Replies to post #408834 on InterDigital Inc (IDCC)

[olddog967]

mickey: As stated in the latest 10-K, IDCC's revenue recognition policy is:

" In all cases, revenue is only recognized after all of the following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and (4) collectibility of fees is reasonably assured."

As described, all four criteria has to be met. I can see possible problems with numbers (3) and (4).

In regard to (3) - fees are fixed or determinable; although the arbitration panel came up with a fee schedule, since Huawei has been appealing the award, and it has not yet been confirmed by the NY district court, can we definitely say the fees are fixed and determinable. In last week's investor presentation, in regard to a question about Huawei, IDCC's CFO gave examples of various factors that could be considered in coming up with royalty rates during negotiations with Huawei (also see final sentence in Court Order quoted below).

In regard to (4)- collectibility of fees is reasonably assured, Huawei probably has already paid the initial amount, and will pay additional amounts. However, as stated in the court order (below) Huawei will be entitled to a refund if the award is annulled, or the royalty terms are changed during any negotiations. The last thing a company wants to do is have to report that prior periods revenue/income were overstated.

From the Court Order:

“InterDigital agrees it will not use Huawei’s consent to judgment pursuant to this Paragraph as a basis to prevent Huawei from seeking a later amendment of the judgment and from seeking recovery of any payments made pursuant to Paragraph 9 of the Addendum in the event that the Awards are ultimately annulled by the French courts after any appeal of the April 12, 2016 Paris Court of Appeal decision and following any subsequent final resolution of the royalty terms of the Completed License under the parties’ Arbitration Agreement."


Note: Again referring to last week's presentation a statement was made that IDCC's expects to report Huawei's payments as revenue during 2016, without being any more specific.