UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
-------------------------------
Commission File Number 1-11152
INTERDIGITAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1882087
------------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
781 Third Avenue, King of Prussia, PA 19406
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (610) 878-7800
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 55,454,786
- -------------------------------------- -----------------------------
Class Outstanding at March 31, 2001
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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INDEX
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PAGES
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Part I - Financial Information:
Item 1. Consolidated Financial Statements (unaudited): 3
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative And Qualitative Disclosure About Market Risk 12
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 13
2
PART I - FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
---------------------
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
- ------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 20,451 $ 12,343
Short-term investments 66,737 76,644
Accounts receivable, net of allowances of $74 and $473 29,279 16,928
Other current assets 5,424 6,890
---------- ---------
Total current assets 121,891 112,805
---------- ---------
Property, plant and equipment, net 13,383 11,302
Patents, net 10,256 10,102
Other non-current assets 11,123 7,416
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34,762 28,820
---------- ---------
TOTAL ASSETS $ 156,653 $ 141,625
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 267 $ 326
Accounts payable 3,585 4,482
Accrued compensation and related expenses 2,905 3,742
Deferred revenue 8,409 12,108
Foreign and domestic taxes payable 2,443 1,284
Other accrued expenses 3,324 3,473
---------- ---------
Total current liabilities 20,933 25,415
LONG-TERM DEBT 2,191 2,234
LONG-TERM DEFERRED REVENUE 60,596 40,066
---------- ---------
TOTAL LIABILITIES 83,720 67,715
---------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .10 par value, 14,399 shares authorized-
$2.50 Convertible Preferred, 55 and 55 shares issued and
outstanding, liquidation value of $1,375 and $1,375 5 5
Common Stock, $.01 par value, 100,000 shares authorized,
53,955 shares and 53,780 shares issued and
outstanding 540 538
Additional paid-in capital 269,272 267,936
Accumulated deficit (184,054) (181,899)
Unearned Compensation (4,757) (4,597)
---------- ---------
81,006 81,983
Treasury stock, 1,500 shares held at cost 8,073 8,073
---------- ---------
Total shareholders' equity 72,933 73,910
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 156,653 $ 141,625
========== =========
The accompanying notes are an integral part of these statements.
3
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
FOR THE THREE MONTHS
-------------------------------
ENDED MARCH 31,
-------------------------------
2001 2000
-------------- ------------
REVENUES:
Product - $ 4,558
Licensing and alliance $14,687 10,643
------- --------
14,687 15,201
------- --------
COST OF PRODUCT AND OPERATING EXPENSES:
Cost of product - 3,826
Sales and marketing 1,191 1,521
General and administrative 3,601 2,668
Patents administration and licensing 1,724 (343)
Development 10,876 5,443
------- --------
17,392 13,115
------- --------
Income (loss) from operations (2,705) 2,086
INTEREST INCOME (EXPENSE):
Interest income 1,549 1,651
Interest and financing expenses (56) (68)
------- --------
Income (loss) before income taxes (1,212) 3,669
INCOME TAX PROVISION (909) (733)
------- --------
Net income (loss) before cumulative effect of change in accounting principle (2,121) 2,936
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX - (53,875)
------- --------
Net loss $(2,121) $(50,939)
PREFERRED STOCK DIVIDENDS (34) (34)
------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS (2,155) (50,973)
======= ========
NET INCOME (LOSS) PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - BASIC $ (0.04) $ 0.06
======= ========
NET LOSS PER COMMON SHARE - BASIC $ (0.04) $ (0.99)
======= ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC 53,127 51,290
======== ========
NET INCOME (LOSS) PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - DILUTED $ (0.04) $ 0.05
======= ========
NET LOSS PER COMMON SHARE - DILUTED $ (0.04) $ (0.99)
======= ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 53,127 56,046
======= ========
The accompanying notes are an integral part of these statements.
4
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before preferred stock dividends $ (2,121) $ (50,939)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization 1,370 1,041
Deferred revenue increase (decrease) 16,831 (2,995)
Cumulative effect of change in accounting principle, net of tax - 53,875
Amortization of unearned compensation 770 163
Deferred charges (increase) decrease (3,738) (4,618)
Decrease (increase) in assets-
Receivables (12,351) 1,386
Inventories - 2,304
Other current assets 1,466 10,581
Increase (decrease) in liabilities-
Accounts payable (897) 1,007
Accrued compensation (837) (2,200)
Other accrued expenses 1,010 (1,781)
--------- ---------
Net cash provided by operating activities 1,503 7,824
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments, net 9,907 (3,431)
Purchases of property and equipment (3,038) (832)
Patent costs (567) (327)
Other non-current assets 31 19
--------- ---------
Net cash provided by (used) in investing activities 6,333 (4,571)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options and warrants
and employee stock purchase plan 408 10,680
Payments on long-term debt, including capital lease obligations (102) (115)
Cash dividends on preferred stock (34) (34)
--------- ---------
Net cash provided by financing activities 272 10,531
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NET INCREASE IN CASH AND CASH EQUIVALENTS 8,108 13,784
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,343 14,592
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,451 $ 28,376
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 54 $ 235
========= =========
Income taxes paid, including foreign withholding taxes $ 1,259 $ 1,202
========= =========
The accompanying notes are an integral part of these statements.
5
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION:
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of InterDigital Communications Corporation (collectively with
its subsidiaries referred to as InterDigital, the Company, we, us and our) as of
March 31, 2001, and the results of its operations for the three month periods
ended March 31, 2001 and 2000, and cash flows for the three month periods ended
March 31, 2001 and 2000. We recorded a cumulative effect of change in accounting
principle of $53.9 million as of January 1, 2000 to record revenue in accordance
with Staff Accounting Bulletin (SAB) No. 101. The results of operations for the
three months ended March 31, 2001 and 2000 are in accordance with SAB No. 101.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and accordingly do not include
all of the detailed schedules, information and notes necessary for a fair
presentation of financial condition, results of operations and cash flows in
conformity with generally accepted accounting principles. Therefore, these
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's latest Annual Report on Form 10-K
filed with the Securities and Exchange Commission. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the entire year.
Certain reclassifications were made to the balance sheet as of December
31, 2000 to conform to the current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. REVENUES:
--------
Substantially all of the Company's revenue is derived from customers
based outside of the United States (primarily Japan and Europe). These revenues
are paid in U.S. dollars and are not subject to any substantial foreign exchange
transaction risks.
In the three months ended March 31, 2001, all of InterDigital's
revenues were derived from licensing and strategic partner activities. These
revenues consisted of $7.9 million from recurring royalties and $6.7 million
related to development activities for Nokia Corporation (Nokia). During the same
period of 2000, total revenues consisted of $7.2 million in recurring royalties,
$3.4 million from development work and $4.6 million from sales of wireless local
loop products. For the three months ended March 31, 2001 and 2000, the Company
recognized revenues of $2.6 million and $2.9 million, respectively, related to
amounts that were deferred as a result of the cumulative effect of change in
accounting principle.
3. LITIGATION:
----------
InterDigital and InterDigital Technology Corporation ("ITC"), a
wholly-owned subsidiary, are parties to a certain patent-related litigation in
which ITC is asserting that a certain third party infringes ITC's patents. ITC
generally is seeking injunctive relief and monetary damages. The alleged
infringer generally seeks declarations that ITC's patents are invalid and/or
that its products do not infringe ITC's patents as well as monetary damages. ITC
is also involved in administrative proceedings in which various parties have
challenged the validity of ITC's patents.
In March 2001, ITC filed a Complaint against one of its licensees with
the American Arbitration Association. The Complaint alleges that the licensee
has substantially under-reported sales of TDMA-based products for which the
licensee is obligated to pay ITC royalties pursuant to the TDMA patent license
agreement entered into by the parties. ITC is seeking payment of the
under-reported royalties.
The Company is party to other litigations which management currently
believes will not have a material effect on the Company's results of operations
or financial condition.
6
4. INCOME PER SHARE:
-----------------
The following table sets forth a reconciliation of the shares used in
the basic and diluted net income per share computations:
(In thousands, except per share data)
Three Months Ended March 31, 2001 Three Months Ended March 31, 2000
--------------------------------- ---------------------------------
Income (loss) Shares Per-Share Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- --------- ------------- ------------- ---------
Income per Share-Basic:
Income (loss) available to
common stockholders before
cumulative effect of change in $(2,155) 53,127 $(.04) $2,902 51,290 $.06
accounting principle
Effect of Dilutive Options and
Warrants --- --- --- --- 4,756 <0.01>
-------- ------ ------ ------ ------ ----
Income per Share-Diluted:
Income (loss) available to
Common stockholders +
dilutive effects of options
and warrants $(2,155) 53,127 $(.04) $2,902 56,046 $.05
======== ====== ====== ====== ====== ====
(In thousands, except per share data)
Options and warrants to purchase 5.3 million shares of common stock
were outstanding during the three months ended March 31, 2001 but were excluded
from the computation of diluted earnings per share due to the net loss for the
period. During the three months ended March 31, 2000, there were 0.7 million
options to purchase common stock outstanding that were excluded from the
computation of diluted earnings per share because they were antidilutive.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained elsewhere in this
document, in addition to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed with the Securities and Exchange Commission.
We develop advanced wireless technologies and products that drive voice
and data communications. We intend to position ourself in the marketplace as an
end-to-end "technology enabler" offering a broad portfolio of products,
including core technology, software solutions, systems expertise and finished
chips.
We are focusing our strategy in three areas. First, we intend to
capitalize on the value of our intellectual property through patent licensing,
technology and know-how transfer, and specialized engineering services. Second,
we plan to bring to market, with partners or on our own, 3G products to enable
the delivery of high quality voice and high-data rate services in mobile
terminals and base stations. Third, we intend to dedicate a portion of our
engineering resources to incubate extensions of our current technology,
derivative products and new technologies.
RECENT DEVELOPMENTS
In March 2001, InterDigital entered into a broad, long-term cooperative
relationship with Infineon Technologies AG (Infineon) involving the development
of FDD (Layer 2/3) software for use with Infineon's terminal unit 3G standard
baseband integrated circuits (ICs) (Joint 3G Protocol Stack). Each party will
own the technology it develops under the agreement. The agreement provides for
InterDigital to be compensated on a per unit royalty basis on sales of Infineon
ICs containing the Joint 3G Protocol Stack. The agreement also provides that
InterDigital will serve as Infineon's sole source of certain portions of the FDD
(Layer 2/3) software in Infineon's 3G terminal unit ICs except where Infineon
customers require use of their own or a third party's protocol stack. If
InterDigital commences a comparable FDD (Layer 2/3) development effort with
another semiconductor company, Infineon may choose to secure another source for
its Layer 2/3 solution. The agreement provides for joint marketing of the Joint
3G Protocol Stack in terminal unit applications, as mutually agreed, subject to
certain time-to-market restrictions as regards each new software version.
Infineon and InterDigital are each permitted to independently market and use
their own portions of the Joint 3G Protocol Stack without restriction. Infineon
has committed to cooperate in enabling InterDigital to design custom 3G ASICs
based on an Infineon platform for both infrastructure and selected terminal unit
applications where Infineon would serve as the foundry. Infineon is permitted to
sell InterDigital's custom ASICs within its portfolio of products and to re-use
our reference design in non-competitive products. InterDigial is permitted to
market Infineon's standard ICs which are not a part of the co-development
agreement and should receive a commission fixed at then current standard rates.
Under the agreement, the parties have cross-licensed each other under patents
generally applicable to the jointly developed software and related products. The
parties have also agreed to a framework for determining royalties in other 2G
and 3G products.
Also in March 2001, InterDigital Technology Corporation (ITC), the
Company's wholly-owned subsidiary, signed a world-wide, royalty bearing CDMA
patent license agreement with Matsushita Communications Industrial Co., Ltd.
(Matsushita), for Matsushita to manufacture, have manufactured, distribute and
sell 3G terminal units, test equipment and infrastructure. Pursuant to the
Agreement, in April 2001 ITC received an up-front payment of $19.5 million, less
non-U.S. source withholding taxes, as an advance against future royalties. After
the initial prepayment is exhausted through product sales, Matsushita has agreed
to pay additional recurring royalties to ITC as it sells products using ITC's
patents issued around the world. Matsushita sells products under the Panasonic
brand.
(See "Statement Pursuant to the Securities Litigation Reform Act of
1995" below.)
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
We generated positive cash flows from operating activities of $1.5
million in the first quarter of 2001 compared to $7.8 million in the same period
of 2000. The decrease in operating cash flows was due in part to reduced cash
earnings (net loss plus non-cash charges related to depreciation, amortization
and the cumulative effect of change in accounting principle in 2000) generated
during the first quarter of 2001. In addition, operating cash flows in last
year's first quarter were impacted positively by changes in operating working
capital related to inventory sales and cash receipts associated with completed
performance bonds and insurance recoveries.
8
First quarter 2001 net cash flows provided by investing activities were
$6.3 million as compared to $4.6 million used in last year's first quarter. In
the first quarter of 2001, we sold $9.9 million of short-term investments as
compared to purchases in the comparable period of 2000 of $3.4 million.
Investments in property, equipment, information systems and patents increased to
$3.6 million in 2001 as compared to $1.2 million in the same period of 2000. The
increase in the first quarter of 2001 primarily reflects accelerated development
program investments.
During the first quarter of 2001, net cash provided by financing
activities was $0.3 million as compared to $10.5 million in last year's first
quarter. The decrease resulted from reduced levels of net proceeds from option
and warrant exercises ($0.4 million in first quarter 2001 versus $10.7 million
in the last year's first quarter).
As of March 31, 2001, we had $87.2 million of cash, cash equivalents
and short-term investments, compared to $89.0 million as of December 31, 2000.
Our working capital excluding cash, cash equivalents, short-term investments and
current maturities of debt increased to $14.0 million at March 31, 2001 from a
negative $1.3 million at December 31, 2000. The increase was principally a
result of the inclusion of $19.5 million in first quarter 2001 accounts
receivable associated with an advance payment from Matsushita Communications
Industrial Co., Ltd., for patent royalties related to future sales of third
generation products. This amount (less non-U.S. source withholding taxes) was
received in April 2001.
We are capable of supporting our operating requirements for the
foreseeable future through cash and short-term investments on hand as well as
other internally generated funds. Should the need arise to fund new development
activities, external growth activities or other matters, we may seek financing
through bank facilities or the sale of debt or equity securities.
Property and equipment are currently being utilized in our on-going
business activities, and we believe that no write-downs are required at this
time due to lack of use or technological obsolescence. With respect to patent
assets, we believe that the value of our patents is at least equal to the value
included in the March 31, 2001 balance sheet.
RESULTS OF OPERATIONS
First Quarter of 2001 Compared to the First Quarter of 2000
Revenues
- --------
Revenues in first quarter of 2001 totaled $14.7 million, compared to
$15.2 million ($10.6 million excluding $4.6 million of discontinued product
sales) in last year's first quarter. First quarter 2001 recurring royalty
revenue increased 9% to $7.9 million from $7.3 million in the same period last
year. Specialized engineering services revenue increased to $6.7 million from
$3.4 million in the comparable period of 2000, reflecting higher activity levels
on technology development work being performed for Nokia.
Cost of Product
- ---------------
There was no cost of product in the first quarter of 2001 due to the
fact that the Company exited the wireless local loop product business in 2000
and does not currently sell any other products. Cost of product in the first
quarter of 2000 was $3.8 million.
Operating Expenses
- ------------------
Sales and marketing expenses of $1.2 million in the first quarter of
2001 decreased 22% from $1.5 million in last year's first quarter. The first
quarter of 2000 was higher than normal due to the impact of costs associated
with strategic marketing analysis activities.
General and administrative expenses for the first quarter of 2001
increased 35% to $3.6 million from $2.7 million in the first quarter of 2000.
The increase was due largely to increased resources necessary to support
development program expansion and higher non-cash expenses related to
stock-based compensation.
Patents administration and licensing expenses increased to $1.7 million
in the first quarter of 2001 from a negative $.3 million in the comparable
period of 2000. The increase was due in large part to the recognition in last
year's first quarter of an insurance recovery related to the cost of ongoing
patent litigation with Ericsson Inc. (Ericsson). We have defined the method,
timing and limitations of reimbursements for covered litigation expenses with
our insurer such that reimbursements are now recognized in the same period as
the related expenses.
9
Development expenses in the first quarter of 2001 increased 100% to
$10.9 million from $5.4 million in the first quarter of 2000. This increase over
last year's first quarter was due primarily to increased staff and activity
levels devoted to development of advanced 3G wireless applications.
Other Income and Expense
- ------------------------
Interest income of $1.5 million in the first quarter of 2001 declined
slightly versus last year's first quarter due to lower average invested cash
balances and interest rates during this year's first quarter. Interest expense
was about even with last year's first quarter levels.
Expected Trends
The current economic uncertainties affecting the sales of wireless
systems may affect the growth rates of current and prospective second generation
(2G) patent licensees. This, in turn, could impact the level of growth in
recurring royalties from our existing licensees as well as our ability to add
new 2G licensees. In this environment, we may be challenged to achieve recurring
royalty revenue growth targets for 2001 as previously reported in the Company's
2000 Annual Report on Form 10-K. Specialized engineering services revenue will
continue to be a contributor for the rest of 2001, although revenue in the
upcoming quarters may vary from the level attained in the first quarter of 2001
due to fluctuations in staffing levels associated with different stages of the
current Nokia program. We expect our spending levels to increase somewhat over
the course of the year as we continue to accelerate investment in 3G technology
and product development and marketing. Thus, quarterly results for the remainder
of 2001, absent one-time revenue from past infringement or other licensing
sources, will most likely reflect losses equal to or higher than those
experienced in the first quarter of 2001.
(See "Statement Pursuant to the Securities Litigation Reform Act of
1995" below.)
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------
The foregoing Management's Discussion and Analysis contains
forward-looking statements reflecting, among other things, our current
intentions and plans or expectations (i) to position ourself in the marketplace
as an end-to-end "technology enabler" offering a broad portfolio of products,
(ii) to capitalize on the value of our intellectual property through patent
licensing, technology and know-how transfer, and specialized engineering
services, (iii) to bring to market, with partners or on our own, 3G products to
enable the delivery of high quality voice and high-data rate services in mobile
terminals and base stations, (iv) to dedicate a portion of our engineering
resources to incubate extensions of our current technology, derivative products
and new technologies, (v) Infineon's ability to produce ICs as well as our
ability to design and bring to market ASICs and realize revenues through
Infineon's product offerings, and (vi) revenues and expenditures for the balance
of 2001, and the role of the Nokia project with respect thereto. Words such as
"intend", "plan" and "expect", variations of such words, and words with similar
meaning or connotations are intended to identify such forward-looking
statements.
Such statements are subject to risks and uncertainties. We caution the
readers that important factors in some cases have affected and, in the future,
could materially affect actual results and cause actual results to differ
materially from the results expressed in any such forward looking statement due
to a variety of factors including, but not limited to: the 3G market
materializing later than expected and/or on a smaller than expected scale; the
3G market accelerating faster than expected, adversely impacting our ability to
have technology available at critical market windows; limited or no deployment
of Time Division Duplex (TDD) technology; the development of substitute
technologies to Frequency Division Duplex (FDD) and TDD; the impact of the need
to secure technology and patent licenses to support product sales on incoming
patent licensing revenue; an unfavorable decision in the patent litigation
between InterDigital Technology Corporation and Ericsson; unanticipated 3G
development costs; difficulties or delays related to technology or product
development; the ability of competitors, many of whom have broader and deeper
resources than us, to develop more attractive technology solutions and products
for the 3G market; changes to the 3G standard in a manner that adversely affects
the applicability of our patents to the standard; the lack of success in meeting
staffing goals; the failure to create the necessary industry partnerships within
time to support market entry; failure to successfully negotiate patent licensing
agreements, or to maintain the validity of key patents; the continuation of our
development project with Nokia; lower than expected 2G patent licensing revenue;
and our ability and Infineon's ability to maintain sufficient levels of
engineering talent necessary to meet critical design and product release dates,
Infineon's success in marketing and selling 3G terminal unit integrated circuits
containing InterDigital FDD software, competition from other technologies or
from other companies developing the same technologies or products to be offered
by InterDigital and/or Infineon, and the availability of adequate financial
resources to support the technology and product development efforts.
10
In addition, factors affecting one forward-looking statement may affect
other forward-looking statements and other factors may exist that are not listed
above or that are not fully known to us at this time. We undertake no obligation
to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.
11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
There have been no material changes in quantitative and qualitative
market risk from the disclosure included in the March 31, 2001 Form 10-K.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q:
None.
(b) The following is a list of Current Reports on Form 8-K filed during
the first quarter of 2001:
We filed a Current Report on Form 8-K dated February 28, 2001 under
Item 5 - Other Events relating to the modification of our revenue
recognition policy in response to Staff Accounting Bulletin (SAB)
No. 101. A table reconciling our previously reported quarterly
results of operations for the impact of SAB No. 101 was filed with
this Report.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
Date: May 15, 2001 /s/ Howard E. Goldberg
---------------------------------
Howard E. Goldberg, President and
Chief Executive Officer
Date: May 15, 2001 /s/ R. J. Fagan
---------------------------------
Richard J. Fagan, Executive Vice
President and Chief Financial
Officer
14