InterDigital Inc (IDCC)

[rmarchma]

Olddog re Samsung’s $6m and fourth quarter you said:

…”Count/Ron: Assuming the $6 million could be accounted for separately, since the Samsung agreement was not finalized until 2009, wouldn't that preclude it from being recorded as revenue in 4th qtr 2008?”

Normally the contract date will rule as to which particular quarter a transaction event will be reflected in a company’s financial statements. However, there is an exception to this general rule, if the event can be classified as a “recognized subsequent event”. From a FASB October 2008 exposure draft dealing with subsequent events as follows:

“4. Subsequent events are events or transactions that occur after the balance sheet
date but before financial statements are issued or are available to be issued. There
are two types of subsequent events:

a. The first type consists of events or transactions that provide additional
evidence about conditions that existed at the date of the balance sheet,
including the estimates inherent in the process of preparing financial
statements (that is, recognized subsequent events).

b. The second type consists of events that provide evidence about conditions
that did not exist at the date of the balance sheet but arose subsequent to
that date (that is, nonrecognized subsequent events).

Recognized Subsequent Events
8. An entity shall recognize in the financial statements the effects of all subsequent
events that provide additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the process of preparing
financial statements.

9. The following are examples of recognized subsequent events:

a. If the events that gave rise to litigation had taken place before the balance
sheet date and that litigation is settled after the balance sheet date for an
amount different from the liability recorded in the accounts, then the
settlement amount should be recognized in the financial statements.

b. Subsequent events affecting the realization of assets, such as receivables and
inventories or the settlement of estimated liabilities, should be recognized in
the financial statements when those events represent the culmination of
conditions that existed over a relatively long period of time. For example, a
loss on an uncollectible trade account receivable as a result of a customer’s
deteriorating financial condition leading to bankruptcy after the balance sheet
date ordinarily will be indicative of conditions existing at the balance sheet
date, thereby calling for recognition of the effects of the customer’s
bankruptcy filing in the financial statements before they are issued or are
available to be issued.”

http://www.fasb.org/draft/ed_subsequent_events.pdf

Notice that of the two examples provided for a recognized subsequent event, one deals with a litigation settlement. One could present an argument that Samsung’s $6m credit in IDCC’s deferred revenue account, which dealt with Samsung’s 2G obligation prior to 2005, could possibly be recognized into IDCC’s revenue in the fourth quarter of 2008. The $6m booked credit was certainly an preexisting estimate in IDCC’s accounting records awaiting final determination as to whether or not Samsung would finally pay its arbitration awarded 2G obligation. Samsung's subsequent litigation settlement in early 2009, before the fourth quarter 2008 financial statements are issued, confirms that they will pay for its 2G obligation to IDCC. Loop makes a good case for recognizing this $6m credit in IDCC’s fourth quarter as follows:


Posted by: loophole73
Date: Sunday, February 08, 2009 8:42:50 AM
In reply to: rmarchma who wrote msg# 249173
Post # of 249216

Marchma

If IDCC and its auditors believed that Judge Sullivan's judgment was final, then they would have allocated the already paid 6 mil as income (royalty or interest revenue) during the 4thQ of 2007. They did not. Thus, the 400 mil is to be allocated to the two new licenses (3g and 2g) and the already booked 6 mil should be allocated to the discontinued and terminated license for which it was paid. IDCC did the same thing with Kyocera stating that it had abandoned manufacturing of the covered products and entered into a new license. We will know within 3 weeks how IDCC treats the accounting for the 3 Samsung licenses. At any rate, 14 cents could be in play on this issue alone in the 4thQ 2008.

MO
loop

BTW if IDCC can record the $6m separately from the $400m 2G/3G settlement, then one would much prefer it to be recorded in the 4th quarter of 2008, rather than the first quarter of 2009. The $6m extra revenue would have a much larger EPS impact percentage-wise in the fourth quarter of 2008, versus the first quarter of 2009.