UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
________________
Form 10-K
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(Mark
One)
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þ
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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, 2009
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or
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o
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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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4440
El Camino Real
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94022
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Los
Altos, California
(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(650) 947-5000
________________
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common
Stock, $.001 Par Value
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The
NASDAQ Stock Market LLC
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Preferred
Share Purchase Rights
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(The
NASDAQ Global Select Market)
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Securities
registered pursuant to Section 12(g) of the Act:
None
________________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate
by check mark 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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o 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 registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do
not check if a smaller reporting company)
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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 Registrant’s Common Stock held by non-affiliates
of the Registrant as of June 30, 2009 was approximately $1.2 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 Registrant’s Common Stock, $.001 par
value, was 115,648,517 as of January 29, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
information is incorporated into Part III of this report by reference to
the Proxy Statement for the Registrant’s annual meeting of stockholders to be
held on or about April 29, 2010 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.
TABLE OF CONTENTS
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| EX-10.13 | ||
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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K (“Annual Report”) contains forward-looking
statements. These forward-looking statements include, without limitation,
predictions regarding the following aspects of our future:
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Outcome
and effect of current and potential future intellectual property
litigation;
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Litigation
expenses;
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Resolution
of the governmental agency matters involving
us;
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Protection
of intellectual property;
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Amounts
owed under licensing agreements;
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Terms
of our licenses;
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Indemnification
and technical support obligations;
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Success
in the markets of our or our licensees’
products;
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Sources
of competition;
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Operating
results;
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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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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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Product
development;
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Pricing
policies of our licensees;
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Success
in renewing license agreements;
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Engineering,
marketing and general and administration
expenses;
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Contract
revenue;
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International
licenses and operations, including our design facility in Bangalore,
India;
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Acquisitions,
mergers or strategic transactions;
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Issuances
of our securities, which could involve restrictive covenants or be
dilutive to our existing
stockholders;
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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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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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Trading
price of our Common Stock;
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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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Internal
control environment;
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Interest
and other income, net; 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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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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ARM
Holdings plc
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ARM
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Elpida
Memory, Inc.
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Elpida
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Fujitsu
Limited
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Fujitsu
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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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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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Optical
Internetworking Forum
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OIF
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Qimonda
AG (formerly Infineon’s DRAM operations)
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Qimonda
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Panasonic
Corporation
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Panasonic
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Peripheral
Component Interconnect — Special Interest Group
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PCI-SIG
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Renesas
Technology Corporation
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Renesas
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Research
Data Group, Inc.
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RDG
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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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Synopsys
Inc.
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Synopsys
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Texas
Instruments Inc.
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Texas
Instruments
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Toshiba
Corporation
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Toshiba
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Velio
Communications
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Velio
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Rambus
Inc. (“we” or “Rambus”) was founded in 1990 and reincorporated in Delaware in
March 1997. Our principal executive offices are located at 4440 El Camino Real,
Los Altos, California. Our Internet address is www.rambus.com. You can obtain
copies of our Forms 10-K, 10-Q, 8-K, and other filings with the SEC, and
all amendments to these filings, free of charge from our website as soon as
reasonably practicable following our filing of any of these reports with the
SEC. In addition, you may read and copy any material we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy, and information
statements, and other information regarding registrants that file electronically
with the SEC at www.sec.gov.
We are a
premier technology licensing company. Our primary focus is the design,
development and licensing of chip interface technologies and architectures that
are foundational to nearly all digital electronics products. Our chip interface
technologies aim to improve the performance, power efficiency, time-to-market
and cost-effectiveness of our customers’ semiconductor and system products for
computing, gaming and graphics, consumer electronics and mobile
applications.
In
December 2009, we added lighting technology to our portfolio of solutions
through the acquisition of patented innovations and technology from Global
Lighting Technologies Inc. This technology is highly complementary to our chip
interface technologies since it is intended to improve the visual capabilities,
form factor, power efficiency and cost-effectiveness of backlighting of liquid
crystal displays (“LCD”) in products for computing, gaming and graphics,
consumer electronics and mobile applications. Our new technology also has great
potential to enable cost-effective and power-efficient light-emitting diode
(“LED”) based general lighting products.
As of
December 31, 2009, our chip interface, lighting and other technologies are
covered by more than 950 U.S. and foreign patents. Additionally, we have
approximately 600 patent applications pending. 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. 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 semiconductor and system products.
Our
primary method of providing technology to our customers is through our patented
innovations. We license our broad portfolio of patented inventions to
semiconductor and system companies who use these inventions in the development
and manufacture of their own products. Such licensing agreements may cover the
license of part, or all, of our patent portfolio. Patent license agreements are
generally royalty bearing.
We also
develop a range of solutions including “leadership” (which are
Rambus-proprietary solutions widely licensed to our customers) and
industry-standard solutions that we provide to our customers under license for
incorporation into their semiconductor and system products. Due to the often
complex nature of implementing state-of-the art technology, we offer engineering
services to our customers to help them successfully integrate our solutions into
their semiconductors and systems. These technology license agreements may have
both a fixed price (non-recurring) component and ongoing royalties. Engineering
services are generally offered on a fixed price basis. Further, under technology
licenses, our customers may receive licenses to our patents necessary to
implement these solutions in their products with specific rights and
restrictions to the applicable patents elaborated in their individual contracts
with us.
Background
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 innovations developed by Rambus’ scientists and engineers are key to
tackling some of the most difficult chip and system challenges. We have
developed what we believe are the world’s fastest memory solutions delivering
breakthrough performance at unmatched power efficiency. Our innovations can
deliver the memory bandwidth and throughput needed to unleash the potential of
multi-core processors. In addition, our advanced lighting technology can enable
what we believe to be the thinnest, most power-efficient and cost-effective LCD
displays for mobile phones, computers and HDTVs.
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. Such licenses may cover part or all of our patent
portfolio. Leading semiconductor and system companies such as AMD, Fujitsu,
Intel, NEC, Panasonic, Renesas, and Toshiba have licensed our patents for use in
their own products. Examples of the many patented innovations in our portfolio
include:
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 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 semiconductor and
system products. Our customers include leading companies such as Elpida, IBM,
Intel, Panasonic, Sony and Toshiba. Due to the complex nature of implementing
our technologies, we provide engineering services under certain of these
licenses to help our customers successfully integrate our technology solutions
into their semiconductor and system products. 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 world’s fastest production DRAM with operation up to
7.2Gb/s. XDRtm
DRAM is the main memory solution for Sony Computer Entertainment’s
PlayStation®3 as
well as for Texas Instrument’s latest generation of DLP projectors.
The XDRtm2 Memory Architecture
incorporates new innovations, including DRAM micro-threading, to deliver
the world’s highest performance for graphics intensive applications such as
gaming and digital video.
The Mobile XDRtm Memory Architecture delivers
high performance at extremely high 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 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
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 LED edge-lit displays and general
lighting.
Target
Markets, Applications and Customers
We work
with leading and emerging semiconductor and system customers to enable their
next-generation products. We engage with our customers across the entire product
life cycle, from system architecture development, to component design, to system
integration, to production ramp up through product maturation. Our patented
inventions and technology solutions are incorporated into a broad range of
high-volume applications in computing, gaming and graphics, consumer electronics
and mobile markets. System level products that utilize our patented inventions
and/or solutions include personal computers, servers, printers, video
projectors, game consoles, HDTVs, set-top boxes and mobile phones manufactured
by such companies as Fujitsu, IBM, Hewlett-Packard, Panasonic, Toshiba and
Sony.
Our
Strategy
The key
elements of our strategy are as follows:
Innovate: Develop
and patent our innovative technology to provide fundamental competitive
advantage when incorporated into semiconductors and electronic
systems.
Drive
Adoption: Communicate the advantages of our patented
innovations and technology 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.
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 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 licensee’s manufacturing
process.
Research
and Development
Our
ability to compete in the future will be substantially dependent on our ability
to develop and patent key innovations that meet the future needs of a dynamic
market. To this end, we have assembled a team of highly skilled engineers whose
activities are focused on continually developing new innovations within our
chosen technology fields. Using this foundation of patented innovations, our
engineers also 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 and high-speed testing techniques.
As of
December 31, 2009, we had approximately 200 employees in our
engineering departments, representing 59% of our total employees. A significant
number of our engineers spend all or a portion of their time on research and
development. For the years ended December 31, 2009, 2008 and 2007, research
and development expenses were $67.3 million, $76.2 million and
$82.9 million, respectively, including stock-based compensation of
approximately $9.7 million, $13.5 million and $16.2 million,
respectively. We expect to continue to invest substantial funds in research and
development activities. In addition, because our license and support agreements
often call for us to provide engineering support, a portion of our total
engineering costs are allocated to the cost of contract revenue, even though
some of these engineering efforts may have direct applicability to our
technology development.
Competition
The
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 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 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 lighting technology, we face
competition from system and subsystem providers of 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. 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.
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.
Employees
As of
December 31, 2009, we had approximately 350 full-time employees. None
of our employees are covered by collective bargaining agreements. We believe
that our future success is dependent on our continued ability to identify,
attract, motivate and retain qualified personnel. To date, we believe that we
have been successful in recruiting qualified employees and that our relationship
with our employees is 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, 2009, we have more than
950 U.S. and foreign patents on various aspects of our technology, with
expiration dates ranging from 2010 to 2027, and we have approximately 600
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
We
operate in a single industry segment, the design, development and licensing of
intellectual property for memory and logic interfaces, lighting and
optoelectronics, and other technologies. Information concerning revenue, results
of operations and revenue by geographic area is set forth in Item 6,
“Selected Financial Data,” in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and in Note 13,
“Business Segments, Exports and Major Customers,” of Notes to Consolidated
Financial Statements, all of which are incorporated herein by reference.
Information concerning identifiable assets is also set forth in Note 13,
“Business Segments, Exports and Major Customers,” of Notes to Consolidated
Financial Statements. Information on customers that comprise 10% or more of our
consolidated revenue and risks attendant to our foreign operations is set forth
below in Item 1A, “Risk Factors.”
Our
Executive Officers
Information
regarding our executive officers and their ages and positions as of
December 31, 2009, 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.
|
Name
|
Age
|
Position and Business
Experience
|
|
Kevin
S.
Donnelly
|
48
|
Senior
Vice President, IP Strategy. Mr. Donnelly joined us in 1993.
Mr. Donnelly has served in his current position since November 2008.
From March 2006 to November 2008, Mr. Donnelly served as our
Senior Vice President, Engineering. From February 2005 to March 2006,
Mr. Donnelly served as co-vice president of Engineering. From October
2002 to February 2005 he served as vice president, Logic Interface
Division. Mr. Donnelly held various engineering and management
positions before becoming vice president, Logic Interface Division in
October 2002. Before joining us, Mr. Donnelly held engineering
positions at National Semiconductor, Sipex, and Memorex, over an eight
year period. He holds a B.S. in Electrical Engineering and Computer
Sciences from the University of California, Berkeley, and an M.S. in
Electrical Engineering from San Jose State University.
|
|
Sharon
E.
Holt
|
45
|
Senior
Vice President, Licensing and Marketing. Ms. Holt has served as our
senior vice president, Licensing and Marketing (formerly titled Senior
Vice President, Worldwide Sales, Licensing and Marketing) since joining us
in August 2004. From November 1999 to July 2004, Ms. Holt held
various positions at Agilent Technologies, Inc., an electronics
instruments and controls company, most recently as vice president and
general manager, Americas Field Operations, Semiconductor Products Group.
Prior to Agilent Technologies, Inc., Ms. Holt held various
engineering, marketing, and sales management positions at Hewlett-Packard
Company, a hardware manufacturer. Ms. Holt holds a B.S. in Electrical
Engineering, with a minor in Mathematics, from the Virginia Polytechnic
Institute and State University.
|
|
Harold
Hughes
|
64
|
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.
|
|
Thomas
Lavelle
|
59
|
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 world’s
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.
|
|
Name
|
Age
|
Position and Business
Experience
|
|
Satish
Rishi
|
50
|
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 world’s leading photomask providers, from
November 2001 to April 2006. During his 20-year career,
Mr. Rishi has held senior financial management positions at
semiconductor and electronic manufacturing companies. He served as vice
president and assistant treasurer at Dell Inc. Prior to Dell,
Mr. Rishi spent 13 years at Intel Corporation, where he held
financial management positions both in the United States and overseas,
including assistant treasurer. Mr. Rishi holds a B.S. with honors in
Mechanical Engineering from Delhi University in Delhi, India and an M.B.A.
from the University of California at Berkeley’s Haas School of Business.
He also serves as a director of Measurement Specialties, Inc.
|
|
Michael
Schroeder
|
50
|
Vice
President, Human Resources. Mr. Schroeder has served as our vice
president, Human Resources since joining us in June 2004. From April 2003
to May 2004, Mr. Schroeder was vice president, Human Resources at
DigitalThink, Inc., an online service company. From August 2000 to August
2002, Mr. Schroeder served as vice president, Human Resources at
Alphablox Corporation, a software company. From August 1992 to August
2000, Mr. Schroeder held various positions at Synopsys, Inc., a
software and programming company, including vice president, California
Site Human Resources, group director Human Resources, director Human
Resources and employment manager. Mr. Schroeder attended the
University of Wisconsin, Milwaukee and studied Russian.
|
|
Martin
Scott, Ph.D.
|
54
|
Senior
Vice President, Research and Technology Development. Dr. Scott has
served in his current position (formerly titled Senior Vice President,
Engineering) since December 2006. Dr. Scott joined us from
PMC-Sierra, Inc., a provider of broadband communications and storage
integrated circuits, where he was most recently vice president and general
manager of its Microprocessor Products Division from March 2006.
Dr. Scott was the vice president and general manager for the
I/O Solutions Division (which was purchased by PMC-Sierra) of Avago
Technologies Limited, an analog and mixed signal semiconductor components
and subsystem company, from October 2005 to March 2006. Dr. Scott
held various positions at Agilent Technologies, including as vice
president and general manager for the I/O Solutions division from October
2004 to October 2005, when the division was purchased by Avago
Technologies, vice president and general manager of the ASSP Division from
March 2002 until October 2004, and, before that, Network Products
operation manager. Dr. Scott started his career in 1981 as a member
of the technical staff at Hewlett Packard Laboratories and held various
management positions at Hewlett Packard and was appointed ASIC business
unit manager in 1998. He earned a B.S. from Rice University and holds both
an M.S. and Ph.D. from Stanford University.
|
|
Laura
S.
Stark
|
41
|
Senior
Vice President, Corporate Development. Ms. Stark joined us in 1996.
Ms. Stark has served in her current position since May 2008. From
February 2005 to May 2008, Ms. Stark headed up our Platform Solutions
Group. From October 2002 to February 2005, Ms. Stark served as our
vice president, Memory Interface Division. Ms. Stark has served as
strategic accounts manager, and held the positions of strategic accounts
director and vice president, Alliances and Infrastructure, before assuming
the position of vice president, Memory Interface Division in October 2002.
Prior to joining Rambus, Ms. Stark held various positions in the
semiconductor products division of Motorola, a communications equipment
company, during a six year tenure, including technical sales engineer for
the Apple sales team and field application engineer for the Sun and SGI
sales teams. Ms. Stark holds a B.S. in Electrical Engineering from
the Massachusetts Institute of Technology.
|
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, 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 Lighting
Technology Division, 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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•
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competition
faced by a company in its particular
industry;
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•
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the
timely introduction and market acceptance of a company’s
products;
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•
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the
engineering, sales and marketing and management capabilities of a
company;
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•
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technical
challenges unrelated to our innovations faced by a company in developing
its products;
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•
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the
financial and other resources of a
company;
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•
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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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•
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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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•
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the
degree to which our licensees promote our innovations to their
customers.
|
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.
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
are currently experiencing such a period of economic downturn. As a result, we
may face a reduced number of licensing wins, tightening of customers’ operating
budgets, difficulty or inability of our customers to pay our licensing fees,
extensions of the approval process for new licenses and consolidation among our
customers, all of which may adversely affect the demand for our technology and
may cause us to experience substantial period-to-period fluctuations in our
operating results.
Many of
our customers operate in industries that have experienced significant declines
as a result of the current economic downturn. In particular, DRAM manufacturers,
which make up a majority of our existing and potential licensees, have suffered
material losses and other adverse effects to their businesses. These factors may
result in industry consolidation as companies seek to reduce costs and improve
profitability through business combinations. Consolidation among our existing
DRAM and other customers may result in loss of revenues under existing license
agreements. Consolidation among companies in the DRAM and other industries
within which we license our technology may reduce the number of future licensees
for our products and services. In either case, 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.
Some
semiconductor companies have developed and support competing logic chip
interfaces including their own serial link chip interfaces and parallel bus chip
interfaces. We also face competition from semiconductor and intellectual
property companies who provide their own DDR memory chip interface technology
and solutions. In addition, most DRAM manufacturers, including our 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.
In the
industry standard and leadership serial link chip interface business, we face
additional competition from semiconductor companies that sell discrete
transceiver chips for use in various types of systems, from semiconductor
companies that develop their own serial link chip interfaces, as well as from
competitors, such as ARM and Synopsys, which license similar serial link chip
interface products and digital controllers. At the 10 Gb/s speed, competition
will also come from optical technology sold by system and semiconductor
companies. There are standardization efforts under way or completed for serial
links from standard bodies such as PCI-SIG and OIF. We may face increased
competition from these types of consortia in the future that could negatively
impact our serial link chip interface business.
In the
FlexIOtm
processor bus chip interface market segment, we face additional competition from
semiconductor companies who develop their own parallel bus chip interfaces, as
well as competitors who license similar parallel bus chip interface products. We
may also see competition from industry consortia or standard setting bodies that
could negatively impact our FlexIOtm
processor bus chip interface business.
As with
our memory chip interface products, to the extent that competitive alternatives
to our serial or parallel logic chip interface products might provide comparable
system performance at lower or similar cost, or are perceived to require the
payment of no or
lower
royalties, or to the extent other factors influence the industry, our licensees
and prospective licensees may adopt and promote alternative technologies, which
could negatively impact our memory and logic chip interface
business.
Our newly
established Lighting Technology Division 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.
If
our new Lighting Technology Division does not succeed, our results of operations
may be adversely affected.
The
future success of our new Lighting Technology Division, formed in connection
with the recent acquisition of certain technology and a portfolio of advanced
lighting and optoelectronics patents of Global Lighting Technologies, depends on
our ability to 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
development, application and licensing of new backlit lighting technologies is a
complex process subject to a number of uncertainties, including the integration
of our Lighting Technology Division into the rest of our company and the small
size of the Lighting Technology Division. 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, 2009, 2008 and 2007, research and development expenses
were $67.3 million, $76.2 million and $82.9 million, respectively, including
stock-compensation of approximately $9.7 million, $13.5 million and $16.2
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 new lighting technology
division 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 is expected to account for a significant portion of our ongoing
licensing revenue commencing in 2010. Our top five licensees represented
approximately 77%, 67% and 67% of our revenue for the years ended December 31,
2009, 2008 and 2007, respectively. For the year ended December 31, 2009,
revenue from AMD, Fujitsu, NEC, Panasonic, and Toshiba, each accounted for 10%
or more of 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 total revenue. For the year ended December 31, 2007, revenue from
Elpida, Fujitsu, Qimonda and Toshiba, each accounted for 10% or more of total
revenue. We expect to continue to experience significant revenue concentration
for the foreseeable future.
In
addition, some of our commercial agreements require us to provide certain
customers with the lowest royalty rate that we provide to other customers for
similar technologies, volumes and schedules. These clauses may limit our ability
to effectively price differently among our customers, to respond quickly to
market forces, or otherwise to compete on the basis of price. The particular
licensees which account for revenue concentration have varied from period to
period as a result of the addition of new contracts, expiration of existing
contracts, industry consolidation, the expiration of deferred revenue schedules
under existing contracts, and the volumes and
prices at
which the licensees have recently sold licensed semiconductors to system
companies. These variations are expected to continue in the foreseeable future,
although we anticipate that revenue will continue to be concentrated in a
limited number of licensees.
We are in
negotiations with licensees and prospective licensees to reach 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. A
number of our material license agreements are scheduled to expire throughout
2010, including certain ones that accounted for more than 10% of our revenue in
the year ended December 31, 2009. We are currently in discussions with
those licensees whose agreements are scheduled to expire in 2010. 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.
Weak global
economic conditions may adversely affect demand for our products and
services.
Our
operations and performance depend significantly on worldwide economic
conditions, and the U.S. and world economies continue to experience 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 could threaten the financial health of our
counterparties, including companies with whom we have entered into licensing
arrangements, settlements 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. Economic downturns such as the one we are
currently experiencing lead to financial pressures on our counterparties and 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.
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. Qimonda, which was a party to a settlement and licensing agreement
with us, is under the process of being liquidated under its German insolvency
proceeding. As part of the process, the administrator for Qimonda’s insolvency
informed us that our license agreement was terminated. Under the license
agreement, if we entered into licenses with certain other DRAM manufacturers,
Qimonda would have been required to make certain additional payments to us up to
an aggregate of $100.0 million. Given the status of Qimonda’s liquidation and
the notice of termination of the license agreement, we do not believe that even
if we satisfied the conditions for additional payments, we will obtain any
future payment from Qimonda or the successors to its business. Spansion, which
was one of our licensees that owed us an immaterial amount, is in the process of
exiting a voluntary Chapter 11 reorganization.
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.
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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•
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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.
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, such as the Sony
PLAYSTATION® 3;
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the
dependence of our royalties upon fluctuating sales volumes and prices of
licensed chips that include our
technology;
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the
seasonal shipment patterns of systems incorporating our chip interface
products;
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the
loss of any strategic relationships with system companies or
licensees;
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semiconductor
or system companies discontinuing major products incorporating our chip
interfaces;
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the
unpredictability of 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
Lighting Technology Division;
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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, 2009, 2008 and
2007, royalties accounted for 96%, 89% and 86%, 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, 2009, 2008 and 2007, revenue from our sales to
international customers constituted approximately 83%, 84% and 85% 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 customer’s 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 operations in India (design), Japan (business
development), Taiwan (business development) and Germany (business development).
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;
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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, currently are evaluating, and
expect to continue to engage in, investments in or acquisitions of companies,
products 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 an
acquisition, including the recent acquisition of technology and a patent
portfolio from Global Lighting Technologies, we may experience difficulty
integrating that company’s or division’s 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 may be disrupted or receive insufficient management
attention;
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we
may not be able to recognize the financial benefits we anticipated, 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 we acquire. By assuming the liabilities, we may incur liabilities such
as those related to intellectual property infringement or indemnification of
customers of acquired businesses for similar claims, which could materially and
adversely affect our business. We may have to incur debt or issue equity
securities to pay for any future acquisition, the issuance of which could
involve restrictive covenants or be dilutive to our existing
stockholders.
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, such as percentage-of-completion contracts, 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 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 litigation with
Hynix, Micron, Nanya and NVIDIA and reaction to any settlements that we
enter into with former litigants, such as
Samsung;
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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;
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.
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
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.
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 16, “Litigation and Asserted Claims,” of Notes to Consolidated
Financial Statements. The amount of time to resolve these current and any future
lawsuits is uncertain, and these matters could require significant management
and financial resources which could otherwise be devoted to the operation of our
business. Although we have expensed or accrued for certain liabilities that we
believe will result from certain of these actions, the actual costs and expenses
to defend and satisfy all of these lawsuits and any potential future litigation
may exceed our current estimated accruals, possibly significantly. Unfavorable
outcomes and significant judgments, settlements and legal expenses in 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, and to defend our
intellectual property.
We have
indebtedness. In 2009, we issued $172.5 million aggregate principal amount of
our senior convertible notes due June 2014. 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 will be dedicated to
the payment of the principal of our indebtedness as we are required to pay
the principal amount of our convertible notes in cash upon conversion if
specified conditions are met or when
due;
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if
upon any conversion of our 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 flow from operations to service
our indebtedness when payment is due, we may be required to attempt to
renegotiate the terms of the instruments relating to the indebtedness, seek to
refinance all or a portion of the indebtedness or obtain additional financing.
There can be no assurance that we will be able to successfully renegotiate such
terms, that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to
us.
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.
Our restated
certificate of incorporation and bylaws, our stockholder rights plan, 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, our stockholder rights plan
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;
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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 66 2/3% of our
outstanding voting stock;
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the
ability of our stockholders to call special meetings of stockholders is
prohibited; and
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our
board of directors is expressly authorized to make, alter or repeal our
bylaws.
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In
addition, the provisions in our stockholder rights plan could make it more
difficult for a potential acquirer to consummate an acquisition of our company.
We are also subject to Section 203 of the Delaware General Corporation Law,
which provides, subject to enumerated exceptions, that if a person acquires 15%
or more of our outstanding voting stock, the person is an “interested
stockholder” and may not engage in any “business combination” with us for a
period of three years from the time the person acquired 15% or more of our
outstanding voting stock.
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 of their notes or any portion of the principal amount of such
notes in multiples of $1,000. 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 infringement of certain of our patents, while the
manufacturers of such products have generally sought damages and a determination
that the patents in suit are invalid, unenforceable, and not infringed. Among
other things, the opposing parties have alleged that certain of our patents are
unenforceable because we engaged in document spoliation, litigation misconduct
and/or acted improperly during our 1991 to 1995 participation in the JEDEC
standard setting organization (including allegations of antitrust violations and
unfair competition). See Note 16, “Litigation and Asserted Claims,” of Notes to
Consolidated Financial Statements.
There can
be no assurance that any or all of the opposing parties will not succeed, either
at the trial or appellate level, with such claims or counterclaims against us or
that they will not in some other way establish broad defenses against our
patents, achieve conflicting results, or otherwise avoid or delay paying
royalties for the use of our patented technology. Moreover, there is a risk that
if one party prevails against us, other parties could use the adverse result to
defeat or limit our claims against them; conversely, there can be no assurance
that if we prevail against one party, we will succeed against other parties on
similar claims, defenses, or counterclaims. In addition, there is the risk that
the pending litigations and other circumstances may cause us to accept less than
what we now believe to be fair consideration in settlement.
Any of
these matters, whether or not determined in our favor or settled by us, is
costly, may cause delays (including delays in negotiating licenses with other
actual or potential licensees), will tend to discourage future design partners,
will tend to impair adoption of our existing technologies and divert the efforts
and attention of our management and technical personnel from other business
operations. In addition, we may be unsuccessful in our litigation if we have
difficulty obtaining the cooperation of former employees and agents who were
involved in our business during the relevant periods related to our litigation
and are now needed to assist in cases or testify on our behalf. Furthermore, any
adverse determination or other resolution in litigation could result in our
losing certain rights beyond the rights at issue in a particular case,
including, among other things: our being effectively barred from suing others
for violating certain or all of our intellectual property rights; our patents
being held invalid or unenforceable or not infringed; our being subjected to
significant liabilities; our being required to seek licenses from third parties;
our being prevented from licensing our patented technology; or our being
required to renegotiate with current licensees on a temporary or permanent
basis. Even
if we are
successful in our litigation, 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. 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 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 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; or
|
|
|
•
|
others
will not independently develop similar or competing chip interfaces or
design around any patents that may be issued to
us.
|
If any of
the above were to occur, our operating results could be adversely
affected.
Our inability to
protect and own the intellectual property we create would cause our
business to suffer.
We rely
primarily on a combination of license, development and nondisclosure agreements,
trademark, trade secret and copyright law, and contractual provisions to protect
our non-patentable intellectual property rights. If we fail to protect these
intellectual property rights, our licensees and others may seek to use our
technology without the payment of license fees and royalties, which could weaken
our competitive position, reduce our operating results and increase the
likelihood of costly litigation. The growth of our business depends in large
part on the use of our 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 licensee’s 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.
Item 2. Properties
As of
December 31, 2009, we occupied offices in the leased facilities described
below:
|
Number
of
Offices
Under Lease
|
Location
|
Primary Use
|
|
3
|
United
States
Los
Altos, CA (current Headquarters)
Chapel
Hill, NC
Cleveland,
OH
|
Executive
and administrative offices, research and development, sales and marketing
and service functions
|
|
1
|
Bangalore,
India
|
Administrative
offices, research and
development
and service functions
|
|
1
|
Tokyo,
Japan
|
Business
development
|
|
1
|
Taipei,
Taiwan
|
Business
development
|
|
1
|
Pforzheim,
Germany
|
Business
development
|
On
December 15, 2009, we entered into a lease agreement for an incompleted office
space located in Sunnyvale, California. We plan to move to the new premises
in the second half of 2010 following completion of tenant improvements and will
no longer occupy the Los Altos facilities after the move. The office space
will serve as our corporate headquarters, as well as engineering, marketing and
administrative operations and activities.
Item 3. Legal
Proceedings
For the
information required by this item regarding legal proceedings, see Note 16
“Litigation and Asserted Claims,” of Notes to Consolidated Financial Statements
of this Form 10-K.
Item 4. Submission of Matters to
a Vote of Security Holders
None.
Item 5. Market for Registrant’s 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
December 31, 2009
|
Year Ended
December 31, 2008
|
||||||||||||||
|
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
First
Quarter
|
$ | 18.70 | $ | 5.99 | $ | 26.41 | $ | 14.64 | ||||||||
|
Second
Quarter
|
$ | 19.65 | $ | 9.07 | $ | 24.85 | $ | 18.61 | ||||||||
|
Third
Quarter
|
$ | 19.94 | $ | 14.33 | $ | 18.90 | $ | 12.29 | ||||||||
|
Fourth
Quarter
|
$ | 25.54 | $ | 15.53 | $ | 16.59 | $ | 4.95 | ||||||||
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, 2004 to December 31,
2009.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
Rambus Inc., The NASDAQ Composite Index
And
The RDG Semiconductor Composite Index
|
*
|
$100
invested on 12/31/04 in stock or index, including reinvestment of
dividends.
|
Fiscal
year ending December 31.
Fiscal
years ending:
| 12/04 | 12/05 | 12/06 | 12/07 | 12/08 | 12/09 | |||||||||||||||||||
|
Rambus
Inc.
|
100.00 | 70.39 | 82.30 | 91.04 | 69.22 | 106.09 | ||||||||||||||||||
|
NASDAQ
Composite
|
100.00 | 101.33 | 114.01 | 123.71 | 73.11 | 105.61 | ||||||||||||||||||
|
RDG
Semiconductor Composite
|
100.00 | 111.52 | 105.29 | 118.19 | 59.74 | 87.55 |
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 29, 2010, there were 737 holders of record of our Common Stock.
Because many of the shares of our Common Stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of beneficial stockholders represented by these record holders. We have
never paid or declared any cash dividends on our Common Stock or other
securities. 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.
Share
Repurchase Program
In
October 2001, our Board of Directors (the “Board”) approved a share repurchase
program of our Common Stock, principally to reduce the dilutive effect of
employee stock options. To date, the Board has approved the authorization to
repurchase up to 19.0 million shares of our outstanding Common Stock over
an undefined period of time. For the year ended December 31, 2009, we did
not repurchase any Common Stock. As of December 31, 2009, we had
repurchased a cumulative total of approximately 16.8 million shares of our
Common Stock with an aggregate price of approximately $233.8 million since
the commencement of this program. As of December 31, 2009, there remained
an outstanding authorization to repurchase approximately 2.2 million shares
of our outstanding Common Stock.
We record
stock repurchases as a reduction to stockholders’ equity. We record a portion of
the purchase price of the repurchased shares as an increase to accumulated
deficit when the cost of the shares repurchased exceeds the average original
proceeds per share received from the issuance of Common Stock. During the year
ended December 31, 2009, we did not repurchase any Common Stock. During the year
ended December 31, 2008, the cumulative price of the shares repurchased exceeded
the proceeds received from the issuance of the same number of shares. The excess
of $44.2 million was recorded as an increase to accumulated deficit for the year
ended December 31, 2008.
Item 6. Selected Financial
Data
The
following selected consolidated financial data for and as of the years ended
December 31, 2009, 2008, 2007, 2006 and 2005 was derived from our consolidated
financial statements. The summary consolidated selected financial data for and
as of the years ended December 31, 2008, 2007, 2006 and 2005 has been adjusted
as a result of the retrospective adoption on January 1, 2009 of a new 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 (“new FASB accounting guidance”).
Our consolidated financial statements as of December 31, 2009, 2008 and 2007 and
financial statements for the years ended December 31, 2009, 2008, 2007 and 2006
were audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm. The
following
selected consolidated financial data should be read in conjunction with
Item 7, “Management’s 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,
|
|||||||||||||||||||
|
|
2009
|
2008 (1)
|
2007 (1)
|
2006 (1) (2)
|
2005 (2)
|
|||||||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||||||||||
|
Total
revenue
|
$ | 113,007 | $ | 142,494 | $ | 179,940 | $ | 195,324 | $ | 157,198 | ||||||||||
|
Net
income (loss)
|
$ | (92,186 | ) | $ | (199,110 | ) | $ | (34,221 | ) | $ | (18,006 | ) | $ | 6,914 | ||||||
|
Net
income (loss) per share:
|
||||||||||||||||||||
|
Basic
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | $ | (0.17 | ) | $ | 0.07 | ||||||
|
Diluted
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | $ | (0.17 | ) | $ | 0.07 | ||||||
|
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
|
Cash,
cash equivalents and marketable securities
|
$ | 460,193 | $ | 345,853 | $ | 440,882 | $ | 436,341 | $ | 355,390 | ||||||||||
|
Total
assets
|
$ | 555,869 | $ | 397,370 | $ | 617,963 | $ | 591,295 | $ | 497,141 | ||||||||||
|
Convertible
notes
|
$ | 248,044 | $ | 125,474 | $ | 135,214 | $ | 124,719 | $ | 115,039 | ||||||||||
|
Stockholders’
equity
|
$ | 255,327 | $ | 232,941 | $ | 422,486 | $ | 404,247 | $ | 349,616 | ||||||||||
____________
|
(1)
|
Adjusted
to reflect adoption of the new FASB accounting guidance. Refer to Note 3,
“Retrospective Adoption of New Accounting Pronouncement,” of Notes to
Consolidated Financial Statements for further
discussion.
|
|
(2)
|
The
year ended December 31, 2006 includes adjustments for the new FASB
accounting guidance to decrease total assets by $13,322 and convertible
notes by $35,281 and increase stockholders’ equity by $21,959. The year
ended December 31, 2005 includes additional interest expense
(including amortization of debt issuance costs) of $12,253, decrease to
interest income and other income (expense), net of $24,732, decrease to
provision for income taxes of $14,959, decrease to net income of $22,026,
decrease to basic net income per share of $0.22, decrease to diluted net
income per share of $0.21, decrease to total assets of $18,812, decrease
to convertible notes of $44,961 and increase to stockholders’ equity of
$26,149.
|
Item 7. Management’s
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 technology licensing company. Our primary focus is the design,
development and licensing chip interface technologies and architectures that are
foundational to nearly all digital electronics products. Our chip interface
technologies aim to improve the performance, power efficiency, time-to-market
and cost-effectiveness of our customers’ semiconductor and system products for
computing, gaming and graphics, consumer electronics and mobile applications.
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 electronic
systems.
Drive
Adoption: Communicate the advantages of our patented
innovations and technology 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.
In
December 2009, we added lighting technology to our portfolio of solutions
through the acquisition of patented innovations and technology from Global
Lighting Technologies Inc. (“GLT”). This technology is highly complementary to
our chip interface technologies since it is intended to 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 and mobile applications. Our new technology also
has great potential to enable cost-effective and power-efficient LED-based
general lighting products.
As of
December 31, 2009, our chip interface, lighting and other technologies are
covered by more than 950 U.S. and foreign patents. Additionally, we have
approximately 600 patent applications pending. 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. 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 semiconductor and system products.
Our
primary method of providing technology to our customers is through our patented
innovations. We license our broad portfolio of patented inventions to
semiconductor and system companies who use these inventions in the development
and manufacture of their own products. Such licensing agreements may cover the
license of part, or all, of our patent portfolio. Patent license agreements are
generally royalty bearing.
We also
develop a range of solutions including “leadership” (which are
Rambus-proprietary solutions widely licensed to our customers) and
industry-standard solutions that we provide to our customers under license for
incorporation into their semiconductor and system products. Due to the often
complex nature of implementing state-of-the art technology, we offer engineering
services to our customers to help them successfully integrate our solutions into
their semiconductors and systems. These technology license agreements may have
both a fixed price (non-recurring) component and ongoing royalties. Engineering
services are generally offered on a fixed price basis. Further, under technology
licenses, our customers may receive licenses to our patents necessary to
implement 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, NEC, Panasonic, Renesas, and Toshiba 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 customers include leading
companies such as Elpida, IBM, Intel, Panasonic, Sony and Toshiba. Due to the
complex nature of implementing our technologies, we provide engineering services
under certain of these licenses to help our customers successfully integrate our
technology solutions into their 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
Fiscal
2009 continued to be a difficult and challenging time for us. The economic
recession had caused our revenue from variable royalties to decrease. In
addition, we were not able to grow our revenue from new customers as many
potential customers are hesitant to sign licensing agreements with us until the
current litigation activities are resolved. Our revenue for 2009 therefore
decreased $29.5 million, or 20.7%, from 2008. In fiscal 2009, cutting costs,
strengthening our business and attempting to reach agreements with those
companies that have infringed our patented technologies remained our primary
focus. We have lowered costs in 2009 through reductions in headcount in the
third quarter of 2008 as well as curtailing capital expenditures and
implementing other cost control measures. Our cost cutting initiatives are
working, in spite of the continuing impact of the economic
recession.
We also
have taken several additional critical steps to better position ourselves not
only to weather the recession but to capitalize on opportunities when the
economy improves. Research and development continues to play a key role in
our efforts to maintain product innovations. Consistent with our strategy to
expand our patent portfolio and diversify our business, we added lighting
technology through the acquisition of patented innovations and technology from
GLT.
As a
result of our reorganization and reductions in headcount in 2008, our
engineering costs for 2009, in aggregate and as a percentage of revenue,
decreased $23.4 million and 2.9%, respectively, in 2009 as compared to 2008.
Marketing, general and administrative expenses in aggregate increased $4.1
million in 2009 as compared to 2008 primarily due to expenses related to
acquisition activities. Our lower revenue combined with the increase in
marketing, general and administrative expenses, has caused marketing, general
and administrative expenses to increase as a percentage of revenue. In 2009, we
had a net recovery of restatement and related legal activities of $13.5 million,
primarily due 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.
Trends
There are
a number of trends that we expect may or will have a material impact on us in
the future, including global economic conditions with the resulting impact on
sales, continuing pursuit of litigation against companies that 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 77%, 67% and 67% of our revenue for the years ended
December 31, 2009, 2008 and 2007, respectively. As a result of our Samsung
settlement, Samsung is expected to account for a significant portion of our
ongoing licensing revenue commencing in 2010. For the year ended
December 31, 2009, revenue from AMD, Fujitsu, NEC, Panasonic, and Toshiba,
each accounted for 10% or more of 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 total revenue. For the year ended
December 31, 2007, revenue from Elpida, Fujitsu, Qimonda and Toshiba, each
accounted for 10% or more of total revenue.
Many of
our licensees have the right to cancel their licenses. The particular licensees
which account for revenue concentration have varied from period to period as a
result of the addition of new contracts, expiration of existing contracts,
industry consolidation and the volumes and prices at which the licensees have
recently sold licensed semiconductors to system companies. These variations are
expected to continue in the foreseeable future, although we expect that our
revenue concentration will decrease over time as we license new
customers.
The
semiconductor industry is intensely competitive and highly cyclical. Our
visibility with respect to future sales is very limited at this
time. We are continuing to experience a period of economic downturn,
which has resulted in and may continue to result in, among other things,
diminished demand and the erosion of average selling prices in the semiconductor
industry. To the extent that these macroeconomic pressures affect our principal
licensees, the demand for our technology may be significantly and adversely
impacted and we may experience substantial period-to-period fluctuations in our
operating results. The downturn in worldwide economic conditions also threatens
the financial health of our commercial counterparties, including companies with
whom we have entered into licensing arrangements, 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 current economic downturn. Royalty payments from the remaining licensees
are related to variable royalty agreements which have been impacted by the
current 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 and may continue to
contract for most, if not all, of 2010. 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.”
Our
revenue from companies headquartered outside of the United States accounted for
approximately 83%, 84% and 85% of our total revenue for the years ended
December 31, 2009, 2008 and 2007, respectively. We expect that revenue
derived from international licensees will continue to represent a significant
portion of our total revenue in the future. To date, all of the revenue from
international licensees have been denominated in U.S. dollars. However, to
the extent that such licensees’ sales to 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, Exports and Major Customers,” of Notes to Consolidated
Financial Statements of this Form 10-K.
Engineering
costs as a percent of net sales decreased in the year ended December 31, 2009 as
compared to the prior year, reflecting the decrease in engineering costs from
reductions in headcount. In the near term, we expect engineering costs to be
higher than in 2009 due primarily to the engineering activities in our newly
established Lighting Technology Division which was created from the acquisition
of patented innovations and technology from GLT. In addition, we intend to
continue to make investments in the infrastructure and technologies required to
maintain our product innovations and leadership position in chip interface
technologies and, as a result, expenses are expected to increase.
Marketing,
general and administrative expenses in the aggregate and as a percentage of net
sales increased in the year ended December 31, 2009 as compared to the prior
year, reflecting the increase in marketing, general and administrative expenses
due to expenses related to acquisition activities as well as the decrease in
revenue. Historically, we have been involved in significant litigation stemming
from the unlicensed use of our inventions. Our litigation expenses have been
high and difficult to predict and we anticipate future litigation expenses will
continue to be significant, volatile and difficult to predict. If we are
successful in the litigation and/or related licensing, our revenue could be
substantially higher in the future; if we are unsuccessful, our revenue may not
grow. 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
combined with the recent lower revenue from our licensees, our cash from
operations will continue to be negatively affected.
Our
overall effective tax rate will continue to fluctuate as a result of the
allocation of earnings among various taxing jurisdictions with varying tax
rates.
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,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Revenue:
|
||||||||||||
|
Royalties
|
95.6 | % | 89.1 | % | 85.8 | % | ||||||
|
Contract
revenue
|
4.4 | % | 10.9 | % | 14.2 | % | ||||||
|
Total
revenue
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of contract revenue*
|
6.1 | % | 15.0 | % | 15.1 | % | ||||||
|
Research
and development*
|
59.5 | % | 53.5 | % | 46.1 | % | ||||||
|
Marketing,
general and administrative*
|
113.4 | % | 87.1 | % | 67.0 | % | ||||||
|
Costs
(recoveries) of restatement and related legal activities
|
(11.9 | )% | 2.3 | % | 10.8 | % | ||||||
|
Restructuring
costs*
|
— | % | 2.9 | % | — | % | ||||||
|
Impairment
of intangible asset
|
— | % | 1.5 | % | — | % | ||||||
|
Total
costs and expenses
|
167.1 | % | 162.3 | % | 139.0 | % | ||||||
|
Operating
loss
|
(67.1 | )% | (62.3 | )% | (39.0 | )% | ||||||
|
Interest income and other income,
net
|
3.6 | % | 10.7 | % | 12.1 | % | ||||||
|
Interest expense
|
(18.6 | )% | (8.3 | )% | (6.1 | )% | ||||||
|
Interest
and other income (expense), net
|
(15.0 | )% | 2.4 | % | 6.0 | % | ||||||
|
Loss
before income taxes
|
(82.1 | )% | (59.9 | )% | (33.0 | )% | ||||||
|
Provision
for (benefit from) income taxes
|
(0.5 | )% | 79.8 | % | (14.0 | )% | ||||||
|
Net
loss
|
(81.6 | )% | (139.7 | )% | (19.0 | )% | ||||||
|
*
Includes stock-based compensation:
|
||||||||||||
|
Cost
of contract revenue
|
0.9 | % | 3.6 | % | 3.3 | % | ||||||
|
Research
and development
|
8.6 | % | 9.5 | % | 9.0 | % | ||||||
|
Marketing,
general and administrative
|
18.5 | % | 13.0 | % | 12.6 | % | ||||||
|
Restructuring
costs
|
— | % | 0.4 | % | — | % | ||||||
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Total
Revenue
|
||||||||||||||||||||
|
Royalties
|
$ | 108.0 | $ | 126.9 | $ | 154.3 | (14.9 | )% | (17.8 | )% | ||||||||||
|
Contract
revenue
|
5.0 | 15.6 | 25.6 | (67.9 | )% | (39.2 | )% | |||||||||||||
|
Total
revenue
|
$ | 113.0 | $ | 142.5 | $ | 179.9 | (20.7 | )% | (20.8 | )% | ||||||||||
Royalty
Revenue
Patent
Licenses
Royalties
related to our patents for SDR and DDR-compatible products 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 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.
Royalties
related to our patents for SDR and DDR-compatible products decreased
approximately $32.5 million to $100.5 million for the year ended
December 31, 2008 from $133.0 million for the same period in 2007. The
decrease was primarily due to the higher licensing payments received in 2007 as
a result of, among other things, our receipt of the final installment payments
from Qimonda, which we were entitled to under the terms of our license agreement
and settlement with Qimonda, in 2007 and lower licensing payments received in
2008 as a result of, among other things, the expiration of the Elpida licensing
agreement in the first quarter of 2008.
We are in negotiations with prospective licensees as well as existing licensees
regarding renewals as some of the existing patent license agreements will expire
in 2010. We expect SDR and DDR-compatible royalties will continue to vary from
period to period based on our success in renewing existing license agreements
and adding new licensees, as well as the level of variation in our licensees’
reported shipment volumes, sales price and mix, offset in part by the proportion
of licensee payments that are fixed.
Technology
Licenses
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.
Royalties
from technology licenses increased approximately $5.1 million to $26.4 million
for the year ended December 31, 2008 from $21.3 million for the same period in
2007. This increase was primarily due to higher royalties reported from
increased shipments related to DDR2 technologies and increased royalties from
XDRtm
DRAM associated with increased amount of 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 $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.
Contract
revenue decreased approximately $10.0 million to $15.6 million for the
year ended December 31, 2008 from $25.6 million for the year ended
December 31, 2007. The decrease is due to fewer new technology development
contracts as well as a decrease in work performed on existing technology
development contracts.
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.
Engineering
costs:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Engineering
costs
|
||||||||||||||||||||
|
Cost
of contract revenue
|
$ | 5.9 | $ | 16.1 | $ | 21.2 | (63.6 | )% | (24.0 | )% | ||||||||||
|
Stock-based
compensation
|
1.0 | 5.2 | 5.9 | (80.7 | )% | (12.2 | )% | |||||||||||||
|
Total
cost of contract revenue
|
6.9 | 21.3 | 27.1 | (67.7 | )% | (21.5 | )% | |||||||||||||
|
Research
and development
|
57.5 | 62.7 | 66.7 | (8.3 | )% | (5.9 | )% | |||||||||||||
|
Stock-based
compensation
|
9.7 | 13.5 | 16.2 | (28.0 | )% | (16.7 | )% | |||||||||||||
|
Total
research and development
|
67.2 | 76.2 | 82.9 | (11.8 | )% | (8.0 | )% | |||||||||||||
|
Total
engineering costs
|
$ | 74.1 | $ | 97.5 | $ | 110.0 | (24.0 | )% | (11.3 | )% | ||||||||||
Engineering
costs are allocated between cost of contract revenue and research and
development expenses. Cost of contract revenue reflects the portion of the total
engineering costs which are specifically devoted to individual licensee
development and support services. The balance of engineering costs, incurred for
the development of generally applicable chip interface technologies, is charged
to research and development. In a given period, the allocation of engineering
costs between these two components is a function of the timing of the
development and implementation schedules of individual licensee
contracts.
For the year ended December 31, 2009 as compared to the same period in 2008,
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.
For the
year ended December 31, 2008 as compared to the same period in 2007,
engineering costs decreased primarily due to tax reimbursement expenses in 2007
associated with Internal Revenue Code Section 409A of approximately
$4.1 million and decreased salary and related stock-based compensation
expenses in 2008 due to the restructuring initiative. The tax reimbursement
expenses were associated with our decision to reimburse current employees for
the Internal Revenue Code Section 409A penalty taxes imposed on them in
connection with their exercise of repriced options in 2006. In addition,
depreciation and amortization expense decreased in 2008 due to lower design
software maintenance amortization.
In the
near term, we expect engineering costs to be higher than in 2009 due primarily
to the engineering activities in our newly established Lighting Technology
Division which was created from the acquisition of patented innovations and
technology from GLT. In addition, we intend to continue to make investments in
the infrastructure and technologies required to maintain our product innovation
and leadership position in chip interface technologies and, as a result, costs
are expected to increase.
Marketing,
general and administrative costs:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Marketing,
general and administrative costs
|
||||||||||||||||||||
|
Marketing,
general and administrative costs
|
$ | 51.8 | $ | 49.9 | $ | 58.4 | 3.8 | % | (14.7 | )% | ||||||||||
|
Litigation
expense
|
55.5 | 55.7 | 39.5 | (0.3 | )% | 41.1 | % | |||||||||||||
|
Stock-based
compensation
|
20.9 | 18.5 | 22.7 | 12.8 | % | (18.5 | )% | |||||||||||||
|
Total
marketing, general and administrative costs
|
$ | 128.2 | $ | 124.1 | $ | 120.6 | 3.3 | % | 2.9 | % | ||||||||||
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
they can vary significantly from quarter to quarter. Consistent with our
business model, licensing and marketing activities are focused on developing
relationships with potential licensees and on participating with existing
licensees in marketing, sales and technical efforts directed to system
companies. 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, 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.
For the
year ended December 31, 2008 as compared to 2007, the increase in total
marketing, general and administrative costs was primarily due to higher
litigation expense, partially offset by decreased stock-based compensation,
salary expenses due to the restructuring initiative in 2008, general legal
costs, marketing and advertising costs, professional fees and the lack of the
$2.5 million of tax reimbursement expenses associated with Internal Revenue
Code Section 409A incurred in 2007. The tax reimbursement expenses were
associated with our decision to reimburse current and former non-executive
employees for the Internal Revenue Code Section 409A penalty taxes imposed
on them in connection with their exercise of repriced options in 2006. The
higher litigation expenses were primarily due to costs incurred in connection
with cases that came to trial in 2008.
In the
future, marketing, general and administrative costs will vary from period to
period based on the trade shows, advertising, legal, 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:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
|||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
|||||||||||||
|
(Dollars
in millions)
|
|||||||||||||||||
|
Costs
(recoveries) of restatement and related legal activities
|
$ | (13.5 | ) | $ | 3.3 | $ | 19.5 |
NM*
|
(83.2 | )% | |||||||
* NM —
percentage is not meaningful as the change is too large
Costs
(recoveries) of restatement and related legal activities consist primarily of
investigation, audit, legal and other professional fees related to the 2006-2007
stock option investigation and the filing of the restated financial statements
and related litigation.
For the
year ended December 31, 2009, recoveries of restatement and related legal
activities 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 costs.
For the
year ended December 31, 2008 as compared to the same period in 2007, the
decrease in costs of restatement and related legal activities was primarily
associated with the decrease in accounting and consulting charges related to the
filing of our restated financial statements in 2007 and a decrease in legal
expenses in connection with related lawsuits. Additionally, during the fourth
quarter of 2008, we received approximately 163,000 shares of Rambus stock
with a value of approximately $0.8 million from a former executive as part
of the former executive’s settlement agreement with Rambus in connection with
the derivative and class action lawsuits. The $0.8 million was recorded as
recoveries of restatement and related legal activities.
Restructuring
costs:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Restructuring
costs
|
$ | — | $ | 4.2 | $ | — | N/A | * | N/A | * | ||||||||||
* N/A — not applicable
During
the year ended December 31, 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. We paid approximately
$3.5 million of severance and benefits during 2008. We paid the remaining
$0.1 million of severance and benefits during 2009.
Impairment
of intangible asset:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Impairment
of intangible asset
|
$ | — | $ | 2.2 | $ | — | N/A | * | N/A | * | ||||||||||
* N/A — not applicable
In 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 customer’s change in technology
requirements. The impairment of the intangible asset related to a contractual
relationship acquired in the Velio acquisition during December
2003.
Interest
and other income (expense), net:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||||||||
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Interest
income and other income, net
|
$ | 4.1 | $ | 15.2 | $ | 21.7 | (73.1 | )% | (30.1 | )% | ||||||||||
|
Interest
expense
|
$ | (21.0 | ) | $ | (11.8 | ) | $ | (11.0 | ) | 77.5 | % | 7.2 | % | |||||||
|
Interest
and other income (expense), net
|
$ | (16.9 | ) | $ | 3.4 | $ | 10.7 |
NM*
|
(68.4 | )% | ||||||||||
* 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. 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.
For the
year ended December 31, 2008 as compared to the same period in 2007, the
decrease in interest income and other income, net, was primarily due to lower
average investment balances and lower yields on invested balances, offset by a
gain of $2.5 million related to the repurchase of $23.1 million in
face value of the zero coupon convertible senior notes due 2010 (the “2010
Notes”) for $18.7 million during the fourth quarter of 2008. In the future,
we expect that interest and other income, net, will vary from period to period
based on the amount of cash and marketable securities as well as changes in
interest rates.
Interest
expense primarily consists of non-cash interest expense related to the
amortization of the debt discount on the 2010 Notes and the 5% convertible
senior notes due 2014 (the “2014 Notes”) as well as the coupon interest related
to the 2014 Notes. During the fourth quarter of 2009, we made a payment of
approximately $4.0 million related to the 2014 Notes. We expect interest expense
to be higher in 2010 as the 2014 Notes were outstanding for only six months in
2009 and remain substantially the same thereafter until maturity. See Note 15
“Convertible Notes,” of Notes to Consolidated Financial Statements for
additional details.
Provision
for (benefit from) income taxes:
|
Years Ended December 31,
|
2008
to 2009
|
2007
to 2008
|
||||||||||||
|
2009
|
2008
|
2007
|
Change
|
Change
|
||||||||||
|
(Dollars
in millions)
|
||||||||||||||
|
Provision
for (benefit from) income taxes
|
$ | (0.5 | ) | $ | 113.8 | $ | (25.1 | ) |
NM*
|
NM*
|
||||
|
Effective
tax rate
|
0.6 | % | (133.4 | )% | 42.4 | % | ||||||||
* NM — percentage is not meaningful as the change is too large
We report
certain items of income and expense for financial reporting purposes in
different years than they are reported for tax purposes. We recognize revenue
for financial reporting purposes as such amounts are earned and this could occur
over several reporting periods. As a result of the above and other differences
between tax and financial reporting for income and expense recognition, our net
operating loss for tax purposes may be more or less than the amount recorded for
financial reporting purposes. In addition, we maintain estimated liabilities for
uncertain tax positions.
Our
effective tax rate for the year ended December 31, 2009 was lower than the
U.S. statutory tax rate applied to our net 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 net loss primarily due to the
establishment of a full valuation allowance on our U.S. net deferred tax assets.
Our effective tax rate for the year ended December 31, 2007 was higher than the
U.S. statutory tax rate applied to our net loss primarily due to research
and development tax credits, stock-based compensation expense associated with
executives and state income taxes.
For the
year ended December 31, 2009, we remained in a full valuation allowance on 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 solely
dependent on our ability to generate sufficient future taxable income during
periods prior to the expiration of tax statutes to fully utilize these assets.
Based on all available evidence, we determined that it was not more likely than
not that the deferred tax assets would be realized. In January 2010, we signed
an agreement with Samsung which will be
considered
in assessing the need for a valuation allowance going forward which may result
in a partial or full valuation release on its deferred tax assets.
Liquidity
and Capital Resources
|
|
December 31,
2009
|
December 31,
2008
|
||||||
|
(In
millions)
|
||||||||
|
Cash
and cash equivalents
|
$ | 289.1 | $ | 116.3 | ||||
|
Marketable
securities
|
171.1 | 229.6 | ||||||
|
Total
cash, cash equivalents, and marketable securities
|
$ | 460.2 | $ | 345.9 | ||||
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
millions)
|
||||||||||||
|
Net
cash provided by (used in) operating activities
|
$ | (40.6 | ) | $ | (38.5 | ) | $ | 5.3 | ||||
|
Net
cash provided by investing activities
|
$ | 24.5 | $ | 82.7 | $ | 33.2 | ||||||
|
Net
cash provided by (used in) financing activities
|
$ | 188.9 | $ | (47.5 | ) | $ | 7.6 | |||||
Liquidity
Although
we used cash for operating activities in the year ended December 31, 2009, total
cash, cash equivalents and marketable securities are expected to continue at
adequate levels to finance our operations, projected capital expenditures and
commitments for the next twelve months. Cash needs for the year ended December
31, 2009 were funded primarily from financing and investing activities,
including the issuance of the 2014 Notes, common stock under our equity
incentive plans and some of our investments in marketable securities that
matured and were not reinvested.
Operating
Activities
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.
Cash
provided by operating activities of $5.3 million in the year ended
December 31, 2007 was primarily attributable to the net loss for the period
adjusted for non-cash items including stock-based compensation expense, non-cash
interest expense, depreciation and amortization expense, partially offset by a
deferred tax benefit. Changes in operating assets and liabilities for the year
ended December 31, 2007 included increases in prepaid and other assets
primarily due to prepaid software maintenance agreements and deferred tax assets
resulting from our operating loss, decreases in deferred revenue and accrued
salaries and benefits and other accrued liabilities, offset by a net increase in
accounts payable primarily due to restatement and related legal expenses and
capitalized software license maintenance agreements.
Investing
Activities
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 to acquire
technology and a portfolio of advanced lighting and optoelectronics patents from
GLT. Additionally, we paid $2.7 million to acquire property 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
and sale of available-for-sale marketable securities of $455.8 million,
partially offset by purchases of available-for-sale marketable securities of
$363.0 million. Additionally, we paid $9.9 million to acquire property
and equipment, primarily computer equipment and computer software
licenses.
Cash
provided by investing activities of approximately $33.2 million in the year
ended December 31, 2007 primarily consisted of proceeds from the maturities
and sale of available-for-sale marketable securities of $707.1 million,
partially offset by purchases of available-for-sale marketable securities of
$664.4 million. Additionally, we purchased $5.7 million of primarily
computer software and $2.6 million of leasehold improvements.
Financing
Activities
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.
Cash
provided by financing activities was $7.6 million in the year ended
December 31, 2007. We received proceeds from the issuance of common stock
under equity incentive plans of $11.8 million during the fourth quarter of
the year and paid $4.3 million under installment payment plans used to
acquire software license agreements. No other significant financing activities
occurred during the year primarily due to the stock option investigation and
restatement, during which we suspended our common stock repurchase program and
suspended employee stock option exercises and purchases under our employee stock
purchase plan.
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. 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 “Management’s 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.
Contractual
Obligations
We lease
our present office facilities in Los Altos, California, under an operating lease
agreement through December 31, 2010. As part of this lease transaction, we
provided a letter of credit restricting approximately $0.6 million of our
cash as collateral for certain obligations under the lease. The cash is
restricted as to withdrawal and is managed by a third party subject to certain
limitations under our investment policy. We also leased a facility in Mountain
View, California, through November 11, 2009, which we vacated during the
fourth quarter of 2008 and subleased at a rate equal to its rent associated with
the facility. We lease a facility in Chapel Hill, North Carolina through
November 14, 2015, a facility for our design center in Bangalore, India
through November 4, 2012 and a facility in Tokyo, Japan through
July 31, 2010. In addition, we also lease office facilities in Ohio and
various international locations under non-cancelable leases that range in terms
from month-to-month to one year.
On
December 15, 2009, we entered into a definitive triple net space lease agreement
with MT SPE, LLC (the “Landlord”) whereby we will lease approximately 125,000
square feet of office space located at 1040 Enterprise Way in Sunnyvale,
California (the
“Lease”). The
office space will be used for our corporate headquarters functions, as well as
engineering, marketing and administrative operations and
activities. We plan to move to the new premises in the second half of
2010 following completion of leasehold improvements. The 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 Lease term. The annual base rent increases each year to certain fixed
amounts over the course of the term as set forth in the Lease and will be $4.8
million in the tenth year. In addition to the base rent, we will also pay
operating expenses, insurance expenses, real estate taxes and a management
fee. We have two options to extend the Lease for a period of sixty months
each and a one-time option to terminate the Lease after 84 months in exchange
for an early termination fee.
During
the first quarter of 2010, we will begin a build-out of this facility and expect
to incur approximately $11.5 million in construction costs. Under the terms
of the Lease, the landlord has agreed to reimburse approximately
$10.0 million of this amount. Because certain improvements constructed by
us were considered structural in nature and we are responsible for any cost
overruns, we are considered to be the owner of the construction project in
accordance with accounting for the effect of lessee involvement in asset
construction. Therefore, we have capitalized the fair value of the space to be
occupied at $25.1 million with a corresponding credit to liability named
non-cash obligation for construction in progress. The fair value was determined
as of December 31, 2009 using the cost approach which measures the value of
an asset as the cost to reconstruct or replace it with another similar
asset.
Upon
completion of construction, we will apply sale-leaseback accounting.
Additionally, we will determine whether the lease will be treated as a capital
or operating lease.
On
February 1, 2005, we issued $300.0 million aggregate principal amount of zero
coupon convertible senior notes due February 1, 2010 to Credit Suisse First
Boston LLC and Deutsche Bank Securities as initial purchasers who then sold the
convertible notes to institutional investors. We have elected to pay the
principal amount of the 2010 Notes in cash when they are due. Subsequently, we
repurchased a total of $163.1 million face value of the outstanding 2010 Notes
in 2005 and 2008. The aggregate principal amount of the 2010 Notes outstanding
as of December 31, 2009 was $137.0 million, offset by an unamortized debt
discount of $0.9 million. The debt discount was amortized over the remaining one
month until maturity of the 2010 Notes, see Note 15, “Convertible Notes,” of
Notes to Consolidated Financial Statements for additional details. The 2010
Notes were paid off in full in February 2010.
On June
29, 2009, we entered into an Indenture by and between us and 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, 2009 was $172.5 million, offset by unamortized debt discount of
$60.5 million in the accompanying consolidated balance sheets. The debt discount
is currently being amortized over the remaining 54 months until maturity of the
2014 Notes on June 15, 2014. See Note 15, “Convertible Notes,” of Notes to
Consolidated Financial Statements for additional details.
As of
December 31, 2009, our material contractual obligations are (in
thousands):
|
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||||||
|
Contractual
obligations(1)
|
||||||||||||||||||||||||||||
|
Operating
leases
|
$ | 50,504 | $ | 7,304 | $ | 4,654 | $ | 4,737 | $ | 4,313 | $ | 4,444 | $ | 25,052 | ||||||||||||||
|
Convertible
notes
|
309,450 | 136,950 | — | — | — | 172,500 | — | |||||||||||||||||||||
|
Interest
payments related to convertible notes
|
38,432 | 8,625 | 8,625 | 8,625 | 8,625 | 3,932 | — | |||||||||||||||||||||
|
Total
|
$ | 398,386 | $ | 152,879 | $ | 13,279 | $ | 13,362 | $ | 12,938 | $ | 180,876 | $ | 25,052 | ||||||||||||||
___________
|
(1)
|
The
above table does not reflect possible payments in connection with
uncertain tax benefits of approximately $10.4 million, including
$8.4 million recorded as a reduction of long-term deferred tax assets
and $2.0 million in long-term income taxes payable, as of
December 31, 2009. As noted in Note 11, “Income Taxes,” of Notes
to Consolidated Financial Statements, although it is possible that some of
the unrecognized tax benefits could be settled within the next
12 months, we cannot reasonably estimate the outcome at this
time.
|
Share
Repurchase Program
In
October 2001, the Board approved a share repurchase program of our Common Stock,
principally to reduce the dilutive effect of employee stock options. To date,
the Board has approved the authorization to repurchase up to 19.0 million
shares of our outstanding Common Stock over an undefined period of time. For the
year ended December 31, 2009, we did not repurchase any Common Stock. As of
December 31, 2009, we had repurchased a cumulative total of approximately
16.8 million shares of our Common Stock with an aggregate price of
approximately $233.8 million since the commencement of this program. As of
December 31, 2009, there remained an outstanding authorization to
repurchase approximately 2.2 million shares of our outstanding Common
Stock.
We record
stock repurchases as a reduction to stockholders’ equity. We record a portion of
the purchase price of the repurchased shares as an increase to accumulated
deficit when the cost of the shares repurchased exceeds the average original
proceeds per share received from the issuance of Common Stock. During the year
ended December 31, 2009, we did not repurchase any Common Stock. During the year
ended December 31, 2008, the cumulative price of the shares repurchased exceeded
the proceeds received from the issuance of the same number of shares. The excess
of $44.2 million was recorded as an increase to accumulated deficit for the year
ended December 31, 2008.
Shareholder
Litigation Related to Historical Stock Option Practices
See Note
16 “Litigation and Asserted Claims,” of Notes to Consolidated Financial
Statements 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 reseller’s 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 settlement of patent infringement disputes.
The amount of consideration (including but not limited to past royalty payments,
future royalty payments and punitive damages) of the settlement agreement is
allocated to each element 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 obligations and collectibility 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.
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. We generally
recognize revenue from these arrangements as amounts become due. The contractual
terms of the agreements generally provide for payments over an extended period
of time.
Technology
licenses. We develop proprietary and industry-standard chip
interface products, such as 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 recognize revenue from these arrangements upon
notification from the licensee of the royalties earned and when collectability
is deemed reasonably assured.
Contract
Revenue
We
generally recognize revenue using percentage of completion for development
contracts related to licenses of our interface solutions, such as 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. Prior to the first quarter of 2008, we determined progress to
completion using labor-hours incurred. The change to input measures better
reflects the overall gross margin over the life of the contract. This change did
not have a significant impact on our results of operations. We have evaluated
use of output measures versus input measures and have determined that our output
is not sufficiently uniform with respect to cost, time and effort per unit of
output to use output measures as a measure of progress to completion. Part of
these contract fees may be due upon the achievement of certain milestones, such
as provision of certain deliverables by us or production of chips by the
licensee. The remaining fees may be due on pre-determined dates and include
significant up-front fees.
A
provision for estimated losses on fixed price contracts is made, if necessary,
in the period in which the loss becomes probable and can be reasonably
estimated. If we determine that it is necessary to revise the estimates of the
total costs required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected. However, to the
extent the new assumptions regarding the total efforts necessary to complete a
project were less than the original assumptions, the contract fees would be
recognized sooner than originally expected. Conversely, if the newly estimated
total efforts necessary to complete a project were longer than the original
assumptions, the contract fees will be recognized over a longer
period.
If
application of the percentage-of-completion method results in recognizable
revenue prior to an invoicing event under a customer contract, we will recognize
the revenue and record an unbilled receivable. Amounts invoiced to our customers
in excess of recognizable revenue are recorded as deferred revenue. The timing
and amounts invoiced to customers can vary significantly depending on specific
contract terms and can therefore have a significant impact on deferred revenue
or unbilled receivables in any given period.
We also
recognize revenue 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 16, “Litigation
and Asserted Claims,” of Notes to Consolidated Financial Statements of this
Form 10-K. Based upon consultation with outside counsel handling our
defense in these matters and an analysis of potential results, we accrue for
losses related to litigation if we determine that a loss is probable and can be
reasonably estimated. If a specific loss amount cannot be estimated, we review
the range of possible outcomes and accrue the low end of the range of estimates.
Any such accrual would be charged to expense in the appropriate period. We
recognize litigation expenses in the period in which the litigation services
were provided.
Income
Taxes
As part
of preparing our consolidated financial statements, we are required to calculate
the income tax expense or benefit which relates to the pretax income or loss for
the period. In addition, we are required to assess the realization of the tax
asset or liability to be included on the consolidated balance sheet as of the
reporting dates.
This
process requires us to calculate various items including permanent and temporary
differences between the financial accounting and tax treatment of certain income
and expense items, differences between federal and state tax treatment of these
items, the amount of taxable income reported to various states, foreign taxes
and tax credits. The differing treatment of certain items for tax and accounting
purposes results in deferred tax assets and liabilities, which are included on
our consolidated balance sheet.
As of
December 31, 2009, our consolidated balance sheet included net deferred tax
assets, before valuation allowance, of approximately $153.1 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, 2009, a valuation allowance of
$150.9 million reduced net deferred tax assets to $2.2 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 solely dependent on our ability to generate sufficient
future taxable income during periods prior to the expiration of tax statutes to
fully utilize these assets. Our forecasted future operating results are highly
influenced by, among other factors, assumptions regarding (1) our ability
to achieve our forecasted revenue, (2) our ability to effectively manage
our expenses in line with our forecasted revenue and (3) general trends in
the semiconductor industry.
We
weighed both positive and negative evidence and determined that there is a
continued need for a valuation allowance due to the existence of three years of
historical cumulative losses, which we considered significant verifiable
negative evidence. Though considered positive evidence, projected income from
favorable patent and related settlement litigation were not included in the
determination for the valuation allowance due to our inability to reliably
estimate the timing and amounts of such settlements. In January 2010, we signed
an agreement with Samsung which will be considered in assessing the need for a
valuation allowance going forward.
Tax
attributes related to stock option windfall deductions should not be recorded
until they result in a reduction of cash taxes payable. Starting in 2006, we no
longer include net operating losses attributable to stock option windfall
deductions as components of our gross deferred tax assets. The benefit of these
net operating losses will be recorded to equity when they reduce cash taxes
payable.
The
calculation of our tax liabilities involves dealing with uncertainties in the
application of complex tax law and regulations in a multitude of jurisdictions.
Although FASB 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, 2009, 2008 and 2007, we maintained stock plans
covering a broad range of potential equity grants including stock options,
nonvested equity stock and equity stock units and performance based instruments.
In addition, we sponsor an Employee Stock Purchase Plan (“ESPP”), whereby
eligible employees are entitled to purchase Common Stock semi-annually, by means
of limited payroll deductions, at a 15% discount from the fair market value of
the Common Stock as of specific dates.
Effective
January 1, 2006, we adopted the revised accounting guidance for share-based
payment. 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. We selected the modified prospective method of adoption, which
recognizes compensation expense for the fair value of all share-based payments
granted after January 1, 2006 and for the fair value of all awards granted
to employees prior to January 1, 2006 that remain unvested on the date of
adoption. This method did not require a restatement of prior periods. However,
awards granted and still unvested on the date of adoption are attributed to
expense under the accounting guidance for share-based payments, including the
application of a forfeiture rate on a prospective basis. Our forfeiture rate
represents the historical rate at which our stock-based awards were surrendered
prior to vesting. 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 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 security’s 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.
Non-Marketable
Securities
We have
an investment in a non-marketable security of a private company which is carried
at cost. We monitor the investment for other-than-temporary impairment and
record appropriate reductions in carrying value when necessary. The
non-marketable security is classified as other non-current assets in the
consolidated balance sheets.
Convertible
Notes
See Note
15, “Convertible Notes,” of Notes to Consolidated Financial Statements regarding
the accounting policy in regards to the adoption of the new 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 for a full description of recent accounting
pronouncements including the respective expected dates of
adoption.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
We are
exposed to financial market risks, primarily arising from the effect of interest
rate fluctuations on our investment portfolio. Interest rate fluctuation may
arise from changes in the market’s 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 &
Poor’s, P1 by Moody’s 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 & Poor’s, Aa3 by Moody’s 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,
2009, we had an investment portfolio of fixed income marketable securities of
$452.0 million including cash equivalents. If market interest rates were to
increase immediately and uniformly by 10% from the levels as of December 31,
2009, the fair value of the portfolio would decline by approximately $0.1
million. Actual results may differ materially from this sensitivity
analysis.
The table
below summarizes the book value, fair value, unrealized gains and related
weighted average interest rates for our cash equivalents and marketable
securities portfolio as of December 31, 2009 and 2008:
|
December 31, 2009
|
||||||||||||||||||||
|
(dollars
in thousands)
|
Fair Value
|
Book Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Weighted
Rate
of
Return
|
|||||||||||||||
|
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 | ) | |||||||||||
|
December 31, 2008
|
||||||||||||||||||||
|
(dollars
in thousands)
|
Fair Value
|
Book Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Weighted
Rate
of
Return
|
|||||||||||||||
|
Money
Market Funds
|
$ | 110,732 | $ | 110,732 | $ | — | $ | — | 0.90 | % | ||||||||||
|
Municipal
Bonds and Notes
|
1,000 | 1,000 | — | — | 3.85 | % | ||||||||||||||
|
U.S.
Government Bonds and Notes
|
149,304 | 148,178 | 1,126 | — | 2.79 | % | ||||||||||||||
|
Corporate
Notes, Bonds, and Commercial Paper
|
79,308 | 79,275 | 197 | (164 | ) | 3.06 | % | |||||||||||||
|
Total
cash equivalents and marketable securities
|
340,344 | 339,185 | 1,323 | (164 | ) | |||||||||||||||
|
Cash
|
5,509 | 5,509 | — | — | ||||||||||||||||
|
Total
cash, cash equivalents and marketable securities
|
$ | 345,853 | $ | 344,694 | $ | 1,323 | $ | (164 | ) | |||||||||||
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 obligations.
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
convertible notes as of December 31, 2009:
|
(in
thousands)
|
Fair Value
|
Fair
Value Given
a
10%
Increase
in Market Prices
|
Fair
Value Given
a
10%
Decrease
in Market Prices
|
|||||||||
|
Zero
Coupon Convertible Senior Notes due 2010
|
$ | 142,599 | $ | 156,859 | $ | 128,339 | ||||||
|
5%
Convertible Senior Notes due 2014
|
261,160 | 287,276 | 235,044 | |||||||||
|
Total
convertible notes
|
$ | 403,759 | $ | 444,135 | $ | 363,383 | ||||||
We bill
our customers in U.S. dollars. Although the fluctuation of currency exchange
rates may impact our customers, and thus indirectly impact us, we do not attempt
to hedge this indirect and speculative risk. Our overseas operations consist
primarily of one design center in India and small business development offices
in Germany, Japan and Taiwan. We monitor our foreign currency exposure; however,
as of December 31, 2009, we believe our foreign currency exposure is not
material enough to warrant foreign currency hedging.
Item 8. Financial Statements and
Supplementary Data
See
Item 15 “Exhibits and Financial Statement Schedules” of this Form 10-K
for required financial statements and supplementary data.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure
None.
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, 2009, our
disclosure controls and procedures were effective.
The
internal control over financial reporting related to the business acquired from
Global Lighting Technologies, Inc., known as the Lighting Technology Division,
was excluded from the evaluation of the effectiveness of the Company's
disclosure control and procedures as of the end of the period covered by this
report because it was acquired in a business combination during 2009. Total
assets, revenues and operating expenses of this business represent approximately
0.04%, 0% and 0.1%, respectively, of the related consolidated financial
statement amounts as of and for the period covered by this
report.
Management’s
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 Global Lighting Technologies,
Inc., known as the Lighting Technology Division, from its assessment of internal
control over financial reporting as of December 31, 2009 because it was acquired
by the Company in a business combination during the year ended December 31,
2009. Combined total assets, revenues and operating expenses of this business
represent 0.04%, 0% and 0.1%, respectively, of the consolidated financial
statement amounts of the Company as of and for the fiscal year ended December
31, 2009.
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, 2009. 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, 2009, 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, 2009 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.
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 2010 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 2010 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 2010 annual meeting of stockholders to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
The
information responsive to this item is incorporated herein by reference to our
Proxy Statement for our 2010 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 2010 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 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
|
|
49
|
|
|
50
|
|
|
51
|
|
|
52
|
|
|
53
|
|
|
54
|
|
|
94
|
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, 2009 and December 31, 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management's Report on Internal Control over
Financial Reporting, under item 9A. Our responsibility is to express opinions on
these financial statements and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
As
discussed in Note 3 of the Notes to the Consolidated Financial Statements,
the Company changed the manner in which it accounts for certain convertible debt
instruments, effective January 1, 2009.
A
company’s 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 company’s 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 company’s 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 Management's Report on Internal Control over Financial Reporting,
management has excluded the business acquired from Global Lighting Technologies,
Inc., known as the Lighting Technology Division, from its assessment of internal
control over financial reporting as of December 31, 2009 because it was acquired
by the Company in a business combination during the year ended December 31,
2009. We have also excluded this business from our audit of internal control
over financial reporting. This business’ total assets, revenues and operating
expenses represent approximately 0.04%, 0% and 0.1%, respectively, of the
related consolidated financial statement amounts as of and for the year ended
December 31, 2009.
/s/ PricewaterhouseCoopers
LLP
San Jose,
California
February 25,
2010
RAMBUS INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands, except shares and per share amounts)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 289,073 | $ | 116,241 | ||||
|
Marketable
securities
|
171,120 | 229,612 | ||||||
|
Accounts
receivable
|
949 | 1,503 | ||||||
|
Prepaids
and other current assets
|
8,700 | 8,486 | ||||||
|
Deferred
taxes
|
129 | 88 | ||||||
|
Total
current assets
|
469,971 | 355,930 | ||||||
|
Restricted
cash
|
639 | 632 | ||||||
|
Deferred
taxes, long term
|
2,034 | 1,857 | ||||||
|
Intangible
assets, net
|
21,660 | 7,244 | ||||||
|
Property
and equipment, net
|
38,966 | 22,290 | ||||||
|
Goodwill
|
15,554 | 4,454 | ||||||
|
Other
assets
|
7,045 | 4,963 | ||||||
|
Total
assets
|
$ | 555,869 | $ | 397,370 | ||||
|
LIABILITIES
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 8,972 | $ | 6,374 | ||||
|
Accrued
salaries and benefits
|
6,435 | 9,859 | ||||||
|
Accrued
litigation expenses
|
5,147 | 14,265 | ||||||
|
Income
taxes payable
|
486 | 638 | ||||||
|
Non-cash
obligation for construction in progress
|
25,100 | — | ||||||
|
Other
accrued liabilities
|
4,020 | 4,965 | ||||||
|
Convertible
notes
|
136,032 | — | ||||||
|
Total
current liabilities
|
186,192 | 36,101 | ||||||
|
Convertible
notes
|
112,012 | 125,474 | ||||||
|
Long-term
income taxes payable
|
1,994 | 1,953 | ||||||
|
Other
long-term liabilities
|
344 | 901 | ||||||
|
Total
liabilities
|
300,542 | 164,429 | ||||||
|
Commitments
and contingencies
|
||||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Convertible
preferred stock, $.001 par value:
|
||||||||
|
Authorized:
5,000,000 shares; Issued and outstanding: no shares at December 31, 2009
and December 31, 2008
|
— | — | ||||||
|
Common
Stock, $.001 par value:
|
||||||||
|
Authorized:
500,000,000 shares; Issued and outstanding 105,934,157 shares at December
31, 2009 and 103,803,006 shares at December 31, 2008
|
106 | 104 | ||||||
|
Additional
paid in capital
|
818,992 | 703,640 | ||||||
|
Accumulated
deficit
|
(563,858 | ) | (471,672 | ) | ||||
|
Accumulated
other comprehensive income, net
|
87 | 869 | ||||||
|
Total
stockholders’ equity
|
255,327 | 232,941 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 555,869 | $ | 397,370 | ||||
See Notes
to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Revenue:
|
||||||||||||
|
Royalties
|
$ | 108,001 | $ | 126,910 | $ | 154,306 | ||||||
|
Contract
revenue
|
5,006 | 15,584 | 25,634 | |||||||||
|
Total
revenue
|
113,007 | 142,494 | 179,940 | |||||||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of contract revenue*
|
6,876 | 21,303 | 27,124 | |||||||||
|
Research
and development*
|
67,252 | 76,222 | 82,877 | |||||||||
|
Marketing,
general and administrative*
|
128,199 | 124,077 | 120,597 | |||||||||
|
Costs
(recoveries) of restatement and related legal activities
|
(13,458 | ) | 3,262 | 19,457 | ||||||||
|
Restructuring
costs*
|
— | 4,185 | — | |||||||||
|
Impairment
of intangible asset
|
— | 2,158 | — | |||||||||
|
Total
costs and expenses
|
188,869 | 231,207 | 250,055 | |||||||||
|
Operating
loss
|
(75,862 | ) | (88,713 | ) | (70,115 | ) | ||||||
|
Interest
income and other income, net
|
4,085 | 15,199 | 21,759 | |||||||||
|
Interest
expense
|
(20,950 | ) | (11,805 | ) | (11,011 | ) | ||||||
|
Interest
and other income (expense), net
|
(16,865 | ) | 3,394 | 10,748 | ||||||||
|
Loss
before income taxes
|
(92,727 | ) | (85,319 | ) | (59,367 | ) | ||||||
|
Provision
for (benefit from) income taxes
|
(541 | ) | 113,791 | (25,146 | ) | |||||||
|
Net
loss
|
$ | (92,186 | ) | $ | (199,110 | ) | $ | (34,221 | ) | |||
|
Net
loss per share:
|
||||||||||||
|
Basic
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | |||
|
Diluted
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | |||
|
Weighted
average shares used in per share calculations:
|
||||||||||||
|
Basic
|
105,011 | 104,574 | 104,056 | |||||||||
|
Diluted
|
105,011 | 104,574 | 104,056 | |||||||||
|
*
Includes stock-based compensation:
|
||||||||||||
|
Cost
of contract revenue
|
$ | 1,002 | $ | 5,187 | $ | 5,910 | ||||||
|
Research
and development
|
$ | 9,715 | $ | 13,488 | $ | 16,199 | ||||||
|
Marketing,
general and administrative
|
$ | 20,868 | $ | 18,492 | $ | 22,701 | ||||||
|
Restructuring
costs
|
$ | — | $ | 547 | $ | — | ||||||
See Notes
to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
AND
COMPREHENSIVE LOSS
|
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Accumulated
Other
Comprehensive
|
||||||||||||||||||||
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Gain (Loss)
|
Total
|
||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||
|
Balances
at December 31, 2006
|
103,820 | $ | 104 | $ | 598,385 | $ | (193,612 | ) | $ | (630 | ) | $ | 404,247 | |||||||||||
|
ASC
740-10 Tax Adjustment
|
— | — | 239 | 94 | — | 333 | ||||||||||||||||||
|
Balances
at January 1, 2007
|
103,820 | 104 | 598,624 | (193,518 | ) | (630 | ) | 404,580 | ||||||||||||||||
|
Components
of comprehensive loss:
|
||||||||||||||||||||||||
|
Net
loss
|
— | — | — | (34,221 | ) | — | (34,221 | ) | ||||||||||||||||
|
Foreign
currency translation adjustments, net of tax
|
— | — | — | — | 66 | 66 | ||||||||||||||||||
|
Unrealized
gain on marketable securities, net of tax
|
— | — | — | — | 688 | 688 | ||||||||||||||||||
|
Total
comprehensive loss
|
(33,467 | ) | ||||||||||||||||||||||
|
Reversal
of liability-based stock awards to equity
|
— | — | 2,136 | — | — | 2,136 | ||||||||||||||||||
|
Issuance
of common stock upon exercise of options, equity stock and stock units,
and employee stock purchase plan
|
1,475 | 1 | 11,831 | — | — | 11,832 | ||||||||||||||||||
|
Repurchase
and retirement of common stock under repurchase plan
|
— | — | — | — | — | — | ||||||||||||||||||
|
Stock-based
compensation
|
— | — | 43,676 | — | — | 43,676 | ||||||||||||||||||
|
Tax
shortfall from equity incentive plans
|
— | — | (6,271 | ) | — | — | (6,271 | ) | ||||||||||||||||
|
Balances
at December 31, 2007
|
105,295 | 105 | 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 | ||||||||||||
See Notes to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (92,186 | ) | $ | (199,110 | ) | $ | (34,221 | ) | |||
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Stock-based
compensation
|
31,585 | 37,167 | 44,810 | |||||||||
|
Depreciation
|
10,661 | 11,326 | 11,202 | |||||||||
|
Impairment
of investments
|
164 | — | — | |||||||||
|
Amortization
of intangible assets
|
2,984 | 4,339 | 5,286 | |||||||||
|
Non-cash
interest expense and amortization of convertible debt issuance
costs
|
16,624 | 11,805 | 11,011 | |||||||||
|
Deferred
tax (benefit) provision
|
(218 | ) | 114,719 | (26,320 | ) | |||||||
|
Loss
on disposal of property and equipment
|
15 | 76 | 445 | |||||||||
|
Impairment
of intangible assets
|
— | 2,158 | — | |||||||||
|
Restructuring
costs (non-cash)
|
— | 547 | — | |||||||||
|
Gain
on repurchase of convertible notes
|
— | (2,528 | ) | — | ||||||||
|
Recoveries
of restatement and related legal activities (non-cash)
|
— | (849 | ) | — | ||||||||
|
Change
in assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
554 | 417 | 674 | |||||||||
|
Prepaids
and other assets
|
1,004 | 95 | (6,190 | ) | ||||||||
|
Accounts
payable
|
2,520 | (3,607 | ) | 3,809 | ||||||||
|
Accrued
salaries and benefits and other accrued liabilities
|
(3,506 | ) | (2,060 | ) | (4,333 | ) | ||||||
|
Accrued
litigation expenses
|
(9,118 | ) | (11,969 | ) | 3,091 | |||||||
|
Income
taxes payable
|
(111 | ) | (1,775 | ) | 816 | |||||||
|
Deferred
revenue
|
(1,557 | ) | (879 | ) | (4,801 | ) | ||||||
|
Decrease
(increase) in restricted cash
|
(7 | ) | 1,654 | 1 | ||||||||
|
Net
cash provided by (used in) operating activities
|
(40,592 | ) | (38,474 | ) | 5,280 | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Acquisition
of business
|
(26,000 | ) | — | (1,139 | ) | |||||||
|
Purchases
of property and equipment
|
(2,665 | ) | (9,871 | ) | (8,347 | ) | ||||||
|
Investment
in non-marketable security
|
(2,000 | ) | — | — | ||||||||
|
Acquisition
of intangible assets
|
(2,500 | ) | (300 | ) | (30 | ) | ||||||
|
Purchases
of marketable securities
|
(183,217 | ) | (362,968 | ) | (664,420 | ) | ||||||
|
Maturities
of marketable securities
|
240,927 | 430,844 | 598,543 | |||||||||
|
Proceeds
from sale of marketable securities
|
— | 24,996 | 108,550 | |||||||||
|
Proceeds
from sale of property and equipment
|
— | 30 | — | |||||||||
|
Net
cash provided by investing activities
|
24,545 | 82,731 | 33,157 | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from issuance of convertible senior notes
|
172,500 | — | — | |||||||||
|
Issuance
costs related to the issuance of convertible senior notes
|
(4,313 | ) | — | — | ||||||||
|
Proceeds
received from issuance of common stock under employee stock
plans
|
20,692 | 21,688 | 11,831 | |||||||||
|
Payments
under installment payment arrangement
|
— | (1,250 | ) | (4,250 | ) | |||||||
|
Repurchase
and retirement of common stock
|
— | (49,226 | ) | — | ||||||||
|
Repurchase
of convertible notes
|
— | (18,679 | ) | — | ||||||||
|
Net
cash provided by (used in) financing activities
|
188,879 | (47,467 | ) | 7,581 | ||||||||
|
Effect
of exchange rates on cash and cash equivalents
|
— | 60 | 69 | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
172,832 | (3,150 | ) | 46,087 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
116,241 | 119,391 | 73,304 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 289,073 | $ | 116,241 | $ | 119,391 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid for interest
|
$ | 3,943 | $ | — | $ | — | ||||||
|
Cash
paid for income taxes
|
$ | 748 | $ | 528 | $ | 1,046 | ||||||
|
Cash
received from income tax refunds
|
$ | 625 | $ | 309 | $ | — | ||||||
Non-cash
investing activities:
|
Non-cash
obligation for construction in progress
|
$ | 25,100 | $ | — | $ | — |
See Notes
to Consolidated Financial Statements
RAMBUS INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. Formation
and Business of the Company
Rambus
Inc. (the “Company” or “Rambus”) designs, develops and licenses chip interface
technologies that are foundational to nearly all digital electronics products.
Rambus’ chip interface technologies are designed to improve the performance,
power efficiency, time-to-market and cost-effectiveness of its customers’
semiconductor and system products for computing, gaming and graphics, consumer
electronics and mobile applications. In December 2009, the Company added
lighting technology to its portfolio of solutions through the acquisition of
patented innovations and technology from Global Lighting Technologies Inc.
(“GLT”). This technology is highly complementary to the Company’s chip interface
technologies since it is intended to 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 and mobile
applications. The new technology also has great potential to enable
cost-effective and power-efficient LED-based general lighting products. Rambus
was incorporated in California in March 1990 and reincorporated in Delaware in
March 1997.
2. Summary
of Significant Accounting Policies
Financial
Statement Presentation
The
accompanying consolidated financial statements include the accounts of Rambus
and its wholly owned subsidiaries, Rambus K.K., located in Tokyo, Japan and
Rambus, located in George Town, Grand Caymans, 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.
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 reseller’s
customer for use of Rambus’ patent and technology licenses. Rambus does not
recognize revenue for these arrangements until it has received notice of revenue
earned by and paid to the reseller, accompanied by the pass-through payment from
the reseller. Rambus does not pay commissions to the reseller for these
arrangements.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Many of
Rambus’ licensees have the right to cancel their licenses. In such arrangements,
revenue is only recognized to the extent that is consistent with the
cancellation provisions. Cancellation provisions within such contracts generally
provide for a prospective cancellation with no refund of fees already remitted
by customers for products provided and payment for services rendered prior to
the date of cancellation. Unbilled receivables represent enforceable claims and
are deemed collectible in connection with the Company’s revenue recognition
policy.
Royalty
Revenue
Rambus
recognizes royalty revenue upon notification by its licensees and when deemed
collectible. The terms of the royalty agreements generally either require
licensees to give Rambus notification and to pay the royalties within
60 days of the end of the quarter during which the sales occur or are based
on a fixed royalty that is due within 45 days of the end of the quarter.
Rambus has two types of royalty revenue: (1) patent license royalties and
(2) technology license royalties.
Patent
licenses. Rambus licenses its broad portfolio of patented
inventions to semiconductor and systems companies who use these inventions in
the development and manufacture of their own products. Such licensing agreements
may cover the license of part, or all, of Rambus’ patent portfolio. Rambus
generally recognizes revenue from these arrangements (except for those royalties
subject to the Federal Trade Commission (the “FTC”) order discussed below) as
amounts become due. The contractual terms of the agreements generally provide
for payments over an extended period of time.
On
February 2, 2007, the FTC issued an order requiring Rambus to limit the
royalty rates charged for certain SDR and DDR SDRAM memory and controller
products sold by licensees after April 12, 2007. The FTC stayed this
requirement on March 16, 2007, subject to certain conditions. One such
condition of the stay limits the royalties Rambus can receive under certain
contracts so that they do not exceed the FTC’s Maximum Allowable Royalties
(“MAR”). Amounts in excess of MAR that are subject to the order are excluded
from revenue (“previously withheld royalties”). On April 22, 2008, the
United States Court of Appeals for the District of Columbia (the “CADC”)
overturned the FTC decision. On October 16, 2008, the FTC issued an order
(“FTC Disposition Order”) authorizing Rambus to receive the excess consideration
that customers have previously deducted from their quarterly payments made to
Rambus under the Patent License Agreement (see Note 16, “Litigation and
Asserted Claims”). In the year ended December 31, 2008, $6.2 million
of these previously withheld royalties were received from the customers and
recognized as revenue.
Technology
licenses. Rambus develops proprietary and industry-standard
chip interface products, such as RDRAMtmand
XDRtm
that Rambus provides to its customers under technology license agreements. These
arrangements include royalties, which can be based on either a percentage of
sales or number of units sold. Rambus recognizes revenue from these arrangements
upon notification from the licensee of the royalties earned and when
collectability is deemed reasonably assured.
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. Prior to the first quarter of 2008, Rambus determined
progress to completion using labor-hours incurred. The change to input measures
better reflects the overall gross margin over the life of the contract. This
change did not have a significant impact on the Company’s results of operations.
Rambus has evaluated use of output measures versus input measures and has
determined that its output is not sufficiently uniform with respect to cost,
time and effort per unit of output to use output measures as a measure of
progress to completion. Part of these contract fees may be due upon the
achievement of certain milestones, such as provision of certain deliverables by
Rambus or production of chips by the licensee. The remaining fees may be due on
pre-determined dates and include significant up-front fees.
A
provision for estimated losses on fixed price contracts is made, if necessary,
in the period in which the loss becomes probable and can be reasonably
estimated. If Rambus determines that it is necessary to revise the estimates of
the total costs required to complete a contract, the total amount of revenue
recognized over the life of the contract would not be affected. However, to the
extent the new assumptions regarding the total efforts necessary to complete a
project were less than the original assumptions, the contract fees would be
recognized sooner than originally expected. Conversely, if the newly estimated
total efforts necessary to complete a project were longer than the original
assumptions, the contract fees will be recognized over a longer period. As of
December 31, 2009, we have accrued a liability of approximately
$0.1 million related to estimated loss contracts.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
If
application of the percentage-of-completion method results in recognizable
revenue prior to an invoicing event under a customer contract, the Company will
recognize the revenue and record an unbilled receivable. Amounts invoiced to
Rambus’ customers in excess of recognizable revenue are recorded as deferred
revenue. The timing and amounts invoiced to customers can vary significantly
depending on specific contract terms and can therefore have a significant impact
on deferred revenue or unbilled receivables in any given period.
Rambus
also recognizes revenue in accordance with software revenue recognition methods
for development contracts related to licenses of its chip interface products
that involve non-essential engineering services and post contract support
(“PCS”). These software revenue recognition methods apply to all entities that
earn revenue on products containing software, where software is not incidental
to the product as a whole. Contract fees for the products and services provided
under these arrangements are comprised of license fees and engineering service
fees which are not essential to the functionality of the product. Rambus’ rates
for PCS and for engineering services are specific to each development contract
and not standardized in terms of rates or length. Because of these
characteristics, the Company does not have a sufficient population of contracts
from which to derive vendor specific objective evidence for each of the
elements.
Therefore,
after Rambus delivers the product, if the only undelivered element is PCS,
Rambus will recognize all revenue ratably over either the contractual PCS period
or the period during which PCS is expected to be provided. Rambus reviews
assumptions regarding the PCS periods on a regular basis. If Rambus determines
that it is necessary to revise the estimates of the support periods, the total
amount of revenue to be recognized over the life of the contract would not be
affected.
Allowance
for Doubtful Accounts
Rambus’
allowance for doubtful accounts is determined using a combination of factors to
ensure that Rambus’ trade and unbilled receivables balances are not overstated
due to uncollectibility. The Company performs ongoing customer credit evaluation
within the context of the industry in which it operates, does not require
collateral, and maintains allowances for potential credit losses on customer
accounts when deemed necessary. A specific allowance for a doubtful account up
to 100% of the invoice will be provided for any problematic customer balances.
Delinquent account balances are written-off after management has determined that
the likelihood of collection is not possible. For all periods presented, Rambus
had no allowance for doubtful accounts.
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 product’s technological feasibility has been
established and ending when a product is available for general release to
customers. Rambus has not capitalized any software development costs since the
period between establishing technological feasibility and general customer
release is relatively short and as such, these costs have not been
significant.
Income
Taxes
Income
taxes are accounted for using an asset and liability approach, which requires
the recognition of deferred tax assets and liabilities for expected future tax
events that have been recognized differently in Rambus’ consolidated financial
statements and tax returns. The measurement of current and deferred tax assets
and liabilities is based on provisions of the enacted tax law and the effects of
future changes in tax laws and rates. A valuation allowance is established when
necessary to reduce deferred tax assets to amounts expected to be realized. See
Note 11, “Income Taxes,” for details related to the Company’s deferred tax
asset valuation allowance.
In
addition, the calculation of the Company’s tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. Effective
January 1, 2007, the Company adopted the provisions of FASB ASC 740-10
related to uncertainties in income taxes. 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, 2009, 2008 and 2007, 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
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Company
sponsors an Employee Stock Purchase Plan (“ESPP”), whereby eligible employees
are entitled to purchase Common Stock semi-annually, by means of limited payroll
deductions, at a 15% discount from the fair market value of the Common Stock as
of specific dates. See Note 8, “Equity Incentive Plans and Stock-Based
Compensation,” for a detailed description of the Company’s plans.
Tax
Effects of Stock-Based Compensation
Rambus
will only recognize a tax benefit from stock-based awards in additional paid-in
capital if an incremental tax benefit is realized after all other tax attributes
currently available have been utilized. In addition, Rambus has elected to
account for the indirect effects of stock-based awards on other tax attributes,
such as the research tax credits, through the statement of operations as part of
the tax effect of stock-based compensation.
See
Note 11, “Income Taxes,” for additional information.
Computation
of Earnings (Loss) Per Share
Basic
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares and potentially dilutive securities
outstanding during the period. Potentially dilutive common shares consist of
incremental common shares issuable upon exercise of stock options, employee
stock purchases, nonvested equity stock and stock units and shares issuable upon
the conversion of convertible notes. The dilutive effect of outstanding shares
is reflected in diluted earnings per share by application of the treasury stock
method. This method includes consideration of the amounts to be paid by the
employees, the amount of excess tax benefits that would be recognized in equity
if the instruments were exercised and the amount of unrecognized stock-based
compensation related to future services. No potential dilutive common shares are
included in the computation of any diluted per share amount when a loss is
reported.
Cash
and Cash Equivalents
Cash
equivalents are highly liquid investments with original maturity of three months
or less at the date of purchase. The Company maintains its cash balances with
high quality financial institutions. The cash equivalent balances are invested
in highly-rated and highly-liquid money market securities.
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 Company’s 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 security’s
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
Company’s 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 non-current assets
in the consolidated balance sheets.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 values based upon comparable market information available at
the respective balance sheet dates. The Company adopted the fair value
measurement statement, 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
Company’s marketable securities, see Note 17, “Fair Value of Financial
Instruments.” Additionally, the Company has adopted the fair value option for
financial assets and financial liabilities statement, effective January 1, 2008.
The Company has not elected the fair value option for financial instruments not
already carried at fair value.
Property
and Equipment
Property
and equipment includes computer equipments, software, leasehold improvements,
furniture and fixtures and a construction in progress building. Computer
equipment, computer software and furniture and fixtures are stated at cost and
depreciated on a straight-line basis over an estimated useful life of three
years. Certain software licenses are depreciated over three to five years,
depending on the term of the license. Since certain improvements constructed by
the Company were considered structural in nature and the Company
is responsible for any cost overruns, the Company is considered to be
the owner of the construction project for a building in accordance with
accounting for the effect of lessee involvement in asset construction.
Therefore, the Company has capitalized the fair value of the portion of the
building that the Company will occupy as construction in progress with a
corresponding obligation for construction in progress. See Note 6, “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.
Goodwill
Costs in
excess of the fair value of tangible and other intangible assets acquired and
liabilities assumed in a purchase business combination are recorded as goodwill.
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 unit’s carrying amount, including goodwill, to
the fair value of the reporting unit. The fair values of the reporting units are
estimated using a combination of the income, or discounted cash flows, approach
and the market approach, which utilizes comparable companies’ data. If the
carrying amount of the reporting unit exceeds its fair value, goodwill is
considered impaired and a second step is performed to measure the amount of
impairment. The second step involves determining the fair value of goodwill for
each reporting unit. Any excess carrying amount of goodwill over the fair value
determined in the second step will be recorded as a goodwill impairment
loss.
The
Company completed the first step of its annual impairment analysis related to
the chip interface and other technology reporting unit as of December 31,
2009 and found no instance of impairment of its recorded goodwill of
$4.5 million at December 31, 2009. In regards to the goodwill related
to the lighting technology reporting unit which was created from the acquisition
of patented innovations and technology from GLT of $11.1 million, as the Company
acquired the assets in December 2009 and there were no triggering events to
cause impairment, the purchase price approximates the fair value as of December
31, 2009 and no goodwill impairment was identified. If the Company’s estimates
or the related assumptions change in the future, it may be required to record an
impairment charge for goodwill to reduce the carrying amount to its estimated
fair value.
Intangible
Assets
The
valuation and useful lives of the acquired intangible assets were allocated
based on estimated fair values at the acquisition dates. The value of the
purchases, along with interviews and management’s 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 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.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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. A significant impairment of finite-lived intangible
assets could have a material adverse effect on Rambus’ financial position and
results of operations. During 2009, Rambus did not recognize any impairment of
its long-lived and intangible assets. During 2008, Rambus determined that
approximately $2.2 million of intangible assets had no alternative use and
was impaired as a result of a customer’s change in technology
requirements.
Restructuring
Costs
In
connection with the Company’s 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 Company’s management to make
judgments and estimates regarding the nature, timing, and amount of costs
associated with the planned exit activity, including estimating sublease income
and the fair value, less selling costs, of property, plant and equipment to be
disposed of. Estimates of future liabilities may change, requiring the Company
to record additional restructuring charges or to reduce the amount of
liabilities already recorded. At the end of each reporting period, the Company
evaluates the remaining accrued balances to ensure their adequacy, that no
excess accruals are retained and that the utilization of the provisions is for
the intended purpose in accordance with developed exit plans. In the event
circumstances change and the provision is no longer required, the provision is
reversed.
Foreign
Currency Translation
For
foreign subsidiaries using the local currency as their functional currency,
assets and liabilities are translated using current exchange rates in effect at
the balance sheet date and revenue and expense accounts are translated using the
weighted average exchange rate during the period. Adjustments resulting from
such translation are included in stockholders’ equity as foreign currency
translation adjustments and aggregated within accumulated other comprehensive
income (loss).
For
foreign subsidiaries using the U.S. dollar as their functional currency,
remeasurement adjustments for non-functional currency monetary assets and
liabilities are translated into U.S. dollars at the exchange rate in effect
at the balance sheet date. Revenue, expenses, gains or losses are translated at
the average exchange rate for the period, and non-monetary assets and
liabilities are translated at historical rates. The resultant remeasurement
gains and losses of these foreign subsidiaries as well as gains and losses from
foreign currency transactions are included in other expense, net in the
statements of operations, and are not significant for any periods
presented.
Segment
Reporting
Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Rambus has identified one operating and reporting segment, the
design, development and licensing of memory and logic interfaces, lighting and
optoelectronics, and other technologies. This segment operates in three
geographic regions: North America, Asia and Europe.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner
sources, including foreign currency translation adjustments and unrealized gains
and losses on marketable securities. Other comprehensive income (loss), net of
tax, is presented in the statements of stockholders’ equity and comprehensive
loss.
Litigation
Rambus is
involved in certain legal proceedings. Based upon consultation with outside
counsel handling its defense in these matters and an analysis of potential
results, Rambus accrues for losses related to litigation if it determines that a
loss is probable and can be
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
reasonably
estimated. If a loss cannot be estimated, Rambus reviews the range of possible
outcomes and accrues the low end of the range of estimates. Any such accrual
would be charged to expense in the appropriate period. Rambus recognizes
litigation expenses in the period in which the litigation services were
provided.
Recent
Accounting Pronouncements
In
January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06
which includes two major new disclosure requirements and clarifies two existing
disclosure requirements related to fair value measurement. ASU 2010-06 is
effective for interim or annual reporting periods beginning after December 15,
2009. The adoption of this staff position will not have a material impact on the
Company’s financial statements. This new pronouncement will be incorporated into
the disclosure related to the fair value of financial instruments in the
quarterly filing for the first quarter of 2010.
In
September 2009, the Emerging Issues Task Force (the “EITF”) reached final
consensus under 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 Company’s
revenue arrangements entered into or materially modified on or after January 1,
2011. The Company will evaluate the impact of this issue on the Company’s
financial statements when reviewing its new or materially modified revenue
arrangements with multiple deliverables once this issue becomes
effective.
In June
2009, the FASB issued a statement which improves financial reporting by
enterprises involved with variable interest entities. This statement requires
companies to perform an analysis to determine whether the company’s variable
interest or interests give it a controlling financial interest in a variable
interest entity. This statement will be effective as of the beginning of the
annual reporting period that begins after November 15, 2009. The Company will
evaluate the impact of this statement on the Company’s financial statements when
it becomes applicable.
In June
2009, the FASB issued a statement which improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets as
well as the effects of a transfer on its financial position, financial
performance, and cash flows and a transferor’s continuing involvement, if any,
in transferred financial assets. The statement requires that a transferor
recognize and initially measure at fair value all assets obtained (including a
transferor’s beneficial interest) and liabilities incurred as a result of a
transfer of financial assets accounted for as a sale. The statement will be
effective as of the beginning of annual reporting period that begins after
November 15, 2009. The Company believes the adoption of this pronouncement will
not have a material impact on the Company’s financial statements as the Company
does not currently transfer its financial assets.
3. Retrospective Adoption of New
Accounting Pronouncement
In May
2008, the FASB issued new accounting guidance which clarifies the accounting for
convertible debt instruments that may be settled in cash upon conversion,
including partial cash settlement (“new FASB accounting guidance”). The new FASB
accounting guidance specifies that an issuer of such instruments should
separately account for the liability and equity components of the instruments in
a manner that reflects the issuer’s non-convertible debt borrowing rate when
interest costs are recognized in subsequent periods. The debt component was
determined based on a binomial lattice model. The equity component, recorded as
additional paid-in capital, represents the difference between the proceeds from
the issuance of the convertible notes and the fair value of the liability, net
of deferred taxes, as of the date of issuance. The new FASB accounting guidance
was effective for the Company’s fiscal year beginning January 1, 2009, and
retrospective application is required for all periods presented. The Company
adjusted the historical financial statements in the Form 8-K filed on June 22,
2009 to reflect the impact of this new accounting guidance.
The
adoption of the new FASB accounting guidance on January 1, 2009 impacted the
historical accounting for the Company’s zero coupon convertible senior notes due
February 1, 2010 (the “2010 Notes”) as the Company’s 2010 Notes satisfy the
criteria for accounting under the new FASB accounting guidance. The Company
determined that the liability component of the 2010 Notes was $200.3 million and
the equity component of the 2010 Notes was $99.7 million as of the date of
issuance. The Company has accounted for this change in accounting principle by
retrospectively adjusting prior period financial statements, including those set
forth herein.
The debt
component is accreted to par using the effective interest method and accretion
is reported as a component of interest expense in the Company’s consolidated
statements of operations. The interest expense attributed to the adoption of the
new FASB accounting guidance for 2008 and 2007 was $11.8 million and $11.0
million, respectively, at an annualized effective interest rate of 8.4%. The
adoption also resulted in a $22.0 million prior period cumulative adjustment in
the consolidated balance sheets and the
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
consolidated
statement of stockholders’ equity and comprehensive loss that was included in
the January 1, 2006 accumulated deficit beginning balance. The equity component
is not required to be subsequently re-valued under the new FASB accounting
guidance as long as it continues to qualify for equity treatment. The deferred
financing costs associated with the issuance of the 2010 Notes were previously
reported at $7.2 million. These costs have been allocated proportionately
between the liability and equity components. The issuance costs associated with
the liability component continues to be included in other assets on the
Company’s consolidated balance sheets, whereas the issuance costs associated
with the equity component are included in additional paid-in-capital and are not
amortized.
The
Company originally recorded amortization expense of note issuance costs of $3.2
million for 2006 and no amortization expense of note issuance costs in 2008 and
2007 due to the acceleration of the remaining amortization of note issuance
costs in connection with the notice of acceleration relative to the 2010 Notes.
The adoption of the new FASB accounting guidance resulted in the reversal of the
acceleration of amortization of note issuance costs in 2006. This decreased the
amortization expense of note issuance costs for 2006 to $0.5 million and
increased the amortization expense of note issuance costs for 2007 and 2008 to
$0.5 million and $0.6 million, respectively.
In the
year ended December 31, 2008, the Company repurchased $23.1 million face value
of the outstanding 2010 Notes. The Company originally reported a net gain on
extinguishment of $4.4 million for 2008. The adoption of the new FASB accounting
guidance decreased the gain on extinguishment for 2008 to $2.5 million as a
result of $1.6 million of accelerated interest expense, which was recorded
against the original gain amount, and $0.3 million associated with the equity
component.
The
unamortized discount will continue to be amortized through January 2010, given
the repayment date of the 2010 Notes on February 1, 2010. The following
adjustments have been made to the previously reported consolidated statements of
operations for the years ended December 31, 2008 and 2007 and the consolidated
balance sheet as of December 31, 2008.
|
As of December 31, 2008
|
||||||||||||
|
As previously reported
|
Adjustments
|
As adjusted
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Deferred
taxes, long term
|
$ | 1,857 | $ | — | $ | 1,857 | ||||||
|
Other
assets
|
$ | 4,483 | $ | 480 | $ | 4,963 | ||||||
|
Total
assets
|
$ | 396,890 | $ | 480 | $ | 397,370 | ||||||
|
Convertible
notes
|
$ | 136,950 | $ | (11,476 | ) | $ | 125,474 | |||||
|
Additional
paid in capital
|
$ | 655,724 | $ | 47,916 | $ | 703,640 | ||||||
|
Accumulated
deficit
|
$ | (435,712 | ) | $ | (35,960 | ) | $ | (471,672 | ) | |||
|
Total
stockholders’ equity
|
$ | 220,985 | $ | 11,956 | $ | 232,941 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 396,890 | $ | 480 | $ | 397,370 | ||||||
|
Year ended December 31,
2008
|
||||||||||||
|
As previously reported
|
Adjustments
|
As adjusted
|
||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Interest
income and other income (expense), net
|
$ | 17,042 | $ | (1,843 | ) | $ | 15,199 | |||||
|
Interest
expense
|
$ | — | $ | (11,805 | ) | $ | (11,805 | ) | ||||
|
Net
loss before income taxes
|
$ | (71,671 | ) | $ | (13,648 | ) | $ | (85,319 | ) | |||
|
Provision
for (benefit from) income taxes
|
$ | 124,252 | $ | (10,461 | ) | $ | 113,791 | |||||
|
Net
loss
|
$ | (195,923 | ) | $ | (3,187 | ) | $ | (199,110 | ) | |||
|
Net
loss per share — Basic
|
$ | (1.87 | ) | $ | (0.03 | ) | $ | (1.90 | ) | |||
|
Net
loss per share — Diluted
|
$ | (1.87 | ) | $ | (0.03 | ) | $ | (1.90 | ) | |||
|
Year ended December 31, 2007
|
||||||||||||
|
As previously reported
|
Adjustments
|
As adjusted
|
||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Interest
income and other income (expense), net
|
$ | 21,759 | $ | — | $ | 21,759 | ||||||
|
Interest
expense
|
$ | — | $ | (11,011 | ) | $ | (11,011 | ) | ||||
|
Net
loss before income taxes
|
$ | (48,356 | ) | $ | (11,011 | ) | $ | (59,367 | ) | |||
|
Benefit
from income taxes
|
$ | (20,692 | ) | $ | (4,454 | ) | $ | (25,146 | ) | |||
|
Net
loss
|
$ | (27,664 | ) | $ | (6,557 | ) | $ | (34,221 | ) | |||
|
Net
loss per share — Basic
|
$ | (0.27 | ) | $ | (0.06 | ) | $ | (0.33 | ) | |||
|
Net
loss per share — Diluted
|
$ | (0.27 | ) | $ | (0.06 | ) | $ | (0.33 | ) | |||
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Business
Risks and Credit Concentration
The Company operates in the intensely competitive semiconductor industry, which
has been characterized by price erosion, rapid technological change, short
product life cycles, cyclical market patterns, litigation regarding patent and
other intellectual property rights, and heightened international and domestic
competition. Significant technological changes in the industry could adversely
affect operating results.
The
Company markets and sells its chip interfaces to a narrow base of customers and
generally does not require collateral. For the year ended December 31,
2009, revenue from AMD, Fujitsu, NEC, Panasonic, and Toshiba each individually
accounted for 10% or more of its total revenue, and in the aggregate,
represented 77% of total revenue. For the year ended December 31, 2008,
revenue from AMD, Elpida, Fujitsu, NEC, Panasonic, and Sony each individually
accounted for 10% or more of its total revenue, and in the aggregate,
represented 77% of total revenue. For the year ended December 31, 2007,
revenue from Elpida, Fujitsu, Qimonda and Toshiba each individually accounted
for 10% or more of its total revenue, and in the aggregate, represented 59% of
total revenue. The Company expects that its revenue concentration will decrease
over time as the Company licenses new customers.
As of
December 31, 2009 and 2008, the Company’s 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
Company’s 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 Company’s 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.
5. Marketable
Securities
Rambus
invests its excess cash primarily in U.S. government agency and treasury notes,
commercial paper, corporate notes and bonds, money market funds and municipal
notes and bonds that mature within three years.
All cash
equivalents and marketable securities are classified as available-for-sale and
are summarized as follows:
|
December 31, 2009
|
||||||||||||||||||||
|
(dollars
in thousands)
|
Fair Value
|
Book Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Weighted
Rate
of
Return
|
|||||||||||||||
|
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 | ) | |||||||||||
|
December 31, 2008
|
||||||||||||||||||||
|
(dollars
in thousands)
|
Fair Value
|
Book Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Weighted
Rate
of
Return
|
|||||||||||||||
|
Money
Market Funds
|
$ | 110,732 | $ | 110,732 | $ | — | $ | — | 0.90 | % | ||||||||||
|
Municipal
Bonds and Notes
|
1,000 | 1,000 | — | — | 3.85 | % | ||||||||||||||
|
U.S.
Government Bonds and Notes
|
149,304 | 148,178 | 1,126 | — | 2.79 | % | ||||||||||||||
|
Corporate
Notes, Bonds, and Commercial Paper
|
79,308 | 79,275 | 197 | (164 | ) | 3.06 | % | |||||||||||||
|
Total
cash equivalents and marketable securities
|
340,344 | 339,185 | 1,323 | (164 | ) | |||||||||||||||
|
Cash
|
5,509 | 5,509 | — | — | ||||||||||||||||
|
Total
cash, cash equivalents and marketable securities
|
$ | 345,853 | $ | 344,694 | $ | 1,323 | $ | (164 | ) | |||||||||||
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Available-for-sale
securities are reported at fair value on the balance sheets and classified as
follows:
|
|
December 31,
2009
|
December 31,
2008
|
||||||
|
(Dollars
in thousands)
|
||||||||
|
Cash
equivalents
|
$ | 280,908 | $ | 110,732 | ||||
|
Short
term marketable securities
|
171,120 | 229,612 | ||||||
|
Total
cash equivalents and marketable securities
|
452,028 | 340,344 | ||||||
|
Cash
|
8,165 | 5,509 | ||||||
|
Total
cash, cash equivalents and marketable securities
|
$ | 460,193 | $ | 345,853 | ||||
The
Company continues to invest in high quality, highly liquid debt securities that
mature within three years. The Company classifies 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 temporary and credit losses. As of December 31, 2009,
marketable securities with a fair value of $69.7 million, which mature within
one year had insignificant unrealized losses. The Company has considered all
available evidence and determined that these unrealized losses are due to
current market conditions and the Company has the ability to hold these
securities so the Company believes that it can recover the amortized cost of
these investments. There is no evidence of impairment due to credit losses in
the portfolio. Therefore, these unrealized losses were recorded in other
comprehensive income.
The
estimated fair value of cash equivalents and marketable securities classified by
date of contractual maturity and the associated unrealized gain, net, at
December 31, 2009 and December 31, 2008 are as follows:
|
|
As of
|
Unrealized Gain, net
|
||||||||||||||
|
|
December 31,
2009
|
December 31,
2008
|
December 31,
2009
|
December 31,
2008
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Contractual
maturity:
|
||||||||||||||||
|
Due
within one year
|
$ | 419,054 | $ | 223,458 | $ | 250 | $ | 345 | ||||||||
|
Due
from one year through three years
|
32,974 | 116,886 | 127 | 814 | ||||||||||||
| $ | 452,028 | $ | 340,344 | $ | 377 | $ | 1,159 | |||||||||
The
unrealized gains, net, were insignificant in relation to our total
available-for-sale portfolio. The unrealized gains, net, can be primarily
attributed to a combination of market conditions as well as the demand for and
duration of the Company’s U.S. government bonds and notes. See
Note 17, “Fair Value of Financial Instruments,” for fair value discussion
regarding the Company’s cash equivalents and marketable securities.
6. Balance
Sheet Details
Property
and Equipment, net
Property
and equipment, net is comprised of the following:
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands)
|
||||||||
|
Computer
equipment
|
$ | 23,795 | $ | 24,932 | ||||
|
Computer
software
|
33,768 | 35,981 | ||||||
|
Leasehold
improvements
|
12,924 | 12,892 | ||||||
|
Furniture
and fixtures
|
7,579 | 7,525 | ||||||
|
Construction
in progress
|
25,435 | 1,029 | ||||||
| 103,501 | 82,359 | |||||||
|
Less
accumulated depreciation and amortization
|
(64,535 | ) | (60,069 | ) | ||||
| $ | 38,966 | $ | 22,290 | |||||
On
December 15, 2009, the Company entered into a new lease for office space that
will be used for the Company’s corporate headquarters functions, as well as
engineering, marketing and administrative operations and activities. Since
certain improvements to be constructed by the Company are considered structural
in nature and the Company is responsible for any cost overruns, the Company is
considered to be the owner of the construction project in accordance with
accounting for the effect of lessee involvement in asset construction.
Therefore, the Company has capitalized approximately $25.1 million,
included in construction in progress, based on the fair value of the portion of
the building that it will occupy with a corresponding liability for construction
in progress. See Note 7, “Commitments and Contingencies,” for additional
details.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Depreciation
expense for the years ended December 31, 2009, 2008 and 2007 was
$10.7 million, $11.3 million and $11.2 million,
respectively.
Goodwill
Changes
in the carrying value of goodwill for the following years are as
follows:
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands)
|
||||||||
|
Beginning
balance at January 1
|
$ | 4,454 | $ | 4,454 | ||||
|
Goodwill
acquired during the period
|
11,100 | — | ||||||
|
Ending
balance at December 31
|
$ | 15,554 | $ | 4,454 | ||||
On
December 14, 2009, the Company, in a business combination, acquired technology
and a portfolio of advanced lighting and optoelectronics patents from Global
Lighting Technologies, Inc., a Cayman Islands corporation, and certain
affiliated companies for a total purchase price of $26.0 million in cash. As a
result of the acquisition, the Company recognized goodwill of $11.1 million. See
Note 18, “Acquisition,” for additional details.
Accumulated
Other Comprehensive Income
Accumulated
other comprehensive income is comprised of the following:
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands)
|
||||||||
|
Foreign
currency translation adjustments, net of tax
|
$ | 86 | $ | 86 | ||||
|
Unrealized
gain on available for sale securities, net of tax
|
1 | 783 | ||||||
|
Total
|
$ | 87 | $ | 869 | ||||
As a
result of providing a full valuation allowance of the deferred tax assets in the
U.S., the Company reversed $0.4 million of unrealized gain previously
recorded in other comprehensive loss for the year ended December 31,
2008.
7. Commitments
and Contingencies
The
Company leases its present office facilities in Los Altos, California, under an
operating lease agreement through December 31, 2010. As part of this lease
transaction, the Company provided a letter of credit restricting approximately
$0.6 million of its cash as collateral for certain obligations under the
lease. The cash is restricted as to withdrawal and is managed by a third party
subject to certain limitations under the Company’s investment policy. The
Company also leased a facility in Mountain View, California, through
November 11, 2009, which the Company vacated during the fourth quarter of
2008 and subleased at a rate equal to its rent associated with the facility. The
Company leases a facility in Chapel Hill, North Carolina through
November 14, 2015, a facility for the Company’s design center in Bangalore,
India through November 4, 2012 and a facility in Tokyo, Japan through
July 31, 2010. In addition, the Company also leases office facilities in
various international locations under non-cancelable leases that range in terms
from month-to-month to one year.
On
December 15, 2009, the Company entered into a definitive triple net space lease
agreement with MT SPE, LLC (the “Landlord”) whereby the Company will lease
approximately 125,000 square feet of office space located at 1040 Enterprise Way
in Sunnyvale, California (the “Lease”). The office space will be used for
the Company’s corporate headquarters functions, as well as engineering,
marketing and administrative operations and activities. The Company plans to
move to the new premises in the second half of 2010 following completion of
leasehold improvements. The 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 Lease term. The
annual base rent increases each year to certain fixed amounts over the course of
the term as set forth in the Lease and will be $4.8 million in the tenth
year. In addition to the base rent, the Company will also pay operating
expenses, insurance expenses, real estate taxes and a management fee. The
Company has two options to extend the Lease for a period of sixty months each
and a one-time option to terminate the Lease after 84 months in exchange for an
early termination fee.
During
the first quarter of 2010, the Company will begin a build-out of this facility
and expects to incur approximately $11.5 million in construction costs.
Under the terms of the Lease, the landlord has agreed to reimburse the Company
approximately
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
$10.0 million
of this amount. Because certain improvements to be constructed by the Company
are considered structural in nature and the Company is responsible for any cost
overruns, the Company is considered to be the owner of the construction project
in accordance with accounting for the effect of lessee involvement in asset
construction.
Therefore,
the Company has capitalized $25.1 million in property and equipment based
on the estimated fair value of the portion of the building that it will occupy
with a corresponding liability for construction in progress. The fair value was
determined as of December 31, 2009 using level 3 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.
Upon
completion of construction, the Company will apply sale-leaseback accounting. At
that time, the Company will determine whether the lease will be treated as a
capital or operating lease.
On
February 1, 2005, the Company issued $300.0 million aggregate principal amount
of the 2010 Notes to Credit Suisse First Boston LLC and Deutsche Bank Securities
as initial purchasers who then sold the convertible notes to institutional
investors. The Company has elected to pay the principal amount of the 2010 Notes
in cash when they are due. Subsequently, the Company repurchased a total of
$163.1 million face value of the outstanding 2010 Notes in 2005 and 2008. The
aggregate principal amount of the 2010 Notes outstanding as of December 31, 2009
was $137.0 million, offset by an unamortized debt discount of $0.9 million. The
debt discount is currently being amortized over the remaining 1 month until
maturity of the 2010 Notes, see Note 15, “Convertible Notes,” for additional
details.
On June
29, 2009, the Company entered into an Indenture by and between the Company and
U.S. Bank, National Association, as trustee, relating to the issuance by the
Company of $150.0 million aggregate principal amount of 5% convertible senior
notes due June 15, 2014 (the “2014 Notes”). 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, 2009 was
$172.5 million, offset by unamortized debt discount of $60.5 million in the
accompanying consolidated balance sheets. The debt discount is currently being
amortized over the remaining 54 months until maturity of the 2014 Notes on June
15, 2014. See Note 15, “Convertible Notes,” for additional details.
As of
December 31, 2009, the Company’s material contractual obligations are (in
thousands):
|
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||||||
|
Contractual
obligations(1)
|
||||||||||||||||||||||||||||
|
Operating
leases
|
$ | 50,504 | $ | 7,304 | $ | 4,654 | $ | 4,737 | $ | 4,313 | $ | 4,444 | $ | 25,052 | ||||||||||||||
|
Convertible
notes
|
309,450 | 136,950 | — | — | — | 172,500 | — | |||||||||||||||||||||
|
Interest
payments related to convertible notes
|
38,432 | 8,625 | 8,625 | 8,625 | 8,625 | 3,932 | — | |||||||||||||||||||||
|
Total
|
$ | 398,386 | $ | 152,879 | $ | 13,279 | $ | 13,362 | $ | 12,938 | $ | 180,876 | $ | 25,052 | ||||||||||||||
___________
|
(1)
|
The
above table does not reflect possible payments in connection with
uncertain tax benefits of approximately $10.4 million, including
$8.4 million recorded as a reduction of long-term deferred tax assets
and $2.0 million in long-term income taxes payable, as of
December 31, 2009. As noted below in Note 11, “Income Taxes,”
although it is possible that some of the unrecognized tax benefits could
be settled within the next 12 months, the Company cannot reasonably
estimate the outcome at this time.
|
Rent
expense was approximately $6.3 million, $6.9 million and
$6.6 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
Deferred
rent of $0.7 million as of December 31, 2009 was included primarily in
current liabilities. Deferred rent of $1.1 million as of December 31, 2008
was included primarily in other long-term liabilities.
Indemnifications
The
Company enters into standard license agreements in the ordinary course of
business. Although the Company does not indemnify most of its customers, there
are times when an indemnification is a necessary means of doing business.
Indemnifications cover customers for losses suffered or incurred by them as a
result of any patent, copyright, or other intellectual property
infringement
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
claim by
any third party with respect to the Company’s products. The maximum amount of
indemnification the Company could be required to make under these agreements is
generally limited to fees received by the Company.
Several
securities fraud class actions, private lawsuits and shareholder derivative
actions were filed in state and federal courts against certain of the Company’s
current and former officers and directors related to the stock option granting
actions. As permitted under Delaware law, the Company has agreements whereby its
officers and directors are indemnified for certain events or occurrences while
the officer or director is, or was serving, at the Company’s request in such
capacity. The term of the indemnification period is for the officer’s or
director’s term in such capacity. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited. The Company has a director and officer insurance policy
that reduces the Company’s exposure and enables the Company to recover a portion
of future amounts to be paid. As a result of these indemnification agreements,
the Company continues to make payments on behalf of current and former officers.
As of December 31, 2009 and 2008, respectively, the Company had made
payments of approximately $11.4 million and $6.5 million on their behalf.
These payment were recorded under costs of restatement and related legal
activities in the consolidated statements of operations. The Company received
approximately $5.3 million from the former officers related to their settlement
agreements with the Company in connection with the derivative and class action
lawsuits which was comprised of approximately $4.5 million in cash received in
the first quarter of 2009 as well as approximately 163,000 shares of the
Company’s stock with a value of approximately $0.8 million in the fourth quarter
of 2008. Additionally, as of December 31, 2009, the Company has received $12.3
million from insurance settlements related to the defense of the Company, its
directors and its officers which were recorded under costs (recoveries) of
restatement and related legal activities in the consolidated statements of
operations.
8. Equity
Incentive Plans and Stock-Based Compensation
Stock
Option Plans
The
Company has three stock option plans under which grants are currently
outstanding: the 1997 Stock Option Plan (the “1997 Plan”), the 1999
Non-statutory Stock Option Plan (the “1999 Plan”) and the 2006 Equity Incentive
Plan (the “2006 Plan”). Grants under all plans typically have a requisite
service period of 60 months, have straight-line or graded vesting schedules
(the 1997 and 1999 plans only) and expire not more than ten years from date of
grant. Effective with stockholder approval of the 2006 Plan in May 2006, no
further awards are being made under the 1997 Plan and the 1999 Plan but the
plans will continue to govern awards previously granted under those
plans.
The 2006
Plan was approved by the stockholders in May 2006. The 2006 Plan, as amended,
provides for the issuance of the following types of incentive awards:
(i) stock options; (ii) stock appreciation rights;
(iii) restricted stock; (iv) restricted stock units;
(v) performance shares and performance units; and (vi) other stock or
cash awards. This plan provides for the granting of awards at less than fair
market value of the common stock on the date of grant, but such grants would be
counted against the numerical limits of available shares at a ratio of 1.5 to 1.
The Board of Directors reserved 8,400,000 shares in March 2006 for issuance
under this plan, subject to stockholder approval. Upon stockholder approval of
this Plan on May 10, 2006, the 1997 Plan was replaced and the 1999 Plan was
terminated. On April 30, 2009, stockholders approved additional 6,500,000 shares
for issuance under the 2006 Plan. Those who will be eligible for awards under
the 2006 Plan include employees, directors and consultants who provide services
to the Company and its affiliates. These options typically have a requisite
service period of 60 months, have straight-line vesting schedules, and
expire not more than ten years from date of grant. The Board will periodically
review actual share consumption under the 2006 Plan and may make a request for
additional shares as needed.
As of
December 31, 2009, 7,462,394 shares of the 14,900,000 shares
approved under the 2006 Plan remain available for grant. The 2006 Plan is now
the Company’s only plan for providing stock-based incentive compensation to
eligible employees, executive officers and non-employee directors and
consultants.
A summary
of shares available for grant under the Company’s plans is as
follows:
|
|
Shares
Available
for Grant
|
|||
|
Shares
available as of December 31, 2006
|
7,866,200 | |||
|
Stock
options granted
|
(3,202,800 | ) | ||
|
Stock
options forfeited
|
1,791,361 | |||
|
Stock
options expired under former plans
|
(1,523,097 | ) | ||
|
Nonvested
equity stock and stock units granted(1)
|
(342,533 | ) | ||
|
Shares
available as of December 31, 2007
|
4,589,131 | |||
|
Stock
options granted
|
(1,884,490 | ) | ||
|
Stock
options forfeited
|
2,188,422 | |||
|
Stock
options expired under former plans
|
(1,359,483 | ) | ||
|
Nonvested
equity stock and stock units granted(1)
|
(1,056,096 | ) | ||
|
Nonvested
equity stock and stock units forfeited(1)
|
79,500 | |||
|
Shares
available as of December 31, 2008
|
2,556,984 | |||
|
Increase
in shares approved for issuance
|
6,500,000 | |||
|
Stock
options granted
|
(1,487,905 | ) | ||
|
Stock
options forfeited
|
2,123,045 | |||
|
Stock
options expired under former plans
|
(1,849,516 | ) | ||
|
Nonvested
equity stock and stock units granted(1)
|
(419,214 | ) | ||
|
Nonvested
equity stock and stock units forfeited(1)
|
39,000 | |||
|
Total
shares available for grant as of December 31, 2009
|
7,462,394 | |||
____________
|
(1)
|
For
purposes of determining the number of shares available for grant under the
2006 Plan against the maximum number of shares authorized, each restricted
stock granted reduces the number of shares available for grant by
1.5 shares and each restricted stock forfeited increases shares
available for grant by
1.5 shares.
|
On
October 18, 2007, the Company commenced a tender offer (the “Offer”) to
certain of its employees under which they would be allowed to increase the
exercise price or choose a fixed period exercise term for certain options in
order to avoid certain negative tax consequences under Section 409A of the
Internal Revenue Code and similar state law. A total of 164 eligible option
holders participated in the Offer. The Company accepted for amendment options to
purchase an aggregate of 3,959,225 shares of the Company’s Common Stock, of
which options to purchase 781,178 shares of the Company’s Common Stock were
amended by making a fixed date election. In connection with the surrender of
those options for amendment, the Company has amended those options on the
expiration date of the Offer following the expiration of the Offer. There was no
material incremental compensation expense recognized as a result of the
Offer.
General
Stock Option Information
The
following table summarizes stock option activity under the 1997, 1999 and 2006
Plans for the years ended December 31, 2009 and information regarding stock
options outstanding, exercisable, and vested and expected to vest as of
December 31, 2009.
|
Options Outstanding
|
Weighted
|
|||||||||
|
Weighted
|
Average
|
|||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||
|
Number
of
|
Exercise
Price
|
Contractual
|
Intrinsic
|
|||||||
|
Shares
|
per Share
|
Term
|
Value
|
|||||||
|
(Dollars
in thousands, except per share amounts)
|
||||||||||
|
Outstanding
as of December 31, 2006
|
18,672,877 | $ | 18.32 | |||||||
|
Options
granted
|
3,202,800 | 18.72 | ||||||||
|
Options
exercised
|
(1,333,578 | ) | 8.43 | |||||||
|
Options
forfeited
|
(1,791,361 | ) | 22.89 | |||||||
|
Outstanding
as of December 31, 2007
|
18,750,738 | $ | 20.17 | |||||||
|
Options
granted
|
1,884,490 | 19.70 | ||||||||
|
Options
exercised
|
(1,873,067 | ) | 9.70 | |||||||
|
Options
forfeited
|
(2,188,422 | ) | 20.97 | |||||||
|
Outstanding
as of December 31, 2008
|
16,573,739 | $ | 21.19 | |||||||
|
Options
granted
|
1,487,905 | 9.21 | ||||||||
|
Options
exercised
|
(1,482,489 | ) | 11.29 | |||||||
|
Options
forfeited
|
(2,123,045 | ) | 21.34 | |||||||
|
Outstanding
as of December 31, 2009
|
14,456,110 | $ | 20.95 |
5.38
|
$102,146
|
|||||
|
Vested
or expected to vest at December 31, 2009
|
13,838,744 | $ | 21.40 |
5.35
|
$93,671
|
|||||
|
Options
exercisable at December 31, 2009
|
10,327,025 | $ | 22.88 |
4.53
|
$65,738
|
|||||
The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value for in-the-money options at December 31, 2009, based on the
$24.40 closing stock price of Rambus’ Common Stock on December 31, 2009 on
The NASDAQ Global Select
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Market,
which would have been received by the option holders had all option holders
exercised their options as of that date. The total number of in-the-money
options outstanding and exercisable as of December 31, 2009 was 11,477,310
and 7,511,494, respectively.
The
following table summarizes the information about stock options outstanding and
exercisable as of December 31, 2009:
|
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
|
Range
of Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
| $ | 2.50 – $ 8.55 | 2,518,707 | 5.60 | $ | 6.49 | 1,219,813 | $ | 5.39 | ||||||||||||||
| $ | 8.64 – $14.75 | 1,655,688 | 4.83 | $ | 13.23 | 1,462,087 | $ | 13.21 | ||||||||||||||
| $ | 14.86 – $17.14 | 1,562,915 | 5.54 | $ | 16.28 | 1,268,274 | $ | 16.24 | ||||||||||||||
| $ | 17.16 – $18.62 | 834,641 | 4.32 | $ | 17.86 | 768,375 | $ | 17.86 | ||||||||||||||
| $ | 18.69 – $18.69 | 1,572,093 | 7.09 | $ | 18.69 | 871,836 | $ | 18.69 | ||||||||||||||
| $ | 19.13 – $19.86 | 1,927,396 | 7.79 | $ | 19.66 | 832,474 | $ | 19.59 | ||||||||||||||
| $ | 20.31 – $26.19 | 1,480,870 | 5.68 | $ | 22.96 | 1,163,635 | $ | 22.94 | ||||||||||||||
| $ | 26.45 – $37.66 | 1,792,177 | 3.20 | $ | 32.75 | 1,733,576 | $ | 32.86 | ||||||||||||||
| $ | 38.48 – $83.25 | 1,104,511 | 2.77 | $ | 57.60 | 999,843 | $ | 59.20 | ||||||||||||||
| $ | 92.62 – $92.62 | 7,112 | 0.39 | $ | 92.62 | 7,112 | $ | 92.62 | ||||||||||||||
| $ | 2.50 – $92.62 | 14,456,110 | 5.38 | $ | 20.95 | 10,327,025 | $ | 22.88 | ||||||||||||||
As of
December 31, 2009, there was $37.2 million of total unrecognized
compensation cost, net of expected forfeitures, related to unvested stock-based
compensation arrangements granted under the stock option plans. That cost is
expected to be recognized over a weighted-average period of 2.8 years. The
total fair value of options vested for the years ended December 31, 2009,
2008 and 2007 was $195.2 million, $209.7 million and
$262.0 million, respectively.
Employee
Stock Purchase Plans
During
the three year period ended December 31, 2009, the Company had two employee
stock purchase plans, the 1997 Employee Stock Purchase Plan (the “1997 Purchase
Plan”) and the 2006 Employee Stock Purchase Plan (the “2006 Purchase Plan”). The
1997 Purchase Plan provided for offerings of four consecutive overlapping six
month offering periods. Under the 1997 Purchase Plan, employees were able to
purchase stock at the lower of 85% of the fair market value on the first day of
the 24 month offering period (the enrollment date), or the purchase date
(the exercise date). Employees generally were not able to purchase more than the
number of shares having a value greater than $25,000 in any calendar year, as
measured at the beginning of the offering period.
The 1997
Purchase Plan terminated effective with the October 31, 2007 purchase date
in accordance with its governing documents and no further grants will be
made.
In March
2006, the Company adopted the 2006 Employee Stock Purchase Plan, as amended (the
“2006 Purchase Plan”) and reserved 1,600,000 shares, subject to stockholder
approval which was received on May 10, 2006. Employees generally will be
eligible to participate in this plan if they are employed by Rambus for more
than 20 hours per week and more than five months in a fiscal year. The 2006
Purchase Plan provides for six month offering periods, with a new offering
period commencing on the first trading day on or after May 1 and November 1 of
each year. Under this plan, employees may purchase stock at the lower of 85% of
the beginning of the offering period (the enrollment date), or the end of each
offering period (the purchase date). Employees generally may not purchase more
than the number of shares having a value greater than $25,000 in any calendar
year, as measured at the purchase date.
During
the year ended December 31, 2009, the Company issued 418,215 shares
under the 2006 Purchase Plan at a weighted average price of $8.95 per share.
During the years ended December 31, 2008, the Company issued
334,929 shares under the 2006 Purchase Plan at a weighted average price of
$11.87 per share. During the years ended December 31, 2007, the Company
issued 77,146 shares at a weighted average price of $10.88 under the now
expired 1997 Purchase Plan. As of December 31, 2009, 846,856 shares
remain available for issuance under the 2006 Purchase Plan. As of
December 31, 2009, there was $0.7 million of total unrecognized
compensation cost related to share-based compensation arrangements granted under
the 2006 Purchase Plan. That cost is expected to be recognized over four
months.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Stock-Based
Compensation
Stock
Options
During
the years ended December 31, 2009, 2008 and 2007, Rambus granted 1,487,905,
1,884,490 and 3,202,800 stock options, respectively, with an estimated total
grant-date fair value of $10.2 million, $21.3 million and
$39.4 million, respectively. During the years ended December 31, 2009,
2008 and 2007, Rambus recorded stock-based compensation related to stock options
of $24.4 million, $32.9 million and $42.3 million,
respectively.
The
effect of recording stock-based compensation for the years ended
December 31, 2007 includes a $4.1 million charge, resulting from the
Company’s modifying the terms of approximately 200 stock option grants to
officers, directors and employees, by offering an extension of time to exercise
in connection with the Offer discussed under “Stock Option Plans”
above.
The total
intrinsic value of options exercised was $8.3 million, $16.7 million
and $15.2 million for the years ended December 31, 2009, 2008 and
2007, respectively. Intrinsic value is the total value of exercised shares based
on the price of the Company’s Common Stock at the time of exercise less the
proceeds received from the employees to exercise the options.
During
the years ended December 31, 2009, 2008 and 2007, proceeds from employee
stock option exercises totaled approximately $16.7 million (of which
$0.3 million was included in prepaid and other assets as of
December 31, 2009 and was subsequently received in January 2010),
$18.2 million (of which $0.5 million was included in prepaid and other
assets as of December 31, 2008 and was subsequently received in January
2009) and $11.2 million, respectively.
Employee
Stock Purchase Plans
During
the years ended December 31, 2009, 2008 and 2007, Rambus recorded
stock-based compensation related to employee stock purchase plans of
$1.8 million, $1.8 million and $53,000, respectively. During 2007, the
Company reversed approximately $0.8 million of compensation expense due to
a change in estimate of expected contributions.
There
were no tax benefits realized as a result of employee stock option exercises,
stock purchase plan purchases, and vesting of equity stock and stock units for
the years ended December 31, 2009, 2008 and 2007 calculated in accordance
with accounting for share-based payments.
Valuation
Assumptions
Rambus
estimates the fair value of stock options using the Black-Scholes-Merton model
(“BSM”). The BSM model determines the fair value of stock-based compensation and
is affected by Rambus’ stock price on the date of the grant as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include expected volatility, expected life of the award, expected
dividend rate, and expected risk-free rate of return. The assumptions for
expected volatility and expected life are the two assumptions that significantly
affect the grant date fair value. If actual results differ significantly from
these estimates, stock-based compensation expense and Rambus’ results of
operations could be materially impacted.
The fair
value of stock awards is estimated as of the grant date using the BSM
option-pricing model assuming a dividend yield of 0% and the additional
weighted-average assumptions as listed in the following tables:
|
|
Stock Option Plans for Years Ended
December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Stock
Option Plans
|
||||||||||||
|
Expected
stock price volatility
|
89%-96 | % | 63%-114 | % | 53%-69 | % | ||||||
|
Risk
free interest rate
|
1.8%-2.8 | % | 2.1%-3.3 | % | 3.5%-4.9 | % | ||||||
|
Expected
term (in years)
|
5.3-6.1 | 5.3 | 6.2 | |||||||||
|
Weighted-average
fair value of stock options granted
|
$ | 6.85 | $ | 11.32 | $ | 12.29 | ||||||
|
|
Employee Stock Purchase Plan for Years Ended
December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Employee
Stock Purchase Plan
|
||||||||||||
|
Expected
stock price volatility
|
86%-92 | % | 58%-103 | % | 64 | % | ||||||
|
Risk
free interest rate
|
0.2%-0.3 | % | 1.1%-1.7 | % | 4.2 | % | ||||||
|
Expected
term (in years)
|
0.5 | 0.5 | 0.5 | |||||||||
|
Weighted-average
fair value of purchase rights granted under the purchase
plan
|
$ | 5.52 | $ | 5.06 | $ | 6.62 | ||||||
____________
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Expected Stock Price
Volatility: Given the volume of market activity in its market
traded options greater than one year, Rambus determined that it would use the
implied volatility of its nearest-to-the-money traded options. The Company
believes that the use of implied volatility is more reflective of market
conditions and a better indicator of expected volatility than historical
volatility. If there is not sufficient volume in its market traded options, the
Company will use an equally weighted blend of historical and implied
volatility.
Risk-free Interest
Rate: Rambus bases the risk-free interest rate used in the BSM
valuation method on implied yield currently available on the U.S. Treasury
zero-coupon issues with an equivalent term. Where the expected terms of Rambus’
stock-based awards do not correspond with the terms for which interest rates are
quoted, Rambus uses an approximation based on rates currently
available.
Expected Term: The
expected term of options granted represents the period of time that options
granted are expected to be outstanding. Prior to the adoption of accounting for
share-based payments, the Company used only historical data to estimate option
exercise and employee termination within the model. For the year ended
December 31, 2007, the average expected life was determined using a Monte
Carlo simulation model.
Beginning
in 2008, the Company changed its methodology for determining estimated expected
term for employee stock options from the Monte Carlo simulation model to
observed historical exercise patterns. The change in methodology resulted from
an analysis of observed historical exercise patterns which better approximates
the actual expected term. The impact of this change was not significant to the
Company’s results from operations.
The
expected term of ESPP grants is based upon the length of each respective
purchase period.
Nonvested
Equity Stock and Stock Units
For the
year ended December 31, 2009, the Company granted nonvested equity stock
units to certain officers and employees, totaling 279,476 shares under the
2006 Plan. These awards have a service condition, generally a service period of
four years, except in the case of grants to directors, for which the service
period is one year. The nonvested equity stock units were valued at the date of
grant giving them a fair value of approximately $3.1 million. The Company
occasionally grants nonvested equity stock units to its employees with vesting
subject to the achievement of certain performance conditions related to revenue
goals and/or other factors. The Company did not recognize any compensation
expense for these performance equity stock units since the Company did not
believe that the performance conditions would be met.
For the
years ended December 31, 2009, 2008, and 2007, the Company recorded
stock-based compensation expense of approximately $5.4 million,
$3.1 million and $2.4 million, respectively, related to all
outstanding equity stock grants. Beginning in 2008, compensation expense was
adjusted for an estimate of forfeitures for non performance-based grants, based
on management’s future expectations. Unrecognized stock-based compensation
related to all nonvested equity stock grants, net of an estimate of forfeitures,
was approximately $9.3 million at December 31, 2009. This cost is
expected to be recognized over a weighted average period of
2.3 years.
The
following table reflects the activity related to nonvested equity stock and
stock units for the three years ended December 31, 2009:
|
Nonvested Equity Stock and Stock
Units
|
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
||||||
|
Nonvested
at December 31, 2006
|
73,770 | $ | 36.14 | |||||
|
Granted
|
228,355 | 18.85 | ||||||
|
Vested
|
(57,948 | ) | 30.06 | |||||
|
Forfeited
|
— | — | ||||||
|
Nonvested
at December 31, 2007
|
244,177 | $ | 21.41 | |||||
|
Granted
|
704,064 | 17.91 | ||||||
|
Vested
|
(74,177 | ) | 21.99 | |||||
|
Forfeited
|
(53,000 | ) | 19.86 | |||||
|
Nonvested
at December 31, 2008
|
821,064 | $ | 18.46 | |||||
|
Granted
|
279,476 | 11.12 | ||||||
|
Vested
|
(290,564 | ) | 17.43 | |||||
|
Forfeited
|
(26,000 | ) | 18.05 | |||||
|
Nonvested
at December 31, 2009
|
783,976 | $ | 16.24 | |||||
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Stockholders’
Equity
Preferred
and Common Stock
In
February 1997, the Company established a Stockholder Rights Plan pursuant to
which each holder of the Company’ Common Stock shall receive a right to purchase
one-thousandth of a share of Series E Preferred Stock for $125 per right,
subject to a number of conditions. Such rights are subject to adjustment in the
event of a takeover or commencement of a tender offer not approved by the Board
of Directors. In July 2000, the Company’s Board of Directors agreed to restate
the exercise price to $600 per right in an Amended and Restated Preferred Shares
Rights Agreement. In November 2002, the Company’s Board of Directors agreed to
restate the exercise price to $60 per right in an Amended and Restated Preferred
Shares Rights Agreement.
Share
Repurchase Program
In
October 2001, The Company’s Board of Directors (the “Board”) approved a share
repurchase program of its Common Stock, principally to reduce the dilutive
effect of employee stock options. To date, the Board has approved the
authorization to repurchase up to 19.0 million shares of the Company’s
outstanding Common Stock over an undefined period of time. For the year ended
December 31, 2009, the Company did not repurchase any Common Stock. As of
December 31, 2009, the Company had repurchased a cumulative total of
approximately 16.8 million shares of its Common Stock with an aggregate
price of approximately $233.8 million since the commencement of this
program. As of December 31, 2009, there remained an outstanding
authorization to repurchase approximately 2.2 million shares of the
Company’s outstanding Common Stock.
The
Company records stock repurchases as a reduction to stockholders’ equity. The
Company records a portion of the purchase price of the repurchased shares as an
increase to accumulated deficit when the cost of the shares repurchased exceeds
the average original proceeds per share received from the issuance of Common
Stock. During the year ended December 31, 2009, the Company did not
repurchase any Common Stock. During the year ended December 31, 2008, the
cumulative price of the shares repurchased exceeded the proceeds received from
the issuance of the same number of shares. The excess of $44.2 million was
recorded as an increase to accumulated deficit for the year ended
December 31, 2008.
10. Benefit
Plans
Rambus
has a 401(k) Profit Sharing Plan (the “401(k) Plan”) qualified under
Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee
may elect to contribute up to 60% of the employee’s annual compensation to the
401(k) Plan, up to the Internal Revenue Service limit. Rambus, at the discretion
of its Board of Directors, may match employee contributions to the 401(k) Plan.
The Company matches 50% of eligible employee’s contribution, up to the first 6%
of an eligible employee’s qualified earnings. For the years ended
December 31, 2009, 2008 and 2007, Rambus made matching contributions
totaling approximately $1.1 million, $1.3 million and
$1.3 million, respectively.
11. Income
Taxes
The
provision for (benefit from) income taxes is comprised of:
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Federal:
|
||||||||||||
|
Current
|
$ | (957 | ) | $ | (615 | ) | $ | — | ||||
|
Deferred
|
— | 96,031 | (22,547 | ) | ||||||||
|
State:
|
||||||||||||
|
Current
|
9 | (1,071 | ) | (2 | ) | |||||||
|
Deferred
|
— | 18,986 | (3,582 | ) | ||||||||
|
Foreign:
|
||||||||||||
|
Current
|
761 | 749 | 1,176 | |||||||||
|
Deferred
|
(354 | ) | (289 | ) | (191 | ) | ||||||
| $ | (541 | ) | $ | 113,791 | $ | (25,146 | ) | |||||
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The
differences between Rambus’ effective tax rate and the U.S. federal
statutory regular tax rate are as follows:
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Benefit
at U.S. federal statutory rate
|
(35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
|
Benefit
at state statutory rate
|
(5.4 | )% | (5.3 | )% | (5.5 | )% | ||||||
|
R&D
credit
|
(0.9 | )% | (6.3 | )% | (2.2 | )% | ||||||
|
Executive
compensation
|
— | % | 0.1 | % | (2.2 | )% | ||||||
|
Non-deductible
stock-based compensation
|
0.8 | % | 1.1 | % | 0.8 | % | ||||||
|
Other
|
0.7 | % | 0.0 | % | 1.7 | % | ||||||
|
Valuation
allowance
|
39.2 | % | 178.8 | % | — | % | ||||||
| (0.6 | )% | 133.4 | % | (42.4 | )% | |||||||
The
components of the net deferred tax assets are as follows:
|
|
As of December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands)
|
||||||||
|
Deferred
tax assets:
|
||||||||
|
Deferred
revenue
|
$ | 22 | $ | 27 | ||||
|
Depreciation
and amortization
|
12,775 | 16,206 | ||||||
|
Other
liabilities and reserves
|
4,915 | 6,043 | ||||||
|
Employee
stock-based compensation
|
— | 595 | ||||||
|
Deferred
equity compensation
|
53,872 | 54,136 | ||||||
|
Net
operating loss carryovers
|
73,619 | 46,019 | ||||||
|
Tax
credits
|
32,751 | 32,756 | ||||||
|
Total
gross deferred tax assets
|
$ | 177,954 | $ | 155,782 | ||||
|
Convertible
debt
|
(24,859 | ) | (4,642 | ) | ||||
|
Total
net deferred tax assets
|
$ | 153,095 | $ | 151,140 | ||||
|
Valuation
Allowance
|
(150,932 | ) | (149,195 | ) | ||||
|
Net deferred tax
assets
|
$ | 2,163 | $ | 1,945 | ||||
|
As of December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
(In
thousands)
|
||||||||
|
Current
portion
|
$ | 129 | $ | 88 | ||||
|
Non-current
portion
|
2,034 | 1,857 | ||||||
|
Net deferred tax
assets
|
$ | 2,163 | $ | 1,945 | ||||
As of
December 31, 2009, the Company’s consolidated balance sheet included net
deferred tax assets, before valuation allowance, of approximately
$153.1 million, which consists of net operating loss carryovers, tax credit
carryovers, depreciation and amortization, employee stock-based compensation
expenses and certain liabilities, partially reduced by deferred tax liabilities
associated with convertible debt instruments. For the year ended December 31,
2009, the Company’s valuation allowance was $150.9 million. Management
periodically evaluates the realizability of the Company’s net deferred tax
assets based on all available evidence, both positive and negative. The
realization of net deferred tax assets is solely dependent on the Company’s
ability to generate sufficient future taxable income during periods prior to the
expiration of tax statutes to fully utilize these assets.
The
Company weighed both positive and negative evidence and determined there is a
continued need for a valuation allowance due to the existence of three years of
historical cumulative losses which the Company considered significant verifiable
negative evidence. Though considered positive evidence, projected income from
favorable patent and related settlement litigation were not included in the
determination for the valuation allowance due to the Company’s inability to
reliably estimate the timing and amounts of such
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
settlements.
In January 2010, the Company signed an agreement with Samsung which will be
considered in assessing the need for a valuation allowance going forward. The
Company may reverse a portion or all of the valuation allowance if sufficient
positive evidence exists to support reversal of the valuation
allowance.
As of
December 31, 2009, Rambus has federal and state net operating loss
carryforwards for income tax purposes of $278.4 million and
$251.6 million, respectively, which begin to expire in 2014. As of
December 31, 2009, Rambus has federal research and development tax credit
carryforwards for income tax purposes of $22.7 million and state research
and development tax credit carryforwards of $12.8 million, net of federal
benefit. The federal research and development tax credit carryforwards begin to
expire in 2012 and the state tax credit can be carried forward
indefinitely.
In the
event of a change in ownership, as defined under federal and state tax laws,
Rambus’ net operating loss and tax credit carryforwards could be subject to
annual limitations. The annual limitations could result in the expiration of the
net operating loss and tax credit carryforwards prior to
utilization.
Tax
attributes related to stock option windfall deductions should not be recorded
until they result in a reduction of cash taxes payable. Starting in 2006, the
Company no longer includes net operating losses attributable to stock option
windfall deductions as components of its gross deferred tax assets. The
Company’s unrealized federal and state net operating losses excluded as of
December 31, 2009 were $93.5 million and $99.2 million,
respectively. The benefit of these net operating losses will be recorded to
additional paid-in capital when they reduce cash taxes payable.
As of
December 31, 2009, the Company had $10.4 million of unrecognized tax
benefits, including $7.5 million recorded as a reduction of long-term
deferred tax assets, which is net of approximately $0.9 million of federal
tax benefits, and including $2.0 million in long-term income taxes payable.
If recognized, approximately $0.7 million would be recorded as an income
tax benefit in the consolidated statements of operations. As of
December 31, 2008, the Company had $9.6 million of unrecognized tax
benefits, including $6.9 million recorded as a reduction of long-term
deferred tax assets, which is net of approximately $0.8 million of federal
tax benefits, and including $1.9 million in long-term income taxes payable.
As of December 31, 2007, the Company had $14.0 million of unrecognized
tax benefits, including $8.5 million recorded as a reduction of long-term
deferred tax assets, which is net of approximately $2.6 million of federal
tax benefits, and including $2.9 million in long-term income taxes
payable.
A
reconciliation of the beginning and ending amounts of unrecognized income tax
benefits for the years ended December 31, 2009, 2008 and 2007 is as follows
(amounts in thousands):
|
Years
Ended December 31,
|
||||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Balance
at January 1
|
$ | 9,613 | $ | 14,005 | $ | 12,395 | ||||||
|
Tax
positions related to current year:
|
||||||||||||
|
Additions
|
767 | 978 | 1,610 | |||||||||
|
Tax
positions related to prior years:
|
||||||||||||
|
Reductions
|
(27 | ) | (304 | ) | — | |||||||
|
Settlements
|
— | (5,066 | ) | — | ||||||||
|
Balance
at December 31
|
$ | 10,353 | $ | 9,613 | $ | 14,005 | ||||||
During
2008, the Company reduced its unrecognized tax benefits by $5.1 million related
to a settlement with the California Franchise Tax Board. Although it is possible
that some of the unrecognized tax benefits could be settled within the next 12
months, the Company cannot reasonably estimate the outcome at this
time.
Rambus
recognizes interest and penalties related to uncertain tax positions as a
component of the income tax provision (benefit). At December 31, 2009, 2008
and 2007, an insignificant amount of interest and penalties are included in
long-term income taxes payable.
At
December 31, 2009, no deferred taxes have been provided for any portion of
the approximately $1.9 million of undistributed earnings of the Company’s
international subsidiaries, since these earnings have been, and under current
plans will continue to be, permanently reinvested in these subsidiaries. The
amount of U.S. tax that would be required upon repatriation of the
Company’s undistributed foreign earnings would be immaterial as of
December 31, 2009. The Company’s operations in India currently operate
under a tax holiday, which will expire in 2011.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Rambus
files U.S. federal income tax returns as well as income tax returns in
various states and foreign jurisdictions. During 2009, Rambus settled a payroll
tax examination by the Internal Revenue Service for the years ended
December 31, 2004 and 2005 for an immaterial amount. The Company is under
examination by the California Franchise Tax Board for the fiscal year ended
March 31, 2003 and the years ended December 31, 2003 and 2004.
Although the outcome of any tax audit is uncertain, the Company believes it has
adequately provided for any additional taxes that may be required to be paid as
a result of such examinations. If the Company determines that no payment will
ultimately be required, the reversal of these tax liabilities may result in tax
benefits being recognized in the period when that conclusion is reached.
However, if an ultimate tax assessment exceeds the recorded tax liability for
that item, an additional tax provision may need to be recorded. The impact of
such adjustments in the Company’s tax accounts could have a material impact on
the consolidated results of operations in future periods. The Company is subject
to examination by the IRS for tax years ended 2006 through 2008. The Company is
also subject to examination by the State of California for tax years ended 2005
through 2008. In addition, any R&D credit carryforward or net operating loss
carryforward generated in prior years and utilized in these or future years may
also be subject to examination by the IRS and the State of California. The
Company is also subject to examination in various other jurisdictions for
various periods.
12. 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.
The
following table sets forth the computation of basic and diluted loss per
share:
|
|
Years Ended
December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Net
loss
|
$ | (92,186 | ) | $ | (199,110 | ) | $ | (34,221 | ) | |||
|
Denominator:
|
||||||||||||
|
Weighted
average shares used to compute basic EPS
|
105,011 | 104,574 | 104,056 | |||||||||
|
Dilutive
potential shares from stock options, ESPP and nonvested equity stock and
stock units
|
— | — | — | |||||||||
|
Weighted
average shares used to compute diluted EPS
|
105,011 | 104,574 | 104,056 | |||||||||
|
Net
loss per share:
|
||||||||||||
|
Basic
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | |||
|
Diluted
|
$ | (0.88 | ) | $ | (1.90 | ) | $ | (0.33 | ) | |||
For the
years ended December 31, 2009, 2008 and 2007, approximately 14.0 million,
5.1 million and 5.9 million shares, respectively, that would be issued upon
the conversion of the contingently issuable convertible notes were excluded from
the calculation of earnings per share because the conversion price was higher
than the average market price of the Common Stock during this period. For the
years ended December 31, 2009, 2008 and 2007, options to purchase
approximately 11.0 million, 11.0 million and 9.8 million shares,
respectively, were excluded from the calculation because they were anti-dilutive
after considering proceeds from exercise, taxes and related unrecognized
stock-based compensation expense. For the year ended December 31, 2009, an
additional 1.4 million shares, including nonvested equity stock and stock
units, that would be dilutive have been excluded from the weighted average
dilutive shares because there was a net loss for the period. For the year ended
December 31, 2008, an additional 2.8 million shares, including
nonvested equity stock and stock units, that would be dilutive have been
excluded from the weighted average dilutive shares because there was a net loss
for the period.
13. Business
Segments, Exports and Major Customers
Rambus
operates in a single industry segment, the design, development and licensing of
memory and logic interfaces, lighting and optoelectronics, and other
technologies. Five customers accounted for 24%, 15%, 13%, 13% and 11%
respectively, of revenue in the
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
year
ending December 31, 2009. Six customers accounted for 19%, 14%, 12%, 11%, 11%
and 11% respectively, of revenue in the year ending December 31, 2008. Four
customers accounted for 20%, 15%, 15%, and 10%, respectively, of revenue in the
year ended December 31, 2007. See Note 4, “Business Risks and Credit
Concentration,” for the names of the customers which accounted for more than 10%
of revenue in each of the years. Rambus expects that its revenue concentration
will decrease over time as Rambus licenses new customers.
Rambus
sells its chip interfaces and licenses to customers in the Far East, North
America, and Europe. Revenue from customers in the following geographic regions
were recognized as follows:
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Japan
|
$ | 91,959 | $ | 115,202 | $ | 124,662 | ||||||
|
North
America
|
19,393 | 23,870 | 26,447 | |||||||||
|
Taiwan
|
112 | 565 | 1,434 | |||||||||
|
Korea
|
1,262 | 900 | 618 | |||||||||
|
Singapore
|
44 | 367 | 588 | |||||||||
|
Europe
|
237 | 1,590 | 26,191 | |||||||||
| $ | 113,007 | $ | 142,494 | $ | 179,940 | |||||||
At
December 31, 2009, of the $39.0 million of total property and
equipment, approximately $37.1 million are located in the United States,
$1.6 million are located in India and $0.3 million were located in
other foreign locations. At December 31, 2008, of the $22.3 million of
total property and equipment, approximately $19.3 million were located in
the United States, $2.4 million were located in India and $0.6 million
were located in other foreign locations.
14. Amortizable
Intangible Assets
The
components of the Company’s intangible assets as of December 31, 2009 and
December 31, 2008 were as follows:
|
|
As of December 31,
2009
|
|||||||||||
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Patents
|
$ | 12,441 | $ | (6,876 | ) | $ | 5,565 | |||||
|
Intellectual
property
|
10,384 | (10,384 | ) | — | ||||||||
|
Customer
contracts and contractual relationships
|
4,050 | (2,717 | ) | 1,333 | ||||||||
|
Existing
technology
|
17,550 | (2,788 | ) | 14,762 | ||||||||
|
Non-competition
agreement
|
100 | (100 | ) | — | ||||||||
|
Total
intangible assets
|
$ | 44,525 | $ | (22,865 | ) | $ | 21,660 | |||||
|
As of December 31,
2008
|
||||||||||||
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Patents
|
$ | 9,941 | $ | (5,527 | ) | $ | 4,414 | |||||
|
Intellectual
property
|
10,384 | (9,527 | ) | 857 | ||||||||
|
Customer
contracts and contractual relationships
|
4,000 | (2,224 | ) | 1,776 | ||||||||
|
Existing
technology
|
2,700 | (2,503 | ) | 197 | ||||||||
|
Non-competition
agreement
|
100 | (100 | ) | — | ||||||||
|
Total
intangible assets
|
$ | 27,125 | $ | (19,881 | ) | $ | 7,244 | |||||
Amortization
expense for intangible assets for the years ended December 31, 2009, 2008
and 2007 was $3.0 million, $4.3 million and $5.3 million,
respectively.
During
the first quarter of 2009, the Company purchased patents related to mobile
memory and other applications in an asset acquisition from Inapac Technology,
Inc for approximately $1.6 million. During the fourth quarter of 2009, as part
of the acquisition of patented innovations and technology from GLT in a business
combination, the Company acquired approximately $14.9 million of lighting
technology. In addition, the Company purchased patents related to other
technologies for approximately $1.0 million.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
During
the third quarter of 2008, based on communication it received from a customer,
the Company determined that approximately $2.2 million of its intangible
assets had no alternative future use and was impaired as a result of a
customer’s change in technology requirements. The intangible asset relates to a
contractual relationship acquired in the Velio acquisition during December
2003.
The
estimated future amortization expense of intangible assets as of
December 31, 2009 was as follows (amounts in thousands):
|
Years Ending December 31:
|
Amount
|
|||
|
2010
|
$ | 4,210 | ||
|
2011
|
3,835 | |||
|
2012
|
3,562 | |||
|
2013
|
3,257 | |||
|
2014
|
2,356 | |||
|
Thereafter
|
4,440 | |||
| $ | 21,660 | |||
15. Convertible
Notes
The
Company’s convertible notes are shown in the following table.
|
(dollars
in thousands)
|
As
of December 30, 2009
|
As
of December 31, 2008
|
||||||
|
Zero
Coupon Convertible Senior Notes due 2010
|
$ | 136,950 | $ | 136,950 | ||||
|
5%
Convertible Senior Notes due 2014
|
172,500 | — | ||||||
|
Total
principal amount of convertible notes
|
309,450 | 136,950 | ||||||
|
Unamortized
discount
|
(61,406 | ) | (11,476 | ) | ||||
|
Total
convertible notes
|
$ | 248,044 | $ | 125,474 | ||||
|
Less
current portion
|
(136,032 | ) | — | |||||
|
Total
long-term convertible notes
|
$ | 112,012 | $ | 125,474 | ||||
5% Convertible
Senior Notes due 2014. On June 29, 2009, the Company issued $150.0
million aggregate principal amount of 5% convertible senior notes due June 15,
2014. As of the date of issuance, the Company determined that the liability
component of the 2014 Notes was approximately $92.4 million and the equity
component was approximately $57.6 million. On July 10, 2009, an additional $22.5
million of the 2014 Notes were issued as a result of the underwriters exercising
their overallotment option. As of the date of issuance of the $22.5 million 2014
Notes, the Company determined that the liability component was approximately
$14.3 million and the equity component was approximately $8.2 million. The
unamortized discount related to the 2014 Notes is being amortized to interest
expense using the effective interest method over five years through June
2014.
The
Company will pay cash interest at an annual rate of 5% of the principal amount
at issuance, payable semi-annually in arrears on June 15 and December 15 of each
year, beginning on December 15, 2009. In the fourth quarter of 2009, the Company
made a payment of approximately $4.0 million related to the 2014 Notes. Issuance
costs were approximately $5.1 million of which $3.2 million is related to the
liability portion, which is being amortized to interest expense over five years
(the expected term of the debt), and $1.9 million is related to the equity
portion. The 2014 Notes are the Company’s general unsecured obligation, ranking
equal in right of payment to all of the Company’s existing and future senior
indebtedness, including the 2010 Notes, and are senior in right of payment to
any of the Company’s future indebtedness that is expressly subordinated to the
2014 Notes.
The 2014
Notes are convertible into shares of the Company’s Common Stock at an initial
conversion rate of 51.8 shares of Common Stock per $1,000 principal amount of
2014 Notes. This is equivalent to an initial conversion price of approximately
$19.31 per share of common stock. Holders may surrender their 2014 Notes for
conversion prior to March 15, 2014 only under the following circumstances: (i)
during any calendar quarter beginning after the calendar quarter ending
September 30, 2009, and only during such calendar quarter, if the closing sale
price of the Common Stock for 20 or more trading days in the period of 30
consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter exceeds 130% of the conversion price in effect on the
last trading day of the immediately preceding calendar quarter, (ii) during the
five business day period after any 10 consecutive trading day period in which
the trading price per $1,000 principal amount of 2014 Notes for each trading day
of such 10 consecutive trading day period was less than 98% of the product of
the closing sale price of the Common Stock for such trading day and the
applicable conversion rate, (iii) upon the occurrence of specified distributions
to holders of the Common Stock, (iv) upon a
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
fundamental
change of the Company as specified in the Indenture governing the 2014 Notes, or
(v) if the Company calls any or all of the 2014 Notes for redemption, at any
time prior to the close of business on the business day immediately preceding
the redemption date. On and after March 15, 2014, holders may convert their 2014
Notes at any time until the close of business on the third business day prior to
the maturity date, regardless of the foregoing circumstances.
Upon
conversion of the 2014 Notes, the Company will pay (i) cash equal to the lesser
of the aggregate principal amount and the conversion value of the 2014 Notes and
(ii) shares of the Company’s Common Stock for the remainder, if any, of the
Company’s conversion obligation, in each case based on a daily conversion value
calculated on a proportionate basis for each trading day in the 20 trading day
conversion reference period as further specified in the Indenture.
The
Company may not redeem the 2014 Notes at its option prior to June 15, 2012. At
any time on or after June 15, 2012, the Company will have the right, at its
option, to redeem the 2014 Notes in whole or in part for cash in an amount equal
to 100% of the principal amount of the 2014 Notes to be redeemed, together with
accrued and unpaid interest, if any, if the closing sale price of the Common
Stock for at least 20 of the 30 consecutive trading days immediately prior to
any date the Company gives a notice of redemption is greater than 130% of the
conversion price on the date of such notice.
Upon the
occurrence of a fundamental change, holders may require the Company to
repurchase some or all of their 2014 Notes for cash at a price equal to 100% of
the principal amount of the 2014 Notes being repurchased, plus accrued and
unpaid interest, if any. In addition, upon the occurrence of certain fundamental
changes, as that term is defined in the Indenture, the Company will, in certain
circumstances, increase the conversion rate for 2014 Notes converted in
connection with such fundamental changes by a specified number of shares of
Common Stock, not to exceed 15.5401 per $1,000 principal amount of the 2014
Notes.
The
following events are considered “Events of Default” under the Indenture which
may result in the acceleration of the maturity of the 2014 Notes:
|
|
(1)
|
default
in the payment when due of any principal of any of the 2014 Notes at
maturity, upon redemption or upon exercise of a repurchase right or
otherwise;
|
|
|
(2)
|
default
in the payment of any interest, including additional interest, if any, on
any of the 2014 Notes, when the interest becomes due and payable, and
continuance of such default for a period of 30
days;
|
|
|
(3)
|
the
Company’s failure to deliver cash or cash and shares of Common Stock
(including any additional shares deliverable as a result of a conversion
in connection with a make-whole fundamental change) when required to be
delivered upon the conversion of any 2014
Note;
|
|
|
(4)
|
default
in the Company’s obligation to provide notice of the occurrence of a
fundamental change when required by the
Indenture;
|
|
|
(5)
|
the
Company’s failure to comply with any of its other agreements in the 2014
Notes or the Indenture (other than those referred to in clauses (1)
through (4) above) for 60 days after the Company’s receipt of written
notice to the Company of such default from the trustee or to the Company
and the trustee of such default from holders of not less than 25% in
aggregate principal amount of the 2014 Notes then
outstanding;
|
|
|
(6)
|
the
Company’s failure to pay when due the principal of, or acceleration of,
any indebtedness for money borrowed by the Company or any of its
subsidiaries in excess of $30,000,000 principal amount, if such
indebtedness is not discharged, or such acceleration is not annulled, by
the end of a period of ten days after written notice to the Company by the
trustee or to the Company and the trustee by the holders of at least 25%
in aggregate principal amount of the 2014 Notes then outstanding;
and
|
|
|
(7)
|
certain
events of bankruptcy, insolvency or reorganization relating to the Company
or any of its material subsidiaries (as defined in the
Indenture).
|
If an
event of default, other than an event of default in clause (7) above with
respect to the Company occurs and is continuing, either the trustee or the
holders of at least 25% in aggregate principal amount of the 2014 Notes then
outstanding may declare the principal amount of, and accrued and unpaid
interest, including additional interest, if any, on the 2014 Notes then
outstanding to be immediately due and payable. If an event of default described
in clause (7) above occurs with respect to the Company the
principal
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
amount of
and accrued and unpaid interest, including additional interest, if any, on the
2014 Notes will automatically become immediately due and payable.
Zero Coupon
Convertible Senior Notes due 2010. On February 1, 2005, the Company
issued $300.0 million aggregate principal amount of zero coupon convertible
senior notes due February 1, 2010 to Credit Suisse First Boston LLC and Deutsche
Bank Securities as initial purchasers who then sold the 2010 Notes to
institutional investors.
The 2010
Notes are unsecured senior obligations, ranking equally in right of payment with
all of Rambus’ existing and future unsecured senior indebtedness, and senior in
right of payment to any future indebtedness that is expressly subordinated to
the 2010 Notes.
Upon the
retrospective application of the new FASB accounting guidance which clarifies
the accounting for convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement, the Company determined that the
liability component of the 2010 Notes was $200.3 million and the equity
component was $99.7 million.
The 2010
Notes are convertible at any time prior to the close of business on the maturity
date into, in respect of each $1,000 principal of the 2010 Notes:
|
|
•
|
cash
in an amount equal to the lesser of
|
|
(1)
|
the
principal amount of each note to be
converted and
|
|
(2)
|
the
“conversion value,” which is equal to (a) the applicable conversion
rate, multiplied by (b) the applicable stock price, as
defined.
|
|
|
•
|
if
the conversion value is greater than the principal amount of each note, a
number of shares of Rambus Common Stock (the “net shares”) equal to the
sum of the daily share amounts, calculated as defined. However, in lieu of
delivering net shares, Rambus, at its option, may deliver cash, or a
combination of cash and shares of its Common Stock, with a value equal to
the net shares amount.
|
The
initial conversion price is $26.84 per share of Common Stock (which represents
an initial conversion rate of 37.2585 shares of Rambus Common Stock per
$1,000 principal amount of the 2010 Notes). The initial conversion price is
subject to certain adjustments, as specified in the indenture governing the 2010
Notes.
The 2010
Notes are subject to repurchase in cash in the event of a fundamental change
involving Rambus at a price equal to 100% of the principal amount. Rambus may be
obligated to pay an additional premium (payable in shares of Common Stock) in
the event the 2010 Notes are converted following a fundamental change. The
premium is based on numerous factors and could be up to 33% per $1,000 principal
amount of convertible notes.
Upon the
occurrence of an event of default, Rambus’ obligations under the 2010 Notes may
become immediately due and payable. An event of default is defined
as:
|
|
•
|
default
in the payment when due of any principal of any of the 2010 Notes at
maturity, upon exercise of a repurchase right or
otherwise;
|
|
|
•
|
default
in the payment of liquidated damages, if any, which default continues for
30 days;
|
|
|
•
|
default
in Rambus’ obligation to provide notice of the occurrence of fundamental
change when required by the
indenture;
|
|
|
•
|
failure
to comply with any of Rambus’ other agreements in the 2010 Notes or the
indenture upon its receipt of notice to it of such default from the
trustee or to Rambus and the trustee from holders of not less than 25% in
aggregate principal amount at maturity of the 2010 Notes, and Rambus fails
to cure (or obtain a waiver of) such default within 60 days after it
receives such notice;
|
|
|
•
|
failure
to pay when due the principal of, or acceleration of, any indebtedness for
money borrowed by Rambus or any of its subsidiaries in excess of
$30.0 million principal amount, if such indebtedness is not
discharged, or such acceleration is not annulled, by the end of a period
of ten days after written notice to Rambus by the trustee or to Rambus and
the trustee by the holders of at least 25% in principal amount of the
outstanding 2010
Notes; and
|
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
|
•
|
certain
events of bankruptcy, insolvency or reorganization relating to
Rambus.
|
Rambus
may not redeem the 2010 Notes prior to their maturity date.
During
2005, Rambus repurchased $140.0 million face value of the outstanding 2010
Notes, for a price of approximately $113.0 million, leaving a net balance
of $160.0 million at December 31, 2005. During 2008, the Company
repurchased approximately $23.1 million in face value of the 2010 Notes for
$18.7 million which resulted in a net gain of $2.5 million, included
in interest and other income, net in the consolidated statement of operations.
As of December 31, 2008 and December 31, 2009, approximately
$137.0 million in face value of the 2010 Notes remain outstanding. The
remaining 2010 Notes liability is classified as a current liability at December
31, 2009 since the notes are due February 1, 2010.
Additional
paid-in capital at December 31, 2009 and December 31, 2008 includes $47.9
million related to the remaining equity component of the 2010 Notes. Additional
paid-in capital at December 31, 2009 includes $63.9 million related to the
equity component of the 2014 Notes.
As of
December 31, 2009, the if-converted value of the outstanding 2010 Notes and 2014
Notes is less than the principal amount of the notes. Therefore, the
classification of the entire equity component for both the 2010 Notes and 2014
Notes in permanent equity is appropriate as of December 31, 2009.
Interest
expense related to the notes for the year ended December 31, 2009 was as
follows:
|
|
Years Ended
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
(in
thousands)
|
||||||||
|
2014
Notes coupon interest at a rate of 5%
|
$ | 4,326 | $ | — | ||||
|
2014
Notes amortization of discount at an additional effective interest rate of
11.7%
|
5,626 | — | ||||||
|
2010
Notes amortization of discount at an effective interest rate of
8.4%
|
10,998 | 11,805 | ||||||
|
Total
interest expense
|
$ | 20,950 | $ | 11,805 | ||||
16. Litigation
and Asserted Claims
Hynix
Litigation
U.S
District Court of the Northern District of California
On
August 29, 2000, Hynix (formerly Hyundai) and various subsidiaries filed
suit against Rambus in the U.S. District Court for the Northern District of
California. The complaint, as amended and narrowed through motion practice,
asserts claims for fraud, violations of federal antitrust laws and deceptive
practices in connection with Rambus’ participation in a standards setting
organization called JEDEC, and seeks a declaratory judgment that the Rambus
patents-in-suit are unenforceable, invalid and not infringed by Hynix,
compensatory and punitive damages, and attorneys’ fees. Rambus denied Hynix’s
claims and filed counterclaims for patent infringement against
Hynix.
The case
was divided into three phases. In the first phase, Hynix tried its unclean hands
defense beginning on October 17, 2005 and concluding on November 1,
2005. In its January 4, 2006 Findings of Fact and Conclusions of Law, the
court held that Hynix’s unclean hands defense failed. Among other things, the
court found that Rambus did not adopt its document retention policy in bad
faith, did not engage in unlawful spoliation of evidence, and that while Rambus
disposed of some relevant documents pursuant to its document retention policy,
Hynix was not prejudiced by the destruction of Rambus documents. On
January 19, 2009, Hynix filed a motion for reconsideration of the court’s
unclean hands order and for summary judgment on the ground that the decision by
the Delaware court in the pending Micron-Rambus litigation (described below)
should be given preclusive effect. In its motion Hynix requested alternatively
that the court’s unclean hands order be certified for appeal and that the
remainder of the case be stayed. Rambus filed an opposition to Hynix’s motion on
January 26, 2009, and a hearing was held on January 30, 2009. On
February 3, 2009, the court denied Hynix’s motions and restated its
conclusions that Rambus had not anticipated litigation until late 1999 and that
Hynix had not demonstrated any prejudice from any alleged destruction of
evidence.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The
second phase of the Hynix-Rambus trial — on patent infringement, validity
and damages — began on March 15, 2006, and was submitted to the jury
on April 13, 2006. On April 24, 2006, the jury returned a verdict in
favor of Rambus on all issues and awarded Rambus a total of approximately
$307 million in damages, excluding prejudgment interest. Specifically, the
jury found that each of the ten selected patent claims was supported by the
written description, and was not anticipated or rendered obvious by prior art;
therefore, none of the patent claims was invalid. The jury also found that Hynix
infringed all eight of the patent claims for which the jury was asked to
determine infringement; the court had previously determined on summary judgment
that Hynix infringed the other two claims at issue in the trial. On
July 14, 2006, the court granted Hynix’s motion for a new trial on the
issue of damages unless Rambus agreed to a reduction of the total jury award to
approximately $134 million. The court found that the record supported a
maximum royalty rate of 1% for SDR SDRAM and 4.25% for DDR SDRAM, which the
court applied to the stipulated U.S. sales of infringing Hynix products
through December 31, 2005. On July 27, 2006, Rambus elected remittitur
of the jury’s award to approximately $134 million. On August 30, 2006,
the court awarded Rambus prejudgment interest for the period June 23, 2000
through December 31, 2005. Hynix filed a motion on July 7, 2008 to
reduce the amount of remitted damages and any supplemental damages that the
court may award, as well as to limit the products that could be affected by any
injunction that the court may grant, on the grounds of patent exhaustion.
Following a hearing on August 29, 2008, the court denied Hynix’s motion. In
separate orders issued December 2, 2008, January 16, 2009, and
January 27, 2009, the court denied Hynix’s post-trial motions for judgment
as a matter of law and new trial on infringement and validity.
On
June 24, 2008, the court heard oral argument on Rambus’ motion to
supplement the damages award and for equitable relief related to Hynix’s
infringement of Rambus patents. On February 23, 2009, the court issued an
order (1) granting Rambus’ motion for supplemental damages and prejudgment
interest for the period after December 31, 2005, at the same rates ordered
for the prior period; (2) denying Rambus’ motion for an injunction; and
(3) ordering the parties to begin negotiations regarding the terms of a
compulsory license regarding Hynix’s continued manufacture, use, and sale of
infringing devices.
The third
phase of the Hynix-Rambus trial involved Hynix’s affirmative JEDEC-related
antitrust and fraud allegations against Rambus. On April 24, 2007, the
court ordered a coordinated trial of certain common JEDEC-related claims alleged
by the manufacturer parties (i.e., Hynix, Micron, Nanya and Samsung) and
defenses asserted by Rambus in Hynix v Rambus, Case
No. C 00-20905 RMW, and three other cases pending before the same court
(Rambus Inc. v. Samsung
Electronics Co. Ltd. et al., Case No. 05-02298
RMW, Rambus Inc. v. Hynix
Semiconductor Inc., et al., Case No. 05-00334,
and Rambus Inc. v. Micron
Technology, Inc., et al., Case No. C 06-00244
RMW, each described in further detail below). On December 14, 2007, the
court excused Samsung from the coordinated trial based on Samsung’s agreement to
certain conditions, including trial of its claims against Rambus by the court
within six months following the conclusion of the coordinated trial. The
coordinated trial involving Rambus, Hynix, Micron and Nanya began on
January 29, 2008, and was submitted to the jury on March 25, 2008. On
March 26, 2008, the jury returned a verdict in favor of Rambus and against
Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found
that Hynix, Micron, and Nanya failed to meet their burden of proving that:
(1) Rambus engaged in anticompetitive conduct; (2) Rambus made
important representations that it did not have any intellectual property
pertaining to the work of JEDEC and intended or reasonably expected that the
representations would be heard by or repeated to others including Hynix, Micron
or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual
property coverage or potential coverage of products compliant with synchronous
DRAM standards then being considered by JEDEC by disclosing some facts but
failing to disclose other important facts; or (4) JEDEC members shared a
clearly defined expectation that members would disclose relevant knowledge they
had about patent applications or the intent to file patent applications on
technology being considered for adoption as a JEDEC standard. Hynix, Micron, and
Nanya filed motions for a new trial and for judgment on certain of their
equitable claims and defenses. A hearing on those motions was held on
May 1, 2008. A further hearing on the equitable claims and defenses was
held on May 27, 2008. On July 24, 2008, the court issued an order
denying Hynix, Micron, and Nanya’s motions for new trial.
On March
3, 2009, the court issued an order rejecting Hynix, Micron, and Nanya’s
equitable claims and defenses that had been tried during the coordinated trial.
The court concluded (among other things) that (1) Rambus did not have an
obligation to disclose pending or anticipated patent applications and had sound
reasons for not doing so; (2) the evidence supported the jury’s finding
that JEDEC members did not share a clearly defined expectation that members
would disclose relevant knowledge they had about patent applications or the
intent to file patent applications on technology being considered for adoption
as a JEDEC standard; (3) the written JEDEC disclosure policies did not
clearly require members to disclose information about patent applications and
the intent to file patent applications in the future; (4) there was no
clearly understood or legally enforceable agreement of JEDEC members to disclose
information about patent applications or the intent to seek patents relevant to
standards being discussed at JEDEC; (5) during the time Rambus attended
JEDEC meetings, Rambus did not have any patent application pending that covered
a JEDEC standard, and none of the patents in suit was applied for until well
after Rambus resigned from JEDEC; (6) Rambus’s conduct at JEDEC did not
constitute an estoppel or waiver of its rights to enforce its patents;
(7) Hynix, Micron, and Nanya failed to carry their burden to prove
their
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
asserted
waiver and estoppel defenses not directly based on Rambus’s conduct at JEDEC;
(8) the evidence did not support a finding of any material
misrepresentation, half truths or fraudulent concealment by Rambus related to
JEDEC upon which Nanya relied; (9) the manufacturers failed to establish
that Rambus violated unfair competition law by its conduct before JEDEC;
(10) the evidence related to Rambus’s patent prosecution did not establish
that Rambus unduly delayed in prosecuting the claims in suit; (11) Rambus
did not unreasonably delay bringing its patent infringement claims; and
(12) there is no basis for any unclean hands defense or unenforceability
claim arising from Rambus’s conduct.
On March
10, 2009, the court entered final judgment against Hynix in the amount of
approximately $397 million as follows: approximately $134 million for
infringement through December 31, 2005; approximately $215 million for
infringement from January 1, 2006 through January 31, 2009; and approximately
$48 million in pre-judgment interest. Post-judgment interest will accrue at the
statutory rate. In addition, the judgment orders Hynix to pay Rambus royalties
on net sales for U.S. infringement after January 31, 2009 and before April 18,
2010 of 1% for SDR SDRAM and 4.25% for DDR DDR2, DDR3, GDDR, GDDR2 and GDDR3
SDRAM memory devices. On April 9, 2009, Rambus submitted its cost bill in the
amount of approximately $0.85 million. On March 24, 2009, Hynix filed a motion
under Rule 62 seeking relief from the requirement that it post a supersedeas
bond in the full amount of the final judgment in order to stay its execution
pending an appeal. Rambus filed a brief opposing Hynix’s motion on April 10,
2009. A hearing on Hynix’s motion was heard on May 8, 2009. On May 14, 2009, the
court granted Hynix’s motion in part and ordered that execution of the judgment
be stayed on the condition that, within 45 days, Hynix post a supersedeas bond
in the amount of $250 million and provide Rambus with documentation establishing
a lien in Rambus’s favor on property owned by Hynix in Korea in the amount of
the judgment not covered by the supersedeas bond. The court also ordered that
Hynix pay the ongoing royalties set forth in the final judgment into an escrow
account. Hynix posted the $250 million supersedeas bond on June 26, 2009. Hynix
has deposited amounts into the escrow account pursuant to the court’s order
regarding ongoing royalties. The escrowed funds will be released only upon
agreement of the parties or further court order in accordance with the terms and
conditions set forth in the escrow arrangement.
On April
6, 2009, Hynix filed its notice of appeal. On April 17, 2009, Rambus filed its
notice of cross appeal. Hynix filed a motion to dismiss Rambus’ cross-appeal on
July 1, 2009, and Rambus filed an opposition to Hynix’s motion on July 15, 2009.
On July 23, 2009, Rambus and Hynix filed a joint motion to assign this appeal to
the same panel hearing the appeal in the Micron Delaware case (discussed below)
and to coordinate oral arguments of the two appeals. On August 17, 2009, the
Federal Circuit issued an order 1) granting the joint motion to coordinate
oral arguments of the two appeals; and 2) denying Hynix’s motion to dismiss
Rambus’s cross-appeal. On August 31, 2009, Hynix filed its opening brief. On
December 7, 2009, Rambus filed its answering and opening cross-appeal brief.
Hynix’s reply and answering brief was filed February 16, 2010, and Rambus’s
reply was filed February 23, 2010. Oral argument is scheduled for April 5,
2010.
Micron
Litigation
U.S
District Court in Delaware: Case No. 00-792-SLR
On
August 28, 2000, Micron filed suit against Rambus in the U.S. District
Court for Delaware. The suit asserts violations of federal antitrust laws,
deceptive trade practices, breach of contract, fraud and negligent
misrepresentation in connection with Rambus’ participation in JEDEC. Micron
seeks a declaration of monopolization by Rambus, compensatory and punitive
damages, attorneys’ fees, a declaratory judgment that eight Rambus patents are
invalid and not infringed, and the award to Micron of a royalty-free license to
the Rambus patents. Rambus has filed an answer and counterclaims disputing
Micron’s claims and asserting infringement by Micron of 12 U.S.
patents.
This case
has been divided into three phases in the same general order as in the Hynix 00-20905 action:
(1) unclean hands; (2) patent infringement; and (3) antitrust,
equitable estoppel, and other JEDEC-related issues. A bench trial on Micron’s
unclean hands defense began on November 8, 2007 and concluded on
November 15, 2007. The court ordered post-trial briefing on the issue of
when Rambus became obligated to preserve documents because it anticipated
litigation. A hearing on that issue was held on May 20, 2008. The court
ordered further post-trial briefing on the remaining issues from the unclean
hands trial, and a hearing on those issues was held on September 19,
2008.
On
January 9, 2009, the court issued an opinion in which it determined that
Rambus had engaged in spoliation of evidence by failing to suspend general
implementation of a document retention policy after the point at which the court
determined that Rambus should have known litigation was reasonably foreseeable.
The court issued an accompanying order declaring the 12 patents in suit
unenforceable against Micron (the “Delaware Order”). On February 9, 2009,
the court stayed all other proceedings pending appeal of the Delaware Order. On
February 10, 2009, judgment was entered against Rambus and in favor of
Micron on Rambus’ patent infringement claims and Micron’s corresponding claims
for declaratory relief. On March 11, 2009, Rambus filed its notice of
appeal.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Rambus
filed its opening brief on July 2, 2009. On July 24, 2009, Rambus filed a motion
to assign this appeal to the same panel hearing the appeal in the Hynix case
(discussed above) and to coordinate oral arguments of the two appeals. On August
8, 2009, Micron filed an opposition to Rambus’s motion to coordinate. On August
17, 2009, the Federal Circuit issued an order granting Rambus’s motion to
coordinate oral arguments of the two appeals. On August 28, 2009, Micron filed
its answering brief. On October 14, 2009, Rambus filed its reply brief. Oral
argument is scheduled for April 5, 2010.
U.S.
District Court of the Northern District of California
On
January 13, 2006, Rambus filed suit against Micron in the
U.S. District Court for the Northern District of California. Rambus alleges
that 14 Rambus patents are infringed by Micron’s DDR2, DDR3, GDDR3, and other
advanced memory products. Rambus seeks compensatory and punitive damages,
attorneys’ fees, and injunctive relief. Micron has denied Rambus’ allegations
and is alleging counterclaims for violations of federal antitrust laws, unfair
trade practices, equitable estoppel, fraud and negligent misrepresentation in
connection with Rambus’ participation in JEDEC. Micron seeks a declaration of
monopolization by Rambus, injunctive relief, compensatory and punitive damages,
attorneys’ fees, and a declaratory judgment of invalidity, unenforceability, and
noninfringement of the 14 patents in suit.
As
explained above, the court ordered a coordinated trial (without Samsung) of
certain common JEDEC-related claims and defenses asserted in Hynix v Rambus, Case
No. C 00-20905 RMW, Rambus Inc. v. Samsung
Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix
Semiconductor Inc., et al., Case No. 05-00334,
and Rambus Inc. v. Micron
Technology, Inc., et al., Case No. C 06-00244
RMW. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on
January 29, 2008, and was submitted to the jury on March 25, 2008. On
March 26, 2008, the jury returned a verdict in favor of Rambus and against
Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found
that Hynix, Micron, and Nanya failed to meet their burden of proving that:
(1) Rambus engaged in anticompetitive conduct; (2) Rambus made
important representations that it did not have any intellectual property
pertaining to the work of JEDEC and intended or reasonably expected that the
representations would be heard by or repeated to others including Hynix, Micron
or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual
property coverage or potential coverage of products compliant with synchronous
DRAM standards then being considered by JEDEC by disclosing some facts but
failing to disclose other important facts; or (4) JEDEC members shared a
clearly defined expectation that members would disclose relevant knowledge they
had about patent applications or the intent to file patent applications on
technology being considered for adoption as a JEDEC standard. Hynix, Micron, and
Nanya filed motions for a new trial and for judgment on certain of their
equitable claims and defenses. A hearing on those motions was held on
May 1, 2008. A further hearing on the equitable claims and defenses was
held on May 27, 2008. On July 24, 2008, the court issued an order
denying Hynix, Micron, and Nanya’s motions for new trial.
On March
3, 2009, the court issued an order rejecting Hynix, Micron, and Nanya’s
equitable claims and defenses that had been tried during the coordinated trial.
The court concluded (among other things) that (1) Rambus did not have an
obligation to disclose pending or anticipated patent applications and had sound
reasons for not doing so; (2) the evidence supported the jury’s finding
that JEDEC members did not share a clearly defined expectation that members
would disclose relevant knowledge they had about patent applications or the
intent to file patent applications on technology being considered for adoption
as a JEDEC standard; (3) the written JEDEC disclosure policies did not
clearly require members to disclose information about patent applications and
the intent to file patent applications in the future; (4) there was no
clearly understood or legally enforceable agreement of JEDEC members to disclose
information about patent applications or the intent to seek patents relevant to
standards being discussed at JEDEC; (5) during the time Rambus attended
JEDEC meetings, Rambus did not have any patent application pending that covered
a JEDEC standard, and none of the patents in suit was applied for until well
after Rambus resigned from JEDEC; (6) Rambus’s conduct at JEDEC did not
constitute an estoppel or waiver of its rights to enforce its patents;
(7) Hynix, Micron, and Nanya failed to carry their burden to prove their
asserted waiver and estoppel defenses not directly based on Rambus’s conduct at
JEDEC; (8) the evidence did not support a finding of any material
misrepresentation, half truths or fraudulent concealment by Rambus related to
JEDEC upon which Nanya relied; (9) the manufacturers failed to establish
that Rambus violated unfair competition law by its conduct before JEDEC;
(10) the evidence related to Rambus’s patent prosecution did not establish
that Rambus unduly delayed in prosecuting the claims in suit; (11) Rambus
did not unreasonably delay bringing its patent infringement claims; and
(12) there is no basis for any unclean hands defense or unenforceability
claim arising from Rambus’s conduct.
In these
cases (except for the Hynix
00-20905 action), a hearing on claim construction and the parties’
cross-motions for summary judgment on infringement and validity was held on June
4 and 5, 2008. On July 10, 2008, the court issued its claim construction
order relating to the Farmwald/Horowitz patents in suit and denied Hynix,
Micron, Nanya, and Samsung’s (collectively, the “Manufacturers”) motions for
summary judgment of noninfringement and invalidity based on their proposed claim
construction. The court issued claim construction orders relating to the Ware
patents in suit on July 25 and August 27, 2008, and denied
the
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Manufacturers’
motion for summary judgment of noninfringement of certain claims. On
September 4, 2008, at the court’s direction, Rambus elected to proceed to
trial on 12 patent claims, each from the Farmwald/Horowitz family. On
September 16, 2008, Rambus granted a covenant not to assert any claim of
patent infringement against the Manufacturers under the Ware patents in suit
(U.S. Patent Nos. 6,493,789 and 6,496,897), and each party’s claims
relating to those patents were dismissed with prejudice. On November 21,
2008, the court entered an order clarifying certain aspects of its July 10,
2008, claim construction order. On November 24, 2008, the court granted
Rambus’ motion for summary judgment of direct infringement with respect to claim
16 of Rambus’ U.S. Patent No. 6,266,285 by the Manufacturers’ DDR2,
DDR3, gDDR2, GDDR3, GDDR4 memory chip products (except for Nanya’s DDR3 memory
chip products). In the same order, the court denied the remainder of Rambus’
motion for summary judgment of infringement.
On
January 19, 2009, Micron filed a motion for summary judgment on the ground
that the Delaware Order should be given preclusive effect. Rambus filed an
opposition to Micron’s motion on January 26, 2009, and a hearing was held
on January 30, 2009. On February 3, 2009, the court entered a stay of
this action pending resolution of Rambus’ appeal of the Delaware
Order.
European
Patent Infringement Cases
In 2001,
Rambus filed suit against Micron in Mannheim, Germany, for infringement of
European patent, EP 1 022 642. That suit has not been active. Two proceedings in
Italy remain ongoing relating to Rambus’s claim that Micron is infringing
European patent, EP 1 004 956, and Micron’s purported claim resulting from a
seizure of evidence in Italy in 2000 carried out by Rambus pursuant to a court
order.
DDR2,
DDR3, gDDR2, GDDR3, GDDR4 Litigation (“DDR2”)
U.S
District Court in the Northern District of California
On
January 25, 2005, Rambus filed a patent infringement suit in the
U.S. District Court for the Northern District of California court against
Hynix, Infineon, Nanya, and Inotera. Infineon and Inotera were subsequently
dismissed from this litigation and Samsung was added as a defendant. Rambus
alleges that certain of its patents are infringed by certain of the defendants’
SDRAM, DDR, DDR2, DDR3, gDDR2, GDDR3, GDDR4 and other advanced memory products.
Hynix, Samsung and Nanya have denied Rambus’ claims and asserted counterclaims
against Rambus for, among other things, violations of federal antitrust laws,
unfair trade practices, equitable estoppel, and fraud in connection with Rambus’
participation in JEDEC.
As
explained above, the court ordered a coordinated trial of certain common
JEDEC-related claims and defenses asserted in Hynix v Rambus, Case
No. C 00-20905 RMW, Rambus Inc. v. Samsung
Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix
Semiconductor Inc., et al., Case No. 05-00334, and Rambus Inc. v. Micron
Technology, Inc., et al., Case No. C 06-00244 RMW. The court
subsequently excused Samsung from the coordinated trial on December 14,
2007, based on Samsung’s agreement to certain conditions, including trial of its
claims against Rambus within six months following the conclusion of the
coordinated trial. The coordinated trial involving Rambus, Hynix, Micron and
Nanya began on January 29, 2008, and was submitted to the jury on
March 25, 2008. On March 26, 2008, the jury returned a verdict in
favor of Rambus and against Hynix, Micron, and Nanya on each of their claims.
Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their
burden of proving that: (1) Rambus engaged in anticompetitive conduct;
(2) Rambus made important representations that it did not have any
intellectual property pertaining to the work of JEDEC and intended or reasonably
expected that the representations would be heard by or repeated to others
including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half- truths
about its intellectual property coverage or potential coverage of products
compliant with synchronous DRAM standards then being considered by JEDEC by
disclosing some facts but failing to disclose other important facts; or
(4) JEDEC members shared a clearly defined expectation that members would
disclose relevant knowledge they had about patent applications or the intent to
file patent applications on technology being considered for adoption as a JEDEC
standard. Hynix, Micron, and Nanya filed motions for a new trial and for
judgment on certain of their equitable claims and defenses. A hearing on those
motions was held on May 1, 2008. A further hearing on the equitable claims
and defenses was held on May 27, 2008. On July 24, 2008, the court
issued an order denying Hynix, Micron, and Nanya’s motions for new
trial.
On March
3, 2009, the court issued an order rejecting Hynix, Micron, and Nanya’s
equitable claims and defenses that had been tried during the coordinated trial.
The court concluded (among other things) that (1) Rambus did not have an
obligation to disclose pending or anticipated patent applications and had sound
reasons for not doing so; (2) the evidence supported the jury’s finding
that JEDEC members did not share a clearly defined expectation that members
would disclose relevant knowledge they had about patent applications or the
intent to file patent applications on technology being considered for adoption
as a JEDEC standard; (3) the written JEDEC disclosure policies did not
clearly require members to disclose information about patent applications and
the intent to file patent applications in the future; (4) there was no
clearly understood or legally enforceable agreement of JEDEC members to
disclose
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
information
about patent applications or the intent to seek patents relevant to standards
being discussed at JEDEC; (5) during the time Rambus attended JEDEC
meetings, Rambus did not have any patent application pending that covered a
JEDEC standard, and none of the patents in suit was applied for until well after
Rambus resigned from JEDEC; (6) Rambus’s conduct at JEDEC did not
constitute an estoppel or waiver of its rights to enforce its patents;
(7) Hynix, Micron, and Nanya failed to carry their burden to prove their
asserted waiver and estoppel defenses not directly based on Rambus’s conduct at
JEDEC; (8) the evidence did not support a finding of any material
misrepresentation, half truths or fraudulent concealment by Rambus related to
JEDEC upon which Nanya relied; (9) the manufacturers failed to establish
that Rambus violated unfair competition law by its conduct before JEDEC;
(10) the evidence related to Rambus’s patent prosecution did not establish
that Rambus unduly delayed in prosecuting the claims in suit; (11) Rambus
did not unreasonably delay bringing its patent infringement claims; and
(12) there is no basis for any unclean hands defense or unenforceability
claim arising from Rambus’s conduct.
In these
cases (except for the Hynix
00-20905 action), a hearing on claim construction and the parties’
cross-motions for summary judgment on infringement and validity was held on June
4 and 5, 2008. On July 10, 2008, the court issued its claim construction
order relating to the Farmwald/Horowitz patents in suit and denied the
Manufacturers’ motions for summary judgment of noninfringement and invalidity
based on their proposed claim construction. The court issued claim construction
orders relating to the Ware patents in suit on July 25 and August 27, 2008,
and denied the Manufacturers’ motion for summary judgment of noninfringement of
certain claims. On September 4, 2008, at the court’s direction, Rambus
elected to proceed to trial on 12 patent claims, each from the Farmwald/Horowitz
family. On September 16, 2008, Rambus granted a covenant not to assert any
claim of patent infringement against the Manufacturers under U.S. Patent
Nos. 6,493,789 and 6,496,897, and each party’s claims relating to those patents
were dismissed with prejudice. On November 21, 2008, the court entered an
order clarifying certain aspects of its July 10, 2008, claim construction
order. On November 24, 2008, the court granted Rambus’s motion for summary
judgment of direct infringement with respect to claim 16 of Rambus’s
U.S. Patent No. 6,266,285 by the Manufacturers’ DDR2, DDR3, gDDR2,
GDDR3, GDDR4 memory chip products (except for Nanya’s DDR3 memory chip
products). In the same order, the court denied the remainder of Rambus’s motion
for summary judgment of infringement.
On
January 19, 2009, Samsung, Nanya, and Hynix filed motions for summary
judgment on the ground that the Delaware Order should be given preclusive
effect. Rambus filed opposition briefs to these motions on January 26,
2009, and a hearing was held on January 30, 2009. On February 3, 2009,
the court entered a stay of this action pending resolution of Rambus’ appeal of
the Delaware Order.
On
January 19, 2010, Rambus and Samsung entered into a Settlement Agreement
pursuant to which the parties have agreed that they will release all claims
against each other with respect to all outstanding litigation between them and
certain other potential claims. The Settlement Agreement is described in further
detail in an 8-K filed on January 25, 2010. A stipulation and order of dismissal
with prejudice of claims between Rambus and Samsung was entered on February 11,
2010.
Samsung
Litigation
U.S
District Court in the Northern District of California
On
June 6, 2005, Rambus filed a patent infringement suit against Samsung in
the U.S. District Court the Northern District of California alleging that
Samsung’s SDRAM and DDR SDRAM parts infringe 9 of Rambus’ patents. Samsung has
denied Rambus’ claims and asserted counterclaims for non-infringement,
invalidity and unenforceability of the patents, violations of various antitrust
and unfair competition statutes, breach of license, and breach of duty of good
faith and fair dealing. Samsung has also counterclaimed that Rambus aided and
abetted breach of fiduciary duty and intentionally interfered with Samsung’s
contract with a former employee by knowingly hiring a former Samsung employee
who allegedly misused proprietary Samsung information. Rambus has denied
Samsung’s counterclaims.
As
explained above, the court ordered a coordinated trial of certain common
JEDEC-related claims and defenses asserted in Hynix v Rambus, Case
No. C 00-20905 RMW, Rambus Inc. v. Samsung
Electronics Co. Ltd. et al., Case No. 05-02298 RMW, Rambus Inc. v. Hynix
Semiconductor Inc., et al., Case No. 05-00334, and Rambus Inc. v. Micron
Technology, Inc., et al., Case No. C 06-00244 RMW. The court
subsequently excused Samsung from the coordinated trial on December 14,
2007, based on Samsung’s agreement to certain conditions, including trial of its
claims against Rambus within six months following the conclusion of the
coordinated trial (see below). In these cases (except for the Hynix 00-20905 action), a
hearing on claim construction and the parties’ cross-motions for summary
judgment on infringement and validity was held on June 4 and 5, 2008. On
July 10, 2008, the court issued its claim construction order relating to
the Farmwald/Horowitz patents in suit and denied the Manufacturers’ motions for
summary judgment of noninfringement and invalidity based on their proposed claim
construction. The court issued claim construction orders relating to
the
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Ware
patents in suit on July 25 and August 27, 2008, and denied the
Manufacturers’ motion for summary judgment of noninfringement of certain claims.
On September 4, 2008, at the court’s direction, Rambus elected to proceed
to trial on 12 patent claims, each from the Farmwald/Horowitz family. On
September 16, 2008, Rambus granted a covenant not to assert any claim of
patent infringement against the Manufacturers under U.S. Patent Nos.
6,493,789 and 6,496,897, and each party’s claims relating to those patents were
dismissed with prejudice. On November 21, 2008, the court entered an order
clarifying certain aspects of its July 10, 2008, claim construction order.
On November 24, 2008, the court granted Rambus’s motion for summary
judgment of direct infringement with respect to claim 16 of Rambus’s
U.S. Patent No. 6,266,285 by the Manufacturers’ DDR2, DDR3, gDDR2,
GDDR3, GDDR4 memory chip products (except for Nanya’s DDR3 memory chip
products). In the same order, the court denied the remainder of Rambus’s motion
for summary judgment of infringement.
On
January 19, 2009, Samsung filed a motion for summary judgment on the ground
that the Delaware Order should be given preclusive effect. Rambus filed an
opposition brief to this motion on January 26, 2009, and a hearing was held
on January 30, 2009. On February 3, 2009, the court entered a stay of
this action pending resolution of Rambus’ appeal of the Delaware
Order.
On
August 11, 2008, the court granted summary judgment in Rambus’ favor on
Samsung’s claims for aiding and abetting a breach of fiduciary duty, intentional
interference with contract, and certain aspects of Samsung’s unfair competition
claim. On September 16, 2008, the court entered a stipulation and order of
dismissal with prejudice of certain of Samsung’s claims and defenses (including
those based on Rambus’ alleged JEDEC conduct) and Rambus’ defenses corresponding
to Samsung’s claims. A bench trial on the remaining claims and defenses that are
unique to Samsung (breach of license, breach of duty of good faith and fair
dealing, and estoppel based on those claims), as well as Samsung’s claims and
defenses related to its allegations that Rambus spoliated evidence, was held
between September 22 and October 1, 2008. On April 27, 2009, the court
issued Findings of Fact and Conclusions of Law holding that: (1) the
parties’ 2000 SDR/DDR license agreement did not cover DDR2 and future generation
products; (2) the license did not entitle Samsung to most favored licensee
benefits in any renewal or subsequent agreement; (3) Rambus did not fail to
negotiate an extension or renewal license in good faith, and Samsung would not
have been entitled to damages for any such failure; (4) Samsung’s equitable
estoppel defense failed; (5) Rambus breached the license by not offering
Samsung the benefit to which it was entitled under the license (for the second
quarter of 2005 only) of the royalty in the March 2005 settlement agreement
between Rambus and Infineon; (6) Rambus failed to prove that Samsung
breached certain audit provisions in the license, and therefore Rambus’s
termination of the license less than one month before it was due to expire was
improper; and (7) Rambus’s actions did not cause the parties’ failure to
reach agreement on an extension or renewal of the license. No decision issued
regarding Samsung’s spoliation allegations.
On
January 19, 2010, Rambus and Samsung entered into a Settlement Agreement
pursuant to which the parties have agreed that they will release all claims
against each other with respect to all outstanding litigation between them and
certain other potential claims. The Settlement Agreement is described in further
detail in an 8-K filed on January 25, 2010. A stipulation and order of dismissal
with prejudice of claims between Rambus and Samsung was entered on February 11,
2010.
Federal
Trade Commission Complaint
On
June 19, 2002, the FTC filed a complaint against Rambus. The FTC alleged
that through Rambus’ action and inaction at JEDEC, Rambus violated
Section 5 of the FTC Act in a way that allowed Rambus to obtain monopoly
power in — or that by acting with intent to monopolize it created a
dangerous probability of monopolization in — synchronous DRAM technology
markets. The FTC also alleged that Rambus’ action and practices at JEDEC
constituted unfair methods of competition in violation of Section 5 of the
FTC Act. As a remedy, the FTC sought to enjoin Rambus’ right to enforce patents
with priority dates prior to June 1996 as against products made pursuant to
certain existing and future JEDEC standards.
On
February 17, 2004, the FTC Chief Administrative Law Judge issued his
initial decision dismissing the FTC’s complaint against Rambus on multiple
independent grounds (the “Initial Decision”). The FTC’s Complaint Counsel
appealed this decision.
On
August 2, 2006, the FTC released its July 31, 2006, opinion and order
reversing and vacating the Initial Decision and determining that Rambus violated
Section 5 of the Federal Trade Commission Act. Following further briefing
and oral argument on issues relating to remedy, the FTC released its opinion and
order on remedy on February 5, 2007. The remedy order set the maximum
royalty rate that Rambus could collect on the manufacture, use or sale in the
United States of certain JEDEC-compliant parts after the effective date of the
Order. The order also mandated that Rambus offer a license for these products at
rates no higher than the maximums set by the FTC, including a further cap on
rates for the affected non-memory products. The order further required Rambus to
take certain steps to comply with the terms of the order and applicable
disclosure rules of any standard setting organization of which it may become a
member.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The FTC’s
order explicitly did not set maximum rates or other conditions with respect to
Rambus’ royalty rates for DDR2 SDRAM, other post-DDR JEDEC standards, or for
non-JEDEC-standardized technologies such as those used in RDRAM or XDR
DRAM.
On
March 16, 2007, the FTC issued an order granting in part and denying in
part Rambus’ motion for a stay of the remedy pending appeal. The March 16,
2007 order permitted Rambus to acquire rights to royalty payments for use of the
patented technologies affected by the February 2 remedy order during the period
of the stay in excess of the FTC-imposed maximum royalty rates on SDRAM and DDR
SDRAM products, provided that funds above the maximum allowed rates be either
placed into an escrow account to be distributed, or payable pursuant a
contingent contractual obligation, in accordance with the ultimate decision of
the court of appeals. In an opinion accompanying its order, the FTC clarified
that it intended its remedy to be “forward-looking” and “prospective only,” and
therefore unlikely to be construed to require Rambus to refund royalties already
paid or to restrict Rambus from collecting royalties for the use of its
technologies during past periods.
On
April 27, 2007, the FTC issued an order granting in part and denying in
part Rambus’ petition for reconsideration of the remedy order. The FTC’s
order and accompanying opinion on Rambus’ petition for reconsideration clarified
the remedy order in certain respects. For example, (1) the FTC explicitly
stated that the remedy order did not require Rambus to make refunds or prohibit
it from collecting royalties in excess of maximum allowable royalties that
accrue up to the effective date of the remedy order; (2) the remedy order
was modified to specifically permit Rambus to seek damages in litigation up to
three times the specified maximum allowable royalty rates on the ground of
willful infringement and any allowable attorneys’ fees; and (3) under the
remedy order, licensees were permitted to pay Rambus a flat fee in lieu of
running royalties, even if such an arrangement resulted in payments above the
FTC’s rate caps in certain circumstances.
Rambus
appealed the FTC’s liability and remedy orders to the U. S. Court of Appeals for
the District of Columbia (the “CADC”). Oral argument was heard February 14,
2008. On April 22, 2008, the CADC issued an opinion which requires vacatur
of the FTC’s orders. The CADC held that the FTC failed to demonstrate that
Rambus’ conduct was exclusionary, and thus failed to establish its allegation
that Rambus unlawfully monopolized any relevant market. The CADC’s opinion set
aside the FTC’s orders and remanded the matter to the FTC for further
proceedings consistent with the opinion. Regarding the chance of further
proceedings on remand, the CADC expressed serious concerns about the strength of
the evidence relied on to support some of the FTC’s crucial findings regarding
the scope of JEDEC’s patent disclosure policies and Rambus’ alleged violation of
those policies. On August 26, 2008, the CADC denied the FTC’s petition to
rehear the case en banc. On October 16, 2008, the FTC issued an order
explicitly authorizing Rambus to receive amounts above the maximum rates allowed
by the FTC’s now-vacated order payable pursuant to any contingent contractual
obligation.
On
November 24, 2008, the FTC filed a petition seeking review of the CADC
decision by the U. S. Supreme Court. Rambus filed an opposition to the FTC’s
petition on January 23, 2009, and the FTC filed a reply on February 4,
2009. On February 23, 2009, the United States Supreme Court denied the
FTC’s petition. On May 12, 2009, the Commission issued an order dismissing the
complaint, finding that further litigation in this matter would not be in the
public interest.
European
Commission Competition Directorate-General
On or
about April 22, 2003, Rambus was notified by the European Commission
Competition Directorate-General (Directorate) (the “European Commission”) that
it had received complaints from Infineon and Hynix. Rambus answered the ensuing
requests for information prompted by those complaints on June 16, 2003.
Rambus obtained a copy of Infineon’s complaint to the European Commission in
late July 2003, and on October 8, 2003, at the request of the European
Commission, filed its response. The European Commission sent Rambus a further
request for information on December 22, 2006, which Rambus answered on
January 26, 2007. On August 1, 2007, Rambus received a statement of
objections from the European Commission. The statement of objections alleges
that through Rambus’ participation in the JEDEC standards setting organization
and subsequent conduct, Rambus violated European Union competition law. Rambus
filed a response to the statement of objections on October 31, 2007, and a
hearing was held on December 4 and 5, 2007.
On
December 9, 2009, the European Commission announced that it has reached a final
settlement with Rambus to resolve the pending case. Under the terms of the
settlement, the Commission made no finding of liability, and no fine will be
assessed against Rambus. Rambus commits to offer licenses with maximum royalty
rates for certain memory types and memory controllers on a forward-going basis
(the “Commitment”). The Commitment is expressly made without any admission by
Rambus of the allegations asserted against it. The Commitment also does not
resolve any existing claims of infringement prior to the signing of any license
with
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
a
prospective licensee, nor does it release or excuse any of the prospective
licensees from damages or royalty obligations through the date of signing a
license. Rambus offers licenses with maximum royalty rates for five-year
worldwide licenses of 1.5% for DDR2, DDR3, GDDR3 and GDDR4 SDRAM memory types.
Qualified licensees will enjoy a royalty holiday for SDR and DDR DRAM devices,
subject to compliance with the terms of the license. In addition, Rambus offers
licenses with maximum royalty rates for five-year worldwide licenses of 1.5% per
unit for SDR memory controllers through April 2010, dropping to 1.0% thereafter,
and royalty rates of 2.65% per unit for DDR, DDR2, DDR3, GDDR3 and GDDR4 memory
controllers through April 2010, then dropping to 2.0%. The Commitment to license
at the above rates remains valid for a period of five years from December 9,
2009. All royalty rates are applicable to future shipments only and do not
affect liability, if any, for damages or royalties that accrued up to the time
of the license grant.
Superior
Court of California for the County of San Francisco
On
May 5, 2004, Rambus filed a lawsuit against Micron, Hynix, Infineon and
Siemens in San Francisco Superior Court (the “San Francisco court”)
seeking damages for conspiring to fix prices (California Bus. & Prof. Code
§§ 16720 et seq.), conspiring to
monopolize under the Cartwright Act (California Bus. & Prof. Code
§§ 16720 et seq.),
intentional interference with prospective economic advantage, and unfair
competition (California Bus. & Prof. Code §§ 17200 et seq.). This lawsuit alleges
that there were concerted efforts beginning in the 1990s to deter innovation in
the DRAM market and to boycott Rambus and/or deter market acceptance of Rambus’
RDRAM product. Subsequently, Infineon and Siemens were dismissed from this
action (as a result of a settlement with Infineon) and three Samsung-related
entities were added as defendants.
A hearing
on Rambus’ motion for summary judgment on the grounds that Micron’s
cross-complaint is barred by the statute of limitations was held on
August 1, 2008. At the hearing, the San Francisco court granted
Rambus’ motion as to Micron’s first cause of action (alleged violation of
California’s Cartwright Act) and continued the motion as to Micron’s second and
third causes of action (alleged violation of unfair business practices act and
alleged intentional interference with prospective economic advantage). No
further order has issued on Rambus’ motion.
On
November 25, 2008, Micron, Samsung, and Hynix filed eight motions for
summary judgment on various grounds. On January 26, 2009, Rambus filed
briefs in opposition to all eight motions. A hearing on these motions for
summary judgment was held on March 4-6, March 16-17, and June 29, 2009. The
court denied all eight motions. On June 17 and June 22, 2009, Micron, Samsung,
and Hynix filed petitions requesting that the court of appeal issue writs
directing the trial court to vacate two orders denying motions for summary
judgment and enter orders granting the motions. In separate summary orders dated
July 27 and August 13, 2009, the court of appeal denied the two petitions. On
August 24, 2009, Micron, Samsung, and Hynix filed a petition requesting that the
California Supreme Court review the court of appeals’ denial of one of their
petitions. On October 22, 2009, the California Supreme Court denied the
petition.
On March
10, 2009, defendants filed motions requesting that Rambus’ case be dismissed on
the ground that the Delaware Order should be given preclusive effect. Rambus
filed a brief opposing this request. The parties filed further briefs on the
preclusive effect, if any, of the Delaware Order on April 3 and April 17, 2009.
The parties submitted briefs on their allegations regarding alleged spoliation
of evidence on April 20, 2009. A hearing on these issues was held on April 27
and June 1, 2009, at the conclusion of which the court denied defendants’ motion
for issue preclusion and terminating sanctions. On June 19, 2009, Micron and
Samsung filed petitions requesting that the court of appeal issue writs
directing the trial court to vacate its order denying defendants’ motion for
issue preclusion and terminating sanctions and enter an order granting the
motion. Hynix filed a similar petition on June 23, 2009. On July 6, 2009, the
court of appeal denied all three of these petitions. On July 16, 2009, Samsung
and Micron filed petitions requesting that the California Supreme Court review
the court of appeals’ denial of their petitions. On September 9, 2009, the
California Supreme Court denied these petitions.
On
January 19, 2010, Rambus and Samsung entered into a Settlement Agreement
pursuant to which the parties agreed to release all claims against each other
with respect to all outstanding litigation between them and certain other
potential claims. The Settlement Agreement is described in further detail in an
8-K filed on January 25, 2010. A stipulation of dismissal with prejudice of
claims between Rambus and Samsung was filed on February 4, 2010.
Trial had been scheduled to begin on January 11, 2010. On January 13 and 21,
2010, a hearing was held on Micron’s emergency request for a two-month
continuance. At the conclusion of the hearing, the request for continuance was
granted. Trial is scheduled to commence on a date to be determined, no earlier
than March 22, 2010.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Stock
Option Investigation Related Claims
On
May 30, 2006, the Audit Committee commenced an internal investigation of
the timing of past stock option grants and related accounting
issues.
On
May 31, 2006, the first of three shareholder derivative actions was filed
in the U.S. District Court for the Northern District of California against
Rambus (as a nominal defendant) and certain current and former executives and
board members. These actions have been consolidated for all purposes under the
caption, In re Rambus Inc.
Derivative Litigation,
Master File No. C-06-3513-JF (N.D. Cal.), and Howard Chu and Gaetano
Ruggieri were appointed lead plaintiffs. The consolidated complaint, as amended,
alleges violations of certain federal and state securities laws as well as other
state law causes of action. The complaint seeks disgorgement and damages in an
unspecified amount, unspecified equitable relief, and attorneys’ fees and
costs.
On
August 22, 2006, another shareholder derivative action was filed in
Delaware Chancery Court against Rambus (as a nominal defendant) and certain
current and former executives and board members (Bell v. Tate et al.,
2366-N (Del. Chancery)). On May 16, 2008, this case was dismissed pursuant
to a notice filed by the plaintiff.
On
August 30, 2007, another shareholder derivative action was filed in the
U.S. District Court for the Southern District of New York against Rambus (as a
nominal defendant) and PricewaterhouseCoopers LLP (Francl v.
PricewaterhouseCoopers LLP et al., No. 07-Civ. 7650 (GBD)). On
November 21, 2007, the New York court granted PricewaterhouseCoopers LLP’s
motion to transfer the action to the Northern District of
California.
On
October 18, 2006, the Board of Directors formed a Special Litigation
Committee (the “SLC”) to evaluate potential claims or other actions arising from
the stock option granting activities. The Board of Directors appointed J. Thomas
Bentley, Chairman of the Audit Committee, and Abraham Sofaer, a retired federal
judge and Chairman of the Legal Affairs Committee, both of whom joined the
Rambus Board of Directors in 2005, to comprise the SLC.
On
August 24, 2007, the final written report setting forth the findings of the
SLC was filed with the court. As set forth in its report, the SLC determined
that all claims should be terminated and dismissed against the named defendants
in In re Rambus Inc. Derivative Litigation
with the exception of claims against named defendant Ed Larsen, who
served as Vice President, Human Resources from September 1996 until December
1999, and then Senior Vice President, Administration until July 2004. The SLC
entered into settlement agreements with certain former officers of Rambus. The
aggregate value of the settlements to Rambus exceeds $5.3 million in cash
as well as substantial additional value to Rambus relating to the relinquishment
of claims to over 2.7 million stock options. On October 5, 2007,
Rambus filed a motion to terminate in accordance with the SLC’s recommendations.
Subsequently, the parties settled In re Rambus Inc. Derivative
Litigation and Francl v. PricewaterhouseCoopers LLP et
al., No. 07-Civ. 7650 (GBD). The settlement provided for a payment
by Rambus of $2.0 million and dismissal with prejudice of all claims
against all defendants, with the exception of claims against Ed Larsen, in these
actions. The $2.0 million was accrued for during the quarter ended
June 30, 2008 within accrued litigation expenses and paid in January 2009.
A final approval hearing was held on January 16, 2009, and an order of
final approval was entered on January 20, 2009.
On
July 17, 2006, the first of six class action lawsuits was filed in the U.S.
District Court for the Northern District of California against Rambus and
certain current and former executives and board members. These lawsuits were
consolidated under the caption, In re Rambus Inc. Securities
Litigation, C-06-4346-JF (N.D. Cal.). The settlement of this action was
preliminarily approved by the court on March 5, 2008. Pursuant to the
settlement agreement, Rambus paid $18.3 million into a settlement fund on
March 17, 2008. Some alleged class members requested exclusion from the
settlement. A final fairness hearing was held on May 14, 2008. That same
day the court entered an order granting final approval of the settlement
agreement and entered judgment dismissing with prejudice all claims against all
defendants in the consolidated class action litigation.
On
March 1, 2007, a pro se lawsuit was filed in the Northern District of
California by two alleged Rambus shareholders against Rambus, certain current
and former executives and board members, and PricewaterhouseCoopers LLP (Kelley et al. v. Rambus, Inc. et al.
C-07-01238-JF (N.D. Cal.)). This action was consolidated with a
substantially identical pro se lawsuit filed by another purported Rambus
shareholder against the same parties. The consolidated complaint against Rambus
alleges violations of federal and state securities laws, and state law claims
for fraud and breach of fiduciary duty. Following several rounds of motions to
dismiss, on April 17, 2008, the court dismissed all claims with prejudice
except for plaintiffs’ claims under sections 14(a) and 18(a) of the
Securities and Exchange Act of 1934 as to which leave to amend was granted. On
June 2, 2008, plaintiffs filed an amended complaint containing
substantially the same allegations as the prior complaint although limited to
claims under sections 14(a) and 18(a) of the Securities and Exchange Act of
1934. Rambus’ motion to dismiss the amended complaint was heard on
September 12, 2008. On December 9, 2008, the court granted Rambus’
motion and entered judgment in favor of Rambus. Plaintiffs filed a notice of
appeal on
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
December 15,
2008. Plaintiffs’ filed their opening brief on April 13, 2009. Rambus opposed on
May 29, 2009, and plaintiffs filed a reply brief on June 12, 2009. No date has
been set for oral argument.
On
September 11, 2008, the same pro se plaintiffs filed a separate lawsuit in
Santa Clara County Superior Court against Rambus, certain current and
former executives and board members, and PricewaterhouseCoopers LLP (Kelley et al. v. Rambus, Inc. et al., Case
No. 1-08-CV-122444). The complaint alleges violations of certain California
state securities statues as well as fraud and negligent misrepresentation based
on substantially the same underlying factual allegations contained in the pro se
lawsuit filed in federal court. On November 24, 2008, Rambus filed a motion
to dismiss or, in the alternative, stay this case in light of the first-filed
federal action. On January 12, 2009, Rambus filed a demurrer to plaintiffs’
complaint on the ground that it was barred by the doctrine of claim preclusion.
A hearing on Rambus’ motions was held on February 27, 2009. The court
granted Rambus’s motion to stay the case pending the outcome of the appeal in
the federal action and denied the remainder of the motions without
prejudice.
On
August 25, 2008, an amended complaint was filed by certain individuals and
entities in Santa Clara County Superior Court against Rambus, certain
current and former executives and board members, and PricewaterhouseCoopers LLP
(Steele et al. v. Rambus Inc. et
al., Case No. 1-08-CV-113682). The amended complaint alleges
violations of certain California state securities statues as well as fraud and
negligent misrepresentation. On October 10, 2008, Rambus filed a demurrer
to the amended complaint. A hearing was held on January 9, 2009. On
January 12, 2009, the court sustained Rambus’ demurrer without prejudice.
Plaintiffs filed a second amended complaint on February 13, 2009,
containing the same causes of action as the previous complaint. On March 17,
2009, Rambus filed a demurrer to the second amended complaint. A hearing was
held on May 22, 2009. On May 26, 2009, the court sustained in part and overruled
in part Rambus’s demurrer. On June 5, 2009, Rambus filed an answer denying
plaintiffs’ remaining allegations. Discovery is ongoing.
NVIDIA
Litigation
U.S
District Court in the Northern District of California
On
July 10, 2008, Rambus filed suit against NVIDIA Corporation (“NVIDIA”) in
the U.S. District Court for the Northern District of California alleging
that NVIDIA’s products with memory controllers for SDR, DDR, DDRx, GDDR, and
GDDRy (where DDRx and GDDRy includes at least DDR2, DDR3 and GDDR3) technologies
infringe 17 patents. On September 16, 2008, Rambus granted a covenant not
to assert any claim of patent infringement against NVIDIA under U.S. Patent
Nos. 6,493,789 and 6,496,897, accordingly 15 patents remain in suit. On
December 30, 2008, the court granted NVIDIA’s motion to stay this case as
to Rambus’ claims that NVIDIA’s products infringe nine patents that are also the
subject of proceedings in front of the International Trade Commission (described
below), and denied NVIDIA’s motion to stay the remainder of Rambus’ patent
infringement claims. Certain limited discovery is proceeding. A case management
conference is scheduled for March 12, 2010.
On
July 11, 2008, one day after Rambus filed suit, NVIDIA filed its own action
against Rambus in the U.S. District Court for the Middle District of North
Carolina alleging that Rambus committed antitrust violations of the Sherman Act;
committed antitrust violations of North Carolina law; and engaged in unfair and
deceptive practices in violation of North Carolina law. NVIDIA seeks injunctive
relief, damages, and attorneys’ fees and costs. This case has been transferred
and consolidated into Rambus’s patent infringement case. Rambus filed a motion
to dismiss NVIDIA’s claims prior to transfer of the action to California, and no
decision has issued to date.
International
Trade Commission
On
November 6, 2008, Rambus filed a complaint with the U. S. International
Trade Commission (the “ITC”) requesting the commencement of an investigation
pertaining to NVIDIA products. The complaint seeks an exclusion order barring
the importation, sale for importation, or sale after importation of products
that infringe nine Rambus patents from the Ware and Barth families of patents.
The accused products include NVIDIA products that incorporate DDR, DDR2, DDR3,
LPDDR, GDDR, GDDR2, and GDDR3 memory controllers, including graphics processors,
and media and communications processors. The complaint names NVIDIA as a
proposed respondent, as well as companies whose products incorporate accused
NVIDIA products and are imported into the United States. Additional respondents
include: Asustek Computer Inc. and Asus Computer International, BFG
Technologies, Biostar Microtech and Biostar Microtech International Corp.,
Diablotek Inc., EVGA Corp., G.B.T. Inc. and Giga-Byte Technology Co.,
Hewlett-Packard, MSI Computer Corp. and Micro-Star International Co., Palit
Multimedia Inc. and Palit Microsystems Ltd., Pine Technology Holdings, and
Sparkle Computer Co.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On
December 4, 2008, the ITC instituted the investigation. A hearing on claim
construction was held on March 24, 2009, and a claim construction order issued
on June 22, 2009. On June 5, 2009, Rambus moved to withdraw from the
investigation four of the asserted patents and certain claims of a fifth
asserted patent in order to simplify the investigation, streamline the final
hearing, and conserve Commission resources. A final hearing before the
administrative law judge was held October 13-20, 2009, and the parties submitted
two rounds of post-hearing briefs.
On
January 22, 2010, the administrative law judge issued a final initial
determination holding that the importation of the accused NVIDIA products
violates section 337 of the Tariff Act of 1930, as amended, 19 U.S.C.
§ 1337 because they infringe seventeen claims of three asserted Barth
patents. The administrative law judge held that the accused NVIDIA products
literally infringe all asserted claims of each asserted Barth and Ware patent,
that they infringe three asserted claims under the doctrine of equivalents, that
respondents contribute to and induce infringement of all asserted claims, and
that the asserted patents are not unenforceable due to unclean hands or
equitable estoppel. The administrative law judge held that the asserted Barth
patents are not invalid for anticipation or obviousness and are not obvious for
double patenting. The administrative law judge further held that, while the
accused products infringed eight claims of the two asserted Ware patents and
that those patents are not unenforceable due to inequitable conduct, no
violation has occurred because the asserted Ware patents are invalid due to
anticipation and obviousness. The administrative law judge recommended that the
ITC issue 1) a limited exclusion order prohibiting the unlicensed
importation of accused products by any respondent; and 2) a cease and
desist order prohibiting domestic respondents from engaging in certain
activities in the United States with respect to the accused products. On
February 12, 2010, the parties’ filed petitions asking the full Commission to
review certain aspects of the final initial determination. The final
determination from the ITC is due May 24, 2010.
Potential
Future Litigation
In
addition to the litigation described above, participants in the DRAM and
controller markets continue to adopt Rambus technologies into various products.
Rambus has notified many of these companies of their use of Rambus technology
and continues to evaluate how to proceed on these matters. There can be no
assurance that any ongoing or future litigation will be successful. Rambus
spends substantial company resources defending its intellectual property in
litigation, which may continue for the foreseeable future given the multiple
pending litigations. The outcomes of these litigations — as well as any
delay in their resolution — could affect Rambus’ ability to license its
intellectual property in the future.
The
Company records a contingent liability when it is probable that a loss has been
incurred and the amount is reasonably estimable in accordance with accounting
for contingencies.
17. Fair
Value of Financial Instruments
The fair
value measurement statement defines fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When
determining fair value, the Company considers the principal or most advantageous
market in which the Company would transact, and the Company considers
assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of
non-performance.
The
Company’s financial instruments are measured and recorded at fair value, except
for cost method investments. The Company’s non-financial assets, such as
goodwill, intangible assets, and property, plant and equipment, are measured at
fair value when there is an indicator of impairment and recorded at fair value
only when an impairment charge is recognized.
Fair
Value Hierarchy
The fair
value measurement statement requires disclosure that establishes a framework for
measuring fair value and expands disclosure about fair value measurements. The
statement requires fair value measurement be classified and disclosed in one of
the following three categories:
Level 1: Unadjusted quoted
prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
The
Company uses unadjusted quotes to determine fair value. The financial assets in
Level 1 include money market funds.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Level 2: Quoted prices in markets that are not active, or inputs which
are observable, either directly or indirectly, for substantially the full term
of the asset or liability.
The
Company uses observable pricing inputs including benchmark yields, reported
trades, and broker/dealer quotes. The financial assets in Level 2 include U.S.
government bonds and notes, corporate notes, commercial paper and municipal
bonds and notes.
Level 3: 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).
The
financial assets in Level 3 include a cost investment whose value is determined
using inputs that are both unobservable and significant to the fair value
measurements.
The
Company tests the pricing inputs by obtaining prices from two different sources
for the same security on a sample of its portfolio. The Company has not adjusted
the pricing inputs it has obtained. The following table presents the financial
instruments that are carried at fair value and summarizes the valuation of our
cash equivalents and marketable securities by the above pricing levels as of
December 31, 2009:
|
|
As of December 31, 2009
|
|||||||||||||||
|
|
Total
|
Quoted
Market
Prices
in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Cash
equivalents
|
$ | 280,908 | $ | 280,908 | $ | — | $ | — | ||||||||
|
Marketable
securities
|
171,120 | — | 171,120 | — | ||||||||||||
|
Total
available-for-sale securities
|
$ | 452,028 | $ | 280,908 | $ | 171,120 | $ | — | ||||||||
The
Company made an investment of $2.0 million in a non-marketable security of a
private company during the third quarter of 2009. The Company will monitor
the investment for other-than-temporary impairment and record appropriate
reductions in carrying value when necessary. The Company evaluated the
fair value of the investment in the non-marketable security as of December 31,
2009 and determined that there were no events that caused a decrease in its fair
value below the carrying cost.
The
following table presents the financial instruments that are measured and carried
at cost on a nonrecurring basis as of December 31, 2009:
|
As
of December 31, 2009
|
||||||||||||||||||||
|
(in
thousands)
|
Carrying
Value
|
Quoted
market
prices
in
active
markets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
Impairment
Charges for the Year Ended December 31,
2009
|
|||||||||||||||
|
Investment
in non-marketable security
|
$ | 2,000 | $ | — | $ | — | $ | 2,000 | $ | — | ||||||||||
The
following table presents the financial instruments that are not carried at fair
value but which require fair value disclosure as of December 31, 2009 and
December 31, 2008:
|
|
As of December 31, 2009
|
As of December 31, 2008
|
||||||||||||||||||||||
|
(in
thousands)
|
Face
Value
|
Carrying
Value
|
Fair Value
|
Face
Value
|
Carrying
Value
|
Fair Value
|
||||||||||||||||||
|
Zero
Coupon Convertible Senior Notes due 2010
|
$ | 136,950 | $ | 136,032 | $ | 142,599 | $ | 136,950 | $ | 125,474 | $ | 125,493 | ||||||||||||
|
5%
Convertible Senior Notes due 2014
|
172,500 | 112,012 | 261,160 | — | — | — | ||||||||||||||||||
|
Total
Convertible notes
|
$ | 309,450 | $ | 248,044 | $ | 403,759 | $ | 136,950 | $ | 125,474 | $ | 125,493 | ||||||||||||
The fair
value of the convertible notes at each balance sheet date is determined based on
recent quoted market prices for these notes. As discussed in Note 15,
“Convertible Notes,” the convertible notes are carried at face value of $309.5
million, less any unamortized debt discount. The carrying value of other
financial instruments, including cash, accounts receivable, accounts payable and
other payables, approximates fair value due to their short
maturities.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The
Company monitors its investments for other than temporary losses by considering
current factors, including the economic environment, market conditions,
operational performance and other specific factors relating to the business
underlying the investment, reductions in carrying values when necessary and the
Company’s ability and intent to hold the investment for a period of time which
may be sufficient for anticipated recovery in the market. Any other than
temporary loss is reported under “Interest and other income, net” in the
consolidated statement of operations. As of December 31, 2009 and
December 31, 2008, the Company has not incurred any impairment loss on its
investments.
18. Acquisition
On
December 14, 2009, the Company entered into a business combination with Global
Lighting Technologies, Inc., a Cayman Islands corporation, and certain
affiliated companies (together, “GLT”), pursuant to which the Company acquired
from GLT technology and a portfolio of advanced lighting and optoelectronics
patents, which have applications, among other things, for consumer electronic
systems, automotive lighting systems and general lighting illumination, for a
total purchase price of $26.0 million in cash (the “Asset Purchase”). The
Company incurred approximately $1.1 million in direct acquisition costs related
to the business combination which were expensed as incurred for the year ended
December 31, 2009. In connection with the transaction, certain employees of GLT
also commenced employment with the Company.
The Asset
Purchase Agreement includes customary representations, warranties and covenants.
Subject to certain limitations, GLT has agreed to indemnify the Company for
breaches of representations, warranties and covenants and other specified
matters. An amount in cash equal to $3.9 million was deducted from the total
purchase price and deposited into escrow at the closing, and will be available
for a period of eighteen months to satisfy any amounts owed by GLT to the
Company.
In
addition to the acquisition of the patent portfolio and related know-how from
GLT, Rambus signed a copyright co-ownership agreement with GLT for the Optical
Pattern Software included in the acquisition. The Company has granted a license
back to GLT for the newly acquired patents and related intellectual property
pursuant to a license agreement on a royalty free basis until a certain
significant target amount of revenue has been surpassed by GLT, at which point a
market level amount of royalty will be payable by GLT to the Company. The
Company agreed to delay the exercise of intellectual property rights with
respect to certain parties for a finite period. The parties also entered into a
related referral services agreement, a transition services agreement and other
customary agreements governing the transfer and control of the intellectual
property and certain other matters. Other than in respect of the transaction and
related transactions, there is no material relationship between the Company, on
the one hand, and GLT on the other hand.
The
assets acquired under the GLT business combination will broaden the Company’s
solutions for computing and consumer electronics. The Company has included in
goodwill the value of intangible assets that are not separately identifiable as
of the acquisition date, including an assembled workforce, trademark and related
referral services agreement. Approximately $0.4 million of this goodwill is
expected to be deductible for tax purposes.
The
purchase price allocation for the assets acquired under the GLT business
combination is based on management’s estimate of the fair value for purchase
accounting purposes at the date of acquisition. The total purchase price of
$26.0 million was allocated to identifiable intangible assets (primarily
developed technology) based on their estimated fair values. The Company
performed a valuation of the net assets acquired as of December 14, 2009
(valuation date). The excess of the purchase price over the fair value of net
assets acquired was $11.1 million, which was recorded as goodwill. The purchase
price from the business combination with GLT was allocated as
follows:
|
Total
|
||||
|
(in
thousands)
|
||||
|
Goodwill
|
$ | 11,100 | ||
|
Acquired
developed technology
|
14,900 | |||
|
Total
|
$ | 26,000 | ||
The
consolidated financial statements include the operating results of this business
from the date of acquisition. The acquired assets do not currently generate any
revenue. Pro forma results of operations for this acquisition have not been
presented because the effects of the acquisition were not material to the
Company’s financial results.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19. Restructuring
Costs
For the
year ended December 31, 2009, the Company did not incur any costs associated
with restructuring activities. For the year ended December 31, 2008, the
Company 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 of approximately
$0.5 million of stock-based compensation expense. The Company also leased a
facility in Mountain View, California, through November 11, 2009, which the
Company vacated during the fourth quarter of 2008 as a result of the
restructuring measures. This facility was being subleased at a rate equal to its
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. The Company paid approximately
$3.5 million of severance and benefits during 2008. The Company paid the
remaining $0.1 million of severance and benefits during 2009.
The
following table provides a summary of the restructuring activities for the
period indicated:
|
|
Employee
Termination/Severance
And
Related Benefits
Cash
|
Employee
Termination/Severance
and
Related Benefits
Non-Cash
|
Total
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Balance
at December 31, 2007
|
$ | — | $ | — | $ | — | ||||||
|
Charges
to operations
|
3,638 | 547 | 4,185 | |||||||||
|
Charges
utilized/paid
|
(3,489 | ) | (547 | ) | (4,036 | ) | ||||||
|
Balance
at December 31, 2008
|
$ | 149 | $ | — | $ | 149 | ||||||
|
Charges
utilized/paid
|
(149 | ) | — | (149 | ) | |||||||
|
Balance
at December 31, 2009
|
$ | — | $ | — | $ | — | ||||||
20. Subsequent
Events
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 litigation between
them and certain other potential claims. Under the Settlement Agreement, Samsung
has agreed to pay the Company $200.0 million in cash in two installments in the
first quarter of 2010, and the parties agreed to release all claims against each
other with respect to all outstanding litigation between them and certain other
potential claims when the second of these installment payments is received.
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, as described in
more details below. In addition, as part of the Settlement Agreement, Samsung
acquired approximately 9.6 million shares of common stock of Rambus for $200.0
million in 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 a new generation of
memory technologies.
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.
RAMBUS
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Under the
Stock Purchase Agreement, on January 19, 2010, Samsung purchased from the
Company 9.6 million shares of common stock of the Company (the “Shares”) for
cash 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 represent approximately 8.3% of the total
outstanding shares of Rambus common stock 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 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.
On
February 1, 2010, the Company paid upon maturity the remaining $137.0 million in
face value of the 2010 Notes.
During
the first quarter of 2010, the Company repurchased 1.2 million shares of
Common Stock with an aggregate value of $26.5 million pursuant to the stock
repurchase plan authorized in October 2001.
On
February 25, 2010, the Board of Directors of the Company approved a new share
repurchase program authorizing the repurchase of up to an additional 12.5
million shares. Share repurchases under the plan 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 plan. The new stock repurchase program
replaces the program authorized in October 2001.
Supplementary
Financial Data
CONSOLIDATED
SUPPLEMENTARY FINANCIAL DATA
Quarterly
Statements of Operations
(Unaudited)
|
Dec. 31,
2009
|
Sept.
30,
2009
|
June
30,
2009
|
March
31,
2009
|
Dec. 31,
2008
|
Sept.
30,
2008
|
June
30,
2008
|
March
31,
2008
|
|||||||||||||||||||||||||
|
(In
thousands, except for per share amounts)
|
||||||||||||||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||||||||||||||
|
Royalties
|
$ | 30,175 | $ | 26,898 | $ | 24,759 | $ | 26,169 | $ | 35,736 | $ | 25,793 | $ | 32,288 | $ | 33,093 | ||||||||||||||||
|
Contract
revenue
|
641 | 976 | 2,224 | 1,165 | 1,877 | 3,635 | 3,427 | 6,645 | ||||||||||||||||||||||||
|
Total
revenue
|
30,816 | 27,874 | 26,983 | 27,334 | 37,613 | 29,428 | 35,715 | 39,738 | ||||||||||||||||||||||||
|
Costs
and expenses:
|
||||||||||||||||||||||||||||||||
|
Cost
of contract revenue
|
1,397 | 1,858 | 1,438 | 2,183 | 2,892 | 4,611 | 6,567 | 7,233 | ||||||||||||||||||||||||
|
Research
and development
|
16,975 | 16,727 | 15,713 | 17,837 | 17,174 | 17,511 | 20,035 | 21,502 | ||||||||||||||||||||||||
|
Marketing,
general and administrative
|
28,598 | 29,882 | 32,563 | 37,156 | 35,700 | 31,288 | 23,768 | 33,321 | ||||||||||||||||||||||||
|
Costs
(recoveries) of restatement and related legal activities
|
542 | 68 | (429 | ) | (13,639 | ) | (302 | ) | 392 | 2,260 | 912 | |||||||||||||||||||||
|
Restructuring
costs
|
— | — | — | — | 161 | 4,024 | — | — | ||||||||||||||||||||||||
|
Impairment
of intangible asset
|
— | — | — | — | — | 2,158 | — | — | ||||||||||||||||||||||||
|
Total
costs and expenses(1)
|
47,512 | 48,535 | 49,285 | 43,537 | 55,625 | 59,984 | 52,630 | 62,968 | ||||||||||||||||||||||||
|
Operating
loss
|
(16,696 | ) | (20,661 | ) | (22,302 | ) | (16,203 | ) | (18,012 | ) | (30,556 | ) | (16,915 | ) | (23,230 | ) | ||||||||||||||||
|
Interest
income and other income, net
|
581 | 891 | 1,173 | 1,440 | 4,992 | 2,704 | 2,908 | 4,595 | ||||||||||||||||||||||||
|
Interest
expense
|
(7,822 | ) | (7,641 | ) | (2,817 | ) | (2,670 | ) | (2,971 | ) | (3,002 | ) | (2,944 | ) | (2,888 | ) | ||||||||||||||||
|
Interest
and other income (expense), net
|
7,241 | (6,750 | ) | (1,644 | ) | (1,230 | ) | 2,021 | (298 | ) | (36 | ) | 1,707 | |||||||||||||||||||
|
Loss
before income taxes
|
(23,937 | ) | (27,411 | ) | (23,946 | ) | (17,433 | ) | (15,991 | ) | (30,854 | ) | (16,951 | ) | (21,523 | ) | ||||||||||||||||
|
Provision
for (benefit from) income taxes
|
(644 | ) | 85 | 25 | (7 | ) | (496 | ) | 92 | 121,364 | (7,169 | ) | ||||||||||||||||||||
|
Net
loss
|
$ | (23,293 | ) | $ | (27,496 | ) | $ | (23,971 | ) | $ | (17,426 | ) | $ | (15,495 | ) | $ | (30,946 | ) | $ | (138,315 | ) | $ | (14,354 | ) | ||||||||
|
Net
loss per share — basic
|
$ | (0.22 | ) | $ | (0.26 | ) | $ | (0.23 | ) | $ | (0.17 | ) | $ | (0.15 | ) | $ | (0.29 | ) | $ | (1.32 | ) | $ | (0.14 | ) | ||||||||
|
Net
loss per share — diluted
|
$ | (0.22 | ) | $ | (0.26 | ) | $ | (0.23 | ) | $ | (0.17 | ) | $ | (0.15 | ) | $ | (0.29 | ) | $ | (1.32 | ) | $ | (0.14 | ) | ||||||||
|
Shares
used in per share calculations — basic
|
105,727 | 105,182 | 104,675 | 104,376 | 103,915 | 104,897 | 104,804 | 104,683 | ||||||||||||||||||||||||
|
Shares
used in per share calculations — diluted
|
105,727 | 105,182 | 104,675 | 104,376 | 103,915 | 104,897 | 104,804 | 104,683 | ||||||||||||||||||||||||
____________
|
|
(1)
|
Stock-based
compensation included in —
|
|
Cost
of contract revenue
|
$ | 96 | $ | 283 | $ | 233 | $ | 390 | $ | 583 | $ | 1,321 | $ | 1,365 | $ | 1,918 | ||||||||||||||||
|
Research
and development
|
$ | 2,429 | $ | 2,332 | $ | 2,214 | $ | 2,740 | $ | 2,491 | $ | 3,326 | $ | 3,767 | $ | 3,904 | ||||||||||||||||
|
Marketing,
general and administrative
|
$ | 5,042 | $ | 5,134 | $ | 5,403 | $ | 5,289 | $ | 5,593 | $ | 4,371 | $ | 3,821 | $ | 4,707 | ||||||||||||||||
|
Restructuring
costs
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 547 | $ | — | $ | — |
____________
|
(a)(2)
|
Financial
Statement Schedules
|
All
schedules not listed above have been omitted because they are not applicable,
not required, or the information required to be set forth therein is included in
the consolidated financial statements or notes thereto.
|
(a)(3)
|
Exhibits
|
See
Exhibit Index immediately following the signature pages.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
RAMBUS
INC.
|
|
|
By: /s/ Satish Rishi
|
|
|
Satish Rishi
|
|
|
Senior Vice President, Finance
and Chief Financial Officer
|
Date:
February 25, 2010
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Satish Rishi as his true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to (i) act on,
sign, and file with the Securities and Exchange Commission any and all
amendments to this Annual Report on Form 10-K, together with all schedules
and exhibits thereto, (ii) act on, sign, and file such certificates,
instruments, agreements and other documents as may be necessary or appropriate
in connection therewith, and (iii) take any and all actions that may be
necessary or appropriate to be done, as fully for all intents and purposes as he
might or could do in person, hereby approving, ratifying and confirming all that
such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/ Harold
Hughes
|
Chief
Executive Officer, President and
|
February
25, 2010
|
|
Harold Hughes
|
Director
(Principal Executive Officer)
|
|
|
/s/ Satish
Rishi
|
Senior
Vice President, Finance and Chief
|
February
25, 2010
|
|
Satish Rishi
|
Financial
Officer (Principal Financial and
Accounting
Officer)
|
|
|
/s/ Bruce
Dunlevie
|
Chairman
of the Board of Directors
|
February
25, 2010
|
|
Bruce Dunlevie
|
||
|
/s/ J. Thomas
Bentley
|
Director
|
February
25, 2010
|
|
J. Thomas
Bentley
|
||
|
/s/ Sunlin
Chou
|
Director
|
February
25, 2010
|
|
Sunlin Chou
|
||
|
/s/ P. Michael
Farmwald
|
Director
|
February
25, 2010
|
|
P. Michael
Farmwald
|
||
|
/s/ Penelope
Herscher
|
Director
|
February
25, 2010
|
|
Penelope
Herscher
|
||
|
/s/ Mark
Horowitz
|
Director
|
February
25, 2010
|
|
Mark Horowitz
|
||
|
/s/ David
Shrigley
|
Director
|
February
25, 2010
|
|
David Shrigley
|
||
|
/s/ Abraham D.
Sofaer
|
Director
|
February
25, 2010
|
|
Abraham D.
Sofaer
|
||
|
/s/ Eric
Stang
|
Director
|
February
25, 2010
|
|
Eric Stang
|
|
Exhibit
Number
|
Description of Document
|
||
| 1.1 | (1) |
Underwriting
Agreement, dated as of June 23, 2009, among Registrant and Credit Suisse
Securities (USA) LLC and J.P. Morgan Securities Inc.
|
|
| 2.1 |
Asset
Purchase Agreement, dated as of December 14, 2009, by and among
Registrant, Rambus International Ltd., Rambus Delaware LLC, Global
Lighting Technologies, Inc., Solid State OPTO Ltd. and Global Lighting
Technologies, Inc.
|
||
| 3.1 | (2) |
Amended
and Restated Certificate of Incorporation of Registrant filed May 29,
1997.
|
|
| 3.2 | (3) |
Certificate
of Amendment of Amended and Restated Certificate of Incorporation of
Registrant filed June 14, 2000.
|
|
| 3.3 | (4) |
Amended
and Restated Bylaws of Registrant, dated November 13,
2007.
|
|
| 4.1 | (5) |
Form
of Registrant’s Common Stock Certificate.
|
|
| 4.2.1 | (6) |
Amended
and Restated Preferred Stock Rights Agreement, dated as of July 31,
2000, between Registrant and Fleet National Bank.
|
|
| 4.2.2 | (7) |
First
Amendment to the Amended and Restated Preferred Stock Rights Agreement,
dated as of April 23, 2003, between Registrant and Equiserve
Trust Company, N.A., as successor to Fleet National
Bank.
|
|
| 4.3 | (8) |
Indenture,
between the Registrant and U.S. Bank National Association, dated as of
February 1, 2005 (including the form of Zero Coupon Convertible
Senior Note due February 1, 2010 therein).
|
|
| 4.4 | (8) |
Registration
Rights Agreement, among the Registrant, Credit Suisse First Boston LLC and
Deutsche Bank Securities Inc., dated February 1,
2005.
|
|
| 4.5 | (1) |
Indenture
between Rambus Inc. and U.S. Bank, National Association, dated as of June
29, 2009 (including the form of 5% Convertible Senior Note due 2014
therein).
|
|
| 10.1 | (9) |
Form
of Indemnification Agreement entered into by Registrant with each of its
directors and executive officers.
|
|
| 10.2 | (10)* |
1997
Stock Plan (as amended and restated as of April 4, 2007) and
related forms of agreements.
|
|
| 10.3 | (11)* |
1997
Employee Stock Purchase Plan and related forms of
agreements.
|
|
| 10.4 | (10)* |
1999
Nonstatutory Stock Option Plan (as amended and restated as of
April 4, 2007) and related form of agreement.
|
|
| 10.5 | (12)* |
2006
Equity Incentive Plan (as amended and restated as of April 30,
2009).
|
|
| 10.6 | (13)* |
Forms
of agreements under the 2006 Equity Incentive Plan, as
amended.
|
|
| 10.7 | (14)* |
2006
Employee Stock Purchase Plan (as amended and restated as of
February 21, 2007).
|
|
| 10.8 | (15) |
Development
Agreement, dated as of January 6, 2003, by and among Registrant, Sony
Computer Entertainment Inc. and Toshiba Corporation.
|
|
| 10.9 | (15) |
Redwood
and Yellowstone Semiconductor Technology License Agreement, dated as of
January 6, 2003, between Registrant, Sony Corporation and Sony
Computer Entertainment Inc.
|
|
| 10.10 | (16) |
Office
Lease, dated as of August 27, 1999, between Registrant and Los
Altos — El Camino Associates, LLC.
|
|
| 10.11 | (17)† |
Settlement
and License Agreement, dated as of March 21, 2005, by and between
Registrant and Infineon Technologies AG.
|
|
| 10.12 | (18)† |
Amendment
No. 1 to Settlement and License Agreement, dated as of July 8, 2008, by
and between Registrant and Qimonda AG.
|
|
| 10.13 |
Triple
Net Space Lease, dated as of December 15, 2009, by and between
Registrant and MT SPE, LLC.
|
||
| 12.1 | (19) |
Computation
of ratio of earnings to fixed charges.
|
|
| 21.1 |
Subsidiaries
of Registrant.
|
||
| 23.1 |
Consent
of Independent Registered Public Accounting Firm.
|
||
| 24 |
Power
of Attorney (included in signature page).
|
||
| 31.1 |
Certification
of Principal Executive Officer, pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
||
| 31.2 |
Certification
of Principal Financial Officer, pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
||
| 32.1 |
Certification
of Principal Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
||
| 32.2 |
Certification
of Principal Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
||
____________
| * |
Management
contracts or compensation plans or arrangements in which directors or
executive officers are eligible to participate.
|
||
| † |
Confidential
treatment has been granted with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
|
||
| (1 | ) |
Incorporated
by reference from the Form 8-K filed on June 29, 2009.
|
|
| (2 | ) |
Incorporated
by reference from the Form 10-K filed on December 15,
1997.
|
|
| (3 | ) |
Incorporated
by reference from the Form 10-Q filed on May 4,
2001.
|
|
| (4 | ) |
Incorporated
by reference from the Form 10-Q filed on August 4,
2008.
|
|
| (5 | ) |
Incorporated
by reference from the Form S-1/A (file no. 333-22885) filed on
April 24, 1997.
|
|
| (6 | ) |
Incorporated
by reference from the Form 8-A12G/A filed on August 3,
2000.
|
|
| (7 | ) |
Incorporated
by reference from the Form 8-A12G/A filed on August 5,
2003.
|
|
| (8 | ) |
Incorporated
by reference from the Form S-3 filed on April 29,
2005.
|
|
| (9 | ) |
Incorporated
by reference from the Form S-1 (file no. 333-22885) filed on
March 6, 1997.
|
|
| (10 | ) |
Incorporated
by reference from the Form 10-K filed on September 14,
2007.
|
|
| (11 | ) |
Incorporated
by reference from the Form S-8 filed on June 6, 1997 (file no.
333-28597).
|
|
| (12 | ) |
Incorporated
by reference from the Form 8-K filed on May 4,
2009.
|
|
| (13 | ) |
Incorporated
by reference from the Form 8-K filed on May 16, 2006.
|
|
| (14 | ) |
Incorporated
by reference from the Form 10-Q for the period ended June 30,
2006 filed on September 14, 2007.
|
|
| (15 | ) |
Incorporated
by reference from the Form 10-Q filed on April 30,
2003.
|
|
| (16 | ) |
Incorporated
by reference from the Form 10-K405 filed on December 23,
1999.
|
|
| (17 | ) |
Incorporated
by reference from the Form 10-Q filed on April 29, 2005. Assigned to
Qimonda in October 2006 in connection with Infineon’s spin-off of
Qimonda.
|
|
| (18 | ) |
Incorporated
by reference from the Form 10-Q filed on October 31,
2008.
|
|
| (19 | ) |
Incorporated
by reference from the Form S-3 filed on June 22, 2009.
|
|
97