NOTES TO UNAUDITED
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Investments in entities with less than
20%
ownership or in which the Company does not have the ability to significantly influence the operations of the investee are being accounted for using the cost method and are included in other assets.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended
December 31, 2013
.
Operating Segment Definitions
Operating segments are based upon Rambus' internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker ("CODM") to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
The Company determined its CODM to be the Chief Executive Officer and determined its operating segments to be: (1) Memory and Interface Division ("MID"), which focuses on the design, development and licensing of technology that is related to memory and interfaces; (2) Cryptography Research Inc. ("CRI"), which focuses on the design, development and licensing of technologies for chip and system security and anti-counterfeiting; (3) Lighting and Display Technologies ("LDT"), which focuses on the design, development and licensing of technologies for lighting; and (4) Chief Technology Office ("CTO"), which focuses on the design, development and productization of emerging technologies.
For the
three and six
months ended
June 30, 2014
and
2013
, only MID, CRI and CTO were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining other operating segment were shown under “Other.”
Reclassifications
Certain prior periods' amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net loss for any of the periods presented.
2. Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-12, "Compensation - Stock Compensation (Topic 718)," which makes amendments to the codification topic 718, "Accounting for Share-Based Payments," when the terms of an award provide that a performance target could be achieved after the requisite service period. The new accounting standards update becomes effective for the Company on January 1, 2016. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.
In May 2014, the FASB and International Accounting Standards Board issued their converged accounting standards update on revenue recognition. The core principle of the new guidance is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The new accounting standards update becomes effective for the Company on January 1, 2017. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The new accounting standards update becomes effective for the Company on January 1, 2015. Early adoption is permitted for new disposals (or new classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company does not expect that this guidance will have an impact on its financial position, results of operations or cash flows as the Company does not currently have discontinued operations.
In July 2013, the FASB issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” ("ASU 2013-11"). ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires presenting an unrecognized tax benefit or a portion of an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carry forward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This accounting standards update became effective for the Company on January 1, 2014 and was applied prospectively to unrecognized tax benefits that existed at the effective date with retrospective application permitted. Upon adoption of this guidance in the first quarter of 2014, the Company reclassified
$4.7 million
from a long-term tax liability to a reduction of a deferred tax asset.
3. 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 per share is calculated by dividing the earnings by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.
The following table sets forth the computation of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net income (loss) per share:
|
|
(In thousands, except per share amounts)
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,043
|
|
|
$
|
(7,844
|
)
|
|
$
|
12,847
|
|
|
$
|
(18,246
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
|
114,116
|
|
|
112,183
|
|
|
113,854
|
|
|
111,892
|
|
Effect of potential dilutive common shares
|
|
3,282
|
|
|
—
|
|
|
2,879
|
|
|
—
|
|
Weighted-average shares outstanding - diluted
|
|
117,398
|
|
|
112,183
|
|
|
116,733
|
|
|
111,892
|
|
Basic net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.16
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.16
|
)
|
For the three months ended
June 30, 2014
and
2013
, options to purchase approximately
3.7 million
and
10.9 million
shares, respectively, and for the six months ended
June 30, 2014
and
2013
, options to purchase approximately
6.2 million
and
11.2 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 three months ended
June 30, 2013
, an additional
4.0 million
potentially dilutive shares, and for the six months ended
June 30, 2013
, an additional
4.1 million
potentially dilutive shares have been excluded from the weighted average dilutive shares because there were net losses for the periods.
4. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for each of the reportable segments for the
six
months ended
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment:
|
|
As of December 31, 2013
|
|
Additions to Goodwill
|
|
Impairment Charge of Goodwill
|
|
As of June 30, 2014
|
|
|
(In thousands)
|
MID
|
|
$
|
19,905
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,905
|
|
CTO
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
CRI
|
|
96,994
|
|
|
—
|
|
|
—
|
|
|
96,994
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
116,899
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
116,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30, 2014
|
Reportable Segment:
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Net Carrying Amount
|
|
|
(In thousands)
|
MID
|
|
$
|
19,905
|
|
|
$
|
—
|
|
|
$
|
19,905
|
|
CTO
|
|
8,070
|
|
|
(8,070
|
)
|
|
—
|
|
CRI
|
|
96,994
|
|
|
—
|
|
|
96,994
|
|
Other
|
|
13,700
|
|
|
(13,700
|
)
|
|
—
|
|
Total
|
|
$
|
138,669
|
|
|
$
|
(21,770
|
)
|
|
$
|
116,899
|
|
Intangible Assets
The components of the Company’s intangible assets as of
June 30, 2014
and
December 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
Useful Life
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
(In thousands)
|
Existing technology
|
3 to 10 years
|
|
$
|
185,321
|
|
|
$
|
(92,598
|
)
|
|
$
|
92,723
|
|
Customer contracts and contractual relationships
|
1 to 10 years
|
|
31,093
|
|
|
(21,381
|
)
|
|
9,712
|
|
Non-compete agreements
|
3 years
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
Total intangible assets
|
|
|
$
|
216,714
|
|
|
$
|
(114,279
|
)
|
|
$
|
102,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
Useful Life
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
(In thousands)
|
Existing technology
|
3 to 10 years
|
|
$
|
186,202
|
|
|
$
|
(80,961
|
)
|
|
$
|
105,241
|
|
Customer contracts and contractual relationships
|
1 to 10 years
|
|
31,093
|
|
|
(19,204
|
)
|
|
11,889
|
|
Non-compete agreements
|
3 years
|
|
300
|
|
|
(258
|
)
|
|
42
|
|
Total intangible assets
|
|
|
$
|
217,595
|
|
|
$
|
(100,423
|
)
|
|
$
|
117,172
|
|
During the three and six months ended June 30, 2014, the Company did not purchase any intangible assets. During the six months ended
June 30, 2014
, the Company sold portfolios of its intellectual property covering wireless and other technologies for
$4.4 million
and the related gain was recorded as gain from sale of intellectual property and revenue in the condensed consolidated statements of operations.
The favorable contracts (included in customer contracts and contractual relationships) are acquired patent licensing agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset. For the three months ended
June 30, 2014
and
2013
, the Company received
$0.1 million
and an immaterial amount related to the favorable contracts, respectively. For the six months ended
June 30, 2014
and
2013
, the Company received
$0.9 million
and
$1.4 million
related to the favorable contracts, respectively. As of
June 30, 2014
and
December 31, 2013
, the net balance of the favorable contract intangible assets was
$0.1 million
and
$1.0 million
, respectively.
Amortization expense for intangible assets for the
three and six
months ended
June 30, 2014
was
$6.8 million
and
$13.6 million
, respectively. Amortization expense for intangible assets for the
three and six
months ended
June 30, 2013
was
$7.0 million
and
$14.0 million
, respectively. The estimated future amortization expense of intangible assets as of
June 30, 2014
was as follows (amounts in thousands):
|
|
|
|
|
Years Ending December 31:
|
Amount
|
2014 (remaining 6 months)
|
$
|
13,063
|
|
2015
|
25,098
|
|
2016
|
24,318
|
|
2017
|
23,709
|
|
2018
|
10,827
|
|
Thereafter
|
5,420
|
|
|
$
|
102,435
|
|
It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results, which could cause the goodwill in any of its reporting units or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the reporting units are not successful in commercializing new business arrangements, if the businesses are unsuccessful in signing new license agreements or renewing their existing license agreements, or if the Company is unsuccessful in managing its costs, the revenue and income for these reporting units could adversely and materially deviate from their historical trends and could cause goodwill or long-lived assets to become impaired. If the Company determines that its goodwill or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.
5.
Segments and Major Customers
For the
three and six
months ended
June 30, 2014
and
2013
, MID, CRI and CTO were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining operating segment were shown under “Other.”
The Company evaluates the performance of its segments based on segment operating income (loss), which is defined as revenue minus segment operating expenses. Segment operating expenses are comprised of direct operating expenses.
Segment operating expenses do not include marketing, general and administrative expenses and the allocation of certain expenses managed at the corporate level, such as stock-based compensation, amortization, and certain bonus and acquisition costs. The “Reconciling Items” category includes these unallocated marketing, general and administrative expenses as well as corporate level expenses. The presentation of the
three and six
months ended
June 30, 2013
segment data has been updated accordingly to conform with the 2014 segment operating income (loss) definition.
The tables below present reported segment operating income (loss) for the
three and six
months ended
June 30, 2014
and
2013
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2014
|
|
For the Six Months Ended June 30, 2014
|
|
MID
|
|
CRI
|
|
CTO
|
|
Other
|
|
Total
|
|
MID
|
|
CRI
|
|
CTO
|
|
Other
|
|
Total
|
|
(In thousands)
|
|
(In thousands)
|
Revenues
|
$
|
58,664
|
|
|
$
|
12,771
|
|
|
$
|
—
|
|
|
$
|
5,083
|
|
|
$
|
76,518
|
|
|
$
|
119,820
|
|
|
$
|
25,674
|
|
|
$
|
—
|
|
|
$
|
9,312
|
|
|
$
|
154,806
|
|
Segment operating expenses
|
9,517
|
|
|
8,290
|
|
|
4,518
|
|
|
4,675
|
|
|
27,000
|
|
|
19,437
|
|
|
15,919
|
|
|
8,789
|
|
|
9,057
|
|
|
53,202
|
|
Segment operating income (loss)
|
$
|
49,147
|
|
|
$
|
4,481
|
|
|
$
|
(4,518
|
)
|
|
$
|
408
|
|
|
$
|
49,518
|
|
|
$
|
100,383
|
|
|
$
|
9,755
|
|
|
$
|
(8,789
|
)
|
|
$
|
255
|
|
|
$
|
101,604
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
|
|
(29,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(58,311
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
$
|
20,104
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,293
|
|
Interest and other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(8,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(18,579
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
11,438
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2013
|
|
For the Six Months Ended June 30, 2013
|
|
MID
|
|
CRI
|
|
CTO
|
|
Other
|
|
Total
|
|
MID
|
|
CRI
|
|
CTO
|
|
Other
|
|
Total
|
|
(In thousands)
|
|
(In thousands)
|
Revenues
|
$
|
49,456
|
|
|
$
|
7,914
|
|
|
$
|
—
|
|
|
$
|
549
|
|
|
$
|
57,919
|
|
|
$
|
109,131
|
|
|
$
|
14,797
|
|
|
$
|
—
|
|
|
$
|
857
|
|
|
$
|
124,785
|
|
Segment operating expenses
|
10,344
|
|
|
6,072
|
|
|
6,347
|
|
|
4,908
|
|
|
27,671
|
|
|
20,228
|
|
|
10,960
|
|
|
13,518
|
|
|
8,537
|
|
|
53,243
|
|
Segment operating income (loss)
|
$
|
39,112
|
|
|
$
|
1,842
|
|
|
$
|
(6,347
|
)
|
|
$
|
(4,359
|
)
|
|
$
|
30,248
|
|
|
$
|
88,903
|
|
|
$
|
3,837
|
|
|
$
|
(13,518
|
)
|
|
$
|
(7,680
|
)
|
|
$
|
71,542
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
|
|
(24,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(64,357
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
$
|
5,744
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,185
|
|
Interest and other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(8,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(16,177
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,992
|
)
|
The Company’s CODM does not review information regarding assets on an operating segment basis. Additionally, the Company does not record intersegment revenue or expense.
Accounts receivable from the Company's major customers representing 10% or more of total accounts receivable at June 30, 2014 and December 31, 2013, respectively, was as follows:
|
|
|
|
|
|
Customer
|
|
June 30, 2014
|
|
December 31, 2013
|
Customer 1 (MID and CRI reportable segments)
|
|
68%
|
|
*
|
Customer 2 (Other reportable segment)
|
|
25%
|
|
74%
|
_________________________________________
* Customer accounted for less than 10% of total accounts receivable in the period
Revenue from the Company’s major customers representing
10%
or more of total revenue for the
three and six
months ended
June 30, 2014
and
2013
, respectively, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Customer
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Customer A (MID and CRI reportable segments)
|
|
20
|
%
|
|
39
|
%
|
|
19
|
%
|
|
36
|
%
|
Customer B (MID reportable segment)
|
|
15
|
%
|
|
*
|
|
|
15
|
%
|
|
*
|
|
Customer C (MID reportable segment)
|
|
13
|
%
|
|
*
|
|
|
13
|
%
|
|
*
|
|
_________________________________________
* Customer accounted for less than 10% of total revenue in the period
Revenue from customers in the geographic regions based on the location of contracting parties is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(In thousands)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
South Korea
|
|
$
|
26,946
|
|
|
$
|
22,502
|
|
|
$
|
53,799
|
|
|
$
|
44,527
|
|
USA
|
|
27,898
|
|
|
15,106
|
|
|
56,572
|
|
|
40,675
|
|
Japan
|
|
7,388
|
|
|
12,261
|
|
|
16,643
|
|
|
26,869
|
|
Europe
|
|
4,276
|
|
|
5,432
|
|
|
12,839
|
|
|
7,560
|
|
Canada
|
|
1,787
|
|
|
1,862
|
|
|
3,611
|
|
|
3,648
|
|
Asia-Other
|
|
8,223
|
|
|
756
|
|
|
11,342
|
|
|
1,506
|
|
Total
|
|
$
|
76,518
|
|
|
$
|
57,919
|
|
|
$
|
154,806
|
|
|
$
|
124,785
|
|
6. Marketable Securities
Rambus invests its excess cash and cash equivalents primarily in U.S. government sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within
three
years. As of
June 30, 2014
and
December 31, 2013
, all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than
one year
.
All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
(In thousands)
|
|
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Weighted
Rate of
Return
|
Money market funds
|
|
$
|
79,522
|
|
|
$
|
79,522
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0.01
|
%
|
Corporate notes, bonds and commercial paper
|
|
146,859
|
|
|
146,927
|
|
|
—
|
|
|
(68
|
)
|
|
0.17
|
%
|
Total cash equivalents and marketable securities
|
|
226,381
|
|
|
226,449
|
|
|
—
|
|
|
(68
|
)
|
|
|
|
Cash
|
|
20,049
|
|
|
20,049
|
|
|
—
|
|
|
—
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
246,430
|
|
|
$
|
246,498
|
|
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
(In thousands)
|
|
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Weighted
Rate of
Return
|
Money market funds
|
|
$
|
300,605
|
|
|
$
|
300,605
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0.01
|
%
|
Corporate notes, bonds and commercial paper
|
|
58,492
|
|
|
58,507
|
|
|
—
|
|
|
(15
|
)
|
|
0.15
|
%
|
Total cash equivalents and marketable securities
|
|
359,097
|
|
|
359,112
|
|
|
—
|
|
|
(15
|
)
|
|
|
|
Cash
|
|
28,565
|
|
|
28,565
|
|
|
—
|
|
|
—
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
387,662
|
|
|
$
|
387,677
|
|
|
$
|
—
|
|
|
$
|
(15
|
)
|
|
|
|
Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
|
June 30,
2014
|
|
December 31,
2013
|
|
(In thousands)
|
Cash equivalents
|
$
|
79,522
|
|
|
$
|
310,131
|
|
Short term marketable securities
|
146,859
|
|
|
48,966
|
|
Total cash equivalents and marketable securities
|
226,381
|
|
|
359,097
|
|
Cash
|
20,049
|
|
|
28,565
|
|
Total cash, cash equivalents and marketable securities
|
$
|
246,430
|
|
|
$
|
387,662
|
|
The Company continues to invest in highly rated quality, highly liquid debt securities. As of
June 30, 2014
, these securities have a remaining maturity of less than one year. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.
The estimated fair value of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at
June 30, 2014
and
December 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
June 30,
2014
|
|
December 31,
2013
|
|
June 30,
2014
|
|
December 31,
2013
|
|
(In thousands)
|
Less than one year
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes, bonds and commercial paper
|
$
|
131,101
|
|
|
$
|
53,491
|
|
|
$
|
(68
|
)
|
|
$
|
(15
|
)
|
The gross unrealized loss at
June 30, 2014
and
December 31, 2013
was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the corporate notes and bonds. The Company has no intent to sell, there is no requirement to sell and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income (loss). However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
See Note 7, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.
7. Fair Value of Financial Instruments
The Company reviews the pricing inputs by obtaining prices from a different source for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the above pricing levels as of
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
Total
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
Money market funds
|
$
|
79,522
|
|
|
$
|
79,522
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate notes, bonds and commercial paper
|
146,859
|
|
|
—
|
|
|
146,859
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
226,381
|
|
|
$
|
79,522
|
|
|
$
|
146,859
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
Total
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
Money market funds
|
$
|
300,605
|
|
|
$
|
300,605
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate notes, bonds and commercial paper
|
58,492
|
|
|
—
|
|
|
58,492
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
359,097
|
|
|
$
|
300,605
|
|
|
$
|
58,492
|
|
|
$
|
—
|
|
The following table presents the financial instruments that are measured on a nonrecurring basis as of
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
|
(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 six months ended June 30, 2014
|
Investment in non-marketable security
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the condensed consolidated statement of operations. For the three and six months ended
June 30, 2014
, the Company did not incur any impairment loss on its investments. During the second quarter of 2013, as part of its periodic evaluation of the fair value of the investment in the non-marketable equity security, and based on the information provided by the private company at that time, the Company determined that there was a decrease in the security's fair value. The fair value of the non-marketable equity security was determined based on an income approach, using level 3 fair value inputs, as it was deemed to be the most indicative of the security's fair value. Accordingly, the Company recorded an impairment charge of
$1.4 million
within interest income and other income (expense), net, in the consolidated statements of operations in the second quarter of 2013.
Additionally, the Company cannot provide any assurance that its non-marketable equity security will not be further impacted by adverse changes in the general market conditions or deterioration in business prospects of the investee, which may require the Company in the future to record additional impairment charges which could adversely impact its financial results.
For the
three and six
months ended
June 30, 2014
and
2013
, there were no transfers of financial instruments between different categories of fair value.
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
As of December 31, 2013
|
(In thousands)
|
|
Face
Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Face
Value
|
|
Carrying
Value
|
|
Fair Value
|
5% Convertible Senior Notes due 2014 (the "2014 Notes")
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172,500
|
|
|
$
|
164,047
|
|
|
$
|
175,821
|
|
1.125% Convertible Senior Notes due 2018 (the "2018 Notes")
|
|
$
|
138,000
|
|
|
$
|
112,316
|
|
|
$
|
185,189
|
|
|
$
|
138,000
|
|
|
$
|
109,629
|
|
|
$
|
142,427
|
|
The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 8, "Convertible Notes," as of
June 30, 2014
, the 2018 Notes are carried at their face value of
$138.0 million
, less any unamortized debt discount. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.
8. Convertible Notes
The Company’s convertible notes are shown in the following table:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
As of June 30, 2014
|
|
As of December 31, 2013
|
1.125% Convertible Senior Notes due 2018
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
5% Convertible Senior Notes due 2014
|
|
—
|
|
|
172,500
|
|
Total principal amount of convertible notes
|
|
$
|
138,000
|
|
|
$
|
310,500
|
|
|
|
|
|
|
Unamortized discount - 2018 Notes
|
|
$
|
(25,684
|
)
|
|
$
|
(28,371
|
)
|
Unamortized discount - 2014 Notes
|
|
—
|
|
|
(8,453
|
)
|
Total unamortized discount
|
|
$
|
(25,684
|
)
|
|
$
|
(36,824
|
)
|
|
|
|
|
|
Total convertible notes
|
|
$
|
112,316
|
|
|
$
|
273,676
|
|
Less current portion
|
|
—
|
|
|
164,047
|
|
Total long-term convertible notes
|
|
$
|
112,316
|
|
|
$
|
109,629
|
|
During the second quarter of 2014, the Company paid upon maturity the entire
$172.5 million
in aggregate principal amount of the 2014 Notes.
Interest expense related to the notes for the
three and six
months ended
June 30, 2014
and
2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
(In thousands)
|
2014 Notes coupon interest at a rate of 5%
|
$
|
1,773
|
|
|
$
|
2,156
|
|
|
$
|
3,929
|
|
|
$
|
4,313
|
|
2014 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 11.7%
|
3,975
|
|
|
4,145
|
|
|
8,744
|
|
|
8,234
|
|
2018 Notes coupon interest at a rate of 1.125%
|
388
|
|
|
—
|
|
|
776
|
|
|
—
|
|
2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%
|
1,494
|
|
|
—
|
|
|
2,967
|
|
|
—
|
|
Total interest expense on convertible notes
|
$
|
7,630
|
|
|
$
|
6,301
|
|
|
$
|
16,416
|
|
|
$
|
12,547
|
|
9. Commitments and Contingencies
As of
June 30, 2014
, the Company’s material contractual obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Remainder
of 2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
Thereafter
|
Contractual obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed financing obligation (2)
|
$
|
37,357
|
|
|
$
|
2,970
|
|
|
$
|
6,011
|
|
|
$
|
6,156
|
|
|
$
|
6,302
|
|
|
$
|
6,447
|
|
|
$
|
9,471
|
|
Leases and other contractual obligations
|
7,300
|
|
|
2,449
|
|
|
2,250
|
|
|
1,243
|
|
|
1,018
|
|
|
340
|
|
|
—
|
|
Software licenses (3)
|
11,021
|
|
|
3,657
|
|
|
5,616
|
|
|
1,748
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition retention bonuses (4)
|
1,550
|
|
|
1,480
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Convertible notes
|
138,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
138,000
|
|
|
—
|
|
Interest payments related to convertible notes
|
6,987
|
|
|
776
|
|
|
1,553
|
|
|
1,553
|
|
|
1,553
|
|
|
1,552
|
|
|
—
|
|
Total
|
$
|
202,215
|
|
|
$
|
11,332
|
|
|
$
|
15,500
|
|
|
$
|
10,700
|
|
|
$
|
8,873
|
|
|
$
|
146,339
|
|
|
$
|
9,471
|
|
_________________________________________
|
|
(1)
|
The above table does not reflect possible payments in connection with uncertain tax benefits of approximately
$19.8 million
including
$17.9 million
recorded as a reduction of long-term deferred tax assets and
$1.9 million
in long-term income taxes payable as of
June 30, 2014
. As noted below in Note 13, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
|
|
|
(2)
|
With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the condensed consolidated balance sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.
|
|
|
(3)
|
The Company has commitments with various software vendors for non-cancellable agreements generally having terms longer than
one
year.
|
|
|
(4)
|
In connection with acquisitions, the Company is obligated to pay retention bonuses to certain employees and contractors, subject to certain eligibility and acceleration provisions including the condition of employment. The last payment of CRI retention bonuses was paid in cash during the second quarter of 2014 except for
$1.5 million
payable to a designated charitable organization as a result of forfeitures by employees.
|
Building lease expense was approximately
$0.7 million
and
$1.3 million
for the three and six months ended
June 30, 2014
, respectively. Building lease expense was approximately
$0.9 million
and
$1.8 million
for the three and six months ended
June 30, 2013
, respectively. Deferred rent of
$1.3 million
and
$1.4 million
as of
June 30, 2014
and
December 31, 2013
, respectively, was included primarily in other long-term liabilities.
Indemnification
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. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company.
10. Equity Incentive Plans and Stock-Based Compensation
As of
June 30, 2014
,
11,023,718
shares of the
31,400,000
shares approved under the 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant which included an increase of
10,000,000
shares approved by stockholders on April 24, 2014. The 2006 Plan is now the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants; however, the 1997 Stock Option Plan (the “1997 Plan”) will continue to govern awards previously granted under that plan.
A summary of shares available for grant under the Company’s plans is as follows:
|
|
|
|
|
Shares Available
for Grant
|
Shares available as of December 31, 2013
|
2,527,428
|
|
Increase in shares approved for issuance
|
10,000,000
|
|
Stock options granted
|
(1,916,077
|
)
|
Stock options forfeited
|
863,102
|
|
Stock options expired under former plans
|
(142,400
|
)
|
Nonvested equity stock and stock units granted (1)
|
(343,014
|
)
|
Nonvested equity stock and stock units forfeited (1)
|
34,679
|
|
Total available for grant as of June 30, 2014
|
11,023,718
|
|
_________________________________________
|
|
(1)
|
For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by
1.5
shares and each share of restricted stock forfeited increases shares available for grant by
1.5
shares.
|
General Stock Option Information
The following table summarizes stock option activity under the 1997 Plan and 2006 Plan for the
six
months ended
June 30, 2014
and information regarding stock options outstanding, exercisable, and vested and expected to vest as of
June 30, 2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
|
|
(In thousands, except per share amounts)
|
Outstanding as of December 31, 2013
|
11,377,146
|
|
|
$
|
11.32
|
|
|
|
|
|
|
Options granted
|
1,916,077
|
|
|
$
|
8.96
|
|
|
|
|
|
|
Options exercised
|
(464,254
|
)
|
|
$
|
6.73
|
|
|
|
|
|
|
Options forfeited
|
(863,102
|
)
|
|
$
|
16.99
|
|
|
|
|
|
|
Outstanding as of June 30, 2014
|
11,965,867
|
|
|
$
|
10.71
|
|
|
6.19
|
|
$
|
65,861
|
|
Vested or expected to vest at June 30, 2014
|
11,205,432
|
|
|
$
|
10.94
|
|
|
6.02
|
|
$
|
60,540
|
|
Options exercisable at June 30, 2014
|
5,904,488
|
|
|
$
|
14.41
|
|
|
3.97
|
|
$
|
21,658
|
|
No stock options that contain a market condition were granted during the
three and six
months ended
June 30, 2014
. As of both
June 30, 2014
and
December 31, 2013
, there were
1,315,000
stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at
June 30, 2014
, based on the
$14.30
closing stock price of Rambus’ common stock on June 30, 2014 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of
June 30, 2014
was
8,949,014
and
3,031,015
, respectively.
Employee Stock Purchase Plan
Under the 2006 Employee Stock Purchase Plan (“ESPP”), the Company issued
374,588
shares at a price of
$7.42
per share during the six months ended
June 30, 2014
. The Company issued
652,272
shares at a price of
$4.28
per share during the six months ended
June 30, 2013
. As of
June 30, 2014
,
1,144,644
shares under the ESPP remain available for issuance. On September 27, 2013, the Company filed a Registration Statement on Form S-8, registering
1,500,000
additional shares under the ESPP in connection with the commencement of the next subscription period under the ESPP. On April 24, 2014, the
Company held its 2014 Annual Meeting of Stockholders where an amendment to the ESPP to increase the number of shares of common stock reserved for issuance under the ESPP by
1,500,000
shares was approved.
Stock-Based Compensation
For the
six
months ended
June 30, 2014
and
2013
, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a
15%
discount from the fair market value of the common stock as of specific dates.
Stock Options
During the
three and six
months ended
June 30, 2014
, the Company granted
118,615
and
1,916,077
stock options, respectively, with an estimated total grant-date fair value of
$0.6 million
and
$7.6 million
, respectively. During the
three and six
months ended
June 30, 2014
, the Company recorded stock-based compensation expense related to stock options of
$2.4 million
and
$4.6 million
, respectively.
During the
three and six
months ended
June 30, 2013
, the Company granted
136,875
and
1,756,312
stock options, respectively, with an estimated total grant-date fair value of
$0.3 million
and
$4.1 million
, respectively. During the
three and six
months ended
June 30, 2013
, the Company recorded stock-based compensation expense related to stock options of
$2.5 million
and
$5.6 million
, respectively.
As of
June 30, 2014
, there was
$17.5 million
of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of
2.3
years. The total fair value of shares vested as of
June 30, 2014
was
$57.0 million
.
The total intrinsic value of options exercised was
$1.6 million
and
$2.2 million
for the
three and six
months ended
June 30, 2014
, respectively. The total intrinsic value of options exercised was
$0.1 million
and
$0.1 million
for the
three and six
months ended
June 30, 2013
, respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.
During the
six
months ended
June 30, 2014
, net proceeds from employee stock option exercises totaled approximately
$3.1 million
.
Employee Stock Purchase Plan
For the
three and six
months ended
June 30, 2014
, the Company recorded compensation expense related to the ESPP of
$1.8 million
and
$1.9 million
, respectively. The compensation expense related to the ESPP in the second quarter of 2014 included a one-time catch-up compensation expense related to the increase in shares available for the ESPP which was approved by shareholders during the 2014 Annual Meeting of Stockholders. For the
three and six
months ended
June 30, 2013
, the Company recorded compensation expense related to the ESPP of
$0.5 million
and
$1.0 million
, respectively. As of
June 30, 2014
, there was
$0.5 million
of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over
four
months.
There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the
three and six
months ended
June 30, 2014
and
2013
calculated in accordance with accounting for share-based payments.
Valuation Assumptions
The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of
0%
and the additional weighted-average assumptions as listed in the table below.
The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Plans
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Stock Option Plans
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility
|
40
|
%
|
|
47
|
%
|
|
40-44%
|
|
|
47
|
%
|
Risk free interest rate
|
2.2
|
%
|
|
0.8
|
%
|
|
2.1-2.2%
|
|
|
0.8-0.9%
|
|
Expected term (in years)
|
6.0
|
|
|
5.4
|
|
|
6.0-6.1
|
|
|
5.4
|
|
Weighted-average fair value of stock options granted to employees
|
$
|
4.95
|
|
|
$
|
2.61
|
|
|
$
|
3.98
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2014
|
|
2013
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
Expected stock price volatility
|
|
39-44%
|
|
|
48
|
%
|
Risk free interest rate
|
|
0.0-0.1%
|
|
|
0.1
|
%
|
Expected term (in years)
|
|
0.02-0.5
|
|
|
0.5
|
|
Weighted-average fair value of purchase rights granted under the purchase plan
|
|
$
|
3.91
|
|
|
$
|
1.94
|
|
Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, employees and directors. During the
three and six
months ended
June 30, 2014
, the Company granted nonvested equity stock units totaling
22,868
and
228,676
shares under the 2006 Plan, respectively. During the
three and six
months ended
June 30, 2013
, the Company granted nonvested equity stock units totaling
28,456
and
304,952
shares under the 2006 Plan, respectively. 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
. For the
three and six
months ended
June 30, 2014
, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately
$0.3 million
and
$2.1 million
, respectively. For the
three and six
months ended
June 30, 2013
, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately
$0.2 million
and
$1.7 million
, respectively. In prior years, the Company granted nonvested equity stock units to its employees with vesting subject to the achievement of certain performance conditions. During the
three and six
months ended
June 30, 2014
, the Company did not record any stock-based compensation expense related to these performance stock units as they have been forfeited. During the
three and six
months ended
June 30, 2013
, the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized an immaterial amount of stock-based compensation expense related to these performance stock units for these periods.
For the
three and six
months ended
June 30, 2014
, the Company recorded stock-based compensation expense of approximately
$0.7 million
and
$1.3 million
, respectively, related to all outstanding nonvested equity stock grants. For the
three and six
months ended
June 30, 2013
, the Company recorded stock-based compensation expense of approximately
$0.6 million
and
$1.9 million
, respectively, related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately
$3.9 million
at
June 30, 2014
. This amount is expected to be recognized over a weighted average period of
2.4 years
.
The following table reflects the activity related to nonvested equity stock and stock units for the
six
months ended
June 30, 2014
:
|
|
|
|
|
|
|
|
|
Nonvested Equity Stock and Stock Units
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Nonvested at December 31, 2013
|
|
629,649
|
|
|
$
|
8.56
|
|
Granted
|
|
228,676
|
|
|
$
|
9.08
|
|
Vested
|
|
(128,220
|
)
|
|
$
|
9.26
|
|
Forfeited
|
|
(23,115
|
)
|
|
$
|
6.86
|
|
Nonvested at June 30, 2014
|
|
706,990
|
|
|
$
|
8.65
|
|
11.
Stockholders’ Equity
Share Repurchase Program
During the
six
months ended
June 30, 2014
, the Company did not repurchase any shares of its common stock under its share repurchase program. As of
June 30, 2014
, the Company had repurchased a cumulative total of approximately
26.3 million
shares of its common stock with an aggregate price of approximately
$428.9 million
since the commencement of the program in 2001. As of
June 30, 2014
, there remained an outstanding authorization to repurchase approximately
5.2 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 price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.
12. Restructuring Charges
The 2013 Plan
During 2013, the Company initiated a restructuring program related primarily to its LDT group as a result of the change in its business strategy to reduce its focus on the lower margin bulb products. Additionally, the Company curtailed its immersive media platform spending (the “2013 Plan”). In connection with this restructuring program, the Company estimated that it would incur aggregate costs of approximately
$3.0 million
to
$4.0 million
. During the three months ended
June 30, 2014
, the Company did not incur any restructuring charges. During the six months ended
June 30, 2014
, the Company incurred an immaterial amount of restructuring charges related primarily to the reduction in workforce, which was related to the CTO reportable segment. The 2013 Plan has been completed as of June 30, 2014.
The following table summarizes the 2013 Plan restructuring activities during the
six
months ended
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
and Related Benefits
|
|
Facilities
|
|
Total
|
|
|
(In thousands)
|
Balance at December 31, 2013
|
|
$
|
1,732
|
|
|
$
|
133
|
|
|
$
|
1,865
|
|
Charges
|
|
39
|
|
|
—
|
|
|
39
|
|
Payments
|
|
(1,771
|
)
|
|
(133
|
)
|
|
(1,904
|
)
|
Balance at June 30, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
13. Income Taxes
The Company recorded a provision for income taxes of
$6.4 million
and
$4.7 million
for the three months ended
June 30, 2014
and
2013
, respectively, and
$11.9 million
and
$9.3 million
for the six months ended June 30, 2014 and 2013, respectively. The provision for income taxes for the
three and six
months ended
June 30, 2014
and
2013
is primarily comprised of withholding taxes, state taxes and other foreign taxes based upon income earned during the period.
During the
three and six
months ended
June 30, 2014
, the Company paid withholding taxes of
$4.8 million
and
$9.8 million
, respectively. During the
three and six
months ended
June 30, 2013
, the Company paid withholding taxes of
$3.8 million
and
$7.6 million
, respectively.
As of
June 30, 2014
, the Company’s condensed consolidated balance sheets included net deferred tax assets, before valuation allowance, of approximately
$193.7 million
, which consists of net operating loss carryovers, tax credit carryovers, amortization, employee stock-based compensation expenses and certain liabilities, partially reduced by deferred tax liabilities associated with the convertible debt instruments. As of
June 30, 2014
, a full valuation allowance has been recorded against the U.S. deferred tax assets.
Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on the Company's ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed both positive and negative evidence and determined that there is a continued need for a valuation allowance as the Company is in a cumulative loss position over the previous three years, which is considered significant negative evidence. Although the weight of negative evidence related to cumulative losses has decreased as the Company has settled outstanding litigation, the Company believes that this objectively measured negative evidence outweighs the subjectively determined positive evidence of future profitability and, as such, the Company has not changed its judgment regarding the need for a full valuation allowance on its deferred tax assets in the United States as of June 30, 2014. However, continued improvement in the Company's operating results, conditioned on its MID, LDT or CRI reporting units successfully commercializing new business arrangements, signing new or renewing existing license agreements and managing costs, could lead to reversal of almost all of the Company's valuation allowance. Until such time, consumption of tax attributes to offset profits will reduce the overall level of deferred tax assets subject to valuation allowance. Should the Company determine that it would be able to realize its remaining deferred tax assets in the foreseeable future, an adjustment to its remaining deferred tax assets would cause a material increase to income in the period such determination is made.
The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
As of
June 30, 2014
, the Company had approximately
$19.8 million
of unrecognized tax benefits, including
$17.9 million
recorded as a reduction of long-term deferred tax assets and
$1.9 million
in long-term income taxes payable. If recognized, approximately
$1.9 million
would be recorded as an income tax benefit. No benefit would be recorded for the remaining unrecognized tax benefits as the recognition would require a corresponding increase in the valuation allowance. As of
December 31, 2013
, the Company had
$18.8 million
of unrecognized tax benefits, including
$12.6 million
recorded as a reduction of long-term deferred tax assets and
$6.2 million
recorded in long-term income taxes payable.
Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. At
June 30, 2014
and
December 31, 2013
, an immaterial amount of interest and penalties is included in long-term income taxes payable.
Rambus files income tax returns for the U.S., California, India and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2012 and forward. The California returns are subject to examination from 2009 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ended March 2006 and forward. The Company is currently under examination by California for the 2010 and 2011 tax years and by India for fiscal years ended March 2006, 2009 and 2010. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate. In January 2014, an Internal Revenue Service examination covering the 2010 through 2011 tax years was completed with no audit adjustments.
Additionally, the Company's future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.
14. Litigation and Asserted Claims
Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.
15. Agreements with SK hynix and Micron
SK hynix
On June 11, 2013, Rambus, SK hynix and certain related entities of SK hynix entered into a settlement agreement, pursuant to which the parties have agreed to release all claims against each other with respect to all outstanding litigation between them. Pursuant to the settlement agreement, Rambus and SK hynix entered into a semiconductor patent license agreement on June 11, 2013, under which SK hynix licenses from Rambus non-exclusive rights to certain Rambus patents and has agreed to pay Rambus cash amounts over the next
five years
. Under the license agreement, Rambus has granted to SK hynix (i) a paid-up perpetual patent license for certain identified SK hynix DRAM products and (ii) a
five
-year term patent license to all other DRAM and other semiconductor products.
The agreements with SK hynix are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the SK hynix agreements which included a third party valuation using an income approach (collectively the “SK hynix Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the SK hynix Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.
During each of the first and second quarters of 2014, the Company received cash consideration of
$12.0 million
from SK hynix. For each quarter, the amount was allocated between royalty revenue (
$11.8 million
) and gain from settlement (
$0.2 million
) based on the elements’ SK hynix Fair Value.
The remaining
$192.0 million
is expected to be paid in successive quarterly payments of
$12.0 million
, concluding in the second quarter of 2018.
The cumulative cash receipts through June 30, 2014 and the remaining future cash receipts from the agreements with SK hynix are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Received
to-date as of June 30,
|
|
Estimated to Be Received in
|
|
Total Estimated
Cash Receipts
|
|
2014
|
|
Remainder
of 2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue
|
$
|
47.3
|
|
|
$
|
23.6
|
|
|
$
|
47.3
|
|
|
$
|
47.9
|
|
|
$
|
48.0
|
|
|
$
|
24.0
|
|
|
$
|
238.1
|
|
Gain from settlement
|
0.7
|
|
|
0.4
|
|
|
0.7
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
Total
|
$
|
48.0
|
|
|
$
|
24.0
|
|
|
$
|
48.0
|
|
|
$
|
48.0
|
|
|
$
|
48.0
|
|
|
$
|
24.0
|
|
|
$
|
240.0
|
|
Micron
On December 9, 2013, Rambus, Micron and certain related entities of Micron entered into a settlement agreement, pursuant to which the parties have agreed that they will release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the settlement agreement, Rambus and Micron entered into a semiconductor patent license agreement on December 9, 2013. Under the license agreement, Rambus has granted to Micron and its subsidiaries and certain affiliated entities (i) a paid-up perpetual patent license for certain identified Micron DRAM products and (ii) a
seven
-year term patent license to other memory and semiconductor products.
The agreements with Micron are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the Micron agreements which included a third party valuation using an income approach (collectively the “Micron Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the Micron Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.
During each of the first and second quarters of 2014, the Company received cash consideration of
$10.0 million
from Micron. For each quarter, the amount was allocated between royalty revenue (
$9.7 million
) and gain from settlement (
$0.3 million
) based on the elements’ Micron Fair Value.
The remaining
$254.5 million
is expected to be paid in successive quarterly payments of
$10.0 million
, concluding in the fourth quarter of 2020.
The cumulative cash receipts through June 30, 2014 and the remaining future cash receipts from the agreements with Micron are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Received
to-date as of June 30,
|
|
Estimated to Be Received in
|
|
Total Estimated
Cash Receipts
|
|
2014
|
|
Remainder of 2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019 and thereafter
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue
|
$
|
24.7
|
|
|
$
|
19.3
|
|
|
$
|
38.7
|
|
|
$
|
39.5
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
74.5
|
|
|
$
|
276.7
|
|
Gain from settlement
|
0.8
|
|
|
0.7
|
|
|
1.3
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.3
|
|
Total
|
$
|
25.5
|
|
|
$
|
20.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
74.5
|
|
|
$
|
280.0
|
|