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Cash, Concentration of Credit Risk and Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS | 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, 2019, December 31, 2018 and September 30, 2018 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands). The Company had no restricted cash balance prior to third quarter 2018.
| September 30, |  | December 31, |  | September 30,
| 2019 |  | 2018 |  | 2018
Cash and cash equivalents | $ | 735,886 |  |  | $ | 475,056 |  |  | $ | 508,829 |
Restricted cash included within prepaid and other current assets | 9,229 |  |  | 13,677 |  |  | 15,942 |
Restricted cash included within other non-current assets | 1,080 |  |  | — |  |  | — |
Total cash, cash equivalents and restricted cash | $ | 746,195 |  |  | $ | 488,733 |  |  | $ | 524,771 |
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, 2019 and December 31, 2018, four and five licensees, respectively, comprised 54% and 76% of our net accounts receivable balance, respectively. 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, 2019 and December 31, 2018 (in thousands):
| Fair Value as of September 30, 2019
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Money market and demand accounts (a) | $ | 746,195 |  |  | $ | — |  |  | $ | — |  |  | $ | 746,195 |
Commercial paper (b) | — |  |  | — |  |  | — |  |  | — |
U.S. government securities | — |  |  | 113,541 |  |  | — |  |  | 113,541 |
Corporate bonds, asset backed and other securities | — |  |  | 98,196 |  |  | — |  |  | 98,196 |
Total | $ | 746,195 |  |  | $ | 211,737 |  |  | $ | — |  |  | $ | 957,932 |
| Fair Value as of December 31, 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |
Money market and demand accounts (a) | $ | 488,733 |  |  | $ | — |  |  | $ | — |  |  | $ | 488,733 |
Commercial paper (b) | — |  |  | 14,548 |  |  | — |  |  | 14,548 |
U.S. government securities | — |  |  | 289,576 |  |  | — |  |  | 289,576 |
Corporate bonds, asset backed and other securities | — |  |  | 166,600 |  |  | — |  |  | 166,600 |
Total | $ | 488,733 |  |  | $ | 470,724 |  |  | $ | — |  |  | $ | 959,457 |
Liabilities: |  |  |  |  |  |  |
Contingent consideration resulting from the Technicolor Acquisition | $ | — |  |  | $ | — |  |  | $ | 19,800 |  |  | $ | 19,800 |
Total | $ | — |  |  | $ | — |  |  | $ | 19,800 |  |  | $ | 19,800 |
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(a) | Primarily included within cash and cash equivalents.
(b) | As of September 30, 2019 and December 31, 2018, zero commercial paper was included within cash and cash equivalents.
Level 3 Fair Value Measurements Contingent consideration As discussed in Note 7, "Business Combinations and Other Transactions," we completed the Technicolor Acquisition during third quarter 2018. In conjunction with the Technicolor Acquisition, we initially recognized a contingent consideration liability which was measured at fair value on a recurring basis using significant unobservable inputs classified as Level 3 measurements within the fair value hierarchy. We utilized a Monte Carlo simulation model to determine the estimated fair value of the contingent consideration liability through first quarter 2019. A Monte Carlo simulation uses random numbers together with volatility assumptions to generate individual paths, or trials, for variables of interest governed by a Geometric Brownian Motion in a risk-neutral framework. During second quarter 2019, we completed the acquisition of the R&I unit of Technicolor SA. The transaction met the definition of an asset acquisition and was accounted for using the cost accumulation and allocation model. As discussed in Note 7, "Business Combinations and Other Transactions," as part of this acquisition, Technicolor reduced its rights to the revenue-sharing arrangement that created the initial contingent consideration liability from the Technicolor Acquisition. 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 which was included within "Other Income (Expense), Net” in the condensed consolidated statement of income for second quarter 2019. Therefore, effective as of the acquisition date of May 31, 2019, the contingent consideration liability was no longer a Level 3 fair value recurring measurement. The following table provides a reconciliation of the beginning and ending balances of our Level 3 fair value measurements from December 31, 2018 to September 30, 2019, which includes the contingent consideration liability resulting from the Technicolor Acquisition discussed further above. The Level 3 contingent consideration liability was historically included within "Other long-term liabilities" in the condensed consolidated balance sheet prior to its derecognition in second quarter 2019.
Level 3 Fair Value Measurements |  | Contingent Consideration Liability
Balance as of December 31, 2018 |  | $ | 19,800 |
Changes in fair value recognized in the condensed consolidated statements of income |  |  | 710 |
Derecognition of contingent consideration liability as a Level 3 fair value measurement |  |  | (20,510 | )
Balance as of September 30, 2019 |  | $ | — |
Non-Recurring Fair Value Measurements Investments in Other Entities From time to time, we may make strategic investments in companies that have developed or are developing technologies that are complementary to our business. As disclosed in our 2018 Form 10-K, in conjunction with our adoption of ASU No. 2016-01, we made an accounting policy election for a measurement alternative for our equity investments that do not have readily determinable fair values, specifically related to our strategic investments in other entities. Under the alternative, our strategic investments in other entities without readily determinable fair values are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer, if any. Adjustments to the carrying value of those investments are considered non-recurring fair value measurements. During third quarter 2019, we recognized a $3.3 million loss resulting from the partial impairment of one of our long-term strategic investments, which was included within “Other Income (Expense), Net” in the condensed consolidated statement of income. Fair Value of Long-Term Debt 2024 and 2020 Senior Convertible Notes The principal amount, carrying value and related estimated fair value of the Company's senior convertible debt reported in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 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, 2019 |  | December 31, 2018
| Principal Amount |  | Carrying Value |  | Fair Value |  | Principal Amount |  | Carrying Value |  | Fair Value
Senior Convertible Long-Term Debt | $ | 494,909 |  |  | $ | 419,136 |  |  | $ | 488,432 |  |  | $ | 316,000 |  |  | $ | 298,951 |  |  | $ | 331,595 |
Technicolor Acquisition Long-term Debt As more fully disclosed in Note 7, "Business Combinations and Other Transactions," we recognized long-term debt in conjunction with the Technicolor Acquisition. The carrying value and related estimated fair value of the Technicolor Acquisition long-term debt reported in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 was as follows (in thousands). The aggregate fair value of the Technicolor Acquisition long-term debt is a Level 3 fair value measurement.
| September 30, 2019 |  | December 31, 2018
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Technicolor Acquisition Long-Term Debt | $ | 20,393 |  |  | $ | 22,882 |  |  | $ | 18,428 |  |  | $ | 19,100 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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