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, 2018

¨ 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

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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 107,345,041 as of June 30, 2018.

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RAMBUS INC.

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	PAGE
Note Regarding Forward-Looking Statements	4
PART I. FINANCIAL INFORMATION	6
Item 1. Financial Statements (Unaudited):	6
Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	6
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017	8
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017	9
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	10
Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures about Market Risk	47
Item 4. Controls and Procedures	48
PART II. OTHER INFORMATION	49
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3. Defaults Upon Senior Securities	63
Item 4. Mine Safety Disclosures	63
Item 5. Other Information	63
Item 6. Exhibits	64
Signature	65
Exhibit Index	64

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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 acquisitions of Smart Card Software Ltd., the assets of Semtech Corporation's Snowbush IP group and Inphi Corporation's Memory Interconnect Business;


•	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, software, services and solutions to address additional markets in memory, chip, mobile payments, smart ticketing and 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, operations and expansion;


•	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, shipping 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, including adoption of the new revenue recognition standard on our financial position and results of operations;


•	Effective tax rates, including as a result of the new U.S. tax legislation;


•	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;


•	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;


•	Equity repurchase plans;

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


•	Effects of fluctuations in currency exchange rates;


•	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 Part II: 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, 2018			December 31, 2017
	(In thousands, except shares and par value)
ASSETS
Current assets:
Cash and cash equivalents	$	248,284		$	225,844
Marketable securities	50,056			103,532
Accounts receivable	39,263			25,326
Unbilled receivables	179,606			566
Inventories	6,041			5,159
Prepaids and other current assets	14,456			11,317
Total current assets	537,706			371,744
Intangible assets, net	70,940			91,722
Goodwill	208,680			209,661
Property, plant and equipment, net	50,235			54,303
Deferred tax assets	82,111			159,099
Unbilled receivables, long-term	571,269			—
Other assets	4,832			4,543
Total assets	$	1,525,773		$	891,072
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,386		$	9,614
Accrued salaries and benefits	17,385			17,091
Convertible notes, short-term	80,648			78,451
Deferred revenue	13,583			18,272
Income taxes payable, short-term	18,794			258
Other current liabilities	13,402			9,156
Total current liabilities	152,198			132,842
Convertible notes, long-term	138,647			135,447
Long-term imputed financing obligation	36,816			37,262
Long-term income taxes payable	84,804			3,344
Other long-term liabilities	7,823			10,593
Total liabilities	420,288			319,488
Commitments and contingencies (Notes 10 and 14)
Stockholders’ equity:
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares
Issued and outstanding: no shares at June 30, 2018 and December 31, 2017	—			—
Common stock, $.001 par value:
Authorized: 500,000,000 shares
Issued and outstanding: 107,345,041 shares at June 30, 2018 and 109,763,967 shares at December 31, 2017	107			110
Additional paid-in capital	1,210,321			1,212,798
Accumulated deficit	(97,383		)	(636,227		)
Accumulated other comprehensive loss	(7,560		)	(5,097		)
Total stockholders’ equity	1,105,485			571,584
Total liabilities and stockholders’ equity	$	1,525,773		$	891,072

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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,
	2018			2017			2018			2017
	(In thousands, except per share amounts)
Revenue:
Royalties	$	30,049		$	69,990		$	51,423		$	138,946
Product revenue	8,087			8,401			15,400			19,305
Contract and other revenue	18,322			16,329			36,061			33,820
Total revenue	56,458			94,720			102,884			192,071
Operating costs and expenses:
Cost of product revenue*	4,199			7,480			8,556			12,730
Cost of contract and other revenue	11,089			14,337			23,211			28,818
Research and development*	37,696			37,522			77,813			73,522
Sales, general and administrative*	24,483			27,137			54,681			55,323
Restructuring charges (recoveries)	(1,022		)	—			2,223			—
Total operating costs and expenses	76,445			86,476			166,484			170,393
Operating income (loss)	(19,987		)	8,244			(63,600		)	21,678
Interest income and other income (expense), net	8,249			129			17,365			283
Interest expense	(4,634		)	(3,261		)	(9,055		)	(6,467		)
Interest and other income (expense), net	3,615			(3,132		)	8,310			(6,184		)
Income (loss) before income taxes	(16,372		)	5,112			(55,290		)	15,494
Provision for (benefit from) income taxes	(1,015		)	2,507			(4,244		)	9,883
Net income (loss)	$	(15,357	)	$	2,605		$	(51,046	)	$	5,611
Net income (loss) per share:
Basic	$	(0.14	)	$	0.02		$	(0.47	)	$	0.05
Diluted	$	(0.14	)	$	0.02		$	(0.47	)	$	0.05
Weighted average shares used in per share calculation:
Basic	107,737			110,060			108,542			110,758
Diluted	107,737			112,565			108,542			114,091

_________________________________________

* Includes stock-based compensation:



Cost of product revenue	$	2		$	19	$	5	$	33
Research and development	$	3,286		$	3,067	$	6,478	$	6,079
Sales, general and administrative	$	(1,400	)	$	3,523	$	2,919	$	7,093

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)	2018			2017		2018			2017
Net income (loss)	$	(15,357	)	$	2,605	$	(51,046	)	$	5,611
Other comprehensive income (loss):
Foreign currency translation adjustment	(4,660		)	3,597		(1,771		)	4,596
Unrealized gain (loss) on marketable securities, net of tax	112			55		(692		)	295
Total comprehensive income (loss)	$	(19,905	)	$	6,257	$	(53,509	)	$	10,502

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,
	2018			2017
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(51,046	)	$	5,611
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation	9,402			13,205
Depreciation	5,529			6,722
Amortization of intangible assets	19,269			20,938
Non-cash interest expense and amortization of convertible debt issuance costs	5,396			3,523
Deferred income taxes	(10,202		)	514
Non-cash restructuring	670			—
Gain from sale of marketable equity security	(291		)	—
Gain from sale of assets held for sale	(1,266		)	—
Loss from disposal of property, plant and equipment	47			180
Change in operating assets and liabilities:
Accounts receivable	(13,665		)	(13,152		)
Unbilled receivables	67,905			—
Prepaid expenses and other assets	(2,615		)	5,116
Inventories	(1,040		)	304
Accounts payable	(798		)	(396		)
Accrued salaries and benefits and other liabilities	4,780			499
Income taxes payable	(5,204		)	(4,621		)
Deferred revenue	(6,441		)	4,090
Net cash provided by operating activities	20,430			42,533
Cash flows from investing activities:
Purchases of property, plant and equipment	(5,287		)	(3,482		)
Purchases of marketable securities	(79,207		)	—
Maturities of marketable securities	131,823			32,048
Proceeds from sale of equity security	1,350			—
Proceeds from sale of marketable securities	—			4,450
Proceeds from sale of assets held for sale	3,754			—
Proceeds from sale of property, plant and equipment	10			17
Net cash provided by investing activities	52,443			33,033
Cash flows from financing activities:
Proceeds received from issuance of common stock under employee stock plans	5,850			8,345
Principal payments against lease financing obligation	(499		)	(395		)
Payments of taxes on restricted stock units	(5,195		)	(2,824		)
Repurchase and retirement of common stock, including prepayment under accelerated share repurchase program	(50,031		)	(50,036		)
Net cash used in financing activities	(49,875		)	(44,910		)
Effect of exchange rate changes on cash and cash equivalents	(558		)	1,257
Net increase in cash and cash equivalents	22,440			31,913
Cash and cash equivalents at beginning of period	225,844			135,294

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Cash and cash equivalents at end of period	$	248,284	$	167,207

Non-cash investing activities during the period:
Property, plant and equipment received and accrued in accounts payable and other liabilities	$	1,793	$	176

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.

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, 2017.

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 Interfaces Division ("MID"), which focuses on the design, development, manufacturing through partnerships and licensing of technology and solutions that is related to memory and interfaces; (2) Rambus Security Division ("RSD"), which focuses on the design, development, deployment and licensing of technologies for chip, system and in-field application security, anti-counterfeiting, smart ticketing and mobile payments; and (3) Emerging Solutions Division ("ESD"), which includes the Rambus Labs team and the development efforts in the area of emerging technologies.

On January 30, 2018, the Company announced its plans to close its lighting division ("RLD") including related manufacturing operations in Brecksville, Ohio. The Company believes that such business is not core to its strategy and growth objectives. Refer to Note 15, “Restructuring Charges” for additional details.

For the three and six months ended June 30, 2018, only MID and RSD 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,” which included RLD.

Comparability

Effective January 1, 2018, Rambus adopted multiple new accounting standards. Prior periods were not retrospectively restated, so the consolidated balance sheet as of December 31, 2017 and results of operations for the three and six months ended June 30, 2017 were prepared using accounting standards that were different than those in effect as of and for the three and six months ended June 30, 2018. Therefore, the consolidated balance sheets as of June 30, 2018 and December 31, 2017 are not directly comparable, nor are the results of operations for the three and six months ended June 30, 2018 and 2017.

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.

2. Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this ASU allow entities to reclassify from AOCI to retained

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earnings "stranded" tax effects resulting from passage of the Tax Cuts and Jobs Act ("the Act") on December 22, 2017. An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the change in federal tax rate for all items accounted for in other comprehensive income (e.g., employee benefits, cumulative translation adjustments). Entities may also elect to reclassify other stranded tax effects that relate to the Act but do not directly relate to the change in the federal tax rate (e.g., state taxes). However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance requiring the effect of a change in tax laws or rates to be included in income from operations is not affected. Upon adoption of this ASU, entities are required to disclose their policy for releasing the income tax effects from AOCI. ASU 2018-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU may be applied retrospectively to each period in which the effect of the Act is recognized or an entity may elect to apply the amendments in the period of adoption. The Company early adopted this ASU in the first quarter of 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting," which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendment seeks to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective dates. The Company adopted this ASU on January 1, 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, which amends certain aspects of the recognition, measurement, presentation and disclosure of certain financial instruments, including equity investments and liabilities measured at fair value under the fair value option. The main provisions include a requirement that all investments in equity securities be measured at fair value through earnings, with certain exceptions, and a requirement to present separately in other comprehensive income the portion of the total change in fair value attributable to an entity’s own credit risk for financial liabilities where the fair value option has been elected. The Company adopted this ASU on January 1, 2018. Upon adoption, the Company reclassified approximately $1.1 million of unrealized gain related to its equity investment security classified as available-for-sale from accumulated other comprehensive income (AOCI) to retained earnings as a cumulative-effect adjustment, and began recording changes in fair value through earnings.

ASU No. 2014-09, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers in Accounting Standards Codification (ASC) Topic 606 ("ASC 606" or "the New Revenue Standard"), which superseded the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC 605”). The New Revenue Standard sets forth a single, comprehensive revenue recognition model for all contracts with customers to improve comparability. The New Revenue Standard requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The New Revenue Standard can be applied either retrospectively to each prior reporting period presented (i.e., full retrospective adoption) or with the cumulative effect of initially applying the update recognized at the date of the initial application (i.e., modified retrospective adoption) along with additional disclosures.

The Company adopted the New Revenue Standard on January 1, 2018 and all the related amendments using the modified retrospective method. The Company had previously planned on adopting the New Revenue Standard using the full retrospective method, but ultimately determined to adopt the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit as of January 1, 2018. The comparative information for prior periods has not been recasted and continues to be reported under the accounting standards in effect for those periods. The Company recognized unbilled receivables (contract assets) of $818 million predominantly due to how revenue is recognized for the Company's fixed-fee licensing arrangements (as noted in the first bullet point below), deferred revenue (contract liabilities) of $2 million, withholding tax liabilities of $105 million (and a corresponding deferred tax asset of $105 million, with an offsetting $16 million valuation allowance), and $174 million deferred tax liability. In the aggregate, these adjustments resulted in a $626 million net credit to accumulated deficit.

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The most significant impacts of the New Revenue Standard relate to the following:

•

Revenue recognized for certain patent and technology licensing arrangements has changed under the New Revenue Standard. Revenue for (i) fixed-fee arrangements (including arrangements that include minimum guaranteed amounts), (ii) variable royalty arrangements that the Company has concluded are fixed in substance and (iii) the fixed portion of hybrid fixed/variable arrangements is recognized upon control over the underlying IP use right transferring to the licensee rather than upon billing under ASC 605, net of the effect of significant financing components calculated using customer-specific, risk-adjusted lending rates and recognized over time on an effective rate basis. As a consequence of the acceleration of revenue recognition and for matching purposes, all withholding taxes to be paid over the term of these licensing arrangements were expensed on the date the licensing revenue was recognized.

•

Adoption of the New Revenue Standard resulted in revenue recognition being accelerated for variable royalties and the variable portion of hybrid fixed/variable patent and technology licensing arrangements. Under the New Revenue Standard, royalty revenue is being recognized on the basis of management’s estimates of sales or usage, as applicable, of the licensed IP in the period of reference, with a true-up being recorded in subsequent periods based on actual sales or usage as reported by licensees (rather than upon receiving royalty reports from licensees as was the case under ASC 605).

•

Adoption of the New Revenue Standard also resulted in revenue recognition being accelerated for certain professional services arrangements, including arrangements consisting of significant software customization or modification and development arrangements. Under the New Revenue Standard, such arrangements are accounted for based on man-days incurred during the reporting period as compared to estimated total man-days necessary for contract completion, as the customer either controls the asset as it is created or enhanced by us or, where the asset has no alternative use to us, we are entitled to payment for performance to date and expect to fulfill the contract - revenue recognition is no longer capped to the lesser of inputs in the period or accepted billable project milestones as was the case under ASC 605.

Adoption of the New Revenue Standard had no impact to cash provided by (used in) operating, financing, or investing activities on the Company's Consolidated Statements of Cash Flows.

In accordance with the New Revenue Standard requirements, the disclosure of the impact of adoption on the Company's Consolidated Statement of Operations and Balance Sheet was as follows (in thousands):



	Three Months Ended June 30, 2018								Six Months Ended June 30, 2018
(In thousands)	As Reported			Effect of Change Higher/ (Lower)			Amounts under ASC 605		As Reported			Effect of Change Higher/ (Lower)			Amounts under ASC 605
Consolidated Statement of Operations
Revenue:
Royalties	$	30,049		$	43,577		$	73,626	$	51,423		$	99,377		$	150,800
Product revenue	8,087			134			8,221		15,400			377			15,777
Contract and other revenue	18,322			(1,349		)	16,973		36,061			(3,359		)	32,702
Total revenue	$	56,458		$	42,362		$	98,820	$	102,884		$	96,395		$	199,279

Costs and expenses:
Interest income and other income (expense), net	$	8,249		$	(7,041	)	$	1,208	$	17,365		$	(14,555	)	$	2,810
Provision for (benefit from) income taxes	$	(1,015	)	$	5,806		$	4,791	$	(4,244	)	$	10,509		$	6,265
Net income (loss)	$	(15,357	)	$	29,515		$	14,158	$	(51,046	)	$	71,331		$	20,285

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	June 30, 2018
(In thousands)	As Reported		Effect of Change Higher/ (Lower)			Amounts under ASC 605
Consolidated Balance Sheet
Assets:
Unbilled receivables	$	750,875	$	(750,875	)	$	—
Deferred tax assets	82,111		95,480			177,591

Liabilities:
Deferred revenue	13,900		(1,207		)	12,693
Income taxes payable	103,598		(97,733		)	5,865

Stockholders’ equity:
Accumulated deficit	97,383		554,957			652,340

Recent Accounting Pronouncements Not Yet Adopted

In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718)," to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)." The amendments in Part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the FASB codification, to a scope exception. Those amendments do not have an accounting effect. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Topic 310): Premium Amortization on Purchased Callable Debt Securities," which amends the amortization period for certain purchased callable debt securities held at a premium. This ASU will shorten the amortization period for the premium to be amortized to the earliest call date. This ASU does not apply to securities held at a discount, which will continue to be amortized to maturity. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

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In June 2016, the FASB issued 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 that this guidance will have on its financial condition and results of operations.

In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires lessees to recognize right-of-use assets and liabilities for operating leases, initially measured at the present value of the lease payments, on the balance sheet. In addition, it requires lessees to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. 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 evaluating the impact that the new accounting standard will have on its consolidated financial statements, which will consist primarily of a balance sheet gross up of right-of-use assets and lease liabilities on the consolidated balance sheets upon adoption, which will increase the Company's total assets and liabilities. The FASB further clarified ASU No. 2016-02 by issuing ASU No. 2018-10, "Codification Improvements to Topic 842, Leases." The amendments in ASU No. 2018-10 provide additional clarification and implementation guidance on certain aspects of ASU No. 2016-02, and have the same effective and transition requirements as ASU 2016-02.

3. Revenue Recognition

The Company recognizes revenue upon transfer of control of promised goods and services in an amount that reflects the consideration it expects to receive in exchange for those goods and services. Unless indicated otherwise below, all of the goods and services are distinct and are accounted for as separate performance obligations.

Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling prices basis. The Company has established standalone selling prices for all of its offerings - specifically, a same pricing methodology is consistently applied to all licensing arrangements; all services offerings are priced within tightly controlled bands and all contracts that include support and maintenance state a renewal rate or price that is systematically enforced.

Rambus’ revenue consists of royalty, product and contract and other revenue. Royalty revenue consists of patent and technology license royalties. Products consist of memory buffer chipsets sold directly and indirectly to module manufacturers and OEMs worldwide through multiple channels, including our direct sales force and distributors. Contract and other revenue consists of software license fees, engineering fees associated with integration of Rambus’ technology solutions into its customers’ products and support and maintenance fees.

1.Royalty Revenue

Rambus’ patent and technology licensing arrangements generally range between 1 and 7 years in duration and generally grant the licensee the right to use the Company's entire IP portfolio as it evolves over time. These arrangements do not typically grant the licensee the right to terminate for convenience and where such rights exist, termination is prospective, with no refund of fees already paid by the licensee. There is no interdependency or interrelation between the IP included in the portfolio licensed upon contract inception and any IP subsequently made available to the licensee, and the Company would be able to fulfill its promises by transferring the portfolio and the additional IP use rights independently. However, the numbers of additions to, and removals from the portfolio (for example when a patent expires and renewal is not granted to the Company) in any given period have historically been relatively consistent; as such, the Company does not allocate the transaction price between the rights granted at contract inception and those subsequently granted over time as a function of these additions.

Patent and technology licensing arrangements result in fixed payments received over time, with guaranteed minimum payments on occasion, variable payments calculated based on the licensee’s sale or use of the IP, or a mix of fixed and variable payments.

•

For fixed-fee arrangements (including arrangements that include minimum guaranteed amounts), variable royalty arrangements that the Company has concluded are fixed in substance and the fixed portion of hybrid fixed/variable arrangements, the Company recognizes revenue upon control over the underlying IP use right transferring to the licensee, net of the effect of significant financing components calculated using customer-specific, risk-adjusted lending rates ranging between 3% and 6%, with the related interest income being recognized over time on an effective rate basis. Where a licensee has the contractual right to terminate a fixed-fee arrangement for convenience without any substantive penalty payable upon such termination, the Company applies the guidance in the New Revenue Standard

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to the duration of the contract in which the parties have present enforceable rights and obligations and only recognizes revenue for amounts that are due and payable.


•	For variable arrangements, the Company recognizes revenue based on an estimate of the licensee’s sale or usage of the IP during the period of reference, typically quarterly, with a true-up being recorded when the Company receives the actual royalty report from the licensee.

2.Product Revenue

Product revenue is recognized upon shipment of product to customers, net of accruals for estimated sales returns and allowances, and to distributors, net of accruals for price protection and rights of return on products unsold by the distributors. To date, none of these accruals have been significant. The Company transacts with direct customers primarily pursuant to standard purchase orders for delivery of products and generally allows customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date.

3.Contract and Other Revenue

Contract and other revenue consists of software license fees and engineering fees associated with integration of Rambus’ technology solutions into its customers’ related support and maintenance.

An initial software arrangement generally consists of a term-based or perpetual license, significant software customization services and support and maintenance services that include post-implementation customer support and the right to unspecified software updates and enhancements on a when and if available basis. The Company recognizes the license and customization services revenue based on man-days incurred during the reporting period as compared to the estimated total man-days necessary for each contract, and the support and maintenance revenue ratably over term. The Company recognizes license renewal revenue at the beginning of the renewal period. The Company recognizes revenue from professional services purchased in addition to an initial software arrangement on a cumulative catch-up basis if these services are not distinct from the services provided as part of the initial software arrangement, or as a separate contract if these services are distinct.

During the first quarter of 2016, the Company acquired Smart Card Software Ltd., which included Bell Identification Ltd. (Payment Product Group) and Ecebs Ltd. (Ticketing Products Group), which transact mostly in software and Software-as-a-Service arrangements, respectively.

The Company's Payment Product Group derives a significant portion of its revenue from heavily customized software in the mobile market, whereby the Payment Product Group’s software solution interacts with third-party solutions and other payment platforms to provide the functionality the customer requires. Historically, these third-party solutions have evolved at a rapid pace, with the Payment Product Group being required to deliver as part of its support and maintenance services the patches and updates needed to maintain the functionality of its own software offering. As the utility of the solution to the end customer erodes very quickly without these updates, these are viewed as critical and the customized software solution and updates are not separately identifiable. As such, these arrangements are treated as a single performance obligation; revenue is deferred until completion of the customization services, and recognized ratably over the committed support and maintenance term, typically ranging from 1 year to 3 years.

The Company's Ticketing Products Group primarily derives revenue from ticketing services arrangements that systematically consist of a software component, support and maintenance, managed services and hosting services. The software could be hosted by third-party hosting service providers or the Company. All arrangements entered into subsequent to the acquisition preclude customers from taking possession of the software at any time during the hosting term and the Company has concluded that should a customer that was under contract as of the acquisition date ever request possession of the software, the Ticketing Products Group would have the ability to charge the customer, and enforce a claim to payment of a substantive fee in exchange for such right, and that the costs of setting up the environment needed to run the software would act as a significant disincentive to the customer taking possession of the software. Based on the above, the Company concluded that these services are a single performance obligation, with customers simultaneously receiving and consuming the benefits provided by Ticketing Products Group’s performance, and recognize ticketing services revenue ratably over term, commencing upon completion of setup activities. The Company recognizes setup fees upon completion. While these activities do not transfer a service to the customer, the Company elected not to defer and amortize these fees over the expected duration of the customer relationship owing to the immateriality of the amounts charged.

Significant Judgments

Historically and with the exception noted below, no significant judgment has generally been required in determining the amount and timing of revenue from the Company's contracts with customers.

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•	The Company has adequate tools and controls in place, and substantial experience and expertise in timely and accurately tracking man-days incurred in completing customization and other professional services, and quantifying changes in estimates.

Key estimates used in recognizing revenue predominantly consist of the following:

•

All fixed-fee arrangements result in cash being received after control over the underlying IP use right has transferred to the licensee, and over a period exceeding a year. As such, all these arrangements include a significant financing component. The Company calculates a customer-specific lending rate using a Daily Treasury Yield Curve Rate that changes depending on the date on which the licensing arrangement was entered into and the term (in years) of the arrangement, and takes into consideration a licensee-specific risk profile determined based on a review of the licensee’s “Full Company View” Dun & Bradstreet report obtained on the date the licensing arrangement was signed by the parties, with a risk premium being added to the Daily Treasury Yield Curve Rate considering the overall business risk, financing strength and risk indicators, as listed.

•

The Company recognizes revenue on variable fee licensing arrangements on the basis of estimates. In connection with the adoption of the New Revenue Standard, the Company has set up specific procedures and controls to ensure timely and accurate quantification of variable royalties, and implemented new systems to enable the preparation of the estimates and reporting of the financial information required by the New Revenue Standard.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to the Company's customers. The Company records contract assets when revenue is recognized prior to invoicing, and a contract liability when revenue is recognized subsequent to invoicing.

The contract assets are primarily related to the Company’s fixed fee IP licensing arrangements and rights to consideration for performance obligations delivered but not billed as of June 30, 2018. The contract assets are transferred to receivables when the billing occurs.

The Company’s contract balances were as follows:



	As of
(In thousands)	June 30, 2018		January 1, 2018
Unbilled receivables	$	750,875	$	818,371
Deferred revenue	13,900		20,737

During the three and six months ended June 30, 2018, the Company recognized $5.7 million and $16.4 million of revenue, respectively, that was included in the contract balances, as adjusted for ASC 606, as of January 1, 2018.

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $24.6 million as of June 30, 2018, which the Company primarily expects to recognize over the next 2 years.

4. Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing the net income (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, 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 (loss) per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees 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 (loss) per share:



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Net income (loss) per share:	(In thousands, except per share amounts)
Numerator:
Net income (loss)	$	(15,357	)	$	2,605	$	(51,046	)	$	5,611
Denominator:
Weighted-average shares outstanding - basic	107,737			110,060		108,542			110,758
Effect of potential dilutive common shares	—			2,505		—			3,333
Weighted-average shares outstanding - diluted	107,737			112,565		108,542			114,091
Basic net income (loss) per share	$	(0.14	)	$	0.02	$	(0.47	)	$	0.05
Diluted net income (loss) per share	$	(0.14	)	$	0.02	$	(0.47	)	$	0.05

For the three months ended June 30, 2018 and 2017, options to purchase approximately 1.3 million and 2.0 million shares, respectively, and for the six months ended June 30, 2018 and 2017, options to purchase approximately 1.4 million and 2.0 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise and related unrecognized stock-based compensation expense. For the three and six months ended June 30, 2018, an additional 3.4 million and 3.7 million shares, respectively, were excluded from the weighted average dilutive shares because there was a net loss position for the periods.

5. Intangible Assets and Goodwill

Goodwill

The following tables present goodwill information for each of the reportable segments for the six months ended June 30, 2018:



Reportable Segment:	As of December 31, 2017		Effect of Exchange Rates (1)			As of June 30, 2018
	(In thousands)
MID	$	66,643	$	—		$	66,643
RSD	143,018		(981		)	142,037
Total	$	209,661	$	(981	)	$	208,680

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



	As of
	June 30, 2018
Reportable Segment:	Gross Carrying Amount		Accumulated Impairment Losses			Net Carrying Amount
	(In thousands)
MID	$	66,643	$	—		$	66,643
RSD	142,037		—			142,037
Other	21,770		(21,770		)	—
Total	$	230,450	$	(21,770	)	$	208,680

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Intangible Assets

The components of the Company’s intangible assets as of June 30, 2018 and December 31, 2017 were as follows:



		As of June 30, 2018
	Useful Life	Gross Carrying Amount (1)		Accumulated Amortization			Net Carrying Amount
		(In thousands)
Existing technology	3 to 10 years	$	259,465	$	(206,160	)	$	53,305
Customer contracts and contractual relationships	1 to 10 years	68,377		(52,342		)	16,035
Non-compete agreements and trademarks	3 years	300		(300		)	—
In-process research and development	Not applicable	1,600		—			1,600
Total intangible assets		$	329,742	$	(258,802	)	$	70,940



		As of December 31, 2017
	Useful Life	Gross Carrying Amount (1)		Accumulated Amortization			Net Carrying Amount
		(In thousands)
Existing technology	3 to 10 years	$	258,008	$	(191,554	)	$	66,454
Customer contracts and contractual relationships	1 to 10 years	68,794		(48,626		)	20,168
Non-compete agreements and trademarks	3 years	300		(300		)	—
In-process research and development	Not applicable	5,100		—			5,100
Total intangible assets		$	332,202	$	(240,480	)	$	91,722

(1) The change in gross carrying amount reflects the effects of exchange rates during the period.

During the three and six months ended June 30, 2018 and 2017, 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, 2018 and 2017, the Company received $0.3 million and $1.2 million, respectively, related to the favorable contracts. For the six months ended June 30, 2018 and 2017, the Company received $1.0 million and $2.4 million, respectively, related to the favorable contracts. As of June 30, 2018 and December 31, 2017, the net balance of the favorable contract intangible assets was $1.0 million and $1.7 million, respectively.

Amortization expense for intangible assets for the three and six months ended June 30, 2018 was $8.7 million and $19.3 million, respectively. Amortization expense intangible assets for the three and six months ended June 30, 2017 was $10.5 million and $20.9 million, respectively. The estimated future amortization of intangible assets as of June 30, 2018 was as follows (amounts in thousands):



Years Ending December 31:	Amount
2018 (remaining 6 months)	$	9,886
2019	20,355
2020	20,537
2021	13,185
2022	2,006
Thereafter	3,371
Total amortizable purchased intangible assets	$	69,340
In-process research and development	1,600
Total intangible assets	$	70,940

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.

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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.

6. Segments and Major Customers

For the three and six months ended June 30, 2018, MID and RSD 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, 2018 and 2017, respectively.



	For the Three Months Ended June 30, 2018										For the Six Months Ended June 30, 2018
	MID		RSD		Other			Total			MID		RSD		Other			Total
	(In thousands)										(In thousands)
Revenues	$	34,976	$	21,482	$	—		$	56,458		$	68,965	$	31,478	$	2,441		$	102,884
Segment operating expenses	22,597		14,893		3,209			40,699			45,546		27,678		8,840			82,064
Segment operating income (loss)	$	12,379	$	6,589	$	(3,209	)	$	15,759		$	23,419	$	3,800	$	(6,399	)	$	20,820
Reconciling items								(35,746		)								(84,420		)
Operating loss								$	(19,987	)								$	(63,600	)
Interest and other income (expense), net								3,615										8,310
Loss before income taxes								$	(16,372	)								$	(55,290	)



	For the Three Months Ended June 30, 2017										For the Six Months Ended June 30, 2017
	MID		RSD		Other			Total			MID		RSD		Other			Total
	(In thousands)										(In thousands)
Revenues	$	67,402	$	23,366	$	3,952		$	94,720		$	137,997	$	46,571	$	7,503		$	192,071
Segment operating expenses	23,801		12,214		8,654			44,669			44,056		24,613		17,389			86,058
Segment operating income (loss)	$	43,601	$	11,152	$	(4,702	)	$	50,051		$	93,941	$	21,958	$	(9,886	)	$	106,013
Reconciling items								(41,807		)								(84,335		)
Operating income								$	8,244									$	21,678
Interest and other income (expense), net								(3,132		)								(6,184		)
Income before income taxes								$	5,112									$	15,494

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.

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Accounts receivable from the Company's major customers representing 10% or more of total accounts receivable at June 30, 2018 and December 31, 2017, respectively, was as follows:



	As of
Customer	June 30, 2018		December 31, 2017
Customer 1 (MID reportable segment)	25	%	*
Customer 2 (RSD reportable segment)	*		11	%
Customer 3 (Other segment)	*		12	%
Customer 4 (MID and RSD reportable segment)	*		13	%
Customer 5 (MID and RSD reportable segment)	12	%	*

_________________________________________

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

Revenue from the Company’s major customers representing 10% or more of total revenue for the three and six months ended June 30, 2018 and 2017, respectively, was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
Customer	2018		2017		2018		2017
Customer A (MID and RSD reportable segments)	*		17	%	*		17	%
Customer B (MID reportable segment)	*		13	%	*		13	%
Customer C (MID reportable segment)	*		14	%	*		14	%
Customer D (MID reportable segment)	*		*		15	%	*
Customer E (MID and RSD reportable segments)	28	%	*		16	%	*
Customer F (MID and RSD reportable segments)	15	%	*		*		*
Customer G (MID reportable segment)	11	%	*		*		*

_________________________________________

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

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)	2018		2017		2018		2017
Taiwan	$	348	$	1,787	$	16,458	$	6,018
South Korea	1,666		28,291		10,267		57,260
USA	29,864		41,155		41,085		79,593
Japan	12,278		7,057		16,312		13,575
Europe	3,605		4,243		7,471		8,681
Canada	1,885		1,352		3,295		2,420
Singapore	6,058		4,889		6,150		12,636
Asia-Other	754		5,946		1,846		11,888
Total	$	56,458	$	94,720	$	102,884	$	192,071

7. 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, 2018 and December 31, 2017, all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than one year.

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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, 2018
(In thousands)	Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Weighted Rate of Return
Money market funds	$	11,078	$	11,078	$	—	$	—		1.75	%
U.S. Government bonds and notes	68,898		68,897		1		—			1.74	%
Corporate notes, bonds, commercial paper and other	177,594		177,639		—		(45		)	1.90	%
Total cash equivalents and marketable securities	257,570		257,614		1		(45		)
Cash	40,770		40,770		—		—
Total cash, cash equivalents and marketable securities	$	298,340	$	298,384	$	1	$	(45	)



	As of December 31, 2017
(In thousands)	Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Weighted Rate of Return
Money market funds	$	10,915	$	10,915	$	—	$	—		1.16	%
U.S. Government bonds and notes	55,220		55,221		—		(1		)	1.12	%
Corporate notes, bonds, commercial paper and other	195,073		195,204		—		(131		)	1.39	%
Total cash equivalents and marketable securities	261,208		261,340		—		(132		)
Cash	68,168		68,168		—		—
Total cash, cash equivalents and marketable securities	$	329,376	$	329,508	$	—	$	(132	)

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



	As of
	June 30, 2018		December 31, 2017
	(In thousands)
Cash equivalents	$	207,514	$	157,676
Short term marketable securities	50,056		103,532
Total cash equivalents and marketable securities	257,570		261,208
Cash	40,770		68,168
Total cash, cash equivalents and marketable securities	$	298,340	$	329,376

The Company continues to invest in highly rated quality, highly liquid debt securities. As of June 30, 2018, 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, 2018 and December 31, 2017 are as follows:



	Fair Value				Gross Unrealized Loss
	June 30, 2018		December 31, 2017		June 30, 2018			December 31, 2017
	(In thousands)
Less than one year
U.S. Government bonds and notes	$	11,987	$	42,581	$	—		$	(1	)
Corporate notes, bonds and commercial paper	177,594		194,015		(45		)	(131		)
Total Corporate notes, bonds, and commercial paper and U.S. Government bonds and notes	$	189,581	$	236,596	$	(45	)	$	(132	)

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The gross unrealized loss at June 30, 2018 and December 31, 2017 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 these investments, 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 8, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.

8. Fair Value of Financial Instruments

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, 2018 and December 31, 2017:



	As of June 30, 2018
	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	$	11,078	$	11,078	$	—	$	—
U.S. Government bonds and notes	68,898		—		68,898		—
Corporate notes, bonds, commercial paper and other	177,594		—		177,594		—
Total available-for-sale securities	$	257,570	$	11,078	$	246,492	$	—



	As of December 31, 2017
	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	$	10,915	$	10,915	$	—	$	—
U.S. Government bonds and notes	55,220		—		55,220		—
Corporate notes, bonds, commercial paper and other	195,073		1,058		194,015		—
Total available-for-sale securities	$	261,208	$	11,973	$	249,235	$	—

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, 2018 and 2017, there were no transfers of financial instruments between different categories of fair value.

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The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of June 30, 2018 and December 31, 2017:



	As of June 30, 2018						As of December 31, 2017
(In thousands)	Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value
1.375% Convertible Senior Notes due 2023 (the "2023 Notes")	$	172,500	$	138,647	$	164,996	$	172,500	$	135,447	$	173,450
1.125% Convertible Senior Notes due 2018 (the "2018 Notes")	$	81,207	$	80,648	$	90,749	$	81,207	$	78,451	$	100,802

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 9, "Convertible Notes," as of June 30, 2018, the 2023 Notes and 2018 Notes are carried at their face values of $172.5 million and $81.2 million, respectively, 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.

9. Convertible Notes

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



(In thousands)	As of June 30, 2018			As of December 31, 2017
2023 Notes	$	172,500		$	172,500
2018 Notes	81,207			81,207
Total principal amount of convertible notes	$	253,707		$	253,707
Unamortized discount - 2023 Notes	(31,556		)	(34,506		)
Unamortized discount - 2018 Notes	(517		)	(2,547		)
Unamortized debt issuance costs - 2023 Notes	(2,297		)	(2,547		)
Unamortized debt issuance costs - 2018 Notes	(42		)	(209		)
Total convertible notes	$	219,295		$	213,898
Less current portion	80,648			78,451
Total long-term convertible notes	$	138,647		$	135,447

Interest expense related to the notes for the three and six months ended June 30, 2018 and 2017 was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(In thousands)
2023 Notes coupon interest at a rate of 1.375%	$	593	$	—	$	1,186	$	—
2023 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 4.9%	1,610		—		3,199		—
2018 Notes coupon interest at a rate of 1.125%	228		388		281		776
2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%	1,106		1,774		2,197		3,523
Total interest expense on convertible notes	$	3,537	$	2,162	$	6,863	$	4,299

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10. Commitments and Contingencies

As of June 30, 2018, the Company’s material contractual obligations were as follows (in thousands):



	Total		Remainder of 2018		2019		2020		2021		2022		Thereafter
Contractual obligations (1)
Imputed financing obligation (2)	$	12,732	$	3,261	$	6,602	$	2,869	$	—	$	—	$	—
Leases and other contractual obligations	24,301		5,221		5,569		4,603		4,731		3,318		859
Software licenses (3)	8,773		5,241		3,532		—		—		—		—
Convertible notes	253,707		81,207		—		—		—		—		172,500
Interest payments related to convertible notes	12,635		1,955		2,372		2,372		2,372		2,372		1,192
Total	$	312,148	$	96,885	$	18,075	$	9,844	$	7,103	$	5,690	$	174,551

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(1)

The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $23.8 million including $21.6 million recorded as a reduction of long-term deferred tax assets and $2.2 million in long-term income taxes payable as of June 30, 2018. As noted below in Note 13, “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 agreements generally having terms longer than one year.

Building lease expense was approximately $1.2 million and $2.5 million for the three and six months ended June 30, 2018, respectively. Building lease expense was approximately $1.1 million and $2.1 million for the three and six months ended June 30, 2017, respectively. Deferred rent of $1.3 million and $0.5 million as of June 30, 2018 and December 31, 2017, respectively, was included in other 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 or liability that the Company could be exposed to under these agreements, however, this is not always possible. The fair value of the liability as of June 30, 2018 and December 31, 2017 is not material.

11. Equity Incentive Plans and Stock-Based Compensation

As of June 30, 2018, 10,032,433 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, 2018. 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 Plan. Also, on April 26, 2018, the Company's stockholders approved an additional 5,500,000 shares for issuance under the 2015 Plan.

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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, 2017	5,051,147
Increase in shares approved for issuance	5,500,000
Stock options granted	(621,479	)
Stock options forfeited	765,382
Nonvested equity stock and stock units granted (1) (2)	(4,129,419	)
Nonvested equity stock and stock units forfeited (1)	3,466,802
Total available for grant as of June 30, 2018	10,032,433

_________________________________________


(1)	For purposes of determining the number of shares available for grant under the 2015 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 525,965 shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first quarter of 2018 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 2006 Plan and 2015 Plan for the six months ended June 30, 2018 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of June 30, 2018.



	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, 2017	4,310,361		$	9.78
Options granted	621,479		$	12.93
Options exercised	(336,004	)	$	7.48
Options forfeited	(765,382	)	$	13.60
Outstanding as of June 30, 2018	3,830,454		$	9.73	3.73	$	12,741
Vested or expected to vest at June 30, 2018	3,789,195		$	9.70	3.67	$	12,738
Options exercisable at June 30, 2018	3,109,152		$	9.00	2.50	$	12,659

No stock options that contain a market condition were granted during the three and six months ended June 30, 2018. As of June 30, 2018 and December 31, 2017, there were no stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at June 30, 2018, based on the $12.54 closing stock price of Rambus’ common stock on June 29, 2018 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, 2018 was 2,840,317 and 2,683,735, respectively.

Employee Stock Purchase Plan

Under the 2015 Employee Stock Purchase Plan ("2015 ESPP"), the Company issued 297,497 shares at a price of $11.66 per share during the six months ended June 30, 2018. Under the 2015 ESPP, the Company issued 361,994 shares at a price of $10.33 per share during the six months ended June 30, 2017. On April 26, 2018, the Company's stockholders approved an additional 2,000,000 shares to be reserved for issuance under the 2015 ESPP. As of June 30, 2018, 2,538,776 shares under the 2015 ESPP remain available for issuance.

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Stock-Based Compensation

For the six months ended June 30, 2018 and 2017, 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. During the second quarter of 2018, the Company's former chief executive officer was terminated which resulted in a reversal of stock-based compensation expense of $5.8 million during the period as he did not vest any of the awards, which were primarily related to performance unit awards and nonvested equity stock units. In addition, the Company sponsors the 2015 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, 2018, the Company granted 70,000 stock options with an estimated grant-date fair value of $0.3 million. During the six months ended June 30, 2018, the Company granted 621,479 stock options with an estimated total grant-date fair value of $2.6 million. During the three and six months ended June 30, 2018, the Company recorded stock-based compensation expense related to stock options of $0.5 million and $1.0 million, respectively.

During the three months ended June 30, 2017, the Company granted 40,000 stock options with an estimated total grant-date fair value of $0.2 million. During the six months ended June 30, 2017, the Company granted 498,426 stock options with an estimated grant-date fair value of $2.1 million. During the three and six months ended June 30, 2017, the Company recorded stock-based compensation expense related to stock options of $0.7 million and $1.4 million, respectively.

As of June 30, 2018, there was $4.7 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 3.0 years. The total fair value of shares vested as of June 30, 2018 was $14.8 million.

The total intrinsic value of options exercised was $1.0 million and $2.1 million for the three and six months ended June 30, 2018, respectively. The total intrinsic value of options exercised was $1.8 million and $3.8 million for the three and six months ended June 30, 2017, 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, 2018, net proceeds from employee stock option exercises totaled approximately $2.5 million.

Employee Stock Purchase Plan

For the three and six months ended June 30, 2018, 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, 2017, the Company recorded compensation expense related to the 2015 ESPP of $0.4 million and $0.9 million, respectively. As of June 30, 2018, there was $0.5 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.

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, 2018 calculated in accordance with accounting for share-based payments were $0.1 million and $0.3 million, respectively. 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, 2017 were $0.2 million and $0.5 million, respectively.

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 Plan
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018	2017
Stock Option Plan
Expected stock price volatility	24	%	32	%	24% - 29%	32	%
Risk free interest rate	2.7	%	1.8	%	2.6% - 2.7%	1.8% - 1.9%
Expected term (in years)	5.8