The company's third quarter 2012 effective tax rate was approximately 35 percent, level with third quarter 2011.
First Nine Months 2012 Summary
The company's first nine months 2012 revenue totaled $575.2 million, a $350.4 million increase from $224.8 million in first nine months 2011. This increase was primarily attributable to the patent sale to Intel. First nine months 2012 patent licensing royalties decreased $31.5 million primarily due to a $23.1 million decrease in per-unit royalty revenue and an $8.0 million decrease in past sales. The decrease in per-unit royalty revenue resulted from lower shipments by HTC, RIM and the company's Japanese per-unit licensees. In addition, technology solutions revenue of $1.9 million decreased $2.1 million due to lower royalties recognized in connection with the company's SlimChip modem IP business. During first nine months 2012, Intel (65 percent) and Samsung Electronics Company, Ltd. (13 percent), each accounted for ten percent or more of total revenue.
The company's first nine months 2012 net income was $256.3 million, or $5.81 per diluted share, compared to $66.7 million, or $1.45 per diluted share, in first nine months 2011. Not including the Intel patent sale revenue of $375.0 million, cost of patent sale of $15.6 million and the related income tax impact of $124.7 million, first nine months 2012 net income would have been $21.6 million or $0.49 per diluted share.
First nine months 2012 operating expenses of $175.0 million increased $49.5 million, or 39 percent, from $125.5 million in first nine months 2011. This increase was driven by $28.3 million increase in intellectual property enforcement and non-patent litigation costs and $16.5 million of costs associated with the company's 2012 patent sales. First nine months 2012 intellectual property enforcement and non-patent litigation costs were $44.0 million as compared to $15.8 million in first nine months 2011, and related primarily to the ITC patent infringement proceeding initiated in second half 2011. These and other increases were partially offset by lower costs associated with consulting services and the 2011 strategic evaluation process.
First nine months 2012 other expense of $7.9 million increased from $7.5 million in first nine months 2011. The change between periods primarily resulted from the recognition of an additional $3.7 million of interest expense associated with the company's 2.5% Senior Convertible Notes due 2016 issued on April 4, 2011 (the "Notes"), due to the Notes being outstanding for the full first nine months 2012. This change was partially offset by higher returns on the company's investment balances in first nine months 2012 and a decrease in other expense due to $1.6 million of investment impairments recorded in first nine months 2011.
The company's first nine months 2012 effective tax rate was approximately 35 percent, compared to an effective tax rate in first nine months 2011 of approximately 27 percent. The increase was primarily driven by the recognition of a $6.8 million benefit related to the favorable resolution of tax contingencies in first nine months 2011.
In first nine months 2012, the company generated $278.7 million in free cash flow1 compared to $54.5 million used in first nine months 2011. This change in free cash flow primarily resulted from the receipt of $375.0 million from Intel and was partially offset by higher intellectual property enforcement and non-patent litigation costs and costs of patent sale in first nine months 2012. Additionally, during first nine months 2012, the company invested $13.8 million for patent acquisitions and returned capital to shareholders through $152.7 million in share repurchases and $13.4 million in dividend payments.
Conference Call Information
InterDigital will host a conference call on Wednesday, October 24, 2012 at 5:00 p.m. Eastern Time to discuss its third quarter 2012 financial performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the Live Webcast under the Events section on the homepage. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference, call (888) 802-2225 within the U.S. or (913) 312-1254 from outside the U.S. Please call by 4:50 p.m. ET on October 24 and ask the operator for the InterDigital Financial Call.
An Internet replay of the conference call will be available on InterDigital's web site in the Investor Relations section. In addition, a telephone replay will be available from 8:00 p.m. ET October 24 through 8:00 p.m. ET October 29. To access the recorded replay, call (888) 203-1112 or (719) 457-0820 and use the replay code 7640351.
InterDigital develops fundamental wireless technologies that are at the core of mobile devices, networks, and services worldwide. We solve many of the industry's most critical and complex technical challenges, inventing solutions for more efficient broadband networks and a richer multimedia experience years ahead of market deployment. InterDigital has licenses and strategic relationships with many of the world's leading wireless companies.
InterDigital is a registered trademark of InterDigital, Inc.
For more information, visit the InterDigital website: www.interdigital.com.