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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ending December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number 333-66626
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
INTERDIGITAL COMMUNICATIONS CORPORATION SAVINGS AND PROTECTION PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
INTERDIGITAL COMMUNICATIONS CORPORATION
781 Third Avenue, King of Prussia, Pennsylvania 19406-1409
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INTERDIGITAL COMMUNICATIONS CORPORATION
SAVINGS AND PROTECTION PLAN
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TABLE OF CONTENTS
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Page Number
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Reports of Independent Registered Public Accounting Firms 3 -4
Basic Financial Information:
Statements of Net Assets Available for Benefits as of
December 31, 2003 and 2002 5
Statements of Changes in Net Assets Available for Benefits for the Years
Ended December 31, 2003 and 2002 6
Notes to Financial Statements 7 -13
Additional Information:
Schedule 1 - Schedule of Assets (Held at End of Year) 14
Other supplemental schedules required by Section 2520.103-10 of the
Department of Labor Rules and Regulations for Reporting and Disclosure
under ERISA have been omitted because they are not applicable.
Signature 15
Exhibit 23.1 Consent of Grant Thornton LLP 17
Exhibit 23.2 Consent of PricewaterhouseCoopers LLP 18
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Participants and Plan Administrator
InterDigital Communications Corporation Savings and Protection Plan
We have audited the accompanying statement of net assets available for
benefits of the InterDigital Communications Corporation Savings and Protection
Plan as of December 31, 2003, the related statement of changes in net assets
available for benefits for the year ended December 31, 2003. These financial
statements are the responsibility of the Plan's management.
We conducted our audit in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for benefits of the
Plan as of December 31, 2003, and the changes in net assets available for
benefits for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the 2003
basic financial statements taken as a whole. The supplemental schedule of assets
(held at end of year) as of December 31, 2003 is presented for the purpose of
additional analysis and is not a required part of the 2003 basic financial
statements, but is supplemental information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule has been
subjected to the auditing procedures applied in the audit of the 2003 basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the 2003 basic financial statements taken as a whole.
/s/ Grant Thornton LLP
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Philadelphia, Pennsylvania
July 8, 2004
3
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of the InterDigital Communications
Corporation Savings and Protection Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of InterDigital Communications Corporation Savings and Protection Plan (the
"Plan") at December 31, 2002 and for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. This supplemental schedule of assets
(held at end of year) is presented for the purpose of additional analysis and is
not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 11, 2003
4
InterDigital Communications Corporation
Savings and Protection Plan
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
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2003 2002
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Assets
Cash * $ 13,948,408 $ -
Investments, at fair value
Investments in pooled separate accounts (PSA's)
Guaranteed interest account - 488,449
Money market separate account - * 895,402
Bond & mortgage separate account - * 818,162
Government securities separate account - * 785,076
Bond emphasis balanced separate account - 330,791
Large cap stock index separate account - * 2,239,122
Medium company value separate account - 536,567
Large company blend separate account - * 710,618
Real estate separate account - 323,122
Stock emphasis balanced separate account - 278,489
Medium company blend separate account - * 780,454
Small company blend separate account - * 870,830
International stock separate account - 381,850
Principal Financial Group income stock separate account - 311,039
Registered investment companies
Vanguard Growth & Income Fund - 186,079
INVESCO Small Company Growth Fund - 49,261
Janus Aspen Aggregate Growth Fund - 111,033
Strong Opportunity Fund - 157,411
Strong Growth Fund - 95,477
T. Rowe Price Science & Technology Fund - 117,539
Putnam International Growth Fund - 179,894
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13,948,408 10,646,665
InterDigital Stock Fund * 1,787,194 * 812,571
Participant Loans 76,670 69,537
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Net assets available for benefits $ 15,812,272 $ 11,528,773
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* Represents 5% or more of net assets available for benefits.
The accompanying notes are an integral part of these financial statements.
5
InterDigital Communications Corporation
Savings and Protection Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2003 and 2002
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2003 2002
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ADDITIONS
Investment income (loss)
Interest and dividend income, investments $ 10,102 $ 37,104
Net appreciation (depreciation) in fair value of investments 2,973,075 (1,169,716)
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2,983,177 (1,132,612)
Contributions
Employer 805,882 731,660
Participant 2,304,553 2,157,748
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3,110,435 2,889,408
Asset transfers in 36,876 123,381
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Total Additions 6,130,488 1,880,177
DEDUCTIONS
Payment of benefits 1,801,851 516,378
Other deductions 45,138 25,442
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Total Deductions 1,846,989 541,820
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Net increase 4,283,499 1,338,357
Net assets available for plan benefits
Beginning of year 11,528,773 10,190,416
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End of year $ 15,812,272 $ 11,528,773
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6
The accompanying notes are an integral part of these financial statements.
NOTE 1--DESCRIPTION OF PLAN
The following description of the InterDigital Communications Corporation Savings
and Protection Plan, (the "Plan"), is provided for general information purposes.
Participants should refer to the Plan agreement for a more complete description
of the Plan's provisions.
GENERAL
The Plan is a defined contribution 401(k) plan for employees of InterDigital
Communications Corporation and its participating subsidiaries (the "Company")
over the age of 18 and who have completed one month of service. The Plan was
established effective February 1, 1985 and restated January 1, 1997. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Reliance Trust Company is the trustee of the Plan.
CONTRIBUTIONS
All participant contributions are made on a before-tax basis. Each participant
may invest from 1 percent to 15 percent of annual compensation as a basic
contribution. The total of the basic and supplemental contributions cannot
exceed IRS limitations for each plan year. For the 2003 and 2002 plan years, the
total IRS limit was $12,000 and $11,000, respectively. If a participant's annual
contributions exceed the dollar limitation set by the IRS, thereby requiring a
distribution of such excess contributions, the participant will forfeit any
employer matching contributions related to the distribution amount. Amounts
forfeited will be used to reduce future employer contributions.
The Company may, at its sole discretion, contribute to the Plan through matching
contributions and/or discretionary contributions. Beginning July 2001, the
Company matches 50 percent of each participant's contribution, up to a maximum
of 6 percent of the employees pretax annual basic compensation, as defined. 50
percent of the Company match consists of cash and the other 50 percent is paid
in the form of the Company's Common Stock. Discretionary contributions are
lump-sum payments made to the Plan as determined from time to time by the Board
of Directors of the Company. The Company did not make any discretionary
contributions in 2003 and 2002.
The law limits the amount of pay that may be used to determine contributions.
The limit was $200,000 in each of 2003 and 2002. The law also limits the amount
of all contributions that can be made for or by a participant to the Plan in a
given year. The limit is the lesser of 100 percent of pay or $40,000 for each of
2003 and 2002. Employee rollover contributions from other qualified retirement
plans are permitted; such contributions are subject to the conditions and
procedures set forth in the Plan.
PARTICIPANT ACCOUNTS
Each participant's account is credited with that participant's contributions and
allocations of the Company's matching and discretionary contributions and Plan
earnings and losses. Allocations of discretionary contributions are based on a
participant's annual compensation relative to the total compensation of all
other participants. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested account. Terminating
participants forfeit unvested Company contributions. Forfeitures are used to pay
Plan expenses or reduce employer contributions.
VESTING
Participants are immediately vested in their salary deferral and rollover
contributions. Vesting in Company contributions is based on length of service.
Participants vest 33-1/3 percent on each of their first three anniversaries of
employment.
7
PARTICIPANT LOANS
Any participant who is an active employee may apply for a secured loan provided
the request does not exceed the lesser of 50 percent of their vested account
balance or $50,000. The minimum loan amount is $1,000. Only one loan per
participant may be made every 365 days and all loans are subject to approval by
the Plan Administrator. Loan terms are limited to five years. Upon termination
of employment the outstanding principal and interest balance is immediately
payable. Interest rates are determined by the loan administrator in accordance
with prevailing market rates on similar types of loans, ranging between 4.00
percent and 11.00 percent at December 31, 2003. Interest paid by the participant
is credited to the participant's account. If a participant's balance remains
unpaid for more than 90 days after it is due, the loan will be in default on the
outstanding loan amount and the participant's vested account will be reduced by
the amount of the unpaid principal and interest. The unpaid amount is treated as
a taxable withdrawal and is subject to federal income taxes.
When a participant receives a distribution from the Plan, any outstanding
principal plus accrued interest will be deducted from the amount of the
distribution. A participant may then either default on the loan or make
arrangements to continue loan repayments beyond when they become entitled to a
distribution as long as their remaining interest in the Plan exceeds their
outstanding loan balance.
PAYMENT OF BENEFITS
If a participant retires, dies, becomes permanently disabled, or otherwise
separates from the Company, the participant or participant's beneficiary is
entitled to the vested amount of their account as valued on the applicable
valuation date. In the event of a participant's death, distribution of their
account will be made as soon as administratively practicable upon the receipt of
appropriate documentation from their designated beneficiary. Distributions for
reasons of retirement, permanent disability or termination will be made upon
written request. Distributions from a participant's account are typically made,
subject to certain limitations, using a single installment or deferred payment.
PLAN TERMINATION
The Company may amend or suspend the Plan and may terminate the Plan at any time
subject to the provisions of ERISA; although there is no present intent to do
so. However, no such action may cause the Plan's assets to be used for purposes
other than the exclusive benefit of the participants and their beneficiaries. If
the Plan is terminated, all such participant's accounts shall become fully
vested and all accounts of participants shall be distributed as soon as
administratively possible.
8
INVESTMENT OPTIONS
All investments are participant directed except for 50 percent of the match
contribution, which by the terms of the Plan, is directed by the Company to the
InterDigital Stock Fund. Participants may change the investment of their Plan
account at any time except for that portion of a participant's Plan account that
is attributable to the Company's matching contribution(s) made after June 2001.
During the plan years ending December 31, 2003 and 2002, participants were able
to allocate their contributions, in 1 percent increments, among the following
investment options:
POOLED SEPARATE ACCOUNTS:
Guaranteed Interest Account
This account invests in private-market bonds, commercial mortgages and mortgage
backed securities. Contributions placed in this account earn a guaranteed rate
of interest for either two or five year periods.
Money Market Account
This account invests in high-quality commercial paper. The average maturity is
less than one month.
Bond & Mortgage Account
This account invests in issuances of five-to-ten year bonds and commercial
mortgages to companies located in various geographic regions.
Government Securities Account
This account invests in various types of government securities including GNMA,
FNMA, FHLMC, SLMA.
Bond Emphasis Balanced Account
This account invests in other accounts of The Principal Life Insurance Company
("Principal"). The account usually invests from 50-100 percent of its assets in
conservative and moderate investment accounts, as defined, and 0-50 percent in
aggressive investment accounts, as defined.
Large Cap Stock Index Account
This account primarily invests in common stocks of those companies listed in the
S&P 500 Stock Index.
Medium Company Value Account
This account invests in medium-sized companies whose stock prices are perceived
to be low, relative to the companies' assets, profits, and other measures.
Large Company Blend Account
This account invests in stocks of larger companies whose earnings and dividends
are expected to be above average.
Real Estate Account
This account invests in developed rental properties including warehouses, office
buildings, and retail properties. The properties are diversified by geographic
location and type.
Stock Emphasis Balanced Account
This account invests in other accounts of Principal. The account usually invests
from 50-100 percent of its assets in dynamic and aggressive investment accounts,
as defined, and 0-50 percent in conservative investment accounts, as defined.
Medium Company Blend Account
This account invests in medium-sized stocks that offer a combination of value
and earnings potential.
9
Small Company Blend Account
This account invests in smaller established companies with above average
long-term growth potential.
International Stock Account
This account invests in common stocks of companies located outside the United
States. Industries are selected by evaluating the economic, social and political
factors of each market. Most investments are in Western Europe and Asia.
Principal Financial Group Income Stock Account
This account invests in stock of The Principal Financial Group, Inc. The value
of its investment changes based on changes in the market value of the stock and
expenses.
REGISTERED INVESTMENT COMPANIES:
Vanguard Growth & Income Fund
This fund seeks a total annual return greater than that of the S&P 500 Index. At
least 65 percent (and more typically 90 percent) of the fund's assets are
invested in securities included in the S&P 500 Index.
INVESCO Small Company Growth Fund
This fund seeks to invest in smaller, established companies with above average
long-term growth potential.
Janus Aspen Aggregate Growth Fund
This fund seeks long-term capital growth. The fund typically invests at least 50
percent of its assets in securities issued by medium-sized companies whose
market capitalizations fall within the range of the companies in the S&P MidCap
500 index.
Strong Growth Fund
This fund seeks capital appreciation. The fund normally invests at least 65
percent of its assets in equity securities and may invest in companies of any
size.
Strong Opportunity Fund
This fund seeks capital appreciation. The fund normally invests at least 70
percent of its assets in equities, including common stocks, convertible
debentures, preferred stocks, convertible preferred stocks, and warrants. It may
invest up to 30 percent of its assets in nonconvertible, corporate and
government intermediate to long-term debt securities that management believes
have capital-appreciation potential.
T. Rowe Price Science and Technology Fund
This fund seeks long-term growth of capital. The fund normally invests at least
65 percent of assets in companies, both foreign and domestic, that seek to
develop or use scientific and technological advances.
Putnam International Growth Fund
This fund seeks capital appreciation. The fund invests mainly in common stocks
of companies outside the United States. The fund normally invests at least 65
percent of its assets in equity securities of companies located outside of the
United States.
COMPANY STOCK:
InterDigital Stock Fund
This fund invests in the Common Stock of InterDigital Communications
Corporation.
10
PLAN AMENDMENTS
In June 2001, the Company's Compensation & Stock Option Committee authorized an
amendment to the Plan to include increasing the Company's matching contribution
from 25 percent to 50 percent of the first 6 percent of a participant's annual
compensation that a participant contributes to the Plan, (paying the additional
25 percent matching contribution in the Company's Common Stock), adding the
Company's Common Stock to the selection of investments under the Plan,
permitting an additional discretionary year-end matching contribution and,
effective for employees hired on or after January 1, 2002, extending the vesting
period of the Company's matching contributions to 36 months from the
commencement of employment. The prior vesting policy permitted immediate vesting
of 33 percent upon commencement of employment and vesting of 67 percent and 100
percent on the first and second anniversaries of commencement of employment,
respectively. Under the current vesting policy, participants vest 33-1/3 percent
on each of their first three anniversaries of employment.
In August 2001, 400,000 shares of the Company's authorized but unissued Common
Stock were reserved for issuance to the account of participants in the Plan as
matching contributions. An agreement was entered into between the Company, on
behalf of the Plan, and Web401(k).com and Fidelity Investments to serve as third
party administrator and custodian, respectively, of the InterDigital Stock Fund.
NOTE 2--SUMMARY OF ACCOUNTING POLICIES
The following accounting policies, which conform with accounting principles
generally accepted in the United States of America, have been used consistently
in the preparation of the Plan's financial statements:
BASIS OF ACCOUNTING
Accounting records are maintained by the custodian on the cash basis of
accounting. The financial statements of the Plan reflect all material
adjustments to place the financial statements on the accrual basis of
accounting.
USE OF ESTIMATES
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as reported amounts of additions
and deductions during the reporting period. Actual results could differ from
those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
Investments in pooled separate accounts are stated at fair value. Shares of
registered investment companies are valued at quoted market prices which
represent the net asset value of shares held by the Plan at year-end. The
InterDigital Stock Fund and The Principal Financial Group, Inc. Stock Account
are valued at their year-end unit closing price (comprised of common stock
market price plus uninvested cash position). Participant loans are valued at
cost, which approximates fair value.
Purchases and sales of investments are recorded on a trade-date basis. Interest
income is accrued when earned. Dividend income is recorded on the ex-dividend
date. Capital gain distributions are included in dividend income.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
FORFEITED ACCOUNTS
At December 31, 2003, forfeited non-vested accounts totaled $7,820. These
forfeited accounts were fully utilized to reduce future employer matching
contributions with respect to 2003.
11
NOTE 3--INVESTMENT CONTRACT WITH INSURANCE COMPANIES
The Guaranteed Interest Account (the "Account") provides a guaranteed interest
rate for a two year and five year period. The rate credited to the Account is
the rate in effect on the day each deposit is directed to the Account. To
simplify reporting to Plan participants, all rates credited during each
twelve-month period are averaged into a single composite rate.
The guarantees made with regard to the Account are supported by the general
account of The Principal Financial Group, Inc. The general account is invested
mostly in private placement bonds, commercial mortgages, and residential
mortgages. The Account promises contract value for a benefit event, however,
there is a market adjustment when funds are withdrawn prior to their maturity.
Thus, the Account is not considered benefit responsive.
NOTE 4--INVESTMENTS
During 2003 and 2002, the Plan's investments, including gains and losses on
investments bought and sold, as well as held during the year, appreciated
(depreciated) in value as follows:
2003 2002
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Pooled Separate
Accounts $ 2,097,576 $(1,109,151)
Registered Investment Companies 440,719 (311,554)
Company Stock 434,780 250,989
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$ 2,973,075 $(1,169,716)
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NOTE 5--NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the components of and significant changes in net assets
relating to the Plan's nonparticipant-directed investments are as follows:
2003 2002
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Net Assets:
InterDigital Stock Fund $1,787,194 $ 812,571
Changes in Net Assets:
Contributions 560,846 411,230
Net Appreciation in Fair Value of Investments 434,780 250,989
Administrative Expenses (1,389) (5,125)
Distributions (19,614) -
12
NOTE 6--RELATED PARTY TRANSACTIONS
The Plan invests in shares of the Company's Common Stock through the
InterDigital Stock Fund and in Pooled Separate Account and Guaranteed Interest
Account investments with The Principal Financial Group, Inc. Transactions in
such investments qualify as party-in-interest transactions that are exempt from
the prohibited transaction rules.
NOTE 7--PLAN EXPENSES
All costs and expenses incurred in the administration of the Plan (i.e., trustee
and recordkeeper fees) are currently paid by the Company.
NOTE 8--TAX STATUS
The Internal Revenue Service has determined and informed the Company by letter
dated July 8, 2002 that the Plan satisfies the qualification requirements under
Internal Revenue Code ("IRC") Section 401(a) and that the trust maintained in
connection with the Plan satisfies the requirements for exemption under Section
501(a) of the IRC. The Company believes the Plan is designed and is currently
being operated in compliance with the applicable requirements of the IRC.
NOTE 9 - SUBSEQUENT EVENT
Effective January 1, 2004, the Plan appointed Diversified Investment Advisors
("Diversified") to replace Principal as the custodian and third party
administrator for the majority of Plan Assets. Also effective January 1, 2004,
Diversified replaced Web401k and Fidelity Investments as the third party
administrator and custodian, respectively, of InterDigital Common Stock held by
the Plan.
On December 31, 2003, Principal converted a portion of the Plan's holdings into
cash in preparation for the transfer of funds to Diversified. In January, 2004,
Principal transferred approximately $13.9 million cash to Diversified.
Diversified invested these funds into investment options offered by Diversified,
in accordance with the instructions of each participant. In January 2004,
Principal and Fidelity (as custodians) also transferred InterDigital Common
Stock with a total fair value of approximately $1.8 million, as of December 31,
2003, to Diversified.
13
InterDigital Communications Corporation
Savings and Protection Plan
Schedule of Assets (Held at End of Year)
December 31, 2003
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InterDigital Savings and Protection Plan - EIN 23-1882087
Attachment to Form 5500, Schedule H, Part IV, Line i:
IDENTITY OF ISSUE INVESTMENT TYPE FAIR VALUE
Cash Cash $ 13,948,408
InterDigital Stock fund* Company Stock Fund 1,787,194 **
Participant Loans* interest rate of 4.00% - 11.00% 76,670
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$ 15,812,272
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* transaction with party in interest
** cost basis is $1,115,863
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this Annual Report on Form 11-K to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION SAVINGS
AND PROTECTION PLAN
By: InterDigital Communications Corporation,
in its capacity as Plan Sponsor and
Plan Administrator
Date: July 13, 2004 By: /s/ R.J. Fagan
-------------------------------------
Richard J. Fagan
Chief Financial Officer
15
EXHIBIT INDEX
Exhibit Number Document
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23.1 Consent of Grant Thornton LLP
23.2 Consent of PricewaterhouseCoopers LLP
16