Replies to post #25142 on InterDigital Inc (IDCC)

[blueskywaves]

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.