Rambus Inc.
RAMBUS INC (Form: 10-Q, Received: 10/28/2016 14:14:38)
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, 2016
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 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 110,451,608 as of September 30, 2016 .


Table of Contents

RAMBUS INC.
TABLE OF CONTENTS
 
 
PAGE
Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015
Condensed Consolidated Statements of Operations for the three  and nine months ended September 30, 2016 and 2015
Condensed Consolidated Statements of Comprehensive  Income (Loss) for the three and nine months ended September 30, 2016 and 2015
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. 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, including our recent acquisition of Smart Card Software Ltd., Semtech Corporation's Snowbush IP and Inphi Corporation's Memory Interconnect Business;
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, products and solutions to address additional markets in lighting, chip, mobile payments, smart ticketing and 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, sales 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;
Effects of government regulations on our industry and business;
Manufacturing and supply partners and/or sale and distribution channels;
Growth in our business;
Methods, estimates and judgments in accounting policies;
Adoption of new accounting pronouncements;
Effective tax rates;
Restructurings and plans of termination;
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 and the repayment or financing of such debt;
Potential litigation expenses;
Protection of intellectual property;
Any changes in laws, agency actions and judicial rulings that may impact the ability to enforce intellectual property rights;
Indemnification and technical support obligations;
Equity repurchase plans;

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Table of Contents

Issuances of debt or equity securities, which could involve restrictive covenants or be dilutive to our existing stockholders;
Outcome and effect of potential future intellectual property litigation and other significant litigation; and
Likelihood of paying dividends.
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.
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.


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Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
RAMBUS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2016
 
December 31,
2015
 
(In thousands, except shares
and par value)
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
89,479

 
$
143,764

Marketable securities
61,310

 
143,942

Accounts receivable
26,363

 
16,408

Prepaids and other current assets
22,150

 
11,476

Total current assets
199,302

 
315,590

Intangible assets, net
164,862

 
64,266

Goodwill
207,531

 
116,899

Property, plant and equipment, net
59,191

 
56,616

Deferred tax assets
165,661

 
162,485

Other assets
3,749

 
2,165

Total assets
$
800,296

 
$
718,021

LIABILITIES &   STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
10,188

 
$
4,096

Accrued salaries and benefits
10,209

 
12,278

Deferred revenue
17,772

 
5,780

Accrued acquisition liability
10,779

 

Other current liabilities
10,853

 
6,212

Total current liabilities
59,801

 
28,366

Convertible notes, long-term
124,443

 
119,418

Long-term imputed financing obligation
38,194

 
38,625

Long-term income taxes payable
2,897

 
2,903

Deferred tax liabilities
14,779

 

Other long-term liabilities
7,342

 
2,176

Total liabilities
247,456

 
191,488

Commitments and contingencies (Notes 9 and 13)


 


Stockholders’ equity:
 

 
 

Convertible preferred stock, $.001 par value:
 

 
 

Authorized: 5,000,000 shares
 

 
 

Issued and outstanding: no shares at September 30, 2016 and December 31, 2015

 

Common stock, $.001 par value:
 

 
 

Authorized: 500,000,000 shares
 

 
 

Issued and outstanding: 110,451,608 shares at September 30, 2016 and 109,287,591 shares at December 31, 2015
110

 
109

Additional paid-in capital
1,173,609

 
1,130,368

Accumulated deficit
(611,606
)
 
(604,317
)
Accumulated other comprehensive income (loss)
(9,273
)
 
373

Total stockholders’ equity
552,840

 
526,533

Total liabilities and stockholders’ equity
$
800,296

 
$
718,021

See Notes to Unaudited Condensed Consolidated Financial Statements

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Table of Contents

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)  

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share amounts)
Revenue:
 

 
 

 
 

 
 

Royalties
$
68,298

 
$
66,823

 
$
194,010

 
$
196,173

Contract and other revenue
21,557

 
6,956

 
45,028

 
23,332

Total revenue
89,855

 
73,779

 
239,038

 
219,505

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of revenue*
19,424

 
11,111

 
45,720

 
34,004

Research and development*
33,820

 
27,784

 
91,100

 
85,506

Sales, general and administrative*
24,795

 
17,860

 
69,679

 
53,701

Gain from sale of intellectual property

 
(106
)
 

 
(3,262
)
Gain from settlement

 
(510
)
 
(579
)
 
(1,530
)
Total operating costs and expenses
78,039

 
56,139

 
205,920

 
168,419

Operating income
11,816

 
17,640

 
33,118

 
51,086

Interest income and other income (expense), net
142

 
539

 
1,522

 
874

Interest expense
(3,193
)
 
(3,117
)
 
(9,497
)
 
(9,291
)
Interest and other income (expense), net
(3,051
)
 
(2,578
)
 
(7,975
)
 
(8,417
)
Income before income taxes
8,765

 
15,062

 
25,143

 
42,669

Provision for (benefit from) income taxes
4,254

 
(166,971
)
 
14,878

 
(155,727
)
Net income
$
4,511

 
$
182,033

 
$
10,265

 
$
198,396

Net income per share:
 

 
 

 
 

 
 

Basic
$
0.04

 
$
1.56

 
$
0.09

 
$
1.71

Diluted
$
0.04

 
$
1.52

 
$
0.09

 
$
1.67

Weighted average shares used in per share calculation:
 

 
 

 
 

 
 

Basic
110,214

 
116,444

 
109,951

 
115,940

Diluted
113,723

 
119,542

 
112,805

 
118,997

_________________________________________
*    Includes stock-based compensation:
Cost of revenue
$
14

 
$
12

 
$
42

 
$
51

Research and development
$
2,337

 
$
1,548

 
$
6,526

 
$
5,303

Sales, general and administrative
$
3,092

 
$
2,008

 
$
8,788

 
$
6,395


See Notes to Unaudited Condensed Consolidated Financial Statements

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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)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
4,511

 
$
182,033

 
$
10,265

 
$
198,396

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Foreign currency translation adjustment
 
(2,704
)
 

 
(8,903
)
 
9

Unrealized gain (loss) on marketable securities, net of tax
 
(374
)
 
13

 
(745
)
 
40

Total comprehensive income
 
$
1,433

 
$
182,046

 
$
617

 
$
198,445


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,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 

 
 

Net income
$
10,265

 
$
198,396

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Stock-based compensation
15,356

 
11,749

Depreciation
9,388

 
9,374

Amortization of intangible assets
26,045

 
18,914

Non-cash interest expense and amortization of convertible debt issuance costs
5,025

 
4,744

Deferred income taxes
(4,157
)
 
(171,509
)
Excess tax benefits from stock-based compensation
(927
)
 
(652
)
Gain from sale of intellectual property and property, plant and equipment, net
(29
)
 
(3,257
)
Effect of exchange rate on assumed cash liability from acquisition
(985
)
 

Change in operating assets and liabilities, net of impact of acquisitions:
 

 
 

Accounts receivable
333

 
(4,313
)
Prepaid expenses and other assets
(3,887
)
 
(3,736
)
Accounts payable
2,302

 
(1,001
)
Accrued salaries and benefits and other liabilities
(8,277
)
 
(7,280
)
Income taxes payable
1,644

 
593

Deferred revenue
7,532

 
1,674

Net cash provided by operating activities
59,628

 
53,696

Cash flows from investing activities:
 

 
 

Purchases of property, plant and equipment
(4,750
)
 
(4,749
)
Purchases of marketable securities
(54,869
)
 
(124,862
)
Maturities of marketable securities
85,746

 
81,396

Proceeds from sale of marketable securities
50,546

 
43,134

Proceeds from sale of intellectual property and property, plant and equipment

 
3,510

Acquisitions of businesses, net of cash acquired
(202,523
)
 

Net cash used in investing activities
(125,850
)
 
(1,571
)
Cash flows from financing activities:
 
 
 
Proceeds received from issuance of common stock under employee stock plans
12,277

 
10,081

Principal payments against lease financing obligation
(476
)
 
(341
)
Excess tax benefits from stock-based compensation
927

 
652

Net cash provided by financing activities
12,728

 
10,392

Effect of exchange rate changes on cash and cash equivalents
(791
)
 
(90
)
Net increase (decrease) in cash and cash equivalents
(54,285
)
 
62,427

Cash and cash equivalents at beginning of period
143,764

 
154,126

Cash and cash equivalents at end of period
$
89,479

 
$
216,553

 
 
 
 
Non-cash investing activities during the period:
 

 
 

Property, plant and equipment received and accrued in accounts payable and other liabilities
$
1,344

 
$
542

Non-cash financing activities during the period:
 
 
 
Additional purchase consideration from acquisition
$
10,779

 
$


See Notes to Unaudited Condensed Consolidated Financial Statements

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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.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2015 .
Operating Segment Definitions
Operating segments are based upon Rambus' internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker ("CODM") to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
During the third quarter of 2016, the Company renamed its Cryptography Research Division ("CRD") organization to Rambus Security Division ("RSD"). The Company determined its CODM to be the Chief Executive Officer and determined its operating segments to be: (1) Memory and Interface Division ("MID"), which focuses on the design, development, manufacturing through partnerships and licensing of technology and solutions that is related to memory and interfaces; (2) RSD, which focuses on the design, development, deployment and licensing of technologies for chip, system and in-field application security and anti-counterfeiting; (3) Emerging Solutions Division ("ESD"), which includes the Rambus Labs team, the computational sensing and imaging group as well as the development efforts in the area of emerging technologies; and (4) Lighting and Display Technologies ("LDT"), which focuses on the design, development and licensing of technologies for advanced LED-based lighting solutions.
For the three and nine months ended September 30, 2016 , only MID and RSD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining other operating segments were shown under “Other.”
Reclassifications
Certain prior periods' amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income for any of the periods presented. Refer to Note 8 "Convertible Notes" for details.
2. Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15 which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and is applied retrospectively. Early adoption is permitted including adoption in an interim period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13. The purpose of this ASU is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

9


In May 2016, the FASB issued ASU No. 2016-12 which amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. This ASU is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the FASB's new revenue standard, ASU No. 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations.
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions, which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. This ASU will become effective for the Company on January 1, 2017. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires assets and liabilities arising from leases, including operating leases, to be recognized on the balance sheet. This ASU will become effective for the Company in the first quarter of fiscal year 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes (Topic 740)," to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this ASU as of December 31, 2015 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company has adopted this ASU in the first quarter of 2016 on a retrospective basis. Refer to Note 8, "Convertible Notes" for further details.
In May 2014, the FASB and International Accounting Standards Board issued their converged accounting standards update on revenue recognition. The core principle of the new guidance is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. In August 2015, the FASB deferred the effective date of this accounting standards update by one year. The new accounting standards update becomes effective for the Company on January 1, 2018. The Company is currently evaluating the impact that this guidance will have on its financial condition and results of operations and has not yet selected a transition method.
3. Earnings Per Share
Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.

10


The following table sets forth the computation of basic and diluted net income per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income per share:
(In thousands, except per share amounts)
Numerator:
 

 
 

 
 
 
 
Net income
$
4,511

 
$
182,033

 
$
10,265

 
$
198,396

Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
110,214

 
116,444

 
109,951

 
115,940

Effect of potential dilutive common shares
3,509

 
3,098

 
2,854

 
3,057

Weighted-average shares outstanding - diluted
113,723

 
119,542

 
112,805

 
118,997

Basic net income per share
$
0.04

 
$
1.56

 
$
0.09

 
$
1.71

Diluted net income per share
$
0.04

 
$
1.52

 
$
0.09

 
$
1.67

For the three months ended September 30, 2016 and 2015 , options to purchase approximately 1.8 million and 2.6 million shares, respectively, and for the nine months ended September 30, 2016 and 2015 , options to purchase approximately 2.2 million and 2.6 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense.
4. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for each of the reportable segments for the nine months ended September 30, 2016 :
Reportable Segment:
 
As of December 31, 2015
 
Additions to Goodwill (1)
 
Impairment Charge of Goodwill
 
Effect of Exchange Rates (2)
 
As of September 30, 2016
 
 
(In thousands)
MID
 
$
19,905

 
$
47,346

 
$

 
$

 
$
67,251

RSD
 
96,994

 
46,903

 

 
(3,617
)
 
140,280

Total
 
$
116,899

 
$
94,249

 
$

 
$
(3,617
)
 
$
207,531

(1) The additions to goodwill are a result of the acquisitions of Smart Card Software Limited (“SCS”) during the first quarter of 2016, and Inphi's Memory Interconnect Business and Snowbush IP Assets during the third quarter of 2016. See Note 16, “Acquisitions” for further details.

(2) Effect of exchange rates relates to foreign currency translation adjustments for the period.
 
 
 
As of
 
 
September 30, 2016
Reportable Segment:
 
Gross Carrying Amount
 
Accumulated Impairment Losses
 
Net Carrying Amount
 
 
(In thousands)
MID
 
$
67,251

 
$

 
$
67,251

RSD
 
140,280

 

 
140,280

Other
 
21,770

 
(21,770
)
 

Total
 
$
229,301

 
$
(21,770
)
 
$
207,531


11


Intangible Assets
The components of the Company’s intangible assets as of September 30, 2016 and December 31, 2015 were as follows:
 
 
 
As of September 30, 2016
 
Useful Life
 
Gross Carrying
  Amount
 
Accumulated
  Amortization
 
Net Carrying
  Amount
 
 
 
(In thousands)
Existing technology (1)
3 to 10 years
 
$
257,228

 
$
(147,839
)
 
$
109,389

Customer contracts and contractual relationships (1)
1 to 10 years
 
66,728

 
(34,655
)
 
32,073

Non-compete agreements and trademarks
3 years
 
300

 
(300
)
 

In-process research and development (2)
Not applicable
 
23,400

 

 
23,400

Total intangible assets
 
 
$
347,656


$
(182,794
)
 
$
164,862

(1) Includes intangible assets from the acquisitions of SCS, Inphi's Memory Interconnect Business, and Snowbush IP Assets. See Note 16, “Acquisitions” for further details.

(2) Includes intangible assets from the acquisitions of Inphi's Memory Interconnect Business and Snowbush IP Assets. See Note 16, “Acquisitions” for further details. The in-process research and development assets are accounted for as indefinite-lived intangible assets until the underlying projects are completed or abandoned.
 
 
 
As of December 31, 2015
 
Useful Life
 
Gross Carrying
  Amount
 
Accumulated
  Amortization
 
Net Carrying
  Amount
 
 
 
(In thousands)
Existing technology
3 to 10 years
 
$
185,321

 
$
(127,028
)
 
$
58,293

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

 
(25,120
)
 
5,973

Non-compete agreements and trademarks
3 years
 
300

 
(300
)
 

Total intangible assets
 
 
$
216,714

 
$
(152,448
)
 
$
64,266


During the three and nine months ended September 30, 2016 , the Company did not sell any intangible assets. During the three and nine months ended September 30, 2015 , the Company did not purchase or sell any intangible assets.

Included in customer contracts and contractual relationships are favorable contracts which are acquired software and service agreements where the Company has no performance obligations. Cash received from these acquired favorable contracts reduces the favorable contract intangible asset. For the three months ended September 30, 2016 and 2015, the Company received $0.6 million and $0.0 million , respectively, related to the favorable contracts. For the nine months ended September 30, 2016 and 2015, the Company received $4.7 million and $0.1 million , respectively, related to the favorable contracts. As of September 30, 2016 and December 31, 2015 , the net balance of the favorable contract intangible assets was $5.2 million and zero , respectively.
Amortization expense for intangible assets for the three and nine months ended September 30, 2016 was $10.2 million and $26.0 million , respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2015 was $6.3 million and $18.9 million , respectively. The estimated future amortization of intangible assets as of September 30, 2016 was as follows (amounts in thousands):
Years Ending December 31:
Amount
2016 (remaining 3 months)
$
14,518

2017
43,297

2018
29,240

2019
19,215

2020
18,406

Thereafter
40,186

 
$
164,862


It is reasonably possible that the businesses could perform significantly below the Company's expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company's ability to meet its projected results,

12


which could cause the goodwill in any of its reporting units or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company's future financial results. If the Company determines that its goodwill or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.

5.   Segments and Major Customers
For the three and nine months ended September 30, 2016 , MID and RSD were reportable segments as each of them met the quantitative thresholds for disclosure as a reportable segment. The results of the remaining operating segments were shown under “Other.”
The Company evaluates the performance of its segments based on segment operating income (loss), which is defined as revenue minus segment operating expenses. Segment operating expenses are comprised of direct operating expenses.
Segment operating expenses do not include sales, general and administrative expenses and the allocation of certain expenses managed at the corporate level, such as stock-based compensation, amortization, and certain bonus and acquisition costs. The “Reconciling Items” category includes these unallocated sales, general and administrative expenses as well as corporate level expenses.
The tables below present reported segment operating income (loss) for the three and nine months ended September 30, 2016 and 2015 , respectively.
 
For the Three Months Ended September 30, 2016
 
For the Nine Months Ended September 30, 2016
 
MID
 
RSD
 
Other
 
Total
 
MID
 
RSD
 
Other
 
Total
 
(In thousands)
 
(In thousands)
Revenues
$
63,142

 
$
22,532

 
$
4,181

 
$
89,855

 
$
171,154

 
$
53,040

 
$
14,844

 
$
239,038

Segment operating expenses
20,060

 
12,493

 
6,840

 
39,393

 
44,797

 
37,507

 
21,594

 
103,898

Segment operating income (loss)
$
43,082

 
$
10,039

 
$
(2,659
)
 
$
50,462

 
$
126,357

 
$
15,533

 
$
(6,750
)
 
$
135,140

Reconciling items
 

 
 
 
 

 
(38,646
)
 
 

 
 
 
 

 
(102,022
)
Operating income
 

 
 
 
 

 
$
11,816

 
 

 
 
 
 

 
$
33,118

Interest and other income (expense), net
 

 
 
 
 

 
(3,051
)
 
 

 
 
 
 

 
(7,975
)
Income before income taxes
 

 
 
 
 

 
$
8,765

 
 

 
 
 
 

 
$
25,143

 
For the Three Months Ended September 30, 2015
 
For the Nine Months Ended September 30, 2015
 
MID
 
RSD
 
Other
 
Total
 
MID
 
RSD
 
Other
 
Total
 
(In thousands)
 
(In thousands)
Revenues
$
55,383

 
$
12,246

 
$
6,150

 
$
73,779

 
$
164,696

 
$
36,849

 
$
17,960

 
$
219,505

Segment operating expenses
11,734

 
6,653

 
9,276

 
27,663

 
36,055

 
21,317

 
25,306

 
82,678

Segment operating income (loss)
$
43,649

 
$
5,593

 
$
(3,126
)
 
$
46,116

 
$
128,641

 
$
15,532

 
$
(7,346
)
 
$
136,827

Reconciling items
 

 
 
 
 

 
(28,476
)
 
 

 
 
 
 

 
(85,741
)
Operating income
 

 
 
 
 

 
$
17,640

 
 

 
 
 
 

 
$
51,086

Interest and other income (expense), net
 

 
 
 
 

 
(2,578
)
 
 

 
 
 
 

 
(8,417
)
Income before income taxes
 

 
 
 
 

 
$
15,062

 
 

 
 
 
 

 
$
42,669

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

13


Accounts receivable from the Company's major customers representing 10% or more of total accounts receivable at September 30, 2016 and December 31, 2015 , respectively, was as follows:
 
 
As of
Customer 
 
September 30, 2016
 
December 31, 2015
Customer 1 (MID and RSD reportable segments)
 
16
%
 
21
%
Customer 2 (RSD reportable segment)
 
11
%
 
*

Customer 3 (MID reportable segment)
 
*

 
28
%
Customer 4 (Other segment)
 
*

 
27
%
Customer 5 (MID reportable segment)
 
12
%
 
16
%
_________________________________________
*    Customer accounted for less than 10% of total accounts receivable in the period
Revenue from the Company’s major customers representing 10% or more of total revenue for the three and nine months ended September 30, 2016 and 2015 , respectively, was as follows:
 
 
Three Months Ended
Nine Months Ended
 
 
September 30,
September 30,
Customer 
 
2016
 
2015
2016
 
2015
Customer A (MID and RSD reportable segments)
 
17
%
 
20
%
20
%
 
21
%
Customer B (MID reportable segment)
 
19
%
 
21
%
20
%
 
18
%
Customer C (MID reportable segment)
 
13
%
 
13
%
13
%
 
13
%

Revenue from customers in the geographic regions based on the location of contracting parties was as follows:
 
 
Three Months Ended
Nine Months Ended
 
 
September 30,
September 30,
(In thousands)
 
2016
 
2015
2016
 
2015
South Korea
 
$
32,519

 
$
30,821

$
95,604

 
$
84,463

USA
 
32,951

 
33,146

84,835

 
90,530

Japan
 
9,551

 
3,460

20,449

 
19,866

Europe
 
4,271

 
1,571

12,362

 
8,287

Canada
 
1,162

 
6

2,544

 
207

Singapore
 
4,429

 
3,222

13,574

 
11,042

Asia-Other
 
4,972

 
1,553

9,670

 
5,110

Total
 
$
89,855

 
$
73,779

$
239,038

 
$
219,505


6. Marketable Securities
Rambus invests its excess cash and cash equivalents primarily in U.S. government-sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years.  As of September 30, 2016 and December 31, 2015 , all of the Company’s cash equivalents and marketable securities had a remaining maturity of less than one year .

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, 2016
(In thousands)
 
Fair Value
 
Amortized
  Cost
 
Gross
  Unrealized
  Gains
 
Gross
  Unrealized
  Losses
 
Weighted
  Rate of
  Return
Money market funds
 
$
12,562

 
$
12,562

 
$

 
$

 
0.24
%
U.S. Government bonds and notes
 
7,001

 
7,000

 
1

 

 
0.44
%
Corporate notes, bonds, commercial paper and other
 
70,605

 
70,652

 

 
(47
)
 
0.62
%
Total cash equivalents and marketable securities
 
90,168

 
90,214

 
1

 
(47
)
 
 

Cash
 
60,621

 
60,621

 

 

 
 

Total cash, cash equivalents and marketable securities
 
$
150,789

 
$
150,835

 
$
1

 
$
(47
)
 
 

 
 
As of December 31, 2015
(In thousands)
 
Fair Value
 
Amortized
  Cost
 
Gross
  Unrealized
  Gains
 
Gross
  Unrealized
  Losses
 
Weighted
  Rate of
  Return
Money market funds
 
$
77,804

 
$
77,804

 
$

 
$

 
0.12
%
U.S. Government bonds and notes
 
14,110

 
14,142

 

 
(32
)
 
0.48
%
Corporate notes, bonds, commercial paper and other
 
160,823

 
160,979

 

 
(156
)
 
0.45
%
Total cash equivalents and marketable securities
 
252,737

 
252,925

 

 
(188
)
 
 

Cash
 
34,969

 
34,969

 

 

 
 

Total cash, cash equivalents and marketable securities
 
$
287,706

 
$
287,894

 
$

 
$
(188
)
 
 


Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:
 
As of
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Cash equivalents
$
28,858

 
$
108,795

Short term marketable securities
61,310

 
143,942

Total cash equivalents and marketable securities
90,168

 
252,737

Cash
60,621

 
34,969

Total cash, cash equivalents and marketable securities
$
150,789

 
$
287,706


The Company continues to invest in highly rated quality, highly liquid debt securities. As of September 30, 2016 , these securities have a remaining maturity of less than one year. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.

The estimated fair value of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015 are as follows:
 
Fair Value
 
Gross Unrealized Loss
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Less than one year
 

 
 

 
 

 
 

U.S. Government bonds and notes
$

 
$
14,110

 
$

 
$
(32
)
Corporate notes, bonds and commercial paper
66,245

 
145,563

 
(47
)
 
(156
)
Total Corporate notes, bonds, and commercial paper and U.S. Government bonds and notes
$
66,245

 
$
159,673

 
$
(47
)
 
$
(188
)

15



The gross unrealized loss at September 30, 2016 and December 31, 2015 was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government-sponsored obligations and corporate notes and bonds. There is no need to sell these investments, and the Company believes that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income. However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
See Note 7, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.
7. Fair Value of Financial Instruments
The Company reviews the pricing inputs by obtaining prices from a different source for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the above pricing levels as of September 30, 2016 and December 31, 2015 :
 
As of September 30, 2016
 
Total
 
Quoted
  Market
  Prices in
  Active
  Markets
  (Level 1)
 
Significant
  Other
  Observable
  Inputs
  (Level 2)
 
Significant
  Unobservable
  Inputs
  (Level 3)
 
(In thousands)
Money market funds
$
12,562

 
$
12,562

 
$

 
$

U.S. Government bonds and notes
7,001

 

 
7,001

 

Corporate notes, bonds, commercial paper and other
70,605

 
364

 
70,241

 

Total available-for-sale securities
$
90,168

 
$
12,926

 
$
77,242

 
$

 
As of December 31, 2015
 
Total
 
Quoted
  Market
  Prices in
  Active
  Markets
  (Level 1)
 
Significant
  Other
  Observable
  Inputs
  (Level 2)
 
Significant
  Unobservable
  Inputs
  (Level 3)
 
(In thousands)
Money market funds
$
77,804

 
$
77,804

 
$

 
$

U.S. Government bonds and notes
14,110

 

 
14,110

 

Corporate notes, bonds, commercial paper and other
160,823

 
1,264

 
159,559

 

Total available-for-sale securities
$
252,737

 
$
79,068

 
$
173,669

 
$


The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the condensed consolidated statement of operations.
For the three and nine months ended September 30, 2016 and 2015 , there were no transfers of financial instruments between different categories of fair value.

16


The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of September 30, 2016 and December 31, 2015 :
 
 
As of September 30, 2016
 
As of December 31, 2015
(In thousands)
 
Face
  Value
 
Carrying
  Value
 
Fair Value
 
Face
  Value
 
Carrying
  Value
 
Fair Value
1.125% Convertible Senior Notes due 2018 (the "2018 Notes")
 
$
138,000

 
$
124,443

 
$
162,336

 
$
138,000

 
$
119,418

 
$
156,292


The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 8, "Convertible Notes," as of September 30, 2016 , the 2018 Notes are carried at their face value of $138.0 million , less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.
The Company also has a level 3 liability which consists of acquisition-related liabilities for contingent consideration (i.e. revenue sharing) related to the acquisition of Snowbush IP. As of September 30, 2016 , the Company recorded $6.8 million of contingent consideration liability in other long-term liabilities. The Company used a weighted average discounted cash flow method to estimate the probability of achieving the revenue targets set forth above for each year. The fair value of the contingent consideration was determined using a discount rate of 23.5% .

8. Convertible Notes
The Company adopted ASU 2015-03 during the first quarter of 2016. Pursuant to the guidance in ASU 2015-03, the Company has reclassified unamortized debt issuance costs associated with the Company's 2018 Notes in the previously reported Consolidated Balance Sheet as of December 31, 2015 , as follows:
(In thousands)
 
As presented December 31, 2015
 
Reclassifications
 
As adjusted December 31, 2015
Other assets
 
$
3,648

 
$
(1,483
)
 
$
2,165

Convertible notes, long-term
 
120,901

 
(1,483
)
 
119,418

The Company’s convertible notes are shown in the following table:
(In thousands)
 
As of September 30, 2016
 
As of December 31, 2015
1.125% Convertible Senior Notes due 2018
 
$
138,000

 
$
138,000

Unamortized discount
 
(12,496
)
 
(17,099
)
Unamortized debt issuance costs
 
(1,061
)
 
(1,483
)
Total convertible notes
 
$
124,443

 
$
119,418

Less current portion
 

 

Total long-term convertible notes
 
$
124,443

 
$
119,418

Interest expense related to the notes for the three and nine months ended September 30, 2016 and 2015 was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
2018 Notes coupon interest at a rate of 1.125%
$
388

 
$
388

 
1,164

 
1,179

2018 Notes amortization of discount and debt issuance costs at an additional effective interest rate of 5.5%
1,699

 
1,605

 
5,025

 
4,744

Total interest expense on convertible notes
$
2,087

 
$
1,993

 
$
6,189

 
$
5,923


17



9. Commitments and Contingencies
As of September 30, 2016 , the Company’s material contractual obligations were as follows (in thousands):
 
Total
 
Remainder   of 2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
Contractual obligations (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

Imputed financing obligation (2)
$
23,778

 
$
1,558

 
$
6,302

 
$
6,447

 
$
6,602

 
$
2,869

 
$

Leases and other contractual obligations
13,461

 
4,535

 
4,177

 
2,520

 
1,343

 
441

 
445

Software licenses (3)
17,696

 
1,721

 
6,994

 
7,338

 
1,643

 

 

Convertible notes
138,000

 

 

 
138,000

 

 

 

Interest payments related to convertible notes
3,105

 

 
1,553

 
1,552

 

 

 

Total
$
196,040

 
$
7,814

 
$
19,026

 
$
155,857

 
$
9,588

 
$
3,310

 
$
445

_________________________________________
(1)
The above table does not reflect possible payments in connection with uncertain tax benefits of approximately $22.4 million including $19.5 million recorded as a reduction of long-term deferred tax assets and $2.9 million in long-term income taxes payable as of September 30, 2016 . As noted below in Note 12, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
(2)
With respect to the imputed financing obligation, the main components of the difference between the amount reflected in the contractual obligations table and the amount reflected on the unaudited condensed consolidated balance sheets are the interest on the imputed financing obligation and the estimated common area expenses over the future periods. The amount includes the amended Ohio lease and the amended Sunnyvale lease.
(3)
The Company has commitments with various software vendors for non-cancellable agreements generally having terms longer than one year.
The Company also has commitments related to acquisitions, which are not included in the above table. See Note 16, “Acquisitions” for further details.
Building lease expense was approximately $1.1 million and $2.7 million for the three and nine months ended September 30, 2016 , respectively. Building lease expense was approximately $0.7 million and $2.0 million for the three and nine months ended September 30, 2015 , respectively. Deferred rent of $0.6 million and $0.8 million as of September 30, 2016 and December 31, 2015 , respectively, was included primarily in other current liabilities and other long-term liabilities, respectively.
Indemnification
From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification or liability that the Company could be exposed to under these agreements, however, this is not always possible. The fair value of the liability as of September 30, 2016 and December 31, 2015 is not material.
10. Equity Incentive Plans and Stock-Based Compensation
As of September 30, 2016 , 7,689,902 shares of the 35,400,000 cumulative shares approved under both the current 2015 Equity Incentive Plan (the “2015 Plan”) and past 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant, which included an increase of 4,000,000 shares approved under the 2015 Plan. On April 23, 2015, the Company's stockholders approved the 2015 Plan, which authorizes 4,000,000 shares for future issuance plus the number of shares that remained available for grant under the 2006 Plan as of the effective date of the 2015 Plan. The 2015 Plan became effective and replaced the 2006 Plan on April 23, 2015. The 2015 Plan was the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of September 30, 2016 . No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015

18


Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015 Plan. Additionally, the 1997 Stock Option Plan (the “1997 Plan”) continues to govern awards previously granted under that plan.
A summary of shares available for grant under the Company’s plans is as follows:
 
Shares Available
  for Grant
Shares available as of December 31, 2015
11,173,545

Stock options granted
(440,000
)
Stock options forfeited
990,089

Stock options expired under former plans
(412,467
)
Nonvested equity stock and stock units granted (1) (2)
(4,664,049
)
Nonvested equity stock and stock units forfeited (1)
1,042,784

Total available for grant as of September 30, 2016
7,689,902

_________________________________________
(1)
For purposes of determining the number of shares available for grant under the 2015 Plan (and previously the 2006 Plan) against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by 1.5 shares and each share of restricted stock forfeited increases shares available for grant by 1.5 shares.
(2)
Amount includes 300,003 shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first quarter of 2016 and discussed under the section titled "Nonvested Equity Stock and Stock Units" below.
General Stock Option Information
The following table summarizes stock option activity under the 1997 Plan, 2006 Plan and 2015 Plan for the nine months ended September 30, 2016 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2016 .
 
Options Outstanding
 
 
 
 
 
Number of
  Shares
 
Weighted
  Average
  Exercise Price
  Per Share
 
Weighted
  Average
  Remaining
  Contractual
  Term (years)
 
Aggregate
  Intrinsic
  Value
 
(In thousands, except per share amounts)
Outstanding as of December 31, 2015
8,995,017

 
$
10.01

 
 
 
 

Options granted
440,000

 
$
12.31

 
 
 
 

Options exercised
(1,255,904
)
 
$
7.28

 
 
 
 

Options forfeited
(990,089
)
 
$
19.26

 
 
 
 

Outstanding as of September 30, 2016
7,189,024

 
$
9.36

 
5.34
 
$
30,612

Vested or expected to vest at September 30, 2016
7,022,797

 
$
9.37

 
5.29
 
$
29,963

Options exercisable at September 30, 2016
4,740,578

 
$
10.13

 
4.50
 
$
19,191


No stock options that contain a market condition were granted during the three and nine months ended September 30, 2016 . As of September 30, 2016 and December 31, 2015 , there were 1,135,000 and 1,315,000 , respectively, stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated, on their respective grant dates, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2016 , based on the $12.50 closing stock price of Rambus’ common stock on September 30, 2016 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of September 30, 2016 was 5,949,024 and 3,538,628 , respectively.

19


Employee Stock Purchase Plan
Under the 2015 Employee Stock Purchase Plan ("2015 ESPP"), the Company issued 340,349 shares at a price of $8.96 per share during the nine months ended September 30, 2016 . Under the 2006 Employee Stock Purchase Plan ("2006 ESPP"), the Company issued 315,100 shares at a price of $9.66 per share during the nine months ended September 30, 2015 . As of September 30, 2016 , 1,659,651 shares under the 2015 ESPP remain available for issuance. The 2006 ESPP remained in effect until the Company’s November 2, 2015 offering period, at which time the first offering period under the 2015 ESPP began.
Stock-Based Compensation
For the nine months ended September 30, 2016 and 2015 , the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors the 2015 ESPP (and previously the 2006 ESPP), whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the common stock as of specific dates.
Stock Options
During the three months ended September 30, 2016 , the Company did not grant any stock options. During the nine months ended September 30, 2016 , the Company granted 440,000 stock options with an estimated total grant-date fair value of $2.1 million . During the three and nine months ended September 30, 2016 , the Company recorded stock-based compensation expense related to stock options of $1.0 million and $3.3 million , respectively.
During the three months ended September 30, 2015 , the Company did not grant any stock options. During the  nine months ended  September 30, 2015 , the Company granted  362,335 stock options, with an estimated total grant-date fair value of  $1.7 million . During the three and nine  months ended September 30, 2015 , the Company recorded stock-based compensation expense related to stock options of  $1.4 million and $5.9 million , respectively.
As of September 30, 2016 , there was $5.2 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of shares vested as of September 30, 2016 was $29.0 million .
The total intrinsic value of options exercised was $3.0 million and $7.0 million for the three and nine months ended September 30, 2016 , respectively. The total intrinsic value of options exercised was  $0.9 million and $5.5 million for the  three and nine  months ended  September 30, 2015 , respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.
During the nine months ended September 30, 2016 , net proceeds from employee stock option exercises totaled approximately $9.1 million .
Employee Stock Purchase Plan
For the three and nine months ended September 30, 2016 , the Company recorded compensation expense related to the 2015 ESPP of $0.3 million and $1.1 million , respectively. For the three and nine months ended September 30, 2015 , the Company recorded compensation expense related to the 2006 ESPP of $0.3 million and $1.2 million , respectively. As of September 30, 2016 , there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized over one month.
There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the three and nine months ended September 30, 2016 and 2015 calculated in accordance with accounting for share-based payments.
Valuation Assumptions
The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.

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The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.
 
Stock Option Plans
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Stock Option Plans
 

 
 

Expected stock price volatility
36
%
 
41
%
Risk free interest rate
1.7
%
 
1.2
%
Expected term (in years)
6.1

 
6.0

Weighted-average fair value of stock options granted to employees
$
4.66

 
$
4.59

There were no stock options granted during the three months ended September 30, 2016 and 2015 .
 
Employee Stock Purchase Plan
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Employee Stock Purchase Plan
 

 
 

Expected stock price volatility
33
%
 
34
%
Risk free interest rate
0.41
%
 
0.05
%
Expected term (in years)
0.5

 
0.5

Weighted-average fair value of purchase rights granted under the purchase plan
$
2.86

 
$
3.48

Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, employees and directors. During the three and nine months ended September 30, 2016 , the Company granted nonvested equity stock units totaling 884,724 and 2,909,364 shares under the 2015 Plan. During the three and nine months ended September 30, 2015 , the Company granted nonvested equity stock units totaling 90,556 and 1,672,458 shares under the 2006 Plan. These awards have a service condition, generally a service period of four years , except in the case of grants to directors, for which the service period is 1 year . For the three and nine months ended September 30, 2016 , the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $12.6 million and $37.6 million . For the three and nine months ended September 30, 2015 , the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $1.3 million and $19.3 million . During the first quarters of 2016 and 2015, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company's shares available for grant has been reduced to reflect the shares that could be earned at 150% of target. During the three and nine months ended September 30, 2016 , the Company recorded $0.7 million and $2.0 million of stock-based compensation expense related to these performance unit awards. During the three and nine months ended September 30, 2015 , the Company recorded $0.3 million and $0.8 million of stock-based compensation expense related to these performance unit awards.
For the three and nine months ended September 30, 2016 , the Company recorded stock-based compensation expense of approximately $4.1 million and $10.9 million related to all outstanding nonvested equity stock grants. For the three and nine months ended September 30, 2015 , the Company recorded stock-based compensation expense of approximately $1.8 million and $4.7 million related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $38.0 million at September 30, 2016 . This amount is expected to be recognized over a weighted average period of 3.0 years .

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The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2016 :
Nonvested Equity Stock and Stock Units
 
Shares
 
Weighted-
  Average
  Grant-Date
  Fair Value
Nonvested at December 31, 2015
 
3,008,118

 
$
11.32

Granted
 
2,909,364

 
$
12.91

Vested
 
(455,804
)
 
$
10.48

Forfeited
 
(541,597
)
 
$
11.81

Nonvested at September 30, 2016
 
4,920,081

 
$
12.28


11.   Stockholders’ Equity
Share Repurchase Program
During the nine months ended September 30, 2016 , the Company repurchased and retired 0.7 million shares of its common stock under its share repurchase program.
On January 21, 2015, the Company's Board approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the plan may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the plan.
On October 26, 2015, the Company initiated an accelerated share repurchase program with Citibank, N.A. The accelerated share repurchase program is part of the broader share repurchase program previously authorized by the Company's Board on January 21, 2015. Under the accelerated share repurchase program, the Company pre-paid to Citibank, N.A., the $100.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 7.8 million shares of its common stock from Citibank, N.A, in the fourth quarter of 2015, which were retired and recorded as a $80.0 million reduction to stockholders' equity. The remaining $20.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company's stock. The number of shares to be ultimately purchased by the Company was determined based on the volume weighted average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. During the second quarter of 2016, the accelerated share repurchase program was completed and the Company received an additional 0.7 million shares of its common stock as the final settlement of the accelerated share repurchase program.

As of September 30, 2016 , there remained an outstanding authorization to repurchase approximately 11.5 million shares of the Company's outstanding common stock under the current share repurchase program.

The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.

12. Income Taxes
The Company recorded a provision for (benefit from) income taxes of $4.3 million and $(167.0) million for the three months ended September 30, 2016 and 2015 , respectively, and $14.9 million and $(155.7) million for the nine months ended September 30, 2016 and 2015 , respectively. The income taxes for the three and nine months ended September 30, 2016 is primarily comprised of the Company's U.S. federal, state and foreign taxes and income tax expense recognized from exercises and expiration of out-of-the-money fully vested shares from equity incentive plans. The benefit from income taxes for the three and nine months ended September 30, 2015 was primarily comprised of the tax benefit relief from the release of the valuation allowance on the Company's U.S. federal and state deferred tax assets, offset by federal, state and foreign taxes.
During the three and nine months ended September 30, 2016 , the Company paid withholding taxes of $5.5 million and $16.5 million , respectively. During the three and nine months ended September 30, 2015 , the Company paid withholding taxes of $5.4 million and $15.0 million , respectively.

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As of September 30, 2016 , the Company’s unaudited condensed consolidated balance sheets included net deferred tax assets, before valuation allowance, of approximately $172.5 million , which consists of net operating loss carryovers, tax credit carryovers, amortization, employee stock-based compensation expenses and certain liabilities, partially reduced by deferred tax liabilities associated with the convertible notes.
As of September 30, 2016, the Company continues to maintain a valuation allowance against the majority of its state deferred tax assets. Management periodically evaluates the realizability of the Company's net deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company's net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company continues to maintain a deferred tax asset valuation allowance of $21.6 million as of September 30, 2016 .

The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.

As of September 30, 2016 , the Company had approximately $22.4 million of unrecognized tax benefits, including $19.5 million recorded as a reduction of long-term deferred tax assets and $2.9 million in long-term income taxes payable. If recognized, approximately $2.9 million would be recorded as an income tax benefit. As of December 31, 2015 , the Company had $20.8 million of unrecognized tax benefits, including $18.6 million recorded as a reduction of long-term deferred tax assets and $2.2 million recorded in long-term income taxes payable.

Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. At September 30, 2016 and December 31, 2015 , an immaterial amount of interest and penalties is included in long-term income taxes payable.
Rambus files income tax returns for the U.S., California, India, the U.K., the Netherlands and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2013 and forward. The California returns are subject to examination from 2009 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ended March 2010 and forward. The Company is currently under examination by California for the 2010 and 2011 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company's favor. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate.
Additionally, the Company's future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.

13. Litigation and Asserted Claims
Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.


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14. Agreements with SK hynix and Micron
SK hynix
On June 11, 2013, Rambus, SK hynix and certain related entities of SK hynix entered into a settlement agreement, pursuant to which the parties have agreed to release all claims against each other with respect to all outstanding litigation between them. Pursuant to the settlement agreement, Rambus and SK hynix entered into a semiconductor patent license agreement on June 11, 2013, under which SK hynix licenses from Rambus non-exclusive rights to certain Rambus patents and has agreed to pay Rambus cash amounts over the next five years . Under the license agreement, Rambus has granted to SK hynix (i) a paid-up perpetual patent license for certain identified SK hynix DRAM products and (ii) a five -year term patent license to all other DRAM and other semiconductor products.
In June 2015, the Company s igned an amendment that extends its current agreement with SK hynix for an additional six years for use of Rambus memory-related patented innovations in SK hynix semiconductor products. The Company signed the original agreement with SK hynix for a five-year term in June 2013. Under the amendment, SK hynix has agreed to continue to pay the Company an average quarterly cash payment of $12.0 million which equates to $432.0 million from the signing of the amendment through the term of the agreement ending July 1, 2024, provided that (a) for each of the six full calendar quarters immediately following July 1, 2015, SK hynix will pay the Company a quarterly cash payment of $16.0 million , and (b) in addition, after December 1, 2017, SK hynix will have the option to make six quarterly cash payments of $8.0 million upon six months written notice. In addition, SK hynix has the option to renew the agreement for an additional three-year extension under the existing rate structure.
The agreements with SK hynix are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the SK hynix agreements which included a third party valuation using an income approach (collectively the “SK hynix Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the SK hynix Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction.
During the third quarter of 2016, the Company received cash consideration of $16.0 million from SK hynix. The amount was allocated entirely to royalty revenue ( $16.0 million ) and none to gain from settlement based on the elements’ SK hynix Fair Value. During the nine months ended September 30, 2016 , the Company received cash consideration of $48.0 million from SK hynix. The amount was allocated between royalty revenue ( $47.9 million ) and gain from settlement ( $0.1 million ) based on the elements’ SK hynix Fair Value.
The cumulative cash receipts through September 30, 2016 and the remaining future cash receipts from the agreements with SK hynix are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements (and assuming the option to make the lower payments begins with payments made during the middle of 2018):
 
Cumulative Received
to-date as of September 30,
 
Estimated to Be Received in
 
 
 
Total Estimated
Cash Receipts
 
2016
 
Remainder
of 2016
 
2017
 
2018
 
2019
 
2020
 
2021 and Thereafter
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Royalty revenue
$
174.1

 
$
16.0

 
$
48.0

 
$
40.0

 
$
32.0

 
$
48.0

 
$
168.0

 
$
526.1

Gain from settlement
1.9

 

 

 

 

 

 

 
1.9

Total
$
176.0

 
$
16.0

 
$
48.0

 
$
40.0

 
$
32.0

 
$
48.0