NOTES TO UNAUDITED
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended
December 31, 2015
.
Operating Segment Definitions
Operating segments are based upon Rambus' internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker ("CODM") to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
During the third quarter of 2016, the Company renamed its Cryptography Research Division ("CRD") organization to Rambus Security Division ("RSD"). 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, manufacturing through partnerships and licensing of technology and solutions that is related to memory and interfaces; (2) RSD, which focuses on the design, development, deployment and licensing of technologies for chip, system and in-field application security and anti-counterfeiting; (3) Emerging Solutions Division ("ESD"), which includes the Rambus Labs team, the computational sensing and imaging group as well as the development efforts in the area of emerging technologies; and (4) Lighting and Display Technologies ("LDT"), which focuses on the design, development and licensing of technologies for advanced LED-based lighting solutions.
For the
three and nine
months ended
September 30, 2016
, only MID and RSD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining other operating segments were shown under “Other.”
Reclassifications
Certain prior periods' amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income for any of the periods presented. Refer to Note 8 "Convertible Notes" for details.
2. Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15 which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and is applied retrospectively. Early adoption is permitted including adoption in an interim period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13. The purpose of this ASU is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In May 2016, the FASB issued ASU No. 2016-12 which amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. This ASU is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the FASB's new revenue standard, ASU No. 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions, which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. This ASU will become effective for the Company on January 1, 2017. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires assets and liabilities arising from leases, including operating leases, to be recognized on the balance sheet. This ASU will become effective for the Company in the first quarter of fiscal year 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes (Topic 740)," to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU as of December 31, 2015 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company has adopted this ASU in the first quarter of 2016 on a retrospective basis. Refer to Note 8, "Convertible Notes" for further details.
In May 2014, the FASB and International Accounting Standards Board issued their converged accounting standards update on revenue recognition. The core principle of the new guidance is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. In August 2015, the FASB deferred the effective date of this accounting standards update by one year. The new accounting standards update becomes effective for the Company on January 1, 2018. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations and has not yet selected a transition method.
3. Earnings Per Share
Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.
The following table sets forth the computation of basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income per share:
|
(In thousands, except per share amounts)
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
4,511
|
|
|
$
|
182,033
|
|
|
$
|
10,265
|
|
|
$
|
198,396
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
110,214
|
|
|
116,444
|
|
|
109,951
|
|
|
115,940
|
|
Effect of potential dilutive common shares
|
3,509
|
|
|
3,098
|
|
|
2,854
|
|
|
3,057
|
|
Weighted-average shares outstanding - diluted
|
113,723
|
|
|
119,542
|
|
|
112,805
|
|
|
118,997
|
|
Basic net income per share
|
$
|
0.04
|
|
|
$
|
1.56
|
|
|
$
|
0.09
|
|
|
$
|
1.71
|
|
Diluted net income per share
|
$
|
0.04
|
|
|
$
|
1.52
|
|
|
$
|
0.09
|
|
|
$
|
1.67
|
|
For the three months ended
September 30, 2016
and
2015
, options to purchase approximately
1.8 million
and
2.6 million
shares, respectively, and for the nine months ended
September 30, 2016
and
2015
, options to purchase approximately
2.2 million
and
2.6 million
shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense.
4. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for each of the reportable segments for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment:
|
|
As of December 31, 2015
|
|
Additions to Goodwill (1)
|
|
Impairment Charge of Goodwill
|
|
Effect of Exchange Rates (2)
|
|
As of September 30, 2016
|
|
|
(In thousands)
|
MID
|
|
$
|
19,905
|
|
|
$
|
47,346
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,251
|
|
RSD
|
|
96,994
|
|
|
46,903
|
|
|
—
|
|
|
(3,617
|
)
|
|
140,280
|
|
Total
|
|
$
|
116,899
|
|
|
$
|
94,249
|
|
|
$
|
—
|
|
|
$
|
(3,617
|
)
|
|
$
|
207,531
|
|
(1) The additions to goodwill are a result of the acquisitions of Smart Card Software Limited (“SCS”) during the first quarter of 2016, and Inphi's Memory Interconnect Business and Snowbush IP Assets during the third quarter of 2016. See Note 16, “Acquisitions” for further details.
(2) Effect of exchange rates relates to foreign currency translation adjustments for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30, 2016
|
Reportable Segment:
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Net Carrying Amount
|
|
|
(In thousands)
|
MID
|
|
$
|
67,251
|
|
|
$
|
—
|
|
|
$
|
67,251
|
|
RSD
|
|
140,280
|
|
|
—
|
|
|
140,280
|
|
Other
|
|
21,770
|
|
|
(21,770
|
)
|
|
—
|
|
Total
|
|
$
|
229,301
|
|
|
$
|
(21,770
|
)
|
|
$
|
207,531
|
|
Intangible Assets
The components of the Company’s intangible assets as of
September 30, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
Useful Life
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
(In thousands)
|
Existing technology (1)
|
3 to 10 years
|
|
$
|
257,228
|
|
|
$
|
(147,839
|
)
|
|
$
|
109,389
|
|
Customer contracts and contractual relationships (1)
|
1 to 10 years
|
|
66,728
|
|
|
(34,655
|
)
|
|
32,073
|
|
Non-compete agreements and trademarks
|
3 years
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
In-process research and development (2)
|
Not applicable
|
|
23,400
|
|
|
—
|
|
|
23,400
|
|
Total intangible assets
|
|
|
$
|
347,656
|
|
|
$
|
(182,794
|
)
|
|
$
|
164,862
|
|
(1) Includes intangible assets from the acquisitions of SCS, Inphi's Memory Interconnect Business, and Snowbush IP Assets. See Note 16, “Acquisitions” for further details.
(2) Includes intangible assets from the acquisitions of Inphi's Memory Interconnect Business and Snowbush IP Assets. See Note 16, “Acquisitions” for further details. The in-process research and development assets are accounted for as indefinite-lived intangible assets until the underlying projects are completed or abandoned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Useful Life
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
(In thousands)
|
Existing technology
|
3 to 10 years
|
|
$
|
185,321
|
|
|
$
|
(127,028
|
)
|
|
$
|
58,293
|
|
Customer contracts and contractual relationships
|
1 to 10 years
|
|
31,093
|
|
|
(25,120
|
)
|
|
5,973
|
|
Non-compete agreements and trademarks
|
3 years
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
Total intangible assets
|
|
|
$
|
216,714
|
|
|
$
|
(152,448
|
)
|
|
$
|
64,266
|
|
During the
three and nine
months ended
September 30, 2016
, the Company did not sell any intangible assets. During the
three and nine
months ended
September 30, 2015
, the Company did not purchase or sell any intangible assets.
Included in customer contracts and contractual relationships are favorable contracts which are acquired software and service agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset. For the three months ended
September 30, 2016
and 2015, the Company received
$0.6 million
and
$0.0 million
, respectively, related to the favorable contracts. For the
nine
months ended
September 30, 2016
and 2015, the Company received
$4.7 million
and
$0.1 million
, respectively,
related to the favorable contracts. As of
September 30, 2016
and
December 31, 2015
, the net balance of the favorable contract intangible assets was
$5.2 million
and
zero
, respectively.
Amortization expense for intangible assets for the
three and nine
months ended
September 30, 2016
was
$10.2 million
and
$26.0 million
, respectively. Amortization expense for intangible assets for the
three and nine
months ended
September 30, 2015
was
$6.3 million
and
$18.9 million
, respectively. The estimated future amortization of intangible assets as of
September 30, 2016
was as follows (amounts in thousands):
|
|
|
|
|
Years Ending December 31:
|
Amount
|
2016 (remaining 3 months)
|
$
|
14,518
|
|
2017
|
43,297
|
|
2018
|
29,240
|
|
2019
|
19,215
|
|
2020
|
18,406
|
|
Thereafter
|
40,186
|
|
|
$
|
164,862
|
|
It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results,
which could cause the goodwill in any of its reporting units or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the Company determines that its goodwill or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.
5.
Segments and Major Customers
For the
three and nine
months ended
September 30, 2016
, MID and RSD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining operating segments were shown under “Other.”
The Company evaluates the performance of its segments based on segment operating income (loss), which is defined as revenue minus segment operating expenses. Segment operating expenses are comprised of direct operating expenses.
Segment operating expenses do not include sales, general and administrative expenses and the allocation of certain expenses managed at the corporate level, such as stock-based compensation, amortization, and certain bonus and acquisition costs. The “Reconciling Items” category includes these unallocated sales, general and administrative expenses as well as corporate level expenses.
The tables below present reported segment operating income (loss) for the
three and nine
months ended
September 30, 2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2016
|
|
For the Nine Months Ended September 30, 2016
|
|
MID
|
|
RSD
|
|
Other
|
|
Total
|
|
MID
|
|
RSD
|
|
Other
|
|
Total
|
|
(In thousands)
|
|
(In thousands)
|
Revenues
|
$
|
63,142
|
|
|
$
|
22,532
|
|
|
$
|
4,181
|
|
|
$
|
89,855
|
|
|
$
|
171,154
|
|
|
$
|
53,040
|
|
|
$
|
14,844
|
|
|
$
|
239,038
|
|
Segment operating expenses
|
20,060
|
|
|
12,493
|
|
|
6,840
|
|
|
39,393
|
|
|
44,797
|
|
|
37,507
|
|
|
21,594
|
|
|
103,898
|
|
Segment operating income (loss)
|
$
|
43,082
|
|
|
$
|
10,039
|
|
|
$
|
(2,659
|
)
|
|
$
|
50,462
|
|
|
$
|
126,357
|
|
|
$
|
15,533
|
|
|
$
|
(6,750
|
)
|
|
$
|
135,140
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
(38,646
|
)
|
|
|
|
|
|
|
|
|
|
(102,022
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
$
|
11,816
|
|
|
|
|
|
|
|
|
|
|
$
|
33,118
|
|
Interest and other income (expense), net
|
|
|
|
|
|
|
|
|
(3,051
|
)
|
|
|
|
|
|
|
|
|
|
(7,975
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
$
|
8,765
|
|
|
|
|
|
|
|
|
|
|
$
|
25,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2015
|
|
For the Nine Months Ended September 30, 2015
|
|
MID
|
|
RSD
|
|
Other
|
|
Total
|
|
MID
|
|
RSD
|
|
Other
|
|
Total
|
|
(In thousands)
|
|
(In thousands)
|
Revenues
|
$
|
55,383
|
|
|
$
|
12,246
|
|
|
$
|
6,150
|
|
|
$
|
73,779
|
|
|
$
|
164,696
|
|
|
$
|
36,849
|
|
|
$
|
17,960
|
|
|
$
|
219,505
|
|
Segment operating expenses
|
11,734
|
|
|
6,653
|
|
|
9,276
|
|
|
27,663
|
|
|
36,055
|
|
|
21,317
|
|
|
25,306
|
|
|
82,678
|
|
Segment operating income (loss)
|
$
|
43,649
|
|
|
$
|
5,593
|
|
|
$
|
(3,126
|
)
|
|
$
|
46,116
|
|
|
$
|
128,641
|
|
|
$
|
15,532
|
|
|
$
|
(7,346
|
)
|
|
$
|
136,827
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
(28,476
|
)
|
|
|
|
|
|
|
|
|
|
(85,741
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
$
|
17,640
|
|
|
|
|
|
|
|
|
|
|
$
|
51,086
|
|
Interest and other income (expense), net
|
|
|
|
|
|
|
|
|
(2,578
|
)
|
|
|
|
|
|
|
|
|
|
(8,417
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
$
|
15,062
|
|
|
|
|
|
|
|
|
|
|
$
|
42,669
|
|
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
September 30, 2016
and
December 31, 2015
, respectively, was as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
Customer
|
|
September 30, 2016
|
|
December 31, 2015
|
Customer 1 (MID and RSD reportable segments)
|
|
16
|
%
|
|
21
|
%
|
Customer 2 (RSD reportable segment)
|
|
11
|
%
|
|
*
|
|
Customer 3 (MID reportable segment)
|
|
*
|
|
|
28
|
%
|
Customer 4 (Other segment)
|
|
*
|
|
|
27
|
%
|
Customer 5 (MID reportable segment)
|
|
12
|
%
|
|
16
|
%
|
_________________________________________
* 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 nine
months ended
September 30, 2016
and
2015
, respectively, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
September 30,
|
September 30,
|
Customer
|
|
2016
|
|
2015
|
2016
|
|
2015
|
Customer A (MID and RSD reportable segments)
|
|
17
|
%
|
|
20
|
%
|
20
|
%
|
|
21
|
%
|
Customer B (MID reportable segment)
|
|
19
|
%
|
|
21
|
%
|
20
|
%
|
|
18
|
%
|
Customer C (MID reportable segment)
|
|
13
|
%
|
|
13
|
%
|
13
|
%
|
|
13
|
%
|
Revenue from customers in the geographic regions based on the location of contracting parties was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
September 30,
|
September 30,
|
(In thousands)
|
|
2016
|
|
2015
|
2016
|
|
2015
|
South Korea
|
|
$
|
32,519
|
|
|
$
|
30,821
|
|
$
|
95,604
|
|
|
$
|
84,463
|
|
USA
|
|
32,951
|
|
|
33,146
|
|
84,835
|
|
|
90,530
|
|
Japan
|
|
9,551
|
|
|
3,460
|
|
20,449
|
|
|
19,866
|
|
Europe
|
|
4,271
|
|
|
1,571
|
|
12,362
|
|
|
8,287
|
|
Canada
|
|
1,162
|
|
|
6
|
|
2,544
|
|
|
207
|
|
Singapore
|
|
4,429
|
|
|
3,222
|
|
13,574
|
|
|
11,042
|
|
Asia-Other
|
|
4,972
|
|
|
1,553
|
|
9,670
|
|
|
5,110
|
|
Total
|
|
$
|
89,855
|
|
|
$
|
73,779
|
|
$
|
239,038
|
|
|
$
|
219,505
|
|
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
September 30, 2016
and
December 31, 2015
, all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than
one year
.
All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
(In thousands)
|
|
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Weighted
Rate of
Return
|
Money market funds
|
|
$
|
12,562
|
|
|
$
|
12,562
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0.24
|
%
|
U.S. Government bonds and notes
|
|
7,001
|
|
|
7,000
|
|
|
1
|
|
|
—
|
|
|
0.44
|
%
|
Corporate notes, bonds, commercial paper and other
|
|
70,605
|
|
|
70,652
|
|
|
—
|
|
|
(47
|
)
|
|
0.62
|
%
|
Total cash equivalents and marketable securities
|
|
90,168
|
|
|
90,214
|
|
|
1
|
|
|
(47
|
)
|
|
|
|
Cash
|
|
60,621
|
|
|
60,621
|
|
|
—
|
|
|
—
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
150,789
|
|
|
$
|
150,835
|
|
|
$
|
1
|
|
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
(In thousands)
|
|
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Weighted
Rate of
Return
|
Money market funds
|
|
$
|
77,804
|
|
|
$
|
77,804
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0.12
|
%
|
U.S. Government bonds and notes
|
|
14,110
|
|
|
14,142
|
|
|
—
|
|
|
(32
|
)
|
|
0.48
|
%
|
Corporate notes, bonds, commercial paper and other
|
|
160,823
|
|
|
160,979
|
|
|
—
|
|
|
(156
|
)
|
|
0.45
|
%
|
Total cash equivalents and marketable securities
|
|
252,737
|
|
|
252,925
|
|
|
—
|
|
|
(188
|
)
|
|
|
|
Cash
|
|
34,969
|
|
|
34,969
|
|
|
—
|
|
|
—
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
287,706
|
|
|
$
|
287,894
|
|
|
$
|
—
|
|
|
$
|
(188
|
)
|
|
|
|
Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Cash equivalents
|
$
|
28,858
|
|
|
$
|
108,795
|
|
Short term marketable securities
|
61,310
|
|
|
143,942
|
|
Total cash equivalents and marketable securities
|
90,168
|
|
|
252,737
|
|
Cash
|
60,621
|
|
|
34,969
|
|
Total cash, cash equivalents and marketable securities
|
$
|
150,789
|
|
|
$
|
287,706
|
|
The Company continues to invest in highly rated quality, highly liquid debt securities. As of
September 30, 2016
, these securities have a remaining maturity of less than one year. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.
The estimated fair value of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at
September 30, 2016
and
December 31, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Gross Unrealized Loss
|
|
September 30,
2016
|
|
December 31,
2015
|
|
September 30,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Less than one year
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government bonds and notes
|
$
|
—
|
|
|
$
|
14,110
|
|
|
$
|
—
|
|
|
$
|
(32
|
)
|
Corporate notes, bonds and commercial paper
|
66,245
|
|
|
145,563
|
|
|
(47
|
)
|
|
(156
|
)
|
Total Corporate notes, bonds, and commercial paper and U.S. Government bonds and notes
|
$
|
66,245
|
|
|
$
|
159,673
|
|
|
$
|
(47
|
)
|
|
$
|
(188
|
)
|
The gross unrealized loss at
September 30, 2016
and
December 31, 2015
was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government-sponsored obligations and corporate notes and bonds. There is no need to sell these investments, and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income. However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
See Note 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
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
Total
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
Money market funds
|
$
|
12,562
|
|
|
$
|
12,562
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Government bonds and notes
|
7,001
|
|
|
—
|
|
|
7,001
|
|
|
—
|
|
Corporate notes, bonds, commercial paper and other
|
70,605
|
|
|
364
|
|
|
70,241
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
90,168
|
|
|
$
|
12,926
|
|
|
$
|
77,242
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Total
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
Money market funds
|
$
|
77,804
|
|
|
$
|
77,804
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Government bonds and notes
|
14,110
|
|
|
—
|
|
|
14,110
|
|
|
—
|
|
Corporate notes, bonds, commercial paper and other
|
160,823
|
|
|
1,264
|
|
|
159,559
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
252,737
|
|
|
$
|
79,068
|
|
|
$
|
173,669
|
|
|
$
|
—
|
|
The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the condensed consolidated statement of operations.
For the
three and nine
months ended
September 30, 2016
and
2015
, there were no transfers of financial instruments between different categories of fair value.
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
As of December 31, 2015
|
(In thousands)
|
|
Face
Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Face
Value
|
|
Carrying
Value
|
|
Fair Value
|
1.125% Convertible Senior Notes due 2018 (the "2018 Notes")
|
|
$
|
138,000
|
|
|
$
|
124,443
|
|
|
$
|
162,336
|
|
|
$
|
138,000
|
|
|
$
|
119,418
|
|
|
$
|
156,292
|
|
The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 8, "Convertible Notes," as of
September 30, 2016
, the 2018 Notes are carried at their face value of
$138.0 million
, less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.
The Company also has a level 3 liability which consists of acquisition-related liabilities for contingent consideration (i.e. revenue sharing) related to the acquisition of Snowbush IP. As of
September 30, 2016
, the Company recorded $6.8 million of contingent consideration liability in other long-term liabilities. The Company used a weighted average discounted cash flow method to estimate the probability of achieving the revenue targets set forth above for each year. The fair value of the contingent consideration was determined using a discount rate of
23.5%
.
8. Convertible Notes
The Company adopted ASU 2015-03 during the first quarter of 2016. Pursuant to the guidance in ASU 2015-03, the Company has reclassified unamortized debt issuance costs associated with the Company's 2018 Notes in the previously reported Consolidated Balance Sheet as of
December 31, 2015
, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
As presented December 31, 2015
|
|
Reclassifications
|
|
As adjusted December 31, 2015
|
Other assets
|
|
$
|
3,648
|
|
|
$
|
(1,483
|
)
|
|
$
|
2,165
|
|
Convertible notes, long-term
|
|
120,901
|
|
|
(1,483
|
)
|
|
119,418
|
|
The Company’s convertible notes are shown in the following table:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
As of September 30, 2016
|
|
As of December 31, 2015
|
1.125% Convertible Senior Notes due 2018
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
Unamortized discount
|
|
(12,496
|
)
|
|
(17,099
|
)
|
Unamortized debt issuance costs
|
|
(1,061
|
)
|
|
(1,483
|
)
|
Total convertible notes
|
|
$
|
124,443
|
|
|
$
|
119,418
|
|
Less current portion
|
|
—
|
|
|
—
|
|
Total long-term convertible notes
|
|
$
|
124,443
|
|
|
$
|
119,418
|
|
Interest expense related to the notes for the
three and nine
months ended
September 30, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
2018 Notes coupon interest at a rate of 1.125%
|
$
|
388
|
|
|
$
|
388
|
|
|
1,164
|
|
|
1,179
|
|
2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%
|
1,699
|
|
|
1,605
|
|
|
5,025
|
|
|
4,744
|
|
Total interest expense on convertible notes
|
$
|
2,087
|
|
|
$
|
1,993
|
|
|
$
|
6,189
|
|
|
$
|
5,923
|
|
9. Commitments and Contingencies
As of
September 30, 2016
, the Company’s material contractual obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Remainder
of 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
Contractual obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed financing obligation (2)
|
$
|
23,778
|
|
|
$
|
1,558
|
|
|
$
|
6,302
|
|
|
$
|
6,447
|
|
|
$
|
6,602
|
|
|
$
|
2,869
|
|
|
$
|
—
|
|
Leases and other contractual obligations
|
13,461
|
|
|
4,535
|
|
|
4,177
|
|
|
2,520
|
|
|
1,343
|
|
|
441
|
|
|
445
|
|
Software licenses (3)
|
17,696
|
|
|
1,721
|
|
|
6,994
|
|
|
7,338
|
|
|
1,643
|
|
|
—
|
|
|
—
|
|
Convertible notes
|
138,000
|
|
|
—
|
|
|
—
|
|
|
138,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest payments related to convertible notes
|
3,105
|
|
|
—
|
|
|
1,553
|
|
|
1,552
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
196,040
|
|
|
$
|
7,814
|
|
|
$
|
19,026
|
|
|
$
|
155,857
|
|
|
$
|
9,588
|
|
|
$
|
3,310
|
|
|
$
|
445
|
|
_________________________________________
|
|
(1)
|
The above table does not reflect possible payments in connection with uncertain tax benefits of approximately
$22.4 million
including
$19.5 million
recorded as a reduction of long-term deferred tax assets and
$2.9 million
in long-term income taxes payable as of
September 30, 2016
. As noted below in Note 12, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
|
|
|
(2)
|
With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the unaudited condensed consolidated balance sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.
|
|
|
(3)
|
The Company has commitments with various software vendors for non-cancellable agreements generally having terms longer than
one
year.
|
The Company also has commitments related to acquisitions, which are not included in the above table. See Note 16, “Acquisitions” for further details.
Building lease expense was approximately
$1.1 million
and
$2.7 million
for the
three and nine
months ended
September 30, 2016
, respectively. Building lease expense was approximately
$0.7 million
and
$2.0 million
for the
three and nine
months ended
September 30, 2015
, respectively. Deferred rent of
$0.6 million
and
$0.8 million
as of
September 30, 2016
and
December 31, 2015
, respectively, was included primarily in other current liabilities and other long-term liabilities, respectively.
Indemnification
From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification or liability that the Company could be exposed to under these agreements, however, this is not always possible. The fair value of the liability as of
September 30, 2016
and
December 31, 2015
is not material.
10. Equity Incentive Plans and Stock-Based Compensation
As of
September 30, 2016
,
7,689,902
shares of the
35,400,000
cumulative shares approved under both the current 2015 Equity Incentive Plan (the “2015 Plan”) and past 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant, which included an increase of
4,000,000
shares approved under the 2015 Plan. On April 23, 2015, the Company's stockholders approved the 2015 Plan, which authorizes
4,000,000
shares for future issuance plus the number of shares that remained available for grant under the 2006 Plan as of the effective date of the 2015 Plan. The 2015 Plan became effective and replaced the 2006 Plan on April 23, 2015. The 2015 Plan was the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of
September 30, 2016
. No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015
Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015 Plan. Additionally, the 1997 Stock Option Plan (the “1997 Plan”) continues to govern awards previously granted under that plan.
A summary of shares available for grant under the Company’s plans is as follows:
|
|
|
|
|
Shares Available
for Grant
|
Shares available as of December 31, 2015
|
11,173,545
|
|
Stock options granted
|
(440,000
|
)
|
Stock options forfeited
|
990,089
|
|
Stock options expired under former plans
|
(412,467
|
)
|
Nonvested equity stock and stock units granted (1) (2)
|
(4,664,049
|
)
|
Nonvested equity stock and stock units forfeited (1)
|
1,042,784
|
|
Total available for grant as of September 30, 2016
|
7,689,902
|
|
_________________________________________
|
|
(1)
|
For purposes of determining the number of shares available for grant under the 2015 Plan (and previously the 2006 Plan) against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by
1.5
shares and each share of restricted stock forfeited increases shares available for grant by
1.5
shares.
|
|
|
(2)
|
Amount includes
300,003
shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first quarter of 2016 and discussed under the section titled "Nonvested Equity Stock and Stock Units" below.
|
General Stock Option Information
The following table summarizes stock option activity under the 1997 Plan, 2006 Plan and 2015 Plan for the
nine
months ended
September 30, 2016
and information regarding stock options outstanding, exercisable, and vested and expected to vest as of
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
|
|
(In thousands, except per share amounts)
|
Outstanding as of December 31, 2015
|
8,995,017
|
|
|
$
|
10.01
|
|
|
|
|
|
|
Options granted
|
440,000
|
|
|
$
|
12.31
|
|
|
|
|
|
|
Options exercised
|
(1,255,904
|
)
|
|
$
|
7.28
|
|
|
|
|
|
|
Options forfeited
|
(990,089
|
)
|
|
$
|
19.26
|
|
|
|
|
|
|
Outstanding as of September 30, 2016
|
7,189,024
|
|
|
$
|
9.36
|
|
|
5.34
|
|
$
|
30,612
|
|
Vested or expected to vest at September 30, 2016
|
7,022,797
|
|
|
$
|
9.37
|
|
|
5.29
|
|
$
|
29,963
|
|
Options exercisable at September 30, 2016
|
4,740,578
|
|
|
$
|
10.13
|
|
|
4.50
|
|
$
|
19,191
|
|
No stock options that contain a market condition were granted during the
three and nine
months ended
September 30, 2016
. As of
September 30, 2016
and
December 31, 2015
, there were
1,135,000
and
1,315,000
, respectively, stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated, on their respective grant dates, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at
September 30, 2016
, based on the
$12.50
closing stock price of Rambus’ common stock on
September 30, 2016
on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of
September 30, 2016
was
5,949,024
and
3,538,628
, respectively.
Employee Stock Purchase Plan
Under the 2015 Employee Stock Purchase Plan ("2015 ESPP"), the Company issued
340,349
shares at a price of
$8.96
per share during the
nine
months ended
September 30, 2016
. Under the 2006 Employee Stock Purchase Plan ("2006 ESPP"), the Company issued
315,100
shares at a price of
$9.66
per share during the
nine
months ended
September 30, 2015
. As of
September 30, 2016
,
1,659,651
shares under the 2015 ESPP remain available for issuance. The 2006 ESPP remained in effect until the Company’s November 2, 2015 offering period, at which time the first offering period under the 2015 ESPP began.
Stock-Based Compensation
For the
nine
months ended
September 30, 2016
and
2015
, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors the 2015 ESPP (and previously the 2006 ESPP), whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a
15%
discount from the fair market value of the common stock as of specific dates.
Stock Options
During the three months ended
September 30, 2016
, the Company did not grant any stock options. During the
nine
months ended
September 30, 2016
, the Company granted
440,000
stock options with an estimated total grant-date fair value of
$2.1 million
. During the
three and nine
months ended
September 30, 2016
, the Company recorded stock-based compensation expense related to stock options of
$1.0 million
and
$3.3 million
, respectively.
During the three months ended
September 30, 2015
, the Company did not grant any stock options. During the
nine
months ended
September 30, 2015
, the Company granted
362,335
stock options, with an estimated total grant-date fair value of
$1.7 million
. During the
three and nine
months ended
September 30, 2015
, the Company recorded stock-based compensation expense related to stock options of
$1.4 million
and
$5.9 million
, respectively.
As of
September 30, 2016
, there was
$5.2 million
of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of
1.4
years. The total fair value of shares vested as of
September 30, 2016
was
$29.0 million
.
The total intrinsic value of options exercised was
$3.0 million
and
$7.0 million
for the
three and nine
months ended
September 30, 2016
, respectively. The total intrinsic value of options exercised was
$0.9 million
and
$5.5 million
for the
three and nine
months ended
September 30, 2015
, respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.
During the
nine
months ended
September 30, 2016
, net proceeds from employee stock option exercises totaled approximately
$9.1 million
.
Employee Stock Purchase Plan
For the
three and nine
months ended
September 30, 2016
, the Company recorded compensation expense related to the 2015 ESPP of
$0.3 million
and
$1.1 million
, respectively. For the
three and nine
months ended
September 30, 2015
, the Company recorded compensation expense related to the 2006 ESPP of
$0.3 million
and
$1.2 million
, respectively. As of
September 30, 2016
, there was
$0.1 million
of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized over
one
month.
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 nine
months ended
September 30, 2016
and
2015
calculated in accordance with accounting for share-based payments.
Valuation Assumptions
The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of
0%
and the additional weighted-average assumptions as listed in the table below.
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
|
|
Nine Months Ended
|
|
September 30,
|
|
2016
|
|
2015
|
Stock Option Plans
|
|
|
|
|
|
Expected stock price volatility
|
36
|
%
|
|
41
|
%
|
Risk free interest rate
|
1.7
|
%
|
|
1.2
|
%
|
Expected term (in years)
|
6.1
|
|
|
6.0
|
|
Weighted-average fair value of stock options granted to employees
|
$
|
4.66
|
|
|
$
|
4.59
|
|
There were no stock options granted during the three months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
|
|
Nine Months Ended
|
|
September 30,
|
|
2016
|
|
2015
|
Employee Stock Purchase Plan
|
|
|
|
|
|
Expected stock price volatility
|
33
|
%
|
|
34
|
%
|
Risk free interest rate
|
0.41
|
%
|
|
0.05
|
%
|
Expected term (in years)
|
0.5
|
|
|
0.5
|
|
Weighted-average fair value of purchase rights granted under the purchase plan
|
$
|
2.86
|
|
|
$
|
3.48
|
|
Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, employees and directors. During the
three and nine
months ended
September 30, 2016
, the Company granted nonvested equity stock units totaling
884,724
and
2,909,364
shares under the 2015 Plan. During the
three and nine
months ended
September 30, 2015
, the Company granted nonvested equity stock units totaling
90,556
and
1,672,458
shares under the 2006 Plan. These awards have a service condition, generally a service period of
four years
, except in the case of grants to directors, for which the service period is
1 year
. For the
three and nine
months ended
September 30, 2016
, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately
$12.6 million
and
$37.6 million
. For the
three and nine
months ended
September 30, 2015
, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately
$1.3 million
and
$19.3 million
. During the first quarters of 2016 and 2015, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance conditions. The ultimate number of performance units that can be earned can range from
0%
to
150%
of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company's shares available for grant has been reduced to reflect the shares that could be earned at 150% of target. During the
three and nine
months ended
September 30, 2016
, the Company recorded
$0.7 million
and
$2.0 million
of stock-based compensation expense related to these performance unit awards. During the
three and nine
months ended
September 30, 2015
, the Company recorded
$0.3 million
and
$0.8 million
of stock-based compensation expense related to these performance unit awards.
For the
three and nine
months ended
September 30, 2016
, the Company recorded stock-based compensation expense of approximately
$4.1 million
and
$10.9 million
related to all outstanding nonvested equity stock grants. For the
three and nine
months ended
September 30, 2015
, the Company recorded stock-based compensation expense of approximately
$1.8 million
and
$4.7 million
related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately
$38.0 million
at
September 30, 2016
. This amount is expected to be recognized over a weighted average period of
3.0 years
.
The following table reflects the activity related to nonvested equity stock and stock units for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
Nonvested Equity Stock and Stock Units
|
|
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Nonvested at December 31, 2015
|
|
3,008,118
|
|
|
$
|
11.32
|
|
Granted
|
|
2,909,364
|
|
|
$
|
12.91
|
|
Vested
|
|
(455,804
|
)
|
|
$
|
10.48
|
|
Forfeited
|
|
(541,597
|
)
|
|
$
|
11.81
|
|
Nonvested at September 30, 2016
|
|
4,920,081
|
|
|
$
|
12.28
|
|
11.
Stockholders’ Equity
Share Repurchase Program
During the
nine
months ended
September 30, 2016
, the Company repurchased and retired
0.7 million
shares of its common stock under its share repurchase program.
On January 21, 2015, the Company's Board approved a share repurchase program authorizing the repurchase of up to an aggregate of
20.0 million
shares. Share repurchases under the plan may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the plan.
On October 26, 2015, the Company initiated an accelerated share repurchase program with Citibank, N.A. The accelerated share repurchase program is part of the broader share repurchase program previously authorized by the Company's Board on January 21, 2015. Under the accelerated share repurchase program, the Company pre-paid to Citibank, N.A., the
$100.0 million
purchase price for its common stock and, in turn, the Company received an initial delivery of approximately
7.8 million
shares of its common stock from Citibank, N.A, in the fourth quarter of 2015, which were retired and recorded as a
$80.0 million
reduction to stockholders' equity. The remaining
$20.0 million
of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company's stock. The number of shares to be ultimately purchased by the Company was determined based on the volume weighted average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. During the second quarter of 2016, the accelerated share repurchase program was completed and the Company received an additional
0.7 million
shares of its common stock as the final settlement of the accelerated share repurchase program.
As of
September 30, 2016
, there remained an outstanding authorization to repurchase approximately
11.5 million
shares of the Company's outstanding common stock under the current share repurchase program.
The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.
12. Income Taxes
The Company recorded a provision for (benefit from) income taxes of
$4.3 million
and
$(167.0) million
for the three months ended
September 30, 2016
and
2015
, respectively, and
$14.9 million
and
$(155.7) million
for the nine months ended
September 30, 2016
and
2015
, respectively. The income taxes for the
three and nine
months ended
September 30, 2016
is primarily comprised of the Company's U.S. federal, state and foreign taxes and income tax expense recognized from exercises and expiration of out-of-the-money fully vested shares from equity incentive plans. The benefit from income taxes for the
three and nine
months ended
September 30, 2015
was primarily comprised of the tax benefit relief from the release of the valuation allowance on the Company's U.S. federal and state deferred tax assets, offset by federal, state and foreign taxes.
During the
three and nine
months ended
September 30, 2016
, the Company paid withholding taxes of
$5.5 million
and
$16.5 million
, respectively. During the
three and nine
months ended
September 30, 2015
, the Company paid withholding taxes of
$5.4 million
and
$15.0 million
, respectively.
As of
September 30, 2016
, the Company’s unaudited condensed consolidated balance sheets included net deferred tax assets, before valuation allowance, of approximately
$172.5 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 notes.
As of September 30, 2016, the Company continues to maintain a valuation allowance against the majority of its state deferred tax assets. Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company's net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company continues to maintain a deferred tax asset valuation allowance of
$21.6 million
as of
September 30, 2016
.
The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
As of
September 30, 2016
, the Company had approximately
$22.4 million
of unrecognized tax benefits, including
$19.5 million
recorded as a reduction of long-term deferred tax assets and
$2.9 million
in long-term income taxes payable. If recognized, approximately
$2.9 million
would be recorded as an income tax benefit. As of
December 31, 2015
, the Company had
$20.8 million
of unrecognized tax benefits, including
$18.6 million
recorded as a reduction of long-term deferred tax assets and
$2.2 million
recorded in long-term income taxes payable.
Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. At
September 30, 2016
and
December 31, 2015
, an immaterial amount of interest and penalties is included in long-term income taxes payable.
Rambus files income tax returns for the U.S., California, India, the U.K., the Netherlands and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2013 and forward. The California returns are subject to examination from 2009 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ended March 2010 and forward. The Company is currently under examination by California for the 2010 and 2011 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company's favor. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate.
Additionally, the Company's future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.
13. Litigation and Asserted Claims
Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.
14. Agreements with SK hynix and Micron
SK hynix
On June 11, 2013, Rambus, SK hynix and certain related entities of SK hynix entered into a settlement agreement, pursuant to which the parties have agreed to release all claims against each other with respect to all outstanding litigation between them. Pursuant to the settlement agreement, Rambus and SK hynix entered into a semiconductor patent license agreement on June 11, 2013, under which SK hynix licenses from Rambus non-exclusive rights to certain Rambus patents and has agreed to pay Rambus cash amounts over the next
five years
. Under the license agreement, Rambus has granted to SK hynix (i) a paid-up perpetual patent license for certain identified SK hynix DRAM products and (ii) a
five
-year term patent license to all other DRAM and other semiconductor products.
In June 2015, the Company s
igned an amendment that extends its current agreement with SK hynix for an additional
six
years for use of Rambus memory-related patented innovations in SK hynix semiconductor products. The Company signed the original agreement with SK hynix for a five-year term in June 2013. Under the amendment, SK hynix has agreed to continue to pay the Company an average quarterly cash payment of
$12.0 million
which equates to
$432.0 million
from the signing of the amendment through the term of the agreement ending July 1, 2024, provided that (a) for each of the six full calendar quarters immediately following July 1, 2015, SK hynix will pay the Company a quarterly cash payment of
$16.0 million
, and (b) in addition, after December 1, 2017, SK hynix will have the option to make six quarterly cash payments of
$8.0 million
upon six months written notice. In addition, SK hynix has the option to renew the agreement for an additional three-year extension under the existing rate structure.
The agreements with SK hynix are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the SK hynix agreements which included a third party valuation using an income approach (collectively the “SK hynix Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the SK hynix Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.
During the third quarter of 2016, the Company received cash consideration of
$16.0 million
from SK hynix. The amount was allocated entirely to royalty revenue (
$16.0 million
) and none to gain from settlement based on the elements’ SK hynix Fair Value. During the nine months ended
September 30, 2016
, the Company received cash consideration of
$48.0 million
from SK hynix. The amount was allocated between royalty revenue (
$47.9 million
) and gain from settlement (
$0.1 million
) based on the elements’ SK hynix Fair Value.
The cumulative cash receipts through
September 30, 2016
and the remaining future cash receipts from the agreements with SK hynix are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements (and assuming the option to make the lower payments begins with payments made during the middle of 2018):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Received
to-date as of September 30,
|
|
Estimated to Be Received in
|
|
|
|
Total Estimated
Cash Receipts
|
|
2016
|
|
Remainder
of 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021 and Thereafter
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue
|
$
|
174.1
|
|
|
$
|
16.0
|
|
|
$
|
48.0
|
|
|
$
|
40.0
|
|
|
$
|
32.0
|
|
|
$
|
48.0
|
|
|
$
|
168.0
|
|
|
$
|
526.1
|
|
Gain from settlement
|
1.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
Total
|
$
|
176.0
|
|
|
$
|
16.0
|
|
|
$
|
48.0
|
|
|
$
|
40.0
|
|
|
$
|
32.0
|
|
|
$
|
48.0
|
|
|
$
|
168.0
|
|
|
$
|
528.0
|
|
Micron
On December 9, 2013, Rambus, Micron and certain related entities of Micron entered into a settlement agreement, pursuant to which the parties have agreed that they will release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the settlement agreement, Rambus and Micron entered into a semiconductor patent license agreement on December 9, 2013. Under the license agreement, Rambus has granted to Micron and its subsidiaries and certain affiliated entities (i) a paid-up perpetual patent license for certain identified Micron DRAM products and (ii) a
seven
-year term patent license to other memory and semiconductor products.
The agreements with Micron are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the Micron agreements which included a third party valuation using an income approach (collectively the “Micron Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the Micron Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.
During the third quarter of 2016, the Company received cash consideration of
$10.0 million
from Micron. The amount was allocated entirely to royalty revenue (
$10.0 million
) and
none
to gain from settlement based on the elements’ Micron Fair Value. During the nine months ended
September 30, 2016
, the Company received cash consideration of
$30.0 million
from Micron. The amount was allocated between royalty revenue (
$29.6 million
) and gain from settlement (
$0.4 million
) based on the elements’ Micron Fair Value.
The remaining
$164.5 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
September 30, 2016
and the remaining future cash receipts from the agreements with Micron are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Received
to-date as of September 30,
|
|
Estimated to Be Received in
|
Total Estimated
Cash Receipts
|
|
2016
|
|
Remainder of 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue
|
$
|
112.2
|
|
|
$
|
10.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
34.5
|
|
|
$
|
276.7
|
|
Gain from settlement
|
3.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.3
|
|
Total
|
$
|
115.5
|
|
|
$
|
10.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
40.0
|
|
|
$
|
34.5
|
|
|
$
|
280.0
|
|
15. Restructuring Charges
The 2015 Plan
During 2015, the Company initiated a restructuring program to reduce overall corporate expenses which is expected to improve future profitability by reducing spending on sales, general and administrative programs and refining some of its research and development efforts ("the 2015 Plan"). In connection with this restructuring program, the Company initiated a plan of termination resulting in a reduction of
8%
of the Company's headcount. The Company estimated that it would incur a cash payout related to the reduction in force of approximately
$3.0 million
, which is related to severance and termination benefits. The estimated non-cash expense was expected to be approximately
$1.0 million
. During the year ended December 31, 2015, the Company recorded a charge of
$3.6 million
related primarily to the reduction in workforce, of which
$1.4 million
was related to the MID reportable segment,
$0.1 million
was related to the RSD reportable segment,
$1.2 million
was related to the Other segment and
$0.9 million
was related to corporate support functions. The majority of the 2015 Plan was completed in the first quarter of 2016.
The following table summarizes the 2015 Plan restructuring activities during the nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
and Related Benefits
|
|
Facilities
|
|
Total
|
|
|
(In thousands)
|
Balance at December 31, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Charges
|
|
2,993
|
|
|
583
|
|
|
3,576
|
|
Payments
|
|
(1,765
|
)
|
|
—
|
|
|
(1,765
|
)
|
Non-cash settlements
|
|
—
|
|
|
(583
|
)
|
*
|
(583
|
)
|
Balance at December 31, 2015
|
|
$
|
1,228
|
|
|
$
|
—
|
|
|
$
|
1,228
|
|
Payments
|
|
(1,213
|
)
|
|
—
|
|
|
(1,213
|
)
|
Balance at September 30, 2016
|
|
$
|
15
|
|
|
—
|
|
|
$
|
15
|
|
______________________________________
*The non-cash charge of
$583 thousand
is related to the write down of fixed assets related to the Other segment.
16. Acquisitions
Smart Card Software Limited
On January 25, 2016, the Company completed its acquisition of Smart Card Software Limited (“SCS”), a privately-held company incorporated in the United Kingdom, by acquiring all issued and outstanding shares of capital stock of SCS. Pursuant to the merger agreement on January 25, 2016, SCS was merged into Rambus, Inc. The transaction was denominated in British pounds. Under the terms of the merger agreement, the total consideration in U.S. dollar equivalent was
$104.7 million
which included the purchase price of
$92.6 million
paid on January 25, 2016 and additional purchase consideration to be paid in the fourth quarter of 2016 totaling
$12.1 million
and comprised of
$11.6 million
in cash,
$4.0 million
in working capital, offset by
$3.5 million
in liabilities assumed from SCS. Subsequently, the additional purchase consideration was adjusted to
$10.8 million
based on the period exchange rate as of
September 30, 2016
. Of the purchase price, approximately
$17.1 million
of the consideration was deposited into an escrow account to fund indemnification obligations and other contractual provisions, with releases of portions of the escrow at various intervals through
18 months
. SCS is a leader in mobile payments and a leading supplier of smart ticketing systems, which includes Bell Identification Ltd. and Ecebs Ltd. SCS is part of the RSD reporting unit. This acquisition will complement the Company's RSD reporting unit by allowing the Company to leverage its foundational security technology to offer differentiated, value-added security solutions to its customers. As of
September 30, 2016
, the Company has incurred approximately
$2.0 million
in external acquisition costs in connection with the acquisition which were expensed as incurred.
The initial purchase price allocation and related accounting for this acquisition is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company's estimates and assumptions for the acquisition are subject to change if the Company obtains additional information during the measurement period.
The fair value of the assets acquired has been determined primarily by using valuation methods that discount the expected future cash flows to present value using estimates and assumptions determined by management. The Company performed a valuation of the net assets acquired as of the January 25, 2016 closing date. The total consideration from the business combination was allocated as follows:
|
|
|
|
|
|
Total
|
|
(in thousands)
|
Cash
|
$
|
12,056
|
|
Accounts receivable
|
6,563
|
|
Property and equipment
|
524
|
|
Other tangible assets
|
1,462
|
|
Identified intangible assets
|
59,700
|
|
Goodwill
|
46,903
|
|
Accounts payable and accrued liabilities
|
(5,996
|
)
|
Deferred income taxes
|
(15,556
|
)
|
Deferred revenue
|
(1,313
|
)
|
Total
|
$
|
104,343
|
|
The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of SCS. This goodwill is not expected to be deductible for tax purposes.
The identified intangible assets assumed in the acquisition of SCS were recognized as follows based upon their estimated fair values as of the acquisition date:
|
|
|
|
|
|
|
|
Total
|
|
Estimated Weighted Average Useful Life
|
|
(in thousands)
|
|
(in years)
|
Existing technology
|
$
|
24,600
|
|
|
6
|
Customer contracts and contractual relationships (1)
|
35,100
|
|
|
6
|
Total
|
$
|
59,700
|
|
|
|
(1) Includes favorable contracts of
$8.3 million
with an estimated useful life of
5 years
. The favorable contracts are acquired software and service agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset.
The following unaudited pro forma financial information presents the combined results of operations for the Company and SCS as if the acquisition had occurred on January 1, 2015. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisition actually taken place on January 1, 2015, and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the acquisition (unaudited, in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
$
|
89,855
|
|
|
$
|
78,325
|
|
|
$
|
240,498
|
|
|
$
|
233,372
|
|
Net income
|
$
|
4,511
|
|
|
$
|
173,564
|
|
|
$
|
11,602
|
|
|
$
|
182,146
|
|
Net income per share - diluted
|
$
|
0.04
|
|
|
$
|
1.45
|
|
|
$
|
0.10
|
|
|
$
|
1.53
|
|
Pro forma earnings for 2016 were adjusted to exclude $2.0 million of acquisition-related costs incurred in 2016. Consequently, pro forma earnings for 2015 were adjusted to include these costs.
Inphi Memory Interconnect Business
On August 4, 2016, the Company completed its acquisition of all the assets of Inphi's Memory Interconnect Business (“Memory Interconnect Business”) from Inphi Corporation for
$90 million
in cash. The acquisition includes all assets of the Memory Interconnect Business including product inventory, customer contracts, supply chain agreements and intellectual property. Of the purchase price, approximately
$11.3 million
of the consideration was deposited into an escrow account to fund indemnification obligations and other contractual provisions, to be released
12 months
after the closing date. This acquisition will complement the MID reporting unit by allowing the Company to strengthen its market position for memory buffer chip products and execute on programs that meet the needs of the server, networking and data center market. As of
September 30, 2016
, the Company has incurred approximately
$0.6 million
in external acquisition costs in connection with the acquisition which were expensed as incurred.
The purchase price allocation and related accounting for this acquisition is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company's estimates and assumptions for the acquisition are subject to change if the Company obtains additional information during the measurement period.
The fair value of the assets acquired has been determined primarily by using valuation methods that discount the expected future cash flows to present value using estimates and assumptions determined by management. The Company performed a valuation of the net assets acquired as of the August 4, 2016 closing date. The total consideration from the business combination was allocated as follows:
|
|
|
|
|
|
Total
|
|
(in thousands)
|
Inventory (1)
|
$
|
6,300
|
|
Property and equipment
|
4,543
|
|
Other tangible assets
|
206
|
|
Identified intangible assets
|
49,722
|
|
Goodwill
|
33,223
|
|
Accounts payable and accrued liabilities
|
(3,527
|
)
|
Deferred revenue
|
(467
|
)
|
Total
|
$
|
90,000
|
|
(1) Includes inventory fair value step-up of
$2.3 million
.
The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of the acquired business. This goodwill is expected to be deductible for tax purposes.
The identified intangible assets assumed in the acquisition of the acquired business were recognized as follows based upon their estimated fair values as of the acquisition date:
|
|
|
|
|
|
|
|
Total
|
|
Estimated Weighted Average Useful Life
|
|
(in thousands)
|
|
(in years)
|
Existing technology
|
$
|
44,400
|
|
|
5
|
Customer contracts and contractual relationships
|
3,722
|
|
|
6
|
In-process research and development
|
1,600
|
|
|
Not applicable
|
Total
|
$
|
49,722
|
|
|
|
In-process research and development ("IPR&D") consists of one project, primarily relating to the development of process technologies to manufacture the next generation buffer chip product. The project is expected to be completed over the next
4 years
. The estimated remaining costs to complete the IPR&D project were
$77 million
as of the acquisition date. The acquired IPR&D will not be amortized until completion of the related product which is determined by when the underlying projects reach technological feasibility and commence commercial production. Upon completion, each IPR&D project will be amortized over its useful life which is expected to range between
5 years
and
7 years
.
The following unaudited pro forma financial information presents the combined results of operations for the Company and the acquired business as if the acquisition had occurred on January 1, 2015. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisition actually taken place on January 1, 2015, and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the acquisition (unaudited, in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
$
|
92,067
|
|
|
$
|
88,798
|
|
|
$
|
263,456
|
|
|
$
|
261,897
|
|
Net income
|
$
|
4,410
|
|
|
$
|
180,471
|
|
|
$
|
5,579
|
|
|
$
|
194,255
|
|
Net income per share - diluted
|
$
|
0.04
|
|
|
$
|
1.51
|
|
|
$
|
0.05
|
|
|
$
|
1.63
|
|
Pro forma earnings for 2016 were adjusted to exclude $0.6 million of acquisition-related costs incurred in 2016. Consequently, pro forma earnings for 2015 were adjusted to include these costs.
Snowbush IP Assets
On August 5, 2016, the Company completed its acquisition of the assets of Semtech Corporation's Snowbush IP for
$32.0 million
in cash and additional payments of up to
$50 million
, currently valued at
$6.8 million
, which are based upon specific new product sales through the end of 2022. Snowbush IP, formerly part of Semtech's Systems Innovation Group, is a provider of silicon-proven, high-performance serial link solutions. The Snowbush IP assets will be integrated into the MID reporting unit to bolster its SerDes and IP offerings, addressing critical needs of the server, networking and data center market. As of
September 30, 2016
, the Company has incurred approximately
$0.6 million
in external acquisition costs in connection with the acquisition which were expensed as incurred.
The purchase price allocation and related accounting for this acquisition is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company's estimates and assumptions for the acquisition are subject to change if the Company obtains additional information during the measurement period.
The fair value of the assets acquired has been determined primarily by using valuation methods that discount the expected future cash flows to present value using estimates and assumptions determined by management. The Company performed a valuation of the net assets acquired as of the August 5, 2016 closing date. The total consideration from the business combination was allocated as follows:
|
|
|
|
|
|
Total
|
|
(in thousands)
|
Property and equipment
|
$
|
911
|
|
Identified intangible assets
|
25,189
|
|
Goodwill
|
14,123
|
|
Deferred revenue
|
(1,378
|
)
|
Total
|
$
|
38,845
|
|
The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of the Snowbush IP assets. This goodwill is expected to be deductible for tax purposes.
The identified intangible assets assumed in the acquisition of the Snowbush IP assets were recognized as follows based upon their estimated fair values as of the acquisition date:
|
|
|
|
|
|
|
|
Total
|
|
Estimated Weighted Average Useful Life
|
|
(in thousands)
|
|
(in years)
|
Existing technology
|
$
|
2,600
|
|
|
5
|
Customer contracts and contractual relationships
|
789
|
|
|
2
|
In-process research and development
|
21,800
|
|
|
Not applicable
|
Total
|
$
|
25,189
|
|
|
|
IPR&D consists of four projects, primarily relating to the development of SerDes and IP process technologies. The projects are expected to be completed over the next
1.5 years
. The estimated remaining costs to complete the IPR&D projects were
$8.4 million
as of the acquisition date. The acquired IPR&D will not be amortized until completion of the related products which is determined by when the underlying projects reach technological feasibility and commence commercial production. Upon completion, each IPR&D project will be amortized over its useful life, each of which is expected to range between
4 years
and
6 years
.
The following unaudited pro forma financial information presents the combined results of operations for the Company and the Snowbush IP assets as if the acquisition had occurred on January 1, 2015. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisition actually taken place on January 1, 2015, and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the acquisition (unaudited, in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
$
|
90,149
|
|
|
$
|
73,811
|
|
|
$
|
241,005
|
|
|
$
|
220,912
|
|
Net income
|
$
|
4,756
|
|
|
$
|
181,657
|
|
|
$
|
11,242
|
|
|
$
|
200,771
|
|
Net income per share - diluted
|
$
|
0.04
|
|
|
$
|
1.52
|
|
|
$
|
0.10
|
|
|
$
|
1.69
|
|
Pro forma earnings for 2016 were adjusted to exclude $0.6 million of acquisition-related costs incurred in 2016. Consequently, pro forma earnings for 2015 were adjusted to include these costs.