Exhibit 99.1
InterDigital Announces Preliminary Fourth Quarter and Full Year 2004 Financial
Results; Board Expands Authorization to 2 Million Shares Under Repurchase
Program
KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--March 10,
2005--InterDigital Communications Corporation (Nasdaq:IDCC), a leading
architect, designer and provider of wireless technology and product
platforms, today announced preliminary financial results for the
fourth quarter and full year ended December 31, 2004. For the fourth
quarter 2004, the Company reported revenues of $33.9 million and a net
loss of $0.2 million, or breakeven per share. For full year 2004,
revenue and net income totaled $103.7 million and $0.1 million,
respectively, or breakeven per share. The results for the full year
include the effects of a transition (described in the Company's
October 25, 2004 press release) for reporting per-unit royalties in
the quarter in which licensees' reports are received rather than in
the quarter in which licensees' sales occur and a non-cash,
non-recurring benefit associated with the partial reversal of its
valuation allowance against deferred tax assets.
The results are preliminary because the Company is in the process
of responding to comments by the Securities and Exchange Commission
(SEC) associated with a periodic review of the Company's Form 10-K for
the year ended December 31, 2003 and Form 10-Q for the quarter ended
September 30, 2004. Two principal items remaining in the review relate
to the timing of the expense recognition of the Company's foreign
source withholding taxes and the ten year amortization period for
costs of internally developed patents. At December 31, 2004, the
Company's balance sheet included deferred foreign source withholding
taxes of $5.4 million. The Company's accounting treatment regarding
foreign source withholding taxes has been consistently applied and
disclosed since the Company modified its licensing revenue recognition
policy in response to Staff Accounting Bulletin No. 101 in 2000(1) and
its accounting regarding patent amortization has been consistently
applied and disclosed for more than ten years. Resolution of these
matters could, but may not necessarily, result in adjustments to the
Company's current and prior financial results as it relates to these
items. Resolution of these matters will have no effect on the
Company's cash flow or underlying economics of the business.
InterDigital's cash and short-term investment position grew to
$131.8 million at December 31, 2004, up $25.9 million versus year-end
2003. The Company's cash position was further strengthened early in
first quarter 2005 by the receipt of a royalty prepayment from Sony
Ericsson of approximately $28 million in connection with its March
2003 patent license agreement.
In addition, the Company announced that its Board of Directors
approved the expansion of the Company's current Common Stock share
repurchase authorization from one million to two million shares. The
shares may be repurchased from time-to-time through open-market
purchases or prearranged trading plans. The amount and timing of
purchases will be based on a variety of factors, including potential
stock acquisition price, cash requirements, acquisition opportunities,
strategic investments and other market and economic factors. To date,
460,000 shares have been repurchased under the current authorization.
Howard Goldberg, President and Chief Executive Officer, stated,
"In 2004, we made significant progress toward the realization of our
strategic vision by achieving each of the principal goals we had
established. We added six new or expanded license agreements spanning
cellular and 802 applications, achieved all of our technology and
product development milestones, established an important product
customer relationship with General Dynamics, and generated more than
$31 million in free cash flow(2). Our continued substantial investment
in technology development throughout 2004 enabled a diversified suite
of technology product solutions. We announced the availability of
several product solutions in late 2004 and followed up with very
successful demonstrations early in 2005. InterDigital is strongly
positioned to be a preferred provider of advanced wireless solutions
delivering performance and time to market advantages to our
customers."
Fourth Quarter Summary
Revenues in fourth quarter 2004 were $33.9 million compared to
$24.7 million in fourth quarter 2003. Recurring patent license
royalties in fourth quarter 2004 of $33.0 million increased $9.5
million, or 40%, when compared to fourth quarter 2003. The increase in
fourth quarter 2004 recurring royalties was primarily driven by
incremental contributions in royalties from NEC Corporation of Japan
(NEC), Sharp and other licensees, of $5.6 million, $1.7 million and
$2.2 million, respectively.
Driven by solid growth in recurring royalties, fourth quarter 2004
income before tax of $3.2 million increased 49% over fourth quarter
2003. However, due to a non-cash book tax expense of $3.3 million,
primarily related to accounting for the utilization of net operating
loss carryforwards that resulted from stock option exercises, the
Company reported a net loss of $0.2 million, or breakeven earnings per
share, in fourth quarter 2004 compared to net income of $1.1 million,
or $0.02 per share (diluted) in fourth quarter 2003.
Operating expenses of $31.4 million increased 37% over fourth
quarter 2003 and 18% over third quarter 2004. The increase over third
quarter 2004, which slightly exceeded previous Company guidance, was
due to higher than expected levels of activities associated with
patent licensing arbitration and litigation matters. The increase in
operating expenses over fourth quarter 2003 was driven, in large part,
by higher costs associated with patent licensing arbitration and
litigation and additional costs related to the long-term incentive
compensation program implemented in first half 2004.
Full Year Summary
For full year 2004, revenues were $103.7 million compared to
$114.6 million in 2003. In third quarter 2004, the Company
transitioned to reporting per-unit royalties in the quarter in which
licensees' reports are received rather than in the quarter in which
licensees' sales occur. Consequently, the Company's results for 2004
include only three quarters of per-unit royalties compared to four
quarters in 2003. In addition, 2003 revenue included $20.6 million of
non-recurring royalty revenue primarily associated with Sony
Ericsson's pre-2003 handset sales.
Notwithstanding the effect of the per-unit royalty reporting
transition on 2004 revenues, recurring patent license royalties (which
include both fixed and amortized amounts, as well as per-unit
royalties reported to the Company) increased from $92.9 million in
2003 to $101.6 million in 2004. The $8.7 million increase in recurring
patent license royalty revenue from 2003 to 2004 was primarily due to
an increase in royalties from NEC.
The Company reported net income of $0.1 million for the year 2004,
or breakeven earnings per share, compared to net income in 2003 of
$34.3 million, or $0.58 per share (diluted). Absent non-recurring
items related to both revenue associated with Sony Ericsson's pre-2003
handset sales and other income of $10.6 million related to a
settlement of litigation with Ericsson, 2003 net income would have
been approximately $4.1 million, or $0.07 per share (diluted).
Operating expenses of $110.0 million in 2004, increased 29% over 2003
due mainly to significantly higher costs associated with patent
licensing arbitration and litigation and a new long-term incentive
compensation program implemented in first half 2004.
The Company's income tax provision in 2004 included a non-cash,
non-recurring benefit of approximately $17.1 million related to the
partial reversal of its tax valuation allowance against deferred tax
assets that was offset in part by book tax expense of approximately
$7.8 million related primarily to the utilization of net operating
loss carryforwards that resulted from stock option exercises and
approximately $4.6 million of foreign source withholding tax. Cash
taxes paid in 2004 of $4.2 million consisted mainly of foreign source
withholding taxes on royalties.
Cash and short-term investments grew to $131.8 million at December
31, 2004, up $25.9 million versus year-end 2003. The increase
primarily resulted from royalty payments from licensees, the largest
of which were from NEC, Sharp, Sanyo, Ericsson, Sony Ericsson and
Toshiba, offset in part by non-operating uses of cash of approximately
$17.1 million in connection with the repurchase of one million shares
of the Company's stock.
2005 Outlook
"We benefited in 2004 from a robust handset market, which helped
to fuel the growth in sales of our licensees, most notably their 3G
products. We also had success in signing new or expanded patent
license agreements," added Mr. Goldberg. "As we move into 2005, we're
encouraged by the broadening group of companies participating in 3G
rollouts. We are also pleased by the levels of interest from operators
and manufacturers in our technology extensions and enhancements,
including WCDMA High Speed Downlink Packet Access (HSDPA) and AIM
ANTENNA(TM) solutions for WLAN and cellular applications."
The Tribunal presiding over InterDigital's arbitration with Nokia,
Inc. (Nokia) has notified the parties that it expects to submit an
internal draft award to the International Court of Arbitration of the
International Chamber of Commerce (ICC) on or before March 31, 2005
(as an approximate date). The ICC has set May 31, 2005 as the last
date for rendering a Final Award and the Company anticipates a Final
Award by the ICC on or before that date, absent an earlier resolution
by the parties. Although the arbitration is binding, any final award
could be subject to appeal filings on limited bases and enforcement
proceedings by the parties.
Rich Fagan, Chief Financial Officer, commented, "In first quarter
2005, we expect to report revenue from current licensees of just over
$30 million. In addition, we expect to recognize revenue associated
with our agreement with General Dynamics in the range of $1.5 to $2.5
million, on a percentage-of-completion basis. We also anticipate that
our first quarter 2005 operating expenses will grow sequentially 13%
to 17% due to long-term compensation program expenses, normal wage
inflation and investment in marketing, technology and product
development in response to expanding market opportunities. We also
project that our book tax rate for first quarter 2005 will approximate
34% to 38%, plus an amount for deferred foreign source withholding tax
expense, which is in part dependent on the level of per-unit
royalties. Cash taxes paid in first quarter 2005 should be minimal."
About InterDigital
InterDigital architects, designs and provides advanced wireless
technologies and products that drive voice and data communications.
The Company offer technology and product solutions for mainstream
wireless applications that deliver time-to-market, performance, and
cost benefits, as well as product differentiation advantages, to its
commercial and government/military customers. InterDigital has a
strong portfolio of patented technologies covering 2G, 2.5G, 3G and
802 standards, which it licenses worldwide. For more information,
please visit InterDigital's web site: www.interdigital.com.
InterDigital and AIM ANTENNA are trademarks of InterDigital
Communications Corporation.
This press release contains forward-looking statements regarding,
among other things, our current beliefs, plans, and expectations as
to: (i) the timing of an award by the Nokia arbitration Tribunal and
ICC decision; (ii) an appeal or enforcement proceedings following the
Nokia arbitration award; (iii) first quarter 2005 revenue from current
licensees, revenue from the General Dynamics agreement, growth in
operating expenses, projected book tax rates exclusive of deferred
foreign source withholding tax expense and cash taxes; and (iv) our
accounting treatment of foreign source withholding tax and our
amortization of internally developed patents. Words such as "expect",
"continue", "encourage", "may" or other similar expressions are
intended to identify such forward-looking statements.
Forward-looking statements are subject to risks and uncertainties,
and actual outcomes could differ materially from those expressed in
any such forward-looking statements due to a variety of factors
including, but not limited to those identified in the press release,
and: (i) the failure by our licensees to realize market projections
for sales of covered products, inaccuracy of market projections, and
changes in our licensees' market share; (ii) progress towards
completion of the work as well as changes to our expectations as to
total cost of the project, the provision of additional of engineering
services or a termination for convenience under the General Dynamics
contract; (iii) inability to successfully resolve or delays in the
arbitration proceedings with Nokia; (iv) unanticipated resolutions of
or delays in prosecution and enforcement actions relating to the
protection of our patents and other intellectual property rights; (v)
changes in the size and nature of our work force; and, (vi) further
changes or adjustments to the valuation allowance against our deferred
tax assets. Additionally, the Company can make no prediction at this
time as to the timing or outcome of its discussions with the SEC, any
impact the resolution of these discussions may have on amounts
recorded for foreign source withholding taxes and amortization of
patent costs and whether or not such resolution will result in the
Company having a material weakness associated with the accounting for
these items. We undertake no duty to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise.
(1) The Company's policy is to capitalize direct and incremental costs
to obtain future revenue streams and to defer and amortize such costs
in a systematic and rational manner over the period of benefit. In
accordance with that policy, the Company capitalizes foreign source
withholding taxes that relate to the collection of up-front royalty
payments when the recognition of the related revenues from such
payments is deferred. The foreign source withholding taxes are
recognized as expense in the period the Company recognizes the related
deferred royalty revenue.
(2) InterDigital defines "free cash flow" as operating cash flow less
purchases of property and equipment and investments in patents.
SUMMARY CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------
For the Periods Ended December 31
(Dollars in thousands except per share data)
(unaudited)
For the Three Months For the Year
Ended Ended
Dec. 31, Dec. 31,
----------------- -------------------
2004 2003 2004 2003
-------- -------- --------- ---------
REVENUES $33,932 $24,683 $103,685 $114,574
-------- -------- --------- ---------
OPERATING EXPENSES:
Sales and marketing 1,792 1,446 6,201 4,919
General and administrative 5,756 4,878 21,622 18,183
Patents administration and
licensing 10,702 4,657 30,340 15,995
Development 13,127 11,882 51,218 45,936
Repositioning (11) - 596 -
-------- -------- --------- ---------
31,366 22,863 109,977 85,033
-------- -------- --------- ---------
Income (loss) from operations 2,566 1,820 (6,292) 29,541
OTHER INCOME - - - 10,580
NET INTEREST INCOME & OTHER
FINANCING INCOME 617 315 1,743 1,613
-------- -------- --------- ---------
Income (loss) before income
taxes 3,183 2,135 (4,549) 41,734
INCOME TAX PROVISION (3,347) (1,020) 4,704 (7,269)
-------- -------- --------- ---------
Net (loss) income (164) 1,115 155 34,465
PREFERRED STOCK DIVIDENDS - (32) (66) (133)
-------- -------- --------- ---------
NET (LOSS) INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ (164) $ 1,083 $ 89 $ 34,332
======== ======== ========= =========
NET INCOME PER COMMON SHARE -
BASIC $0.00 $0.02 $0.00 $0.62
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC 55,036 54,664 55,264 55,271
======== ======== ========= =========
NET INCOME PER COMMON SHARE -
DILUTED $0.00 $0.02 $0.00 $0.58
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 55,036 58,786 59,075 59,691
======== ======== ========= =========
SUMMARY CASH FLOW
-----------------
For the Periods Ended December 31
(Dollars in thousands)
(unaudited)
For the Three Months For the Year
Ended Ended
Dec. 31, Dec. 31,
-------------------- ---------------------
2004 2003 2004 2003
----------- -------- ---------- ----------
Net income (loss) before
pref. stock dividends $3,183 $2,135 $(4,549) $41,734
Taxes paid - (1,982) (4,187) (9,537)
Depreciation & amortization 4,121 2,695 15,239 11,080
Increase in deferred revenue 3,208 1,500 66,202 57,488
Deferred revenue recognized (16,702) (16,579) (53,601) (61,563)
(Increase) decrease in
operating working capital,
deferred charges and other (3,342) 15,886 28,880 19,879
Capital spending & patent
additions (5,429) (4,561) (16,899) (13,135)
----------- -------- ---------- ----------
CASH FLOW BEFORE
FINANCING ACTIVITIES (14,961) (906) 31,085 45,946
Increase in notes receivable - - - (1,446)
Acquisition of Tantivy
assets - - - (10,430)
Debt decrease & preferred
dividends (47) (83) (236) (266)
Net stock issued (acquired) 1,904 988 (4,958) (15,443)
----------- -------- ---------- ----------
NET (DECREASE) INCREASE
IN CASH AND SHORT-TERM
INVESTMENTS $ (13,104) $ (1) $ 25,891 $ 18,361
=========== ======== ========== ==========
CONDENSED BALANCE SHEETS
------------------------
(Dollars in thousands)
(unaudited)
Dec. 31, 2004 Dec. 31, 2003
------------- -------------
Assets
- ------
Cash & short-term investments $131,818 $105,927
Accounts receivable 11,612 37,839
Other current assets 12,737 8,628
Property & equipment (net) 10,716 12,137
Patents (net) & other non-current assets 74,587 40,634
--------- ---------
TOTAL ASSETS $241,470 $205,165
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current portion of long-term debt $212 $193
Accounts payable & accrued liabilities 21,167 16,236
Foreign & domestic taxes payable 379 1,259
Deferred revenue 99,196 86,595
Long-term debt & long-term liabilities 5,307 3,397
--------- ---------
TOTAL LIABILITIES 126,261 107,680
SHAREHOLDERS' EQUITY 115,209 97,485
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $241,470 $205,165
========= =========
The Company's short-term investments are comprised of high quality
credit instruments including U.S. Government agency instruments and
corporate bonds. Management views these instruments to be near
equivalents to cash and believes that investors may share this
viewpoint. This release includes a summary cash flow statement that
results in the change in both our cash and short-term investment
balances. One of the subtotals in the summary cash flow statement is
cash flow before financing activity. Management has presented a
reconciliation of this non-GAAP line item to net cash provided by
operating activities below:
For the Three For the Twelve
Months Ended Months Ended
Dec. 31, Dec. 31,
----------------- -----------------
2004 2003 2004 2003
--------- ------- -------- --------
Net cash (used) provided by
operating activities $(9,589) $3,790 $48,230 $59,561
Purchases of property and equipment (1,092) (1,347) (3,746) (3,926)
Patent additions (4,337) (3,214) (13,153) (9,209)
Unrealized gain (loss) on short
term investments 57 (135) (246) (480)
--------- ------- -------- --------
Cash flow before financing
activities $(14,961) $(906) $31,085 $45,946
========= ======= ======== ========
This release also discusses operating expenses, excluding
repositioning charges, and net income including certain non-recurring
revenue items. Management believes that investors may find these
non-GAAP financial measures useful in understanding the Company's
operating results. This information is intended to provide more
meaningful comparisons of the Company's results.
CONTACT: InterDigital Communications Corporation
Media: Dawn Goldstein, 610-878-7800
e-mail: dawn.goldstein@interdigital.com
or
Investor: Janet Point, 610-878-7800
e-mail: janet.point@interdigital.com