InterDigital Announces Second Quarter 2007 Financial Results.Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma Net Income of $6.6 Million, or $0.13 Per Share Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. for Second Quarter 2007 KING OF PRUSSIA King of Prussia, industrialized suburban area (1990 pop. 18,406), Montgomery co., SE Pa. It has glass and steel fabricating, food processing, printing and publishing, and varied manufacturing (textiles, liquified petroleum gas, water-treatment and electrical , Pa. -- InterDigital interdigital between two digits. interdigital cysts see interdigital pyoderma, pododermatitis. interdigital dermatitis 1. the early lesion in the development of infectious footrot in sheep; called also sheep scald. , Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :IDCC IDCC Integrated Dual-use Commercial Companies ) today announced financial and operating results for second quarter ended June 30, 2007. Highlights for second quarter include: * Revenue of $55.0 million, including $53.2 million of recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. revenue * Pro forma1 net income of $6.6 million, or $0.13 per share (diluted) for second quarter 2007, excluding a $16.6 million non-recurring expense relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the arbitral ar·bi·tral adj. Of or relating to arbiters or arbitration. Adj. 1. arbitral - relating to or resulting from arbitration; "the arbitral adjustment of the controversy"; "an arbitrational settlement" arbitrational award arising from the company's arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the with Federal Insurance Company * U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). net loss of $4.4 million, or $0.09 per share * Cash and short-term investment position of $191.6 million "For the second quarter, InterDigital posted another strong quarter," commented William J. Merritt, President and Chief Executive Officer. "We recorded solid recurring revenue and profit (excluding the one-time charge for the award in the Federal arbitration) and our product programs are moving forward as planned. We are on track to have our dual-mode 2G/3G HSDPA/HSUPA modem ASIC (Application Specific Integrated Circuit) Pronounced "a-sick." A chip that is custom designed for a specific application rather than a general-purpose chip such as a microprocessor. available in engineering samples by early fall 2007, making InterDigital one of only a few companies in the world with commercial terminal unit ASIC products with functioning HSDPA/HSUPA technologies." "We continue to have dialogue with unlicensed manufacturers and remain focused on growing our base of 3G licensees and, if necessary, vigorously defending our intellectual property as demonstrated by our recent ITC ITC (Brit) n abbr (= Independent Television Commission) → Fernseh-Aufsichtsgremium ITC n abbr (BRIT) (= Independent Television Commission) → action against Nokia," added Mr. Merritt. Second Quarter Summary The company's second quarter 2007 pro forma1 net income totaled $6.6 million, or $0.13 per share (diluted), excluding a $16.6 million charge relating to an award in the arbitration with Federal and related tax effects. On a U.S. GAAP basis, the company reported net loss of $4.4 million, or $0.09 per share, in second quarter 2007 compared to net income of $170.4 million, or $2.98 per share (diluted), in second quarter 2006. Second quarter 2006 net income included approximately $154.1 million, or $2.69 per share (diluted) related to the resolution of patent licensing matters with Nokia and Panasonic. Revenues in second quarter 2007 were $55.0 million compared to $296.6 million in second quarter 2006. Second quarter 2006 revenues included $240.0 million related to the Nokia and Panasonic matters. Recurring patent licensing royalties in second quarter 2007 were $52.6 million, compared to $54.9 million in second quarter 2006. The decline in recurring patent licensing royalties was driven by the absence of recurring 2G royalties from Sony Ericsson For an arrangement of Sony Ericsson products, see list of Sony Ericsson products Sony Ericsson is a joint venture established in 2001 by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. and Ericsson, partly offset by a $3.4 million increase in recurring royalties from other licensees. Technology solution revenue decreased to $0.6 million in second quarter 2007 compared to $1.7 million in second quarter 2006, due primarily to reduced activity under a development agreement with NXP NXP Next Experience (formerly Philips Semiconductors) that is nearing completion. Licensees that accounted for 10% or more of the $53.2 million of recurring patent license royalties and technology solution sales were LG (27%), Sharp Corporation of Japan (21%) and NEC (NEC Corporation, Tokyo, www.nec.com, www.necus.com) An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98). NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd. Corporation of Japan (18%). Second quarter 2007 operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. of $63.9 million increased $27.9 million compared to second quarter 2006. The increase was primarily due to (i) a non-recurring $16.6 million charge relating to the Federal arbitration award An arbitration award (or arbitral award) is a determination on the merits by an arbitration tribunal in an arbitration, and is analogous to a judgment in a court of law. , (ii) an increase in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and arbitration expenses, (iii) increased patent portfolio amortization, management and maintenance costs and (iv) increased investment in the development of the dual mode terminal unit ASIC. Excluding the charge associated with the Federal arbitration award, second quarter 2007 operating expenses totaled $47.3 million, compared to $43.6 million in first quarter 2007. The increase in second quarter 2007 operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. over first quarter 2007 was due to higher litigation and arbitration expenses (which totaled $9.9 million), partially offset by a slight decrease in other operating expenses. Net interest and investment income of $2.3 million in second quarter 2007 decreased $1.6 million from second quarter 2006 due primarily to lower investment balances in second quarter 2007 following the completion of the company's $350 million share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program. The company's second quarter 2007 tax provision reflected a tax benefit of $2.2 million compared to tax expense of $94.2 million in second quarter 2006. The second quarter 2007 effective tax rate was approximately 33%, including the effect of estimated future tax credits related to 2007 research and development activity. In second quarter 2006, the company's tax expense included amounts related to both U.S. statutory federal taxes and foreign withholding tax The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. payments made in prior years, resulting in an effective rate of approximately 36%. Six Months Summary Pro forma net income for first half 2007 (which excludes a $16.6 million charge relating to an award in the arbitration with Federal and related tax effects) totaled $24.2 million or $0.48 per share (diluted). U.S. GAAP net income for first half 2007 totaled $13.3 million, or $0.26 per share (diluted) compared to $183.3 million, or $3.20 per share (diluted) in first half 2006. Of the first half 2006 net income, approximately $154.1 million, or $2.69 per share (diluted) related to the resolution of patent licensing matters with Nokia and Panasonic. Revenues were $122.8 million in first half 2007, compared to $348.2 million in first half 2006. First half 2006 revenues included $240.0 million of non-recurring revenue related to the Nokia and Panasonic matters. First half 2007 revenues included $11.2 million of non-recurring revenue associated with prior period sales of Sony Ericsson's covered 2G products identified in a routine audit. Recurring patent license royalties were $110.0 million in first half 2007, up from $104.5 million in first half 2006. During first half 2007, the company generated $90.8 million of free cash flow2, compared to $288.8 million free cash flow in first half 2006. Free cash flow in first half of 2006 included $253.0 million related to the resolution of patent licensing matters with Nokia and $95.0 million related to a new patent license agreement with LG. First half 2007 free cash flow was driven by a patent license payment from LG totaling $95.0 million, offset in part by (i) $16.0 million of federal and foreign withholding tax payments, (ii) litigation and arbitration costs, (iii) patent related costs and (iv) investments in product development initiatives. First half 2007 operating expenses of $107.5 million increased $38.7 million from first half 2006 due primarily to (i) a $16.6 million charge relating to the Federal arbitration, (ii) a $7.6 million increase in litigation and arbitration expenses, (iii) increased patent portfolio amortization, management and maintenance costs and, (iv) higher investments in product development initiatives. Net interest and investment income of $4.9 million in first half 2007 decreased slightly from $5.4 million in first half 2006 due primarily to lower investment balances. The company's first half 2007 tax expense was $7.0 million, compared with first half 2006 tax expense of $101.6 million. The first half 2007 effective tax rate was approximately 34%, including the effect of estimated future tax credits related to 2007 research and development activity. In second half 2006, the company's tax expense included amounts related to both U.S. statutory federal taxes and foreign withholding tax payments made in prior years, resulting in an effective rate of approximately 36%. Expected Trends Scott McQuilkin, Chief Financial Officer, commented, "Based on the sales reports we have thus far, we expect solid recurring royalties in the third quarter 2007 from our diverse base of licensees as the sales of 3G products by our licensees continue to grow. As is our practice, we will provide an update on our expectation for third quarter 2007 revenue shortly, after we receive and review the applicable royalty reports and update our forecasts on anticipated revenue from work associated with technology solution agreements." "Our operating expenses, excluding patent arbitration or litigation costs, in second quarter were slightly lower than we had expected given a shift in the timing of some expenses related to our ASIC program," added Mr. McQuilkin. "We now expect to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. those expenses in third quarter, contributing to an increase in the 5 to 10 percent range over comparable second quarter 2007 operating expense and subsequently leveling out for the balance of the year. We believe that patent arbitration and litigation costs will continue to increase over the remainder of the year, although the actual level will be dependent on the amount of activity associated with these matters. Lastly, our book tax rate for the second half of the year will be dependent upon the relative proportions of our full year profitability and investment tax credits in 2007, but is expected to approximate 34%." About InterDigital InterDigital designs, develops and provides advanced wireless technologies and products that drive voice and data communications data communications, application of telecommunications technology to the problem of transmitting data, especially to, from, or between computers. In popular usage, it is said that data communications make it possible for one computer to "talk" with another. . 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 A converged device combines the functions of others. Examples
This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. regarding our current beliefs, plans, and expectations with respect to: (i) growing our base of 3G licensees: (ii) our schedule for the delivery of engineering samples of our dual mode 2G/3G ASIC: (iii) the competitive advantage of our dual mode ASIC: (iv) third quarter 2007 revenue guidance: (v) third and fourth quarter 2007 operating expenses excluding patent arbitration/litigation expense: (vi) third and fourth quarter 2007 patent arbitration/litigation expense; (vii) our estimated book tax rate for the second half of 2007; and (viii) our third quarter recurring royalties. Words such as "will," "expect," "on track," "update," "anticipate," "continue to," "forecast," "estimate," "approximate," 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, but not limited to, 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 licensing and technology solution agreements on acceptable terms; (iii) 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; (iv) unanticipated product development expenses and the timing of such expenses; (v) unanticipated difficulties or delays in the production or delivery of our ASIC engineering samples; (vi) changes in the technology preferences, needs, availability and pricing of competitive technologies and product offerings; (vii) the resolution of current legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. , 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; and, (viii) changes in our expectations of the amount and composition of full-year taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , changes in the amount of our 2007 U.S. federal research and experimental credit, changes in foreign and domestic tax laws or treatises, or changes in our tax planning Tax planning Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. strategies. We undertake no duty to publicly update any forward-looking statements, 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. 1 Pro forma figures have been prepared to illustrate the exclusion of the impact of the expense relating to the Federal Insurance arbitration. Refer to the pro forma income statement at the end of this release for further disclosures surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the company's presentation of pro forma net income and earnings per share. 2 InterDigital defines "free cash flow" as operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. less purchases of property and equipment and investments in patents. A detailed reconciliation of free cash flow to GAAP results is provided at the end of this news release. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] The following Pro Forma statements Pro forma statement A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows. of financial results exclude the expense associated with the Federal arbitration award and related tax expense items. The company has provided these pro forma figures here and elsewhere in this press release. Management regards the arbitration award as a non-recurring item not indicative of operating results for the period and believes that investors may share this viewpoint. [TABLE OMITTED] 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 free cash flow. The table below presents a reconciliation of this non-GAAP line item to net cash provided by operating activities. [TABLE OMITTED] InterDigital is a registered trademark of InterDigital, Inc. |
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