InterDigital Announces Full Year 2000 Results; Fourth Quarter Results Exceed Expectations, Company Also Revises SAB 101 Adjustment
KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--Feb. 6, 2001--InterDigital Communications Corporation (Nasdaq: IDCC), a leading wireless technology provider, today reported results for the fourth quarter and full year 2000. Total revenues for the fourth quarter of 2000 increased 28% to $15.8 million from $12.4 million in the same quarter of 1999. Recurring royalties in the fourth quarter of 2000 totaled approximately $11.1 million ($8.5 million on a pre-SAB 101 basis), up from the $5.7 million generated in the same quarter of 1999. Specialized engineering service revenue associated with technology development work for Nokia in the fourth quarter of 2000 was $4.7 million, up from $3.4 million in last year's fourth quarter.
For the fourth quarter 2000, InterDigital reported post-SAB 101 net income of $1.4 million, or $0.03 per share (diluted), compared to net income of $1.3 million, or $0.02 per share (diluted) in the same quarter of 1999. The quarter's results reflect a solid increase in revenues offset in part by higher operating expenses. The increase in operating expenses versus 1999 was due primarily to accelerated investments in W-CDMA 3G technology development, comparison against lower than normal patent administration and licensing costs in last year's fourth quarter, and one-time costs in 2000 associated with a severance arrangement with a former executive and the settlement of a dispute with another former employee. On a pre-SAB 101 basis, the fourth quarter 2000 results would have shown a loss of $0.01 per share.
Revenues for the full year 2000 were $56.9 million versus $70.7 million in 1999. Recurring royalties rose to $34.1 million ($21.6 million on a pre-SAB 101 basis) in 2000 from $9.4 million in 1999. Also, specialized engineering service revenue associated with technology development work for Nokia increased to $17.2 million in 2000 from $10.8 million in 1999. Revenues in 1999 included approximately $42 million of payments from several licensees related primarily to royalties for 1998 and prior years.
For the year ended December 31, 2000, the Company reported, on a post-SAB 101 basis, earnings of $5.6 million, or $0.10 per share (diluted), before the non-recurring SAB 101 impact, compared to net income of $26.5 million, or $0.52 per share (diluted), in 1999. On a pre-SAB 101 basis, full year 2000 results would have shown a loss of $0.08 per share. The Company's results in 2000 also included a significant increase in spending for technology and product development and associated support functions related to 3G wireless technologies. The Company's cash position at December 31, 2000 remained a very healthy $89.0 million, up $5.8 million from year-end 1999.
Commenting on the fourth quarter and full year results, Howard Goldberg, Chief Executive Officer, stated, "Our performance in the fourth quarter exceeded our expectations. Both our recurring royalties and specialized engineering revenues grew handsomely versus last year, as has been the case throughout the year. As planned, we also accelerated our investment to meet our 3G W-CDMA technology and product development objectives.
"We also made significant progress during 2000 in our TDD and FDD development programs and laid the groundwork for future relationships with a variety of potential strategic partners and customers who are showing increasing interest in our 3G technology and core competencies. Further, we were able to grow our cash balance while making significant investments for the future. We remain confident in our business plan and expect to build further momentum in 2001 by establishing additional key strategic partner relationships, adding new licensees for both 2G and 3G technologies and demonstrating our ability to meet key technology development milestones."
Rich Fagan, Chief Financial Officer, said, "In 2001, we expect to see continued growth in revenues from recurring royalties and specialized engineering services. Notwithstanding the significant growth we experienced in these areas during 2000, we continue to have as an objective growth in these revenue streams of 20% in 2001. We are also targeting opportunities to add new 2G and 3G licensees, some of which could generate substantial additional funds. However, as I have noted in the past, the earnings impact in 2001 from targeted new business arrangements will depend on the type of agreements that materialize. Our spending levels will also ramp up in 2001 as we continue accelerated investment in 3G technology and product development, and marketing. The growth in spending levels will depend in part on the pace of hiring and, as a result, operating expenses could be from 25% to 50% higher than 2000. Taking all this into account, we expect that, absent one-time revenue from past patent infringement, quarterly results in 2001 could range from a modest loss to slight profitability. Likewise, we could experience modest negative cash flow in 2001 which could be eliminated by additional funds from new licensees."
InterDigital announced in May 2000 its plans to modify its revenue recognition policy in response to Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101). In its results for the first six months of 2000, the Company reflected the impact of its change in accounting policy with a $30.5 million net after tax cumulative effect of change in accounting principle. The charge was associated with the deferral of previously recognized net up-front royalty pre-payments not exhausted through product sales of InterDigital's licensees as of January 1, 2000. The unexhausted pre-payments will be recorded in revenue and earnings in future periods as licensee product sales occur.
Since May 2000, there have been refinements and clarifications of interpretations by the SEC and the accounting profession regarding payments related to fully paid-up licenses in which the licensee makes a single payment for a lifetime patent license. As a result of these refinements and clarifications, the Company has revised its cumulative effect adjustment by $23.4 million, bringing the total full year SAB 101 adjustment to $53.9 million. The additional adjustment is for past payments made for paid-up licenses applicable to certain patents and products. Beginning January 1, 2000, such payments are being recognized as revenue over a period of years, based on the products and patents licensed. Based on the overall SAB 101 accounting changes, InterDigital recognized during 2000 approximately $12.5 million and $10.4 million of revenue and earnings, respectively, related to pre-payments by some licensees and paid-up licenses established with other licensees. |
