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Wednesday, June 20, 2012 12:14:49 PM
IDCC is now recording $3.7m of interest-related expense per quarter associated with these notes according to the latest 10Q. Although the coupon rate said 2.5%, the real interest rate is over 6.4% per year ($3.7m per quarter x 4 quarters = $14.8m per year / $230m note principal = 6.43%). It's also costing IDCC 21 cents per year in lost Earnings Per Share ($14.8m expense per year x 65% after tax cost / 46m diluted shares outstanding). All the poceeds from the notes appear to be just sitting in cash earning virtually nothing.
The following table presents the amount of interest cost recognized for the three months ended March 31, 2012 from the 10Q relating to the contractual interest coupon, accretion of the debt discount, and the amortization of financing costs (in thousands):
Contractual coupon interest.... $1,438
Accretion of debt discount..... 1,899
Amortization of financing costs... 326
Total............................$3,663
The contractual coupon interest and the amortized financing costs remain the same each quarter, but it appears that the accretion of debt discount increases each quarter. If this accretion continues to increase each quarter, then the true effective interest rate of the Notes will also increase each quarter above the current quarter's 6.4% real interest rate.
It appears that the convertible debt financing in April 2011 was a complete waste of time and money. If the purpose of the notes was to raise money for a possible slice of the Nortel patents, then as was mentioned at the ASM, a bank line of credit would have been a much better and far less costly option. The line of credit would not have been used at all, since IDCC dropped out of the Nortel bidding. If IDCC would have needed the money though, then the bank line could have been drawn upon, and later replaced with long-term notes. Also as my referenced post indicated, IDCC is stuck with these unneeded and unnecessary notes, as they can not be redeemed prior to the maturity date in March 2016.
Recent IDCC News
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