Replies to post #22556 on InterDigital Inc (IDCC)

[postyle]

compare the annual returns...during each of the last 5 years

Well, I've got nothing better to do, so why not?

1998:



1999:



2000:



2001:



2002:



1998-2002:

[GE_Jim]

Now wait a minute here.

RE: Many of the people like you who complain about the twin issues of dilution and executive compensation don't seem to have a very rational basis for comparison.

Don't need one. Evaluating this company like I evaluate all others. No extra points or leeway given because it's a I/P company. It's an investment.

RE: That's because the IP operating model is very, very difficult to execute

Well then we should have very,very good management to run it.

Have no time for an exercise. Too busy tracking what I already own. And the whole point would be moot. If they can't get it done because being an I/P company is too difficult, well then nobody should be investing in this , should they.

RE: Ronny's framework.

To say the framework was wrong because it didn't follow select I/P companies is foolishness. You don't get a break on excessive compensation because you happen to be an I/P company. Not buying it.

My point has been and is still is the increase and release of too many options vs the productivity released by the company.

RE: Now tell any rational person that IDCC's compensation policies are excessive compared to its peers in the IP business

I an a rational person, not going to compare to other companies, going analyze this company based on what they have done and what they are taking for it.

The 12 mil in options for the period 2000 to 2002 was per you to hire tech's for the Nokia engineering contract.
We got 57 mil for it to date. What did the options cost the shareholders to date?

You will remind me Nokia still will come to the table on the 2 g contract.
I will remind you that the contract was signed and agreed on in 99. That it included a paid up license for past usage for only 31 mil. 3 years free usage and than the accrue which is still on going. Nothing from Ericy in that time period. And A NEC contract realized by arbitration. Share outstanding during this same period went from 48 to 57 mil..

2003 to date Lost the Sharp contract. Nokia may or may not go to arbitration. Samsung may or may not go to arbitration. Company requests 5 mil more based on these unknown events.

I think we should wait to see what we get, when we get it, and how much goes to the bottom line before we justify the new options in question.

Actually that’s not right. IMHO they have already been paid very well for a perfect result.

Now waiting to see if the result will indeed be perfect

[rmarchma]

Bluesky re executive compensation you said:

..."Regarding executive compensation, the only person to come up with a rational framework for judging the level of executive compensation was Ronny, but his analysis was flawed by the use of Fortune 500 levels of compensation as a starting point when other companies with significant royalty income like ARMHY, RMBS and even QCOM were available for comparison."

I was against comparing compensation at IDCC with Fortune 500 type companies and even against much larger companies in the wireless industry, such as Qualcomm. What I advocated was a comparison to other small-cap technology companies. Quartzman did a limited study to that affect and I incorporated his findings into an email that I sent to Mr. Campagna, with copy to the other directors. Excerpts from this email as follows (the proxy referred to herein is the 2002 proxy, not the latest 2003 proxy):

In the following compensation recap, five numbers are given for each of the five highest paid IDCC executives based on the latest 2002 proxy: (a) current salary, (b) 2001 bonus, (c) number of 2001 options granted, (d) value of 2001 option grants, and (e) total compensation.

Salary Bonus Option Grant Option Value Total Comp

Goldberg $388,500 $276,834 70,000 $ 571,200 $1,236,534

Briancon $260,000 $125,000 81,250 $ 663,000 $1,048,000

Lemmo $244,500 $102,841 50,000 $ 408,000 $ 755,341

Merritt $262,500 $125,000 125,000 $1,020,000 $1,407,500

Tilden $249,000 $109,480 80,000 $ 652,800 $1,011,280


According to IDCC's latest 10K, the value of each option granted in 2001, using the Black-Scholes option pricing model, was estimated at $8.16 per share. The option value above is determined by multiplying the number of options granted to each executive in 2001 times $8.16 value per option in 2001.

From the latest proxy material as follows:

..."Prior to 2001, we engaged a compensation consultant who analyzed salary and stock-based compensation alternatives and provided recommendations to the Compensation Committee regarding executive salary levels as well as other elements of compensation. This analysis assisted us in setting a baseline from which 2001 increases were made."

IDCC’s salaries and compensation should be based upon comparable-size companies in the technology sector. We don’t have the revenues or earnings to match-up our executive pay to that of much larger companies. How many companies were included in the above analysis? How many of these included companies were small-cap technology companies with market caps under $1 billion like IDCC?

An individual owner tried to analyze IDCC’s compensation compared to other small-cap technology companies. Based on his findings, IDCC’s average base salaries and bonuses for the top executives are significantly above the other 17 similar sized technology companies, even though their average revenues were twice that of IDCC’s. He did not try to value the stock option grants into the compensation figures, but noted that most of these companies do have stock options also. However, I would bet these other companies' option grants are not nearly as generous as IDCC’s option grants. Therefore, I bet if the value of option grants could have been somehow factored into the comparable companies’ data, IDCC’s compensation would have blown-away these other small-tech companies’ executive compensations.

http://ragingbull.lycos.com/mboard/boards.cgi?board=CLB00004&read=116119

It also appears that the director compensation at IDCC is very high. Some information exploring the compensation of IDCC's Board of Directors is linked as follows:

http://ragingbull.lycos.com/mboard/boards.cgi?board=CLB00004&read=105729


(Added Note: To IDCC's credit, bonuses to the five highest paid executives were reduced in 2002 compared to 2001. Also no options were granted to the top five executives in 2002, except for a very minor grant to Briancon. Other IDCC managers and directors did receive option grants in 2002 though. Did they get the message regarding excessive executive compensation, or was it just coincidence that bonuses and option grants to the five highest paid executives decreased in 2002 compared to 2001? Probably coincidence.)

[The Count]

Blueskywaves, can you expand a bit

Many of the people like you who complain about the twin issues of dilution and executive compensation don't seem to have a very rational basis for comparison. That's because the IP operating model is very, very difficult to execute.

As an exercise, name one, just ONE company that has ever generated more than $7 per share in cumulative royalty income from the start of its corporate life to 12/31/2002.

Then name one, just ONE company that has a shot at generating more than $7 per share in cumulative royalty income during the next four years.

See what I mean?

I'm sorry, I don't. Anyone can pull out some specific stats on a company to show they have unique characteristics. But what is the point? If management was doing something that few others could accomplish with the company, then I agree one cannot compare to a cross section of companies. If you feel this management could not be reasonably replaced at the current compensation levels and you felt that current management might leave if the option proxy was voted down, that would justify a yes vote. I feel management is talented, but not uniquely talented. I don't care if they make money from patents or butterfingers or digging ditches. There job is to create growing revenues and income for the company.

Regarding dilution, compare IDCC (55M shares) with RMBS (98M shares) and ARMHY (338M shares) to see the flimsiness of this claim. At their respective peaks in 1999, ARMHY had a market cap of more than $5B, RMBS had a market cap of more than $25B while IDCC had a market cap of more than $1B. Needless to say, insider selling at IDCC, ARMHY and RMBS also peaked in 1999.

Blueskywaves, your posts seem to equate float with dilution. Float is the number of shares outstanding, and can be increased by stock splits, share sales by the company, which includes option grants that are exercised, secondary offerings and selling shares to existing shareholders, like ERICY did last year. Splits and shares offered to the existing shareholders based on their ownership increase the float, but are not dilutive because the existing shareholders maintain the same proportional ownership of the company.
As far as insider sales go, once they get the shares they should sell them when they choose (within SEC rules).

Regarding executive compensation, the only person to come up with a rational framework for judging the level of executive compensation was Ronny, but his analysis was flawed by the use of Fortune 500 levels of compensation as a starting point when other companies with significant royalty income like ARMHY, RMBS and even QCOM were available for comparison.

I think using Fortune 500 is actually putting them a league up. That's where IDCC wants to be. If our company earns royalty revenue as opposed to any other type of income, do we get a higher valuation on the street? They look at revenue, income and growth. The source is only a concern in their estimation of the future, but that's it.

As an example, here's a comparison of C-level salary and bonus levels (excluding options) at IDCC vs RMBS circa 2002.


RMBS IDCC..........Chairman of the Board -- --CEO $ 616K --President 577K $ 659K COO -- 339KCFO 441K NAGeneral Counsel 365K $ 354K

Note: Rambus has a CEO and President while IDCC has a President and a COO (Chief Operating Officer).

Why are you excluding options from this, since that is a significant part of officer compensation and the crux of the current debate. But regardless, choosing any single company is far less relevant then looking at a wider sample, like the Fortune 500.

Rambus has TTM revenue of $102M, 98M shares out and most of its major litigation (patent and anti-trust) in front of it.

IDCC has TTM revenue of $88M, 55M shares out and most of its 2G litigation behind it. As a result its revenue is expected to go from $88M in 2002 to $150M-$200M in 2003 and its cash/investment account is expected to go from $88M in 2002 to a projected $400M+ in 2003.

IDCC has its future (3G) in front of it, just like Rambus. 2G is settled, but lacking 3G success, then IDCC's price will not be this high long or in the future.

Lastly, compare the annual returns of both companies during each of the last 5 years, a period of time that includes the blow-off market top in early 2000 and the probable market bottom in mid-2002.

Management does not control the stock price, they control the results that theoretically the stock price is based on. The fact that the market undervalued IDCC does not prove management did an above average job. It definitely is a factor to use in judging them, but not an absolute. IDCC's management was not doing a terrible job in 2000, the stock price was overpriced and fell 90% which was not due to poor performance. You and others did research and decided that IDCC was undervalued and risked your capital by buying the stock. Don't ignore the value of your investment prowess and the value of risk taking. Yes, many have and hope to achieve exceptional returns on their investment in IDCC. Don't feel obligated to give away the store. If 3G is a bust, don't look to management to reimburse you for any of your losses.

Now tell any rational person that IDCC's compensation policies are excessive compared to its peers in the IP business.

Since you ignored stock compensation and did not delve into any of the contributions of the other management teams (did they help create the company or technology that their company licenses, have they gotten licenses, etc.), a comparison would be difficult. Secondly, what is the rationale for comparing only to IP companies? Unless only a select few can run them, it is not relevant.