Rambus Inc.
RAMBUS INC (Form: 10-Q, Received: 10/24/2014 14:17:14)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
(Mark One)
ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o          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 incorporation or organization)
 
(I.R.S. Employer Identification No.)
1050 Enterprise Way, Suite 700
 Sunnyvale, California
 
 
 
94089
(Address of principal executive offices)
 
 
 
(ZIP Code)

Registrant’s telephone number, including area code: (408) 462-8000
_______________________________
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  ý   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
 
 
Non-accelerated filer  o (Do not check if a smaller reporting company)
 
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  ý
The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 114,753,168 as of September 30, 2014 .


Table of Contents

RAMBUS INC.
TABLE OF CONTENTS
 
 
PAGE
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013
Condensed Consolidated Statements of Comprehensive  Income (Loss) for the three and nine months ended September 30, 2014 and 2013
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013

2

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:
Success in the markets of our products and services or our customers’ products;
Sources of competition;
Research and development costs and improvements in technology;
Sources, amounts and concentration of revenue, including royalties;
Success in signing and renewing license agreements;
Terms of our licenses and amounts owed under license agreements;
Technology product development;
Dispositions, acquisitions, mergers or strategic transactions and our related integration efforts;
Impairment of goodwill and long-lived assets;
Pricing policies of our customers;
Changes in our strategy and business model, including the expansion of our portfolio of inventions and solutions to address additional markets in lighting, chip and system security;
Deterioration of financial health of commercial counterparties and their ability to meet their obligations to us;
Effects of security breaches or failures in our or our customers’ products and services on our business;
Engineering, marketing and general and administration expenses;
Contract revenue;
Operating results;
International licenses and operations;
Effects of changes in the economy and credit market on our industry and business;
Ability to identify, attract, motivate and retain qualified personnel;
Growth in our business;
Methods, estimates and judgments in accounting policies;
Adoption of new accounting pronouncements;
Effective tax rates;
Realization of deferred tax assets/release of deferred tax valuation allowance;
Trading price of our common stock;
Internal control environment;
The level and terms of our outstanding debt;
Litigation expenses;
Protection of intellectual property;
Indemnification and technical support obligations;
Issuances of our securities, which could involve restrictive covenants or be dilutive to our existing stockholders;
Outcome and effect of current and potential future intellectual property litigation and other significant litigation; and
Likelihood of paying dividends or repurchasing securities.
You can identify these and other forward-looking statements by the use of words such as “may,” “future,” “shall,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” “projecting” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

3

Table of Contents

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A, “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.


4

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
RAMBUS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2014
 
December 31,
2013
 
(In thousands, except shares
and par value)
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
125,686

 
$
338,696

Marketable securities
145,440

 
48,966

Accounts receivable
5,099

 
2,251

Prepaids and other current assets
7,959

 
8,253

Deferred taxes
1,379

 
205

Total current assets
285,563

 
398,371

Intangible assets, net
95,694

 
117,172

Goodwill
116,899

 
116,899

Property, plant and equipment, net
65,899

 
72,642

Deferred taxes, long-term
560

 
4,797

Other assets
2,542

 
3,498

Total assets
$
567,157

 
$
713,379

LIABILITIES &   STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
5,697

 
$
7,001

Accrued salaries and benefits
11,840

 
33,448

Convertible notes, short-term

 
164,047

Other current liabilities
8,739

 
8,346

Total current liabilities
26,276

 
212,842

Convertible notes, long-term
113,692

 
109,629

Long-term imputed financing obligation
39,148

 
39,349

Long-term income taxes payable
1,800

 
6,561

Other long-term liabilities
8,641

 
4,769

Total liabilities
189,557

 
373,150

Commitments and contingencies (Notes 9 and 14)


 


Stockholders’ equity:
 

 
 

Convertible preferred stock, $.001 par value:
 

 
 

Authorized: 5,000,000 shares
 

 
 

Issued and outstanding: no shares at September 30, 2014 and December 31, 2013

 

Common stock, $.001 par value:
 

 
 

Authorized: 500,000,000 shares
 

 
 

Issued and outstanding: 114,753,168 shares at September 30, 2014 and 113,459,390 shares at December 31, 2013
115

 
113

Additional paid-in capital
1,147,196

 
1,128,148

Accumulated deficit
(769,367
)
 
(787,727
)
Accumulated other comprehensive loss
(344
)
 
(305
)
Total stockholders’ equity
377,600

 
340,229

Total liabilities and stockholders’ equity
$
567,157

 
$
713,379

See Notes to Unaudited Condensed Consolidated Financial Statements

5

Table of Contents

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)  

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share amounts)
Revenue:
 

 
 

 
 

 
 

Royalties
$
64,009

 
$
71,013

 
$
207,387

 
$
194,244

Contract and other revenue
5,703

 
2,281

 
17,131

 
3,835

Total revenue
69,712

 
73,294

 
224,518

 
198,079

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of revenue*
10,540

 
8,958

 
31,199

 
22,857

Research and development*
27,014

 
27,553

 
81,580

 
91,178

Marketing, general and administrative*
18,200

 
18,698

 
55,639

 
57,956

Gain from sale of intellectual property

 

 
(170
)
 
(1,388
)
Restructuring charges

 
1,129

 
39

 
3,335

Impairment of goodwill and long-lived assets

 
8,070

 

 
8,070

Gain from settlement
(510
)
 
(179
)
 
(1,530
)
 
(179
)
Total operating costs and expenses
55,244

 
64,229

 
166,757

 
181,829

Operating income
14,468

 
9,065

 
57,761

 
16,250

Interest income and other income (expense), net
(549
)
 
66

 
(432
)
 
(1,373
)
Interest expense
(3,059
)
 
(8,552
)
 
(21,755
)
 
(23,290
)
Interest and other income (expense), net
(3,608
)
 
(8,486
)
 
(22,187
)
 
(24,663
)
Income (loss) before income taxes
10,860

 
579

 
35,574

 
(8,413
)
Provision for income taxes
5,347

 
6,304

 
17,214

 
15,558

Net income (loss)
$
5,513

 
$
(5,725
)
 
$
18,360

 
$
(23,971
)
Net income (loss) per share:
 

 
 

 
 

 
 

Basic
$
0.05

 
$
(0.05
)
 
$
0.16

 
$
(0.21
)
Diluted
$
0.05

 
$
(0.05
)
 
$
0.16

 
$
(0.21
)
Weighted average shares used in per share calculation:
 

 
 

 
 

 
 

Basic
114,523

 
112,640

 
114,080

 
112,144

Diluted
118,206

 
112,640

 
117,540

 
112,144

_________________________________________
*    Includes stock-based compensation:
Cost of revenue
$
12

 
$
7

 
$
34

 
$
12

Research and development
$
1,648

 
$
1,630

 
$
5,574

 
$
5,166

Marketing, general and administrative
$
1,781

 
$
1,726

 
$
5,587

 
$
6,707


See Notes to Unaudited Condensed Consolidated Financial Statements

6

Table of Contents

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
Net income (loss)
 
$
5,513

 
$
(5,725
)
 
$
18,360

 
$
(23,971
)
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Unrealized gain (loss) on marketable securities, net of tax
 
12

 
(4
)
 
(39
)
 

Total comprehensive income (loss)
 
$
5,525

 
$
(5,729
)
 
$
18,321

 
$
(23,971
)

See Notes to Unaudited Condensed Consolidated Financial Statements

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Table of Contents

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  
 
Nine Months Ended
 
September 30,
 
2014
 
2013
 
(In thousands)
Cash flows from operating activities:
 

 
 

Net income (loss)
$
18,360

 
$
(23,971
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Stock-based compensation
11,195

 
11,885

Depreciation
10,350

 
11,566

Amortization of intangible assets
20,295

 
21,420

Non-cash interest expense and amortization of convertible debt issuance costs
13,226

 
13,369

Impairment of investment in non-marketable equity security
600

 
1,400

Impairment of goodwill and long-lived assets

 
8,070

Deferred income taxes
6,475

 
605

Non-cash restructuring

 
653

Gain from sale of intellectual property
(170
)
 
(1,388
)
Change in operating assets and liabilities:
 

 
 

Accounts receivable
(2,848
)
 
(1,068
)
Prepaid expenses and other assets
(1,714
)
 
5,898

Accounts payable
425

 
(399
)
Accrued salaries and benefits and other liabilities
(21,780
)
 
(17,589
)
Income taxes payable
(3,999
)
 
380

Net cash provided by operating activities
50,415

 
30,831

Cash flows from investing activities:
 

 
 

Purchases of property, plant and equipment
(5,593
)
 
(5,942
)
Acquisition of intangible assets

 
(2,500
)
Purchases of marketable securities
(200,211
)
 
(101,596
)
Maturities of marketable securities
86,636

 
97,300

Proceeds from sale of marketable securities
17,689

 

Proceeds from sale of intellectual property
2,500

 
2,250

Net cash used in investing activities
(98,979
)
 
(10,488
)
Cash flows from financing activities:
 
 
 
Proceeds received from issuance of common stock under employee stock plans
8,336

 
4,610

Principal payments against lease financing obligation
(226
)
 
(119
)
Payments under installment payment arrangement
(56
)
 
(84
)
Repayment of convertible senior notes
(172,500
)
 

Proceeds from issuance of convertible senior notes

 
138,000

Issuance costs related to the issuance of convertible senior notes

 
(3,603
)
Net cash provided by (used in) financing activities
(164,446
)
 
138,804

Effect of exchange rate changes on cash and cash equivalents

 
(170
)
Net increase (decrease) in cash and cash equivalents
(213,010
)
 
158,977

Cash and cash equivalents at beginning of period
338,696

 
148,984

Cash and cash equivalents at end of period
$
125,686

 
$
307,961

 
 
 
 
Non-cash investing and financing activities during the period:
 

 
 

Property, plant and equipment received and accrued in accounts payable and other liabilities
$
762

 
$
252


See Notes to Unaudited Condensed Consolidated Financial Statements

8

Table of Contents

RAMBUS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Investments in entities with less than 20% ownership or in which the Company does not have the ability to significantly influence the operations of the investee are being accounted for using the cost method and are included in other assets.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2013 .
Operating Segment Definitions
Operating segments are based upon Rambus' internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker ("CODM") to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
During the third quarter of 2014, the Company renamed its Chief Technology Office organization as the Emerging Solutions Division ("ESD"). The Company determined its CODM to be the Chief Executive Officer and determined its operating segments to be: (1) Memory and Interface Division ("MID"), which focuses on the design, development and licensing of technology that is related to memory and interfaces; (2) Cryptography Research Inc. ("CRI"), which focuses on the design, development and licensing of technologies for chip and system security and anti-counterfeiting; (3) ESD, which includes the computational sensing and imaging group along with the development efforts in the area of emerging technologies; and (4) Lighting and Display Technologies ("LDT"), which focuses on the design, development and licensing of technologies for lighting.
For the three and nine months ended September 30, 2014 and 2013 , only MID, CRI and ESD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining other operating segment were shown under “Other.”
Reclassifications
Certain prior periods' amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net loss for any of the periods presented.

2. Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, "Disclosures of Uncertainties About an Entity's Ability to Continue as a Going Concern". The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718)," which makes amendments to the codification topic 718, "Accounting for Share-Based Payments," when the terms of an award provide that a performance target could be achieved after the requisite service period. The new accounting standards update becomes effective for the Company on January 1, 2016. The Company does not expect that this guidance will have an impact on its financial

9


position, results of operations or cash flows as the Company does not currently have any outstanding awards with a performance target that could be achieved after the requisite service period.
In May 2014, the FASB and International Accounting Standards Board issued their converged accounting standards update on revenue recognition. The core principle of the new guidance is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The new accounting standards update becomes effective for the Company on January 1, 2017. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The new accounting standards update becomes effective for the Company on January 1, 2015. Early adoption is permitted for new disposals (or new classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company does not expect that this guidance will have an impact on its financial position, results of operations or cash flows as the Company does not currently have discontinued operations.
In July 2013, the FASB issued ASU No. 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” ("ASU 2013-11"). ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires presenting an unrecognized tax benefit or a portion of an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carry forward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This accounting standards update became effective for the Company on January 1, 2014 and was applied prospectively to unrecognized tax benefits that existed at the effective date with retrospective application permitted. Upon adoption of this guidance in the first quarter of 2014, the Company reclassified $4.7 million from a long-term tax liability to a reduction of a deferred tax asset.

3. Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.

10


The following table sets forth the computation of basic and diluted net income (loss) per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss) per share:
(In thousands, except per share amounts)
Numerator:
 

 
 

 
 
 
 
Net income (loss)
$
5,513

 
$
(5,725
)
 
$
18,360

 
$
(23,971
)
Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
114,523

 
112,640

 
114,080

 
112,144

Effect of potential dilutive common shares
3,683

 

 
3,460

 

Weighted-average shares outstanding - diluted
118,206

 
112,640

 
117,540

 
112,144

Basic net income (loss) per share
$
0.05

 
$
(0.05
)
 
$
0.16

 
$
(0.21
)
Diluted net income (loss) per share
$
0.05

 
$
(0.05
)
 
$
0.16

 
$
(0.21
)
For the three months ended September 30, 2014 and 2013 , options to purchase approximately 3.9 million and 5.9 million shares, respectively, and for the nine months ended September 30, 2014 and 2013 , options to purchase approximately 5.7 million and 10.2 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense. For the three months ended September 30, 2013 , an additional 3.4 million potentially dilutive shares, and for the nine months ended September 30, 2013 , an additional 3.7 million potentially dilutive shares have been excluded from the weighted average dilutive shares because there were net losses for the periods.

4. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for each of the reportable segments for the nine months ended September 30, 2014 :
Reportable Segment:
 
As of December 31, 2013
 
Additions to Goodwill
 
Impairment Charge of Goodwill
 
As of September 30, 2014
 
 
(In thousands)
MID
 
$
19,905

 
$

 
$

 
$
19,905

CRI
 
96,994

 

 

 
96,994

ESD
 

 

 

 

Other
 

 

 

 

Total
 
$
116,899

 
$

 
$

 
$
116,899


 
 
As of
 
 
September 30, 2014
Reportable Segment:
 
Gross Carrying Amount
 
Accumulated Impairment Losses
 
Net Carrying Amount
 
 
(In thousands)
MID
 
$
19,905

 
$

 
$
19,905

CRI
 
96,994

 

 
96,994

ESD
 
8,070

 
(8,070
)
 

Other
 
13,700

 
(13,700
)
 

Total
 
$
138,669

 
$
(21,770
)
 
$
116,899


11


Intangible Assets
The components of the Company’s intangible assets as of September 30, 2014 and December 31, 2013 were as follows:
 
 
 
As of September 30, 2014
 
Useful Life
 
Gross Carrying
  Amount
 
Accumulated
  Amortization
 
Net Carrying
  Amount
 
 
 
(In thousands)
Existing technology
3 to 10 years
 
$
185,321

 
$
(98,721
)
 
$
86,600

Customer contracts and contractual relationships
1 to 10 years
 
31,093

 
(21,999
)
 
9,094

Non-compete agreements
3 years
 
300

 
(300
)
 

Total intangible assets
 
 
$
216,714


$
(121,020
)
 
$
95,694

 
 
 
As of December 31, 2013
 
Useful Life
 
Gross Carrying
  Amount
 
Accumulated
  Amortization
 
Net Carrying
  Amount
 
 
 
(In thousands)
Existing technology
3 to 10 years
 
$
186,202

 
$
(80,961
)
 
$
105,241

Customer contracts and contractual relationships
1 to 10 years
 
31,093

 
(19,204
)
 
11,889

Non-compete agreements
3 years
 
300

 
(258
)
 
42

Total intangible assets
 
 
$
217,595

 
$
(100,423
)
 
$
117,172


During the three and nine months ended September 30, 2014 , the Company did not purchase any intangible assets. During the nine months ended September 30, 2014 , the Company sold portfolios of its intellectual property covering wireless and other technologies for $4.4 million and the related gain was recorded as gain from sale of intellectual property and revenue in the condensed consolidated statements of operations.
The favorable contracts (included in customer contracts and contractual relationships) are acquired patent licensing agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset. For the three months ended September 30, 2014 and 2013 , the Company received zero and $0.9 million related to the favorable contracts, respectively. For the nine months ended September 30, 2014 and 2013 , the Company received $0.9 million and $2.2 million related to the favorable contracts, respectively. As of September 30, 2014 and December 31, 2013 , the net balance of the favorable contract intangible assets was $0.1 million and $1.0 million , respectively.
Amortization expense for intangible assets for the three and nine months ended September 30, 2014 was $6.7 million and $20.3 million , respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2013 was $7.4 million and $21.4 million , respectively. The estimated future amortization expense of intangible assets as of September 30, 2014 was as follows (amounts in thousands):
Years Ending December 31:
Amount
2014 (remaining 3 months)
$
6,322

2015
25,098

2016
24,318

2017
23,709

2018
10,827

Thereafter
5,420

 
$
95,694


It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results, which could cause the goodwill in any of its reporting units or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the reporting units are not successful in commercializing new business arrangements, if the businesses are unsuccessful in signing new license agreements or renewing their existing license agreements, or if the Company is unsuccessful in managing its costs, the revenue and income for these reporting units could adversely and materially deviate from their historical trends and could cause goodwill or long-lived assets to become impaired. If the Company determines that its goodwill

12


or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.

5.   Segments and Major Customers
For the three and nine months ended September 30, 2014 and 2013 , MID, CRI and ESD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining operating segment were shown under “Other.”
The Company evaluates the performance of its segments based on segment operating income (loss), which is defined as revenue minus segment operating expenses. Segment operating expenses are comprised of direct operating expenses.
Segment operating expenses do not include marketing, general and administrative expenses and the allocation of certain expenses managed at the corporate level, such as stock-based compensation, amortization, and certain bonus and acquisition costs. The “Reconciling Items” category includes these unallocated marketing, general and administrative expenses as well as corporate level expenses. The presentation of the three and nine months ended September 30, 2013 segment data has been updated accordingly to conform with the 2014 segment operating income (loss) definition.
The tables below present reported segment operating income (loss) for the three and nine months ended September 30, 2014 and 2013 , respectively.
 
For the Three Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2014
 
MID
 
CRI
 
ESD
 
Other
 
Total
 
MID
 
CRI
 
ESD
 
Other
 
Total
 
(In thousands)
 
(In thousands)
Revenues
$
52,495

 
$
11,255

 
$

 
$
5,962

 
$
69,712

 
$
172,314

 
$
36,929

 
$

 
$
15,275

 
$
224,518

Segment operating expenses
10,783

 
8,548

 
4,948

 
4,845

 
29,124

 
30,220

 
24,466

 
13,737

 
13,903

 
82,326

Segment operating income (loss)
$
41,712

 
$
2,707

 
$
(4,948
)
 
$
1,117

 
$
40,588

 
$
142,094

 
$
12,463

 
$
(13,737
)
 
$
1,372

 
$
142,192

Reconciling items
 

 
 
 
 
 
 

 
(26,120
)
 
 

 
 
 
 
 
 

 
(84,431
)
Operating income
 

 
 
 
 
 
 

 
$
14,468

 
 

 
 
 
 
 
 

 
$
57,761

Interest and other income (expense), net
 

 
 
 
 
 
 

 
(3,608
)
 
 

 
 
 
 
 
 

 
(22,187
)
Income before income taxes
 

 
 
 
 
 
 

 
$
10,860

 
 

 
 
 
 
 
 

 
$
35,574

 
For the Three Months Ended September 30, 2013
 
For the Nine Months Ended September 30, 2013
 
MID
 
CRI
 
ESD
 
Other
 
Total
 
MID
 
CRI
 
ESD
 
Other
 
Total
 
(In thousands)
 
(In thousands)
Revenues
$
66,103

 
$
5,134

 
$

 
$
2,057

 
$
73,294

 
$
175,233

 
$
19,931

 
$

 
$
2,915

 
$
198,079

Segment operating expenses
8,306

 
6,021

 
6,024

 
5,205

 
25,556

 
28,534

 
16,981

 
19,542

 
13,742

 
78,799

Segment operating income (loss)
$
57,797

 
$
(887
)
 
$
(6,024
)
 
$
(3,148
)
 
$
47,738

 
$
146,699

 
$
2,950

 
$
(19,542
)
 
$
(10,827
)
 
$
119,280

Reconciling items
 

 
 
 
 
 
 

 
(38,673
)
 
 

 
 
 
 
 
 

 
(103,030
)
Operating income
 

 
 
 
 
 
 

 
$
9,065

 
 

 
 
 
 
 
 

 
$
16,250

Interest and other income (expense), net
 

 
 
 
 
 
 

 
(8,486
)
 
 

 
 
 
 
 
 

 
(24,663
)
Income (loss) before income taxes
 

 
 
 
 
 
 

 
$
579

 
 

 
 
 
 
 
 

 
$
(8,413
)
The Company’s CODM does not review information regarding assets on an operating segment basis. Additionally, the Company does not record intersegment revenue or expense.

13


Accounts receivable from the Company's major customers representing 10% or more of total accounts receivable at September 30, 2014 and December 31, 2013 , respectively, was as follows:
 
 
As of
Customer 
 
September 30, 2014
 
December 31, 2013
Customer 1 (Other reportable segment)
 
88%
 
74%

Revenue from the Company’s major customers representing 10% or more of total revenue for the three and nine months ended September 30, 2014 and 2013 , respectively, was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Customer 
 
2014
 
2013
 
2014
 
2013
Customer A (MID and CRI reportable segments)
 
22
%
 
31
%
 
20
%
 
34
%
Customer B (MID reportable segment)
 
17
%
 
16
%
 
16
%
 
*

Customer C (MID reportable segment)
 
14
%
 
10
%
 
13
%
 
*

_________________________________________
*    Customer accounted for less than 10% of total revenue in the period
Revenue from customers in the geographic regions based on the location of contracting parties is as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
South Korea
 
$
26,821

 
$
34,343

 
$
80,620

 
$
78,871

USA
 
24,950

 
15,880

 
81,522

 
56,555

Japan
 
6,497

 
15,943

 
23,140

 
42,812

Europe
 
4,238

 
4,098

 
17,077

 
11,658

Canada
 
1,754

 
2,280

 
5,365

 
5,928

Asia-Other
 
5,452

 
750

 
16,794

 
2,255

Total
 
$
69,712

 
$
73,294

 
$
224,518

 
$
198,079


6. Marketable Securities
Rambus invests its excess cash and cash equivalents primarily in U.S. government sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years.  As of September 30, 2014 and December 31, 2013 , all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than one year .

14


All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:
 
 
As of September 30, 2014
(In thousands)
 
Fair Value
 
Amortized
  Cost
 
Gross
  Unrealized
  Gains
 
Gross
  Unrealized
  Losses
 
Weighted
  Rate of
  Return
Money market funds
 
$
96,032

 
$
96,032

 
$

 
$

 
0.01
%
Corporate notes, bonds and commercial paper
 
145,440

 
145,495

 
3

 
(58
)
 
0.20
%
Total cash equivalents and marketable securities
 
241,472

 
241,527

 
3

 
(58
)
 
 

Cash
 
29,654

 
29,654

 

 

 
 

Total cash, cash equivalents and marketable securities
 
$
271,126

 
$
271,181

 
$
3

 
$
(58
)
 
 

 
 
As of December 31, 2013
(In thousands)
 
Fair Value
 
Amortized
  Cost
 
Gross
  Unrealized
  Gains
 
Gross
  Unrealized
  Losses
 
Weighted
  Rate of
  Return
Money market funds
 
$
300,605

 
$
300,605

 
$

 
$

 
0.01
%
Corporate notes, bonds and commercial paper
 
58,492

 
58,507

 

 
(15
)
 
0.15
%
Total cash equivalents and marketable securities
 
359,097

 
359,112

 

 
(15
)
 
 

Cash
 
28,565

 
28,565

 

 

 
 

Total cash, cash equivalents and marketable securities
 
$
387,662

 
$
387,677

 
$

 
$
(15
)
 
 


Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:
 
As of
 
September 30,
2014
 
December 31,
2013
 
(In thousands)
Cash equivalents
$
96,032

 
$
310,131

Short term marketable securities
145,440

 
48,966

Total cash equivalents and marketable securities
241,472

 
359,097

Cash
29,654

 
28,565

Total cash, cash equivalents and marketable securities
$
271,126

 
$
387,662


The Company continues to invest in highly rated quality, highly liquid debt securities. As of September 30, 2014 , these securities have a remaining maturity of less than one year. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.

The estimated fair value of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013 are as follows:
 
Fair Value
 
Gross Unrealized Loss
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
 
(In thousands)
Less than one year
 

 
 

 
 

 
 

Corporate notes, bonds and commercial paper
$
120,606

 
$
53,491

 
$
(58
)
 
$
(15
)

The gross unrealized loss at September 30, 2014 and December 31, 2013 was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the corporate notes and bonds. The Company has no intent to sell, there is no requirement to sell and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive

15


income (loss). However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
See Note 7, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.

7. Fair Value of Financial Instruments
The Company reviews the pricing inputs by obtaining prices from a different source for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the above pricing levels as of September 30, 2014 and December 31, 2013 :
 
As of September 30, 2014
 
Total
 
Quoted
  Market
  Prices in
  Active
  Markets
  (Level 1)
 
Significant
  Other
  Observable
  Inputs
  (Level 2)
 
Significant
  Unobservable
  Inputs
  (Level 3)
 
(In thousands)
Money market funds
$
96,032

 
$
96,032

 
$

 
$

Corporate notes, bonds and commercial paper
145,440

 

 
145,440

 

Total available-for-sale securities
$
241,472

 
$
96,032

 
$
145,440

 
$

 
As of December 31, 2013
 
Total
 
Quoted
  Market
  Prices in
  Active
  Markets
  (Level 1)
 
Significant
  Other
  Observable
  Inputs
  (Level 2)
 
Significant
  Unobservable
  Inputs
  (Level 3)
 
(In thousands)
Money market funds
$
300,605

 
$
300,605

 
$

 
$

Corporate notes, bonds and commercial paper
58,492

 

 
58,492

 

Total available-for-sale securities
$
359,097

 
$
300,605

 
$
58,492

 
$


The following table presents the financial instruments that are measured on a nonrecurring basis as of September 30, 2014 :
 
As of September 30, 2014
 
 
(in thousands)
Carrying Value
 
Quoted market prices in active markets (Level 1)
 
Significant other observable inputs (Level 2)
 
Significant unobservable inputs (Level 3)
 
Impairment charges for the nine months ended September 30, 2014
Investment in non-marketable security
$

 
$

 
$

 
$

 
$
600

 
 
 
 
 
 
 
 
 
 
The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the condensed consolidated statement of operations. During the third quarter of 2014, as part of its periodic evaluation of the fair value of the investment in the non-marketable equity security, and based on the information provided by the private company at that time, the Company determined that there was a

16


decrease in the security's fair value. The fair value of the non-marketable equity security was determined based on qualitative factors and an income approach, using level 3 fair value inputs, as it was deemed to be the most indicative of the security's fair value. Accordingly, the Company recorded an impairment charge for the entire remaining amount of $0.6 million within interest income and other income (expense), net, in the consolidated statements of operations in the third quarter of 2014.
For the three and nine months ended September 30, 2014 and 2013 , there were no transfers of financial instruments between different categories of fair value.
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of September 30, 2014 and December 31, 2013 :
 
 
As of September 30, 2014
 
As of December 31, 2013
(In thousands)
 
Face
  Value
 
Carrying
  Value
 
Fair Value
 
Face
  Value
 
Carrying
  Value
 
Fair Value
5% Convertible Senior Notes due 2014 (the "2014 Notes")
 
$

 
$

 
$

 
$
172,500

 
$
164,047

 
$
175,821

1.125% Convertible Senior Notes due 2018 (the "2018 Notes")
 
$
138,000

 
$
113,692

 
$
168,120

 
$
138,000

 
$
109,629

 
$
142,427


The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 8, "Convertible Notes," as of September 30, 2014 , the 2018 Notes are carried at their face value of $138.0 million , less any unamortized debt discount. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.

8. Convertible Notes
The Company’s convertible notes are shown in the following table:
(In thousands)
 
As of September 30, 2014
 
As of December 31, 2013
1.125% Convertible Senior Notes due 2018
 
$
138,000

 
$
138,000

5% Convertible Senior Notes due 2014
 

 
172,500

Total principal amount of convertible notes
 
$
138,000

 
$
310,500

 
 
 
 
 
Unamortized discount - 2018 Notes
 
$
(24,308
)
 
$
(28,371
)
Unamortized discount - 2014 Notes
 

 
(8,453
)
Total unamortized discount
 
$
(24,308
)
 
$
(36,824
)
 
 
 
 
 
Total convertible notes
 
$
113,692

 
$
273,676

Less current portion
 

 
164,047

Total long-term convertible notes
 
$
113,692

 
$
109,629

During the second quarter of 2014, the Company paid upon maturity the entire $172.5 million in aggregate principal amount of the 2014 Notes.


17


Interest expense related to the notes for the three and nine months ended September 30, 2014 and 2013 was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
2014 Notes coupon interest at a rate of 5%
$

 
$
2,156

 
$
3,929

 
$
6,469

2014 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 11.7%

 
4,416

 
8,744

 
12,650

2018 Notes coupon interest at a rate of 1.125%
403

 
194

 
1,179

 
194

2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%
1,515

 
719

 
4,482

 
719

Total interest expense on convertible notes
$
1,918

 
$
7,485

 
$
18,334

 
$
20,032


9. Commitments and Contingencies
As of September 30, 2014 , the Company’s material contractual obligations were as follows (in thousands):
 
Total
 
Remainder   of 2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
Contractual obligations (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

Imputed financing obligation (2)
$
35,873

 
$
1,486

 
$
6,011

 
$
6,156

 
$
6,302

 
$
6,447

 
$
9,471

Leases and other contractual obligations
10,809

 
3,659

 
3,740

 
1,727

 
1,343

 
340

 

Software licenses (3)
10,209

 
2,845

 
5,616

 
1,748

 

 

 

Acquisition retention bonuses (4)
70

 

 
70

 

 

 

 

Convertible notes
138,000

 

 

 

 

 
138,000

 

Interest payments related to convertible notes
6,211

 

 
1,553

 
1,553

 
1,553

 
1,552

 

Total
$
201,172

 
$
7,990

 
$
16,990

 
$
11,184

 
$
9,198

 
$
146,339

 
$
9,471

_________________________________________
(1)
The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $19.7 million including $17.9 million recorded as a reduction of long-term deferred tax assets and $1.8 million in long-term income taxes payable as of September 30, 2014 . As noted below in Note 13, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
(2)
With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the condensed consolidated balance sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.
(3)
The Company has commitments with various software vendors for non-cancellable agreements generally having terms longer than one year.
(4)
In connection with acquisitions, the Company is obligated to pay retention bonuses to certain employees and contractors, subject to certain eligibility and acceleration provisions including the condition of employment. For the retention bonuses related to CRI, the last payment of $1.5 million was paid in cash during the third quarter of 2014 to a designated charitable organization as a result of forfeitures by employees.
Building lease expense was approximately $0.6 million and $1.9 million for the three and nine months ended September 30, 2014 , respectively. Building lease expense was approximately $0.6 million and $2.4 million for the three and nine months ended September 30, 2013 , respectively. Deferred rent of $1.2 million and $1.4 million as of September 30, 2014 and December 31, 2013 , respectively, was included primarily in other long-term liabilities.

18


Indemnification
The Company enters into standard license agreements in the ordinary course of business. Although the Company does not indemnify most of its customers, there are times when an indemnification is a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company.

10. Equity Incentive Plans and Stock-Based Compensation
As of September 30, 2014 , 10,839,423 shares of the 31,400,000 shares approved under the 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant which included an increase of 10,000,000 shares approved by stockholders on April 24, 2014. The 2006 Plan is now the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants; however, the 1997 Stock Option Plan (the “1997 Plan”) will continue to govern awards previously granted under that plan.
A summary of shares available for grant under the Company’s plans is as follows:
 
Shares Available
  for Grant
Shares available as of December 31, 2013
2,527,428

Increase in shares approved for issuance
10,000,000

Stock options granted
(2,168,309
)
Stock options forfeited
994,532

Stock options expired under former plans
(157,000
)
Nonvested equity stock and stock units granted (1)
(421,908
)
Nonvested equity stock and stock units forfeited (1)
64,680

Total available for grant as of September 30, 2014
10,839,423

_________________________________________
(1)
For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by 1.5 shares and each share of restricted stock forfeited increases shares available for grant by 1.5 shares.
General Stock Option Information
The following table summarizes stock option activity under the 1997 Plan and 2006 Plan for the nine months ended September 30, 2014 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2014 .
 
Options Outstanding
 
 
 
 
 
Number of
  Shares
 
Weighted
  Average
  Exercise Price
  Per Share
 
Weighted
  Average
  Remaining
  Contractual
  Term (years)
 
Aggregate
  Intrinsic
  Value
 
(In thousands, except per share amounts)
Outstanding as of December 31, 2013
11,377,146

 
$
11.32

 
 
 
 

Options granted
2,168,309

 
$
9.43

 
 
 
 

Options exercised
(808,643
)
 
$
7.02

 
 
 
 

Options forfeited
(994,532
)
 
$
15.92

 
 
 
 

Outstanding as of September 30, 2014
11,742,280

 
$
10.88

 
6.09
 
$
47,629

Vested or expected to vest at September 30, 2014
11,076,127

 
$
11.06

 
5.94
 
$
44,436

Options exercisable at September 30, 2014
6,135,339

 
$
14.14

 
4.17
 
$
17,678



19


No stock options that contain a market condition were granted during the three and nine months ended September 30, 2014 . As of both September 30, 2014 and December 31, 2013 , there were 1,315,000 stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated, on their respective grant dates, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2014 , based on the $12.48 closing stock price of Rambus’ common stock on September 30, 2014 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of September 30, 2014 was 8,436,927 and 3,064,424 , respectively.
Employee Stock Purchase Plan
Under the 2006 Employee Stock Purchase Plan (“ESPP”), the Company issued 374,588 shares at a price of $7.42 per share during the nine months ended September 30, 2014 . The Company issued 652,272 shares at a price of $4.28 per share during the nine months ended September 30, 2013 . As of September 30, 2014 , 1,144,644 shares under the ESPP remain available for issuance. On September 27, 2013, the Company filed a Registration Statement on Form S-8, registering 1,500,000 additional shares under the ESPP in connection with the commencement of the next subscription period under the ESPP. On April 24, 2014, the Company held its 2014 Annual Meeting of Stockholders where an amendment to the ESPP to increase the number of shares of common stock reserved for issuance under the ESPP by 1,500,000 shares was approved.
Stock-Based Compensation
For the nine months ended September 30, 2014 and 2013 , the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the common stock as of specific dates.
Stock Options
During the three and nine months ended September 30, 2014 , the Company granted 252,232 and 2,168,309 stock options, respectively, with an estimated total grant-date fair value of $1.5 million and $9.1 million , respectively. During the three and nine months ended September 30, 2014 , the Company recorded stock-based compensation expense related to stock options of $2.4 million and $6.9 million , respectively.
During the  three and nine  months ended  September 30, 2013 , the Company granted  141,575  and  1,897,887  stock options, respectively, with an estimated total grant-date fair value of  $0.6 million  and  $4.7 million , respectively. During the three and nine  months ended September 30, 2013 , the Company recorded stock-based compensation expense related to stock options of  $2.5 million  and  $8.1 million , respectively.
As of September 30, 2014 , there was $15.8 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of shares vested as of September 30, 2014 was $57.7 million .
The total intrinsic value of options exercised was $1.7 million and $3.9 million for the three and nine months ended September 30, 2014 , respectively. The total intrinsic value of options exercised was  $0.6 million  and  $0.7 million  for the  three and nine  months ended  September 30, 2013 , respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.
During the nine months ended September 30, 2014 , net proceeds from employee stock option exercises totaled approximately $5.7 million .
Employee Stock Purchase Plan
For the three and nine months ended September 30, 2014 , the Company recorded compensation expense related to the ESPP of $0.4 million and $2.2 million , respectively. The compensation expense related to the ESPP for the nine months ended September 30, 2014 included a one-time catch-up compensation expense related to the increase in shares available for the ESPP which was approved by shareholders during the 2014 Annual Meeting of Stockholders. For the three and nine months ended September 30, 2013 , the Company recorded compensation expense related to the ESPP of $0.4 million and $1.4 million ,

20


respectively. As of September 30, 2014 , there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over one month.
There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the three and nine months ended September 30, 2014 and 2013 calculated in accordance with accounting for share-based payments.
Valuation Assumptions
The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.
The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.
 
Stock Option Plans
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Stock Option Plans
 

 
 

 
 

 
 

Expected stock price volatility
44
%
 
45
%
 
40-44%

 
45-47%

Risk free interest rate
2.1
%
 
1.5
%
 
2.1-2.2%

 
0.8-1.5%

Expected term (in years)
6.0

 
5.5

 
6.0-6.1

 
5.4-5.5

Weighted-average fair value of stock options granted to employees
$
5.81

 
$
4.00

 
$
4.20

 
$
2.48

 
Employee Stock Purchase Plan
 
Nine Months Ended
 
September 30,
 
2014
 
2013
Employee Stock Purchase Plan
 

 
 

Expected stock price volatility
39-44%

 
48
%
Risk free interest rate
0.0-0.1%

 
0.1
%
Expected term (in years)
0.02-0.5

 
0.5

Weighted-average fair value of purchase rights granted under the purchase plan
$
3.91

 
$
1.94

_______________________
No shares were issued under the Employee Stock Purchase Plan during the three months ended September 30, 2014 and 2013.

Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, employees and directors. During the three and nine months ended September 30, 2014 , the Company granted nonvested equity stock units totaling 52,596 and 281,272 shares under the 2006 Plan, respectively. During the three and nine months ended September 30, 2013 , the Company granted nonvested equity stock units totaling 44,944 and 349,896 shares under the 2006 Plan, respectively. These awards have a service condition, generally a service period of four years , except in the case of grants to directors, for which the service period is one year . For the three and nine months ended September 30, 2014 , the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.7 million and $2.8 million , respectively. For the three and nine months ended September 30, 2013 , the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.4 million and $2.1 million , respectively. In prior years, the Company granted nonvested equity stock units to its employees with vesting subject to the achievement of certain performance conditions. During the three and nine months ended September 30, 2014 , the Company did not record any stock-based compensation expense related to these performance stock units as they have been forfeited. During the three and nine months ended September 30, 2013 , the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized an immaterial amount of stock-based compensation expense related to these performance stock units for these periods.

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For the three and nine months ended September 30, 2014 , the Company recorded stock-based compensation expense of approximately $0.7 million and $2.1 million , respectively, related to all outstanding nonvested equity stock grants. For the three and nine months ended September 30, 2013 , the Company recorded stock-based compensation expense of approximately $0.5 million and $2.4 million , respectively, related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $3.7 million at September 30, 2014 . This amount is expected to be recognized over a weighted average period of 2.6 years .
The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2014 :
Nonvested Equity Stock and Stock Units
 
Shares
 
Weighted-
  Average
  Grant-Date
  Fair Value
Nonvested at December 31, 2013
 
629,649

 
$
8.56

Granted
 
281,272

 
$
9.83

Vested
 
(168,915
)
 
$
10.01

Forfeited
 
(43,113
)
 
$
7.37

Nonvested at September 30, 2014
 
698,893

 
$
8.79


11.   Stockholders’ Equity
Share Repurchase Program
During the nine months ended September 30, 2014 , the Company did not repurchase any shares of its common stock under its share repurchase program. As of September 30, 2014 , the Company had repurchased a cumulative total of approximately 26.3 million shares of its common stock with an aggregate price of approximately $428.9 million since the commencement of the program in 2001. As of September 30, 2014 , there remained an outstanding authorization to repurchase approximately 5.2 million shares of the Company’s outstanding common stock.
The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.

12. Restructuring Charges
The 2013 Plan
During 2013, the Company initiated a restructuring program related primarily to its LDT group as a result of the change in its business strategy to reduce its focus on the lower margin bulb products. Additionally, the Company curtailed its immersive media platform spending (the “2013 Plan”). In connection with this restructuring program, the Company estimated that it would incur aggregate costs of approximately $3.0 million to $4.0 million . During the three months ended September 30, 2014 , the Company did not incur any restructuring charges. During the nine months ended September 30, 2014 , the Company incurred an immaterial amount of restructuring charges related primarily to the reduction in workforce, which was related to the ESD reportable segment. The 2013 Plan has been completed as of June 30, 2014.

The following table summarizes the 2013 Plan restructuring activities during the nine months ended September 30, 2014 :
 
 
Employee
Severance
and Related Benefits
 
Facilities
 
Total
 
 
(In thousands)
Balance at December 31, 2013
 
$
1,732

 
$
133

 
$
1,865

Charges
 
39

 

 
39

Payments
 
(1,771
)
 
(133
)