KING OF PRUSSIA, Pa.—(BUSINESS WIRE)—November 1, 2006—
InterDigital Communications Corporation (NASDAQ:
IDCC), today
announced results for the third quarter and nine months ended
September 30, 2006. Highlights for the third quarter include:
-- Revenue of $67.2 million
-- Net income of $21.7 million, or $0.40 per diluted share
-- $134 million (plus interest and additional royalties)
arbitration award related to a patent license dispute with
Samsung
-- Cash and short-term investments totaling $304.2 million
-- Repurchase of 1.8 million shares of the company's common stock
"These successes have allowed us to continue to build shareholder
value," commented William J. Merritt, President and Chief Executive
Officer. "Our track record of producing solid earnings and positive
cash flow demonstrates the continuing maturation of our 3G technology
business. Furthermore, the strength of our patent licensing program
was confirmed by the receipt of a substantial arbitration award
related to our patent dispute with Samsung."
Mr. Merritt added, "We also made positive strides in our dual-mode
2G/3G ASIC programs as we completed the agreement to license
Infineon's 2G Layer 1 technology. We are on target to receive ASIC
samples from the foundry in summer 2007. Based on successful
interoperability testing with major infrastructure vendors, we believe
our dual-mode 2G/3G HSDPA/HSUPA modem offering will be highly
competitive. Accordingly, in parallel with the development effort, we
have been reaching out to terminal unit vendors to begin a sales
dialogue around the InterDigital solution."
The company has recently been recognized by two industry
organizations for its achievements in licensing and intellectual
property management. InterDigital was named a 2006 recipient of the
Licensing Achievement Award from the Licensing Executives Society,
joining the ranks of prior winners such as Pfizer and Stanford
University. Additionally, InterDigital was included as an inaugural
member of the Ocean Tomo 300(TM) Patent Index, announced by Ocean Tomo
and the American Stock Exchange on October 24, 2006. The index is
based on the value of intellectual property and represents a
diversified portfolio of companies that own the most valuable patents
relative to their book value, including companies such as 3M and IBM.
Third Quarter Summary
The company's net income increased to $21.7 million, or $0.40 per
diluted share, in third quarter of 2006 from $6.5 million, or $0.11
per diluted share in third quarter of 2005. Included in this quarter's
net income is approximately $8.1 million after tax, or $0.15 per
diluted share, related to the resolution of patent licensing matters
with Nokia.
During third quarter 2006, the company generated $5.8 million of
free cash flow(1) due largely to the receipt of $14.8 million of
royalty prepayments primarily from two existing patent licensees,
offset, in part, by investments in product and patent related
initiatives.
Revenue in third quarter 2006 increased to $67.2 million from
$48.5 million in third quarter of 2005. Third quarter 2006 revenue
included $54.7 million of recurring patent license royalties and
technology solution sales, and $12.5 million related to Nokia.
Recurring patent license royalties in third quarter 2006 increased 58
percent to $53.5 million from $33.8 million in third quarter 2005, due
largely to a new agreement signed subsequent to third quarter 2005
with LG Electronics Inc. (LG) and new or higher contributions from
other existing licensees. Technology solution revenue decreased to
$1.2 million in third quarter 2006 from $4.5 million in third quarter
2005 due to the completion in first quarter 2006 of deliverables under
an agreement with General Dynamics supporting a program for the U.S.
military. Licensees that accounted for 10 percent or more of the $54.7
million of recurring patent license royalties and technology solution
sales were LG (27 percent), NEC Corporation of Japan (17 percent) and
Sharp Corporation of Japan (17 percent).
Third quarter 2006 operating expenses of $36.8 million decreased 4
percent compared to third quarter 2005. This decrease primarily
resulted from lower costs in three areas. Patent litigation and
arbitration costs declined to $5.2 million in third quarter 2006 from
$7.9 million in third quarter 2005 due to a decrease in activity
levels in third quarter 2006. The company's long-term compensation
costs decreased $1.2 million, reflecting the absence of overlapping
cycles. In addition, the company recognized $0.8 million of
repositioning charges in third quarter 2005. These decreases were
offset, in part, by increases in third quarter 2006 costs related to
product development initiatives, patent amortization and depreciation,
and consultant compensation.
Net interest and investment income of $4.1 million in third
quarter 2006 increased $3.3 million over third quarter 2005 due to
both higher investment balances and higher rates of return in third
quarter 2006.
The company's third quarter 2006 tax expense consisted of a 36
percent provision for federal income taxes plus $0.4 million related
to the amortization of foreign deferred tax assets related to non-U.S.
withholding taxes made in prior years. Third quarter 2005 tax expense
of $4.4 million included a federal tax provision of $4.0 million and
$0.4 million related to non-U.S. withholding taxes.
Nine Months Summary
Net income for first nine months 2006 increased to $205.0 million,
or $3.65 per diluted share, from $9.7 million, or $0.17 per diluted
share, in first nine months 2005. Approximately $162.2 million or
$2.83 per diluted share of the 2006 net income is related to the
resolution of patent licensing matters with Nokia and Panasonic.
For first nine months 2006, revenue increased to $415.4 million
from $122.6 million in first nine months 2005. This increase was
driven by $240.5 million and $12.0 million related to the resolution
of matters with Nokia and Panasonic, respectively, a new agreement
signed following third quarter 2005 with LG and higher contributions
from other existing patent licensees.
During first nine months 2006, the company generated $294.6
million of free cash flow. This free cash flow was driven, in large
part, by patent license payments from Nokia and LG totaling $319.7
million, net of source withholding taxes, offset, in part, by
estimated federal tax payments and investments in product and patent
related initiatives.
Operating expenses for first nine months 2006 of $105.6 million
decreased 1 percent compared to the first nine months 2005. This
decrease is related to lower costs associated with patent litigation
and arbitration, long-term compensation, executive severance and
repositioning activities offset, in part, by higher costs associated
with commissions, product development initiatives and patent
amortization.
Net interest and investment income of $9.5 million in first nine
months 2006 increased $7.3 million over first nine months 2005 due to
both higher investment balances and higher rates of return in first
nine months 2006.
The company's first nine months 2006 tax expense consisted of a 35
percent provision for federal income taxes plus $2.2 million of
non-U.S. withholding taxes. First nine months 2005 tax expense of $8.1
million included non-cash charges for both federal income taxes and
non-U.S. withholding taxes of $5.9 million and $2.2 million,
respectively.
Fourth Quarter 2006
Consistent with the company's practice, revenue guidance for
fourth quarter 2006 will be provided following the receipt and review
of applicable royalty reports. The company will also update its
forecasts on anticipated revenue from work associated with technology
solution agreements.
Rich Fagan, Chief Financial Officer commented, "We currently
anticipate that fourth quarter 2006 operating expenses, excluding
patent arbitration or litigation costs, will grow by 7 percent to 12
percent sequentially compared to third quarter 2006, principally
reflecting investments in outside services associated with meeting our
schedule to have engineering samples of our 2G/3G ASIC by summer 2007.
We also currently expect that our patent arbitration and litigation
costs in fourth quarter 2006 will be between $5 million and $7 million
as we continue to invest whatever is necessary for this critical
activity. Lastly, we expect that our book tax rate for the fourth
quarter of 2006 will approximate 35 percent to 37 percent."
About InterDigital
InterDigital Communications Corporation designs, develops and
provides advanced wireless technologies and products that drive voice
and data communications. InterDigital is a leading contributor to the
global wireless standards and holds a strong portfolio of patented
technologies which it licenses to manufacturers of 2G, 2.5G, 3G and
802 products worldwide. Additionally, the Company offers baseband
product solutions and protocol software for 3G multimode terminals and
converged devices. InterDigital's differentiated technology and
product solutions deliver time-to-market, performance and cost
benefits. For more information, please visit InterDigital's web site:
www.interdigital.com. InterDigital is a registered trademark of
InterDigital.
This press release contains forward-looking statements regarding
our current beliefs, plans, and expectations as to our operating
expenses (excluding patent arbitration and litigation costs), patent
arbitration and litigation costs, book tax rate and general prospects
for fourth quarter 2006, the competitiveness of our modem offering and
the timeline for receipt of ASIC samples. Words such as "optimistic,"
"will," "expect," "anticipate" or similar expressions are intended to
identify such forward-looking statements.