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DELAWARE
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95-4405754
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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ACACIA RESEARCH CORPORATION
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Table Of Contents
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Part I.
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Financial Information
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Part II.
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Other Information
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Item 6.
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Signatures
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Exhibit Index
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June 30,
2012 |
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December 31,
2011 |
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ASSETS
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Current assets:
|
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||||
Cash and cash equivalents
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$
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296,866
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$
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314,733
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Short-term investments
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132,496
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6,597
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Accounts receivable
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10,822
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2,915
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Prepaid expenses and other current assets
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1,786
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|
803
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Total current assets
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441,970
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325,048
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Property and equipment, net of accumulated depreciation
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342
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220
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Patents, net of accumulated amortization
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214,204
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25,188
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Goodwill
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36,217
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—
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Investments - noncurrent
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1,506
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1,956
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Other assets
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462
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465
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$
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694,701
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$
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352,877
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and accrued expenses / costs
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$
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18,648
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$
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6,625
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Royalties and contingent legal fees payable
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19,103
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23,508
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Total current liabilities
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37,751
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30,133
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Deferred income taxes
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32,592
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—
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Other liabilities
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654
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632
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Total liabilities
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70,997
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30,765
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Commitments and contingencies (Note 5)
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Stockholders’ equity:
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Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding
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—
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—
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Common stock, par value $0.001 per share; 100,000,000 shares authorized; 49,714,283 and 42,928,001 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
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50
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43
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Additional paid-in capital
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627,825
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386,821
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Accumulated comprehensive income (loss)
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797
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(1,830
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)
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Accumulated deficit
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(8,836
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)
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(65,085
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)
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Total Acacia Research Corporation stockholders’ equity
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619,836
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319,949
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Noncontrolling interests in operating subsidiaries
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3,868
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2,163
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Total stockholders’ equity
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623,704
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322,112
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$
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694,701
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$
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352,877
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2012
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2011
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2012
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2011
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||||||||
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Revenues
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$
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50,484
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$
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39,746
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$
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149,524
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$
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100,876
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Operating costs and expenses:
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Cost of revenues:
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Inventor royalties
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9,573
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8,588
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17,167
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21,677
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Contingent legal fees
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6,607
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13,039
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10,355
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22,406
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Litigation and licensing expenses - patents
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5,268
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3,761
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8,649
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7,295
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Amortization of patents
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5,393
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2,600
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10,519
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6,372
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Marketing, general and administrative expenses (including non-cash stock compensation expense of $6,000 and $11,090 for the three and six months ended June 30, 2012, respectively, and $3,422 and $6,323 for the three and six months ended June 30, 2011, respectively)
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11,903
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8,302
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25,634
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18,287
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Research, consulting and other expenses - business development
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1,967
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1,335
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3,083
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2,043
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Total operating costs and expenses
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40,711
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37,625
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75,407
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78,080
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Operating income
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9,773
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2,121
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74,117
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22,796
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Interest and investment income
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102
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24
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158
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53
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Income from operations before provision for income taxes
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9,875
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2,145
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74,275
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22,849
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Provision for income taxes
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(3,494
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)
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(306
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)
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(18,241
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)
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(7,454
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)
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Net income including noncontrolling interests in operating subsidiaries
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6,381
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1,839
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56,034
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15,395
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Net (income) loss attributable to noncontrolling interests in operating subsidiaries
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(60
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)
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300
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215
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(903
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)
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Net income attributable to Acacia Research Corporation
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$
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6,321
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$
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2,139
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$
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56,249
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$
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14,492
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Net income per common share attributable to Acacia Research Corporation:
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Basic earnings per share
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$
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0.13
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$
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0.05
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$
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1.22
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$
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0.38
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Diluted earnings per share
|
$
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0.13
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$
|
0.05
|
|
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$
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1.19
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$
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0.37
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Weighted average number of shares outstanding, basic
|
47,944,193
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|
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40,994,082
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46,155,846
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38,104,500
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|
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Weighted average number of shares outstanding, diluted
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48,938,766
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42,453,782
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47,208,105
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39,477,616
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Three Months Ended June 30,
|
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Six Months Ended June 30,
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||||||||||||
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2012
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2011
|
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2012
|
|
2011
|
||||||||
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Net income attributable to Acacia Research Corporation
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$
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6,321
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$
|
2,139
|
|
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$
|
56,249
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$
|
14,492
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Other comprehensive income:
|
|
|
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|
|
|
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Unrealized gain on short-term investments, net of income tax benefit (expense) of $64 and $(332) for the three and six months ended June 30, 2012, respectively, and $0 for the three and six months ended June 30, 2011
|
158
|
|
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—
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|
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2,588
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|
|
—
|
|
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Add: reclassification adjustment for losses included in net income
|
39
|
|
|
—
|
|
|
39
|
|
|
—
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|
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Comprehensive income
|
$
|
6,518
|
|
|
$
|
2,139
|
|
|
$
|
58,876
|
|
|
$
|
14,492
|
|
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Six Months Ended June 30,
|
||||||
|
2012
|
|
2011
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income including noncontrolling interests in operating subsidiaries
|
$
|
56,034
|
|
|
$
|
15,395
|
|
Adjustments to reconcile net income including noncontrolling interests in operating subsidiaries to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
10,585
|
|
|
6,418
|
|
||
Non-cash stock compensation
|
11,090
|
|
|
6,323
|
|
||
Change in valuation allowance on deferred taxes
|
(10,237
|
)
|
|
—
|
|
||
Other
|
49
|
|
|
(9
|
)
|
||
Changes in assets and liabilities:
|
|
|
|
|
|||
Accounts receivable
|
(7,907
|
)
|
|
(12,379
|
)
|
||
Prepaid expenses and other assets
|
(271
|
)
|
|
(63
|
)
|
||
Accounts payable and accrued expenses / costs
|
2,945
|
|
|
(497
|
)
|
||
Royalties and contingent legal fees payable
|
(4,405
|
)
|
|
9,931
|
|
||
Deferred income tax
|
5,522
|
|
|
—
|
|
||
|
|
|
|
||||
Net cash provided by operating activities
|
63,405
|
|
|
25,119
|
|
||
|
|
|
|
|
|
||
Cash flows from investing activities:
|
|
|
|
|
|
||
Purchases of property and equipment
|
(188
|
)
|
|
(88
|
)
|
||
Purchase of available-for-sale investments
|
(239,952
|
)
|
|
—
|
|
||
Maturities and sale of available-for-sale investments
|
117,462
|
|
|
35
|
|
||
Purchase of ADAPTIX, Inc., net of cash acquired
|
(150,000
|
)
|
|
—
|
|
||
Patent acquisition costs
|
(40,435
|
)
|
|
(1,805
|
)
|
||
|
|
|
|
||||
Net cash used in investing activities
|
(313,113
|
)
|
|
(1,858
|
)
|
||
|
|
|
|
|
|
||
Cash flows from financing activities:
|
|
|
|
|
|
||
Proceeds from sale of common stock, net of issuance costs
|
218,983
|
|
|
175,232
|
|
||
Distributions to noncontrolling interests in operating subsidiary
|
—
|
|
|
(2,897
|
)
|
||
Contributions from noncontrolling interests in operating subsidiary
|
1,920
|
|
|
877
|
|
||
Excess tax benefits from stock-based compensation
|
10,850
|
|
|
23
|
|
||
Proceeds from exercises of stock options
|
88
|
|
|
404
|
|
||
|
|
|
|
||||
Net cash provided by financing activities
|
231,841
|
|
|
173,639
|
|
||
|
|
|
|
|
|
||
(Decrease) increase in cash and cash equivalents
|
(17,867
|
)
|
|
196,900
|
|
||
|
|
|
|
|
|
||
Cash and cash equivalents, beginning
|
314,733
|
|
|
102,515
|
|
||
|
|
|
|
|
|
||
Cash and cash equivalents, ending
|
$
|
296,866
|
|
|
$
|
299,415
|
|
|
|
|
|
||||
Supplemental schedule of noncash investing activities:
|
|
|
|
||||
Patent acquisition costs included in accrued expenses / costs
|
$
|
10,000
|
|
|
$
|
—
|
|
|
●
|
Level 1 - Observable Inputs: Quoted prices in active markets for identical investments;
|
|
●
|
Level 2 - Pricing Models with Significant Observable Inputs: Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and
|
|
●
|
Level 3 - Unobservable Inputs: Significant unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.
|
|
June 30, 2012
|
||||||||||||||
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
||||||||
U.S. government fixed income securities
|
$
|
124,957
|
|
|
$
|
22
|
|
|
$
|
(206
|
)
|
|
$
|
124,773
|
|
Equity securities of certain technology companies
|
6,410
|
|
|
1,489
|
|
|
(176
|
)
|
|
7,723
|
|
||||
Total short-term investments
|
$
|
131,367
|
|
|
$
|
1,511
|
|
|
$
|
(382
|
)
|
|
$
|
132,496
|
|
|
|
|
|
|
|
|
|
||||||||
|
December 31, 2011
|
||||||||||||||
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
||||||||
U.S. government fixed income securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities of certain technology companies
|
8,427
|
|
|
169
|
|
|
(1,999
|
)
|
|
6,597
|
|
||||
Total short-term investments
|
$
|
8,427
|
|
|
$
|
169
|
|
|
$
|
(1,999
|
)
|
|
$
|
6,597
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding - basic
|
47,944,193
|
|
|
40,994,082
|
|
|
46,155,846
|
|
|
38,104,500
|
|
Dilutive effect of Equity-based Incentive Awards
|
994,573
|
|
|
1,459,700
|
|
|
1,052,259
|
|
|
1,373,116
|
|
Weighted-average common shares outstanding - diluted
|
48,938,766
|
|
|
42,453,782
|
|
|
47,208,105
|
|
|
39,477,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive Equity-based Incentive Awards excluded from the computation of diluted income per share
|
54,260
|
|
|
37,760
|
|
|
34,260
|
|
|
69,960
|
|
Remainder of 2012
|
$
|
13,934
|
|
2013
|
27,589
|
|
|
2014
|
27,336
|
|
|
2015
|
26,874
|
|
|
2016
|
25,761
|
|
|
Thereafter
|
92,710
|
|
|
Total
|
$
|
214,204
|
|
|
|
|
|
Amortization Period
|
|
Annual Amortization
|
||||
Assets Acquired and Liabilities Assumed:
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
||||
Fair value of net tangible assets acquired
|
|
$
|
10,000
|
|
|
|
|
|
||
Intangible assets acquired - patents
|
|
150,000
|
|
|
10 years
|
|
$
|
15,000
|
|
|
Goodwill
|
|
36,202
|
|
|
|
|
|
|||
Net deferred income tax liability
|
|
(36,202
|
)
|
|
|
|
|
|||
Total
|
|
$
|
160,000
|
|
|
|
|
|
|
|
Book Basis
|
|
Tax Basis
|
|
Difference
|
||||||
|
|
|
|
|
|
|
||||||
Intangible assets acquired - patents
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
$
|
(150,000
|
)
|
Estimated net operating loss carryforwards - ADAPTIX
|
|
—
|
|
|
46,565
|
|
|
46,565
|
|
|||
Net deferred tax liability - pretax
|
|
|
|
|
|
(103,435
|
)
|
|||||
Estimated tax rate
|
|
|
|
|
|
35
|
%
|
|||||
Estimated net deferred tax liability
|
|
|
|
|
|
$
|
(36,202
|
)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
50,484
|
|
|
$
|
39,746
|
|
|
$
|
149,524
|
|
|
$
|
100,876
|
|
Total operating costs and expenses
|
40,711
|
|
|
41,893
|
|
|
76,045
|
|
|
86,870
|
|
||||
Operating income (loss)
|
9,773
|
|
|
(2,147
|
)
|
|
73,479
|
|
|
14,006
|
|
||||
Interest and investment income
|
102
|
|
|
24
|
|
|
158
|
|
|
53
|
|
||||
Income (loss) from operations before provision for income taxes
|
9,875
|
|
|
(2,123
|
)
|
|
73,637
|
|
|
14,059
|
|
||||
Provision for income taxes
|
(3,494
|
)
|
|
(306
|
)
|
|
(18,241
|
)
|
|
(7,454
|
)
|
||||
Net income (loss) including noncontrolling interests in operating subsidiaries
|
6,381
|
|
|
(2,429
|
)
|
|
55,396
|
|
|
6,605
|
|
||||
Net (income) loss attributable to noncontrolling interests in operating subsidiaries
|
(60
|
)
|
|
300
|
|
|
215
|
|
|
(903
|
)
|
||||
Net income (loss) attributable to Acacia Research Corporation
|
$
|
6,321
|
|
|
$
|
(2,129
|
)
|
|
$
|
55,611
|
|
|
$
|
5,702
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Pro forma income (loss) per common share attributable to Acacia Research Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.20
|
|
|
$
|
0.15
|
|
Diluted earnings (loss) per share
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.18
|
|
|
$
|
0.14
|
|
Weighted average number of shares outstanding, basic
|
47,944,193
|
|
|
40,994,082
|
|
|
46,155,846
|
|
|
38,104,500
|
|
||||
Weighted average number of shares outstanding, diluted
|
48,938,766
|
|
|
42,453,782
|
|
|
47,208,105
|
|
|
39,477,616
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Revenues (in thousands)
|
$
|
50,484
|
|
|
$
|
39,746
|
|
|
$
|
149,524
|
|
|
$
|
100,876
|
|
New agreements executed
|
38
|
|
|
29
|
|
|
78
|
|
|
64
|
|
||||
Licensing and enforcement programs generating revenues
|
27
|
|
|
24
|
|
|
45
|
|
|
43
|
|
||||
Licensing and enforcement programs with initial revenues
|
7
|
|
|
5
|
|
|
13
|
|
|
13
|
|
||||
New patent portfolios
|
27
|
|
|
9
|
|
|
32
|
|
|
17
|
|
||||
Cumulative number of licensing and enforcement programs generating revenues - inception to date
|
125
|
|
|
104
|
|
|
125
|
|
|
104
|
|
•
|
the dollar amount of agreements executed each period
which can be driven by the nature and characteristics of the technology or technologies being licensed and the magnitude of infringement associated with a specific licensee
,
|
•
|
the specific terms and conditions of agreements executed each period including the nature and characteristics of rights granted, and the periods of infringement or term of use contemplated by the respective payments,
|
•
|
fluctuations in the total number of agreements executed each period,
|
•
|
the timing, results and uncertainties associated with patent filings and other enforcement proceedings relating to our intellectual property rights,
|
•
|
the relative maturity of licensing programs during the applicable periods, and
|
•
|
other external factors.
|
As of Date:
|
|
Trailing Twelve -Month Revenues
|
|
% Change
|
|||
|
|
|
|
|
|||
June 30, 2012
|
|
$
|
233,355
|
|
|
5
|
%
|
March 31, 2012
|
|
222,617
|
|
|
21
|
%
|
|
December 31, 2011
|
|
184,707
|
|
|
4
|
%
|
|
September 30, 2011
|
|
177,014
|
|
|
(1
|
)%
|
|
June 30, 2011
|
|
177,927
|
|
|
—
|
%
|
•
|
4G Wireless technology
(1)
|
|
•
|
Messaging technology
|
•
|
Audio Communications Fraud Detection technology
|
|
•
|
Mobile Computer Synchronization technology
|
•
|
Camera Support technology
|
|
•
|
Online Auction Guarantee technology
|
•
|
Consumer Rewards technology
(1)
|
|
•
|
Network Monitoring technology
|
•
|
Data Compression technology
|
|
•
|
NOR Flash technology
|
•
|
DDR SDRAM technology
|
|
•
|
Optical Recording technology
|
•
|
Digital Signal Processing Architecture technology
|
|
•
|
Optical Switching technology
|
•
|
Disk Array Systems & Storage Area Network technology
|
|
•
|
Pop-up Internet Advertising technology
|
•
|
DMT® technology
|
|
•
|
Power-over-Ethernet technology
|
•
|
Document Generation technology
|
|
•
|
Rule Based Monitoring technology
|
•
|
Dynamic Random Access Memory technology
(1)(2)
|
|
•
|
Semiconductor Memory and Process Patents technology
(1)
|
•
|
Facilities Operation Management System technology
|
|
•
|
Shape Memory Alloys technology
|
•
|
Hearing Aid technology
(1)(2)
|
|
•
|
Software Activation technology
(1)(2)
|
•
|
Impact Instrument technology
|
|
•
|
Targeted Content Delivery technology
|
•
|
Improved Anti-Trap Safety Technology for Vehicles technology
(1)
|
|
•
|
Telematics technology
|
•
|
Improved Lighting technology
|
|
•
|
User Programmable Engine Control technology
|
•
|
Improved Memory Manufacturing technology
(1)
|
|
•
|
Video Delivery and Processing technology
(1)(2)
|
•
|
Information Storage, Searching and Retrieval technology
(1)(2)
|
|
•
|
Video Encoding technology
|
•
|
Integrated Access technology
(1)(2)
|
|
•
|
Videoconferencing technology
(1)(2)
|
•
|
Lighting Ballast technology
|
|
•
|
Visual Data Evaluation technology
|
•
|
Location Based Services technology
|
|
•
|
Voice-Over-IP technology
(1)
|
•
|
Medical Monitoring technology
|
|
•
|
Website Crawling technology
|
•
|
MEMS technology
|
|
|
|
(1)
|
Initial revenues recognized during the six months ended June 30, 2012.
|
(2)
|
Initial revenues recognized during the three months ended June 30, 2012.
|
•
|
Audio Communications Fraud Detection technology
|
|
•
|
Manufacturing Data Transfer technology
|
•
|
Camera Support technology
|
|
•
|
Messaging technology
(1)
|
•
|
Catheter Insertion technology
(1)
|
|
•
|
Microprocessor Enhancement technology
|
•
|
Computer Architecture and Power Management technology
(1)
|
|
•
|
Mobile Computer Synchronization technology
|
•
|
Computer Graphics technology
|
|
•
|
Network Remote Access technology
|
•
|
Database Retrieval technology
(1)(2)
|
|
•
|
NOR Flash technology
(1)
|
•
|
DDR SDRAM technology
(1)(2)
|
|
•
|
Online Auction Guarantee technology
|
•
|
Digital Signal Processing Architecture technology
|
|
•
|
Optical Recording technology
(1)(2)
|
•
|
Digital Video Enhancement technology
|
|
•
|
Optical Switching technology
|
•
|
DMT® technology
|
|
•
|
Pop-up Internet Advertising technology
|
•
|
Document Generation technology
|
|
•
|
Power Management Within Integrated Circuits technology
(1)
|
•
|
DRAM Memory architecture technology
|
|
•
|
Rule Based Monitoring technology
|
•
|
Facilities Operation Management System technology
|
|
•
|
Shape Memory Alloys technology
(1)(2)
|
•
|
Image Resolution Enhancement technology
|
|
•
|
Short Messaging in Cellular Telephony technology
|
•
|
Improved Commercial Print technology
|
|
•
|
Storage technology
|
•
|
Improved Lighting technology
|
|
•
|
Telematics technology
|
•
|
Interactive Mapping technology
|
|
•
|
User Programmable Engine Control technology
(1)
|
•
|
Lighting Ballast technology
|
|
•
|
Video Encoding technology
(1)(2)
|
•
|
Lighting Control technology
(1)
|
|
•
|
Virtual Server technology
|
•
|
Location Based Services technology
|
|
•
|
Visual Data Evaluation technology
|
•
|
Magnetic Storage technology
(1)
|
|
•
|
Website Crawling technology
|
(1)
|
Initial revenues recognized during the six months ended June 30, 2011.
|
(2)
|
Initial revenues recognized during the three months ended June 30, 2011.
|
|
Three Months Ended June 30,
|
|
%
|
|
Six Months Ended June 30,
|
|
%
|
||||||||||||||
|
2012
|
|
2011
|
|
Change
|
|
2012
|
|
2011
|
|
Change
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
50,484
|
|
|
$
|
39,746
|
|
|
27
|
%
|
|
$
|
149,524
|
|
|
$
|
100,876
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating costs and expenses
|
40,711
|
|
|
37,625
|
|
|
8
|
%
|
|
75,407
|
|
|
78,080
|
|
|
(3
|
)%
|
||||
Operating income
|
9,773
|
|
|
2,121
|
|
|
*
|
|
74,117
|
|
|
22,796
|
|
|
225
|
%
|
|||||
Provision for income taxes
|
(3,494
|
)
|
|
(306
|
)
|
|
*
|
|
(18,241
|
)
|
|
(7,454
|
)
|
|
145
|
%
|
|||||
Net income attributable to Acacia Research Corporation
|
6,321
|
|
|
2,139
|
|
|
196%
|
|
56,249
|
|
|
14,492
|
|
|
288
|
%
|
•
|
Revenues increased
$10.7 million
, or
27%
, to
$50.5 million
, as compared to
$39.7 million
in the comparable prior year quarter.
|
•
|
Cost of Revenues and Other Operating Expenses:
|
◦
|
Inventor royalties and contingent legal fees, on a combined basis, decreased
$5.4 million
, or
25%
, as compared to the
27%
increase in related revenues for the same periods due primarily to a greater percentage of revenues generated during the three months ended
June 30, 2012
having no inventor royalty or contingent legal fee arrangement obligations, as compared to the revenues generated during the three months ended
June 30, 2011
.
|
◦
|
Litigation and licensing expenses-patents increased
$1.5 million
, or
40%
, to
$5.3 million
,
due primarily to higher net levels of litigation support, third-party technical consulting and professional expert expenses associated with our investment in new licensing and enforcement programs commenced since June 2011.
|
◦
|
Amortization of patents increased
$2.8 million
, or
107%
, to
$5.4 million
, due primarily to amortization expense related to new patent portfolios acquired since June 30, 2011, totaling $4.3 million. The increase was partially offset by a $1.1 million decrease in accelerated patent amortization related to recoupable up-front patent portfolio acquisition costs recovered during the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.
|
◦
|
Marketing, general and administrative expenses increased
$3.6 million
, or
43%
, to
$11.9 million
,
due primarily to an increase in non-cash stock compensation charges resulting from an increase in the average grant date fair value of restricted shares expensed during the three months ended
June 30, 2012
, a net increase in licensing, business development, and engineering personnel since June 2011, and an increase in variable performance-based compensation costs.
|
◦
|
Research, consulting and other expenses-business development increased
$632,000
, or
47%
, to
$2.0 million
, due primarily to a net increase in third-party research, consulting and other due diligence related costs incurred in connection with the identification, review, and assessment of patent portfolio acquisition opportunities during the three months ended
June 30, 2012
.
|
◦
|
Provision for income taxes increased
$3.2 million
, or +100%, to
$3.5 million
, reflecting the calculation of tax expense for financial reporting purposes without the excess tax benefits related to the exercise and vesting of equity-based incentive awards. Non-cash tax expense of $3.2 million was credited to additional-paid-in-capital, not taxes payable. Refer to “Comparison of Results of Operations” below for additional information.
|
•
|
Revenues increased
$48.6 million
, or
48%
, to
$149.5 million
, as compared to
$100.9 million
in the comparable prior year period.
|
•
|
Cost of Revenues and Other Operating Expenses:
|
◦
|
Inventor royalties and contingent legal fees, on a combined basis, decreased
$16.6 million
, or
38%
, as compared to the
48%
increase in related revenues for the same periods due primarily to a greater percentage of revenues generated during the
six months
ended
June 30, 2012
having no inventor royalty or contingent legal fee arrangement obligations, as compared to the revenues generated during the
six months
ended
June 30, 2011
.
|
◦
|
Litigation and licensing expenses-patents increased
$1.4 million
, or
19%
, to
$8.6 million
,
due primarily to higher net levels of litigation support, third-party technical consulting and professional expert expenses associated with our investment in new licensing and enforcement programs commenced since June 2011.
|
◦
|
Amortization increased
$4.1 million
, or
65%
, to
$10.5 million
, due primarily to amortization expense related to new patent portfolios acquired since June 30, 2011, totaling $7.8 million. The increase was partially offset by a $3.0 million decrease in accelerated patent amortization related to recoupable up-front patent portfolio
|
◦
|
Marketing, general and administrative expenses increased
$7.3 million
, or
40%
, to
$25.6 million
,
due primarily to an increase in non-cash stock compensation charges resulting from an increase in the average grant date fair value of restricted shares expensed during the
six months
ended
June 30, 2012
, a net increase in licensing, business development, and engineering personnel since June 2011, an increase in variable performance-based compensation costs and a net increase in corporate general and administrative costs.
|
◦
|
Research, consulting and other expenses-business development increased
$1.0 million
, or
51%
, to
$3.1 million
, due primarily to a net increase in third-party research, consulting and other due diligence related costs incurred in connection with the identification, review, and assessment of patent portfolio acquisition opportunities during the
six months
ended
June 30, 2012
.
|
◦
|
Provision for income taxes increased
$10.8 million
, or
145%
, to
$18.2 million
. Tax expense for financial reporting purposes for the periods presented was calculated without the excess tax benefits related to the exercise and vesting of equity-based incentive awards. Accordingly,
$10.9 million
of non-cash tax expense was credited to additional-paid-in-capital, not taxes payable. Our effective tax rate for the
six months
ended
June 30, 2012
was
25%
, reflecting the impact of the income tax benefit associated with the release of valuation allowance primarily resulting from the ADAPTIX acquisition, as described at Note
2
to the Consolidated Financial Statements elsewhere herein. As of June 30, 2012, taxes paid or payable totaled approximately $12.4 million, primarily comprised of foreign withholding taxes withheld of $11.9 million, and other state related taxes payable. Refer to “Comparison of Results of Operations” below for additional information.
|
•
|
In April 2012, we entered into a patent licensing alliance with TeleCommunication Systems, Inc. (TCS) to become the exclusive licensor of TCS’ inter-carrier messaging (ICM) patent portfolio.
|
•
|
In May 2012, we acquired patents, originally issued to Polaroid, covering digital imaging and related technologies.
|
•
|
In May 2012, we acquired rights to 6 prominent patent portfolios comprising 68 patents covering a wide range of software technologies relating to business intelligence and data analysis, office productivity, virtualization,
|
•
|
In June 2012, we acquired 7 medtech patent portfolios comprised of over 150 patents and pending applications relating to medical devices, biologics and diagnostic techniques.
|
•
|
In June 2012, we acquired patents for x-ray powder diffraction technology.
|
•
|
In June 2012, we acquired 5 patent portfolios with 156 U.S. and international patents from a major semiconductor technology company.
|
•
|
In June 2012, we acquired patents relating to computer aided design tools.
|
•
|
In June 2012, we acquired 4 patent portfolios with 48 U.S. and international patents from a major technology company.
|
•
|
Increases in patent-related legal expenses, including, but not limited to, increases in costs billed by outside legal counsel for discovery, depositions, economic analyses, damages assessments, expert witnesses and other consultants, case-related audio/video presentations and other litigation support and administrative costs, could increase our operating costs and decrease our revenue generating opportunities;
|
•
|
Our patented technologies and enforcement actions are complex, and, as a result, we may be required to appeal adverse decisions by trial courts in order to successfully enforce our patents;
|
•
|
New legislation, regulations or rules related to enforcement actions could significantly increase our operating costs and decrease our revenue generating opportunities; and
|
•
|
Courts may rule that our subsidiaries have violated certain statutory, regulatory, federal, local or governing rules or standards by pursuing such enforcement actions, which may expose us and our operating subsidiaries to material liabilities, which could harm our operating results and our financial position.
|
|
|
Three Months Ended June 30,
|
|
$
|
|
%
|
|
Six Months Ended June 30,
|
|
$
|
|
%
|
||||||||||||||||||
|
|
2012
|
|
2011
|
|
Change
|
|
Change
|
|
2012
|
|
2011
|
|
Change
|
|
Change
|
||||||||||||||
|
|
(in thousands, except percentages)
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Revenues
|
|
$
|
50,484
|
|
|
$
|
39,746
|
|
|
$
|
10,738
|
|
|
27
|
%
|
|
$
|
149,524
|
|
|
$
|
100,876
|
|
|
$
|
48,648
|
|
|
48
|
%
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|||||||||||
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
New agreements executed
|
|
38
|
|
|
29
|
|
|
78
|
|
|
64
|
|
|||
Average revenue per agreement (in thousands)
|
|
$
|
1,329
|
|
|
$
|
1,371
|
|
|
1,917
|
|
|
$
|
1,576
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||
|
|
2012 vs. 2011
|
|
2012 vs. 2011
|
||||
|
|
(in thousands)
|
||||||
Increase in number of agreements executed
|
|
$
|
12,335
|
|
|
$
|
22,067
|
|
(Decrease) increase in average revenue per agreement executed
|
|
(1,597
|
)
|
|
26,581
|
|
||
Total
|
|
$
|
10,738
|
|
|
$
|
48,648
|
|
|
|
Three Months Ended June 30,
|
|
$
|
|
%
|
|
Six Months Ended June 30,
|
|
$
|
|
%
|
||||||||||||||||||
|
|
2012
|
|
2011
|
|
Change
|
|
Change
|
|
2012
|
|
2011
|
|
Change
|
|
Change
|
||||||||||||||
|
|
(in thousands, except percentages)
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Inventor royalties
|
|
$
|
9,573
|
|
|
$
|
8,588
|
|
|
$
|
985
|
|
|
11
|
%
|
|
$
|
17,167
|
|
|
$
|
21,677
|
|
|
$
|
(4,510
|
)
|
|
(21
|
)%
|
Contingent legal fees
|
|
6,607
|
|
|
13,039
|
|
|
(6,432
|
)
|
|
(49
|
)%
|
|
10,355
|
|
|
22,406
|
|
|
(12,051
|
)
|
|
(54
|
)%
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||
|
|
2012 vs. 2011
|
|
2012 vs. 2011
|
||||
|
|
(in thousands)
|
||||||
Increase in inventor royalty rates
|
|
$
|
3,248
|
|
|
$
|
6,177
|
|
Increase in total revenues
|
|
2,323
|
|
|
11,530
|
|
||
(Increase) in revenues without inventor royalty obligations
|
|
(4,586
|
)
|
|
(22,217
|
)
|
||
Total
|
|
$
|
985
|
|
|
$
|
(4,510
|
)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||
|
|
2012 vs. 2011
|
|
2012 vs. 2011
|
||||
|
|
(in thousands)
|
||||||
(Decrease) in contingent legal fee rates
|
|
$
|
(3,762
|
)
|
|
$
|
(612
|
)
|
Increase in total revenues
|
|
3,545
|
|
|
10,855
|
|
||
(Increase) in revenues without contingent legal fee obligations
|
|
(6,215
|
)
|
|
(22,294
|
)
|
||
Total
|
|
$
|
(6,432
|
)
|
|
$
|
(12,051
|
)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
(in thousands)
|
||||||||||||||
Litigation and licensing expenses - patents
|
|
$
|
5,268
|
|
|
$
|
3,761
|
|
|
$
|
8,649
|
|
|
$
|
7,295
|
|
Amortization of patents
|
|
5,393
|
|
|
2,600
|
|
|
10,519
|
|
|
6,372
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
(in thousands)
|
||||||||||||||
Marketing, general and administrative expenses (including non-cash stock compensation expense of $6,000 and $11,090 for the three and six months ended June 30, 2012, respectively, and $3,422 and $6,323 for the three and six months ended June 30, 2011, respectively)
|
$
|
11,903
|
|
|
$
|
8,302
|
|
|
$
|
25,634
|
|
|
$
|
18,287
|
|
|
Three Months
|
|
Six Months
|
||||
|
Ended June 30,
|
|
Ended June 30,
|
||||
|
2012 vs. 2011
|
|
2012 vs. 2011
|
||||
|
(in thousands)
|
||||||
Addition of business development, engineering and other personnel costs
|
$
|
492
|
|
|
$
|
1,236
|
|
Increase in annual variable performance-based compensation and other variable performance-based compensation costs
|
438
|
|
|
710
|
|
||
Corporate, general and administrative costs
|
93
|
|
|
634
|
|
||
Non-cash stock compensation expense
|
2,578
|
|
|
4,767
|
|
||
Total
|
$
|
3,601
|
|
|
$
|
7,347
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Provision for income taxes (in thousands)
|
$
|
3,494
|
|
|
$
|
306
|
|
|
$
|
18,241
|
|
|
$
|
7,454
|
|
Effective tax rate
|
35
|
%
|
|
14
|
%
|
|
25
|
%
|
|
33
|
%
|
•
|
Noncash tax expense calculated without the excess tax benefit related to the exercise and vesting of equity-based incentive awards, totaling approximately
$3.2 million
and
$10.9 million
for the three and six months ended June 30 2012, respectively, which was credited to additional paid-in capital, not taxes payable, and other state related taxes.
|
•
|
Foreign withholding taxes, totaling $28,000 and
$11.9 million
for the three and
six months
ended
June 30, 2012
, withheld by the applicable foreign tax authority on revenue agreements executed with third party licensees domiciled in certain foreign jurisdictions. The tax provision for the three and
six months
ended
June 30, 2012
provides for the utilization of a substantial portion of the
$11.9 million
in foreign taxes withheld during 2012 as a credit against income tax expense calculated for financial statement purposes.
|
•
|
As of December 31, 2011, we maintained a full valuation allowance against our net deferred tax assets. The net deferred tax liability resulting from the acquisition of ADAPTIX created an additional source of income to utilize against the majority of our existing consolidated net deferred tax assets. In addition, we estimated that certain other deferred tax assets related to foreign tax credits and other state related deferreds, totaling approximately $1.9 million, were more likely than not realizable in future periods. Accordingly, the valuation allowance on the majority of our net deferred tax assets was released, resulting in a first quarter 2012 financial statement income tax benefit of approximately $10.2 million. The offsetting amounts reduced net deferred tax liabilities, $8.3 million of which decreased the net deferred tax liability established in connection with the application of the acquisition method of accounting for the ADAPTIX acquisition.
|
|
Six Months Ended June 30,
|
||||||
|
2012
|
|
2011
|
||||
|
|
|
|
||||
Net cash provided by (used in):
|
|
|
|
||||
Operating activities
|
$
|
63,405
|
|
|
$
|
25,119
|
|
Investing activities
|
(313,113
|
)
|
|
(1,858
|
)
|
||
Financing activities
|
231,841
|
|
|
173,639
|
|
|
Payments Due by Period (In thousands)
|
||||||||||||||||||
Contractual Obligations
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating leases
|
$
|
2,846
|
|
|
$
|
311
|
|
|
$
|
1,451
|
|
|
$
|
1,084
|
|
|
|
|
|
Scheduled patent acquisition related payments
|
10,500
|
|
|
10,000
|
|
|
250
|
|
|
250
|
|
|
—
|
|
|||||
Payments to consultants
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual obligations
|
$
|
13,346
|
|
|
$
|
10,311
|
|
|
$
|
1,701
|
|
|
$
|
1,334
|
|
|
$
|
—
|
|
EXHIBIT
NUMBER
|
EXHIBIT
|
|
|
10.1
|
Form of Indemnification Agreement
|
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
|
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
|
32.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
|
32.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
|
101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T.*
|
|
ACACIA RESEARCH CORPORATION
|
|
|
|
/
s/ Paul R. Ryan
|
|
By: Paul R. Ryan
|
|
President and Chief Executive Officer
|
|
(Principal Executive Officer and Duly Authorized Signatory)
|
|
|
|
/s/ Clayton J. Haynes
|
|
By: Clayton J. Haynes
|
|
Chief Financial Officer and Treasurer
|
|
(Principal Financial and Accounting Officer)
|
EXHIBIT
NUMBER
|
EXHIBIT
|
|
|
10.1
|
Form of Indemnification Agreement
|
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
|
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
|
32.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
|
32.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
|
101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T.*
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Acacia Research Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated: July 30, 2012
|
/s/ Paul R. Ryan
|
|
|
Paul R. Ryan
President and Chief Executive Officer
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Acacia Research Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Dated: July 30, 2012
|
/s/ Clayton J. Haynes
|
|
|
Clayton J. Haynes
Chief Financial Officer and Treasurer
|
|
|
By:
/s/ Paul R. Ryan
Paul R. Ryan
President and Chief Executive Officer
|
|
July 30, 2012
|
|
By:
/s/ Clayton J. Haynes
Clayton J. Haynes
Chief Financial Officer and Treasurer
|
|
July 30, 2012
|