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Acacia Research Reports Record Fourth Quarter And Record Year End Financial Results

Stocks in this article: ACTG

Verdict Insurance Proceeds. In the third quarter of 2011, Creative Internet Advertising Corporation (“CIAC”), an operating subsidiary of Acacia, received a $12,451,000 final judgment stemming from its May 2009 trial verdict and damages award in its patent infringement lawsuit with Yahoo! Inc. Yahoo! Inc. appealed the verdict, and in April 2011, a three Judge panel of the United States Court of Appeals for the Federal Circuit reversed the District Court’s judgment of infringement in a 2 to 1 decision. As a result of the reversal of the District Court’s judgment, in September 2011, CIAC submitted a claim under a specific contingency insurance policy previously purchased, and received $12,451,000 in verdict insurance proceeds.

Cost of Revenues and Other Operating Income (in thousands):

       
Three Months Ended Years Ended
December 31, December 31,
2012   2011 2012   2011
 
Inventor royalties $ 3,829 $ 6,458 $ 26,028 $ 46,614
Contingent legal fees 5,463 5,547 24,651 44,247
Verdict insurance proceeds related costs - - - 808
 

Fourth Quarter 2012 compared to Fourth Quarter 2011. Fourth quarter 2012 revenues, less inventor royalties expense and contingent legal fees expense totaled $56,972,000, or 86% of related quarterly revenues, as compared to $8,790,000 or 42%, in the comparable prior year quarter. The increase in fourth quarter revenues, less inventor royalties expense and contingent legal fees expense as a percentage of related quarterly revenues was due primarily to a higher percentage of revenues generated in the fourth quarter of 2012 having no inventor royalty obligations and lower overall average inventor royalty and contingent legal fee rates for the portfolios generating revenues in the fourth quarter of 2012, as compared to the fourth quarter of 2011.

Fiscal Year 2012 compared to Fiscal Year 2011. Fiscal year 2012 revenues, less inventor royalties expense and contingent legal fees expense totaled $200,048,000, or 80% of related fiscal year 2012 revenues, as compared to $93,038,000 or 50% (including verdict insurance proceeds and related costs) in the prior year. The increase in revenues, less inventor royalties expense and contingent legal fees expense as a percentage of related fiscal year revenues was due primarily to a higher percentage of revenues generated in fiscal year 2012 having no inventor royalty obligations, and lower overall average inventor royalty and contingent legal fee rates for the portfolios generating revenues in fiscal year 2012, as compared to fiscal year 2011.

The economic terms of the patent portfolio acquisition agreements and contingent legal fee arrangements, if any, including royalty obligations, if any, royalty rates, contingent fee rates and other terms and conditions, vary across the patent portfolios owned or controlled by our operating subsidiaries. These expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

       
Three Months Ended Years Ended
December 31, December 31,
2012   2011 2012   2011
 
Litigation and licensing expenses - patents $ 6,969 $ 2,205 $ 21,591 $ 13,005
 

Fourth quarter and fiscal year 2012 litigation and licensing expenses-patents increased due primarily to higher net levels of patent portfolio prosecution, litigation support, third-party technical consulting and professional expert expenses associated with our continued investment in ongoing and new licensing and enforcement programs commenced since the end of the prior year. We expect patent-related legal expenses to continue to fluctuate period to period in connection with our current and future patent acquisition, development, licensing and enforcement activities.

       
Three Months Ended Years Ended
December 31, December 31,
2012   2011 2012   2011
 
Amortization of patents $ 18,088 $ 1,427 $ 39,019 $ 9,745
 

Fourth quarter and fiscal year 2012 non-cash patent amortization charges increased due primarily to $6,575,000 and $19,930,000, respectively, of increased amortization expense related to new patent portfolios acquired since the end of the comparable prior year periods, comprised primarily of non-cash patent amortization expense related to the patents acquired in connection with our acquisition of ADAPTIX, Inc. in the first quarter of 2012 and other patent portfolios acquired in fiscal year 2012. The change also reflects a fourth quarter 2012 and fiscal year 2012 increase in accelerated amortization related to recoupable up-front patent portfolio acquisition costs recovered totaling $10,065,000 and $7,463,000, respectively.

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