InterDigital, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) SEPTEMBER 30, 2021 DECEMBER 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 467,606 $ 473,474 Short-term investments 433,200 453,173 Accounts receivable, less allowances of $ 322 and $ 0 141,657 16,008 Prepaid and other current assets 80,304 59,894 Total current assets 1,122,767 1,002,549 PROPERTY AND EQUIPMENT, NET 14,182 16,630 PATENTS, NET 371,857 418,343 DEFERRED TAX ASSETS 94,850 80,380 OTHER NON-CURRENT ASSETS, NET 96,956 98,373 Total non-current assets 577,845 613,726 TOTAL ASSETS $ 1,700,612 $ 1,616,275 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 9,555 $ 10,979 Accrued compensation and related expenses 33,838 32,413 Deferred revenue 325,375 219,935 Dividends payable 10,740 10,786 Other accrued expenses 38,521 21,649 Total current liabilities 418,029 295,762 LONG-TERM DEBT 421,420 367,992 LONG-TERM DEFERRED REVENUE 66,673 108,069 OTHER LONG-TERM LIABILITIES 59,173 47,886 TOTAL LIABILITIES 965,295 819,709 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Preferred Stock, $ 0.10 par value, 14,399 shares authorized, 0 shares issued and outstanding — — Common Stock, $ 0.01 par value, 100,000 shares authorized, 71,616 and 71,389 shares issued and 30,689 and 30,816 shares outstanding 716 714 Additional paid-in capital 762,178 738,481 Retained earnings 1,364,378 1,413,969 Accumulated other comprehensive loss ( 390 ) ( 184 ) 2,126,882 2,152,980 Treasury stock, 40,927 and 40,573 shares of common held at cost 1,402,611 1,379,611 Total InterDigital, Inc. shareholders’ equity 724,271 773,369 Noncontrolling interest 11,046 23,197 Total equity 735,317 796,566 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,700,612 $ 1,616,275 The accompanying notes are an integral part of these statements. 3 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 2020 2021 2020 REVENUES: Patent licensing royalties $ 142,749 $ 85,222 $ 309,127 $ 259,404 Technology solutions 747 2,271 4,467 8,797 Total Revenue 143,496 87,493 313,594 268,201 OPERATING EXPENSES: Patent administration and licensing 56,150 40,364 133,694 119,167 Development 22,546 20,845 66,999 61,755 Selling, general and administrative 20,978 10,854 46,994 35,251 Restructuring activities 7,045 — 20,290 — Total Operating expenses 106,719 72,063 267,977 216,173 Income from operations 36,777 15,430 45,617 52,028 INTEREST EXPENSE ( 5,773 ) ( 10,365 ) ( 19,429 ) ( 30,881 ) 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 ) NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. $ 26,228 $ 23,784 $ 33,417 $ 46,151 NET INCOME PER COMMON SHARE — BASIC $ 0.85 $ 0.77 $ 1.09 $ 1.50 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC 30,737 30,804 30,792 30,762 NET INCOME PER COMMON SHARE — DILUTED $ 0.83 $ 0.76 $ 1.07 $ 1.49 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED 31,431 31,119 31,272 31,029 The accompanying notes are an integral part of these statements. 4 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 2020 2021 2020 Net income $ 25,214 $ 21,902 $ 22,375 $ 40,832 Unrealized (loss) gain on investments, net of tax ( 67 ) ( 362 ) ( 206 ) 82 Comprehensive income $ 25,147 $ 21,540 $ 22,169 $ 40,914 Comprehensive loss attributable to noncontrolling interest ( 1,014 ) ( 1,882 ) ( 11,042 ) ( 5,319 ) Total comprehensive income attributable to InterDigital, Inc. $ 26,161 $ 23,422 $ 33,211 $ 46,233 The accompanying notes are an integral part of these statements. 5 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share data) (unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-Controlling Interest Total Shareholders' Equity Shares Amount Shares Amount BALANCE, DECEMBER 31, 2019 71,268 $ 712 $ 727,402 $ 1,412,779 $ ( 74 ) 40,567 $ ( 1,379,262 ) $ 24,724 $ 786,281 Net income attributable to InterDigital, Inc. — — — 116 — — — — 116 Net loss attributable to noncontrolling interest — — — — — — — ( 1,777 ) ( 1,777 ) Net change in unrealized gain on short-term investments — — — — 32 — — — 32 Dividends declared ($ 0.35 per share) — — 84 ( 10,847 ) — — — — ( 10,763 ) Exercise of common stock options 27 1 777 — — — — — 778 Issuance of common stock, net 27 — ( 725 ) — — — — — ( 725 ) Amortization of unearned compensation — — 2,003 — — — — — 2,003 Repurchase of common stock — — — — — 6 ( 349 ) — ( 349 ) BALANCE, MARCH 31, 2020 71,322 $ 713 $ 729,541 $ 1,402,048 $ ( 42 ) 40,573 $ ( 1,379,611 ) $ 22,947 $ 775,596 Net income attributable to InterDigital, Inc. — — — 22,251 — — — — 22,251 Net loss attributable to noncontrolling interest — — — — — — — ( 1,660 ) ( 1,660 ) Net change in unrealized gain on short-term investments — — — — 412 — — — 412 Dividends declared ($ 0.35 per share) — — 136 ( 10,917 ) — — — — ( 10,781 ) Exercise of common stock options 19 — 1,014 — — — — — 1,014 Issuance of common stock, net 36 — ( 755 ) — — — — — ( 755 ) Amortization of unearned compensation — — 4,629 — — — — — 4,629 BALANCE, JUNE 30, 2020 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 6 Table of Contents Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-Controlling Interest Total Shareholders' Equity Shares Amount Shares Amount BALANCE, DECEMBER 31, 2020 71,389 $ 714 $ 738,481 $ 1,413,969 $ ( 184 ) 40,573 $ ( 1,379,611 ) $ 23,197 $ 796,566 Adjustment to Retained Earnings related to adoption of ASU 2020-06 — — — ( 50,184 ) — — — — ( 50,184 ) Net income attributable to InterDigital, Inc. — — — 5,571 — — — — 5,571 Net loss attributable to noncontrolling interest — — — — — — — ( 1,613 ) ( 1,613 ) Noncontrolling interest distribution — — — — — — — ( 1,109 ) ( 1,109 ) Net change in unrealized loss on short-term investments — — — — ( 70 ) — — — ( 70 ) Dividends declared ($ 0.35 per share) — — 210 ( 10,976 ) — — — — ( 10,766 ) Exercise of common stock options 32 — 737 — — — — — 737 Issuance of common stock, net 55 — ( 2,962 ) — — — — — ( 2,962 ) Amortization of unearned compensation — — 2,153 — — — — — 2,153 Repurchase of common stock — — — — — 91 ( 5,750 ) — ( 5,750 ) BALANCE, MARCH 31, 2021 71,476 $ 714 $ 738,619 $ 1,358,380 $ ( 254 ) 40,664 $ ( 1,385,361 ) $ 20,475 $ 732,573 Net income attributable to InterDigital, Inc. — — — 1,618 — — — — 1,618 Net loss attributable to noncontrolling interest — — — — — — — ( 8,415 ) ( 8,415 ) Net change in unrealized loss on short-term investments — — — — ( 69 ) — — — ( 69 ) Dividends declared ($ 0.35 per share) — — 158 ( 10,925 ) — — — — ( 10,767 ) Exercise of common stock options 71 1 3,631 — — — — — 3,632 Issuance of common stock, net 41 — ( 711 ) — — — — — ( 711 ) Amortization of unearned compensation — — 3,775 — — — — — 3,775 Repurchase of common stock — — — — — 82 ( 5,391 ) — ( 5,391 ) BALANCE, JUNE 30, 2021 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. 7 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 2020 CASH FLOWS FROM 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 Non-cash interest expense, net 5,240 13,202 Non-cash change in fair-value ( 949 ) ( 5,501 ) Change in deferred revenue 64,044 53,066 Deferred income taxes ( 14,416 ) ( 5,518 ) Share-based compensation 21,010 7,899 Impairment of patents 11,000 — Other — ( 63 ) Increase in assets Receivables ( 125,649 ) ( 10 ) Deferred charges and other assets ( 13,464 ) ( 26,745 ) Increase (decrease) in liabilities: Accounts payable 2,266 ( 1,675 ) Accrued compensation and other expenses 28,735 7,698 Net cash provided by operating activities 59,163 144,212 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments ( 498,151 ) ( 187,707 ) Sales of short-term investments 516,715 195,072 Purchases of property and equipment ( 1,877 ) ( 9,875 ) Capitalized patent costs ( 28,145 ) ( 23,726 ) Long-term investments ( 1,091 ) 4,260 Net cash used in investing activities ( 12,549 ) ( 21,976 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from exercise of stock options 5,885 1,792 Payments on long-term debt — ( 94,909 ) Repurchase of common stock ( 23,000 ) ( 349 ) Non-controlling interest distribution ( 1,109 ) — Taxes withheld upon restricted stock unit vestings ( 3,747 ) ( 1,535 ) Dividends paid ( 32,319 ) ( 32,290 ) Net cash used in financing activities ( 54,290 ) ( 127,291 ) NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 7,676 ) ( 5,055 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 477,663 757,098 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 469,987 $ 752,043 Refer to Note 1, " Basis of Presentation, " for additional supplemental cash flow information. Additionally, refer to Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments " for a reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets. The accompanying notes are an integral part of these statements. 8 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (unaudited) 1. 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 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”). The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP for year-end financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (our “2020 Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February 18, 2021. Definitions of capitalized terms not defined herein appear within our 2020 Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. We have one reportable segment. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. 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 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. The potential impact of COVID-19 will continue to be analyzed going forward. Change in Accounting Policies There have been no material changes or updates to our existing accounting policies from the disclosures included in our 2020 Form 10-K, except as indicated below in " New Accounting Guidance ". 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 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. In accordance with ASC 250, we have corrected our presentation of other current and non-current assets for prior periods presented in this Form 10-Q by revising the condensed consolidated financial statements and other consolidated financial information included herein. We will continue to present the prior periods on this revised basis to the extent we present such prior periods in future filings. Refer to Note 10, " Other Assets " for additional information on the revision. Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 9 Table of Contents Supplemental Cash Flow Information 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: 2021 2020 Interest paid $ 4,000 $ 4,712 Income taxes paid, including foreign withholding taxes 9,835 18,211 Non-cash investing and financing activities: Dividend payable 10,740 10,782 Non-cash acquisition of patents — 33,300 Accrued capitalized patent costs and property and equipment 3,690 ( 419 ) Unsettled repurchase of common stock 499 — New Accounting Guidance Accounting Standards Update: Simplifying the Accounting for Income Taxes In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). The amendments in this ASU are intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 with early adoption allowed. We adopted this guidance as of January 1, 2021 and the adoption did not have a material impact on our consolidated financial statements. Accounting Standards Update: Simplifying the Accounting for Convertible Instruments In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in this ASU are intended to simplify accounting for convertible debt instruments and convertible preferred stock by removing certain accounting models which separate the embedded conversion features from the host contract. ASU 2020-06 also amends certain guidance in ASC 260 on the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective methods of transition. We elected to early adopt this standard on a modified retrospective approach as of January 1, 2021. This adoption increased long-term debt by $ 50.2 million at January 1, 2021, which was comprised of $ 51.6 million of unamortized interest discount and was partially offset by a net increase of $ 1.4 million equity component of deferred financing costs. This was due to the standard no longer requiring bifurcation of the embedded conversion feature from the host contract on the 2024 Notes, as defined in Note 7, " Obligations ." This adoption also reduced non-cash interest expense starting in 2021 due to the removal of the accretion of the debt discount on the 2024 Notes. 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 September 30, 2021 and $ 0.26 in the nine months ended September 30, 2021. Accounting Standards Update: Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options In May 2021, the FASB issued ASU No. 2021-04. The amendments in this ASU are intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options, including warrants, that remain equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, with early adoption allowed. The Company is currently evaluating the anticipated impact of the adoption of ASU 2021-04 on its consolidated financial statements. 10 Table of Contents 2. REVENUE Disaggregated Revenue 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) Variable patent royalty revenue $ 8,346 $ 7,377 $ 969 13 % Fixed-fee royalty revenue 84,295 77,338 6,957 9 % Current patent royalties a 92,641 84,715 7,926 9 % Non-current patent royalties b 50,108 507 49,601 9,783 % Total patent royalties 142,749 85,222 57,527 68 % Current technology solutions revenue a 747 2,271 ( 1,524 ) ( 67 ) % Total revenue $ 143,496 $ 87,493 $ 56,003 64 % Nine months ended September 30, 2021 2020 Increase/(Decrease) Variable patent royalty revenue $ 22,765 $ 17,920 $ 4,845 27 % Fixed-fee royalty revenue 222,887 221,023 1,864 1 % Current patent royalties a 245,652 238,943 6,709 3 % Non-current patent royalties b 63,475 20,461 43,014 210 % Total patent royalties 309,127 259,404 49,723 19 % Current technology solutions revenue a 4,467 8,797 ( 4,330 ) ( 49 ) % Total revenue $ 313,594 $ 268,201 $ 45,393 17 % a. Recurring revenues are comprised of current patent royalties, inclusive of dynamic fixed-fee royalty payments, and current technology solutions revenue. b. 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 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 September 30, 2021, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands): Revenue Remainder 2021 $ 89,541 2022 299,307 2023 104,469 2024 60,089 2025 and beyond 60,000 Total Revenue $ 613,406 11 Table of Contents 3. INCOME TAXES 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 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. 4. 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. Diluted EPS reflects the potential dilution that could occur if options or other securities with features that could result in the issuance of common stock were exercised or converted to common stock or resulting from the unvested outstanding RSUs. 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 September 30, Nine months ended September 30, 2021 2020 2021 2020 Net income applicable to InterDigital, Inc. $ 26,228 $ 23,784 $ 33,417 $ 46,151 Weighted-average shares outstanding: Basic 30,737 30,804 30,792 30,762 Dilutive effect of stock options, RSUs, convertible securities and warrants 694 315 480 267 Diluted 31,431 31,119 31,272 31,029 Earnings per share: Basic $ 0.85 $ 0.77 $ 1.09 $ 1.50 Dilutive effect of stock options, RSUs, convertible securities and warrants ( 0.02 ) ( 0.01 ) ( 0.02 ) ( 0.01 ) Diluted $ 0.83 $ 0.76 $ 1.07 $ 1.49 12 Table of Contents Shares of common stock issuable upon the exercise or conversion of certain securities have been excluded from our computation of EPS because the strike price or conversion rate, as applicable, of such securities was greater than the average market price of our common stock and, as a result, the effect of such exercise or conversion would have been anti-dilutive. 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 September 30, Nine months ended September 30, 2021 2020 2021 2020 Restricted stock units and stock options 441 156 289 154 Convertible securities (a) — 4,921 — 5,222 Warrants 4,921 5,319 4,921 5,931 Total 5,362 10,396 5,210 11,307 ______________________________ (a) As of December 31, 2020, we made the irrevocable election to settle all conversions of the 2024 Notes through combination settlements of cash and shares of our common stock, with a specified dollar amount of $ 1,000 per $ 1,000 principal amount of 2024 Notes and any remaining amounts in shares of our common stock. Convertible Notes and Warrants Refer to Note 7, " Obligations ," for information about the Company's convertible notes and warrants and related conversion and strike prices. During periods in which the average market price of the Company's common stock is above the applicable conversion price of the Company's convertible notes, or above the strike price of the Company's outstanding warrants, the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted EPS. As a result, in periods where the average market price of the Company's common stock is above the conversion price or strike price, as applicable, under the if-converted method, the Company calculates the number of shares issuable under the terms of the convertible notes and the warrants based on the average market price of the stock during the period, and includes that number in the total diluted shares outstanding for the period. 5. LITIGATION AND LEGAL PROCEEDINGS COURT PROCEEDINGS Lenovo UK Proceeding On August 27, 2019, the Company and certain of its subsidiaries filed a claim in the UK High Court against Lenovo Group Limited and certain of its subsidiaries. The claim, as amended, alleges infringement of five of the Company's patents relating to 3G and/or 4G/LTE standards: European Patent (U.K.) Nos. 2,363,008; 2,421,318; 2,485,558; 2,557,714; and 3,355,537. The UK High Court held case management conferences on October 6, 2020 and December 16, 2020, a disclosure hearing on January 19, 2021 and pre-trial review hearings for the first trial on January 28, 2021 and February 8, 2021. At those hearings, the UK High Court entered a schedule for the technical and non-technical FRAND proceedings. Two technical trials were scheduled for March 2021 and June 2021 and the non-technical FRAND trial is scheduled in January 2022. There are three additional technical trials scheduled for the remaining patents following the FRAND trial. The first and second technical trials were completed, and on July 29, 2021, the UK High Court issued its decision regarding the first technical trial finding European Patent (UK) No. 2 485 558 valid, infringed, and essential to Release 8 of LTE. The Company is awaiting the court’s decision regarding the merits of the second technical trial. 13 Table of Contents District of Delaware Patent Proceeding On August 28, 2019, the Company and certain of its subsidiaries filed a complaint in the United States District Court for the District of Delaware (the "Delaware District Court") against Lenovo Holding Company, Inc. and certain of its subsidiaries alleging that Lenovo infringes eight of InterDigital's U.S. patents—U.S. Patent Nos. 8,085,665; 8,199,726; 8,427,954; 8,619,747; 8,675,612; 8,797,873; 9,203,580; and 9,456,449—by making, using, offering for sale, and/or selling Lenovo wireless devices with 3G and/or 4G LTE capabilities. As relief, InterDigital is seeking: (a) a declaration that InterDigital is not in breach of its relevant FRAND commitments with respect to Lenovo; (b) to the extent Lenovo does not agree to negotiate a worldwide patent license, does not agree to enter into binding international arbitration to set the terms of a FRAND license, and does not agree to be bound by the FRAND terms to be set by the UK High Court in the separately filed UK proceedings described above, an injunction prohibiting Lenovo from continued infringement; (c) damages, including enhanced damages for willful infringement and supplemental damages; 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. 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 On April 9, 2020, Lenovo (United States) Inc. and Motorola Mobility LLC filed a complaint in the Delaware District Court against the Company and certain of its subsidiaries. The complaint alleges that the Company defendants have violated Sections 1 and 2 of the Sherman Act in connection with, among other things, their licensing of 3G and 4G standards essential patents ("SEPs"). The complaint further alleges that the Company defendants have violated their commitment to the ETSI with respect to the licensing of 3G and 4G SEPs on FRAND terms and conditions. The complaint seeks, among other things (i) rulings that the Company defendants have violated Sections 1 and 2 of the Sherman Act and are liable for breach of their ETSI FRAND commitments, (ii) a judgment that the plaintiffs are entitled to a license with respect to the Company's 3G and 4G SEPs on FRAND terms and conditions, and (iii) injunctions against any demand for allegedly excessive royalties or enforcement of the Company defendants' 3G and 4G U.S. SEPs against the plaintiffs or their customers via patent infringement proceedings. On June 22, 2020, the Company filed a motion to dismiss Lenovo's Sherman Act claims with prejudice, and to dismiss Lenovo's breach of contract claim with leave to re-file as a counterclaim in the Company's legal proceeding against Lenovo in the Delaware District Court discussed above. Oral argument on the Company's motion to dismiss was held on October 27, 2020. On March 24, 2021, the Delaware District Court ruled on the Company’s motion to dismiss. The Delaware District Court dismissed the Sherman Act Section 1 claim without prejudice, denied the motion to dismiss the Sherman Act Section 2 claim, and consolidated the Section 2 and breach of contract claims with Company’s patent proceeding against Lenovo in the Delaware District Court discussed above. China Proceeding On April 10, 2020, Lenovo (Beijing) Ltd. and certain of its affiliates filed a complaint against the Company and certain of its subsidiaries in the Beijing Intellectual Property Court (Beijing IP Court) seeking a determination of the FRAND royalty rates payable for the Company's Chinese 3G, 4G and 5G SEPs. On February 20, 2021, the Company filed an application challenging the jurisdiction of the Beijing IP Court to take up Lenovo’s complaint. The jurisdictional challenge remains pending. Xiaom i 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, 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. 14 Table of Contents 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. On July 29, 2021, the Wuhan Court held the first of multiple substantive hearings during which the parties presented their respective claims, defenses and evidence. India Proceeding 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: Indian Patent Nos. 262910; 295912; 298719; 313036; and 320182. The second complaint alleges infringement of three of the Company's patents related to H.265/HEVC standards: Indian Patent Nos. 242248; 299448; and 308108. 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 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 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. 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. 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; EP 2,485,558; and EP 3,355,537). OTHER 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 September 30, 2021. 6. CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, Cash Equivalents and Restricted Cash 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 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 Cash and cash equivalents $ 467,606 $ 473,474 $ 746,561 Restricted cash included within prepaid and other current assets 1,300 3,108 4,401 Restricted cash included within other non-current assets 1,081 1,081 1,081 Total cash, cash equivalents and restricted cash $ 469,987 $ 477,663 $ 752,043 15 Table of Contents Concentration of Credit Risk and Fair Value of Financial Instruments Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable. We place our cash equivalents and short-term investments only in highly rated financial instruments and in United States government instruments. Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements. 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. We believe that the book values of our financial instruments approximate their fair values. Fair Value Measurements We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below: Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates. Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments. Recurring Fair Value Measurements 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 September 30, 2021 and December 31, 2020 (in thousands): Fair Value as of September 30, 2021 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 469,987 $ — $ — $ 469,987 Commercial paper (b) — 254,688 — 254,688 U.S. government securities — 129,017 — 129,017 Corporate bonds, asset backed and other securities — 49,495 — 49,495 Total $ 469,987 $ 433,200 $ — $ 903,187 16 Table of Contents Fair Value as of December 31, 2020 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 397,522 $ — $ — $ 397,522 Commercial paper (b) — 285,242 — 285,242 U.S. government securities — 166,223 — 166,223 Corporate bonds, asset backed and other securities — 81,849 — 81,849 Total $ 397,522 $ 533,314 $ — $ 930,836 ______________________________ (a) Primarily 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 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. Lease Assets 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. Patents 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 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 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. September 30, 2021 December 31, 2020 Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value Senior Convertible Long-Term Debt $ 400,000 $ 395,217 $ 432,000 $ 400,000 $ 343,821 $ 418,760 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 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. September 30, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Technicolor Patent Acquisition Long-Term Debt $ 26,203 $ 33,192 $ 24,171 $ 27,016 17 Table of Contents 7. OBLIGATIONS Technicolor Patent Acquisition Long-Term Debt On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor SA ("Technicolor"), a worldwide technology leader in the media and entertainment sector (the "Technicolor Patent Acquisition"). In conjunction with the Technicolor Patent Acquisition we assumed Technicolor’s rights and obligations under a joint licensing program with Sony Corporation ("Sony") relating to digital televisions and standalone computer display monitors, which commenced in 2015 and is referred to as the "Madison Arrangement." An affiliate of CPPIB Credit Investments Inc. ("CPPIB Credit"), a wholly owned subsidiary of Canada Pension Plan Investment Board, is a third-party investor in the Madison Arrangement. CPPIB Credit has made certain payments to Technicolor and Sony and has agreed to contribute cash to fund certain capital reserve obligations under the arrangement in exchange for a percentage of future revenues, specifically through September 11, 2030 in regard to the Technicolor patents. Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets the criteria in ASC 470-10-25 - Sales of Future Revenues or Various Other Measures of Income ("ASC 470"), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet. 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 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. Under ASC 470, amounts recorded as debt are amortized under the interest method. At each reporting period, we will review the discounted expected future cash flows over the life of the obligation. The Company made an accounting policy election to utilize the catch-up method when there is a change in the estimated future cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized as interest expense within “ Interest Expense ” in the condensed consolidated statements of income. The effective interest rate as of the acquisition date was approximately 14.5 %. 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 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 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"). The net proceeds from the issuance of the 2024 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $ 391.6 million. The 2024 Notes (i) bear interest at a rate of 2.00 % per year, payable in cash on June 1 and December 1 of each year, commencing on December 1, 2019, and (ii) mature on June 1, 2024, unless earlier converted or repurchased. The effective interest rate of the 2024 Notes is 2.02 %. The 2024 Notes are convertible into cash, shares of our common stock or a combination thereof, at our election, at an initial conversion rate of 12.3018 shares of our common stock per $ 1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $ 81.29 per share), as adjusted pursuant to the terms of the indenture governing the 2024 Notes (the "Indenture"). The conversion rate of the 2024 Notes, and thus the conversion price, may be adjusted in certain circumstances, including in connection with a conversion of the 2024 Notes made following certain fundamental changes and under other circumstances set forth in the Indenture. As of December 31, 2020, we made the irrevocable election to settle all conversions of the 2024 Notes through combination settlements of cash and shares of our common stock, with a specified dollar amount of $ 1,000 per $ 1,000 principal amount of 2024 Notes and any remaining amounts in shares of our common stock. The 2024 Notes are senior unsecured obligations of the Company and rank equally in right of payment with any of our current and any future senior unsecured indebtedness. The 2024 Notes are effectively subordinated to all of our future secured indebtedness to the extent of the value of the related collateral, and the 2024 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of our subsidiaries. 18 Table of Contents On May 29 and May 31, 2019, in connection with the offering of the 2024 Notes, we entered into convertible note hedge transactions (collectively, the "2024 Note Hedge Transactions") that cover, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock, in the aggregate, at a strike price that initially corresponds to the initial conversion price of the 2024 Notes, subject to adjustment, and are exercisable upon any conversion of the 2024 Notes. On May 29 and May 31, 2019, we also entered into privately negotiated warrant transactions (collectively, the "2024 Warrant Transactions" and, together with the 2024 Note Hedge Transactions, the "2024 Call Spread Transactions"), whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock at an initial strike price of approximately $ 109.43 per share, subject to adjustment. 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 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"). The 2020 Notes bore interest at a rate of 1.50 % per year and matured on March 1, 2020. 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 September 30, 2021 and December 31, 2020 (in thousands): September 30, 2021 December 31, 2020 Principal $ 400,000 $ 400,000 Less: Unamortized interest discount (a) — ( 51,567 ) Deferred financing costs (a) ( 4,783 ) ( 4,612 ) Net carrying amount of the 2024 Notes $ 395,217 $ 343,821 ______________________________ (a) Due to the adoption of ASU 2020-06 on January 1, 2021, the unamortized interest discount was reclassified back to the carrying value of the 2024 Notes. 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 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, 2021 2020 2024 Notes 2024 Notes 2020 Notes Total Contractual coupon interest $ 2,000 $ 2,000 $ — $ 2,000 Accretion of debt discount (a) — 3,323 — 3,323 Amortization of deferred financing costs 411 297 — 297 Total $ 2,411 $ 5,620 $ — $ 5,620 Nine months ended September 30, 2021 2020 2024 Notes 2024 Notes 2020 Notes Total Contractual coupon interest $ 6,000 $ 6,000 $ 237 $ 6,237 Accretion of debt discount (a) — 9,800 669 10,469 Amortization of deferred financing costs 1,211 876 70 946 Total $ 7,211 $ 16,676 $ 976 $ 17,652 ______________________________ (a) Due to the adoption of ASU 2020-06, there is no longer accretion of the debt discount starting January 1, 2021. Refer to Note 1, " Basis of Presentation ", for further information regarding this adoption. 19 Table of Contents Technicolor Contingent Consideration As part of the Technicolor Patent Acquisition, we entered into a revenue-sharing arrangement with Technicolor that created a contingent consideration liability. 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 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. 8. VARIABLE INTEREST ENTITIES As further discussed below, we are the primary beneficiary of three variable interest entities. 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. As of December 31, 2020, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 62.0 million and $ 5.8 million, respectively. Assets included $ 24.5 million of cash and cash equivalents, $ 2.3 million of accounts receivable and prepaid and other current assets, and $ 35.2 million of patents, net. Chordant On January 31, 2019, we launched the Company’s Chordant™ business as a standalone company. 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 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 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. Convida Wireless is a variable interest entity. 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 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 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. Based on the terms of the trust agreement, we determined that we are the primary beneficiary for accounting purposes and have included the Trust in our consolidated financial statements. Pending the dissolution of the Trust, we will continue to consolidate the Trust in our consolidated financial statements. 20 Table of Contents 9. 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 Interest and investment income $ 385 $ 825 $ 1,384 $ 5,044 Other ( 1,922 ) 3,169 842 8,762 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. 10. OTHER ASSETS 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) September 30, 2021 December 31, 2020 December 31, 2020 Tax receivables $ 49,734 $ 69,592 $ 45,262 Prepaid assets 8,520 10,899 10,899 Patents held for sale 6,228 — — Receivable from sale of long-term investments 3,016 — — Operating lease receivable 64 817 817 Other current assets 12,742 2,916 2,916 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 September 30, 2021 and December 31, 2020 were as follows (in thousands): As Reported As Revised (a) September 30, 2021 December 31, 2020 December 31, 2020 Tax receivables $ 29,969 $ — $ 24,330 Goodwill 22,421 22,421 22,421 Right-of-use assets 18,871 22,456 22,456 Long-term investments 14,580 15,489 15,489 Other non-current assets 11,115 13,677 13,677 Total Other non-current assets, net $ 96,956 $ 74,043 $ 98,373 _____________________________ (a) As discussed in Note 1, we revised our prior period presentation of " Prepaid and other current assets " and " Other non-current assets, net ". This column represents the effect of the revision on the consolidated balance sheet. 21 Table of Contents 11. RESTRUCTURING ACTIVITIES 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. Additionally, in June 2021, Convida approved a plan to sell certain patents. The proceeds from the sale of these patents will contribute to funding Convida's operations. These assets were evaluated as a separate asset group and reclassified as assets held for sale. 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. The patents held for sale are included within " Prepaid and other current assets " in the consolidated balance sheet. Restructuring charges are estimated based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts incurred for such activities may differ from amounts initially estimated. 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 Cash payments ( 628 ) Balance as of June 30, 2021 $ 11,657 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 Severance and other benefits 6,998 18,084 Outside services and other associated costs 47 1,246 Reimbursement arrangements — ( 10,040 ) Total $ 7,045 $ 20,290 22 Table of Contents