Replies to post #100060 on InterDigital Inc (IDCC)

[olddog967]

texb: Based om my calculation, I believe you may be over stating the amounts. My calculation of Cycle 1 expenses are based on the following information contained in identical statements in the second and third quarter 10-Qs.

"We issued approximately 370,000 restricted stock units under the program in second quarter 2004 with a value of approximately $6.5 million on the date of the grant. We recognized approximately $0.9 million and $1.4 million of compensation expense related to our accrual for the cash-based incentive and amortization of the restricted stock units, respectively,"

Thus they are apparently recognizing expense of $2.3 mil per qtr, or $6.9 mil for the three quarters of 2004. This is in basic agreement with the $7 mil IDCC estimated and that you show. The $6.9 Mil consisting of $2.7 mil for cash and $4.2 mil for RSUs. However, as stated the total value of the RSUs issued was $6.5 Mil. Therefore the remaining expense to be amortized in 2005 would only be $2.3 Mil ($6.5 - $4.2). Thus it would appear that for some reason they are not amortizing the expense evenly over the 18 month cycle period. Assuming the same rate of accruing is being done for the cash portion would result in a 2005 charge of $1.5 Mil, for a total 2005 expense of $3.8 Mil, rather than your expense of 9.3 Mil. This would give a total cycle 1 program cost of $10. 7 mil ($6.9 + $3.8).

The foregoing would change your calculation for Cycle 2. In addition, Cycle 2 is based on a 3 year vesting (amortization) period rather than the 18 months (?) used for cycle 1, therefore the yearly expense charge would smaller.

A bit confusing with some conjecturing, but as Ron has stated when the 10-K and proxy statements come out we should have better information.

[rmarchma]

Texb re expense of IDCC’s e new incentive compensation plan

I do not think the expense will be nearly as high as you estimate. I get a total estimated expense for the new compensation plan of just a tad over $10m for 2005. However, I do not think that I have a real good handle on the numbers. I’ll feel more comfortable with my 2004 numbers after the 2004 10k comes out, and more comfortable with my 2005 projections after the first quarter 2005 10Q comes out. But if you want to jump the gun a little, I’ll go along with you. Let me explain my calculations as follows:

The new long-term incentive plan (LTI) initiated on April 1, 2004 was projected to have an expense of $7m in 2004, $3m in cash incentives and $4m in RSU amortization. From the second and third quarters 10Qs, we learn that the RSU grant involved 370,000 units with a total value at the date of grant of approximately $6.5m. IDCC recorded $2.3m of expense in the second quarter and another $2.3m of expense for the third quarter of 2004 associated with the new LTI plan, composed of $.9m cash incentive and $1.4m RSU amortization per each quarter.

If the same $2.3m is recorded again for the fourth quarter, then that would equal a total of $6.9m recorded expense for 2004, composed of $2.7m cash incentives and $4.2m RSU amortization. This would agree to IDCC’s initial guidance as to the expense of the LTI Plan for 2004. There would still be $2.3m of unamortized RSU grant value from 2004 ($6.5m total RSU grant - $4.2m amortized in 2004) that would be expensed in the second year of 2005.

Now I agree with your previous observation that the Jan. 1, 2005 RSU grants pertain to the LTI Plan and the Feb. 28, 2005 RSU grants pertain to the old existing executive bonus plan. BTW according to my calculations, the Jan. 1 RSU grant should be the only one for the year for the LTI Plan. Examining the form 4 for the insiders, 11 company executives received a total of 114,500 RSU units on January 1, 2005. However there are approximately 100 IDCC employees now covered by the LTI Plan. Therefore at this point, we can only estimate the total RSU grant for 2005 portion of the LTI Plan.

The April 1, 2004 RSU grant involved 10 company executives who received a total of 89,000 RSU units versus a full year of 114,500 RSU units for 2005. As far as I can tell, Ridge Bolgiano received an RSU grant on Jan. 1, 2005 of 4,038 units, but did not receive any RSU grant on April 1, 2004. Therefore the RSU grants to the company executives represented 24% of the total RSU grants in 2004 (89,000 / 370,000 total RSU units).

Let’s assume this same percentage to the executives for 2004 also holds true for the 2005 grant. Therefore the total RSU grant for 2005 would equal a total estimated 477,000 units to all the 100 eligible employees (114,500 RSUs to the executives / .24%), versus 370,000 for the nine months of 2004. A total of 477,000 RSU units x $22.10 market price per IDCC share as of Jan 1, 2005 equals a total estimated RSU grant value of $10.5m for the RSU portion of LTI. However, not all of $10.5m 2005 RSU grant value will be amortized to expense in 2005. It may be amortized over a three year vesting period, but how much per quarter and per year I have no idea. It appears that the 2004 two-year vesting RSU grant is being amortized prorata over 6 quarters. This RSU amortization does not include the cash incentive part of the LTI, this will be separate.

Therefore the LTI recorded expense for 2005 should include the remaining $2.3m of unamortized amounts from the 2004 grant, some amortized part of the 2005 $10.5m total RSU grant, and the cash incentive portion of the LTI Plan. Let’s say that the $10.5m total 2005 RSU grant value is amortized prorata over 10 quarters, or $1.05m per quarter x 4 quarters = $4.2m. Lets assume that the cash portion of the LTI stays at $.9m per quarter the same as 2004 x 4 quarters = $3.6m per year.

Thus a very rough estimate of the 2005 recorded expense for the new LTI Plan would be $10.1m ($2.3m + $4.2m $3.6m) or about $2.5m per quarter. This would compare to $2.3m per quarter for the three quarters of 2004.