InterDigital Inc (IDCC)

[rmarchma]

Mschere re reporting royalties for Nokia and Samsung

I feel somewhat uncomfortable in trying to provide specific detailed answers to the accounting and reporting questions you posed in the referenced post. Too many unknowns at this point. Therefore I will try to stay fairly general in my reply without trying to get into specific details or projections.

First I do not think that IDCC will record or report any Nokia royalty until there is a check in hand from Nokia, or until IDCC receives a court ruling that upholds the arbitration ruling. Nokia has a relatively short time to report and pay royalty for the Jan. 1, 2002 through June 30, 2005 time period to IDCC per the ICC’s directive. Although IDCC will not say for sure, I would imagine this short period is between 30 to 60 days after July 1, 2005. I don’t think IDCC will record or report Samsung royalties, until a settlement or an arbitration ruling is rendered on Samsung.

As to how IDCC will classify and report Nokia and Samsung royalty after they are recorded in the accounting records is uncertain. The last example of past settlement amounts mixed with current year amounts was Ericy and S/E in 2003. The $34m settlement for past periods through 12/31/02, was split on the 2003 Income Statement. An amount associated with S/E of $20m of the $34m past amounts was reported in the top line as Licensing Revenues. The remaining $14m, net of a $3m insurance, of the past period amount associated with the Ericy litigation settlement was reported at the bottom of the Income Statement as “Other Income”. During 2003, Ericy and S/E also prepaid royalty for 2003 and 2004. The then current year earned amounts for 2003 from both S/E and Ericy were also included in the top line’s Licensing Revenues.

I don’t think it much matters how IDCC reports the Nokia and Samsung royalties on its Income Statement for 2005, certainly assuming a resolution before year-end. I’m sure that the footnotes will clearly tell how much of the royalty is associated with past periods prior to 2005, and how much is associated with 2005 earned royalty. I suppose a key will be how the analysts classify and interpret these royalties, and the weight that they give for past, current, and future royalty.