<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 December 31, 1999
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 23,790,700 as of December 31, 1999.
<PAGE>
RAMBUS INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C> <C>
Consolidated Condensed Balance Sheets
as of December 31, 1999 and September 30, 1999............................. 1
Consolidated Condensed Statements of Operations
for the Three Months Ended December 31, 1999 and December 31, 1998......... 2
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended December 31, 1999 and December 31, 1998......... 3
Notes to Unaudited Consolidated Condensed Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 15
Item 6. Exhibits and Reports on Form 8-K........................................... 15
Signature ........................................................................... 16
</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>
December 31, September 30,
------------ -------------
1999 1999
---- ----
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 5,544 $ 14,982
Marketable securities.............................................. 82,135 72,158
Accounts receivable................................................ 2,478 1,499
Prepaid and deferred taxes......................................... 7,423 7,579
Prepaids and other current assets.................................. 2,244 2,260
-------- --------
Total current assets............................................ 99,824 98,478
Property and equipment, net.......................................... 4,029 4,232
Marketable securities, less current portion.......................... 1,509 5,658
Restricted cash...................................................... 2,500 2,500
Deferred taxes, long-term............................................ 3,126 4,123
Other assets......................................................... 2,020 782
-------- --------
Total assets.................................................... $113,008 $115,773
======== ========
LIABILITIES
Current liabilities:
Accounts and taxes payable, accrued payroll and other liabilities.. $ 3,561 $ 4,425
Deferred revenue................................................... 29,542 32,279
-------- --------
Total current liabilities....................................... 33,103 36,704
Deferred revenue, less current portion............................... 14,629 17,505
-------- --------
Total liabilities............................................... 47,732 54,209
-------- --------
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: 23,790,700 shares at December 31,
1999 and 23,702,668 shares at September 30, 1999.................. 24 24
Additional paid-in capital........................................... 80,563 78,574
Deferred stock-based compensation.................................... (719) --
Accumulated deficit.................................................. (14,540) (17,005)
Accumulated other comprehensive loss................................. (52) (29)
-------- --------
Total stockholders' equity...................................... 65,276 61,564
-------- --------
Total liabilities and stockholders' equity................... $113,008 $115,773
======== ========
</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
------------------
December 31,
------------
1999 1998
---- ----
Revenues:
<S> <C> <C>
Contract revenues.................................................. $ 9,319 $ 7,948
Royalties.......................................................... 2,630 2,626
------- -------
Total revenues.................................................. 11,949 10,574
------- -------
Costs and expenses:
Cost of contract revenues.......................................... 3,531 2,102
Research and development........................................... 2,224 3,089
Marketing, general and administrative.............................. 3,399 2,970
------- -------
Total costs and expenses........................................ 9,154 8,161
------- -------
Operating income................................................ 2,795 2,413
Other income, net.................................................... 997 1,012
------- -------
Income before income taxes...................................... 3,792 3,425
Provision for income taxes........................................... 1,327 1,370
------- -------
Net income...................................................... $ 2,465 $ 2,055
======= =======
Net income per share - basic......................................... $0.10 $0.09
======= =======
Net income per share - diluted....................................... $0.10 $0.08
======= =======
Number of shares used in per share calculations:
Basic.............................................................. 23,759 23,034
======= =======
Diluted............................................................ 25,170 24,874
======= =======
</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>
Three Months Ended
December 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 2,465 $ 2,055
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................................... 758 759
Amortization of deferred compensation........................... 99 --
Amortization of goodwill and other.............................. 44 11
Change in operating assets and liabilities:
Accounts receivable.......................................... (979) (120)
Prepaid and deferred taxes................................... 1,153 1,226
Prepaids and other current assets............................ 16 316
Other assets................................................. 50 21
Accounts and taxes payable, accrued payroll and other
liabilities................................................. (951) (248)
Deferred revenue............................................. (5,613) (2,273)
--------- ---------
Net cash provided by (used in) operating activities....... (2,958) 1,747
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment................................. (555) (487)
Purchases of marketable securities................................. (350,253) (641,726)
Maturities of marketable securities................................ 344,363 644,472
Acquired technology rights......................................... (1,334) --
Sale of investments................................................ -- 782
--------- ---------
Net cash provided by (used in) investing activities....... (7,779) 3,041
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock......................... 1,260 1,220
Principal payments on capital lease obligations.................... -- (54)
--------- ---------
Net cash provided by financing activities................. 1,260 1,166
--------- ---------
Effect of exchange rates on cash and cash equivalents................ 39 148
--------- ---------
Net increase (decrease) in cash and cash equivalents................. (9,438) 6,102
Cash and cash equivalents at beginning of period..................... 14,982 25,798
--------- ---------
Cash and cash equivalents at end of period........................... $ 5,544 $ 31,900
========= =========
Supplemental disclosure of cash flow information:
Interest paid...................................................... $ -- $ 4
Taxes paid......................................................... $ 173 $ 147
Tax benefit of stock option exercises.............................. $ -- $ 1,609
</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, 1999, included in the Company's 1999 Annual Report on Form 10-K.
2. Recent Accounting Pronouncements
In October 1999, the Company adopted American Institute of Certified Public
Accountants (AICPA) Statement of Position No. 98-9 (SOP 98-9), Modification of
SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP 97-2 to require
that an entity recognize revenue for multiple element arrangements by means of
the "residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair values of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. Adoption of SOP 98-9 had no
material impact on the Company's results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standards Board issued SFAS No. 137 (SFAS
137), "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of SFAS No. 133." SFAS 137 deferred the effective date of
SFAS 133 until the first fiscal quarter beginning after June 15, 2000. The
Company does not currently hold derivative instruments or engage in hedging
activities. The Company expects the adoption of SFAS 133 and SFAS 137 will have
no material impact on its financial statements and related disclosures.
4
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
3. Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments and
unrealized gains and losses on marketable securities.
Comprehensive income for the three months ended December 31, 1999 and 1998
is as follows (in thousands; unaudited):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Net income................................................................... $2,465 $2,055
Other comprehensive income (loss):
Foreign currency translation adjustments.................................. 39 148
Unrealized loss on marketable securities.................................. (62) --
------ ------
Other comprehensive income (loss)............................................ (23) 148
Total comprehensive income................................................... $2,442 $2,203
====== ======
</TABLE>
Accumulated other comprehensive loss presented in the accompanying
consolidated condensed balance sheets consists of cumulative foreign currency
translation adjustments and unrealized losses on marketable securities.
4. Contingent Warrants, Common Stock Equivalents, and Options
In January 1997, the Company granted a warrant to Intel Corporation for the
purchase of 1,000,000 shares of Rambus common stock (the "Intel warrant") at an
exercise price of $10.00 per share. The warrant will become exercisable only
upon the achievement of certain milestones by Intel relating to shipment volumes
of Rambus-based chipsets (the "Intel milestones"). At the time that the
achievement of the milestones becomes probable, a charge will be made to the
statement of operations based on the fair value of the warrant.
In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants on a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus Direct DRAM partners upon the
achievement of certain product qualification and volume production targets. The
warrants, to be issued at the time the targets are met, will have an exercise
price of $10.00 per share and a life of five years. They will vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of the warrants at
the time the achievement of the Intel milestones becomes probable. As of
December 31, 1999, a total of 60,000 of these warrants had been issued.
5
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--
(Continued)
4. Contingent Warrants, Common Stock Equivalents, and Options (continued)
In the fourth quarter of fiscal 1999, the Company granted to its Chief
Executive Officer and to its President a combined total of 500,000 Common Stock
Equivalents (CSEs) and to its employees approximately 531,000 options to
purchase Rambus common stock for $10.00 per share. These CSEs and options will
vest based upon the achievement of key indicators of success for Rambus,
including shipment volumes of Rambus-based chipsets, which will result in a
charge to the statement of operations based on the fair value of the CSEs and
options at the time achievement becomes probable.
5. Income Taxes
The Company recorded a provision for income taxes of $1.3 million in the
first quarter of fiscal 2000 compared to a provision of $1.4 million in the
first quarter of fiscal 1999. The estimated federal and state combined rates on
pretax income for the first quarters of fiscal 2000 and 1999 were 35% and 40%,
respectively. The Company's effective tax rate for the first quarter of fiscal
1999 differs from the statutory rate due to the valuation allowance impact of
timing differences related to the recognition of contract revenues for tax and
financial reporting purposes.
At December 31, 1999, the Company had gross deferred tax assets of
approximately $26 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 uncertainty
surrounding the realization of such assets. The valuation allowance will be
adjusted if management determines that the likelihood of the Company's ability
to realize these tax assets has changed.
6. Acquired Technology Rights
In November 1999, the Company acquired rights to the intellectual property
assets of a network technology company for approximately $1.3 million in cash.
The value of these assets will be amortized over five years. As a part of this
transaction, the Company also committed to provide certain key employees of the
acquired company with $1.8 million of deferred cash and stock-based
compensation, subject to vesting. Such deferred compensation will be recognized
over the vesting terms, ranging from 2-4 years.
6
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
7. Net Income Per Share
Net income per share is computed in accordance with Financial Accounting
Standards Board Statement No. 128 (SFAS 128), "Earnings Per Share," which
requires the presentation of basic and diluted net income per share. Basic net
income per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted net income per share is
calculated using the weighted average number of common shares and common stock
equivalents, if dilutive, outstanding during the period. Net income per share
is calculated as follows (in thousands, except per share data; unaudited):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------------------------
1999 1998
------------------- ------------------
<S> <C> <C>
Net income........................................................................ $ 2,465 $ 2,055
======= =======
Weighted average common shares outstanding........................................ 23,759 23,034
Additional dilutive common stock equivalents...................................... 1,411 1,840
------- -------
Diluted shares outstanding........................................................ 25,170 24,874
======= =======
Net income per share - basic...................................................... $ 0.10 $ 0.09
======= =======
Net income per share - diluted.................................................... $ 0.10 $ 0.08
======= =======
</TABLE>
7
<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; delays, lack of cost-
competitiveness or other problems in the introduction or performance of Rambus
ICs or products which include Rambus ICs including, but not limited to, RDRAMs,
Intel Rambus-based chipsets and the Sony PlayStation2; 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,
licensees' and system companies' development and product introduction schedules
and levels of expenditure on research and development and marketing; 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 1999
Annual Report on Form 10-K filed with the SEC.
Results of Operations
The following table sets 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
December 31, Change,
------------------------------------- 1999 v.
1999 1998 1998
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Contract revenues ............................ 78.0% 75.2% 17.2%
Royalties .................................... 22.0 24.8 0.2
------ ------
Total revenues ............................ 100.0 % 100.0 % 13.0
====== ======
Costs and expenses:
Cost of contract revenues .................... 29.6 19.9 68.0
Research and development ..................... 18.6 29.2 (28.0)
Marketing, general and administrative ........ 28.4 28.1 14.4
------ ------
Total costs and expenses .................. 76.6 77.2 12.2
------ ------
Operating income ............................... 23.4 22.8 15.8
Other income, net .............................. 8.3 9.6 (1.5)
------ ------
Income before income taxes ..................... 31.7 32.4 10.7
Provision for income taxes ..................... 11.1 13.0 (3.1)
------ ------
Net income ..................................... 20.6% 19.4% 20.0%
====== ======
</TABLE>
8
<PAGE>
Revenues. Total revenues for the three months ended December 31, 1999
increased 13.0% to $11.9 million from $10.6 million in the comparable three-
month period of the previous year. Contract revenues increased 17.2% to $9.3
million (78.0% of total revenues) in the first quarter of fiscal 2000 from $7.9
million (75.2% of total revenues) in the comparable period of fiscal 1999.
Approximately $3.0 million of this increase is attributable to a change in
management's estimate of certain contract revenue recognition periods, which
occurred in the fourth quarter of fiscal 1999. Such periods are initially
estimated based upon management's judgment of the time over which the Company
has an obligation to support its licensees. As the new generation of Rambus
technology went into production late in fiscal 1999, a more accurate estimate of
the remaining support period could be made. To the extent the new estimated
periods were less than the original estimates, the amount of deferred revenue
recognized in the first quarter of fiscal 2000 was greater than in the
comparable period of fiscal 1999. This increase was partially offset by the
ending of revenue recognition on contracts for which the contract period had
expired, including the Texas Instruments ("TI") DRAM contract. Each of the four
quarters of fiscal 1999 included approximately $900,000 of contract revenue from
the TI DRAM contract. This revenue was recognized on an accelerated basis due
to the sale of TI's DRAM business to Micron and was fully recognized by the end
of fiscal 1999.
The Company expects that contract revenues will decline over time as the
revenue recognition periods expire for contracts booked previously. The
Company's past success in signing licensees has reduced the number of potential
new licensees, which also contributes to the anticipated decline in contract
revenues. However, in the short term, contract revenues may temporarily
increase due to accelerated revenue recognition related to a combination of
changes in management's estimate of contract revenue recognition periods and
pending mergers and product abandonments in the DRAM industry, which could
result in contract terminations.
Royalties in the first quarter of fiscal 2000 were $2.6 million (22.0% of
total revenues), flat with the $2.6 million (24.8% of total revenues) reported
in the comparable period of fiscal 1999. The Company believes that much of its
royalty revenue in each of these periods was due to shipments of Rambus ICs for
use in the Nintendo 64 home video game system. As was the case in fiscal 1999,
the Company expects Nintendo royalties to decrease seasonally over the next two
quarters. However, during the same period, the Company expects to recognize the
first royalties from the shipment of Rambus ICs for use in desktop PCs and
workstations as well as the Sony PlayStation2.
Because of the use of its technology in these new markets, the Company
believes that royalties will become an increasing portion of its revenues in the
future. To date, a majority of the Company's royalties has been derived from
the sale of logic ICs incorporating RACs. If the Company is successful in its
strategy to penetrate the PC main memory market segment, the Company expects
that royalties from the sale of RDRAMs will eventually account for the largest
portion of royalties. The Company's royalty revenue is largely a function of
the adoption of Rambus technology by systems companies and the acceptance of the
systems companies' products by end users. The markets addressed by systems
companies using Rambus ICs, such as Nintendo, 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. Given the
concentration of royalties from a limited number of sources, it is likely that
royalties will continue to vary greatly from quarter to quarter.
9
<PAGE>
As of December 31, 1999, the Company had 32 active licensees compared to 29
such licensees at December 31, 1998. Because all of the Company's revenues are
derived from its relatively small number of licensees, revenues tend to be
highly concentrated. In the first quarter of fiscal 2000, the Company's top five
licensees accounted for 46% of total revenues. During this period, NEC
accounted for 15% of total 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, and the
volumes and prices at which the licensees sell Rambus ICs to systems companies
in any given period.
To date, companies based in Japan, Korea and Taiwan have accounted for most of
the Company's revenues, and for the substantial majority of its international
revenues. In the first quarter of fiscal 2000, international revenues comprised
69% of total revenues. 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.
In a few cases, the Company has received nonrefundable, prepaid royalties
which offset the earliest royalty payments otherwise due from the licensee. As
of December 31, 1999, $4.3 million of such nonrefundable, prepaid royalties had
offset initial royalties, and the Company had a balance of $2.0 million
remaining to be offset against future royalties.
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 December 31, 1999, the
Company's deferred revenue was $44.2 million, substantially all of which is
scheduled to be recognized in varying amounts over the next four years.
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, increased 10.9% to $5.8 million
(48.2% of total revenue) in the first quarter of fiscal 2000 from $5.2 million
(49.1% of total revenue) in the comparable period of fiscal 1999. The increase
in absolute dollars is primarily attributable to engineering personnel added to
support the launch of Rambus technology into the PC main memory market, the
Company's announced technology roadmap improvements, and new initiatives in the
communications market and chip-to-chip connections.
Cost of Contract Revenues. Cost of contract revenues as a percentage of total
revenues increased to 29.6% in the first quarter of fiscal 2000 from 19.9% in
the comparable period of fiscal 1999. Cost of revenues accounted for 61% of
total engineering costs in the first quarter of fiscal 2000, up from 40% in the
comparable period of fiscal 1999. The increase in cost of contract revenues as
a percentage of total revenues and as a percentage of total engineering costs is
primarily due to an increase in the proportion of the Company's engineering
costs attributable to the implementation of its technology for licensee-specific
processes as the Company focused its engineering resources on the launch and
ramp of its technology into the PC main memory market. The Company believes
that the level of cost of contract revenues will fluctuate in the future, both
in
10
<PAGE>
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 18.6% in the first quarter of fiscal 2000 from 29.2%
in the comparable period of fiscal 1999. Research and development expenses
accounted for 39% of total engineering costs in the first quarter of fiscal
2000, down from 60% in the comparable period of fiscal 1999. Research and
development expenses decreased as a percentage of total revenues and as a
percentage of total engineering costs as additional engineering resources were
transferred to the support of Intel, RDRAM licensees, PC OEMs and infrastructure
providers on the ramp of Rambus technology into the PC main memory market. 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 engineering
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 14.4% to $3.4 million in the first quarter of fiscal 2000
from $3.0 million in the comparable period of fiscal 1999. The increase in
absolute dollars as well as the slight increase as a percentage of revenues from
28.1% in the fiscal 1999 period to 28.4% in fiscal 2000 were primarily due to
increases in marketing personnel and other support costs and the addition of
administrative personnel to support legal enforcement of the Company's patents
and other intellectual property rights. Partially offsetting these increases
was a reduction of approximately $500,000 to a management bonus accrual.
Management bonus expense is recognized ratably throughout the year as it is
earned, but a substantial portion of the actual payments is based upon
achievement of goals which cannot be determined until the end of the calendar
year. In this case, certain of the goals were not achieved, which meant that
the corresponding portion of the accrued bonuses would not be paid and the
accrual was reduced in the December quarter. The Company expects marketing,
general and administrative expenses to increase in the future as the Company
focuses additional resources upon marketing its technology, assisting systems
companies with adapting this technology to new generations of products, and
protecting its intellectual property rights through legal actions. 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, Net. Other income, net consists primarily of interest income
from the Company's short-term cash investments. Other income, net in the first
quarter of fiscal 2000 was $1.0 million (8.3% of total revenues), flat compared
to $1.0 million (9.6% of total revenues) in the comparable period of fiscal
1999. The effect of an increase in average invested balances in the fiscal 2000
period compared to the comparable period of fiscal 1999 was offset by a decline
in average interest rates.
Provision for Income Taxes. The Company recorded a provision for income taxes
of $1.3 million in the first quarter of fiscal 2000 compared to a provision of
$1.4 million in the first quarter of fiscal 1999. The estimated federal and
state combined rates on pretax income for the first quarters of fiscal 2000 and
1999 were 35% and 40%, respectively. The Company's effective tax rate for the
first quarter of fiscal 1999 differs from the statutory rate due to the
valuation allowance impact of
11
<PAGE>
timing differences related to the recognition of contract revenues for tax and
financial reporting purposes.
At December 31, 1999, the Company had gross deferred tax assets of
approximately $26 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 uncertainty
surrounding the realization of such assets. The valuation allowance will be
adjusted if management determines that the likelihood of the Company's ability
to realize these tax assets has changed.
Contingent Warrants, Common Stock Equivalents, and Options
In January 1997, the Company granted a warrant to Intel Corporation for the
purchase of 1,000,000 shares of Rambus common stock (the "Intel warrant") at an
exercise price of $10.00 per share. The warrant will become exercisable only
upon the achievement of certain milestones by Intel relating to shipment volumes
of Rambus-based chipsets (the "Intel milestones"). At the time that the
achievement of the milestones becomes probable, a charge will be made to the
statement of operations based on the fair value of the warrant.
In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants on a total of up to 400,000 shares of Rambus
common stock to be issued to various Rambus Direct DRAM partners upon the
achievement of certain product qualification and volume production targets. The
warrants, to be issued at the time the targets are met, will have an exercise
price of $10.00 per share and a life of five years. They will vest and become
exercisable on the same basis as the Intel warrant, which will result in a
charge to the statement of operations based on the fair value of the warrants at
the time the achievement of the Intel milestones becomes probable. As of
December 31, 1999, a total of 60,000 of these warrants had been issued.
In the fourth quarter of fiscal 1999, the Company granted to its Chief
Executive Officer and to its President a combined total of 500,000 Common Stock
Equivalents (CSEs) and to its employees approximately 531,000 options to
purchase Rambus common stock for $10.00 per share. These CSEs and options will
vest based upon the achievement of key indicators of success for Rambus,
including shipment volumes of Rambus-based chipsets, which will result in a
charge to the statement of operations based on the fair value of the CSEs and
options at the time achievement becomes probable.
Liquidity and Capital Resources
As of December 31, 1999, the Company had cash and cash equivalents and
marketable securities of $91.7 million, including restricted cash of $2.5
million and a long-term marketable securities component of $1.5 million. As of
the same date, the Company had total working capital of $66.7 million, including
a short-term component of deferred revenue of $29.5 million. Deferred revenue
represents the excess of cash received from licensees over revenue recognized on
license contracts, and the short-term component represents the amount of this
deferred revenue the Company expects to recognize over the next twelve months.
Without the short-term component of deferred revenue, working capital would have
been $96.2 million as of December 31, 1999.
12
<PAGE>
The Company's operating activities used net cash of $3.0 million in the first
quarter of fiscal 2000 compared to net cash provided of $1.7 million in the
comparable period of fiscal 1999. In the fiscal 2000 period, net cash used in
operating activities consisted mainly of a decrease in deferred revenue and an
increase in accounts receivable, partially offset by net income adjusted for
non-cash items, and adjustments relating to income taxes. The decrease in
deferred revenue represents contract revenues recognized in excess of new
contract billings.
Net cash used in investing activities was $7.8 million in the first quarter of
fiscal 2000 compared to net cash provided of $3.0 million in the first quarter
of fiscal 1999. Net cash used in investing activities in the fiscal 2000 period
consisted of net purchases of marketable securities, costs of acquired
technology rights, and purchases of property and equipment.
Net cash provided by financing activities was $1.3 million in the first
quarter of fiscal 2000 compared to $1.2 million in the comparable period of
fiscal 1999. The primary source of net cash provided by financing activities
was 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.
Impact of Year 2000
To the extent permitted by law, the disclosure included in this paragraph is
intended to constitute Year 2000 readiness disclosure within the meaning of the
Year 2000 Information and Readiness Disclosure Act. As part of the transfer of
technology to its licensees, the Company provides information in the form of
implementation packages which include specifications, circuit layout databases,
test parameter software and, in the case of RDRAMs, core interface
specifications. Such information is not date sensitive and therefore not
subject to Year 2000 problems. Since the Company does not sell any other kind
of product, internal Year 2000 issues are confined to its engineering design and
administrative systems. To date, the Company has not encountered any problems
with such systems. However, the Company could be negatively affected to the
extent that Year 2000 problems at its licensees could affect the shipment of
Rambus ICs and the payment of royalties to the Company. Such affects on its
licensees could cause the Company to miss quarterly analysts estimates of its
revenue and profits. The Company has no evidence that such problems have
occurred, but also has no way of analyzing the probability of Year 2000 problems
at its licensees, and therefore, there can be no assurance that the Company's
licensees are Year 2000 compliant or, in any event, that the Company will not be
negatively affected by Year 2000 issues. Through December 31, 1999, the
Company has not incurred any significant costs to ensure its internal computer
systems are Year 2000 compliant, other than software purchases and upgrades
which were purchased in the Company's normal course of business. The Company
does not expect the cost of implementation for its internal computer systems to
have a material impact on the Company's financial position or results of
operations.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers and by policy limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company will ensure
the safety and preservation of its invested funds by limiting default risk and
market risk. The Company has no investments denominated in foreign country
currencies and therefore is not subject to foreign exchange risk.
The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at December 31, 1999.
<TABLE>
<CAPTION>
Average Rate
Of Return at
Carrying December 31,
Value 1999
(in thousands) (annualized)
Investment portfolio:
<S> <C> <C>
Cash equivalents.................................................. $ 3,647 5.5%
Corporate notes and bonds......................................... 15,422 4.8%
Municipal notes and bonds......................................... 27,236 3.5%
United States government debt securities.......................... 40,986 5.5%
-------
Total investment portfolio..................................... $87,291
=======
</TABLE>
14
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
In January 2000, the Company filed suit against Hitachi Ltd. for willful
patent infringement (United States District Court of Delaware Civil Action No.
00 029). The Company is seeking injunctions against the manufacture, use and
sale of certain Hitachi memory and microprocessor products that infringe Rambus
patents. The Company is also seeking punitive damages from Hitachi. Rambus
seeks to halt the importation, sale, manufacture and use of certain Hitachi
semiconductor products which directly or contributorily infringe four Rambus
patents. The suit was filed after Hitachi failed to respond to repeated
requests by Rambus to conduct further discussions regarding a detailed
infringement analysis of Hitachi's non-RDRAM-compatible products, which was
presented to Hitachi by Rambus in 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
15
<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: February 11, 2000 By: /s/ Gary Harmon
--------------------- ----------------------
Gary Harmon,
Sr. Vice President, Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
16
<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> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,544
<SECURITIES> 82,135
<RECEIVABLES> 2,488
<ALLOWANCES> (10)
<INVENTORY> 0
<CURRENT-ASSETS> 99,824
<PP&E> 15,938
<DEPRECIATION> (11,909)
<TOTAL-ASSETS> 113,008
<CURRENT-LIABILITIES> 33,103
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 65,252
<TOTAL-LIABILITY-AND-EQUITY> 113,008
<SALES> 11,949
<TOTAL-REVENUES> 11,949
<CGS> 3,531
<TOTAL-COSTS> 3,531
<OTHER-EXPENSES> 5,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,792
<INCOME-TAX> 1,327
<INCOME-CONTINUING> 2,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,465
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
