Texb re front-loaded amortization of RSUs. I completely agree with your following statement:
..."My only concern continues to be that the LTIP expenses seem to be heavily front-loaded and may accordingly prove more of a damper on 2005 earnings than we anticipate."
This is the main reason that I am not comfortable with any of our expense projections concerning the LTI Plan, especially in regard to RSU amortization. I have tried to do research on RSU amortization, and have found hardly anything detailed and helpful. All I can find is a general rule which states that the value of RSUs at the date of grant are amortized into expense over the vesting period. What I can't find is any detail as to how this amortization over the vesting period is calculated.
It appears that IDCC is recording the first LTI Plan RSU grant in April 2004 at a fixed amount of $1.3m per quarter. How they calculated that fixed amount, I really do not know. If the $6.5m RSU grant were amortized at an equal prorata amount over the entire two-year vesting period, then the amortization amount would be $812,500 per quarter ($6.5m value at date of grant divided by 8 quarters).
Evidently this is a much more complicated calculation going on for IDCC to get $1.3m RSU amortization in the second quarter and another $1.3m RSU amortization in the third quarter, ie "front-loading". At this same rate, IDCC will have the 2004 RSU grant amortized within 6 quarters, and not 8 quarters. Janet alluded to a complex calculation in her following comment to me:
6. The restricted stock units vest over time. How long is the vesting period? Is it one year, two years, three years, five years, ten years, etc? Almost all of IDCC’s existing outstanding restricted stock units vest in one or two years. Will RSUs really help the stated goal of employee retention, if the vesting period is real short?
The latest RSUs granted under the new incentive plan had a two-year vest period. However, some vest only at the end of two years, whereas others partially vest at the end of one year and the remainder would vest at the end of the second year. The RSUs granted to “upper management” vest only at the end of the two-year period. However for accounting purposes, IDCC still has to accrue an expense amount in each quarter for all the granted RSUs, although the calculation is a little different for the RSUs that vest only at the end of the two-year period. BTW the vesting period is determined at each RSU grant date, and can therefore be changed each year.
(Added Note: the above comments on 9/11/04 referred to the 2004 RSU grant, which had a two-year vesting period. However, the 2005 RSU grant has a three-year vesting period. When I projected the amortization expense associated with the 2005 RSU grant yesterday, I did use a 10 quarter period rather than a 12 quarter amortization period to try and factor in this mysterious front-load calculation effect.)
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