<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 MARCH 31, 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)
- --------------------------------------------------------------------------------
DELAWARE 94-3112828
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
- --------------------------------------------------------------------------------
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 22,703,498 as of March 31, 1998.
<PAGE>
RAMBUS INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of March 31, 1998 and September 30, 1997................................ 1
Consolidated Condensed Statements of Operations
for the Three and Six Months ended March 31, 1998 and March 31, 1997....... 2
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended March 31, 1998 and March 31, 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 4. Submission of Matters to a Vote of Security Holders........................ 13
Item 6. Exhibits and Reports on Form 8-K........................................... 14
Signature.............................................................................. 15
</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>
MARCH 31, SEPTEMBER 30,
----------------- ----------------
1998 1997
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 9,039 $ 20,641
Marketable securities.............................................. 61,588 51,184
Accounts receivable................................................ 11,380 925
Prepaid and deferred tax assets.................................... 6,214 5,974
Prepaids and other current assets.................................. 2,069 2,033
-------- --------
Total current assets............................................ 90,290 80,757
Property and equipment, net.......................................... 4,587 4,338
Investments.......................................................... 1,344 986
Deferred tax assets.................................................. 5,759 1,001
Other assets......................................................... 654 796
-------- --------
Total assets.................................................... $102,634 $ 87,878
======== ========
LIABILITIES
Current liabilities:
Accounts and taxes payable, accrued payroll and other liabilities.. $ 3,160 $ 6,166
Current portion of:
Capital lease obligations........................................ 266 382
Deferred revenue................................................. 24,689 24,473
-------- --------
Total current liabilities....................................... 28,115 31,021
Capital lease obligations, less current portion...................... 29 130
Deferred revenue, less current portion............................... 39,473 30,066
-------- --------
Total liabilities............................................... 67,617 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: 22,703,498 shares at March 31, 1998
and 22,310,499 shares at September 30, 1997....................... 23 22
Additional paid-in capital........................................... 64,949 59,865
Stockholders' notes receivable....................................... (680) (680)
Accumulated deficit.................................................. (29,164) (32,511)
Cumulative translation adjustment.................................... (111) (35)
-------- --------
Total stockholders' equity...................................... 35,017 26,661
-------- --------
Total liabilities and stockholders' equity................... $102,634 $ 87,878
======== ========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
1
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues............................ $ 7,122 $ 4,401 $13,798 $ 8,467
Royalties.................................... 2,529 1,533 5,243 2,958
------- ------- ------- -------
Total revenues............................ 9,651 5,934 19,041 11,425
------- ------- ------- -------
Costs and expenses:
Cost of contract revenues.................... 2,308 1,359 3,949 2,396
Research and development..................... 2,163 2,105 4,969 4,368
Marketing, general and administrative........ 2,948 2,057 5,771 4,145
------- ------- ------- -------
Total costs and expenses.................. 7,419 5,521 14,689 10,909
------- ------- ------- -------
Operating income.......................... 2,232 413 4,352 516
Other income, net.............................. 755 80 1,226 125
------- ------- ------- -------
Income before income taxes................ 2,987 493 5,578 641
Provision for income taxes..................... 1,195 197 2,231 253
------- ------- ------- -------
Net income................................ $ 1,792 $ 296 $ 3,347 $ 388
======= ======= ======= =======
Net income per share........................... $0.08 $0.02 $0.15 $0.02
======= ======= ======= =======
Net income per share-assuming dilution......... $0.07 $0.01 $0.14 $0.02
======= ======= ======= =======
Number of shares used in per share
calculations:
Basic........................................ 22,654 18,126 22,560 17,632
======= ======= ======= =======
Assuming dilution............................ 24,316 19,794 24,313 19,682
======= ======= ======= =======
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
2
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 3,347 $ 388
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 1,395 820
Deferred tax provision.......................................... (923) --
Other........................................................... 645 29
Change in operating assets and liabilities:
Accounts receivable.......................................... (10,455) (6,612)
Prepaid taxes................................................ (704) (536)
Prepaids and other current assets............................ (36) 52
Other assets................................................. 142 (8)
Accounts and taxes payable, accrued payroll and other
liabilities................................................. (3,029) 568
Deferred revenue............................................. 9,623 8,539
--------- --------
Net cash provided by operating activities................. 5 3,240
--------- --------
Cash flows from investing activities:
Purchase of property and equipment................................. (1,530) (1,553)
Proceeds from sale of property and equipment....................... 6 --
Purchases of marketable securities................................. (176,883) (11,735)
Maturities of marketable securities................................ 166,479 10,265
Investments........................................................ (1,100) --
--------- --------
Net cash used in investing activities..................... (13,028) (3,023)
--------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock......................... 1,714 747
Proceeds from bank loans........................................... -- 794
Principal payments on bank loans................................... -- (794)
Principal payments on capital lease obligations.................... (217) (440)
--------- --------
Net cash provided by financing activities................. 1,497 307
--------- --------
Foreign currency translation adjustment.............................. (76) (56)
--------- --------
Net increase (decrease) in cash and cash equivalents................. (11,602) 468
Cash and cash equivalents at beginning of period..................... 20,641 742
--------- --------
Cash and cash equivalents at end of period........................... $ 9,039 $ 1,210
========= ========
Supplemental disclosure of cash flow information:
Interest paid...................................................... $ 35 $ 137
Income taxes paid.................................................. $ 6,677 $ 529
Tax benefit of stock option exercises.............................. $ 3,371 $ --
License of technology in exchange for common stock................. $ -- $ 1,200
Issuance of stockholders' notes receivable......................... $ -- $ 733
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
3
<PAGE>
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
<PAGE>
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 six months ended
March 31, 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
----------- ------------- ---------
<S> <C> <C> <C>
Three Months Ended March 31, 1998:
- ----------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $1,792 22,654 $0.08
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 1,662
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $1,792 24,316 $0.07
====== ====== =====
Three Months Ended March 31, 1997:
- ----------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $ 296 18,126 $0.02
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 1,668
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $ 296 19,794 $0.01
====== ====== =====
</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
----------- ------------- ---------
<S> <C> <C> <C>
Six Months Ended March 31, 1998:
- --------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $3,347 22,560 $0.15
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 1,753
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $3,347 24,313 $0.14
====== ====== =====
Six Months Ended March 31, 1997:
- --------------------------------
NET INCOME PER SHARE:
Income available to common stockholders......................................... $ 388 17,632 $0.02
=====
EFFECT OF DILUTIVE SECURITIES:
Additional dilutive options..................................................... -- 2,050
------ ------
NET INCOME PER SHARE-ASSUMING DILUTION:
Income available to common stockholders + assumed conversions................... $ 388 19,682 $0.02
====== ====== =====
</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
MARCH 31, CHANGE,
------------------------------------- 1998 V.
1998 1997 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Contract revenues............................. 73.8% 74.2% 61.8%
Royalties..................................... 26.2 25.8 65.0
------ ------
Total revenues............................. 100.0 % 100.0 % 62.6
====== ======
Costs and Expenses:
Cost of contract revenues..................... 23.9 22.9 69.8
Research and development...................... 22.4 35.5 2.8
Marketing, general and administrative......... 30.5 34.6 43.3
------ ------
Total costs and expenses................... 76.8 93.0 34.4
------ ------
Operating income................................ 23.2 7.0 440.4
Other income, net............................... 7.8 1.3 843.8
------ ------
Income before income taxes...................... 31.0 8.3 505.9
Provision for income taxes...................... 12.4 3.3 506.6
------ ------
Net income...................................... 18.6% 5.0% 505.4
====== ======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES,
SIX MONTHS ENDED PERCENT
MARCH 31, CHANGE,
------------------------------------- 1998 V.
1998 1997 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Contract revenues............................. 72.5% 74.1% 63.0%
Royalties..................................... 27.5 25.9 77.2
------ ------
Total revenues............................. 100.0 % 100.0 % 66.7
====== ======
Costs and Expenses:
Cost of contract revenues..................... 20.7 21.0 64.8
Research and development...................... 26.1 38.2 13.8
Marketing, general and administrative......... 30.3 36.3 39.2
------ ------
Total costs and expenses................... 77.1 95.5 34.7
------ ------
Operating income................................ 22.9 4.5 743.4
Other income, net............................... 6.4 1.1 880.8
------ ------
Income before income taxes...................... 29.3 5.6 770.2
Provision for income taxes...................... 11.7 2.2 781.8
------ ------
Net income...................................... 17.6% 3.4% 762.6
====== ======
</TABLE>
Revenues. Total revenues for the three and six months ended March 31, 1998
increased 62.6% and 66.7% to $9.7 million and $19.0 million, respectively, over
the comparable three- and six-month periods in the previous year. Contract
revenues increased 61.8% and 63.0% to $7.1 million (73.8% of total revenues) and
$13.8 million (72.5% of total revenues) in the second quarter and first six
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. While quarterly revenues
from existing licenses are predictable over the contracts' respective lives,
total contract revenues will decline in the future if the Company does not
continue to obtain new licensees or if it is unsuccessful in securing new
engineering implementation work from existing licensees.
Royalties totaled $2.5 million (26.2% of total revenues) and $5.2 million
(27.5% of total revenues) in the three and six months ended March 31, 1998,
respectively. Royalties in the second fiscal quarter decreased from $2.7
million in the prior quarter. The Company believes that this decline was due to
a reduction in the shipments of Rambus ICs for use in the Nintendo 64 home video
game system and that these shipments and the associated royalties to Rambus are
likely to decline further in the third quarter. It is likely that the Company's
royalties in the first two quarters of fiscal 1998 were positively affected by a
seasonal increase in Nintendo 64 shipments, and that the third quarter will not
see the effect of holiday shipment levels. Royalties in the second quarter and
first six months of fiscal 1998 increased 65.0% and 77.2%, 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.
8
<PAGE>
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 incorporating RACs for PC graphics and
multimedia applications. Nintendo faces intense competitive pressure in the
home video game market, which is 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
by Nintendo in the future or the level of royalty-bearing revenues that the
Company's licensees will receive from Nintendo. None of the systems companies
currently incorporating Rambus interface technology into their products is
contractually obligated to continue using Rambus ICs. For these reasons, as
well as the anticipated seasonal decline in Nintendo shipments, total royalties
could decrease in the third fiscal quarter. 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 March 31, 1998, the Company had 24 licensees compared to twenty at March
31, 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 second quarter and first six months of fiscal 1998, the
Company's top five licensees accounted for 53% and 56% of total revenues,
respectively. During these same periods, NEC accounted for 28% and 31% of
revenues, respectively, and no other licensee accounted for more than 10% of
revenues. 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 second quarter and first six months of fiscal 1998,
international revenues comprised 76% and 78% 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 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 March 31, 1998, $3.3 million of such nonrefundable, prepaid royalties had
offset initial royalties, and the Company had a balance of $3.5 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 March 31, 1998, the
Company's deferred revenue was $64.2 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 29.1% to $4.5 million
and 31.8% to $8.9 million in the second quarter and first six 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 46.3% in the second quarter of fiscal 1998 from
58.4% in the comparable period in fiscal 1997, and decreased to 46.8% in the
first six months of fiscal 1998 from 59.2% in the first six 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 23.9% in the second quarter of fiscal 1998 from 22.9% in
the comparable period of fiscal 1997 as a result of an increase in the
proportion of the Company's engineering costs attributable to cost of contract
revenues partially offset by the effect of the Company's growth in revenues.
During the quarter the company completed work on the Direct Rambus interface
design (classified as research and development expense) and began working on the
implementation of this technology for licensee-specific processes (classified as
cost of contract revenues). For the first six months of fiscal 1998, cost of
contract revenues as a percentage of total revenues decreased to 20.7% from
21.0% in the comparable period of fiscal 1997 as a result of the Company's
growth in revenues partially offset by an increase in the proportion of the
Company's engineering costs attributable to cost of contract 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 22.4% in the second quarter of fiscal 1998 from
35.5% in the comparable period of fiscal 1997, and decreased to 26.1% in the
first six months of fiscal 1998 from 38.2% in the first six 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 research and development
expenses, particularly as a result of the completion of 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.
10
<PAGE>
Marketing, General and Administrative. Marketing, general and administrative
expenses increased 43.3% to $2.9 million and 39.2% to $5.8 million in the second
quarter and first six 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 30.5% in the second quarter of fiscal 1998 from 34.6% in the
comparable period in fiscal 1997, and decreased to 30.3% in the first six months
of fiscal 1998 from 36.3% in the first six 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 $755,000 (7.8% of total
revenues) in the second quarter of fiscal 1998 from $80,000 (1.3% of total
revenues) in the comparable period of fiscal 1997, and to $1.2 million (6.4% of
total revenues) in the first six months of fiscal 1998 from $125,000 (1.1% 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 $1.2 million in the second quarter of fiscal 1998 compared to a provision of
$197,000 recorded in the second quarter of fiscal 1997, and $2.2 million in the
first six months of fiscal 1998 compared to a provision of $253,000 recorded in
the first six 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 March 31, 1998 the Company had gross deferred tax assets of approximately
$28 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.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents and marketable securities of $70.6
million as of March 31, 1998 and total working capital of $62.2 million,
including a short-term component of deferred revenue of $24.7 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 $86.9 million as of March 31, 1998.
The Company's operating activities provided net cash of $5,000 in the first
six months of fiscal 1998 compared to a net cash provision of $3.2 million in
the first six months of fiscal 1997. In the first six months of fiscal 1998,
cash provided by net income, depreciation and amortization, and an increase in
deferred revenue was basically offset by increases in accounts receivable and
deferred tax assets and a decrease in taxes payable. The increases in deferred
revenue and accounts receivable were due to new contract billings, primarily for
delivery of the Direct Rambus implementation package, in excess of revenues
recognized on the contracts. The changes in deferred tax assets and taxes
payable were the result of income tax payments and provisions combined with
adjustments to the Company's tax accounts at March 31, 1998.
Net cash used in investing activities was $13.0 million in the first six
months of fiscal 1998 compared to $3.0 million in the first six 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 $1.5 million in the first six
months of fiscal 1998 compared to $307,000 in the first six months of fiscal
1997. Net cash provided by financing activities in the fiscal 1998 period was
due to sales of the Company's common stock pursuant to employee stock plans,
partially offset by principal payments on capital lease obligations.
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 $24.0 million of the net proceeds
from the Company's initial public offering to fund operating expenses and
increase working capital, $2.6 million to purchase and install machinery and
equipment, and $0.5 million to repay indebtedness. The Company has placed
approximately $7.1 million in temporary investments pending future use.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on January 30, 1998
(the "Annual Meeting"). At the Annual Meeting, stockholders voted on two
matters: (i) the election of three Class I directors for terms of two years
expiring in 2000, and (ii) the ratification of the appointment of Coopers &
Lybrand L.L.P. as the Company's independent auditors. The stockholders elected
management's nominees as the Class I directors in an uncontested election and
ratified the appointment of independent auditors by the following votes,
respectively:
(i) Election of Class I directors for terms expiring in 2000:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
Bruce Dunlevie 16,767,974 22,815
Charles Geschke 16,769,110 21,679
Mark Horowitz 16,765,749 25,040
</TABLE>
The Company's Board of Directors is currently comprised of six members who
are divided into two classes with overlapping two-year terms. The term for
Class II directors (William Davidow, Michael Farmwald and Geoff Tate) will
expire at the meeting of stockholders to be held in 1999.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
(ii) Ratification of appointment of Coopers & Lybrand L.L.P. as independent
auditors:
BROKER
VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES
------------ ------------- ----------- ---------
16,762,935 12,745 15,109 --
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
ITEMS 1, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
14
<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: April 24, 1998 By: /s/ Gary Harmon
------------------ ----------------------------------
Gary Harmon,
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 9,039
<SECURITIES> 61,588
<RECEIVABLES> 11,390
<ALLOWANCES> (10)
<INVENTORY> 0
<CURRENT-ASSETS> 90,290
<PP&E> 12,556
<DEPRECIATION> (7,969)
<TOTAL-ASSETS> 102,634
<CURRENT-LIABILITIES> 28,115
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 34,994
<TOTAL-LIABILITY-AND-EQUITY> 102,634
<SALES> 19,041
<TOTAL-REVENUES> 19,041
<CGS> 3,949
<TOTAL-COSTS> 3,949
<OTHER-EXPENSES> 10,740
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 5,578
<INCOME-TAX> 2,231
<INCOME-CONTINUING> 3,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,347
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
