Replies to post #23998 on InterDigital Inc (IDCC)

[loophole73]

DD

The sad part is that it has been allowed to go on so long. It is like turning a kid loose with a shotgun too early. He is hazard to others and also injures himself as he shoots because he is not skilled in the proper placement of the gun when shooting. It is a shame that the CPA's did not correct the problem on their own, but I would imagine that is because they received a few options in lieu of cash along the way. Getting the government to intervene is always a potentially dangerous game. This problem must be corrected without doing further damage to the market. Based on the general atmosphere, the prudent BOD's would not seek additional options. Some will and the shareholders should defeat negating the necessity of the dreaded government intervention. The CPA's and the BOD's should cease seeking new issues and create a fair plan to correct the past. Matters such as reasonable percentages, setting of strike prices and length of option periods could all be set in stone for guidance rather than doing away with the concept all together. If the matter cannot be resolved, then the street is going to have to adjust its multiples awarding process to prevent another 3 year bear market controlled by the shorts who have used these accounting glitches to the fullest. I am amazed and at the same time not surprised that any companies are seeking new options under the climate today until matters can be reasonably resolved.

MO
loop

[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