EX-99.1 2 a4698016ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 InterDigital Announces Second Quarter Financial Results; Continued Growth in Recurring Royalties, Solid Cash Position Highlight Quarter KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--Aug. 9, 2004--InterDigital Communications Corporation (Nasdaq:IDCC), a leading architect, designer and provider of wireless technology and product platforms, today announced revenues of $29.4 million and net income of $0.9 million, or $0.01 per share (diluted), for its second quarter ended June 30, 2004. InterDigital's cash and short-term investment position of $123.3 million at June 30, 2004 increased $17.4 million over year-end 2003. The Company's cash position was further strengthened early in the third quarter following the receipt of payments totaling $33.0 million from SANYO Electric Co., Ltd (SANYO) and Sharp Corporation of Japan (Sharp) associated with previously announced updated patent license agreements. Howard Goldberg, President and Chief Executive Officer, stated, "I am pleased with our performance for both the second quarter and the first half of 2004. The quality of our revenue and business continue to improve, as reflected by growth in both our recurring royalties and licensee base. The expansion of our licensing agreement with SANYO, covering 2G and 3G standards, was an important accomplishment in the quarter. We are continuing to make the investments required to broaden our 3G technology offerings and have made solid progress in the development of our advanced antenna product solutions, which have attractive commercial potential in both the WLAN and cellular markets. Given our strong cash position, we have the flexibility we need to both invest in building our technology solutions portfolio and create a direct, near-term benefit to our shareholders through the previously announced share repurchase program." Second Quarter Summary Revenues in second quarter 2004 of $29.4 million increased $3.6 million, or 14%, over second quarter 2003 revenues of $25.8 million. Recurring patent license royalty revenue in second quarter 2004 of $29.1 million increased $3.5 million, or 14%, when compared to second quarter 2003. The increase in recurring patent license royalties relates to both growth in royalties from the majority of our licensee base (as of second quarter 2003) and royalties from licensees added since last year's second quarter. Excluding the impact of a non-recurring charge of $0.6 million related to repositioning activities, the Company's net income would have been $1.4 million, or $0.02 per share (diluted), for second quarter 2004, compared to net income of $3.1 million, or $0.05 per share (diluted) in second quarter 2003. Operating expenses of $26.6 million (excluding the repositioning charge) increased 27% over second quarter 2003 and 7% over first quarter 2004. The increase in operating expenses over second quarter 2003 was driven, in large part, by additional personnel costs related to both a new long-term incentive compensation program implemented in first half 2004 and annual wage inflation, as well as higher costs associated with patent licensing arbitration and litigation and public entity matters. The sequential increase over first quarter 2004 resulted from higher patent licensing costs related to arbitration and litigation matters and commissions expense. Tax expense decreased in second quarter 2004 mainly due to a lower level of royalty revenue subject to non-U.S. withholding tax. Six Months Summary For first half 2004, revenues were $62.4 million, a decrease of 1% versus revenues of $63.1 million in first half 2003. Recurring patent license royalties for first half 2004 of $61.5 million increased $18.9 million, or 44%, when compared to first half 2003. First half 2003 revenue consisted of $42.6 million of recurring patent license royalties and $20.5 of non-recurring revenue primarily associated with Sony Ericsson's pre-2003 handset sales. Of the $18.9 million increase, approximately $17 million was driven by growth in royalties from NEC Corporation of Japan, Sony Ericsson and Sharp. Net income for first half 2004 was $6.7 million, or $0.11 per share (diluted). Excluding the first half 2004 repositioning charge, net income would have been $7.2 million, or $0.12 per share (diluted). Net income for first half 2003 was $29.8 million, or $0.49 per share (diluted). Results for first half 2003 included the benefit of $30.8 million (pre-tax) of non-recurring items related to Sony Ericsson's pre-2003 handset sales and the settlement of litigation with Ericsson. Excluding these items, the Company would have reported a net loss in first half 2003 of approximately $0.4 million, or $0.01 per share (diluted). 2004 Outlook Rich Fagan, Chief Financial Officer commented, "Assuming a continued positive balance of royalty contributions from our existing licensees, we expect recurring patent licensing royalties from such licensees to be in the range of $27 million to $30 million per quarter over the remainder of 2004. We are also optimistic that we can conclude additional patent license agreements during 2004, which should be accretive. We continue to manage our ongoing operating expenses generally in line with our expectations and continue to make planned substantial investment in new technologies to strongly position InterDigital for the future. Also, we expect that the costs associated with the Nokia and Samsung arbitrations will continue to escalate in second half 2004 due to increased activity levels as we approach the evidentiary hearings scheduled for early 2005. Given these factors, we now expect that third quarter operating expenses will increase 6% - 9% over second quarter 2004 levels (excluding repositioning charges), with fourth quarter levels equal to or slightly higher than those in the third quarter. "In addition, although we do not expect to have any U.S. cash tax obligations other than alternative minimum tax until our U.S. net operating loss (NOL) carryforwards are fully utilized or have expired, our provision for income taxes may vary significantly from period-to-period. The expected variability is due to the character of our NOL carryforwards (the majority of which result from deductions related to the exercise of employee stock options) and recent changes in U.S./Japan source withholding tax treaties that became effective July 1, 2004. Throughout the remainder of 2004, we will continue to evaluate the need for a full valuation allowance against our deferred tax assets. In the event that we determine the valuation allowance is no longer needed, we will record the estimated realizable value of the deferred tax asset and begin providing for income taxes at a rate more consistent with our overall combined federal and state effective rates. Our provision will also include the amortization of prior source withholding tax payments," added Mr. Fagan. Mr. Fagan further noted, "To date, we have repurchased approximately 500,000 shares at an average cost of just over $18 per share against the one million share Board authorization and expect free cash flow to be positive for the full year 2004." About InterDigital InterDigital architects, designs and provides advanced wireless technologies and products that drive voice and data communications. The Company offers technology and product solutions for mainstream wireless applications that deliver cost and time-to-market advantages for its customers. InterDigital has a strong portfolio of patented technologies covering 2G, 2.5G and 3G standards, which it licenses worldwide. In addition, InterDigital is developing proprietary technology solutions with future product potential to address emerging telecommunications issues. For more information, please visit InterDigital's web site: www.interdigital.com. InterDigital is a registered trademark of InterDigital Communications Corporation. This press release contains forward-looking statements regarding, among other things, our current beliefs, plans, and expectations as to: (i) our business and our ability to expand our licensee base and recurring royalty revenue base; (ii) our positions in the matters involving Nokia, Samsung, and Lucent; (iii) future performance of our licensees; (iv) our technology and product development efforts; (v) our share repurchase program; and, (vi) our revenues, operating expenses, cash flow, and tax provision. Words such as "expect", "anticipate", "future", "optimistic", "intend" 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 forward-looking statements due to a variety of factors in addition to those specifically identified above including, but not limited to: (i) any disputes, and the length and resolution of any disputes, as to the applicability of the terms of the Ericsson and Sony Ericsson licensing agreements to the royalty obligations of Nokia and Samsung under their licensing agreements; (ii) the negotiation and dispute resolution processes permitted under Nokia's and Samsung's license agreements and the results therefrom; (iii) our ability to enter into additional license agreements; (iv) a failure by any licensee to realize our and market projections for sales of covered products; (v) unanticipated development costs and technical, financial or other difficulties or delays related to the development of our technologies and products, and market acceptance of our technologies and products; (vi) changes in the market share and the performance of our licensees in selling their products, and our ability to adequately prosecute, enforce and protect our patents and other intellectual property rights; (vii) the market price of our stock, our cash requirements, and other market and economic factors, relating to the share repurchase program; and (viii) other factors listed in the Company's most recently filed Form 10-K and Form 10-Q. We undertake no duty to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. SUMMARY CONSOLIDATED STATEMENT OF OPERATIONS -------------------------------------------- For the Periods Ended June 30 (Dollars in thousands except per share data) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------------------- 2004 2003 2004 2003 ------------------------------------------- REVENUES $ 29,379 $ 25,777 $ 62,395 $ 63,101 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Sales and marketing 1,396 933 3,010 2,143 General and administrative 5,430 4,621 10,820 8,738 Patents administration and licensing 6,930 3,936 11,930 7,075 Development 12,828 11,413 25,742 22,801 Repositioning 604 - 604 - ---------- ---------- ---------- ---------- 27,188 20,903 52,106 40,757 ---------- ---------- ---------- ---------- Income from operations 2,191 4,874 10,289 22,344 OTHER INCOME - - - 10,580 NET INTEREST & OTHER INVESTMENT INCOME 262 474 690 893 ---------- ---------- ---------- ---------- Income before income taxes 2,453 5,348 10,979 33,817 INCOME TAX PROVISION (1,565) (2,190) (4,257) (3,932) ---------- ---------- ---------- ---------- Net income 888 3,158 6,722 29,885 PREFERRED STOCK DIVIDENDS (32) (33) (66) (67) ---------- ---------- ---------- ---------- NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 856 $ 3,125 $ 6,656 $ 29,818 ========== ========== ========== ========== NET INCOME PER COMMON SHARE - BASIC $0.02 $0.06 $0.12 $0.54 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 55,596 55,895 55,371 55,253 ========== ========== ========== ========== NET INCOME PER COMMON SHARE - DILUTED $0.01 $0.05 $0.11 $0.49 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 59,112 61,293 59,419 60,239 ========== ========== ========== ========== SUMMARY CASH FLOW ----------------- For the Periods Ended June 30 (Dollars in thousands) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------- --------------------- 2004 2003 2004 2003 --------------------- --------------------- Net income before pref. stock dividends $888 $3,158 $6,722 $29,885 Depreciation & amortization 3,968 2,650 7,089 5,643 Increase in deferred revenue 27,000 22,252 49,784 54,488 Deferred revenue recognized (17,904) (17,408) (30,613) (28,372) (Increase) decrease in operating working capital, deferred charges and other (14,561) 17,438 (17,498) (32,276) Capital spending & patent additions (3,918) (3,120) (7,014) (4,769) ---------- ---------- ---------- ---------- CASH FLOW BEFORE FINANCING ACTIVITIES (4,527) 24,970 8,470 24,599 Debt decrease & preferred dividends (87) (88) (137) (135) Net stock issued 2,553 8,455 9,045 15,889 ---------- ---------- ---------- ---------- NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ (2,061) $ 33,337 $ 17,378 $ 40,353 ========== ========== ========== ========== CONDENSED BALANCE SHEET ----------------------- (Dollars in thousands) (unaudited) June 30, December 31, 2004 2003 ------------ ------------ Assets ------ Cash & short-term investments $123,305 $105,927 Accounts receivable 55,890 37,839 Other current assets 6,876 8,628 Property & equipment (net) 10,841 12,137 Patents (net) & other non-current assets 47,582 40,634 ------------ ------------ TOTAL ASSETS $244,494 $205,165 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Current portion of long-term debt $179 $193 Accounts payable & accrued liabilities 18,111 16,236 Foreign & domestic taxes payable 854 1,259 Deferred revenue 105,766 86,595 Long-term debt & long-term liabilities 3,311 3,397 ------------ ------------ TOTAL LIABILITIES 128,221 107,680 SHAREHOLDERS' EQUITY 116,273 97,485 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $244,494 $205,165 ============ ============ CONTACT: InterDigital Communications Corporation Media Contact: Dawn Goldstein, 610-878-7800 dawn.goldstein@interdigital.com or Investor Contact: Janet Point, 610-878-7800 janet.point@interdigital.com