InterDigital Inc (IDCC)

[Desert dweller]

Ed I didn't conveniently forget this fact that companies such as TI buy back company stock to lower the dilution related to the options but that just supports the thinking that options should be expensed. If TI has to expend cash to buy back stock that has been given to employees and management, then how can people say there is no cash cost? Cash is being expended by the billions to buy back stock because so many options have been granted over the past decade. When this is done it is a balance sheet item so there is no negative impact on the P&L but there should be.

Let's say TI actually bought back 14% of its stock. Where would that money have come from? It would come from accumulated earnings. So now you have a company that earned the money to buy back the stock in order to hide the expense associated with the granting of options. For simplicity, let's say the amount needed to buy back 14% of the stock was equal to the amount of options given out. In this case you used all your earnings to make up for the options given out and yet many say there is no cash cost? Shouldn't the cash cost equal the amount expended to make the original investors whole? In other words under this example the net income figure should be zero after deducting the cash paid for the stock repurchase.

The above is not a real life example because it would cost far more than 1 years earnings to buy back 14% of TI. It also is not proper accounting to reflect the cost of treasury stock in the income statement. But it also is not proper accounting to leave out expenses from the income statement and that is what is happening by not recognizing a cost associated with the granting of options in exchange for services.