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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): January 20, 2006
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InterDigital Communications Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 1-11152 23-1882087
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
781 Third Avenue, King of Prussia, Pennsylvania 19406-1409
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 610-878-7800
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01 Entry into a Material Definitive Agreement.
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On January 20, 2006, the Compensation Committee of the Board of Directors
(the Compensation Committee) of InterDigital Communications Corporation (the
Company), after reviewing the Company's performance against the pre-established
targets, authorized the payment of long-term incentive awards to all
participants in the first cycle (Cycle 1) of the cash award portion of the
Company's Long Term Compensation Program (LTCP). The Compensation Committee
approved the following long-term cash awards for the Company's Chief Executive
Officer and the four other most highly compensated executive officers in the
Company's last completed fiscal year (Named Executive Officers), as follows:
Mr. William J. Merritt, Chief Executive Officer $ 232,171
Mr. Richard J. Fagan, Chief Financial Officer $ 162,360
Mr. Mark A. Lemmo, Senior Business Development Officer $ 161,745
Mr. Lawrence F. Shay, General Counsel $ 129,560
Mr. William C. Miller, Senior Engineering and Programs Officer $ 112,476
Item 2.02 Results of Operations and Financial Condition.
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In its Form 8-K dated January 23, 2006, the Company reported that it had
signed a patent license agreement (Agreement) with LG Electronics Inc. covering
certain mobile handset and infrastructure products. The signing of the Agreement
affects a number of items in the Company's financial statements for both fourth
quarter 2005 and 2006. These items include revenue recognition related to the
Agreement beginning in 2006, expense associated with the performance-based
element of the Company's long-term compensation plan in fourth quarter 2005, and
the valuation of the Company's deferred tax assets as of December 31, 2005.
Those items are discussed below.
Further, the Company anticipates receipt of the first $95 million payment
in accordance with the Agreement (net of any source withholding tax and related
commissions) in first quarter 2006. In addition, the Company has received a $15
million royalty prepayment in first quarter 2006 from an existing
Taiwanese-based licensee which has exhausted its previous prepayment.
Revenue Recognition Related to Agreement
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The Company has not finalized the manner in which revenue will be
recognized for the Agreement beginning in 2006, but will provide appropriate
guidance in a future filing with the Securities and Exchange Commission (SEC).
Performance-Based Compensation Expenses
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As part of its compensation programs, the Company employs a LTCP that
provides performance-based cash compensation to the Named Executive Officers and
other managerial level employees if certain pre-established targets are achieved
during the program period. The targets are designed to drive achievement of the
Company's strategic plan and to enhance shareholder value.
Due to the Company's achievement of pre-established targets associated with
the performance-based cash incentive component of the LTCP for the period April
1, 2004 through January 1, 2006 (Cycle 1), the Company expects to record a
cumulative adjustment of approximately $3.4 million in additional compensation
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expense in fourth quarter 2005 based on better-than-anticipated performance. In
second quarter 2005, the Company adjusted its assessment of progress toward the
achievement of targets under the program, recording a cumulative adjustment of
approximately $1.6 million to reduce previously accrued expense associated with
Cycle 1. This adjustment reflected an expected payout of 50% of the LTCP target
compensation. Based on its assessment in the third quarter 2005, the Company
continued to accrue expense at an anticipated 50% LTCP payout. However, during
the latter portion of 2005 the Company significantly exceeded its revised
expectations and achieved 101% of the goals for Cycle 1, resulting in a payout
of 102.5% of target. Based on the better-than-projected achievement levels, the
Company expects to record the $3.4 cumulative charge noted above, reflecting the
difference between the earlier accrued amount and the actual payout amount.
Valuation of Deferred Tax Assets
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After giving consideration to both the Agreement and its recent operating
performance, the Company believes it is more likely than not that it will
generate future taxable income sufficient to utilize a large portion of its
deferred tax assets. As a result, the Company expects to reverse the majority of
the remaining valuation allowance against its deferred tax assets in fourth
quarter 2005, portions of the valuation allowance reversal will be credited
directly to additional paid-in-capital and a portion will be recognized as
income in the statement of operations.
At December 31, 2004, the Company held a valuation allowance of
approximately $75.2 million against its deferred tax assets of approximately
$107.6 million. The Company will provide the exact amount of the valuation
allowance reversal in a future filing with the SEC.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
By: /s/ R.J. Fagan
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Richard J. Fagan
Chief Financial Officer
Date: January 26, 2006
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