<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
-------------------------------
Commission File Number 1-11152
INTERDIGITAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1882087
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
781 Third Avenue, King of Prussia, PA 19406
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (610) 878-7800
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 53,779,124
-------------------------------------- -------------------------------
Class Outstanding at October 31, 2000
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
--------------------------------------------------------
INDEX
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PAGES
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Part I - Financial Information:
Item 1. Consolidated Financial Statements (unaudited): 3
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative And Qualitative Disclosure About Market Risk 11
Part II - Other Information:
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
-------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,980 $ 14,592
Short term investments 74,945 68,550
Accounts receivable 10,991 10,884
Inventories - 3,092
Other current assets 10,268 11,625
----------- -----------
Total current assets 115,184 108,743
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 10,039 7,393
PATENTS, NET 9,649 9,723
LONG TERM DEPOSITS 227 284
OTHER 1,830 428
----------- -----------
21,745 17,828
----------- -----------
TOTAL ASSETS $ 136,929 $ 126,571
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 383 $ 446
Accounts payable 2,400 2,454
Accrued compensation and related expenses 3,283 4,326
Deferred revenue 7,103 69
Foreign and domestic taxes payable 922 1,093
Other accrued expenses 3,129 4,857
----------- -----------
Total current liabilities 17,220 13,245
LONG-TERM DEBT 2,284 2,559
LONG-TERM DEFERRED REVENUE 24,294 -
OTHER NON-CURRENT LIABILITIES - 1,260
----------- -----------
TOTAL LIABILITIES 43,798 17,064
----------- -----------
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock $.10 par value, 14,399 shares authorized-
$2.50 Convertible Preferred, 55 and 102 shares issued and
outstanding 5 10
Common Stock, $.01 par value, 100,000 shares authorized,
53,753 shares and 50,985 shares issued and
outstanding 537 510
Additional paid-in capital 266,859 249,976
Accumulated deficit (163,399) (133,588)
Unearned compensation (5,239) (1,769)
----------- -----------
98,763 115,139
Less Treasury stock, 1,042 held at cost 5,632 5,632
----------- -----------
Total shareholders' equity 93,131 109,507
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 136,929 $ 126,571
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
-------------------- -------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product $ - $ 498 $ 5,634 $ 2,022
Licensing and strategic partner 11,486 10,321 31,328 56,285
----------- ----------- ----------- -----------
11,486 10,819 36,962 58,307
----------- ----------- ----------- -----------
COST OF PRODUCT AND OPERATING EXPENSES:
Cost of product - 1,005 5,200 4,002
Sales and marketing 798 745 3,046 2,411
General and administrative 3,259 1,693 9,133 5,133
Patents administration and licensing 1,706 216 3,043 4,540
Development 6,370 4,711 18,258 15,417
Repositioning Charges - - - 1,213
----------- ----------- ----------- -----------
12,133 8,370 38,680 32,716
----------- ----------- ----------- -----------
Income (loss) from operations (647) 2,449 (1,718) 25,591
INTEREST INCOME (EXPENSE):
Interest income 1,620 1,024 4,647 2,829
Interest and financing expenses (53) (77) (188) (250)
----------- ----------- ----------- -----------
Income before income taxes 920 3,396 2,741 28,170
INCOME TAX PROVISION (826) (697) (1,917) (2,822)
----------- ----------- ----------- -----------
Net income 94 2,699 824 25,348
PREFERRED STOCK DIVIDENDS (34) (64) (103) (192)
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 60 2,635 721 25,156
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - (30,532) -
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 60 $ 2,635 $ (29,811) $ 25,156
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE - BASIC $ 0.00 $ 0.05 $ 0.01 $ 0.52
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE - BASIC $ 0.00 $ 0.05 $ (0.58) $ 0.52
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 51,973 48,285 51,792 48,383
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE - DILUTED $ 0.00 $ 0.05 $ 0.01 $ 0.52
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE - DILUTED $ 0.00 $ 0.05 $ (0.58) $ 0.52
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED 56,141 48,819 56,587 48,789
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (29,708) $ 25,348
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation and amortization 3,280 3,557
Deferred revenue 31,328 (3,092)
Amortization of unearned compensation 1,490 -
Repositioning charges - 1,213
Decrease (increase) in assets-
Receivables (107) 8,887
Inventories 3,092 1,667
Other current assets 1,357 (224)
Increase (decrease) in liabilities-
Accounts payable (54) (2,517)
Accrued compensation (1,043) (566)
Other accrued expenses (3,159) (2,062)
------------ ------------
Net cash provided by operating activities 6,476 32,211
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments, net (6,395) (31,441)
Purchases of property and equipment (4,740) (1,162)
Patent costs (1,107) (852)
Other non-current assets (1,350) 62
------------ ------------
Net cash used in investing activities (13,592) (33,393)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants 11,945 449
Lease obligations incurred - -
Payments on long-term debt, including capital lease obligations (338) (615)
Cash dividends on Preferred Stock (103) (192)
Purchase of Treasury Stock - (1,850)
------------ ------------
Net cash provided by (used in) financing activities 11,504 (2,208)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,388 (3,390)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,592 20,059
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,980 $ 16,669
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 188 $ 224
============ ============
Income taxes paid, including foreign withholding taxes $ 1,202 $ 4,331
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial position of
InterDigital Communications Corporation (collectively with its subsidiaries
referred to as InterDigital, the Company, we, us and our) as of September 30,
2000, and the results of its operations for the three and nine month periods
ended September 30, 2000 and 1999, and cash flows for the nine month periods
ended September 30, 2000 and 1999. The accompanying unaudited consolidated
financial statements have been prepared in accordance with the instructions for
Form 10-Q and accordingly do not include all of the detailed schedules,
information and notes necessary for a fair presentation of financial condition,
results of operations and cash flows in conformity with generally accepted
accounting principles. Therefore, these financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's latest Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. MODIFICATION OF REVENUE RECOGNITION POLICY:
In the second quarter of 2000, we modified our recognition policy in
response to Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements" that was issued by the Securities and Exchange Commission
("SEC") in December, 1999. SAB No. 101 expresses the views of the SEC Staff in
applying generally accepted accounting principles to certain transactions,
including licensing agreements involving non-refundable up-front payments.
Historically, we have recorded such fees as revenue upon the signing of the
applicable license agreement because the Company had delivered the license and
had no remaining obligations. Following SAB No. 101 guidance, we have reflected
in our nine months results a net after tax cumulative effect of change in
accounting principle of $30.5 million to defer the net portion of up-front
payments that represents amounts which have not been exhausted through product
sales by licensees as of January 1, 2000. In the first nine months of 2000, we
recognized approximately $5.8 million and $4.8 million of revenue and earnings,
respectively, on a post-SAB No. 101 basis related to the deferred amounts. In
the third quarter of 2000, we recognized $2.5 million and $2.1 million of
revenue and earnings, respectively, on a post-SAB No. 101 basis. Going forward,
we will continue to recognize the revenue and net earnings associated with the
deferred amounts as licensee product sales occur.
3. REVENUES:
The Company generates the vast majority of its revenues from licensees
and other customers located outside the United States. These revenues are paid
in U.S. dollars and are not subject to foreign exchange transaction risk.
In the three months ended September 30, 2000, all of InterDigital's
revenues were derived from licensing and strategic partner activities. These
revenues consisted of $7.1 million from recurring royalties ($4.6 million on a
pre-SAB No. 101 basis) and $4.4 million related to development activities for
Nokia Corporation ("Nokia"). During the same period of 1999, licensing and
strategic partner revenues accounted for 95% of InterDigital's total revenues
and consisted of $2.9 million in recurring royalties, $4.0 million from
development work and $3.4 million from new licensing agreements.
For the nine months ended September 30, 2000, 85% of InterDigital's
total revenues were derived from licensing and strategic partner activities.
These revenues consisted of $18.8 million from recurring royalties ($13.0
million on a pre-SAB No. 101 basis) and $12.5 million related to development
activities for Nokia. In addition, $5.6 million of product revenue was generated
in the first half of 2000 related to final orders of UltraPhone(R) systems.
During the same period of 1999, licensing and strategic partner revenues
accounted for 97% of InterDigital's total revenues and consisted of $3.8 million
in recurring royalties, $9.8 million from development work and $42.8 million
from new licensing agreements.
6
<PAGE>
4. INCOME PER SHARE:
The following table sets forth a reconciliation of the shares used in
the basic and diluted net income per share computations:
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended September 30, 2000 Three Months Ended September 30, 1999
---------------------------------------------- -----------------------------------------------
Income (loss) Shares Per-Share Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income per Share-Basic:
Income (loss) available to
Common stockholders $ 60 51,973 $ 0.00 $ 2,635 48,285 $ 0.05
Effect of Dilutive Options and
Warrants -- 4,168 -- -- 534 --
------------- ------------- ------------- ------------- ------------- -------------
Income per Share-Diluted:
Income (loss) available to
Common stockholders +
dilutive effects of options
and warrants $ 60 56,141 $ 0.00 $ 2,635 48,819 $ 0.05
============= ============= ============= ============= ============= =============
(In thousands, except per share data)
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 1999
---------------------------------------------- -----------------------------------------------
Income (loss) Shares Per-Share Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ------------- ------------- ------------- -------------
Income per Share-Basic:
Income available to
Common stockholders $ (29,811) 51,792 $ (0.58) $ 25,156 48,383 $ 0.52
Effect of Dilutive Options and
Warrants -- -- -- -- 406 --
------------- ------------- ------------- ------------- ------------- -------------
Income per Share-Diluted:
Income available to
Common stockholders +
dilutive effects of options
and warrants $ (29,811) 51,792 $ (0.58) $ 25,156 48,789 $ 0.52
============= ============= ============= ============= ============= =============
</TABLE>
During the three months and nine months ended September 30, 2000,
options outstanding of 1.2 million and 1.0 million respectively were excluded
from the computation of diluted earnings per share because they were
antidilutive.
During the three months and the nine months ended September 30, 1999,
an additional 5.1 million options and 1.9 million warrants to purchase common
stock outstanding were excluded from the computation of diluted earnings per
share because they were antidilutive.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere in this
document in addition to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2000 and June 30, 2000 filed with the SEC.
We develop advanced wireless technologies and products that drive voice
and data communications. We intend to position ourself in the marketplace as an
end-to-end "technology enabler" offering a broad portfolio of products,
including core technology, software solutions, systems expertise and finished
chips.
We are focusing our strategy in three areas. First, we intend to
capitalize on the value of our intellectual property through patent licensing,
technology and know-how transfer and specialized engineering services. Second,
we plan to bring to market, with partners or on our own, 3G products to enable
the delivery of high quality voice and high-data rate services in mobile
terminals and base stations. Third, we intend to dedicate a portion of our
engineering resources to incubate extensions of our current technology,
derivative products and new technologies.
(See "Statement Pursuant to the Securities Litigation Reform Act of
1995" below.)
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
We generated positive cash flows from operating activities of $6.5
million in the first nine months of 2000 compared to $32.2 million in the same
period in 1999. The high level of positive operating cash flow in the first nine
months of 1999 resulted from cash receipts arising principally from a 1999
license agreement with Nokia. The positive operating cash flow in the first nine
months of 2000 was mainly due to the positive cash earnings (net loss plus
non-cash charges related to the cumulative effect of a change in accounting
principle, depreciation and amortization) generated during the period.
Net cash used in investing activities decreased to $13.6 million in the
first nine months of 2000 from $33.4 million in the comparable period of 1999.
The decrease was due primarily to a lower level of additional investment of
funds in short-term, highly liquid assets in 2000. Investments in property and
equipment and patents increased to $5.8 million in the first nine months of 2000
from $2.0 million in the first nine months of 1999. The increase in 2000
reflects increased development program and new information system investments.
During the first nine months of 2000, net cash provided by financing
activities was $11.5 million as compared to $2.2 million used in the first nine
months of 1999. The increase resulted from net proceeds of $11.9 million related
to option and warrant exercises.
As of September 30, 2000, we had $93.9 million of cash, cash
equivalents and short-term investments, compared to $83.1 million as of December
31, 1999. Our working capital excluding cash, cash equivalents, short-term
investments and current maturities of debt decreased to $4.4 million from $12.8
million at year-end 1999 principally as a result of the sale of inventory
related to exiting the wireless local loop business and the increase in deferred
revenue resulting from changes recorded in response to SAB No. 101.
We are capable of supporting our operating requirements for the
foreseeable future through internally generated funds. Should the need arise to
fund new development activities, external growth activities or other matters, we
may seek financing through bank facilities or the sale of debt or equity
securities.
Property and equipment are currently being utilized in the Company's
on-going business activities, and the Company believes that no write-downs are
required at this time due to lack of use or technological obsolescence. With
respect to patent assets, we believe that the value of our patents is at least
equal to the value included in the September 30, 2000 balance sheet.
8
<PAGE>
RESULTS OF OPERATIONS
Modification of Revenue Recognition Policy
In the second quarter of 2000, we modified our recognition policy in
response to SAB No. 101, "Revenue Recognition in Financial Statements" that was
issued by the SEC in December, 1999. SAB No. 101 expresses the views of the SEC
Staff in applying generally accepted accounting principles to certain
transactions, including licensing agreements involving non-refundable up-front
payments. Historically, we have recorded such fees as revenue upon the signing
of the applicable license agreement because the Company had delivered the
license and had no remaining obligations. Following SAB No. 101 guidance, we
have reflected in our nine months results a net after tax cumulative effect of
change in accounting principle of $30.5 million to defer the net portion of
up-front payments that represents amounts which have not been exhausted through
product sales by licensees as of January 1, 2000. In the first nine months of
2000, we recognized approximately $5.8 million and $4.8 million of revenue and
earnings, respectively, on a post-SAB No. 101 basis related to the deferred
amounts. In the third quarter of 2000, we recognized $2.5 million and $2.1
million of revenue and earnings, respectively, on a post-SAB No. 101 basis.
Going forward, we will continue to recognize the revenue and net earnings
associated with the deferred amounts as licensee product sales occur.
Third Quarter of 2000 Compared to the Third Quarter of 1999
Revenues
Revenues in the third quarter of 2000 totaled $11.5 million compared to
$10.8 million in last year's third quarter. In 2000, we recognized revenue of
$7.1 million from recurring royalties ($4.6 million on a pre-SAB No. 101 basis)
and $4.4 million from specialized engineering service activity. In the third
quarter of 1999, licensing revenue related to agreements with two new licensees
was $3.4 million, recurring royalties were $2.9 million, strategic partner
revenue was $4.0 million and UltraPhone product revenue was $0.5 million.
Cost of Product
As planned, there was no cost of product in the third quarter of 2000
due to the fact that the Company exited the wireless local loop product business
earlier in the year. Cost of product in the third quarter of 1999 was $1.0
million.
Other Operating Expenses
Sales and marketing costs of approximately $0.8 million in the third
quarter of 2000 remained fairly consistent with last year's spending in the same
quarter.
General and administrative expenses for the third quarter of 2000
increased 92% to $3.3 million from $1.7 million in the third quarter of 1999.
The increase is primarily due to higher costs related to increased resource
commitments necessary to support business growth and various corporate strategic
initiatives.
Patents administration and licensing expenses increased to $1.7 million
in the third quarter of 2000 from an unusually low $0.2 million during the same
period in 1999. The increase was due in large part to the recognition in last
year's third quarter of a sizeable insurance recovery related to the cost of
ongoing patent litigation with Ericsson Inc. ("Ericsson"), which we had
previously not been able to estimate.
Development expenses for the third quarter of 2000 increased 35% to
$6.4 million as compared to $4.7 million during the third quarter of 1999. The
increase is due to further investment in resources to support 3G development
programs.
Other Income and Expense
Interest income for the third quarter of 2000 increased to $1.6 million
from $1.0 million in the third quarter of 1999 due to higher average invested
cash balances in the third quarter of 2000.
9
<PAGE>
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues
Revenues for the nine months ended September 30, 2000 decreased to
$37.0 million from $58.3 million for the nine months ended September 30, 1999
primarily due to a lower amount of licensing revenue from new sources. For the
first nine months of 2000, recurring royalty revenue was $18.8 million ($13.0
million on a pre-SAB No. 101 basis), specialized engineering service revenue was
$12.5 million and the final revenue related to the UltraPhone product was $5.6
million. Licensing and strategic partner revenues for the nine months ended
September 30, 1999 included $42.7 million from new licensing agreements, $9.8
million from engineering development services and $3.8 million in recurring
royalties.
Cost of Product
Cost of product for the nine months ended September 30, 2000 increased
74% to $5.2 million from $4.0 million for the nine months ended September 30,
1999 due to increased product sales in the first half of 2000 in connection with
our exit from the wireless local loop product business.
Other Operating Expenses
Sales and marketing expenses increased 26% to $3.0 million during the
nine months ended September 30, 2000 compared to $2.4 million during the nine
months ended September 30, 1999. The increase is primarily due to costs
associated with strategic marketing analysis activities.
General and administrative expenses for the nine months ended September
30, 2000 increased 78% to $9.1 million from $5.1 million for the nine months
ended September 30, 1999. The increase is primarily due to higher costs related
to increased resource commitments necessary to support development program
expansion and various corporate strategic initiatives.
Patents administration and licensing activities expense decreased 33%
in the nine months ended September 30, 2000 to $3.0 million compared to $4.5
million in the comparable period of 1999. The decrease reflects a net overall
decrease in recognized costs related to the Ericsson litigation. This includes
recoveries under our insurance policies of over $1.5 million recorded in the
first quarter 2000 for litigation costs incurred in the prior year. In February
of 2000, we and our insurers defined a method, timing and limitation of recovery
for covered litigation expenses. Costs related to litigation are now recorded
net of the anticipated reimbursements from our insurance carrier.
Development expenses increased 18% for the nine months ended September
30, 2000 to $18.3 million from $15.4 million for the nine months ended September
30, 1999. The increase over the prior year period is due primarily to increased
staff and activity levels devoted to development of advanced 3G wireless
applications.
Other Income and Expense
Interest income for the nine months ended September 30, 2000 was $4.6
million as compared to $2.8 million for the same period in 1999 as a result of
higher than average invested cash in 2000, as compared to 1999. Interest expense
for the nine month period ended September 30, 2000 was $188,000 as compared to
$250,000 for the nine month period ended September 30, 1999 due to lower overall
debt in 2000 as compared to 1999.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis contains
forward-looking statements reflecting, among other things, our current
intentions and plans (i) to position ourself in the marketplace as an end-to-end
"technology enabler" offering a broad portfolio of products, (ii) to capitalize
on the value of our intellectual property through patent licensing, technology
and know-how transfer and specialized engineering services, (iii) to bring to
market, with partners or on our own, 3G products to enable the delivery of high
quality voice and high-data rate services in mobile terminals and base stations,
and (iv) to dedicate a portion of our engineering resources to incubate
extensions of our current technology, derivative products and new technologies.
Words such as "intend" and "plan", variations of such words, and words with
similar meaning or connotations are intended to identify such forward-looking
statements.
10
<PAGE>
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 3G
market materializing later than expected and/or on a smaller than expected
scale; the 3G market accelerating faster than expected adversely impacting our
ability to have technology available at critical market windows; limited or no
deployment of Time Division Duplex (TDD) technology; the development of
substitute technologies to Frequency Division Duplex (FDD) and TDD; the impact
of the need to secure technology and patent licenses to support product sales on
incoming patent licensing revenue; an unfavorable decision in the patent
litigation between InterDigital Technology Corporation and Ericsson;
unanticipated 3G development costs; difficulties or delays related to technology
or product development; the ability of competitors, many of whom have broader
and deeper resources than us, to develop more attractive technology solutions
and products for the 3G market; changes to the 3G standard in a manner that
adversely affects the applicability of our patents to the standard; the lack of
success in meeting staffing goals; the failure to create the necessary industry
partnerships within time to support market entry; failure to successfully
negotiate patent licensing agreements, or to maintain the validity of key
patents; the continuation of our development project with Nokia; and lower than
expected 2G patent licensing revenue. We undertake no duty to publicly update
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative
market risk from the disclosure included in the December 31, 1999 Form 10-K.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and Quarterly Report on Form 10-Q for the first quarter
of 2000, we are a party to a lawsuit involving Ericsson. During the third
quarter of 2000, the Special Master presiding over the "Markman" hearing issued
his recommendations to the Court as to the meaning of certain terms contained in
the patents in the lawsuit. The Judge has not as of yet ruled on the Special
Master's recommendations.
As reported in the Company's latest Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q for the first and second quarters of 2000, the
Company has been a party to a lawsuit involving Cavalier Technologies and
Consultants Ltd. ("Cavalier") in which Cavalier sought damages in the form of
direct and indirect damages and lost profits. Cavalier also sought injunctive
relief preventing InterDigital from shipping remaining inventory of UltraPhone
equipment to other customers. During the third quarter of 2000, this lawsuit was
settled for an immaterial amount.
The Company is a party to additional pending litigation, as reported in
the Company's latest Annual Report on Form 10-K, for which there are no material
updates.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q:
Exhibit 27 Financial Data Schedule.
(b) The following is a list of Current Reports on Form 8-K filed during
the third quarter of 2000:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
Date: November 14, 2000 /s/ Mark Gercenstein
--------------------------------------------
Mark Gercenstein, Chief Executive
Officer
Date: November 14, 2000 /s/ R. J. Fagan
--------------------------------------------
Richard J. Fagan, Executive Vice
President and Chief Financial
Officer
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