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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-22339
RAMBUS INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3112828
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1050 Enterprise Way, Suite 700
Sunnyvale, California
(Address of principal
executive offices)
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94089
(Zip Code)
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Registrants telephone number, including area code:
(408) 462-8000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.001 Par Value
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The NASDAQ Stock Market LLC
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(The NASDAQ Global Select Market)
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the Registrants Common Stock
held by non-affiliates of the Registrant as of June 30,
2010 was approximately $1.7 billion based upon the closing
price reported for such date on The NASDAQ Global Select Market.
For purposes of this disclosure, shares of Common Stock held by
officers and directors of the Registrant and persons that may be
deemed to be affiliates under the Act have been excluded. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of outstanding shares of the Registrants Common
Stock, $.001 par value, was 107,487,978 as of
January 31, 2011.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this
report by reference to the Proxy Statement for the
Registrants annual meeting of stockholders to be held on
or about April 28, 2011 to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by
this
Form 10-K.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
(Annual Report) contains forward-looking statements.
These forward-looking statements include, without limitation,
predictions regarding the following aspects of our future:
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Success in the markets of our or our licensees products;
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Sources of competition;
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Research and development costs and improvements in technology;
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Sources, amounts and concentration of revenue, including
royalties;
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Success in renewing license agreements;
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Product development;
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Pricing policies of our licensees;
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Engineering, marketing and general and administration expenses;
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Contract revenue;
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Operating results;
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International licenses and operations, including our design
facility in Bangalore, India;
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Issuances of our securities, which could involve restrictive
covenants or be dilutive to our existing stockholders;
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Acquisitions, mergers or strategic transactions;
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Interest and other income, net;
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Effects of changes in the economy and credit market on our
industry and business;
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Deterioration of financial health of commercial counterparties
and their ability to meet their obligations to us;
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Restructuring activities;
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Growth in our business;
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Methods, estimates and judgments in accounting policies;
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Adoption of new accounting pronouncements;
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Ability to identify, attract, motivate and retain qualified
personnel;
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Effective tax rates;
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Realization of deferred tax assets/release of deferred tax
valuation allowance;
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Repurchases of our Common Stock pursuant to share repurchase
programs or otherwise;
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Trading price of our Common Stock;
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Internal control environment;
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Corporate governance;
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Consequences of the lawsuits related to the stock option
investigation;
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The level and terms of our outstanding debt;
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Outcome and effect of current and potential future intellectual
property litigation;
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Resolution of the governmental agency matters involving us;
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Litigation expenses;
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Protection of intellectual property;
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Terms of our licenses;
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Amounts owed under licensing agreements;
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Indemnification and technical support obligations; and
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Likelihood of paying dividends or repurchasing stock.
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You can identify these and other forward-looking statements by
the use of words such as may, future,
shall, should, expects,
plans, anticipates,
believes, estimates,
predicts, intends,
potential, continue, or the negative of
such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating
to any of the foregoing statements.
Actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors,
including those set forth under Item 1A, Risk
Factors. All forward-looking statements included in this
document are based on our assessment of information available to
us at this time. We assume no obligation to update any
forward-looking statements.
PART I
Rambus,
RDRAMtm,
XDRtm,
FlexIOtm
and
FlexPhasetm
are trademarks or registered trademarks of Rambus Inc. Other
trademarks that may be mentioned in this annual report on
Form 10-K
are the property of their respective owners.
Industry terminology, used widely throughout this annual report,
has been abbreviated and, as such, these abbreviations are
defined below for your convenience:
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Double Data Rate
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DDR
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Dynamic Random Access Memory
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DRAM
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Fully Buffered-Dual Inline Memory Module
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FB-DIMM
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Gigabits per second
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Gb/s
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Graphics Double Data Rate
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GDDR
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Input/Output
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I/O
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Light Emitting Diodes
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LED
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Lighting and Display Technology
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LDT
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Liquid Crystal Display
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LCD
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Peripheral Component Interconnect
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PCI
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Rambus Dynamic Random Access Memory
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RDRAMtm
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Single Data Rate
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SDR
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Synchronous Dynamic Random Access Memory
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SDRAM
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eXtreme Data Rate
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XDRtm
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From time to time we will refer to the abbreviated names of
certain entities and, as such, have provided a chart to indicate
the full names of those entities for your convenience.
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Advanced Micro Devices Inc.
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AMD
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Broadcom Corporation
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Broadcom
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Elpida Memory, Inc.
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Elpida
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Freescale Semiconductor Inc.
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Freescale
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Fujitsu Limited
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Fujitsu
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General Electric Company
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GE
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Global Lighting Technologies, Inc.
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GLT
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Hewlett-Packard Company
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Hewlett-Packard
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Hynix Semiconductor, Inc.
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Hynix
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Infineon Technologies AG
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Infineon
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Inotera Memories, Inc.
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Inotera
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Intel Corporation
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Intel
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International Business Machines Corporation
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IBM
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Joint Electronic Device Engineering Councils
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JEDEC
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Juniper Networks, Inc.
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Juniper
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LSI Corporation
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LSI
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MediaTek Inc.
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MediaTek
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Micron Technologies, Inc.
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Micron
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Nanya Technology Corporation
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Nanya
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NEC Electronics Corporation
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NEC
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NVIDIA Corporation
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NVIDIA
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Qimonda AG (formerly Infineons DRAM operations)
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Qimonda
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Panasonic Corporation
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Panasonic
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Renesas Electronics
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Renesas
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Samsung Electronics Co., Ltd.
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Samsung
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Sony Computer Electronics
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Sony
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Spansion, Inc.
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Spansion
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ST Microelectronics N.V.
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ST Microelectronics
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Texas Instruments Inc.
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Texas Instruments
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Toshiba Corporation
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Toshiba
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Velio Communications
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Velio
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Rambus Inc. (we or Rambus) was founded
in 1990 and reincorporated in Delaware in March 1997. Our
principal executive offices are located at 1050 Enterprise Way,
Suite 700, Sunnyvale, California. Our Internet address is
www.rambus.com. You can obtain copies of our
Forms 10-K,
10-Q,
8-K, and
other filings with the SEC, and all amendments to these filings,
free of charge from our website as soon as reasonably
practicable following our filing of any of these reports with
the SEC. In addition, you may read and copy any material we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports,
proxy, and information statements, and other information
regarding registrants that file electronically with the SEC at
www.sec.gov.
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We are a premier intellectual property and technology licensing
company. Our primary focus is the creation, design, development
and licensing of patented innovations, technologies and
architectures that are foundational to nearly all digital
electronics products and systems. Our patented innovations and
technologies aim to improve the performance, power efficiency,
time-to-market
and cost-effectiveness of our customers products,
components and systems offered and used in semiconductors,
computers, mobile applications, gaming and graphics, consumer
electronics, lighting displays and general lighting. By
licensing our patented innovations and technologies, we hope to
continuously enrich the end-user experience of the digital
electronics products and systems marketed and sold by our
customers and licensees. We believe we have established an
unparalleled licensing platform and business model that will
continue to foster the development of new foundational and
leading innovations and technologies. As a result, our goal is
to create significant licensing opportunities, and thereby
perpetuate strong company operating performance and long term
stockholder value.
While we have historically focused our efforts in developing and
licensing patented innovations and technologies for the
semiconductor industry, particularly in the area of chip
interfaces, we have initiated diversification efforts to expand
our portfolio of patented innovations and technologies into
lighting and displays, mobile communications, and additional
semiconductor technologies. We expect to continue this
diversification initiative through the acquisition of assets and
the hiring of the inventors, scientists and engineers who will
lead the effort to further develop these patented innovations
and technologies in these new areas of focus. During 2010, we
initiated an internal structural reorganization to establish
separate business groups for our semiconductor industry focused
operations (Semiconductor Business Group or
SBG) and operations focused on new or emerging
licensing opportunities (New Business Group or
NBG) which includes our lighting and display
technology (LDT) group. We expect this internal
realignment to help drive efficiencies in operations and
optimize our licensing platform and business model as we expand
and diversify into new markets.
As of December 31, 2010, our semiconductor, chip interface,
lighting, display and other technologies are covered by
approximately 1,180 U.S. and foreign patents. Additionally,
we have approximately 850 patent applications pending. These
patents and patent applications cover important inventions in
memory and logic chip interfaces, optoelectronics, mobile
applications and other technologies. Some of the patents and
pending patent applications are derived from a common parent
patent application or are foreign counterpart patent
applications. We have a program to file applications for and
obtain patents in the United States and in selected foreign
countries where we believe filing for such protection is
appropriate and would further our overall strategy and
objectives. In some instances, obtaining appropriate levels of
protection may involve prosecuting continuation and counterpart
patent applications based on a common parent application. We
believe that our patented innovations provide our customers
means to achieve higher performance, improved power efficiency,
lower risk, and greater cost-effectiveness in their digital
electronics products and systems.
Our patented innovations and technologies are offered to our
customers through either a patent license or a technology
license. Our revenues are primarily derived from patent
licenses, through which we provide a license to our broad
portfolio of patented innovations primarily to semiconductor and
system companies who use these innovations in the development
and manufacture of their own products. Our patent licensing
agreements may provide a license to all or part of our patent
portfolio for a particular use, product or technology. The
patent license essentially provides our customers with a defined
right to use our patented innovations in the customers own
digital electronics products and systems. Patent license
agreements are generally structured with variable royalty
payments, although some agreements include fixed payments over
certain defined periods.
We also offer our customers technology licenses. We typically
offer technology licenses to support the implementation and
adoption of our patented innovations and technologies through
know-how and technology transfers, product design, development,
and system integration consulting and engineering services. Our
technology license offerings also include a range of solutions
developed by Rambus, which include leadership
solutions (which are Rambus-proprietary solutions widely
licensed to our customers) and industry-standard solutions that
we provide to our customers under license for incorporation into
our customers digital electronics products and systems.
Due to the often complex nature of implementing
state-of-the
art technology, we also offer engineering services to our
customers to help them successfully integrate our solutions into
their digital electronics products and systems. These technology
license agreements may have both a fixed price (non-recurring)
component and ongoing royalties. Engineering services are
generally offered on a fixed price basis. Further, under
technology licenses, our
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customers typically receive licenses to our patents necessary to
implement these solutions in their products with specific rights
and restrictions to the applicable patents elaborated in their
individual contracts with us.
Background
Semiconductor
Industry
The performance of computers, mobile phones, consumer
electronics and other electronic systems rises dramatically with
each passing year. Semiconductor and system designers face key
challenges in sustaining this pace of innovation. Since battery
technology improves modestly over time, mobile device designers
face adding increased functionality and higher performance with
only small increases in power budget. For plug-in systems, there
is a strong desire to reduce power consumption for both
economical and environmental reasons while still providing
increased computing capability and more visually compelling
displays. At the chip level, it becomes increasingly difficult
to maintain signal integrity and power efficiency as data
transfer speeds rise to support more powerful, multi-core
processors.
To address these challenges and enable the continued improvement
of electronics systems requires ongoing innovation. The many
contributions and patented innovations developed by Rambus
scientists and engineers have been, and continue to be, critical
in addressing some of the most difficult chip and system
challenges. We have developed what we believe are the
worlds fastest memory solutions delivering breakthrough
performance at unmatched power efficiency. Our patented
innovations can deliver the memory bandwidth and throughput
needed to unleash the potential of multi-core processors.
Lighting
and Display Technologies and other Diversification
Areas
The expected obsolescence and expected replacement of current
general lighting products and applications represent a
significant market opportunity for new and advanced innovations
and technologies that utilize light emitting diodes
(LEDs). Moreover, LED backlighting solutions are
increasingly pervasive in liquid crystal displays
(LCDs) for computers, mobile phones, gaming systems,
HDTVs and any user interface utilizing a light emitting screen.
These emerging technologies in the lighting and display market
offer distinct advantages over traditional lighting sources in
image quality, power efficiency and reliability and have either
been widely adopted in current digital electronics products and
systems, as in the case of LED backlighting, or are in the
process of market adoption, as in the case of LED based general
lighting products and applications.
We believe that our patented innovations in advanced lighting
technologies represent significant value to applications,
products and systems that currently use and incorporate these
innovations and those that will be adopted into new products and
systems. For example, our patented innovations in backlighting
can enable what we believe to be some of the thinnest, most
power-efficient and cost-effective LCD displays for mobile
phones, computers and high definition televisions
(HDTVs). In addition, our goal is that our patented
innovations and technology in general lighting will offer
revolutionary and breakthrough solutions that will provide
exceptional quality and control of illumination in form factors
unconstrained by legacy lighting products and systems. We
believe that these breakthrough patented innovations and
technologies advance our mission of enriching the consumer
experience of electronic products and systems and represent
additional significant licensing opportunities in growing
markets.
We are also continuing our efforts to invent, develop and expand
our patented innovations and technologies into other markets for
digital electronics products and systems, such as mobile
communications and other end user applications.
Our
Offerings
Patented
Innovations
Royalties represent a substantial majority of our total revenue.
We derive the majority of our royalty revenue by licensing our
broad portfolio of patents for chip interfaces to our customers.
These licenses may cover part or all of our patent portfolio in
semiconductor technologies. Leading semiconductor and system
companies such as
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AMD, Elpida, Fujitsu, GE, Intel, Panasonic, Renesas, Samsung and
Toshiba have licensed our patents for use in their own products.
Examples of the many patented innovations in our portfolio
include, and have included,:
Dual Edge Clocking which is designed to allow data to be
sent on both the leading and trailing edge of the clock pulse,
effectively doubling the transfer rate out of a memory core
without the need for higher system clock speeds.
Variable Burst Length which is designed to improve data
transfer efficiency by allowing varying amounts of data to be
sent per a memory read or write request in DRAMs and Flash
memory.
FlexPhasetm
technology which synchronizes data output and compensates for
circuit timing errors.
Channel Equalization which is designed to improve signal
integrity and system margins by reducing inter-symbol
interference in high speed parallel and serial link channels.
Module Threading which improves the throughput and power
efficiency of a memory module by applying parallelism to module
data accesses.
MicroLenstm
optical design technology which provides optimum utilization of
high-brightness LEDs in edge-lit lighting applications
delivering superior brightness, control and uniformity of
illumination.
Technology
Solutions and Enabling Services
We license a range of technology solutions including our
leadership architectures and industry-standard solutions to
customers for use in their digital electronics products and
systems. Our customers include leading companies such as Elpida,
GE, IBM, Panasonic, Samsung, Sony and Toshiba. Due to the
complex nature of implementing our technologies, we provide
engineering services under certain of these licenses to help our
customers successfully integrate our technology solutions into
their semiconductor and system products. Licensees may also
receive, in addition to their technology license agreements,
patent licenses as necessary to implement the technology in
their products with specific rights and restrictions to the
applicable patents elaborated in their individual contracts.
Our leadership technology solutions include the
XDRtm,
XDRtm2,
Mobile
XDRtm
and
RDRAMtm
memory architectures and the
FlexIOtm
processor bus.
The
XDRtm
Memory Architecture enables what we believe to be the
worlds fastest production DRAM with operation up to
7.2Gb/s.
XDRtm
DRAM is the main memory solution for Sony Computer
Entertainments
PlayStation®3
as well as for Texas Instruments latest generation of
Digital Light Processing (DLP) projectors.
The
XDRtm2
Memory Architecture incorporates new innovations, including
DRAM micro-threading, to deliver the worlds highest
performance for graphics intensive applications such as gaming
and digital video.
The Mobile
XDRtm
Memory Architecture delivers high performance with
excellent power efficiency enabling applications such as HD
video recording and 3D gaming on battery powered mobile devices.
RDRAMtm
Memory has shipped in the Sony
PlayStation®2,
Intel-based personal computers (PCs), Texas
Instruments DLP TVs and in Juniper routers. Our customers have
sold over 500 million
RDRAMtm
devices across all applications to date. This product is
approaching
end-of-life,
and we anticipate revenue from
RDRAMtm
solutions will continue to decline.
The
FlexIOtm
Processor Bus is a high speed
chip-to-chip
interface. It is one of our two key chip interface products that
enable the Cell BE processor co-developed by Sony, Toshiba and
IBM. In the
PlayStation®3,
the
FlexIOtm
bus provides the interface between the Cell BE, the RSX graphics
processor and the SouthBridge chip.
We also offer industry-standard chip interface solutions,
including DDRx (where the x is a number that
represents a version), as well as digital logic controllers for
PCI Express and other industry standard interfaces.
In addition, we offer custom solutions for displays, LED
backlights and general lighting.
Design
and Manufacturing
Our technology solutions are developed with high-volume
commercial manufacturing processes in mind. Our solutions can be
delivered in a number of ways, from reference designs to full
turnkey custom developments. A
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reference design engagement might include an architectural
specification, data sheet, theory of operation and
implementation guides. A custom development would entail a
specific design implementation optimized for the licensees
manufacturing process.
Target
Markets, Applications and Customers
We work with leading and emerging semiconductor and digital
electronics products and system customers to enable their
next-generation products. We engage with our customers across
the entire product life cycle, from system architecture
development, to component design, to system integration, to
production
ramp-up
through product maturation. Our patented innovations and
technologies are incorporated into a broad range of high-volume
applications in computing, gaming and graphics, lighting,
consumer electronics and mobile markets. System level products
that utilize our patented inventions
and/or
solutions include personal computers, servers, printers, video
projectors, game consoles, HDTVs, set-top boxes and mobile
phones manufactured by such companies as Fujitsu, IBM,
Hewlett-Packard, Panasonic, Toshiba, Samsung and Sony.
Our
Strategy
The key elements of our strategy are as follows:
Innovate: Develop and patent our innovative
technology to provide fundamental competitive advantage when
incorporated into semiconductors, and digital electronics
products and systems.
Drive Adoption: Communicate the advantages of
our patented innovations and technologies to the industry and
encourage its adoption through demonstrations and incorporation
in the products of select customers.
Monetize: License our patented inventions and
technology solutions to customers for use in their semiconductor
and system products.
We believe that the successful execution of this strategy
requires an exceptional and unparalleled licensing platform and
business model that relies on the skills and talent of our
employees. Accordingly, we seek to hire and retain world class
scientific and engineering expertise in all of our fields of
technological focus, as well as the executive management and
operating personnel required to successfully execute our
business strategy. In order to attract the quality of employees
required for this business model, we have created an environment
and culture that encourages, fosters and supports research,
development and innovation in breakthrough technologies with
significant opportunities for broad industry adoption through
licensing. We believe that we have created a compelling company
for inventors and innovators who are able to work within a
business model and platform that focuses on intellectual
property development and licensing to drive strong future growth.
Research
and Development
Our ability to compete in the future will be substantially
dependent on our ability to develop and patent key innovations
that meet the future needs of a dynamic market. To this end, we
have assembled a team of highly skilled engineers and scientists
whose activities are focused on continually developing new
innovations within our chosen technology fields. Using this
foundation of patented innovations, our technical teams develop
new product solutions that enable increased performance, and
greater power efficiency as well as other improvements and
benefits. Our solution design and development process is a
multi-disciplinary effort requiring expertise in system
architecture, digital and analog circuit design and layout,
semiconductor process characteristics, packaging, printed
circuit board routing, signal integrity, high-speed testing
techniques, optical design, thermal management, and system
integration.
As of December 31, 2010, we had approximately
240 employees in our engineering departments, representing
approximately 62% of our total employees. A significant number
of our scientists and engineers spend all or a portion of their
time on research and development. For the years ended
December 31, 2010, 2009 and 2008, research and development
expenses were $92.7 million, $67.3 million and
$76.2 million, respectively, including stock-based
compensation of approximately $10.2 million,
$9.7 million and $13.5 million, respectively. Since
innovation is critical to our future success, we expect to
continue to invest substantial funds in research and development
activities. In addition, because our license and support
agreements often call for us to provide engineering support, a
portion of our total engineering costs are allocated to the cost
of contract revenue.
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Competition
The electronics industry is intensely competitive and has been
impacted by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and increasing
foreign and domestic competition. We face competition from
semiconductor and digital electronics products and systems
companies, as well as other intellectual property companies, who
provide their own technologies, including DDR memory chip
interface technology and solutions. In addition, most DRAM
manufacturers, including our
XDRtm
licensees, produce versions of DRAM such as SDR, DDRx and GDDRx
SDRAM which compete with
XDRtm
solutions. Further, there are ongoing efforts to integrate
memory and processors such as in
system-in-package
products. For our patented innovations and technologies for the
lighting market, we face competition from system and subsystem
providers of display, backlighting and general lighting
solutions.
We believe that our principal competition for our technologies
may come from our prospective licensees, some of whom are
evaluating and developing products based on technologies that
they contend or may contend will not require a license from us.
Some of our competitors use a system-level design approach
similar to ours, including activities such as board and package
design, power and signal integrity analysis, and thermal
management. Many of these companies are larger and may have
better access to financial, technical and other resources than
we possess.
To the extent that alternatives might provide comparable system
performance at lower than or similar cost to our technologies,
or are perceived to require the payment of no or lower
royalties, or to the extent other factors influence the
industry, our licensees and prospective licensees may adopt and
promote alternative technologies. Even to the extent we
determine that such alternative technologies infringe our
patents, there can be no assurance that we would be able to
negotiate agreements that would result in royalties being paid
to us without litigation, which could be costly and the results
of which would be uncertain. Litigation has been, and may
continue to be required to enforce and protect our intellectual
property rights, as well as the substantial investments
undertaken to research and develop our innovations and
technologies.
Employees
As of December 31, 2010, we had approximately
390 full-time employees. None of our employees are covered
by collective bargaining agreements. As noted above, we believe
that our future success is dependent on our continued ability to
identify, attract, motivate and retain qualified personnel. To
date, we believe that we have been successful in recruiting
qualified employees and that our relationship with our employees
is good.
Patents
and Intellectual Property Protection
We maintain and support an active program to protect our
intellectual property, primarily through the filing of patent
applications and the defense of issued patents against
infringement. As of December 31, 2010, we have
approximately 1,180 U.S. and foreign patents on various
aspects of our technology, with expiration dates ranging from
2011 to 2029, and we have approximately 850 pending patent
applications. These patents and patent applications cover
important inventions in memory and logic chip interfaces,
optoelectronics and other technologies. Some of the patents and
pending patent applications are derived from a common parent
patent application or are foreign counterpart patent
applications. We have a program to file applications for and
obtain patents in the United States and in selected foreign
countries where we believe filing for such protection is
appropriate. In some instances, obtaining appropriate levels of
protection may involve prosecuting continuation and counterpart
patent applications based on a common parent application. In
addition, we attempt to protect our trade secrets and other
proprietary information through agreements with current and
prospective licensees, and confidentiality agreements with
employees and consultants and other security measures. We also
rely on trademarks and trade secret laws to protect our
intellectual property.
Business
Segment Data, Customers and Our Foreign Operations
Prior to 2010, Rambus operated in a single industry segment, the
design, development and licensing of memory and logic
interfaces, lighting and optoelectronics, and other
technologies. In 2010, the Company reorganized, and as a result,
at the end of the fourth quarter of 2010, Rambus has two
business groups: SBG which focuses on the design, development
and licensing of semiconductor technology, and NBG which focuses
on the design, development and licensing of lighting and display
technologies, mobile and other technologies.
9
Information concerning revenue, results of operations and
revenue by geographic area is set forth in Item 6,
Selected Financial Data, in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and in Note 13,
Business Segments and Major Customers, of Notes to
Consolidated Financial Statements of this
Form 10-K,
all of which are incorporated herein by reference. Information
concerning identifiable assets is also set forth in
Note 13, Business Segments and Major Customers,
of Notes to Consolidated Financial Statements of this
Form 10-K.
Information on customers that comprise 10% or more of our
consolidated revenue and risks attendant to our foreign
operations is set forth below in Item 1A, Risk
Factors.
Our
Executive Officers
Information regarding our executive officers and their ages and
positions as of February 25, 2011, is contained in the
table below. Our executive officers are appointed by, and serve
at the discretion of, our Board of Directors. There is no family
relationship between any of our executive officers.
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Name
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Age
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Position and Business Experience
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Sharon E. Holt
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46
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Senior Vice President, GM, Semiconductor Business Group. Ms.
Holt has served in her current position (formerly titled Senior
Vice President, Licensing and Marketing and Senior Vice
President, Worldwide Sales, Licensing and Marketing) since
joining us in August 2004. From November 1999 to July 2004, Ms.
Holt held various positions at Agilent Technologies, Inc., an
electronics instruments and controls company, most recently as
vice president and general manager, Americas Field Operations,
Semiconductor Products Group. Prior to Agilent Technologies,
Inc., Ms. Holt held various engineering, marketing, and sales
management positions at Hewlett-Packard Company, a hardware
manufacturer. Ms. Holt holds a B.S. in Electrical Engineering,
with a minor in Mathematics, from the Virginia Polytechnic
Institute and State University.
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Harold Hughes
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65
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Chief Executive Officer and President. Mr. Hughes has served as
our chief executive officer and president since January 2005 and
as a director since June 2003. He served as a United States Army
Officer from 1969 to 1972 before starting his private sector
career with Intel Corporation. Mr. Hughes held a variety of
positions within Intel Corporation from 1974 to 1997, including
treasurer, vice president of Intel Capital, chief financial
officer, and vice president of Planning and Logistics. Following
his tenure at Intel, Mr. Hughes was the chairman and chief
executive officer of Pandesic, LLC. He holds a B.A. from the
University of Wisconsin and an M.B.A. from the University of
Michigan. He also serves as a director of Berkeley Technology,
Ltd.
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Thomas Lavelle
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60
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Senior Vice President and General Counsel. Mr. Lavelle has
served in his current position since December 2006. Previous to
that, Mr. Lavelle served as vice president and general counsel
at Xilinx, one of the worlds leading suppliers of
programmable chips. Mr. Lavelle joined Xilinx in 1999 after
spending more than 15 years at Intel Corporation where he
held various positions in the legal department. Mr. Lavelle
earned a J.D. from Santa Clara University School of Law and
a B.A. from the University of California at Los Angeles.
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Name
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Age
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Position and Business Experience
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Satish Rishi
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51
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Senior Vice President, Finance and Chief Financial Officer.
Mr. Rishi joined us in his current position in April 2006.
Prior to joining us, Mr. Rishi held the position of executive
vice president of Finance and chief financial officer of Toppan
Photomasks, Inc., (formerly DuPont Photomasks, Inc.) one of the
worlds leading photomask providers, from November 2001 to
April 2006. During his 25-year career, Mr. Rishi has held senior
financial management positions at semiconductor and electronic
manufacturing companies. He served as vice president and
assistant treasurer at Dell Inc. Prior to Dell, Mr. Rishi
spent 13 years at Intel Corporation, where he held
financial management positions both in the United States and
overseas, including assistant treasurer. Mr. Rishi holds a B.S.
with honors in Mechanical Engineering from Delhi University in
Delhi, India and an M.B.A. from the University of California at
Berkeleys Haas School of Business. He also serves as a
director of Measurement Specialties, Inc.
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Michael Schroeder
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51
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Senior Vice President, Human Resources. Mr. Schroeder has served
as our Senior Vice President, Human Resources since January 2011
and as our Vice President, Human Resources since joining us in
June 2004. From April 2003 to May 2004, Mr. Schroeder was
vice president, Human Resources at DigitalThink, Inc., an online
service company. From August 2000 to August 2002, Mr. Schroeder
served as vice president, Human Resources at Alphablox
Corporation, a software company. From August 1992 to August
2000, Mr. Schroeder held various positions at Synopsys, Inc., a
software and programming company, including vice president,
California Site Human Resources, group director Human Resources,
director Human Resources and employment manager.
Mr. Schroeder attended the University of Wisconsin,
Milwaukee and studied Russian.
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Martin Scott, Ph.D.
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55
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Senior Vice President, GM, New Business Group. Dr. Scott
has served in his current position (formerly titled Senior Vice
President, Research and Technology Development) since December
2006. Dr. Scott joined us from PMC-Sierra, Inc., a provider
of broadband communications and storage integrated circuits,
where he was most recently vice president and general manager of
its Microprocessor Products Division from March 2006.
Dr. Scott was the vice president and general manager for
the I/O Solutions Division (which was purchased by
PMC-Sierra)
of Avago Technologies Limited, an analog and mixed signal
semiconductor components and subsystem company, from October
2005 to March 2006. Dr. Scott held various positions at
Agilent Technologies, including as vice president and general
manager for the I/O Solutions division from October 2004 to
October 2005, when the division was purchased by Avago
Technologies, vice president and general manager of the ASSP
Division from March 2002 until October 2004, and, before that,
Network Products operation manager. Dr. Scott started his
career in 1981 as a member of the technical staff at Hewlett
Packard Laboratories and held various management positions at
Hewlett Packard and was appointed ASIC business unit manager in
1998. He earned a B.S. from Rice University and holds both an
M.S. and Ph.D. from Stanford University.
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11
RISK
FACTORS
Because of the following factors, as well as other variables
affecting our operating results, past financial performance may
not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or
trends in future periods. See also Special Note Regarding
Forward-Looking Statements elsewhere in this report.
Risks
Associated With Our Business, Industry and Market
Conditions
If
market leaders do not adopt our innovations, our results of
operations could decline.
An important part of our strategy is to penetrate our target
market segments by working with leaders in those market
segments. This strategy is designed to encourage other
participants in those segments to follow such leaders in
adopting our innovations. If a high profile industry participant
adopts our innovations but fails to achieve success with its
products or adopts and achieves success with a competing
technology, our reputation and sales could be adversely
affected. For example, if our commercial relationships with
Samsung do not achieve success, our reputation could be
adversely affected given the market position of Samsung as a
leading memory manufacturer. In addition, some industry
participants have adopted, and others may in the future adopt, a
strategy of disparaging our memory solutions adopted by their
competitors or a strategy of otherwise undermining the market
adoption of our solutions.
We target system companies to adopt our chip interface
technologies, particularly those that develop and market high
volume business and consumer products, which were traditionally
focused on PCs, including PC graphics processors, and video game
consoles, and now include HDTVs, cellular and digital phones,
personal digital assistants (PDAs), digital cameras
and other consumer electronics that incorporate all varieties of
memory and chip interfaces. In particular, our strategy includes
gaining acceptance of our technology in high volume consumer
applications, including video game consoles, such as the Sony
PlayStation®3,
HDTVs and set top boxes. As we diversify our technologies, such
as through the establishment of our LDT group, we will seek out
other target markets in and related to computing, gaming and
graphics, consumer electronics, mobile and general lighting
applications. We are subject to many risks beyond our control
that influence whether or not a potential licensee or partner
company will adopt our technologies, including, among others:
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competition faced by a company in its particular industry;
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the timely introduction and market acceptance of a
companys products;
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the engineering, sales and marketing and management capabilities
of a company;
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technical challenges unrelated to our innovations faced by a
company in developing its products;
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the financial and other resources of a company;
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the supply of semiconductors from our memory and chip interface
licensees in sufficient quantities and at commercially
attractive prices;
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the ability to establish the prices at which the chips
containing our chip interfaces are made available to system
companies; and
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the degree to which our licensees promote our innovations to
their customers.
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There can be no assurance that consumer products that currently
use our technology will continue to do so, nor can there be any
assurance that the consumer products that incorporate our
technology will be successful in their markets in order to
generate expected royalties, nor can there be any assurance that
any of our technologies selected for licensing will be
implemented in a commercially developed or distributed product.
If any of these events occur and market leaders do not
successfully adopt our technologies, our strategy may not be
successful and, as a result, our results of operations could
decline.
12
We
have traditionally operated in an industry that is highly
cyclical and in which the number of our potential customers may
be in decline as a result of industry consolidation, and we face
intense competition in all of our target markets that may cause
our results of operations to suffer.
The semiconductor industry is intensely competitive and has been
impacted by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and increasing
foreign and domestic competition. As the semiconductor industry
is highly cyclical, significant economic downturns characterized
by diminished demand, erosion of average selling prices,
production overcapacity and production capacity constraints
could affect the semiconductor industry. We have just emerged
from such a period of economic downturn. As a result, we may
achieve a reduced number of licenses, tightening of
customers operating budgets, difficulty or inability of
our customers to pay our licensing fees, extensions of the
approval process for new licenses and consolidation among our
customers, all of which may adversely affect the demand for our
technology and may cause us to experience substantial
period-to-period
fluctuations in our operating results.
Many of our customers operate in industries that have
experienced significant declines as a result of the recent
economic downturn. In particular, DRAM manufacturers, which make
up a majority of our existing and potential licensees, have
suffered material losses and other adverse effects to their
businesses. These factors may result in industry consolidation
as companies seek to reduce costs and improve profitability
through business combinations. Consolidation among our existing
DRAM and other customers may result in loss of revenues under
existing license agreements. Consolidation among companies in
the DRAM and other industries within which we license our
technology may reduce the number of future licensees for our
products and services. In either case, consolidation in the DRAM
and other industries in which we operate may negatively impact
our short-term and long-term business prospects, licensing
revenues and results of operations.
We face competition from semiconductor and intellectual property
companies who provide their own DDR memory chip interface
technology and solutions. In addition, most DRAM manufacturers,
including our
XDRtm
licensees, produce versions of DRAM such as SDR, DDRx, GDDRx
SDRAM and LPDDRx which compete with
XDRtm
chips. We believe that our principal competition for memory chip
interfaces may come from our licensees and prospective
licensees, some of which are evaluating and developing products
based on technologies that they contend or may contend will not
require a license from us. In addition, our competitors are also
taking a system approach similar to ours in seeking to solve the
application needs of system companies. Many of these companies
are larger and may have better access to financial, technical
and other resources than we possess. Wider applications of other
developing memory technologies, including FLASH memory, may also
pose competition to our licensed memory solutions.
JEDEC has standardized what it calls extensions of DDR, known as
DDR2 and DDR3. Other efforts are underway to create other
products including those sometimes referred to as GDDR4 and
GDDR5, as well as new ways to integrate products such as
system-in-package
DRAM. To the extent that these alternatives might provide
comparable system performance at lower or similar cost than
XDRtm
memory chips, or are perceived to require the payment of no or
lower royalties, or to the extent other factors influence the
industry, our licensees and prospective licensees may adopt and
promote alternative technologies. Even to the extent we
determine that such alternative technologies infringe our
patents, there can be no assurance that we would be able to
negotiate agreements that would result in royalties being paid
to us without litigation, which could be costly and the results
of which would be uncertain.
The display industry is intensely competitive and is impacted by
rapid technological change, shifting government mandates,
cyclical market patterns and increasing foreign and domestic
competition. In particular, our LDT group faces competition from
system and subsystem providers of backlighting and general
lighting solutions, some of which have substantial resources and
operations.
If for any of these reasons we cannot effectively compete in
these primary market segments, our results of operations could
suffer.
13
If our
NBG does not succeed, our results of operations may be adversely
affected.
The future success of our NBG, which includes our LDT group,
depends on our ability to develop new or emerging licensing
opportunities, diversify our business into lighting and
displays, mobile communications and additional semiconductor
technologies, and, specifically for our LDT group, improve the
visual capabilities, form factor, power efficiency and
cost-effectiveness of backlighting of LCD displays in products
for computing, gaming and graphics, consumer electronics, mobile
and general lighting applications.
We will need to keep pace with rapid changes in advanced
lighting and optoelectronics technology, changing consumer
requirements, new product introductions and evolving industry
standards, any of which could render our existing technology
obsolete if we fail to respond in a timely manner. The extent to
which companies in the general lighting industry adopt solid
state lighting and license our lighting technologies, and the
timing of such adoption and licensing, if it occurs at all, is
subject to many factors beyond our control and is not
predictable by us. We are subject to many risks beyond our
control that influence whether or not a potential licensee or
partner company will adopt and license our lighting technologies.
The development, application and licensing of new backlit
lighting technologies is a complex process subject to a number
of uncertainties, including the integration of our LDT group
into the rest of our company and the limited resources of the
LDT group. Our competitors have significant marketing,
workforce, financial and other resources and longer operating
history which could make acceptance of our lighting technologies
more difficult. If others develop innovative proprietary
lighting technology that is superior to ours or if we fail to
accurately anticipate technology and market trends, respond on a
timely basis with our own new enhancements and technology, and
achieve broad market acceptance of these enhancements and
technology, our competitive position may be harmed and our
operating results may be adversely affected.
In
order to grow, we may have to invest more resources in research
and development than anticipated, which could increase our
operating expenses and negatively impact our operating
results.
If new competitors, technological advances by existing
competitors, our entry into new markets,
and/or
development of new technologies or other competitive factors
require us to invest significantly greater resources than
anticipated in our research and development efforts, our
operating expenses would increase. For the years ended
December 31, 2010, 2009 and 2008, research and development
expenses were $92.7 million, $67.3 million and
$76.2 million, respectively, including stock-compensation
of approximately $10.2 million, $9.7 million and
$13.5 million, respectively. If we are required to invest
significantly greater resources than anticipated in research and
development efforts without an increase in revenue, especially
with respect to our LDT group and any other new technologies
that we pursue outside of our core memory and chip interface
technologies, our operating results could decline. Research and
development expenses are likely to fluctuate from time to time
to the extent we make periodic incremental investments in
research and development, including as a result of our
investment in new technologies, and these investments may be
independent of our level of revenue. In order to grow, which may
include entering new markets
and/or
developing new technologies, we anticipate that we will continue
to devote substantial resources to research and development. We
expect these expenses to increase in absolute dollars in the
foreseeable future due to the increased complexity and the
greater number of products under development as well as
selectively hiring additional employees.
Our
revenue is concentrated in a few customers, and if we lose any
of these customers, our revenue may decrease
substantially.
We have a high degree of revenue concentration. As a result of
our settlement with Samsung, Samsung accounted for a significant
portion of our ongoing licensing revenue in 2010. Our top five
licensees represented approximately 85%, 77% and 67% of our
revenue for the years ended December 31, 2010, 2009 and
2008, respectively. For the year ended December 31, 2010,
revenue from Elpida and Samsung accounted for 10% or more of our
total revenue. For the year ended December 31, 2009,
revenue from AMD, Fujitsu, NEC, Panasonic and Toshiba, each
accounted for 10% or more of our total revenue. For the year
ended December 31, 2008, revenue from AMD, Elpida, Fujitsu,
NEC, Panasonic and Sony, each accounted for 10% or more of our
total revenue. We expect to continue to experience significant
revenue concentration for the foreseeable future.
14
In addition, some of our commercial agreements require us to
provide certain customers with the lowest royalty rate that we
provide to other customers for similar technologies, volumes and
schedules. These clauses may limit our ability to effectively
price differently among our customers, to respond quickly to
market forces, or otherwise to compete on the basis of price.
The particular licensees which account for revenue concentration
have varied from period to period as a result of the addition of
new contracts, expiration of existing contracts, renewal of
existing contracts, industry consolidation, including the
combination in 2010 of NEC and Renesas, the expiration of
deferred revenue schedules under existing contracts, and the
volumes and prices at which the licensees have recently sold
licensed semiconductors to system companies. These variations
are expected to continue in the foreseeable future, although we
anticipate that revenue will continue to be concentrated in a
limited number of licensees.
We are in negotiations with licensees and prospective licensees
to reach patent license agreements for DRAM devices and DRAM
controllers. We expect that patent license royalties will
continue to vary from period to period based on our success in
renewing existing license agreements and adding new licensees,
as well as the level of variation in our licensees
reported shipment volumes, sales price and mix, offset in part
by the proportion of licensee payments that are fixed. However,
we cannot provide any assurance that we will reach agreement on
renewal terms or that the royalty rates we will be entitled to
receive under the new agreements will be as favorable to us as
our current agreements. If we are unsuccessful in renewing any
of these patent license agreements, our results of operations
may decline significantly.
If we
cannot respond to rapid technological change in our target
markets by developing new innovations in a timely and
cost-effective manner, our operating results will
suffer.
We derive most of our revenue from our chip interface
technologies that we have patented. We expect that this
dependence on our fundamental technology will continue for the
foreseeable future. The semiconductor industry is characterized
by rapid technological change, with new generations of
semiconductors being introduced periodically and with ongoing
improvements. The introduction or market acceptance of competing
chip interfaces that render our chip interfaces less desirable
or obsolete would have a rapid and material adverse effect on
our business, results of operations and financial condition. The
announcement of new chip interfaces by us could cause licensees
or system companies to delay or defer entering into arrangements
for the use of our current chip interfaces, which could have a
material adverse effect on our business, financial condition and
results of operations. We are dependent on the semiconductor
industry to develop test solutions that are adequate to test our
chip interfaces and to supply such test solutions to our
customers and us.
Our continued success depends on our ability to introduce and
patent enhancements and new generations of our chip interface
technologies that keep pace with other changes in the
semiconductor industry and which achieve rapid market
acceptance. We must continually devote significant engineering
resources to addressing the ever increasing need for higher
speed chip interfaces associated with increases in the speed of
microprocessors and other controllers. The technical innovations
that are required for us to be successful are inherently complex
and require long development cycles, and there can be no
assurance that our development efforts will ultimately be
successful. In addition, these innovations must be:
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completed before changes in the semiconductor industry render
them obsolete;
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available when system companies require these
innovations; and
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sufficiently compelling to cause semiconductor manufacturers to
enter into licensing arrangements with us for these new
technologies.
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Significant technological innovations generally require a
substantial investment before their commercial viability can be
determined, and this concept applies to all of our target
markets. There can be no assurance that we have accurately
estimated the amount of resources required to complete our
innovation efforts, or that we will have, or be able to expend,
sufficient resources required for the development of our
innovations. In addition, there is market risk associated with
these products for which we develop technological innovations,
and there can be no assurance that unit volumes, and their
associated royalties, will occur. If our technology fails to
capture or maintain a portion of the high volume target consumer
market, our business results could suffer.
15
Some
of our revenue is subject to the pricing policies of our
licensees over whom we have no control.
We have no control over our licensees pricing of their
products and there can be no assurance that licensee products
using or containing our chip interfaces will be competitively
priced or will sell in significant volumes. One important
requirement for our memory chip interfaces is for any premium
charged by our licensees in the price of memory and controller
chips over alternatives to be reasonable in comparison to the
perceived benefits of the chip interfaces. If the benefits of
our technology do not match the price premium charged by our
licensees, the resulting decline in sales of products
incorporating our technology could harm our operating results.
Our
licensing cycle is lengthy and costly and our marketing and
licensing efforts may be unsuccessful.
The process of persuading customers to adopt and license our
chip interface and other technologies can be lengthy and, even
if successful, there can be no assurance that our technologies
will be used in a product that is ultimately brought to market,
achieves commercial acceptance, or results in significant
royalties to us. We generally incur significant marketing and
sales expenses prior to entering into our license agreements,
generating a license fee and establishing a royalty stream from
each licensee. The length of time it takes to establish a new
licensing relationship can take many months or even years. In
addition, our ongoing intellectual property litigation and
regulatory actions have and will likely continue to have an
impact on our ability to enter into new licenses and renewals of
licenses. As such, we may incur costs in any particular period
before any associated revenue stream begins, if at all. If our
marketing and sales efforts are very lengthy or unsuccessful,
then we may face a material adverse effect on our business and
results of operations as a result of delay or failure to obtain
royalties.
Future
revenue is difficult to predict for several reasons, and our
failure to predict revenue accurately may cause us to miss
analysts estimates and result in our stock price
declining.
Our lengthy and costly license negotiation cycle and our ongoing
intellectual property litigation make our future revenue
difficult to predict because we may not be successful in
entering into licenses with our customers on our estimated
timelines and we are reliant on the litigation timelines for any
results or settlements, such as our January 2010 settlement with
Samsung.
While some of our license agreements provide for fixed,
quarterly royalty payments, many of our license agreements
provide for volume-based royalties, and may also be subject to
caps on royalties in a given period. The sales volume and prices
of our licensees products in any given period can be
difficult to predict. As a result, our actual results may differ
substantially from analyst estimates or our forecasts in any
given quarter.
In addition, a portion of our revenue comes from development and
support services provided to our licensees. Depending upon the
nature of the services, a portion of the related revenue may be
recognized ratably over the support period, or may be recognized
according to contract accounting. Contract revenue accounting
may result in deferral of the service fees to the completion of
the contract, or may be recognized over the period in which
services are performed on a
percentage-of-completion
basis. There can be no assurance that the product development
schedule for these projects will not be changed or delayed. All
of these factors make it difficult to predict future licensing
revenue and may result in our missing previously announced
earnings guidance or analysts estimates which would likely
cause our stock price to decline.
Our
quarterly and annual operating results are unpredictable and
fluctuate, which may cause our stock price to be volatile and
decline.
Since many of our revenue components fluctuate and are difficult
to predict, and our expenses are largely independent of revenue
in any particular period, it is difficult for us to accurately
forecast revenue and profitability. Factors other than those set
forth above, which are beyond our ability to control or assess
in advance, that could cause our operating results to fluctuate
include:
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semiconductor and system companies acceptance of our chip
interface products;
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the success of high volume consumer applications;
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the dependence of our royalties upon fluctuating sales volumes
and prices of licensed chips that include our technology;
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the seasonal shipment patterns of systems incorporating our chip
interface products;
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the loss of any strategic relationships with system companies or
licensees;
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semiconductor or system companies discontinuing major products
incorporating our chip interfaces;
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the unpredictability of litigation results or settlements and
the timing and amount of any litigation expenses;
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changes in our customers development schedules and levels
of expenditure on research and development;
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our licensees terminating or failing to make payments under
their current contracts or seeking to modify such contracts,
whether voluntarily or as a result of financial difficulties;
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the results of our efforts to expand into new target markets,
such as with our LDT group;
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changes in our strategies, including changes in our licensing
focus and/or
acquisitions of companies with business models or target markets
different from our own; and
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changes in the economy and credit market and their effects upon
demand for our technology and the products of our licensees.
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We believe that royalties will continue to represent a majority
of total revenue for the foreseeable future. For the years ended
December 31, 2010, 2009 and 2008, royalties accounted for
99%, 96% and 89%, respectively, of our total revenue. Royalties
are generally recognized in the quarter in which we receive a
report from a licensee regarding the sale of licensed chips in
the prior quarter; however, royalties are recognized only if
collectability is assured. As a result of these uncertainties
and effects being outside of our control, royalty revenue is
difficult to predict and makes it difficult to develop accurate
financial forecasts, which could cause our stock price to become
volatile and decline.
A
substantial portion of our revenue is derived from sources
outside of the United States and this revenue and our business
generally are subject to risks related to international
operations that are often beyond our control.
For the years ended December 31, 2010, 2009 and 2008,
revenue received from our international customers constituted
approximately 93%, 83% and 84% of our total revenue,
respectively. As a result of our continued focus on
international markets, we expect that future revenue derived
from international sources will continue to represent a
significant portion of our total revenue.
To date, all of the revenue from international licensees has
been denominated in U.S. dollars. However, to the extent
that such licensees sales to systems companies are not
denominated in U.S. dollars, any royalties which are based
as a percentage of the customers sales that we receive as
a result of such sales could be subject to fluctuations in
currency exchange rates. In addition, if the effective price of
licensed semiconductors sold by our foreign licensees were to
increase as a result of fluctuations in the exchange rate of the
relevant currencies, demand for licensed semiconductors could
fall, which in turn would reduce our royalties. We do not use
financial instruments to hedge foreign exchange rate risk.
We currently have international design operations in India and
business development operations in Japan, Korea, Taiwan and
Germany. Our international operations and revenue are subject to
a variety of risks which are beyond our control, including:
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export controls, tariffs, import and licensing restrictions and
other trade barriers;
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profits, if any, earned abroad being subject to local tax laws
and not being repatriated to the United States or, if
repatriation is possible, limited in amount;
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treatment of revenue from international sources and changes to
tax codes, including being subject to foreign tax laws and being
liable for paying withholding, income or other taxes in foreign
jurisdictions, such as withholding taxes in Korea;
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foreign government regulations and changes in these regulations;
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social, political and economic instability;
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lack of protection of our intellectual property and other
contract rights by jurisdictions in which we may do business to
the same extent as the laws of the United States;
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changes in diplomatic and trade relationships;
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cultural differences in the conduct of business both with
licensees and in conducting business in our international
facilities and international sales offices;
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operating centers outside the United States;
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hiring, maintaining and managing a workforce remotely and under
various legal systems; and
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geo-political issues.
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We and our licensees are subject to many of the risks described
above with respect to companies which are located in different
countries, particularly home video game console, PC and other
consumer electronics manufacturers located in Asia and
elsewhere. There can be no assurance that one or more of the
risks associated with our international operations could not
result in a material adverse effect on our business, financial
condition or results of operations.
We
have in the past and may in the future make acquisitions or
enter into mergers, strategic transactions or other arrangements
that could cause our business to suffer.
As part of our strategic initiatives, we have completed a number
of acquisitions in 2009 and 2010, currently are evaluating, and
expect to continue to engage in, investments in or acquisitions
of companies, products, patents or technologies, and the entry
into strategic transactions or other arrangements. These
acquisitions, investments, transactions or arrangements are
likely to range in size, some of which may be significant. After
completing our acquisitions, we may experience difficulty
integrating that companys or divisions personnel and
operations, which could negatively affect our operating results.
In addition:
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the key personnel of the acquired entity or business may decide
not to work for us or may not perform according to our
expectations;
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we may experience additional legal, financial and accounting
challenges and complexities in areas such as licensing, tax
planning, cash management and financial reporting;
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our ongoing business, including our operations, technology
development and deliveries to our customers, may be disrupted or
receive insufficient management attention, and employee
retention and productivity could also suffer;
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we may not be able to recognize the financial benefits we
anticipated
and/or we
may suffer losses, both with respect to our ongoing business and
the acquired entity or business;
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our increasing international presence resulting from
acquisitions may increase our exposure to international
currency, tax and political risks; and
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our lack of experience in new markets, products or technologies
may cause us to fail to recognize the forecasted financial and
strategic benefits of the acquisition.
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In connection with our strategic initiatives related to future
acquisitions or mergers, strategic transactions or other
arrangements, we may incur substantial expenses regardless of
whether any transactions occur. Further, the risks described
above may be exacerbated as a result of managing multiple
acquisitions simultaneously. In addition, we may be required to
assume the liabilities of the companies or related to the
businesses we acquire. The assumption of such liabilities may
include those related to intellectual property infringement or
indemnification of customers of acquired businesses for similar
claims, which could materially and adversely affect our
business. We may have to incur debt or issue equity securities
to pay for any future acquisition, the issuance of which could
involve restrictive covenants or be dilutive to our existing
stockholders.
18
Weak
global economic conditions may adversely affect demand for the
products and services of our licensees.
Our operations and performance depend significantly on worldwide
economic conditions, and the U.S. and world economies are
emerging from a prolonged period of weak economic conditions.
Uncertainty about global economic conditions poses a risk as
consumers and businesses may postpone spending in response to
tighter credit, negative financial news and declines in income
or asset values, which could have a material negative effect on
the demand for the products of our licensees in the foreseeable
future. Other factors that could influence demand include
continuing increases in fuel and energy costs, competitive
pressures, including pricing pressures, from companies that have
competing products, changes in the credit market, conditions in
the residential real estate and mortgage markets, consumer
confidence, and other macroeconomic factors affecting consumer
spending behavior. If our licensees experience reduced demand
for their products as a result of economic conditions or
otherwise, our business and results of operations could be
harmed.
If our
counterparties are unable to fulfill their financial and other
obligations to us, our business and results of operations may be
affected adversely.
Any downturn in economic conditions or other business factors
could threaten the financial health of our counterparties,
including companies with whom we have entered into licensing
arrangements, settlement agreements, or that have been subject
to litigation judgments that provide for payments to us, and
their ability to fulfill their financial and other obligations
to us. Such financial pressures on our counterparties may
eventually lead to bankruptcy proceedings or other attempts to
avoid financial obligations that are due to us under licenses,
settlement agreements or litigation judgments. Because
bankruptcy courts have the power to modify or cancel contracts
of the petitioner which remain subject to future performance and
alter or discharge payment obligations related to pre-petition
debts, we may receive less than all of the payments that we
would otherwise be entitled to receive from any such
counterparty as a result of a bankruptcy proceedings. For
example, in 2009, two of our counterparties, Qimonda and
Spansion, were subject to insolvency proceedings in their
applicable jurisdictions as a result of a downturn in business
which led to lower than anticipated or no payment to us. If we
are unable to collect all of such payments owed to us, or if
other of our counterparties enter into bankruptcy or otherwise
seek to renegotiate their financial obligations to us as a
result of the deterioration of their financial health, our
business and results of operations may be affected adversely.
Our
business and operating results may be harmed if we undertake any
restructuring activities or if we are unable to manage growth in
our business.
From time to time, we may undertake to restructure our business.
There are several factors that could cause a restructuring to
have an adverse effect on our business, financial condition and
results of operations. These include potential disruption of our
operations, the development of our technology, the deliveries to
our customers and other aspects of our business. Employee morale
and productivity could also suffer and we may lose employees
whom we want to keep. Loss of sales, service and engineering
talent, in particular, could damage our business. Any
restructuring would require substantial management time and
attention and may divert management from other important work.
Employee reductions or other restructuring activities also cause
us to incur restructuring and related expenses such as severance
expenses. Moreover, we could encounter delays in executing any
restructuring plans, which could cause further disruption and
additional unanticipated expense.
Our business historically experienced periods of rapid growth
that placed significant demands on our managerial, operational
and financial resources. In the event that we return to such a
period of growth, whether through internal expansion or
acquisitions of other businesses or technologies, we would need
to improve and expand our management, operational and financial
systems and controls. We also would need to expand, train and
manage our employee base. We cannot assure you that in
connection with any such growth we will be able to timely and
effectively meet demand and maintain the quality standards
required by our existing and potential customers and licensees.
If we ineffectively manage our growth or we are unsuccessful in
recruiting and retaining personnel, our business and operating
results will be harmed.
19
Unanticipated
changes in our tax rates or in the tax laws and regulations
could expose us to additional income tax liabilities which could
affect our operating results and financial
condition.
We are subject to income taxes in both the United States and
various foreign jurisdictions. Significant judgment is required
in determining our worldwide provision (or benefit) for income
taxes and, in the ordinary course of business, there are many
transactions and calculations where the ultimate tax
determination is uncertain. Our effective tax rate could be
adversely affected by changes in the mix of earnings in
countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, changes in tax
laws and regulations as well as other factors. Our tax
determinations are regularly subject to audit by tax authorities
and developments in those audits could adversely affect our
income tax provision. Although we believe that our tax estimates
are reasonable, the final determination of tax audits or tax
disputes may be different from what is reflected in our
historical income tax provisions which could affect our
operating results.
Our
results of operations could vary as a result of the methods,
estimates and judgments we use in applying our accounting
policies.
The methods, estimates and judgments we use in applying our
accounting policies have a significant impact on our results of
operations, including the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities, as described elsewhere in
this report. On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition, investments,
income taxes, litigation, goodwill and intangibles, and other
contingencies. Such methods, estimates, and judgments are, by
their nature, subject to substantial risks, uncertainties, and
assumptions, and factors may arise over time that lead us to
change our methods, estimates, and judgments. In addition,
actual results may differ from these estimates under different
assumptions or conditions.
Changes in those methods, estimates, and judgments could
significantly affect our results of operations. In particular,
the measurement of share-based compensation expense requires us
to use valuation methodologies and a number of assumptions,
estimates, and conclusions regarding matters such as expected
forfeitures, expected volatility of our share price, and the
exercise behavior of our employees. Changes in these factors may
affect both our reported results (including cost of contract
revenue, research and development expenses, marketing, general
and administrative expenses and our effective tax rate) and any
forward-looking projections we make that incorporate projections
of share-based compensation expense. Furthermore, there are no
means, under applicable accounting principles, to compare and
adjust our reported expense if and when we learn about
additional information that may affect the estimates that we
previously made, with the exception of changes in expected
forfeitures of share-based awards. Factors may arise that lead
us to change our estimates and assumptions with respect to
future share-based compensation arrangements, resulting in
variability in our share-based compensation expense over time.
If we
are unable to attract and retain qualified personnel, our
business and operations could suffer.
Our success is dependent upon our ability to identify, attract,
compensate, motivate and retain qualified personnel, especially
engineers, who can enhance our existing technologies and
introduce new technologies. Competition for qualified personnel,
particularly those with significant industry experience, is
intense, in particular in the San Francisco Bay Area where
we are headquartered and in the area of Bangalore, India where
we have a design center. We are also dependent upon our senior
management personnel. The loss of the services of any of our
senior management personnel, or key sales personnel in critical
markets, or critical members of staff, or of a significant
number of our engineers could be disruptive to our development
efforts or business relationships and could cause our business
and operations to suffer.
Our
operations are subject to risks of natural disasters, acts of
war, terrorism or widespread illness at our domestic and
international locations, any one of which could result in a
business stoppage and negatively affect our operating
results.
Our business operations depend on our ability to maintain and
protect our facility, computer systems and personnel, which are
primarily located in the San Francisco Bay Area. The
San Francisco Bay Area is in close proximity to known
earthquake fault zones. Our facility and transportation for our
employees are susceptible to
20
damage from earthquakes and other natural disasters such as
fires, floods and similar events. Should an earthquake or other
catastrophes, such as fires, floods, power loss, communication
failure or similar events disable our facilities, we do not have
readily available alternative facilities from which we could
conduct our business, which stoppage could have a negative
effect on our operating results. Acts of terrorism, widespread
illness and war could also have a negative effect at our
international and domestic facilities.
Risks
Related to Corporate Governance and Capitalization
Matters
The
price of our common stock may fluctuate significantly, which may
make it difficult for holders to resell their shares when
desired or at attractive prices.
Our common stock is listed on The NASDAQ Global Select Market
under the symbol RMBS. The trading price of our
common stock has been subject to wide fluctuations which we
expect to continue in the future in response to, among other
things, the following:
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new litigation or developments in current litigation, including
an unfavorable outcome to us from court proceedings relating to
our ongoing litigation and reaction to any settlements that we
enter into with former litigants;
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any progress, or lack of progress, real or perceived, in the
development of products that incorporate our innovations;
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our signing or not signing new licensees;
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announcements of our technological innovations or new products
by us, our licensees or our competitors;
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positive or negative reports by securities analysts as to our
expected financial results;
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developments with respect to patents or proprietary rights and
other events or factors;
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trading activity related to our share repurchase plans; and
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issuance of additional securities by us, such as our issuance of
approximately 9.6 million shares of common stock to Samsung
in connection with our settlement agreement in January 2010.
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In addition, the stock market in general, and prices for
companies in our industry in particular, have experienced
extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of our
common stock, regardless of our operating performance. Because
our outstanding senior convertible notes are convertible into
shares of our common stock, volatility or depressed prices of
our common stock could have a similar effect on the trading
price of our notes. In addition, the existence of the notes may
encourage short selling in our common stock by market
participants because the conversion of the notes could depress
the price of our common stock. Sales of substantial amounts of
shares of our common stock in the public market, or the
perception that those sales may occur, could cause the market
price of our common stock to decline. In addition, lack of
positive performance in our stock price may adversely affect our
ability to retain key employees.
We
have been party to, and may in the future be subject to,
lawsuits relating to securities law matters which may result in
unfavorable outcomes and significant judgments, settlements and
legal expenses which could cause our business, financial
condition and results of operations to suffer.
In connection with our stock option investigation, we and
certain of our current and former officers and directors, as
well as our current auditors, were subject to several
stockholder derivative actions, securities fraud class actions
and/or
individual lawsuits filed in federal court against us and
certain of our current and former officers and directors. The
complaints generally allege that the defendants violated the
federal and state securities laws and state law claims for fraud
and breach of fiduciary duty. While we have settled the
derivative and securities fraud class actions, the individual
lawsuits continue to be adjudicated. For more information about
the historic litigation described above, see Note 15,
Litigation and Asserted Claims, of Notes to
Consolidated Financial Statements of this
Form 10-K.
The amount of time to resolve these current and any future
lawsuits is uncertain, and these matters could require
significant management and financial resources which could
otherwise be devoted to the operation of
21
our business. Although we have expensed or accrued for certain
liabilities that we believe will result from certain of these
actions, the actual costs and expenses to defend and satisfy all
of these lawsuits and any potential future litigation may exceed
our current estimated accruals, possibly significantly.
Unfavorable outcomes and significant judgments, settlements and
legal expenses in litigation related to our past and any future
securities law claims could have material adverse impacts on our
business, financial condition, results of operations, cash flows
and the trading price of our common stock.
We are
leveraged financially, which could adversely affect our ability
to adjust our business to respond to competitive pressures and
to obtain sufficient funds to satisfy our future research and
development needs, to protect and enforce our intellectual
property and other needs.
We have indebtedness. In 2009, we issued $172.5 million
aggregate principal amount of our 5% convertible senior notes
due 2014 (the 2014 Notes). The degree to which we
are leveraged could have important consequences, including, but
not limited to, the following:
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our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, litigation,
general corporate or other purposes may be limited;
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a substantial portion of our cash flows from operations in the
future will be dedicated to the payment of the principal of our
indebtedness as we are required to pay the principal amount of
our 2014 Notes in cash upon conversion if specified conditions
are met or when due;
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if upon any conversion of our 2014 Notes we are required to
satisfy our conversion obligation with shares of our common
stock or we are required to pay a make-whole premium
with shares of our common stock, our existing stockholders
interest in us would be diluted; and
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we may be more vulnerable to economic downturns, less able to
withstand competitive pressures and less flexible in responding
to changing business and economic conditions.
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A failure to comply with the covenants and other provisions of
our debt instruments could result in events of default under
such instruments, which could permit acceleration of all of our
notes. Any required repayment of our notes as a result of a
fundamental change or other acceleration would lower our current
cash on hand such that we would not have those funds available
for use in our business.
If we are at any time unable to generate sufficient cash flows
from operations to service our indebtedness when payment is due,
we may be required to attempt to renegotiate the terms of the
instruments relating to the indebtedness, seek to refinance all
or a portion of the indebtedness or obtain additional financing.
There can be no assurance that we will be able to successfully
renegotiate such terms, that any such refinancing would be
possible or that any additional financing could be obtained on
terms that are favorable or acceptable to us. In addition, we
may be required to purchase the shares of contingently
redeemable common stock for an aggregate purchase price of up to
$100.0 million that may be put back to us by Samsung in
2011, which would reduce our cash resources.
If
securities or industry analysts change their recommendations
regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for our common stock is influenced by the
research and reports that industry or securities analysts
publish about us, our business or our market. If one or more of
the analysts who cover us change their recommendation regarding
our stock adversely, our stock price would likely decline. If
one or more of these analysts ceases coverage of our company or
fails to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
Compliance
with changing regulation of corporate governance and public
disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including new Securities and
Exchange Commission, regulations and NASDAQ rules, have
historically created uncertainty for companies such as ours. Any
new or changed laws, regulations and standards are subject to
varying
22
interpretations in many cases due to their lack of specificity,
and as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing
bodies, which could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices. Any new
investment of resources to comply with evolving laws,
regulations and standards, may result in increased general and
administrative expenses and a diversion of management time and
attention from revenue generating activities to compliance
activities. If our efforts to comply with new or changed laws,
regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to
practice, our reputation may be harmed and our business and
operations would suffer.
Our
restated certificate of incorporation and bylaws, Delaware law
and our outstanding convertible notes contain provisions that
could discourage transactions resulting in a change in control,
which may negatively affect the market price of our common
stock.
Our restated certificate of incorporation, our bylaws and
Delaware law contain provisions that might enable our management
to discourage, delay or prevent a change in control. In
addition, these provisions could limit the price that investors
would be willing to pay in the future for shares of our common
stock. Pursuant to such provisions:
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our board of directors is authorized, without prior stockholder
approval, to create and issue preferred stock, commonly referred
to as blank check preferred stock, with rights
senior to those of common stock, which means that a new
stockholder rights plan could be implemented by our board to
replace our old plan that has now expired;
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our board of directors is staggered into two classes, only one
of which is elected at each annual meeting;
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stockholder action by written consent is prohibited;
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nominations for election to our board of directors and the
submission of matters to be acted upon by stockholders at a
meeting are subject to advance notice requirements;
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certain provisions in our bylaws and certificate of
incorporation such as notice to stockholders, the ability to
call a stockholder meeting, advance notice requirements and
action of stockholders by written consent may only be amended
with the approval of stockholders holding
662/3%
of our outstanding voting stock;
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our stockholders have no authority to call special meetings of
stockholders; and
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our board of directors is expressly authorized to make, alter or
repeal our bylaws.
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We are also subject to Section 203 of the Delaware General
Corporation Law, which provides, subject to enumerated
exceptions, that if a person acquires 15% or more of our
outstanding voting stock, the person is an interested
stockholder and may not engage in any business
combination with us for a period of three years from the
time the person acquired 15% or more of our outstanding voting
stock.
Certain provisions of our outstanding convertible notes could
make it more difficult or more expensive for a third party to
acquire us. Upon the occurrence of certain transactions
constituting a fundamental change, holders of the notes will
have the right, at their option, to require us to repurchase, at
a cash repurchase price equal to 100% of the principal amount
plus accrued and unpaid interest on the notes, all or a portion
of their notes. We may also be required to issue additional
shares of our common stock upon conversion of such notes in the
event of certain fundamental changes.
Litigation,
Regulation and Business Risks Related to our Intellectual
Property
We
face current and potential adverse determinations in litigation
stemming from our efforts to protect and enforce our patents and
intellectual property, which could broadly impact our
intellectual property rights, distract our management and cause
a substantial decline in our revenue and stock
price.
We seek to diligently protect our intellectual property rights.
In connection with the extension of our licensing program to SDR
SDRAM-compatible and DDR SDRAM-compatible products, we became
involved in litigation related to such efforts against different
parties in multiple jurisdictions. In each of these cases, we
have claimed
23
infringement of certain of our patents, while the manufacturers
of such products have generally sought damages and a
determination that the patents in suit are invalid,
unenforceable, and not infringed. Among other things, the
opposing parties have alleged that certain of our patents are
unenforceable because we engaged in document spoliation,
litigation misconduct
and/or acted
improperly during our 1991 to 1995 participation in the JEDEC
standard setting organization (including allegations of
antitrust violations and unfair competition). We have also
become involved in litigation related to infringement of our
patents related to products having certain peripheral
interfaces. See Note 15, Litigation and Asserted
Claims, of Notes to Consolidated Financial Statements of
this
Form 10-K.
There can be no assurance that any or all of the opposing
parties will not succeed, either at the trial or appellate
level, with such claims or counterclaims against us or that they
will not in some other way establish broad defenses against our
patents, achieve conflicting results, or otherwise avoid or
delay paying royalties for the use of our patented technology.
Moreover, there is a risk that if one party prevails against us,
other parties could use the adverse result to defeat or limit
our claims against them; conversely, there can be no assurance
that if we prevail against one party, we will succeed against
other parties on similar claims, defenses, or counterclaims. In
addition, there is the risk that the pending litigations and
other circumstances may cause us to accept less than what we now
believe to be fair consideration in settlement.
Any of these matters or any future intellectual property
litigation, whether or not determined in our favor or settled by
us, is costly, may cause delays (including delays in negotiating
licenses with other actual or potential licensees), will tend to
discourage future design partners, will tend to impair adoption
of our existing technologies and divert the efforts and
attention of our management and technical personnel from other
business operations. In addition, we may be unsuccessful in our
litigation if we have difficulty obtaining the cooperation of
former employees and agents who were involved in our business
during the relevant periods related to our litigation and are
now needed to assist in cases or testify on our behalf.
Furthermore, any adverse determination or other resolution in
litigation could result in our losing certain rights beyond the
rights at issue in a particular case, including, among other
things: our being effectively barred from suing others for
violating certain or all of our intellectual property rights;
our patents being held invalid or unenforceable or not
infringed; our being subjected to significant liabilities; our
being required to seek licenses from third parties; our being
prevented from licensing our patented technology; or our being
required to renegotiate with current licensees on a temporary or
permanent basis. Even if we are successful in our litigation, or
any settlement of such litigation, there is no guarantee that
the applicable opposing parties will be able to pay any damages
awards timely or at all as a result of financial difficulties or
otherwise. Delay or any or all of these adverse results could
cause a substantial decline in our revenue and stock price.
An
adverse resolution by or with a governmental agency could result
in severe limitations on our ability to protect and license our
intellectual property, and would cause our revenue to decline
substantially.
From time to time, we are subject to proceedings by government
agencies, such as our Federal Trade Commission and European
Commission proceedings over the past several years. These
proceedings may result in adverse determinations against us or
in other outcomes that could limit our ability to enforce or
license our intellectual property, and could cause our revenue
to decline substantially.
In addition, third parties have and may attempt to use adverse
findings by a government agency to limit our ability to enforce
or license our patents in private litigations, to challenge or
otherwise act against us with respect to such government agency
proceedings, such as the attempts by Hynix to appeal our
settlement with the European Commission, and to assert claims
for monetary damages against us. Although we have successfully
defeated certain attempts to do so, there can be no assurance
that other third parties will not be successful in the future or
that additional claims or actions arising out of adverse
findings by a government agency will not be asserted against us.
Further, third parties have sought and may seek review and
reconsideration of the patentability of inventions claimed in
certain of our patents by the U.S. Patent and Trademark
Office (PTO)
and/or the
European Patent Office (the EPO). Currently, we are
subject to several re-examination proceedings, including
proceedings initiated by Hynix, Micron and NVIDIA as a defensive
action in connection with our litigation against those
companies. An adverse decision by the PTO or EPO could
invalidate some or all of these patent claims and could also
result in additional adverse consequences affecting other
related U.S. or European patents, including in our
24
intellectual property litigation. If a sufficient number of such
patents are impaired, our ability to enforce or license our
intellectual property would be significantly weakened and this
could cause our revenue to decline substantially.
The pendency of any governmental agency acting as described
above may impair our ability to enforce or license our patents
or collect royalties from existing or potential licensees, as
our litigation opponents may attempt to use such proceedings to
delay or otherwise impair any pending cases and our existing or
potential licensees may await the final outcome of any
proceedings before agreeing to new licenses or pay royalties.
Litigation
or other third-party claims of intellectual property
infringement could require us to expend substantial resources
and could prevent us from developing or licensing our technology
on a cost-effective basis.
Our research and development programs are in highly competitive
fields in which numerous third parties have issued patents and
patent applications with claims closely related to the subject
matter of our programs. We have also been named in the past, and
may in the future be named, as a defendant in lawsuits claiming
that our technology infringes upon the intellectual property
rights of third parties. In the event of a third-party claim or
a successful infringement action against us, we may be required
to pay substantial damages, to stop developing and licensing our
infringing technology, to develop non-infringing technology, and
to obtain licenses, which could result in our paying substantial
royalties or our granting of cross licenses to our technologies.
Threatened or ongoing third-party claims or infringement actions
may prevent us from pursuing additional development and
licensing arrangements for some period. For example, we may
discontinue negotiations with certain customers for additional
licensing of our patents due to the uncertainty caused by our
ongoing litigation on the terms of such licenses or of the terms
of such licenses on our litigation. We may not be able to obtain
licenses from other parties at a reasonable cost, or at all,
which could cause us to expend substantial resources, or result
in delays in, or the cancellation of, new product.
If we
are unable to successfully protect our inventions through the
issuance and enforcement of patents, our operating results could
be adversely affected.
We have an active program to protect our proprietary inventions
through the filing of patents. There can be no assurance,
however, that:
|
|
|
|
|
any current or future U.S. or foreign patent applications
will be approved and not be challenged by third parties;
|
|
|
|
our issued patents will protect our intellectual property and
not be challenged by third parties;
|
|
|
|
the validity of our patents will be upheld;
|
|
|
|
our patents will not be declared unenforceable;
|
|
|
|
the patents of others will not have an adverse effect on our
ability to do business;
|
|
|
|
Congress or the U.S. courts or foreign countries will not
change the nature or scope of rights afforded patents or patent
owners or alter in an adverse way the process for seeking
patents;
|
|
|
|
changes in law will not be implemented that will affect our
ability to protect and enforce our patents and other
intellectual property;
|
|
|
|
new legal theories and strategies utilized by our competitors
will not be successful;
|
|
|
|
others will not independently develop similar or competing chip
interfaces or design around any patents that may be issued to
us; or
|
|
|
|
factors such as difficulty in obtaining cooperation from
inventors, pre-existing challenges or litigation, or license or
other contract issues will not present additional challenges in
securing protection with respect to patents and other
intellectual property that we acquire.
|
If any of the above were to occur, our operating results could
be adversely affected.
25
Our
inability to protect and own the intellectual property we create
would cause our business to suffer.
We rely primarily on a combination of license, development and
nondisclosure agreements, trademark, trade secret and copyright
law, and contractual provisions to protect our non-patentable
intellectual property rights. If we fail to protect these
intellectual property rights, our licensees and others may seek
to use our technology without the payment of license fees and
royalties, which could weaken our competitive position, reduce
our operating results and increase the likelihood of costly
litigation. The growth of our business depends in large part on
the use of our intellectual property in the products of third
party manufacturers, and our ability to enforce intellectual
property rights against them to obtain appropriate compensation.
In addition, effective trade secret protection may be
unavailable or limited in certain foreign countries. Although we
intend to protect our rights vigorously, if we fail to do so,
our business will suffer.
We
rely upon the accuracy of our licensees recordkeeping, and
any inaccuracies or payment disputes for amounts owed to us
under our licensing agreements may harm our results of
operations.
Many of our license agreements require our licensees to document
the manufacture and sale of products that incorporate our
technology and report this data to us on a quarterly basis.
While licenses with such terms give us the right to audit books
and records of our licensees to verify this information, audits
rarely are undertaken because they can be expensive, time
consuming, and potentially detrimental to our ongoing business
relationship with our licensees. Therefore, we typically rely on
the accuracy of the reports from licensees without independently
verifying the information in them. Our failure to audit our
licensees books and records may result in our receiving
more or less royalty revenue than we are entitled to under the
terms of our license agreements. If we conduct royalty audits in
the future, such audits may trigger disagreements over contract
terms with our licensees and such disagreements could hamper
customer relations, divert the efforts and attention of our
management from normal operations and impact our business
operations and financial condition.
Any
dispute regarding our intellectual property may require us to
indemnify certain licensees, the cost of which could severely
hamper our business operations and financial
condition.
In any potential dispute involving our patents or other
intellectual property, our licensees could also become the
target of litigation. While we generally do not indemnify our
licensees, some of our license agreements provide limited
indemnities, and some require us to provide technical support
and information to a licensee that is involved in litigation
involving use of our technology. In addition, we may agree to
indemnify others in the future. Any of these indemnification and
support obligations could result in substantial expenses. In
addition to the time and expense required for us to indemnify or
supply such support to our licensees, a licensees
development, marketing and sales of licensed semiconductors
could be severely disrupted or shut down as a result of
litigation, which in turn could severely hamper our business
operations and financial condition as a result of lower or no
royalty payments.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
26
As of December 31, 2010, we occupied offices in the leased
facilities described below:
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Offices
|
|
|
|
|
Under Lease
|
|
Location
|
|
Primary Use
|
|
|
3
|
|
|
United States
Sunnyvale, CA (Headquarters)
Chapel Hill, NC
Brecksville, OH
|
|
Executive and administrative offices, research and development, sales and marketing and service functions
Research and development and prototyping facility
|
|
1
|
|
|
Bangalore, India
|
|
Administrative offices, research and development and service
functions
|
|
1
|
|
|
Tokyo, Japan
|
|
Business development
|
|
1
|
|
|
Taipei, Taiwan
|
|
Business development
|
|
1
|
|
|
Seoul, Korea
|
|
Business development
|
|
1
|
|
|
Pforzheim, Germany
|
|
Business development
|
|
|
Item 3.
|
Legal
Proceedings
|
For the information required by this item regarding legal
proceedings, see Note 15 Litigation and Asserted
Claims, of Notes to Consolidated Financial Statements of
this
Form 10-K.
|
|
Item 4.
|
Removed
and Reserved
|
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our Common Stock is listed on The NASDAQ Global Select Market
under the symbol RMBS. The following table sets
forth for the periods indicated the high and low sales price per
share of our Common Stock as reported on The NASDAQ Global
Select Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
26.00
|
|
|
$
|
16.00
|
|
|
$
|
18.70
|
|
|
$
|
5.99
|
|
Second Quarter
|
|
$
|
25.50
|
|
|
$
|
17.31
|
|
|
$
|
19.65
|
|
|
$
|
9.07
|
|
Third Quarter
|
|
$
|
21.69
|
|
|
$
|
16.76
|
|
|
$
|
19.94
|
|
|
$
|
14.33
|
|
Fourth Quarter
|
|
$
|
22.80
|
|
|
$
|
19.16
|
|
|
$
|
25.54
|
|
|
$
|
15.53
|
|
27
The graph below matches Rambus Inc.s cumulative five-year
total shareholder return on Common Stock with the cumulative
total returns of The NASDAQ Composite Index and the RDG
Semiconductor Composite Index. The graph tracks the performance
of a $100 investment in our Common Stock and in each of the
indexes (with the reinvestment of all dividends) from
December 31, 2005 to December 31, 2010.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Rambus Inc., The NASDAQ Composite Index
And the RDG Semiconductor Composite Index
|
|
|
*
|
|
$100 invested on 12/31/05 in
stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
|
Fiscal years ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/05
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
|
|
12/10
|
Rambus Inc.
|
|
|
|
100.00
|
|
|
|
|
116.92
|
|
|
|
|
129.34
|
|
|
|
|
98.33
|
|
|
|
|
150.71
|
|
|
|
|
126.50
|
|
NASDAQ Composite
|
|
|
|
100.00
|
|
|
|
|
111.74
|
|
|
|
|
124.67
|
|
|
|
|
73.77
|
|
|
|
|
107.12
|
|
|
|
|
125.93
|
|
RDG Semiconductor Composite
|
|
|
|
100.00
|
|
|
|
|
94.27
|
|
|
|
|
106.42
|
|
|
|
|
53.83
|
|
|
|
|
88.82
|
|
|
|
|
101.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
stock price performance included in this graph is not
necessarily indicative of future stock price
performance.
Information regarding our securities authorized for issuance
under equity compensation plans will be included in
Item 12, Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters, of
this report on
Form 10-K.
As of January 31, 2011, there were 684 holders of record of
our Common Stock. Since many of the shares of our Common Stock
are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
beneficial stockholders represented by these record holders. We
have never paid or declared any cash dividends on our Common
Stock or other securities. However, in the future, we may plan
to pay or declare cash dividends depending on our financial
condition, results of operations, capital requirements, business
conditions and other factors.
Contingently
Redeemable Common Stock
On January 19, 2010, pursuant to the terms of a Stock
Purchase Agreement (the Stock Purchase Agreement),
Samsung purchased for cash from us 9.6 million shares of
our common stock (the Shares) with certain
restrictions
28
and put rights. The issuance of the Shares by us to Samsung was
made through a private transaction. The Stock Purchase Agreement
provides Samsung a one-time put right, beginning 18 months
after the date of the Stock Purchase Agreement and extending to
19 months after the date of the Stock Purchase Agreement,
to elect to put back to us up to 4.8 million of the Shares
at the original issue price of $20.885 per share (for an
aggregate purchase price of up to $100.0 million). The
4.8 million shares have been recorded as contingently
redeemable common stock on the consolidated balance sheet as of
December 31, 2010.
The Stock Purchase Agreement prohibits the transfer of the
Shares by Samsung for 18 months after the date of the Stock
Purchase Agreement, subject to certain exceptions. After
expiration of the transfer restriction period on July 18,
2011, the Stock Purchase Agreement provides that Samsung may
transfer a limited number of shares on a daily basis, provides
us with a right of first offer for proposed transfers above such
daily limits, and, if no sale occurs to us under the right of
first offer, allows Samsung to transfer the Shares. Under the
Stock Purchase Agreement, we have also agreed that after the
transfer restriction period, Samsung will have certain rights to
register the Shares for sale under the securities laws of the
United States, subject to customary terms and conditions.
See Note 3, Settlement Agreement with Samsung,
of Notes to Consolidated Financial Statements of this
Form 10-K
for further discussion.
Share
Repurchase Program
In October 2001, our Board of Directors (the Board)
approved a share repurchase program of our Common Stock,
principally to reduce the dilutive effect of employee stock
options. Under this program, the Board approved the
authorization to repurchase up to 19.0 million shares of
our outstanding Common Stock over an undefined period of time.
On February 25, 2010, the Board approved a new share
repurchase program authorizing the repurchase of up to an
additional 12.5 million shares. Share repurchases under the
program may be made through open market, established plan or
privately negotiated transactions in accordance with all
applicable securities laws, rules, and regulations. There is no
expiration date applicable to the program. The new share
repurchase program replaces the program authorized in October
2001.
On August 19, 2010, we entered into a share repurchase
agreement (the Share Repurchase Agreement) with
J.P. Morgan Securities Inc., as agent for JPMorgan Chase
Bank, National Association, London Branch
(JP Morgan) to repurchase approximately
$90.0 million of our Common Stock, as part of our share
repurchase program. Under the Share Repurchase Agreement, we
pre-paid to JP Morgan the $90.0 million purchase price in
the third quarter of 2010 for the Common Stock and JP Morgan
delivered to us approximately 4.8 million shares of Common
Stock at an average price of $18.88 at the completion of the
Share Repurchase Agreement in December 2010.
For the year ended December 31, 2010, we repurchased
approximately 9.5 million shares of our Common Stock with
an aggregate price of approximately $195.1 million,
including the price paid pursuant to the Share Repurchase
Agreement. As of December 31, 2010, we had repurchased a
cumulative total of approximately 26.3 million shares of
our Common Stock with an aggregate price of approximately
$428.9 million since the commencement of the program in
2001. As of December 31, 2010, there remained an
outstanding authorization to repurchase approximately
5.2 million shares of our outstanding Common Stock.
We record stock repurchases as a reduction to stockholders
equity. We record 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.
During the year ended December 31, 2010, the cumulative
price of the shares repurchased exceeded the proceeds received
from the issuance of the same number of shares. The excess of
$163.6 million was recorded as an increase to accumulated
deficit for the year ended December 31, 2010. During the
year ended December 31, 2009, we did not repurchase any
Common Stock.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
May Yet be
|
|
|
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Announced
|
|
|
Under the
|
|
|
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Plans or
|
|
|
Plans or
|
|
|
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
Total Paid
|
|
|
Cumulative shares repurchased as of 12/31/2009
|
|
|
16,810,950
|
|
|
$
|
13.90
|
|
|
|
16,810,950
|
|
|
|
2,240,913
|
|
|
$
|
233,756,155
|
|
Additional authorization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,740,913
|
|
|
|
|
|
2/1/2010 - 2/28/2010
|
|
|
1,233,287
|
|
|
$
|
21.47
|
|
|
|
1,233,287
|
|
|
|
13,507,626
|
|
|
$
|
26,472,746
|
|
4/1/2010 - 4/30/2010
|
|
|
519,895
|
|
|
$
|
24.46
|
|
|
|
519,895
|
|
|
|
12,987,731
|
|
|
$
|
12,715,797
|
|
5/1/2010 - 5/31/2010
|
|
|
1,793,068
|
|
|
$
|
23.70
|
|
|
|
1,793,068
|
|
|
|
11,194,663
|
|
|
$
|
42,502,150
|
|
6/1/2010 - 6/30/2010
|
|
|
686,000
|
|
|
$
|
19.82
|
|
|
|
686,000
|
|
|
|
10,508,663
|
|
|
$
|
13,594,241
|
|
8/1/2010 - 8/31/2010
|
|
|
528,641
|
|
|
$
|
18.58
|
|
|
|
528,641
|
|
|
|
9,980,022
|
|
|
$
|
9,822,533
|
|
12/1/2010 - 12/31/2010
|
|
|
4,765,949
|
|
|
$
|
18.88
|
|
|
|
4,765,949
|
|
|
|
5,214,073
|
|
|
$
|
90,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative shares repurchased as of 12/31/2010
|
|
|
26,337,790
|
|
|
$
|
16.28
|
|
|
|
26,337,790
|
|
|
|
|
|
|
$
|
428,863,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data for and as of
the years ended December 31, 2010, 2009, 2008, 2007, and
2006 was derived from our consolidated financial statements. The
summary consolidated selected financial data for and as of the
years ended December 31, 2008, 2007 and 2006 has been
adjusted as a result of the retrospective adoption on
January 1, 2009 of Financial Accounting Standards Board
(FASB) accounting guidance which clarifies the
accounting for convertible debt instruments that may be settled
in cash upon conversion, including partial cash settlement
(FASB convertible debt accounting guidance). The
following selected consolidated financial data should be read in
conjunction with Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and Item 8, Financial Statements
and Supplementary Data, and other financial data included
elsewhere in this report. Our historical results of operations
are not necessarily indicative of results of operations to be
expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008(1)(2)
|
|
2007(1)(2)
|
|
2006(1)(2)
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
Total revenue
|
|
$
|
323,390
|
|
|
$
|
113,007
|
|
|
$
|
142,494
|
|
|
$
|
179,940
|
|
|
$
|
195,324
|
|
Net income (loss)
|
|
$
|
150,917
|
|
|
$
|
(92,186
|
)
|
|
$
|
(199,110
|
)
|
|
$
|
(34,221
|
)
|
|
$
|
(18,006
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.34
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.17
|
)
|
Diluted
|
|
$
|
1.30
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.17
|
)
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
512,009
|
|
|
$
|
460,193
|
|
|
$
|
345,853
|
|
|
$
|
440,882
|
|
|
$
|
436,341
|
|
Total assets
|
|
$
|
663,172
|
|
|
$
|
555,869
|
|
|
$
|
397,370
|
|
|
$
|
617,963
|
|
|
$
|
591,295
|
|
Convertible notes
|
|
$
|
121,500
|
|
|
$
|
248,044
|
|
|
$
|
125,474
|
|
|
$
|
135,214
|
|
|
$
|
124,719
|
|
Stockholders equity
|
|
$
|
334,783
|
|
|
$
|
255,327
|
|
|
$
|
232,941
|
|
|
$
|
422,486
|
|
|
$
|
404,247
|
|
|
|
|
(1) |
|
Adjusted to reflect adoption of the FASB convertible debt
accounting guidance. Refer to Note 19, Retrospective
Adoption of FASB Convertible Debt Accounting Guidance, of
Notes to Consolidated Financial Statements of this
Form 10-K
for further discussion. |
30
|
|
|
(2) |
|
The year ended December 31, 2008 includes adjustments for
the FASB convertible debt accounting guidance to increase total
assets by $480, decrease convertible notes by $11,476 and
increase stockholders equity by $11,956. The year ended
December 31, 2007 includes additional interest expense
(including amortization of debt issuance costs) of $11,011,
increase to benefit from income taxes of $4,454, increase to net
loss of $6,557, increase to basic and diluted net loss per share
of $0.06, decrease to total assets of $9,384, decrease to
convertible notes of $24,786 and increase to stockholders
equity of $15,402. The year ended December 31, 2006
includes additional interest expense (including amortization of
debt issuance costs) of $10,196, increase to interest income and
other income (expense), net of $3,158, increase to benefit from
income taxes of $2,848, increase to net loss of $4,190, increase
to basic and diluted net loss per share of $0.04, decrease to
total assets of $13,322, decrease to convertible notes of
$35,281 and increase to stockholders equity of $21,959. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements relate to our expectations for future events and time
periods. All statements other than statements of historical fact
are statements that could be deemed to be forward-looking
statements, including any statements regarding trends in future
revenue or results of operations, gross margin or operating
margin, expenses, earnings or losses from operations, synergies
or other financial items; any statements of the plans,
strategies and objectives of management for future operations;
any statements concerning developments, performance or industry
ranking; any statements regarding future economic conditions or
performance; any statements regarding pending investigations,
claims or disputes; any statements of expectation or belief; and
any statements of assumptions underlying any of the foregoing.
Generally, the words anticipate,
believes, plans, expects,
future, intends, may,
should, estimates, predicts,
potential, continue and similar
expressions identify forward-looking statements. Our
forward-looking statements are based on current expectations,
forecasts and assumptions and are subject to risks,
uncertainties and changes in condition, significance, value and
effect. As a result of the factors described herein, and in the
documents incorporated herein by reference, including, in
particular, those factors described under Risk
Factors, we undertake no obligation to publicly disclose
any revisions to these forward-looking statements to reflect
events or circumstances occurring subsequent to filing this
report with the Securities and Exchange Commission.
Business
Overview
We are a premier intellectual property and technology licensing
company. Our primary focus is the creation, design, development
and licensing of patented innovations, technologies and
architectures that are foundational to nearly all digital
electronics products and systems. Our patented innovations and
technologies aim to improve the performance, power efficiency,
time-to-market
and cost-effectiveness of our customers products,
components and systems offered and used in semiconductors,
computers, mobile applications, gaming and graphics, consumer
electronics, lighting displays and general lighting. By
licensing our patented innovations and technologies, we hope to
continuously enrich the end-user experience of the digital
electronics products and systems marketed and sold by our
customers and licensees. We believe we have established an
unparalleled licensing platform and business model that will
continue to foster the development of new foundational and
leading innovations and technologies. As a result, our goal is
to create significant licensing opportunities, and thereby
perpetuate strong company operating performance and long term
stockholder value.
While we have historically focused our efforts in developing and
licensing patented innovations and technologies for the
semiconductor industry, particularly in the area of chip
interfaces, we have initiated diversification efforts to expand
our portfolio of patented innovations and technologies into
lighting and displays, mobile communications, and additional
semiconductor technologies. We expect to continue this
diversification initiative through the acquisition of assets and
the hiring of the inventors, scientists and engineers who will
lead the effort to further develop these patented innovations
and technologies in these new areas of focus. During 2010, we
initiated an internal structural reorganization to establish
separate business groups for our semiconductor industry focused
operations (SBG) and operations focused on new or emerging
licensing opportunities (NBG) which includes our LDT group. We
expect this internal realignment to help drive efficiencies in
operations and optimize our licensing platform and business
model as we expand and diversify into new markets. Segment
information is not separately
31
discussed below as the operating results for NBG did not meet
the quantitative thresholds for segment reporting in 2010. For
additional information concerning segment reporting, see
Note 13, Business Segments and Major Customers,
of Notes to Consolidated Financial Statements of this
Form 10-K.
The key elements of our strategy are as follows:
Innovate: Develop and patent our innovative
technology to provide fundamental competitive advantage when
incorporated into semiconductors, and digital electronics
products and systems.
Drive Adoption: Communicate the advantages of
our patented innovations and technologies to the industry and
encourage its adoption through demonstrations and incorporation
in the products of select customers.
Monetize: License our patented inventions and
technology solutions to customers for use in their semiconductor
and system products.
As of December 31, 2010, our semiconductor, chip interface,
lighting, display and other technologies are covered by
approximately 1,180 U.S. and foreign patents. Additionally,
we have approximately 850 patent applications pending. These
patents and patent applications cover important inventions in
memory and logic chip interfaces, optoelectronics, mobile
applications and other technologies. Some of the patents and
pending patent applications are derived from a common parent
patent application or are foreign counterpart patent
applications. We have a program to file applications for and
obtain patents in the United States and in selected foreign
countries where we believe filing for such protection is
appropriate and would further our overall strategy and
objectives. In some instances, obtaining appropriate levels of
protection may involve prosecuting continuation and counterpart
patent applications based on a common parent application. We
believe that our patented innovations provide our customers
means to achieve higher performance, improved power efficiency,
lower risk, and greater cost-effectiveness in their digital
electronics products and systems.
Our patented innovations and technologies are offered to our
customers through either a patent license or a technology
license. Our revenues are primarily derived from patent
licenses, through which we provide a license to our broad
portfolio of patented innovations primarily to semiconductor and
system companies who use these innovations in the development
and manufacture of their own products. Our patent licensing
agreements may provide a license to all or part of our patent
portfolio for a particular use, product or technology. The
patent license essentially provides our customers with a defined
right to use our patented innovations in the customers own
digital electronics products and systems. Patent license
agreements are generally structured with variable royalty
payments, although some agreements include fixed payments over
certain defined periods.
We also offer our customers technology licenses. We typically
offer technology licenses to support the implementation and
adoption of our patented innovations and technologies through
know-how and technology transfers, product design, development,
and system integration consulting and engineering services. Our
technology license offerings also include a range of solutions
developed by Rambus, which include leadership
solutions (which are Rambus-proprietary solutions widely
licensed to our customers) and industry-standard solutions that
we provide to our customers under license for incorporation into
our customers digital electronics products and systems.
Due to the often complex nature of implementing
state-of-the
art technology, we also offer engineering services to our
customers to help them successfully integrate our solutions into
their digital electronics products and systems. These technology
license agreements may have both a fixed price (non-recurring)
component and ongoing royalties. Engineering services are
generally offered on a fixed price basis. Further, under
technology licenses, our customers typically receive licenses to
our patents necessary to implement these solutions in their
products with specific rights and restrictions to the applicable
patents elaborated in their individual contracts with us.
Royalties represent a substantial majority of our total revenue.
We derive the majority of our royalty revenue by licensing our
broad portfolio of patents for chip interfaces to our customers.
Such licenses may cover part or all of our patent portfolio.
Leading semiconductor and system companies such as AMD, Fujitsu,
Intel, Panasonic and Samsung have licensed our patents for use
in their own products.
We also derive additional revenue by licensing a range of
technology solutions including our leadership architectures and
industry-standard solutions to customers for use in their
semiconductor and system products. Our
32
customers include leading companies such as Elpida, IBM,
Panasonic, Samsung, Sony and Toshiba. Due to the complex nature
of implementing our technologies, we provide engineering
services under certain of these licenses to help our customers
successfully integrate our technology solutions into their
semiconductors and system products. Licensees also may receive,
in addition to their technology license agreements, patent
licenses as necessary to implement the technology in their
products with specific rights and restrictions to the applicable
patents elaborated in their individual contracts.
The remainder of our revenue is contract services revenue which
includes license fees and engineering services fees. The timing
and amounts invoiced to customers can vary significantly
depending on specific contract terms and can therefore have a
significant impact on deferred revenue or account receivables in
any given period.
We intend to continue making significant expenditures associated
with engineering, marketing, general and administration
including litigation expenses, and expect that these costs and
expenses will continue to be a significant percentage of revenue
in future periods. Whether such expenses increase or decrease as
a percentage of revenue will be substantially dependent upon the
rate at which our revenue or expenses change.
Executive
Summary
During 2010, we signed a significant settlement agreement with
Samsung and also signed revenue contracts with AMD, Elpida and
Renesas bringing Rambus into a profit position for the year
ended December 31, 2010. See Note 3, Settlement
Agreement with Samsung, of Notes to Consolidated Financial
Statements of this
Form 10-K
for further discussion. We continue to pursue other revenue
opportunities in order to grow our revenue. Additionally, in
June 2010, we signed a broad licensing agreement for the use of
our patented lighting innovations with GE Lighting, a unit of
GEs Appliances & Lighting business. We also
purchased patents and businesses during 2010 as part of our
ongoing acquisition activities to broaden our technology
portfolio.
Research and development continues to play a key role in our
efforts to maintain product innovations. Our engineering
expenses for the year ended December 31, 2010 increased
$25.5 million as compared to 2009 primarily due to
increased headcount from our LDT group and the funding for our
2010 Corporate Incentive Plan (the 2010 CIP) which
includes the bonus related to the Samsung settlement. As a
percentage of revenue, engineering expenses decreased for the
year ended December 31, 2010 as compared to 2009. The
decrease was due to higher revenue primarily attributed to the
settlement with Samsung. Marketing, general and administrative
expenses in aggregate decreased $8.7 million for the year
ended December 31, 2010 as compared to 2009 primarily due
to lower litigation expenses. Our higher revenue combined with
the decrease in marketing, general and administrative expenses,
has caused marketing, general and administrative expenses to
decrease as a percentage of revenue. Additionally, for the year
ended December 31, 2010, we incurred costs of restatement
and related legal activities of $4.2 million primarily due
to litigation expense associated with a private shareholder
lawsuit related to the
2006-2007
stock option investigation.
Trends
There are a number of trends that may or will have a material
impact on us in the future, including growing our lighting
business, global economic conditions with the resulting impact
on sales, continuing pursuit of litigation against companies
that we believe have infringed our patented technologies and
shifts in our overall effective tax rate.
We have a high degree of revenue concentration, with our top
five licensees representing approximately 85%, 77% and 67% of
our revenue for the years ended December 31, 2010, 2009 and
2008, respectively. As a result of our settlement with Samsung,
Samsung accounted for a significant portion of our ongoing
licensing revenue in 2010. For the year ended December 31,
2010, revenue from Samsung and Elpida, each accounted for 10% or
more of our total revenue. For the year ended December 31,
2009, revenue from AMD, Fujitsu, NEC, Panasonic, and Toshiba,
each accounted for 10% or more of our total revenue. For the
year ended December 31, 2008, revenue from AMD, Elpida,
Fujitsu, NEC, Panasonic, and Sony, each accounted for 10% or
more of our total revenue. We expect to continue to experience
significant revenue concentration for the foreseeable future.
33
Many of our licensees have the right to cancel their licenses.
The particular licensees which account for revenue concentration
have varied from period to period as a result of the addition of
new contracts, expiration of existing contracts, renewals of
existing contracts, industry consolidation and the volumes and
prices at which the licensees have recently sold licensed
semiconductors to system companies. These variations are
expected to continue in the foreseeable future.
The semiconductor industry is intensely competitive and highly
cyclical. Our visibility with respect to future sales is very
limited at this time. To the extent that macroeconomic
fluctuations negatively affect our principal licensees, the
demand for our technology may be significantly and adversely
impacted and we may experience substantial
period-to-period
fluctuations in our operating results. The recent downturn in
worldwide economic conditions also threatens the financial
health of our commercial counterparties, including companies
with whom we have entered into licensing arrangements,
settlement agreements or that have been subject to litigation
judgments that provide for payments to us, and their ability to
fulfill their financial and other obligations to us. Some of our
existing patent licensees have fixed royalty payments which are
not impacted by the recent economic downturn. Royalty payments
from the remaining licensees are related to variable royalty
agreements which have been impacted by the recent economic
conditions. Current market indicators are mixed, but there are
some recent signs of some stabilization. However, there continue
to be indications that global demand will not quickly recover
for the next few years. Such lower demand levels may adversely
impact our revenue and profitability. See Item 1A,
Risk Factors.
The royalties we receive are partly a function of the adoption
of our chip interfaces by system companies. Many system
companies purchase semiconductors containing our chip interfaces
from our licensees and do not have a direct contractual
relationship with us. Our licensees generally do not provide us
with details as to the identity or volume of licensed
semiconductors purchased by particular system companies. As a
result, we face difficulty in analyzing the extent to which our
future revenue will be dependent upon particular system
companies. System companies face intense competitive pressure in
their markets, which are characterized by extreme volatility,
frequent new product introductions and rapidly shifting consumer
preferences. There can be no assurance as to the unit volumes of
licensed semiconductors that will be purchased by these
companies in the future or as to the level of royalty-bearing
revenue that our licensees will receive from sales to these
companies. Additionally, there can be no assurance that a
significant number of other system companies will adopt our chip
interfaces or that our dependence upon particular system
companies will decrease in the future. See Item 1A,
Risk Factors.
The display industry is also intensely competitive and highly
cyclical. We believe the potential percentage of transition to
LED lightguides from cold cathode fluorescent lights
(CCFL) lightguides could be up to 100% for cellular
phones and notebook computers and could reach up to 50% for
display monitors and LCD televisions in 2011. The tablet market
is growing rapidly as a new category that primarily uses LED
lightguides to achieve slim designs. Our LDT group has numerous
patents in edge lit LED lightguide technology. Our plans are to
license our technology to key companies that use LED edge lit
display products. There can be no assurance that we will be
successful in our efforts to obtain licensees for our LED edge
lit technology. Additionally, there are competing technologies,
such as the active matrix organic light emitting diode, that do
not use LED edge lit lightguides which may limit the future
market opportunity for our technology.
The highly fragmented general lighting industry is undergoing a
fundamental shift from incandescent technology to CCFL and LED
driven technology by the need to reduce energy consumption and
to comply with government mandates. LED lighting typically saves
40% of the energy costs as compared to existing installed
lighting. Our LDT group has numerous patents in LED edge lit
lightguide technology which can be applied in the design of next
generation LED lighting products. While our goal is to be a
major player in the general lighting industry with our
technology and have established a technology center in
Brecksville, Ohio, there are no assurances that we will be
successful in our efforts. The market adoption of our technology
may face delays in design, government mandates in specification,
material shortages and manufacturing delays within the supply
base and in overall market acceptance. Additionally, there are
competing design approaches and technologies, such as organic
light emitting diode, that may also affect our ability to obtain
additional licensees.
Our revenue from companies headquartered outside of the United
States accounted for approximately 93%, 83% and 84% of our total
revenue for the years ended December 31, 2010, 2009 and
2008, respectively. We expect
34
that revenue derived from international licensees will continue
to represent a significant portion of our total revenue in the
future. To date, all of the revenue from international licensees
have been denominated in U.S. dollars. However, to the
extent that such licensees sales to their customers are
not denominated in U.S. dollars, any royalties that we
receive as a result of such sales could be subject to
fluctuations in currency exchange rates. In addition, if the
effective price of licensed semiconductors sold by our foreign
licensees were to increase as a result of fluctuations in the
exchange rate of the relevant currencies, demand for licensed
semiconductors could fall, which in turn would reduce our
royalties. We do not use financial instruments to hedge foreign
exchange rate risk.
For additional information concerning international revenue, see
Note 13, Business Segments and Major Customers,
of Notes to Consolidated Financial Statements of this
Form 10-K.
Engineering costs as a percentage of net sales decreased in the
year ended December 31, 2010 as compared to the prior year.
In the near term, we expect engineering costs to be lower than
in 2010 as the employee bonus related to the Samsung settlement
was a
one-time
event in 2010. However, we intend to continue to make
investments in the infrastructure and technologies required to
maintain our product innovations in semiconductor and lighting
technologies and, as a result, our head count and infrastructure
expenses are expected to increase.
Marketing, general and administrative expenses in the aggregate
and as a percentage of net sales decreased in the year ended
December 31, 2010 as compared to the prior year.
Historically, we have been involved in litigation stemming from
the unlicensed use of our inventions. Our litigation expenses
have been high and difficult to predict and future litigation
expenses could be significant, volatile and difficult to
predict. If we are successful in the litigation
and/or
related licensing, our revenue could be substantially higher in
the future; if we are unsuccessful, our revenue may not grow or
may decrease. Furthermore, our success in litigation matters
pending before courts and regulatory bodies that relate to our
intellectual property rights have impacted and will likely
continue to impact our ability and the terms upon which we are
able to negotiate new or renegotiate existing licenses for our
technology. We will continue to pursue litigation against those
companies that have infringed our patented technologies, which
in turn will continue to increase marketing, general and
administrative expenses as litigation expenses will continue to
increase until such litigation is resolved.
As we continue to pursue litigation and invest in research and
development projects and if we experience lower revenue from our
licensees in the future, our cash from operations will be
negatively affected.
35
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenue represented by certain items
reflected in our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
|
99.0
|
%
|
|
|
95.6
|
%
|
|
|
89.1
|
%
|
Contract revenue
|
|
|
1.0
|
%
|
|
|
4.4
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue*
|
|
|
2.1
|
%
|
|
|
6.1
|
%
|
|
|
15.0
|
%
|
Research and development*
|
|
|
28.7
|
%
|
|
|
59.5
|
%
|
|
|
53.5
|
%
|
Marketing, general and administrative*
|
|
|
36.9
|
%
|
|
|
113.4
|
%
|
|
|
87.1
|
%
|
Costs (recoveries) of restatement and related legal activities,
net
|
|
|
1.3
|
%
|
|
|
(11.9
|
)%
|
|
|
2.3
|
%
|
Gain from settlement
|
|
|
(39.2
|
)%
|
|
|
|
%
|
|
|
|
%
|
Restructuring costs*
|
|
|
|
%
|
|
|
|
%
|
|
|
2.9
|
%
|
Impairment of intangible asset
|
|
|
|
%
|
|
|
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
29.8
|
%
|
|
|
167.1
|
%
|
|
|
162.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
70.2
|
%
|
|
|
(67.1
|
)%
|
|
|
(62.3
|
)%
|
Interest income and other income, net
|
|
|
0.3
|
%
|
|
|
3.6
|
%
|
|
|
10.7
|
%
|
Interest expense on convertible notes
|
|
|
(6.1
|
)%
|
|
|
(18.6
|
)%
|
|
|
(8.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
|
(5.8
|
)%
|
|
|
(15.0
|
)%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
64.4
|
%
|
|
|
(82.1
|
)%
|
|
|
(59.9
|
)%
|
Provision for (benefit from) income taxes
|
|
|
17.7
|
%
|
|
|
(0.5
|
)%
|
|
|
79.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
46.7
|
%
|
|
|
(81.6
|
)%
|
|
|
(139.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
0.1
|
%
|
|
|
0.9
|
%
|
|
|
3.6
|
%
|
Research and development
|
|
|
3.1
|
%
|
|
|
8.6
|
%
|
|
|
9.5
|
%
|
Marketing, general and administrative
|
|
|
6.2
|
%
|
|
|
18.5
|
%
|
|
|
13.0
|
%
|
Restructuring costs
|
|
|
|
%
|
|
|
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
$
|
320.2
|
|
|
$
|
108.0
|
|
|
$
|
126.9
|
|
|
|
196.4
|
%
|
|
|
(14.9
|
)%
|
Contract revenue
|
|
|
3.2
|
|
|
|
5.0
|
|
|
|
15.6
|
|
|
|
(35.4
|
)%
|
|
|
(67.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
323.4
|
|
|
$
|
113.0
|
|
|
$
|
142.5
|
|
|
|
186.2
|
%
|
|
|
(20.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenue
Patent
Licenses
Our patent royalties increased approximately $209.1 million
to $288.4 million for the year ended December 31, 2010
from $79.3 million for the same period in 2009. The
increase was primarily due to the revenue recognized from the
agreements signed with Samsung and Elpida during 2010.
36
Our patent royalties decreased approximately $21.2 million
to $79.3 million for the year ended December 31, 2009
from $100.5 million for the same period in 2008. The
decrease was primarily due to the expiration of the Elpida
licensing agreement in the first quarter of 2008, the one-time
receipt of previously withheld royalties from the Federal Trade
Commission (FTC) Disposition Order in 2008 and lower
variable patent royalty payments received in 2009, as a result
of, among other things, lower product shipment volumes reported
by customers.
In March 2010, AMD elected to exercise its right to renew the
Rambus-AMD
Patent License Agreement through the third quarter of 2015. The
original term of AMDs agreement ran through the end of
September 2010.
In December 2010, Elpida renewed its patent license agreement.
The effective date of the agreement is January 1, 2010 and
the expiration date of the term license is January 1, 2015.
In December 2010, Renesas renewed its patent license agreement.
The effective date of the agreement is April 1, 2010 and
the expiration date of the term license is April 1, 2015.
We are in negotiations with prospective licensees as well as
existing licensees regarding renewals. We expect patent
royalties will continue to vary from period to period based on
our success in renewing existing license agreements and adding
new licensees, as well as the level of variation in our
licensees reported shipment volumes, sales price and mix,
offset in part by the proportion of licensee payments that are
fixed.
Technology
Licenses
Royalties from technology licenses increased approximately
$3.1 million to $31.8 million for the year ended
December 31, 2010 from $28.7 million for the same
period in 2009. The increase was primarily due to higher
royalties reported from increased shipments related to DDR2
technologies and higher royalties from
XDRtm
DRAM associated with increased shipments of the Sony
PlayStation®3
product, partially offset by lower royalties from
RDRAMtm
controllers in the first half of 2010 due to a one-time
catch-up
royalty payment for the Sony
PlayStation®2
product in the second quarter of 2009.
Royalties from technology licenses increased approximately
$2.3 million to $28.7 million for the year ended
December 31, 2009 from $26.4 million for the same
period in 2008. The increase was primarily due to higher
royalties reported from increased shipments related to DDR2
technologies and a one-time
catch-up
royalty payment in the second quarter of 2009 related to
RDRAMtm
controllers associated with shipments of the Sony
PlayStation®2
product, offset by decreased royalties from
XDRtm
DRAM associated with decreased shipments of the Sony
PLAYSTATION®3
product.
In the future, we expect technology royalties will continue to
vary from period to period based on our licensees shipment
volumes, sales prices, and product mix.
Contract
Revenue
Contract revenue decreased approximately $1.8 million to
$3.2 million for the year ended December 31, 2010 from
$5.0 million for the year ended December 31, 2009. The
decrease was primarily due to fewer new technology development
contracts and decrease in work performed on existing technology
development contracts.
Contract revenue decreased approximately $10.6 million to
$5.0 million for the year ended December 31, 2009 from
$15.6 million for the year ended December 31, 2008.
The decrease is due to fewer new technology development
contracts, decrease in work performed on existing technology
development contracts, as well as decreased revenue from
reseller arrangements.
We believe that contract revenue recognized will continue to
fluctuate over time based on our ongoing contractual
requirements, the amount of work performed, the timing of
completing engineering deliverables, and by changes to work
required, as well as new technology development contracts booked
in the future.
37
Engineering
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Engineering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
6.7
|
|
|
$
|
5.9
|
|
|
$
|
16.1
|
|
|
|
15.2
|
%
|
|
|
(63.6
|
)%
|
Stock-based compensation
|
|
|
0.2
|
|
|
|
1.0
|
|
|
|
5.2
|
|
|
|
(82.7
|
)%
|
|
|
(80.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
6.9
|
|
|
|
6.9
|
|
|
|
21.3
|
|
|
|
0.9
|
%
|
|
|
(67.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
82.5
|
|
|
|
57.5
|
|
|
|
62.7
|
|
|
|
43.5
|
%
|
|
|
(8.3
|
)%
|
Stock-based compensation
|
|
|
10.2
|
|
|
|
9.7
|
|
|
|
13.5
|
|
|
|
4.6
|
%
|
|
|
(28.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
|
92.7
|
|
|
|
67.2
|
|
|
|
76.2
|
|
|
|
37.8
|
%
|
|
|
(11.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total engineering costs
|
|
$
|
99.6
|
|
|
$
|
74.1
|
|
|
$
|
97.5
|
|
|
|
34.4
|
%
|
|
|
(24.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering costs are allocated between cost of revenue and
research and development expenses. Cost of revenue reflects the
portion of the total engineering costs which are specifically
devoted to individual licensee development and support services
as well as amortization expense related to various acquired
intellectual property for patent licensing. The balance of
engineering costs, incurred for the development of generally
applicable chip interface technologies, is charged to research
and development. In a given period, the allocation of
engineering costs between these two components is a function of
the timing of the development and implementation schedules of
individual licensee contracts.
For the year ended December 31, 2010 as compared to the
same period in 2009, total engineering costs increased 34.4%
primarily due to the increase in headcount from our LDT group
and the funding for our 2010 CIP, which includes the employee
bonus related to the Samsung settlement, increase in patent
research related costs and additional amortization expense
related to intangible assets acquired from GLT.
For the year ended December 31, 2009 as compared to the
same period in 2008, total engineering costs decreased primarily
due to lower headcount and the related decrease in salary,
benefits, allocations and stock based compensation expenses as
well as decreases in consulting and travel and entertainment
costs as a result of our cost reduction initiatives that
commenced in the second half of 2008.
In the near term, we expect engineering costs to be lower than
in 2010 as the employee bonus related to the Samsung settlement
was a one-time event in 2010. However, we intend to continue to
make investments in the infrastructure and technologies required
to maintain our product innovation in semiconductor and lighting
technologies and, as a result, our headcount and infrastructure
costs are expected to increase.
Marketing,
general and administrative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Marketing, general and administrative costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, general and administrative costs
|
|
$
|
76.6
|
|
|
$
|
51.8
|
|
|
$
|
49.9
|
|
|
|
47.7
|
%
|
|
|
3.8
|
%
|
Litigation expense
|
|
|
22.7
|
|
|
|
55.5
|
|
|
|
55.7
|
|
|
|
(59.1
|
)%
|
|
|
(0.3
|
)%
|
Stock-based compensation
|
|
|
20.2
|
|
|
|
20.9
|
|
|
|
18.5
|
|
|
|
(3.2
|
)%
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketing, general and administrative costs
|
|
$
|
119.5
|
|
|
$
|
128.2
|
|
|
$
|
124.1
|
|
|
|
(6.8
|
)%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Marketing, general and administrative expenses include expenses
and costs associated with trade shows, public relations,
advertising, litigation, general legal, insurance and other
marketing and administrative efforts. Litigation expenses are a
significant portion of our marketing, general and administrative
expenses and can vary significantly from quarter to quarter.
Consistent with our business model, our licensing and marketing
activities aim to develop or strengthen relationships with
potential and current licensees. In addition, we work with
current licensees through marketing, sales and technical efforts
to drive adoption of their products, that use our innovations
and solutions, by system companies. Due to the long business
development cycles we face and the semi-fixed nature of
marketing, general and administrative expenses in a given
period, these expenses generally do not correlate to the level
of revenue in that period or in recent or future periods.
For the year ended December 31, 2010 as compared to 2009,
total marketing, general and administrative costs decreased
primarily due to lower litigation expenses. Non-litigation
related marketing, general and administrative costs increased
for the year ended December 31, 2010 primarily due to
funding for our 2010 CIP, which includes the employee bonus
related to the Samsung settlement, increased consulting fees,
increased general legal expenses and increased headcount in
corporate development commencing in 2009 as a result of our
strategic initiatives to identify and acquire additional
technology opportunities.
For the year ended December 31, 2009 as compared to 2008,
total marketing, general and administrative costs were higher
due primarily to ongoing patent acquisition activities in 2009,
higher headcount in corporate development as a result of our
strategic initiatives related to our investing activities,
increased stock-based compensation expenses primarily related to
nonvested equity awards granted during late 2008 and early 2009,
and higher allocated costs. These increases were offset by
decreases in depreciation expenses, rent and facilities expenses
and overall marketing expenses due primarily to our cost
reduction initiatives taken in 2008. Litigation expenses
remained relatively flat from 2008 to 2009 as we continued to
pursue litigation against those companies that have infringed on
our patented technologies.
In the future, marketing, general and administrative costs will
vary from period to period based on the trade shows,
advertising, legal, acquisition and other marketing and
administrative activities undertaken, and the change in sales,
marketing and administrative headcount in any given period.
Litigation expenses are expected to vary from period to period
due to the variability of litigation activities.
Costs
(recoveries) of restatement and related legal activities,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Costs (recoveries) of restatement and related legal activities,
net
|
|
$
|
4.2
|
|
|
$
|
(13.5
|
)
|
|
$
|
3.3
|
|
|
|
NM*
|
|
|
|
NM*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
NM percentage is not meaningful as the change is too
large |
Costs (recoveries) of restatement and related legal activities,
net, consist primarily of investigation, audit, legal and other
professional fees related to the
2006-2007
stock option investigation and the filing of the restated
financial statements and related litigation.
For the year ended December 31, 2010, costs of restatement
and related legal activities, net, were $4.2 million
primarily due to litigation expense associated with a private
shareholder lawsuit related to the
2006-2007
stock option investigation. In 2009, we recorded reimbursements
of $12.3 million from the insurance carriers and received
$4.5 million from former executives as part of their
settlement agreements with us in connection with the derivative
and class action lawsuits in 2009.
For the year ended December 31, 2009, recoveries of
restatement and related legal activities, net, were
$13.5 million due primarily to recognition of insurance
settlements of $12.3 million from the insurance carriers
and the receipt of $4.5 million from former executives as
part of their settlement agreements with us in connection with
the derivative and class action lawsuits. The $16.8 million
was recorded as recoveries of restatement and related legal
activities. Until all the litigation and related issues are
resolved, we anticipate that there could be additional amounts
relating to these matters in the future.
39
Gain
from settlement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Gain from settlement
|
|
$
|
126.8
|
|
|
$
|
|
|
|
$
|
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The settlement with Samsung is a multiple element arrangement
for accounting purposes. For a multiple element arrangement, we
are required to determine the fair value of the elements. We
considered several factors in determining the accounting fair
value of the elements of the settlement with Samsung which
included a third party valuation using an income approach, the
Black-Scholes option pricing model and a residual approach
(collectively the Fair Value). The total gain from
settlement is $133.0 million of which $126.8 million
was recognized for the year ended December 31, 2010. The
gain from settlement represents the Fair Value of the cash
consideration allocated to the resolution of the antitrust
litigation settlement and the residual value of other elements.
Interest
and other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Interest income and other income, net
|
|
$
|
0.9
|
|
|
$
|
4.1
|
|
|
$
|
15.2
|
|
|
|
(78.9
|
)%
|
|
|
(73.1
|
)%
|
Interest expense on convertible notes
|
|
$
|
(19.7
|
)
|
|
$
|
(21.0
|
)
|
|
$
|
(11.8
|
)
|
|
|
(6.0
|
)%
|
|
|
77.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
$
|
(18.8
|
)
|
|
$
|
(16.9
|
)
|
|
$
|
3.4
|
|
|
|
11.7
|
%
|
|
|
NM*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
NM percentage is not meaningful as the change is too
large |
Interest income and other income, net, consists primarily of
interest income generated from investments in high quality fixed
income securities, offset by interest expense in connection with
our imputed facility lease obligations.
Following the substantial completion of construction in the
fourth quarter of 2010, we occupied our Sunnyvale and
Brecksville facilities. In connection with the application of
FASB authoritative guidance to our leases of the new facilities,
we are deemed, in substance, to be the owner of the
landlords buildings, and therefore the estimated fair
value of our portion of the buildings is required to be
capitalized on our books as a non-cash transaction, offset by a
corresponding imputed financing obligation on our balance sheet.
The imputed financing obligations are amortized using the
effective interest method with the imputed interest rate of
approximately 10%. For the year ended December 31, 2010, we
recognized $0.4 million of interest expense in connection
with the imputed financing obligations in our statement of
operations. See Note 7, Commitments and
Contingencies, of Notes to Consolidated Financial
Statements of this
Form 10-K
for additional details.
For the year ended December 31, 2009 as compared to the
same period in 2008, the decrease in interest income and other
income, net, was primarily due to lower yields on invested
balances.
Interest expense on convertible notes consists of non-cash
interest expense related to the amortization of the debt
discount on the zero coupon convertible senior notes due
February 1, 2010 (the 2010 Notes) and the 2014
Notes as well as the coupon interest related to the 2014 Notes.
We expect interest expense to increase steadily as the 2014
Notes reach maturity. See Note 14 Convertible
Notes, of Notes to Consolidated Financial Statements of
this
Form 10-K
for additional details.
40
Provision
for (benefit from) income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
57.1
|
|
|
$
|
(0.5
|
)
|
|
$
|
113.8
|
|
|
|
NM*
|
|
|
|
NM*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
27.5
|
%
|
|
|
0.6
|
%
|
|
|
(133.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
NM percentage is not meaningful as the change is too
large |
Our effective tax rate for the year ended December 31, 2010
is lower than the U.S. statutory tax rate applied to our
pretax income due to a reduction of the valuation allowance on
our U.S. net deferred tax assets, foreign withholding taxes
and certain foreign losses with no current tax benefit recorded.
Our effective tax rate for the year ended December 31, 2009
was lower than the U.S. statutory tax rate applied to our
pretax loss primarily due to a full valuation allowance on our
U.S. net deferred tax assets, foreign income taxes and
state income taxes, partially offset by refundable research and
development tax credits and carryback of net operating loss. Our
effective tax rate for the year ended December 31, 2008 was
lower than the U.S. statutory tax rate applied to our
pretax loss primarily due to the establishment of a full
valuation allowance on our U.S. net deferred tax assets.
For the year ended December 31, 2010, we continued to
maintain a full valuation allowance against our U.S. net
deferred tax assets. Management periodically evaluates the
realizability of our net deferred tax assets based on all
available evidence, both positive and negative. The realization
of net deferred tax assets is dependent on our ability to
generate sufficient future taxable income during periods prior
to the expiration of tax statutes to fully utilize these assets.
Based on all available evidence, we determined that it was not
more likely than not that the deferred tax assets would be
realized. Should we achieve sustained taxable income in the
future, we would release the valuation allowance to recognize
the deferred tax assets consisting of future tax deductions, net
operating loss and credit carryforwards which provide a valuable
benefit to us.
Restructuring
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.2
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2010 and 2009, we did
not incur any costs associated with restructuring activities.
During the year ended December 31, 2008, we initiated a
workforce reduction in certain areas of excess capacity. The
cash severance, including continuance of certain employee
benefits, totaled approximately $3.6 million and non-cash
employee severance was approximately $0.5 million of
stock-based compensation expense. We also leased a facility in
Mountain View, California, through November 11, 2009, which
we vacated during the fourth quarter of 2008 as a result of the
restructuring measures. This facility was being subleased at a
rate equal to our rent associated with the facility and, as a
result no restructuring charge was recorded. The total
restructuring charge for the year ended December 31, 2008
was approximately $4.2 million. Of the total cash portion,
approximately $3.5 million of severance and benefits was
paid during 2008 and the remaining $0.1 million of
severance and benefits was paid during 2009.
Impairment
of intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Impairment of intangible asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.2
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
During the years ended December 31, 2010 and 2009, we did
not impair any of our intangible assets. In 2008, we determined
that approximately $2.2 million of our intangible assets
had no alternative future use and were impaired as a result of a
customers change in technology requirements. The
impairment of the intangible asset related to a contractual
relationship acquired in the Velio acquisition during December
2003.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
215.3
|
|
|
$
|
289.1
|
|
Marketable securities
|
|
|
296.7
|
|
|
|
171.1
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities
|
|
$
|
512.0
|
|
|
$
|
460.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
235.2
|
|
|
$
|
(40.6
|
)
|
|
$
|
(38.5
|
)
|
Net cash provided by (used in) investing activities
|
|
$
|
(181.5
|
)
|
|
$
|
24.5
|
|
|
$
|
82.7
|
|
Net cash provided by (used in) financing activities
|
|
$
|
(127.5
|
)
|
|
$
|
188.9
|
|
|
$
|
(47.5
|
)
|
Liquidity
Our management continues to believe that total cash, cash
equivalents and marketable securities will continue at adequate
levels to finance our operations, projected capital expenditures
and commitments for the next twelve months. Cash needs for 2010
were funded primarily from operating activities due to the
settlement with Samsung as well as financing activities due to
proceeds from issuance of common stock pursuant to the Stock
Purchase Agreement with Samsung and from the issuance of common
stock under our equity incentive plans.
Operating
Activities
Cash provided by operating activities of $235.2 million in
the year ended December 31, 2010 was primarily attributable
to the signing of Samsung and Elpida. In total, Samsung and
Elpida provided approximately $300.2 million of net
operating cash flow after applicable foreign tax withholdings.
Additionally cash provided by operating activities included
increases in accrued salaries due to the 2010 CIP and bonus
related to the Samsung Settlement which was offset by decreases
in accrued litigation and accounts payable.
Cash used in operating activities of $40.6 million in the
year ended December 31, 2009 was primarily attributable to
the net loss adjusted for certain non-cash items including
stock-based compensation expense, non-cash interest expense,
depreciation and amortization expense. Changes in operating
assets and liabilities which included decreases in accrued
litigation expenses due to recognition of proceeds of
$5.0 million from an insurance company related to the
derivative and class action lawsuits offset by increases in
accounts payable due to the timing of vendor payments.
Cash used in operating activities of $38.5 million in the
year ended December 31, 2008 was primarily attributable to
the net loss for the period adjusted for non-cash items,
including the tax provision related to the deferred tax asset
valuation allowance, stock-based compensation expense, non-cash
interest expense, depreciation and amortization expense,
impairment of an asset, offset by gain on repurchase of
convertible notes and recoveries of restatement and related
legal activities. The change in operating assets and liabilities
for the year ended December 31, 2008 was primarily due to a
decrease in accrued litigation expenses due to payments related
to the class action lawsuit settlement.
Investing
Activities
Cash used in investing activities of approximately
$181.5 million in the year ended December 31, 2010
primarily consisted of purchases of
available-for-sale
marketable securities of $428.8 million, partially offset
by
42
proceeds from the maturities of
available-for-sale
marketable securities of $296.6 million and proceeds from
the sale of marketable securities of $1.8 million. We also
purchased patents and businesses for an aggregate price of
approximately $24.8 million. Additionally, we paid
$26.7 million for the build-out of the facilities in
Sunnyvale, California and Brecksville, Ohio as well as to
acquire computer software, computer hardware and machinery and
equipment.
Cash provided by investing activities of approximately
$24.5 million in the year ended December 31, 2009
primarily consisted of proceeds from the maturities of
available-for-sale
marketable securities of $240.9 million, partially offset
by purchases of
available-for-sale
marketable securities of $183.2 million. In December 2009,
we paid $26.0 million in a business combination to acquire
technology and a portfolio of advanced lighting and
optoelectronics patents from GLT. Additionally, we paid
$2.7 million to acquire property, plant and equipment,
primarily computer software, and $2.5 million for
intangible assets. We also made a $2.0 million investment
in a non-marketable equity security of a technology company.
Cash provided by investing activities of approximately
$82.7 million in the year ended December 31, 2008
primarily consisted of proceeds from the maturities of
available-for-sale
marketable securities of $430.8 million and proceeds from
sale of marketable securities of $25.0 million, partially
offset by purchases of
available-for-sale
marketable securities of $363.0 million. Additionally, we
paid $9.9 million to acquire property and equipment,
primarily computer equipment and computer software licenses.
Financing
Activities
Cash used in financing activities was $127.5 million in the
year ended December 31, 2010 was primarily due to the
payment upon maturity of $137.0 million in face value of
2010 Notes and stock repurchased with an aggregate price of
$195.1 million under our share repurchase program, which
includes the shares purchased under Share Repurchase Agreement
with J.P. Morgan, offset by proceeds received of
$192.0 million from the issuance of common stock pursuant
to the Stock Purchase Agreement with Samsung. Additionally, we
received approximately $16.5 million from the issuance of
common stock under equity incentive plans.
Cash provided by financing activities was $188.9 million in
the year ended December 31, 2009. We received proceeds of
$168.2 million from the issuance of 2014 Notes.
Additionally, we received approximately $20.7 million from
the issuance of common stock under equity incentive plans.
Cash used in financing activities was $47.5 million in the
year ended December 31, 2008. We repurchased stock with an
aggregate price of $49.2 million under our share repurchase
program. Additionally, we repurchased approximately
$23.1 million in face value of our zero coupon convertible
senior notes for $18.7 million. We also received
approximately $21.7 million from the issuance of common
stock under equity incentive plans. In addition, we paid
$1.3 million under installment payment plans used to
acquire software license agreements.
We currently anticipate that existing cash, cash equivalents and
marketable securities balances and cash flows from operations
will be adequate to meet our cash needs for at least the next
12 months, including any cash needs to purchase the shares
of contingently redeemable common stock that may be put back to
us by Samsung in 2011. In February 2010, we satisfied our
requirement to pay the 2010 Notes with an aggregate principal
amount of $137.0 million. We do not anticipate any
liquidity constraints as a result of either the current credit
environment or investment fair value fluctuations. We have the
ability to hold and we believe that we can recover the amortized
cost of our investments. There is no evidence of impairment due
to credit losses in our portfolio. We continually monitor the
credit risk in our portfolio and mitigate our credit risk
exposures in accordance with our policies. We may also incur
additional expenditures related to future potential
restructuring activities. As described elsewhere in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations and this Annual Report
on
Form 10-K,
we are involved in ongoing litigation related to our
intellectual property and our past stock option investigation.
Any adverse settlements or judgments in any of this litigation
could have a material adverse impact on our results of
operations, cash balances and cash flows in the period in which
such events occur.
43
Contractual
Obligations
On December 15, 2009, we entered into a definitive triple
net space lease agreement with MT SPE, LLC (the
Landlord) whereby we lease approximately
125,000 square feet of office space located at 1050
Enterprise Way in Sunnyvale, California (the Sunnyvale
Lease). The office space is used for our corporate
headquarters, as well as engineering, marketing and
administrative operations and activities. We moved to the new
premises in the fourth quarter of 2010 following substantial
completion of leasehold improvements. The Sunnyvale Lease has a
term of 120 months from the commencement date. The initial
annual base rent is $3.7 million, subject to a full
abatement of rent for the first six months of the Sunnyvale
Lease term, but with the rent for the seventh month paid in
December 2009 in order to gain access to the building. The
annual base rent increases each year to certain fixed amounts
over the course of the term as set forth in the Sunnyvale Lease
and will be $4.8 million in the tenth year. In addition to
the base rent, we also pay operating expenses, insurance
expenses, real estate taxes and a management fee. We have two
options to extend the Sunnyvale Lease for a period of
60 months each and a one-time option to terminate the
Sunnyvale Lease after 84 months in exchange for an early
termination fee.
Since certain improvements we constructed are considered
structural in nature and we are responsible for any cost
overruns, for accounting purposes, we are treated in substance
as the owner of the construction project during the construction
period. Accordingly, as of December 31, 2009, we have
capitalized $25.1 million in property, plant and equipment
based on the estimated fair value of the portion of the
unfinished building along with a corresponding imputed financing
obligation for the same amount. The fair value was determined as
of December 31, 2009 using level 3 fair value inputs
(defined as prices or valuation techniques that require inputs
that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity))
and the cost approach which measures the value of an asset as
the cost to reconstruct or replace it with another asset of like
utility.
Following substantial completion of construction in the fourth
quarter of 2010, we occupied the building. At completion, we
concluded that we retained sufficient continuing involvement to
preclude de-recognition of the building under the FASB
authoritative guidance applicable to the sale leasebacks of real
estate. As such, we continue to account for the building as
owned real estate and to record an imputed financing obligation
for our obligation to the legal owner. In addition, we
capitalized $1.5 million of interest on the building with a
corresponding imputed financing obligation for the same amount.
Pursuant to the terms of the Sunnyvale Lease, the landlord has
agreed to reimburse us approximately $9.1 million, of which
$0.3 million was received in 2010. We expect the remaining
$8.8 million to be received in 2011. We recognized the
$0.3 million reimbursement as additional imputed financing
obligation under the FASB authoritative guidance as such payment
from the landlord is deemed to be an imputed financing
obligation. Monthly lease payments on the facility are allocated
between the land element of the lease (which is accounted for as
an operating lease) and the imputed financing obligation. The
imputed financing obligation is amortized using the effective
interest method and the interest rate determined in accordance
with the requirements of sale leaseback accounting. For the year
ended December 31, 2010, we recognized in its statement of
operations $0.4 million of interest expense in connection
with the imputed financing obligation. At December 31,
2010, the imputed financing obligation balance in connection
with the new facility was $27.3 million, of which
$0.2 million was classified under other accrued liabilities
in the current liabilities section and $27.1 million was
classified under long-term imputed financing obligation. At the
end of the initial ten year lease term, should we decide not to
renew the lease, we would reverse the equal amounts of the net
book value of the building and the corresponding imputed
financing obligation.
On March 8, 2010, we entered into a lease agreement with
Fogg-Brecksville Development Co. (the
Ohio Landlord) for 24,814 square feet of
space consisting of 7,158 square feet of office area and
17,656 square feet of warehouse area, located in
Brecksville, Ohio (the Ohio Lease). We moved to the
new premises at the end of the third quarter of 2010 following
substantial completion of leasehold improvements. The warehouse
area was converted into office space and manufacturing space.
The office space is used for the LDT groups engineering
activities while the manufacturing space is used for the
manufacturer of prototypes for the LDT group. The Ohio Lease has
a term of 60 months from the commencement date which is the
earlier of (i) the date upon which we first take occupancy
of the premises once the construction work is completed or
(ii) the first day of the month following completion and
notification by the lessor to us of completion of construction
of the building. The initial annual base
44
rent is approximately $136,000. In addition to the base rent, we
also pay operating expenses, insurance expenses, real estate
taxes and a management fee. We have an option to extend the Ohio
Lease for an additional period of 60 months.
Since certain improvements we constructed are considered
structural in nature and we are responsible for any cost
overruns, for accounting purposes, we are treated in substance
as the owner of the construction project during the construction
period. Accordingly, as of March 31, 2010, we have
capitalized $0.8 million in property, plant and equipment
based on the estimated fair value of the portion of the
unfinished building along with a corresponding financing
obligation. The fair value was determined as of March 31,
2010 using level 3 fair value inputs and the cost approach
which measures the value of an asset as the cost to reconstruct
or replace it with another asset of like utility.
Following completion of construction in the fourth quarter of
2010, we occupied the Brecksville facility. At completion, we
concluded that we retained sufficient continuing involvement to
preclude de-recognition of the building under the FASB
authoritative guidance applicable to the sale leasebacks of real
estate. As such, we continue to account for the building as
owned real estate and to record an imputed financing obligation
for our obligation to the legal owner. At the end of the lease
term in 2015, we have an option to renew the lease for an
additional 60 months. As a result of the significant amount
of construction costs, we currently would expect to renew the
lease for an additional 60 months so the lease term for
accounting purposes will be the period of intended use of ten
years. The lease payments are recorded as interest expense using
the effective interest method over the term of the lease and the
building is depreciated on a straight-line basis over a period
of 15 years. For the year ended December 31, 2010, we
recognized in our statement of operations $29 thousand of
interest expense in connection with the imputed financing
obligation. At December 31, 2010, the imputed financing
obligation balance in connection with the new facility was
$0.8 million which was classified under long-term imputed
financing obligation. At the end of the ten year intended use
term, we would reverse the equal amounts of the net book value
of the building and the corresponding imputed financing
obligation.
On June 29, 2009, we entered into an Indenture with
U.S. Bank, National Association, as trustee, relating to
the issuance by us of $150.0 million aggregate principal
amount of 5% convertible senior notes due June 15, 2014. On
July 10, 2009, an additional $22.5 million in
aggregate principal amount of 2014 Notes were issued as a result
of the underwriters exercising their overallotment option. The
aggregate principal amount of the 2014 Notes outstanding as of
December 31, 2010 was $172.5 million, offset by
unamortized debt discount of $51.0 million in the
accompanying consolidated balance sheets. The debt discount is
currently being amortized over the remaining 42 months
until maturity of the 2014 Notes on June 15, 2014. See
Note 14, Convertible Notes, of Notes to
Consolidated Financial Statements of this
Form 10-K
for additional details.
As of December 31, 2010, our material contractual
obligations are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Contractual obligations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed financing obligation
|
|
$
|
49,590
|
|
|
$
|
4,495
|
|
|
$
|
4,914
|
|
|
$
|
5,035
|
|
|
$
|
5,155
|
|
|
$
|
5,275
|
|
|
$
|
24,716
|
|
Leases
|
|
|
5,525
|
|
|
|
2,851
|
|
|
|
1,625
|
|
|
|
371
|
|
|
|
357
|
|
|
|
321
|
|
|
|
|
|
Software licenses(2)
|
|
|
8,628
|
|
|
|
6,640
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
172,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,500
|
|
|
|
|
|
|
|
|
|
Interest payments related to convertible notes
|
|
|
29,807
|
|
|
|
8,625
|
|
|
|
8,625
|
|
|
|
8,625
|
|
|
|
3,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266,050
|
|
|
$
|
22,611
|
|
|
$
|
17,152
|
|
|
$
|
14,031
|
|
|
$
|
181,944
|
|
|
$
|
5,596
|
|
|
$
|
24,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The above table does not reflect possible payments in connection
with uncertain tax benefits of approximately $11.8 million
including $7.2 million recorded as a reduction of long-term
deferred tax assets and $4.6 million in long-term income
taxes payable, as of December 31, 2010. As noted in
Note 11, Income Taxes, of Notes to Consolidated
Financial Statements of this
Form 10-K,
although it is possible that some of the unrecognized tax
benefits could be settled within the next 12 months, we
cannot reasonably estimate the outcome at this time. The |
45
|
|
|
|
|
above table does not reflect possible payments in connection
with the contingently redeemable common stock discussed below. |
|
(2) |
|
We have commitments with various software vendors for
non-cancellable license agreements that generally have terms
longer than one year. The above table summarizes those
contractual obligations as of December 31, 2010 which are
also listed on our balance sheet under current and other long
term liabilities. |
Contingently
Redeemable Common Stock
On January 19, 2010, pursuant to the terms of the Stock
Purchase Agreement, Samsung purchased for cash from us
9.6 million shares of our common stock (the
Shares) with certain restrictions and put rights.
The issuance of the Shares by us to Samsung was made through a
private transaction. The Stock Purchase Agreement provides
Samsung a one-time put right, beginning 18 months after the
date of the Stock Purchase Agreement and extending to
19 months after the date of the Stock Purchase Agreement,
to elect to put back to us up to 4.8 million of the Shares
at the original issue price of $20.885 per share (for an
aggregate purchase price of up to $100.0 million). The
4.8 million shares have been recorded as contingently
redeemable common stock on the consolidated balance sheet as of
December 31, 2010.
The Stock Purchase Agreement prohibits the transfer of the
Shares by Samsung for 18 months after the date of the Stock
Purchase Agreement, subject to certain exceptions. After
expiration of the transfer restriction period on July 18,
2011, the Stock Purchase Agreement provides that Samsung may
transfer a limited number of shares on a daily basis, provides
us with a right of first offer for proposed transfers above such
daily limits, and, if no sale occurs to us under the right of
first offer, allows Samsung to transfer the Shares. Under the
Stock Purchase Agreement, we have also agreed that after the
transfer restriction period, Samsung will have certain rights to
register the Shares for sale under the securities laws of the
United States, subject to customary terms and conditions.
See Note 3, Settlement Agreement with Samsung,
of Notes to Consolidated Financial Statements of this
Form 10-K
for further discussion.
Share
Repurchase Program
In October 2001, the Board approved a share
repurchase program of our Common Stock, principally to reduce
the dilutive effect of employee stock options. Under this
program, the Board approved the authorization to repurchase up
to 19.0 million shares of our outstanding Common Stock over
an undefined period of time. On February 25, 2010, the
Board approved a new share repurchase program authorizing the
repurchase of up to an additional 12.5 million shares.
Share repurchases under the program may be made through open
market, established plan or privately negotiated transactions in
accordance with all applicable securities laws, rules, and
regulations. There is no expiration date applicable to the
program. The new share repurchase program replaces the program
authorized in October 2001.
On August 19, 2010, we entered into the Share Repurchase
Agreement with JP Morgan to repurchase approximately
$90.0 million of our Common Stock, as part of our share
repurchase program. Under the Share Repurchase Agreement, we
pre-paid to JP Morgan the $90.0 million purchase price in
the third quarter of 2010 for the Common Stock and JP Morgan
delivered to us approximately 4.8 million shares of Common
Stock at an average price of $18.88 at the completion of the
Share Repurchase Agreement in December 2010.
For the year ended December 31, 2010, we repurchased
approximately 9.5 million shares of our Common Stock with
an aggregate price of approximately $195.1 million,
including the price paid pursuant to the Share Repurchase
Agreement. As of December 31, 2010, we had repurchased a
cumulative total of approximately 26.3 million shares of
our Common Stock with an aggregate price of approximately
$428.9 million since the commencement of the program in
2001. As of December 31, 2010, there remained an
outstanding authorization to repurchase approximately
5.2 million shares of our outstanding Common Stock.
We record stock repurchases as a reduction to stockholders
equity. We record 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.
During the year ended December 31, 2010, the cumulative
price of the shares repurchased exceeded the proceeds received
from the
46
issuance of the same number of shares. The excess of
$163.6 million was recorded as an increase to accumulated
deficit for the year ended December 31, 2010. During the
year ended December 31, 2009, we did not repurchase any
Common Stock.
Shareholder
Litigation Related to Historical Stock Option
Practices
See Note 15 Litigation and Asserted Claims, of
Notes to Consolidated Financial Statements of this
Form 10-K
for further discussion.
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to
revenue recognition, investments, income taxes, litigation and
other contingencies. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue
Recognition
Overview
We recognize revenue when persuasive evidence of an arrangement
exists, we have delivered the product or performed the service,
the fee is fixed or determinable and collection is reasonably
assured. If any of these criteria are not met, we defer
recognizing the revenue until such time as all criteria are met.
Determination of whether or not these criteria have been met may
require us to make judgments, assumptions and estimates based
upon current information and historical experience.
Our revenue consists of royalty revenue and contract revenue
generated from agreements with semiconductor companies, system
companies and certain reseller arrangements. Royalty revenue
consists of patent license and technology license royalties.
Contract revenue consist of fixed license fees, fixed
engineering fees and service fees associated with integration of
our technology solutions into our customers products.
Contract revenue may also include support or maintenance.
Reseller arrangements generally provide for the pass-through of
a percentage of the fees paid to the reseller by the
resellers customer for use of our patent and technology
licenses. We do not recognize revenue for these arrangements
until we have received notice of revenue earned by and paid to
the reseller, accompanied by the pass-through payment from the
reseller. We do not pay commissions to the reseller for these
arrangements.
In addition, we may enter into certain settlements of patent
infringement disputes. The amount of consideration received upon
any settlement (including but not limited to past royalty
payments, future royalty payments and punitive damages) is
allocated to each element of the settlement based on the Fair
Value of each element. In addition, revenues related to past
royalties are recognized upon execution of the agreement by both
parties, provided that the amounts are fixed or determinable,
there are no significant undelivered obligations and
collectability is reasonably assured. We do not recognize any
revenues prior to execution of the agreement since there is no
reliable basis on which we can estimate the amounts for
royalties related to previous periods or assess collectability.
Elements that are related to royalty revenue in nature
(including but not limited to past royalty payments and future
royalty payments) will be recorded as royalty revenue in the
consolidated statements of operations. Elements that are not
related to royalty revenue in nature (including but not limited
to punitive damage and settlement) will be
47
recorded as gain from settlement which is reflected as a
separate line item within the operating expenses section in the
consolidated statements of operations.
Many of our licensees have the right to cancel their licenses.
In such arrangements, revenue is only recognized to the extent
that is consistent with the cancellation provisions.
Cancellation provisions within such contracts generally provide
for a prospective cancellation with no refund of fees already
remitted by customers for products provided and payment for
services rendered prior to the date of cancellation. Unbilled
receivables represent enforceable claims and are deemed
collectible in connection with our revenue recognition policy.
Royalty
Revenue
We recognize royalty revenue upon notification by our licensees
and when deemed collectible. The terms of the royalty agreements
generally either require licensees to give us notification and
to pay the royalties within 60 days of the end of the
quarter during which the sales occur or are based on a fixed
royalty that is due within 45 days of the end of the
quarter. We have two types of royalty revenue: (1) patent
license royalties and (2) technology license royalties.
Patent licenses. We license our broad
portfolio of patented inventions to semiconductor and systems
companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of our patent portfolio. The
contractual terms of the agreements generally provide for
payments over an extended period of time. For the licensing
agreements with fixed royalty payments, we generally recognize
revenue from these arrangements as amounts become due. For the
licensing agreements with variable royalty payments which can be
based on either a percentage of sales or number of units sold,
we earn royalties at the time that the licensees sales
occur. Our licensees, however, do not report and pay royalties
owed for sales in any given quarter until after the conclusion
of that quarter. As we are unable to estimate the
licensees sales in any given quarter to determine the
royalties due to us, we recognize royalty revenues based on
royalties reported by licensees during the quarter and when
other revenue recognition criteria are met.
Technology licenses. We develop proprietary
and industry-standard chip interface products, such as
RDRAMtm
and
XDRtm
that we provide to our customers under technology license
agreements. These arrangements include royalties, which can be
based on either a percentage of sales or number of units sold.
We earn royalties on such licensed products sold worldwide by
our licensees at the time that the licensees sales occur.
Our licensees, however, do not report and pay royalties owed for
sales in any given quarter until after the conclusion of that
quarter. As we are unable to estimate the licensees sales
in any given quarter to determine the royalties due to us, we
recognize royalty revenues based on royalties reported by
licensees during the quarter and when other revenue recognition
criteria are met.
Contract
Revenue
We generally recognize revenue using percentage of completion
for development contracts related to licenses of our interface
solutions, such as
XDRtm
and
FlexIOtm
that involve significant engineering and integration services.
For all license and service agreements accounted for using the
percentage-of-completion
method, we determine progress to completion using input measures
based upon contract costs incurred. We have evaluated use of
output measures versus input measures and have determined that
our output is not sufficiently uniform with respect to cost,
time and effort per unit of output to use output measures as a
measure of progress to completion. Part of these contract fees
may be due upon the achievement of certain milestones, such as
provision of certain deliverables by us or production of chips
by the licensee. The remaining fees may be due on pre-determined
dates and include significant up-front fees.
A provision for estimated losses on fixed price contracts is
made, if necessary, in the period in which the loss becomes
probable and can be reasonably estimated. If we determine that
it is necessary to revise the estimates of the total costs
required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected.
However, to the extent the new assumptions regarding the total
efforts necessary to complete a project are less than the
original assumptions, the contract fees would be recognized
sooner than originally expected. Conversely, if the newly
estimated total efforts necessary to complete a project are
longer than the original assumptions, the contract fees will be
recognized over a longer period.
48
If application of the
percentage-of-completion
method results in recognizable revenue prior to an invoicing
event under a customer contract, we will recognize the revenue
and record an unbilled receivable. Amounts invoiced to our
customers in excess of recognizable revenue are recorded as
deferred revenue. The timing and amounts invoiced to customers
can vary significantly depending on specific contract terms and
can therefore have a significant impact on deferred revenue or
unbilled receivables in any given period.
We also recognize revenue for development contracts related to
licenses of our chip interface products that involve
non-essential engineering services and post contract support
(PCS). These SOPs apply to all entities that earn
revenue on products containing software, where software is not
incidental to the product as a whole. Contract fees for the
products and services provided under these arrangements are
comprised of license fees and engineering service fees which are
not essential to the functionality of the product. Our rates for
PCS and for engineering services are specific to each
development contract and not standardized in terms of rates or
length. Because of these characteristics, we do not have a
sufficient population of contracts from which to derive vendor
specific objective evidence for each of the elements.
Therefore, after we deliver the product, if the only undelivered
element is PCS, we will recognize all revenue ratably over
either the contractual PCS period or the period during which PCS
is expected to be provided. We review assumptions regarding the
PCS periods on a regular basis. If we determine that it is
necessary to revise the estimates of the support periods, the
total amount of revenue to be recognized over the life of the
contract would not be affected.
Litigation
We are involved in certain legal proceedings, as discussed in
Note 15, Litigation and Asserted Claims, of
Notes to Consolidated Financial Statements of this
Form 10-K.
Based upon consultation with outside counsel handling our
defense in these matters and an analysis of potential results,
we accrue for losses related to litigation if we determine that
a loss is probable and can be reasonably estimated. If a
specific loss amount cannot be estimated, we review the range of
possible outcomes and accrue the low end of the range of
estimates. Any such accrual would be charged to expense in the
appropriate period. We recognize litigation expenses in the
period in which the litigation services were provided.
Income
Taxes
As part of preparing our consolidated financial statements, we
are required to calculate the income tax expense or benefit
which relates to the pretax income or loss for the period. In
addition, we are required to assess the realization of the
deferred tax asset or liability to be included on the
consolidated balance sheet as of the reporting dates.
As of December 31, 2010, our consolidated balance sheet
included net deferred tax assets, before valuation allowance, of
approximately $78.3 million, which consists of net
operating loss carryovers, tax credit carryovers, depreciation
and amortization, employee stock-based compensation expenses and
certain liabilities. For the year ended December 31, 2010,
a valuation allowance of $75.4 million reduced net deferred
tax assets to $2.9 million. Management periodically
evaluates the realizability of our net deferred tax assets based
on all available evidence, both positive and negative. The
realization of net deferred tax assets is dependent on our
ability to generate sufficient future taxable income during
periods prior to the expiration of tax statutes to fully utilize
these assets. Our forecasted future operating results are highly
influenced by, among other factors, assumptions regarding
(1) our ability to achieve our forecasted revenue,
(2) our ability to effectively manage our expenses in line
with our forecasted revenue and (3) general trends in the
semiconductor industry.
We weighed both positive and negative evidence and determined
that there is a continued need for a valuation allowance due to
projected future losses, which we considered significant
negative evidence. Though considered positive evidence,
projected income from potential favorable patent and related
settlement litigation were not included in the determination for
the valuation allowance due to our inability to reliably
estimate and objectively verify the timing and amounts of such
settlements. Even though we are no longer in a cumulative tax
loss position for the last twelve quarters primarily due to
certain discrete positive events, the projection of significant
future losses is a negative factor that outweighs the positive
factors leading to a conclusion that a release of the valuation
49
allowance is not yet appropriate. If any settlement income is
realized, we will reassess our position on maintaining the
valuation allowance.
Tax attributes related to stock option windfall deductions are
not to be recognized until they result in a reduction of cash
taxes payable. The benefit of these excess tax benefits will be
recorded to equity when they reduce cash taxes payable.
The calculation of our tax liabilities involves uncertainties in
the application of complex tax law and regulations in a
multitude of jurisdictions. Although FASB Accounting Standards
Codification (ASC) 740 Income Taxes, provides
further clarification on the accounting for uncertainty in
income taxes, significant judgment is required by management. If
the ultimate resolution of tax uncertainties is different from
what is currently estimated, a material impact on income tax
expense could result.
Stock-Based
Compensation
For the years ended December 31, 2010, 2009 and 2008, we
maintained stock plans covering a broad range of potential
equity grants including stock options, nonvested equity stock
and equity stock units and performance based instruments. In
addition, we sponsor an Employee Stock Purchase Plan
(ESPP), whereby eligible employees are entitled to
purchase Common Stock semi-annually, by means of limited payroll
deductions, at a 15% discount from the fair market value of the
Common Stock as of specific dates.
The accounting guidance for share-based payments requires the
measurement and recognition of compensation expense in our
statement of operations for all share-based payment awards made
to our employees, directors and consultants including employee
stock options, nonvested equity stock and equity stock units,
and employee stock purchase grants. Stock-based compensation
expense is measured at grant date, based on the estimated fair
value of the award, reduced by an estimate of the annualized
rate of expected forfeitures, and is recognized as expense over
the employees expected requisite service period, generally
using the straight-line method. In addition, the accounting
guidance for share-based payments requires the benefits of tax
deductions in excess of recognized compensation expense to be
reported as a financing cash flow, rather than as an operating
cash flow as prescribed under previous accounting rules. Our
forfeiture rate represents the historical rate at which our
stock-based awards were surrendered prior to vesting. The
accounting guidance for share-based payments requires
forfeitures to be estimated at the time of grant and revised on
a cumulative basis, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. See Note 8,
Equity Incentive Plans and Stock-Based Compensation,
of Notes to Consolidated Financial Statements of this
Form 10-K
for more information regarding the valuation of stock-based
compensation.
Marketable
Securities
Available-for-sale
securities are carried at fair value, based on quoted market
prices, with the unrealized gains or losses reported, net of
tax, in stockholders equity as part of accumulated other
comprehensive income (loss). The amortized cost of debt
securities is adjusted for amortization of premiums and
accretion of discounts to maturity, both of which are included
in interest and other income, net. Realized gains and losses are
recorded on the specific identification method and are included
in interest and other income, net. We review our investments in
marketable securities for possible other than temporary
impairments on a regular basis. If any loss on investment is
believed to be other than temporary, a charge will be recognized
in operations. In evaluating whether a loss on a debt security
is other than temporary, we consider the following factors:
1) our intent to sell the security, 2) if we intend to
hold the security, whether or not it is more likely than not
that we will be required to sell the security before recovery of
the securitys amortized cost basis and 3) even if we
intend to hold the security, whether or not we expect the
security to recover the entire amortized cost basis. Due to the
high credit quality and short term nature of our investments,
there have been no other than temporary impairments recorded to
date. The classification of funds between short-term and
long-term is based on whether the securities are available for
use in operations or other purposes.
Goodwill
Costs in excess of the fair value of tangible and other
intangible assets acquired and liabilities assumed in a business
combination are recorded as goodwill. The accounting treatment
for goodwill requires that companies not
50
amortize goodwill, but instead test for impairment at least
annually using a two-step approach. We evaluate goodwill, at a
minimum, on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be
recoverable. Impairment of goodwill is tested at the reporting
unit level by comparing each reporting units carrying
amount, including goodwill, to the fair value of the reporting
unit. The fair values of the reporting units are estimated using
a combination of the income, or discounted cash flows, approach
and the market approach, which utilizes comparable
companies data. If the carrying amount of the reporting
unit exceeds its fair value, goodwill is considered impaired and
a second step is performed to measure the amount of impairment.
The second step involves determining the fair value of goodwill
for each reporting unit. Any excess carrying amount of goodwill
over the fair value determined in the second step will be
recorded as a goodwill impairment loss.
Convertible
Notes
See Note 14, Convertible Notes, of Notes to
Consolidated Financial Statements of this
Form 10-K
regarding the accounting policy in regards to the adoption of
the FASB accounting guidance which clarifies the accounting for
convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement.
Recent
Accounting Pronouncements
See Note 2, Summary of Significant Accounting
Policies, of Notes to Consolidated Financial Statements of
this
Form 10-K
for a full description of recent accounting pronouncements
including the respective expected dates of adoption.
Expiration
of Rights Plan
Our stockholder rights plan expired in July 2010 and we made the
decision not to renew the plan at this time.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to financial market risks, primarily arising from
the effect of interest rate fluctuations on our investment
portfolio. Interest rate fluctuation may arise from changes in
the markets view of the quality of the security issuer,
the overall economic outlook, and the time to maturity of our
portfolio. We mitigate this risk by investing only in high
quality, highly liquid instruments. Securities with original
maturities of one year or less must be rated by two of the three
industry standard rating agencies as follows: A1 by
Standard & Poors, P1 by Moodys
and/or F-1
by Fitch. Securities with original maturities of greater than
one year must be rated by two of the following industry standard
rating agencies as follows: AA- by Standard &
Poors, Aa3 by Moodys
and/or AA-
by Fitch. By corporate policy, we limit the amount of exposure
to $15.0 million or 10% of the portfolio, whichever is
lower, for any one
non-U.S. Government
issuer. A single U.S. Agency can represent up to 25% of the
portfolio. No more than 20% of the total portfolio may be
invested in the securities of an industry sector, with money
market fund investments evaluated separately. Our policy
requires that at least 10% of the portfolio be in securities
with a maturity of 90 days or less. We may make investments
in U.S. Treasuries, U.S. Agencies, corporate bonds and
municipal bonds and notes with maturities up to 36 months.
However, the bias of our investment portfolio is shorter
maturities. All investments must be U.S. dollar denominated.
We invest our cash equivalents and marketable securities in a
variety of U.S. dollar financial instruments such as
Treasuries, Government Agencies, Commercial Paper and Corporate
Notes. Our policy specifically prohibits trading securities for
the sole purposes of realizing trading profits. However, we may
liquidate a portion of our portfolio if we experience unforeseen
liquidity requirements. In such a case if the environment has
been one of rising interest rates we may experience a realized
loss, similarly, if the environment has been one of declining
interest rates we may experience a realized gain. As of
December 31, 2010, we had an investment portfolio of fixed
income marketable securities of $494.9 million including
cash equivalents. If market interest rates were to increase
immediately and uniformly by 1.0% from the levels as of
December 31, 2010, the fair value of the portfolio would
decline by approximately $1.3 million. Actual results may
differ materially from this sensitivity analysis.
51
The table below summarizes the amortized cost, fair value,
unrealized gains (losses) and related weighted average interest
rates for our cash equivalents and marketable securities
portfolio as of December 31, 2010 and December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Weighted
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Return
|
|
|
|
(Dollars in thousands)
|
|
|
Money Market Funds
|
|
$
|
132,364
|
|
|
$
|
132,364
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.04
|
%
|
U.S. Government Bonds and Notes
|
|
|
266,817
|
|
|
|
266,840
|
|
|
|
29
|
|
|
|
(52
|
)
|
|
|
0.26
|
%
|
Corporate Notes, Bonds and Commercial Paper
|
|
|
95,724
|
|
|
|
95,773
|
|
|
|
8
|
|
|
|
(57
|
)
|
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
494,905
|
|
|
|
494,977
|
|
|
|
37
|
|
|
|
(109
|
)
|
|
|
|
|
Cash
|
|
|
17,104
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
512,009
|
|
|
$
|
512,081
|
|
|
$
|
37
|
|
|
$
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Weighted
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Return
|
|
|
|
(Dollars in thousands)
|
|
|
Money Market Funds
|
|
$
|
280,908
|
|
|
$
|
280,908
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.01
|
%
|
U.S. Government Bonds and Notes
|
|
|
138,829
|
|
|
|
138,521
|
|
|
|
377
|
|
|
|
(69
|
)
|
|
|
1.09
|
%
|
Corporate Notes, Bonds and Commercial Paper
|
|
|
32,291
|
|
|
|
32,222
|
|
|
|
70
|
|
|
|
(1
|
)
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
452,028
|
|
|
|
451,651
|
|
|
|
447
|
|
|
|
(70
|
)
|
|
|
|
|
Cash
|
|
|
8,165
|
|
|
|
8,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
460,193
|
|
|
$
|
459,816
|
|
|
$
|
447
|
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of our convertible notes is subject to interest
rate risk, market risk and other factors due to the convertible
feature. The fair value of the convertible notes will generally
increase as interest rates fall and decrease as interest rates
rise. In addition, the fair value of the convertible notes will
generally increase as our common stock prices increase and
decrease as the stock prices fall. The interest and market value
changes affect the fair value of our convertible notes but do
not impact our financial position, cash flows or results of
operations due to the fixed nature of the debt obligation.
Additionally, we do not carry the convertible notes at fair
value. We present the fair value of the convertible notes for
required disclosure purposes. The following table summarizes
certain information related to our 2014 Notes as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Given a
|
|
Fair Value Given a
|
|
|
|
|
10%
|
|
10%
|
|
|
|
|
Increase in Market
|
|
Decrease in Market
|
|
|
Fair Value
|
|
Prices
|
|
Prices
|
|
|
(In thousands)
|
|
5% Convertible Senior Notes due 2014
|
|
$
|
224,504
|
|
|
$
|
246,954
|
|
|
$
|
202,053
|
|
We invoice our customers in U.S. dollars. Although the
fluctuation of currency exchange rates may impact our customers,
and thus indirectly impact us, we do not attempt to hedge this
indirect and speculative risk. Our overseas operations consist
primarily of one design center in India and small business
development offices in Germany, Japan, Korea and Taiwan. We
monitor our foreign currency exposure; however, as of
December 31, 2010, we believe our foreign currency exposure
is not material enough to warrant foreign currency hedging.
52
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See Item 15 Exhibits and Financial Statement
Schedules of this
Form 10-K
for required financial statements and supplementary data.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to
ensure that information required to be disclosed in the reports
we file or submit pursuant to the Securities and Exchange Act of
1934 as amended (Exchange Act) is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and
procedures as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act as of the end of the period covered by this
report. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of
December 31, 2010, our disclosure controls and procedures
were effective.
The internal control over financial reporting related to the
assets acquired under a business combination from Imagine
Designs Inc., was excluded from the evaluation of the
effectiveness of the Companys disclosure control and
procedures as of the end of the period covered by this report
because the assets were acquired in a business combination
during 2010. Total assets, revenues and operating expenses of
this business combination represent approximately 2.3%, 0% and
0%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31,
2010.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Our internal control over financial
reporting is the process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer, and
effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those
policies and procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions
and dispositions of assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with the authorization of our management
and directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management has excluded the business acquired from Imagine
Design Inc., from its assessment of internal control over
financial reporting as of December 31, 2010 because it was
acquired by the Company in a business
53
combination during the year ended December 31, 2010. Total
assets, revenues and operating expenses from this business
combination represent 2.3%, 0% and 0%, respectively, of the
related consolidated financial statement amounts as of and for
the year ended December 31, 2010.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting
as of December 31, 2010. In making this assessment, our
management used the criteria set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on the results of this assessment,
management has concluded that, as of December 31, 2010, our
internal control over financial reporting was effective based on
the criteria in Internal Control Integrated
Framework issued by the COSO.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by
PricewaterhouseCoopers, LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
Changes
in Internal Control Over Financial Reporting
There were no changes in internal control over financial
reporting during the last fiscal quarter that has materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2011 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
The information under the heading Our Executive
Officers in Part I, Item 1 of this Annual Report
on
Form 10-K
is also incorporated herein by reference.
We have a Code of Business Conduct and Ethics for all of our
directors, officers and employees. Our Code of Business Conduct
and Ethics is available on our website at
http://investor.rambus.com/documentdisplay.cfm?DocumentID=5115.
To date, there have been no waivers under our Code of Business
Conduct and Ethics. We will post any amendments or waivers, if
and when granted, of our Code of Business Conduct and Ethics on
our website.
|
|
Item 11.
|
Executive
Compensation
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2011 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2011 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
54
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2011 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information responsive to this item is incorporated herein
by reference to our Proxy Statement for our 2011 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1)
Financial Statements
The following consolidated financial statements of the
Registrant and Report of PricewaterhouseCoopers LLP, Independent
Registered Public Accounting Firm, are included herewith:
|
|
|
|
|
|
|
Page
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
|
|
|
61
|
|
|
|
|
113
|
|
(a)(2)
Financial Statement Schedule
The following financial statement schedule of the Registrant is
included herewith and should be read in conjunction with the
Financial Statements included in this Item 15:
All other schedules are omitted because they are not applicable
or the required information is shown in the Financial Statements
or the notes thereto.
55
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Rambus Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15 (a)(1) present fairly, in
all material respects, the financial position of Rambus Inc. and
its subsidiaries at December 31, 2010 and December 31,
2009, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010 based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting, under item 9A.
Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As described in Managements Report on Internal Control
over Financial Reporting, management has excluded the business
acquired from Imagine Design Inc., from its assessment of
internal control over financial reporting as of
December 31, 2010 because it was acquired by the Company in
a business combination during the year ended December 31,
2010. Total assets, revenues and operating expenses of this
business combination represent approximately 2.3%, 0% and 0%,
respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2010.
/s/ PricewaterhouseCoopers
LLP
San Jose, California
February 25, 2011
56
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
215,262
|
|
|
$
|
289,073
|
|
Marketable securities
|
|
|
296,747
|
|
|
|
171,120
|
|
Accounts receivable
|
|
|
2,600
|
|
|
|
949
|
|
Prepaids and other current assets
|
|
|
10,898
|
|
|
|
8,700
|
|
Deferred taxes
|
|
|
2,420
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
527,927
|
|
|
|
469,971
|
|
Deferred taxes, long term
|
|
|
2,974
|
|
|
|
2,034
|
|
Intangible assets, net
|
|
|
40,986
|
|
|
|
21,660
|
|
Goodwill
|
|
|
18,154
|
|
|
|
15,554
|
|
Property, plant and equipment, net
|
|
|
67,770
|
|
|
|
38,966
|
|
Other assets
|
|
|
5,361
|
|
|
|
7,684
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
663,172
|
|
|
$
|
555,869
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CONTINGENTLY REDEEMABLE COMMON STOCK &
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,952
|
|
|
$
|
8,972
|
|
Accrued salaries and benefits
|
|
|
31,634
|
|
|
|
6,435
|
|
Accrued litigation expenses
|
|
|
4,060
|
|
|
|
5,147
|
|
Other accrued liabilities
|
|
|
14,165
|
|
|
|
4,506
|
|
Non-cash obligation for construction in progress
|
|
|
|
|
|
|
25,100
|
|
Convertible notes, current
|
|
|
|
|
|
|
136,032
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
55,811
|
|
|
|
186,192
|
|
Convertible notes, long-term
|
|
|
121,500
|
|
|
|
112,012
|
|
Long-term imputed financing obligation
|
|
|
27,899
|
|
|
|
|
|
Long-term income taxes payable
|
|
|
4,577
|
|
|
|
1,994
|
|
Other long-term liabilities
|
|
|
5,102
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
214,889
|
|
|
|
300,542
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 7 and 15)
|
|
|
|
|
|
|
|
|
Contingently redeemable common stock:
|
|
|
|
|
|
|
|
|
Issued and outstanding: 4,788,125 shares at
December 31, 2010 and no shares at December 31, 2009
|
|
|
113,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 5,000,000 shares; Issued and outstanding: no
shares at December 31, 2010 and December 31, 2009
|
|
|
|
|
|
|
|
|
Common Stock, $.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 shares; Issued and outstanding:
102,676,544 shares at December 31, 2010 and
105,934,157 shares at December 31, 2009
|
|
|
103
|
|
|
|
106
|
|
Additional paid in capital
|
|
|
911,632
|
|
|
|
818,992
|
|
Accumulated deficit
|
|
|
(576,590
|
)
|
|
|
(563,858
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(362
|
)
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
334,783
|
|
|
|
255,327
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, contingently redeemable common stock and
stockholders equity
|
|
$
|
663,172
|
|
|
$
|
555,869
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
57
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties
|
|
$
|
320,155
|
|
|
$
|
108,001
|
|
|
$
|
126,910
|
|
Contract revenue
|
|
|
3,235
|
|
|
|
5,006
|
|
|
|
15,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
323,390
|
|
|
|
113,007
|
|
|
|
142,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue*
|
|
|
6,937
|
|
|
|
6,876
|
|
|
|
21,303
|
|
Research and development*
|
|
|
92,706
|
|
|
|
67,252
|
|
|
|
76,222
|
|
Marketing, general and administrative*
|
|
|
119,475
|
|
|
|
128,199
|
|
|
|
124,077
|
|
Costs (recoveries) of restatement and related legal activities,
net
|
|
|
4,190
|
|
|
|
(13,458
|
)
|
|
|
3,262
|
|
Gain from settlement
|
|
|
(126,800
|
)
|
|
|
|
|
|
|
|
|
Restructuring costs*
|
|
|
|
|
|
|
|
|
|
|
4,185
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
96,508
|
|
|
|
188,869
|
|
|
|
231,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
226,882
|
|
|
|
(75,862
|
)
|
|
|
(88,713
|
)
|
Interest income and other income, net
|
|
|
861
|
|
|
|
4,085
|
|
|
|
15,199
|
|
Interest expense
|
|
|
(19,699
|
)
|
|
|
(20,950
|
)
|
|
|
(11,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
|
(18,838
|
)
|
|
|
(16,865
|
)
|
|
|
3,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
208,044
|
|
|
|
(92,727
|
)
|
|
|
(85,319
|
)
|
Provision for (benefit from) income taxes
|
|
|
57,127
|
|
|
|
(541
|
)
|
|
|
113,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
150,917
|
|
|
$
|
(92,186
|
)
|
|
$
|
(199,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.34
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.30
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
112,456
|
|
|
|
105,011
|
|
|
|
104,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
115,884
|
|
|
|
105,011
|
|
|
|
104,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
173
|
|
|
$
|
1,002
|
|
|
$
|
5,187
|
|
Research and development
|
|
$
|
10,165
|
|
|
$
|
9,715
|
|
|
$
|
13,488
|
|
Marketing, general and administrative
|
|
$
|
20,210
|
|
|
$
|
20,868
|
|
|
$
|
18,492
|
|
Restructuring costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
547
|
|
See Notes to Consolidated Financial Statements
58
RAMBUS
INC.
AND
COMPREHENSIVE INCOME/(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Gain (Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balances at December 31, 2007
|
|
|
105,295
|
|
|
$
|
105
|
|
|
$
|
649,996
|
|
|
$
|
(227,739
|
)
|
|
$
|
124
|
|
|
$
|
422,486
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,110
|
)
|
|
|
|
|
|
|
(199,110
|
)
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
60
|
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options, equity stock
and stock units, and employee stock purchase plan
|
|
|
2,251
|
|
|
|
2
|
|
|
|
21,761
|
|
|
|
|
|
|
|
|
|
|
|
21,763
|
|
Repurchase and retirement of common stock under repurchase plan
and shares received from a former executive
|
|
|
(3,743
|
)
|
|
|
(3
|
)
|
|
|
(5,248
|
)
|
|
|
(44,823
|
)
|
|
|
|
|
|
|
(50,074
|
)
|
Repurchase of convertible notes
|
|
|
|
|
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
(259
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
37,761
|
|
|
|
|
|
|
|
|
|
|
|
37,761
|
|
Tax shortfall from equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
103,803
|
|
|
$
|
104
|
|
|
$
|
703,640
|
|
|
$
|
(471,672
|
)
|
|
$
|
869
|
|
|
$
|
232,941
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,186
|
)
|
|
|
|
|
|
|
(92,186
|
)
|
Unrealized loss on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(782
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options, equity stock
and stock units, and employee stock purchase plan
|
|
|
2,131
|
|
|
|
2
|
|
|
|
19,747
|
|
|
|
|
|
|
|
|
|
|
|
19,749
|
|
Equity component of 5% convertible senior notes due 2014
|
|
|
|
|
|
|
|
|
|
|
63,867
|
|
|
|
|
|
|
|
|
|
|
|
63,867
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
31,738
|
|
|
|
|
|
|
|
|
|
|
|
31,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
105,934
|
|
|
$
|
106
|
|
|
$
|
818,992
|
|
|
$
|
(563,858
|
)
|
|
$
|
87
|
|
|
$
|
255,327
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,917
|
|
|
|
|
|
|
|
150,917
|
|
Unrealized loss on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(449
|
)
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options, equity stock
and employee stock purchase plan
|
|
|
1,481
|
|
|
|
1
|
|
|
|
15,066
|
|
|
|
|
|
|
|
|
|
|
|
15,067
|
|
Issuance of common stock due to the settlement with Samsung
|
|
|
4,788
|
|
|
|
5
|
|
|
|
78,495
|
|
|
|
|
|
|
|
|
|
|
|
78,500
|
|
Repurchase and retirement of common stock under repurchase plan
|
|
|
(9,527
|
)
|
|
|
(9
|
)
|
|
|
(31,449
|
)
|
|
|
(163,649
|
)
|
|
|
|
|
|
|
(195,107
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
30,528
|
|
|
|
|
|
|
|
|
|
|
|
30,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
|
102,676
|
|
|
$
|
103
|
|
|
$
|
911,632
|
|
|
$
|
(576,590
|
)
|
|
$
|
(362
|
)
|
|
$
|
334,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
59
RAMBUS
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
150,917
|
|
|
$
|
(92,186
|
)
|
|
$
|
(199,110
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,548
|
|
|
|
31,585
|
|
|
|
37,167
|
|
Depreciation
|
|
|
10,101
|
|
|
|
10,661
|
|
|
|
11,326
|
|
Amortization of intangible assets
|
|
|
5,066
|
|
|
|
2,984
|
|
|
|
4,339
|
|
Non-cash interest expense and amortization of convertible debt
issuance costs
|
|
|
11,075
|
|
|
|
16,624
|
|
|
|
11,805
|
|
Deferred tax (benefit) provision
|
|
|
(778
|
)
|
|
|
(218
|
)
|
|
|
114,719
|
|
Loss (gain) on disposal of property, plant and equipment
|
|
|
(153
|
)
|
|
|
15
|
|
|
|
76
|
|
Loss on sale of marketable security
|
|
|
87
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
Restructuring costs (non-cash)
|
|
|
|
|
|
|
|
|
|
|
547
|
|
Gain on repurchase of convertible notes
|
|
|
|
|
|
|
|
|
|
|
(2,528
|
)
|
Impairment of investments
|
|
|
|
|
|
|
164
|
|
|
|
|
|
Recoveries of restatement and related legal activities (non-cash)
|
|
|
|
|
|
|
|
|
|
|
(849
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,651
|
)
|
|
|
554
|
|
|
|
417
|
|
Prepaids and other assets
|
|
|
4,643
|
|
|
|
997
|
|
|
|
1,749
|
|
Accounts payable
|
|
|
(3,811
|
)
|
|
|
2,520
|
|
|
|
(3,607
|
)
|
Accrued salaries and benefits and other accrued liabilities
|
|
|
28,050
|
|
|
|
(5,063
|
)
|
|
|
(2,939
|
)
|
Accrued litigation expenses
|
|
|
(1,087
|
)
|
|
|
(9,118
|
)
|
|
|
(11,969
|
)
|
Income taxes payable
|
|
|
2,211
|
|
|
|
(111
|
)
|
|
|
(1,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
235,218
|
|
|
|
(40,592
|
)
|
|
|
(38,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses
|
|
|
(17,000
|
)
|
|
|
(26,000
|
)
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(26,700
|
)
|
|
|
(2,665
|
)
|
|
|
(9,871
|
)
|
Acquisition of intangible assets
|
|
|
(7,760
|
)
|
|
|
(2,500
|
)
|
|
|
(300
|
)
|
Purchases of marketable securities
|
|
|
(428,768
|
)
|
|
|
(183,217
|
)
|
|
|
(362,968
|
)
|
Maturities of marketable securities
|
|
|
296,639
|
|
|
|
240,927
|
|
|
|
430,844
|
|
Proceeds from sale of marketable securities
|
|
|
1,829
|
|
|
|
|
|
|
|
24,996
|
|
Proceeds from sale of property, plant and equipment
|
|
|
257
|
|
|
|
|
|
|
|
30
|
|
Investment in non-marketable security
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(181,503
|
)
|
|
|
24,545
|
|
|
|
82,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from issuance of contingently redeemable
common stock and common stock pursuant to the settlement
agreement with Samsung
|
|
|
192,000
|
|
|
|
|
|
|
|
|
|
Proceeds from landlord for tenant improvements
|
|
|
292
|
|
|
|
|
|
|
|
|
|
Proceeds received from issuance of common stock under employee
stock plans
|
|
|
16,514
|
|
|
|
20,692
|
|
|
|
21,688
|
|
Payments under installment payment arrangement
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
(1,250
|
)
|
Repurchase and retirement of common stock, including prepayment
under share purchase contract
|
|
|
(195,108
|
)
|
|
|
|
|
|
|
(49,226
|
)
|
Repayment of convertible senior notes
|
|
|
(136,950
|
)
|
|
|
|
|
|
|
(18,679
|
)
|
Issuance costs related to the issuance of convertible senior
notes
|
|
|
|
|
|
|
(4,313
|
)
|
|
|
|
|
Proceeds from issuance of convertible senior notes
|
|
|
|
|
|
|
172,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(127,526
|
)
|
|
|
188,879
|
|
|
|
(47,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(73,811
|
)
|
|
|
172,832
|
|
|
|
(3,150
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
289,073
|
|
|
|
116,241
|
|
|
|
119,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
215,262
|
|
|
$
|
289,073
|
|
|
$
|
116,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
8,625
|
|
|
$
|
3,943
|
|
|
$
|
|
|
Income taxes, net of refunds
|
|
$
|
56,689
|
|
|
$
|
123
|
|
|
$
|
219
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash obligation for property, plant and equipment
|
|
$
|
2,260
|
|
|
$
|
25,100
|
|
|
$
|
|
|
Property, plant and equipment received and accrued in accounts
payable and other accrued liabilities
|
|
$
|
4,251
|
|
|
$
|
200
|
|
|
$
|
629
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired under installment payment arrangement
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
|
|
Property, plant and equipment received and accrued in other
long-term liabilities
|
|
$
|
3,463
|
|
|
$
|
|
|
|
$
|
|
|
See Notes to Consolidated Financial Statements
60
RAMBUS
INC.
|
|
1.
|
Formation
and Business of the Company
|
Rambus Inc. (the Company or Rambus) is a
premier intellectual property and technology licensing company.
The Company was incorporated in California in March 1990 and
reincorporated in Delaware in March 1997. The Companys
primary focus is the creation, design, development and licensing
of patented innovations, technologies and architectures that are
foundational to nearly all digital electronics products and
systems. The Companys patented innovations and
technologies aim to improve the performance, power efficiency,
time-to-market
and cost-effectiveness of its customers products,
components and systems offered and used in semiconductors,
computers, mobile applications, gaming and graphics, consumer
electronics, lighting displays and general lighting. By
licensing its patented innovations and technologies, the Company
hopes to continuously enrich the end-user experience of the
digital electronics products and systems marketed and sold by
its customers and licensees. The Company believes it has
established an unparalleled licensing platform and business
model that will continue to foster the development of new
foundational and leading innovations and technologies. As a
result, the Companys goal is to create significant
licensing opportunities, and thereby perpetuate strong company
operating performance and long term stockholder value.
While the Company has historically focused its efforts in
developing and licensing patented innovations and technologies
for the semiconductor industry, particularly within chip
interfaces, it has initiated diversification efforts to expand
its portfolio of patented innovations and technologies into
lighting and displays, mobile communications, and additional
semiconductor technologies. The Company expects to continue this
diversification initiative through the acquisition of assets and
the hiring of the inventors, scientists and engineers who will
lead the effort to further develop these patented innovations
and technologies in these new areas of focus. During 2010, the
Company initiated an internal structural reorganization to
establish separate business groups for its semiconductor
industry focused operations (SBG) and operations focused on new
or emerging licensing opportunities (NBG) which includes the LDT
group.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Financial
Statement Presentation
The accompanying consolidated financial statements include the
accounts of Rambus and its wholly owned subsidiaries, Rambus
K.K., located in Tokyo, Japan and Rambus Ltd., located in George
Town, Grand Caymans, British West Indies, of which Rambus Chip
Technologies (India) Private Limited, Rambus Deutschland GmbH,
located in Pforzheim, Germany, and Rambus Korea, Inc., located
in Seoul, Korea. In addition, Rambus International Ltd. and
Rambus Delaware LLC are also subsidiaries. All intercompany
accounts and transactions have been eliminated in the
accompanying consolidated financial statements. Investments in
entities with less than 20% ownership by Rambus and in which
Rambus does not have the ability to significantly influence the
operations of the investee are accounted for using the cost
method and are included in other assets.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue
Recognition
Overview
Rambus recognizes revenue when persuasive evidence of an
arrangement exists, Rambus has delivered the product or
performed the service, the fee is fixed or determinable and
collection is reasonably assured. If any of these criteria are
not met, Rambus defers recognizing the revenue until such time
as all criteria are met.
61
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Determination of whether or not these criteria have been met may
require the Company to make judgments, assumptions and estimates
based upon current information and historical experience.
Rambus revenue consists of royalty revenue and contract
revenue generated from agreements with semiconductor companies,
system companies and certain reseller arrangements. Royalty
revenue consists of patent license and technology license
royalties. Contract revenue consist of fixed license fees, fixed
engineering fees and service fees associated with integration of
Rambus technology solutions into its customers
products. Contract revenue may also include support or
maintenance. Reseller arrangements generally provide for the
pass-through of a percentage of the fees paid to the reseller by
the resellers customer for use of the Rambus patent
and technology licenses. Rambus does not recognize revenue for
these arrangements until it has received notice of revenue
earned by and paid to the reseller, accompanied by the
pass-through payment from the reseller. Rambus does not pay
commissions to the reseller for these arrangements.
In addition, Rambus may enter into certain settlements of patent
infringement disputes. The amount of consideration received upon
any settlement (including but not limited to past royalty
payments, future royalty payments and punitive damages) is
allocated to each element of the settlement based on the Fair
Value of each element. In addition, revenues related to past
royalties are recognized upon execution of the agreement by both
parties, provided that the amounts are fixed or determinable,
there are no significant undelivered obligations and
collectability is reasonably assured. Rambus does not recognize
any revenues prior to execution of the agreement since there is
no reliable basis on which it can estimate the amounts for
royalties related to previous periods or assess collectability.
Elements that are related to royalty revenue in nature
(including but not limited to past royalty payments and future
royalty payments) will be recorded as royalty revenue in the
consolidated statements of operations. Elements that are not
related to royalty revenue in nature (including but not limited
to punitive damage and settlement) will be recorded as gain from
settlement which is reflected as a separate line item within the
operating expenses section in the consolidated statements of
operations.
Many of Rambus licensees have the right to cancel their
licenses. In such arrangements, revenue is only recognized to
the extent that is consistent with the cancellation provisions.
Cancellation provisions within such contracts generally provide
for a prospective cancellation with no refund of fees already
remitted by customers for products provided and payment for
services rendered prior to the date of cancellation. Unbilled
receivables represent enforceable claims and are deemed
collectible in connection with our revenue recognition policy.
Royalty
Revenue
Rambus recognizes royalty revenue upon notification by its
licensees and when deemed collectible. The terms of the royalty
agreements generally either require licensees to give Rambus
notification and to pay the royalties within 60 days of the
end of the quarter during which the sales occur or are based on
a fixed royalty that is due within 45 days of the end of
the quarter. Rambus has two types of royalty revenue:
(1) patent license royalties and (2) technology
license royalties.
Patent licenses. Rambus licenses its broad
portfolio of patented inventions to semiconductor and systems
companies who use these inventions in the development and
manufacture of their own products. Such licensing agreements may
cover the license of part, or all, of our patent portfolio. The
contractual terms of the agreements generally provide for
payments over an extended period of time. For the licensing
agreements with fixed royalty payments, Rambus generally
recognizes revenue from these arrangements as amounts become
due. For the licensing agreements with variable royalty payments
which can be based on either a percentage of sales or number of
units sold, Rambus earns royalties at the time that the
licensees sales occur. Rambus licensees, however, do
not report and pay royalties owed for sales in any given quarter
until after the conclusion of that quarter. As Rambus is unable
to estimate the licensees sales in any given quarter to
determine the royalties due to Rambus, it recognizes royalty
revenues based on royalties reported by licensees during the
quarter and when other revenue recognition criteria are met.
62
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Technology licenses. Rambus develops
proprietary and industry-standard chip interface products, such
as
RDRAMtm
and
XDRtm
that it provides to its customers under technology license
agreements. These arrangements include royalties, which can be
based on either a percentage of sales or number of units sold.
Rambus earns royalties on such licensed products sold worldwide
by its licensees at the time that the licensees sales
occur. Rambus licensees, however, do not report and pay
royalties owed for sales in any given quarter until after the
conclusion of that quarter. As Rambus is unable to estimate the
licensees sales in any given quarter to determine the
royalties due to Rambus, it recognizes royalty revenues based on
royalties reported by licensees during the quarter and when
other revenue recognition criteria are met.
Contract
Revenue
Rambus generally recognizes revenue using percentage of
completion for development contracts related to licenses of its
interface solutions, such as
XDRtm
and
FlexIOtm
that involve significant engineering and integration services.
For all license and service agreements accounted for using the
percentage-of-completion
method, Rambus determines progress to completion using input
measures based upon contract costs incurred. Part of these
contract fees may be due upon the achievement of certain
milestones, such as provision of certain deliverables by Rambus
or production of chips by the licensee. The remaining fees may
be due on pre-determined dates and include significant up-front
fees.
A provision for estimated losses on fixed price contracts is
made, if necessary, in the period in which the loss becomes
probable and can be reasonably estimated. If we determine that
it is necessary to revise the estimates of the total costs
required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected.
However, to the extent the new assumptions regarding the total
efforts necessary to complete a project are less than the
original assumptions, the contract fees would be recognized
sooner than originally expected. Conversely, if the newly
estimated total efforts necessary to complete a project are
longer than the original assumptions, the contract fees will be
recognized over a longer period.
If application of the
percentage-of-completion
method results in recognizable revenue prior to an invoicing
event under a customer contract, Rambus will recognize the
revenue and record an unbilled receivable. Amounts invoiced to
its customers in excess of recognizable revenue are recorded as
deferred revenue. The timing and amounts invoiced to customers
can vary significantly depending on specific contract terms and
can therefore have a significant impact on deferred revenue or
unbilled receivables in any given period.
Rambus also recognizes revenue for development contracts related
to licenses of its chip interface products that involve
non-essential engineering services and post contract support
(PCS). These SOPs apply to all entities that earn
revenue on products containing software, where software is not
incidental to the product as a whole. Contract fees for the
products and services provided under these arrangements are
comprised of license fees and engineering service fees which are
not essential to the functionality of the product. Rambus
rates for PCS and for engineering services are specific to each
development contract and not standardized in terms of rates or
length. Because of these characteristics, Rambus does not have a
sufficient population of contracts from which to derive vendor
specific objective evidence for each of the elements.
Therefore, after Rambus delivers the product, if the only
undelivered element is PCS, Rambus will recognize all revenue
ratably over either the contractual PCS period or the period
during which PCS is expected to be provided. Rambus reviews
assumptions regarding the PCS periods on a regular basis. If
Rambus determines that it is necessary to revise the estimates
of the support periods, the total amount of revenue to be
recognized over the life of the contract would not be affected.
Cash
and Cash Equivalents
Cash equivalents are highly liquid investments with original
maturity of three months or less at the date of purchase. The
Company maintains its cash balances with high quality financial
institutions. The cash equivalent
63
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
balances are invested in highly-rated and highly-liquid money
market securities and certain U.S. government obligations.
Marketable
Securities
Available-for-sale
securities are carried at fair value, based on quoted market
prices, with the unrealized gains or losses reported, net of
tax, in stockholders equity as part of accumulated other
comprehensive income (loss). The amortized cost of debt
securities is adjusted for amortization of premiums and
accretion of discounts to maturity, both of which are included
in interest and other income, net. Realized gains and losses are
recorded on the specific identification method and are included
in interest and other income, net. The Company reviews its
investments in marketable securities for possible other than
temporary impairments on a regular basis. If any loss on
investment is believed to be a credit loss, a charge will be
recognized in operations. In evaluating whether a credit loss on
a debt security has occurred, the Company considers the
following factors: 1) the Companys intent to sell the
security, 2) if the Company intends to hold the security,
whether or not it is more likely than not that the Company will
be required to sell the security before recovery of the
securitys amortized cost basis and 3) even if the
Company intends to hold the security, whether or not the Company
expects the security to recover the entire amortized cost basis.
Due to the high credit quality and short term nature of the
Companys investments, there have been no credit losses
recorded to date. The classification of funds between short-term
and long-term is based on whether the securities are available
for use in operations or other purposes.
Non-Marketable
Securities
The Company has an investment in a non-marketable security of a
private company which is carried at cost. The Company monitors
the investments for
other-than-temporary
impairment and records appropriate reductions in carrying value
when necessary. The non-marketable security is classified as
other assets in the consolidated balance sheets.
Fair
Value of Financial Instruments
The amounts reported for cash equivalents, marketable
securities, accounts receivable, accounts payable, and accrued
liabilities are considered to approximate fair value based upon
comparable market information available at the respective
balance sheet dates. The Company adopted the fair value
measurement statement Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) 820, Fair Value Measurements and
Disclosures, effective January 1, 2008 for financial
assets and liabilities measured on a recurring basis. The
statement applies to all financial assets and financial
liabilities that are being measured and reported on a fair value
basis and requires disclosure that establishes a framework for
measuring fair value and expands disclosure about fair value
measurements. For the discussion regarding the impact of the
adoption of the statement on the Companys marketable
securities, see Note 16, Fair Value of Financial
Instruments. Additionally, the Company has adopted the
fair value guidance for financial assets and financial
liabilities, effective January 1, 2008, which permits an
entity to choose to measure many financial instruments and
certain other items at fair value at specified election dates.
The Company has not elected the fair value option for financial
instruments not already carried at fair value.
Property,
Plant and Equipment
Property, plant and equipment includes computer equipments,
software, leasehold improvements, furniture and fixtures and
buildings. Computer equipment, computer software and furniture
and fixtures are stated at cost and depreciated on a
straight-line basis over an estimated useful life of three
years. The Company undertook a series of structural improvements
to ready the Sunnyvale and Brecksville facilities for its use.
The Company concluded that its requirement to fund construction
costs and responsibility for cost overruns resulted in the
Company being considered the owner of the buildings during the
construction period for accounting purposes. Following
substantial
64
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completion of construction, the Company occupied both
facilities. At completion, the Company concluded that it
retained sufficient continuing involvement to preclude
de-recognition of the buildings under the FASB authoritative
guidance applicable to sale leaseback for real estate. As such,
the Company continues to account for the buildings as owned real
estate and to record an imputed financing obligation for our
obligation to the legal owners. The buildings will be
depreciated on a straight-line basis over an estimated useful
life of 15 to 39 years. See Note 5, Balance
Sheet Details, and Note 7, Commitments and
Contingencies, for additional details. Leasehold
improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the initial terms of
the leases. Upon disposal, assets and related accumulated
depreciation are removed from the accounts and the related gain
or loss is included in results from operations.
Segment
Reporting
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision makers in
deciding how to allocate resources and in assessing performance.
Rambus has two business groups: the Semiconductor Business Group
(SBG) which focuses on the design, development and
licensing of semiconductor technology, and the New Business
Group (NBG) which focuses on the design, development
and licensing of lighting, display and mobile technologies.
These two business groups were considered operating segments but
only SBG was considered a reportable segment as NBG did not meet
the quantitative thresholds for disclosure as a reportable
segment. In addition, Rambus operates in three geographic
regions: North America, Asia and Europe.
Research
and Development
Costs incurred in research and development, which include
engineering expenses, such as salaries and related benefits,
stock-based compensation, depreciation, professional services
and overhead expenses related to the general development of
Rambus products, are expensed as incurred. Software
development costs are capitalized beginning when a
products technological feasibility has been established
and ending when a product is available for general release to
customers. Rambus has not capitalized any software development
costs since the period between establishing technological
feasibility and general customer release is relatively short and
as such, these costs have not been significant.
Income
Taxes
Income taxes are accounted for using an asset and liability
approach, which requires the recognition of deferred tax assets
and liabilities for expected future tax events that have been
recognized differently in Rambus consolidated financial
statements and tax returns. The measurement of current and
deferred tax assets and liabilities is based on provisions of
the enacted tax law and the effects of future changes in tax
laws and rates. A valuation allowance is established when
necessary to reduce deferred tax assets to amounts expected to
be realized.
In addition, the calculation of the Companys tax
liabilities involves dealing with uncertainties in the
application of complex tax regulations. As a result, the Company
reports a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in its tax
return. The Company considers many factors when evaluating and
estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes.
Stock-Based
Compensation and Equity Incentive Plans
For the years ended December 31, 2010, 2009 and 2008, the
Company maintained stock plans covering a broad range of equity
grants including stock options, nonvested equity stock and
equity stock units and performance based instruments. In
addition, the Company sponsors an Employee Stock Purchase Plan
(ESPP), whereby eligible employees are entitled to
purchase Common Stock semi-annually, by means of limited payroll
deductions, at a 15% discount from the fair market value of the
Common Stock as of specific dates.
65
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rambus will only recognize a tax benefit from stock-based awards
in additional paid-in capital if an incremental tax benefit is
realized after all other tax attributes currently available have
been utilized. In addition, Rambus has elected to account for
the indirect effects of stock-based awards on other tax
attributes, such as the research tax credits, through the
statement of operations as part of the tax effect of stock-based
compensation.
Computation
of 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 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. As discussed in Note 3,
Settlement Agreement with Samsung, the Company
reported approximately 4.8 million shares issued to Samsung
as contingently redeemable common stock due to the contractual
put rights associated with those shares. As such, the Company
uses the two-class method for reporting earnings per share.
Goodwill
Costs in excess of the fair value of tangible and other
intangible assets acquired and liabilities assumed in a business
combination are recorded as goodwill. The accounting treatment
for goodwill, requires that companies not amortize goodwill, but
instead test for impairment at least annually using a two-step
approach. The Company evaluates goodwill, at a minimum, on an
annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable.
Impairment of goodwill is tested at the reporting unit level by
comparing each reporting units carrying amount, including
goodwill, to the fair value of the reporting unit. The fair
values of the reporting units are estimated using a combination
of the income, or discounted cash flows, approach and the market
approach, which utilizes comparable companies data. If the
carrying amount of the reporting unit exceeds its fair value,
goodwill is considered impaired and a second step is performed
to measure the amount of impairment. The second step involves
determining the fair value of goodwill for each reporting unit.
Any excess carrying amount of goodwill over the fair value
determined in the second step will be recorded as a goodwill
impairment loss.
The Company reorganized its reporting structure in the third
quarter of 2010 based on organizational changes within the
Company. As a result, the Company identified two reporting
units: SBG which focuses on the design, development and
licensing of semiconductor technology and the LDT group which is
one level below the NBG operating segment and focuses on the
design, development and licensing of lighting and display
technologies. The Company completed the first step of its annual
goodwill impairment analysis related to its SBG and LDT
reporting units as of December 31, 2010 and found no
instances of impairment of its recorded goodwill of
$18.2 million.
Intangible
Assets
The valuation and useful lives of the acquired intangible assets
were allocated based on estimated fair values at the acquisition
dates. The value of the purchases, along with interviews and
managements estimates were used to determine the useful
lives of the assets. The income approach, which includes an
analysis of the cash flows and risks associated with achieving
such cash flows, was the primary technique utilized in valuing
the acquired patented technology. Key assumptions included
estimates of revenue growth, cost of revenue, operating expenses
and
66
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income taxes. The discount rates used in the valuation of
intangible assets reflected the level of risk associated with
the particular technology and the current return on investment
requirements of the market.
Comprehensive
Income (Loss)
Comprehensive income (loss) is defined as the change in equity
of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources, including
foreign currency translation adjustments and unrealized gains
and losses on marketable securities. Other comprehensive income
(loss), net of tax, is presented in the consolidated statements
of stockholders equity and comprehensive loss.
Impairment
of Long-Lived Assets and Other Intangible Assets
Rambus evaluates the recoverability of long-lived assets with
finite lives. Intangible assets, including purchased technology
and other intangible assets, are carried at cost less
accumulated amortization. Finite-lived intangible assets are
being amortized on a straight-line basis over their estimated
useful lives of three to ten years. Recognition of impairment of
long-lived assets are required whenever events or changes in
circumstances indicate that the carrying value amount of an
asset may not be recoverable. An impairment charge is recognized
in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets.
During 2010 and 2009, Rambus did not recognize any impairment of
its long-lived and intangible assets. During 2008, the Company
recognized an impairment charge of $2.2 million related to
an intangible asset that had no alternative use due to a
customers change in technology requirements.
Allowance
for Doubtful Accounts
Rambus allowance for doubtful accounts is determined using
a combination of factors to ensure that Rambus trade and
unbilled receivables balances are not overstated due to
uncollectibility. The Company performs ongoing customer credit
evaluation within the context of the industry in which it
operates, does not require collateral, and maintains allowances
for potential credit losses on customer accounts when deemed
necessary. A specific allowance for a doubtful account up to
100% of the invoice will be provided for any problematic
customer balances. Delinquent account balances are written-off
after management has determined that the likelihood of
collection is not possible. For all periods presented, Rambus
had no allowance for doubtful accounts.
Credit
Concentration
As of December 31, 2010 and 2009, the Companys cash,
cash equivalents and marketable securities were invested with
two financial institutions in the form of corporate notes, bonds
and commercial paper, money market funds, U.S. government
bonds and notes, and municipal bonds and notes. The
Companys exposure to market risk for changes in interest
rates relates primarily to its investment portfolio. The Company
places its investments with high credit issuers and, by policy,
attempts to limit the amount of credit exposure to any one
issuer. As stated in the Company policy, it will ensure
the safety and preservation of the Companys invested funds
by limiting default risk and market risk. The Company has no
investments denominated in foreign country currencies and
therefore is not subject to foreign exchange risk from these
assets.
The Company mitigates default risk by investing in high credit
quality securities and by positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of
any investment issuer or guarantor. The portfolio includes only
marketable securities with active secondary or resale markets to
enable portfolio liquidity.
Litigation
Rambus is involved in certain legal proceedings. Based upon
consultation with outside counsel handling its defense in these
matters and an analysis of potential results, Rambus accrues for
losses related to litigation if it
67
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determines that a loss is probable and can be reasonably
estimated. If a loss cannot be estimated, Rambus reviews the
range of possible outcomes and accrues the low end of the range
of estimates. Any such accrual would be charged to expense in
the appropriate period. Rambus recognizes litigation expenses in
the period in which the litigation services were provided.
Restructuring
Costs
In connection with the Companys exit activities, the
Company records restructuring charges for employee termination
costs, long-lived asset impairments, costs related to leased
facilities to be abandoned or subleased, and other exit-related
costs. Formal plans are developed and approved by management.
Restructuring costs related to employee severance are recorded
when probable and estimable. Fixed assets that are impaired as a
result of restructuring plans are typically accounted for as
assets held for sale or are abandoned. The recognition of
restructuring charges requires the Companys management to
make judgments and estimates regarding the nature, timing, and
amount of costs associated with the planned exit activity,
including estimating sublease income and the fair value, less
selling costs, of property, plant and equipment to be disposed
of. Estimates of future liabilities may change, requiring the
Company to record additional restructuring charges or to reduce
the amount of liabilities already recorded. At the end of each
reporting period, the Company evaluates the remaining accrued
balances to ensure their adequacy, that no excess accruals are
retained and that the utilization of the provisions is for the
intended purpose in accordance with developed exit plans. In the
event circumstances change and the provision is no longer
required, the provision is reversed.
Foreign
Currency Translation
For foreign subsidiaries using the local currency as their
functional currency, assets and liabilities are translated using
current exchange rates in effect at the balance sheet date and
revenue and expense accounts are translated using the weighted
average exchange rate during the period. Adjustments resulting
from such translation are included in stockholders equity
as foreign currency translation adjustments and aggregated
within accumulated other comprehensive income (loss).
For foreign subsidiaries using the U.S. dollar as their
functional currency, remeasurement adjustments for
non-functional currency monetary assets and liabilities are
translated into U.S. dollars at the exchange rate in effect
at the balance sheet date. Revenue, expenses, gains or losses
are translated at the average exchange rate for the period, and
non-monetary assets and liabilities are translated at historical
rates. The remeasurement gains and losses of these foreign
subsidiaries as well as gains and losses from foreign currency
transactions are included in other expense, net in the
statements of operations, and are not significant for any
periods presented.
Recent
Accounting Pronouncement
In September 2009, the Emerging Issues Task Force (the
EITF) reached final consensus under Accounting
Standards Update (ASU)
No. 2009-13
on the issue related to revenue arrangements with multiple
deliverables. This issue addresses how to determine whether an
arrangement involving multiple deliverables contains more than
one unit of accounting and how arrangement consideration should
be measured and allocated to the separate units of accounting.
This issue is effective for the Companys revenue
arrangements entered into or materially modified on or after
January 1, 2011. The Company will evaluate the impact of
this issue on the Companys financial statements when
reviewing its new or materially modified revenue arrangements
with multiple deliverables. The Company does not currently
expect this new standard to significantly impact its consolidate
financial statements as the Company does not typically enter
into multiple element arrangements.
|
|
3.
|
Settlement
Agreement with Samsung
|
On January 19, 2010, the Company, Samsung and certain
related entities of Samsung entered into a Settlement Agreement
(the Settlement Agreement) to release all claims
against each other with respect to all outstanding
68
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
litigation between them and certain other potential claims.
Under the Settlement Agreement, Samsung has paid the Company
$200.0 million in cash in two installments in the first
quarter of 2010, and the parties released all claims against
each other with respect to all outstanding litigation between
them and certain other potential claims. Pursuant to the
Settlement Agreement, the Company and Samsung entered into a
Semiconductor Patent License Agreement on January 19, 2010
(the License Agreement), under which Samsung
licenses from the Company non-exclusive rights to certain Rambus
patents and has agreed to pay the Company cash amounts equal to
$25.0 million per quarter, commencing in the first quarter
of 2010, subject to certain adjustments and conditions, over the
next five years. In addition, as part of the Settlement
Agreement, Samsung purchased approximately 9.6 million
shares of common stock of Rambus for cash pursuant to the terms
of a Stock Purchase Agreement dated January 19, 2010 (the
Stock Purchase Agreement), as described in more
details below. Finally, pursuant to the Settlement Agreement,
the Company and Samsung signed a non-binding memorandum of
understanding relating to discussions around a new generation of
memory technologies. On an aggregate basis, Samsung is expected
to make payments to the Company totaling approximately
$900.0 million (subject to adjustments per the terms of the
License Agreement) from these agreements (collectively,
Samsung Settlement), of which $500.0 million
has been paid through December 31, 2010. The remaining
$400.0 million is expected to be paid in successive
quarterly payments of approximately $25.0 million (subject
to adjustments per the terms of the License Agreement)
concluding in the three month period ending December 31,
2014.
Under the License Agreement, the Company has granted to Samsung
and its subsidiaries (i) a
paid-up
perpetual patent license for certain identified Samsung DRAM
products (these Samsung DRAM products generally include all
existing DRAM products aside from the Rambus proprietary
products) and (ii) a five-year term patent license to all
other semiconductor products. Each license is a non-exclusive,
non-transferable, royalty-bearing, worldwide patent license,
without the right to sublicense, solely under the applicable
patent claims of Rambus for such licensed products, to make
(including have made), use, sell, offer for sale
and/or
import such licensed products until the expiration or
termination of the license pursuant to the terms of the License
Agreement. The License Agreement requires that Samsung pay the
Company cash payments over the next five years of (i) a
fixed amount of $25.0 million each quarter during 2010 and
the first two quarters of 2011, and (ii) thereafter,
$25.0 million adjusted up or down based on certain levels
of Samsung revenue for DRAM products licensed under the License
Agreement for each quarter after 2010 and subject to a minimum
of $10.0 million and a maximum of $40.0 million for
each quarter. In addition, additional payments or certain
adjustments to the payments by Samsung to the Company under the
License Agreement may be due for certain acquisitions of
businesses or assets by Samsung involving licensed products. The
License Agreement and the licenses granted thereunder may be
terminated upon a material breach by a party of its obligations
under the agreement, a bankruptcy event involving a party or a
change of control of Samsung subject to certain conditions.
Under the Stock Purchase Agreement, on January 19, 2010,
Samsung purchased for cash from the Company 9.6 million
shares of common stock of the Company (the Shares)
with certain restrictions and put rights. The number of shares
issued was based on a price per share equal to $20.885 (which
was the average of the open and close trading price of Rambus
common stock on The NASDAQ Global Select Market on
January 15, 2010, the last trading day prior to the date of
the Stock Purchase Agreement). The Shares represented
approximately 8.3% of the total outstanding shares of Rambus
common stock at that time after giving effect to the issuance
thereof. The issuance of the Shares by the Company to Samsung
was made through a private transaction. The Stock Purchase
Agreement provides Samsung a one-time put right, beginning
18 months after the date of the Stock Purchase Agreement
and extending to 19 months after the date of the Stock
Purchase Agreement, to elect to put back to the Company up to
4.8 million of the Shares at the original issue price of
$20.885 per share (for an aggregate purchase price of up to
$100.0 million).
The Stock Purchase Agreement prohibits the transfer of the
Shares by Samsung for 18 months after the date of the Stock
Purchase Agreement, subject to certain exceptions. After
expiration of the transfer restriction period, the Stock
Purchase Agreement provides that Samsung may transfer a limited
number of shares on a daily basis, provides Rambus with a right
of first offer for proposed transfers above such daily limits,
and, if no sale occurs to
69
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rambus under the right of first offer, allows Samsung to
transfer the Shares. Under the Stock Purchase Agreement, the
Company has also agreed that after the transfer restriction
period, Samsung will have certain rights to register the Shares
for sale under the securities laws of the United States, subject
to customary terms and conditions.
In addition, until 18 months after the date of the Stock
Purchase Agreement, subject to customary exceptions, Samsung is
subject to a standstill agreement that prohibits Samsung from,
among other things, acquiring additional shares of common stock
of the Company, commencing or endorsing any tender offer or
exchange offer for shares of common stock of the Company,
participating in any solicitation of proxies with respect to
voting any shares of common stock of the Company, or announcing
or submitting any proposal or offer concerning any extraordinary
transaction involving the Company. Samsung is also subject to a
voting agreement under the Stock Purchase Agreement that
provides that Samsung will vote its Shares in favor of routine
proposals (related to election of directors, certain
compensation matters, authorized share capital increases and
approval of the independent auditors) that are recommended by
the Board of Directors of the Company at any stockholder
meeting. In all other matters, the voting agreement contained in
the Stock Purchase Agreement requires that Samsung vote its
Shares in the same proportion as the votes that are cast by all
other holders of shares of common stock of the Company. The
voting agreement under the Stock Purchase Agreement terminates
(i) with respect to Shares that Samsung transfers in
accordance with the provisions of the Stock Purchase Agreement,
(ii) upon a change of control or bankruptcy event involving
the Company or (iii) when Samsung owns less than 3% of the
outstanding shares of common stock of the Company.
The Samsung Settlement is a multiple element arrangement for
accounting purposes. For the multiple element arrangement, the
Company identified each element of the arrangement and
determined when those elements should be recognized. Using the
accounting guidance from multiple element revenue arrangements,
the Company allocated the consideration to each element using
the estimated fair value of the elements. The Company considered
several factors in determining the accounting fair value of the
elements of the Samsung Settlement which included a third party
valuation using an income approach, the Black-Scholes option
pricing model and a residual approach (collectively the
Fair Value). The inputs and assumptions used in this
valuation were from a market participant perspective and
included projected 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
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 had
a substantial impact on the Fair Value as assigned to each
element. These inputs and assumptions represent
managements best estimates at the time of the transaction.
Based on the estimated Fair Value, the consideration of
$900.0 million was allocated to the following elements:
|
|
|
|
|
|
|
Estimated
|
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Settlement Agreement:
|
|
|
|
|
Antitrust litigation settlement
|
|
$
|
85.0
|
|
Settlement of past infringement
|
|
|
190.0
|
|
License Agreement
|
|
|
385.0
|
|
Stock Purchase Agreement
|
|
|
192.0
|
|
Memorandum of understanding (MOU)
|
|
|
|
|
Residual value
|
|
|
48.0
|
|
|
|
|
|
|
Total
|
|
$
|
900.0
|
|
|
|
|
|
|
70
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The consideration of $900.0 million will be recognized in
the Companys financial statements as follows:
|
|
|
|
|
$575.0 million as revenue which represented the estimated
Fair Value of the settlement of past infringement
($190.0 million) from the resolution of the infringement
litigation and the patent license agreement
($385.0 million);
|
|
|
|
$133.0 million to gain from settlement which represented
the Fair Value of the resolution of the antitrust litigation
($85.0 million) and the residual value of other elements
($48.0 million) where specific fair value could not be
determined, which included other claims and counter claims
released;
|
|
|
|
$192.0 million related to the Stock Purchase Agreement
which included contingently redeemable common stock due to the
restrictions and contractual put rights associated with those
shares ($113.5 million) and restricted common stock issued
to Samsung ($78.5 million).
|
During the first quarter of 2010, the Company received cash
consideration of $425.0 million from Samsung. The amount
allocated to the common stock issued to Samsung was allocated to
contingently redeemable common stock ($113.5 million) and
stockholders equity ($78.5 million). The remaining
$233.0 million was allocated between revenue
($137.1 million) and gain from settlement
($95.9 million) based on the remaining elements
estimated Fair Value.
During each of the last three quarters of 2010, the Company
received cash consideration of $25.0 million from Samsung.
For each of the last three quarters of 2010, the amount was
allocated between revenue ($14.7 million) and gain from
settlement ($10.3 million) based on the estimated Fair
Value for the remaining elements.
The remaining $400.0 million is expected to be paid in
successive quarterly payments of approximately
$25.0 million (subject to adjustments per the terms of the
License Agreement), concluding in the last quarter of 2014.
The cash receipts in 2010 and the remaining future cash receipts
from the agreements with Samsung are expected to be recognized
as follows assuming no adjustments to the payments under the
terms of the agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Revenue
|
|
$
|
181.2
|
|
|
$
|
93.8
|
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
$
|
575.0
|
|
Gain from settlement
|
|
|
126.8
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133.0
|
|
Purchase of Rambus Common Stock
|
|
|
192.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
500.0
|
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
$
|
100.0
|
|
|
$
|
900.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rambus invests its excess cash and cash equivalents primarily in
U.S. government agency and treasury notes, commercial
paper, corporate notes and bonds, money market funds and
municipal notes and bonds that mature within three years.
71
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All cash equivalents and marketable securities are classified as
available-for-sale.
Total cash, cash equivalent and marketable securities are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Weighted
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Return
|
|
|
|
(Dollar in thousands)
|
|
|
Money Market Funds
|
|
$
|
132,364
|
|
|
$
|
132,364
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.04
|
%
|
U.S. Government Bonds and Notes
|
|
|
266,817
|
|
|
|
266,840
|
|
|
|
29
|
|
|
|
(52
|
)
|
|
|
0.26
|
%
|
Corporate Notes, Bonds and Commercial Paper
|
|
|
95,724
|
|
|
|
95,773
|
|
|
|
8
|
|
|
|
(57
|
)
|
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
494,905
|
|
|
|
494,977
|
|
|
|
37
|
|
|
|
(109
|
)
|
|
|
|
|
Cash
|
|
|
17,104
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
512,009
|
|
|
$
|
512,081
|
|
|
$
|
37
|
|
|
$
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Weighted
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Rate of
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Return
|
|
|
|
(Dollar in thousands)
|
|
|
Money Market Funds
|
|
$
|
280,908
|
|
|
$
|
280,908
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.01
|
%
|
U.S. Government Bonds and Notes
|
|
|
138,829
|
|
|
|
138,521
|
|
|
|
377
|
|
|
|
(69
|
)
|
|
|
1.09
|
%
|
Corporate Notes, Bonds and Commercial Paper
|
|
|
32,291
|
|
|
|
32,222
|
|
|
|
70
|
|
|
|
(1
|
)
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
452,028
|
|
|
|
451,651
|
|
|
|
447
|
|
|
|
(70
|
)
|
|
|
|
|
Cash
|
|
|
8,165
|
|
|
|
8,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
460,193
|
|
|
$
|
459,816
|
|
|
$
|
447
|
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities are reported at fair value on the balance sheets and
classified as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Cash equivalents
|
|
$
|
198,158
|
|
|
$
|
280,908
|
|
Short term marketable securities
|
|
|
296,747
|
|
|
|
171,120
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
|
494,905
|
|
|
|
452,028
|
|
Cash
|
|
|
17,104
|
|
|
|
8,165
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
512,009
|
|
|
$
|
460,193
|
|
|
|
|
|
|
|
|
|
|
The Company continues to invest in high quality, highly liquid
debt securities that mature within three years. 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. As of
December 31, 2010, marketable debt securities with a fair
value of $178.2 million, which mature within one year, had
insignificant unrealized losses. The Company has no intent to
sell, there is no requirement 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
72
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
credit losses in its portfolio. Therefore, these unrealized
losses were recorded in other comprehensive income (loss).
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.
The estimated fair value of cash equivalents and marketable
securities classified by date of contractual maturity and the
associated unrealized gain (loss), net, at December 31,
2010 and December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
Unrealized Gain (Loss), Net
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
494,905
|
|
|
$
|
419,054
|
|
|
$
|
(72
|
)
|
|
$
|
250
|
|
Due from one year through three years
|
|
|
|
|
|
|
32,974
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
494,905
|
|
|
$
|
452,028
|
|
|
$
|
(72
|
)
|
|
$
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized loss, net, at December 31, 2010 was
insignificant in relation to the Companys total
available-for-sale
portfolio. The unrealized gain (loss), net, can be primarily
attributed to a combination of market conditions as well as the
demand for and duration of the Companys
U.S. government bonds and notes. See Note 16,
Fair Value of Financial Instruments, for fair value
discussion regarding the Companys cash equivalents and
marketable securities.
Property,
Plant and Equipment, net
Property, plant and equipment, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Building
|
|
$
|
42,230
|
|
|
$
|
|
|
Computer software
|
|
|
29,985
|
|
|
|
33,768
|
|
Computer equipment
|
|
|
23,996
|
|
|
|
23,795
|
|
Furniture and fixtures
|
|
|
8,827
|
|
|
|
7,579
|
|
Leasehold improvements
|
|
|
3,325
|
|
|
|
12,924
|
|
Machinery
|
|
|
2,776
|
|
|
|
|
|
Construction in progress
|
|
|
838
|
|
|
|
25,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,977
|
|
|
|
103,501
|
|
Less accumulated depreciation and amortization
|
|
|
(44,207
|
)
|
|
|
(64,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67,770
|
|
|
$
|
38,966
|
|
|
|
|
|
|
|
|
|
|
On December 15, 2009, the Company entered into a new lease
for office space in Sunnyvale, California to be used for the
Companys corporate headquarters functions, as well as
engineering, marketing and administrative operations and
activities. The Company undertook a series of structural
improvements to ready the space for its use. The Company
concluded that its requirement to fund construction costs and
responsibility for cost overruns resulted in the Company being
considered the owner of the building during the construction
period for accounting purposes. Therefore, as of
December 31, 2009, the Company capitalized approximately
$25.1 million as construction in progress, based on the
estimated fair value of the existing portion of the unfinished
building, along with a
73
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
corresponding financing obligation for the building. The fair
value was determined as of December 31, 2009 using
level 3 fair value inputs (defined as prices or valuation
techniques that require inputs that are both significant to the
fair value measurement and unobservable (i.e., supported by
little or no market activity)) and the cost approach which
measures the value of an asset as the cost to reconstruct or
replace it with another asset of like utility.
Following substantial completion of construction in the fourth
quarter of 2010, the Company occupied the Sunnyvale facility. At
completion, the Company concluded that it retained sufficient
continuing involvement to preclude de-recognition of the
building under the FASB authoritative guidance applicable to
sale leasebacks of real estate. As such, the Company continues
to account for the building as owned real estate and to record
an imputed financing obligation for its obligation to the legal
owner. The building is reflected as an asset on the
Companys balance sheet throughout the initial ten year
term of the lease, the period of intended use. In addition, the
Company capitalized $1.5 million of interest on the
building along with a related imputed financing obligation for
the same amount and $13.1 million of construction costs
related to the build-out of the new facility. At
December 31, 2010, total building costs of
$39.7 million are reflected as an asset on the
Companys balance sheet. The Company expects to incur an
additional $0.8 million of construction costs in 2011. The
building is depreciated on a straight-line basis over a period
of approximately 39 years. See Note 7,
Commitments and Contingencies, for additional
details.
Additionally, during 2010, the Company entered into a new lease
for office space in Brecksville, Ohio that is used for the LDT
group, which focuses on the design, development and licensing of
lighting and display technologies, in Brecksville, Ohio. The
Company undertook a series of structural improvements to ready
the space for its use. The Company concluded that its
requirement to fund construction costs and responsibility for
cost overruns resulted in the Company being considered the owner
of the building during the construction period for accounting
purposes. Therefore, as of March 31, 2010, the Company
capitalized approximately $0.8 million as construction in
progress, based on the estimated fair value of the existing
portion of the unfinished building, along with a corresponding
financing obligation for the building. The fair value was
determined as of March 31, 2010 using level 3 fair
value inputs and the cost approach which measures the value of
an asset as the cost to reconstruct or replace it with another
asset of like utility.
Following completion of construction in the fourth quarter of
2010, the Company occupied the Brecksville facility. At
completion, the Company concluded that it retained sufficient
continuing involvement to preclude
de-recognition
of the building under the FASB authoritative guidance applicable
to sale leasebacks of real estate. As such, the Company
continues to account for the building as owned real estate and
to record an imputed financing obligation for its obligation to
the legal owner. The building is reflected as an asset on the
Companys balance sheet throughout the intended use term of
ten years, which is consisted of initial five year term and the
expected renewed term of five years. In addition, the Company
capitalized $1.7 million of construction costs related to
the build-out of the new facility. At December 31, 2010,
total building costs of $2.5 million are reflected as an
asset on the Companys balance sheet. The building is
depreciated on a straight-line basis over a period of
approximately 15 years. See Note 7, Commitments
and Contingencies, for additional details.
Depreciation expense for the years ended December 31, 2010,
2009 and 2008 was $10.1 million, $10.7 million and
$11.3 million, respectively.
Goodwill
The Company reorganized its reporting structure in the third
quarter of 2010 based on organizational changes within the
Company. As a result, the Company identified two new reporting
units: SBG which focuses on the design, development and
licensing of semiconductor technology and the LDT group which
focuses on the design, development and licensing of lighting and
display technologies. During 2009, the Company operated in a
single reporting unit as the assets acquired in a business
combination with GLT occurred in the middle of December 2009.
74
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill information for each reporting unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Addition to
|
|
|
December 31,
|
|
Reporting Units:
|
|
2009
|
|
|
Goodwill(1)
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
SBG
|
|
$
|
4,454
|
|
|
$
|
|
|
|
$
|
4,454
|
|
LDT
|
|
|
11,100
|
|
|
|
2,600
|
|
|
|
13,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,554
|
|
|
$
|
2,600
|
|
|
$
|
18,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The addition to goodwill resulted from a business combination
which was completed in December 2010. See Note 17,
Acquisitions. |
Accumulated
Other Comprehensive Income
Accumulated other comprehensive income is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustments, net of tax
|
|
$
|
86
|
|
|
$
|
86
|
|
Unrealized gain (loss) on
available-for-sale
securities, net of tax
|
|
|
(448
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(362
|
)
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Amortizable
Intangible Assets
|
The components of the Companys intangible assets as of
December 31, 2010 and December 31, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
|