Quarterly Report (10-q)

Date : 10/31/2019 @ 12:43PM
Source : Edgar (US Regulatory)
Stock : InterDigital Inc (IDCC)
Quote : 43.58  1.57 (3.74%) @ 9:44PM
After Hours
Last Trade
Last $ 43.58 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

false--12-31Q3201900014054956930005370000.350.350.350.350.350.350.010.0110000000010000000071134000712670003352900031133000850000084000000.10.114399000143990000000P3YP1YP1YP1YP1Y55000003760500040134000 0001405495 2019-01-01 2019-09-30 0001405495 2019-10-29 0001405495 2018-12-31 0001405495 2019-09-30 0001405495 2018-01-01 2018-09-30 0001405495 2018-07-01 2018-09-30 0001405495 idcc:PatentSalesMember 2019-01-01 2019-09-30 0001405495 idcc:PatentSalesMember 2018-01-01 2018-09-30 0001405495 2019-07-01 2019-09-30 0001405495 idcc:PatentSalesMember 2018-07-01 2018-09-30 0001405495 idcc:CurrentTechnologySolutionsMember 2018-07-01 2018-09-30 0001405495 idcc:CurrentTechnologySolutionsMember 2018-01-01 2018-09-30 0001405495 idcc:CurrentTechnologySolutionsMember 2019-07-01 2019-09-30 0001405495 idcc:PatentSalesMember 2019-07-01 2019-09-30 0001405495 idcc:PatentLicensingRoyaltiesMember 2019-07-01 2019-09-30 0001405495 idcc:PatentLicensingRoyaltiesMember 2018-01-01 2018-09-30 0001405495 idcc:PatentLicensingRoyaltiesMember 2018-07-01 2018-09-30 0001405495 idcc:PatentLicensingRoyaltiesMember 2019-01-01 2019-09-30 0001405495 idcc:CurrentTechnologySolutionsMember 2019-01-01 2019-09-30 0001405495 idcc:TechnicolorMember 2018-01-01 2018-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2018-12-31 0001405495 us-gaap:TreasuryStockMember 2019-06-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001405495 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001405495 us-gaap:CommonStockMember 2019-03-31 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001405495 2019-04-01 2019-06-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001405495 us-gaap:CommonStockMember 2018-12-31 0001405495 us-gaap:TreasuryStockMember 2019-03-31 0001405495 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001405495 2019-01-01 2019-03-31 0001405495 us-gaap:NoncontrollingInterestMember 2019-06-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001405495 us-gaap:CommonStockMember 2019-06-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001405495 2019-03-31 0001405495 us-gaap:RetainedEarningsMember 2019-06-30 0001405495 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001405495 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2019-03-31 0001405495 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0001405495 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0001405495 us-gaap:CommonStockMember 2019-09-30 0001405495 us-gaap:TreasuryStockMember 2018-12-31 0001405495 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001405495 us-gaap:RetainedEarningsMember 2019-03-31 0001405495 us-gaap:TreasuryStockMember 2019-09-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001405495 us-gaap:RetainedEarningsMember 2019-09-30 0001405495 us-gaap:RetainedEarningsMember 2018-12-31 0001405495 2019-06-30 0001405495 us-gaap:NoncontrollingInterestMember 2019-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001405495 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001405495 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001405495 2018-04-01 2018-06-30 0001405495 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001405495 us-gaap:TreasuryStockMember 2018-04-01 2018-06-30 0001405495 us-gaap:CommonStockMember 2018-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001405495 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-03-31 0001405495 us-gaap:CommonStockMember 2018-01-01 2018-03-31 0001405495 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0001405495 2018-01-01 2018-03-31 0001405495 us-gaap:NoncontrollingInterestMember 2018-06-30 0001405495 us-gaap:TreasuryStockMember 2018-03-31 0001405495 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001405495 us-gaap:NoncontrollingInterestMember 2017-12-31 0001405495 2018-01-01 0001405495 us-gaap:CommonStockMember 2018-06-30 0001405495 us-gaap:TreasuryStockMember 2017-12-31 0001405495 us-gaap:RetainedEarningsMember 2018-06-30 0001405495 us-gaap:RetainedEarningsMember 2017-12-31 0001405495 us-gaap:TreasuryStockMember 2018-07-01 2018-09-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0001405495 us-gaap:CommonStockMember 2018-09-30 0001405495 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0001405495 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001405495 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0001405495 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001405495 us-gaap:RetainedEarningsMember 2018-01-01 0001405495 us-gaap:RetainedEarningsMember 2018-09-30 0001405495 us-gaap:CommonStockMember 2017-12-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0001405495 2018-06-30 0001405495 2018-09-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001405495 us-gaap:TreasuryStockMember 2018-06-30 0001405495 us-gaap:RetainedEarningsMember 2018-03-31 0001405495 2018-03-31 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2018-09-30 0001405495 us-gaap:NoncontrollingInterestMember 2018-03-31 0001405495 us-gaap:TreasuryStockMember 2018-09-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0001405495 us-gaap:NoncontrollingInterestMember 2018-04-01 2018-06-30 0001405495 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001405495 2017-12-31 0001405495 us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0001405495 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001405495 2019-01-01 0001405495 2019-10-01 2019-09-30 0001405495 2022-01-01 2019-09-30 0001405495 2023-01-01 2019-09-30 0001405495 2021-01-01 2019-09-30 0001405495 2020-01-01 2019-09-30 0001405495 idcc:CurrentPatentRoyaltiesMember 2019-01-01 2019-09-30 0001405495 idcc:FixedFeeRoyaltyRevenueMember 2019-01-01 2019-09-30 0001405495 idcc:CurrentPatentRoyaltiesMember 2018-01-01 2018-09-30 0001405495 idcc:NonCurrentPatentRoyaltiesMember 2019-01-01 2019-09-30 0001405495 idcc:VariablePatentRoyaltyRevenueMember 2018-01-01 2018-09-30 0001405495 idcc:VariablePatentRoyaltyRevenueMember 2019-01-01 2019-09-30 0001405495 idcc:FixedFeeRoyaltyRevenueMember 2018-01-01 2018-09-30 0001405495 idcc:NonCurrentPatentRoyaltiesMember 2018-01-01 2018-09-30 0001405495 idcc:VariablePatentRoyaltyRevenueMember 2019-07-01 2019-09-30 0001405495 idcc:NonCurrentPatentRoyaltiesMember 2019-07-01 2019-09-30 0001405495 idcc:FixedFeeRoyaltyRevenueMember 2019-07-01 2019-09-30 0001405495 idcc:FixedFeeRoyaltyRevenueMember 2018-07-01 2018-09-30 0001405495 idcc:NonCurrentPatentRoyaltiesMember 2018-07-01 2018-09-30 0001405495 idcc:CurrentPatentRoyaltiesMember 2019-07-01 2019-09-30 0001405495 idcc:CurrentPatentRoyaltiesMember 2018-07-01 2018-09-30 0001405495 idcc:VariablePatentRoyaltyRevenueMember 2018-07-01 2018-09-30 0001405495 us-gaap:StockCompensationPlanMember 2018-01-01 2018-09-30 0001405495 us-gaap:ForeignCountryMember 2019-01-01 2019-09-30 0001405495 us-gaap:ForeignCountryMember 2018-01-01 2018-09-30 0001405495 us-gaap:WarrantMember 2018-07-01 2018-09-30 0001405495 us-gaap:RestrictedStockUnitsRSUMember 2019-07-01 2019-09-30 0001405495 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001405495 us-gaap:RestrictedStockUnitsRSUMember 2018-07-01 2018-09-30 0001405495 us-gaap:WarrantMember 2018-01-01 2018-09-30 0001405495 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-09-30 0001405495 us-gaap:ConvertibleDebtSecuritiesMember 2018-01-01 2018-09-30 0001405495 us-gaap:WarrantMember 2019-07-01 2019-09-30 0001405495 us-gaap:ConvertibleDebtSecuritiesMember 2019-07-01 2019-09-30 0001405495 us-gaap:ConvertibleDebtSecuritiesMember 2019-01-01 2019-09-30 0001405495 us-gaap:WarrantMember 2019-01-01 2019-09-30 0001405495 us-gaap:ConvertibleDebtSecuritiesMember 2018-07-01 2018-09-30 0001405495 idcc:U.K.ProceedingsMember us-gaap:PendingLitigationMember 2019-08-27 0001405495 idcc:ZTEUSITCProceedingsAndRelatedDelawareDistrictCourtProceedingsMember us-gaap:PendingLitigationMember 2019-01-23 0001405495 idcc:DistrictOfDelawareProceedingsMember us-gaap:PendingLitigationMember 2019-08-28 0001405495 idcc:TechnicolorMember 2019-07-01 2019-09-30 0001405495 idcc:TechnicolorMember 2019-05-31 0001405495 idcc:TechnicolorMember 2019-09-30 0001405495 idcc:TechnicolorMember 2018-07-01 2018-09-30 0001405495 idcc:TechnicolorMember idcc:ShortfallsFundingMember 2019-09-30 0001405495 idcc:TechnicolorMember 2018-07-30 0001405495 idcc:TechnicolorMember 2019-01-01 2019-09-30 0001405495 idcc:TechnicolorMember 2019-04-01 2019-06-30 0001405495 2019-07-19 2019-07-19 0001405495 idcc:TechnicolorMember idcc:ShortfallsFundingMember 2019-01-01 2019-09-30 0001405495 us-gaap:FairValueInputsLevel3Member 2018-12-31 0001405495 us-gaap:FairValueInputsLevel2Member idcc:MoneyMarketFundsAndDemandDepositsMember 2018-12-31 0001405495 us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001405495 idcc:MoneyMarketFundsAndDemandDepositsMember 2018-12-31 0001405495 us-gaap:FairValueInputsLevel2Member 2018-12-31 0001405495 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001405495 us-gaap:FairValueInputsLevel1Member idcc:MoneyMarketFundsAndDemandDepositsMember 2018-12-31 0001405495 us-gaap:FairValueInputsLevel1Member 2018-12-31 0001405495 us-gaap:FairValueInputsLevel3Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2018-12-31 0001405495 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001405495 us-gaap:FairValueInputsLevel1Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2018-12-31 0001405495 us-gaap:FairValueInputsLevel3Member idcc:MoneyMarketFundsAndDemandDepositsMember 2018-12-31 0001405495 us-gaap:FairValueInputsLevel2Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2018-12-31 0001405495 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001405495 idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2018-12-31 0001405495 us-gaap:FairValueInputsLevel3Member 2019-09-30 0001405495 us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001405495 us-gaap:ConvertibleDebtMember 2019-09-30 0001405495 us-gaap:ConvertibleDebtMember 2018-12-31 0001405495 idcc:TechnicolorMember 2018-12-31 0001405495 idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2019-09-30 0001405495 us-gaap:FairValueInputsLevel2Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2019-09-30 0001405495 us-gaap:FairValueInputsLevel2Member 2019-09-30 0001405495 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel1Member 2019-09-30 0001405495 us-gaap:FairValueInputsLevel1Member idcc:MoneyMarketFundsAndDemandDepositsMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel3Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2019-09-30 0001405495 idcc:MoneyMarketFundsAndDemandDepositsMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel2Member idcc:MoneyMarketFundsAndDemandDepositsMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel3Member idcc:MoneyMarketFundsAndDemandDepositsMember 2019-09-30 0001405495 us-gaap:FairValueInputsLevel1Member idcc:CorporateBondsAndAssetBackedSecuritiesDomain 2019-09-30 0001405495 us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001405495 idcc:FourLargestLicenseesMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001405495 idcc:FiveLargestLicenseesMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2018-01-01 2018-12-31 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2018-01-01 2018-09-30 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2019-01-01 2019-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2018-01-01 2018-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-01-01 2019-09-30 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2018-07-01 2018-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-07-01 2019-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2018-07-01 2018-09-30 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2019-07-01 2019-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-09-30 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2018-12-31 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2019-09-30 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-06-03 0001405495 2019-05-29 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-05-31 0001405495 2019-05-29 2019-05-31 0001405495 idcc:ConvertibleNotes2024Member us-gaap:ConvertibleDebtMember 2019-06-03 2019-06-03 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2015-03-11 0001405495 2019-05-31 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2015-03-09 0001405495 2019-05-31 2019-05-31 0001405495 idcc:ConvertibleNotes2020Member 2019-06-30 0001405495 idcc:ConvertibleNotes2020Member us-gaap:ConvertibleDebtMember 2019-06-03 0001405495 us-gaap:PatentsMember 2019-09-30 0001405495 us-gaap:CashAndCashEquivalentsMember 2018-12-31 0001405495 us-gaap:OtherNoncurrentAssetsMember 2019-09-30 0001405495 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2013-12-31 0001405495 idcc:ChordantMember 2019-01-01 2019-09-30 0001405495 us-gaap:CashAndCashEquivalentsMember 2019-09-30 0001405495 idcc:ChordantMember 2019-07-01 2019-09-30 0001405495 us-gaap:PatentsMember 2018-12-31 0001405495 us-gaap:AccountsReceivableMember 2018-12-31 0001405495 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-01-01 2019-09-30 0001405495 us-gaap:AccountsReceivableMember 2019-09-30 0001405495 us-gaap:OtherNoncurrentAssetsMember 2018-12-31 0001405495 idcc:ConvidaMember 2019-01-01 2019-09-30 0001405495 idcc:ConvidaMember 2019-07-01 2019-09-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-03-31 0001405495 srt:RestatementAdjustmentMember 2018-01-01 2018-06-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-04-01 2018-06-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-07-01 2018-09-30 0001405495 srt:RestatementAdjustmentMember 2018-01-01 2018-09-30 0001405495 srt:RestatementAdjustmentMember 2018-04-01 2018-06-30 0001405495 srt:RestatementAdjustmentMember 2018-01-01 2018-03-31 0001405495 srt:ScenarioPreviouslyReportedMember 2018-10-01 2018-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-09-30 0001405495 srt:RestatementAdjustmentMember 2018-07-01 2018-09-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-06-30 0001405495 srt:RestatementAdjustmentMember 2018-10-01 2018-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2017-01-01 2017-03-31 0001405495 srt:ScenarioPreviouslyReportedMember 2017-01-01 2017-06-30 0001405495 srt:ScenarioPreviouslyReportedMember 2017-10-01 2017-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2017-01-01 2017-09-30 0001405495 srt:ScenarioPreviouslyReportedMember 2017-04-01 2017-06-30 0001405495 srt:RestatementAdjustmentMember 2017-01-01 2017-06-30 0001405495 srt:RestatementAdjustmentMember 2017-01-01 2017-03-31 0001405495 srt:RestatementAdjustmentMember 2017-01-01 2017-09-30 0001405495 srt:ScenarioPreviouslyReportedMember 2017-07-01 2017-09-30 0001405495 srt:RestatementAdjustmentMember 2017-04-01 2017-06-30 0001405495 srt:RestatementAdjustmentMember 2017-10-01 2017-12-31 0001405495 srt:RestatementAdjustmentMember 2017-07-01 2017-09-30 0001405495 srt:ScenarioPreviouslyReportedMember 2017-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2018-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2018-03-31 0001405495 srt:RestatementAdjustmentMember 2016-12-31 0001405495 srt:RestatementAdjustmentMember 2018-12-31 0001405495 srt:RestatementAdjustmentMember 2017-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2016-12-31 0001405495 srt:RestatementAdjustmentMember 2018-09-30 0001405495 srt:RestatementAdjustmentMember 2018-03-31 0001405495 srt:RestatementAdjustmentMember 2018-06-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-06-30 0001405495 srt:ScenarioPreviouslyReportedMember 2018-09-30 0001405495 srt:RestatementAdjustmentMember 2017-01-01 2017-12-31 0001405495 srt:RestatementAdjustmentMember 2018-01-01 2018-12-31 0001405495 srt:RestatementAdjustmentMember 2016-01-01 2016-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2016-01-01 2016-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2018-01-01 2018-12-31 0001405495 srt:ScenarioPreviouslyReportedMember 2017-01-01 2017-12-31 idcc:patent iso4217:USD idcc:engineer idcc:office xbrli:shares idcc:coding_patent_and_application idcc:patent_and_application idcc:segment xbrli:pure iso4217:USD xbrli:shares idcc:variable_interest_entity idcc:day

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     

Commission File Number 1-33579
INTERDIGITAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania
 
82-4936666
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
200 Bellevue Parkway, Suite 300, Wilmington, DE 19809-3727
(Address of Principal Executive Offices and Zip Code)
(302281-3600
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
IDCC
NASDAQ Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, par value $0.01 per share
31,132,944
Title of Class
Outstanding at October 29, 2019
 



INDEX

 
 
 
PAGES
 
 
 
InterDigital® is a registered trademark of InterDigital, Inc. All other trademarks, service marks and/or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.





PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERDIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
 
SEPTEMBER 30,
2019
 
DECEMBER 31,
2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
735,886

 
$
475,056

Short-term investments
211,737

 
470,724

Accounts receivable, less allowances of $537 and $693
23,355


35,032

Prepaid and other current assets
51,545


43,438

Total current assets
1,022,523

 
1,024,250

PROPERTY AND EQUIPMENT, NET
10,018


10,051

PATENTS, NET
448,957

 
454,567

DEFERRED TAX ASSETS
85,437

 
77,225

OTHER NON-CURRENT ASSETS
61,367


60,465

 
605,779

 
602,308

TOTAL ASSETS
$
1,628,302

 
$
1,626,558

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
93,131

 
$

Accounts payable
12,713

 
19,367

Accrued compensation and related expenses
26,440

 
26,838

Deferred revenue
171,433


111,672

Taxes payable
193

 
1,508

Dividends payable
10,897

 
11,627

Other accrued expenses
19,492

 
8,383

Total current liabilities
334,299

 
179,395

LONG-TERM DEBT
346,397

 
317,377

LONG-TERM DEFERRED REVENUE
107,498


157,634

OTHER LONG-TERM LIABILITIES
36,809

 
34,139

TOTAL LIABILITIES
825,003

 
688,545

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, 71,267 and 71,134 shares issued and 31,133 and 33,529 shares outstanding
712

 
711

Additional paid-in capital
725,891

 
685,512

Retained earnings
1,409,870

 
1,435,970

Accumulated other comprehensive loss
(105
)
 
(2,471
)
 
2,136,368

 
2,119,722

Treasury stock, 40,134 and 37,605 shares of common held at cost
1,354,262

 
1,182,993

Total InterDigital, Inc. shareholders’ equity
782,106

 
936,729

Noncontrolling interest
21,193

 
1,284

Total equity
803,299

 
938,013

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,628,302

 
$
1,626,558


The accompanying notes are an integral part of these statements.

3


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,
 
 
2019
 
2018
 
2019
 
2018
 
REVENUES:
 
 
 
 
 
 
 
 
Patent licensing royalties
$
68,049

 
$
74,045

 
$
207,994

 
$
230,018

 
Technology solutions
3,724

 
1,034

 
7,794

 
2,060

 
Patent sales
750

 

 
975

 

 
 
72,523

 
75,079

 
216,763

 
232,078

 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Patent administration and licensing
34,772

 
32,077

 
108,196

 
85,480

 
Development
20,506

 
17,276

 
56,028

 
49,279

 
Selling, general and administrative
13,471

 
12,806

 
40,000

 
38,569

 
 
68,749

 
62,159

 
204,224

 
173,328

 

 
 
 
 
 
 
 
 
Income from operations
3,774

 
12,920

 
12,539

 
58,750

 

 
 
 
 
 
 
 
 
INTEREST EXPENSE
(10,920
)
 
(9,039
)
 
(30,305
)
 
(27,242
)
 
OTHER INCOME (EXPENSE), NET
7,803

 
(4,914
)
 
23,772

 
2,106

 
Income (loss) before income taxes
657

 
(1,033
)
 
6,006

 
33,614

 
INCOME TAX BENEFIT (PROVISION)
178

 
21,143

 
(3,007
)
 
25,001

 
NET INCOME
$
835


$
20,110

 
$
2,999

 
$
58,615

 
Net loss attributable to noncontrolling interest
(1,399
)
 
(1,642
)
 
(4,175
)
 
(4,333
)
 
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.
$
2,234

 
$
21,752

 
$
7,174

 
$
62,948

 
NET INCOME PER COMMON SHARE — BASIC
$
0.07

 
$
0.63

 
$
0.23

 
$
1.81

 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC
31,130

 
34,651

 
31,757

 
34,687

 
NET INCOME PER COMMON SHARE — DILUTED
$
0.07

 
$
0.61

 
$
0.22

 
$
1.77

 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED
31,308

 
35,607

 
32,010

 
35,614

 

The accompanying notes are an integral part of these statements.

4


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,
 
2019
 
2018
 
2019
 
2018
Net income
$
835

 
$
20,110

 
$
2,999

 
$
58,615

Unrealized gain (loss) on investments, net of tax
245

 
467

 
2,366

 
(904
)
Comprehensive income
$
1,080

 
$
20,577

 
$
5,365

 
$
57,711

Comprehensive loss attributable to noncontrolling interest
(1,399
)
 
(1,642
)
 
(4,175
)
 
(4,333
)
Total comprehensive income attributable to InterDigital, Inc.
$
2,479

 
$
22,219

 
$
9,540

 
$
62,044

The accompanying notes are an integral part of these statements.


5


INTERDIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
(unaudited)
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
 Income (Loss)
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
 Paid-In Capital
 
Retained Earnings
 
 
Treasury Stock
 
Non-Controlling
Interest
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
 Shares
 
Amount
 
BALANCE, DECEMBER 31, 2017
70,749

 
$
707

 
$
680,040

 
$
1,257,632

 
$
(2,083
)
 
36,127

 
$
(1,072,488
)
 
$
9,340


$
873,148

Cumulative effect of change in accounting principle

 

 

 
161,701

 
(449
)
 

 

 

 
161,252

Net income attributable to InterDigital, Inc.

 

 

 
30,230

 

 

 

 

 
30,230

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,501
)
 
(1,501
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
(1,747
)
 

 

 

 
(1,747
)
Dividends declared ($0.35 per share)

 

 
115

 
(12,280
)
 

 

 

 

 
(12,165
)
Issuance of common stock, net
208

 
2

 
(8,279
)
 

 

 

 

 

 
(8,277
)
Amortization of unearned compensation

 

 
816

 

 

 

 

 

 
816

Repurchase of common stock

 

 

 

 

 
84

 
(6,024
)
 

 
(6,024
)
BALANCE, MARCH 31, 2018
70,957

 
$
709

 
$
672,692

 
$
1,437,283

 
$
(4,279
)
 
36,211

 
$
(1,078,512
)
 
$
7,839

 
$
1,035,732

Net income attributable to InterDigital, Inc.

 

 

 
10,966

 

 

 

 

 
10,966

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,190
)
 
(1,190
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
376

 

 

 

 
376

Dividends declared ($0.35 per share)

 

 
102

 
(12,255
)
 

 

 

 

 
(12,153
)
Exercise of common stock options
90

 
1

 
3,930

 

 

 

 

 

 
3,931

Issuance of common stock, net
12

 

 
(111
)
 

 

 

 

 

 
(111
)
Amortization of unearned compensation

 

 
1,821

 

 

 

 

 

 
1,821

Repurchase of common stock

 

 

 

 

 
40

 
(3,148
)
 

 
(3,148
)
BALANCE, JUNE 30, 2018
71,059

 
$
710

 
$
678,434

 
$
1,435,994

 
$
(3,903
)
 
36,251

 
$
(1,081,660
)
 
$
6,649

 
$
1,036,224

Net income attributable to InterDigital, Inc.

 

 

 
21,752

 

 

 

 

 
21,752

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,642
)
 
(1,642
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
467

 

 

 

 
467

Dividends declared ($0.35 per share)

 

 
127

 
(12,124
)
 

 

 

 

 
(11,997
)
Exercise of common stock options
56

 
1

 
2,431

 

 

 

 

 

 
2,432

Issuance of common stock, net
2

 

 
(91
)
 

 

 

 

 

 
(91
)
Amortization of unearned compensation

 

 
2,239

 

 

 

 

 

 
2,239

Repurchase of common stock

 

 

 

 

 
424

 
(34,335
)
 

 
(34,335
)
BALANCE, SEPTEMBER 30, 2018
71,117

 
$
711

 
$
683,140

 
$
1,445,622

 
$
(3,436
)
 
36,675

 
$
(1,115,995
)
 
$
5,007

 
$
1,015,049



6


 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
 Income (Loss)
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
 Paid-In Capital
 
Retained Earnings
 
 
Treasury Stock
 
Non-Controlling
Interest
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
 Shares
 
Amount
 
BALANCE, DECEMBER 31, 2018
71,134

 
$
711

 
$
685,512

 
$
1,435,970

 
$
(2,471
)
 
37,605

 
$
(1,182,993
)
 
$
1,284

 
$
938,013

Net loss attributable to InterDigital, Inc.

 

 

 
(2,803
)
 

 

 

 

 
(2,803
)
Proceeds from and increases in noncontrolling interests

 

 

 

 

 

 

 
12,834

 
12,834

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,411
)
 
(1,411
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
1,045

 

 

 

 
1,045

Dividends declared ($0.35 per share)

 

 
103

 
(11,283
)
 

 

 

 

 
(11,180
)
Exercise of common stock options

 

 
2

 

 

 

 

 

 
2

Issuance of common stock, net
116

 
1

 
(4,098
)
 

 

 

 

 

 
(4,097
)
Amortization of unearned compensation

 

 
2,096

 

 

 

 

 

 
2,096

Repurchase of common stock

 

 

 

 

 
1,585

 
(108,986
)
 

 
(108,986
)
BALANCE, MARCH 31, 2019
71,250

 
$
712

 
$
683,615

 
$
1,421,884

 
$
(1,426
)
 
39,190

 
$
(1,291,979
)
 
$
12,707

 
$
825,513

Net income attributable to InterDigital, Inc.

 

 

 
7,743

 

 

 

 

 
7,743

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,365
)
 
(1,365
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
1,076

 

 

 

 
1,076

Dividends declared ($0.35 per share)

 

 
104

 
(10,999
)
 

 

 

 

 
(10,895
)
Issuance of common stock, net
10

 

 
(40
)
 

 

 

 

 

 
(40
)
Amortization of unearned compensation

 

 
2,116

 

 

 

 

 

 
2,116

Repurchase of common stock

 

 

 

 

 
944

 
(62,283
)
 

 
(62,283
)
Equity component of debt, net of tax

 

 
56,917

 

 

 

 

 

 
56,917

Net convertible note hedge transactions, net of tax

 

 
(49,740
)
 

 

 

 

 

 
(49,740
)
Net warrant transactions

 

 
43,416

 

 

 

 

 

 
43,416

Deferred financing costs allocated to equity, net of tax

 

 
(1,569
)
 

 

 

 

 

 
(1,569
)
Reacquisition of equity component of debt due to prepayment, net of tax

 

 
(10,649
)
 

 

 

 

 

 
(10,649
)
BALANCE, JUNE 30, 2019
71,260

 
$
712

 
$
724,170

 
$
1,418,628

 
$
(350
)
 
40,134

 
$
(1,354,262
)
 
$
11,342

 
$
800,240

Net income attributable to InterDigital, Inc.

 

 

 
2,234

 

 

 

 

 
2,234

Increases in noncontrolling interest

 

 

 

 

 

 

 
11,250

 
11,250

Net loss attributable to noncontrolling interest

 

 

 

 

 

 

 
(1,399
)
 
(1,399
)
Net change in unrealized gain (loss) on short-term investments

 

 

 

 
245

 

 

 

 
245

Dividends declared ($0.35 per share)

 

 
95

 
(10,992
)
 

 

 

 

 
(10,897
)
Issuance of common stock, net
7

 

 
(179
)
 

 

 

 

 

 
(179
)
Amortization of unearned compensation

 

 
1,805

 

 

 

 

 

 
1,805

BALANCE, SEPTEMBER 30, 2019
71,267

 
$
712

 
$
725,891

 
$
1,409,870

 
$
(105
)
 
40,134

 
$
(1,354,262
)
 
$
21,193

 
$
803,299

The accompanying notes are an integral part of these statements.

7



INTERDIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
2,999


$
58,615

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
56,907

 
47,024

Non-cash interest expense, net
13,586

 
10,684

Non-cash change in fair-value
710

 

Gain on asset acquisition and sale of business
(22,690
)
 

Change in deferred revenue
875

 
9,822

Loss on extinguishment of debt
5,488

 

Deferred income taxes
(8,014
)
 
(27,673
)
Share-based compensation
6,017

 
4,875

Impairment of long-term investment
3,312

 
200

Loss on disposal of assets
119

 
8,176

Other
623

 
(2
)
(Increase) decrease in assets:
 
 
 
Receivables
11,659

 
36,861

Deferred charges and other assets
(2,181
)
 
(63,783
)
Increase (decrease) in liabilities:
 
 
 
Accounts payable
(2,547
)
 
5,640

Accrued compensation and other expenses
6,428

 
(5,618
)
Accrued taxes payable and other tax contingencies
(1,315
)
 
91,796

Net cash provided by operating activities
71,976


176,617

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of short-term investments
(92,270
)
 
(142,562
)
Sales of short-term investments
355,649

 
317,447

Purchases of property and equipment
(3,062
)

(1,882
)
Proceeds from sale of business
10,000

 

Capitalized patent costs
(26,123
)
 
(23,845
)
Acquisition of patents

 
(2,250
)
Acquisition of business, net of cash acquired

 
(142,985
)
Long-term investments

 
(6,686
)
Net cash provided by (used in) investing activities
244,194

 
(2,763
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from exercise of stock options
2

 
6,362

Payments on long-term debt
(221,091
)
 

Proceeds from issuance of convertible senior notes
400,000

 

Purchase of convertible bond hedge
(72,000
)
 

Payment for warrant unwind
(4,184
)
 

Prepayment penalty on long-term debt
(10,763
)
 

Proceeds from hedge unwind
9,038

 

Proceeds from issuance of warrants
47,600

 

Payments of debt issuance costs
(8,375
)
 

Proceeds from non-controlling interests
10,333

 

Dividends paid
(33,683
)

(36,472
)
Taxes withheld upon restricted stock unit vestings
(4,316
)
 
(8,479
)
Repurchase of common stock
(171,269
)
 
(43,508
)
Net cash used in financing activities
(58,708
)
 
(82,097
)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
257,462

 
91,757

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
488,733

 
433,014

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
$
746,195

 
$
524,771

                                   
Refer to Note 1, "Basis of Presentation," for additional supplemental cash flow information. Additionally, refer to Note 2, "Leases" for information regarding the impact of our adoption of the new leases accounting standard, ASC 842, and Note 8, "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


INTERDIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(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, 2019, and the results of our operations for the three and nine months ended September 30, 2019 and 2018 and our cash flows for the nine months ended September 30, 2019 and 2018. The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions for 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, 2018 (our “2018 Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February 21, 2019. Definitions of capitalized terms not defined herein appear within our 2018 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.
Change in Accounting Policies
There have been no material changes or updates to our existing accounting policies from the disclosures included in our 2018 Form 10-K, except as indicated in Note 2, "Leases".
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Prior Periods Financial Statement Revision
In connection with the preparation of the condensed consolidated financial statements for first quarter 2019, it was identified that we incorrectly attributed tax benefit to the net loss attributable to noncontrolling interest in our presentation of noncontrolling interest.
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 noncontrolling interest for all 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 12, "Revision to Noncontrolling Interest" for additional information on the revision.
Supplemental Cash Flow Information
The following table presents additional supplemental cash flow information for the nine months ended September 30, 2019 and 2018 (in thousands):

9


 
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
SUPPLEMENTAL CASH FLOW INFORMATION:
2019
 
2018
Interest paid
$
3,930

 
$
4,740

Income taxes paid, including foreign withholding taxes
16,483

 
24,459

Non-cash investing and financing activities:
 
 
 
Dividend payable
10,897

 
11,996

Increases in noncontrolling interests
13,750

 

Non-cash acquisition of patents
22,500

 

Accrued capitalized patent costs and property and equipment
390

 
(1,513
)

New Accounting Guidance
Accounting Standards Update: Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" or ("ASC 842"), which outlines a comprehensive change to the lease accounting model and supersedes prior lease guidance. Refer to Note 2, "Leases," for information regarding our adoption of this guidance effective January 1, 2019 and a discussion of the impact to information presented herein, as well as additional required disclosures under the new guidance.
Accounting Standards Update: Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU No. 2018-07, "Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. The guidance is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We adopted this guidance in first quarter 2019 and it did not have a material impact on our consolidated financial statements.
Accounting Standards Update: Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses".  This ASU introduces a new accounting model for recognizing credit losses on certain financial instruments and financial assets, including trade receivables, based upon an estimate of current expected credit losses, otherwise known as CECL. The new guidance requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset, based not only on historical experience and current conditions, but also on reasonable forecasts. Additionally, ASU No. 2016-13 made several changes to the available-for-sale impairment model. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. While we are still completing our accounting assessment, we do not expect this guidance to have a material impact on our consolidated financial statements.
Accounting Standards Update: Cloud Computing Arrangements
In August 2018, the FASB issued ASU No. 2018-15 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. While we are still completing our accounting assessment, we do not expect this guidance to have a material impact on our consolidated financial statements.
Accounting Standards Update: Collaborative Arrangements
In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606".  The amendments in this ASU provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for entities who have previously adopted the new revenue recognition guidance. While we are still completing our accounting assessment, we do not expect this guidance to have a material impact on our consolidated financial statements.
2. LEASES
In February 2016, the FASB issued ASC 842, which outlines a comprehensive change to the lease accounting model

10


and supersedes prior lease guidance ("ASC 840"). The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months, and also changes the definition of a lease and expands the disclosure requirements of lease arrangements.
The Company adopted this guidance on January 1, 2019 using the modified retrospective transition effective date method. As part of that adoption, we have elected the package of three practical expedients, which includes the following: an entity may elect not to reassess whether expired or existing contracts contain a lease under the revised definition of a lease; an entity may elect not to reassess the lease classification for expired or existing leases; and an entity may elect not to reassess whether previously capitalized initial direct costs would qualify for capitalization. The Company has elected not to utilize the hindsight expedient in determining the lease term, and to not record leases with an initial term of 12 months or less on our balance sheet. Additionally, the Company has elected to account for lease components and non-lease components as a single lease component for all asset classes. Lease expense is recognized over the expected term on a straight-line basis. The adoption did not have a material impact on the Company's condensed consolidated statements of income or cash flows.
The Company enters into operating leases primarily for real estate to support research and development ("R&D") sites and general office space in North America, with additional locations in Europe and Asia. The Company does not currently have any finance leases. Certain of our leases include options to extend the lease at our discretion at the end of the lease term, or terminate the lease early subject to certain conditions and penalties. We do not include any renewal options in our lease terms for calculating our lease liabilities, as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the specific facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable, and, as such, the Company utilizes its incremental borrowing rate as the discount rate based on information available on the lease commencement date. Our incremental borrowing rate represents the rate we would incur to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. We utilized the incremental borrowing rate as of January 1, 2019, our adoption date, for operating leases that commenced prior to that date. Upon our adoption of ASU 2016-02, the Company recorded the following operating lease right-of-use assets and operating lease liabilities as of January 1, 2019. Additionally, the table below includes the balances of operating lease right-of-use assets and operating lease liabilities as of September 30, 2019 (in thousands):
 
Balance Sheet Classification
 
January 1, 2019
 
September 30, 2019
Assets
 
 
 
 
 
  Operating lease right-of-use assets, net
Other Non-current Assets
 
$
13,634

 
$
16,587

Total Lease Assets
 
 
$
13,634

 
$
16,587

 
 
 
 
 
 
Liabilities
 
 
 
 
 
  Operating lease liabilities - Current
Other Accrued Expenses
 
$
3,519

 
$
3,624

  Operating lease liabilities - Noncurrent
Other Long-Term Liabilities
 
13,652

 
15,867

Total Lease Liabilities
 
 
$
17,171

 
$
19,491


The components of lease costs which were included within operating expenses in our condensed consolidated statements of income were as follows (in thousands):

 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2019
Operating lease cost
$
1,210

 
$
3,325

Short-term lease cost
211

 
731

Variable lease cost
362

 
1,054


For the three and nine months ended September 30, 2019, sublease income was insignificant. Cash paid for amounts included in the measurement of operating lease liabilities for the three and nine months ended September 30, 2019 was $1.4 million and $3.8 million, respectively, and was included in net cash provided by operating activities in our condensed consolidated statements of cash flows. Operating lease right-of-use assets obtained in exchange for operating lease obligations

11


totaled $5.5 million during the three and nine months ended September 30, 2019. As of September 30, 2019, the weighted average remaining operating lease term was 5.6 years and the weighted average discount rate used to determine the operating lease liabilities was 6.2%. As of September 30, 2019, the Company had an additional operating lease that had not yet commenced of approximately $10.0 million, which is set to commence in October 2019 and will have a lease term of approximately 10.8 years years.
The maturities of our operating lease liabilities as of September 30, 2019 under ASC 842, excluding short-term leases with terms less than 12 months, were as follows (in thousands): 
Maturity of Operating Lease Liabilities
September 30, 2019
Remainder 2019
$
1,348

2020
4,440

2021
3,934

2022
3,965

2023
3,229

Thereafter
6,310

Total lease payments
$
23,226

Less: Imputed interest
(3,735
)
Present value of lease liabilities
$
19,491



The undiscounted maturities of our operating leases as of December 31, 2018 under ASC 840, including short-term leases with terms less than 12 months, were as follows (in thousands):
Maturity of Operating Leases
December 31, 2018
2019
$
5,362

2020
3,386

2021
2,883

2022
2,920

2023
2,184

Thereafter
5,582



3. REVENUE
Disaggregated Revenue
The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2019 and 2018 (in thousands):

12


 
Three months ended September 30,
 
 
 
 
 
2019
 
2018
 
 Increase/(Decrease)
Variable patent royalty revenue
$
4,683

 
$
13,645

 
$
(8,962
)
 
(66
)%
Fixed-fee royalty revenue
63,736

 
60,272

 
3,464

 
6
 %
Current patent royalties a
68,419

 
73,917

 
(5,498
)
 
(7
)%
Non-current patent royalties b
(370
)
 
128

 
(498
)
 
(389
)%
Total patent royalties
68,049

 
74,045

 
(5,996
)
 
(8
)%
Current technology solutions revenue a
3,724

 
1,034

 
2,690

 
260
 %
Patent sales b
750

 

 
750

 
 %
Total revenue
$
72,523

 
$
75,079

 
$
(2,556
)
 
(3
)%
 
Nine months ended September 30,
 
 
 
 
 
2019
 
2018
 
 Increase/(Decrease)
Variable patent royalty revenue
$
22,557

 
$
26,322

 
$
(3,765
)
 
(14
)%
Fixed-fee royalty revenue
190,345

 
178,207

 
12,138

 
7
 %
Current patent royalties a
212,902

 
204,529

 
8,373

 
4
 %
Non-current patent royalties b
(4,908
)
 
25,489

 
(30,397
)
 
(119
)%
Total patent royalties
207,994

 
230,018

 
(22,024
)
 
(10
)%
Current technology solutions revenue a
7,794

 
2,060

 
5,734

 
278
 %
Patent sales b
975

 

 
975

 
 %
Total revenue
$
216,763

 
$
232,078

 
$
(15,315
)
 
(7
)%

a.
Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.
b.
Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent royalties and royalties from static agreements, as well as patent sales.
    During first nine months 2019, we recognized $120.3 million of revenue that had been included in deferred revenue as of the beginning of the period. As of September 30, 2019, we had contract assets of $14.4 million and $1.3 million included within accounts receivable and other non-current assets, respectively. As of December 31, 2018, we had contract assets of $19.7 million and $5.5 million included within accounts receivable and other non-current assets, respectively.
Contracted Revenue
Based on contracts signed and committed as of September 30, 2019, we expect to recognize the following revenue from Dynamic Fixed-Fee Agreement payments over the term of such contracts (in thousands):
 
Revenue
Remainder 2019
$
63,736

2020
248,250

2021
178,583

2022
85,228

2023


4. INCOME TAXES
In first nine months 2019, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 50.1%. The effective tax rate for first nine months 2019 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 first nine months 2019 effective tax rate would have been a benefit of 25.3%. In first nine months 2019, the Company recorded net discrete tax expenses of $3.1 million related to the acquisition of the Research & Innovation ("R&I")

13


unit of Technicolor SA, the extinguishment of long-term debt, the filing of amended federal income tax returns and the sale of our Hillcrest Laboratories, Inc. ("Hillcrest") product business. Refer to Note 7, "Business Combinations and Other Transactions" and Note 9, "Long-Term Debt" for further discussion of these transactions. This is compared to an effective tax rate benefit of 74.4% based on the statutory federal tax rate net of discrete federal and state taxes during first nine months 2018. During first nine months 2018, we recorded discrete net benefits of $18.4 million related to share-based compensation, our sale of a commercial initiative and a benefit from the anticipated filing by the Company of amended tax returns in connection with the Competent Authority Proceeding (as defined in our 2018 Form 10-K).  Excluding these discrete benefits, the effective tax rate would have been a benefit of 19.7%.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act") was signed into law. The Tax Reform Act imposes a 13.125% tax rate on income that qualifies as Foreign Derived Intangible Income ("FDII"). The reduction in benefit is primarily related to the differences in our FDII deduction between the periods. The difference in the FDII deduction between the periods was driven by the timing of income between book and tax mostly related to revenue recognition. On March 6, 2019, the IRS issued proposed regulations for FDII. The Company is currently evaluating the impact of the proposed regulations and will record the impact, if any, as applicable. 
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. The Company further notes that its tax positions could be altered by pending IRS regulations that could clarify certain provisions of the Tax Reform Act.
During first nine months 2019 and 2018, we paid approximately $11.5 million and $16.5 million, respectively, of foreign source withholding tax. Additionally, as of September 30, 2019 and December 31, 2018, we included approximately $0.2 million and $1.5 million, respectively, of foreign source withholding tax within our taxes payable and deferred tax asset balances. These amounts are related to receivables from foreign licensees.
5. NET INCOME (LOSS) 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. The following tables reconcile the numerator and the denominator of the basic and diluted net income (loss) per share computation (in thousands, except for per share data):
 
Three months ended September 30,
 
2019
 
2018
 
Basic
 
Diluted
 
Basic
 
Diluted
Numerator:
 
 
 
 
 
 
 
Net income applicable to InterDigital, Inc.
$
2,234

 
$
2,234

 
$
21,752

 
$
21,752

Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding: Basic
31,130

 
31,130

 
34,651

 
34,651

Dilutive effect of stock options, RSUs, convertible securities and warrants
 
 
178

 
 
 
956

Weighted-average shares outstanding: Diluted
 
 
31,308

 
 
 
35,607

Earnings Per Share:
 
 
 
 
 
 
 
Net income per common share: Basic
$
0.07

 
$
0.07

 
$
0.63

 
$
0.63

Dilutive effect of stock options, RSUs, convertible securities and warrants
 
 

 
 
 
(0.02
)
Net income per common share: Diluted
 
 
$
0.07

 
 
 
$
0.61



14


 
Nine months ended September 30,
 
2019
 
2018
 
Basic
 
Diluted
 
Basic
 
Diluted
Numerator:
 
 
 
 
 
 
 
Net income applicable to InterDigital, Inc.
$
7,174

 
$
7,174

 
$
62,948

 
$
62,948

Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding: Basic
31,757

 
31,757

 
34,687

 
34,687

Dilutive effect of stock options, RSUs, convertible securities and warrants
 
 
253

 
 
 
927

Weighted-average shares outstanding: Diluted
 
 
32,010

 
 
 
35,614

Earnings Per Share:
 
 
 
 
 
 
 
Net income per common share: Basic
$
0.23

 
$
0.23

 
$
1.81

 
$
1.81

Dilutive effect of stock options, RSUs, convertible securities and warrants
 
 
(0.01
)
 
 
 
(0.04
)
Net income per common share: Diluted
 
 
$
0.22

 
 
 
$
1.77


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,
 
2019
 
2018
 
2019
 
2018
Restricted stock units and stock options
155

 
78

 
120

 
44

Convertible securities
6,260

 

 
5,236

 

Warrants
6,260

 
4,405

 
5,236

 
4,404

Total
12,675

 
4,483

 
10,592

 
4,448


Convertible Notes and Warrants
Refer to Note 9, "Long-Term Debt," 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 our 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 treasury stock 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.
6. LITIGATION AND LEGAL PROCEEDINGS
COURT PROCEEDINGS
Huawei China
On January 3, 2019, InterDigital was notified that a civil complaint was filed on January 2, 2019, by Huawei Technologies Co., Ltd. and certain of its subsidiaries against InterDigital, Inc. and certain of its subsidiaries in the Shenzhen Intermediate People’s Court. The complaint seeks a ruling that the InterDigital defendants have violated an obligation to license their patents that are essential to 3G, 4G and 5G wireless telecommunication standards on fair, reasonable and non-discriminatory (“FRAND”) terms and conditions. The complaint also seeks a determination of the terms for licensing all of the InterDigital defendants’ Chinese patents that are essential to 3G, 4G and 5G wireless telecommunication standards to the Huawei plaintiffs for the plaintiffs’ wireless terminal unit products made and/or sold in China from 2019 to 2023. On September 17, 2019, InterDigital filed a petition challenging the jurisdiction of the Shenzhen Intermediate People’s Court to hear the action. The court's decision regarding InterDigital's jurisdictional challenge is pending. InterDigital’s patent license agreement with Huawei expired on December 31, 2018.

15


Lenovo
U.K. Proceedings

On August 27, 2019, InterDigital, Inc., and its wholly owned subsidiaries InterDigital Holdings, Inc., InterDigital Technology Corporation, and InterDigital Patent Holdings, Inc., filed a claim in the High Court of Justice, Business and Property Courts, Intellectual Property List (Chancery Division), Patents Court of England and Wales (the “High Court”), against Lenovo Group Limited, Lenovo (United States) Inc., Lenovo Technology (United Kingdom) Limited, Motorola Mobility LLC, and Motorola Mobility UK Limited (Claim No. HP-2019-000032). The claim alleges infringement of four of InterDigital’s patents relating to 3G and/or 4G/LTE standards: European Patent (U.K.) Nos. 2,363,008; 2,421,318; 2,485,558; and 2,557,714.

In these proceedings, InterDigital is seeking a “FRAND injunction” of the type previously awarded by the High Court in Unwired Planet v. Huawei, preventing further infringement of InterDigital’s standards-essential patents where the court has settled the terms of a worldwide FRAND license and the defendant does not enter into a license on those terms, along with other relief concerning declarations, damages and costs.

On October 3, 2019, Lenovo filed an application challenging the jurisdiction of the High Court to hear the action, as well as the order which permitted service outside of the United Kingdom with respect to the U.S. and Hong Kong defendants. The High Court's decision regarding these challenges is pending.
District of Delaware Proceedings
On August 28, 2019, InterDigital, Inc., and its wholly owned subsidiaries InterDigital Technology Corporation, IPR Licensing, Inc., InterDigital Communications, Inc., and InterDigital Holdings, Inc., filed a complaint in the United States District Court for the District of Delaware against Lenovo Holding Company, Inc., Lenovo (United States) Inc., and Motorola Mobility LLC, 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 High Court in the separately filed U.K. 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.
ZTE USITC Proceedings and Related Delaware District Court Proceedings
Information regarding legal proceedings that InterDigital filed against ZTE Corporation and ZTE (USA) Inc. (collectively, "ZTE") with the United States International Trade Commission ("USITC") and the Delaware District Court can be found in the description of legal proceedings contained in InterDigital's 2018 Form 10-K. With respect to the Delaware District Court proceeding related to the 2013 USITC Proceeding (337-TA-868), on January 23, 2019, InterDigital and ZTE filed a joint status report that informed the Delaware District Court of the Federal Circuit's decision regarding the '966 and '847 patents and that the PTAB proceedings regarding the '244 patent remained pending. The parties jointly requested that the case remain stayed so that the portion of the case related to damages potentially owed by ZTE as to the three patents-in-suit could be coordinated. The court granted that request on January 25, 2019.

On October 18, 2019, InterDigital and ZTE entered into a Patent License Agreement pursuant to which the parties agreed that, upon the performance of certain obligations by ZTE, the parties will end all legal proceedings initiated by either party or otherwise pending between them. On October 25, 2019, ZTE filed an unopposed motion with the Federal Circuit to withdraw from the '244 patent PTAB remand appeal. InterDigital further expects that ZTE will withdraw from any other proceedings related to the Inter Parties Review of the '244 patent, though InterDigital has retained the right to continue to participate in such proceedings, including any remand or appeals. InterDigital expects that the Delaware District Court proceedings related to the 2011 USITC Proceeding (337-TA-800) and 2013 USITC Proceeding (337-TA-868) will be dismissed with prejudice by January 2020.
REGULATORY PROCEEDING
Investigation by National Development and Reform Commission of China (now State Administration for Market Regulation)

16


On September 23, 2013, counsel for InterDigital was informed by China’s National Development and Reform Commission (“NDRC”) that the NDRC had initiated a formal investigation into whether InterDigital has violated China’s Anti-Monopoly Law (“AML”) with respect to practices related to the licensing of InterDigital’s standards-essential patents to Chinese companies. Companies found to violate the AML may be subject to a cease and desist order, fines and disgorgement of any illegal gains. On March 3, 2014, the Company submitted to NDRC, pursuant to a procedure set out in the AML, a formal application for suspension of the investigation that included proposed commitments by the Company. On May 22, 2014, NDRC formally suspended its investigation of the Company based on the commitments proposed by the Company. The Company’s commitments with respect to the licensing of its patent portfolio for wireless mobile standards to Chinese manufacturers of cellular terminal units (“Chinese Manufacturers”) are as follows:
1.
Whenever InterDigital engages with a Chinese Manufacturer to license InterDigital’s patent portfolio for 2G, 3G and 4G wireless mobile standards, InterDigital will offer such Chinese Manufacturer the option of taking a worldwide portfolio license of only its standards-essential wireless patents, and comply with F/RAND principles when negotiating and entering into such licensing agreements with Chinese Manufacturers.
2. 
As part of its licensing offer, InterDigital will not require that a Chinese Manufacturer agree to a royalty-free, reciprocal cross-license of such Chinese Manufacturer's similarly categorized standards-essential wireless patents.
3. 
Prior to commencing any action against a Chinese Manufacturer in which InterDigital may seek exclusionary or injunctive relief for the infringement of any of its wireless standards-essential patents, InterDigital will offer such Chinese Manufacturer the option to enter into expedited binding arbitration under fair and reasonable procedures to resolve the royalty rate and other terms of a worldwide license under InterDigital's wireless standards-essential patents.  If the Chinese Manufacturer accepts InterDigital's binding arbitration offer or otherwise enters into an agreement with InterDigital on a binding arbitration mechanism, InterDigital will, in accordance with the terms of the arbitration agreement and patent license agreement, refrain from seeking exclusionary or injunctive relief against such company.
The commitments contained in item 3 above expired on May 22, 2019. With the consolidation of China’s anti-monopoly enforcement authorities into the State Administration for Market Regulation (“SAMR”) in April 2018, SAMR is now responsible for overseeing InterDigital’s commitments.
OTHER
We are party to certain other disputes and legal actions in the ordinary course of business, including arbitrations and 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, 2019.
7. BUSINESS COMBINATIONS AND OTHER TRANSACTIONS
Acquisition of Technicolor's Patent Licensing Business
On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor, a worldwide technology leader in the media and entertainment sector (the "Technicolor Acquisition"). The Technicolor Acquisition included the acquisition by InterDigital of approximately 18,000 patents and applications, across a broad range of technologies, including approximately 3,000 worldwide video coding patents and applications. Refer to our 2018 Form 10-K for further information on the Technicolor Acquisition.
The Technicolor Acquisition met the definition of a business combination, and as such was accounted for using the acquisition method of accounting. We allocated the fair value of consideration transferred to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. We recorded the excess of the fair value of consideration transferred over the net values of these assets and liabilities as goodwill.
The amount of revenue and earnings that would have been included in the Company’s condensed consolidated statement of income for the three and nine months ended September 30, 2018 had the acquisition date been January 1, 2017 are reflected in the table below. These amounts have been calculated after applying the Company's accounting policies and adjusting the results to reflect additional interest expense as well as amortization that would have been charged assuming the fair value adjustments to amortizable intangible assets had been recorded as of January 1, 2017. In addition, pro forma adjustments have been made to reflect the impact of the transaction-related costs discussed below. These unaudited pro forma

17


combined results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated, or that may result in the future. The amounts in the table are unaudited (in thousands, except for per share data):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2018
Actual revenue
$
75,079

 
$
232,078

Supplemental pro forma revenue
76,034

 
238,761

Actual earnings
21,752

 
62,948

Supplemental pro forma earnings
22,884

 
55,314

Actual diluted earnings per share
0.61

 
1.77

Supplemental pro forma diluted earnings per share
0.64

 
1.55



Acquisition of Technicolor's Research & Innovation Unit
On May 31, 2019, we completed the acquisition of the Research & Innovation, or R&I, unit of Technicolor SA. The acquisition brought the Company’s research team to approximately 340 engineers in eight R&D offices worldwide, and expanded the Company’s research capabilities in video coding, Internet of Things ("IoT") and smart home, imaging sciences, augmented reality and virtual reality, and artificial intelligence and machine learning technologies. The R&I unit was the driving creative force behind the patent portfolio that was acquired in the Technicolor Acquisition discussed above.
The acquisition of the R&I unit met the definition of an asset acquisition and was accounted for using the cost accumulation and allocation model. There was no cash consideration for the acquisition. As consideration for the acquisition, the jointly funded R&D collaboration that was entered into as part of the Technicolor Acquisition was terminated. Technicolor will continue to fund research to be performed by the R&I unit for certain limited projects for a specified time period, subject to renewal. The Company also assumed certain employee-related liabilities, including obligations for certain defined benefit post-retirement plans for the acquired R&I unit employees, which are further discussed below. Additionally, Technicolor agreed to reduce its rights under the revenue-sharing arrangement entered into as part of the Technicolor Acquisition, as further discussed below.
The acquisition of the R&I unit resulted in a net gain of approximately $14.2 million in second quarter 2019, inclusive of the $20.5 million gain from the derecognition of the contingent consideration liability described below, all of which is included within “Other Income (Expense), Net” in the condensed consolidated statement of income.
Contingent Consideration
The original revenue-sharing arrangement between the Company and Technicolor created a contingent consideration liability upon closing of the Technicolor Acquisition in third quarter 2018. Refer to our 2018 Form 10-K for further information on the initial contingent consideration liability which was accounted for at fair value each reporting period.
Under the amended revenue-sharing arrangement described above, Technicolor will now receive 42.5% of future cash receipts from new licensing efforts from the Madison Arrangement (as defined below) only, subject to certain conditions and hurdles, but will no longer receive revenue-sharing from other licensing efforts in the consumer electronics field outside of the Madison Arrangement. We determined that the initial contingent consideration liability from the Technicolor Acquisition was significantly modified in conjunction with the acquisition of the R&I unit, and, as such, the contingent consideration liability will now be accounted for under ASC 450 - Contingencies under the asset acquisition framework when the liability is deemed probable and estimable. Since the contingent consideration liability arising from the amended revenue-sharing arrangement was not probable and estimable as of the acquisition date, the carrying value of the previous contingent consideration liability was derecognized, which resulted in a $20.5 million gain during the nine months ended September 30, 2019 and is included within "Other Income (Expense), Net" in the condensed consolidated statement of income.
Defined Benefit Plans
In connection with the Technicolor Acquisition and the acquisition of the R&I unit, we assumed certain defined benefit plans which are accounted for in accordance with ASC 715 - Compensation - Retirement Benefits. These plans include a retirement lump sum indemnity plan and jubilee plan, both of which provide benefit payments to employees based upon years of service and compensation levels. As of September 30, 2019, the combined accumulated projected benefit obligation related

18


to these plans totaled $6.5 million. Service cost and interest cost for the combined plans totaled $0.1 million for the nine months ended September 30, 2019. These plans are not required to be funded and were not funded as of September 30, 2019.
Madison Arrangement
In conjunction with the Technicolor Acquisition, effective July 30, 2018, 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." We also assumed Technicolor's role as sole licensing agent for the Madison Arrangement. As licensing agent, we are responsible for making decisions regarding the prosecution and maintenance of the combined patent portfolio and the licensing and enforcement of the combined patent portfolio in the field of use of digital TVs and computer display monitors on an exclusive basis during the specified term in exchange for an agent fee. The Madison Arrangement falls under the scope of ASC 808, Collaborative Arrangements (“ASC 808”). Refer to our 2018 Form 10-K for further information on the Madison Arrangement.
Long-term debt
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