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You're a waste of time, Ronny. You take numbers and deliberately take them out of context.
I'm not going to waste my time with somebody who would rather compute the last decimal point of PI than put the numbers in useful perspective grounded in reality. In this case, you don't even have the friggin' courtesy to relate those executive compensation numbers with the obvious:
1) the fundamental changes in the business measured by the increase in total royalties. Total royalties went from less than $10M in 1999 to $88M in 2002. Recurring royalties went from less than $1M in 1998 to $17M in the most recent quarter.
2) IDCC's superior stock returns during the last 2 years - 79% in 2001 and 50% in 2002 -- while total royalties were on the rise. I consider 1999 and 2000 stock performance numbers the equivalent of statistical outliers due to the bubble.
Now, exactly what is your problem with payment for performance compensation systems?
You can't argue that IDCC's executive compensation packages are excessive because IDCC has outperformed 99% of the total market for the last two years, but doesn't even have compensation packages that exceed 60%-70% of the market.
Use some common sense.
It won't hurt.
I don't see your 18% data in the actual proxy
Page 9. PAGE 9. PAGE 9. PAGE 9.
Have the intellectual honesty to concede that 18% is not, I repeat, NOT excessive by any objective measure.
I believe this calculation was done and it showed over 30% to the top executives
You can't even read a proxy and you believe unverified crap like this?!? Show us the numbers!
all of these factors are NOT comparable to the written Plan at IDCC.
Are you kidding me? You tried to show that IDCC's executive compensation policies were excessive compared to Rambus, but you contradicted yourself when you pointed to the grant of 2M options with an exercise price of $2.50 to a new CEO at a time when the stock price ranged from $62 to $450!!!! You even pointed to the $177M charge that Rambus took as a result of the 4M option grants in 2001. Do you realize that Rambus has never generated more than $120M in sales in a single year? Ever!
Instead of conceding that fact you tried to drown the issue with numbers that are useless without context. Squid tactics.
Who are you trying to fool? LOL. Certainly not most of the people here.
September 24, 2002
CEO compensation
In recent weeks, the press has made much of the bloated compensation paid to corporate executives such as Dennis Kozlowski of Tyco and Jack Welch of GE. Welch was even forced by public opinion to relinquish benefits promised him 6 years ago, in order to calm a firestorm of controversy.
The impression is that most corporate executives are just a bunch of greedy SOBs, who fleeced shareholders in order to line their own pockets. In Kozlowski's case, this may be true, but in the vast majority of other cases, including Welch's, the problem -- such as it is -- results mainly from tax-law changes enacted during the Clinton administration.
It is now largely forgotten that one of Clinton's principal campaign goals in 1992 was to curb "excessive" compensation of corporate executives. In his campaign book, "Putting People First," he complained that corporate CEOs were making 100 times that of average workers. This resulted, he said, because wages were fully deductible on corporate tax returns, no matter how large.
Clinton vowed to end this practice. In a rare case of being true to his word, he insisted that the 1993 tax increase include a provision limiting executive pay. As a result, the legislation denied a corporate tax deduction for pay in excess of $1 million. With the corporate tax rate being 35 percent, in effect it cost corporations 35 percent more to pay their top executives more than $1 million per year.
But as is so often the case, the law of unintended consequences then took over. The legislation applied only to cash wages and exempted performance-based compensation. The goal was to avoid penalizing salesmen and those working on commission, for example. But the result was to fundamentally shift CEO compensation in ways Clinton never imagined.
As financial writer John Cassidy explains in the Sept. 23 issue of the New Yorker, stock options as a form of compensation have been around since 1950. In that year, Congress decided that recipients of incentive stock options need not pay taxes on them until exercised. Shortly thereafter, the predecessor to the Financial Accounting Standards Board (FASB) decided that such options need not be counted as an expense on corporate books.
Nevertheless, stock options were a very small portion of executive compensation for the next 42 years. It seems that executives shunned them as too risky. They preferred cash on the barrelhead. But this changed in 1993, when Clinton's populist pay constraint was enacted. Subsequently, corporate boards searched for ways to compensate CEOs in ways that would not overly burden the business.
Stock options were the answer, because they did not count against the $1 million limit. The result was that options, as a form of compensation, exploded. Even the liberal Cassidy concedes that the reform "turned out to be counterproductive." The Clinton administration aided the trend toward stock options by helping torpedo a 1994 effort by FASB to require that options be deducted from corporate profits. It did so under pressure from congressional Democrats such as Sens. Joseph Lieberman of Connecticut and Diane Feinstein of California.
Another tax problem also contributed to the abuse of stock options. Under current law, options that are indexed have less favorable tax treatment than those that are not. Many economists believe that non-indexed options are bad because, in effect, they reward executives for nothing when the market as a whole is rising.
A preferable approach, economists say, would be to raise the price at which options may be exercised according to a scale based on the Standard and Poor's 500 index of stocks or some other index. Only those executives whose stock prices rose by more than the index would benefit from stock options, rather than gaining largely from a rising tide, as is now the case.
Unfortunately, current tax law effectively prohibits the use of indexed options, as Columbia University law professor David Schizer recently explained in the University of Pennsylvania Law Review. As a result, the most sensible way of using options for compensation is foreclosed, forcing companies to use a method almost guaranteed to foster abuse without benefiting shareholders at all.
Consequently, there are growing calls to abolish the $1 million limit on cash wages. On Sept. 17, a blue ribbon panel from the Conference Board made such a recommendation. Should such action be taken by Congress, it must also fix the problem that prevents using indexed options. This will go a long way toward eliminating truly excessive corporate compensation and ensure that CEOs are only given large rewards when shareholders benefit through above-average stock increases.
http://216.239.39.104/search?q=cache:RFafoqGC8-wC:www.townhall.com/columnists/brucebartlett/bb200209...
When employees exercise options, the taxes they pay on the difference between the option's exercise price and the option's price at the time of the grant represent a tax deduction to the company. But companies currently do not have to deduct the cost of these options from the earnings they report to the U.S. Securities & Exchange Commission.
http://216.239.37.104/search?q=cache:b5t1RlppFUUC:www.forbes.com/2002/06/14/0614options.html+tax+ben...
No that number is incorrect. According to IDCC's proxy, 18% of all option grants go to management (15) and 82% go to the rest of the employees (285).
According to RMBS' 10K nearly 30% of all option grants go to management (11) and a little over 70% go to the rest the rest of the employees (115). That's where the 30% number came from.
Yes, I recall that during the dotcom bubble, a pre-revenue Golden Bridge was in the preliminary process of going public but decided not to go ahead because all hell broke loose after the wild and woolly UK and Germany 3G auctions during the first half of 2000.
With 3G on a slower ramp throughout the decade, 4G is virtually science fiction now so Schilling might decide to cash out. While it would be nice to maintain some continuity in this man's work on 2G, 3G and 4G, I don't think we want IDCC to overpay.
Let me know what you think of TIME DOMAIN. I think you already know about Schilling's 4G company (Golden Bridge).
Donald L. Schilling, Ph.D.
Chairman
....
Dr. Schilling has been recognized throughout the world for his extensive contributions to the field of telecommunications. In addition, he is a distinguished Professor Emeritus of Electrical Engineering with the City College of New York where he taught for many years. An invited speaker and lecturer at numerous conferences worldwide, he holds more than eighty patents, has published more than 200 technical papers, and is the recipient of numerous international awards.
Dr. Schilling has served as Chairman of the Board of Directors of Golden Bridge Technology since 1996, where he filed six new patent applications in addition to the numerous patents already held. Previously, Dr. Schilling served as CEO and Vice-Chairman of the Board of InterDigital Communications Corporation (NASDAQ: IDCC). From 1982 to 1992, he was Chairman and CEO of SCS Mobilcom Inc. and SCS Telecom Incorporated. During this time, fifteen fundamental patents were granted covering W-CDMA.
Here's an interesting 1999 interview:
.........Then there was a "shootout." By the time there was a shootout, Milicom had decided to withdraw from the project. SCS then merged with Interdigital Communications Corporation (IDC) and I became executive vice president and also vice chairman of the board, and a large shareholder.
At that time I retired from City College and went to work fulltime at this job. Primarily we were selling wireless loop systems, which is a wireless telephone system there was no wired infrastructure.
For example, how do you run cable to 25,000 islands in Indonesia? In China there is not enough copper in the world to supply wired communications, nor enough people to install that copper, if there was such copper, in a lifetime. In a capitalistic society you must communicate, and in order to communicate quickly, we had to provide them with wireless communications.
Interdigital’s business was doing that initially with TDMA, and then they wanted our broadband CDMA system, and that was under development. IDC also received about 50 of my CDMA related patents. They now have the CDMA product working. They are also very active 3G technology.
http://www.ieee.org/organizations/history_center/oral_histories/transcripts/schilling.html
Rip just indicated that one of the primary focus of their licensing negotiations is RECURRING ROYALTY REVENUE.
1Q03 Recurring royalties were $17M. $11M, or 65%, came from the DEFERRED REVENUE account. This account increased from $91M in 4Q02 to $112M in 1Q03 or by 23%. This is very high quality stuff!
Ronny gets the accounting right to the last decimal point but he doesn't provide very useful context.
For example, he kept on harping about IDCC's excessive executive compensation but when I directly challenged his basis for comparison because it did not include IDCC's peers in the licensing business like QCOM, RMBS and ARMHY, he couldn't even respond coherently and kept on throwing more numbers like a squid throws ink to escape.
Another example, he kept on bringing up IDCC's dilution rate, but he couldn't correlate the dilution to IDCC's turnaround and cash flow requirements.
We obviously disagree.
What about the sheep here who voted NO without thinking through the true costs and true benefits? LOL.
Sheep get herded. Herds get thinned etcetera.
It does affect operations and valuation.
Operation-wise, the larger IDCC's cash balance,
the greater its ability to recruit talent and
improve its patent portfolio and hence, the
greater its ability to increase recurring
royalties.
Valuation-wise, the greater IDCC's cash balance,
the greater the enterprise value. Enterprise value
is defined as market capitalization plus long-term
debt less cash and investments. Many view this as
the going concern value of the company. I prefer
to use it to judge the margin of safety in the stock.
The people who got carried away by the misleading
data posted by Ronny and his cronies still don't
understand this.
Here's a table simulating the increase in IDCC's
cash and investment account from the option exercises.
INTERDIGITAL (IDCC)
SIMULATED CASH INFUSION FROM OPTION EXERCISES
.....
Price 5M 10M PLUS: TOTAL
Cash/Inv* Cash/Inv
.....
$20 $100M $200M $ 400M $ 500M-600M
$25 125M 250M 400M 525M-650M
$30 150M 300M 400M 550M-700M
$35 175M 350M 400M 575M-750M
$40 200M 400M 400M 600M-800M
...
...
* The simplifying assumptions used are that
all options will be exercised at the same time
AND all the prepaid royalties will come in at
the same time.
...
...
INTERDIGITAL (IDCC)
IMPACT OF SIMULATED CASH/INV LEVELS ON
IDCC'S ENTERPRISE VALUE(EV)
(Market cap PLUS long term debt LESS cash/inv)
.....
.....
Market + Long-term - Total = EV
Price Cap* Debt Cash/Inv
...
...
$20 $ 1.16B NM $ 500-600M $ 560M-660M
$25 1.45B NM 525-650M 800M-925M
$30 1.74B NM 550-700M 1.0B-1.2B
$35 2.03B NM 575-750M 1.3B-1.5B
$40 2.32B NM 600-800M 1.5B-1.7B
...
...
*Assumes O/S of 58M shares.
NM - not meaningful
Keeping the sales, earnings and cash flow growth
assumptions constant, would you pay more for an
emerging growth company with a larger cash and
nvestment account at the cost of minor dilution?
Of course you would.
Keep in mind that this analysis doesn't even
include the substantial tax benefits associated
with option exercises.
We don't take prisoners.<G>
You want more? LOL.
........
........
Total Total Pay
Return Increase
Company CEO in FY02 in FY02
.......
Walt Disney Michael Eisner -18% 498%
Ryland Group Chad Dreier -9% 247%
Manpower Jeffrey Joerres -5% 176%
Cardinal Health Robert Walter -11% 148%
Navistar International John Horne -25% 146%
Schering-Plough Richard Kogan -36% 99%
Teco Energy Robert Fagan -37% 92%
Schlumberger Euan Baird -22% 65%
Convergys James Orr -60% 62%
Solutia John Hunter -74% 62%
Jack In The Box Robert Nugent -19% 53%
Abbott Laboratories Miles White -27% 51%
Delphi J.T. Battenberg -39% 41%
KLA Tencor Kenneth Schroeder -25% 38%
Analog Devices Jerald Fishman -29% 24%
CIGNA Edward Hanway -55% 23%
State Street David Spina -25% 20%
Sonoco Products Harris DeLoach -11% 20%
Winn-Dixie Stores Allen Rowland -39% 19%
Goodrich David Burner -26% 19%
R R Donnelley & Sons William Davis -24% 18%
PG&E Robert Glynn -28% 17%
Becton Dickinson Edward Ludwig -22% 15%
Auto. Data Proc. Arthur Weinbach -12% 14%
Mellon Financial Martin McGuinn -30% 14%
BellSouth Duane Ackerman -30% 10%
.........
Low -74% 10%
Median -26% 39%
High -5% 498%
http://quote.bloomberg.com/apps/news?pid=10000039&sid=aWxkO8s2OnGo&refer=columnist_crystal
If you know of a company that rewards its officers and BOD more than IDCC, please let me know.
Happy to oblige. Apple's Steve Jobs raked in $90M in total compensation in 2002 while its stock dropped by 34%.
.........In January 2000, Apple's board, in an orgy of hero-worship, handed Jobs the largest option grant made on a single day in the history of mankind. The grant covered 20 million shares and carried a strike price of $43.59 a share. Shortly after the grant was made, I estimated its value at $471 million.
Apparently, an option of that size didn't stir Jobs to new heights of performance. On the contrary, he fell on his face, with the stock price plummeting to $18.30 a share by Oct. 19, 2001.
It was on that latter date that Apple's board decided that he needed more motivation. So he was handed a second option grant, this one covering 7.5 million shares and carrying a strike price of $18.30.
Alas, that second grant was yet another instance of trying to ignite wet straw. By this March 20, Apple's stock price had declined further, to $14.91.
It was at this point that the board, and Jobs, threw in the towel and agreed to exchange 27.5 million underwater option shares for 5 million free shares, worth at the time of their grant, $74.6 million.
http://quote.bloomberg.com/apps/news?pid=10000039&sid=aKzBvDNlRPGg&refer=columnist_crystal
The Top 11
The proof of the study's finding that a handful of CEOs received gargantuan stock options lies in the fact that just 11 of the 209 CEOs accumulated more than 50 percent of the $10.4 billion of option gains and paper profits earned by the entire group.
Heading the list was Oracle Corp.'s Larry Ellison, who amassed $819 million of option gains during the nine-year period and who also ended the period with a $233 million addition to his piggy bank of option paper profits.
Some other notable names were in the Top 11, including: Michael Eisner of Walt Disney Co. ($883 million of option gains and paper profits); Michael Dell of Dell Computer ($636 million); William McGuire of UnitedHealth Group ($500 million); and Jack Welch, the former CEO of General Electric Co. ($435 million).
Since Bachelder works at the cutting edge of executive pay trends and, in my opinion, is the leading lawyer in the U.S. advising executive clients, I asked him what he is seeing in executive compensation, and what the rest of us will be seeing in due course.
http://quote.bloomberg.com/apps/news?pid=10000039&sid=atyTRpyUyMzQ&refer=columnist_crystal
Broaden your perspective, will you?
Put PRE between brackets [ ] at the start of your data table and then put /PRE between brackets [ ] at the end of your data table.
THE RISE & FALL & RISE & FALL..........
Date Open High Low Close Volume
.........
Higher Highs, Higher Lows
.........
May-13-03 24.60 27.20 24.50 27.14 4,018,566
May-12-03 23.92 24.70 23.75 24.54 846,600
May-09-03 23.39 24.00 23.34 23.92 564,900
May-08-03 23.60 23.63 23.16 23.31 501,800
May-07-03 23.83 24.41 23.57 23.71 844,200
May-06-03 23.64 24.04 23.60 23.93 752,800
May-05-03 23.01 23.62 22.58 23.59 907,000
May-02-03 22.51 23.09 22.51 23.09 458,900
May-01-03 22.78 22.78 22.13 22.58 338,300
Apr-30-03 22.35 22.59 22.10 22.53 437,300
Apr-29-03 21.80 22.49 21.73 22.46 632,300
Apr-28-03 21.76 21.99 21.40 21.97 516,200
Apr-25-03 21.70 21.89 21.40 21.46 616,700
Apr-24-03 21.82 22.00 21.19 21.86 1,098,300
Apr-23-03 21.37 21.73 21.10 21.73 648,800
Apr-22-03 21.10 21.45 20.80 21.35 738,400
Apr-21-03 20.29 21.41 20.25 21.35 898,200
Apr-17-03 20.13 20.30 19.87 20.25 605,900
Apr-16-03 19.88 20.25 19.70 19.94 714,700
Apr-15-03 19.10 19.64 18.90 19.64 590,400
Apr-14-03 18.80 19.12 18.68 19.05 660,500
Apr-11-03 19.07 19.44 18.65 18.80 472,000
Apr-10-03 19.10 19.29 18.72 18.85 589,800
Apr-09-03 19.65 19.91 19.00 19.07 543,000
Apr-08-03 19.81 19.95 19.33 19.65 429,200
Apr-07-03 20.40 20.50 19.51 19.73 932,500
Apr-04-03 20.00 20.00 19.63 19.79 550,900
Apr-03-03 20.50 20.70 19.60 19.80 1,128,100
Apr-02-03 19.70 20.24 18.21 19.81 4,563,900
Apr-01-03 22.09 22.30 18.60 18.75 5,405,900
Mar-31-03 22.27 23.29 22.08 22.63 1,328,200
Mar-28-03 23.29 23.75 22.60 22.69 1,043,300
Mar-27-03 22.31 23.62 22.28 23.31 2,085,200
Mar-26-03 23.55 24.14 22.43 22.56 2,598,500
Mar-25-03 22.16 23.39 22.09 23.28 2,637,600
Mar-24-03 19.35 22.20 19.26 21.86 3,129,000
Mar-21-03 20.35 21.44 19.50 19.99 2,614,900
Mar-20-03 18.10 20.25 18.09 20.15 1,478,200
Mar-19-03 18.99 19.01 18.10 18.34 1,129,300
Mar-18-03 19.54 19.99 18.59 18.96 2,081,100
Mar-17-03 16.71 19.70 16.67 19.54 6,413,400
Mar-14-03 14.02 14.15 13.59 13.76 338,800
.........
Lower Highs, Lower Lows
.........
Mar-31-00 25.25 25.50 20.62 25.00 1,469,400
Mar-30-00 25.50 26.75 24.62 25.25 653,200
Mar-29-00 27.00 27.94 25.56 26.19 611,000
Mar-28-00 28.00 29.25 27.50 27.56 350,300
Mar-27-00 28.25 30.12 27.38 30.12 371,200
Mar-24-00 28.12 28.75 27.25 28.00 418,700
Mar-23-00 28.38 28.62 27.50 27.88 453,200
Mar-22-00 26.88 28.62 26.00 27.81 686,600
Mar-21-00 26.62 27.19 24.00 26.50 904,800
Mar-20-00 28.25 28.75 26.50 27.12 606,600
Mar-17-00 28.00 29.75 27.50 28.00 529,500
Mar-16-00 28.31 29.75 26.75 28.88 898,800
Mar-15-00 30.19 30.75 28.06 28.56 1,160,700
Mar-14-00 32.19 32.31 30.12 30.12 699,100
Mar-13-00 31.50 32.75 30.75 31.81 702,800
...........
Nasdaq Peak
.........
Mar-10-00 33.38 33.50 32.00 32.00 511,200
.........
.........
Mar-09-00 32.75 34.50 31.75 33.12 465,400
Mar-08-00 34.44 34.62 31.50 32.88 829,700
Mar-07-00 37.75 37.88 34.00 34.38 1,019,200
Mar-06-00 31.19 36.75 31.19 33.75 1,830,200
Mar-03-00 31.94 32.44 31.50 32.00 576,200
Mar-02-00 31.88 32.00 31.06 31.81 507,500
Mar-01-00 32.69 32.69 31.06 31.12 644,400
Feb-29-00 31.25 32.88 31.12 31.94 852,200
Feb-28-00 31.19 31.44 30.50 30.75 887,600
Feb-25-00 32.75 33.25 31.50 32.25 836,200
Feb-24-00 33.25 33.62 32.06 33.25 742,100
Feb-22-00 35.62 35.62 32.25 33.69 911,500
Feb-18-00 34.75 36.75 33.50 35.12 1,950,000
Feb-17-00 32.12 34.50 31.50 34.50 1,089,800
Feb-16-00 32.00 33.00 31.50 32.62 885,800
Feb-15-00 32.88 33.38 31.00 32.62 1,205,500
Feb-14-00 36.94 36.94 32.38 33.50 1,922,100
Feb-11-00 45.00 45.00 35.38 37.50 4,305,900
Feb-10-00 31.62 46.50 31.38 46.50 4,991,700
Feb-09-00 32.44 32.44 30.69 31.12 696,400
Feb-08-00 31.06 32.62 31.06 32.19 783,700
Feb-07-00 33.69 33.69 31.00 31.25 715,900
Feb-04-00 34.25 34.88 33.50 33.62 902,500
Feb-03-00 31.00 33.75 31.00 33.12 1,250,800
Feb-02-00 30.75 31.62 29.50 30.75 942,300
Feb-01-00 28.50 31.25 27.50 31.25 1,497,300
Jan-31-00 29.88 30.50 25.00 29.00 2,250,300
Jan-28-00 31.88 33.00 30.00 30.69 1,356,600
Jan-27-00 33.06 34.50 30.50 32.50 1,410,700
Jan-26-00 33.94 34.69 32.19 32.50 1,318,400
Jan-25-00 37.06 37.50 34.00 34.00 912,700
Jan-24-00 38.88 39.25 35.00 36.06 1,334,500
Jan-21-00 35.62 38.62 35.50 36.62 1,333,100
Jan-20-00 32.06 36.50 32.06 35.00 1,605,200
Jan-19-00 35.00 35.75 32.31 33.62 1,992,400
Jan-18-00 38.12 40.50 35.25 36.00 1,681,700
Jan-14-00 40.00 44.50 37.12 39.00 3,871,000
Jan-13-00 32.62 39.00 31.06 39.00 3,288,700
Jan-12-00 34.00 35.00 28.00 30.12 6,610,500
Jan-11-00 54.00 54.00 34.00 34.00 6,051,500
Jan-10-00 56.00 60.50 52.62 55.00 4,717,500
Jan-07-00 55.88 57.50 49.50 52.00 3,445,500
Jan-06-00 58.94 61.75 51.00 54.00 2,306,400
Jan-05-00 56.88 61.00 51.00 59.00 4,346,500
Jan-04-00 56.50 63.00 51.00 55.00 4,072,600
Jan-03-00 79.00 80.00 53.00 63.25 8,592,500
.........
IDCC PEAK
.........
Dec-31-99 63.50 75.06 39.38 75.00 5,502,100
Dec-30-99 54.00 82.00 50.00 63.50 12,661,300
Dec-29-99 22.56 55.00 22.50 50.00 5,122,000
Dec-28-99 25.25 25.25 22.00 23.56 1,674,000
Dec-27-99 27.50 27.50 24.19 25.00 1,897,300
Dec-23-99 26.38 28.00 26.00 26.50 3,223,200
Dec-22-99 22.25 25.00 21.62 25.00 2,686,600
Dec-21-99 20.00 22.00 19.75 21.00 2,542,400
Dec-20-99 17.25 19.31 16.62 19.31 1,823,000
Dec-17-99 15.38 17.75 13.19 16.94 3,308,500
Dec-16-99 18.81 18.88 14.62 15.62 2,793,800
Sorry 'bout your friend but at least your son can now go to 3rd base or even steal home now that he's mobile. You didn't give him a Hyundai now did you?
The car keys you won by playing 'beat the clock' a few weeks ago? You gamed that one really well, if I may say so myself.<g>
Do you want a CEO from Central Casting?
You got me cold, teecee......how 'bout 4th ALL TIME HIGH in an long-term uptrend? LOL. Of course, it won't rhyme no more.....
IDCC has outperformed 99% of tech for more than 2 years. Your views sound very academic and impractical when applied to IDCC because of that inconvenient but unavoidable fact. Your shareholder activism would be more effective with the 99% of the tech that has underperformed IDCC during the last 2+ years.
Why do you want to keep on trying to suffocate this emerging growth company at this transitional stage so that it can fit your ivory tower model of corporate behavior? In case you haven't noticed, the market continues to discount the minor dilution because of the major potential for growth. You'd actually be surprised at how the market is refusing to discount dilution in other stocks that have underperformed the market.
Do we have escape velocity yet?<g>
UNCHARTED WATERS
4th ALL TIME HIGH and climbin'
a wailin' wall of worry, ain't jivin'...........
Date Open High Low Close Volume
.
. .
May-13-03 24.60 27.20 24.50 27.14 4,014,118
.
.
Dec-31-99 63.50 75.06 39.38 75.00 5,502,100
Dec-30-99 54.00 82.00 50.00 63.50 12,661,300
Dec-29-99 22.56 55.00 22.50 50.00 5,122,000
Dec-28-99 25.25 25.25 22.00 23.56 1,674,000
Dec-27-99 27.50 27.50 24.19 25.00 1,897,300
Dec-23-99 26.38 28.00 26.00 26.50 3,223,200
Dec-22-99 22.25 25.00 21.62 25.00 2,686,600
Dec-21-99 20.00 22.00 19.75 21.00 2,542,400
Dec-20-99 17.25 19.31 16.62 19.31 1,823,000
Dec-17-99 15.38 17.75 13.19 16.94 3,308,500
Dec-16-99 18.81 18.88 14.62 15.62 2,793,800
Dec-15-99 19.38 19.62 18.25 18.88 1,719,800
Thanks. It is becoming a waste of time dealing with anti-dilutionists who continue to suffer from a persistency of tunnel vision.
2003 is a transition year for IDCC. Baselines are being set. I don't think many people here have followed too many turnaround situations and understand just how difficult it is for a company to complete a turnaround, much less go from turnaround to growth. That's why they don't seem to appreciate the remarkable progress that IDCC --- a complete basketcase after the 1995 Motorola case --- has made to position themselves for growth in a global wireless industry with these clear uptrends.
Global Subscriber Global Handset
Base Sales
....
....
1997 200M <100M
2002 1.1B 423M
2004 ~1.4B >500M
....
The global handset numbers are understated if Nokia and others continue to drive the handset replacement cycle faster. Handset replacement currently account for 25% of Nokia's sales.
Camera-phones and color screens are already driving that rate higher. Nokia, in particular, is responding to the strong challenges from Sharp, Samsung and NEC by planning to sell more than 45M camera/color phones in 2003 after selling less than 2M in 2002.
Projections made immediately after 3/14/2003 settlement regarding Nokia, Samsung and Sony/Ericsson royalties were based on handset growth rates of 5% to 10% culled from a variety of industry sources.
Global handset grew 16% in the March quarter and the December quarter typically accounts for 30%+ of industry sales. Some upside appears to be baked into the numbers.
Insider sales - small percentage of total holdings....no relation to company's prospects....company has no right to restrict sales outside of SEC rules......
LOL. You said.....
there are many very significant differences that frankly demonstrate how much more generous the ISO plan is at IDCC as compared to RMBS
......and then you posted this contradictory excerpt which I don't think you even bothered to read or don't even understand.
In the first quarter of fiscal 2000, we granted our Chief Executive Officer and our President a combined total of 2,000,000 Common Stock Equivalents (CSEs) and to our employees approximately 2,160,000 options to purchase our Common Stock at $2.50 per share.
Rambus has a fiscal year that ends in September. How do you explain the size of those executive option grants and the exercise price of only $2.50 per share when the stock was trading between $62.50 and $471.00 during the qualifying period (10/1/99 to 3/31/2000)?
Answer me. Can you even do the friggin math?
LOL. Yooohooooo! In case you haven't noticed, you just undercut your own claim that IDCC's exec compensation is more generous than Rambus! That's probably because you're drowning in the deluge of data that you used to hide your agenda. Whatever it is.
IDCC and RMBS actually have comparable executive salaries and bonuses, BUT, IDCC and RMBS don't have comparable ISO plans because IDCC has deliverred superior stock returns and financial performance. Period.
IDCC vs RMBS
Annual Stock Returns
2000 to 2002
....
.... IDCC RMBS
....
2000 ( 93%) ( 46%)
2001 79% ( 78%)
2002 50% ( 16%)
IDCC's 2G litigation is behind it. RMBS' litigation is in front of it. Different risks, different rewards.
You conveniently left out the fact that IDCC has a total headcount of 300 and management (15) owns 18% of all option grants in addition to owning 5% of O/S.
Rambus has a headcount of only 126 but management (11) owns nearly 30% of all option grants in addition to owning 12% of O/S!
I could go on, but you're a waste of time. You won't even correlate IDCC's options grants to its financial and stock performance. LOL.
*Average pay i.e. salary and bonus, not counting ANY ISO comensation, has increased over 50% from 1999 to current ($400K now, per proxy) for the top executives, which is quite generous;
I am singling out this comment for necessary scrutiny, coming as it does from somebody who claims to have more than 20 years of experience in the private equity business.
Average pay (salary/bonus) did go up consistently throughout the last bull market which started in 1982 and ended in 2000.
Not coincidentally, the end of the Cold War in the late 80s opened up new market possibilities for every company in the world led by US and European companies that merged, divested, acquired and reacquired to organize and reorganize for globalization for much of the last 20 years.
However, average executive pay only really started to skyrocket after the 1995 Netscape IPO which started the trend of profitless companies going public. Netscape's IPO success, in turn, made it easier for the unholy trinity of VCs, accountant/consultants and investment bankers to bring pre-revenue companies to public. Towards the end of this dotcom phenomenon, VCs were just throwing out glorified business plans with questionable metrics into the IPO market, totally abandoning the traditional rule of thumb on Wall Street that a company must have at least 3 years of operating results before hitting the equity market.
The practical effect of this gold rush mentality was the extravagant use of options in the competition for managerial and technical talent since even glorified business plans need to have impressive faces with impressive resumes to hit the IPO market. In other words, companies quickly learned that they can only compete for talent if they use options. The heavier the use, the better it proved to be since options remained a type of compensation that didn't have to go through the income statement but yet boosted cash flow thanks to the 1994 surgical strike performed on FASB --- that was set to expense options in 1994 --- by politicians who, a year earlier, had passed a law limiting the tax-deductibility of salaries over $1M!
IDCC was shut out of this market because of the 1995 Motorola debacle. Not only did the litigation risks force them to pay above average salaries, but they had to constantly compete against more stable and cash-rich companies that could pay more total compensation since they had superior access to the capital markets. IDCC, of course, had no chance in hell of getting a secondary offering done after the 1995 Motorola debacle.
So we have this interesting phenomenon now where many johnny-come-lately types are questioning the level of executive compensation, including options, without understanding that, before the March 2003 settlement, IDCC had no choice but to pay above exaggerated market rates for talent, rates set by companies that were aggressively using their options program to boost cash flow.
What is truly amazing is that IDCC has truly outperformed more than 99% of the market during the last 2 years yet people still want them to pay average-sized compensation because they think that is sufficient for IDCC to outperform the market during the next two years.
What's wrong with this picture? Why are private equity guys and accountant/consultants now giving us lectures on dilution with a certain, shall we say, moral indignation?
LOL.
Read the proxy. 18% of IDCC's options go to management. 82% go to employees. Above average but definitely not excessive.
Then use some common sense. The last bull market started in 1982 and ended in 2000. IDCC missed most of the greatest bull market in history due to the 1995 Motorola debacle, but yet they still had to compete for managerial and technical talent in the open market against companies that were aggressively using options to boost cash flow and improve its balance sheet to attract world-class talent, effectively raising the competitive compensation levels of C-Level (COB, CEO, CFO, COO, etc) managers and engineers.
And you still want a late-bloomer like IDCC to disarm unilaterally because of your new found sense of outrage over an option expensing system that has essentially been in place since the 1950s?
Talk about slicing your nose to spite your face!!! LOL.
That's the normal 3% annual share creep assumption that sell-side analysts like to use, Mschere. Some even break it down to a quarterly share creep rate. No biggie.
The size of the share creep assumption matters most to mature companies with well established but slowly growing revenue streams because of the impact on EPS.
It matters less to to early stage growth companies like IDCC because nobody will pay more than 1x sales for a company with all the EPS in the world but no consistent sales growth. Again, as we agreed before, IDCC is poised to join the very elite clubs of companies --- 10/10, 20/20 --- with rapid sales growth and rapid earnings growth in the next 2-4 years so I would like them to keep on reinvesting those earnings to keep sales growing through the key financial milestones -- $100M, $250M, $500M, $750M and $1B.
Several studies have shown that the $1B milestone is the hardest milestone to reach for more than 80% of technology companies. I have followed more than 20 companies during the last 10 years that have tried to pass this milestone, but have failed because their target markets simply weren't big enough or weren't growing fast enough.
That's why I like to see IDCC keep on recruiting world-class managerial and technical talent because that's the key to making a successful transition to a product-oriented business model which, in IDCC's case, will be built on IDCC's firm royalty base.
I think we're dealing with gamblers, Art. Bad gamblers at that. You can tell from their arguments that they essentially want IDCC to reduce its bets and play safe now that it is starting to gain momentum. Boy, if we run our businesses like the way they want IDCC to run its business, we'll never get anywhere. IDCC will always be a bonsai tree instead of the redwood tree that we think it could be. LOL.
At the end of 1999, there were under 50M shares outstanding, much less than the 56M we have today. Per 1999 10K there were "48,474 shares issued and outstanding"
And the obvious question to ask is what they did with the proceeds of that dilution so that you can then put that dilution in the proper context. Context is what you are lacking.
Why are you avoiding the obvious fact that IDCC increased headcount from 126 in 1999 to 319 in 2002 --- or by 153%--- while increasing total operating expenses from $44.3M in 1999 to $78.7M in 2002 --- or by 78%. Notice how they kept cash/investments relatively constant at $80M-$90M during that turnaround stage?
You claim to have more than 20 years of private equity experience yet I have to explain this to you??? LOL. And you do know that in the frantic competition for a shrinking pool of private equity funds, the top drawer private equity guys (top 5%) are actively undermining the lower tier private equity guys (95%) like you so they can keep their funding, right?
If I were you I wouldn't go around trying to win arguments with your credentials as a private equity guy because more people are beginning to realize that pretentious accountants/consultants and pretentious venture capitalists were seriously complicit in the dotcom implosion, one of the most spectacular misallocation of capital in history.
What's wrong with trying to win arguments with facts?
The current ISO plan is excessive and rich by any measure;
Again, you suffer from lack of context. Rambus is currently IDCC's closest peer in the licensing business in terms of sales. IDCC management gets 18% of all options granted while RMBS management gets nearly 30% of all options granted.
IDCC's ISO program is above average but not excessive even though IDCC outperformed more than 95% of all technology companies during the last 2 years.
The same holds true for salaries. I would consider IDCC's executive salaries/bonuses excessive if these exceed QCOM's, but it doesn't. In fact, IDCC's packages track more closely to RMBS and ARMHY. Again, above average but not excessive even though IDCC outperformed more than 95% of all technology companies during the last 2 years.
But what really amuses me about your post is that utter lack of intellectual honesty. You can't even relate the changing nature of IDCC's cost structure -- including total compensation -- and its revenue base with the amount of shareholder value created.
That's ultimately your loss, not mine.
You may not agree, but I think it is also a fact that dilution is bad for shareholders.
Corporate governance has become the hot issue during this bear market, which started on 3/10/2003, so I can see where you're coming from, but the fact of the matter is that you can't view the issue of dilution in a vacuum even in a bear market You just can't.
As you can see clearly during IDCC's turnaround stage, which started with the 1999 Nokia deal and ended with the 2003 Ericy settlement, dilution WAS necessary. There was no choice.
Now at the start of its growth stage, the issue of dilution is more complicated. The best way to view this is through the prism of risks.
Most people take all kinds of risks the way they gamble. They start reducing their bets when they're winning and start increasing their bets when they're losing. That's the telltale sign of a losing strategy.
Superior risk takers, on the other hand, selectively choose their spots so they can increase their bets when they're winning and reduce their bets when they're losing. That's the telltale sign of a winning strategy.
Wouldn't you want IDCC, at the start of its growth stage, to start developing a company culture that exhibits superior risk-taking characteristics?
Of course, you do. You just don't know it yet.<g>
Not surprisingly, the way you use raw numbers reflect a certain divorce from reality. Let's use some common sense, shall we?
IDCC's turnaround started with the 1999 Nokia deal. In order to support the Nokia engineering contract, they had to adjust their operating cost structure.
Since IDCC had no access to the secondary market because of the substantial ERICY litigation risks, IDCC had to finance the cash burn of its operations from its limited cash reserves AND its options program.
At the same time, IDCC also had to maintain its financial reserves at a high enough level where ERICY and potential licensees would not be tempted to wait them out at the negotiating tables on the calculated gamble that IDCC would run out of money to finance its cash burn.
Within that context, you still want to whine about IDCC's dilution rate from the fiscal year before the 3-year Nokia deal???
Take a look and use common sense. If IDCC diluted its stock excessively from 1998 to 2002 then how do the duck do you explain the fact that IDCC barely covered $250M in cumulative operating expenses from 1999 to 2002 with its operating cash flow? Did you want them to eat into their cash reserves and degrade the bargaining position that led to the ERICY settlement?
Again, note that IDCC had no practical access to the supernova hot IPO markets of the late 90s or before the settlement. None. Zip. Zilch. Nada. Yet you whine about the "excessive dilution" that IDCC had to use to finance its operations while maintaining its credible bargaining position?
Are you going to complain next that IDCC shouldn't have diluted its stock to finance the growth of recurring royalty revenue from less than $1M for the entire year of 1998 to more than $20M in 4Q2002 alone??? Because of you do then you have a time-space continuum problem since going forward, the quality of that recurring royalty number is the main attraction of this stock.
If you have a time-space continuum problem then the natural question to ask if the sky in your planet is blue? LOL.
INTERDIGITAL (IDCC)
Selected Financials
1998-2002
....
....
....
YEAR O/S Headcount Opex CFFO* Cash/Invest.
1998 48.8M 215 $ 55.1M $ 30.1M $ 52.2M
1999 50.5M 126 44.3M 24.0M 83.1M
2000 57.3M 191 53.6M 5.3M 89.0M
2001 53.4M 319 73.1M 9.6M 90.4M
2002 56.1M 300 78.7M ( 2.6M) 87.5M
....
....
*CFFO - Cash Flow From Operations
Again, if you want to dwell in the past, please feel free to compare IDCC's dilution rate with the amount of shareholder value created from the start of the 1999 Nokia deal because it was that milestone validation of IDCC's patent portfolio that enabled IDCC to increase recurring royalties more than 80x in the last 4 years and create more than $1B in market capitalization.
Going forward, the more reasonable baseline to use to determine if IDCC's dilution rate is excessive is the 2002 diluted number of 56M since this is the last full year's number before the settlement which I reiterate marked the end of IDCC's turnaround and the start of its growth stage.
72/56 would mean a more reasonable option overhang of 29%. 77/56 would mean 38%. True, those are above average numbers but IDCC has a very good chance of outperforming at least 95% of the total stock market in the next two years on the basis of an increase in sales from the $150M-$200M level to $300M-$400M.
That metric counts more than anything else that you can conjure. Sorry.<g>
At about 50% dilution overhang now, IDCC is at the top end of obscene
This is why you're not credible. Show me how you got 50%! LOL.
Fully diluted O/S is 56M shares as of 4/7/2003. Your 50% overhang would mean unexercised and unissued options/restricted stocks/warrants of 84M shares. Do you know how shrill you sound?
This board is funny. We have accountants who still want to be consultants and born-again VC guys who CLAIM to worry about dilution instead of liquidity events. What is the world coming to? LOL.
IDCC is no different from many tech companies which typically cut 5% to 20% of their technical headcount annually to make room for new technical talent. It also keeps the technical talent from getting complacent.
Here's IDCC headcount since 1995. If I recall correctly IDCC's technical headcount ranged from 50% to 75% of the total headcount during this time period.
YEAR HEADCOUNT KEY EVENT
...
1995 183 Motorola Debacle
1996 278 BCDMA Alliance
1997 205
1998 215
1999 126 Nokia deal
2000 191
2001 319
2002 300
216 out of the 300 employees in 2002 were in R&D so if your, hum, report is correct that 30 engineers were laid off that would mean a 14% cut. Nothing out of the ordinary.
This is definitely my last post to you.<g>
I realize I'm talking way over your head, Mickey, so I'm just going to put you on ignore before you hurt yourself. Nothing personal.
The people complaining about dilution don't sound too credible because they can't relate dilution to shareholder value creation. The reason that they can't relate dilution to shareholder value creation is that they don't have proper perspective. The lack of perspective often produces emotional arguments. People who use emotional arguments tend to take things personally when confronted with facts and useful context.
This $475 study of 1,500 companies from the Investor Responsibility Research Center should help provide that perspective. Note that only 9 companies out of 1,500 companies -- 488 S&P 500, 389 S&P 400 Mid-Cap, 581 S&P 600 Mid-Cap -- in this study have ZERO dilution.
The important thing to remember is that IDCC has created more shareholder value in the last 2 years than at least 95% of the companies in this study and IDCC will probably create more shareholder value in the next 2 year than 95% of the companies in this study. Yet IDCC's dilution rate falls within the middle of the pack of its technology peers and can hardly be called excessive by anyone with a modicum of intellectual honesty especially when one relates its dilution rate to its market cap creation rate before and after the 3/14/03 settlement.
That inexplicable failure to relate IDCC's dilution to its market cap creation rate within the context of the worst downturn in IT history is just plain demagoguery. And stupid. Period.
Underwater Options Push Total Potential Dilution to New Heights
WASHINGTON, D.C. – Results from IRRC’s study, Stock Plan Dilution 2003: Overhang from Stock Plans at S&P Super 1,500 Companies indicate that top corporations once again expanded their use of equity incentives last year. Findings show that outstanding underwater stock options contributed significantly to rising potential dilution levels.
The recently released study annually measures the overhang disclosed by companies in the S&P 500, MidCap, and SmallCap indices—a total of 1,458 companies that held annual meetings between Jan. 1 and Aug. 31, 2001 were examined for the latest analysis.
IRRC extracted the most recent figures and calculated each company’s overhang by dividing the sum of outstanding stock option grants, plus shares reserved for future awards, by the number of total common shares outstanding. Overhang is one way that shareholders gauge the potential dilution to their holdings from the equity being transferred to employees via stock incentive programs. This year’s study found the following:
Potential dilution from equity incentives continues to rise. Average overhang among all study companies is 15.7 percent as of 2002, up from 14.1 percent the prior year. The median level also jumped—to 14.8 percent from 14.1 percent in 2001.
The most significant increase occurred at S&P 500 companies, where average overhang surged by almost two percentage points, from 13.7 percent to 15.4 percent (the median level rose from 12.8 percent to 13.7 percent in that index).
In the MidCap index, average dilution as measured by overhang is 16.7 percent, up from 15.6 percent in 2001 (the median level increased from 13.7 percent to 14.3 percent).
SmallCap companies, which historically have relied most heavily on stock-based compensation, continue to post the highest potential dilution levels. Average overhang among S&P SmallCap companies is 17.7 percent, up from 16.9 percent in 2001.
Technology continues to lead the pack
IRRC also analyzed the study companies according to 10 economic sectors. Benchmarks were determined for peer groups based on a combination of economic sector and market capitalization.
Technology companies are once again at the top of the dilution ladder, with average overhang of 24.4 percent. This is up from 20.8 percent the previous year.
Utility and Energy companies, on the other hand, continued their historically low dilution levels, reporting, on average, equity incentive shares that constitute just above 8 percent of total outstanding common stock, the lowest overhang in the latest study.
Shareholder opposition to new funding dips slightly
While total dilution continues to be a key factor for investors deciding how to vote on stock incentive plans, the average level of shareholder opposition to stock plan proposals decreased slightly last year, to about 22 percent, versus 23 percent in 2001. This is likely due to the fact that dilution levels for the actual proposals being voted on were more moderate in 2002— 5.4 percent compared with 5.7 percent in 2001— although high levels of underwater options continued to push many companies’ total overhang up. This year's voting results do reveal investors' continued dissatisfaction with excessive dilution levels, however: Companies with overall overhang higher than 30 percent faced strong shareholder opposition, averaging 34 percent.
Extraordinary dilution levels also spreading
Along with continuously rising average dilution levels, the number of companies with relatively high dilution levels continues to increase as well. Fifty-three of the companies we analyzed had total overhang of more than 40 percent. This is up from 37 companies in 2001. In most cases, this extraordinary potential dilution is generated by automatic share replenishment (“evergreen”) features in company stock plans.
At the top of this year’s total potential dilution list is Roxio, an information technology company with a market capitalization of approximately $94 million and total dilution of 87.5 percent. The company maintains an option plan with a replenishment feature that annually adds to the available pool of funds a number of shares equal to the lesser of 6 percent of the outstanding common shares or 4 million shares. The share replenishment feature is responsible for over 60 percent of the company’s total dilution.
Other companies with high overhang—all concentrated in the technology industry—include Broadcom (85.5 percent), Actel (77.9 percent), Siebel Systems (77.1 percent), Triarc (73.3 percent), and Nvidia (70.3 percent). All of these companies except Siebel Systems and Triarc have deployed evergreen plans.
“Evergreen plans clearly have a significant impact on shareholder dilution,” says study author and IRRC Project Manager Annick Dunning, “and shareholders have grown wary of them.” Facing stiff investor criticism, the number of companies with evergreen plans has leveled out recently. In 2002, 156 evergreen plans were in place among the 1,458 study companies (10.7 percent), compared to 139 evergreen plans in 2001 (11.4 percent), and 134 in 2000 (11.6 percent.).
At the opposite end of the spectrum, nine study companies had zero dilution. These companies rely solely on salary and annual and long-term cash incentive compensation, which results in a zero dilution level.
Run rates on the rise
Companies also continued recent trends of granting more stock incentives each year, IRRC found, based on the 1- and average 3-year “run-rates” calculated for each study company (“run rate” refers to the total grants made in the designated period, divided by the number of outstanding common shares). Companies granted slightly more options in fiscal 2001 than they did on average over the last three fiscal years. Technology companies granted by far the most options in the past year. The run rate of Technology companies is with 5.7 percent more than 5 times the grant rate of Utility companies that have with 1.1 percent the smallest grant rate of all industries.
IRRC extracted the data on dilution from stock plans from company proxy statements, annual reports and 10K forms. The study includes:
488 S&P 500 companies
389 S&P 400 MidCap companies, and
581 S&P 600 SmallCap companies.
The new study details the specific factors contributing to each company’s overhang level. It also includes analysis by peer groups, as well as separate chapters dealing with non-shareholder approved stock plans, option repricing, evergreen programs and stock purchase plans. Stock Plan Dilution 2003: Overhang from Stock Plans at S&P Super 1,500 Companies can be purchased for $475. To order a copy, visit our online Bookstore at www.irrc.com.
For more than 25 years, IRRC has been the leading source of high quality, impartial information on corporate governance and social responsibility issues affecting investors and corporations worldwide. Today, IRRC provides research, software products and consulting services to nearly 500 clients including institutional investors, corporations, law firms and other organizations.
http://www.irrc.com/press_releases/03252003_Underwater.html
Yes, that sounds about right. Thanks.
What was our ballpark estimate of IDCC's royalty per Sharp phone?
Also, I think NEC used up its prepaid account in 1Q2003 and started paying us recurring royalties on certain products.
From one of your previous posts:
Top 5 Japanese Handset Manufacturers (OVERALL)
1) NEC
2) Panasonic (Matsushita)
3) Sharp (5th in 2001, fastest growing)
4) Toshiba
5) Mitsubishi
*Japanese market was 10.7M handsets in the December quarter and 39.4M handsets for the entire year.
Top 3 Japanese Handset Manufacturers (Camera Phones)
1) Sharp (36%)
2) Sanyo
3) NEC
* Camera phones went from 16% of the market in 1Q2002 to 57% of the market in 4Q2002 and accounted for 36% of the overall Japanese market in 2002. Camera phones should represent more than 80% of the Japanese market exiting 2003.
** NEC and Sharp accounted for most of IDCC's recurring royalties in 2002.