e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-22339
RAMBUS INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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94-3112828
(I.R.S. Employer
Identification Number)
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4440 El Camino Real
Los Altos, California
(Address of principal
executive offices)
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94022
(Zip
Code)
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Registrants telephone number, including area code:
(650) 947-5000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.001 Par Value
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The NASDAQ Stock Market LLC
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Preferred Share Purchase Rights
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(The Nasdaq Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the Registrants Common Stock
held by non-affiliates of the Registrant as of June 30,
2008 was approximately $1.19 billion based upon the closing
price reported for such date on The Nasdaq Global Select Market.
For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of
Common Stock and shares held by officers and directors of the
Registrant have been excluded because such persons may be deemed
to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of outstanding shares of the Registrants Common
Stock, $.001 par value, was 104,345,088 as of
January 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this
report by reference to the Proxy Statement for the
Registrants annual meeting of stockholders to be held on
April 30, 2009 to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Form 10-K.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
(Annual Report) contains forward-looking statements. These
forward-looking statements include, without limitation,
predictions regarding the following aspects of our future:
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Outcome and effect of current and potential future intellectual
property litigation;
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Litigation expenses;
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Resolution of the European Commission matters involving us;
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Protection of intellectual property;
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Deterioration of financial health of commercial counterparties
and their ability to meet their obligations to us;
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Amounts owed under licensing agreements;
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Terms of our licenses;
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Indemnification and technical support obligations;
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Success in the markets of our or our licensees products;
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Research and development costs and improvements in technology;
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Sources, amounts and concentration of revenue, including
royalties;
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Effective tax rates;
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Realization of deferred tax assets/release of deferred tax
valuation allowance;
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Product development;
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Sources of competition;
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Pricing policies of our licensees;
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Success in renewing license agreements;
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Operating results;
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International licenses and operations, including our design
facility in Bangalore, India;
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Methods, estimates and judgments in accounting policies;
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Growth in our business;
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Acquisitions, mergers or strategic transactions;
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Ability to identify, attract, motivate and retain qualified
personnel;
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Trading price of our Common Stock;
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Internal control environment;
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Corporate governance;
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Accounting, tax, regulatory, legal and other outcomes and
effects of the stock option investigation;
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Consequences of the lawsuits related to the stock option
investigation;
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The level and terms of our outstanding debt;
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Engineering, marketing and general and administration expenses;
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Contract revenue;
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Interest and other income, net;
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Adoption of new accounting pronouncements;
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Likelihood of paying dividends;
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Effects of changes in the economy and credit market on our
industry and business; and
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Restructuring activities.
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You can identify these and other forward-looking statements by
the use of words such as may, future,
shall, should, expects,
plans, anticipates,
believes, estimates,
predicts, intends,
potential, continue, or the negative of
such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating
to any of the foregoing statements.
Actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors,
including those set forth under Item 1A, Risk
Factors. All forward-looking statements included in this
document are based on our assessment of information available to
us at this time. We assume no obligation to update any
forward-looking statements.
PART I
Rambus, RDRAM, XDR, FlexIO and FlexPhase are trademarks or
registered trademarks of Rambus Inc. Other trademarks that may
be mentioned in this annual report on
Form 10-K
are the property of their respective owners.
Industry terminology, used widely throughout this annual report,
has been abbreviated and, as such, these abbreviations are
defined below for your convenience:
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Double Data Rate
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DDR
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Dynamic Random Access Memory
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DRAM
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Fully Buffered-Dual Inline Memory Module
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FB-DIMM
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Gigabits per second
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Gb/s
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Graphics Double Data Rate
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GDDR
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Input/Output
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I/O
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Peripheral Component Interconnect
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PCI
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Rambus Dynamic Random Access Memory
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RDRAM
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Single Data Rate
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SDR
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Synchronous Dynamic Random Access Memory
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SDRAM
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eXtreme Data Rate
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XDR
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From time to time we will refer to the abbreviated names of
certain entities and, as such, have provided a chart to indicate
the full names of those entities for your convenience.
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Advanced Micro Devices Inc.
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AMD
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ARM Holdings plc
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ARM
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Cadence Design Systems, Inc.
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Cadence
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Cisco Systems, Inc.
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Cisco
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Elpida Memory, Inc.
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Elpida
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Fujitsu Limited
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Fujitsu
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GDA Technologies, Inc.
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GDA
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Hewlett-Packard Company
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Hewlett-Packard
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Hynix Semiconductor, Inc.
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Hynix
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Infineon Technologies AG
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Infineon
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Inotera Memories, Inc.
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Inotera
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Intel Corporation
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Intel
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International Business Machines Corporation
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IBM
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Joint Electron Device Engineering Council
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JEDEC
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Juniper Networks, Inc.
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Juniper
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Matsushita Electrical Industrial Co.
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Matsushita
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Micron Technologies, Inc.
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Micron
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Nanya Technology Corporation
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Nanya
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NEC Electronics Corporation
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NEC
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Optical Internetworking Forum
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OIF
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Qimonda AG (formerly Infineons DRAM operations)
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Qimonda
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Panasonic Corporation
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Panasonic
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Peripheral Component Interconnect Special Interest
Group
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PCI-SIG
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Renesas Technology Corporation
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Renesas
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Samsung Electronics Co., Ltd.
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Samsung
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Sony Computer Electronics
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Sony
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Spansion, Inc.
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Spansion
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ST Microelectronics
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ST Micro
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Synopsys Inc.
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Synopsys
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Tessera Technologies, Inc.
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Tessera
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Texas Instruments Inc.
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Texas Instruments
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Toshiba Corporation
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Toshiba
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Velio Communications
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Velio
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Rambus Inc. (we or Rambus) was founded
in 1990 and reincorporated in Delaware in March 1997. Our
principal executive offices are located at 4440 El Camino Real,
Los Altos, California. Our Internet address is www.rambus.com.
You can obtain copies of our
Forms 10-K,
10-Q,
8-K, and
other filings with the SEC, and all amendments to these filings,
free of charge from our website as soon as reasonably
practicable following our filing of any of these reports with
the SEC. In addition, you may read and copy any material we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports,
proxy, and information statements, and other information
regarding registrants that file electronically with the SEC at
www.sec.gov.
We design, develop and license chip interface technologies and
architectures that are foundational to nearly all digital
electronics products. Our chip interface technologies are
designed to improve the performance, power efficiency,
time-to-market and cost-effectiveness of our customers
semiconductor and system products for computing, gaming and
graphics, consumer electronics and mobile applications.
As of December 31, 2008, our chip interface technologies
are covered by more than 735 U.S. and foreign patents.
Additionally, we have approximately 500 patent applications
pending. These patents and patent applications cover important
inventions in memory and logic chip interfaces, in addition to
other technologies. We believe that our chip interface
technologies provide our customers a means to achieve higher
performance, improved power efficiency, lower risk, and greater
cost-effectiveness in their semiconductor and system products.
Our primary method of providing interface technologies to our
customers is through our patented innovations. We license our
broad portfolio of patented inventions to semiconductor and
system companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of our patent portfolio.
Patent license agreements are generally royalty bearing.
We also develop a range of solutions including
leadership (which are Rambus-proprietary interfaces
or architectures widely licensed to our customers) and
industry-standard chip interfaces that we provide to our
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customers under license for incorporation into their
semiconductor and system products. Due to the often complex
nature of implementing state-of-the art chip interface
technology, we offer engineering services to our customers to
help them successfully integrate our chip interface solutions
into their semiconductors and systems. These technology license
agreements may have both a fixed price (non-recurring) component
and ongoing royalties. Engineering services are generally
offered on a fixed price basis. Further, under technology
licenses, our customers may receive licenses to our patents
necessary to implement the chip interface in their products with
specific rights and restrictions to the applicable patents
elaborated in their individual contracts with us.
Background
The performance of computers, consumer electronics and other
electronic systems is often constrained by the speed of data
transfer between the chips within the system. Ideally, the rate
of the data transfer between chips should support the rate of
data transfer on-chip. However, on-chip frequencies continue to
exceed the frequency of communication between chips at a growing
rate. The incorporation of multiple-cores in processor chips
drives an even greater need for higher rates of data transfer.
Further, the inability to scale packaging technology (number of
signal pins on a package) at the rate at which transistor counts
scale through improvements in semiconductor process technology
only worsens the chip interface bottleneck. As a
result, continued advances to increase on-chip frequencies,
number of cores or transistor densities face potentially
diminishing returns in increasing overall system performance.
Our technologies help semiconductor and system designers speed
the performance of chip interfaces, thus helping to boost the
overall performance of electronic systems.
Our
Offerings
Patented
Innovations
We derive the majority of our annual revenue by licensing our
broad portfolio of patents for chip interfaces to our customers.
Such licenses may cover part or all of our patent portfolio.
Leading semiconductor and system companies such as AMD, Fujitsu,
Qimonda, Intel, NEC, Panasonic, Renesas, and Toshiba have
licensed our patents for use in their own products. Examples of
the many patented innovations in our portfolio include:
Fully Synchronous DRAM which is designed to allow precise
timing from a DRAM system, improving memory transfer efficiency.
Dual Edge Clocking which is designed to allow data to be
sent on both the leading and trailing edge of the clock pulse,
effectively doubling the transfer rate out of a memory core
without the need for higher system clock speeds.
Variable Burst Length which is designed to improve data
transfer efficiency by allowing varying amounts of data to be
sent per a memory read or write request in DRAMs and Flash
memory.
FlexPhasetm
technology which synchronizes data output and compensates for
circuit timing errors.
Channel Equalization which is designed to improve signal
integrity and system margins by reducing inter-symbol
interference in high speed parallel and serial link channels.
Technology
Solutions and Enabling Services
We license a range of technology solutions including our
leadership architectures and industry-standard chip interfaces
to customers for use in their semiconductor and system products.
Our customers include leading companies such as Elpida, IBM,
Intel, Qimonda, Panasonic, Sony and Toshiba. Due to the complex
nature of implementing our technologies, we provide engineering
services under certain of these licenses to help our customers
successfully integrate our technology solutions into their
semiconductor and system products. Additionally, licensees may
receive, as an adjunct to their technology license agreements,
patent licenses as necessary to implement the technology in
their products with specific rights and restrictions to the
applicable patents elaborated in their individual contracts.
Our leadership technology solutions include the
XDRtm,
XDR2 and
RDRAMtm
memory architectures and the
FlexIOtm processor
bus.
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The XDR Memory Architecture enables what we believe to be
the worlds fastest production DRAM with operation up to
6.4 Gb/s. XDR DRAM is the main memory solution for Sony Computer
Entertainments
PLAYSTATION®3
as well as for Texas Instruments latest generation of DLP
front projectors.
The XDR2 Memory Architecture incorporates new
innovations, including DRAM micro-threading, to deliver the
worlds highest performance for graphics intensive
applications such as gaming and digital video.
RDRAM Memory has shipped in the Sony
PlayStation®2,
Intel-based PCs, Texas Instruments DLP TVs and in Juniper
routers. Our customers have sold over 500 million RDRAM
devices across all applications to date. This product is
approaching end-of-life, and we anticipate revenue from RDRAM
will continue to decline.
The FlexIO Processor Bus is a high speed chip-to-chip
interface. It is one of our two key chip interface products that
enable the Cell BE processor co-developed by Sony, Toshiba and
IBM. In the
PLAYSTATION®3,
FlexIO provides the interface between the Cell BE, the RSX
graphics processor and the SouthBridge chip.
In addition to our leadership solutions, we offer
industry-standard chip interface solutions, including DDRx
(where the x is a number that represents a version).
We also offer digital logic controllers for PCI Express, DDRx
memory and other industry standard interfaces.
Target
Markets, Applications and Customers
We work with leading and emerging semiconductor and system
customers to enable their next-generation products. We engage
with our customers across the entire product life cycle, from
system architecture development, to chip design, to system
integration, to production ramp up through product maturation.
Our patented inventions and technology solutions are
incorporated into a broad range of high-volume applications in
computing, gaming and graphics, consumer electronics and mobile
markets. System level products that utilize our patented
inventions
and/or
solutions include personal computers, servers, printers, video
projectors, game consoles, digital TVs, set-top boxes and mobile
phones manufactured by such companies as Fujitsu, IBM,
Hewlett-Packard, Panasonic, Toshiba and Sony.
Our
Strategy
The key elements of our strategy are as follows:
Develop Core Technology: Develop and patent
our core technology to provide a fundamental competitive
advantage in memory and logic chip interfaces and architectures.
License our Patented Innovations: License our
patented inventions to customers for use in their semiconductor
and system products.
Develop and License Supporting
Solutions: Develop and license solutions which
incorporate our innovations and provide our customers with the
benefits of superior performance, increased power efficiency,
faster time-to-market, lower risk and greater cost effectiveness.
Design
and Manufacturing
Our technology solutions are developed with high-volume
commercial manufacturing processes in mind. Our chip interface
solutions can be delivered in a number of ways, from reference
designs to full turnkey custom developments. A reference design
engagement might include an architectural specification, data
sheet, theory of operation and implementation guides. A custom
development would entail a specific design implementation
optimized for the licensees manufacturing process. In such
cases, the licensee provides specific design rules and
transistor models for the licensees process.
Research
and Development
Our ability to compete in the future will be substantially
dependent on our ability to develop and patent key innovations
that meet the future needs of a dynamic market. To this end, we
have assembled a team of highly skilled engineers whose
activities are focused on continually developing new innovations
within our chosen technology
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fields. Using this foundation of patented innovations, our
engineers also develop new interface solutions that enable
increased performance, and greater power efficiency as well as
other improvements and benefits. Our solution design and
development process is a multi-disciplinary effort requiring
expertise in system architecture, digital and analog circuit
design and layout, semiconductor process characteristics,
packaging, printed circuit board routing, signal integrity and
high-speed testing techniques.
As of December 31, 2008, we had approximately
200 employees in our engineering departments, representing
60% of our total employees. A significant number of our
engineers spend all or a portion of their time on research and
development. For the years ended December 31, 2008, 2007,
and 2006, research and development expenses were
$76.2 million, $82.9 million, and $69.0 million
respectively, including stock-based compensation of
approximately $13.5 million, $16.2 million and
$14.9 million, respectively. We expect to continue to
invest substantial funds in research and development activities.
In addition, because our license and support agreements often
call for us to provide engineering support, a portion of our
total engineering costs are allocated to the cost of contract
revenue, even though some of these engineering efforts may have
direct applicability to our technology development.
Competition
The semiconductor industry is intensely competitive and has been
impacted by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and increasing
foreign and domestic competition. We face competition from
semiconductor and intellectual property companies who provide
their own DDR memory chip interface technology and solutions. In
addition, most DRAM manufacturers, including our XDR licensees,
produce versions of DRAM such as SDR, DDRx and GDDRx SDRAM which
compete with XDR chips. We believe that our principal
competition for memory chip interfaces may come from our
prospective licensees, some of whom are evaluating and
developing products based on technologies that they contend or
may contend will not require a license from us. In addition, our
competitors are also taking a system approach similar to ours in
seeking to solve the application needs of system companies. Many
of these companies are larger and may have better access to
financial, technical and other resources than we possess.
JEDEC has standardized what it calls extensions of DDR, known as
DDR2 and DDR3, as well as graphics extensions called GDDR4 and
GDDR5, and there are ongoing efforts to integrate products such
as
system-in-package
DRAM. To the extent that these alternatives might provide
comparable system performance at lower than or similar cost to
XDR memory chips, or are perceived to require the payment of no
or lower royalties, or to the extent other factors influence the
industry, our licensees and prospective licensees may adopt and
promote alternative technologies. Even to the extent we
determine that such alternative technologies infringe our
patents, there can be no assurance that we would be able to
negotiate agreements that would result in royalties being paid
to us without litigation, which could be costly and the results
of which would be uncertain.
Employees
As of December 31, 2008, we had approximately
330 full-time employees. None of our employees are covered
by collective bargaining agreements. We believe that our future
success is dependent on our continued ability to identify,
attract, motivate and retain qualified personnel. To date, we
believe that we have been successful in recruiting qualified
employees and that our relationship with our employees is
excellent.
Patents
and Intellectual Property Protection
We maintain and support an active program to protect our
intellectual property, primarily through the filing of patent
applications and the defense of issued patents against
infringement. As of December 31, 2008, we have more than
735 U.S. and foreign patents on various aspects of our
technology, with expiration dates ranging from 2010 to 2026, and
we have approximately 500 pending patent applications. In
addition, we attempt to protect our trade secrets and other
proprietary information through agreements with current and
prospective licensees, and confidentiality agreements with
employees and consultants and other security measures. We also
rely on trademarks and trade secret laws to protect our
intellectual property.
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Business
Segment Data, Customers and Our Foreign Operations
We operate in a single industry segment, the design, development
and licensing of chip interface technologies and architectures.
Information concerning revenue, results of operations and
revenue by geographic area is set forth in Item 6,
Selected Financial Data, in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and in Note 12,
Business Segments, Exports and Major Customers, of
Notes to Consolidated Financial Statements, all of which are
incorporated herein by reference. Information concerning
identifiable assets is also set forth in Note 12,
Business Segments, Exports and Major Customers, of
Notes to Consolidated Financial Statements. Information on
customers that comprise 10% or more of our consolidated revenue
and risks attendant to our foreign operations is set forth below
in Item 1A, Risk Factors.
Our
Executive Officers
Information regarding our executive officers and their ages and
positions as of December 31, 2008, is contained in the
table below. Our executive officers are appointed by, and serve
at the discretion of, our Board of Directors. There is no family
relationship between any of our executive officers.
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Name
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Age
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Position and Business Experience
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Kevin S. Donnelly
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Senior Vice President, IP Strategy. Mr. Donnelly joined us
in 1993. Mr. Donnelly has served in his current position
since November 2008. From March 2006 to November 2008,
Mr. Donnelly served as our Senior Vice President,
Engineering. From February 2005 to March 2006, Mr. Donnelly
served as co-vice president of Engineering. From October 2002 to
February 2005 he served as vice president, Logic Interface
Division. Mr. Donnelly held various engineering and
management positions before becoming vice president, Logic
Interface Division in October 2002. Before joining us,
Mr. Donnelly held engineering positions at National
Semiconductor, Sipex, and Memorex, over an eight year period. He
holds a B.S. in Electrical Engineering and Computer Sciences
from the University of California, Berkeley, and an M.S. in
Electrical Engineering from San Jose State University.
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Sharon E. Holt
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Senior Vice President, Licensing and Marketing. Ms. Holt
has served as our senior vice president, Licensing and Marketing
(formerly titled Senior Vice President, Worldwide Sales,
Licensing and Marketing) since joining us in August 2004. From
November 1999 to July 2004, Ms. Holt held various positions
at Agilent Technologies, Inc., an electronics instruments and
controls company, most recently as vice president and general
manager, Americas Field Operations, Semiconductor Products
Group. Prior to Agilent Technologies, Inc.,
Ms. Holt held various engineering, marketing, and
sales management positions at
Hewlett-Packard
Company, a hardware manufacturer. Ms. Holt holds a B.S. in
Electrical Engineering, with a minor in Mathematics, from the
Virginia Polytechnic Institute and State University.
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Harold Hughes
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Chief Executive Officer and President. Mr. Hughes has
served as our chief executive officer and president since
January 2005 and as a director since June 2003. He served as a
United States Army Officer from 1969 to 1972 before starting his
private sector career with Intel Corporation. Mr. Hughes
held a variety of positions within Intel Corporation from
1974 to 1997, including treasurer, vice president of Intel
Capital, chief financial officer, and vice president of Planning
and Logistics. Following his tenure at Intel, Mr. Hughes
was the chairman and chief executive officer of Pandesic, LLC.
He holds a B.A. from the University of Wisconsin and an M.B.A.
from the University of Michigan. He also serves as a director of
Berkeley Technology, Ltd.
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Thomas Lavelle
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Senior Vice President and General Counsel. Mr. Lavelle has
served in his current position since December 2006. Previous to
that, Mr. Lavelle served as vice president and general
counsel at Xilinx, one of the worlds leading suppliers of
programmable chips. Mr. Lavelle joined Xilinx in 1999 after
spending more than 15 years at Intel Corporation where he
held various positions in the legal department.
Mr. Lavelle earned a J.D. from Santa Clara
University School of Law and a B.A. from the University of
California at Los Angeles.
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Name
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Age
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Position and Business Experience
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Satish Rishi
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Senior Vice President, Finance and Chief Financial Officer.
Mr. Rishi joined us in his current position in April 2006.
Prior to joining us, Mr. Rishi held the position of
executive vice president of Finance and chief financial officer
of Toppan Photomasks, Inc., (formerly DuPont Photomasks, Inc.)
one of the worlds leading photomask providers, from
November 2001 to April 2006. During his
20-year
career, Mr. Rishi has held senior financial management
positions at semiconductor and electronic manufacturing
companies. He served as vice president and assistant treasurer
at Dell Inc. Prior to Dell, Mr. Rishi spent 13 years
at Intel Corporation, where he held financial management
positions both in the United States and overseas, including
assistant treasurer. Mr. Rishi holds a B.S. with honors in
Mechanical Engineering from Delhi University in Delhi, India and
an M.B.A. from the University of California at Berkeleys
Haas School of Business. He also serves as a director of
Measurement Specialties, Inc.
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Michael Schroeder
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Vice President, Human Resources. Mr. Schroeder has served
as our vice president, Human Resources since joining us in June
2004. From April 2003 to May 2004, Mr. Schroeder was vice
president, Human Resources at DigitalThink, Inc., an online
service company. From August 2000 to August 2002,
Mr. Schroeder served as vice president, Human Resources at
Alphablox Corporation, a software company. From August 1992 to
August 2000, Mr. Schroeder held various positions at
Synopsys, Inc., a software and programming company, including
vice president, California Site Human Resources, group director
Human Resources, director Human Resources and employment
manager. Mr. Schroeder attended the University of
Wisconsin, Milwaukee and studied Russian.
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Martin Scott, Ph.D.
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Senior Vice President, Research and Technology Development.
Dr. Scott has served in his current position (formerly
titled Senior Vice President, Engineering) since December 2006.
Dr. Scott joined us from PMC-Sierra, Inc., a provider of
broadband communications and storage integrated circuits, where
he was most recently vice president and general manager of its
Microprocessor Products Division from March 2006. Dr. Scott
was the vice president and general manager for the
I/O Solutions Division (which was purchased by PMC-Sierra)
of Avago Technologies Limited, an analog and mixed signal
semiconductor components and subsystem company, from October
2005 to March 2006. Dr. Scott held various positions at
Agilent Technologies, including as vice president and general
manager for the I/O Solutions division from October 2004 to
October 2005, when the division was purchased by Avago
Technologies, vice president and general manager of the ASSP
Division from March 2002 until October 2004, and, before that,
Network Products operation manager. Dr. Scott started his
career in 1981 as a member of the technical staff at Hewlett
Packard Laboratories and held various management positions at
Hewlett Packard and was appointed ASIC business unit manager in
1998. He earned a B.S. from Rice University and holds both an
M.S. and Ph.D. from Stanford University.
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Laura S. Stark
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Senior Vice President, Corporate Development. Ms. Stark
joined us in 1996. Ms. Stark has served in her current
position since May 2008. From February 2005 to May 2008,
Ms. Stark headed up our Platform Solutions Group. From
October 2002 to February 2005, Ms. Stark served as our vice
president, Memory Interface Division. Ms. Stark has served
as strategic accounts manager, and held the positions of
strategic accounts director and vice president, Alliances and
Infrastructure, before assuming the position of vice president,
Memory Interface Division in October 2002. Prior to joining
Rambus, Ms. Stark held various positions in the
semiconductor products division of Motorola, a communications
equipment company, during a six year tenure, including technical
sales engineer for the Apple sales team and field application
engineer for the Sun and SGI sales teams. Ms. Stark holds a
B.S. in Electrical Engineering from the Massachusetts Institute
of Technology.
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10
RISK
FACTORS
Because of the following factors, as well as other variables
affecting our operating results, past financial performance may
not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or
trends in future periods. See also Forward-looking
Statements elsewhere in this report.
Risks
Associated With Our Business, Industry and Market
Conditions
If
market leaders do not adopt our innovations, our results of
operations could decline.
An important part of our strategy is to penetrate market
segments for chip interfaces by working with leaders in those
market segments. This strategy is designed to encourage other
participants in those segments to follow such leaders in
adopting our chip interfaces. If a high profile industry
participant adopts our chip interfaces but fails to achieve
success with its products or adopts and achieves success with a
competing chip interface, our reputation and sales could be
adversely affected. In addition, some industry participants have
adopted, and others may in the future adopt, a strategy of
disparaging our memory solutions adopted by their competitors or
a strategy of otherwise undermining the market adoption of our
solutions.
We target system companies to adopt our chip interface
technologies, particularly those that develop and market high
volume business and consumer products, which have traditionally
been focused on PCs, including PC graphics processors, and video
game consoles, but also are expanding to include HDTVs, cellular
and digital phones, PDAs, digital cameras and other consumer
electronics that incorporate all varieties of memory and chip
interfaces. In particular, our strategy includes gaining
acceptance of our technology in high volume consumer
applications, including video game consoles, such as the Sony
PlayStation(R)
2 and Sony
PLAYSTATION(R)
3, HDTVs and set top boxes. We are subject to many risks beyond
our control that influence whether or not a particular system
company will adopt our chip interfaces, including, among others:
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competition faced by a system company in its particular industry;
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the timely introduction and market acceptance of a system
companys products;
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the engineering, sales and marketing and management capabilities
of a system company;
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technical challenges unrelated to our chip interfaces faced by a
system company in developing its products;
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the financial and other resources of the system company;
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the supply of semiconductors from our licensees in sufficient
quantities and at commercially attractive prices;
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the ability to establish the prices at which the chips
containing our chip interfaces are made available to system
companies; and
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the degree to which our licensees promote our chip interfaces to
a system company.
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There can be no assurance that consumer products that currently
use our technology will continue to do so, nor can there be any
assurance that the consumer products that incorporate our
technology will be successful in their segments thereby
generating expected royalties, nor can there be any assurance
that any of our technologies selected for licensing will be
implemented in a commercially developed or distributed product.
If any of these events occur and market leaders do not
successfully adopt our technologies, our strategy may not be
successful and, as a result, our results of operations could
decline.
11
We
operate in an industry that is highly cyclical and in which the
number of our potential customers may be in decline as a result
of industry consolidation, and we face intense competition that
may cause our results of operations to suffer.
The semiconductor industry is intensely competitive and has been
impacted by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and increasing
foreign and domestic competition. As the semiconductor industry
is highly cyclical, significant economic downturns characterized
by diminished demand, erosion of average selling prices,
production overcapacity and production capacity constraints
could affect the semiconductor industry. We are currently
experiencing such a period of economic downturn. As a result, we
may face a reduced number of licensing wins, tightening of
customers operating budgets, difficulty or inability of
our customers to pay our licensing fees, extensions of the
approval process for new licenses, as discussed below, and
consolidation among our customers, all of which may adversely
affect the demand for our technology and may cause us to
experience substantial period-to-period fluctuations in our
operating results.
Many of our customers operate in industries that have
experienced significant declines as a result of the current
economic downturn. In particular, DRAM manufacturers, which make
up a majority of our existing and potential licensees, have
suffered material losses and other adverse effects to their
businesses. These factors may result in industry consolidation
as companies seek to reduce costs and improve profitability
through business combinations. Consolidation among our existing
DRAM and other customers may result in loss of revenues under
existing license agreements. Consolidation among companies in
the DRAM and other industries within which we license our
technology may reduce the number of future licensees for our
products and services. In either case, consolidations in the
DRAM and other industries in which we operate may negatively
impact our short-term and long-term business prospects,
licensing revenues and results of operations.
Some semiconductor companies have developed and support
competing logic chip interfaces including their own serial link
chip interfaces and parallel bus chip interfaces. We also face
competition from semiconductor and intellectual property
companies who provide their own DDR memory chip interface
technology and solutions. In addition, most DRAM manufacturers,
including our XDR licensees, produce versions of DRAM such as
SDR, DDRx and GDDRx SDRAM which compete with XDR chips. We
believe that our principal competition for memory chip
interfaces may come from our licensees and prospective
licensees, some of which are evaluating and developing products
based on technologies that they contend or may contend will not
require a license from us. In addition, our competitors are also
taking a system approach similar to ours in seeking to solve the
application needs of system companies. Many of these companies
are larger and may have better access to financial, technical
and other resources than we possess. Wider applications of other
developing memory technologies, including FLASH memory, may also
pose competition to our licensed memory solutions.
JEDEC has standardized what it calls extensions of DDR, known as
DDR2 and DDR3. Other efforts are underway to create other
products including those sometimes referred to as GDDR4 and
GDDR5, as well as new ways to integrate products such as
system-in-package
DRAM. To the extent that these alternatives might provide
comparable system performance at lower or similar cost than XDR
memory chips, or are perceived to require the payment of no or
lower royalties, or to the extent other factors influence the
industry, our licensees and prospective licensees may adopt and
promote alternative technologies. Even to the extent we
determine that such alternative technologies infringe our
patents, there can be no assurance that we would be able to
negotiate agreements that would result in royalties being paid
to us without litigation, which could be costly and the results
of which would be uncertain. In the industry standard and
leadership serial link chip interface business, we face
additional competition from semiconductor companies that sell
discrete transceiver chips for use in various types of systems,
from semiconductor companies that develop their own serial link
chip interfaces, as well as from competitors, such as ARM and
Synopsys, who license similar serial link chip interface
products and digital controllers. At the 10 Gb/s speed,
competition will also come from optical technology sold by
system and semiconductor companies. There are standardization
efforts under way or completed for serial links from standard
bodies such as PCI-SIG and OIF. We may face increased
competition from these types of consortia in the future that
could negatively impact our serial link chip interface business.
In the FlexIO processor bus chip interface market segment, we
face additional competition from semiconductor companies who
develop their own parallel bus chip interfaces, as well as
competitors who license similar
12
parallel bus chip interface products. We may also see
competition from industry consortia or standard setting bodies
that could negatively impact our FlexIO processor bus chip
interface business.
As with our memory chip interface products, to the extent that
competitive alternatives to our serial or parallel logic chip
interface products might provide comparable system performance
at lower or similar cost, or are perceived to require the
payment of no or lower royalties, or to the extent other factors
influence the industry, our licensees and prospective licensees
may adopt and promote alternative technologies, which could
negatively impact our memory and logic chip interface business.
If for any of these reasons we cannot effectively compete in
these primary market segments, our results of operations could
suffer.
In
order to grow, we may have to invest more resources in research
and development than anticipated, which could increase our
operating expenses and negatively impact our operating
results.
If new competitors, technological advances by existing
competitors, our entry into new markets, or other competitive
factors require us to invest significantly greater resources
than anticipated in our research and development efforts, our
operating expenses would increase. For the years ended
December 31, 2008, 2007 and 2006, research and development
expenses were $76.2 million, $82.9 million and
$69.0 million, respectively, including stock-compensation
of approximately $13.5 million, $16.2 million and
$14.9 million, respectively. If we are required to invest
significantly greater resources than anticipated in research and
development efforts without an increase in revenue, our
operating results could decline. Research and development
expenses are likely to fluctuate from time to time to the extent
we make periodic incremental investments in research and
development and these investments may be independent of our
level of revenue. In order to grow, which may include entering
new markets, we anticipate that we will continue to devote
substantial resources to research and development, and we expect
these expenses to increase in absolute dollars in the
foreseeable future due to the increased complexity and the
greater number of products under development as well as
selectively hiring additional employees.
Our
revenue is concentrated in a few customers, and if we lose any
of these customers, our revenue may decrease
substantially.
We have a high degree of revenue concentration, with our top
five licensees representing approximately 67%, 67% and 63% of
our revenue for the years ended December 31, 2008, 2007 and
2006, respectively. For the year ended December 31, 2008,
revenue from Fujitsu, NEC, Panasonic, Sony, Elpida and AMD each
accounted for 10% or more of our total revenue. For the year
ended December 31, 2007, revenue from Fujitsu, Elpida,
Qimonda, and Toshiba each accounted for 10% or more of our total
revenue. For the year ended December 31, 2006, revenue from
Fujitsu, Elpida, Qimonda and Intel each accounted for 10% or
more of our total revenue. We may continue to experience
significant revenue concentration for the foreseeable future.
In addition, some of our commercial agreements require us to
provide certain customers with the lowest royalty rate that we
provide to other customers for similar technologies, volumes and
schedules. These clauses may limit our ability to effectively
price differently among our customers, to respond quickly to
market forces, or otherwise to compete on the basis of price.
The particular licensees which account for revenue concentration
have varied from period to period as a result of the addition of
new contracts, expiration of existing contracts, industry
consolidation, the expiration of deferred revenue schedules
under existing contracts, and the volumes and prices at which
the licensees have recently sold licensed semiconductors to
system companies. These variations are expected to continue in
the foreseeable future, although we anticipate that revenue will
continue to be concentrated in a limited number of licensees.
We are in negotiations with licensees and prospective licensees
to reach SDR and DDR patent license agreements. We expect SDR
and DDR patent license royalties will continue to vary from
period to period based on our success in renewing existing
license agreements and adding new licensees, as well as the
level of variation in our licensees reported shipment
volumes, sales price and mix, offset in part by the proportion
of licensee payments that are fixed. If we are unsuccessful in
renewing any of our SDR and DDR-compatible contracts, our
results of operations may decline significantly.
13
Weakening
global economic conditions may adversely affect demand for our
products and services.
Our operations and performance depend significantly on worldwide
economic conditions, and the U.S. and world economies are
undergoing a period of recession. Uncertainty about current
global economic conditions poses a risk as consumers and
businesses may postpone spending in response to tighter credit,
negative financial news and declines in income or asset values,
which could have a material negative effect on the demand for
the products of our licensees in the foreseeable future. Other
factors that could influence demand include continuing increases
in fuel and energy costs, competitive pressures, including
pricing pressures, from companies that have competing products,
changes in the credit market, conditions in the residential real
estate and mortgage markets, consumer confidence, and other
macroeconomic factors affecting consumer spending behavior. If
demand for the products of our licensees fluctuates as a result
of economic conditions or otherwise, our business and results of
operations could be harmed. A continuation of current conditions
in credit markets could limit our ability to obtain external
financing to fund our operations and capital expenditures.
If our
commercial counterparties are unable to fulfill their financial
obligations to us, our business and results of operations may be
affected adversely.
The downturn in worldwide economic conditions threatens the
financial health of our commercial counterparties, including
companies with whom we have entered into licensing arrangements
and litigation settlements that provide for ongoing payments to
us, and their ability to fulfill their financial obligations to
us. As discussed in further detail below, we are a party to a
settlement and licensing agreement with Qimonda, which provides
that, subject to certain conditions that have not yet been
fulfilled, Qimonda may be required to make additional royalty
payments to us of up to $100.0 million. In January 2009,
Qimonda filed for bankruptcy. Because bankruptcy courts have the
power to modify or cancel contracts of the petitioner which
remain subject to future performance, we may receive less than
all of the payments that we would otherwise be entitled to
receive from Qimonda as a result of their bankruptcy
proceedings. If we are unable to collect all of such payments
owed to us, or if other of our commercial counterparties enter
into bankruptcy or otherwise seek to renegotiate their financial
obligations to us as a result of the deterioration of their
financial health, our business and results of operations may be
affected adversely.
Our
business and operating results may be harmed if we undertake any
restructuring activities or if we are unable to manage growth in
our business.
From time to time, we may undertake to restructure our business,
such as the reduction in our workforce that we announced in
August 2008. There are several factors that could cause a
restructuring to have an adverse effect on our business,
financial condition and results of operations. These include
potential disruption of our operations, the development of our
technology, the deliveries to our customers and other aspects of
our business. Employee morale and productivity could also suffer
and we may lose employees whom we want to keep. Loss of sales,
service and engineering talent, in particular, could damage our
business. Any restructuring would require substantial management
time and attention and may divert management from other
important work. Employee reductions or other restructuring
activities also cause us to incur restructuring and related
expenses such as severance expenses. Moreover, we could
encounter delays in executing any restructuring plans, which
could cause further disruption and additional unanticipated
expense.
Our business historically has experienced periods of rapid
growth that have placed, and may continue to place, significant
demands on our managerial, operational and financial resources.
In managing this growth, we must continue to improve and expand
our management, operational and financial systems and controls.
We also need to continue to expand, train and manage our
employee base. We cannot assure you that we will be able to
timely and effectively meet demand and maintain the quality
standards required by our existing and potential customers and
licensees. If we ineffectively manage our growth or we are
unsuccessful in recruiting and retaining personnel, our business
and operating results will be harmed.
14
If we
cannot respond to rapid technological change in the
semiconductor industry by developing new innovations in a timely
and cost effective manner, our operating results will
suffer.
The semiconductor industry is characterized by rapid
technological change, with new generations of semiconductors
being introduced periodically and with ongoing improvements. We
derive most of our revenue from our chip interface technologies
that we have patented. We expect that this dependence on our
fundamental technology will continue for the foreseeable future.
The introduction or market acceptance of competing chip
interfaces that render our chip interfaces less desirable or
obsolete would have a rapid and material adverse effect on our
business, results of operations and financial condition. The
announcement of new chip interfaces by us could cause licensees
or system companies to delay or defer entering into arrangements
for the use of our current chip interfaces, which could have a
material adverse effect on our business, financial condition and
results of operations. We are dependent on the semiconductor
industry to develop test solutions that are adequate to test our
chip interfaces and to supply such test solutions to our
customers and us.
Our continued success depends on our ability to introduce and
patent enhancements and new generations of our chip interface
technologies that keep pace with other changes in the
semiconductor industry and which achieve rapid market
acceptance. We must continually devote significant engineering
resources to addressing the ever increasing need for higher
speed chip interfaces associated with increases in the speed of
microprocessors and other controllers. The technical innovations
that are required for us to be successful are inherently complex
and require long development cycles, and there can be no
assurance that our development efforts will ultimately be
successful. In addition, these innovations must be:
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completed before changes in the semiconductor industry render
them obsolete;
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available when system companies require these
innovations; and
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sufficiently compelling to cause semiconductor manufacturers to
enter into licensing arrangements with us for these new
technologies.
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Finally, significant technological innovations generally require
a substantial investment before their commercial viability can
be determined. There can be no assurance that we have accurately
estimated the amount of resources required to complete the
projects, or that we will have, or be able to expend, sufficient
resources required for these types of projects. In addition,
there is market risk associated with these products, and there
can be no assurance that unit volumes, and their associated
royalties, will occur. If our technology fails to capture or
maintain a portion of the high volume consumer market, our
business results could suffer.
If we cannot successfully respond to rapid technological changes
in the semiconductor industry by developing new products in a
timely and cost effective manner our operating results will
suffer.
Some
of our revenue is subject to the pricing policies of our
licensees over whom we have no control.
We have no control over our licensees pricing of their
products and there can be no assurance that licensee products
using or containing our chip interfaces will be competitively
priced or will sell in significant volumes. One important
requirement for our memory chip interfaces is for any premium
charged by our licensees in the price of memory and controller
chips over alternatives to be reasonable in comparison to the
perceived benefits of the chip interfaces. If the benefits of
our technology do not match the price premium charged by our
licensees, the resulting decline in sales of products
incorporating our technology could harm our operating results.
Our
licensing cycle is lengthy and costly and our marketing and
licensing efforts may be unsuccessful.
The process of persuading customers to adopt and license our
chip interface technologies can be lengthy and, even if
successful, there can be no assurance that our chip interfaces
will be used in a product that is ultimately brought to market,
achieves commercial acceptance, or results in significant
royalties to us. We generally incur significant marketing and
sales expenses prior to entering into our license agreements,
generating a license fee and establishing a royalty stream from
each licensee. The length of time it takes to establish a new
licensing relationship can take many months. In addition, our
ongoing intellectual property litigation and regulatory actions
have and will likely continue to have an impact on our ability
to enter into new licenses and renewals of licenses. As such, we
may
15
incur costs in any particular period before any associated
revenue stream begins. If our marketing and sales efforts are
very lengthy or unsuccessful, then we may face a material
adverse effect on our business and results of operations as a
result of delay or failure to obtain royalties.
Future
revenue is difficult to predict for several reasons, and our
failure to predict revenue accurately may cause us to miss
analysts estimates and result in our stock price
declining.
Our lengthy and costly license negotiation cycle makes our
future revenue difficult to predict because we may not be
successful in entering into licenses with our customers on our
estimated timelines. In addition, a portion of our revenue comes
from development and support services provided to our licensees.
Depending upon the nature of the services, a portion of the
related revenue may be recognized ratably over the support
period, or may be recognized according to contract accounting.
Contract revenue accounting may result in deferral of the
service fees to the completion of the contract, or may be
recognized over the period in which services are performed on a
percentage-of-completion basis. There can be no assurance that
the product development schedule for these projects will not be
changed or delayed. All of these factors make it difficult to
predict future licensing revenue and may result in our missing
previously announced earnings guidance or analysts
estimates which would likely cause our stock price to decline.
Our
quarterly and annual operating results are unpredictable and
fluctuate, which may cause our stock price to be volatile and
decline.
Since many of our revenue components fluctuate and are difficult
to predict, and our expenses are largely independent of revenue
in any particular period, it is difficult for us to accurately
forecast revenue and profitability. Factors other than those set
forth above, which are beyond our ability to control or assess
in advance, that could cause our operating results to fluctuate
include:
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semiconductor and system companies acceptance of our chip
interface products;
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the success of high volume consumer applications, such as the
Sony
PLAYSTATION®
3;
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the dependence of our royalties upon fluctuating sales volumes
and prices of licensed chips that include our technology;
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the seasonal shipment patterns of systems incorporating our chip
interface products;
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the loss of any strategic relationships with system companies or
licensees;
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semiconductor or system companies discontinuing major products
incorporating our chip interfaces;
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the unpredictability of the timing and amount of any litigation
expenses;
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changes in our chip and system company customers
development schedules and levels of expenditure on research and
development;
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our licensees terminating or failing to make payments under
their current contracts or seeking to modify such contracts,
whether voluntarily or as a result of financial difficulties;
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changes in our strategies, including changes in our licensing
focus and/or
possible acquisitions of companies with business models
different from our own; and
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changes in the economy and credit market and their effects upon
demand for our technology and the products of our licensees.
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For the years ended December 31, 2008, 2007 and 2006,
royalties accounted for 89%, 86% and 87%, respectively, of our
total revenue, and we believe that royalties will continue to
represent a majority of total revenue for the foreseeable
future. Royalties are generally recognized in the quarter in
which we receive a report from a licensee regarding the sale of
licensed chips in the prior quarter; however, royalties are
recognized only if collectibility is assured. As a result of
these uncertainties and effects being outside of our control,
royalty revenue are difficult to predict and make accurate
financial forecasts difficult to achieve, which could cause our
stock price to become volatile and decline.
16
A
substantial portion of our revenue is derived from sources
outside of the United States and this revenue and our business
generally are subject to risks related to international
operations that are often beyond our control.
For the years ended December 31, 2008, 2007 and 2006,
revenue from our sales to international customers constituted
approximately 84%, 85% and 75% of our total revenue,
respectively. We currently have international operations in
India (design), Japan (business development), Taiwan (business
development) and Germany (business development). As a result of
our continued focus on international markets, we expect that
future revenue derived from international sources will continue
to represent a significant portion of our total revenue.
To date, all of the revenue from international licensees has
been denominated in U.S. dollars. However, to the extent
that such licensees sales to systems companies are not
denominated in U.S. dollars, any royalties which are based
as a percentage of the customers sales that we receive as
a result of such sales could be subject to fluctuations in
currency exchange rates. In addition, if the effective price of
licensed semiconductors sold by our foreign licensees were to
increase as a result of fluctuations in the exchange rate of the
relevant currencies, demand for licensed semiconductors could
fall, which in turn would reduce our royalties. We do not use
financial instruments to hedge foreign exchange rate risk.
Our international operations and revenue are subject to a
variety of risks which are beyond our control, including:
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export controls, tariffs, import and licensing restrictions and
other trade barriers;
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profits, if any, earned abroad being subject to local tax laws
and not being repatriated to the United States or, if
repatriation is possible, limited in amount;
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changes to tax codes and treatment of revenue from international
sources, including being subject to foreign tax laws and
potentially being liable for paying taxes in that foreign
jurisdiction;
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foreign government regulations and changes in these regulations;
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social, political and economic instability;
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lack of protection of our intellectual property and other
contract rights by jurisdictions in which we may do business to
the same extent as the laws of the United States;
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changes in diplomatic and trade relationships;
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cultural differences in the conduct of business both with
licensees and in conducting business in our international
facilities and international sales offices;
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operating centers outside the United States;
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hiring, maintaining and managing a workforce remotely and under
various legal systems; and
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geo-political issues.
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We and our licensees are subject to many of the risks described
above with respect to companies which are located in different
countries, particularly home video game console and PC
manufacturers located in Asia and elsewhere. There can be no
assurance that one or more of the risks associated with our
international operations could not result in a material adverse
effect on our business, financial condition or results of
operations.
Unanticipated
changes in our tax rates or in the tax laws and regulations
could expose us to additional income tax liabilities which could
affect our operating results and financial
condition.
We are subject to income taxes in both the United States and
various foreign jurisdictions. Significant judgment is required
in determining our worldwide provision (benefit) for income
taxes and, in the ordinary course of business, there are many
transactions and calculations where the ultimate tax
determination is uncertain. Our effective tax rate could be
adversely affected by changes in the mix of earnings in
countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, changes in tax
laws and regulations as well as other factors. For example, the
state of California has enacted regulations which limit the use
of net operating losses
17
and certain tax credits, including research and development
credits, in 2008 and 2009, which could lead to an increase in
our effective tax rate. Our tax determinations are regularly
subject to audit by tax authorities and developments in those
audits could adversely affect our income tax provision. Although
we believe that our tax estimates are reasonable, the final
determination of tax audits or tax disputes may be different
from what is reflected in our historical income tax provisions
which could affect our operating results.
Our
results of operations could vary as a result of the methods,
estimates, and judgments we use in applying our accounting
policies.
The methods, estimates, and judgments we use in applying our
accounting policies have a significant impact on our results of
operations, as described elsewhere in this report. Such methods,
estimates, and judgments are, by their nature, subject to
substantial risks, uncertainties, and assumptions, and factors
may arise over time that lead us to change our methods,
estimates, and judgments. Changes in those methods, estimates,
and judgments could significantly affect our results of
operations. In particular, the calculation of share-based
compensation expense under Statement of Financial Accounting
Standards No. 123(R)
(SFAS No. 123(R)) requires us to use
valuation methodologies and a number of assumptions, estimates,
and conclusions regarding matters such as expected forfeitures,
expected volatility of our share price, and the exercise
behavior of our employees. Furthermore, there are no means,
under applicable accounting principles, to compare and adjust
our expense if and when we learn about additional information
that may affect the estimates that we previously made, with the
exception of changes in expected forfeitures of share-based
awards. Factors may arise that lead us to change our estimates
and assumptions with respect to future share-based compensation
arrangements, resulting in variability in our share-based
compensation expense over time. Changes in forecasted
stock-based compensation expense could impact our cost of
contract revenue, research and development expenses, marketing,
general and administrative expenses and our effective tax rate,
which could have an adverse impact on our results of operations.
We may
make future acquisitions or enter into mergers, strategic
transactions or other arrangements that could cause our business
to suffer.
We may continue to make investments in companies, products or
technologies or enter into mergers, strategic transactions or
other arrangements. If we buy a company or a division of a
company, we may experience difficulty integrating that
companys or divisions personnel and operations,
which could negatively affect our operating results. In addition:
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the key personnel of the acquired company may decide not to work
for us;
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we may experience additional financial and accounting challenges
and complexities in areas such as tax planning, cash management
and financial reporting;
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our ongoing business may be disrupted or receive insufficient
management attention;
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we may not be able to recognize the cost savings or other
financial benefits we anticipated; and
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our increasing international presence resulting from
acquisitions may increase our exposure to international
currency, tax and political risks.
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In connection with future acquisitions or mergers, strategic
transactions or other arrangements, we may incur substantial
expenses regardless of whether the transaction occurs. In
addition, we may be required to assume the liabilities of the
companies we acquire. By assuming the liabilities, we may incur
liabilities such as those related to intellectual property
infringement or indemnification of customers of acquired
businesses for similar claims, which could materially and
adversely affect our business. We may have to incur debt or
issue equity securities to pay for any future acquisition, the
issuance of which could involve restrictive covenants or be
dilutive to our existing stockholders.
If we
are unable to attract and retain qualified personnel, our
business and operations could suffer.
Our success is dependent upon our ability to identify, attract,
compensate, motivate and retain qualified personnel, especially
engineers, who can enhance our existing technologies and
introduce new technologies.
18
Competition for qualified personnel, particularly those with
significant industry experience, is intense, in particular in
the San Francisco Bay Area where we are headquartered and
in the area of Bangalore, India where we have a design center.
We are also dependent upon our senior management personnel. The
loss of the services of any of our senior management personnel,
or key sales personnel in critical markets, or critical members
of staff, or of a significant number of our engineers could be
disruptive to our development efforts or business relationships
and could cause our business and operations to suffer.
Decreased
effectiveness of equity-based compensation could adversely
affect our ability to attract and retain
employees.
We have historically used stock options and other forms of
stock-based compensation as key components of our employee
compensation program in order to align employees interests
with the interests of our stockholders, encourage employee
retention and provide competitive compensation and benefit
packages. As a result of changes in previous accounting
principles, we have incurred increased compensation costs
associated with our stock-based compensation programs. In
addition, if we face any difficulty relating to obtaining
stockholder approval of our equity compensation plans, it could
make it harder or more expensive for us to grant stock-based
payments to employees in the future. As a result of these
factors leading to lower equity compensation of our employees,
we may find it difficult to attract, retain and motivate
employees, and any such difficulty could materially adversely
affect our business.
Our
operations are subject to risks of natural disasters, acts of
war, terrorism or widespread illness at our domestic and
international locations, any one of which could result in a
business stoppage and negatively affect our operating
results.
Our business operations depend on our ability to maintain and
protect our facility, computer systems and personnel, which are
primarily located in the San Francisco Bay Area. The
San Francisco Bay Area is in close proximity to known
earthquake fault zones. Our facility and transportation for our
employees are susceptible to damage from earthquakes and other
natural disasters such as fires, floods and similar events.
Should an earthquake or other catastrophes, such as fires,
floods, power loss, communication failure or similar events
disable our facilities, we do not have readily available
alternative facilities from which we could conduct our business,
which stoppage could have a negative effect on our operating
results. Acts of terrorism, widespread illness and war could
also have a negative effect at our international and domestic
facilities.
Risks
Related to Corporate Governance and Capitalization
Matters
The
price of our Common Stock may fluctuate significantly, which may
make it difficult for holders to resell their shares when
desired or at attractive prices.
Our Common Stock is listed on The Nasdaq Global Select Market
under the symbol RMBS. The trading price of our
Common Stock has been subject to wide fluctuations which may
continue in the future in response to, among other things, the
following:
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new litigation or developments in current litigation as
discussed below;
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any progress, or lack of progress, in the development of
products that incorporate our chip interfaces;
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our signing or not signing new licensees;
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announcements of our technological innovations or new products
by us, our licensees or our competitors;
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positive or negative reports by securities analysts as to our
expected financial results;
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developments with respect to patents or proprietary rights and
other events or factors;
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any delisting of our Common Stock from The Nasdaq Global Select
Market; and
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changes in general market sentiment due to macroeconomic and
geopolitical factors.
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19
In addition, the equity markets have experienced volatility that
has particularly affected the market prices of equity securities
of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of
such companies.
Compliance
with changing regulation of corporate governance and public
disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including new SEC regulations
and Nasdaq rules, are creating uncertainty for companies such as
ours. These new or changed laws, regulations and standards are
subject to varying interpretations in many cases due to their
lack of specificity, and as a result, their application in
practice may evolve over time as new guidance is provided by
regulatory and governing bodies, which could result in
continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We intend to invest resources to comply
with evolving laws, regulations and standards, and this
investment may result in increased general and administrative
expenses and a diversion of management time and attention from
revenue generating activities to compliance activities. If our
efforts to comply with new or changed laws, regulations and
standards differ from the activities intended by regulatory or
governing bodies due to ambiguities related to practice, our
reputation may be harmed.
We
have been party to, and may in the future be subject to,
lawsuits relating to securities law matters which may result in
unfavorable outcomes and significant judgments, settlements and
legal expenses which could cause our business, financial
condition and results of operations to suffer.
In connection with our stock option investigation, we and
certain of our current and former officers and directors, as
well as our current auditors, were subject to several
shareholder derivative actions, securities fraud class actions
and/or
individual lawsuits filed in federal court against us and
certain of our current and former officers and directors. The
complaints generally allege that the defendants violated the
federal and state securities laws and state law claims for fraud
and breach of fiduciary duty. While we have settled the
derivative and securities fraud class actions, the individual
lawsuits continue to be adjudicated. For more information about
the historic litigation described above, see Note 15
Litigation and Asserted Claims of Notes to
Consolidated Financial Statements. The amount of time to resolve
these current and any future lawsuits is uncertain, and these
matters could require significant management and financial
resources which could otherwise be devoted to the operation of
our business. Although we have expensed or accrued for certain
liabilities that we believe will result from certain of these
actions, the actual costs and expenses to defend and satisfy all
of these lawsuits and any potential future litigation may exceed
our current estimated accruals, possibly significantly.
Unfavorable outcomes and significant judgments, settlements and
legal expenses in the litigation related to our past stock
option granting practices and in any future litigation
concerning securities law claims could have material adverse
impacts on our business, financial condition, results of
operations, cash flows and the trading price of our Common Stock.
We are
leveraged financially, which could adversely affect our ability
to adjust our business to respond to competitive pressures and
to obtain sufficient funds to satisfy our future research and
development needs, and to defend our intellectual
property.
We have indebtedness. On February 1, 2005, we issued
$300.0 million aggregate principal amount of zero coupon
convertible senior notes (convertible notes) due
February 1, 2010, of which $137.0 million remains
outstanding as of December 31, 2008.
The degree to which we are leveraged could have important
consequences, including, but not limited to, the following:
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our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited;
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a substantial portion of our cash flows from operations will be
dedicated to the payment of the principal of our indebtedness as
we are required to pay the principal amount of the convertible
notes in cash when due;
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if we elect to pay any premium on the convertible notes with
shares of our Common Stock or we are required to pay a
make-whole premium with our shares of Common Stock,
our existing stockholders interest in us would be
diluted; and
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we may be more vulnerable to economic downturns, less able to
withstand competitive pressures and less flexible in responding
to changing business and economic conditions.
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A failure to comply with the covenants and other provisions of
our debt instruments could result in events of default under
such instruments, which could permit acceleration of the
convertible notes. Any required repayment of the convertible
notes as a result of an acceleration would lower our current
cash on hand such that we would not have those funds available
for the use in our business.
If we are at any time unable to generate sufficient cash flow
from operations to service our indebtedness when payment is due,
we may be required to attempt to renegotiate the terms of the
instruments relating to the indebtedness, seek to refinance all
or a portion of the indebtedness or obtain additional financing.
There can be no assurance that we will be able to successfully
renegotiate such terms, that any such refinancing would be
possible or that any additional financing could be obtained on
terms that are favorable or acceptable to us.
Our
certificate of incorporation and bylaws, our stockholder rights
plan, and Delaware law contain provisions that could discourage
transactions resulting in a change in control, which may
negatively affect the market price of our Common
Stock.
Our certificate of incorporation, our bylaws, our stockholder
rights plan and Delaware law contain provisions that might
enable our management to discourage, delay or prevent change in
control. In addition, these provisions could limit the price
that investors would be willing to pay in the future for shares
of our Common Stock. Among these provisions are:
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our board of directors is authorized, without prior stockholder
approval, to create and issue preferred stock, commonly referred
to as blank check preferred stock, with rights
senior to those of Common Stock;
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our board of directors is staggered into two classes, only one
of which is elected at each annual meeting;
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stockholder action by written consent is prohibited;
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nominations for election to our board of directors and the
submission of matters to be acted upon by stockholders at a
meeting are subject to advance notice requirements;
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certain provisions in our bylaws and certificate of
incorporation such as notice to stockholders, the ability to
call a stockholder meeting, advanced notice requirements and the
stockholders acting by written consent may only be amended with
the approval of stockholders holding
662/3%
of our outstanding voting stock;
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the ability of our stockholders to call special meetings of
stockholders is prohibited; and
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our board of directors is expressly authorized to make, alter or
repeal our bylaws.
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In addition, the provisions in our stockholder rights plan could
make it more difficult for a potential acquirer to consummate an
acquisition of our company. We are also subject to
Section 203 of the Delaware General Corporation Law, which
provides, subject to enumerated exceptions, that if a person
acquires 15% or more of our outstanding voting stock, the person
is an interested stockholder and may not engage in
any business combination with us for a period of
three years from the time the person acquired 15% or more of our
outstanding voting stock.
Litigation,
Regulation and Business Risks Related to our Intellectual
Property
We
face current and potential adverse determinations in litigation
stemming from our efforts to protect and enforce our patents and
intellectual property, which could broadly impact our
intellectual property rights, distract our management and cause
a substantial decline in our revenue and stock
price.
We seek to diligently protect our intellectual property rights.
In connection with the extension of our licensing program to SDR
SDRAM-compatible and DDR SDRAM-compatible products, we became
involved in litigation
21
related to such efforts against different parties in multiple
jurisdictions. In each of these cases, we have claimed
infringement of certain of our patents, while the manufacturers
of such products have generally sought damages and a
determination that the patents in suit are invalid,
unenforceable, and not infringed. Among other things, the
opposing parties have alleged that certain of our patents are
unenforceable because we engaged in document spoliation,
litigation misconduct
and/or acted
improperly during our 1991 to 1995 participation in the JEDEC
standard setting organization (including allegations of
antitrust violations and unfair competition). See Note 15
Litigation and Asserted Claims of Notes to
Consolidated Financial Statements for additional information
regarding certain cases that are active as of the date of this
report.
There can be no assurance that any or all of the opposing
parties will not succeed, either at the trial or appellate
level, with such claims or counterclaims against us or that they
will not in some other way establish broad defenses against our
patents, achieve conflicting results, or otherwise avoid or
delay paying royalties for the use of our patented technology.
Moreover, there is a risk that if one party prevails against us,
other parties could use the adverse result to defeat or limit
our claims against them; conversely, there can be no assurance
that if we prevail against one party, we will succeed against
other parties on similar claims, defenses, or counterclaims. In
addition, there is the risk that the pending litigations and
other circumstances may cause us to accept less than what we now
believe to be fair consideration in settlement.
Any of these matters, whether or not determined in our favor or
settled by us, is costly, may cause delays (including delays in
negotiating licenses with other actual or potential licensees),
will tend to discourage future design partners, will tend to
impair adoption of our existing technologies and divert the
efforts and attention of our management and technical personnel
from other business operations. In addition, we may be
unsuccessful in our litigation if we have difficulty obtaining
the cooperation of former employees and agents who were involved
in our business during the relevant periods related to our
litigation and are now needed to assist in cases or testify on
our behalf. Furthermore, any adverse determination or other
resolution in litigation could result in our losing certain
rights beyond the rights at issue in a particular case,
including, among other things: our being effectively barred from
suing others for violating certain or all of our intellectual
property rights; our patents being held invalid or unenforceable
or not infringed; our being subjected to significant
liabilities; our being required to seek licenses from third
parties; our being prevented from licensing our patented
technology; or our being required to renegotiate with current
licensees on a temporary or permanent basis. Even if we are
successful in our litigation, there is no guarantee that the
applicable opposing parties will be able to pay any damages
awards timely or at all as a result of financial difficulties or
otherwise. Delay or any or all of these adverse results could
cause a substantial decline in our revenue and stock price.
An
adverse resolution by or with a governmental agency, such as the
European Commission, could result in severe limitations on our
ability to protect and license our intellectual property, and
would cause our revenue to decline substantially.
The European Commission has instituted similar proceedings
against us but has not yet issued a decision. These proceedings,
or one by any other governmental agency, may result in adverse
determination against us or in other outcomes that could limit
our ability to enforce or license our intellectual property, and
could cause our revenue to decline substantially. The pendency
of these two cases has impaired our ability to enforce or
license our patents or collect royalties from existing or
potential licensees, as such existing or potential licensees may
await the final outcome of these cases before agreeing to new
licenses or pay royalties.
In addition, third parties have and may attempt to use adverse
findings by a government agency to limit our ability to enforce
our patents in private litigations and to assert claims for
monetary damages against us. Although we have successfully
defeated certain attempts to do so, there can be no assurance
that other third parties will not be successful in the future or
that additional claims or actions arising out of adverse
findings by a government agency will not be asserted against us.
Further, third parties have sought and may seek review and
reconsideration of the patentability of inventions claimed in
certain of our patents by the United States Patent &
Trademark Office (the PTO)
and/or the
European Patent Office (the EPO). An adverse
decision by the PTO or EPO could invalidate some or all of these
patent claims and could also result in additional adverse
consequences affecting other related U.S. or European
patents,
22
including in our intellectual property litigation. If a
sufficient number of such patents are impaired, our ability to
enforce or license our intellectual property would be
significantly weakened and this could cause our revenue to
decline substantially.
Litigation
or other third-party claims of intellectual property
infringement could require us to expend substantial resources
and could prevent us from developing or licensing our technology
on a cost-effective basis.
Our research and development programs are in highly competitive
fields in which numerous third parties have issued patents and
patent applications with claims closely related to the subject
matter of our research and development programs. We have also
been named in the past, and may in the future be named, as a
defendant in lawsuits claiming that our technology infringes
upon the intellectual property rights of third parties. In the
event of a third-party claim or a successful infringement action
against us, we may be required to pay substantial damages, to
stop developing and licensing our infringing technology, to
develop non-infringing technology, and to obtain licenses, which
could result in our paying substantial royalties or our granting
of cross licenses to our technologies. Threatened or ongoing
third-party claims or infringement actions may prevent us from
pursuing additional development and licensing arrangements for
some period. For example, we may discontinue negotiations with
certain customers for additional licensing of our patents due to
the uncertainty caused by our ongoing litigation on the terms of
such licenses or of the terms of such licenses on our
litigation. We may not be able to obtain licenses from other
parties at a reasonable cost, or at all, which could cause us to
expend substantial resources, or result in delays in, or the
cancellation of, new product.
If we
are unable to successfully protect our inventions through the
issuance and enforcement of patents, our operating results could
be adversely affected.
We have an active program to protect our proprietary inventions
through the filing of patents. There can be no assurance,
however, that:
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any current or future U.S. or foreign patent applications
will be approved and not be challenged by third parties;
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our issued patents will protect our intellectual property and
not be challenged by third parties;
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the validity of our patents will be upheld;
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our patents will not be declared unenforceable;
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the patents of others will not have an adverse effect on our
ability to do business;
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Congress or the U.S. courts or foreign countries will not
change the nature or scope of rights afforded patents or patent
owners or alter in an adverse way the process for seeking
patents;
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changes in law will not be implemented that will affect our
ability to protect and enforce our patents and other
intellectual property;
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new legal theories and strategies utilized by our competitors
will not be successful; or
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others will not independently develop similar or competing chip
interfaces or design around any patents that may be issued to us.
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If any of the above were to occur, our operating results could
be adversely affected.
Our
inability to protect and own the intellectual property we create
would cause our business to suffer.
We rely primarily on a combination of license, development and
nondisclosure agreements, trademark, trade secret and copyright
law, and contractual provisions to protect our non-patentable
intellectual property rights. If we fail to protect these
intellectual property rights, our licensees and others may seek
to use our technology without the payment of license fees and
royalties, which could weaken our competitive position, reduce
our operating results and increase the likelihood of costly
litigation. The growth of our business depends in large part on
the use of our
23
intellectual property in the products of third party
manufacturers, and our ability to enforce intellectual property
rights against them to obtain appropriate compensation. In
addition, effective trade secret protection may be unavailable
or limited in certain foreign countries. Although we intend to
protect our rights vigorously, if we fail to do so, our business
will suffer.
We
rely upon the accuracy on our licensees recordkeeping, and any
inaccuracies or payment disputes for amounts owed to us under
our licensing agreements may harm our results of
operations.
Many of our license agreements require our licensees to document
the manufacture and sale of products that incorporate our
technology and report this data to us on a quarterly basis.
While licenses with such terms give us the right to audit books
and records of our licensees to verify this information, audits
rarely are undertaken because they can be expensive, time
consuming, and potentially detrimental to our ongoing business
relationship with our licensees. Therefore, we rely on the
accuracy of the reports from licensees without independently
verifying the information in them. Our failure to audit our
licensees books and records may result in our receiving
more or less royalty revenue than we are entitled to under the
terms of our license agreements. If we conducted royalty audits
in the future, such audits may trigger disagreements over
contract terms with our licensees and such disagreements could
hamper customer relations, divert the efforts and attention of
our management from normal operations and impact our business
operations and financial condition.
We may
not be able to satisfy the requirements under the Qimonda
settlement and license agreement that would require Qimonda to
pay us up to an additional $100.0 million in royalty
payments.
On March 21, 2005, we entered into a settlement and patent
license agreement with Infineon (and its former parent Siemens),
which was assigned to Qimonda (formerly Infineons DRAM
operations) in October 2006 in connection with Infineons
spin-off of Qimonda. The agreement, among other things, requires
Qimonda to pay to us an aggregate payment of $50.0 million
in quarterly installments of approximately $5.85 million,
which started on November 15, 2005. The agreement further
provides that if we enter into licenses with certain other DRAM
manufacturers, Qimonda will be required to make additional
payments to us that may aggregate up to $100.0 million. As
we have not yet succeeded in entering into these additional
license agreements necessary to trigger Qimondas
obligations, Qimondas quarterly payment decreased to
$3.2 million in the fourth quarter of 2007, and has ceased
as of the first quarter of 2008. The quarterly payments with
Qimonda will not recommence until we enter into additional
license agreements with certain other DRAM manufacturers. We may
not succeed in entering into these additional license agreements
necessary to trigger Qimondas obligations under the
settlement and patent license agreement to pay to us additional
amounts, thereby reducing the value of the settlement and
license agreement to us. In addition, Qimonda commenced
insolvency proceedings in Germany in January 2009, with the
intent to restructure Qimonda and its affiliates. Such
insolvency or restructuring may lead to Qimondas inability
to make any further payment, even if we satisfy the conditions
described above for such payment.
An
acquisition by Qimonda of a third party DRAM manufacturer could
make it more difficult for us to obtain royalty rates we believe
are appropriate and could reduce the number of companies in our
antitrust litigation.
On or about July 8, 2008, we amended our patent license
agreement with Qimonda. The amended agreement grants a
supplemental term license of approximately the same scope as the
original term license originally provided for in the agreement,
but specifies that in the event Infineon ceases to control or
otherwise own a majority of Qimonda shares, certain competitors
would not accede to this license upon such competitors
acquisition of control of Qimonda. Furthermore, such acquiring
competitor would not receive the benefit of a release from
Rambus for past damages, including past infringement of
Rambus patent portfolio. To the extent that Qimonda
acquires another company, including such certain competitors,
the acquired company would accede to the license and would be
eligible to receive the benefit of the release from Rambus for
past damages. Following such an acquisition by Qimonda, the
combined entity would be required to pay a stepped up payment
calculated in accordance with the percentage increase in the
DRAM volume brought about by the acquisition. Such an increase
in the payments could make it more difficult for us to obtain
the royalties we believe are appropriate from the market as a
whole. Such an acquisition by Qimonda of any of the certain
competitors would in addition reduce the number of companies
from
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which we may seek compensation for the antitrust injury alleged
by us in our pending price-fixing action in San Francisco.
Except in the case of the certain competitors, the extension of
any such benefits to a third party entity, whether acquiring
control or otherwise a majority of shares of Qimonda or being
acquired by Qimonda, could, in addition, result in the release
of claims to such third party entity, thus reducing the number
of companies from which we may seek compensation for patent
damages.
Any
dispute regarding our intellectual property may require us to
indemnify certain licensees, the cost of which could severely
hamper our business operations and financial
condition.
In any potential dispute involving our patents or other
intellectual property, our licensees could also become the
target of litigation. While we generally do not indemnify our
licensees, some of our license agreements provide limited
indemnities, some require us to provide technical support and
information to a licensee that is involved in litigation
involving use of our technology, and we may agree to indemnify
others in the future. Our indemnification and support
obligations could result in substantial expenses. In addition to
the time and expense required for us to indemnify or supply such
support to our licensees, a licensees development,
marketing and sales of licensed semiconductors could be severely
disrupted or shut down as a result of litigation, which in turn
could severely hamper our business operations and financial
condition.
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Item 1B.
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Unresolved
Staff Comments
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None.
As of December 31, 2008, we occupied offices in the leased
facilities described below:
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Number of
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Offices
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Under Lease
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Location
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Primary Use
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2
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United States
Los Altos, CA (Headquarters)
Chapel Hill, NC
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Executive and administrative offices, research and development,
sales and marketing and service functions
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1
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Bangalore, India
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Administrative offices, research and development and service
functions
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1
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Tokyo, Japan
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Business development
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1
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Taipei, Taiwan
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Business development
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1
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Pforzheim, Germany
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Business development
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Item 3.
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Legal
Proceedings
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For the information required by this item regarding legal
proceedings, see Note 15 Litigation and Asserted
Claims of Notes to Consolidated Financial Statements of
this
Form 10-K.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our Common Stock is listed on The Nasdaq Global Select Market
under the symbol RMBS. The following table sets
forth for the periods indicated the high and low sales price per
share of our Common Stock as reported on The Nasdaq Global
Select Market.
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Year Ended
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|
Year Ended
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|
|
December 31, 2008
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December 31, 2007
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High
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Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
26.41
|
|
|
$
|
14.64
|
|
|
$
|
23.95
|
|
|
$
|
17.31
|
|
Second Quarter
|
|
$
|
24.85
|
|
|
$
|
18.61
|
|
|
$
|
22.00
|
|
|
$
|
17.67
|
|
Third Quarter
|
|
$
|
18.90
|
|
|
$
|
12.29
|
|
|
$
|
19.60
|
|
|
$
|
12.05
|
|
Fourth Quarter
|
|
$
|
16.59
|
|
|
$
|
4.95
|
|
|
$
|
22.20
|
|
|
$
|
17.64
|
|
26
The graph below matches Rambus Inc.s cumulative
60-month
total shareholder return on Common Stock with the cumulative
total returns of the Nasdaq Composite index and the RDG
Semiconductor Composite index. The graph tracks the performance
of a $100 investment in our Common Stock and in each of the
indexes (with the reinvestment of all dividends) from
12/31/03 to
12/31/2008.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Rambus Inc., The NASDAQ Composite Index
And The RDG Semiconductor Composite Index
* $100 invested on 12/31/03 in stock & index-including
reinvestment of dividends.
Fiscal year ending December 31.
Fiscal years ending:
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12/03
|
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|
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12/04
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|
|
|
12/05
|
|
|
|
12/06
|
|
|
|
12/07
|
|
|
|
12/08
|
|
Rambus Inc.
|
|
|
|
100.00
|
|
|
|
|
74.92
|
|
|
|
|
52.74
|
|
|
|
|
61.66
|
|
|
|
|
68.21
|
|
|
|
|
51.86
|
|
NASDAQ Composite
|
|
|
|
100.00
|
|
|
|
|
110.08
|
|
|
|
|
112.88
|
|
|
|
|
126.51
|
|
|
|
|
138.13
|
|
|
|
|
80.47
|
|
RDG Semiconductor Composite
|
|
|
|
100.00
|
|
|
|
|
79.86
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|
|
|
|
89.16
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|
|
|
|
84.15
|
|
|
|
|
94.72
|
|
|
|
|
47.83
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|
The
stock price performance included in this graph is not
necessarily indicative of future stock price
performance.
Information regarding our securities authorized for issuance
under equity compensation plans will be included in
Item 12, Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters, of
this report on
Form 10-K.
As of January 31, 2009, there were 769 holders of record of
our Common Stock. Because many of the shares of our Common Stock
are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
beneficial stockholders represented by these record holders. We
have never paid or declared any cash dividends on our Common
Stock or other securities and have no current plans to do so.
Share
Repurchase Program
In October 2001, our Board of Directors (the Board)
approved a share repurchase program of our Common Stock,
principally to reduce the dilutive effect of employee stock
options. To date, the Board has approved the authorization to
repurchase up to 19.0 million shares of our outstanding
Common Stock over an undefined period of time. For the year
ended December 31, 2008, we repurchased approximately
3.6 million shares with an aggregate
27
price of $49.2 million. As of December 31, 2008, we
had repurchased a cumulative total of approximately
16.8 million shares of our Common Stock with an aggregate
price of approximately $233.8 million since the
commencement of this program. As of December 31, 2008,
there remained an outstanding authorization to repurchase
approximately 2.2 million shares of our outstanding Common
Stock.
We record stock repurchases as a reduction to stockholders
equity. As prescribed by APB Opinion No. 6, Status of
Accounting Research Bulletins, we record a portion of the
purchase price of the repurchased shares as an increase to
accumulated deficit when the cost of the shares repurchased
exceeds the average original proceeds per share received from
the issuance of Common Stock. During the year ended
December 31, 2008, the cumulative price of the shares
repurchased exceeded the proceeds received from the issuance of
the same number of shares. The excess of $44.2 million was
recorded as an increase to accumulated deficit for the year
ended December 31, 2008. During the year ended
December 31, 2007, the Company did not repurchase any
Common Stock.
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|
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|
|
|
|
|
|
|
|
Total Number
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Purchased as
|
|
|
|
|
|
|
|
|
Shares that
|
|
|
|
|
|
|
Part of
|
|
|
|
|
|
|
|
|
May Yet be
|
|
|
|
|
|
|
Publicly
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
|
Total Number
|
|
|
Announced
|
|
|
|
|
|
Average
|
|
|
Under the
|
|
|
|
of Shares
|
|
|
Plans or
|
|
|
|
|
|
Price Paid
|
|
|
Plans or
|
|
Period
|
|
Purchased
|
|
|
Programs
|
|
|
Total Paid
|
|
|
per Share
|
|
|
Programs
|
|
|
Beginning Balance as of 1/1/08
|
|
|
13,231,098
|
|
|
|
13,231,098
|
|
|
$
|
184,531,395
|
|
|
$
|
13.95
|
|
|
|
5,820,765
|
|
2/1/2008-2/29/2008
|
|
|
1,359,813
|
|
|
|
1,359,813
|
|
|
$
|
24,921,208
|
|
|
$
|
18.33
|
|
|
|
4,460,952
|
|
8/1/2008-8/30/2008
|
|
|
634,970
|
|
|
|
634,970
|
|
|
$
|
9,999,952
|
|
|
$
|
15.75
|
|
|
|
3,825,982
|
|
10/1/2008-10/31/2008
|
|
|
974,800
|
|
|
|
974,800
|
|
|
$
|
8,345,089
|
|
|
$
|
8.56
|
|
|
|
2,851,182
|
|
11/1/2008-11/30/2008
|
|
|
610,269
|
|
|
|
610,269
|
|
|
$
|
5,958,511
|
|
|
$
|
9.76
|
|
|
|
2,240,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares repurchased as of 12/31/08
|
|
|
16,810,950
|
|
|
|
16,810,950
|
|
|
$
|
233,756,155
|
|
|
$
|
13.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data should be
read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and Item 8, Financial Statements
and Supplementary Data, and other financial data included
elsewhere in this report. Our historical results of operations
are not necessarily indicative of results of operations to be
expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenue
|
|
$
|
142,494
|
|
|
$
|
179,940
|
|
|
$
|
195,324
|
|
|
$
|
157,198
|
|
|
$
|
144,874
|
|
Net income (loss)
|
|
$
|
(195,923
|
)
|
|
$
|
(27,664
|
)
|
|
$
|
(13,816
|
)
|
|
$
|
28,940
|
|
|
$
|
22,361
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.87
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
(1.87
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.28
|
|
|
$
|
0.21
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
345,853
|
|
|
$
|
440,882
|
|
|
$
|
436,341
|
|
|
$
|
355,390
|
|
|
$
|
236,360
|
|
Total assets
|
|
$
|
396,890
|
|
|
$
|
627,347
|
|
|
$
|
604,617
|
|
|
$
|
515,953
|
|
|
$
|
396,052
|
|
Deferred revenue
|
|
$
|
1,877
|
|
|
$
|
2,756
|
|
|
$
|
7,557
|
|
|
$
|
9,290
|
|
|
$
|
23,823
|
|
Convertible notes
|
|
$
|
136,950
|
|
|
$
|
160,000
|
|
|
$
|
160,000
|
|
|
$
|
160,000
|
|
|
$
|
|
|
Stockholders equity
|
|
$
|
220,985
|
|
|
$
|
407,084
|
|
|
$
|
382,288
|
|
|
$
|
323,467
|
|
|
$
|
353,576
|
|
28
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements relate to our expectations for future events and time
periods. All statements other than statements of historical fact
are statements that could be deemed to be forward-looking
statements, including any statements regarding trends in future
revenue or results of operations, gross margin or operating
margin, expenses, earnings or losses from operations, synergies
or other financial items; any statements of the plans,
strategies and objectives of management for future operations;
any statements concerning developments, performance or industry
ranking; any statements regarding future economic conditions or
performance; any statements regarding pending investigations,
claims or disputes; any statements of expectation or belief; and
any statements of assumptions underlying any of the foregoing.
Generally, the words anticipate,
believes, plans, expects,
future, intends, may,
should, estimates, predicts,
potential, continue and similar
expressions identify forward-looking statements. Our
forward-looking statements are based on current expectations,
forecasts and assumptions and are subject to risks,
uncertainties and changes in condition, significance, value and
effect. As a result of the factors described herein, and in the
documents incorporated herein by reference, including, in
particular, those factors described under Risk
Factors, we undertake no obligation to publicly disclose
any revisions to these forward-looking statements to reflect
events or circumstances occurring subsequent to filing this
report with the Securities and Exchange Commission.
Business
Overview
We design, develop and license chip interface technologies and
architectures that are foundational to nearly all digital
electronics products. Our chip interface technologies are
designed to improve the performance, power efficiency,
time-to-market and cost-effectiveness of our customers
semiconductor and system products for computing, gaming and
graphics, consumer electronics and mobile applications.
As of December 31, 2008, our chip interface technologies
are covered by more than 735 U.S. and foreign patents.
Additionally, we have approximately 500 patent applications
pending. These patents and patent applications cover important
inventions in memory and logic chip interfaces, in addition to
other technologies. We believe that our chip interface
technologies provide our customers a means to achieve higher
performance, improved power efficiency, lower risk, and greater
cost-effectiveness in their semiconductor and system products.
Our primary method of providing interface technologies to our
customers is through our patented innovations. We license our
broad portfolio of patented inventions to semiconductor and
system companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of our patent portfolio.
Patent license agreements are generally royalty bearing.
We also develop a range of solutions including
leadership (which are Rambus-proprietary interfaces
or architectures widely licensed to our customers) and
industry-standard chip interfaces that we provide to our
customers under license for incorporation into their
semiconductor and system products. Due to the often complex
nature of implementing state-of-the art chip interface
technology, we offer engineering services to our customers to
help them successfully integrate our chip interface solutions
into their semiconductors and systems. These technology license
agreements may have both a fixed price (non-recurring) component
and ongoing royalties. Engineering services are generally
offered on a fixed price basis. Further, under technology
licenses, our customers may receive licenses to our patents
necessary to implement the chip interface in their products with
specific rights and restrictions to the applicable patents
elaborated in their individual contracts with us.
We derive the majority of our annual revenue by licensing our
broad portfolio of patents for chip interfaces to our customers.
Such licenses may cover part or all of our patent portfolio.
Leading semiconductor and system companies such as AMD, Fujitsu,
Qimonda, Intel, NEC, Panasonic, Renesas, and Toshiba have
licensed our patents for use in their own products.
We derive additional revenue by licensing our leadership
architectures and industry-standard chip interfaces to customers
for use in their semiconductor and system products. Our
customers include leading companies such as Elpida, IBM, Intel,
Qimonda, Panasonic, Sony and Toshiba. Due to the complex nature
of implementing our technologies, we provide engineering
services under certain of these licenses to help our customers
successfully
29
integrate our technology solutions into their semiconductors and
system products. Additionally, licensees may receive, as an
adjunct to their technology license agreements, patent licenses
as necessary to implement the technology in their products with
specific rights and restrictions to the applicable patents
elaborated in their individual contracts.
Royalties represent a substantial majority of our total revenue.
The remaining part of our revenue is contract services revenue
which includes license fees and engineering services fees. The
timing and amounts invoiced to customers can vary significantly
depending on specific contract terms and can therefore have a
significant impact on deferred revenue or unbilled receivables
in any given period.
We have a high degree of revenue concentration, with our top
five licensees representing approximately 67%, 67% and 63% of
our revenue for the years ended December 31, 2008, 2007 and
2006, respectively. For the year ended December 31, 2008,
revenue from Fujitsu, NEC, Panasonic, Sony, Elpida and AMD, each
accounted for 10% or more of total revenue. For the year ended
December 31, 2007, revenue from Fujitsu, Elpida, Qimonda
and Toshiba, each accounted for 10% or more of total revenue.
For the year ended December 31, 2006, revenue from Fujitsu,
Elpida, Qimonda and Intel, each accounted for 10% or more of
total revenue.
Our revenue from companies headquartered outside of the United
States accounted for approximately 84%, 85% and 75% of our total
revenue for the years ended December 31, 2008, 2007 and
2006, respectively. We expect that we may continue to experience
significant revenue concentration and have significant revenue
from sources outside the United States for the foreseeable
future.
Historically, we have been involved in significant litigation
stemming from the unlicensed use of our inventions. Our
litigation expenses have been high and difficult to predict and
we anticipate future litigation expenses will continue to be
significant, volatile and difficult to predict. If we are
successful in the litigation
and/or
related licensing, our revenue could be substantially higher in
the future; if we are unsuccessful, our revenue would likely
decline. Furthermore, our success in litigation matters pending
before courts and regulatory bodies that relate to our
intellectual property rights have impacted and will likely
continue to impact our ability and the terms upon which we are
able to negotiate new or renegotiate existing licenses for our
technology.
Revenue
Concentration
As indicated above, we have a high degree of revenue
concentration. Many of our licensees have the right to cancel
their licenses. The particular licensees which account for
revenue concentration have varied from period to period as a
result of the addition of new contracts, expiration of existing
contracts, industry consolidation, the expiration of deferred
revenue schedules under existing contracts, and the volumes and
prices at which the licensees have recently sold licensed
semiconductors to system companies. These variations are
expected to continue in the foreseeable future, although we
expect that our revenue concentration will decrease over time as
we license new customers.
The semiconductor industry is intensely competitive and highly
cyclical. We are currently experiencing a period of economic
downturn, which may result in, among other things, diminished
demand and the erosion of average selling prices in the
semiconductor industry. To the extent that these macroeconomic
pressures affect our principal licensees, the demand for our
technology may be significantly and adversely impacted and we
may experience substantial period-to-period fluctuations in our
operating results. The downturn in worldwide economic conditions
also threatens the financial health of our commercial
counterparties, including companies with whom we have entered
into licensing arrangements and litigation settlements providing
for ongoing payments to us, and their ability to fulfill their
financial obligations to us. See Item 1A, Risk
Factors.
The royalties we receive are partly a function of the adoption
of our chip interfaces by system companies. Many system
companies purchase semiconductors containing our chip interfaces
from our licensees and do not have a direct contractual
relationship with us. Our licensees generally do not provide us
with details as to the identity or volume of licensed
semiconductors purchased by particular system companies. As a
result, we face difficulty in analyzing the extent to which our
future revenue will be dependent upon particular system
companies. System companies face intense competitive pressure in
their markets, which are characterized by extreme volatility,
frequent new product introductions and rapidly shifting consumer
preferences. There can be no assurance as to the
30
unit volumes of licensed semiconductors that will be purchased
by these companies in the future or as to the level of
royalty-bearing revenue that our licensees will receive from
sales to these companies. Additionally, there can be no
assurance that a significant number of other system companies
will adopt our chip interfaces or that our dependence upon
particular system companies will decrease in the future.
International
Revenue
We expect that revenue derived from international licensees will
continue to represent a significant portion of our total revenue
in the future. To date, all of the revenue from international
licensees have been denominated in U.S. dollars. However,
to the extent that such licensees sales to systems
companies are not denominated in U.S. dollars, any
royalties that we receive as a result of such sales could be
subject to fluctuations in currency exchange rates. In addition,
if the effective price of licensed semiconductors sold by our
foreign licensees were to increase as a result of fluctuations
in the exchange rate of the relevant currencies, demand for
licensed semiconductors could fall, which in turn would reduce
our royalties. We do not use financial instruments to hedge
foreign exchange rate risk.
For additional information concerning international revenue, see
Note 12, Business Segments, Exports and Major
Customers of Notes to Consolidated Financial Statements of
this
Form 10-K.
Expenses
We intend to continue making significant expenditures associated
with engineering, marketing, general and administration
including litigation expenses, and expect that these costs and
expenses will continue to be a significant percentage of revenue
in future periods. Whether such expenses increase or decrease as
a percentage of revenue will be substantially dependent upon the
rate at which our revenue change.
Engineering. Engineering costs are allocated
between cost of contract revenue and research and development
expenses. Cost of contract revenue reflects the portion of the
total engineering costs which are specifically devoted to
individual licensee development and support services. The
balance of engineering costs, incurred for the development of
generally applicable chip interface technologies, is charged to
research and development. In a given period, the allocation of
engineering costs between these two components is a function of
the timing of the development and implementation schedules of
individual licensee contracts.
Marketing, general and
administrative. Marketing, general and
administrative expenses include expenses and costs associated
with trade shows, public relations, advertising, legal, finance,
insurance and other marketing and administrative efforts.
Litigation expenses are a significant portion of our marketing,
general and administrative expenses and they can vary
significantly from quarter to quarter. Consistent with our
business model, licensing and marketing activities are focused
on developing relationships with potential licensees and on
participating with existing licensees in marketing, sales and
technical efforts directed to system companies. In many cases,
we must dedicate substantial resources to the marketing and
support of system companies. Due to the long business
development cycles we face and the semi-fixed nature of
marketing, general and administrative expenses in a given
period, these expenses generally do not correlate to the level
of revenue in that period or in recent or future periods.
Costs of restatement and related legal
activities. Costs of restatement and related
legal activities consist primarily of investigation, audit,
legal and other professional fees related to the
2006 2007 stock option investigation, the filing of
the restated financial statements and related litigation and
offset by any recoveries.
Taxes. We report certain items of income and
expense for financial reporting purposes in different years than
they are reported for tax purposes. We recognize revenue for
financial reporting purposes as such amounts are earned and this
could occur over several reporting periods. As a result of the
above and other differences between tax and financial reporting
for income and expense recognition, our net operating profit or
loss for tax purposes may be more or less than the amount
recorded for financial reporting purposes. In addition, we
maintain estimated liabilities for uncertain tax positions under
FASB Interpretation (FIN) 48, Accounting for
Uncertainty in Income Taxes an interpretation
of FASB Statement No. 109, Accounting for Income
Taxes.
31
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenue represented by certain items
reflected in our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
89.1
|
%
|
|
|
85.8
|
%
|
|
|
86.5
|
%
|
Contract revenue
|
|
|
10.9
|
%
|
|
|
14.2
|
%
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue*
|
|
|
15.0
|
%
|
|
|
15.1
|
%
|
|
|
15.6
|
%
|
Research and development*
|
|
|
53.5
|
%
|
|
|
46.1
|
%
|
|
|
35.3
|
%
|
Marketing, general and administrative*
|
|
|
87.1
|
%
|
|
|
67.0
|
%
|
|
|
53.5
|
%
|
Restructuring costs*
|
|
|
2.9
|
%
|
|
|
|
%
|
|
|
|
%
|
Impairment of intangible asset
|
|
|
1.5
|
%
|
|
|
|
%
|
|
|
|
%
|
Costs of restatement and related legal activities
|
|
|
2.3
|
%
|
|
|
10.8
|
%
|
|
|
16.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
162.3
|
%
|
|
|
139.0
|
%
|
|
|
120.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(62.3
|
)%
|
|
|
(39.0
|
)%
|
|
|
(20.5
|
)%
|
Interest and other income, net
|
|
|
12.0
|
%
|
|
|
12.1
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(50.3
|
)%
|
|
|
(26.9
|
)%
|
|
|
(13.2
|
)%
|
Provision for (benefit from) income taxes
|
|
|
87.2
|
%
|
|
|
(11.5
|
)%
|
|
|
(6.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(137.5
|
)%
|
|
|
(15.4
|
)%
|
|
|
(7.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue
|
|
|
3.6
|
%
|
|
|
3.3
|
%
|
|
|
4.2
|
%
|
Research and development
|
|
|
9.5
|
%
|
|
|
9.0
|
%
|
|
|
7.6
|
%
|
Marketing, general and administrative
|
|
|
13.0
|
%
|
|
|
12.6
|
%
|
|
|
8.9
|
%
|
Restructuring costs
|
|
|
0.4
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
$
|
126.9
|
|
|
$
|
154.3
|
|
|
$
|
168.9
|
|
|
|
(17.8
|
)%
|
|
|
(8.6
|
)%
|
Contract revenue
|
|
|
15.6
|
|
|
|
25.6
|
|
|
|
26.4
|
|
|
|
(39.2
|
)%
|
|
|
(2.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
142.5
|
|
|
$
|
179.9
|
|
|
$
|
195.3
|
|
|
|
(20.8
|
)%
|
|
|
(7.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenue
Patent
Licenses
In the years ended December 31, 2008, 2007 and 2006, our
largest source of royalties was related to the license of our
patents for SDR and DDR-compatible products. Royalties decreased
approximately $32.5 million for SDR and DDR-compatible
products to $100.5 million for the year ended
December 31, 2008 from $133.0 million for the same
period in 2007. The decrease is primarily due the higher
licensing payments received in 2007 as a result of, among other
things, our receipt of the final installment payment from
Qimonda, which we are presently entitled to under the terms of
our license agreement and settlement with Qimonda, in the fourth
quarter of 2007 and lower licensing payments received in 2008 as
a result of, among other things, the expiration of the Elpida
licensing
32
agreement in the first quarter of 2008. Royalties decreased
approximately $3.8 million for SDR and DDR-compatible
products to $133.0 million for the year ended
December 31, 2007 from $136.8 million in the same
period in 2006. The decrease is primarily due to decreased
revenue in 2007 from AMD, Qimonda and NEC, partially offset by
increased royalties from Toshiba, Fujitsu and Spansion.
As of December 31, 2008, we had both variable and fixed
royalty agreements for our SDR and DDR-compatible licenses. On
December 31, 2005, we entered into a five-year patent
license agreement with AMD. We are recognizing royalty revenue
under the AMD agreement on a quarterly basis as amounts become
due and payment is received because the contractual terms of the
agreement provide for payments on an extended term basis. We
recognized royalty revenue of $15.0 million,
$15.0 million and $18.8 million in 2008, 2007 and
2006, respectively, and we expect to recognize royalty revenue
of $15.0 million and $11.3 million in 2009 and in
2010, respectively, under the AMD agreement. The AMD agreement
provides a license of our patented technology used in the design
of DDR2, DDR3, FB-DIMM, PCI Express and XDR controllers as well
as other current and future high-speed memory and logic
controller interfaces.
On March 16, 2006, we entered into a five-year patent
license agreement with Fujitsu. We expect to recognize royalty
revenue under the Fujitsu agreement on a quarterly basis as
amounts become due and payment is received as the contractual
terms of the agreement provide for payments on an extended term
basis. We recognized a total of $27.5 million,
$36.5 million and $34.8 million of royalty revenue in
2008, 2007 and 2006, respectively. The Fujitsu agreement
provides a license that covers semiconductors, components and
systems, but does not include a license to Fujitsu for its own
manufacturing of commodity SDRAM other than limited amounts of
SDR SDRAM annually.
On March 21, 2005, we entered into a settlement and license
agreement with Infineon (and its former parent Siemens), which
was assigned to Qimonda in October 2006 in connection with
Infineons spin-off of Qimonda. The settlement and license
agreement, among other things, requires Qimonda to pay to us
aggregate royalties of $50.0 million in quarterly
installments of approximately $5.8 million, which started
on November 15, 2005. The settlement and license agreement
further provides that if we enter into licenses with certain
other DRAM manufacturers, Qimonda will be required to make
additional royalty payments to us that may aggregate up to
$100.0 million. As we have not yet succeeded in entering
into these additional license agreements necessary to trigger
Qimondas obligations, Qimondas quarterly payment
decreased to $3.2 million in the fourth quarter of 2007 and
has ceased in the first quarter of 2008. The quarterly payments
with Qimonda will not recommence until we enter into additional
license agreements with certain other DRAM manufacturers. In
January 2009, Qimonda filed for bankruptcy. See Item 1A,
Risk Factors.
We are in negotiations with new prospective licensees. We expect
SDR and DDR-compatible royalties will continue to vary from
period to period based on our success in renewing existing
license agreements and adding new licensees, as well as the
level of variation in our licensees reported shipment
volumes, sales price and mix, offset in part by the proportion
of licensee payments that are fixed.
There was no royalty revenue recorded from the Intel patent
cross-license in the year ended December 31, 2008 and 2007,
because the term of the agreement expired in June 2006. The
Intel patent cross-license agreement represented the second
largest source of royalties in the years ended December 31,
2006. Royalties under this agreement were $20.0 million for
the year ended December 31, 2006.
On February 2, 2007, the Federal Trade Commission (the
FTC) issued an order requiring us to limit the
royalty rates charged for certain SDR and DDR SDRAM memory and
controller products sold by licensees after April 12, 2007.
The FTC stayed this requirement on March 16, 2007, subject
to certain conditions. One such condition of the stay limits the
royalties we can receive under certain contracts so that they do
not exceed the FTCs Maximum Allowable Royalties
(MAR or previously withheld royalties).
Amounts in excess of MAR that are subject to the order are
excluded from revenue. On April 22, 2008, the United States
Court of Appeals for the District of Columbia (the
CADC) overturned the FTC decision and remanded the
matter back to the FTC for further proceedings consistent with
the CADCs opinion. On June 6, 2008, the FTC
petitioned the CADC to rehear the case en banc. On
August 26, 2008, the CADC denied the FTCs petition
for rehearing of this matter en banc, and on September 9,
2008, the CADC issued its mandate setting aside the FTCs
order and instructing the FTC to take actions consistent with
the CADCs ruling. The FTC did not seek, nor did it
receive, a stay of the CADCs ruling, and thus the
FTCs order in the case has been vacated. On
October 16, 2008, the FTC issued an order (FTC
33
Disposition Order) authorizing us to receive the excess
consideration that customers have previously deducted from their
quarterly payments made to us under the Patent License Agreement
(see Note 15 Litigation and Asserted Claims).
At the time of the issuance of the mandate on September 9,
2008, $6.2 million had been determined as amounts of
previously withheld royalties which had been excluded from
revenue. As the FTC has issued the FTC Disposition Order, we
recognized the previously withheld royalties of
$6.2 million as revenue when the corresponding cash
payments were received. In the year ended December 31,
2008, $6.2 million of these previously withheld royalties
were received from the customers and recognized as revenue.
Technology
Licenses
In the year ended December 31, 2008 and 2007, royalties
from XDR, FlexIO, DDR and serial link-compatible products
represented the second largest category of royalties. Royalties
from these products increased approximately $5.4 million to
$21.8 million for the year ended December 31, 2008
from $16.4 million for the same period in 2007. This
increase was primarily due to higher royalties from DDR and XDR
products. In the future, we expect royalties from XDR, FlexIO,
DDR and serial link-compatible products will continue to vary
from period to period based on our licensees shipment
volumes, sales prices and product mix.
In the years ended December 31, 2008 and 2007, royalties
from RDRAM-compatible products represented the third largest
source of royalties. Royalties from RDRAM memory chips and
controllers decreased $0.3 million to $4.6 million for
the year ended December 31, 2008 from $4.9 million for
the same period in 2007. The variance was primarily due to the
fluctuation of royalties from RDRAM controllers.
In the year ended December 31, 2006, royalties from
RDRAM-compatible products and XDR, FlexIO, DDR and serial
link-compatible products represented the third and fourth
largest source of royalties, respectively. Royalties from RDRAM
memory chips and controllers decreased approximately
$1.9 million to $4.9 million for the year ended
December 31, 2007 from $6.8 million for the same
period in 2006. Royalties from XDR, FlexIO, DDR and serial
link-compatible products increased approximately
$11.0 million to $16.4 million for the year ended
December 31, 2007 from $5.4 million for the same
period in 2006.
Contract
Revenue
Percentage-of-Completion
Contracts
Percentage of completion contract revenue decreased
approximately $2.7 million to $11.5 million for the
year ended December 31, 2008 from $14.2 million for
the year ended December 31, 2007. The decrease is due to
decreased revenue from leadership chip interface contracts,
partially offset by increased revenue from industry standard
chip interface contracts.
Percentage of completion contract revenue increased
approximately $2.1 million to $14.2 million for the
year ended December 31, 2007 from $12.1 million for
the year ended December 31, 2006. The increase is due to
increased revenue from leadership and industry standard chip
interface contracts.
We believe that percentage-of-completion contract revenue
recognized will continue to fluctuate over time based on our
ongoing contractual requirements, the amount of work performed,
and by changes to work required, as well as new contracts booked
in the future.
Other
Contracts
Other contracts revenue decreased approximately
$7.3 million to $4.1 million for the year ended
December 31, 2008 from $11.4 million for the same
period in 2007 primarily due to decreased revenue from
leadership and industry standard chip interface contracts.
Other contracts revenue decreased approximately
$2.9 million to $11.4 million for the year ended
December 31, 2007 from $14.3 million for the same
period in 2006 primarily due to decreased revenue from industry
standard chip interface contracts offset by increased revenue
from leadership chip interface contracts.
34
We believe that other contracts revenue will continue to
fluctuate over time based on our ongoing contract requirements,
the timing of completing engineering deliverables, as well as
new contracts booked in the future.
Engineering
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Engineering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue
|
|
$
|
16.1
|
|
|
$
|
21.2
|
|
|
$
|
22.2
|
|
|
|
(24.0
|
)%
|
|
|
(4.6
|
)%
|
Stock-based compensation
|
|
|
5.2
|
|
|
|
5.9
|
|
|
|
8.2
|
|
|
|
(12.2
|
)%
|
|
|
(27.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of contract revenue
|
|
|
21.3
|
|
|
|
27.1
|
|
|
|
30.4
|
|
|
|
(21.5
|
)%
|
|
|
(10.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
62.7
|
|
|
|
66.7
|
|
|
|
54.1
|
|
|
|
(5.9
|
)%
|
|
|
23.3
|
%
|
Stock-based compensation
|
|
|
13.5
|
|
|
|
16.2
|
|
|
|
14.9
|
|
|
|
(16.7
|
)%
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
|
76.2
|
|
|
|
82.9
|
|
|
|
69.0
|
|
|
|
(8.0
|
)%
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total engineering costs
|
|
$
|
97.5
|
|
|
$
|
110.0
|
|
|
$
|
99.4
|
|
|
|
(11.3
|
)%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008 as compared to the
same period in 2007, engineering costs decreased primarily due
to tax reimbursement expenses in 2007 associated with Internal
Revenue Code Section 409A of approximately
$4.1 million and decreased salary and related stock-based
compensation expenses in 2008 due to the restructuring
initiative. The tax reimbursement expenses were associated with
our decision to reimburse current employees for the Internal
Revenue Code Section 409A penalty taxes imposed on them in
connection with their exercise of repriced options in 2006. In
addition, depreciation and amortization expense decreased in
2008 due to lower design software maintenance amortization.
For the year ended December 31, 2007 as compared to the
same period in 2006, engineering costs increased primarily due
to tax reimbursement expenses in 2007 associated with Internal
Revenue Code Section 409A of approximately
$4.1 million, increased compensation expenses of
$3.1 million associated with an increase in headcount,
increased amortization expense of design software maintenance of
$2.1 million and increased information technology expenses
of approximately $1.6 million offset in part by a decrease
in total stock-based compensation expense of $0.9 million.
Additionally, stock-based compensation expenses include the
effect of a change in our estimated forfeiture rates for awards
outstanding.
In all periods, cost of contract revenue exceed contract revenue
due to the timing of expensing of pre-contract costs as well as
low utilization of project resources.
In the near term, we expect engineering expenses will be lower
than in 2008 as a result of our cost reduction initiative
undertaken in 2008. We intend to continue to make investments in
the infrastructure and technologies required to maintain our
leadership position in chip interface technologies and expenses
could vary.
35
Marketing,
general and administrative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Marketing, general and administrative costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, general and administrative costs
|
|
$
|
49.9
|
|
|
$
|
58.4
|
|
|
$
|
48.2
|
|
|
|
(14.7
|
)%
|
|
|
21.3
|
%
|
Litigation expense
|
|
|
55.7
|
|
|
|
39.5
|
|
|
|
38.9
|
|
|
|
41.1
|
%
|
|
|
1.4
|
%
|
Stock-based compensation
|
|
|
18.5
|
|
|
|
22.7
|
|
|
|
17.5
|
|
|
|
(18.5
|
)%
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketing, general and administrative costs
|
|
$
|
124.1
|
|
|
$
|
120.6
|
|
|
$
|
104.6
|
|
|
|
2.9
|
%
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008 as compared to the
same period in 2007, the increase in total marketing, general
and administrative costs was primarily due to higher litigation
expense, partially offset by decreased stock-based compensation,
salary expenses due to the restructuring initiative in 2008,
general legal costs, marketing and advertising costs,
professional fees and the lack of the $2.5 million of tax
reimbursement expenses associated with Internal Revenue Code
Section 409A incurred in 2007. The tax reimbursement
expenses were associated with our decision to reimburse current
and former non-executive employees for the Internal Revenue Code
Section 409A penalty taxes imposed on them in connection
with their exercise of repriced options in 2006. The higher
litigation expenses were primarily due to costs incurred in
connection with cases that came to trial in 2008.
For the year ended December 31, 2007 as compared to the
same period in 2006, the increase in total marketing, general
and administrative costs was primarily due to higher stock-based
compensation expense of $5.2 million, professional and
consulting fees of $4.1 million, payroll costs associated
with $3.3 million of severance expense, approximately
$2.5 million of tax reimbursement expenses associated with
Internal Revenue Code Section 409A and increased litigation
expenses of $0.6 million (which includes an increase of
general litigation expenses of $10.6 million in 2007,
offset by a one-time achievement payment of $10.0 million
paid to a law firm in 2006). Additionally, stock-based
compensation expenses include the effect of a change in our
estimated forfeiture rates for awards outstanding as well as the
effect of performance based restricted stock units. Costs of
restatement and related legal activities are discussed below in
the section titled Costs of Restatement of Related Legal
Activities.
In the future, marketing, general and administrative costs will
vary from period to period based on the advertising, legal, and
other marketing and administrative activities undertaken, and
the change in marketing and administrative headcount in any
given period. Litigation expenses are expected to vary from
period to period due to the variability of litigation
activities, but are expected to remain at levels higher than
2008 for the foreseeable future. In the near term, we expect
marketing, general and administrative costs will decline as a
result of our cost reduction initiative undertaken in 2008.
However, certain expenses may increase from period to period.
Restructuring
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Restructuring costs
|
|
$
|
4.2
|
|
|
$
|
|
|
|
$
|
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008, we initiated a
workforce reduction in certain areas of excess capacity. The
cash severance, including continuance of certain employee
benefits, totaled approximately $3.6 million and non-cash
employee severance was approximately $0.5 million of
stock-based compensation expense. We also lease a facility in
Mountain View, California, through November 11, 2009, which
we vacated during the fourth quarter of 2008 as a result of the
restructuring measures. This facility is being subleased at a
rate equal to our rent associated with the facility and, as a
result no restructuring charge was recorded. The total
restructuring charge for the year ended December 31, 2008
was approximately $4.2 million. We paid approximately
$3.5 million of severance and
36
benefits during the year. The remaining $0.1 million of
severance and benefits will be paid during the first quarter of
2009. We expect cash savings of approximately $17.0 million
annually as a result of our restructuring measures.
Impairment
of intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Impairment of intangible asset
|
|
$
|
2.2
|
|
|
$
|
|
|
|
$
|
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, we determined that
approximately $2.2 million of our intangible assets had no
alternative future use and were impaired as a result of a
customers change in technology requirements. The
intangible asset relates to a contractual relationship acquired
in the Velio acquisition during December 2003.
Costs
of restatement and related legal activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
Costs of restatement and related legal activities
|
|
$
|
3.3
|
|
|
$
|
19.5
|
|
|
$
|
31.4
|
|
|
|
(83.2
|
)%
|
|
|
(38.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of restatement and related legal activities consist
primarily of investigation, audit, legal and other professional
fees related to the
2006-2007
stock option investigation and the filing of the restated
financial statements and related litigation.
For the year ended December 31, 2008 as compared to the
same period in 2007, the decrease in costs of restatement and
related legal activities was primarily associated with the
decrease in accounting and consulting charges related to the
filing of our restated financial statements in 2007 and a
decrease in legal expenses in connection with related lawsuits.
Additionally, during the fourth quarter of 2008, we received
approximately 163,000 shares of Rambus stock with a value
of approximately $0.8 million from a former executive as
part of the former executives settlement agreement with
Rambus in connection with the derivative and class action
lawsuits. The $0.8 million was recorded as a recovery of
costs of restatement and related legal activities.
For the year ended December 31, 2007 as compared to the
same period in 2006, the decrease in costs of restatement and
related legal activities was primarily associated with the
one-time accrual of $18.0 million in the third quarter of
2006 related to the settlement of the consolidated class action
lawsuit pertaining to the accounting for stock option grants and
related disclosures, offset in part by higher accounting and
audit fees and consulting expenses of $6.0 million in 2007
relating to the filing of our restated financial statements in
late 2007.
On January 5, 2009, we, our former executives, current and
former members of the Board of Directors and an insurance
company entered into a settlement agreement. As a result of the
agreement, we received $5.0 million related to
reimbursement claims associated with the stock option
investigation discussed in Note 15, Litigation and
Asserted Claims, of the Notes to Consolidated Financial
Statements. We will recognize the proceeds as a recovery of
restatement and related legal activities costs in the
consolidated statement of operations in the first quarter of
2009.
On February 19, 2009, the appeal period expired with
respect to the security lawsuits (Class Action/Derivative
lawsuit) and as a result, the contingencies related to a
settlement have been removed. Therefore, we will recognize
$5.0 million during the first quarter of 2009 as a recovery
of restatement and related legal activities in the consolidated
statement of operations. In addition, due to the resolution of
the security lawsuits, our former executives are now required to
reimburse us approximately $4.5 million. We will recognize
the $4.5 million during 2009 as a recovery of restatement
and related legal activities in the consolidated statement of
operations.
Interest
and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Interest and other income, net
|
|
$
|
17.0
|
|
|
$
|
21.8
|
|
|
$
|
14.3
|
|
|
|
(21.7
|
)%
|
|
|
51.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Interest and other income, net consists primarily of interest
income generated from investments in high quality fixed income
securities as well as changes in exchange rates. For the year
ended December 31, 2008 as compared to the same period in
2007, the decrease in interest and other income, net was
primarily due to lower average investment balances and lower
yields on invested balances, offset by a gain of
$4.4 million related to the repurchase of
$23.1 million in face value of convertible notes for
$18.7 million during the fourth quarter of 2008.
For the year ended December 31, 2007 as compared to the
same period in 2006, the increase in interest and other income,
net was primarily due to higher average investment balances and
higher yields on invested balances during 2007. In addition, the
year ended 2006 included amortization of note issuance costs of
$3.2 million, including $2.4 million that was
accelerated into the fourth quarter of 2006, in connection with
the calling of the $160.0 million in convertible notes.
In the future, we expect that interest and other income, net,
will vary from period to period based on the amount of cash and
marketable securities, interest rates and foreign currency
exchange rates.
Provision
for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
124.3
|
|
|
$
|
(20.7
|
)
|
|
$
|
(11.9
|
)
|
|
|
NM*
|
|
|
|
(74.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(173.4
|
)%
|
|
|
42.8
|
%
|
|
|
46.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
NM percentage is not meaningful as the change is too
large |
Our effective tax rate for the year ended December 31, 2008
was lower than the U.S. statutory tax rate applied to our
net loss primarily due to the establishment of a full valuation
allowance on our U.S. net deferred tax assets. Our
effective tax rate for the year ended December 31, 2007 was
higher than the U.S. statutory tax rate applied to our net
loss primarily due to research and development tax credits,
stock-based compensation expense associated with executives and
state income taxes. Our 2006 effective tax rate was higher than
the U.S. statutory tax rate primarily due to research and
development tax credits, partially offset by the lack of
deductibility of certain stock-based compensation expense
associated with executives.
During the quarter ended June 30, 2008, we recorded a
non-cash income tax provision of $130.5 million to
establish a valuation allowance. Management periodically
evaluates the realizability of our net deferred tax assets based
on all available evidence, both positive and negative. The
realization of net deferred tax assets is solely dependent on
our ability to generate sufficient future taxable income during
periods prior to the expiration of tax statutes to fully utilize
these assets. Based on all available evidence, we determined it
was not more likely than not that the deferred tax assets would
be realized.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
116.2
|
|
|
$
|
119.4
|
|
Marketable securities
|
|
|
229.6
|
|
|
|
321.5
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities
|
|
$
|
345.8
|
|
|
$
|
440.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(38.5
|
)
|
|
$
|
5.3
|
|
|
$
|
57.2
|
|
Net cash provided by (used in) investing activities
|
|
$
|
82.7
|
|
|
$
|
33.2
|
|
|
$
|
(62.0
|
)
|
Net cash provided by (used in) financing activities
|
|
$
|
(47.5
|
)
|
|
$
|
7.6
|
|
|
$
|
35.8
|
|
38
Liquidity
Although we used cash for operating activities in the year ended
December 31, 2008, we continue to believe that total cash,
cash equivalents and marketable securities will continue at
adequate levels to finance our operations, projected capital
expenditures and commitments for the next twelve months. Cash
needs for the year ended December 31, 2008 were funded
primarily from investing activities, as investments in
marketable securities matured and were not reinvested.
Operating
Activities
Cash used in operating activities of $38.5 million in the
year ended December 31, 2008 was primarily attributable to
the net loss for the period adjusted for non-cash items,
including the tax provision related to the deferred tax asset
valuation allowance, stock-based compensation expense,
depreciation and amortization expense, impairment of an asset,
offset by gain on repurchase of convertible notes and recovery
of restatement and related legal activities. The change in
operating assets and liabilities for the year ended
December 31, 2008 was primarily due to a decrease in
accrued litigation expenses due to payments related to the class
action lawsuit settlement.
Cash provided by operating activities of $5.3 million in
the year ended December 31, 2007 was primarily attributable
to the net loss for the period adjusted for non-cash items
including stock-based compensation expense, depreciation and
amortization expense, partially offset by a deferred tax
benefit. Changes in operating assets and liabilities for the
year ended December 31, 2007 included increases in prepaid
and other assets primarily due to prepaid software maintenance
agreements and deferred tax assets resulting from our operating
loss, decreases in deferred revenue and accrued salaries and
benefits and other accrued liabilities, offset by a net increase
in accounts payable primarily due to restatement and related
legal expenses and capitalized software license maintenance
agreements.
Cash provided by operating activities of $57.2 million in
the year ended December 31, 2006 was primarily attributable
to the net loss for the period adjusted for non-cash items
including stock-based compensation expense, depreciation and
amortization expense, partially offset by a deferred tax
benefit. Changes in operating assets and liabilities for the
year ended December 31, 2006 was primarily due to an
increase in accrued litigation expenses.
Investing
Activities
Cash provided by investing activities of approximately
$82.7 million in the year ended December 31, 2008
primarily consisted of proceeds from the maturities and sale of
available-for-sale marketable securities of $455.8 million,
partially offset by purchases of available-for-sale marketable
securities of $363.0 million. Additionally, we paid
$9.9 million to acquire property and equipment, primarily
computer equipment and computer software licenses.
Cash provided by investing activities of approximately
$33.2 million in the year ended December 31, 2007
primarily consisted of proceeds from the maturities and sale of
available-for-sale marketable securities of $707.1 million,
partially offset by purchases of available-for-sale marketable
securities of $664.4 million. Additionally, we purchased
$5.7 million of primarily computer software and
$2.6 million of leasehold improvements.
Cash used in investing activities was $62.0 million in the
year ended December 31, 2006 primarily consisted of
purchases of available-for-sale marketable securities of
$215.2 million, offset by proceeds from the maturities of
available-for-sale marketable securities of $166.2 million.
Additionally, we paid $8.6 million to acquire property and
equipment, primarily computer equipment and computer software
licenses and $3.1 million to acquire leasehold improvements.
Financing
Activities
Cash used in financing activities was $47.5 million in the
year ended December 31, 2008. We received proceeds from
issuance of stock from employee stock plans which totaled
approximately $21.7 million. In addition, we repurchased
stock with an aggregate price of $49.2 million under our
share repurchase program refer to Share
Repurchase Program below. Additionally, we repurchased
approximately $23.1 million in face value of our zero
coupon convertible senior notes for $18.7 million.
39
Cash provided by financing activities was $7.6 million in
the year ended December 31, 2007. We received proceeds from
the issuance of stock from the exercise of stock options and
purchases under our employee stock purchase plan of
$11.8 million during the fourth quarter of the year and
paid $4.3 million under installment payment plans used to
acquire software license agreements. No other significant
financing activities occurred during the year primarily due to
the stock option investigation and restatement, during which we
suspended our common stock repurchase program and suspended
employee stock option exercises and purchases under our employee
stock purchase plan.
Cash provided by financing activities was $35.8 million in
the year ended December 31, 2006. We received net proceeds
of $57.6 million from the issuance of common stock
associated with exercises of employee stock options and common
stock issued under our employee stock purchase plan, partially
offset by repurchases of our common stock of $21.0 million.
In addition, we made a $0.8 million installment payment.
We currently anticipate that existing cash, cash equivalent and
marketable securities balances and cash flows from operations
will be adequate to meet our cash needs for at least the next
12 months and to satisfy our cash requirement to pay for
our zero coupon convertible senior notes due in 2010. We do not
anticipate any liquidity constraints as a result of either the
current credit environment or investment fair value
fluctuations. Additionally, we have the intent and ability to
hold our debt investments that have unrealized losses in
accumulated other comprehensive income for a sufficient period
of time to allow for recovery of the principal amounts invested.
We continually monitor the credit risk in our portfolio and
mitigate our credit risk exposures in accordance with our
policies. We may also incur additional expenditures related to
future potential restructuring activities. As described
elsewhere in this Managements Discussion and
Analysis of Financial Condition and Results of Operations
and this Annual Report on
Form 10-K,
we are involved in ongoing litigation related to the protection
of our intellectual property and our past stock option
investigation. Any adverse settlements or judgments in any of
this litigation could have a material adverse impact on our
results of operations, cash balances and cash flows in the
period in which such events occur.
Contractual
Obligations
We lease our present office facilities in Los Altos, California,
under an operating lease agreement through December 31,
2010. As part of this lease transaction, we provided a letter of
credit restricting approximately $0.6 million of our cash
as collateral for certain obligations under the lease. The cash
is restricted as to withdrawal and is managed by a third party
subject to certain limitations under our investment policy. We
also lease a facility in Mountain View, California, through
November 11, 2009, which we vacated during the fourth
quarter of 2008 and are subleasing at a rate equal to our rent
associated with the facility. We lease a facility in Chapel
Hill, North Carolina through November 15, 2009, a facility
for our design center in Bangalore, India through
November 4, 2012 and a facility in Tokyo, Japan through
July 31, 2010. In addition, we also lease office facilities
in various international locations under non-cancelable leases
that range in terms from month-to-month to one year.
As discussed more fully in Note 14, Convertible
Notes of the Notes to Consolidated Financial Statements,
we have $137.0 million zero coupon convertible senior notes
(the convertible notes) outstanding at
December 31, 2008. During 2008, we repurchased
approximately $23.1 million in face value of our zero
coupon convertible senior notes for $18.7 million which
resulted in a gain of $4.4 million included in interest and
other income, net, in the consolidated statement of operations.
As of December 31, 2008, our material contractual
obligations are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Year
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Contractual obligations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
15,544
|
|
|
$
|
8,008
|
|
|
$
|
6,453
|
|
|
$
|
630
|
|
|
$
|
453
|
|
|
$
|
|
|
Convertible notes
|
|
|
136,950
|
|
|
|
|
|
|
|
136,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software license agreements(2)
|
|
|
507
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
153,001
|
|
|
$
|
8,515
|
|
|
$
|
143,403
|
|
|
$
|
630
|
|
|
$
|
453
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
(1) |
|
The above table does not reflect possible payments in connection
with uncertain tax benefits associated with FASB Interpretation
No. (FIN) 48 of approximately $9.6 million,
including $7.7 million recorded as a reduction of long-term
deferred tax assets and $1.9 million in long-term income
taxes payable, as of December 31, 2008. As noted below in
Note 10, Income Taxes, of the Notes to
Consolidated Financial Statements, although it is possible that
some of the unrecognized tax benefits could be settled within
the next 12 months, we cannot reasonably estimate the
outcome at this time. |
|
(2) |
|
We have commitments with various software vendors for
non-cancellable license agreements that generally have terms
longer than one year. The above table summarizes those
contractual obligations as of December 31, 2008, which are
also included on our consolidated balance sheets under current
and other long-term liabilities. |
Common
Stock Equivalents, and Options
Share
Repurchase Program
In October 2001, the Board approved a share repurchase program
of our Common Stock, principally to reduce the dilutive effect
of employee stock options. To date, the Board has approved the
authorization to repurchase up to 19.0 million shares of
our outstanding Common Stock over an undefined period of time.
For the year ended December 31, 2008, we repurchased
approximately 3.6 million shares with an aggregate price of
$49.2 million. As of December 31, 2008, we had
repurchased a cumulative total of approximately
16.8 million shares of our Common Stock with an aggregate
price of approximately $233.8 million since the
commencement of this program. As of December 31, 2008,
there remained an outstanding authorization to repurchase
approximately 2.2 million shares of our outstanding Common
Stock.
We record stock repurchases as a reduction to stockholders
equity. As prescribed by APB Opinion No. 6, Status of
Accounting Research Bulletins, we record a portion of the
purchase price of the repurchased shares as an increase to
accumulated deficit when the cost of the shares repurchased
exceeds the average original proceeds per share received from
the issuance of Common Stock. During the year ended
December 31, 2008, the cumulative price of the shares
repurchased exceeded the proceeds received from the issuance of
the same number of shares. The excess of $44.2 million was
recorded as an increase to accumulated deficit for the year
ended December 31, 2008. During the year ended
December 31, 2007, we did not repurchase any Common Stock.
Shareholder
Litigation Related to Historical Stock Option
Practices
Derivative
Lawsuits
On May 30, 2006, the Audit Committee commenced an internal
investigation of the timing of past stock option grants and
related accounting issues.
On May 31, 2006, the first of three shareholder derivative
actions was filed in the Northern District of California against
Rambus (as a nominal defendant) and certain current and former
executives and board members. These actions were consolidated
for all purposes under the caption, In re Rambus Inc.
Derivative Litigation, Master File
No. C-06-3513-JF
(N.D. Cal.), and Howard Chu and Gaetano Ruggieri were appointed
lead plaintiffs. The consolidated complaint, as amended, alleges
violations of certain federal and state securities laws as well
as other state law causes of action. The complaint seeks
disgorgement and damages in an unspecified amount, unspecified
equitable relief, and attorneys fees and costs.
On August 22, 2006, another shareholder derivative action
was filed in Delaware Chancery Court against Rambus (as a
nominal defendant) and certain current and former executives and
board members (Bell v. Tate et al., 2366-N (Del.
Chancery)). On May 16, 2008, this case was dismissed
pursuant to a notice filed by the plaintiff.
On October 18, 2006, the Board of Directors formed a
Special Litigation Committee (the SLC) to evaluate
potential claims or other actions arising from the stock option
granting activities. The Board of Directors appointed J. Thomas
Bentley, Chairman of the Audit Committee, and Abraham Sofaer, a
retired federal judge and Chairman of the Legal Affairs
Committee, both of whom joined the Rambus Board of Directors in
2005, to comprise the SLC.
41
The SLC has concluded its review of claims relating to stock
option practices that are asserted in derivative actions against
a number of our present and former officers and directors. The
SLC determined that all claims should be terminated and
dismissed against the named defendants in In re Rambus Inc.
Derivative Litigation with the exception of claims against
Ed Larsen, who served as Vice President, Human Resources from
September 1996 until December 1999, and then Senior Vice
President, Administration until July 2004. The SLC has entered
into settlement agreements with certain of our former officers.
These settlements are conditioned upon the dismissal of the
claims asserted against these individuals in In re Rambus
Inc. Derivative Litigation. The aggregate value of the
settlements to us is approximately $5.3 million in cash as
well as the relinquishment of claims to over 2.7 million
stock options. During the fourth quarter of 2008, we received
approximately 163,000 shares of Rambus stock (considered
irrevocable) with a value of approximately $0.8 million
from a former executive as part of the former executives
settlement agreement with Rambus in connection with the
derivative and class action lawsuits. The SLC stated its
intention to assert control over the litigation. The conclusions
and recommendations of the SLC are subject to review by the
court. On October 5, 2007, Rambus filed a motion to
terminate in accordance with the SLCs recommendations.
Pursuant to the parties agreement, that motion was taken
off calendar.
On August 30, 2007, another shareholder derivative action
was filed in the Southern District of New York against Rambus
(as a nominal defendant) and PricewaterhouseCoopers LLP
(Francl v. PricewaterhouseCoopers LLP et al.,
No. 07-Civ.
7650 (GBD)). On November 21, 2007, the New York court
granted PricewaterhouseCoopers LLPs motion to transfer the
action to the Northern District of California.
The parties have settled In re Rambus Inc. Derivative
Litigation and Francl v. PricewaterhouseCoopers LLP
et al.,
No. 07-Civ.
7650 (GBD). The settlement provides for a payment by Rambus of
$2.0 million and dismissal with prejudice of all claims
against all defendants, with the exception of claims against Ed
Larsen, in these actions. The $2.0 million was accrued for
during the quarter ended June 30, 2008 within accrued
litigation expenses and paid in January 2009. A final approval
hearing was held on January 16, 2009, and an order of final
approval was entered on January 20, 2009.
Class Action
Lawsuits
On July 17, 2006, the first of six class action lawsuits
was filed in the Northern District of California against Rambus
and certain current and former executives and board members.
These lawsuits were consolidated under the caption, In re
Rambus Inc. Securities Litigation, C-06-4346-JF (N.D. Cal.).
The settlement of this action was preliminarily approved by the
court on March 5, 2008. Pursuant to the settlement
agreement, Rambus paid $18.3 million into a settlement fund
on March 17, 2008. Some alleged class members requested
exclusion from the settlement. A final fairness hearing was held
on May 14, 2008. That same day the court entered an order
granting final approval of the settlement agreement and entered
judgment dismissing with prejudice all claims against all
defendants in the consolidated class action litigation.
Private
Lawsuits
On March 1, 2007, a pro se lawsuit was filed in the
Northern District of California by two alleged Rambus
shareholders against Rambus, certain current and former
executives and board members, and PricewaterhouseCoopers LLP
(Kelley et al. v. Rambus, Inc. et al. C-07-01238-JF
(N.D. Cal.)). This action was consolidated with a substantially
identical pro se lawsuit filed by another purported Rambus
shareholder against the same parties. The consolidated complaint
against Rambus alleges violations of federal and state
securities laws, and state law claims for fraud and breach of
fiduciary duty. Following several rounds of motions to dismiss,
on April 17, 2008, the court dismissed all claims with
prejudice except for plaintiffs claims under
sections 14(a) and 18(a) of the Securities and Exchange Act
of 1934 as to which leave to amend was granted. On June 2,
2008, plaintiffs filed an amended complaint containing
substantially the same allegations as the prior complaint
although limited to claims under sections 14(a) and 18(a)
of the Securities and Exchange Act of 1934. Rambus motion
to dismiss the amended complaint was heard on September 12,
2008. On December 9, 2008, the court granted Rambus
motion and entered judgment in favor of Rambus. Plaintiffs filed
a notice of appeal on December 15, 2008.
42
On September 11, 2008, the same pro se plaintiffs filed a
separate lawsuit in Santa Clara County Superior Court
against Rambus, certain current and former executives and board
members, and PricewaterhouseCoopers LLP (Kelley et
al. v. Rambus, Inc. et al., Case
No. 1-08-CV-122444).
The complaint alleges violations of certain California state
securities statues as well as fraud and negligent
misrepresentation based on substantially the same underlying
factual allegations contained in the pro se lawsuit filed in
federal court. On November 24, 2008, Rambus filed a motion
to dismiss or, in the alternative, stay this case in light of
the first-filed federal action. On January 12, 2009, Rambus
filed a demurrer to plaintiffs complaint on the ground
that it was barred by the doctrine of claim preclusion. A
hearing on Rambus motions is scheduled for
February 27, 2009.
On August 25, 2008, an amended complaint was filed by
certain individuals and entities in Santa Clara County
Superior Court against Rambus, certain current and former
executives and board members, and PricewaterhouseCoopers LLP
(Steele et al. v. Rambus Inc. et al., Case
No. 1-08-CV-113682).
The amended complaint alleges violations of certain California
state securities statues as well as fraud and negligent
misrepresentation. On October 10, 2008, Rambus filed a
demurrer to the amended complaint. A hearing was held on
January 9, 2009. On January 12, 2009, the court
sustained Rambus demurrer without prejudice. Plaintiffs
filed a second amended complaint on February 13, 2009,
containing the same causes of action as the previous complaint.
Rambus response is not yet due.
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to
revenue recognition, investments, income taxes, litigation and
other contingencies. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue
Recognition
Overview
We recognize revenue when persuasive evidence of an arrangement
exists, we have delivered the product or performed the service,
the fee is fixed or determinable and collection is reasonably
assured. If any of these criteria are not met, we defer
recognizing the revenue until such time as all criteria are met.
Determination of whether or not these criteria have been met may
require us to make judgments, assumptions and estimates based
upon current information and historical experience.
Our revenue consists of royalty revenue and contract revenue
generated from agreements with semiconductor companies, system
companies and certain reseller arrangements. Royalty revenue
consists of patent license and technology license royalties.
Contract revenue consist of fixed license fees, fixed
engineering fees and service fees associated with integration of
our technology solutions into our customers products.
Contract revenue may also include support or maintenance.
Reseller arrangements generally provide for the pass-through of
a percentage of the fees paid to the reseller by the
resellers customer for use of our patent and technology
licenses. We do not recognize revenue for these arrangements
until we have received notice of revenue earned by and paid to
the reseller, accompanied by the pass-through payment from the
reseller. We do not pay commissions to the reseller for these
arrangements.
Many of our licensees have the right to cancel their licenses.
In such arrangements, revenue is only recognized to the extent
that is consistent with the cancellation provisions.
Cancellation provisions within such contracts
43
generally provide for a prospective cancellation with no refund
of fees already remitted by customers for products provided and
payment for services rendered prior to the date of cancellation.
Unbilled receivables represent enforceable claims and are deemed
collectible in connection with our revenue recognition policy.
Royalty
Revenue
We recognize royalty revenue upon notification by our licensees
and when deemed collectible. The terms of the royalty agreements
generally either require licensees to give us notification and
to pay the royalties within 60 days of the end of the
quarter during which the sales occur or are based on a fixed
royalty that is due within 45 days of the end of the
quarter. We have two types of royalty revenue: (1) patent
license royalties and (2) technology license royalties.
Patent licenses. We license our broad
portfolio of patented inventions to semiconductor and systems
companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of our patent portfolio. We
generally recognize revenue from these arrangements as amounts
become due. The contractual terms of the agreements generally
provide for payments over an extended period of time.
Technology licenses. We develop proprietary
and industry-standard chip interface products, such as RDRAM and
XDR that we provide to our customers under technology license
agreements. These arrangements include royalties, which can be
based on either a percentage of sales or number of units sold.
We recognize revenue from these arrangements upon notification
from the licensee of the royalties earned and when
collectability is deemed reasonably assured.
Contract
Revenue
We generally recognize revenue using percentage of completion
for development contracts related to licenses of our interface
solutions, such as XDR and FlexIO that involve significant
engineering and integration services. For all license and
service agreements accounted for using the
percentage-of-completion method, we determine progress to
completion using input measures based upon contract costs
incurred. Prior to the first quarter of 2008, we determined
progress to completion using
labor-hours
incurred. The change to input measures better reflects the
overall gross margin over the life of the contract. This change
did not have a significant impact on our results of operations.
We have evaluated use of output measures versus input measures
and have determined that our output is not sufficiently uniform
with respect to cost, time and effort per unit of output to use
output measures as a measure of progress to completion. Part of
these contract fees may be due upon the achievement of certain
milestones, such as provision of certain deliverables by us or
production of chips by the licensee. The remaining fees may be
due on pre-determined dates and include significant up-front
fees.
A provision for estimated losses on fixed price contracts is
made, if necessary, in the period in which the loss becomes
probable and can be reasonably estimated. If we determine that
it is necessary to revise the estimates of the total costs
required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected.
However, to the extent the new assumptions regarding the total
efforts necessary to complete a project were less than the
original assumptions, the contract fees would be recognized
sooner than originally expected. Conversely, if the newly
estimated total efforts necessary to complete a project were
longer than the original assumptions, the contract fees will be
recognized over a longer period.
If application of the percentage-of-completion method results in
recognizable revenue prior to an invoicing event under a
customer contract, we will recognize the revenue and record an
unbilled receivable. Amounts invoiced to our customers in excess
of recognizable revenue are recorded as deferred revenue. The
timing and amounts invoiced to customers can vary significantly
depending on specific contract terms and can therefore have a
significant impact on deferred revenue or unbilled receivables
in any given period.
We also recognize revenue in accordance with
SOP 97-2,
SOP 98-4
and
SOP 98-9
for development contracts related to licenses of our chip
interface products that involve non-essential engineering
services and post contract support (PCS). These SOPs
apply to all entities that earn revenue on products containing
software, where software is not incidental to the product as a
whole. Contract fees for the products and services provided
under these
44
arrangements are comprised of license fees and engineering
service fees which are not essential to the functionality of the
product. Our rates for PCS and for engineering services are
specific to each development contract and not standardized in
terms of rates or length. Because of these characteristics, we
do not have a sufficient population of contracts from which to
derive vendor specific objective evidence for each of the
elements.
Therefore, as required by
SOP 97-2,
after we deliver the product, if the only undelivered element is
PCS, we will recognize all revenue ratably over either the
contractual PCS period or the period during which PCS is
expected to be provided. We review assumptions regarding the PCS
periods on a regular basis. If we determine that it is necessary
to revise the estimates of the support periods, the total amount
of revenue to be recognized over the life of the contract would
not be affected.
Litigation
We are involved in certain legal proceedings, as discussed in
Note 15, Litigation and Asserted Claims of
Notes to Consolidated Financial Statements of this
Form 10-K.
Based upon consultation with outside counsel handling our
defense in these matters and an analysis of potential results,
we accrue for losses related to litigation if we determine that
a loss is probable and can be reasonably estimated. If a
specific loss amount cannot be estimated, we review the range of
possible outcomes and accrue the low end of the range of
estimates. Any such accrual would be charged to expense in the
appropriate period. We recognize litigation expenses in the
period in which the litigation services were provided.
Income
Taxes
As part of preparing our consolidated financial statements, we
are required to calculate the income tax expense or benefit
which relates to the pretax income or loss for the period. In
addition, we are required to assess the realization of the tax
asset or liability to be included on the consolidated balance
sheet as of the reporting dates.
This process requires us to calculate various items including
permanent and temporary differences between the financial
accounting and tax treatment of certain income and expense
items, differences between federal and state tax treatment of
these items, the amount of taxable income reported to various
states, foreign taxes and tax credits. The differing treatment
of certain items for tax and accounting purposes results in
deferred tax assets and liabilities, which are included on our
consolidated balance sheet.
As of December 31, 2008, our consolidated balance sheet
included net deferred tax assets, before valuation allowance, of
approximately $156.0 million, which consists of net
operating loss carryovers, tax credit carryovers, depreciation
and amortization, employee stock-based compensation expenses and
certain liabilities. For the quarter ended June 30, 2008,
we recorded a non-cash income tax provision of
$130.5 million to establish a valuation allowance.
Management periodically evaluates the realizability of our net
deferred tax assets based on all available evidence, both
positive and negative. The realization of net deferred tax
assets is solely dependent on our ability to generate sufficient
future taxable income during periods prior to the expiration of
tax statutes to fully utilize these assets. Our forecasted
future operating results are highly influenced by, among other
factors, assumptions regarding (1) our ability to achieve
our forecasted revenue, (2) our ability to effectively
manage our expenses in line with our forecasted revenue and
(3) general trends in the semiconductor industry.
During the quarter ended June 30, 2008, we weighed both
positive and negative evidence and determined that there is a
need for the valuation allowance due to the existence of three
years of historical cumulative losses and a revised forecast
that projected future losses from operations in the U.S., which
we considered significant verifiable negative evidence. Though
considered positive evidence, projected income from favorable
patent and related settlement litigation were not included in
the determination for the valuation allowance due to our
inability to reliably estimate the timing and amounts of such
settlements. We intend to maintain the valuation allowance until
sufficient positive evidence exists to support reversal of the
valuation allowance.
Pursuant to Footnote 82 of SFAS No. 123(R), tax
attributes related to stock option windfall deductions should
not be recorded until they result in a reduction of cash taxes
payable. Starting in 2006, we no longer include net operating
losses attributable to stock option windfall deductions as
components of our gross deferred tax assets. The benefit of
these net operating losses will be recorded to equity when they
reduce cash taxes payable.
45
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax law and
regulations in a multitude of jurisdictions. Although FASB
Interpretation No. 48, which we adopted on January 1,
2007, provides further clarification on the accounting for
uncertainty in income taxes, the new threshold and measurement
attributes prescribed by the pronouncement will continue to
require significant judgment by management. If the ultimate
resolution of tax uncertainties is different from what is
currently estimated, a material impact on income tax expense
could result.
Stock-Based
Compensation
For the years ended December 31, 2008, 2007 and 2006, we
maintained stock plans covering a broad range of potential
equity grants including stock options, nonvested equity stock
and equity stock units and performance based instruments. In
addition, we sponsor an Employee Stock Purchase Plan
(ESPP), whereby eligible employees are entitled to
purchase Common Stock semi-annually, by means of limited payroll
deductions, at a 15% discount from the fair market value of the
Common Stock as of specific dates.
Effective January 1, 2006, we adopted Statement of
Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment, which is a
revision of SFAS No. 123 Accounting for
Stock-Based Compensation. SFAS No. 123(R)
requires the measurement and recognition of compensation expense
in our statement of operations for all share-based payment
awards made to our employees, directors and consultants
including employee stock options, nonvested equity stock and
equity stock units, and employee stock purchase grants.
Stock-based compensation expense is measured at grant date,
based on the estimated fair value of the award, reduced by an
estimate of the annualized rate of expected forfeitures, and is
recognized as expense over the employees expected
requisite service period, generally using the straight-line
method. In addition, SFAS No. 123(R) requires the
benefits of tax deductions in excess of recognized compensation
expense to be reported as a financing cash flow, rather than as
an operating cash flow as prescribed under previous accounting
rules. We selected the modified prospective method of adoption,
which recognizes compensation expense for the fair value of all
share-based payments granted after January 1, 2006 and for
the fair value of all awards granted to employees prior to
January 1, 2006 that remain unvested on the date of
adoption. This method did not require a restatement of prior
periods. However, awards granted and still unvested on the date
of adoption are attributed to expense under
SFAS No. 123(R), including the application of a
forfeiture rate on a prospective basis. Our forfeiture rate
represents the historical rate at which our stock-based awards
were surrendered prior to vesting. SFAS No. 123(R)
requires forfeitures to be estimated at the time of grant and
revised on a cumulative basis, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Prior
to fiscal year 2006, we accounted for forfeitures as they
occurred, for the purposes of pro forma information under
SFAS No. 123. See Note 7, Equity Incentive
Plans and Stock-Based Compensation, of Notes to
Consolidated Financial Statements for more information regarding
the valuation of stock-based compensation.
Recent
Accounting Pronouncements
See Note 2, Summary of Significant Accounting
Policies of Notes to Consolidated Financial Statements for
a full description of recent accounting pronouncements including
the respective expected dates of adoption.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to financial market risks, primarily arising from
the effect of interest rate fluctuations on our investment
portfolio. Interest rate fluctuation may arise from changes in
the markets view of the quality of the security issuer,
the overall economic outlook, and the time to maturity of our
portfolio. We mitigate this risk by investing only in high
quality, highly liquid instruments. Securities with original
maturities of one year or less must be rated by two of the three
industry standard rating agencies as follows: A1 by
Standard & Poors, P1 by Moodys
and/or F-1
by Fitch. Securities with original maturities of greater than
one year must be rated by two of the following industry standard
rating agencies as follows: AA- by Standard &
Poors, Aa3 by Moodys
and/or AA-
by Fitch. By corporate policy, we limit the amount of our credit
exposure to $10.0 million for any one issuer. Our policy
requires that at least 10% of the portfolio be in securities
with a maturity of 90 days or less. In addition, we may
make investments in securities with maturities up to
36 months. However, the bias of our investment policy is
toward shorter maturities.
46
We invest our cash equivalents and marketable securities in a
variety of U.S. dollar financial instruments such as
Treasuries, Government Agencies, Commercial Paper and Corporate
Notes. Our policy specifically prohibits trading securities for
the sole purposes of realizing trading profits. However, we may
liquidate a portion of our portfolio if we experience unforeseen
liquidity requirements. In such a case if the environment has
been one of rising interest rates we may experience a realized
loss, similarly, if the environment has been one of declining
interest rates we may experience a realized gain. As of
December 31, 2008, we had an investment portfolio of fixed
income marketable securities of $340.3 million including
cash equivalents. If market interest rates were to increase
immediately and uniformly by 10% from the levels as of
December 31, 2008, the fair value of the portfolio would
decline by approximately $0.8 million. Actual results may
differ materially from this sensitivity analysis.
The table below summarizes the book value, fair value,
unrealized gains and related weighted average interest rates for
our marketable securities portfolio as of December 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Gain, net
|
|
|
Return
|
|
|
Available-for-sale securities (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
110,732
|
|
|
$
|
110,732
|
|
|
$
|
|
|
|
|
0.90
|
%
|
Municipal Bonds and Notes
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
3.85
|
%
|
U.S. Government Bonds and Notes
|
|
|
149,304
|
|
|
|
148,178
|
|
|
|
1,126
|
|
|
|
2.79
|
%
|
Corporate Notes, Bonds, and Commercial Paper
|
|
|
79,308
|
|
|
|
79,275
|
|
|
|
33
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
340,344
|
|
|
|
339,185
|
|
|
|
1,159
|
|
|
|
|
|
Cash
|
|
|
5,509
|
|
|
|
5,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
345,853
|
|
|
$
|
344,694
|
|
|
$
|
1,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Gain, net
|
|
|
Return
|
|
|
Available-for-sale securities (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
104,836
|
|
|
$
|
104,836
|
|
|
$
|
|
|
|
|
4.82
|
%
|
Municipal Bonds and Notes
|
|
|
3,008
|
|
|
|
3,000
|
|
|
|
8
|
|
|
|
4.81
|
%
|
U.S. Government Bonds and Notes
|
|
|
108,660
|
|
|
|
108,568
|
|
|
|
92
|
|
|
|
4.39
|
%
|
Corporate Notes, Bonds, and Commercial Paper
|
|
|
219,734
|
|
|
|
219,668
|
|
|
|
66
|
|
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
436,238
|
|
|
|
436,072
|
|
|
|
166
|
|
|
|
|
|
Cash
|
|
|
4,644
|
|
|
|
4,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
440,882
|
|
|
$
|
440,716
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We bill our customers in U.S. dollars. Although the
fluctuation of currency exchange rates may impact our customers,
and thus indirectly impact us, we do not attempt to hedge this
indirect and speculative risk. Our overseas operations consist
primarily of small business development offices in any one
country and one design center in India. We monitor our foreign
currency exposure; however, as of December 31, 2008, we
believe our foreign currency exposure is not material enough to
warrant foreign currency hedging.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See Item 15 Exhibits and Financial Statement
Schedules of this
Form 10-K
for required financial statements and supplementary data.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
47
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to
ensure that information required to be disclosed in the reports
we file or submit pursuant to the Securities and Exchange Act of
1934 as amended (Exchange Act) is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and
procedures as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act as of the end of the period covered by this
report. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of
December 31, 2008, our disclosure controls and procedures
were effective.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Our internal control over financial
reporting is the process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer, and
effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those
policies and procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions
and dispositions of assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with the authorization of our management
and directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting
as of December 31, 2008. In making this assessment, our
management used the criteria set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on the results of this assessment,
management has concluded that, as of December 31, 2008, our
internal control over financial reporting was effective based on
the criteria in Internal Control Integrated
Framework issued by the COSO.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by
PricewaterhouseCoopers, LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
Remediation
of Material Weakness
Previously, we did not maintain a sufficient complement of
personnel with an appropriate level of accounting knowledge,
experience and training in the application of generally accepted
accounting principles commensurate with our financial reporting
requirements. Specifically, this deficiency resulted in audit
adjustments that corrected
48
an understatement of revenue and audit adjustments to deferred
revenue, deferred rent, property and equipment, depreciation,
consulting expenses and certain accrual accounts and disclosures
in the consolidated financial statements for the year ended
December 31, 2006 and in an audit adjustment that corrected
an understatement of operating expenses and related legal
accrual accounts and disclosures in the consolidated financial
statements for the year ended December 31, 2007, primarily
arising from an insufficient review by us of relevant
information obtained through communications with third parties.
Additionally, this deficiency could result in misstatements of
the aforementioned accounts and disclosures that would result in
a material misstatement to the annual or interim consolidated
financial statements that would not be prevented or detected.
Accordingly, management previously determined this control
deficiency constituted a material weakness.
In response to the identification of the material weakness
described above, management initiated the following corrective
actions:
|
|
|
|
|
During the quarter ended December 31, 2007, we hired a new
VP of Finance, with experience in public accounting as well as
in senior accounting roles in a public company, who oversees all
of our accounting functions.
|
|
|
|
During the quarter ended December 31, 2007, and prior to
filing the financial statements, we hired two Assistant
Corporate Controllers; one to oversee revenue recognition and
financial systems and the other to oversee external reporting.
We have also hired a General Ledger and Consolidation Manager.
|
|
|
|
During the quarter ended December 31, 2007, we required all
of our finance, accounting and stock administration staff to
attend training in various areas of U.S. generally accepted
accounting principles. In this regard, members of our finance,
accounting and operations departments have attended revenue
recognition, SEC reporting and stock administration training
beginning in the fourth quarter of 2007.
|
|
|
|
We have on-going efforts to improve communications between
finance personnel responsible for completing reviews of our
accrual accounts and operations personnel responsible for the
execution of the work on those transactions and have instituted
quarterly close meetings involving finance and operations
personnel; and
|
|
|
|
We are continuing our efforts to review our internal control
over financial reporting with the intent to automate previously
manual processes specifically in the areas of legal billing
administration.
|
We have determined as of the fourth quarter of fiscal 2008 that
our corrective actions discussed above had improved our control
procedures. Our management in the fourth quarter of fiscal 2008
performed testing of controls, and reviewed reconciliations and
other post-closing procedures and has concluded that the
material weakness in our internal control over financial
reporting relating to sufficient complement of personnel has
been remediated.
We will continue to develop new policies and procedures as well
as educate and train our employees on our existing policies and
procedures in a continual effort to improve our internal control
over financial reporting, and we will be taking further actions
as appropriate. We view this as an ongoing effort to which we
will be devoting significant resources and which will need to be
maintained and updated over time.
Changes
in Internal Control Over Financial Reporting
There were no changes in internal control over financial
reporting during the quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
49
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2009 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
The information under the heading Our Executive
Officers in Part I, Item 1 of this Annual Report
on
Form 10-K
is also incorporated herein by reference.
We have a Code of Business Conduct and Ethics for all of our
directors, officers and employees. Our Code of Business Conduct
and Ethics is available on our website at
http://investor.rambus.com/governance/ethics.cfm/.
To date, there have been no waivers under our Code of Business
Conduct and Ethics. We will post any waivers, if and when
granted, of our Code of Business Conduct and Ethics on our
website.
|
|
Item 11.
|
Executive
Compensation
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2009 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2009 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2009 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2009 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
50
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1) Financial Statements
The following consolidated financial statements of the
Registrant and Report of PricewaterhouseCoopers LLP, Independent
Registered Public Accounting Firm, are included herewith:
|
|
|
|
|
|
|
Page
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
99
|
|
51
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Rambus Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15 (a)(1) present fairly, in
all material respects, the financial position of Rambus Inc. and
its subsidiaries at December 31, 2008 and December 31,
2007 and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in Managements Report on Internal
Control over Financial Reporting, under item 9A. Our
responsibility is to express opinions on these financial
statements and on the Companys internal control over
financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 10 of the Notes to the Consolidated
Financial Statements, effective January 1, 2007, the
Company changed the manner in which it accounts for uncertainty
in income taxes.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
San Jose, California
February 26, 2009
52
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116,241
|
|
|
$
|
119,391
|
|
Marketable securities
|
|
|
229,612
|
|
|
|
321,491
|
|
Accounts receivable
|
|
|
1,503
|
|
|
|
1,920
|
|
Prepaids and other current assets
|
|
|
8,486
|
|
|
|
8,349
|
|
Deferred taxes
|
|
|
88
|
|
|
|
11,595
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
355,930
|
|
|
|
462,746
|
|
Restricted cash
|
|
|
632
|
|
|
|
2,286
|
|
Deferred taxes, long term
|
|
|
1,857
|
|
|
|
116,209
|
|
Intangible assets, net
|
|
|
7,244
|
|
|
|
13,441
|
|
Property and equipment, net
|
|
|
22,290
|
|
|
|
24,587
|
|
Goodwill
|
|
|
4,454
|
|
|
|
4,454
|
|
Other assets
|
|
|
4,483
|
|
|
|
3,624
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
396,890
|
|
|
$
|
627,347
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,374
|
|
|
$
|
11,283
|
|
Accrued salaries and benefits
|
|
|
9,859
|
|
|
|
9,985
|
|
Accrued litigation expenses
|
|
|
14,265
|
|
|
|
26,234
|
|
Income taxes payable
|
|
|
638
|
|
|
|
834
|
|
Other accrued liabilities
|
|
|
3,178
|
|
|
|
5,060
|
|
Deferred revenue
|
|
|
1,787
|
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
36,101
|
|
|
|
56,152
|
|
Deferred revenue, less current portion
|
|
|
90
|
|
|
|
|
|
Convertible notes
|
|
|
136,950
|
|
|
|
160,000
|
|
Long-term income taxes payable
|
|
|
1,953
|
|
|
|
2,917
|
|
Other long-term liabilities
|
|
|
811
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
175,905
|
|
|
|
220,263
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6 and 15)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Convertible preferred stock, $.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 5,000,000 shares; Issued and outstanding: no
shares at December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
Common Stock, $.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 shares; Issued and outstanding
103,803,006 shares at December 31, 2008 and
105,294,534 shares at December 31, 2007
|
|
|
104
|
|
|
|
105
|
|
Additional paid in capital
|
|
|
655,724
|
|
|
|
601,821
|
|
Accumulated deficit
|
|
|
(435,712
|
)
|
|
|
(194,966
|
)
|
Accumulated other comprehensive income, net
|
|
|
869
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
220,985
|
|
|
|
407,084
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
396,890
|
|
|
$
|
627,347
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
53
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
$
|
126,910
|
|
|
$
|
154,306
|
|
|
$
|
168,916
|
|
Contract revenue
|
|
|
15,584
|
|
|
|
25,634
|
|
|
|
26,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
142,494
|
|
|
|
179,940
|
|
|
|
195,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue*
|
|
|
21,303
|
|
|
|
27,124
|
|
|
|
30,392
|
|
Research and development*
|
|
|
76,222
|
|
|
|
82,877
|
|
|
|
68,977
|
|
Marketing, general and administrative*
|
|
|
124,077
|
|
|
|
120,597
|
|
|
|
104,561
|
|
Restructuring costs*
|
|
|
4,185
|
|
|
|
|
|
|
|
|
|
Impairment of intangible asset
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
Costs of restatement and related legal activities
|
|
|
3,262
|
|
|
|
19,457
|
|
|
|
31,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
231,207
|
|
|
|
250,055
|
|
|
|
235,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(88,713
|
)
|
|
|
(70,115
|
)
|
|
|
(40,042
|
)
|
Interest and other income, net
|
|
|
17,042
|
|
|
|
21,759
|
|
|
|
14,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(71,671
|
)
|
|
|
(48,356
|
)
|
|
|
(25,705
|
)
|
Provision for (benefit from) income taxes
|
|
|
124,252
|
|
|
|
(20,692
|
)
|
|
|
(11,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(195,923
|
)
|
|
$
|
(27,664
|
)
|
|
$
|
(13,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.87
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.87
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
104,574
|
|
|
|
104,056
|
|
|
|
103,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
104,574
|
|
|
|
104,056
|
|
|
|
103,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue
|
|
$
|
5,187
|
|
|
$
|
5,910
|
|
|
$
|
8,155
|
|
Research and development
|
|
$
|
13,488
|
|
|
$
|
16,199
|
|
|
$
|
14,902
|
|
Marketing, general and administrative
|
|
$
|
18,492
|
|
|
$
|
22,701
|
|
|
$
|
17,466
|
|
Restructuring costs
|
|
$
|
547
|
|
|
$
|
|
|
|
$
|
|
|
See Notes to Consolidated Financial Statements
54
RAMBUS
INC.
AND
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-Based
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Gain (Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balances at December 31, 2005
|
|
|
99,397
|
|
|
$
|
99
|
|
|
$
|
478,519
|
|
|
$
|
(20,122
|
)
|
|
$
|
(133,382
|
)
|
|
$
|
(1,647
|
)
|
|
$
|
323,467
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,816
|
)
|
|
|
|
|
|
|
(13,816
|
)
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,041
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options, restricted
stock, and employee stock purchase plan
|
|
|
5,123
|
|
|
|
6
|
|
|
|
57,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,559
|
|
Repurchase and retirement of common stock under repurchase plan
|
|
|
(700
|
)
|
|
|
(1
|
)
|
|
|
(756
|
)
|
|
|
|
|
|
|
(20,198
|
)
|
|
|
|
|
|
|
(20,955
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
38,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,908
|
|
Reversal of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(20,122
|
)
|
|
|
20,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax shortfall from equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
(3,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
103,820
|
|
|
|
104
|
|
|
|
550,210
|
|
|
|
|
|
|
|
(167,396
|
)
|
|
|
(630
|
)
|
|
|
382,288
|
|
FIN 48 Tax Adjustment (Note 10)
|
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2007
|
|
|
103,820
|
|
|
|
104
|
|
|
|
550,449
|
|
|
|
|
|
|
|
(167,302
|
)
|
|
|
(630
|
)
|
|
|
382,621
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,664
|
)
|
|
|
|
|
|
|
(27,664
|
)
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
66
|
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of liability-based stock awards to equity
|
|
|
|
|
|
|
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,136
|
|
Issuance of common stock upon exercise of options, nonvested
equity stock and stock units, and employee stock purchase plan
|
|
|
1,475
|
|
|
|
1
|
|
|
|
11,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,832
|
|
Repurchase and retirement of common stock under repurchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
43,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,676
|
|
Tax shortfall from equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
(6,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
105,295
|
|
|
|
105
|
|
|
|
601,821
|
|
|
|
|
|
|
|
(194,966
|
)
|
|
|
124
|
|
|
|
407,084
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,923
|
)
|
|
|
|
|
|
|
(195,923
|
)
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
60
|
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options, nonvested
equity stock and stock units, and employee stock purchase plan
|
|
|
2,251
|
|
|
|
2
|
|
|
|
21,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,763
|
|
Repurchase and retirement of common stock under repurchase plan
and shares received from a former executive
|
|
|
(3,743
|
)
|
|
|
(3
|
)
|
|
|
(5,248
|
)
|
|
|
|
|
|
|
(44,823
|
)
|
|
|
|
|
|
|
(50,074
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
37,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,761
|
|
Tax shortfall from equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
103,803
|
|
|
$
|
104
|
|
|
$
|
655,724
|
|
|
$
|
|
|
|
$
|
(435,712
|
)
|
|
$
|
869
|
|
|
$
|
220,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
55
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(195,923
|
)
|
|
$
|
(27,664
|
)
|
|
$
|
(13,816
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
37,167
|
|
|
|
44,810
|
|
|
|
40,523
|
|
Depreciation
|
|
|
11,326
|
|
|
|
11,202
|
|
|
|
11,248
|
|
Amortization of intangible assets and convertible note issuance
costs
|
|
|
4,339
|
|
|
|
5,286
|
|
|
|
8,409
|
|
Restructuring costs (non-cash)
|
|
|
547
|
|
|
|
|
|
|
|
|
|
Impairment of intangible asset
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit) provision
|
|
|
125,180
|
|
|
|
(21,866
|
)
|
|
|
(11,242
|
)
|
Loss on disposal of property and equipment
|
|
|
76
|
|
|
|
445
|
|
|
|
342
|
|
Gain on repurchase of convertible notes
|
|
|
(4,371
|
)
|
|
|
|
|
|
|
|
|
Recovery of restatement and related legal activities (non-cash)
|
|
|
(849
|
)
|
|
|
|
|
|
|
|
|
Write-off of cost-based investment
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled receivables
|
|
|
417
|
|
|
|
674
|
|
|
|
(1,640
|
)
|
Prepaids and other assets
|
|
|
95
|
|
|
|
(6,190
|
)
|
|
|
(730
|
)
|
Accounts payable
|
|
|
(3,607
|
)
|
|
|
3,809
|
|
|
|
(161
|
)
|
Accrued salaries and benefits and other accrued liabilities
|
|
|
(2,060
|
)
|
|
|
(4,333
|
)
|
|
|
7,198
|
|
Accrued litigation expenses
|
|
|
(11,969
|
)
|
|
|
3,091
|
|
|
|
18,510
|
|
Income taxes payable
|
|
|
(1,775
|
)
|
|
|
816
|
|
|
|
99
|
|
Increases in deferred revenue
|
|
|
1,784
|
|
|
|
2,264
|
|
|
|
22,226
|
|
Decreases in deferred revenue
|
|
|
(2,663
|
)
|
|
|
(7,065
|
)
|
|
|
(23,959
|
)
|
Decrease (increase) in restricted cash
|
|
|
1,654
|
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(38,474
|
)
|
|
|
5,280
|
|
|
|
57,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(9,871
|
)
|
|
|
(5,737
|
)
|
|
|
(8,649
|
)
|
Proceeds from sale of property and equipment
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Acquisition of intangible assets
|
|
|
(300
|
)
|
|
|
(30
|
)
|
|
|
(300
|
)
|
Purchases of marketable securities
|
|
|
(362,968
|
)
|
|
|
(664,420
|
)
|
|
|
(215,188
|
)
|
Maturities of marketable securities
|
|
|
430,844
|
|
|
|
598,543
|
|
|
|
166,191
|
|
Proceeds from sale of marketable securities
|
|
|
24,996
|
|
|
|
108,550
|
|
|
|
|
|
Purchases of leasehold improvements
|
|
|
|
|
|
|
(2,610
|
)
|
|
|
(3,083
|
)
|
Acquisition of business
|
|
|
|
|
|
|
(1,139
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
82,731
|
|
|
|
33,157
|
|
|
|
(62,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under installment payment arrangement
|
|
|
(1,250
|
)
|
|
|
(4,250
|
)
|
|
|
(800
|
)
|
Proceeds from issuance of common stock under employee stock plans
|
|
|
21,688
|
|
|
|
11,831
|
|
|
|
57,559
|
|
Repurchase and retirement of common stock
|
|
|
(49,226
|
)
|
|
|
|
|
|
|
(20,955
|
)
|
Repurchase of convertible notes
|
|
|
(18,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(47,467
|
)
|
|
|
7,581
|
|
|
|
35,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
60
|
|
|
|
69
|
|
|
|
(24
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,150
|
)
|
|
|
46,087
|
|
|
|
30,913
|
|
Cash and cash equivalents at beginning of period
|
|
|
119,391
|
|
|
|
73,304
|
|
|
|
42,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
116,241
|
|
|
$
|
119,391
|
|
|
$
|
73,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment acquired under installment payment
arrangement
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,100
|
|
Property and equipment received and accrued in accounts payable
and other accrued liabilities
|
|
$
|
629
|
|
|
$
|
1,439
|
|
|
$
|
1,155
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
528
|
|
|
$
|
1,046
|
|
|
$
|
234
|
|
Taxes refunded
|
|
$
|
309
|
|
|
$
|
|
|
|
$
|
519
|
|
See Notes to Consolidated Financial Statements
56
RAMBUS
INC.
|
|
1.
|
Formation
and Business of the Company
|
Rambus Inc. (the Company or Rambus)
designs, develops and licenses chip interface technologies that
are foundational to nearly all digital electronics products.
Rambus chip interface technologies are designed to improve
the performance, power efficiency, time-to-market and
cost-effectiveness of its customers semiconductor and
system products for computing, gaming and graphics, consumer
electronics and mobile applications. Rambus was incorporated in
California in March 1990 and reincorporated in Delaware in March
1997.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Financial
Statement Presentation
The accompanying consolidated financial statements include the
accounts of Rambus and its wholly owned subsidiaries, Rambus
K.K., located in Tokyo, Japan and Rambus, located in George
Town, Grand Caymans, BWI, of which Rambus Chip Technologies
(India) Private Limited, Rambus Deutschland GmbH, located in
Pforzheim, Germany and Rambus Korea, Inc., located in Seoul,
Korea are subsidiaries. During 2008, we closed our office in
Korea. All intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial
statements. Investments in entities with less than 20% ownership
by Rambus and in which Rambus does not have the ability to
significantly influence the operations of the investee are
accounted for using the cost method and are included in other
assets.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
We have reclassified certain prior year balances to conform to
the current years presentation in the consolidated
statements of cash flows. None of these reclassifications had an
impact on reported net loss for any of the periods presented.
Revenue
Recognition
Overview
Rambus recognizes revenue when persuasive evidence of an
arrangement exists, Rambus has delivered the product or
performed the service, the fee is fixed or determinable and
collection is reasonably assured. If any of these criteria are
not met, Rambus defers recognizing the revenue until such time
as all criteria are met. Determination of whether or not these
criteria have been met may require the Company to make
judgments, assumptions and estimates based upon current
information and historical experience.
Rambus revenue consists of royalty revenue and contract
revenue generated from agreements with semiconductor companies,
system companies and certain reseller arrangements. Royalty
revenue consists of patent license and technology license
royalties. Contract revenue consist of fixed license fees, fixed
engineering fees and service fees associated with integration of
Rambus technology solutions into its customers
products. Contract revenue may also include support or
maintenance. Reseller arrangements generally provide for the
pass-through of a percentage of the fees paid to the reseller by
the resellers customer for use of Rambus patent and
technology licenses. Rambus does not recognize revenue for these
arrangements until it has received notice of revenue earned by
and paid to the reseller, accompanied by the pass-through
payment from the reseller. Rambus does not pay commissions to
the reseller for these arrangements.
57
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Many of Rambus licensees have the right to cancel their
licenses. In such arrangements, revenue is only recognized to
the extent that is consistent with the cancellation provisions.
Cancellation provisions within such contracts generally provide
for a prospective cancellation with no refund of fees already
remitted by customers for products provided and payment for
services rendered prior to the date of cancellation. Unbilled
receivables represent enforceable claims and are deemed
collectible in connection with the Companys revenue
recognition policy.
Royalty
Revenue
Rambus recognizes royalty revenue upon notification by its
licensees and when deemed collectible. The terms of the royalty
agreements generally either require licensees to give Rambus
notification and to pay the royalties within 60 days of the
end of the quarter during which the sales occur or are based on
a fixed royalty that is due within 45 days of the end of
the quarter. Rambus has two types of royalty revenue:
(1) patent license royalties and (2) technology
license royalties.
Patent licenses. Rambus licenses its broad
portfolio of patented inventions to semiconductor and systems
companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of Rambus patent
portfolio. Rambus generally recognizes revenue from these
arrangements as amounts become due. The contractual terms of the
agreements generally provide for payments over an extended
period of time.
Technology licenses. Rambus develops
proprietary and industry-standard chip interface products, such
as RDRAM and XDR that Rambus provides to its customers under
technology license agreements. These arrangements include
royalties, which can be based on either a percentage of sales or
number of units sold. Rambus recognizes revenue from these
arrangements (except for those royalties subject to the Federal
Trade Commission (the FTC) order discussed below)
upon notification from the licensee of the royalties earned and
when collectability is deemed reasonably assured.
On February 2, 2007, the FTC issued an order requiring
Rambus to limit the royalty rates charged for certain SDR and
DDR SDRAM memory and controller products sold by licensees after
April 12, 2007. The FTC stayed this requirement on
March 16, 2007, subject to certain conditions. One such
condition of the stay limits the royalties Rambus can receive
under certain contracts so that they do not exceed the
FTCs Maximum Allowable Royalties (MAR or
previously withheld royalties). Amounts in excess of
MAR that are subject to the order are excluded from revenue. On
April 22, 2008, the United States Court of Appeals for the
District of Columbia (the CADC) overturned the FTC
decision and remanded the matter back to the FTC for further
proceedings consistent with the CADCs opinion. On
June 6, 2008, the FTC petitioned the CADC to rehear the
case en banc. On August 26, 2008, the CADC denied the
FTCs petition for rehearing of this matter en banc, and on
September 9, 2008, the CADC issued its mandate setting
aside the FTCs order and instructing the FTC to take
actions consistent with the CADCs ruling. The FTC did not
seek, nor did it receive, a stay of the CADCs ruling, and
thus the FTCs order in the case has been vacated. On
October 16, 2008, the FTC issued an order (FTC
Disposition Order) authorizing Rambus to receive the
excess consideration that customers have previously deducted
from their quarterly payments made to Rambus under the Patent
License Agreement (see Note 15 Litigation and
Asserted Claims).
At the time of the issuance of the mandate on September 9,
2008, $6.2 million had been determined as amounts of
previously withheld royalties which had been excluded from
revenue. As the FTC has issued the FTC Disposition Order, the
Company recognized the previously withheld royalties of
$6.2 million as revenue when the corresponding cash
payments were received. In the year ended December 31,
2008, $6.2 million of these previously withheld royalties
were received from the customers and recognized as revenue.
58
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Contract
Revenue
Rambus generally recognizes revenue using percentage of
completion for development contracts related to licenses of its
interface solutions, such as XDR and FlexIO that involve
significant engineering and integration services. For all
license and service agreements accounted for using the
percentage-of-completion method, Rambus determines progress to
completion using input measures based upon contract costs
incurred. Prior to the first quarter of 2008, Rambus determined
progress to completion using
labor-hours
incurred. The change to input measures better reflects the
overall gross margin over the life of the contract. This change
did not have a significant impact on the Companys results
of operations. Rambus has evaluated use of output measures
versus input measures and has determined that its output is not
sufficiently uniform with respect to cost, time and effort per
unit of output to use output measures as a measure of progress
to completion. Part of these contract fees may be due upon the
achievement of certain milestones, such as provision of certain
deliverables by Rambus or production of chips by the licensee.
The remaining fees may be due on pre-determined dates and
include significant up-front fees.
A provision for estimated losses on fixed price contracts is
made, if necessary, in the period in which the loss becomes
probable and can be reasonably estimated. If Rambus determines
that it is necessary to revise the estimates of the total costs
required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected.
However, to the extent the new assumptions regarding the total
efforts necessary to complete a project were less than the
original assumptions, the contract fees would be recognized
sooner than originally expected. Conversely, if the newly
estimated total efforts necessary to complete a project were
longer than the original assumptions, the contract fees will be
recognized over a longer period. As of December 31, 2008,
we have accrued a liability of approximately $0.4 million
related to estimated loss contracts.
If application of the percentage-of-completion method results in
recognizable revenue prior to an invoicing event under a
customer contract, the Company will recognize the revenue and
record an unbilled receivable. Amounts invoiced to Rambus
customers in excess of recognizable revenue are recorded as
deferred revenue. The timing and amounts invoiced to customers
can vary significantly depending on specific contract terms and
can therefore have a significant impact on deferred revenue or
unbilled receivables in any given period.
Rambus also recognizes revenue in accordance with
SOP 97-2,
SOP 98-4
and
SOP 98-9
for development contracts related to licenses of its chip
interface products that involve non-essential engineering
services and post contract support (PCS). These SOPs
apply to all entities that earn revenue on products containing
software, where software is not incidental to the product as a
whole. Contract fees for the products and services provided
under these arrangements are comprised of license fees and
engineering service fees which are not essential to the
functionality of the product. Rambus rates for PCS and for
engineering services are specific to each development contract
and not standardized in terms of rates or length. Because of
these characteristics, the Company does not have a sufficient
population of contracts from which to derive vendor specific
objective evidence for each of the elements.
Therefore, as required by
SOP 97-2,
after Rambus delivers the product, if the only undelivered
element is PCS, Rambus will recognize all revenue ratably over
either the contractual PCS period or the period during which PCS
is expected to be provided. Rambus reviews assumptions regarding
the PCS periods on a regular basis. If Rambus determines that it
is necessary to revise the estimates of the support periods, the
total amount of revenue to be recognized over the life of the
contract would not be affected.
Allowance
for Doubtful Accounts
Rambus allowance for doubtful accounts is determined using
a combination of factors to ensure that Rambus trade and
unbilled receivables balances are not overstated due to
uncollectibility. The Company performs ongoing customer credit
evaluation within the context of the industry in which it
operates, does not require collateral, and maintains allowances
for potential credit losses on customer accounts when deemed
necessary. A specific allowance for a doubtful account up to
100% of the invoice will be provided for any problematic
customer balances. Delinquent account balances are written-off
after management has determined that the likelihood of
collection is not possible. For all periods presented, Rambus
had no allowance for doubtful accounts.
59
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Research
and Development
Costs incurred in research and development, which include
engineering expenses, such as salaries and related benefits,
stock-based compensation, depreciation, professional services
and overhead expenses related to the general development of
Rambus products, are expensed as incurred. Software
development costs are capitalized beginning when a
products technological feasibility has been established
and ending when a product is available for general release to
customers. Rambus has not capitalized any software development
costs since the period between establishing technological
feasibility and general customer release is relatively short and
as such, these costs have not been significant.
Income
Taxes
Income taxes are accounted for using an asset and liability
approach, which requires the recognition of deferred tax assets
and liabilities for expected future tax events that have been
recognized differently in Rambus consolidated financial
statements and tax returns. The measurement of current and
deferred tax assets and liabilities is based on provisions of
the enacted tax law and the effects of future changes in tax
laws and rates. A valuation allowance is established when
necessary to reduce deferred tax assets to amounts expected to
be realized. See Note 10, Income Taxes for
details related to the Companys deferred tax asset
valuation allowance.
In addition, the calculation of the Companys tax
liabilities involves dealing with uncertainties in the
application of complex tax regulations. Effective
January 1, 2007, the Company adopted the provisions of
FIN 48. As a result, the Company reports a liability for
unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in its tax return. The Company
considers many factors when evaluating and estimating its tax
positions and tax benefits, which may require periodic
adjustments and which may not accurately anticipate actual
outcomes.
Stock-Based
Compensation and Equity Incentive Plans
For the years ended December 31, 2008, 2007 and 2006, the
Company maintained stock plans covering a broad range of
potential equity grants including stock options, nonvested
equity stock and equity stock units and performance based
instruments. In addition, the Company sponsors an Employee Stock
Purchase Plan (ESPP), whereby eligible employees are
entitled to purchase Common Stock semi-annually, by means of
limited payroll deductions, at a 15% discount from the fair
market value of the Common Stock as of specific dates. See
Note 7, Equity Incentive Plans and Stock-Based
Compensation, for a detailed description of the
Companys plans.
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment, which is a
revision of SFAS No. 123 Accounting for
Stock-Based Compensation. SFAS No. 123(R)
requires the measurement and recognition of compensation expense
in the Companys statement of operations for all
share-based payment awards made to Rambus employees, directors
and consultants including employee stock options, nonvested
equity stock and equity stock units, and employee stock purchase
grants. Stock-based compensation expense is measured at grant
date, based on the estimated fair value of the award, reduced by
an estimate of the annualized rate of expected forfeitures, and
is recognized as expense over the employees expected
requisite service period, generally using the straight-line
method. In addition, SFAS No. 123(R) requires the
benefits of tax deductions in excess of recognized compensation
expense to be reported as a financing cash flow, rather than as
an operating cash flow as prescribed under previous accounting
rules. The Company selected the modified prospective method of
adoption, which recognizes compensation expense for the fair
value of all share-based payments granted after January 1,
2006 and for the fair value of all awards granted to employees
prior to January 1, 2006 that remain unvested on the date
of adoption. This method did not require a restatement of prior
periods. However, awards granted and still unvested on the date
of adoption are attributed to expense under
SFAS No. 123(R), including the application of a
forfeiture rate on a prospective basis. Rambus forfeiture
rate represents the historical rate at which Rambus
stock-based awards were surrendered prior to vesting.
SFAS No. 123(R) requires forfeitures to be estimated
at the time of grant and revised on a cumulative
60
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
basis, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Prior to fiscal year 2006, the
Company accounted for forfeitures as they occurred, for the
purposes of pro forma information under SFAS No. 123.
Additionally, Rambus deferred stock compensation balance
of $20.1 million as of December 31, 2005, which was
accounted for under APB No. 25, was reclassified into its
additional paid in capital upon the adoption of
SFAS No. 123(R) on January 1, 2006.
Tax
Effects of Stock-Based Compensation
Rambus will only recognize a tax benefit from stock-based awards
in additional paid-in capital if an incremental tax benefit is
realized after all other tax attributes currently available have
been utilized. In addition, Rambus has elected to account for
the indirect effects of stock-based awards on other tax
attributes, such as the research tax credits, through the
statement of operations as part of the tax effect of stock-based
compensation.
On January 1, 2006, Rambus adopted the long
method in accordance with SFAS No. 123(R) to
calculate the excess tax credit pool. The long method requires a
detailed calculation of the January 1, 2006 balance of the
portion of the excess/shortfall tax benefit credits recorded in
the additional paid-in capital account. The tax effect on
stock-based compensation is calculated as the stock-based
compensation that the Company believes is deductible, multiplied
by the applicable statutory tax rate.
See Note 10 Income Taxes for additional
information.
Computation
of Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing the
earnings (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share
is calculated by dividing the earnings (loss) by the weighted
average number of common shares and potentially dilutive
securities outstanding during the period. Potentially dilutive
common shares consist of incremental common shares issuable upon
exercise of stock options, employee stock purchases, nonvested
equity stock and stock units and shares issuable upon the
conversion of convertible notes. The dilutive effect of the
convertible notes is calculated under the if-converted method.
The dilutive effect of outstanding shares is reflected in
diluted earnings per share by application of the treasury stock
method. This method includes consideration of the amounts to be
paid by the employees, the amount of excess tax benefits that
would be recognized in equity if the instruments were exercised
and the amount of unrecognized stock-based compensation related
to future services. No potential dilutive common shares are
included in the computation of any diluted per share amount when
a loss is reported.
Cash
and Cash Equivalents
Cash equivalents are highly liquid investments with original
maturity of three months or less at the date of purchase. The
Company maintains its cash balances with high quality financial
institutions and has not experienced any material losses.
Marketable
Securities
Available-for-sale securities are carried at fair value, based
on quoted market prices, with the unrealized gains or losses
reported, net of tax, in stockholders equity as part of
accumulated other comprehensive income (loss). The amortized
cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity, both of which are
included in interest and other income, net. Realized gains and
losses are recorded on the specific identification method and
are included in interest and other income, net. The Company
reviews its investments in marketable securities for possible
other than temporary impairments on a regular basis. If any loss
on investment is believed to be other than temporary, a charge
will be recognized. Due to the high credit quality and short
term nature of the Companys investments, there have been
no other than temporary impairments noted to date. The
61
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
classification of funds between short-term and long-term is
based on the Companys anticipated future needs of funds
for operations or other purposes.
Fair
Value of Financial Instruments
The amounts reported for cash equivalents, marketable
securities, account receivables, unbilled receivables, accounts
payable, and accrued liabilities are considered to approximate
fair values based upon comparable market information available
at the respective balance sheet dates. The Company adopted
SFAS No. 157 effective January 1, 2008 for
financial assets and liabilities measured on a recurring basis.
SFAS No. 157 applies to all financial assets and
financial liabilities that are being measured and reported on a
fair value basis and requires disclosure that establishes a
framework for measuring fair value and expands disclosure about
fair value measurements. For the discussion regarding the impact
of the adoption of SFAS No. 157 on the Companys
marketable securities, see Note 16, Fair Value of
Financial Instruments. Additionally, the Company has
adopted SFAS No. 159 effective January 1, 2008.
The Company has not elected the fair value option for financial
instruments not already carried at fair value.
Property
and Equipment
Computer equipment, computer software and furniture and fixtures
are stated at cost and depreciated on a straight-line basis over
an estimated useful life of three years. Certain software
licenses are depreciated over three to five years, depending on
the term of the license. Leasehold improvements are amortized on
a straight-line basis over the shorter of their estimated useful
lives or the initial terms of the leases. Upon disposal, assets
and related accumulated depreciation are removed from the
accounts and the related gain or loss is included in results
from operations.
Goodwill
Costs in excess of the fair value of tangible and other
intangible assets acquired and liabilities assumed in a purchase
business combination are recorded as goodwill.
SFAS No. 142, Goodwill and Other Intangible
Assets, requires that companies not amortize goodwill, but
instead test for impairment at least annually using a two-step
approach. The Company evaluates goodwill, at a minimum, on an
annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable.
Impairment of goodwill is tested at the reporting unit level by
comparing the reporting units carrying amount, including
goodwill, to the fair value of the reporting unit. The fair
values of the reporting units are estimated using a combination
of the income, or discounted cash flows, approach and the market
approach, which utilizes comparable companies data. If the
carrying amount of the reporting unit exceeds its fair value,
goodwill is considered impaired and a second step is performed
to measure the amount of impairment. The second step involves
determining the fair value of goodwill for each reporting unit.
Any excess carrying amount of goodwill over the fair value
determined in the second step will be recorded as a goodwill
impairment loss.
The Company completed the first step of its annual impairment
analysis as of December 31, 2008 and found no instance of
impairment of its recorded goodwill of $4.5 million at
December 31, 2008. If the Companys estimates or the
related assumptions change in the future, it may be required to
record an impairment charge for goodwill to reduce the carrying
amount to its estimated fair value.
Intangible
Assets
The valuation and useful lives of the acquired intangible assets
were allocated based on estimated fair values at the acquisition
dates. The value of the agreements, along with interviews and
managements estimates were used to determine the useful
lives of the assets. The income approach, which includes an
analysis of the cash flows and risks associated with achieving
such cash flows, was the primary technique utilized in valuing
the acquired patented technology. Key assumptions included
estimates of revenue growth, cost of revenue, operating expenses
and
62
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income taxes. The discount rates used in the valuation of
intangible assets reflected the level of risk associated with
the particular technology and the current return on investment
requirements of the market.
Impairment
of Long-Lived Assets and Other Intangible Assets
Rambus evaluates the recoverability of long-lived assets with
finite lives in accordance with SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets.
Intangible assets, including purchased technology and other
intangible assets, are carried at cost less accumulated
amortization. Finite-lived intangible assets are being amortized
on a straight-line basis over their estimated useful lives of
three to ten years. SFAS No. 144 requires recognition
of impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying value amount of an
asset may not be recoverable. An impairment charge is recognized
in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. A
significant impairment of finite-lived intangible assets could
have a material adverse effect on Rambus financial
position and results of operations. During 2008, Rambus
determined that approximately $2.2 million of intangible
assets had no alternative use and was impaired as a result of a
customers change in technology requirements.
Restructuring
Costs
In connection with the Companys exit activities, the
Company records restructuring charges for employee termination
costs, long-lived asset impairments, costs related to leased
facilities to be abandoned or subleased, and other exit-related
costs. Formal plans are developed and approved by management and
accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. Pursuant to SFAS No. 146,
restructuring costs related to employee severance are recorded
when probable and estimable. Fixed assets that are impaired as a
result of restructuring plans are typically accounted for as
assets held for sale or are abandoned. The recognition of
restructuring charges requires the Companys management to
make judgments and estimates regarding the nature, timing, and
amount of costs associated with the planned exit activity,
including estimating sublease income and the fair value, less
selling costs, of property, plant and equipment to be disposed
of. Estimates of future liabilities may change, requiring the
Company to record additional restructuring charges or to reduce
the amount of liabilities already recorded. At the end of each
reporting period, the Company evaluates the remaining accrued
balances to ensure their adequacy, that no excess accruals are
retained and that the utilization of the provisions is for the
intended purpose in accordance with developed exit plans. In the
event circumstances change and the provision is no longer
required, the provision is reversed.
Foreign
Currency Translation
For foreign subsidiaries using the local currency as their
functional currency, assets and liabilities are translated using
current exchange rates in effect at the balance sheet date and
revenue and expense accounts are translated using the weighted
average exchange rate during the period. Adjustments resulting
from such translation are included in stockholders equity
as foreign currency translation adjustments and aggregated
within accumulated other comprehensive income (loss).
For foreign subsidiaries using the U.S. dollar as their
functional currency, remeasurement adjustments for
non-functional currency monetary assets and liabilities are
translated into U.S. dollars at the exchange rate in effect
at the balance sheet date. Revenue, expenses, gains or losses
are translated at the average exchange rate for the period, and
non-monetary assets and liabilities are translated at historical
rates. The resultant remeasurement gains and losses of these
foreign subsidiaries as well as gains and losses from foreign
currency transactions are included in other expense, net in the
statements of operations, and are not significant for any
periods presented.
Segment
Reporting
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and
63
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in assessing performance. Rambus has identified one operating
and reporting segment, the design, development and licensing of
chip interface technologies and architectures. This segment
operates in three geographic regions: North America, Asia
and Europe.
Comprehensive
Income (Loss)
Comprehensive income (loss) is defined as the change in equity
of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources, including
foreign currency translation adjustments and unrealized gains
and losses on marketable securities. Other comprehensive income
(loss), net of tax, is presented in the statements of
stockholders equity and comprehensive income.
Litigation
Rambus is involved in certain legal proceedings. Based upon
consultation with outside counsel handling its defense in these
matters and an analysis of potential results, Rambus accrues for
losses related to litigation if it determines that a loss is
probable and can be reasonably estimated. If a loss cannot be
estimated, Rambus reviews the range of possible outcomes and
accrues the low end of the range of estimates. Any such accrual
would be charged to expense in the appropriate period. Rambus
recognizes litigation expenses in the period in which the
litigation services were provided.
Recent
Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 162, The Hierarchy
of General Accepted Accounting Principle.
SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used
in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP. This
statement shall be effective 60 days following the
Securities and Exchange Commissions approval of the Public
Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in
Conformity With General Accepted Accounting Principles.
The adoption of this pronouncement did not have a material
impact on the Companys financial statements.
In May 2008, the FASB issued FASB Staff Position
(FSP) APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-1),
which clarifies the accounting for convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement. FSP APB
14-1
specifies that an issuer of such instruments should separately
account for the liability and equity components of the
instruments in a manner that reflect the issuers
non-convertible debt borrowing rate when interest costs are
recognized in subsequent periods. FSP APB
14-1 is
effective for fiscal years beginning after December 15,
2008, and retrospective application is required for all periods
presented. The Company is currently evaluating the potential
impact of the adoption of FSP APB
14-1 on its
previously issued financial statements. The Company expects to
record approximately $3.0 million per quarter in non-cash
interest expense related to its outstanding convertible debt
instruments beginning in the first quarter of 2009.
In April 2008, the FASB issued FSP
FAS 142-3,
Determination of Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FAS 142,
Goodwill and Other Intangible Assets. FSP
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives. FSP
FAS 142-3
is effective for fiscal years beginning after December 15,
2008. Earlier adoption is not permitted. The Company is
currently evaluating the potential impact the adoption of
FAS FSP 142-3
will have on its financial statements.
64
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2008, the FASB issued FASB Staff Position
157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
(FSP 157-1)
and
FSP 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2).
FSP 157-1
amends SFAS No. 157 to remove certain leasing
transactions from its scope.
FSP 157-2
delays the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis. These nonfinancial
items include assets and liabilities such as reporting units
measured at fair value in a goodwill impairment test and
nonfinancial assets acquired and liabilities assumed in a
business combination. The provisions of SFAS No. 157
were adopted by the Company, as it applies to its financial
instruments, effective beginning January 1, 2008. The
impact of adoption of SFAS No. 157 is discussed in
Note 16, Fair Value of Financial Instruments.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations. This Statement replaces
SFAS No. 141. SFAS No. 141R establishes
principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS No. 141R
also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for
the Companys business combinations on or after
January 1, 2009.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. SFAS No. 159 is effective for the
Company in the fiscal year beginning January 1, 2008.
SFAS No. 159 permits an entity to choose to measure
many financial instruments and certain other items at fair value
at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected
will be reported in earnings. SFAS No. 159 became
effective in the first quarter of fiscal 2008. The Company has
not elected to apply the fair value option to any of its
financial instruments that are presently accounted for at cost.
|
|
3.
|
Business
Risks and Credit Concentration
|
Rambus operates in the intensely competitive semiconductor
industry, which has been characterized by price erosion, rapid
technological change, short product life cycles, cyclical market
patterns, litigation regarding patent and other intellectual
property rights, and heightened international and domestic
competition. Significant technological changes in the industry
could adversely affect operating results.
Rambus markets and sells its chip interfaces to a narrow base of
customers and generally does not require collateral. For the
year ended December 31, 2008, revenue from Fujitsu, NEC,
Panasonic, Sony, Elpida, and AMD each individually accounted for
10% or more of its total revenue, and in the aggregate,
represented 77% of total revenue. For the year ended
December 31, 2007, revenue from Fujitsu, Elpida, Qimonda
and Toshiba each individually accounted for 10% or more of its
total revenue, and in the aggregate, represented 59% of total
revenue. For the year ended December 31, 2006, revenue from
Fujitsu, Elpida, Qimonda and Intel, each individually accounted
for 10% or more of Rambus total revenue, and in the
aggregate, represented 53% of total revenue. Rambus expects that
its revenue concentration will decrease over time as Rambus
licenses new customers.
As of December 31, 2008 and 2007, Rambus cash, cash
equivalents and marketable securities were invested with two
financial institutions in the form of corporate notes, bonds and
commercial paper, money market funds, U.S. government bonds
and notes, and municipal bonds and notes. The Companys
exposure to market risk for changes in interest rates relates
primarily to its investment portfolio. Rambus places its
investments with high credit issuers and, by policy, attempts to
limit the amount of credit exposure to any one issuer. As stated
in Rambus policy, it will ensure the safety and
preservation of Rambus invested funds by limiting default
risk and market risk. Rambus has no investments denominated in
foreign country currencies and therefore is not subject to
foreign exchange risk from these assets.
65
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rambus mitigates default risk by investing in high credit
quality securities and by positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of
any investment issuer or guarantor. The portfolio includes only
marketable securities with active secondary or resale markets to
enable portfolio liquidity.
Rambus invests its excess cash primarily in U.S. government
agency and treasury notes, commercial paper, corporate notes and
bonds, money market funds and municipal notes and bonds that
mature within three years.
All cash equivalents and marketable securities are classified as
available-for-sale and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Gain, net
|
|
|
Return
|
|
|
|
(Dollars in thousands)
|
|
|
Money Market Funds
|
|
$
|
110,732
|
|
|
$
|
110,732
|
|
|
$
|
|
|
|
|
0.90
|
%
|
Municipal Bonds and Notes
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
3.85
|
%
|
U.S. Government Bonds and Notes
|
|
|
149,304
|
|
|
|
148,178
|
|
|
|
1,126
|
|
|
|
2.79
|
%
|
Corporate Notes, Bonds, and Commercial Paper
|
|
|
79,308
|
|
|
|
79,275
|
|
|
|
33
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
340,344
|
|
|
|
339,185
|
|
|
|
1,159
|
|
|
|
|
|
Cash
|
|
|
5,509
|
|
|
|
5,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
345,853
|
|
|
$
|
344,694
|
|
|
$
|
1,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Gain, net
|
|
|
Return
|
|
|
|
(Dollars in thousands)
|
|
|
Money Market Funds
|
|
$
|
104,836
|
|
|
$
|
104,836
|
|
|
$
|
|
|
|
|
4.82
|
%
|
Municipal Bonds and Notes
|
|
|
3,008
|
|
|
|
3,000
|
|
|
|
8
|
|
|
|
4.81
|
%
|
U.S. Government Bonds and Notes
|
|
|
108,660
|
|
|
|
108,568
|
|
|
|
92
|
|
|
|
4.39
|
%
|
Corporate Notes, Bonds, and Commercial Paper
|
|
|
219,734
|
|
|
|
219,668
|
|
|
|
66
|
|
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
436,238
|
|
|
|
436,072
|
|
|
|
166
|
|
|
|
|
|
Cash
|
|
|
4,644
|
|
|
|
4,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
440,882
|
|
|
$
|
440,716
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Available-for-sale securities are reported at fair value on the
balance sheets and classified as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Cash equivalents
|
|
$
|
110,732
|
|
|
$
|
114,747
|
|
Short term marketable securities
|
|
|
229,612
|
|
|
|
321,491
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
340,344
|
|
|
|
436,238
|
|
Cash
|
|
|
5,509
|
|
|
|
4,644
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
345,853
|
|
|
$
|
440,882
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of cash equivalents and marketable
securities classified by date of contractual maturity and the
associated unrealized gain at December 31, 2008 and
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
Unrealized Gain, net
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
223,458
|
|
|
$
|
361,974
|
|
|
$
|
345
|
|
|
$
|
27
|
|
Due from one year through three years
|
|
|
116,886
|
|
|
|
74,264
|
|
|
|
814
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
340,344
|
|
|
$
|
436,238
|
|
|
$
|
1,159
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized gains, net, were insignificant in relation to our
total available-for-sale portfolio. The unrealized gains, net,
can be primarily attributed to a combination of market
conditions as well as the demand for and duration of the
Companys U.S. government bonds and notes. See
Note 16, Fair Value of Financial Instruments,
for fair value discussion regarding the Companys cash
equivalents and marketable securities.
Property
and Equipment, net
Property and equipment, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Computer equipment
|
|
$
|
24,932
|
|
|
$
|
24,444
|
|
Computer software
|
|
|
35,981
|
|
|
|
31,029
|
|
Leasehold improvements
|
|
|
12,892
|
|
|
|
12,631
|
|
Furniture and fixtures
|
|
|
7,525
|
|
|
|
7,003
|
|
Construction in progress
|
|
|
1,029
|
|
|
|
2,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,359
|
|
|
|
77,325
|
|
Less accumulated depreciation and amortization
|
|
|
(60,069
|
)
|
|
|
(52,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,290
|
|
|
$
|
24,587
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2007 and 2006 was $11.3 million, $11.2 million and
$11.2 million, respectively.
67
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Changes in the carrying value of goodwill for the following
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Beginning balance at January 1
|
|
$
|
4,454
|
|
|
$
|
3,315
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
1,139
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31
|
|
$
|
4,454
|
|
|
$
|
4,454
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
Accumulated other comprehensive income is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
$
|
86
|
|
|
$
|
25
|
|
Unrealized gain on available for sale securities, net of tax
|
|
|
783
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
869
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
As a result of providing a full valuation allowance of the
deferred tax assets in the U.S., the Company reversed
$0.4 million of unrealized gain (loss) previously recorded
in other comprehensive income for the year ended
December 31, 2008.
|
|
6.
|
Commitments
and Contingencies
|
Rambus leases its present office facilities in Los Altos,
California, under an operating lease agreement through
December 31, 2010. As part of this lease transaction, the
Company provided a letter of credit restricting approximately
$0.6 million of its cash as collateral for certain
obligations under the lease. The cash is restricted as to
withdrawal and is managed by a third party subject to certain
limitations under the Companys investment policy. The
Company also leases a facility in Mountain View, California,
through November 11, 2009, which the Company vacated during
the fourth quarter of 2008 and is subleasing at a rate equal to
its rent associated with the facility. The Company leases a
facility in Chapel Hill, North Carolina through
November 15, 2009, a facility for the Companys design
center in Bangalore, India through November 4, 2012 and a
facility in Tokyo, Japan through July 31, 2010. In
addition, the Company also leases office facilities in various
international locations under non-cancelable leases that range
in terms from month-to-month to one year.
On February 1, 2005, Rambus issued $300.0 million
aggregate principal amount of zero coupon convertible senior
notes (the convertible notes) due February 1,
2010 to Credit Suisse First Boston LLC and Deutsche Bank
Securities as initial purchasers who then sold the convertible
notes to institutional investors. Rambus elected to pay the
principal amount of the convertible notes in cash when they are
due. Subsequently, Rambus repurchased a total of
$140.0 million in face value of the outstanding convertible
notes in 2005. During 2008, Rambus repurchased an additional
$23.1 million in face value of the outstanding convertible
notes for $18.7 million which resulted in a gain of
$4.4 million. The convertible notes outstanding as of
December 31, 2008 were $137.0 million and were
classified as a non-current liability in the accompanying
consolidated balance sheets.
68
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2008, Rambus material contractual
obligations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Year
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Contractual obligations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
15,544
|
|
|
$
|
8,008
|
|
|
$
|
6,453
|
|
|
$
|
630
|
|
|
$
|
453
|
|
|
$
|
|
|
Convertible notes
|
|
|
136,950
|
|
|
|
|
|
|
|
136,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software license agreements(2)
|
|
|
507
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
153,001
|
|
|
$
|
8,515
|
|
|
$
|
143,403
|
|
|
$
|
630
|
|
|
$
|
453
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The above table does not reflect possible payments in connection
with uncertain tax benefits associated with FASB Interpretation
No. (FIN) 48 of approximately $9.6 million,
including $7.7 million recorded as a reduction of long-term
deferred tax assets and $1.9 million in long-term income
taxes payable, as of December 31, 2008. As noted below in
Note 10, Income Taxes, although it is possible
that some of the unrecognized tax benefits could be settled
within the next 12 months, the Company cannot reasonably
estimate the outcome at this time. |
|
(2) |
|
Rambus has commitments with various software vendors for
non-cancellable license agreements that generally have terms
greater than one year. The above table summarizes those
contractual obligations as of December 31, 2008, which are
also included on Rambus consolidated balance sheets under
current and other long-term liabilities. |
Rent expense was approximately $6.9 million,
$6.6 million and $6.0 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Deferred rent, included primarily in other long-term
liabilities, was approximately $1.1 million and
$1.5 million as of December 31, 2008 and
December 31, 2007, respectively.
In connection with certain litigation taking place in Germany,
the German courts have requested that the Company set aside
adequate funds to cover potential court cost claims.
Accordingly, as of December 31, 2007, approximately
$1.7 million was restricted as to withdrawal, managed by a
third party subject to certain limitations under the
Companys investment policy and included in restricted
cash, long-term, to cover the German court requirements. During
2008, the entire $1.7 million of restricted cash was
released pursuant to an order issued by the German courts.
Indemnifications
Rambus enters into standard license agreements in the ordinary
course of business. Although Rambus does not indemnify most of
its customers, there are times when an indemnification is a
necessary means of doing business. Indemnifications cover
customers for losses suffered or incurred by them as a result of
any patent, copyright, or other intellectual property
infringement claim by any third party with respect to
Rambus products. The maximum amount of indemnification
Rambus could be required to make under these agreements is
generally limited to fees received by Rambus. Rambus estimates
the fair value of its indemnification obligation as
insignificant, based upon its history of litigation concerning
product and patent infringement claims. Accordingly, Rambus has
no liabilities recorded for indemnification under these
agreements as of December 31, 2008 or December 31,
2007.
Several securities fraud class actions, private lawsuits and
shareholder derivative actions were filed in state and federal
courts against certain of the Companys current and former
officers and directors related to the stock option granting
actions. As permitted under Delaware law, Rambus has agreements
whereby its officers and directors are indemnified for certain
events or occurrences while the officer or director is, or was
serving, at Rambus request in
69
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
such capacity. The term of the indemnification period is for the
officers or directors term in such capacity. The
maximum potential amount of future payments Rambus could be
required to make under these indemnification agreements is
unlimited. Rambus has a director and officer insurance policy
that reduces Rambus exposure and enables Rambus to recover
a portion of future amounts to be paid. As a result of these
indemnification agreements, Rambus continues to make payments on
behalf of current and former officers. As of December 31,
2008, the Company had made payments of approximately
$6.5 million on their behalf. As of December 31, 2007,
the Company had made payments of approximately $5.7 million
on their behalf. These payments were recorded under costs of
restatement and related legal activities in the consolidated
statements of operations.
|
|
7.
|
Equity
Incentive Plans and Stock-Based Compensation
|
Stock
Option Plans
The Company has three stock option plans under which grants are
currently outstanding: the 1997 Stock Option Plan (the
1997 Plan), the 1999 Non-statutory Stock Option Plan
(the 1999 Plan) and the 2006 Equity Incentive Plan
(the 2006 Plan). Grants under all plans typically
have a requisite service period of 60 months, have
straight-line or graded vesting schedules (the 1997 and 1999
plans only) and expire not more than ten years from date of
grant. Effective with stockholder approval of the 2006 Plan in
May 2006, no further awards are being made under the 1997 Plan
and the 1999 Plan but the plans will continue to govern awards
previously granted under those plans.
The 2006 Plan was approved by the stockholders in May 2006. The
2006 Plan, as amended, provides for the issuance of the
following types of incentive awards: (i) stock options;
(ii) stock appreciation rights; (iii) restricted
stock; (iv) restricted stock units; (v) performance
shares and performance units; and (vi) other stock or cash
awards. This plan provides for the granting of awards at less
than fair market value of the common stock on the date of grant,
but such grants would be counted against the numerical limits of
available shares at a ratio of 1.5 to 1. The Board of Directors
reserved 8,400,000 shares in March 2006 for issuance under
this plan, subject to stockholder approval. Upon stockholder
approval of this Plan on May 10, 2006, the 1997 Plan was
replaced and the 1999 Plan was terminated. Those who will be
eligible for awards under the 2006 Plan include employees,
directors and consultants who provide services to the Company
and its affiliates. These options typically have a requisite
service period of 60 months, have straight-line vesting
schedules, and expire not more than ten years from date of
grant. The Board expects that the number of shares reserved for
issuance under the 2006 Plan will be sufficient to operate the
plan for two years from its inception without having to request
the approval of additional shares from the Companys
stockholders. The Board will periodically review actual share
consumption under the 2006 Plan and may make a request for
additional shares as needed.
As of December 31, 2008, 2,556,984 shares of the
8,400,000 shares approved under the 2006 Plan remain
available for grant. The 2006 Plan is now Rambus only plan
for providing stock-based incentive compensation to eligible
employees, executive officers and non-employee directors and
consultants.
70
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of shares available for grant under the Companys
plans is as follows:
|
|
|
|
|
|
|
Shares Available
|
|
|
|
for Grant
|
|
|
Shares available as of December 31, 2005
|
|
|
5,592,466
|
|
Additional shares reserved
|
|
|
10,818,836
|
|
Stock options granted
|
|
|
(2,397,850
|
)
|
Stock options forfeited
|
|
|
4,879,815
|
|
Stock options expired under former plans
|
|
|
(10,923,684
|
)
|
Nonvested equity stock and stock units granted
|
|
|
(103,383
|
)
|
|
|
|
|
|
Shares available as of December 31, 2006
|
|
|
7,866,200
|
|
Stock options granted
|
|
|
(3,202,800
|
)
|
Stock options forfeited
|
|
|
1,791,361
|
|
Stock options expired under former plans
|
|
|
(1,523,097
|
)
|
Nonvested equity stock and stock units granted(1)
|
|
|
(342,533
|
)
|
|
|
|
|
|
Shares available as of December 31, 2007
|
|
|
4,589,131
|
|
Stock options granted
|
|
|
(1,884,490
|
)
|
Stock options forfeited
|
|
|
2,188,422
|
|
Stock options expired under former plans
|
|
|
(1,359,483
|
)
|
Nonvested equity stock and stock units granted(1)
|
|
|
(1,056,096
|
)
|
Nonvested equity stock and stock units forfeited(1)
|
|
|
79,500
|
|
|
|
|
|
|
Total shares available for grant as of December 31, 2008
|
|
|
2,556,984
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of determining the number of shares available for
grant under the 2006 Plan against the maximum number of shares
authorized, each restricted stock granted reduces the number of
shares available for grant by 1.5 shares and each
restricted stock forfeited increases shares available for grant
by 1.5 shares. |
During the fourth quarter of fiscal 2007, the Company reversed
approximately $2.1 million of liability related to variable
options modifications to additional paid-in capital.
On October 18, 2007, the Company commenced a tender offer
(the Offer) to certain of its employees under which
they would be allowed to increase the exercise price or choose a
fixed period exercise term for certain options in order to avoid
certain negative tax consequences under Section 409A of the
Internal Revenue Code and similar state law. A total of 164
eligible option holders participated in the Offer. The Company
accepted for amendment options to purchase an aggregate of
3,959,225 shares of the Companys Common Stock, of
which options to purchase 781,178 shares of the
Companys Common Stock were amended by making a fixed date
election. In connection with the surrender of those options for
amendment, the Company has amended those options on the
expiration date of the Offer following the expiration of the
Offer. There was no material incremental compensation expense
recognized as a result of the Offer.
71
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
General
Stock Option Information
The following table summarizes stock option activity under the
1997, 1999 and 2006 Plans for the years ended December 31,
2008 and information regarding stock options outstanding,
exercisable, and vested and expected to vest as of
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Term
|
|
|
Value
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Outstanding as of December 31, 2005
|
|
|
26,027,517
|
|
|
$
|
16.30
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,397,850
|
|
|
|
26.99
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(4,872,675
|
)
|
|
|
11.34
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(4,879,815
|
)
|
|
|
18.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2006
|
|
|
18,672,877
|
|
|
|
18.32
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
3,202,800
|
|
|
|
18.72
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(1,333,578
|
)
|
|
|
8.43
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(1,791,361
|
)
|
|
|
22.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2007
|
|
|
18,750,738
|
|
|
$
|
20.17
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,884,490
|
|
|
|
19.70
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(1,873,067
|
)
|
|
|
9.70
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(2,188,422
|
)
|
|
|
20.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
16,573,739
|
|
|
|
21.19
|
|
|
|
5.39
|
|
|
$
|
31,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2008
|
|
|
15,375,096
|
|
|
|
21.88
|
|
|
|
5.41
|
|
|
|
23,828
|
|
Options exercisable at December 31, 2008
|
|
|
11,016,407
|
|
|
|
22.44
|
|
|
|
4.53
|
|
|
|
22,824
|
|
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value for in-the-money options at
December 31, 2008, based on the $15.92 closing stock price
of Rambus Common Stock on December 31, 2008 on the
Nasdaq Global Select Market, which would have been received by
the option holders had all option holders exercised their
options as of that date. The total number of in-the-money
options outstanding and exercisable as of December 31, 2008
was 5,615,328 and 4,332,079, respectively.
72
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the information about stock
options outstanding and exercisable as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of Exercise
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 2.50 $ 4.86
|
|
|
1,883,982
|
|
|
|
2.61
|
|
|
$
|
4.02
|
|
|
|
1,352,884
|
|
|
$
|
4.61
|
|
$ 5.93 $14.18
|
|
|
1,731,732
|
|
|
|
4.12
|
|
|
|
11.80
|
|
|
|
1,508,585
|
|
|
|
11.63
|
|
$14.24 $15.67
|
|
|
1,884,464
|
|
|
|
4.31
|
|
|
|
15.13
|
|
|
|
1,367,067
|
|
|
|
15.16
|
|
$15.80 $17.95
|
|
|
1,799,520
|
|
|
|
5.99
|
|
|
|
17.00
|
|
|
|
1,354,144
|
|
|
|
17.05
|
|
$18.04 $18.62
|
|
|
350,833
|
|
|
|
4.73
|
|
|
|
18.23
|
|
|
|
300,416
|
|
|
|
18.22
|
|
$18.69 $18.69
|
|
|
1,711,548
|
|
|
|
8.09
|
|
|
|
18.69
|
|
|
|
662,230
|
|
|
|
18.69
|
|
$19.13 $19.86
|
|
|
2,034,835
|
|
|
|
8.80
|
|
|
|
19.66
|
|
|
|
503,328
|
|
|
|
19.56
|
|
$20.31 $26.19
|
|
|
1,709,930
|
|
|
|
6.51
|
|
|
|
23.29
|
|
|
|
1,057,330
|
|
|
|
23.37
|
|
$26.45 $37.66
|
|
|
2,208,622
|
|
|
|
4.26
|
|
|
|
32.65
|
|
|
|
1,843,638
|
|
|
|
33.36
|
|
$38.48 $92.62
|
|
|
1,258,273
|
|
|
|
3.55
|
|
|
|
58.62
|
|
|
|
1,066,785
|
|
|
|
61.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 2.50 $92.62
|
|
|
16,573,739
|
|
|
|
5.39
|
|
|
$
|
21.19
|
|
|
|
11,016,407
|
|
|
$
|
22.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there was $50.2 million of
total unrecognized compensation cost, net of expected
forfeitures, related to unvested stock-based compensation
arrangements granted under the stock option plans. That cost is
expected to be recognized over a weighted-average period of
2.7 years. The total fair value of options vested for the
years ended December 31, 2008, 2007 and 2006 was
$209.7 million, $262.0 million and $183.6 million.
Employee
Stock Purchase Plans
During the three year period ended December 31, 2008, the
Company had two employee stock purchase plans, the 1997 Employee
Stock Purchase Plan (the 1997 Purchase Plan) and the
2006 Employee Stock Purchase Plan (the 2006 Purchase
Plan). The 1997 Purchase Plan provided for offerings of
four consecutive overlapping six month offering periods. Under
the 1997 Purchase Plan, employees were able to purchase stock at
the lower of 85% of the fair market value on the first day of
the 24 month offering period (the enrollment date), or the
purchase date (the exercise date). Employees generally were not
able to purchase more than the number of shares having a value
greater than $25,000 in any calendar year, as measured at the
beginning of the offering period.
The 1997 Purchase Plan terminated effective with the
October 31, 2007 purchase date in accordance with its
governing documents and no further grants will be made.
In March 2006, the Company adopted the 2006 Employee Stock
Purchase Plan, as amended (the 2006 Purchase Plan)
and reserved 1,600,000 shares, subject to stockholder
approval which was received on May 10, 2006. Employees
generally will be eligible to participate in this plan if they
are employed by Rambus for more than 20 hours per week and
more than five months in a fiscal year. The 2006 Purchase Plan
provides for six month offering periods, with a new offering
period commencing on the first trading day on or after May 1 and
November 1 of each year. Under this plan, employees may purchase
stock at the lower of 85% of the beginning of the offering
period (the enrollment date), or the end of each offering period
(the exercise date). Employees generally may not purchase more
than the number of shares having a value greater than $25,000 in
any calendar year, as measured at the purchase date.
During the year ended December 31, 2008, the Company issued
334,929 shares under the 2006 Purchase Plan at a weighted
average price of $11.87 per share. During the years ended
December 31, 2007 and 2006, the Company issued
77,146 shares and 208,820 shares, respectively, at a
weighted average price of $10.88 each year under the
73
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
now expired 1997 Purchase Plan. As of December 31, 2008,
1,265,071 shares remain available for issuance under the
2006 Purchase Plan. As of December 31, 2008, there was
$0.7 million of total unrecognized compensation cost
related to share-based compensation arrangements granted under
the 2006 Purchase Plan. That cost is expected to be recognized
over four months.
Stock-Based
Compensation
Stock
Options
During the years ended December 31, 2008 and 2007, Rambus
granted 1,884,490 and 3,202,800 stock options, respectively,
with an estimated total grant-date fair value of
$21.3 million and $39.4 million, respectively. During
the years ended December 31, 2008, 2007 and 2006, Rambus
recorded stock-based compensation related to stock options of
$32.9 million, $42.3 million and $38.1 million,
respectively.
The effect of recording stock-based compensation for the years
ended December 31, 2007 and 2006 includes a
$4.1 million and $1.1 million charge, respectively,
resulting from the Companys modifying the terms of
approximately 200 stock option grants to officers, directors and
employees, by offering an extension of time to exercise in
connection with the Offer discussed under Stock Option
Plans above.
The total intrinsic value of options exercised was
$16.7 million, $15.2 million and $110.2 million
for the years ended December 31, 2008, 2007 and 2006,
respectively. Intrinsic value is the total value of exercised
shares based on the price of the Companys Common Stock at
the time of exercise less the cash received from the employees
to exercise the options.
During the years ended December 31, 2008, 2007 and 2006,
proceeds from employee stock option exercises totaled
approximately $18.2 million (of which $0.5 million was
included in prepaid and other assets as of December 31,
2008 and was subsequently received in January 2009),
$11.2 million and $55.3 million, respectively.
There were no tax benefits realized as a result of employee
stock option exercises, stock purchase plan purchases, and
vesting of equity stock and stock units for the years ended
December 31, 2008, 2007 and 2006 calculated in accordance
with SFAS No. 123(R).
Employee
Stock Purchase Plans
During the years ended December 31, 2008, 2007 and 2006,
Rambus recorded stock-based compensation related to employee
stock purchase plans of $1.8 million, $53,000 and
$1.1 million, respectively. During 2007, the Company
reversed approximately $0.8 million of compensation expense
due to a change in estimate of expected contributions.
Valuation
Assumptions
Rambus estimates the fair value of stock options using the
Black-Scholes-Merton model (BSM). This is the same
model which it previously used in preparing its pro forma
disclosure required under SFAS No. 123. The BSM model
determines the fair value of stock-based compensation and is
affected by Rambus stock price on the date of the grant as
well as assumptions regarding a number of highly complex and
subjective variables. These variables include expected
volatility, expected life of the award, expected dividend rate,
and expected risk-free rate of return. The assumptions for
expected volatility and expected life are the two assumptions
that significantly affect the grant date fair value. If actual
results differ significantly from these estimates, stock-based
compensation expense and Rambus results of operations
could be materially impacted.
74
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of stock awards is estimated as of the grant date
using the BSM option-pricing model assuming a dividend yield of
0% and the additional weighted-average assumptions as listed in
the following tables:
|
|
|
|
|
|
|
|
|
Stock Option Plans for Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Stock Option Plans
|
|
|
|
|
|
|
Expected stock price volatility
|
|
63%-114%
|
|
53%-69%
|
|
61%-78%
|
Risk free interest rate
|
|
2.1%-3.3%
|
|
3.5%-4.9%
|
|
4.4%-5.0%
|
Expected term (in years)
|
|
5.3
|
|
6.2
|
|
6.3-6.6
|
Weighted-average fair value of stock options granted
|
|
$11.32
|
|
$12.29
|
|
$17.51
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan for Years Ended
December 31,
|
|
|
2008
|
|
2007
|
|
2006(1)
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
Expected stock price volatility
|
|
58%-103%
|
|
64%
|
|
|
Risk free interest rate
|
|
1.1%-1.7%
|
|
4.2%
|
|
|
Expected term (in years)
|
|
0.5
|
|
0.5
|
|
|
Weighted-average fair value of purchase rights granted under the
purchase plan
|
|
$5.06
|
|
$6.62
|
|
|
|
|
|
(1) |
|
No grants were made under the employee stock purchase plan in
2006. |
Expected Stock Price Volatility: In accordance
with the guidance in Staff Accounting Bulletin (SAB)
No. 107, given the volume of market activity in its market
traded options greater than one year, Rambus determined that it
would use the implied volatility of its nearest-to-the-money
traded options. The Company believes that the use of implied
volatility is more reflective of market conditions and a better
indicator of expected volatility than historical volatility. If
there is not sufficient volume in its market traded options, the
Company will use an equally weighted blend of historical and
implied volatility.
Risk-free Interest Rate: Rambus bases the
risk-free interest rate used in the BSM valuation method on
implied yield currently available on the U.S. Treasury
zero-coupon issues with an equivalent term. Where the expected
terms of Rambus stock-based awards do not correspond with
the terms for which interest rates are quoted, Rambus used the
nearest rate from the available maturities.
Expected Term: The expected term of options
granted represents the period of time that options granted are
expected to be outstanding. Prior to the adoption of
SFAS No. 123(R), the Company used only historical data
to estimate option exercise and employee termination within the
model. For the years ended December 31, 2007 and 2006, the
average expected life was determined using a Monte Carlo
simulation model.
In the first quarter of 2008, the Company changed its
methodology for determining estimated expected term for employee
stock options from the Monte Carlo simulation model to observed
historical exercise patterns. The change in methodology resulted
from an analysis of observed historical exercise patterns which
better approximates the actual expected term. The impact of this
change was not significant to the Companys results from
operations.
The expected term of ESPP grants is based upon the length of
each respective purchase period.
Nonvested
Equity Stock and Stock Units
For the year ended December 31, 2008, Rambus granted
nonvested equity stock units to certain officers and employees,
totaling 704,064 shares under the 2006 Plan. These awards
have a service condition, generally a service period of four
years, except in the case of grants to directors, for which the
service period is one year. The nonvested
75
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
equity stock units were valued at the date of grant giving them
a fair value of approximately $12.6 million. As of
December 31, 2008, 48,000 nonvested equity stock units
which were granted in 2008 to its chief executive officer with
vesting subject to the achievement of certain performance
conditions related to revenue goals and other factors were
cancelled. The Company did not recognize any compensation
expense for these performance equity stock units since the
Company did not believe that the performance conditions would be
met.
For the three years ended December 31, 2008, 2007, and
2006, Rambus recorded stock-based compensation expense of
approximately $3.1 million, $2.4 million and
$1.3 million, respectively, related to all outstanding
unvested equity stock grants. Beginning in 2008, compensation
expense was adjusted for an estimate of forfeitures for non
performance-based grants, based on managements future
expectations. Unrecognized stock-based compensation related to
all nonvested equity stock grants, net of an estimate of
forfeitures, was approximately $11.7 million at
December 31, 2008. This cost is expected to be recognized
over a weighted average period of 2.9 years.
The following table reflects the activity related to nonvested
equity stock and stock units for the three years ended
December 31, 2008:
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Weighted-
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Average
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Grant-Date
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Nonvested Equity Stock and Stock Units
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Shares
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Fair Value
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Nonvested at December 31, 2005
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$
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Granted
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103,383
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35.13
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Vested
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(29,613
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)
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32.62
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Forfeited
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Nonvested at December 31, 2006
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73,770
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$
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36.14
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Granted
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