SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are detailed in "Note 2 - Summary of Significant Accounting Policies" in its Form 10-K for the year ended December 31, 2017. Significant changes to its accounting policies as a result of adopting Topic 606 are discussed in Note 3 - Revenue.

Recently Adopted Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as of January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company adopted this standard as of January 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment awarded require an entity to apply modification accounting. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted the standard as of January 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. Under the prior standard, licensing companies generally reported revenue from per-unit royalty based arrangements one quarter in arrears. Under the new guidance, the Company estimates per-unit royalty-based revenue prior to receiving customer royalty reports. The Company also expects the standard to have a significant impact on the timing of revenue recognition associated with its fixed fee and minimum guarantee arrangements, as a majority of such revenue which had previously been recognized over the license term is expected to be recognized at the inception of the license term. On January 1, 2018, the Company adopted the new standard using the modified retrospective method, under which the Company recorded a $224 million cumulative net of tax adjustment to the opening balance of retained earnings on January 1, 2018. The adjustment was determined by measuring the impact of the new standard on existing contracts that were not completed as of December 31, 2017. Prior period comparative information has not been restated and continues to be reported under Topic 605 in effect for those periods. This new standard had a material impact on the Company’s revenue and its consolidated statement of operations and balance sheet as of and for the three and six months ended June 30, 2018, and is expected to have a material impact on an ongoing basis, with no impact on the timing of customer billings or on cash flows. See “Note 3 - Revenue" for further discussion.

The cumulative effect of the changes made to the Company's condensed consolidated balance sheet for the adoption of Topic 606 was as follows (in thousands):



BALANCE SHEET	Balance at December 31, 2017		Adjustments due to Topic 606			Balance at January 1, 2018
Assets
Unbilled contracts receivable	$	10,866	$	188,760		$	199,626
Other current assets	16,949		(2,000		)	14,949
Long-term unbilled contracts receivable	2,930		103,983			106,913
Other assets	9,772		(2,446		)	7,326
Liabilities
Accrued liabilities	47,969		432			48,401
Deferred revenue	2,686		(783		)	1,903
Long-term deferred tax liabilities	15,085		64,520			79,605

Equity
Retained earnings	68,556		224,128			292,684

The most significant impact from adopting Topic 606 was a substantial increase in unbilled contracts receivable, long-term deferred tax liabilities and retained earnings, which was driven primarily by applying the standard on fixed fee and minimum guarantee contracts that were not completed as of December 31, 2017, and secondarily by recording to retained earnings those royalties from customer shipments completed in the fourth quarter of 2017 and reported to the Company in the first quarter of 2018. The adjustments noted above had no impact on the Company's Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018.

Adoption of the new revenue standard had the following impact on the Company's condensed consolidated financial statements as compared to the comparable data under the previous accounting standards (in thousands, except per share amounts):



	Three months ended June 30, 2018									Six months ended June 30, 2018
STATEMENT OF OPERATIONS	As Reported			Amounts under Topic 605			Effect of Change Higher/(lower)			As Reported			Amounts under Topic 605			Effect of Change Higher/(lower)

Royalty and license fees	$	63,954		$	96,716		$	(32,762	)	$	129,486		$	192,876		$	(63,390	)
Cost of revenue	2,080			2,230			(150		)	4,404			4,329			75
Operating income (loss)	(27,606		)	5,006			(32,612		)	(60,097		)	3,368			(63,465		)
Other income and expense, net	2,229			81			2,148			5,383			1,084			4,299
Loss before taxes	(31,577		)	(1,112		)	(30,465		)	(67,232		)	(8,065		)	(59,167		)
Provision for (benefit from) income taxes	(3,321		)	2,458			(5,779		)	(5,959		)	4,708			(10,667		)
Net loss	(28,256		)	(3,570		)	(24,686		)	(61,273		)	(12,773		)	(48,500		)

Basic net loss per share	$	(0.58	)	$	(0.07	)	$	(0.51	)	$	(1.25	)	$	(0.26	)	$	(0.99	)



	As of June 30, 2018
BALANCE SHEET	As Reported		Amounts under Topic 605		Effect of Change Higher/(lower)
Assets
Unbilled contracts receivable	$	175,315	$	5,568	$	169,747
Other current assets	16,422		17,922		(1,500		)
Long-term unbilled contracts receivable	65,013		2,091		62,922
Other assets	4,959		6,609		(1,650		)
Liabilities
Accrued liabilities	24,254		25,019		(765		)
Deferred revenue	4,106		4,838		(732		)
Long-term deferred tax liabilities	64,545		9,225		55,320
Equity
Retained earnings	211,722		36,026		175,696

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for the Company in the first quarter of 2019, and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019. While the Company continues to evaluate the effect of adopting this guidance on its consolidated financial statements and related disclosures, it is expected the Company's operating leases, as disclosed in Note 13 - "Commitments and Contingencies," will be subject to the new standard. In the second quarter of 2018, the Company established an implementation team to develop a multi-phase plan to assess the Company’s leasing arrangements, as well as any changes to accounting policies, processes or systems necessary to adopt the requirements of the new standard. The Company is evaluating the full impact this guidance will have on its consolidated financial statements, and expects that adoption will result in increases in lease-related Right-of-Use assets and liabilities on its consolidated balance sheet.

In September 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for the Company in the first quarter of the year ending December 31, 2020. The Company is in the process of evaluating the impact of the adoption of this new standard on its consolidated financial statements.