InterDigital Inc (IDCC)

[Corp_Buyer]

DD, why not keep P&L vs Balance Sheet transactions separate? So you know where I am coming from:

* I agree that ISO to employees is a barter transaction and they ARE indeed compensation;
* However, ISO are NOT wages like cash and bonus;
* Wages are a P&L transaction;
* ISO is a capital stock transaction and is therefore a documented Balance Sheet transaction, not a P&L transaction;
* I am opposed to the FASB proposal for expensing ISO;
* I am in favor of clearer more detailed disclosure to investors as to ISO transactions with employees as to their effect on the Balance Sheet.

The problem I have with expensing ISO is that it tries to convert a BS transaction into a P&L transaction just because ISO has value to the employee as compensation. I say keep the BS and P&L items separate. Capital stock is a BS item, period. It is OK to say to an employee, we’re paying you cash out of one packet (our P&L) plus stock out of our other pocket (the Balance Sheet). As long as there is full disclosure to investors as to what is in each pocket and who is being paid what from where and why, then what is wrong with that?

The ISO expensing issue only arises because of lack of public shareholder sophistication to follow and understand BS capital stock transactions. If public shareholders fully understood capital structure and BS transactions, dilution, etc., then there would be little thought about expensing options. Unfortunately, there are many public investors that simply fail to realize the costs to the company and investors of ISO options for employees. As I wrote before in case you missed it:

http://investorshub.com/boards/read_msg.asp?message_id=959714

Posted by: Corp_Buyer
In reply to: floridian ggg who wrote msg# 21560 Date:4/29/2003 9:38:50 AM
Post #of 23999

Stock options are a Balance Sheet item, not a P&L item, IMO. Instead of expensing ISO on the P&L, I am MORE in favor of (1) full disclosure as to who is getting them, when, why, etc. AND (2) more informed shareholders about dilution effects on their investments who will vote accordingly.

Of course, base pay compensation and bonus are P&L items, so I understand the point of view that wants to expense ISO as part of total compensation.

However, the venture capitalist in me believes that smaller high growth companies need stock options pretty much as they are and this works fine for private companies where the owners proactively manage stock incentives. The break down occurs when public shareholders fail to manage ISO plans realistically, such as we have in the case of IDCC. I still see shares outstanding as a Balance Sheet item, not a P&L item.

I hope this helps explain my position.

Best Regards,
Corp_Buyer