InterDigital Announces Third Quarter 2012 Financial Results

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information regarding our current beliefs, plans and expectations, including, without limitation: (i) our belief that our core licensing efforts are progressing on plan; (ii) our belief that addressing multiple revenue opportunities is the key to sustained growth going forward; (iii) our expectation that the new sourcing strategy will continue to deliver high-quality innovation in a cost-effective manner; (iv) our expectation that InterDigital Solutions will provide new opportunities to align with industry players in ways that will yield both technology strength and revenue opportunities; (v) our expectation that our investments in intellectual property enforcement will yield positive outcomes; and (vi) our plans to provide an update of our revenue expectations for fourth quarter 2012 after we receive and review the applicable patent license and product sales royalty reports. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “will,” “continue to,” variations of any such words or similar expressions are intended to identify such forward-looking statements.

Forward-looking statements are subject to risks and uncertainties. Actual outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including, without limitation, those identified in this press release, as well as the following: (i) unanticipated delays, difficulties or acceleration in the execution of patent license agreements; (ii) our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; (iii) our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; (iv) our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with InterDigital's roadmap; (v) the ability of InterDigital Solutions to commercialize the company's technologies and enter into customer agreements; (vi) the failure of the markets for the company's current or new technologies to materialize to the extent or at the rate that we expect; (vii) unexpected delays or difficulties related to the development of the company's technologies; (viii) changes in expected research and development costs; (ix) changes in the market share and sales performance of our primary licensees, delays in product shipments of our licensees and timely receipt and final reviews of quarterly royalty reports from our licensees and related matters; (x) the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such legal proceedings; (xi) changes or inaccuracies in market projections; and (xii) changes in the company's business strategy.

We undertake no duty to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

Footnotes

1Free cash flow is a supplemental non-GAAP financial measure that InterDigital believes is helpful in evaluating the company's ability to invest in its business, make strategic acquisitions and fund share repurchases, among other things. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period. InterDigital defines “free cash flow” as net cash provided by operating activities less purchases of property and equipment, technology licenses and investments in patents. InterDigital's computation of free cash flow might not be comparable to free cash flow reported by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (“GAAP”). A detailed reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP financial measure, is provided at the end of this press release.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands except per share data)

(unaudited)

 
 
   

For the Three Months

Ended September 30,

   

For the Nine Months

Ended September 30,

2012     2011 2012     2011
REVENUES:
Per-unit royalty revenue $ 23,639 $ 34,150 $ 85,515 $ 108,550
Fixed fee amortized royalty revenue 33,764 33,231 101,209 101,633
Past sales 981 7,900 2,586 10,611
Patent sales 375,000 384,000
Technology solutions revenue   626     1,174     1,876     3,992  
  434,010     76,455     575,186     224,786  
 
OPERATING EXPENSES:
Patent administration and licensing 45,551 17,900 94,979 50,604
Development 16,375 17,015 51,041 50,202
Selling, general and administrative   8,865     9,387     28,968     24,714  
  70,791     44,302     174,988     125,520  
 
Income from operations 363,219 32,153 400,198 99,266
 
OTHER EXPENSE   (2,708 )   (3,149 )   (7,926 )   (7,472 )
Income before income taxes 360,511 29,004 392,272 91,794
INCOME TAX PROVISION   (124,842 )   (2,798 )   (136,000 )   (25,093 )
NET INCOME $ 235,669   $ 26,206   $ 256,272   $ 66,701  
NET INCOME PER COMMON SHARE — BASIC $ 5.61   $ 0.58   $ 5.86   $ 1.47  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC   42,024     45,463     43,761     45,380  
NET INCOME PER COMMON SHARE — DILUTED $ 5.56   $ 0.57   $ 5.81   $ 1.45  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED   42,353     46,281     44,072     46,000  
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10   $ 0.10   $ 0.30   $ 0.30  
 
 

SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 
 
   

For the Three Months

Ended September 30,

   

For the Nine Months

Ended September 30,

2012     2011 2012     2011
Net income before income taxes $ 360,511 $ 29,004 $ 392,272 $ 91,794
Taxes paid (5,122 ) (7,874 ) (23,806 )
Non-cash expenses 21,074 10,805 41,310 29,699
Increase in deferred revenue 4,650 12,009 29,220 47,478
Deferred revenue recognized (48,028 ) (56,279 ) (155,344 ) (175,213 )
Increase (decrease) in operating working capital, deferred charges and other 8,667 3,158 838 (2,512 )
Capital spending and capitalized patent costs   (5,867 )   (6,999 )   (21,762 )   (21,951 )
FREE CASH FLOW   335,885     (8,302 )   278,660     (54,511 )
 
Tax benefit from share-based compensation (84 ) 2,024 1,506 2,705
Payments on long-term debt, including capital leases (74 ) (180 ) (215 )
Acquisition of patents (750 ) (13,750 )
Proceeds from issuance of convertible senior notes, net 221,985
Purchase of convertible bond hedge (42,665 )
Proceeds from issuance of warrants 31,740
Dividends paid (4,348 ) (4,540 ) (13,388 ) (13,602 )
Share repurchases (74,949 ) (152,694 )
Net proceeds from exercise of stock options 123 1,098 713 4,050
Unrealized gain (loss) on short-term investments   1,331     (728 )   2,466     (565 )
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS $ 257,208   $ (10,522 ) $ 103,333   $ 148,922  
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

(unaudited)

 
 
    September 30,     December 31,
2012 2011
ASSETS
Cash & short-term investments $ 781,327 $ 677,994
Accounts receivable (net) 36,302 28,079
Current deferred tax assets 55,175 53,990
Other current assets 8,859 8,824
Property & equipment and patents (net) 152,208 145,960
Other long-term assets (net)   81,735   82,121
TOTAL ASSETS $ 1,115,606 $ 996,968
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of long-term debt $ $ 180
Accounts payable, accrued liabilities, taxes payable & dividends payable 185,002 38,886
Current deferred revenue 94,664 134,087
Long-term deferred revenue 67,252 153,953
Long-term debt & other long-term liabilities   201,734   198,180
TOTAL LIABILITIES 548,652 525,286
SHAREHOLDERS' EQUITY   566,954   471,682
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,115,606 $ 996,968
 

RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES

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