<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________
Commission File Number: 000-22339
RAMBUS INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-3112828
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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ADDRESS
2465 LATHAM STREET, MOUNTAIN VIEW, CA 94040
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (650) 944-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, was 22,865,961 as of June 30, 1998.
<PAGE>
RAMBUS INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of June 30, 1998 and September 30, 1997................................. 1
Consolidated Condensed Statements of Operations
for the Three and Nine Months ended June 30, 1998 and June 30, 1997........ 2
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended June 30, 1998 and June 30, 1997.................. 3
Notes to Unaudited Consolidated Condensed Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................. 13
Item 6. Exhibits and Reports on Form 8-K........................................... 13
Signature ............................................................................. 14
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
----------------- ----------------
1998 1997
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 27,561 $ 20,641
Marketable securities.............................................. 56,060 51,184
Accounts receivable................................................ 5,575 925
Prepaid and deferred tax assets.................................... 5,842 5,974
Prepaids and other current assets.................................. 2,468 2,033
-------- --------
Total current assets ........................................... 97,506 80,757
Property and equipment, net ......................................... 4,254 4,338
Investments.......................................................... 1,323 986
Deferred tax assets.................................................. 5,759 1,001
Other assets......................................................... 591 796
-------- --------
Total assets .................................................. $109,433 $ 87,878
======== ========
LIABILITIES
Current liabilities:
Accounts and taxes payable, accrued payroll and other liabilities.. $ 2,761 $ 6,166
Current portion of:
Capital lease obligations ...................................... 195 382
Deferred revenue ............................................... 26,375 24,473
-------- --------
Total current liabilities ..................................... 29,331 31,021
Capital lease obligations, less current portion .................... -- 130
Deferred revenue, less current portion ............................. 41,986 30,066
-------- --------
Total liabilities ............................................. 71,317 61,217
-------- --------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares
Issued and outstanding: no shares................................. -- --
Common stock, $.001 par value:
Authorized: 60,000,000 shares;
Issued and outstanding: 22,865,961 shares at June 30, 1998
and 22,310,499 shares at September 30, 1997 ..................... 23 22
Additional paid-in capital ......................................... 66,381 59,865
Stockholders' notes receivable ..................................... (680) (680)
Accumulated deficit ................................................ (27,469) (32,511)
Cumulative translation adjustment .................................. (139) (35)
-------- --------
Total stockholders' equity .................................... 38,116 26,661
-------- --------
Total liabilities and stockholders' equity ................. $109,433 $ 87,878
======== ========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
1
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RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended NINE MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues............................ $ 7,535 $ 5,375 $21,333 $13,842
Royalties.................................... 1,625 1,399 6,868 4,357
------- ------- ------- -------
Total revenues............................ 9,160 6,774 28,201 18,199
------- ------- ------- -------
Costs and expenses:
Cost of contract revenues.................... 2,490 1,494 6,439 3,890
Research and development..................... 2,183 2,512 7,152 6,880
Marketing, general and administrative........ 2,687 2,263 8,458 6,408
------- ------- ------- -------
Total costs and expenses.................. 7,360 6,269 22,049 17,178
------- ------- ------- -------
Operating income.......................... 1,800 505 6,152 1,021
Other income, net.............................. 1,018 374 2,244 499
------- ------- ------- -------
Income before income taxes................ 2,818 879 8,396 1,520
Provision for income taxes..................... 1,123 352 3,354 605
------- ------- ------- -------
Net income................................ $ 1,695 $ 527 $ 5,042 $ 915
======= ======= ======= =======
Net income per share........................... $0.07 $0.03 $0.22 $0.05
======= ======= ======= =======
Net income per share assuming dilution........ $0.07 $0.02 $0.21 $0.04
======= ======= ======= =======
Number of shares used in per share
calculations:
Basic........................................ 22,797 20,632 22,639 18,632
======= ======= ======= =======
Assuming dilution............................ 24,360 22,403 24,329 20,589
======= ======= ======= =======
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
2
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RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 5,042 $ 915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 2,056 1,384
Deferred tax provision.......................................... (4,293) --
Other........................................................... 655 37
Change in operating assets and liabilities:
Accounts receivable.......................................... (4,650) (2,334)
Prepaid taxes................................................ (332) --
Prepaids and other current assets............................ (769) (2,387)
Other assets................................................. 536 (536)
Accounts and taxes payable, accrued payroll and other
liabilities................................................. 235 1,368
Deferred revenue............................................. 13,822 15,315
--------- --------
Net cash provided by operating activities................. 12,302 13,762
--------- --------
Cash flows from investing activities:
Purchase of property and equipment................................. (1,834) (2,603)
Proceeds from sale of property and equipment....................... 6 --
Purchases of marketable securities................................. (201,894) (98,319)
Maturities of marketable securities................................ 197,018 60,061
Investments........................................................ (1,100) --
--------- --------
Net cash used in investing activities..................... (7,804) (40,861)
--------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock......................... 2,843 35,957
Proceeds from bank loans........................................... -- 794
Principal payments on bank loans................................... -- (794)
Principal payments on capital lease obligations.................... (317) (655)
--------- --------
Net cash provided by financing activities................. 2,526 35,302
--------- --------
Foreign currency translation adjustment.............................. (104) 8
--------- --------
Net increase in cash and cash equivalents............................ 6,920 8,211
Cash and cash equivalents at beginning of period..................... 20,641 742
--------- --------
Cash and cash equivalents at end of period........................... $ 27,561 $ 8,953
========= ========
Supplemental disclosure of cash flow information:
Interest paid...................................................... $ 45 $ 169
Income taxes paid.................................................. $ 7,151 $ 1,685
Tax benefit of stock option exercises.............................. $ 3,673 $ --
License of technology in exchange for common stock................. $ -- $ 1,200
Issuance of stockholders' notes receivable......................... $ -- $ 1,047
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
3
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RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
accounts of the Company and its wholly owned subsidiary, Rambus K.K., located in
Tokyo, Japan. All intercompany accounts and transactions have been eliminated in
the accompanying consolidated condensed financial statements.
In the opinion of management, the consolidated condensed financial
statements include all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position and results of operations for
each interim period shown. Interim results are not necessarily indicative of
results for a full year.
The consolidated condensed financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission (SEC) applicable to interim financial information. Certain
information and footnote disclosures included in 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, for the year ended
September 30, 1997, included in the Company's 1997 Annual Report on Form 10-K.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." This statement establishes requirements
for disclosure of comprehensive income and will become effective for the
Company's 1999 fiscal year, with reclassification of earlier financial
statements for comparative purposes. Comprehensive income generally represents
all changes in stockholders' equity except those resulting from investments or
contributions by stockholders. The Company is evaluating alternative formats
for presenting this information, but does not expect this pronouncement to
materially impact the Company's results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). This statement establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement
supercedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 will become
effective for the Company's 1999 fiscal year and requires that comparative
information from earlier years be restated to conform to the requirements of
this standard. The Company is evaluating the requirements of SFAS 131 and the
effects, if any, on the Company's current reporting and disclosures.
4
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RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 97-2 (SOP 97-2), "Software Revenue
Recognition," which supercedes SOP 91-1. SOP 97-2 will become effective for
transactions entered into beginning in the Company's 1999 fiscal year.
Retroactive application of the provisions of SOP 97-2 is prohibited. The
Company does not expect SOP 97-2 to materially impact the Company's results of
operations.
3. COMPUTATION OF NET INCOME PER SHARE
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share"
(SFAS 128), specifies the computation, presentation, and disclosure requirements
for net income per share and became effective for the Company's 1998 fiscal
year. Accordingly, net income per share for the three and nine months ended
June 30, 1998 has been computed in accordance with SFAS 128 and all prior period
net income per share data presented has been restated to conform with SFAS 128.
A reconciliation of the numerators and denominators of net income per share
and net income per share-assuming dilution follows (in thousands, except per
share data; unaudited):
<TABLE>
<CAPTION>
INCOME Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Three Months Ended June 30, 1998:
- ---------------------------------
<S> <C> <C> <C>
NET INCOME PER SHARE:
Income available to common stockholders......................................... $1,695 22,797 $0.07
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options and warrants........................................ -- 1,563
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $1,695 24,360 $0.07
====== ====== =====
Three Months Ended June 30, 1997:
- ---------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $ 527 20,632 $0.03
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 1,771
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $ 527 22,403 $0.02
====== ====== =====
</TABLE>
5
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. COMPUTATION OF NET INCOME PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Nine Months Ended June 30, 1998:
- --------------------------------
<S> <C> <C> <C>
NET INCOME PER SHARE:
Income available to common stockholders......................................... $5,042 22,639 $0.22
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options and warrants........................................ -- 1,690
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $5,042 24,329 $0.21
====== ====== =====
Nine Months Ended June 30, 1997:
- --------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $ 915 18,632 $0.05
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 1,957
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $ 915 20,589 $0.04
====== ====== =====
</TABLE>
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The forward-looking statements contained in this discussion and analysis
involve risks and uncertainties which could cause future actual results to
differ materially. Such risks include market acceptance of the Company's
technology; systems companies' acceptance of Rambus ICs produced by the
Company's licensees; market acceptance of the products of systems companies
which have adopted the Company's technology; future dependence upon the PC main
memory market and Intel; the loss of any strategic relationships with systems
companies or licensees; announcements or introductions of new technologies or
products by the Company or the Company's competitors; delays, lack of cost-
competitiveness or other problems in the introduction or performance of
enhancements or future generations of the Company's technology; fluctuations in
the market price and demand for DRAMs and logic ICs into which the Company's
technology has been incorporated; competitive pressures resulting in lower
contract revenues or royalty rates; changes in the Company's and system
companies' development schedules and levels of expenditure on research and
development; personnel changes, particularly those involving engineering and
technical personnel; costs associated with protecting the Company's intellectual
property; changes in Company strategies; foreign exchange rate fluctuations or
other changes in the international business climate; and general economic
trends. A more detailed discussion of risks faced by the Company is set forth
in the Company's 1997 Annual Report on Form 10-K filed with the SEC.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the percentage of
total revenues represented by certain items reflected in the Company's
consolidated condensed statements of operations and the percentage change of
such items between periods:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES,
THREE MONTHS ENDED PERCENT
JUNE 30, CHANGE,
------------------------------------- 1998 V.
1998 1997 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Contract revenues .............................. 82.3% 79.3% 40.2%
Royalties ...................................... 17.7 20.7 16.2
------ ------
Total revenues .............................. 100.0% 100.0% 35.2
====== ======
Costs and Expenses:
Cost of contract revenues ...................... 27.2 22.0 66.7
Research and development ....................... 23.8 37.1 (13.1)
Marketing, general and administrative .......... 29.3 33.4 18.7
------ ------
Total costs and expenses .................... 80.3 92.5 17.4
------ ------
Operating income ................................. 19.7 7.5 256.4
Other income, net ................................ 11.1 5.5 172.2
------ ------
Income before income taxes ....................... 30.8 13.0 220.6
Provision for income taxes ....................... 12.3 5.2 219.0
------ ------
Net income ....................................... 18.5% 7.8% 221.6
====== ======
</TABLE>
7
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<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES,
NINE MONTHS ENDED PERCENT
JUNE 30, CHANGE,
------------------------------------- 1998 V.
1998 1997 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Contract revenues ................................. 75.6% 76.1% 54.1%
Royalties ......................................... 24.4 23.9 57.6
------ ------
Total revenues ................................. 100.0% 100.0% 55.0
====== ======
Costs and Expenses:
Cost of contract revenues ......................... 22.8 21.4 65.5
Research and development .......................... 25.4 37.8 4.0
Marketing, general and administrative ............. 30.0 35.2 32.0
------ ------
Total costs and expenses ....................... 78.2 94.4 28.4
------ ------
Operating income .................................... 21.8 5.6 502.5
Other income, net ................................... 8.0 2.7 349.7
------ ------
Income before income taxes .......................... 29.8 8.3 452.4
Provision for income taxes .......................... 11.9 3.3 454.4
------ ------
Net income .......................................... 17.9% 5.0% 451.0
====== ======
</TABLE>
Revenues. Total revenues for the three and nine months ended June 30, 1998
increased 35.2% and 55.0% to $9.2 million and $28.2 million, respectively, over
the comparable three- and nine-month periods in the previous year. Contract
revenues increased 40.2% and 54.1% to $7.5 million (82.3% of total revenues) and
$21.3 million (75.6% of total revenues) in the third quarter and first nine
months of fiscal 1998, respectively, over the comparable periods of fiscal 1997.
The increase in contract revenues was a result of the Company's entering into
contracts with new licensees and additional contracts with current licensees for
new developments and implementations, especially for development of Direct
Rambus, an extension of the Company's technology designed to provide a higher
bandwidth interface for PC main memory applications. The Company expects that
contract revenues will decline gradually over the next several quarters due to
the expiration of the time period for revenue recognition on contracts booked
previously, and also due to the Company's past success in signing licensees
having reduced the potential number of new licensees which can be added in the
future.
Royalties in the third quarter and first nine months of fiscal 1998 increased
16.2% to $1.6 million (17.7% of total revenues) and 57.6% to $6.9 million (24.4%
of total revenues), respectively, over the comparable periods in fiscal 1997.
The year-to-year increase in royalties was due to additional applications for
Rambus technology and increased volumes of existing applications. However,
royalties in the third fiscal quarter of 1998 decreased $904,000, or 35.7%, from
$2.5 million in the prior quarter. The Company believes that, as it had
anticipated and previously reported, this decline was primarily due to a
seasonal reduction in the shipments of Rambus ICs for use in the Nintendo 64
home video game. In addition, royalty revenue in the quarter was likely affected
adversely by a severe decline in DRAM prices. The Company anticipates that as
the demand for Nintendo 64 units increases seasonally, royalty revenue from this
source should improve.
The Company's current potential to generate royalties is largely dependent on
system sales by Nintendo and, to a lesser extent, sales by Cirrus Logic and
Chromatic Research of logic ICs
8
<PAGE>
incorporating RACs for PC graphics and multimedia applications. Nintendo faces
intense competitive pressure in the home video game market, and both Cirrus
Logic and Chromatic Research have recently ended development of their current
lines of Rambus-based products. The markets addressed by all these companies are
characterized by extreme volatility, frequent new product introductions and
rapidly shifting consumer preferences, and there can be no assurance as to the
unit volumes of Rambus ICs that will be purchased in the future or the level of
royalty-bearing revenues that the Company will receive due to these
applications. None of the systems companies currently incorporating Rambus
interface technology into their products is contractually obligated to continue
using Rambus ICs. However, as Rambus ICs are incorporated into additional
applications, the Company believes that royalties will become an increasing
portion of revenues over the long term. Given the concentration of royalties
from a limited number of sources, however, it is likely that royalties will
continue to vary greatly from quarter to quarter.
As of June 30, 1998, the Company had 28 licensees compared to 21 at June 30,
1997. Because all of the Company's revenues are derived from its relatively
small number of licensees, the Company's revenues tend to be highly
concentrated. In the third quarter and first nine months of fiscal 1998, the
Company's top five licensees accounted for 43% and 52% of total revenues,
respectively. During these same periods, NEC accounted for 14% and 25% of
revenues, respectively, and LG Semicon accounted for 10% of revenues in the
third quarter. No other licensee accounted for more than 10% of revenues in
either period. The Company expects that it will continue to experience
significant revenue concentration for the foreseeable future. However, the
particular licensees which account for revenue concentration may vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts, the volumes and prices at
which the licensees sell Rambus ICs to systems companies in any given period and
the royalty rates on those sales.
To date, companies based in Japan and Korea have accounted for most of the
Company's revenues, and for the substantial majority of its international
revenues. In the third quarter and first nine months of fiscal 1998,
international revenues comprised 70% and 75% of total revenues, respectively.
The Company expects that revenues derived from international licensees will
continue to represent a significant portion of its total revenues in the future.
All of the revenues from international licensees to date have been denominated
in United States dollars.
While a substantial portion of the Company's revenue is derived from Asian
sources, the Company does not consider itself to be abnormally vulnerable to
problems in the economies of Asian countries. A substantial portion of future
contract revenues will be based on nonrefundable payments of license and
engineering fees which have already been received from Asian and other licensees
but not yet recognized. Royalties generally are based on sales of Rambus ICs by
licensees to system companies located in the United States, Japan and, to a
lesser extent, Taiwan. The Company is not aware of any significant current or
planned future sales of Rambus ICs to system companies located in any other
Asian countries.
In a few cases, the Company has received nonrefundable, prepaid royalties
which offset the earliest royalty payments otherwise due from the licensee. As
of June 30, 1998, $3.4 million of such nonrefundable, prepaid royalties had
offset initial royalties, and the Company had a balance of $3.4 million
remaining to be offset against future royalties.
9
<PAGE>
Substantially all of the license fees, engineering service fees and
nonrefundable, prepaid royalties are bundled together as contract fees because
the Company generally does not provide or price these components separately.
The contracts also generally include rights to upgrades and enhancements.
Accordingly, Rambus recognizes contract revenues ratably over the period during
which post-contract customer support is expected to be provided. The excess of
contract fees received over contract revenue recognized is shown on the
Company's balance sheet as "deferred revenue." As of June 30, 1998, the
Company's deferred revenue was $68.4 million, substantially all of which is
scheduled to be recognized in varying amounts over the next five years.
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, increased 16.7% to $4.7 million
and 26.2% to $13.6 million in the third quarter and first nine months of fiscal
1998, respectively, over the comparable periods in fiscal 1997 due primarily to
an increase in engineering personnel. As a percentage of total revenue,
engineering costs decreased to 51.0% in the third quarter of fiscal 1998 from
59.1% in the comparable period in fiscal 1997, and decreased to 48.2% in the
first nine months of fiscal 1998 from 59.2% in the first nine months of fiscal
1997 as a result of the Company's growth in revenues.
Cost of Contract Revenues. Cost of contract revenues as a percentage of total
revenues increased to 27.2% in the third quarter of fiscal 1998 from 22.0% in
the comparable period of fiscal 1997, and increased to 22.8% in the first nine
months of fiscal 1998 from 21.4% in the first nine months of fiscal 1997. The
increase in cost of contract revenues as a percentage of total revenues was a
result of an increase in the proportion of the Company's engineering costs
attributable to the implementation of its technology for licensee-specific
processes, partially offset by the effect of the Company's growth in revenues.
The Company believes that the level of cost of contract revenues will continue
to fluctuate in the future, both in absolute dollars and as a percentage of
revenues, as new generations of Rambus ICs go through the normal development and
implementation phases.
Research and Development. Research and development expenses as a percentage of
total revenues decreased to 23.8% in the third quarter of fiscal 1998 from 37.1%
in the comparable period of fiscal 1997, and decreased to 25.4% in the first
nine months of fiscal 1998 from 37.8% in the first nine months of fiscal 1997.
The decrease in research and development expenses as a percentage of total
revenues was a result of the Company's growth in revenues and a decrease in the
proportion of engineering costs attributable to work on the Direct Rambus
interface design. The Company expects research and development expenses to
increase over time as it enhances and improves its technology and applies it to
new generations of ICs. The rate of increase of, and the percentage of revenues
represented by, research and development expenses in the future will vary from
period to period based on the research and development projects underway and the
change in research and development headcount in any given period, as well as the
rate of change in the Company's total revenues.
Marketing, General and Administrative. Marketing, general and administrative
expenses increased 18.7% to $2.7 million and 32.0% to $8.5 million in the third
quarter and first nine months of fiscal 1998, respectively, primarily due to a
buildup of marketing, sales and administrative support personnel in both the
U.S. and Japan, increased costs associated with applications engineering and
other technical support provided to systems companies, and increased
administrative costs associated with Rambus becoming a public company. As a
percentage of total revenue, marketing, general and administrative expenses
decreased to 29.3% in the third quarter of fiscal 1998 from 33.4% in the
comparable period in fiscal 1997, and decreased to 30.0% in the first nine
months of fiscal 1998
10
<PAGE>
from 35.2% in the first nine months of fiscal 1997 due to the increased revenue
base. The Company expects marketing, general and administrative expenses to
increase in the future as the Company puts additional effort into marketing its
technology and assisting systems companies to adapt this technology to new
generations of products. The rate of increase of, and the percentage of revenues
represented by, marketing, general and administrative expenses in the future
will vary from period to period based on the trade shows, advertising and other
sales and marketing activities undertaken and the change in sales, marketing and
administrative headcount in any given period, as well as the rate of change in
the Company's total revenues.
Other Income. Other income consists primarily of interest income from the
Company's short-term cash investments, offset by interest expense on leases and
other equipment financing. Other income increased to $1.0 million (11.1% of
total revenues) in the third quarter of fiscal 1998 from $374,000 (5.5% of total
revenues) in the comparable period of fiscal 1997, and to $2.2 million (8.0% of
total revenues) in the first nine months of fiscal 1998 from $499,000 (2.7% of
total revenues) in the comparable period in fiscal 1997 primarily due to higher
interest income on a higher average invested balance of cash equivalents and
short-term marketable securities in the fiscal 1998 periods.
Provision for Income Taxes. The Company recorded a provision for income taxes
of $1.1 million in the third quarter of fiscal 1998 compared to a provision of
$352,000 recorded in the third quarter of fiscal 1997, and $3.4 million in the
first nine months of fiscal 1998 compared to a provision of $605,000 recorded in
the first nine months of fiscal 1997. The provision for both years was based on
an estimated federal and state combined rate of 40% on income before income
taxes.
At June 30, 1998 the Company had gross deferred tax assets of approximately
$29 million, primarily relating to the difference between tax and book treatment
of deferred revenue. The Company has established a partial valuation allowance
against its deferred tax assets due to the uncertainty surrounding the
realization of such assets. If it is determined that it is more likely than not
that the deferred tax assets are realizable, the valuation allowance will be
reduced.
OTHER
The Company has granted to Intel Corporation a warrant for the purchase of
1,000,000 shares of its common stock at an exercise price of $10.00 per share.
The warrant will become exercisable only upon the achievement of certain
milestones, which will result in a charge to the statement of operations at the
time of achievement of the milestones based on the fair value of the warrant.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents and marketable securities of $83.6
million as of June 30, 1998 and total working capital of $68.2 million,
including a short-term component of deferred revenue of $26.4 million. Deferred
revenue represents the excess of cash received and due from licensees over
revenue recognized on license contracts, and the short-term component represents
the amount of this deferred revenue which will be recognized over the next
twelve months. Without the short-term component of deferred revenue, working
capital would have been $94.6 million as of June 30, 1998.
The Company's operating activities provided net cash of $12.3 million in the
first nine months of fiscal 1998 compared to a net cash provision of $13.8
million in the first nine months of fiscal
11
<PAGE>
1997. In the first nine months of fiscal 1998, net cash provided by operating
activities consisted mainly of net income, depreciation and amortization, and an
increase in deferred revenue partially offset by an increase in accounts
receivable and a decrease in taxes payable. The increases in deferred revenue
and accounts receivable were due to new contract billings in excess of revenues
recognized on the contracts. The decrease in taxes payable was the result of
income tax payments and provisions combined with adjustments to the Company's
tax accounts at June 30, 1998.
Net cash used in investing activities was $7.8 million in the first nine
months of fiscal 1998 compared to $40.9 million in the first nine months of
fiscal 1997. Net cash used in investing activities in the fiscal 1998 period
consisted of net purchases of marketable securities, equipment purchases and
equity investments.
Net cash provided by financing activities was $2.5 million in the first nine
months of fiscal 1998 compared to $35.3 million in the first nine months of
fiscal 1997. Net cash provided by financing activities in the fiscal 1998 period
was primarily due to sales of the Company's common stock pursuant to employee
stock plans.
The Company presently anticipates that existing cash balances will be adequate
to meet its cash needs for at least the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds
The Company completed its initial public offering pursuant to a Registration
Statement on Form S-1 (File No. 333-22885) declared effective by the Securities
and Exchange Commission on May 13, 1997 and issued 3,162,500 shares (including
the underwriter's over-allotment option) of its Common Stock, par value $0.001
per share, to the public at a price of $12.00 per share. The managing
underwriters for the initial public offering were Morgan Stanley & Co.
Incorporated, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC. The
offering has been terminated and all shares have been sold. The Company
received approximately $34,117,000 of cash from the initial public offering, net
of underwriting discounts, commissions, and other offering costs and expenses.
Since May 19, 1997 (the closing date of the Company's initial public
offering), the Company has used approximately $29.9 million of the net proceeds
from the Company's initial public offering to fund operating expenses and
increase working capital, $3.4 million to purchase and install machinery and
equipment, and $0.8 million to repay indebtedness. All of the proceeds
received by the Company from the initial public offering have now been used as
described above.
No payments constituted direct or indirect payments to directors, officers,
general partners of the issuer or their associates, or to persons owning ten
percent or more of any class of equity securities of the issuer or to affiliates
of the issuer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.3.7 (1) Amendment No. 7 to Semiconductor Technology Agreement, dated
as of January 16, 1998.
10.3.8 Amendment No. 8 to Semiconductor Technology Agreement, dated
as of May 20, 1998.
27. Financial Data Schedule.
_________
(1) Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(b) Reports on Form 8-K
None.
ITEMS 1, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAMBUS INC.
Date: July 31, 1998 By: /s/ Gary Harmon
----------------- ----------------------------------
Gary Harmon,
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
14
<PAGE>
EXHIBIT 10.3.7
AMENDMENT NO. 7 TO SEMICONDUCTOR
TECHNOLOGY AGREEMENT
This Amendment No. 7 (the "Amendment") to the parties' Semiconductor
technology Agreement is entered into as of the date last entered below by and
between Rambus Inc., a Delaware corporation with principal offices at 2465
Latham Street, Mountain View, California 94040, U.S.A. ("Rambus") and LG Semicon
Co., Ltd. (formerly known as Goldstar Electron Co., Ltd.), a Korean corporation
with principal offices at 1, Hyangjeong-dong, Hungduk-gu, Cheongju-si,
Chungcheongbuk-do, 361-480 Korea ("LGS").
WHEREAS, in 1994 the parties entered into a Semiconductor Technology
Agreement (previously as restated and amended, the "License Agreement"); and
WHEREAS the parties desire to amend the License Agreement as set forth
herein.
NOW, THEREFORE, the parties agree that the License Agreement is amended as
follows:
1. Capitalized terms used in this Amendment but not defined herein shall
have the meaning specified therefor in the License Agreement.
2. Section 1.11 of the License Agreement is amended so that "Licensed
Rambus ICs" also includes Rambus Customer Designed ASICs. [***] LG agrees to
use its best efforts to develop, market, and Sell Rambus Customer Designed
ASICs. LG agrees that LG's compliance with the preceding sentence shall also be
a condition of LG's rights pursuant to this Section 2.
3. Section 3.4 of the License Agreement is deleted. Rambus shall have no
obligation to develop or provide a RAPID Chip, a printed circuit board
incorporating a RAPID Chip, or any RAPID Chip Deliverables.
4. Section 1.2 of Amendment No. 3 to the License Agreement is amended to
read in its entirety as follows:
"'Rambus-2 Implementation Package' means an implementation package for the
Rambus-specific interface portion of a Rambus-2 DRAM, consisting of
specifications, verilog models, floor plan, process independent layout,
transistor schematics, reference transistor model and simulation results,
preliminary test vectors, and recommended core architectures; core
implementation is not included."
5. Except as set forth herein, the License Agreement, as previously
amended, shall remain unmodified and in full force and effect in accordance with
its terms.
- ---------
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
RAMBUS INC. LG Semicon Co., Ltd.
By: /s/ Subodh Toprani By: /s/ M.S. Choi
-------------------------------- -----------------------------------
Print Name: Subodh Toprani Print Name: M.S. Choi
------------------------ ---------------------------
Title: Vice President Title: Managing Director
----------------------------- --------------------------------
Date: January 16, 1998 Date: December 23, 1997
------------------------------ ---------------------------------
<PAGE>
EXHIBIT 10.3.8
AMENDMENT NO. 8 TO
SEMICONDUCTOR TECHNOLOGY AGREEMENT
This Amendment No. 8 (the "Amendment") to the parties' Semiconductor
Technology Agreement is entered into as of the date last entered below by and
between Rambus Inc., a Delaware corporation with principal offices at 2465
Latham Street, Mountain View, California 94040, U.S.A. ("Rambus") and LG Semicon
Co., Ltd. (formerly known as Goldstar Electron Co., Ltd.), a Korean corporation
with principal offices at 1, Hyangjeong-dong, Hungduk-gu, Cheongju-si,
Chungcheongbuk-do, 361-480 Korea ("LGS")
WHEREAS, in 1994 the parties entered into a Semiconductor Technology
Agreement (as previously restated and amended, the "License Agreement"); and
WHEREAS the parties desire to further amend the License Agreement as set
forth herein;
NOW, THEREFORE, the parties agree that the License Agreement is amended as
follows:
1. Capitalized terms used in this Amendment but not defined herein shall
have the meaning specified therefor in the License Agreement. In addition:
(a) "Warrant" shall mean a warrant for the purchase of shares of
common stock of Rambus (i) with a per share exercise price equal to the average
of the closing price of Rambus common stock on the Nasdaq National Market on
each of the ten trading days immediately preceding the issuance of the warrant,
(ii) with the exercise price payable upon exercise in cash in U.S. dollars,
(iii) with a term of seven years from the date of issuance, (iv) containing a
180-day lock-up provision in relation to any underwritten offering of Rambus
common stock and (v) with other customary terms and conditions.
(b) The following definitions are added to the License Agreement:
(i) "Rambus-1 DRAM" shall mean a Rambus DRAM which is Compatible
with the Rambus-1 Interface Specification and is not Compatible with the Rambus-
2 Interface Specification.
(ii) "Base Rambus-1 DRAM" shall mean a Rambus-1 DRAM which is
Compatible with Rambus' Base Rambus-1 Interface Specification.
(iii) "Concurrent Rambus-1 DRAM" shall mean a Rambus-1 DRAM which
is Compatible with Rambus' Concurrent Rambus-1 Interface Specification.
<PAGE>
2. Subject to the remainder of this section:
(a) Rambus agrees to issue to LGS a Warrant to purchase twenty-five
thousand (25,000) shares of Rambus common stock if LGS is the first Rambus
licensee to sell one million Concurrent Rambus-1 DRAMs.
(b) Rambus further agrees to issue to LGS a Warrant to purchase thirty
thousand (30,000) shares of Rambus common stock if LGS is one of the first three
(3) Rambus licensees qualified by Rambus as having Rambus-2 DRAMs Compatible
with the Rambus-2 Interface Specification.
(c) Rambus further agrees to issue to LGS a Warrant to purchase seventy
thousand (70,000) shares of Rambus common stock if LGS is one of the first three
(3) Rambus licensees to sell ten (10) million Rambus-2 DRAMs.
Rambus shall determine, in its sole and absolute judgment, whether LGS has
satisfied any of the above conditions and is therefore entitled to any of the
above Warrants, and Rambus' determination shall be final, binding and not
subject to question or dispute. Further, LGS's eligibility for these Warrants
shall be conditioned on LGS's providing to Rambus all information, data, and
records as Rambus may require to facilitate Rambus' determination. Any Warrant
to which LGS is entitled pursuant to this section shall be granted at or near
the time of Rambus' determination of LGS' eligibility, as such time is
determined by Rambus in its sole and absolute discretion.
LGS's eligibility for these Warrants shall also be conditioned upon LGS
delivering an investment representation statement in a form acceptable to Rambus
containing such information as is necessary for Rambus to confirm compliance
with applicable securities laws, and certifying, among other things, that LGS is
acquiring the Warrant and the underlying shares of common stock for its own
account and not with a view to the distribution thereof and that any subsequent
resale of the underlying shares will be made only in accordance with an
exemption from the registration requirements of applicable securities laws.
3. Rambus agrees to consider reductions in LGS's royalty rate(s) for
Rambus DRAMs, to the extent both companies, in their discretion, determine that
such reductions would be mutually beneficial.
4. With respect to Section 4.3(b) of the License Agreement, LGS agrees to
include in its royalty reports the number and type of each Licensed Rambus IC
Sold, including without limitation an allocation of Rambus DRAMs by number of
each of Base Rambus-1 DRAMs, Concurrent Rambus-1 DRAMs, and Rambus-2 DRAMs Sold
by LGS in the quarter.
5. If Rambus Interface Technology licensed to and being used by LGS is
finally held to infringe any third party patent or other intellectual property
right, then, at LGS's request, Rambus will discuss with LGS mutually beneficial
solutions to the problem.
<PAGE>
6. Except as set forth herein, the License Agreement shall remain
unmodified and in full force and effect in accordance with its terms.
RAMBUS INC. LG SEMICON CO., LTD.
By: /s/ Geoff Tate By: /s/ Kwang-Sun Baek
------------------------------- ---------------------------------
Print Name: Geoff Tate Print Name: Kwang-Sun Baek
----------------------- -------------------------
Title: President & CEO Title: Executive Vice President
---------------------------- ------------------------------
Date: May 20, 1998 Date: May 20, 1998
----------------------------- -------------------------------
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
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<CURRENT-ASSETS> 97,506
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