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Loop, regarding timing
First, cash flow does not represent earnings. Revenues are booked when earned, and the cash is booked when received. So all the cash received in 2003 will not be recorded as 2003 revenue. Some will be booked as a liability (deferred revenue) for amounts paid but not earned in and before 2003. However, due to the conservative nature of accounting, revenue can not be recognized until there is a contract which includes a fee that is fixed or determinable. I believe (but not positive) that if you have a certain minimum you are assured to receive you can book that amount, even if the final number is not known. I thought that since we had revised our earnings for changes in the two Japanese companies sales, we might be able to use that same hindsight to revise it again for the pre 2003 portion of the earnings for Nokia and Samsung, since the contract was in place and we now (may) have information that could give us a minimum for those agreements.
You are absolutely right in your observation that a lumpy year to year earnings trail is not valued nearly as much as a smooth, growing earnings projection. If IDCC is not able to move the bulk of the earnings back to the rightful period for GAAP purposes, I hope that they would present proforma financials showing the revenue based on when it was truly earned and not when it had to be reported. This type of proforma gives clarity because they will be reflecting proper accounting IF the true value of the contracts were known at the time of reporting. That would show IDCC with ~ $2.00 share earnings in ’02, and with expected additional 2G licenses from the other non-payers and (fingers crossed) reasonable 3G licenses in 2003 we should show nice growth, and if 3G gets traction in 2004, the growth should continue. Those types of numbers are what make those screening programs and price models that many investors and advisors like to use spit out IDCC as a good stock to own. It also give a good history of growth for PEG ratios.
infinite_q
But for those of us who are in it for 3G and beyond will realize that this was the right decision for IDCC to make.
I respect their decision, and look forward to new highs for IDCC.
I too look forward to new highs - I bought some more shares on margin today based on money I have coming in soon - however my long term hopes, based on 3G, have come down significantly. What are you seeing in this that makes you optimistic about our 3G licensing? The closest thing I can see are the references to win/win, ERICY's integrity (gag), and working with the big players. While that gives me some hope, it isn't a signed agreement. If there is more please point it out to me.
The rate of 0.75% is still low
I understand that the going forward rate is more important than the past, but I thought 1%-3% was our range for 2G. If ERICY hadn't refused to license and put us in survival mode, IDCC was looking at higher rates than that. I was hoping for 1.5% for 2G (nope) and 0.75% for 3G, but I'm thinking lower now on 3G.
I thought MickeyB was a wild eyed optimist, but now I realize I was. I'm curious, based on what you know, would you have advised taking this deal? Of course, if you feel there is too much we don't know to truly judge, I couldn't argue with you.
2112 I hope you're right
Don't think for one minute that we settled for the cash value of past infringement. Rather, we settled for the long term relationship with ERICY and the credibility that that relationship gives us in the industry.
Sadly, I know that we did not get the cash value of past infringement. How do we gain credibility by giving ERICY a far better deal than anyone who licensed with us in good faith? It just seems to me that the time to formalize the terms of that ongoing relationship is when you have leverage. We just gave away our leverage for what - a promise that ERICY will do right by us? Fool me once, shame on you. Fool me twice, shame on me.
Clarence properly pointed out that none of us know what the judge's rulings were on Markman and other issues that may have significantly weakened our case. If that is the case, then I am way off base in my expectations, which was $240MM for past 2G AND a 3G license.
I sincerely hope there is more to this agreement than meets the eye. However if we accept a royalty rate at half of the bottom of our range for ongoing 2G, get pennies on the dollar for old infringement, have stated that we expect 3G rates to be less than 2G, and are betting our 3G future on ERICY being reasonable, then this settlement is very disappointing to me. I'd love to continue to hear thoughts from those who disagree with me. And as I said in an earlier post, even with this settlement and conservative 3G licenses this stock should still double from this level in the not too distant future. I just saw the potential for much, much more.
The settlement doesn't make sense to me
We settle $34MM for 10 years and billions of dollars of infringed sales, and a 2G license at what 0.5%?? with NO 3G license included. How can they end up paying for all years through 2002 a fraction of what NOK is paying just for 2002?
It's done now, but I would've preferred taking our chances at trial. Even if we only had a 25% chance of winning, the potential win at trial was a worthwhile risk at these numbers.
Fortunately, the market had priced in next to nothing from this, so the stock price moved towards the true value. If there was a trade off for 3G rates or other quid pro quo, why was it not included in the settlement? We sure did not scare anyone from infringing first and paying later - ERICY got quite a discount for their efforts.
The good news is that IDCC is still undervalued even with what I consider a poor settlement. IDCC should be able to easily achieve $2.00 per share of recurring royalties and a growth rate that should mirror 3G, plus an incredibly strong balance sheet. This should translate into a share price of at least $40 by the end of the year, and if we can get a decent 3G rate or successfully put our cash flow to work, we could work up to the triple digits many are hoping for.
I am happy with my investment in IDCC, I guess I just had more faith in our legal position, or more risk tolerance, than our management did.
To answer my own question
Thanks to Data for posting a transcript of the CC.
RICH FAGAN:From an accounting perspective, we will not record revenue associated with Nokia and Samsung agreements until all elements required for revenue recognition are met. We will, however, make appropriate disclosures to keep current and potential shareholders apprised of the potential impact these agreements could have on the company.
<snip>
TOM CARPENTER: I've got two final questions and I'll let some other folks get on the call. In the release, you talked about there's a period of review and negotiation and dispute resolution with regards to Nokia and Samsung. Could you give us a ballpark idea of the timeframe on that. Is that Summer 2003, end of 2003, for the period of review?
HOWARD GOLDBERG: Let me lay out how it works, Tom, and I'll answer your question. There is a period that is specified in terms of a specific number of days that I'm not at liberty to divulge, but as you can imagine, what we agreed on was a commercially reasonable period for review and discussion that is narrow enough to accommodate our needs and expansive enough to accommodate the needs of the other side. It is not a tremendously long period, and then after that if in fact we do not reach a resolution, and that's an IF at this point in time, we believe that the terms are pretty clear and we will have to see what happens in that discussion, but if need be, arbitration will be the means of having a neutral party to sign which party is in the right with respect to any opposing positions. If we were to go that far, it is possible that the final terms would not be set in 2003, but instead would fall over into the 2004 period. If we don't get engaged in an arbitration process, it would be the case that the rates would be established, and everything triggered from the rates would occur in 2003.
Since there is still substantial uncertainty it looks like they won't be revising 2002, although I would think they should be able to put a conservative estimate based on what is now known. Anything we can legitimately push back into 2002 will make the PE and growth figures more accurately reflect the true results of 2002 and 2003. It also will result in a better reception by those investors that like to plug in the numbers and compute trends and benchmarks.
Norfolk, what about Nokia and Samsung
While ERICY was signed in 2003, we had signed contracts with Nokia and Samsung for 2002, but were unable to estimate the royalties due to uncertainty about the rate. Now that we have a reasonable basis for estimation, shouldn't this be treated just like the updated information on sales of covered products last week? Not a rhetorical question. I don't know and am wondering if anyone else can straighten me out. Or did Fagan say that 2002 could not/would not be adjusted for any of them.
Thanks again.
Question on earnings
Did IDCC give any indication as to whether they were going to restate 2002 to include the ERICY revenue for before 2003 and to include an estimate of Nokia and Samsung revenue for 2002 in 2002 as well? That would give us ~$2.50 per share earnings for 2002. I hope and expect that we will get 3G licences signed in 2003, so we should be able to build on that for 2003. That will give us a good base for trailing PE and a growth rate that will climb with the roll out and success of 3G. That will fit much better into the formulas used by many, instead of 2002 break even, 2003 big profit, 2004 less than 2003.
DD - Exactly my thoughts. Well said. eom
Sophist, good point
Although I think you are giving ERICY too much credit. It's more like our recipe said bake in a red oven and they used a blue one. They changed nothing that had anything to do with the invention. Talk about a change that would be obvious to someone knowledgeable in the art.
Spree,
Look up "Straw man argument" - you've mastered the art. I'm not talking about Mickey's predictions, which were fairly consistent with only the date changed. I'm talking about well reasoned speculation about the trial, settlement and progress that you discredit without any specific rebuttal. I’m also talking about my post regarding the 10x5y website that listed the criteria for their number one stock in the entire market. Are you dismissing it because you don’t know them, so therefore anything they say is irrelevant? Is it because you don’t agree with their analysis? Is it because you don’t think IDCC is the stock they are talking about? Still waiting for a reasoned response on WHY you feel that my post of that information is another crazy notion that will turn out to be false
What is my record that you refer to? but with the record of you and this board i highly doubt it It’s easy and fun to throw out comments without any thought or research, like my previous post to you. But it really doesn’t do much to help anyone learn. In an effort to make amend, I tell you what - If you give me a real answer, I’ll buy you a shift key for your computer!
I listen to the BBC world report and I did not hear them report the rumor you stated and you did not provide a link. If you think we don't think you're capable of lying, I don't know what to tell you (note the spelling, y-o-u). I know the U.S. government can and will lie. If they truly have captured OBL or others and our denying it to enable them to fully exploit the enemy, great. The sources of the rumors could very well be someone trying to get attention or some cash from a news agency for the scoop. I don't know if it is true or not – I’m curious as to why you feel this is something that needs to be posted to the IDCC board.
Message boards can still influence stock prices. What you or I post will not, but if JimLur posted something he was confident of, I would take a position based on his information and I think a few others would as well. It's just that very few posters have the respect and credibility to do it. I think you do believe posts can influence price because otherwise you would not be so intent on correcting all the positive speculation. Oh, I forgot, you are just protecting the little guy...probably so you can sell him a McDonalds franchise in India with a 20 mile exclusivity radius.
Spree
I posted the 10x5Y link and indicated I believe the company they are describing is IDCC. You scoffed at that, but gave no indication of what other company it could be, or how IDCC does not meet any of the criteria listed. I try not to clutter up the board with pointless bickering, but since there ain't much going on here, I figured, "Why not?"
Also, you constantly take issue with rumors or guesstimations of what is going on with IDCC stock, yet you bring news rumors (such as Bin Laden's capture last week) to the board. When I posted that the White House had denied it you still stood disregarded that and stood by the reputable journalists at "Idreameditup.com" or whoever it was. So tell me, do you dislike unproven facts or analysis in general and you just had a source that told you the Bin Laden one was true, or do you have to counter optimistic IDCC speculation when you are looking to buy rather than sell?
GoDuke, nice informative post
Rambling post follows...
Folks love to question the motives of the U.S., and act like the other folks are standing on purely moral grounds. This shows a more substantial reason for their stern opposition. We are a bit cocky about the outcome of the war, but it shows itself not in our politicians talking "smack" to the blustering enemy, but in the fact that we are already setting up contracts for the rebuilding of the country after we've defeated it. What other country has ever worried about helping their defeated enemies? Other nations conquer with the attitude of "to the victor go the spoils." America achieves it's objective and then helps the people of the defeated nation rebuild their country. Ever seen the movie "The Mouse that Roared?" It's not too far fetched. It's probably good the France has such good relations with Iraq because the Iraqi army seems to have adopted the French military strategy. Surrender early and often. There was a band of Iraqi soldiers that tried to surrender to some British soldiers who were training. The Iraqis thought the war had started and broke through the barricaded boarder to surrender. Made of the same fine stuff as the vaunted "French resistance" in WWII.
Personally I don't think war is necessary at this time, but I sure can't stand up and declare the U.S. to be an immoral crusading rogue nation doing it for no good reason. I'd rather take over France (a well organized militia made up of Cub Scouts and Brownies should be sufficient) and split it between England and Germany, so the French can suffer two of the cuisines and languages they despise.
North Korea continues to hiss and spit at us like a sleazy lawyer trying to get a settlement because it will be cheaper than the cost of fighting. Why - because the communist system does not produce a strong economy and they cannot provide guns and butter. They have first-rate guns, but the people are cold and hungry. So they try to get us to support them, but must do it so that it seems like they intimidated us instead of working with us and getting aid like the rest of the world. I hope we just back away and back away until they do something that the rest of the world (excluding France, Switzerland and Cuba) will demand force to stop them. At that point we could offer our military, but ask the member nations of the U.N. to finance our costs. They can vote on it and debate it until they or their allies are attacked and we'll just sit by patiently, after letting North Korea no that if they attack anything American, then they will be bombed back to the stone age, otherwise they can have their fun and get other countries to pay their blackmail.
Bulldzr, nice post. I agree.
Our friends, the French
Is the French pronunciation of Chirac "Cheer Iraq"?
While I feel right now we could and should delay any military action, as Sadaam knows if he so much as spits towards that Bush would immediately unleash a full attack and continue for the rest of Sadaam's short life.
That being said, the fact is that France, a second rate economy and a third rate power, desperately wants to be considered an important country. It got a sympathy placement as a permanent and veto wielding member of the UN security council. It is doing everything to prove it is still a major player in the world. It ain't, and has not been for over a century. If you get taken over in the first ten minutes of any large conflict, be grateful you still have a country and leave managing the world's politics to others.
I don't feel the French owes us blind support for everything we do, but can anyone tell me the last time the French sided with us on any controversial issue where other friendly nations opposed us? Why does France seem to delight in taking the lead in opposition to us? Disagree, fine; vote against us, okay; actively lead the opposition, not good; veto, why the f don't you just get out of NATO and align yourself with your real friends.
I will never forgive or forget their refusing us fly over rights for our earlier military action.
In that spirit I am offering these humorous insights to the French people. If you are offended by anti-French humor, please don't read any further.
"Going to war without France is like going duck hunting without your accordion."
Donald Rumsfeld, U.S. Secretary of Defense
"As far as I'm concerned, war always means failure." Jacques Chirac, President of France
"As far as France is concerned, you're right." – Rush Limbaugh
"They've taken their own precautions against al-Qa'ida. To prepare for an attack, each Frenchman is urged to keep duct tape, a white flag, and a three-day supply of mistresses in the house." - Argus Hamilton
"Somebody was telling me about the French Army rifle that was being advertised on eBay the other day -- the description was, 'Never shot. Dropped once.'" - Rep. Roy Blount(MO)
"The French will only agree to go to war when we've proven we've found truffles in Iraq." - Dennis Miller
"What do you expect from a culture and a nation that exerted more of its national will fighting against Disneyworld and Big Macs than the Nazis?" - Dennis Miller
Raise your right hand if you like the French ... raise both hands if you are French. - Conan O'Brien
"You know why the French don't want to bomb Saddam Hussein? Because he hates Americans, he loves mistresses and wears a beret. He IS French, people." - Conan O'Brien
"I don't know why people are surprised the French don't want to help us get Saddam out of Iraq. After all, the French wouldn't help us get the Germans out of France." - Jay Leno
What did the mayor of Paris say to the German Army as they entered the city in WWII?
"Table for 100,000 m'sieur"? - Jay Leno
"The last time the French asked for 'more proof', it came marching into Paris under a German flag." - David Letterman
"Do you know how many Frenchmen it takes to defend Paris?
It's not known, it's never been tried." - Rep. Roy Blount(MO)
"Do you know it only took Germany three days to conquer France in WWII? And that's because it was raining." - John Xereas, Manager, DC Improv.
What is the first thing the French Army teaches at basic training?
How to surrender in at least 10 languages.
What is the most useful thing in the French Army?
A rearview mirror, so they can see the war.
Why does Nike like the French Army?
Because, in war time, they are the biggest buyers of running shoes.
Why did the French celebrate their World Cup Championship in 2000 so wildly?
It was their first time they won anything without the help of the U.S.
A cannibal went into the butcher shop to buy some brains to make for her family for dinner that night. She looked at the display of brains and saw that American brains were $4.95 per lb, British brains were $4.90 per lb and French brains were $450.00 per lb. She gasped and asked the butcher if the price of the French brains were a misprint.
"No ma'm," answered the butcher. "That is the correct price."
"Well, why are the French brains so expensive?" exclaimed the cannibal.
"Do you know how many French it takes to get a pound of brains!?" replied the butcher.
What do you call a French fighter coming to the rescue of American and British soldiers in the Iraqi desert?
A Mirage
Why do the French have glass bottom boats in their Navy
To see all their other ships.
How did the French react to German reunification?
They put up speed bumps at the borders to slow down the panzers.
A man asks his companion, "What's the most common French expression"?
His friend scratches his head, shrugs his shoulders and replies, "I give up!"
President Bush and the French ambassador to the U.N. were debating the Iraqi crisis. The President tried to explain through an interpreter that if we don't stop Hussein soon, he will obtain nuclear weapons. He further explained that should that happen, any future likely conflict with the madman could result in a bloodbath. The French ambassador, although, did not understand. It seems there is no word for "bath" in French.
Rumor has it that those French tanks have 6 gears, 5 reverse and 1 forward. Just in case they're attacked from behind, that's where the forward gear comes in handy.... :)
Hey, I don't know if you've heard this one or not, but... Why do we need France on our side against Sadaam and Osama?
So the French can show them how to surrender.
George W. Bush, Tony Blair and Jacques Chirac were relaxing in a Parisian sauna. Suddenly, there was a distinct beeping sound.
President Bush pressed his forearm with his thumb & the beeping stopped. The others looked curiously at him. "Oh, that was just my pager", said George. "I have a microchip embedded under the skin of my forearm."
Two minutes later, the silence was broken by the sound of a phone ringing. Tony Blair lifted the palm of his hand to his ear & the ringing stopped. The Prime Minister explained, "That was my cell phone, chaps. I have a telecom chip implanted in the palm of my hand.
"By this time, French president Jacques Chirac was feeling sort of low-tech. Without saying anything, he quickly scooted out of the sauna, but returned momentarily. When he returned, Bush and Blair both stared at him incredulously.
It appeared that a long piece of toilet paper was dangling from the Frenchman's posterior.
When Jacques saw that he had the attention of the other two men, he feigned astonishment: "Marie sainte! I'm think I'm getting a fax."
Why don't they have fireworks at Euro Disney?
Because every time they shoot them off, the French try to surrender.
Three guys, an Englishman, a Frenchman and an American are out walking along the beach together one day. They come across a lantern and a genie pops out of it. "I will give you each one wish, " says the genie. The American says, "I am a farmer, my dad was a farmer, and my son will also farm. I want the land to be forever fertile in America." With a blink of the genie's eye, 'FOOM' - the land in America was forever made fertile for farming. The Frenchman was amazed, so he said, "I want a wall around France, so that no one can come into our precious country." Again, with a blink of the Genie's eye, 'POOF' - there was a huge wall around France. The Englishman asks, "I'm very curious. Please tell me more about this wall. The Genie explains, "Well, it's about 150 feet high, 50 feet thick and nothing can get in or out." The Englishman says, "Fill it up to 100 feet with water."
Q. What's the difference between a Frenchwoman and a werewolf?
A. The Frenchwoman is not quite as hairy but the werewolf smells better.
Q. Why did the French plant trees along the Champs Elysees?
A. So the Germans could march in the shade.
Q. What do you call a Frenchman with a sheep under one arm and a goat under the other?
A. bisexual.
Deleted by fmilt - meant for coffe shop
OT: White House denies Bin Laden capture rumor
Buyout
I would hope and expect our management to encourage others to make offers if they were to be seriously considering a buyout so we could get the best price. However, I do think they would be focused nearly as much on the parachute (golden, no... make it platinum) as the pay load that falls below. There are people who make a fine living in arranging future options and other perks to make sure the decision makers get full value for their stake to make them more receptive to offers.
The good news (from my perspective) is that insiders have been continuing to sell to turn stock into spendable cash or other investments. That indicates to me that they do not know of a sure thing (like a buyout) coming in the immediate future. If IDCC can execute its business plan and if its IPR is essential, then I don't believe a bird in the hand is worth what's sitting out in those bushes.
I would not be surprised to see significant news sometime soon. Unlike most stocks, when the rumor mill is quiet, the volume is slack and the volatility is low is when IDCC tends to have news. Management deserves credit for preventing leaks prior to news being released.
An updated recommendation
10x5y looks for stocks that can appreciate 10 times over 5 years. They've referred to this unnamed stock before as a great opportunity, and have recently restated their belief (note the reference to the recent posting of small income). If this ain't IDCC, then I'm nuts. Here’s the link.
http://www.10x5y.com/strategy/thestock/index.shtml
OT: DD - regarding CPA's and audits
I used to be proud of the fact that I am a CPA. CPA's in society used to be highly regarded and thought of as ethical. Due to the greed exhibited by my colleagues that allowed the Enron and WorldCom problems (to name just 2) the profession has suffered immensely. My profession needs to go back to being the watchdogs for the integrity of the nations financial system. We need to recognize that the system is broken and stop not only allowing companies but also stop assisting companies in creating false financial statements. Let the chips fall where they may but let's get back to real accounting. There will be fallout but the nation's financial system will be stronger for it. We need to get back to reasonable expectations from investors, company management and the public alike.
Don't despair. As a fellow CPA, I understand how these scandals have tarnished the reputation of the profession. Be assured that things are changing. While I don't conduct audits any more, I am involved with a VC firm that has an annual audit. The auditors have gotten much tougher, demanding more support and evidence than ever before, including full FS from all the privately held investments, whether equity or loans. One of our holdings is a start up that in 2002 doubled it's cash position to over $1.00 per share, has no debt, increased income from $.30 to $1.00 per share and has no dilution. I had to spend a long time to convince the auditor that our investment in this company should not be written DOWN. In 2000, the same auditor basically used our cost as basis without FS and little investigation into the underlying company. They are now inquiring about transactions involving hundreds of dollars for a fund that is in 8 figures. It's gotten frustrating harping on materiality, but that is the new paradigm I've experienced. And we have nothing shady or that even appears shady going on.
The CPA's that helped Enron and WCOM achieve their goals have been rightfully held up to ridicule and a large national firm received the death penalty. The profession has become pointedly aware of it's responsibilities to the public and knows there are serious consequences for failure. CPA's reputation have taken a hit, but by the profession acknowledging and condemning the actions of those members that failed to protect the public interest combined with a renewed vigor for meeting our responsibilities to our clients, the public, the government and all affected parties, CPA's will regain the respect we lost. Contrast the reaction of a CPA that helps someone get away with something at the expense of others with a lawyer who does the same thing. The CPA is criticized and loses clients. A lawyer that can get a guilty client off or can win a frivolous lawsuit is a brilliant hero to his clients and to other attorneys. They have no duty to the public at large, only their client. As long as CPA's continue to strive to perform our duties ethically and truthfully, we will earn public respect.
mschere - Re: 04/16/02 8K Filing
The language looks to me to be a disclosure stating that the reason for the change in auditors was not due to the company looking for an auditor was more agreeable. While I've never done an audit under SEC rules, I would guess this is done to prevent companies from threatening to or actually taking their audit business to another firm due to a disagreement on how to report certain transactions. There is a lot of gray areas, were reputable professionals might disagree. Requiring this type of statement when a firm changes auditors would prevent companies from shopping for companies that agree with what they do, as that would erode the accountants' independence and objectivity.
I think the legalese can be boiled down to say
"We are not changing auditors because the new one will let us get away with something the old one wouldn't."
A big thank you to everyone who shared their ideas this weekend - a lot of intelligent and creative thoughts. Monday will be interesting.
Arms-length sale
Arms-length means a sale between unrelated parties on fairly negotiated terms. A bona fide transaction, not a token or sham transaction made to set an artificial precedent.
vg_future - Nokia accrual of Phase II
So, any such accrued royalty can be paid as one time payment or in installments to IDCC. But, what does Nokia do? Does it have to restate it's past earnings or they already have a provision for this?
Nokia should be accruing an estimate of the royalty expenses they are incurring. When the rate is finalized, they will adjust the current year's earnings for the difference between the accrual and the actual expense. However, if you are hoping to get an idea of what IDCC can expect from Nokia's books, you can't. There is no way to determine what they booked related to IDCC because the affected accounts on Nokia's books are so large that it is impossible to make a reasonable estimate of the impact of IDCC's provision.
Plumear, great post
You lay out a very complete and balanced overview of the whole situation.
Some other points of mine...
I don't think anyone is upset about the options granted to recruit, keep and compensate the employees. It's the disproportionate allocation to management that has people concerned.
Those upset about the cost (including me) aren't looking at what would be reasonable option use for employees and management to see what the excess is. Those who have no problem with options aren't looking to see what they consider fair. It exaggerates what the difference between the two sides really is.
Did the shareholders authorize the 4:1 option to shares bought plan?
To those that say if you don't like it, sell. What if the company was paying $50,000 for each desk top computer to a company run by a director's wife. I would still own the stock because it's a good investment in spite of that greed, but I would not be happy about that arrangement.
What's done is done and we can't change it. I do believe the discussion has achieved awareness of the option issue and any future option plans will be looked at very closely. People have formed their opinions and unless someone has a fresh perspective, it is probably best to let this rest. If and when a future option plan comes up for a vote, THEN we can revisit this. But as Loop says, we are on the 5 yard line, so let's forget about whether or not the QB is overpaid and enjoy the big score that not only wins the game for our team, but also covers the spread so we make money too.
Witchollow
What if IDCC did what every other tech. company did between 1999 and 2001 and split at least once?
Splitting the stock is not a good or bad thing. It generally indicates that the stock has done well, but has no affect on value. It also is not dilutive, as a stock split gives me 2 shares for every one I had and it gives management 2 shares for every one they had. At the end of the day I still own the same % of the company.
I did post a message to benhavis explaining the error in his assumption. There are arguments on both sides of the subject, but if we can avoid making points that are not germane to the substantive issues it would help lower the level of acrimony and clutter on the board.
Loop, Option proceeds
Is the money paid for the exercise of options income or capital or some combo of both?
Cash is debited for the amount received and capital stock is credited for the same amount. The market value of the stock at the time the new stock is issued does not affect the entry.
(OT side rant)
That's why us bean counters feel it is appropriate to book an expense when options are granted because while an exact cost is impossible to calculate, there is value being transferred and to ignore it distorts the income.
For example, two companies with the same results, where one compensates employees with cash and the other with options. The cash paying company has an expense, while the option company never does. For the sake of argument, assume the employee exercises his options when the market value exceeds the stock price by exactly the amount of salary the other employee received, while the cash based employee buys stock from the company at the same price. The two companies are in the identical position as far as net cash received, stock issued and compensatory value given to the employee. Yet the one paying cash has shown higher expense in the year in question and will have lower retained earnings and higher capital stock in all future years. When options are granted at current market price, ignoring the expense is simply wrong. However, as long as it works to the advantage of some, there will be strong pressure to maintain the status quo.
Mschere, re: dollars/Euros/kronor
MY COMMENT:IDCC management had enough foresight to sue for Billions of Euros as opposed to Billions of Dollars and make hundreds of Millions of Dollars extra with a favorable exchange rate!
IDCC is in U.S. court and is suing for good ole U.S. greenback dollars. When an article is written, the publication converts the denomination into the one with which their audience is familiar.
Benahavis
Are you not disturbed by the further dilution of our shares by an additional 4M, by the management.
See post 8956 for an explanation, but it was not additional management options.
JK - diluted shares
According to GAAP and the principal of conservatism...
When a company has a loss, it must use only the actual shares outstanding and can assume no dilution that would narrow the loss and make the results better.
When a company has a gain, it must report all shares outstanding and potentially exercisable to show the lowest gain.
Therefore a company that has a loss of $x million would show a higher absolute value loss per share than the gain it would report if it had net income of the same $x per share, due to using different amounts of shares.
Thank you and your able associates for all your great work and selfless sharing.
JKJ - ERICY and SEC
Having a judgment due to infringement from prior periods is not something that would be considered a misstatement of prior financials. If they have made a provision for the contingent liability based on reasonable estimates of probability and amount, they have done what is required. Being wrong in an estimate is not a violation unless it was done intentionally.
On the other side, IDCC (hopefully) has vastly understated it's earnings over the past decade, and that is not an SEC concern either.
To the Dallas 3, my heartfelt thanks and admiration go out to you. It's one thing to take the time and effort to do this great work, but then to take the time to type it up and share it freely with many people you don't know for mutual benefit is quite extraordinary. My hat is off to all of you.
Sophist, a few comments
I respect your statement on prudence and I hope to gain an understanding of what is prudent in this situation.
Prudence is one of the most valued of moral virtues and pertains to knowing HOW and WHEN to act appropriately in a given set of circumstances and in accord with one's highest goals.
My highest goal for my investment is maximizing the long term stock price. Does that mean addressing the IMO excessive pay of the upper management now, risking distracting them from more important matters while having little chance of achieving the goal, or does one let it the excesses continue unchecked until a more appropriate time allowing dilution to continue while we wait? Both sides of the argument are represented by folks I've come to respect and there are valid points on each side. I do lean towards raising the issue, but I'm interested in other points of view. I found some of your points to be off the mark and would like your clarification if you feel it would further understanding to me and others.
Rmarchma (with a self-selected group of other board members) took it upon himself to first contact the IDCC Board of Directors with a list of "governance and communication concerns and suggestions"
When shareholders have those types of concerns the appropriate contact point is the BoD. They are elected by us and theoretically responsible to us. Is there a more appropriate place to raise these issues?
...as a result some large institutional investors either partially or completely SOLD their shares of IDCC (among them Colorado State pension funds) I don't know the exact time sequencing of all this, but it appears to be over the past couple of months. Now, I ask, does the recent steady decline in IDCC share price coincide with these institutional sell-offs? ...
This meeting was scheduled for October, and Colorado was out by December. The stock price did not fall past the high 14’s until the trial delay was announced in January. I don’t see any appearance of a correlation.
To be so obsessed with the paltry distributive injustices at IDCC, which are like a speck of dust, a grain of sand, or drop of water in the vast ocean of horrific distributive injustice that infects and plagues almost every aspect of this country's and the whole world's system of inequitable wealth distribution
I am a self centered person, so I am interested in things that affect me. That’s why I am care about what I view as an injustice with IDCC, while I frankly don’t care much about many things that are more significant to more enlightened people. Having my investment needlessly diluted by 10%-20% is damn significant to me. While my net worth is a speck of dust compared to many people and almost all companies or governments, it is vital to me.
Finally, to summarize my argument, it is my view that most of the IDCC governance and communication issues, which are of such concern to many, are inextricably entangled with its current licensing and legal problems/battles and therefore cannot be effectively addressed until the latter issues, which are of more immediate and primary concern, are themselves first substantially resolved.
I completely agree that on the communication side, having more communication would be counterproductive, as our competitors and opponents would gain from specific disclosures about trial or licensing strategy. I disagree that the compensation issue is something that could affect other, more important matters. However, the question of timing is a good one and should be carefully considered.
I reluctantly confess that I am now in greater fear of the activities of some members of this board than of any that may come from IDCC.
Relax, if this type of action had any real chance of affecting short term share price, folks would short stocks and do it all the time. Given the lack of substantive news (except for the Dallas 3), folks are going to get impatient and focus on other things. You should take heart in the likelihood that absolutely nothing (good or bad) will come from it.
mschere, Management under compensation... GRRRRRRRRRRR
You said
If they deliver Nokia, Samsung ,and Ericsson.. will generate in ONE FISCAL QUARTER a sum greater that all previous managements. ..and will have been GROSSLY under compensated..
Not to pick on you, mschere, because your view is very widely held, as shown by the responses you've already received. Your post just hit my pet peeve. Your view is the very reason why management compensation has spiraled to obscene levels. It’s the attitude that if my investment performs exceptionally well, then I DON’T CARE HOW MUCH MANAGEMENT GOT because I am happy with my investment. There is no analysis of cost/benefit, no threshold crossed from generous pay for a job well done to blatantly skimming off the top.
I challenge anyone to compute the total compensation that would be received by our management at what ever stock price you pick and justify how they are under compensated. When I look at the numbers I can’t imagine what great work they could do that justifies the tens of millions that they all would get if IDCC price goes up significantly. How much of it is due to their great work versus the rank and file employees who created the patents. I fully support ESPPs for the workers as well as reasonable and proportional options for management. I feel the management side has gotten way out of whack, and not just at IDCC, but throughout big business.
I do not begrudge management a fair and reasonable salary. If they are successful, they should be generously compensated. But it should be reasonable and there needs to be some benchmarks. If they were taking below market salaries and they received out of the money options, then great success leading to excessive compensation would not bother me because they took a risk and bet on the company’s future. If the company did not succeed they would get less than they could have otherwise, moderate success would bring them to parity, while great success brings great reward. This is how I feel options should be used. However, it has evolved into a system of management getting fully compensated with generous salaries, receiving options in numbers that cause material dilution, and priced at the current market price. This means if the company performs poorly, they still have a nice pay check for failure, if the company muddles along with the market and they sell their options whenever they go up a certain %, they get a great payout for mediocre performance, cashing in on normal market volatility. If the company is very successful, they hit the lottery without the 20 year payout and they get to use the capital gains rates for taxes.
If the management team has unique and irreplaceable capabilities then there could be justification. But this is going on throughout the corporate world – not everyone is in the top 5%, yet they all get paid as though they had invented the assembly line. As long as most hold the view (if I do well, I have no interest in examining what management gets), it will continue. I find it ironic that it is only when a company does poorly do stockholders look at management compensation, and it is at that point that it is the least out of line. (Of course, when it happens management tends to want to reprice the out of the money options to current levels.)
Regardless of what happens and how much management gets, I will not stew about it as I cannot do anything about it. However, I felt compelled to respond because if enough people begin to look at it from a perspective of fairness and reasonableness, then maybe there will be a level of awareness that will slow, stop or even begin to reverse what I see as huge disconnect between performance and compensation. But if we meet at the Houston 100 and you ask me what I think of management compensation, I will tell you I’m being raped, but at $100 a share (which would be $110 a share without excessive management comp) I can afford a large supply of Vaseline.
Alley, re: management issues
I think there are only two areas where management and shareholders have different interests. They are management compensation (management wants it high, shareholders low) and communications (management would rather keep information to itself and investors would like just about everything disclosed daily). I believe those are the only two issues shareholders can properly raise.
If we don't think they are running the company properly in other areas, then we need to vote out board members and get in new professionals to run the company. To think that we can make better decisions than professionals with direct ongoing knowledge and experience on operational or legal matters with our limited knowledge is foolhardy.
With the exception of the two issues I mentioned, I can't say whether management is doing well or not. Once ERICY is decided, NOK Phase II rate is set and other licensees sign up or refuse, then I can judge their performance. On the other two issues (especially the compensation) I feel very strongly that they have pushed the envelope as far as they could. Even if IDCC is as successful as Mickey envisions, I will still feel that they will have diluted my holdings by far more than is warranted through excessive market price stock options. If they can get no licenses nor revenues for 2G and 3G and IDCC's whole patent portfolio is worthless, they will not have diluted my holdings much, but they will have sucked out millions of dollars of compensation for absolute failure.
Revlis, efficient market theory
The market is efficient when no one can consistently beat the market. It's easy to point at the internet bubble or other obviously wrong market values in retrospect. Unless one can demonstrate current knowledge of market inefficiency on a consistent basis, then the market is efficient. That being said, Value Line has ranked stocks 1-5 and consistently had the higher ranks out perform the lower ranks over decades. And even though I believe the market is fairly efficient, it does not stop me from believing that there are occasional situations to be found where the risk reward ratio is skewed. While I don't believe IDCC is a sure thing, I do believe the upside is far greater then the downside, and that the upside is more likely then the downside.
Witchhollow,
you said
So when new individual investors purchase shares between $25 and $30/share and the insiders would sell some shares, what would stop them from whining just like you are now?
You're right, some people will complain about anything. However, most will be reasonable and there would be little support for complaints about a management bonus that is predicated on a substantial increase in share price. Most of us understand and support reward for outstanding performance. My objection is beyond a very competitive base salary, reward for average performance, big rewards for volatility in the stock (they can get cheap options and turn them for a profit quickly), and 8 figure payouts for each of them for exceptional price performance.
While I strongly feel the officers and directors are getting grossly excessive compensation packages, I have read the opposing views which have properly pointed out the difficulty of accomplishing anything positive. Unfortunately, there is no good mechanism to address what I see as valid concerns (executive compensation and poor communications), where management's interests are directly opposite of the non-management shareholders. So I will hold my stock and take 85%-95% of the value that my stock would be with reasonable compensation packages because that's the best I can do.
Some of you folks don't realize how greedy these posts make you appear!! I'm still laughing!
Yes, I am greedy. I did not invest for any other reason than to make money. I am a capitalist and this is the ultimate venue for it. Our managers are capitalists and they are looking to get every penny they can as well. I want to value of IDCC to flow to shareholders, management wants it to flow to them. I am also a fair minded person and realize people should be justly compensated and do not begrudge anyone getting well paid for their efforts. In my opinion, the compensation packages offered are incredibly generous and far beyond what is reasonable. If I felt I could do something to effectively address the fairness of compensation and accomplish my greedy goal, I would do so. I'm glad that gives you a laugh, however I think the officers are really laughing - all the way to the bank.
OT: Loop, classy post.
That's the old Loop that we know and love. I'm very glad that you will be back on the job for all of us faceless posters who learn a great deal from what you share with the board.
Thanks,
Frank
Witchhollow, thoughts from a greedy management whiner
I disagree with the ‘love it or leave it’ attitude some have regarding IDCC's management. As investors we should make our concerns heard. The areas of operations or legal issues should be left to management’s expertise, as outsiders with far less experience and knowledge cannot dream of making better decisions then the people paid to do those jobs. It is in their best interests for IDCC to be as successful as possible. On the other hand, compensation of officers and communications with shareholders are legitimate areas for shareholders to address. Management has a conflict of interest – they are better off with high salaries and little communication (they have knowledge and others don’t) while shareholders are better off with the opposite conditions. If we don’t raise these issues, who will? No one else has a vested interest in these issues.
I believe the officers should be paid fairly. However, if they are the ones deciding what’s fair, even an honest and ethical person is going to be prejudiced. They know all the hard work they do, the hardships they’ve endured, how much their family deserves and management tends to look at investors as parasites profiting off their hard work. Therefore management deserves great compensation packages and the investors should be grateful for what they get. Because every dollar makes a difference to the officers involved, while the affect on total earnings and therefore the share price is relatively tiny to any single investor, compensation over the last couple of decades has spiraled up. As long as stock prices are rising, it is tough to get people concerned because they are happy. There needs to be some level of reality injected back into this process.
I believe IDCC is going to be selling at multiples of current levels. For the sake of argument, let’s say that management as a whole is overpaid by $1,200,000 per year, plus dilution due to options is 2% (very conservative IMO) higher than it should be, at 60,000,000 shares outstanding. Lets says that the earning per share in 2003 is $2.00 per share ($120,000,000 / $60,000,000) and we are getting a multiple of 20. Our share price is $40. However, if the compensation and dilution were not excessive, earnings would be (($120,000,000 + 1,200,000) / 58,800,000) = $2.06 per share x 20 = $41.20 share price, 3% more. Multiply that by 50 million shares and that is $60 million dollars taken from the non option shareholder base. Now many people would say so what, I made out great, so why worry about it. I am not one of them. I want full value for my shares. So telling someone like me to sell my shares is stupid. I’d rather sell my stock at $40 than $15. However, I’d rather sell it at $41.20 than $40.00. How would you feel if your broker decided that if you sold stock at more than a 100% gain, he would get an extra 5% commission on the excess gain? However to switch brokers you had to abandon your IDCC investment. I think you might want to get some justification and if he just said take it or leave it, you would take it but grumble. That is my view of the compensation. People don’t get upset about 3-4% change in value, especially when it is not obvious. And it builds from year to year. I would like to see options granted with prices out of the money, like $20 through 2004, $30 though 2005 and $40 though 2006. That way if we get great price appreciation, they are well compensated. But if we have a average investment, they get there paycheck but no big bonus from their options.
I feel this is an area for shareholders to make their voices heard to management. I want them to be paid fairly and I want them to share generously in the benefits if IDCC’s price soars. That does not translate into passive acceptance of their compensation just because my investment did well. In order to avoid aggravating my high blood pressure, I did not calculate what the officers and directors would “earn” on their existing and continuing options if IDCC’s price were to appreciate at 10% per year over the next five years. While that is a good return in today’s climate, based on what IDCC has I would not consider it exceptional. However if you compute what they would get over and above their generous salary, I would guess anyone receiving it would be set for their lifetime and their kids as well. If IDCC’s price gets to 100, they will each have tens of millions of dollars for their effort (which will come from the rest of the shareholders via dilution), while if it goes bankrupt they will have to settle for mere millions. They are in a win big/win lotteries position while we who buy the stock are in a lose/win position based on our taking a risk. I’m just looking for some reasonable and rational compensation arrangement and a compensation committee that is independent in fact and appearance.
If the above makes me a greedy whiner windbag, so be it. I'd rather be a whiner than someone who figures if the price goes up (kind of like buying someone dinner), then they have the right to **** 'em. :o)
“Negative” posters
I welcome posters like sjratty are willing to present the other side, especially when they bring expertise. This is real money. I want to know both sides so I can make an intelligent decision. I don't want to put on blinders just so I can sleep better. If I have good information and I make my decision based on all I can know, then I can live with my decision regardless of how it turns out. If I plug my ears and start saying 'I can't hear you, I won't listen, you're a dumb head' and later find out I missed relevant information because I didn't want to hear it, then I would feel stupid. This is not an election and we will win if we all stick together. This is an investment, and the stock price will gravitate to it's true value, based on the fundamentals of the stock. Traders, momentum players, shorters will have an effect on the short term price of the stock, but not long term. I want to have the knowledge to make rational choices, so when the "negative" posts appear, please answer the question or counter the information presented, but please don't try to shame them into not posting. It does a disservice to this great board and to those like me who are not believers and know the holy grail is coming, but are analytical investors who decide to buy/hold/sell based on all the information, good, bad and ugly.
IDCC share price movement
I don't practice TA, nor am I a market vet like many others, but I love the price action on IDCC since October. Before October, IDCC had traded below 14.50 for around two years, with the recent history being a channel between 9-13+. Then, for whatever reason, investors decided that IDCC a good buy at those levels and began accumulating. As we got to the top of the old channel and above, traders and shorters sold, anticipating another profitable ride back to single digits. When the stock continued to climb, there was a minor short squeeze, which pushed the stock briefly over 19. Since then it has retreated, however it has had solid support under $15 and has quickly bounced up every time. So what I see is a base in the 15-17+ range that will be our launch pad, which is about 50% better than the old one. It has shown solid support in this range, which should give comfort for new comers afraid to buy/hold a stock that has had a quick rise. I still anticipate the rise, but the pullback and subsequent continuation of the price rise will be at higher levels.
I kidded teecee when he called the rise gut wrenching because while I understand there will be volatility, when the volatility involves 10%-20% falls that still leave us higher then we've been in the last two years (excluding the recent run up), I can stomach that quite nicely. It was the months languishing in single digits that I found gut wrenching.
All the above being said, I would not be shocked to see the stock fall during a trial (if one occurs). I think many of the buyers anticipated a settlement and wanted to be on board when it happened. If the trial starts, then there is a big risk. While I like the risk reward ratio and want IDCC to get their due by being willing to go to trial if ERICY will not make a fair settlement, most investors are risk adverse. They don't want to risk their capital on something as unpredictable as a jury, so unless the trial is proceeding clearly in IDCC's favor, I would expect the price to drop during the proceedings. Many IDCC holders now have a profit and in light of the market over the past few years, may want to take it. The risk is having to buy back at a higher price, but many will prefer that risk to the risk of watching there profits disappear. So continue to follow the case and determine your risk tolerance level and invest accordingly. Me, I like what I'm seeing.
Thank you to the Dallas detectives for unselfishly spending your time and effort and then sharing it with thousands of unknown folks. True generosity.
OT: Loophole screen problem
Whenever I write a long post I use word to write it so I can use spell and grammar check and make the font easy to read. When I'm done, I cut and paste it to the message box and submit it. The big reason I do this is because I had a couple of long messages vaporize into cyberspace when I hit the post button. This way if there is a glitch and the post disappears, I still have it all on word and can try again. It's saved me quite a bit of frustration.
btw - thank you for all you contribute to this board.
Frank
ps - I love the edit feature. I hate it when I read my post and see I've left out a word or used 'there' instead of 'their'. Nice to be able to fix those things.