InterDigital Announces Third Quarter 2012 Financial Results

  InterDigital Announces Third Quarter 2012 Financial Results

              Expanded Revenue Strategy Delivers Record Quarter

 Combination of Intel Patent Sale and Patent Licensing Drives Cash Balance to
                              over $780 Million

Business Wire

WILMINGTON, Del. -- October 24, 2012

InterDigital, Inc. (NASDAQ: IDCC) today announced results for the third
quarter ended September30, 2012.

Highlights for third quarter 2012:

  *Revenue of $434.0 million;
  *Net income of $235.7 million, or $5.56 per diluted share;
  *Ending cash and short-term investments totaling $781.3 million.

“The record performance in third quarter 2012 illustrates the strength of our
strategy to expand our revenue streams beyond core licensing into other areas,
in line with the changes we are seeing in the dynamics of the patent market,”
commented William J. Merritt, President and Chief Executive Officer of
InterDigital. “We remain confident in our core licensing efforts, which are
progressing on plan. With our cash position and strong technologies, we're
working from a position of tremendous strength, and we believe addressing
multiple revenue opportunities is the key to sustained growth going forward.”

“On top of that success, we announced yesterday the further broadening of our
sourcing strategy for technology as well as the launch of InterDigital
Solutions, both of which align with the transition we've seen in mobile
technology. We expect the new sourcing strategy to continue to deliver
high-quality innovation in a cost-effective manner. With InterDigital
Solutions, we look forward to new opportunities to align with industry players
in ways that we expect will yield both technology strength and revenue
opportunities,” added Mr. Merritt.

“The Intel transaction is a highlight of our third quarter,” said Richard
Brezski, Chief Financial Officer. “In addition to reporting record revenues,
we remain committed to careful financial management. In that vein, I am
pleased to note that we reported reductions in development and selling,
general and administrative expenses, both on a sequential basis and year over
year. Patent administration and licensing expenses have increased, to support
high value transactions such as Intel and to make investments in intellectual
property enforcement, which we expect will yield positive outcomes. We also
expressed confidence in our business through the execution on our share
repurchase program, repurchasing 2.5million shares during the quarter and
bringing our cumulative 2012 repurchase total to 4.9 million shares for $152.7
million. We will provide an update of our revenue expectations for fourth
quarter 2012 after we receive and review the applicable patent license and
product sales royalty reports.”

Third Quarter 2012 Summary

Revenue in third quarter 2012 totaled $434.0 million, as compared to $76.5
million in third quarter 2011. This increase in total revenue was primarily
attributable to a $375.0 million patent sale to Intel Corporation ("Intel"),
representing 86 percent of total revenue. Patent licensing royalties of
$58.4million in third quarter 2012 declined $16.9 million, or 22 percent,
from $75.3 million in third quarter 2011, primarily due to a $10.6 million
decrease in per-unit royalty revenue and lower past sales revenue. The
decrease in per-unit royalty revenue resulted primarily from lower shipments
by our Japanese per-unit licensees, as well as Research in Motion Limited
("RIM") and HTC Corporation ("HTC"). Additionally, technology solutions
revenue decreased to $0.6 million in third quarter 2012 from $1.2million in
third quarter 2011, primarily due to lower royalties recognized in connection
with the company's SlimChip modem IP business. As of September30, 2012, the
company has deferred $40.1million, including $3.6million in third quarter
2012, of disputed SlimChip modem IP royalties pending the outcome of an
ongoing arbitration.

The company's third quarter 2012 net income was $235.7 million, or $5.56 per
diluted share, compared to $26.2 million, or $0.57 per diluted share, in third
quarter 2011. Not including the Intel patent sale revenue of $375.0 million,
cost of patent sale of $15.6 million and the related income tax impact of
$124.7 million, third quarter 2012 net income would have been $1.0 million or
$0.02 per diluted share.

Third quarter 2012 operating expenses totaled $70.9 million, an increase of
$26.6 million from $44.3 million in third quarter 2011. This increase was
driven by $15.6 million of costs associated with our patent sale to Intel and
an $11.3 million increase in intellectual property enforcement and non-patent
litigation costs. Third quarter 2012 intellectual property enforcement and
non-patent litigation costs were $18.0 million as compared to $6.7 million in
third quarter 2011, and related primarily to the ITC patent infringement
proceeding initiated in second half 2011. These and other increases were
partially offset by lower costs associated with long-term compensation and the
2011 strategic evaluation process.

Third quarter 2012 other expense of $2.7 million decreased $0.4 million from
$3.1 million in third quarter 2011. The change between periods primarily
resulted from higher returns on the company's investment balances during third
quarter 2012 as compared to third quarter 2011.

The company's third quarter 2012 effective tax rate was approximately 35
percent, level with third quarter 2011.

First Nine Months 2012 Summary

The company's first nine months 2012 revenue totaled $575.2 million, a $350.4
million increase from $224.8 million in first nine months 2011. This increase
was primarily attributable to the patent sale to Intel. First nine months 2012
patent licensing royalties decreased $31.5 million primarily due to a
$23.1million decrease in per-unit royalty revenue and an $8.0 million
decrease in past sales. The decrease in per-unit royalty revenue resulted from
lower shipments by HTC, RIM and the company's Japanese per-unit licensees. In
addition, technology solutions revenue of $1.9 million decreased $2.1million
due to lower royalties recognized in connection with the company's SlimChip
modem IP business. During first nine months 2012, Intel (65 percent) and
Samsung Electronics Company, Ltd. (13 percent), each accounted for ten percent
or more of total revenue.

The company's first nine months 2012 net income was $256.3 million, or $5.81
per diluted share, compared to $66.7 million, or $1.45 per diluted share, in
first nine months 2011. Not including the Intel patent sale revenue of $375.0
million, cost of patent sale of $15.6 million and the related income tax
impact of $124.7 million, first nine months 2012 net income would have been
$21.6 million or $0.49 per diluted share.

First nine months 2012 operating expenses of $175.0 million increased $49.5
million, or 39 percent, from $125.5 million in first nine months 2011. This
increase was driven by $28.3 million increase in intellectual property
enforcement and non-patent litigation costs and $16.5 million of costs
associated with the company's 2012 patent sales. First nine months 2012
intellectual property enforcement and non-patent litigation costs were $44.0
million as compared to $15.8 million in first nine months 2011, and related
primarily to the ITC patent infringement proceeding initiated in second half
2011. These and other increases were partially offset by lower costs
associated with consulting services and the 2011 strategic evaluation process.

First nine months 2012 other expense of $7.9 million increased from $7.5
million in first nine months 2011. The change between periods primarily
resulted from the recognition of an additional $3.7 million of interest
expense associated with the company's 2.5% Senior Convertible Notes due 2016
issued on April 4, 2011 (the "Notes"), due to the Notes being outstanding for
the full first nine months 2012. This change was partially offset by higher
returns on the company's investment balances in first nine months 2012 and a
decrease in other expense due to $1.6 million of investment impairments
recorded in first nine months 2011.

The company's first nine months 2012 effective tax rate was approximately 35
percent, compared to an effective tax rate in first nine months 2011 of
approximately 27 percent. The increase was primarily driven by the recognition
of a $6.8 million benefit related to the favorable resolution of tax
contingencies in first nine months 2011.

In first nine months 2012, the company generated $278.7 million in free cash
flow^1 compared to $54.5million used in first nine months 2011. This change
in free cash flow primarily resulted from the receipt of $375.0 million from
Intel and was partially offset by higher intellectual property enforcement and
non-patent litigation costs and costs of patent sale in first nine months
2012. Additionally, during first nine months 2012, the company invested $13.8
million for patent acquisitions and returned capital to shareholders through
$152.7 million in share repurchases and $13.4 million in dividend payments.

Conference Call Information

InterDigital will host a conference call on Wednesday, October 24, 2012 at
5:00 p.m. Eastern Time to discuss its third quarter 2012 financial performance
and other company matters. For a live Internet webcast of the conference call,
visit www.interdigital.com and click on the link to the Live Webcast under the
Events section on the homepage. The company encourages participants to take
advantage of the Internet option.

For telephone access to the conference, call (888) 802-2225 within the U.S. or
(913) 312-1254 from outside the U.S. Please call by 4:50 p.m. ET on October 24
and ask the operator for the InterDigital Financial Call.

An Internet replay of the conference call will be available on InterDigital's
web site in the Investor Relations section. In addition, a telephone replay
will be available from 8:00 p.m. ET October 24 through 8:00 p.m. ET October
29. To access the recorded replay, call (888) 203-1112 or (719) 457-0820 and
use the replay code 7640351.

About InterDigital^®

InterDigital develops fundamental wireless technologies that are at the core
of mobile devices, networks, and services worldwide. We solve many of the
industry's most critical and complex technical challenges, inventing solutions
for more efficient broadband networks and a richer multimedia experience years
ahead of market deployment. InterDigital has licenses and strategic
relationships with many of the world's leading wireless companies.

InterDigital is a registered trademark of InterDigital, Inc.

For more information, visit the InterDigital website: www.interdigital.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include information regarding our current beliefs, plans and
expectations, including, without limitation: (i) our belief that our core
licensing efforts are progressing on plan; (ii) our belief that addressing
multiple revenue opportunities is the key to sustained growth going forward;
(iii) our expectation that the new sourcing strategy will continue to deliver
high-quality innovation in a cost-effective manner; (iv) our expectation that
InterDigital Solutions will provide new opportunities to align with industry
players in ways that will yield both technology strength and revenue
opportunities; (v) our expectation that our investments in intellectual
property enforcement will yield positive outcomes; and (vi) our plans to
provide an update of our revenue expectations for fourth quarter 2012 after we
receive and review the applicable patent license and product sales royalty
reports. Words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,” “forecast,” “will,” “continue to,” variations of any such
words 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,
without limitation, 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 license agreements on acceptable
terms; (iii) our ability to enter into sales and/or licensing partnering
arrangements for certain of our patent assets; (iv) our ability to enter into
partnerships with leading inventors and research organizations and identify
and acquire technology and patent portfolios that align with InterDigital's
roadmap; (v) the ability of InterDigital Solutions to commercialize the
company's technologies and enter into customer agreements; (vi) the failure of
the markets for the company's current or new technologies to materialize to
the extent or at the rate that we expect; (vii) unexpected delays or
difficulties related to the development of the company's technologies; (viii)
changes in expected research and development costs; (ix) 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; (x) the resolution of
current legal proceedings, 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; (xi) changes or inaccuracies in market projections; and (xii)
changes in the company's business strategy.

We undertake no duty to update publicly any forward-looking statement, 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.

Footnotes

^1Free cash flow is a supplemental non-GAAP financial measure that
InterDigital believes is helpful in evaluating the company's ability to invest
in its business, make strategic acquisitions and fund share repurchases, among
other things. A limitation of the utility of free cash flow as a measure of
financial performance is that it does not represent the total increase or
decrease in the company's cash balance for the period. InterDigital defines
“free cash flow” as net cash provided by operating activities less purchases
of property and equipment, technology licenses and investments in patents.
InterDigital's computation of free cash flow might not be comparable to free
cash flow reported by other companies. The presentation of this financial
information, which is not prepared under any comprehensive set of accounting
rules or principles, is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in accordance
with generally accepted accounting principles (“GAAP”). A detailed
reconciliation of free cash flow to net cash used in operating activities, the
most directly comparable GAAP financial measure, is provided at the end of
this press release.


CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
(unaudited)


                   For the Three Months            For the Nine Months
                                              
                   Ended September 30,             Ended September 30,
                   2012           2011           2012           2011
REVENUES:
Per-unit
royalty            $ 23,639         $ 34,150       $ 85,515         $ 108,550
revenue
Fixed fee
amortized            33,764           33,231         101,209          101,633
royalty
revenue
Past sales           981              7,900          2,586            10,611
Patent sales         375,000          —              384,000          —
Technology
solutions           626            1,174        1,876          3,992   
revenue
                    434,010        76,455       575,186        224,786 
                                                                              
OPERATING
EXPENSES:
Patent
administration       45,551           17,900         94,979           50,604
and licensing
Development          16,375           17,015         51,041           50,202
Selling,
general and         8,865          9,387        28,968         24,714  
administrative
                    70,791         44,302       174,988        125,520 
                                                                              
Income from          363,219          32,153         400,198          99,266
operations
                                                                              
OTHER EXPENSE       (2,708   )      (3,149 )      (7,926   )      (7,472  )
Income before        360,511          29,004         392,272          91,794
income taxes
INCOME TAX          (124,842 )      (2,798 )      (136,000 )      (25,093 )
PROVISION
NET INCOME         $ 235,669       $ 26,206      $ 256,272       $ 66,701  
NET INCOME PER
COMMON SHARE —     $ 5.61          $ 0.58        $ 5.86          $ 1.47    
BASIC
WEIGHTED
AVERAGE NUMBER
OF COMMON           42,024         45,463       43,761         45,380  
SHARES
OUTSTANDING —
BASIC
NET INCOME PER
COMMON SHARE —     $ 5.56          $ 0.57        $ 5.81          $ 1.45    
DILUTED
WEIGHTED
AVERAGE NUMBER
OF COMMON           42,353         46,281       44,072         46,000  
SHARES
OUTSTANDING —
DILUTED
CASH DIVIDENDS
DECLARED PER       $ 0.10          $ 0.10        $ 0.30          $ 0.30    
COMMON SHARE
                                                                              


SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)


                 For the Three Months            For the Nine Months
                                            
                 Ended September 30,             Ended September 30,
                 2012          2011            2012           2011
Net income
before           $ 360,511       $ 29,004        $ 392,272        $ 91,794
income taxes
Taxes paid         (5,122  )       —               (7,874   )       (23,806  )
Non-cash           21,074          10,805          41,310           29,699
expenses
Increase in
deferred           4,650           12,009          29,220           47,478
revenue
Deferred
revenue            (48,028 )       (56,279 )       (155,344 )       (175,213 )
recognized
Increase
(decrease)
in operating
working            8,667           3,158           838              (2,512   )
capital,
deferred
charges and
other
Capital
spending and      (5,867  )      (6,999  )      (21,762  )      (21,951  )
capitalized
patent costs
FREE CASH         335,885       (8,302  )      278,660        (54,511  )
FLOW
                                                                             
Tax benefit
from               (84     )       2,024           1,506            2,705
share-based
compensation
Payments on
long-term
debt,              —               (74     )       (180     )       (215     )
including
capital
leases
Acquisition        (750    )       —               (13,750  )       —
of patents
Proceeds
from
issuance of        —               —               —                221,985
convertible
senior
notes, net
Purchase of
convertible        —               —               —                (42,665  )
bond hedge
Proceeds
from               —               —               —                31,740
issuance of
warrants
Dividends          (4,348  )       (4,540  )       (13,388  )       (13,602  )
paid
Share              (74,949 )       —               (152,694 )       —
repurchases
Net proceeds
from
exercise of        123             1,098           713              4,050
stock
options
Unrealized
gain (loss)
on                1,331         (728    )      2,466          (565     )
short-term
investments
NET INCREASE
(DECREASE)
IN CASH AND      $ 257,208      $ (10,522 )     $ 103,333       $ 148,922  
SHORT-TERM
INVESTMENTS
                                                                             


CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)


                                              September 30,   December 31,
                                                2012              2011
ASSETS
Cash & short-term investments                   $  781,327        $   677,994
Accounts receivable (net)                          36,302             28,079
Current deferred tax assets                        55,175             53,990
Other current assets                               8,859              8,824
Property & equipment and patents (net)             152,208            145,960
Other long-term assets (net)                      81,735            82,121
TOTAL ASSETS                                    $  1,115,606      $   996,968
                                                                      
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of long-term debt               $  —              $   180
Accounts payable, accrued liabilities,             185,002            38,886
taxes payable & dividends payable
Current deferred revenue                           94,664             134,087
Long-term deferred revenue                         67,252             153,953
Long-term debt & other long-term                  201,734           198,180
liabilities
TOTAL LIABILITIES                                  548,652            525,286
SHAREHOLDERS' EQUITY                              566,954           471,682
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY      $  1,115,606      $   996,968
                                                                      

 RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY/(USED IN) OPERATING
                                  ACTIVITIES

In the summary consolidated statements of cash flows and throughout this
release, the company refers to free cash flow. The table below presents a
reconciliation of this non-GAAP financial measure to net cash used in
operating activities, the most directly comparable GAAP financial measure.

                                                          
                    For the Three Months           For the Nine Months

                    Ended September 30,            Ended September 30,
                    2012            2011           2012            2011
Net cash
provided by
(used in)           $ 341,752       $ (1,303 )     $ 300,422       $ (32,560 )
operating
activities
Purchases of
property,
equipment, &          (949    )       (697   )       (1,979  )       (2,523  )
technology
licenses
Patent               (4,918  )      (6,302 )      (19,783 )      (19,428 )
additions
Free cash flow      $ 335,885      $ (8,302 )     $ 278,660      $ (54,511 )
                                                                             

Contact:

InterDigital Media Contact:
Patrick Van de Wille, +1 (858) 210-4814
patrick.vandewille@interdigital.com
or
InterDigital Investor Contact:
Janet Point, + 1 (302) 281-3746
janet.point@interdigital.com
 
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