The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this quarterly report and the audited consolidated financial statements and notes included in our 2011 Form 10-K.

Special Note Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in this management's discussion and analysis are "forward-looking" statements. All of these forward-looking statements are subject to risks and uncertainties that could cause the actual results of Pendrell Corporation ("Pendrell") to differ materially from those contemplated by the relevant forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed under "Risks and Uncertainties" below and elsewhere in this quarterly report. The forward-looking statements included in this document are made only as of the date of this report, and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

Overview

We are a rapidly growing intellectual property ("IP") investment, advisory and asset management firm. We develop and implement strategies to create, acquire, commercialize, divest and license intellectual property on behalf of our clients and partners, and for our own account. As of June 30, 2012, our patent portfolio included more than 1,500 issued U.S. and foreign patents, covering digital rights management, wireless handset and infrastructure technologies, e-commerce, mobile applications, video delivery, security and other technologies. The vast majority of the inventions described in our patents were conceived either by our employees, or by global innovation leaders such as IBM, Philips and Xerox. Many of the inventions in our portfolio are incorporated into various standards, such as OMA, MPEG, WiFi, Bluetooth, LTE, CDMA, UMTS and others.

Our team consisted of 51 people as of June 30, 2012, of which 7 hold PhD's, 14 hold electrical engineering or mechanical engineering degrees and 11 hold juris doctor degrees. A number of our employees, many of which have been identified as inventors on patents, have been recognized as global leaders in the intellectual property asset management industry. Most of our employees have significant prior experience in communications and technology companies including AT&T, Clearwire, Intel, Microsoft, Qualcomm, and Yahoo!

Our investments in our intellectual property portfolio and our team have enabled us to grow revenues for each of the last four quarters, with $20.8 million in revenues in the second quarter of 2012, up from $3.7 million in the first quarter and $1.4 million and $1.1 million in the fourth and third quarters of 2011, respectively. The strong revenue growth in the second quarter was driven primarily by the March 2012 license agreement with Fujitsu and the June 2012 license renewal and expansion entered into with Sharp Electronics. These new agreements are significant in demonstrating the ongoing relevance of the ContentGuard portfolio not only to wireless handsets, but also to the growing tablet market.

We also invested considerable resources in the identification and evaluation of IP for acquisition and, in addition to generating revenues through licensing and advisory services, are also investigating opportunities to selectively divest IP assets that we think may yield more value through sale rather than licensing.

Finally, we addressed virtually all remaining vestiges of our legacy satellite communications business, including the sale of the remaining satellite hardware, creation of a liquidating trust (the "Trust") to address the winding down of former subsidiaries (the "International Subsidiaries") associated with the satellite business, and settlement of our litigation with The Boeing Company ("Boeing"). The settlement with Boeing allowed us to avoid protracted litigation with Boeing over tens of millions of dollars in court-ordered expense reimbursement, and will result in a $10.0 million cash payment to us. These activities resulted in the elimination of approximately $61.9 million in satellite-related liabilities, $58.7 million in non-recurring gains, and the triggering of tax losses of approximately $2.6 billion, subject to Internal Revenue Service ("IRS") loss recognition provisions, which we believe can be carried forward to offset taxable income for up to 20 years. $2.3 billion of the tax loss related to the disposition is expected to be captured immediately and $0.3 billion upon full disposal of the assets. Our total net operating losses ("NOL's"), net of gains related to the 2011 sale of DBSD North America, Inc. and its subsidiaries (collectively referred to as "DBSD") to DISH Network Corporation ("DISH Network), are approximately $2.7 billion. We adopted a Tax Benefit Preservation Plan in 2010 designed to preserve the value of the NOLs for Pendrell and our stockholders.

Critical Accounting Policies

Critical accounting policies require difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The judgments and uncertainties affecting the application of these policies include significant estimates and assumptions made by us using information available at the time the estimates are made. Actual results could differ materially from those estimates. Our critical accounting policies involve judgments associated with our accounting for the fair value of financial instruments, asset impairment, valuation of goodwill and intangible assets, contract settlements, revenue recognition, stock-based compensation, income taxes, contingencies and business combinations. There have been no significant changes to our critical accounting policies disclosed in our 2011 Form 10-K other than those disclosed below.

Accounts Receivable-Accounts receivable consists of amounts billed to customers under licensing agreements or consulting services. The majority of our customers are well-established operating companies with investment-grade credit. For the periods ended June 30, 2012 and December 31, 2011, we have not incurred any losses on our accounts receivable. Based upon historical collections experience and specific client information, we have determined that no allowance for doubtful accounts was required at either June 30, 2012 or December 31, 2011. Carrying amounts of such receivables approximates their fair value due to their short-term nature.

Revenue Recognition-We derive our revenue from patent licensing activities and fees earned from IP consulting services. Our patent licensing agreements typically provide for the payment of contractually determined license fees in consideration for the grant of a non-exclusive license to intellectual property rights that we own or control. These agreements typically include (i) a non-exclusive license to make, sell, distribute, and use certain specified products that read on our patents ("Licensed Activities"), (ii) a covenant not to enforce patent rights against the licensee based on the Licensed Activities, and (iii) the release of the licensee from certain claims. Fees earned from IP consulting services are generally recognized as the services are performed.

The timing and amount of revenue recognized from patent licensing activities depends on the specific terms of each agreement and the nature of the deliverables and obligations. Agreements which are deemed to contain multiple elements are accounted for under the Financial Accounting Standards Board ("FASB") revenue recognition guidance, "Revenue Arrangements with Multiple Deliverables." This guidance requires consideration to be allocated to each element of an agreement that has stand-alone value using the relative fair value method. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) all material obligations have been substantially performed pursuant to agreement terms or services have been rendered to the customer, (iii) amounts are fixed or determinable, and (iv) collectability is reasonably assured. As a result of the contractual terms of our patent license agreements and the unpredictable nature and frequency of licensing transactions, our revenue may fluctuate substantially from period to period.

New Accounting Pronouncements

In May 2011, the FASB issued Update No. 2011-05, Comprehensive Income ("Update No. 2011-05"). Update No. 2011-05 requires in the presentation on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. Update No. 2011-05 is to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued an amendment to the accounting guidance on the presentation of other comprehensive income which deferred the effective date for the provisions pertaining to reclassification adjustments. The adoption of this statement during the six months ended June 30, 2012, did not have a material impact on our financial position, results of operations or cash flows.

Results of Operations

Prior to our transformation into a fully-integrated intellectual property investment and advisory firm, initiated by the acquisition of the Ovidian Group, LLC ("Ovidian Group") in June 2011 and further supported by the acquisition of ContentGuard Holdings, Inc. ("ContentGuard") in October 2011, we were a development stage next-generation mobile satellite service operator. In March 2011, we began the divesture of our domestic and international satellite related assets by selling our interests in DBSD to DISH Network for approximately $325 million, and continued our exit from the satellite business with the 2012 sale of our remaining satellite assets.

The following table is provided to facilitate the discussion of our results of operations for the three and six months ended June 30, 2012 and 2011 (in thousands):

                                              Three months ended          Six months ended
                                                   June 30,                   June 30,
                                               2012          2011         2012         2011
Revenue                                     $    20,793     $   195     $  24,492     $   195
General and administrative expenses              11,923       2,708        21,844       9,193
Gain associated with contract settlements            -           -             -        4,735

                                                      Three months ended           Six months ended
                                                           June 30,                    June 30,
                                                       2012          2011         2012         2011
Amortization of intangibles                              3,579            -        6,293             -
Interest income                                             59           49          120            56
Interest expense                                         1,233        1,160        2,483         2,239
Gain on deconsolidation of subsidiaries                 48,685           -        48,685            -
Gain on settlement of Boeing litigation                 10,000           -        10,000            -
Gain (loss) associated with disposition of assets          (42 )         -         5,603       300,886
Other income                                               115        1,406        1,364         1,803
Income tax benefit                                         291           -         1,004         2,732

Revenue. Revenue of $20.8 million and $24.5 million for the three and six months ended June 30, 2012, respectively, is entirely comprised of revenues from our IP business which we entered into in June of 2011. Revenue for the three months ended June 30, 2012 includes revenue from IP licensing agreements.

During the three and six months ended June 30, 2011 we were a development stage enterprise and only began generating revenue upon the acquisition of the Ovidian Group on June 17, 2011. Prior to that time we did not generate any revenue from operations.

General and Administrative Expenses. General and administrative expenses are primarily comprised of personnel costs, stock-based compensation, legal and professional fees, acquisition investigation costs and general office related costs. Expenses in 2011 also include costs associated with satellite storage and satellite system operating expenses.

General and administrative expenses increased $9.2 million for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. The increase was primarily due to a $3.8 million increase in personnel related costs and a $1.2 million increase in non-cash stock-based compensation expense as a result of the acquisition of Ovidian Group and ContentGuard as well as organic growth of the Pendrell team, a $2.8 million increase in legal fees primarily due to patent maintenance and enforcement activities and $0.8 million of amortized prepaid compensation expense associated with the Ovidian Group acquisition. The increase was partially offset by $0.4 million of acquisition related expenses incurred during the three months ended June 30, 2011. The increase was also due to a one-time $1.0 million credit recorded during the three months ended June 30, 2011 associated with the establishment of a receivable for certain expenses related to the medium earth orbit ("MEO") satellites and related equipment (collectively, "MEO Assets") that were to be reimbursed by Jay and Jayendra Pty Ltd (the "J&J Group"). However, in September 2011 J&J Group breached its agreement to reimburse us and this credit was offset with a reserve in the full amount of the receivable pending resolution of the dispute with the J&J Group.

General and administrative expenses increased $12.7 million for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. The increase was primarily due to a $6.5 million increase in personnel related costs and a $0.8 million increase in non-cash stock-based compensation expense as a result of the acquisition of Ovidian Group and ContentGuard, as well as organic growth of the Pendrell team, a $3.5 million increase in legal fees primarily due to patent maintenance and enforcement activities, and $1.5 million of amortized prepaid compensation expense associated with the Ovidian Group acquisition. The increase was partially offset by $0.4 million of acquisition related expenses. The increase was also due to a one-time year-to-date $0.8 million credit recorded during the six months ended June 30, 2011 associated with the establishment of a receivable for certain expenses related to the MEO Assets that were to be reimbursed by the J&J Group.

Contract Settlements. During the six months ended June 30, 2011, we recognized a $4.7 million gain associated with a reduction of our estimated liability for gateway obligations as a result of our agreement to purchase Deutsche Telekom AG's claim against one of our subsidiaries.

Amortization of Intangible Assets. Amortization of intangible assets of $3.6 million and $6.3 million for the three and six months ended June 30, 2012, respectively, was primarily related to the amortization of intangibles acquired in the acquisition of Ovidian in June 2011 and ContentGuard in October 2011, as well as additional intangibles acquired during the six months ended June 30, 2012.

Interest Expense. Interest expense for the three and six months ended June 30, 2012 and 2011 consists primarily of interest costs resulting from capital lease obligations associated with certain of our MEO gateway sites.

Gain on Deconsolidation of Subsidiaries. During the three and six months ended June 30, 2012, we transferred our International Subsidiaries to the Trust and recognized a gain of $48.7 million on deconsolidation as a result of eliminating $61.9 million of liabilities associated with the International Subsidiaries, including liabilities for uncertain tax positions, net of cumulative translation adjustment losses of $12.7 million related to the International Subsidiaries.

Gain on Settlement of Boeing Litigation. On June 25, 2012, we settled our litigation against Boeing in exchange for $10.0 million, which we have reflected as a gain on litigation settlement.

Gain Associated with Disposition of Assets. During the six months ended June 30, 2012, we recognized a $5.6 million gain associated with the disposition of real property and MEO satellite related gateway equipment we owned in Brazil. During the six months ended June 30, 2011, we recognized a $301 million gain associated with the disposition of our cost method investment in DBSD and certain other assets pursuant to the various agreements entered into with DISH Network.

Other Income. Other income for the three months ended June 30, 2012, is primarily due to gains on foreign currency transactions. Other income for the six months ended June 30, 2012 is due to the release of a $0.8 million liability associated with our prior ownership of the MEO Assets (sold during the three months ended March 31, 2012) and gains on foreign currency transactions.

Other income for the three months ended June 30, 2011 is comprised primarily of a $1.2 million gain recognized upon the elimination of our payable to an affiliate. Other income for the six months ended June 30, 2011 is comprised primarily of the $1.2 million gain recognized upon elimination of our payable to an affiliate and gains on foreign currency transactions of $0.5 million.

Income Tax Benefit. Income tax benefit for the three and six months ended June 30, 2012 and 2011 is primarily due to expiration of the statute of limitations associated with previously recorded uncertain tax positions, including interest and penalties.

Liquidity and Capital Resources

Overview. As of June 30, 2012, we had cash liquidity of $211.9 million. These funds are currently expected to be utilized to fund our working capital needs for at least the next twelve months including ongoing operating costs associated with our IP business, potential acquisitions, expenses in connection with legal proceedings, costs associated with the pursuit of new investment and acquisition opportunities, and other general corporate purposes.

On March 15, 2011, we entered into an implementation agreement under which DISH Network paid us $325 million for our support of DBSD's plan of reorganization which provided for the stock of DBSD to be transferred to DISH Network, certain spectrum priority rights, any distributions to us from DBSD, and a contingent option to purchase the MEO Assets of which (i) $35 million was paid in March 2011, (ii) $280 million was paid in April 2011, and (iii) $10 million was paid upon DBSD's emergence from Chapter 11 bankruptcy proceeding on March 9, 2012. We recognized a gain of approximately $301 million during the three months ended March 31, 2011, associated with the disposition of our cost method investment in DBSD and other assets as a result of these agreements.

Cash Flows. The following table is provided to facilitate the discussion of our liquidity and capital resources for the six months ended June 30, 2012 and 2011 (in thousands):

                                                              Six months ended
                                                                  June 30,
                                                            2012           2011
   Net cash provided by (used in):
   Operating activities                                   $  (6,328 )    $  (9,515 )
   Investing activities                                     (13,408 )      308,896
   Financing activities                                         520             13
   Effect of foreign exchange rate changes on cash              717            350

   Net increase (decrease) in cash and cash equivalents     (18,499 )      299,744
   Cash and cash equivalents - beginning of period          230,377         20,771

   Cash and cash equivalents - end of period              $ 211,878      $ 320,515

Cash and cash equivalents were $211.9 million at June 30, 2012 compared to $230.4 million at December 31, 2011. This decrease is primarily due to various new investment activities and other general corporate expenditures, partially offset by the receipt of funds from DISH Network and the sale of real property in Brazil.

For the three months ended June 30, 2012, the company generated $4.3 million of cash from operating activities.

For the six months ended June 30, 2012, the $6.3 million of cash used in operating activities consisted primarily of our net income of $60.6 million adjusted for various non-cash items, including (i) the gain on the deconsolidation of subsidiaries of $48.7 million, (ii) an increase of $10.1 million in accounts receivable, (iii) an increase of $10.0 million in other receivables, (iv) the reclassification of the $5.6 million gain on the sale of our real property in Brazil to investing activities, (v) $6.3 million of amortization expense associated with patents and other intangibles, (vi) $3.1 million of stock-based compensation expense, (vii) a $1.7 million increase in accrued interest payable, (viii) $1.5 million of amortized prepaid compensation expense associated with the acquisition of Ovidian Group in June 2011, (ix) a $4.7 million decrease in other accrued expenses, and (x) a $0.5 million increase in prepaid expenses.

For the six months ended June 30, 2011, cash used in operating activities consisted primarily of our net income of $299.0 million adjusted for various non-cash items, including: (i) a $300.9 million gain associated with the disposition of certain assets to DISH Network; (ii) a $4.7 million reduction of a gateway obligation; (iii) stock-based compensation expense of $2.3 million;
(iv) a $2.1 million increase in accounts and other receivables primarily due to a $1.6 million receivable associated with reimbursement of MEO Assets operating expenses from J&J Group; (v) an $0.9 million net decrease in income taxes payable, accounts payable and other accrued expenses; and (vi) unrealized foreign exchange gains of $0.5 million.

For the six months ended June 30, 2012, the $13.4 million of cash used by investing activities was primarily due to the acquisition of various assets, partially offset by cash received from DISH Network and from the sale of real property in Brazil. For the six months ended June 30, 2011, cash provided by investing activities consisted primarily of approximately $315 million from DISH Network pursuant to the Implementation Agreement, partially offset by a $5.9 million cash outflow for the acquisition of Ovidian Group, net of cash acquired.

For the six months ended June 30, 2012 and 2011, cash provided by financing activities consisted of proceeds from the exercise of stock options, partially offset by the payment of withholding taxes upon vesting of restricted stock awards.

Contractual Obligations. Our primary contractual obligations relate to operating lease agreements for our office locations in Kirkland, Washington and El Segundo, California and Berkeley, California. Our contractual obligations as of June 30, 2012 were as follows (in millions):

                                                   Years ending December 31,
                                                                                      2017 and
                               Total      2012       2013-2014       2015-2016       Thereafter
 Operating lease obligations   $  3.0     $ 0.3     $       1.1     $       0.7     $        0.9

As of June 30, 2012, we no longer have obligations related to (i) gateway operators, (ii) capital leases or (iii) uncertain tax positions for income taxes, interest and penalties, as these liabilities were all related to our International Subsidiaries that were deconsolidated on June 29, 2012.

Risks and Uncertainties

Certain risks and uncertainties that could materially affect our future results of operations or liquidity are discussed under "Part II-Other Information, Item 1A. Risk Factors" in this quarterly report and in our 2011 Form 10-K.

Inflation

The impact of inflation on our condensed consolidated financial condition and results of operations was not significant during any of the periods presented.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.