RAMBUS INC - 10-Q Quarterly Report

	June 30, 2002			September 30, 2001
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	30,982		$	44,195
Marketable securities		65,708			85,700
Accounts receivable		197			2,368
Prepaid and deferred taxes		7,850			7,665
Prepaids and other current assets		4,290			3,319

Total current assets		109,027			143,247
Property and equipment, net		13,456			15,862
Marketable securities, long-term		54,000			12,057
Restricted investments		12,577			13,605
Deferred taxes, long-term		37,637			44,275
Other assets		6,154			8,744

Total assets	$	232,851		$	237,790


LIABILITIES
Current liabilities:
Accounts and taxes payable, accrued payroll and other liabilities	$	7,773		$	7,977
Deferred revenue		11,146			14,398

Total current liabilities		18,919			22,375
Deferred revenue, less current portion		17,124			24,058

Total liabilities		36,043			46,433

Commitments and contingencies (Notes 4 and 6)

STOCKHOLDERS’ EQUITY
Convertible preferred stock, $.001 par value:
Authorized: 5,000,000 shares; Issued and outstanding: no shares		—			—
Common Stock, $.001 par value:
Authorized: 500,000,000 shares; Issued and outstanding: 98,619,492 shares at June 30, 2002 and 100,287,676 shares at September 30, 2001		99			100
Additional paid-in capital		269,339			282,911
Deferred stock-based compensation		—			(461	)
Accumulated deficit		(73,042	)		(91,861	)
Accumulated other comprehensive gain		412			668

Total stockholders’ equity		196,808			191,357

Total liabilities and stockholders’ equity	$	232,851		$	237,790

	Three Months Ended June 30,				Nine Months Ended June 30,
	2002		2001		2002		2001
	(in thousands, except per share amounts)
	(Unaudited)
Revenues:
Contract revenues	$	1,507	$	3,514	$	6,313	$	18,964
Royalties		22,183		19,787		65,772		70,300

Total revenues		23,690		23,301		72,085		89,264

Costs and expenses:
Cost of contract revenues		1,786		2,692		5,786		7,969
Research and development		5,844		4,822		16,190		13,168
Marketing, general and administrative		8,411		13,893		26,185		35,725

Total costs and expenses		16,041		21,407		48,161		56,862

Operating income		7,649		1,894		23,924		32,402
Interest and other income, net		1,423		2,317		5,029		6,945

Income before income taxes		9,072		4,211		28,953		39,347
Provision for income taxes		3,175		504		10,134		14,558

Net income	$	5,897	$	3,707	$	18,819	$	24,789

Net income per share—basic	$	0.06	$	0.04	$	0.19	$	0.25

Net income per share—diluted	$	0.06	$	0.04	$	0.18	$	0.23

Number of shares used in per share calculations:
Basic		99,511		99,969		99,947		99,200
Diluted		101,761		102,889		102,989		107,214

	Nine Months Ended June 30,
	2002			2001
	(in thousands)
	(Unaudited)
Cash flows from operating activities:
Net income	$	18,819		$	24,789
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefit (cost) of stock option exercises		(71	)		6,659
Depreciation		3,735			3,171
Amortization of deferred compensation		(160	)		464
Amortization of goodwill		200			200
Gain on sale of securities		(2,022	)		—
Increase in valuation allowance related to investments		1,991			—
Change in operating assets and liabilities:
Accounts receivable		2,171			(6,031	)
Prepaids, deferred taxes and other assets		5,322			(3,126	)
Accounts and taxes payable, accrued payroll and other liabilities		(246	)		895
Deferred revenue		(10,186	)		(5,418	)

Net cash provided by operating activities		19,553			21,603

Cash flows from investing activities:
Purchases of property and equipment		(1,329	)		(12,913	)
Purchases of marketable securities		(245,776	)		(651,411	)
Maturities of marketable securities		223,573			635,227
Purchases of investments		—			(5,000	)
Sales of investments		2,581			—
Decrease (increase) in restricted investments		1,028			(3,064	)

Net cash used in investing activities		(19,923	)		(37,161	)

Cash flows from financing activities:
Net proceeds from issuance of Common Stock		3,466			10,337
Repurchase of Common Stock		(16,305	)		—

Net cash provided by (used in) financing activities		(12,839	)		10,337

Effect of exchange rates on cash and cash equivalents		(4	)		(131	)

Net decrease in cash and cash equivalents		(13,213	)		(5,352	)
Cash and cash equivalents at beginning of period		44,195			63,093

Cash and cash equivalents at end of period	$	30,982		$	57,741

Supplemental disclosure of cash flow information:
Taxes paid	$	3,861		$	9,388

The consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto, for the year ended September 30, 2001, included in the Company’s 2001 Annual Report on Form 10-K.

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” These statements make significant changes to the accounting for business combinations, goodwill and intangible assets. SFAS No. 141 established new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. This statement is effective for business combinations completed after June 30, 2001. SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. The Company expects to adopt both of these statements during the first quarter of fiscal 2003. In each of the fiscal quarters ended June 30, 2002 and 2001, goodwill amortization totaled $67,000. In each of the nine month periods ended June 30, 2002 and 2001, goodwill amortization totaled $200,000.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company expects that the initial application of SFAS 143 will not have a material impact on its financial statements.

On October 3, 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components

	Three Months Ended June 30,					Nine Months Ended June 30,
	2002		2001			2002			2001
Net income	$	5,897	$	3,707		$	18,819		$	24,789
Other comprehensive income (loss):
Foreign currency translation adjustments		92		3			(4	)		(130	)
Unrealized gain (loss) on marketable securities		504		(29	)		(252	)		350

Other comprehensive income (loss)		596		(26	)		(256	)		220

Total comprehensive income	$	6,493	$	3,681		$	18,563		$	25,009

In November 1996, the Company entered into an agreement with Intel Corporation for the development of high-speed semiconductor memory interface technology. In January 1997, as part of this agreement, the Company issued a warrant to purchase 4,000,000 shares of Common Stock of the Company at a purchase price of $2.50 per share (the “Intel warrant”). This warrant was to have become exercisable only upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM^® chipsets (the “Intel milestones”). A complete discussion of these milestones is set forth in the Intel warrant filed as Exhibit 4.4 to the Company’s Form 8-K filed on July 7, 2000. In September 2001, this warrant was canceled as part of contract negotiations, which resulted in a new royalty-bearing contract with Intel.

In October 1998, the Company’s Board of Directors authorized an incentive program in the form of warrants for a total of up to 1,600,000 shares of Rambus Common Stock (the “DRAM incentive warrants”) to be issued to various RDRAM licensees upon the achievement of certain product qualification and volume production targets. The warrants have an exercise price of $2.50 per share and a life of five years from the date of issue. They vest and become exercisable on the same basis as the former Intel warrant, which will result in a non-cash charge to the statement of operations based on the fair value of the warrants when and if achievement of the Intel milestones becomes probable. As of June 30, 2002, a total of 1,520,000 of these warrants had been issued.

In the first quarter of fiscal 2000, the Company granted to its Chief Executive Officer and to its President a combined total of 2,000,000 Common Stock Equivalents (CSEs) and to its employees approximately 2,160,000 options to purchase Rambus Common Stock for $2.50 per share. An additional 494,500 of these options were granted to employees in fiscal 2001. Vesting of these CSEs and options was contingent upon the achievement of key indicators of success for Rambus. Vesting for a portion of these CSEs and options granted in fiscal 2000 was contingent on an increase in the price of Rambus Common Stock to greater than $50 per share for 30 consecutive days. This target was achieved by the end of the second quarter of fiscal 2000, and resulted in a $171.1 million employee stock-related compensation charge taken in the same quarter. Except for a $1.2 million employer payroll tax liability, this was a non-cash charge. The remaining CSEs and options vest on the same basis as the former Intel and existing DRAM incentive warrants, which will result in another almost entirely non-cash charge to the statement of operations based on the fair value of the CSEs and options when and if achievement of the Intel milestones becomes probable.

In October 2001, the Company’s Board of Directors approved a share repurchase program of the Company’s Common Stock principally to reduce the dilutive effect of employee stock options. Under the share repurchase program, the Company is authorized to purchase in open market transactions up to five million of the Company’s shares of outstanding Common Stock over an undefined period of time. During the first nine months of fiscal 2002, the Company repurchased 2,521,374 shares at a cost of approximately $16.3 million.

Net income per share is computed in accordance with Financial Accounting Standards Board Statement No. 128, “Earnings Per Share,” which requires the presentation of basic and diluted net income per share. Basic net income per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares and common stock equivalents, if dilutive, outstanding during the period. Net income per share is calculated as follows (in thousands, except per share data; unaudited):

	Three Months Ended June 30,				Nine Months Ended June 30,
	2002		2001		2002		2001
Net income	$	5,897	$	3,707	$	18,819	$	24,789

Weighted average common shares outstanding		99,511		99,969		99,947		99,200
Additional dilutive common stock equivalents		2,250		2,920		3,042		8,014

Diluted shares outstanding		101,761		102,889		102,989		107,214

Net income per share—basic	$	0.06	$	0.04	$	0.19	$	0.25

Net income per share—diluted	$	0.06	$	0.04	$	0.18	$	0.23

On August 8, 2000, the Company filed suit in the U.S. District Court for the Eastern District of Virginia (the “Virginia court”) against Infineon Technologies AG (“Infineon”) and its North American subsidiary for patent infringement of two U.S. patents. On September 25, 2000, Infineon filed counterclaims against the Company in the U.S. case seeking a declaratory judgment that the two asserted patents are invalid and not infringed and further claiming contributory infringement by the Company of two Infineon U.S. patents. In addition, Infineon also asserted breach of contract, fraud, RICO, and monopolization claims in connection with the Company’s participation in an industry standards-setting group known as JEDEC where the Company is alleged not to have disclosed certain of its then-pending patent applications (“JEDEC related claims”). The Infineon counterclaims sought compensatory and punitive damages, attorneys’ fees, injunctions to halt future infringement of the Infineon patents, and an award of a royalty-free license to the Rambus patents. In October 2000, the Company amended its complaint to assert infringement of two additional U.S. patents. In January 2001, Infineon amended its answer and counterclaims to include a request for a declaratory judgment that all four asserted Rambus patents are invalid and not infringed. In addition, Infineon withdrew all contributory patent infringement claims against the Company relating to Infineon’s U.S. patents.

Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the Virginia court granted Infineon’s motion to dismiss Rambus’ patent infringement case and granted Rambus’ motion to dismiss Infineon’s breach of contract and monopolization claims. On May 9, 2001, the jury returned a verdict against Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded Infineon $3.5 million in punitive damages, which was reduced to $350,000 under Virginia law. On August 9, 2001, as a result of post-trial motions, the Virginia court set aside the constructive fraud verdict with respect to both SDRAM and DDR standard setting. The actual fraud verdict with respect to DDR standard setting was also set aside. Post-trial motions by Infineon resulted in the Virginia court awarding Infineon approximately $7.1 million in attorneys’ fees. In addition, on November 26, 2001, the Virginia court issued a permanent injunction prohibiting the Company from filing additional patent infringement actions against Infineon in the U.S. under certain of the Company’s U.S. patent claims with regard to JEDEC-compliant SDRAM and DDR devices and (subject to certain conditions) successor JEDEC-compliant devices.

The Company has appealed the rulings by the Virginia court relating to infringement, including the rulings on patent claim construction, which are known as “Markman rulings.” The Company has also appealed numerous liability rulings by the Virginia court with respect to the JEDEC related claims concerning SDRAM standard setting. The Company has also filed an appeal with respect to the permanent injunction ruling. Infineon has appealed two rulings against it: that Rambus committed no fraud with respect to the JEDEC DDR standard and that no injunction should reach patent enforcement actions in Europe. These appeals were consolidated by the U.S. Court of Appeals for the Federal Circuit (CAFC). Briefing on all of the issues appealed was completed on an expedited schedule, oral arguments were heard by the CAFC on June 3, 2002, and the Company is currently awaiting a decision from the CAFC.

subsequently appointed its independent technical expert, and the expert delivered his report to the Mannheim court and the parties in early May 2002. Briefing by the parties in response to the expert report is due at the end of August 2002, and the Mannheim court is expected to schedule a further hearing to determine whether Infineon products infringe Rambus’ patent. In the meantime, the validity of the same Rambus European patent is being reviewed by the European Patent Office (EPO), which has issued a preliminary, non-binding opinion indicating the validity of 17 of the 18 claims at issue and has set a hearing for September 10 and 11, 2002. A final decision on validity is expected shortly thereafter.

On August 28, 2000, Micron Technology, Inc. (“Micron”) filed suit against the Company in the U.S. District Court in Delaware. The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with the Company’s participation in JEDEC. Micron’s suit seeks a declaration of monopolization by the Company, compensatory and punitive damages, attorneys’ fees, a declaratory judgment that eight Rambus patents are invalid and not infringed and the award to Micron of a royalty-free license to the Rambus patents. In February 2001, the Company filed its answer and counterclaims, whereby the Company disputes Micron’s claims and asserts infringement by Micron of the eight U.S. patents. Both sides filed a number of potentially dispositive motions for summary judgment. On February 27, 2002, the court ruled on some of these motions, denying Micron’s motion for summary judgment on its claims of fraud. The Delaware court also postponed trial on all of the issues in the Micron case until after the CAFC reviews the judgments of the Virginia court in the Infineon matter. Discovery is ongoing in the Delaware action.

In September 2000, the Company filed suit against Micron in Germany, France, Great Britain and Italy for infringement of a European patent. The Company’s German suit against Micron is, like the Company’s German suit against Infineon, in the Mannheim court, which issued an “order for evidence” on December 7, 2001 requiring the appointment of an expert. That expert has been appointed and is the same expert as was appointed in the Infineon and Hynix cases in Germany. The French suit has not progressed beyond an early phase. The British suit has been temporarily stayed pending the validity determination of the EPO. On May 2, 2001, the independent experts appointed by the District Court in Monza, Italy (the “Monza court”) issued a report that confirmed the validity of the Rambus patent in suit and determined that Micron’s SDRAM products infringe the Rambus patent. On May 25, 2001, the Monza court declined to grant Rambus a preliminary injunction due to its conclusion that the experts had not addressed one technical issue. Rambus appealed the Monza court’s ruling, and on July 18, 2001, the Appeals Court rejected the appeal on jurisdictional grounds. The infringement suit against Micron in Italy on the first European patent has been stayed, but if it resumes, it will resume in the District Court of Milan rather than in Monza.

In December 2000, Micron filed a declaratory judgment suit of non-infringement of a second European patent against the Company in the District Court of Avezzano, Italy. In response, the Company asserted infringement of the second European patent in Milan, Italy. The actions on the second European patent in Italy have also been stayed. Further, the Company filed suit against Micron in Germany and Italy for infringement of a third European patent. Both of these additional suits have also been stayed.

On August 29, 2000, Hyundai Electronics Industries Co., Ltd. (“Hyundai”) and various subsidiaries filed suit against the Company in the U.S. District Court for the Northern District of California. Since filing suit, Hyundai has changed its name to “Hynix Semiconductor Inc.” (“Hynix”). The suit asserts breach of contract in connection with the Company’s participation in JEDEC and seeks a declaratory judgment that eleven Rambus patents are invalid and not infringed by Hynix. In November 2000, Hynix amended its complaint to further assert violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent

misrepresentation in connection with the Company’s participation in JEDEC. Hynix seeks a declaration of monopolization by the Company, compensatory and punitive damages, and attorneys’ fees. In February 2001, the Company filed its answer and counterclaims, whereby the Company disputes Hynix’s claims and asserts infringement of eleven U.S. patents. On November 21, 2001, the California court ruled that the claim construction applied in the Virginia case against Infineon should be applied in the case with Hynix, and, as a result, dismissed most of the Company’s claims of patent infringement against Hynix. In doing so, the California court relied on the principles of collateral estoppel and declined to decide whether, on the merits, the Virginia claim construction was correctly or incorrectly decided. The Virginia claim construction issue is one of the matters that will be reviewed as part of the Company’s pending appeal in the Infineon case. On December 14, 2001, the California court stayed the Hynix case on grounds that suggest that the stay will remain in place until there is an outcome in the Rambus v. Infineon case. At that point, Rambus will, depending on the outcome of the Virginia appeal, determine whether to challenge the California court’s adoption of the Virginia claim construction. On May 10, 2002, Hynix filed a motion to lift the stay. Hynix also moved to file a second amended reply to add new affirmative defenses of estoppel and waiver to Rambus’ counterclaims of infringement. The Company opposed the motion to lift the stay, but did not oppose Hynix’s motion to file the second amended reply. On June 18, 2002, the Court denied Hynix’s motion to lift the stay, granted its motion for leave to file a second amended reply to counterclaims, and scheduled another case management conference for September 20, 2002.

In September 2000, the Company filed suit against Hynix in Germany, France and Great Britain for infringement of a European patent. The French suit included court-sanctioned seizure of documents and samples from a Hynix facility. On December 7, 2001, in the German suit, an “order for evidence” calling for the appointment of an independent expert was issued by the Mannheim court. The expert has been appointed and is the same expert as in the Infineon and Micron cases in Germany. The French suit is in an early phase. The British suit has been temporarily stayed.

On August 10, 2001, following the trial results in the Infineon case, Rambus Inc. was named as a defendant in a purported federal class action in the United States District Court for the Northern District of California. That action was brought allegedly on behalf of a class of plaintiffs who purchased Rambus Common Stock between February 11, 2000 and May 9, 2001, inclusive, and asserted claims under Section 10(b) of the Exchange Act and Section 20(a) of the Exchange Act, as well as Rule 10b-5. The Complaint alleges that Rambus misled shareholders concerning its business and the status of its intellectual property in light of allegations concerning the Company’s involvement in JEDEC. Fourteen similar actions were filed in the Northern District of California, and one was also filed in the Eastern District of Virginia. On November 16, 2001, a lead plaintiff was appointed. All of these cases were consolidated on December 13, 2001. A consolidated amended complaint was filed on March 22, 2002. The class period for the consolidated complaint runs from January 11, 2000 through May 9, 2001. On May 17, 2002, Rambus moved to dismiss the consolidated complaint and the hearing for that motion is currently set for September 13, 2002. The Company intends to continue to vigorously defend itself in this action.

On August 15, 2001, a purported shareholder derivative lawsuit was filed in Delaware Chancery Court. The Company is a nominal defendant and the Company’s directors are defendants. Additional similar actions were filed and consolidated. The consolidated complaint was filed on November 12, 2001 and alleges that the individual defendants caused the Company to engage in an improper course of conduct relating to JEDEC and its intellectual property beginning in 1992 and continuing through the Infineon trial in May of 2001. The complaint alleges breaches of fiduciary duty, misappropriation of confidential information for personal profit, and asks for contribution or indemnification from the named director defendants. The Company filed a motion to dismiss this complaint. Plaintiffs have opposed it, and briefing is now completed but a hearing date has not yet been set. The Company intends to continue to vigorously defend itself in this action.

Similar derivative actions were filed in California Superior Court, Santa Clara County. The complaints assert claims for breaches of fiduciary duty and violation of California’s proscription against insider trading. The cases were consolidated on November 9, 2001 by the Court. The Court on that date also granted defendants’ motion to stay the consolidated case in deference to the earlier filed Delaware actions described above. Rambus and plaintiffs in two subsequent cases brought on similar grounds have agreed to stay those cases on similar terms. Plaintiffs agreed to consolidate all of these cases together by stipulation with defendants on or around July 3, 2002. On July 17, 2002, all parties agreed to stipulate to stay the consolidated action. That stipulation has not yet been ordered by the Judge handling the consolidated action.

On April 3, 2002, the Company was served with a complaint in an action filed in California Superior Court, Santa Clara County. The complaint in that case purports to be on behalf of an alleged class of “indirect purchasers” of memory from January 2000 to March 2002. Plaintiff alleges that those purchasers paid higher prices for various types of dynamic random access memory (DRAM) due to the Company’s alleged unlawful use of market power in the various DRAM markets to coerce vendors of equipment using that technology to enter into supposed agreements in restraint of trade. Plaintiffs base their claims on various legal theories and on Rambus’ alleged anticompetitive actions in patenting and licensing various technologies relating to DRAM, which plaintiffs assert, occurred during the Company’s involvement at JEDEC in 1992 through 1996, as well as during the Company’s subsequent patent licensing and litigation efforts. Plaintiffs seek legal and equitable relief. The Company demurred to this complaint in its entirety on June 24, 2002, with a hearing for such motion now set for August 27, 2002. The Company intends to vigorously defend itself in this action.

On June 19, 2002, the Federal Trade Commission (“FTC”) filed a complaint against the Company. The FTC has alleged that Rambus has obtained monopoly power in — or created a dangerous probability of monopolization in — synchronous DRAM technology markets. The FTC has also alleged unfair methods of competition in violation of Section 5 of the FTC Act. These allegations all arise from the same 1992-1996 JEDEC conduct at issue in the Infineon case. The Company intends to vigorously defend itself in this action.

	Percent of Total Revenues, Three Months Ended June 30,				Percent Change 2002 v. 2001
	2002		2001		Percent Change 2002 v. 2001
Revenues:
Contract revenues	6.4	%	15.0	%	(57.1	)%
Royalties	93.6		85.0		12.1

Total revenues	100.0	%	100.0	%	1.7	%

Costs and expenses:
Cost of contract revenues	7.5		11.6		(33.7	)
Research and development	24.7		20.7		21.2
Marketing, general and administrative	35.5		59.6		(39.5	)

Total costs and expenses	67.7		91.9		(25.1	)

Operating income	32.3		8.1		303.9
Interest and other income, net	6.0		10.0		(38.6	)

Income before income taxes	38.3		18.1		115.4
Provision for income taxes	13.4		2.2		530.0

Net income	24.9	%	15.9	%	59.1	%

	Percent of Total Revenues, Nine Months Ended June 30,				Percent Change 2002 v. 2001
	2002		2001		Percent Change 2002 v. 2001
Revenues:
Contract revenues	8.8	%	21.2	%	(66.7	)%
Royalties	91.2		78.8		(6.4	)

Total revenues	100.0	%	100.0	%	(19.2	)%

Costs and Expenses:
Cost of contract revenues	8.0		8.9		(27.4	)
Research and development	22.5		14.8		22.9
Marketing, general and administrative	36.3		40.0		(26.7	)

Total costs and expenses	66.8		63.7		(15.3	)

Operating income	33.2		36.3		(26.2	)
Interest and other income, net	7.0		7.8		(27.6	)

Income before income taxes	40.2		44.1		(26.4	)
Provision for income taxes	14.1		16.3		(30.4	)

Net income	26.1	%	27.8	%	(24.1	)%

Contract revenues decreased 57.1% to $1.5 million (6.4% of total revenues) and 66.7% to $6.3 million (8.8% of total revenues) in the third quarter and first nine months of fiscal 2002, respectively, over the comparable periods of fiscal 2001 largely due to the expiration of revenue recognition periods for several RDRAM contracts. Contract revenues in the fiscal 2002 periods include the first contracts for RaSer^® Serial Link technology. Revenue from the RaSer Serial Link business commenced in the second half of fiscal 2001 and represents a material percentage of total contract revenue in the third quarter and first nine months of fiscal 2002, respectively. Contract revenues are expected to remain relatively flat until the Company is successful in negotiating significant new license agreements, such as for the Company’s new RaSer Serial Link and Yellowstone interface technologies. Contract revenues generally fluctuate over time based upon the value of new contracts and the value of contracts for which the revenue recognition periods have expired.

Royalties in the third quarter and first nine months of fiscal 2002 were $22.2 million (93.6% of total revenues) and $65.8 million (91.2% of total revenues), respectively, up 12.1% and down 6.4% from the comparable periods of fiscal 2001, respectively. For the first of the Company’s three current royalty sources, namely licensees’ shipments of RDRAM memory devices and memory controllers that connect to RDRAM memory devices, revenues in the fiscal 2002 periods from licensees’ shipments into the desktop PC, server, workstation, and Sony PlayStation2 markets were lower due to a combination of fluctuations in unit volume and average selling prices. This decline is exclusive of revenues from RDRAM controllers shipped by Intel, for which we do not receive unit volume information. The second of the Company’s three current royalty sources is royalties from licensees for the use of Rambus patents and intellectual property in SDRAM, DDR and logic products which directly control these memories. Royalties from this source were significantly lower in the fiscal 2002 periods primarily due to new fixed royalty agreements and a decline in ASPs for SDRAM memory devices from the fiscal 2001 periods. In the third quarter of fiscal 2001, due to the rapid decline in DRAM ASPs and due to adverse interim results in litigation, the Company had discussions with one major SDRAM and DDR licensee and agreed to a fixed royalty amount on memory for at least four quarters. In the third quarter of fiscal 2002, the Company had discussions with one minor SDRAM and DDR licensee and reached an agreement that also calls for fixed royalty payments. In both cases, the Company believes the long-term financial impact of these agreements remains unchanged because the royalty payments return to the original agreement terms if the Company obtains favorable outcomes in its litigation. Other licensees occasionally raise concerns similar to those raised by these licensees and there is no assurance that such concerns can be addressed in a similar fashion. The third of the Company’s three current royalty sources is an agreement with Intel reached in the fourth quarter of fiscal 2001 for five years of fixed quarterly payments which grants Intel access to Rambus’ complete patent portfolio.

The Company anticipates that future RDRAM royalties will be largely dependent upon system sales by PC and workstation manufacturers and by Sony. The markets addressed by systems companies using RDRAM memory devices and controllers, including those in the video game console and PC businesses, are characterized by extreme volatility, frequent new product introductions and rapidly shifting consumer preferences, and there can be no assurance as to the unit volumes of RDRAM memory devices and controllers that will be purchased in the future or the level of royalty-bearing revenues that the Company will receive due to these applications. None of the systems companies currently incorporating RDRAM memory devices and controllers into their system products is contractually obligated to continue doing so. Given the concentration of royalties from a limited number of sources, it is likely that royalties will continue to vary greatly from period to period.

Because most of the Company’s revenues are derived from a small number of licensees, the Company’s revenues tend to be highly concentrated. In the third quarter and first nine months of fiscal 2002, revenues from the Company’s top five licensees accounted for approximately 83% and 84% of the Company’s revenues, respectively. In the comparable periods of fiscal 2001, revenues from the Company’s top five licensees accounted for 74% and 75% of total revenues, respectively. During the third quarter of fiscal 2002, three customers accounted for 42%, 15%, and 15% of total revenues. During the first nine months of fiscal 2002, the same three customers accounted for 42%, 17%, and 15% of total revenues. In the third quarter of fiscal 2001, three customers accounted for 31%, 21% and 10% of total revenues, respectively. In the first nine months of

fiscal 2001, the same three customers accounted for 28%, 18% and 12% of total revenues, respectively, with one additional customer accounting for 12% of total revenues. The Company expects that it will continue to experience significant revenue concentration for the foreseeable future. However, the particular licensees which account for revenue concentration may vary from period to period depending on the addition of new contracts, industry consolidation, the expiration of deferred revenue schedules under existing contracts, and the volumes and prices at which the licensees sell licensed memory devices and controllers to systems companies in any given period.

The royalties received by the Company are also partially a function of the adoption of Rambus technology by systems companies and the acceptance of the systems companies’ products by end users. The Company generally does not have a direct contractual relationship with systems companies, and the royalty reports submitted by the Company’s licensees generally do not disclose the identity of, or unit volume of, licensed memory devices and controllers purchased by particular systems companies. As a result, it is difficult for the Company to predict the extent to which its future revenues will be dependent upon particular systems companies.

International revenues constituted 55% of total revenues in both the third quarter and first nine months of fiscal 2002, and 88% and 89% in the comparable periods of fiscal 2001, respectively. In the fiscal 2002 periods, international revenues account for a reduced percentage of total revenues due to an increase in domestic revenues and a decline in international revenues from the comparable periods of fiscal 2001. The Company expects that revenues derived from international licensees will continue to represent a significant portion of its total revenues in the future. All of the revenues from international licensees to date have been denominated in United States dollars.

Substantially all of the license fees and engineering service fees from RDRAM and RaSer licenses are bundled together as contract fees because the Company generally does not provide or price these components separately. The RDRAM contracts also generally include rights to upgrades and enhancements. Accordingly, Rambus recognizes contract revenues ratably over the period during which post-contract customer support is expected to be provided. The excess of contract fees received over revenue recognized is shown on the Company’s balance sheet as deferred revenue.

Engineering Costs. Engineering costs, consisting of cost of contract revenues and research and development expenses, increased 1.5% to $7.6 million (32.2% of total revenues) and increased 4.0% to $22.0 million (30.5% of total revenues) in the third quarter and first nine months of fiscal 2002, respectively, over the comparable periods of fiscal 2001. The increase in engineering costs for the third quarter and first nine months of fiscal 2002 was primarily attributable to investments in the RaSer Serial Link and Yellowstone interface technologies and higher operating costs of the new office facilities to which the Company relocated at the beginning of the second quarter of fiscal 2001.

percentage of total engineering costs reflects the shift in engineering resources toward development of the Company’s technology roadmap and new chip connection activities. The Company believes that the level of cost of contract revenues will continue to fluctuate in the future, both in absolute dollars and as a percentage of revenues, as new generations of RDRAM and Yellowstone memory devices and controllers and RaSer cells go through the development and implementation phases.

Research and Development. Research and development expenses were $5.8 million and $16.2 million in the third quarter and first nine months of fiscal 2002, respectively, up 21.2% and 22.9% from the comparable periods of fiscal 2001. Research and development expenses accounted for 74% of total engineering costs in the first nine months of fiscal 2002, up from 62% in the comparable period of fiscal 2001 as the Company continued to shift engineering resources to development of its technology roadmap and new chip connection activities. The Company expects research and development expenses to increase over time as it enhances and improves its chip-to-chip interface technologies. The rate of increase of, and the percentage of revenues represented by, research and development expenses in the future will vary from period to period based on the research and development projects underway and the change in engineering headcount in any given period, as well as the rate of change in the Company’s total revenues.

Marketing, General and Administrative. Marketing, general and administrative expenses decreased 39.5% to $8.4 million and 26.7% to $26.2 million in the third quarter and first nine months of fiscal 2002, respectively, from the comparable periods of fiscal 2001 largely due to a reduced level of legal activity associated with the Company’s defense of its intellectual property as the Company awaits related hearings and trials. Litigation costs decreased to $2.4 million in the third quarter of fiscal 2002 from $8.8 million in the comparable period of 2001, and decreased to $8.5 million in the first nine months of fiscal 2002 from $20.3 million in the comparable period of 2001. The effect of reduced legal expenses was partially offset by higher payroll costs associated with changes in sales, marketing and administrative headcount, increased outside services costs associated with new marketing programs, and higher rent and other ongoing operating costs associated with relocating the Company’s corporate headquarters to a larger facility at the beginning of the second quarter of fiscal 2001 to accommodate anticipated long-term growth. In spite of a relatively flat revenue base in the fiscal 2002 and 2001 periods, marketing, general and administrative expenses decreased as a percentage of revenues from 59.6% in the third quarter of fiscal 2001 to 35.5% in the third quarter of fiscal 2002 primarily due to the significant reduction in legal expenses. The Company expects marketing and sales expenses to vary in the future as the Company markets its technology and assists systems companies with adapting this technology to new generations of products. Litigation expenses are expected to vary from period to period based upon the volatility of litigation activities and the Company’s efforts to focus its resources upon protecting its intellectual property rights. The rate of increase of, and the percentage of revenues represented by, marketing, general and administrative expenses in the future will vary from period to period based on the trade shows, advertising, legal and other marketing and administrative activities undertaken and the change in sales, marketing and administrative headcount in any given period, as well as the rate of change in the Company’s total revenues.

Interest and Other Income, Net. Interest and other income decreased to $1.4 million in the third quarter of fiscal 2002 from $2.3 million in the comparable period of fiscal 2001, and to $5.0 million in the first nine months of fiscal 2002 from $6.9 million in the comparable period of fiscal 2001 primarily due to declining interest rates and reduced sublease income. Interest and other income consists primarily of interest income from the Company’s cash investments. In addition, beginning in the second quarter of fiscal 2001, interest and other income includes net income recognized from the Company’s sublease of its former office facilities in Mountain View, California. In the second quarter of fiscal 2002, the Company agreed to accept reduced rent payments from its sub-tenant in exchange for an increase in the letter of credit that serves as collateral for certain of the sub-tenant’s obligations under the lease. In the third quarter of fiscal 2002, the Company recognized a $2.0 million gain on the sale of a security, which was almost entirely offset by an increase in the valuation allowance related to one of the strategic investments held by the Company. In the absence of significant interest rate changes, the Company expects interest and other income to remain relatively flat in future periods.

Provision for Income Taxes. The Company recorded a provision for income taxes of $3.2 million and $10.1 million in the third quarter and first nine months of fiscal 2002, respectively, compared to a provision of approximately $500,000 and $14.6 million in the comparable periods of fiscal 2001, respectively. The estimated federal and state combined rates on pretax income for the first nine months of fiscal 2002 and 2001 were 35% and 37%, respectively. The Company’s effective tax rate differs from the statutory rate due to differences related to the timing of recognition of contract and royalty revenues and expenses for tax and financial reporting purposes.

In November 1996, the Company entered into an agreement with Intel Corporation for the development of high-speed semiconductor memory interface technology. In January 1997, as part of this agreement, the Company issued a warrant to purchase 4,000,000 shares of Common Stock of the Company at a purchase price of $2.50 per share (the “Intel warrant”). This warrant was to have become exercisable only upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM chipsets (the “Intel milestones”). A complete discussion of these milestones is set forth in the Intel warrant filed as Exhibit 4.4 to the Company’s Form 8-K filed on July 7, 2000. In September 2001, this warrant was canceled as part of contract negotiations, which resulted in a new royalty-bearing contract with Intel.

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to investments, income taxes, litigation and other contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company generates revenues from four types of agreements with semiconductor companies. The first type of agreement, for memory interface technology which is fully compatible with the RDRAM standard (“RDRAM licenses”), allows semiconductor manufacturers to manufacture and sell RDRAM memory devices and memory controllers that connect to RDRAM memory devices. The second type of agreement covers the use of Rambus patents in Synchronous DRAM (“SDRAM”) and double data-rate (“DDR”) memory devices and logic ICs which control such memory. The third type of agreement is for the RaSer cell that licensees integrate into their logic ICs for high-speed serial links. The fourth type of agreement is one with Intel for five years of payments which grants Intel access to Rambus’ complete patent portfolio. Intel retains a license at the end of five years if all payments are made during the five-year period.

RDRAM licenses allow a semiconductor manufacturer to use the Company’s proprietary technology and to receive engineering implementation services, customer support, and enhancements. The Company delivers to a new RDRAM licensee an implementation package, which contains the information needed to develop a chip incorporating RDRAM memory interface technology in the licensee’s process. An implementation package includes a specification, a generalized circuit layout database software for the particular version of the chip which the licensee intends to develop, test parameter software and, for memory chips, a core interface specification. Test parameters are the programs that test the RDRAM technology embedded in the customer’s product. Many licensees have contracted to have Rambus provide the specific engineering implementation services required to optimize the generalized circuit layout for the licensee’s manufacturing process. The RDRAM licenses also provide for the right to receive ongoing customer support, which includes technical advice on chip specifications, enhancements, debugging and testing.

The Company recognizes revenue on RDRAM licenses consistent with American Institute of Certified Public Accountants (AICPA) Statement of Position No. 98-9 (SOP 98-9), modification of SOP 97-2, “Software Revenue Recognition.” This SOP applies to all entities that earn revenue on products containing software, where software is not incidental to the product as a whole. Contract fees for the services provided under these agreements are comprised of license fees, engineering service fees and nonrefundable, prepaid royalties. Contract fees are bundled together as the total price of the agreement does not vary as a result of inclusion or exclusion of services. Accordingly, the revenues from such contract fees are recognized ratably over the period during which the post-contract customer support is expected to be provided independent of the payment schedules under the contract, including milestones. We review assumptions regarding the post-contract customer support periods on a regular basis. If we determine that it is necessary to revise our estimates of the support periods, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the post-contract customer support periods were less than the original assumptions, the contract fees would be recognized ratably over an accelerated period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.

At the time the Company begins to recognize revenue under RDRAM licenses, the remaining obligations, as defined by the SOP, are no longer significant. These remaining obligations are primarily to keep the product updated and include activities such as responding to inquiries and periodic customer meetings. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by the Company or production of chips by the licensee. The remaining fees are due on pre-determined dates and include significant up-front fees. The excess of contract fees received over revenue recognized is shown on the balance sheet as deferred revenue.

As of June 30, 2002, we are involved in certain legal proceedings, as discussed in Note 6 of our consolidated financial statements. Based upon consultation with outside counsel handling our defense in these matters and an analysis of potential results, we have not accrued any amounts for potential losses related to these proceedings. Because of uncertainties related to both the amount and range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation. We will record accruals for losses if and when we determine the negative outcome of such matters to be probable and reasonably estimable. Our estimates regarding such losses could differ from actual results. Revisions in our estimates of the potential liability could materially impact our results of operations and financial position.

We classify all of our marketable securities as available-for-sale. We carry these investments at fair value, based on quoted market prices, and unrealized gains and losses are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity. Realized gains and losses are recorded in our consolidated statement of operations. If we believe that an other-than-temporary decline exists in one of our marketable securities, it is our policy to write down these investments to the market value and record the related write-down as a reduction of interest income.

Significant management judgment, based upon the advice of outside tax advisors, is required to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. As of June 30, 2002, we have recorded a valuation allowance of $5.9 million due to uncertainties related to our ability to recover some of our deferred tax assets. The valuation allowance is based upon our estimates of taxable income and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

As of June 30, 2002, the Company had cash and cash equivalents and marketable securities of $163.3 million, including restricted investments of $12.6 million and a long-term marketable securities component of $54 million. As of the same date, the Company had total working capital of $90.1 million, including a short-term component of deferred revenue of $11.1 million. Deferred revenue represents the excess of cash received from licensees over revenue recognized on license contracts, and the short-term component represents the amount of this deferred revenue the Company expects to recognize over the next twelve months. Without the short-term component of deferred revenue, working capital would have been $101.2 million as of June 30, 2002.

The Company’s operating activities provided net cash of $19.6 million and $21.6 million in the first nine months of fiscal 2002 and 2001, respectively. In the fiscal 2002 period, net cash provided by operating activities consisted primarily of net income adjusted for non-cash items and a decrease in accounts receivable, prepaids, deferred taxes and other assets, partially offset by a decrease in deferred revenue. The decrease in deferred revenue represents contract revenues recognized in excess of new contract billings. Cash provided by operating activities affects the Company’s liquidity. For a discussion of risks associated with the Company’s operating activities, see “Risk Factors” below.

Net cash used in financing activities was $12.8 million in the first nine months of fiscal 2002 compared to $10.3 million provided by financing activities in the comparable period of fiscal 2001. Financing activities have consisted primarily of proceeds from the sale of Common Stock under the Company’s Employee Stock Purchase and Option plans and, beginning in the first quarter of fiscal 2002, the repurchase of shares of the Company’s outstanding Common Stock. In the first nine months of fiscal 2002, the Company generated net proceeds of $3.5 million from the issuance of Common Stock and used cash of $16.3 million to repurchase Common Stock.

The Company leases its present office facilities in Los Altos, California, under an operating lease agreement. As part of this lease transaction, the Company provided the lessor with a letter of credit restricting $2.5 million of its cash as collateral for certain of the Company’s obligations under the lease. The cash is restricted as to withdrawal and is managed by a third party subject to certain limitations under the Company’s investment policy. The letter of credit was reduced to $1.2 million upon the first anniversary of rent commencement, and is subject to further reduction to $600,000 on the second anniversary of rent commencement.

Current and Potential Litigation. As the Company has extended its licensing program to SDRAM-compatible and DDR-compatible products, it has increasingly become involved in litigation either instigated by the Company or by the potential licensee. As of June 30, 2002, the Company was in litigation with three such potential SDRAM-compatible and DDR-compatible licensees. In each of these cases, the Company has claimed infringement of its patents whereas the potential licensees have generally sought damages and a determination that the Rambus patents at suit are invalid and not infringed. While the Company’s preference in all these cases is to achieve settlements resulting in SDRAM-compatible and DDR-compatible licenses, there can be no assurance that such settlements will take place, that the Company will prevail if there is no settlement or that additional litigation will not result from future efforts by the Company to obtain additional SDRAM-compatible and DDR-compatible licenses. In addition, litigation has been brought by federal regulatory authorities relating to the Company’s involvement with JEDEC. Additional such litigation may be brought against the Company or brought by the Company, including to enforce the Company’s patents and other intellectual property rights, to protect the Company’s trade secrets, to enforce existing licenses, or to determine the validity and scope of the proprietary rights of others, and there can be no assurance that the Company would prevail in any future litigation. Any such litigation, whether or not determined in the Company’s favor or settled by the Company, is costly, could involve multiple simultaneous trials, and could divert the efforts and attention of the Company’s management and technical personnel from normal business operations, which would have a material adverse effect on the Company’s business, financial condition and results of operations. Adverse determinations or adverse interim results in litigation could result in, and/or have already resulted in, at least on an interim basis, the Company losing certain rights, including the loss of the right to sue others for violating the Company’s proprietary rights, the Company being subjected to significant liabilities, the Company being required to seek licenses from third parties, the Company being prevented from licensing its technology, or the Company being required to

In any potential dispute involving the Company’s patents or other intellectual property, the Company’s licensees could also become the target of litigation. While the Company generally does not indemnify its licensees, some of its license agreements require the Company to provide technical support and information to a licensee which is involved in litigation involving use of Rambus technology. In addition, the Company is bound to indemnify certain licensees under the terms of certain license agreements, and the Company may agree to indemnify others in the future. The Company’s support and indemnification obligations could result in substantial expenses to the Company. In addition to the time and expense required for the Company to supply such support or indemnification to its licensees, a licensee’s development, marketing and sales of memory devices and controllers could be severely disrupted or shut down as a result of litigation, which in turn could have a material adverse effect on the Company’s business, financial condition and results of operations.

Unpredictable and Fluctuating Operating Results. Because many of the Company’s revenue components fluctuate and are difficult to predict, and its expenses are largely independent of revenues in any particular period, it is difficult for the Company to accurately forecast revenues and profitability. The Company recognizes contract revenues ratably over the period during which post-contract customer support on RDRAM and RaSer licenses is expected to be provided. While this means that contract revenues from current licenses are generally predictable, changes can be introduced by a reevaluation by Company management of the length of the post-contract support period. The initial estimate of this period is subject to revision as the RDRAM and RaSer technology being developed under a contract nears production, and such revision will result in an increase or decrease to the quarterly revenue for that contract. In addition, accurate prediction of revenues from new licenses is difficult because the development of a business relationship with a potential licensee is a lengthy process, frequently spanning a year or more, and the fiscal period in which a new license agreement will be entered into, if at all, and the financial terms of such an agreement are difficult to predict. Contract revenues also include fees for engineering services, which are dependent upon the varying level of assistance desired by licensees and, therefore, the revenue from these services is also difficult to predict. Adding to the complexity of making accurate financial forecasts is the fact that certain expenses associated with a particular contract may not be incurred evenly over the contract period, whereas contract fees associated with that contract are recognized ratably over the period during which the post-contract customer support is expected to be provided.

Royalties accounted for 91% of total revenues in the first nine months of fiscal 2002 and 81% of total revenues in the fiscal year ended September 30, 2001. The Company believes that royalties will represent the majority of total revenues in future periods. Increasing royalty revenues will add to the difficulty in making accurate financial forecasts. Such royalties are recognized in the quarter in which the Company receives a report from a licensee regarding the shipment of licensed memory devices and controllers in the prior quarter, and are dependent upon fluctuating sales volumes and prices of chips containing Rambus technology, all of which are beyond the Company’s ability to control or assess in advance. The Company believes that its continued success will be substantially dependent upon royalties increasing at a rate which more than offsets decreases in the recognition of revenue under existing contracts, as well as the Company’s ability to add new licensees and to license new generations of its technology to its existing licensees. Because a systems company can change its source of licensed memory devices and controllers at any time, and because the new source could have different royalty rates, any such change by a systems company, particularly one which accounts for substantial volumes of licensed memory devices and controllers, could have a sudden and significant adverse effect on the Company’s revenues.

Dependence upon Limited Number of Licensees. The Company neither manufactures nor sells devices containing its memory or serial link chip-connection technology. In general, the Company licenses its technology to semiconductor companies, which in turn manufacture and sell licensed memory devices, memory controllers, and serial links to systems companies which incorporate Rambus technology into their products. The Company’s strategy to maintain RDRAM as an industry standard is dependent upon the Company’s ability to make its technology widely available to systems companies through multiple semiconductor manufacturers, and there can be no assurance that the Company will be successful in maintaining its relationships with its current licensees or in entering into new relationships with additional licensees. In the case of RaSer serial links, semiconductor and systems companies may license directly from Rambus. The Company faces numerous risks in successfully obtaining RDRAM memory device and controller licensees on terms consistent with the Company’s business model, including, among others:

Dependence upon Systems Companies. Although sales of RDRAM memory devices to systems companies which have adopted the Company’s technology for their products are not made directly by the Company, such sales directly affect the amount of royalties from RDRAM memory devices and controllers received by the Company. Therefore, the Company’s success is partially dependent upon the adoption of the Company’s chip-connection technology by systems companies, particularly those which develop and market high-volume business and consumer products such as PCs and home video game consoles. The sales of RaSer technology are directly impacted by the sales of systems using the technology regardless of whether the license is obtained directly or through a semiconductor company. The Company is subject to many risks beyond its control that influence the success or failure of a particular systems company, including, among others:

The process of persuading systems companies to adopt the Company’s technology can be lengthy and, even if adopted, there can be no assurance that Rambus technology will be used in a product that is ultimately brought to market, achieves commercial acceptance or results in significant royalties to the Company. Rambus must dedicate substantial resources to market to and support systems companies, in addition to supporting the sales, marketing and technical efforts of its licensees in promoting Rambus technology to systems companies. Even if a systems company develops a product based on Rambus technology, success in the market will depend in part on a supply of memory devices and controllers from Rambus licensees in sufficient quantities and at commercially attractive prices. Because the Company does not control the business practices of its licensees, it has no ability to establish the prices at which the chips containing its technology are made available to systems companies or the degree to which its licensees promote Rambus technology to systems companies.

No Assurance of Adoption of RDRAM Technology as the Mainstream Industry Standard; Cost of RDRAM Technology. An important part of the Company’s strategy for its RDRAM technology to become the mainstream industry standard is to penetrate markets by working with leaders in those markets. This strategy is designed to encourage other participants in those markets to follow such leaders in adopting RDRAM technology. Should a high profile industry participant adopt RDRAM technology for one or more of its products but fail to achieve success with those products, other industry participants’ perception of RDRAM technology could be adversely affected. Any such event could reduce future sales of RDRAM memory devices and controllers. Likewise, were a market leader to adopt and achieve success with a competing technology, the Company’s reputation and sales could be adversely affected. In addition, some industry participants have adopted, and others may in the future adopt, a strategy of disparaging the Rambus solution adopted by their competitors. Failure of the Company’s technology to be adopted as the mainsteam industry standard and/or to maintain performance leadership would have a material adverse effect on the Company’s business, financial condition and results of operations.

One important requirement for the Company’s RDRAM technology to be adopted as the mainstream industry standard is for any premium in the price and cost of RDRAM devices over alternatives to be reasonable in comparison to the perceived benefits of the technology. However, there can be no assurance that the price and cost premium for RDRAM memory over standard memory can be reduced sufficiently to allow the development of RDRAM as the mainstream industry standard. There can be no assurance that yields to the full 800, 1066, 1200, or 1333 MHz specification will maintain satisfactory levels. In addition, because of the extra interface circuitry and other features, an RDRAM chip is somewhat larger than a standard SDRAM. Therefore, a manufacturer will generally produce fewer RDRAM devices than standard SDRAM for a given wafer size and an RDRAM chip will be somewhat more expensive than the standard SDRAM version. Also, RDRAM manufacturers are responsible for their own manufacturing processes, and Rambus has no role in the manufacture of RDRAM memory devices. For example, Rambus has no influence on decisions in regard to any process changes or on whether or when to “shrink” or otherwise change a design to reduce the cost of the chips.

RDRAM memory devices use newer-generation chip-scale packaging (“CSP”) and require high-speed testers for a portion of the test procedure. While the Company feels that testing costs for RDRAM memory devices in mass production volumes will be no greater than for current standard SDRAM, additional capital equipment is required and startup costs are incurred by the manufacturers producing RDRAM memory devices. In addition, for PC main memory applications, memory modules (called “RIMM^™ modules”), connectors and clock chips must be produced by multiple vendors and available in volume. There is no assurance that such changes in the manufacturing processes and infrastructure of the DRAM industry can be accomplished at a sufficiently competitive price to allow the development of a mass market for RDRAM technology.

Dependence upon PC Main Memory Market Segment and Intel. An important part of the Company’s strategy is for its RDRAM technology to penetrate the market segment for PC main memory. To date, the only use of RDRAM technology in this market is via chipsets developed by Intel which allow RDRAM memory devices to connect to Pentium III and Pentium IV processors. There can be no assurance that the pricing of RDRAM memory devices will be reduced to a competitive level or that Intel chipsets and RDRAM technology will be successful in penetrating the market segment for PC main memory. Furthermore, Intel has in the past changed its roadmap to eliminate certain products using RDRAM technology and there can be no assurance that Intel’s emphasis or priorities will not further change in the future, resulting in less attention and fewer resources being devoted to developing chipsets supporting RDRAM. Intel could stop developing chipsets that support RDRAM technology. Also, there can be no assurance that Rambus and Intel will continue to be able to work together successfully over an extended period of time or that Intel will not continue to develop or adopt competing technologies in the future. Failure of the Company’s technology to maintain performance leadership would have a material adverse effect on the Company’s business, financial condition and results of operations.

Revenue Concentration. The Company is subject to revenue concentration risks at both the licensee and the systems company levels. In the first nine months of fiscal 2002 and 2001, revenues from the Company’s top five licensees accounted for approximately 84% and 75% of the Company’s revenues, respectively. Because the revenues derived from various licensees vary from period to period depending on the addition of new contracts, the expiration of deferred revenue schedules under existing contracts and the volumes and prices at which the licensees have recently sold licensed memory devices and controllers to systems companies, the particular licensees which account for revenue concentration have varied from period to period. These variations are expected to continue in the foreseeable future, although the Company anticipates that revenue will continue to be concentrated in a limited number of licensees.

The royalties received by the Company are a function of the adoption of Rambus technology at the systems company level. Systems companies purchase semiconductors containing Rambus technology from Rambus licensees and, other than for RaSer technology, generally do not have a direct contractual relationship with the Company. The Company’s licensees generally do not provide detail as to the identity or volume of licensed memory devices and controllers purchased by particular systems companies. As a result, the Company faces difficulty in analyzing the extent to which its future revenues will be dependent upon particular systems companies. Systems companies face intense competitive pressure in their markets, which are characterized by extreme volatility, frequent new product introductions and rapidly shifting consumer preferences, and there can be no assurance as to the unit volumes of licensed memory devices and controllers that will be purchased by these companies in the future or as to the level of royalty-bearing revenues that the Company’s licensees will receive from sales to these companies. There can be no assurance that a significant number of other systems companies will adopt the Company’s technology or that the Company’s dependence upon particular systems companies will decrease in the future.

Reliance upon DRAM Market; Declines in DRAM Price and Unit Volume per System. In fiscal 2001 and the first nine months of fiscal 2002, a material percentage of the Company’s royalties was derived from the sale of DRAM. Royalties on DRAM are based on the volumes and prices of DRAM manufactured and sold by the Company’s licensees. The royalties received by the Company, therefore, are influenced by many of the risks faced by the DRAM market in general, including constraints on the volumes shipped during periods of shortage and reduced average selling prices (ASPs) during periods of surplus. The DRAM market is intensely competitive and generally is characterized by declining ASPs over the life of a generation of chips. Such price decreases, and the corresponding decreases in per unit royalties received by the Company, can be sudden and dramatic. Compounding the effect of price decreases is the fact that, under certain of the Company’s RDRAM license agreements, royalty rates decrease as a function of time or volume. There can be no assurance that decreases in DRAM prices or in the Company’s royalty rates will not have a material adverse effect on the Company’s business, results of operations and financial condition. There can be no assurance that the Company will be successful in maintaining or increasing its share of any market.

Rapid Technological Change; Reliance on Fundamental Technology; Importance of Timely New Product Development. The semiconductor industry is characterized by rapid technological change, with new generations of semiconductors being introduced periodically and with ongoing evolutionary improvements. Since beginning operations in 1990, the Company has derived all of its revenue from its chip-connection technology and expects that this dependence on its fundamental technology will continue for the foreseeable future. Accordingly, broad acceptance of the Company’s technology is critical to the Company’s future success. The introduction or market acceptance of competing technology which renders the Company’s chip-connection technology less desirable or obsolete would have a rapid and material adverse effect on the Company’s business, results of operations and financial condition. The announcement of new products by the Company could cause licensees or systems companies to delay or defer entering into arrangements for the use of the Company’s technology, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company’s operating results will depend to a significant extent on its ability to introduce enhancements and new generations of its chip-connection technologies which keep pace with other changes in the semiconductor industry and which achieve rapid market acceptance. The Company must continually devote significant engineering resources to addressing the ever-increasing need for memory bandwidth associated with increases in the speed of microprocessors and other controllers, as well as to serial link and signaling technologies. Technical innovations of the type that will be required for the Company to be successful are inherently complex and require long development cycles, and there can be no assurance that the Company’s development efforts will ultimately be successful. In addition, these innovations must be completed before changes in the semiconductor industry have rendered them obsolete, must be available when systems companies require these innovations, and must be sufficiently compelling to cause semiconductor manufacturers to enter into licensing arrangements with Rambus for the new technologies. There can be no assurance that Rambus will be able to meet these requirements. Moreover, significant technological innovations generally require a substantial investment before their commercial viability can be determined. There can be no assurance that the Company will have the financial resources necessary to fund future development, that the Company’s licensees will continue to share certain research and development costs with the Company as they have in the past, or that revenues from enhancements or new generations of the Company’s technology, even if successfully developed, will exceed the costs of development.

Competition. The semiconductor industry is intensely competitive and has been characterized by price erosion, rapid technological change, short product life cycles, cyclical market patterns and increasing foreign and domestic competition. Most major DRAM manufacturers, including RDRAM licensees, produce SDRAM, DDR, FCRAM, and RLDRAM, which compete with RDRAM memory devices. These companies are much larger and have better access to financial, certain technical and other resources than Rambus.

The Company believes that its principal competition for memory interfaces may come from its licensees and prospective licensees, many of which are evaluating and developing products based on alternative technologies and are beginning to take a systems approach similar to the Company’s in solving the application needs of systems companies. Most DRAM suppliers have been producing DDR, which doubles the memory bandwidth compared to SDRAM without doubling the clock frequency. While Rambus has been successful in negotiating SDRAM-compatible and DDR-compatible licenses with some DRAM manufacturers which include the payment of royalties on DDR, other manufacturers have not agreed to a license and are in litigation with the Company.

A consortium including semiconductor and systems companies is thought to be developing an extension of DDR known as DDR-2. To the extent that these alternative technologies provide comparable system performance at lower than or similar cost to RDRAM memory devices, or are perceived to require the payment of lower royalties, the Company’s licensees and prospective licensees may adopt and promote the alternative technologies. There can be no assurance that the Company’s future competition will not have a material adverse effect on the Company’s business, results of operations and financial condition. While the Company might determine that such alternative technologies, when and if developed, infringe the Company’s patents, there can

Limited Protection of Intellectual Property. While the Company has an active program to protect its proprietary technology through the filing of patents, there can be no assurance that the Company’s pending United States or foreign patent applications or any future United States or foreign patent applications will be approved, that any issued patents will protect the Company’s intellectual property or will not be challenged by third parties, that the Company will be successful in litigation relating to its patents, or that the patents of others will not have an adverse effect on the Company’s ability to do business. Furthermore, there can be no assurance that others will not independently develop similar or competing technology or design around any patents that may be issued to the Company.

The Company attempts to protect its trade secrets and other proprietary information through agreements with licensees and systems companies, proprietary information agreements with employees and consultants and other security measures. The Company also relies on trademarks and trade secret laws to protect its intellectual property. Despite these efforts, there can be no assurance that others will not gain access to the Company’s trade secrets, or that the Company can meaningfully protect its intellectual property. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries. Although the Company intends to protect its rights vigorously, there can be no assurance that such measures will be successful.

Rambus believes that it is important to develop and maintain a uniform RDRAM memory interface standard. The Company’s RDRAM contracts generally prevent a licensee from using licensee-developed patented improvements related to Rambus technology to block other licensees from using the improvements or requiring them to pay additional royalties related to their use of Rambus chip-connection technology. Specifically, the contracts generally require licensees to grant to Rambus a royalty-free cross-license on patented licensee intellectual property related to the implementation of Rambus interface technology, which Rambus sublicenses to other licensees that have entered into similar arrangements. Nonetheless, there is no assurance that such a blocking arrangement will not occur in the future.

Risks Associated with International Licenses. In the first nine months of fiscal 2002 and 2001, international revenues constituted 55% and 89% of the Company’s total revenues, respectively. The Company expects that revenues derived from international licensees will continue to represent a significant portion of its total revenues in the future. All of the revenues from international licensees have to date been denominated in United States dollars. However, to the extent that such licensees’ sales to systems companies are not denominated in United States dollars, any royalties that the Company receives as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed memory devices and controllers sold by the Company’s foreign licensees were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed memory devices and controllers could fall, which in turn would reduce the Company’s royalties. The Company does not use derivative instruments to hedge foreign exchange rate risk. In addition, international operations and demand for the products of the Company’s licensees are subject to a variety of risks, including:

In particular, the laws of certain countries in which the Company currently licenses or may in the future license its technology require significant withholding taxes on payments for intellectual property, which the Company may not be able to offset fully against its United States tax obligations. The Company is subject to the further risk that tax authorities in those countries may re-characterize certain engineering fees as license fees, which could result in increased tax withholdings and penalties. The Company’s licensees are subject to many of the risks described above with respect to systems companies which are located in different countries, particularly video game console and PC manufacturers located in Asia and elsewhere. There can be no assurance that one or more of the risks associated with international licenses of the Company’s technology will not have a direct or indirect material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the laws of certain foreign countries in which the Company’s technology is, or may in the future be, licensed may not protect the Company’s intellectual property rights to the same extent as the laws of the United States, thus increasing the possibility of infringement of the Company’s intellectual property.

Dependence on Key Personnel. The Company’s success depends to a significant extent on its ability to identify, attract, motivate and retain qualified technical, sales, marketing, finance and executive personnel. Because the future success of the Company is dependent upon its ability to continue to enhance and introduce new generations of its technology, the Company is particularly dependent upon its ability to identify, attract, motivate and retain qualified engineers with the requisite educational background and industry experience. Competition for qualified engineers, particularly those with significant industry experience, is intense. The Company is also dependent upon its senior management personnel, most of whom have worked together at the Company for several years. The loss of the services of any of the senior management personnel or a significant number of the Company’s engineers could be disruptive to the Company’s development efforts or business relationships and could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company generally does not enter into employment contracts with its employees and does not maintain key person life insurance.

Management of Expanded Operations. The Company is not experienced in managing rapid growth. The Company may not be equipped to successfully manage any future periods of rapid growth or expansion, which could be expected to place a significant strain on the Company’s limited managerial, financial, engineering and other resources. The Company’s RaSer and RDRAM licensees and systems companies rely heavily on the Company’s technological expertise in designing, testing and manufacturing products incorporating the Company’s interface technologies. In addition, relationships with new Yellowstone, RaSer and RDRAM licensees or systems companies generally require significant engineering support. As a result, any increases in adoption of the Company’s technology will increase the strain on the Company’s resources, particularly the Company’s engineers. Any delays or difficulties in the Company’s research and development process caused by these factors or others could make it difficult for the Company to develop future generations of its interface technology and to remain competitive. In addition, the rapid rate of hiring new employees could be disruptive and could adversely affect the efficiency of the Company’s research and development process. The rate of the Company’s future expansion, if any, in combination with the complexity of the technology involved in the Company’s licensee-based business model, may demand an unusually high level of managerial effectiveness in anticipating, planning, coordinating and meeting the operational needs of the Company as well as the needs of the licensees and systems companies. Additionally, the Company may be required to reorganize its managerial

The Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company places its investments with high credit issuers and by policy limits the amount of credit exposure to any one issuer. As stated in its policy, the Company will ensure the safety and preservation of its invested funds by limiting default risk and market risk. The Company has no investments denominated in foreign country currencies, other than immaterial cash accounts, and therefore is not subject to foreign exchange risk.

On August 8, 2000, the Company filed suit in the U.S. District Court for the Eastern District of Virginia (the “Virginia court”) against Infineon Technologies AG (“Infineon”) and its North American subsidiary for patent infringement of two U.S. patents (USDC Virginia Civil Action No.: 3:00CV524). On September 25, 2000, Infineon filed counterclaims against the Company in the U.S. case seeking a declaratory judgment that the two asserted patents are invalid and not infringed and further claiming contributory infringement by the Company of two Infineon U.S. patents. In addition, Infineon also asserted breach of contract, fraud, RICO, and monopolization claims in connection with the Company’s participation in an industry standards-setting group known as JEDEC where the Company is alleged not to have disclosed certain of its then-pending patent applications (“JEDEC related claims”). The Infineon counterclaims sought compensatory and punitive damages, attorneys’ fees, injunctions to halt future infringement of the Infineon patents, and an award of a royalty-free license to the Rambus patents. In October 2000, the Company amended its complaint to assert infringement of two additional U.S. patents. In January 2001, Infineon amended its answer and counterclaims to include a request for a declaratory judgment that all four asserted Rambus patents are invalid and not infringed. In addition, Infineon withdrew all contributory patent infringement claims against the Company relating to Infineon’s U.S. patents.

The Company has appealed the rulings by the Virginia court relating to infringement, including the rulings on patent claim construction, which are known as “Markman rulings.” The Company has also appealed numerous liability rulings by the Virginia court with respect to the JEDEC related claims concerning SDRAM standard setting. The Company has also filed an appeal with respect to the permanent injunction ruling. Infineon has appealed two rulings against it: that Rambus committed no fraud with respect to the JEDEC DDR standard and that no injunction should reach patent enforcement actions in Europe. These appeals were consolidated by the U.S. Court of Appeals for the Federal Circuit (CAFC) (Appeal Nos. 01-1449, 01-1583, 01-1604, 01-1641). Briefing on all of the issues appealed was completed on an expedited schedule, oral arguments were heard by the CAFC on June 3, 2002, and the Company is currently awaiting a decision from the CAFC.

On August 7, 2000, the Company filed suit in the District Court in Mannheim, Germany (the “Mannheim court”) against Infineon for infringement of one European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the Mannheim court issued an “order for evidence” requiring the appointment of an independent technical expert to evaluate certain technical aspects of Rambus’ infringement claim. The Mannheim court subsequently appointed its independent technical expert, and the expert delivered his report to the Mannheim court and the parties in early May 2002. Briefing by the parties in response to the expert report is due at the end of August 2002, and the Mannheim court is expected to schedule a further hearing to determine whether Infineon products infringe Rambus’ patent. In the meantime, the validity of the same Rambus European patent is being reviewed by the European Patent Office (EPO), which has issued a preliminary, non-binding opinion indicating

On August 28, 2000, Micron Technology, Inc. (“Micron”) filed suit against the Company in the U.S. District Court in Delaware (USDC Delaware Civil Action No.: 00-792-RRM). The suit asserts violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with the Company’s participation in JEDEC. Micron’s suit seeks a declaration of monopolization by the Company, compensatory and punitive damages, attorneys’ fees, a declaratory judgment that eight Rambus patents are invalid and not infringed and the award to Micron of a royalty-free license to the Rambus patents. In February 2001, the Company filed its answer and counterclaims, whereby the Company disputes Micron’s claims and asserts infringement by Micron of the eight U.S. patents. Both sides filed a number of potentially dispositive motions for summary judgment. On February 27, 2002, the court ruled on some of these motions, denying Micron’s motion for summary judgment on its claims of fraud. The Delaware court also postponed trial on all of the issues in the Micron case until after the CAFC reviews the judgments of the Virginia court in the Infineon matter. Discovery is ongoing in the Delaware action. Due to the resignation of Judge Roderick R. McKelvie, this case was assigned to a Magistrate Judge for all pretrial proceedings, and it is expected will be assigned to the Judge who is ultimately nominated and confirmed to fill the vacancy left by Judge McKelvie.

On August 29, 2000, Hyundai Electronics Industries Co., Ltd. (“Hyundai”) and various subsidiaries filed suit against the Company in the U.S. District Court for the Northern District of California (USDC Northern District of California Case No.: 00-20905 RMW). Since filing suit, Hyundai has changed its name to “Hynix Semiconductor Inc.” (“Hynix”). The suit asserts breach of contract in connection with the Company’s participation in JEDEC and seeks a declaratory judgment that eleven Rambus patents are invalid and not infringed by Hynix. In November 2000, Hynix amended its complaint to further assert violations of federal antitrust laws, deceptive trade practices, breach of contract, fraud and negligent misrepresentation in connection with the Company’s participation in JEDEC. Hynix seeks a declaration of monopolization by the Company, compensatory and punitive damages, and attorneys’ fees. In February 2001, the Company filed its answer and counterclaims, whereby the Company disputes Hynix’s claims and asserts infringement of eleven U.S. patents. On November 21, 2001, the California court ruled that the claim construction applied in the Virginia case against Infineon should be applied in the case with Hynix, and, as a result, dismissed most of the Company’s claims of patent infringement against Hynix. In doing so, the California court relied on the principles of collateral estoppel and declined to decide whether, on the merits, the Virginia claim construction was correctly or incorrectly

decided. The Virginia claim construction issue is one of the matters that will be reviewed as part of the Company’s pending appeal in the Infineon case. On December 14, 2001, the California court stayed the Hynix case on grounds that suggest that the stay will remain in place until there is an outcome in the Rambus v. Infineon case. At that point, Rambus will, depending on the outcome of the Virginia appeal, determine whether to challenge the California court’s adoption of the Virginia claim construction. On May 10, 2002, Hynix filed a motion to lift the stay. Hynix also moved to file a second amended reply to add new affirmative defenses of estoppel and waiver to Rambus’ counterclaims of infringement. The Company opposed the motion to lift the stay, but did not oppose Hynix’s motion to file the second amended reply. On June 18, 2002, the Court denied Hynix’s motion to lift the stay, granted its motion for leave to file a second amended reply to counterclaims, and scheduled another case management conference for September 20, 2002.

On August 10, 2001, following the trial results in the Infineon case, Rambus Inc. was named as a defendant in a purported federal class action in the United States District Court for the Northern District of California, Toiv v. Rambus, et al., C01-CV-3112. That action was brought allegedly on behalf of a class of plaintiffs who purchased Rambus Common Stock between February 11, 2000 and May 9, 2001, inclusive, and asserted claims under Section 10(b) of the Exchange Act and Section 20(a) of the Exchange Act, as well as Rule 10b-5. The Complaint alleges that Rambus misled shareholders concerning its business and the status of its intellectual property in light of allegations concerning the Company’s involvement in JEDEC. Fourteen similar actions were filed in the Northern District of California, and one was also filed in the Eastern District of Virginia. On November 16, 2001, a lead plaintiff was appointed. All of these cases were consolidated on December 13, 2001, as In re Rambus, Inc. Securities Litigation, Case No. C-01-3112-MMC (Chesney, J.). A consolidated amended complaint was filed on March 22, 2002. The class period for the consolidated complaint runs from January 11, 2000 through May 9, 2001. On May 17, 2002, Rambus moved to dismiss the consolidated complaint and the hearing for that motion is currently set for September 13, 2002. The Company intends to continue to vigorously defend itself in this action.

On August 15, 2001, a purported shareholder derivative lawsuit, Boyadjian v. Davidow, et al., C.A. No. 19057, was filed in Delaware Chancery Court. The Company is a nominal defendant and the Company’s directors are defendants. Additional similar actions were filed, Anderson v. Davidow, et al., No. 19064-NC (filed August 17, 2001) and Lisle et al., v. Davidow, et al., No. 19122-NC (filed Sept. 24, 2001). All of these cases were consolidated as In re Rambus Inc. Derivative Litigation, C.A. No. 19057-NC. The consolidated complaint was filed on November 12, 2001 and alleges that the individual defendants caused the Company to engage in an improper course of conduct relating to JEDEC and its intellectual property beginning in 1992 and continuing through the Infineon trial in May of 2001. The complaint alleges breaches of fiduciary duty, misappropriation of confidential information for personal profit, and asks for contribution or indemnification from the named director defendants. The Company filed a motion to dismiss this complaint. Plaintiffs have opposed it, and briefing is now completed but a hearing date has not yet been set. The Company intends to continue to vigorously defend itself in this action.

Similar derivative actions were filed in California Superior Court, Santa Clara County. They are Vista 2000 v. Davidow, et al., CV-800901, Taylor v. Tate, et al., No. CV 801266. The complaints assert claims for breaches of fiduciary duty and violation of California’s proscription against insider trading. The cases were consolidated as Vista 2000 v. Davidow, CV No. 800901 on November 9, 2001 by the Court. The Court on that date also granted defendants’ motion to stay the consolidated case in deference to the earlier filed Delaware actions described above. Rambus and plaintiffs in two subsequent cases brought on similar grounds, Bonds v. Davidow

On April 3, 2002, the Company was served with a complaint in an action entitled Holiday Matinee, Inc. v. Rambus, Inc. No. CV 806325, filed in California Superior Court, Santa Clara County. The complaint in that case purports to be on behalf of an alleged class of “indirect purchasers” of memory from January 2000 to March 2002. Plaintiff alleges that those purchasers paid higher prices for various types of dynamic random access memory (DRAM) due to the Company’s alleged unlawful use of market power in the various DRAM markets to coerce vendors of equipment using that technology to enter into supposed agreements in restraint of trade. Plaintiffs base their claims on various legal theories and on Rambus’ alleged anticompetitive actions in patenting and licensing various technologies relating to DRAM, which plaintiffs assert, occurred during the Company’s involvement at JEDEC in 1992 through 1996, as well as during the Company’s subsequent patent licensing and litigation efforts. Plaintiffs seek legal and equitable relief. The Company demurred to this complaint in its entirety on June 24, 2002, with a hearing for such motion now set for August 27, 2002. The Company intends to vigorously defend itself in this action.

Delaware		94-3112828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Condensed Balance Sheets as of June 30, 2002 and September 30, 2001	1

	Consolidated Condensed Statements of Operations for the Three and Nine Months Ended June 30, 2002 and June 30, 2001	2

	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2002 and June 30, 2001	3

	Notes to Unaudited Consolidated Condensed Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 6.	Exhibits and Reports on Form 8-K	34

Signature		35

Fiscal Year:	Leases		Subleases		Net Commitments
July 1, 2002 through September 30, 2002	$	1,183	$	336	$	847
2003		4,846		1,554		3,292
2004		4,984		1,970		3,014
2005		4,660		900		3,760
2006		4,467		—		4,467
Thereafter		20,516		—		20,516

Total minimum lease payments	$	40,656	$	4,760	$	35,896

	Carrying Value (in thousands)		Average Rate of Return at June 30, 2002 (annualized)
Investment portfolio:
Cash equivalents	$	35,396	1.9	%
United States government debt securities		56,921	3.4	%
Corporate notes and bonds		29,654	3.4	%
Municipal notes and bonds		27,048	2.1	%
Foreign debt securities		6,086	4.5	%

Total investment portfolio	$	155,105

	RAMBUS INC.

Date: July 30, 2002	By:	/s/ ROBERT K. EULAU
		Robert K. Eulau, Senior Vice President, Finance, and Chief Financial Officer

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