Some context, Ronny.
In the mid-90s, FASB was on the verge of expensing options until the tech lobby successfully waged a battle to prevent FASB from implementing the accounting rule change.
This major victory had the practical effect of actually encouraging most tech companies to go into the business of selling equity in addition to selling hardware or software or services!
As you understand more than I, the exercise of an option results in a cash infusion and a tax benefit on one hand and stock dilution on the other hand. The natural incentive created was to issue more and more options to generate more and more cash since there was zero impact on key profit metrics.
Consequently, up and until the peak of the Nasdaq market on March 2000, most tech companies were legally generating more cash from their options program than their main line of business and they were getting rewarded with higher stock prices! Since they didn't have to recognize options as compensation expenses they could show better profit margins. Since they could back up those rising profit margin trends with rising cash levels, they were rewarded with rising valuation multiples which allowed many to raise even more cash. Stock dilution was practically discounted or ignored. Would you believe, for example, that Cisco, which has $21B in cash/investments, has generated more cash from its options program than from its router and switch business during its entire corporate history?
Not surprisingly, many tech companies took varying approaches to exploiting this de facto social policy about how to access capital. Put another way, everyone was doing it and it would have been suicidal for a company on the ropes like IDCC was in 1996 not to do it. Its' cash balance, for example, would be much lower and its negotiating positions would unarguably have been much weaker.
Unfortunately, technology companies account for less than 10% of US GDP. More than 90% of US companies can never hope to grow as fast as technology companies. As a result, many companies that did not have the same access to capital as technology companies were pressured to monkey around with their numbers, resulting in the crisis of confidence that still plagues the market today.
Expensing options is one of the key reforms that FASB is expected to implement early next year. By finally recognizing the economic reality that options are part of compensation packages, it is expected that most companies will reexamine and readjust their compensation policies accordingly resulting in a change of corporate behavior over time.
Within that context, I don't understand why you are prematurely holding IDCC to an impossibly high standard regarding options when FASB is in still the process of option accounting reform that will affect everybody's future access to capital.
For example, with the potential dilution you cited meticulously, IDCC still has a tight float that still may not be liquid enough for most mid-cap funds.
IDCC is only now starting to come out of its turnaround phase. Why handcuff its ability improve its balance sheet using all legally available means?
AI
