executives or key employees at InterDigital right now(not a chance, and THAT may be what yanks the underwear IMO). Try picturing one of our "No" voters being in the catbird seat over in KOP helping themselves to more IDCC options. Not too hard to see how that would go after reading how some think IMO.... things like "MORE for ME, it's ALL mine, NONE for those greedy shareholders, we don't need them anymore because we are NEVER gonna have to go to the equity markets again. Screue them!" is what comes to mind. LOL!
Yes, just exactly what the current management is doing for as long as they can get away with it. If they were shareholders they would be voting NO. Greed is what makes capitalism, and if you don't watch out for your share, others will be more than happy to take it. Hopefully it is tempered by reasonableness, proportion, justification, and fairness, but I’m not trusting anyone to choose between him or me getting money if I have a choice.
Got to disagree here, though.
One of my sell signals for a stock is not being comfortable voting in favor of management supported proposals on a proxy. I'm fine, and holding strong so far with what I can see of InterDigital's management judgement, and with the RESULTS THEY HAVE DELIVERED.
What results have they delivered? Settled for penny on the dollar on 2G without getting a 3G contract, just a promise that those fine ethical folks at ERICY will be our friends and play fair from now on. Are you happy with the settlement? They have not licensed much of anything for 3G. Earnings per share are measured in cents, the year before they were red cents. 2003 IDCC will have real earnings, but the recurring portion on which we have undisputed contracts is small and (2G) declining. Those are the RESULTS THEY HAVE DELIVERED. There is the promise of big bucks from Nokia and Samsung, the lure of 3G, the SOC and the Infineon partnership, but they have NOT been delivered. If the above do not come through IDCC is headed to single digits
If you are not making money here now, it ain't the options, the pay scales, the PR activities, or whatever else you might want to blame. You screwed up. Live with it and learn something.
And if you are making money now, it’s not management’s rescuing the company post MOT, getting the NOK contract in 1999, wisely avoiding debt and building a strong balance sheet, it’s because you saw that the market was grossly discounting any chance for IDCC to succeed and you RISKED you own CAPITAL. Ya done good. Enjoy it and don’t feel obligated to further spread your wealth to people who have been fairly paid and received generous option plans all along.
Cool, I'm thinking 5,000
I'm going to have to analyze it over the weekend, but before I go to the trouble, here is specifically what I am proposing, assuming we agree to options controlling 5,000 shares.
A contract granting me the option to buy 5,000 shares of IDCC at $60.00 per share any time between now and April 30th, 2013. I will pay you $5,000 now and you would be required to maintain a position of at least 5,000 shares in a joint account for the duration of the agreement. We split the cost of the attorney that draws up the contract.
So are you willing? Off the top of my head, I think I'll do it, but I do need to put some thought into it first.
bulldzr, thanks for the kind words
Glad my ramblings made sense to someone other than me. You're ahead of those of us who pontificate - you listen and learn, a far more valuable skill.
Frank
How many options can I get at $60
with a 10 year life and no cost to me. Sure ain't as good as what they got now, but welcome to the post bubble economy. That is putting an additional reward out there for exceptional long term performance. A $60 option that is exercisable for 10 years would require an annual return of 10% to 60. That's a good run, but the stock market is risky and a 10% return is not exceptional. A 15% return would have the stock at $100 after 10 years. That's a nice bonus for being part of a team that produced good results.
Ya know, I'd be willing to pay a buck a share right now for some. Anyone want to take the other side? Once?
Marilyn, from the article
"If you take away employee ownership, and you have engineers in another area around the world work for one-tenth the cost with a better infrastructure and better supportive government," Chambers said, "how many people in this room don't think that you're going to see an exodus of jobs from this country?"
The above is the substantive statement made by the Chambers in criticizing expensing options. This is just like the false dichotomies that have been flooding this board lately. As you listen to it, you nod and say "Yeah, of course."
Now try that sentence without If you take away employee ownership. Or replace it with "If you take away dress down Friday's" or anything else you can think of. It still rings as true to me.
It's the taking of a strong position, tacking on your issue, then challenging others to dispute the whole statement. Of course, the whole statement is true, but the issue tacked on is not the reason. It's the taking of a strong position, tacking on your issue, then challenging others to dispute the whole statement. Of course, the whole statement is true, but the issue tacked on is not the reason. It is a twisting of the issue so that the relevant question is not left to stand on it's own merit.
Learning2vest, you question is intriguing
One hundred percent(100%) of the commercial success, earning power, and sustained revenue growth necessary to create value appreciation in a publicly traded company is created by;
A) The management, employees, and business partners of the company.
B) Speculative investors who buy shares in the company.
Posing the question that way makes me wonder why you invest in the stock market - it seems you don't have much respect for the investing public.
Are you saying that speculative investors who buy shares are greedy pigs living of the sweat of others and should be grateful for whatever they get?
Do you feel those investors are really just leeches and worthy of contempt of the income generators?
The purpose of the secondary market is to allow for capital creation. If there was not a liquid, viable market for people to sell into, capital would not flow into new businesses because even if they succeed, lack of liquidity would force them to sell at low prices or keep their capital tied up longer as they searched for a buyer. Therefore, neither answer you propose is correct, because without the capital contributed originally there would be zero value. Also, without a secondary market the value creation would be difficult to cash out – workers could get there share of the earning (of course, they’d also have to pony up their share of any losses), but can you imagine trying to sell .000013% of a business to someone. The legal fees alone would kill most sales.
There is a philosophy that ties out with your "A" answer, where profits are seen as the result of the exploitation of the workers who create the wealth. That again ignores the investment of capital and risk taking. It has been tried many places over the last century and widely believed to be found inferior as an economic system, not to mention the political problems it creates.
Buying stock makes me a partial owner of the company. It does not give me the right to tell management how to handle day to day operations, but it does give me the right to vote on certain issues and stock grants are one of them. To simply leave that decision to management is a failure of your responsibility to yourself. It’s one thing to look at the option proposal and deem it fair and reasonable, but to simply kowtow to managements wishes regarding their ability to pay themselves is foolish. I hope management does not adopt the same philosophy with the other employees. Otherwise, they can all just request a raise whenever the company is doing well, and management would just rubber stamp it yes because without the workers, where would they be?
Reasonableness.
Proportion.
Justification.
Fairness.
That’s what I’m concerned about.
teecee, can you expand on SEC?
What rule or law would they be breaking?
If my broker loans my shares to someone who shorts, does that mean I'm not entitled to a proxy?
Or do all long shareholders get to vote regardless if their shares have been shorted?
If that is the case, is there a rule about short against the box positions that don't allow those shares to vote?
How would the SEC be involved, since if someone is sent a proxy it seems like entrapment to prosecute them for using it.
Question on proxies and shorted shares
Using round numbers in millions, IDCC has 50 shares outstanding and a short interest of 5, so 55 shares are held long. Do all 55 shares get a vote? If so, what's to stop someone (like an institution) from going long and short for a bunch of shares to increase their voting power for the cost of entering and exiting the position?
Corp_Buyer, Good post.
One clarification
IF you want to maximize the return to YOU on your investment in IDCC stock then vote NO. Management proposes that you earn a return on less than $0.62 (that’s 62 CENTS) for every DOLLAR YOU have INVESTED in IDCC stock. The rest of YOUR return will go to employees. So, if you want to keep the gains on your hard earned after tax cash investment in IDCC stock then VOTE NO. Otherwise, in effect 38% of YOUR gains will go to employees.
This sounds like you are saying that management is providing a 62% return on your investment with the dilution, when you meant to convey that management is letting you keep 62% of your invested capital (cost +/- gain or loss) by their dilution.
I think this would be clearer (changes in bold)
Management proposes that you keep less than $0.62 (that’s 62 CENTS) for every DOLLAR YOU have INVESTED including the change in price in IDCC stock.
Once - Regarding Nokia's 3G rate
Have you been following IDCC? Nokia's 3G rate can be determined in a number of ways, one of which is a 3G license a specified leading manufacturer. I do believe ERICY would be on that list, don't you?
Technically, this is not the invocation of a MFL clause, but that is not relevant to the point that was being made - a 3G license with ERICY will lock in Nokia for 3G. What is the point of your post? For one who always claims to dispel misinterpretations, the referenced post sure seems disingenuous to me.
PS – John Ray suggests you stop learning.
hacitra, I agree with your last post
I made an investment.
it has appreciated.
I think it has more room to go.
therefore, I will hold my investment until it no longer has the potential to appreciate in value.
about entry price, I told you previously, I only care about my investments, not what someone else has done.
I really do not think we have any more to say to each other about company compensation. we just look at it from different premises.
Well said - the above all makes perfect sense to me. Good luck to you.
Hacitra, since you're tired, I'll be brief
You have a complete disconnect between cause and effect.
Stock price up.
We have management.
Therefore, management doing a good job.
Therefore, any compensation is okay.
Can't fight that logic. You win.
My involvement as an owner is to vote my shares.
One question for you to ponder. For those who bought IDCC when it was above 30 does that mean that "their" IDCC management team is doing a bad job for them or that they made a bad investment?
You'd be a great boss or friend, but not someone I'd want running a company. I do appreciate your alliterative literacy, far better then relying on the "Z" key.