Edgar Filing: RAMBUS INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-22339

_______________________________

RAMBUS INC.

(Exact name of registrant as specified in its charter)

_______________________________



Delaware		94-3112828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1050 Enterprise Way, Suite 700 Sunnyvale, California				94089
(Address of principal executive offices)				(ZIP Code)

Registrant’s telephone number, including area code: (408) 462-8000

_______________________________

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No 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.



Large accelerated filer ý		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 109,896,610 as of June 30, 2016.

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RAMBUS INC.

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	PAGE
Note Regarding Forward-Looking Statements	3
PART I. FINANCIAL INFORMATION	5
Item 1. Financial Statements (Unaudited):	5
Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015	6
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015	7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	8
Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures about Market Risk	41
Item 4. Controls and Procedures	42
PART II. OTHER INFORMATION	43
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56
Signature	57
Exhibit Index	58

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:


•	Success in the markets of our products and services or our customers’ products;


•	Sources of competition;


•	Research and development costs and improvements in technology;


•	Sources, amounts and concentration of revenue, including royalties;


•	Success in signing and renewing license agreements;


•	Terms of our licenses and amounts owed under license agreements;


•	Technology product development;


•	Dispositions, acquisitions, mergers or strategic transactions and our related integration efforts, including our recent acquisition of Smart Card Software Ltd. and our pending acquisitions of Semtech Corporation's Snowbush IP and Inphi Corporation's Memory Interconnect Business;


•	Integration of announced acquisitions;


•	Impairment of goodwill and long-lived assets;


•	Pricing policies of our customers;


•	Changes in our strategy and business model, including the expansion of our portfolio of inventions, products and solutions to address additional markets in lighting, chip and system security;


•	Deterioration of financial health of commercial counterparties and their ability to meet their obligations to us;


•	Effects of security breaches or failures in our or our customers’ products and services on our business;


•	Engineering, sales and general and administration expenses;


•	Contract revenue;


•	Operating results;


•	International licenses and operations;


•	Effects of changes in the economy and credit market on our industry and business;


•	Ability to identify, attract, motivate and retain qualified personnel;


•	Effects of government regulations on our industry and business;


•	Manufacturing and supply partners and/or sale and distribution channels;


•	Growth in our business;


•	Methods, estimates and judgments in accounting policies;


•	Adoption of new accounting pronouncements;


•	Effective tax rates;


•	Restructurings and plans of termination;


•	Realization of deferred tax assets/release of deferred tax valuation allowance;


•	Trading price of our common stock;


•	Internal control environment;


•	The level and terms of our outstanding debt and the repayment or financing of such debt;


•	Litigation expenses;


•	Protection of intellectual property;


•	Any changes in laws, agency actions and judicial rulings that may impact the ability to enforce intellectual property rights;


•	Indemnification and technical support obligations;

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•	Equity repurchase plans;


•	Issuances of debt or equity securities, which could involve restrictive covenants or be dilutive to our existing stockholders;


•	Outcome and effect of potential future intellectual property litigation and other significant litigation; and


•	Likelihood of paying dividends.

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,” “projecting” 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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RAMBUS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2016			December 31, 2015
	(In thousands, except shares and par value)
ASSETS
Current assets:
Cash and cash equivalents	$	188,011		$	143,764
Marketable securities	71,320			143,942
Accounts receivable	11,326			16,408
Prepaids and other current assets	12,993			11,476
Total current assets	283,650			315,590
Intangible assets, net	100,900			64,266
Goodwill	162,715			116,899
Property, plant and equipment, net	55,056			56,616
Deferred tax assets	159,097			162,485
Other assets	4,365			2,165
Total assets	$	765,783		$	718,021
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,269		$	4,096
Accrued salaries and benefits	10,040			12,278
Deferred revenue	10,347			5,780
Accrued acquisition liability	11,476			—
Other current liabilities	5,850			6,212
Total current liabilities	43,982			28,366
Convertible notes, long-term	122,744			119,418
Long-term imputed financing obligation	38,355			38,625
Long-term income taxes payable	2,800			2,903
Deferred tax liabilities	14,984			—
Other long-term liabilities	556			2,176
Total liabilities	223,421			191,488
Commitments and contingencies (Notes 9 and 13)
Stockholders’ equity:
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares
Issued and outstanding: no shares at June 30, 2016 and December 31, 2015	—			—
Common stock, $.001 par value:
Authorized: 500,000,000 shares
Issued and outstanding: 109,896,610 shares at June 30, 2016 and 109,287,591 shares at December 31, 2015	110			109
Additional paid-in capital	1,164,565			1,130,368
Accumulated deficit	(616,117		)	(604,317		)
Accumulated other comprehensive income (loss)	(6,196		)	373
Total stockholders’ equity	542,362			526,533
Total liabilities and stockholders’ equity	$	765,783		$	718,021

See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(In thousands, except per share amounts)
Revenue:
Royalties	$	62,835		$	62,387		$	125,712		$	129,350
Contract and other revenue	13,666			10,425			23,471			16,376
Total revenue	76,501			72,812			149,183			145,726
Operating costs and expenses:
Cost of revenue*	14,089			12,137			26,296			22,893
Research and development*	28,753			29,188			57,280			57,722
Sales, general and administrative*	21,789			17,339			44,884			35,841
Gain from sale of intellectual property	—			(896		)	—			(3,156		)
Gain from settlement	(138		)	(510		)	(579		)	(1,020		)
Total operating costs and expenses	64,493			57,258			127,881			112,280
Operating income	12,008			15,554			21,302			33,446
Interest income and other income (expense), net	1,138			203			1,380			335
Interest expense	(3,163		)	(3,091		)	(6,304		)	(6,174		)
Interest and other income (expense), net	(2,025		)	(2,888		)	(4,924		)	(5,839		)
Income before income taxes	9,983			12,666			16,378			27,607
Provision for income taxes	6,107			5,805			10,624			11,244
Net income	$	3,876		$	6,861		$	5,754		$	16,363
Net income per share:
Basic	$	0.04		$	0.06		$	0.05		$	0.14
Diluted	$	0.03		$	0.06		$	0.05		$	0.14
Weighted average shares used in per share calculation:
Basic	109,904			116,027			109,818			115,683
Diluted	112,061			120,939			112,202			119,225

_________________________________________

* Includes stock-based compensation:



Cost of revenue	$	14	$	27	$	28	$	39
Research and development	$	2,109	$	1,988	$	4,189	$	3,755
Sales, general and administrative	$	2,926	$	2,400	$	5,696	$	4,387

See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2016			2015			2016			2015
Net income	$	3,876		$	6,861		$	5,754		$	16,363
Other comprehensive income (loss):
Foreign currency translation adjustment	(5,559		)	9			(6,199		)	9
Unrealized gain (loss) on marketable securities, net of tax	(188		)	(26		)	(371		)	27
Total comprehensive income (loss)	$	(1,871	)	$	6,844		$	(816	)	$	16,399

See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended
	June 30,
	2016			2015
	(In thousands)
Cash flows from operating activities:
Net income	$	5,754		$	16,363
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	9,913			8,181
Depreciation	5,965			6,295
Amortization of intangible assets	15,871			12,645
Non-cash interest expense and amortization of convertible debt issuance costs	3,326			3,140
Deferred income taxes	2,816			1,233
Excess tax benefits from stock-based compensation	(591		)	(483		)
Gain from sale of intellectual property and property, plant and equipment, net	(37		)	(3,151		)
Effect of exchange rate on assumed cash liability from acquisition	(624		)	—
Change in operating assets and liabilities:
Accounts receivable	14,809			(744		)
Prepaid expenses and other assets	(1,856		)	(2,106		)
Accounts payable	2,167			(1,873		)
Accrued salaries and benefits and other liabilities	(7,422		)	(3,803		)
Income taxes payable	(3,196		)	282
Deferred revenue	1,794			2,418
Net cash provided by operating activities	48,689			38,397
Cash flows from investing activities:
Purchases of property, plant and equipment	(3,557		)	(3,117		)
Purchases of marketable securities	(54,869		)	(97,665		)
Maturities of marketable securities	81,971			70,396
Proceeds from sale of marketable securities	44,546			26,648
Proceeds from sale of intellectual property and property, plant and equipment	—			3,404
Acquisition of business, net of cash acquired	(80,523		)	—
Net cash used in investing activities	(12,432		)	(334		)
Cash flows from financing activities:
Proceeds received from issuance of common stock under employee stock plans	8,259			9,053
Principal payments against lease financing obligation	(295		)	(208		)
Excess tax benefits from stock-based compensation	591			483
Net cash provided by financing activities	8,555			9,328
Effect of exchange rate changes on cash and cash equivalents	(565		)	(40		)
Net increase in cash and cash equivalents	44,247			47,351
Cash and cash equivalents at beginning of period	143,764			154,126
Cash and cash equivalents at end of period	$	188,011		$	201,477

Non-cash investing activities during the period:
Property, plant and equipment received and accrued in accounts payable and other liabilities	$	246		$	677
Non-cash financing activities during the period:
Additional purchase consideration from acquisition	$	11,476		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Investments in entities with less than 20% ownership or in which the Company does not have the ability to significantly influence the operations of the investee are being accounted for using the cost method and are included in other assets.

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2015.

Operating Segment Definitions

Operating segments are based upon Rambus' internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker ("CODM") to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.

The Company determined its CODM to be the Chief Executive Officer and determined its operating segments to be: (1) Memory and Interface Division ("MID"), which focuses on the design, development and licensing of technology that is related to memory and interfaces; (2) Cryptography Research Division ("CRD"), which focuses on the design, development and licensing of technologies for chip and system security and anti-counterfeiting; (3) Emerging Solutions Division ("ESD"), which includes the computational sensing and imaging group along with the development efforts in the area of emerging technologies; and (4) Lighting and Display Technologies ("LDT"), which focuses on the design, development and licensing of technologies for lighting.

For the three and six months ended June 30, 2016, only MID and CRD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining other operating segments were shown under “Other.”

Reclassifications

Certain prior periods' amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income for any of the periods presented. Refer to Note 8 "Convertible Notes" for details.

2. Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13. The purpose of this ASU is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12 which amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. This ASU is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the FASB's new revenue standard, ASU No. 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning

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after December 15, 2017. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions, which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. This ASU will become effective for the Company on January 1, 2017. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires assets and liabilities arising from leases, including operating leases, to be recognized on the balance sheet. This ASU will become effective for the Company in the first quarter of fiscal year 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes (Topic 740)," to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU as of December 31, 2015 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company has adopted this ASU in the first quarter of 2016 on a retrospective basis. Refer to Note 8, "Convertible Notes" for further details.

In May 2014, the FASB and International Accounting Standards Board issued their converged accounting standards update on revenue recognition. The core principle of the new guidance is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. In August 2015, the FASB deferred the effective date of this accounting standards update by one year. The new accounting standards update becomes effective for the Company on January 1, 2018. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.

3. Earnings Per Share

Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings 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, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. 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 instrument was 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 net loss is reported.

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The following table sets forth the computation of basic and diluted net income per share:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Net income per share:	(In thousands, except per share amounts)
Numerator:
Net income	$	3,876	$	6,861	$	5,754	$	16,363
Denominator:
Weighted-average shares outstanding - basic	109,904		116,027		109,818		115,683
Effect of potential dilutive common shares	2,157		4,912		2,384		3,542
Weighted-average shares outstanding - diluted	112,061		120,939		112,202		119,225
Basic net income per share	$	0.04	$	0.06	$	0.05	$	0.14
Diluted net income per share	$	0.03	$	0.06	$	0.05	$	0.14

For the three months ended June 30, 2016 and 2015, options to purchase approximately 2.3 million and 2.6 million shares, respectively, and for the six months ended June 30, 2016 and 2015, options to purchase approximately 2.3 million and 2.6 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense.

4. Intangible Assets and Goodwill

Goodwill

The following tables present goodwill information for each of the reportable segments for the six months ended June 30, 2016:



Reportable Segment:	As of December 31, 2015		Additions to Goodwill (1)		Impairment Charge of Goodwill		Effect of Exchange Rates (2)			As of June 30, 2016
	(In thousands)
MID	$	19,905	$	—	$	—	$	—		$	19,905
CRD	96,994		47,239		—		(1,423		)	142,810
Total	$	116,899	$	47,239	$	—	$	(1,423	)	$	162,715

(1) During the first quarter of 2016, the Company acquired Smart Card Software Limited (“SCS”) which resulted in the addition to goodwill. See Note 16, “Acquisition” for further details.

(2) Effect of exchange rates relates to foreign currency translation adjustments for the period.



	As of
	June 30, 2016
Reportable Segment:	Gross Carrying Amount		Accumulated Impairment Losses			Net Carrying Amount
	(In thousands)
MID	$	19,905	$	—		$	19,905
CRD	142,810		—			142,810
Other	21,770		(21,770		)	—
Total	$	184,485	$	(21,770	)	$	162,715

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Intangible Assets

The components of the Company’s intangible assets as of June 30, 2016 and December 31, 2015 were as follows:



		As of June 30, 2016
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(In thousands)
Existing technology (1)	3 to 10 years	$	210,854	$	(139,785	)	$	71,069
Customer contracts and contractual relationships (1)	1 to 10 years	61,886		(32,055		)	29,831
Non-compete agreements and trademarks	3 years	300		(300		)	—
Total intangible assets		$	273,040	$	(172,140	)	$	100,900

(1) Includes intangible assets from the acquisition of SCS. See Note 16, “Acquisition” for further details.



		As of December 31, 2015
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(In thousands)
Existing technology	3 to 10 years	$	185,321	$	(127,028	)	$	58,293
Customer contracts and contractual relationships	1 to 10 years	31,093		(25,120		)	5,973
Non-compete agreements and trademarks	3 years	300		(300		)	—
Total intangible assets		$	216,714	$	(152,448	)	$	64,266

During the three and six months ended June 30, 2016, the Company did not sell any intangible assets. During the three and six months ended June 30, 2015, the Company did not purchase or sell any intangible assets.

Included in customer contracts and contractual relationships are favorable contracts which are acquired software and service agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset. For the three months ended June 30, 2016 and 2015, the Company received $2.4 million and $0.1 million, respectively, related to the favorable contracts. For the six months ended June 30, 2016 and 2015, the Company received $4.1 million and $0.1 million, respectively, related to the favorable contracts. As of June 30, 2016 and December 31, 2015, the net balance of the favorable contract intangible assets was $4.0 million and zero, respectively.

Amortization expense for intangible assets for the three and six months ended June 30, 2016 was $8.2 million and $15.9 million, respectively. Amortization expense for intangible assets for the three and six months ended June 30, 2015 was $6.3 million and $12.6 million, respectively. The estimated future amortization of intangible assets as of June 30, 2016 was as follows (amounts in thousands):



Years Ending December 31:	Amount
2016 (remaining 6 months)	$	18,448
2017	32,684
2018	19,252
2019	10,128
2020	9,598
Thereafter	10,790
	$	100,900

It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results, which could cause the goodwill in any of its reporting units or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the Company determines that its goodwill or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.

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5. Segments and Major Customers

For the three and six months ended June 30, 2016, MID and CRD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining operating segments were shown under “Other.”

The Company evaluates the performance of its segments based on segment operating income (loss), which is defined as revenue minus segment operating expenses. Segment operating expenses are comprised of direct operating expenses.

Segment operating expenses do not include sales, general and administrative expenses and the allocation of certain expenses managed at the corporate level, such as stock-based compensation, amortization, and certain bonus and acquisition costs. The “Reconciling Items” category includes these unallocated sales, general and administrative expenses as well as corporate level expenses.

The tables below present reported segment operating income (loss) for the three and six months ended June 30, 2016 and 2015, respectively.



	For the Three Months Ended June 30, 2016										For the Six Months Ended June 30, 2016
	MID		CRD		Other			Total			MID		CRD		Other			Total
	(In thousands)										(In thousands)
Revenues	$	54,467	$	16,407	$	5,627		$	76,501		$	108,012	$	30,508	$	10,663		$	149,183
Segment operating expenses	13,229		13,105		7,092			33,426			25,272		25,015		14,218			64,505
Segment operating income (loss)	$	41,238	$	3,302	$	(1,465	)	$	43,075		$	82,740	$	5,493	$	(3,555	)	$	84,678
Reconciling items								(31,067		)								(63,376		)
Operating income								$	12,008									$	21,302
Interest and other income (expense), net								(2,025		)								(4,924		)
Income before income taxes								$	9,983									$	16,378



	For the Three Months Ended June 30, 2015										For the Six Months Ended June 30, 2015
	MID		CRD		Other			Total			MID		CRD		Other			Total
	(In thousands)										(In thousands)
Revenues	$	54,579	$	11,778	$	6,455		$	72,812		$	109,313	$	24,604	$	11,809		$	145,726
Segment operating expenses	12,801		7,329		8,770			28,900			24,321		14,665		16,029			55,015
Segment operating income (loss)	$	41,778	$	4,449	$	(2,315	)	$	43,912		$	84,992	$	9,939	$	(4,220	)	$	90,711
Reconciling items								(28,358		)								(57,265		)
Operating income								$	15,554									$	33,446
Interest and other income (expense), net								(2,888		)								(5,839		)
Income before income taxes								$	12,666									$	27,607

The Company’s CODM does not review information regarding assets on an operating segment basis. Additionally, the Company does not record intersegment revenue or expense.

Accounts receivable from the Company's major customers representing 10% or more of total accounts receivable at June 30, 2016 and December 31, 2015, respectively, was as follows:



	As of
Customer	June 30, 2016		December 31, 2015
Customer 1 (Other segment)	31	%	27	%
Customer 2 (CRD reportable segment)	*		21	%
Customer 3 (MID reportable segment)	*		28	%
Customer 4 (MID reportable segment)	*		16	%

_________________________________________

* Customer accounted for less than 10% of total accounts receivable in the period

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Revenue from the Company’s major customers representing 10% or more of total revenue for the three and six months ended June 30, 2016 and 2015, respectively, was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
Customer	2016		2015		2016		2015
Customer A (MID and CRD reportable segments)	20	%	21	%	21	%	21	%
Customer B (MID reportable segment)	21	%	16	%	21	%	16	%
Customer C (MID reportable segment)	13	%	13	%	13	%	13	%

Revenue from customers in the geographic regions based on the location of contracting parties was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2016		2015		2016		2015
South Korea	$	31,632	$	26,821	$	63,086	$	53,642
USA	26,532		29,677		51,776		57,384
Japan	5,911		7,915		10,898		16,406
Europe	4,377		1,540		8,189		6,715
Canada	1,168		5		1,382		201
Singapore	4,526		5,010		9,145		7,820
Asia-Other	2,355		1,844		4,707		3,558
Total	$	76,501	$	72,812	$	149,183	$	145,726

6. Marketable Securities

Rambus invests its excess cash and cash equivalents primarily in U.S. government sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years. As of June 30, 2016 and December 31, 2015, all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than one year.

All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:



	As of June 30, 2016
(In thousands)	Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Weighted Rate of Return
Money market funds	$	128,034	$	128,034	$	—	$	—		0.22	%
U.S. Government bonds and notes	7,002		7,002		1		(1		)	0.44	%
Corporate notes, bonds, commercial paper and other	74,309		74,348		—		(39		)	0.66	%
Total cash equivalents and marketable securities	209,345		209,384		1		(40		)
Cash	49,986		49,986		—		—
Total cash, cash equivalents and marketable securities	$	259,331	$	259,370	$	1	$	(40	)



	As of December 31, 2015
(In thousands)	Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Weighted Rate of Return
Money market funds	$	77,804	$	77,804	$	—	$	—		0.12	%
U.S. Government bonds and notes	14,110		14,142		—		(32		)	0.48	%
Corporate notes, bonds, commercial paper and other	160,823		160,979		—		(156		)	0.45	%
Total cash equivalents and marketable securities	252,737		252,925		—		(188		)
Cash	34,969		34,969		—		—
Total cash, cash equivalents and marketable securities	$	287,706	$	287,894	$	—	$	(188	)

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Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:



	As of
	June 30, 2016		December 31, 2015
	(In thousands)
Cash equivalents	$	138,025	$	108,795
Short term marketable securities	71,320		143,942
Total cash equivalents and marketable securities	209,345		252,737
Cash	49,986		34,969
Total cash, cash equivalents and marketable securities	$	259,331	$	287,706

The Company continues to invest in highly rated quality, highly liquid debt securities. As of June 30, 2016, these securities have a remaining maturity of less than one year. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.

The estimated fair value of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015 are as follows:



	Fair Value				Gross Unrealized Loss
	June 30, 2016		December 31, 2015		June 30, 2016			December 31, 2015
	(In thousands)
Less than one year
U.S. Government bonds and notes	$	4,002	$	14,110	$	(1	)	$	(32	)
Corporate notes, bonds and commercial paper	73,771		145,563		(39		)	(156		)
Total Corporate notes, bonds, and commercial paper and U.S. Government bonds and notes	$	77,773	$	159,673	$	(40	)	$	(188	)

The gross unrealized loss at June 30, 2016 and December 31, 2015 was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government sponsored obligations and corporate notes and bonds. There is no need to sell and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income. However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.

See Note 7, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.

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7. Fair Value of Financial Instruments

The Company reviews the pricing inputs by obtaining prices from a different source for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the above pricing levels as of June 30, 2016 and December 31, 2015:



	As of June 30, 2016
	Total		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Money market funds	$	128,034	$	128,034	$	—	$	—
U.S. Government bonds and notes	7,002		—		7,002		—
Corporate notes, bonds, commercial paper and other	74,309		538		73,771		—
Total available-for-sale securities	$	209,345	$	128,572	$	80,773	$	—



	As of December 31, 2015
	Total		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Money market funds	$	77,804	$	77,804	$	—	$	—
U.S. Government bonds and notes	14,110		—		14,110		—
Corporate notes, bonds, commercial paper and other	160,823		1,264		159,559		—
Total available-for-sale securities	$	252,737	$	79,068	$	173,669	$	—

The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the condensed consolidated statement of operations.

For the three and six months ended June 30, 2016 and 2015, there were no transfers of financial instruments between different categories of fair value.

The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of June 30, 2016 and December 31, 2015:



	As of June 30, 2016						As of December 31, 2015
(In thousands)	Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value
1.125% Convertible Senior Notes due 2018 (the "2018 Notes")	$	138,000	$	122,744	$	160,731	$	138,000	$	119,418	$	156,292

The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 8, "Convertible Notes," as of June 30, 2016, the 2018 Notes are carried at their face value of $138.0 million, less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.

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8. Convertible Notes

The Company adopted ASU 2015-03 during the first quarter of 2016. Pursuant to the guidance in ASU 2015-03, the Company has reclassified unamortized debt issuance costs associated with the Company's 2018 Notes in the previously reported Consolidated Balance Sheet as of December 31, 2015, as follows:



(In thousands)	As presented December 31, 2015		Reclassifications			As adjusted December 31, 2015
Other assets	$	3,648	$	(1,483	)	$	2,165
Convertible notes, long-term	120,901		(1,483		)	119,418

The Company’s convertible notes are shown in the following table:



(In thousands)	As of June 30, 2016			As of December 31, 2015
1.125% Convertible Senior Notes due 2018	$	138,000		$	138,000
Unamortized discount	(14,054		)	(17,099		)
Unamortized debt issuance costs	(1,202		)	(1,483		)
Total convertible notes	$	122,744		$	119,418
Less current portion	—			—
Total long-term convertible notes	$	122,744		$	119,418

Interest expense related to the notes for the three and six months ended June 30, 2016 and 2015 was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands)
2018 Notes coupon interest at a rate of 1.125%	$	388	$	388	776		791
2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%	1,675		1,581		3,326		3,140
Total interest expense on convertible notes	$	2,063	$	1,969	$	4,102	$	3,931

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9. Commitments and Contingencies

As of June 30, 2016, the Company’s material contractual obligations were as follows (in thousands):



	Total		Remainder of 2016		2017		2018		2019		2020		Thereafter
Contractual obligations (1)
Imputed financing obligation (2)	$	25,336	$	3,116	$	6,302	$	6,447	$	6,602	$	2,869	$	—
Leases and other contractual obligations	10,272		2,601		3,221		2,211		1,353		441		445
Software licenses (3)	10,678		2,008		4,235		3,701		734		—		—
Convertible notes	138,000		—		—		138,000		—		—		—
Interest payments related to convertible notes	3,881		776		1,553		1,552		—		—		—
Total	$	188,167	$	8,501	$	15,311	$	151,911	$	8,689	$	3,310	$	445

_________________________________________

(1)

The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $22.4 million including $19.6 million recorded as a reduction of long-term deferred tax assets and $2.8 million in long-term income taxes payable as of June 30, 2016. As noted below in Note 12, “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)

With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the unaudited condensed consolidated balance sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.


(3)	The Company has commitments with various software vendors for non-cancellable agreements generally having terms longer than one year.

The Company also has commitments related to acquisitions, which are not included in the above table. See Note 16, “Acquisition” for further details.

Building lease expense was approximately $0.9 million and $1.7 million for the three and six months ended June 30, 2016, respectively. Building lease expense was approximately $0.6 million and $1.3 million for the three and six months ended June 30, 2015, respectively. Deferred rent of $0.6 million and $0.8 million as of June 30, 2016 and December 31, 2015, respectively, was included primarily in other long-term liabilities.

Indemnification

From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company, however, this is not always possible. The fair value of the liability as of June 30, 2016 and December 31, 2015 is not material.

10. Equity Incentive Plans and Stock-Based Compensation

As of June 30, 2016, 8,394,855 shares of the 35,400,000 cumulative shares approved under both the current 2015 Equity Incentive Plan (the “2015 Plan”) and past 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant, which included an increase of 4,000,000 shares approved under the 2015 Plan. On April 23, 2015, the Company's stockholders approved the 2015 Plan, which authorizes 4,000,000 shares for future issuance plus the number of shares that remained available for grant under the 2006 Plan as of the effective date of the 2015 Plan. The 2015 Plan became effective and replaced the 2006 Plan on April 23, 2015. The 2015 Plan was the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of June 30, 2016. No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015 Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015

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Plan. Additionally, the 1997 Stock Option Plan (the “1997 Plan”) continues to govern awards previously granted under that plan.

A summary of shares available for grant under the Company’s plans is as follows:



	Shares Available for Grant
Shares available as of December 31, 2015	11,173,545
Stock options granted	(440,000	)
Stock options forfeited	773,912
Stock options expired under former plans	(412,467	)
Nonvested equity stock and stock units granted (1) (2)	(3,336,963	)
Nonvested equity stock and stock units forfeited (1)	636,828
Total available for grant as of June 30, 2016	8,394,855

_________________________________________


(1)	For purposes of determining the number of shares available for grant under the 2015 Plan (and previously the 2006 Plan) against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by 1.5 shares and each share of restricted stock forfeited increases shares available for grant by 1.5 shares.


(2)	Amount includes 300,003 shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first quarter of 2016 and discussed under the section titled "Nonvested Equity Stock and Stock Units" below.

General Stock Option Information

The following table summarizes stock option activity under the 1997 Plan, 2006 Plan and 2015 Plan for the six months ended June 30, 2016 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of June 30, 2016.



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
	(In thousands, except per share amounts)
Outstanding as of December 31, 2015	8,995,017		$	10.01
Options granted	440,000		$	12.31
Options exercised	(749,058	)	$	7.01
Options forfeited	(773,912	)	$	21.81
Outstanding as of June 30, 2016	7,912,047		$	9.27	5.67	$	31,293
Vested or expected to vest at June 30, 2016	7,679,174		$	9.30	5.61	$	30,418
Options exercisable at June 30, 2016	4,989,516		$	10.05	4.72	$	18,970

No stock options that contain a market condition were granted during the three and six months ended June 30, 2016. As of June 30, 2016 and December 31, 2015, there were 1,225,000 and 1,315,000, respectively, stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated, on their respective grant dates, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at June 30, 2016, based on the $12.08 closing stock price of Rambus’ common stock on June 30, 2016 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 June 30, 2016 was 6,148,183 and 3,734,368, respectively.

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Employee Stock Purchase Plan

Under the 2015 Employee Stock Purchase Plan ("2015 ESPP"), the Company issued 340,349 shares at a price of $8.96 per share during the six months ended June 30, 2016. Under the 2006 Employee Stock Purchase Plan ("2006 ESPP"), the Company issued 315,100 shares at a price of $9.66 per share during the six months ended June 30, 2015. As of June 30, 2016, 1,659,651 shares under the 2015 ESPP remain available for issuance. The 2006 ESPP remained in effect until the Company’s November 2, 2015 offering period, at which time the first offering period under the 2015 ESPP began.

Stock-Based Compensation

For the six months ended June 30, 2016 and 2015, 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 the 2015 ESPP (and previously the 2006 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.

Stock Options

During the three months ended June 30, 2016, the Company did not grant any stock options. During the six months ended June 30, 2016, the Company granted 440,000 stock options with an estimated total grant-date fair value of $2.1 million. During the three and six months ended June 30, 2016, the Company recorded stock-based compensation expense related to stock options of $1.1 million and $2.3 million, respectively.

During the three months ended June 30, 2015, the Company did not grant any stock options. During the six months ended June 30, 2015, the Company granted 362,335 stock options, with an estimated total grant-date fair value of $1.7 million. During the three and six months ended June 30, 2015, the Company recorded stock-based compensation expense related to stock options of and $2.3 million and $4.4 million, respectively.

As of June 30, 2016, there was $6.2 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of shares vested as of June 30, 2016 was $30.9 million.

The total intrinsic value of options exercised was $0.9 million and $4.0 million for the three and six months ended June 30, 2016, respectively. The total intrinsic value of options exercised was $3.5 million and $4.6 million for the three and six months ended June 30, 2015, respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.

During the six months ended June 30, 2016, net proceeds from employee stock option exercises totaled approximately $5.3 million.

Employee Stock Purchase Plan

For the three and six months ended June 30, 2016, the Company recorded compensation expense related to the 2015 ESPP of $0.3 million and $0.8 million, respectively. For the three and six months ended June 30, 2015, the Company recorded compensation expense related to the 2006 ESPP of $0.4 million and $0.8 million, respectively. As of June 30, 2016, there was $0.4 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized over four months.

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 three and six months ended June 30, 2016 and 2015 calculated in accordance with accounting for share-based payments.

Valuation Assumptions

The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.

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The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.



	Stock Option Plans
	Six Months Ended
	June 30,
	2016			2015
Stock Option Plans
Expected stock price volatility	36		%	41		%
Risk free interest rate	1.7		%	1.2		%
Expected term (in years)	6.1			6.0
Weighted-average fair value of stock options granted to employees	$	4.66		$	4.59

There were no stock options granted during the three months ended June 30, 2016 and 2015.



	Employee Stock Purchase Plan
	Six Months Ended
	June 30,
	2016			2015
Employee Stock Purchase Plan
Expected stock price volatility	33		%	34		%
Risk free interest rate	0.41		%	0.05		%
Expected term (in years)	0.5			0.5
Weighted-average fair value of purchase rights granted under the purchase plan	$	2.86		$	3.48

Nonvested Equity Stock and Stock Units

The Company grants nonvested equity stock units to officers, employees and directors. During the three and six months ended June 30, 2016, the Company granted nonvested equity stock units totaling 184,456 and 2,024,640 shares under the 2015 Plan. During the three and six months ended June 30, 2015, the Company granted nonvested equity stock units totaling 60,724 and 1,581,902 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 1 year. For the three and six months ended June 30, 2016, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $2.3 million and $25.0 million. For the three and six months ended June 30, 2015, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.9 million and $18.0 million. During the first quarters of 2016 and 2015, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company's shares available for grant has been reduced to reflect the shares that could be earned at 150% of target. During the three and six months ended June 30, 2016, the Company recorded $0.7 million and $1.3 million of stock-based compensation expense related to these performance unit awards. During the three and six months ended June 30, 2015, the Company recorded $0.3 million and $0.5 million of stock-based compensation expense related to these performance unit awards.

For the three and six months ended June 30, 2016, the Company recorded stock-based compensation expense of approximately $3.7 million and $6.8 million related to all outstanding nonvested equity stock grants. For the three and six months ended June 30, 2015, the Company recorded stock-based compensation expense of approximately $1.7 million and $2.9 million related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $34.5 million at June 30, 2016. This amount is expected to be recognized over a weighted average period of 3.0 years.

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The following table reflects the activity related to nonvested equity stock and stock units for the six months ended June 30, 2016:



Nonvested Equity Stock and Stock Units	Shares		Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2015	3,008,118		$	11.32
Granted	2,024,640		$	12.34
Vested	(385,984	)	$	10.15
Forfeited	(284,142	)	$	11.59
Nonvested at June 30, 2016	4,362,632		$	11.88

11. Stockholders’ Equity

Share Repurchase Program

During the six months ended June 30, 2016, the Company repurchased and retired 0.7 million shares of its common stock under its share repurchase program.

On January 21, 2015, the Company's Board approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the plan may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the plan.

On October 26, 2015, the Company initiated an accelerated share repurchase program with Citibank, N.A. The accelerated share repurchase program is part of the broader share repurchase program previously authorized by the Company's Board on January 21, 2015. Under the accelerated share repurchase program, the Company pre-paid to Citibank, N.A., the $100.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 7.8 million shares of its common stock from Citibank, N.A, in the fourth quarter of 2015, which were retired and recorded as a $80.0 million reduction to stockholders' equity. The remaining $20.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company's stock. The number of shares to be ultimately purchased by the Company was determined based on the volume weighted average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. During the second quarter of 2016, the accelerated share repurchase program was completed and the Company received an additional 0.7 million shares of its common stock as the final settlement of the accelerated share repurchase program.

As of June 30, 2016, there remained an outstanding authorization to repurchase approximately 11.5 million shares of the Company's outstanding common stock under the current share repurchase program.

The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.

12. Income Taxes

The Company recorded a provision for income taxes of $6.1 million and $5.8 million for the three months ended June 30, 2016 and 2015, respectively, and $10.6 million and $11.2 million for the six months ended June 30, 2016 and 2015, respectively. The income taxes for the three and six months ended June 30, 2016 is primarily comprised of the Company's U.S. federal, state and foreign taxes and income tax expense recognized from exercises and expiration of out-of-the-money fully vested shares from equity incentive plans. The provision for income taxes for the three and six months ended June 30, 2015 was primarily comprised of withholding taxes, state taxes and other foreign taxes based upon income earned during the period.

During the three and six months ended June 30, 2016, the Company paid withholding taxes of $5.4 million and $10.9 million, respectively. During the three and six months ended June 30, 2015, the Company paid withholding taxes of $4.8 million and $9.6 million, respectively.

As of June 30, 2016, the Company’s unaudited condensed consolidated balance sheets included net deferred tax assets, before valuation allowance, of approximately $165.4 million, which consists of net operating loss carryovers, tax credit

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carryovers, amortization, employee stock-based compensation expenses and certain liabilities, partially reduced by deferred tax liabilities associated with the convertible notes.

As of June 30, 2016, the Company continues to maintain a valuation allowance against the majority of its state deferred tax assets. Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company's net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company continues to maintain a deferred tax asset valuation allowance of $21.3 million as of June 30, 2016.

The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.

As of June 30, 2016, the Company had approximately $22.4 million of unrecognized tax benefits, including $19.6 million recorded as a reduction of long-term deferred tax assets and $2.8 million in long-term income taxes payable. If recognized, approximately $2.8 million would be recorded as an income tax benefit. As of December 31, 2015, the Company had $20.8 million of unrecognized tax benefits, including $18.6 million recorded as a reduction of long-term deferred tax assets and $2.2 million recorded in long-term income taxes payable.

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.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. At June 30, 2016 and December 31, 2015, an immaterial amount of interest and penalties is included in long-term income taxes payable.

Rambus files income tax returns for the U.S., California, India and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2012 and forward. The California returns are subject to examination from 2009 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ended March 2010 and forward. The Company is currently under examination by California for the 2010 and 2011 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company's favor. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate.

Additionally, the Company's future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.

13. Litigation and Asserted Claims

Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.

14. Agreements with SK hynix and Micron

SK hynix

On June 11, 2013, Rambus, SK hynix and certain related entities of SK hynix entered into a settlement agreement, pursuant to which the parties have agreed to release all claims against each other with respect to all outstanding litigation between them.

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Pursuant to the settlement agreement, Rambus and SK hynix entered into a semiconductor patent license agreement on June 11, 2013, under which SK hynix licenses from Rambus non-exclusive rights to certain Rambus patents and has agreed to pay Rambus cash amounts over the next five years. Under the license agreement, Rambus has granted to SK hynix (i) a paid-up perpetual patent license for certain identified SK hynix DRAM products and (ii) a five-year term patent license to all other DRAM and other semiconductor products.

In June 2015, the Company signed an amendment that extends its current agreement with SK hynix for an additional six years for use of Rambus memory-related patented innovations in SK hynix semiconductor products. The Company signed the original agreement with SK hynix for a five-year term in June 2013. Under the amendment, SK hynix has agreed to continue to pay the Company an average quarterly cash payment of $12.0 million which equates to $432.0 million from the signing of the amendment through the term of the agreement ending July 1, 2024, provided that (a) for each of the six full calendar quarters immediately following July 1, 2015, SK hynix will pay the Company a quarterly cash payment of $16.0 million, and (b) in addition, after December 1, 2017, SK hynix will have the option to make six quarterly cash payments of $8.0 million upon six months written notice. In addition, SK hynix has the option to renew the agreement for an additional three-year extension under the existing rate structure.

The agreements with SK hynix are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the SK hynix agreements which included a third party valuation using an income approach (collectively the “SK hynix Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the SK hynix Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.

During the second quarter of 2016, the Company received cash consideration of $16.0 million from SK hynix. The amount was allocated entirely to royalty revenue ($16.0 million) and none to gain from settlement based on the elements’ SK hynix Fair Value. During the first half of 2016, the Company received cash consideration of $32.0 million from SK hynix. The amount was allocated between royalty revenue ($31.9 million) and gain from settlement ($0.1 million) based on the elements’ SK hynix Fair Value.

The cumulative cash receipts through June 30, 2016 and the remaining future cash receipts from the agreements with SK hynix are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements (and assuming the option to make the lower payments begins with payments made during the middle of 2018):



	Cumulative Received to-date as of June 30,		Estimated to Be Received in												Total Estimated Cash Receipts
	2016		Remainder of 2016		2017		2018		2019		2020		2021 and Thereafter		Total Estimated Cash Receipts
(in millions)
Royalty revenue	$	158.1	$	32.0	$	48.0	$	40.0	$	32.0	$	48.0	$	168.0	$	526.1
Gain from settlement	1.9		—		—		—		—		—		—		1.9
Total	$	160.0	$	32.0	$	48.0	$	40.0	$	32.0	$	48.0	$	168.0	$	528.0

Micron

On December 9, 2013, Rambus, Micron and certain related entities of Micron entered into a settlement agreement, pursuant to which the parties have agreed that they will release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the settlement agreement, Rambus and Micron entered into a semiconductor patent license agreement on December 9, 2013. Under the license agreement, Rambus has granted to Micron and its subsidiaries and certain affiliated entities (i) a paid-up perpetual patent license for certain identified Micron DRAM products and (ii) a seven-year term patent license to other memory and semiconductor products.

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The agreements with Micron are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the Micron agreements which included a third party valuation using an income approach (collectively the “Micron Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the Micron Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.

During the second quarter of 2016, the Company received cash consideration of $10.0 million from Micron. The amount was allocated between royalty revenue ($9.9 million) and gain from settlement ($0.1 million) based on the elements’ Micron Fair Value. During the first half of 2016, the Company received cash consideration of $20.0 million from Micron. The amount was allocated between royalty revenue ($19.6 million) and gain from settlement ($0.4 million) based on the elements’ Micron Fair Value.

The remaining $174.5 million is expected to be paid in successive quarterly payments of $10.0 million, concluding in the fourth quarter of 2020.

The cumulative cash receipts through June 30, 2016 and the remaining future cash receipts from the agreements with Micron are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:



	Cumulative Received to-date as of June 30,		Estimated to Be Received in										Total Estimated Cash Receipts
	2016		Remainder of 2016		2017		2018		2019		2020		Total Estimated Cash Receipts
(in millions)
Royalty revenue	$	102.2	$	20.0	$	40.0	$	40.0	$	40.0	$	34.5	$	276.7
Gain from settlement	3.3		—		—		—		—		—		3.3
Total	$	105.5	$	20.0	$	40.0	$	40.0	$	40.0	$	34.5	$	280.0

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15. Restructuring Charges

The 2015 Plan

During 2015, the Company initiated a restructuring program to reduce overall corporate expenses which is expected to improve future profitability by reducing spending on sales, general and administrative programs and refining some of its research and development efforts ("the 2015 Plan"). In connection with this restructuring program, the Company initiated a plan of termination resulting in a reduction of 8% of the Company's headcount. The Company estimated that it would incur a cash payout related to the reduction in force of approximately $3.0 million, which is related to severance and termination benefits. The estimated non-cash expense was expected to be approximately $1.0 million. During the year ended December 31, 2015, the Company recorded a charge of $3.6 million related primarily to the reduction in workforce, of which $1.4 million was related to the MID reportable segment, $0.1 million was related to the CRD reportable segment, $1.2 million was related to the Other segment and $0.9 million was related to corporate support functions. The majority of the 2015 Plan was completed in the first quarter of 2016.

The following table summarizes the 2015 Plan restructuring activities during the six months ended June 30, 2016:



	Employee Severance and Related Benefits			Facilities				Total
	(In thousands)
Balance at December 31, 2014	$	—		$	—			$	—
Charges	2,993			583				3,576
Payments	(1,765		)	—				(1,765		)
Non-cash settlements	—			(583		)	*	(583		)
Balance at December 31, 2015	$	1,228		$	—			$	1,228
Payments	(1,205		)	—				(1,205		)
Balance at June 30, 2016	$	23		—				$	23

______________________________________

*The non-cash charge of $583 thousand is related to the write down of fixed assets related to the Other segment.

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16. Acquisition

Smart Card Software Limited

On January 25, 2016, the Company completed its acquisition of Smart Card Software Limited (“SCS”), a privately-held company incorporated in the United Kingdom, by acquiring all issued and outstanding shares of capital stock of SCS. Pursuant to the merger agreement on January 25, 2016, SCS was merged into Rambus, Inc. The transaction was denominated in British pounds. Under the terms of the merger agreement, the total consideration in U.S. dollar equivalent was $104.7 million which included the purchase price of $92.6 million paid on January 25, 2016 and additional purchase consideration to be paid in the third quarter of 2016 totaling $12.1 million and comprised of $11.6 million in cash, $4.0 million in working capital, offset by $3.5 million in liabilities assumed from SCS. Subsequently, the additional purchase consideration was adjusted to $11.5 million based on the period exchange rate as of June 30, 2016. Of the purchase price, approximately $17.1 million of the consideration was deposited into an escrow account to fund indemnification obligations and other contractual provisions, with releases of portions of the escrow at various intervals through 18 months. SCS is a leader in mobile payments and a leading supplier of smart ticketing systems, which includes Bell Identification Ltd. and Ecebs Ltd. SCS is part of the CRD reporting unit. This acquisition will complement the Company's CRD reporting unit by allowing the Company to leverage its foundational security technology to offer differentiated, value-added security solutions to its customers. As of June 30, 2016, the Company has incurred approximately $2.0 million in external acquisition costs in connection with the acquisition which were expensed as incurred.

The initial purchase price allocation and related accounting for this acquisition is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company's estimates and assumptions for the acquisition are subject to change as the Company obtains additional information during the measurement period (up to one year from the acquisition date). The primary area of the preliminary estimates that are not yet finalized, relate to working capital adjustments that could impact the valuation of goodwill and liabilities.

The fair value of the assets acquired has been determined primarily by using valuation methods that discount the expected future cash flows to present value using estimates and assumptions determined by management. The Company performed a valuation of the net assets acquired as of the January 25, 2016 closing date. The total consideration from the business combination was allocated as follows:



	Total
	(in thousands)
Cash	$	12,056
Accounts receivable	6,563
Property and equipment	524
Other tangible assets	1,462
Identified intangible assets	59,700
Goodwill	47,239
Accounts payable and accrued liabilities	(5,996		)
Deferred income taxes	(15,556		)
Deferred revenue	(1,313		)
Total	$	104,679

The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of SCS. This goodwill is not expected to be deductible for tax purposes.

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The identified intangible assets assumed in the acquisition of SCS were recognized as follows based upon their estimated fair values as of the acquisition date:



	Total		Estimated Weighted Average Useful Life
	(in thousands)		(in years)
Existing technology	$	24,600