What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 148 added, 135 removed, 537 unchanged (35% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

SEPTEMBER 30,

2021 DECEMBER 31,

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(in thousands, except per share data)

FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,

FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,

2021 2020 2021 2020

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Total Operating expenses 106,719 72,063 267,977 216,173

(Loss) income from operations ( 3,149 ) 31,917 8,840 36,598

Income from operations 36,777 15,430 45,617 52,028

INTEREST EXPENSE ( 5,773 ) ( 10,365 ) ( 19,429 ) ( 30,881 )

OTHER INCOME, NET 3,039 3,789 3,763 9,812

(Loss) income before income taxes ( 6,776 ) 25,735 ( 1,053 ) 25,894

INCOME TAX PROVISION ( 21 ) ( 5,144 ) ( 1,786 ) ( 6,964 )

NET (LOSS) INCOME $ ( 6,797 ) $ 20,591 $ ( 2,839 ) $ 18,930

OTHER (EXPENSE) INCOME, NET ( 1,537 ) 3,994 2,226 13,806

Income before income taxes 29,467 9,059 28,414 34,953

INCOME TAX (PROVISION) BENEFIT ( 4,253 ) 12,843 ( 6,039 ) 5,879

NET INCOME $ 25,214 $ 21,902 $ 22,375 $ 40,832

Net loss attributable to noncontrolling interest ( 1,014 ) ( 1,882 ) ( 11,042 ) ( 5,319 )

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(in thousands)

FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,

FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,

2021 2020 2021 2020

Net (loss) income $ ( 6,797 ) $ 20,591 $ ( 2,839 ) $ 18,930

Net income $ 25,214 $ 21,902 $ 22,375 $ 40,832

Unrealized (loss) gain on investments, net of tax ( 67 ) ( 362 ) ( 206 ) 82

Comprehensive (loss) income $ ( 6,866 ) $ 21,003 $ ( 2,978 ) $ 19,374

Comprehensive income $ 25,147 $ 21,540 $ 22,169 $ 40,914

Comprehensive loss attributable to noncontrolling interest ( 1,014 ) ( 1,882 ) ( 11,042 ) ( 5,319 )

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71,377 $ 713 $ 734,565 $ 1,413,382 $ 370 40,573 $ ( 1,379,611 ) $ 21,287 $ 790,706

Net income attributable to InterDigital, Inc.

— — — 23,784 — — — — 23,784

Net loss attributable to noncontrolling interest — — — — — — — ( 1,882 ) ( 1,882 )

Net change in unrealized loss on short-term investments — — — — ( 362 ) — — — ( 362 )

Dividends declared ($ 0.35 per share)

— — 145 ( 10,927 ) — — — — ( 10,782 )

Exercise of common stock options — — — — — — — — —

Issuance of common stock, net 2 — ( 55 ) — — — — — ( 55 )

Amortization of unearned compensation — — 1,267 — — — — — 1,267

BALANCE, SEPTEMBER 30, 2020

71,379 $ 713 $ 735,922 $ 1,426,239 $ 8 40,573 $ ( 1,379,611 ) $ 19,405 $ 802,676

Common Stock Additional

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71,588 $ 715 $ 745,472 $ 1,349,073 $ ( 323 ) 40,746 $ ( 1,390,752 ) $ 12,060 $ 716,245

Net income attributable to InterDigital, Inc.

— — — 26,228 — — — — 26,228

Net loss attributable to noncontrolling interest — — — — — — — ( 1,014 ) ( 1,014 )

Net change in unrealized gain (loss) on short-term investments — — — — ( 67 ) — — — ( 67 )

Dividends declared ($ 0.35 per share)

— — 183 ( 10,923 ) — — — — ( 10,740 )

Exercise of common stock options 23 1 1,515 — — — — — 1,516

Issuance of common stock, net 5 — ( 74 ) — — — — — ( 74 )

Amortization of unearned compensation — — 15,082 — — — — — 15,082

Repurchase of common stock — — — — — 181 ( 11,859 ) — ( 11,859 )

BALANCE, SEPTEMBER 30, 2021

71,616 $ 716 $ 762,178 $ 1,364,378 $ ( 390 ) 40,927 $ ( 1,402,611 ) $ 11,046 $ 735,317

The accompanying notes are an integral part of these statements.

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(in thousands)

FOR THE SIX MONTHS ENDED JUNE 30,

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income $ ( 2,839 ) $ 18,930

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net income $ 22,375 $ 40,832

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 58,971 61,027

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Impairment of patents 11,000 —

(Increase) decrease in assets:

Other — ( 63 )

Increase in assets

Receivables ( 125,649 ) ( 10 )

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Accrued compensation and other expenses 28,735 7,698

Net cash provided by (used in) operating activities ( 37,101 ) 42,870

Net cash provided by operating activities 59,163 144,212

CASH FLOWS FROM INVESTING ACTIVITIES:

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Long-term investments ( 1,091 ) 4,260

Net cash provided by (used in) investing activities 4,483 ( 6,234 )

Net cash used in investing activities ( 12,549 ) ( 21,976 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of InterDigital, Inc.

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of June 30, 2021, the results of our operations for the three and six months ended June 30, 2021 and 2020 and our cash flows for the six months ended June 30, 2021 and 2020.

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of September 30, 2021, the results of our operations for the three and nine months ended September 30, 2021 and 2020 and our cash flows for the nine months ended September 30, 2021 and 2020.

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, do not include all of the detailed schedules, information and notes necessary to state fairly the financial condition, results of operations and cash flows in conformity with United States generally accepted accounting principles (“GAAP”).

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Actual results could differ from these estimates.

InterDigital has analyzed the impact of the ongoing Coronavirus pandemic (“COVID-19”) on its financial statements as of June 30, 2021.

InterDigital has analyzed the impact of the ongoing Coronavirus pandemic (“COVID-19”) on its financial statements as of September 30, 2021.

InterDigital has determined that the changes to its significant judgments and estimates as a result of COVID-19 did not have a material impact on its financial statements.

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Prior Periods' Financial Statement Revision

In connection with the preparation of the condensed consolidated financial statements as of and for the three months ended June 30, 2021, it was identified that we incorrectly classified certain tax receivables, representing approximately 1.5 % of December 31, 2020 total assets, as other current assets instead of non-current in the presentation of our consolidated balance sheet.

In connection with the preparation of the condensed consolidated financial statements as of and for the three months ended June 30, 2021, it was identified that we incorrectly classified certain tax receivables, representing approximately 1.5 % of total assets as of December 31, 2020, as other current assets instead of non-current in the presentation of our consolidated balance sheet.

We assessed the materiality of this misstatement on prior periods’ financial statements in accordance with ASC Topic 250, Accounting Changes and Error Corrections, (“ASC 250”) and concluded it was not material to any prior annual or interim periods.

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Supplemental Cash Flow Information

The following table presents additional supplemental cash flow information for the six months ended June 30, 2021 and 2020 (in thousands):

FOR THE SIX MONTHS ENDED JUNE 30,

The following table presents additional supplemental cash flow information for the nine months ended September 30, 2021 and 2020 (in thousands):

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

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Accrued capitalized patent costs and property and equipment 3,690 ( 419 )

Unsettled repurchase of common stock 499 —

New Accounting Guidance

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Lastly, the adoption requires the use of the if-converted method of calculating diluted earnings per share rather than the treasury stock method for convertible instruments and requires the inclusion of the potential effect of shares settled in cash or shares in the diluted earnings per share calculation.

Due to the reduction in non-cash interest expense, this adoption increased both basic and diluted earnings per share by $ 0.09 in the three months ended June 30, 2021 and $ 0.17 in the six months ended June 30, 2021.

Due to the reduction in non-cash interest expense, this adoption increased both basic and diluted earnings per share by $ 0.09 in the three months ended September 30, 2021 and $ 0.26 in the nine months ended September 30, 2021.

Accounting Standards Update:

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Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three months ended June 30,

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three months ended September 30,

2021 2020 Increase/(Decrease)

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Total revenue $ 143,496 $ 87,493 $ 56,003 64 %

Six months ended June 30,

Nine months ended September 30,

2021 2020 Increase/(Decrease)

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Total revenue $ 313,594 $ 268,201 $ 45,393 17 %

Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.

Recurring revenues are comprised of current patent royalties, inclusive of dynamic fixed-fee royalty payments, and current technology solutions revenue.

Non-recurring revenues are comprised of non-current patent royalties, which include past patent royalties and royalties from static agreements, as well as patent sales.

During the six months ended June 30, 2021, we recognized $ 124.3 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of June 30, 2021, we had contract assets of $ 8.3 million and $ 8.8 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

During the nine months ended September 30, 2021, we recognized $ 186.9 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of September 30, 2021, we had contract assets of $ 20.5 million and $ 8.7 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

As of December 31, 2020, we had contract assets of $ 9.7 million and $ 8.9 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

Contracted Revenue

Based on contracts signed and committed as of June 30, 2021, we expect to recognize the following revenue from Dynamic Fixed-Fee Agreement payments over the term of such contracts (in thousands):

Based on contracts signed and committed as of September 30, 2021, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands):

Remainder 2021 $ 89,541

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Total Revenue $ 613,406

In the six months ended June 30, 2021 and 2020, the Company had an effective tax rate of ( 169.6 )% and 26.9 %, respectively.

The effective tax rate in both periods was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit.

Excluding this valuation allowance, our effective tax rate for the six months ended June 30, 2021 and 2020 would have been 104.3 % and 12.5 % respectively.

During the six months ended June 30, 2021 and 2020, the Company recorded discrete net expense of $ 0.6 million and $ 0.3 million, respectively, primarily related to share-based compensation.

In the nine months ended September 30, 2021 and 2020, the Company had an effective tax rate of 21.3 % and ( 16.8 )%, respectively.

The effective tax rate in both periods was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit, as well as by the foreign-derived intangible income deduction and non-deductible compensation.

Excluding this valuation allowance, our effective tax rate for the nine months ended September 30, 2021 and 2020 would have been 8.4 % and ( 31.3 )% respectively.

During the nine months ended September 30, 2021 and 2020, the Company recorded a discrete net expense of $ 0.3 million and $ 18.2 million, respectively, primarily related to share-based compensation and the expected amendment of a prior year return to utilize a tax asset generated in the prior year.

Due to the closing of the statute of limitations on certain tax years, the Company believes it is reasonably possible that it will have a reduction in the liability for unrecognized tax benefits of $ 1.1 million, excluding interest and penalties.

The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including timing differences between the recognition of book and tax revenue, the level of pre-tax income or loss, the foreign vs.

domestic classification of the Company’s customers, and any discrete items that may occur.

During the six months ended June 30, 2021 and 2020, the Company paid approximately $ 4.0 million and $ 13.4 million, respectively, in foreign source creditable withholding tax.

NET INCOME (LOSS) PER SHARE

During the nine months ended September 30, 2021 and 2020, the Company paid approximately $ 8.9 million and $ 17.8 million, respectively, in foreign source creditable withholding tax.

NET INCOME PER SHARE

Basic Earnings Per Share ("EPS") is calculated by dividing net income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period.

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The following tables reconcile the numerator and the denominator of the basic and diluted net income per share computation (in thousands, except for per share data):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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Set forth below are the securities and the weighted average number of shares of common stock underlying such securities that were excluded from our computation of EPS for the periods presented (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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and (d) attorneys’ fees and costs.

On September 16, 2020, the Delaware District Court entered a schedule for the case, setting a patent jury trial for December 5, 2022.

On September 16, 2020, the Delaware District Court entered a schedule for the case, setting a patent jury trial.

On March 8, 2021, the Delaware District Court held a claim construction hearing, and the court issued its order on May 10, 2021 construing various disputed terms.

On March 24, 2021, the Delaware District Court consolidated the antitrust proceeding discussed below with this patent proceeding.

Trial for the consolidated proceedings is scheduled for December 5, 2022.

District of Delaware Antitrust Proceeding

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The jurisdictional challenge remains pending.

As a result of the license agreement between the Company and a subsidiary of Xiaomi Corporation ("Xiaomi"), the parties have ceased all activity in each of the ongoing disputes, described below, other than to seek temporary stays in each pending proceeding.

At the end of each stay period, the parties will take all action required to withdraw and/or terminate all legal proceedings between the parties.

As a result of the license agreement between the Company and a subsidiary of Xiaomi Corporation ("Xiaomi"), the parties have ceased all activity in each of the disputes described below and will be taking timely action to formally withdraw all claims.

China Proceeding

On August 5, 2020, the Company was informed in writing by Xiaomi that, on June 3, 2020, Xiaomi Communication Technology Co., Ltd.

and certain of its affiliates filed a complaint against the Company and one of its subsidiaries in the Wuhan Intermediate People's Court (the "Wuhan Court") seeking for the Wuhan Court to determine a global FRAND rate for a license to the Company's 3G and/or 4G/LTE SEPs.

The Company was informed on September 25, 2020 that the Wuhan Court held an ex parte hearing on or about September 23, 2020 and issued an order that, among other things, enjoins the Company from seeking a preliminary and permanent injunction against Xiaomi and certain of its subsidiaries for infringement of certain of the Company's patents related to 3G and/or 4G/LTE standards in the Company's case in the Delhi High Court discussed below, or elsewhere.

The Wuhan Court ordered a fine of up to one million yuan per day if the Company were to violate the order.

The Company maintains that it has not yet been properly served with Xiaomi's complaint or the Wuhan Court's anti-suit injunction order.

On October 13, 2020, the Company filed an application challenging the jurisdiction of the Wuhan Court to take up Xiaomi’s complaint.

On March 12, 2021, the Company’s Chinese counsel was orally informed by the Court that the Company’s application challenging jurisdiction of the Wuhan Court had been rejected.

Although the Wuhan Court did not issue a written decision, the Company challenged the Court’s rejection at the IP Tribunal of the Supreme People’s Court of the People’s Republic of China (“SPC”).

The Company was informed by the Wuhan Court that the Hubei High Court purportedly received a letter response from the SPC on May 17, 2021 regarding our application and forwarded it to the Wuhan Court.

The Wuhan Court has interpreted the letter as a denial of our application challenging jurisdiction.

The Company requested a copy of the letter but that request was denied.

On September 30, 2020, the Company filed a preliminary conditional response seeking reconsideration of the Wuhan Court's anti-suit injunction.

In a decision dated December 4, 2020, the Wuhan Court dismissed the Company’s reconsideration petition.

The Company challenged that decision at the SPC, but that challenge was denied.

On August 5, 2020, Xiaomi informed the Company that certain of its affiliates filed a complaint in the Wuhan Intermediate People's Court (the "Wuhan Court") seeking a determination of a global FRAND rate for a license to the Company's 3G and/or 4G/LTE SEPs.

The Company was informed that the Wuhan Court held an ex parte hearing on or about September 23, 2020 and issued an order that enjoins the Company from seeking an injunction against Xiaomi and certain of its subsidiaries for infringement of certain of the Company's 3G and/or 4G/LTE SEPs on threat of a fine of up to one million yuan per day for violating that order.

On September 30, 2020, the Company filed a response seeking reconsideration of the anti-suit injunction, which was denied.

The Company challenged that decision at the Supreme People's Court of the People's Republic of China, but that challenge was also denied.

The Wuhan Court held two evidentiary hearings in April and June 2021.

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India Proceeding

On July 29, 2020, the Company and certain of its subsidiaries filed two patent infringement actions in the Delhi High Court in New Delhi, India (the "Delhi High Court") against Xiaomi and certain of its subsidiaries.

On July 29, 2020, the Company and certain of its subsidiaries filed two patent infringement actions in the Delhi High Court (the "Delhi High Court") against Xiaomi and certain of its subsidiaries.

The first complaint alleges infringement of five of the Company's patents related to 3G and/or 4G/LTE standards:

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Indian Patent Nos.

In these proceedings, the Company is seeking compensatory and punitive damages for Xiaomi's infringement of the asserted patents.

The Company is further seeking, among other remedies, interim and permanent injunctive relief to prevent further infringement of the litigated patents in India, unless Xiaomi elects to take a license on terms determined to be FRAND by the Delhi High Court.

The Company’s application for interim injunctive relief remains pending.

On September 29, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Delhi High Court, seeking, among other things, to enjoin Xiaomi from enforcing the Wuhan Court's September 23, 2020 anti-suit injunction order described above.

On October 9, 2020, the Delhi High Court granted the Company's motion and issued an ad interim injunction restraining Xiaomi from enforcing the anti-suit injunction order issued by the Wuhan Court, pending further consideration of the Company's application for an anti-anti-suit injunction at a hearing on November 25, 2020.

On May 3, 2021, the interim anti-anti-suit injunction was made permanent throughout the pendency of the Indian cellular case.

Furthermore, the Delhi High Court stated that, if any orders or other measures are passed by the Wuhan Court related to the anti-suit injunction that result in the Company incurring a monetary penalty, then Xiaomi must deposit a corresponding, equal amount with the Delhi High Court for the Company's benefit within one week.

On September 29, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Delhi High Court seeking to enjoin Xiaomi from enforcing the Wuhan Court's anti-suit injunction order described above.

On October 9, 2020, the Delhi High Court granted the Company's motion and issued an ad interim injunction.

On May 3, 2021, the interim anti-anti-suit injunction was made permanent for the duration of the Indian cellular case.

On June 4, 2021, Xiaomi filed responses to the two complaints (cellular and H.265/HEVC), which included counterclaims seeking invalidation of the patents in the respective suits.

The Company filed replies in support of the two complaints and in response to the counterclaims on July 5, 2021.

The Company filed its replies on July 5, 2021.

German Proceeding

On October 30, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Munich District Court, seeking to enjoin Xiaomi from continuing to pursue the Wuhan Court's September 23, 2020 anti-suit injunction order described above with respect to Germany.

On October 30, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Munich District Court, seeking to enjoin Xiaomi from pursuing the Wuhan Court's anti-suit injunction order described above with respect to Germany.

On November 11, 2020, the Munich District Court granted the Company's motion and issued an ex parte injunction restraining Xiaomi from enforcing the anti-suit injunction.

The Company filed penalty requests for non-compliance with said court order, which were granted, and which Xiaomi has appealed.

Xiaomi opposed the injunction and requested a stay of enforcement, and an oral hearing was held on January 28, 2021.

At the hearing, the Munich District Court dismissed the request for stay of enforcement.

Xiaomi opposed the injunction and requested a stay of enforcement.

On January 28, 2021, the Munich District Court dismissed the request for stay of enforcement.

On February 25, 2021 the Munich District Court confirmed its earlier ex parte anti-anti-suit injunction against Xiaomi.

Xiaomi appealed the decision to the Higher Regional Court Munich, which is currently pending.

On April 27, 2021, the Company was informed that the Munich Regional Court commenced service of three patent infringement actions filed in Germany against Xiaomi and certain of its subsidiaries by a subsidiary of the Company.

The complaints involve infringement of the Company's German patents related to 3G and 4G cellular handsets (Patent Nos.

Xiaomi appealed the decision to the Higher Regional Court Munich.

On April 27, 2021, the Company was informed that the Munich Regional Court commenced service of three patent infringement actions filed against Xiaomi and certain of its subsidiaries by a subsidiary of the Company.

The complaints involve infringement of the Company's German 3G and/or 4G/LTE patents (Patent Nos.

EP 2,421,318;

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and EP 3,355,537).

The Company sought injunctive relief to prevent further infringement of the asserted patents in Germany.

We are party to certain other disputes and legal actions in the ordinary course of business, including legal proceedings with licensees regarding the terms of their agreements and the negotiation thereof.

We do not currently believe that these matters, even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows.

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of June 30, 2021.

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of September 30, 2021.

CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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Cash, cash equivalents and restricted cash currently consists of money market and demand accounts.

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of June 30, 2021, December 31, 2020 and June 30, 2020 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

June 30, December 31, June 30,

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of September 30, 2021, December 31, 2020 and September 30, 2020 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

September 30, December 31, September 30,

2021 2020 2020

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Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements.

As of June 30, 2021 and December 31, 2020, six and five licensees comprised 57 % and 53 %, respectively, of our net accounts receivable balance.

As of September 30, 2021 two licensees comprised 93 % and as of December 31, 2020 five licensees comprised 53 %, respectively, of our net accounts receivable balance.

We perform ongoing credit evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment manufacturers.

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Our financial assets are generally included within short-term investments on our condensed consolidated balance sheets, unless otherwise indicated.

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of June 30, 2021 and December 31, 2020 (in thousands):

Fair Value as of June 30, 2021

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of September 30, 2021 and December 31, 2020 (in thousands):

Fair Value as of September 30, 2021

Level 1 Level 2 Level 3 Total

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(a) Primarily included within cash and cash equivalents.

(b) As of June 30, 2021 and December 31, 2020, $ 0.0 million and $ 80.1 million, respectively, of commercial paper was included within cash and cash equivalents.

(b) As of September 30, 2021 and December 31, 2020, $ 0.0 million and $ 80.1 million, respectively, of commercial paper was included within cash and cash equivalents.

Non-Recurring Fair Value Measurements

Investments in Other Entities

During the second quarter 2021, we recognized a $ 1.0 million gain resulting from observable price changes of one of our long-term strategic investments, which was included within “ Other Income, Net ” in the condensed consolidated statement of income.

During the first quarter 2020, we recognized a $ 5.5 million gain resulting from observable price changes of one of our long-term strategic investments, which was included within “ Other Income, Net ” in the condensed consolidated statement of income.

During the first quarter 2020, we recognized a $ 1.1 million impairment, comprised of $ 0.8 million of Property, Plant, and Equipment, and $ 0.3 million of Right of Use Asset related to the abandonment of one of our leased properties, which was included within “ Operating Expense ” in the condensed consolidated statement of income.

During the second quarter 2021, we recognized an $ 11.0 million patent impairment, resulting from our restructuring activities as described in Note 11, " Restructuring Activities ", which was included within “ Restructuring activities ” expenses in the condensed consolidated statement of income.

The Patents held for sale are recorded at fair value on June 30, 2021 and are included within " Prepaid and other current assets " in the consolidated balance sheet.

During second quarter 2021, we recognized a $ 1.0 million unrealized gain resulting from observable price changes of one of our long-term strategic investments, which was included within “ Other (expense) income, net ” in the condensed consolidated statement of income.

During first quarter 2020, we recognized a $ 5.5 million unrealized gain resulting from observable price changes of one of our long-term strategic investments, which was included within “ Other (expense) income, net ” in the condensed consolidated statement of income.

During first quarter 2020, we recognized a $ 1.1 million impairment, comprised of $ 0.8 million of Property, Plant, and Equipment, and $ 0.3 million of Right of Use Asset related to the abandonment of one of our leased properties, which was included within “ Operating Expenses ” in the condensed consolidated statement of income.

During second quarter 2021, Convida approved a plan to sell certain patent assets, which were classified as held-for sale.

This resulted in an impairment of $ 11.0 million and was included within restructuring activities as more fully discussed below.

The patents held for sale are recorded at fair value on September 30, 2021 and are included within " Prepaid and other current assets " in the condensed consolidated balance sheet.

Fair Value of Long-Term Debt

2024 Senior Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's senior convertible debt reported in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 was as follows (in thousands).

The principal amount, carrying value and related estimated fair value of the Company's senior convertible debt reported in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 was as follows (in thousands).

The aggregate fair value of the principal amount of the senior convertible long-term debt is a Level 2 fair value measurement.

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Amount Carrying

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Technicolor Patent Acquisition Long-term Debt

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 was as follows (in thousands).

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 was as follows (in thousands).

The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair value measurement.

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Value Carrying

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This initial fair value measurement was based on the perspective of a market participant and included significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy.

The fair value of the long-term debt as of June 30, 2021 and December 31, 2020 is disclosed within Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

The fair value of the long-term debt as of September 30, 2021 and December 31, 2020 is disclosed within Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

" Our repayment obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are no minimum or maximum payments under the arrangement.

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This rate represents the discount rate that equates the estimated future cash flows with the fair value of the debt as of the acquisition date, and is used to compute the amount of interest to be recognized each period based on the estimated life of the future revenue streams.

During the three and six months ended June 30, 2021, we recognized $ 0.8 million and $ 1.6 million, respectively, of interest expense related to this debt, compared to $ 0.7 million and $ 1.5 million during the three and six months ended June 30, 2020, respectively.

During the three and nine months ended September 30, 2021, we recognized $ 0.4 million and $ 2.0 million, respectively, of interest expense related to this debt, compared to $ 0.8 million and $ 2.3 million during the three and nine months ended September 30, 2020, respectively.

This was included within “ Interest Expense ” in the condensed consolidated statements of income.

Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt balance accordingly.

2024 Senior Convertible Notes, and Related Note Hedge and Warrant Transactions

2024 Notes, and Related Note Hedge and Warrant Transactions

On June 3, 2019, we issued $ 400.0 million in aggregate principal amount of 2.00 % Senior Convertible Notes due 2024 (the "2024 Notes").

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There have been no material changes regarding the 2024 Notes and 2024 Call Spread Transactions from the disclosures included in Note 10, " Obligations " within the notes to the consolidated financial statements included in Part II, Item 8 of the 2020 Form 10-K.

2020 Senior Convertible Notes

On March 11, 2015, we issued $ 316.0 million in aggregate principal amount of 1.50 % Senior Convertible Notes due 2020 (the "2020 Notes").

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On the maturity date, the outstanding balance of $ 94.9 million under the 2020 Notes was repaid in full.

The following table reflects the carrying value of our convertible notes long-term debt as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021 December 31, 2020

The following table reflects the carrying value of our convertible notes long-term debt as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021 December 31, 2020

Principal $ 400,000 $ 400,000

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Refer to Note 1, " Basis of Presentation ", for further information regarding this adoption.

The following table presents the amount of interest cost recognized, which is included within " Interest Expense" in our condensed consolidated statements of income, for the three and six months ended June 30, 2021 and June 30, 2020 relating to the contractual interest coupon, accretion of the debt discount, and the amortization of deferred financing costs of the 2024 Notes and 2020 Notes (in thousands):

Three months ended June 30,

The following table presents the amount of interest cost recognized, which is included within " Interest Expense" in our condensed consolidated statements of income, for the three and nine months ended September 30, 2021 and 2020 relating to the contractual interest coupon, accretion of the debt discount, and the amortization of deferred financing costs of the 2024 Notes and 2020 Notes (in thousands):

Three months ended September 30,

2024 Notes 2024 Notes 2020 Notes Total

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Total $ 2,411 $ 5,620 $ — $ 5,620

Six months ended June 30,

Nine months ended September 30,

2024 Notes 2024 Notes 2020 Notes Total

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Under the revenue-sharing arrangement, Technicolor receives 42.5 % of future cash receipts from new licensing efforts from the Madison Arrangement only, subject to certain conditions and hurdles.

As of June 30, 2021, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

As of September 30, 2021, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

VARIABLE INTEREST ENTITIES

As further discussed below, we are the primary beneficiary of three variable interest entities.

As of June 30, 2021, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 41.3 million and $ 5.7 million, respectively.

As of September 30, 2021, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 37.6 million and $ 2.9 million, respectively.

Assets included $ 13.3 million of cash and cash equivalents, $ 6.4 million of accounts receivable and prepaid and other current assets, and $ 17.9 million of patents, net.

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On January 31, 2019, we launched the Company’s Chordant™ business as a standalone company.

The spinout of the unit, which now includes an affiliate of Sony as an investor along with the Company, gives Chordant added independence and flexibility in driving into its core operator and smart city markets.

The spinout of the unit, which includes an affiliate of Sony as an investor along with the Company, gave Chordant added independence and flexibility in driving into its core operator and smart city markets.

Chordant is a variable interest entity and we have determined that we are the primary beneficiary for accounting purposes and consolidate Chordant.

For the three and six months ended June 30, 2021, we have allocated approximately $ 2.2 million and $ 2.3 million, respectively, of Chordant's net loss to noncontrolling interests held by other parties, and for the three and six months June 30, 2020, we allocated $ 0.2 million and $ 0.5 million, respectively, of Chordant's net loss to noncontrolling interests held by other parties.

During second quarter 2021, Chordant has begun the process of ceasing operations.

For the three and nine months ended September 30, 2021, we have allocated approximately $ 0.0 million and $ 2.3 million, respectively, of Chordant's net loss to noncontrolling interests held by other parties, and for the three and nine months September 30, 2020, we allocated $ 0.4 million and $ 0.9 million, respectively, of Chordant's net loss to noncontrolling interests held by other parties.

During second quarter 2021, Chordant began the process of ceasing operations.

Convida Wireless

Convida Wireless was launched in 2013 and most recently renewed in 2018 to combine Sony's consumer electronics expertise with our pioneering IoT expertise to drive IoT communications and connectivity.

Based on the terms of the agreement, the parties will contribute funding and resources for additional research and platform development, which we will perform.

Based on the terms of the agreement, the parties contribute funding and resources for additional research and platform development, which we will perform.

SCP IP Investment LLC, an affiliate of Stephens Inc., is a minority investor in Convida Wireless.

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Based on our provision of research and platform development services to Convida Wireless, we have determined that we remain the primary beneficiary for accounting purposes and will continue to consolidate Convida Wireless.

For each of the three and six months ended June 30, 2021 and 2020, we have allocated approximately $ 6.2 million and $ 7.7 million, respectively, of Convida Wireless's net loss to noncontrolling interests held by other parties and for the three and six months June 30, 2020, we allocated $ 1.5 million and $ 2.9 million, respectively.

During the second quarter 2021, we recognized an $ 11.0 million impairment on the patents within the Convida portfolio, resulting from our restructuring activities as described in Note 11, " Restructuring Activities ", which is included within “ Restructuring activities ” expenses in the condensed consolidated statement of income.

The Patents held for sale are recorded at fair value on June 30, 2021 and are included within " Prepaid and other current assets " in the consolidated balance sheet.

For the three and nine months ended September 30, 2021, we allocated $ 1.0 million and $ 8.7 million, respectively, of Convida Wireless's net loss to noncontrolling interests held by other parties and for the three and nine months ended September 30, 2020, we allocated $ 1.5 million and $ 4.4 million, respectively.

During second quarter 2021, Convida approved a plan to sell certain patent assets, which were classified as held-for sale.

This resulted in an impairment of $ 11.0 million and was included within restructuring activities as more fully discussed below.

The patents held for sale are recorded at fair value on September 30, 2021 and are included within " Prepaid and other current assets " in the condensed consolidated balance sheet.

Signal Trust for Wireless Innovation

During 2013, we announced the establishment of the Signal Trust for Wireless Innovation (the “Trust”), the goal of which was to monetize a patent portfolio primarily related to 3G cellular infrastructure.

In response to a request from Signal Trust, in first quarter 2021 we provided our consent, as major beneficiary, to dissolve Signal Trust.

In response to a request from the Trust, in first quarter 2021 we provided our consent, as major beneficiary, to dissolve the Trust.

The Trust has been accounted for as a variable interest entity.

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Pending the dissolution of the Trust, we will continue to consolidate the Trust in our consolidated financial statements.

OTHER INCOME, NET

The amounts included in " Other income, net " in the condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

OTHER (EXPENSE) INCOME, NET

The amounts included in " Other (expense) income, net " in the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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Other ( 1,922 ) 3,169 842 8,762

Other income, net $ 3,039 $ 3,789 $ 3,763 $ 9,812

Interest and investment income decreased in both the three and six months ended June 30, 2021, due to reduced rates of return on our short-term investments.

Other income remained flat in the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

The decrease in other income in the six months ended June 30, 2021, compared to six months ended June 30, 2020 was primarily driven by a decrease in gains resulting from observable price changes of our long-term strategic investments, which were $ 5.5 million during the six months ended June 30, 2020 and $ 1.0 million in June 30, 2021.

Other (expense) income, net $ ( 1,537 ) $ 3,994 $ 2,226 $ 13,806

Interest and investment income decreased in both the three and nine months ended September 30, 2021, due to reduced rates of return on our short-term investments.

Other decreased in the three months ended September 30, 2021, compared to the three months ended September 30, 2020 primarily due to a foreign currency translation loss in the three months ended September 30, 2021, compared to a gain in three months ended September 30, 2020 arising from euro translation of our foreign subsidiaries.

The decrease in other in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 was primarily driven by a decrease in gains resulting from observable price changes of our long-term strategic investments, which were $ 5.5 million during the nine months ended September 30, 2020 and $ 1.0 million during the nine months ended September 30, 2021.

This decrease was partially offset by a $ 1.9 million gain on a contract termination in first quarter 2021.

The amounts included in " Prepaid and other current assets " in the consolidated balance sheet as of June 30, 2021 and December 31, 2020 were as follows (in thousands):

The amounts included in " Prepaid and other current assets " in the consolidated balance sheet as of September 30, 2021 and December 31, 2020 were as follows (in thousands):

As Reported As Revised (a)

June 30, 2021 December 31, 2020 December 31, 2020

September 30, 2021 December 31, 2020 December 31, 2020

Tax receivables $ 49,734 $ 69,592 $ 45,262

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Total Prepaid and other current assets $ 80,304 $ 84,224 $ 59,894

The amounts included in " Other non-current assets, net " in the consolidated balance sheet as of June 30, 2021 and December 31, 2020 were as follows (in thousands):

The amounts included in " Other non-current assets, net " in the consolidated balance sheet as of September 30, 2021 and December 31, 2020 were as follows (in thousands):

As Reported As Revised (a)

June 30, 2021 December 31, 2020 December 31, 2020

September 30, 2021 December 31, 2020 December 31, 2020

Tax receivables $ 29,969 $ — $ 24,330

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RESTRUCTURING ACTIVITIES

During second quarter 2021, the Company began the process of a strategic review and began under taking certain actions in order to increase focus on core technologies and markets.

On June 10, 2021, the Company announced that, as a result of a strategic review of its research and innovation priorities, it commenced the process of a collective economic layoff in which it proposed a reduction in force of 66 employees in its research and innovation unit, 60 of whom are based in France.

The Company has launched an information-consultation process with respect to the contemplated reorganization with the works council of certain of its French subsidiaries, as required by French law.

The Company anticipates the reduction in force being finalized in 2021.

During June 2021, Chordant has begun the process of ceasing operations.

During second quarter 2021, the Company began the process of a strategic review and undertook certain actions in order to increase focus on core technologies and markets.

On June 10, 2021, the Company announced that, as a result of a strategic review of its research and innovation priorities, it commenced the process of a collective economic layoff in which it proposed a reduction in force of 66 positions in its research and innovation unit, 60 of which are based in France.

The Company launched an information-consultation process with respect to the contemplated reorganization with the works council of certain of its French subsidiaries, as required by French law.

On September 28, 2021, the Company finalized an agreement with the representative trade unions of certain of its French subsidiaries to commence the reorganization of the research and innovation unit located in France as part of the reduction in force.

This agreement was validated by the Regional Director of Economy, Employment, Labor and Solidarity on October 25, 2021.

The majority of termination notices will be issued during the remainder of 2021.

During June 2021, Chordant began the process of ceasing operations.

The Company implemented a reduction in workforce action in second quarter 2021, consisting of 18 employees.

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These assets were evaluated as a separate asset group and reclassified as assets held for sale.

Upon the reclassification, the patents to be sold were recorded at fair value on June 30, 2021, which resulted in the Company recognizing an $ 11.0 million impairment during the three months ending June 30, 2021.

Upon the reclassification, the patents to be sold are recorded at fair value, which resulted in the Company recognizing an $ 11.0 million impairment during the three months ended June 30, 2021.

We determined the fair value based upon evaluation of market conditions.

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Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts incurred for such activities may differ from amounts initially estimated.

The restructuring charges associated with the above activities totaling $ 13.2 million in second quarter 2021 are presented net of any reimbursement arrangements and include $ 1.2 million of outside services and other associated costs related to non-recurring consultant and legal fees.

We expect additional charges to be recorded in second half of 2021.

The following table presents the change in our restructuring liability during the period, which is included in " Other accrued expenses " on our consolidated balance sheet (in thousands):

Balance as of December 31, 2020 $ —

The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the reduction in force or other restructuring activities.

The restructuring charges associated with the above activities totaling $ 7.0 million and $ 20.3 million in the three and nine months ended September 30, 2021, respectively, are presented net of any reimbursement arrangements and include $ 0.1 million and $ 1.2 million of outside services and other associated costs related to non-recurring consultant and legal fees in the three and nine months ended September 30, 2021.

We expect additional charges to be recorded in fourth quarter 2021.

As of September 30, 2021, the Company's restructuring liability was $ 17.8 million, of which $ 6.9 million was included in " Other accrued expenses " and $ 10.9 million was included in " Other long-term liabilities " on our condensed consolidated balance sheet.

The following table presents the change in our restructuring liability during the period (in thousands):

Balance as of March 31, 2021 $ —

Accrual 12,285

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Balance as of June 30, 2021 $ 11,657

The restructuring expenses included in " Restructuring activities " in the condensed consolidated statements of income for the three and six months ended June 30, 2021 were as follows (in thousands):

Three months ended June 30, 2021 Six months ended June 30, 2021

Accrual 7,033

Cash payments ( 859 )

Balance as of September 30, 2021 $ 17,831

The restructuring expenses included in " Restructuring activities " in the condensed consolidated statements of income for the three and nine months ended September 30, 2021 were as follows (in thousands):

Three months ended September 30, 2021 Nine months ended September 30, 2021

Patent impairment $ — $ 11,000

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Total $ 7,045 $ 20,290

SUBSEQUENT EVENTS

On August 3, 2021, the Company announced it has entered into a multi-year, worldwide, non-exclusive, royalty bearing license with a subsidiary of Xiaomi.

The license covers Xiaomi’s cellular-enabled mobile devices under InterDigital’s standard essential patents related to cellular wireless (including 3G, 4G and 5G), WiFi and HEVC video technology.

As part of the agreement the Company and Xiaomi have agreed to terminate all pending patent litigation and other proceedings between the companies.

Second quarter 2021 revenue did not include any impact from the Xiaomi agreement, which was executed in third quarter 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements