Replies to post #318875 on InterDigital Inc (IDCC)

[rmarchma]

IDo re materiality and disclosure

If Apple is the licensee that converted from a fixed-fee license to a per-unit license, this still might not necessarily require disclosure in an 8K, 10Q, or a separate press release. Under the old general guidelines for disclosure of material events, I would say yes, but under more recent guidelines, I would say I'm not sure.

The old general guideline stated that disclosure was required for any important information that would be helpful for reasonably informed investors in making their investment decisions re a particular company. In that regard, I think it is important information to know whether Apple has a fixed-fee license or a per-unit license. Apple's increasing unit sales would not increase IDCC's revenues under a fixed-fee license, but increasing unit sales would increase IDCC's revenues under a per-unit license.

However, newer guidelines for materiality and disclosure tend to follow more explicit guidelines as to the dollar impact of items. For example, the SEC does not require specific customer 10Q disclosure unless the customer provides 10% or more of a company's total quarterly revenues. IDCC also follows that same guideline in its quarterly earnings press releases. I suppose that 8K disclosures don't necessarily require that a new or amended contract be 10% of revenues, but I think that there is some implicit materiality % guideline that most company's would probably adhere to re its 8K disclosures, particularly the possible financial impacts of new or changed licenses.

Let's just throw out some arbitrary numbers and assume that Apple was the licensee that changed its license, and that the quarterly revenue increased from roughly $2m fixed-fee per quarter to $6m based on unit sales in the first quarter following the change. Now on an individual licensee basis, the change in license increased this particular licensee's revenue by 200% ($4m/$2m), which is certainly material on an "individual" licensee basis. Let's further assume that IDCC has total quarterly revenue of $80m in the first quarter following the change. When viewed on a "total revenue" basis, the change increased total revenues by 5% ($4m/$80m). Personally I think a 5% total revenue change would need to be individually disclosed somehow. However, if IDCC applies a higher materiality threshold like 10%, then they might not individually disclose this.