As expected, IDCC will take a $30.5 million or $0.55 per share non-cash accounting charge this quarter to reflect accounting changes under SAB 101.
Also, because of the ongoing ERICY litigation, UbiNetics remains IDCC's only new licensee this year so far. In 1998 IDCC signed up 4 new licensees and revised the contracts of 2 licensees ($84m in new licensee revenue). In 1999 IDCC signed up 3 new licensees ($43.5m in new licensee revenue) in 1999 including Nokia.
It now looks like under the new accounting rules, IDCC is already recognizing $2.5 million, or around $.04 to $.05 per share, for the restated 1st 6 months of 2000 under the UbiNetics TDMA license.
Recurring royalties are already growing fast as a result of the continued growth in TDMA and TDMA-based handsets. It went from under $1 million in 1998 to over $9.4 million in 1999. IDCC posted $4.3 million in recurring royalties in the 1Q2000 so this accounting charge will reverse already recognized income and will be offset by accounting credits in the next 6 quarters or so presumably because this includes part of Nokia's upfront prepayment which expires on 2/2002. That means that about $30.5 million accounting charge (expense) will be offset by roughly $5.1 million a quarter in accounting credits (recurring royalty income) until 2/2002 (start of post-development Nokia-IDCC TDMA/CDMA royalty agreement) without accounting for seasonality.
Note that these are accounting charges and credits ONLY. The cash upfront payments covered by SAB 101 are already part of IDCC's $100 million balance. IDCC's 2Q2000 quarterly cash flow statement should provide some indication of UbiNetics' total upfront payment, only $2.5 million of which will be recognized this quarter.
InterDigital Provides Update On Revenue Recognition
KING OF PRUSSIA, Pa., Jun 29, 2000 (BUSINESS WIRE) -- InterDigital Communications Corporation (Nasdaq: IDCC chart, msgs), a leading wireless technology provider, today announced that it has concluded its analysis in response to the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101).
On May 4, 2000, the Company announced its plans to modify its revenue recognition policy in response to SAB 101 in the second quarter of 2000. With SAB 101, the SEC staff provided further clarification on its view of accounting for up front, non-refundable fees received in connection with licensing agreements. Historically, up-front fees received by the Company in connection with licensing agreements and any related expenses were recognized in the income statement upon the signing of the applicable licensing agreement. Effective January 1, 2000, the Company will recognize revenue and related expenses from these types of agreements as the royalty pre-payments are exhausted through product sales by the licensees.
Although the SEC has recently deferred the required implementation date of SAB 101, the Company will reflect the net after-tax cumulative impact of previously recognized up-front payments in the second quarter of 2000 as a cumulative effect of change in accounting principle of $30.5 million or approximately $0.55 per diluted share. This amount is in line with the previously stated range of $19 to $31 million. This one-time non-cash charge effectively defers previously recognized net up-front royalty pre-payments. Thereafter, the Company will generally recognize the revenue and net earnings associated with the deferred amounts as licensee product sales occur.
According to Richard Fagan, Chief Financial Officer of InterDigital, "It is important to note that our historical financial statements were and are in accordance with Generally Accepted Accounting Principles and this policy change will have no effect on previously reported results. While the $30.5 million non-cash change will have a negative effect on 2000 financial results, we will record this amount as earnings in the future as our licensees sell product. We also believe this modification will help to reduce some of the variability in our revenue flow and help produce a more normalized and predictable earnings stream over time. In fact, we anticipate recording approximately $2.5 million additional earnings for the first half of 2000 related to this change in accounting principle."
InterDigital is creating innovative solutions for mainstream wireless applications which deliver cost and time-to-market advantages for its customers. By leveraging its technology and intellectual property into third generation standards and products, it is maximizing its long-term revenue and earnings opportunities. The Company has a strong portfolio of patented TDMA and CDMA inventions which it licenses worldwide. For more information, please visit InterDigital's web site: www.interdigital.com.
This press release contains forward-looking statements regarding InterDigital's current beliefs and expectations as to the cumulative effect of change in accounting principle for the second quarter 2000, the amount of additional earnings to be recorded for the first half of 2000, and the impact of SAB 101. Such statements are subject to risks and uncertainties. Actual outcomes could differ materially from those expressed in any such forward-looking statement due to a variety of factors including, but not limited to: the continued guidance from the SEC staff on SAB 101; the timing or accuracy of reports and guidance provided by licensees; and shifts in licensees' sales. InterDigital undertakes no duty to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. |
