Replies to post #24402 on InterDigital Inc (IDCC)

[blueskywaves]

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.

[blueskywaves]

*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.