OVERVIEW
The following discussion should be read in conjunction with the unaudited, condensed consolidated financial statements and notes thereto contained elsewhere in this document, in addition to our 2008 Form 10-K as filed with the SEC on March 2, 2009, other reports filed with the SEC and the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 - Forward-Looking Statements below. Please refer to the Glossary of Terms for a list and detailed description of the various technical, industry and other defined terms that are used in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
Patent Licensing
Our first quarter 2009 results include approximately two and one-half months of revenue from our recently signed license agreement with Samsung. This helped push our total recurring revenue for the quarter over $70.0 million and increased the penetration of our patent licensing program to approximately 50% of the 3G market. We are actively seeking licenses with additional parties to further increase our base of recurring patent license royalties and penetration into the 3G market.
Repositioning
On March 30, 2009, we announced a repositioning plan that includes the expansion of the technology development and licensing business, the cessation of further product development of the SlimChip modem technology, and efforts to monetize the technology investment through IP licensing and technology sales. In connection with the repositioning, the company incurred a charge of $37.1 million during first quarter 2009. Of this amount, approximately $30.6 million represents non-cash asset impairments that relate to assets used in the product and product development, including $21.2 million of acquired intangible assets and $9.4 million of property, equipment and other assets.
In addition, the repositioning resulted in a reduction in force of approximately 100 employees across the company's three locations, the majority of which were terminated effective April 3, 2009. Approximately $6.5 million of the repositioning charge represents cash obligations associated with severance and contract termination costs.
We currently estimate that we will incur additional repositioning costs of approximately $1.0 million to $2.0 million in second quarter 2009, but the timing and amount of the additional charge will be dependent upon our process to wind-down activities related to our SlimChip product development.
We expect that the repositioning will reduce our development expense for second quarter 2009 by approximately $13.0 million from first quarter 2009. Litigation and Arbitration
Please see Note 5, "Litigation and Legal Proceedings," in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full discussion of the following matter and other matters:
USITC
In August 2007, we filed a complaint against Nokia in the USITC seeking an exclusion order barring Nokia from importing certain unlicensed 3G handsets into the United States. Subsequently, Nokia successfully sought to consolidate the Nokia investigation with an investigation we had earlier initiated against Samsung in the USITC.
Nokia then unsuccessfully sought to terminate or stay the USITC investigation against it on the ground that Nokia and InterDigital must first arbitrate an alleged dispute as to whether Nokia is licensed under the patents asserted by InterDigital against Nokia in the USITC investigation. After that effort failed, Nokia sought and obtained a preliminary injunction in the U.S. District Court for the Southern District of New York preventing us from proceeding in the USITC against Nokia. Shortly after the issuance of the preliminary injunction, the Nokia USITC investigation was stayed, and the Nokia and Samsung USITC investigations were de-consolidated, which permitted the Samsung USITC investigation to move forward.
In July 2008, the Second Circuit reversed the preliminary injunction obtained by Nokia. In September 2008, the Administrative Law Judge lifted the stay in the Nokia USITC investigation, and thereafter issued the following schedule for the investigation:

  •   Evidentiary Hearing                          May 26 - 29 and June 2, 2009
  •   Initial Determination by Administrative      No later than August 14, 2009
      Law Judge
  •   Final Determination by USITC                 December 14, 2009

In March 2009, the U.S. District Court for the Southern District of New York dismissed Nokia's claims relating to its alleged license dispute.
Nokia continues to vigorously contest the USITC proceedings against them, and we have been, and will continue to be, required to expend substantial amounts to continue this and related proceedings. The timing and magnitude of these expenditures remain unpredictable.
Comparability of Financial Results

When comparing first quarter 2009 financial results against other periods, the following item should be taken into consideration:
• Our first quarter 2009 operating expense included a $37.1 million repositioning charge in connection with our decision to cease further product development of our SlimChip (™) HSPA technology.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our 2008 Form 10-K. A discussion of our critical accounting policies, and the estimates related to them, are included in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Form 10-K. There have been no material changes in our existing critical accounting policies from the disclosures included in our 2008 Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 141-R
In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141-R, Business Combinations, which revised SFAS No. 141, Business Combinations. SFAS No. 141-R is effective for us beginning January 1, 2009. Under SFAS No. 141, organizations utilized the announcement date as the measurement date for the purchase price of the acquired entity. SFAS No. 141-R requires measurement at the date the acquirer obtains control of the acquiree, generally referred to as the acquisition date. SFAS No. 141-R will have a significant impact on the accounting for transaction costs and restructuring costs, as well as the initial recognition of contingent assets and liabilities assumed during a business combination. Under SFAS No. 141-R, adjustments to the acquired entity's deferred tax assets and uncertain tax position balances occurring outside the measurement period are recorded as a component of the income tax expense, rather than goodwill. We adopted this statement on January 1, 2009. SFAS No. 141-R's impact on accounting for business combinations is dependent upon acquisitions, if any, made on or after that time.
FSP No. EITF 03-6-1
In June 2008, the FASB issued Staff Position ("FSP") No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, Earnings Per Share.Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two class method. We adopted FSP EITF 03-6-1 on January 1, 2009 and, in accordance with the FSP, have retrospectively adjusted prior-period earnings per share data.
SFAS No. 157
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. For financial assets and liabilities, SFAS No. 157 was effective for us beginning January 1, 2008. In February 2008, the FASB issued FASB Staff Position FSP No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 and FSP No. FAS 157-2, Effective Date of FASB Statement No. 157. FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delayed the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) and was adopted by the Company beginning first quarter 2009. In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, to clarify the application of SFAS 157 in inactive markets for financial assets. FSP 157-3 became effective upon issuance and SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 for both financial and non-financial assets and liabilities did not have an effect on the Company's financial condition or results of operations.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS Our primary sources of liquidity are cash, cash equivalents and short-term investments, as well as cash generated from operations. We have the ability to obtain additional liquidity through debt and equity financings but have not had a significant debt or equity financing in over 10 years and do not anticipate a need for such financings in 2009. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents and short-term investments and cash generated from our operations will be sufficient to finance our operations, capital requirements and any stock repurchases that we may make in the next twelve months. Although our existing revenue streams have been affected by the recent global economic downturn, our near term revenues are partially insulated from market swings since a large portion of our recurring patent license revenues are based on amortization of fixed royalty payments. In first quarter 2009 approximately 60% of our recurring patent license revenues resulted from the amortization of fixed royalty payments.
Cash, cash equivalents and short-term investments At March 31, 2009 and December 31, 2008, we had the following amounts of cash, cash equivalents and short-term investments (in thousands):

                                                                   March 31, 2009          December 31, 2008
Cash and cash equivalents                                         $        105,401        $           100,144
Short-term investments                                                      80,499                     41,516

Total Cash, cash equivalents and short-term investments           $        185,900        $           141,660

Our cash, cash equivalents and short-term investments increased $44.2 million in first quarter 2009. The increase was primarily due to our receipt of the first of four $100.0 million installments from Samsung under our recently signed patent license agreement. After using this and other receipts to fund our operations and working capital requirements in first quarter 2009, we invested the excess in short-term investments.

Cash flows from operations
We generated the following cash flows from our operating activities in 2009 and 2008 (in thousands):