Rambus Second Quarter 2006 Conference Call, 7/21/2006 Operator: Good day, and welcome to this Rambus second quarter 2006 conference call. Today's call is being recorded. At this time, I would now like to turn the call over to Mr. Satish Rishi. Please go ahead, Sir. Satish Rishi: Thank you, operator, and welcome to Rambus second quarter 2006 conference call. I'm Satish Rishi, and with me today are Harold Hughes and Bob Kramer, who will provide a litigation update. The press release with the results that will be discussed here today have been filed with the SEC on Form 8K. If you want a copy of the release, please visit our web site at www.rambus.com on the Investor Relations page under Financial Releases. A replay of this conference call will be available for the next week at (888) [inaudible] 1112. You can hear the replay by dialing the toll-free number and then entering ID 7012471 when you hear the prompt. In addition, we are simultaneously webcasting this call, and a replay can be accessed on our website beginning today at 5pm Pacific Time. Before we begin, I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation, and demand for our products, among other things. These statements are subject to risks and uncertainties which are more fully described in the documents that we file with the SEC, including our 8Ks, 10Qs, and 10Ks, and these forward-looking statements may differ materially from our actual results. Now, I'll turn the call over to Harold. Harold? Harold Hughes: Thanks, Satish, and good afternoon, everyone. In Q2, we delivered all-time record revenue of 48.9 million, up a strong 22% from Q2 of last year, and topping our previous best, which we set last quarter. For the first half of 2006, we delivered revenues of over 96 million and continued a strong pace of year-over-year growth. Key to this growth story is signing licensing deals. In this quarter, we signed 2 important agreements with Toshiba and Matsushita, also known as Panasonic. The Toshiba and Panasonic agreement demonstrate our long-term sustainability of the Rambus business model and the recognized value contribution of our patents and products. Both Toshiba and Panasonic are repeat customers, who have signed new 5 year patent agreements and continue to depend upon Rambus to develop high performance interface solutions for their semiconductor and system products. A re-signing repeat customers, we added a new and adding new patent license customers, such as AMD and Fujitsu announced in the first quarter. We're making great strides in realizing the full value of the tremendous innovations created by Rambus's scientists and engineers. Another sign of the health of our business is the continued growth of our industry-leading patent portfolio. During the quarter, we announced that we had reached the milestone of 500 issued patents in the U.S. and other countries. In addition, we have nearly 500 pending worldwide. New patents issued in reaching this important milestone include those covering our FlexPhase technology. FlexPhase is important Rambus innovation which mitigates the negative effects of misaligned timing associated high speed signaling over parallel buses. FlexPhase -- FlexPhase circuits can be applied to all kinds of chip interconnects, whether they be logic or memory interfaces. We first demonstrated FlexPhase along with another Rambus technology called fly-by-command address when we unveiled our XDR DRAM architecture all the way back in 2001. We believe both FlexPhase and fly-by-command address will be the key enabling technologies used in DDR3 DRAM which is nearing industry standardization. We are incredibly proud of our history of innovation and our ability to lead the industry to higher levels of performance. It's that ability to innovate years ahead of the market which is the key to development of our world-class patent portfolio. Something else we're very proud of is our ability to attract some of the industry's best and brightest to our Rambus team and our board of directors. At the end of March, we announced that Sunlin Chou had joined our board. Sunlin brings great operational expertise to our board, including 34 years at Intel. The last position he held was that of President and General Manager of the technology and manufacturing group. Last Friday, we announced that Penny Herscher had joined our board. Penny is President and CEO of First Ring, and is a demonstrated leader in business and marketing. Her expertise will greatly complement the board's strength in technology, finance, operations, and legal matters. In addition, during the quarter, the board implemented a policy in which it will hold an annual election for the chairmanship from among its members. Kevin Kennedy was elected Chairman while Geoff Tate, who had been Chairman, continues on the board. There have also been changes to the membership of the committees. The full details of these changes are available on rambus.com in the Investor Relations section. Finally, with regard to the board of directors, Bill Davidow, our Chairman Emeritus, has retired from his Emeritus [honorary] functions. I want to thank Bill personally for the instrumental role he played in the founding of Rambus and the tremendous leadership he displayed over the course of Rambus's 16 year history. Next, I'd like to talk about the independent investigation of historical option granting practices. As announced in May 30th, the audit committee of the board of directors has retained an outside legal firm to conduct the investigation. On June 27th, we announced that the audit committee had reached a preliminary conclusion that the actual measurement dates for certain stock option grants differed from the recorded grant dates for such awards. Today, we announced we expect to record additional non-cash charges for stock-based compensation expense in prior periods. Further, we believe these charges are material, and we expect to restate our financial statements for the fiscal years 2003, '4, '5, and the first quarter of 2006. We do not believe, however, the restatement will have any impact on historical revenues. As the findings are preliminary, we have not yet determined the tax impact that may result from this matter, and, because the independent investigation is still ongoing, there may be additional years that need to be corrected. Accordingly, the audit committee, pursuant to consultation with management, and discussion with its auditors on July 17th, 2006, has concluded that the previously issued financial statements for the fiscal years 2003, '4, and '5 in the first quarter of 2006 should no longer be relied upon. We intend to file our restated financial statements in the quarterly report for the period ending June 30, 2006, as soon as practicable, after the completion of the independent investigation. Additionally, we believe our filing of Form 10K for the just ended quarter will be delayed past the August 9, 2006 due date and the August 14, 2006 extended due date. As a result of delay, some time after the 14th, we expect to receive a notification from Nasdaq we are not in compliance with the filing requirements for continued listing on Nasdaq, and that Rambus's common stock may be subject to delisting from the re -- from the Nasdaq national market. We then intend to request -- request a hearing to make our case to Nasdaq listing qualifications panel. Given the nature of this independent investigation, we cannot speculate on the status and additional findings and cannot determine at this point how long the investigation will take. In the meantime, I and my team will continue to move ahead smartly on achieving our strategic imperatives. We have great licensing momentum, and we have ongoing -- we have an ongoing number of patent license negotiations in progress. We'll continue to work very hard to bring these to successful conclusion. In addition, we continue to expand our product and technology engagements, aimed at helping our customers bring breakthrough products to market. Most important thing we can do for stockholders is to insure that we stay focused on delivering on the promise of our licensing business model. The fact that many other technology companies find themselves in a similar predicament relative to past stock option exercises gives me no comfort. I share the frustration felled by -- felt by stockholders, and I apologize to them. As has been the case with the many challenges the company has faced in the past and those I have faced since taking over as CEO, we intend to overcome this one as well. We intend to overcome this one as well. Our team and I are no less committed to the goal of converting the spectacular innovations of Rambus's engineers and scientists [to] stockholder value. With that, I'll turn it over to Satish to discuss this quarter's financials to the extent we can. Thank you. Satish Rishi: Thank you, Harold. Because of the ongoing indepen -- independent investigation of historical option granting practices, I won't be able to discuss our full financial results for the quarter. I'll have to confine my remarks to revenue performance and cash balances and details of some extraordinary expense items. At the end, I'll provide revenue -- revenue guidance only for the third quarter. As Harold mentioned, we achieved record revenue for the second quarter back-to-back with our first quarter record result. Total revenue of 48.9 million for the second quarter were up 22% over the second quarter of 2005. Total royalties for the first quarter were 41.7 million dollars, up 21% over the second quarter of last year. Most of the increase from the second quarter of 2005 were due to royalties as a result of the Infineon, AMD, and Fujitsu agreement, partially offset by lower royalties associated with former and current licensees. For the first half of the year, revenues were 96.1 million, a 17% increase over the same period last year. Clearly, we are moving in the right direction. I am unable to discuss expense by line item, because some or all of these may change when we have the full report from the investigation and historical financial statements have been finalized. However, certain expense items are worthy of mention. During the quarter, we made a 10 million dollar special performance payment to Munger, Tolles and Olson. They have been a lead counsel in many of the cases, including the Hynix case. We have been very pleased with their work, and we look forward to continue to work with them. I want to emphasize that excluding this bonus and setting aside any compensation related expenses that we may record related to stock options mis-pricing, the total operating expenses were within the reach of guidance I provided to you during the previous earnings call. Our cash, cash equivalents, and short term and long term marketable securities ended the quarter at 416 million as compared to 391 million in the prior quarter. Before I move on to revenue guidance for the third quarter, let me walk you through some of the anticipated sequence of events related to our press release this morning. First, as we announced, we will not be able to file our 10Q on time or within the extension period. Because we do not know what impact, if any, the correct accounting for the mis-priced options would be -- would have in this quarter, we cannot finalize our financial result. After the extension period expires, and the 10Q is not filed, our company is then non-compliant with the marketplace rules for Nasdaq. This non-compliance triggers a delisting notice from Nasdaq to the company. The company then has a hearing to appeal this notice, and the Nasdaq physically schedules a hearing 4 to 6 weeks after this request from the company. We will do our best to remain listed on Nasdaq, but there is no guarantee that our appeal will prevail. The failure to file a 10Q on a timely fashion also constitutes a breach of covenant and a technical default on the outstanding 160 million of notes that we have. If we do not cure a default within 60 days of receiving a notice of default from the bond holders, the notes can be accelerated. We do not expect such acceleration to occur, but if it did, we are comfortable with our cash position to satisfy that obligation. Now -- Now I would like to give you some thoughts on what to expect in the third quarter of 2006 for revenue. This guidance just reflects a reasonable estimate, and our actual results could differ materially from what I am about to review. As we -- As we previous -- previously disclosed in our prior quarterly and annual SEC filings, we completed recognizing revenue associated with the Intel patent cross-license agreement during the second quarter of 2006. While we don't expect to renew or completely replace that significant source of revenue in the third quarter, we nonetheless expect that Q3 revenue will be within 42 and 45 million dollars. With that, I'll turn it over to Bob for an update on litigation events. Bob? Bob Kramer: Thank you, Satish. Rambus has made significant progress this quarter in protecting its intellectual property from unauthorized use. Although mindful of the litigation risks, we are pleased with these accomplishments. I will update you on key results this past quarter and review the major items in our litigation timeline. With respect to the private patent litigations the United States, we are gearing up for the third phase of the Hynix trial. As you'll recall, on April 24th, the jury in the second phase of the trial found that Hynix's SDRAM, DDR and DDR2 products infringed valid Rambus patents and awarded damages amounting to $307 million dollars for products sold in the United States. Following this decision, Hynix moved for what is called summary ju -- sorry -- called, "judgment as a matter of law," seeking to overturn the decision of the jury, arguing that the evidence did not support a verdict, the patents were not valid or infringed. Hynix also moved for a new trial on damages or, in the alternative, remittitur. That is, Hynix asked the court to reduce the amount of damages to what Hynix believes is the largest amount supported by the evidence, namely $109 million dollars, which it would calculate using Rambus's pre-litigation royalty rates of .75% for SDRAM and 3.5% for DDR from the year 2000. On July 14th, the court granted Hynix's motion, giving Rambus 30 days to choose between accepting a lower damages amount and retie -- retrying the damages issue. However, the court held that Rambus was entitled to roughly $133.5 million instead of the $109 million requested by Hynix. In so doing, the court held that ev -- the evidence supports that the .75% SDRAM and 3.5% DDR SDRAM rates are conservative. The court calculated this higher past due amount for Hynix's U.S. sales of infringing parts by multiplying the stipulated sales through the end of the year 2005 by a 1% royalty rate for SDRAM memory and 4.25% for DDR and DDR2 memory. As part of this process, Rambus also expects to be compensated for both prejudgment interest in Hynix's 2006 U.S. sales up through the entry of judgment, although these amounts have not yet been determined. As to remaining Hynix motions, the court posed some questions to parties in a June 23rd hearing but has not yet ruled on these motions. Looking forward, the third phase of the case is scheduled to begin on August 21st to address the antitrust, unfair competition and fraud issues that Hynix has raised as defenses. As of earlier this week, the court has ruled on each of these motions. In particular, on the 6th of this month, the court denied Rambus's summary judgment motion with respect to Hynix's equitable estoppel defense, leaving the issue to be decided at trial. The next day, the court granted Rambus's motion for summary judgment with respect to Hynix's antitrust and unfair competition claims to the extent that they are based on claims of RDRAM dominance or DDR suppression. The court also granted Rambus's motion for summary judgment based on Noerr-Pennington immunity in California civil code section 47b privilege, which protect the filing of lawsuits and prosecution of patents. Earlier this week, the court granted in part and denied in part Rambus's final summary judgment motion. Specifically, it granted Rambus's motion for summary judgment relating to Hynix's two claims for breach of contract and its constructive fraud claim. The court also granted summary judgment for Rambus that the JEDEC duty to disclose does not, among other things, extend to beliefs, hopes, or intentions to file or amend patent applications, and that a breach of any duty without more does not give rise to antitrust liability. As part of the same order, the court left for trial the issues of whether disclosure was voluntary or mandatory, whether a duty extends only to necessary patents, and whether any alleged breach causes injuries to Hynix. The summary judgment decisions narrow the scope of the third phase of the trial, although I cannot comment on the specifics of this at this time. The briefing and decisions, the extent we post them, can be found on our web site. Rambus is also preparing for an October 21st trial in Delaware against Micron. Of particular note this past quarter, the Delaware court held on June 15th that Micron did not make out a prima facie [at first sight] case that JEDEC policies required Rambus to disclose patents or applications to JEDEC members. This decision is consistent with the 2003 decision of the U.S. Court of Appeals for the Federal Circuit and the 2004 decision of the Chief Administrative Law Judge at the Federal Trade Commission. A copy of this Micron order is on our web site. On the Samsung case in the Eastern District of Virginia, we've received final decisions this morning closing the last remaining case in the Eastern District and denying Samsung's motion for attorneys' fees. Specifically, the court held that it had jurisdiction to determine whether sanctions should be imposed, that Samsung is the prevailing party, that the case is exceptional, but the court held that Samsung is not entitled to be compensated for its attorneys' fees. The decisions are very long. We just received them this morning, and they are posted on our web site. A significant portion of one opinion is an unflattering account of the record in the Infineon and Hynix cases. We are pleased, in the end, that the court denied Samsung's motion for attorneys' fees. It is our initial view that the negative portions are not likely to have collateral estoppel consequences. We don't know how others may try to use these decisions at this time, and we are considering our options. I will now provide an update on our antitrust cases in the San Francisco court. This case is against Micron, Hynix, and Samsung. You may recall that the San Francisco state court had previously denied motions to compel arbitration filed by both Samsung and Hynix. In both cases, the court relied on its discretion to avoid multiple conflicting results, and we believe this is a very strong basis for its decision. Both Hynix and Samsung have filed appeals. The briefing on those appeals should be complete on August 9th, and we expect a resolution on those appeals late this year or early next year. Turning next to regulatory agencies, we have no update as to the pending investigation of the DRAM cartel by either the European Commission or the U.S. Department of Justice. It continues to be our understanding from press reports that price-fixing inges -- investigations against the DRAM industry are ongoing. As you may have heard from press reports late last week, 34 state attorneys general appear to be filing suits against a number of DRAM manufacturers for fixing the price of DRAM. We have no news with respect to the FTC's appeal to the full commission of its action against Rambus. We do not know when the decision will issue, but we continue to believe strongly that the Administrative Law Judge got it right by dismissing the FTC complaint on multiple independent grounds. Finally, on May 31st, the first of several derivative lawsuits were filed in -- sorry -- was filed in the Northern District of California against Rambus and various current and former executive and board members. In addition, on July 17th, a class action suit was filed against Rambus and a number of our current and former officers and directors. All of these cases relate to the options issue Harold and Satish discussed earlier. And that concludes my comments, and I'll hand it back to Satish. Satish Rishi: Thank you, Bob. Operator, we're ready for Q&A. Operator: I thank you, Sir. For those of you who have a question, please press *1 on your touch tone phone, and your questions will be answered in the order that they are received. If you are using a speaker phone, you must pick up your handset before pressing *1 to register for a question. If at any time your question has already been answered, please press *2 to remove yourself from the question lineup. Please allow one moment for the first question. Once again, for those of you who have a question, please press *1 should you have a question, *2 to remove yourself from the question lineup. Our first question comes from Mr. Daniel Amir of WR Hambrecht. Please proceed with your question, Sir. Daniel Amir: Yes. Thanks a lot. Just a few questions here. First of all, Satish, just a clarification on the legal expense for the law firm. Can you -- Can you just expand that for a second and whether that was included in the op ex [operating expense] guidance or not? I was just -- I kind of missed that. Satish Rishi: That was not included in the op ex [operating expense] guidance we gave last quarter. Daniel Amir: OK. And how much was the amount again? Satish Rishi: It was 10 million. Daniel Amir: OK. 10 million. So, it's basically a one-time fee. Howard Hughes: Yes. It was a bonus we thought for a spectacular performance. Daniel Amir: OK. The second thing is regarding the antitrust in San Francisco. So, just from a time line perspective, do you expect -- I mean, what's the future development, I guess, you expect in that case here in the next, you know, couple few months or couple quarter? Bob Kramer: Well, as we mentioned, Hynix and Samsung have appealed the decision that -- that arbitration is not compelled and we have to wait for the appel -- the briefing to be done on that which should be done in a few weeks, and then we have to wait for maybe an argument and a decision on appeal. We expect that to be late this year or early next year. Discovery is ongoing, I guess, in the meantime, and that's it. Daniel Amir: OK. And Harold, I guess if you -- if you look at your -- your business right now which is, you know, currently, you know, tracking along nicely with, you know, new licenses coming on board every quarter -- I mean what -- what's kind of your goals, I guess, for the next 6 months? I mean what, you know, I guess, business-wise, company-wise, kind of what -- what ... gets your top 3 things that you're looking at as you exit the year 6 months from now? Harold Hughes: Well, we'd like to sign several more licenses, especially licensees that give us the ability to -- should I say -- entice the DRAM industry to work with us more closely, and, not surprisingly, those are in things like graphics, etc. But we have expanded Sharon and her team substantially -- licensing reach that we have, and we're engaged with several customers -- or several potential customers, I guess I should say. None of these is likely to happen quickly, but several are in later stages, and hopefully we can sign more of those. And, naturally, we continue to use every means we have available, obviously legal being one of them, to sign a licensing agreement with Hynix. We've prevailed in court. We see reasons why they would benefit from working with us. We believe that certain of our licensees could see them as a good partner to a larger deal. I'd very much like to get that done this year. Daniel Amir: OK. And, I guess the final question is more related to, you know, more the options issue. I mean can you comment when do you think you expect to resolve the issue on the financial restatements? I mean, is there any time line for that, or at the moment it's, you know, it's just preliminary, and there's just too much work? Harold Hughes: Let me give you 2 contextual issues which I think are important. The SEC, the Justice Department, the FASB, Nasdaq all take these issues very very seriously. I think it's very important that we do this right the first time. I think our audit committee is operating very effectively. It is a slow process. Any company that's a technology company that's been in existence since 2000 probably issued an option just about every month to handle a new hire, which means there are large number of these. Each of them has to be investigated. We want to do this in a way that appear -- that is completely independent of management and those people who may have been involved originally so that when we do take it to ultimately to the SEC, to our outside accountants, even to Nasdaq, it will have been done very very professionally. I think the other key issue that makes it difficult for us to estimate as to when it will happen in -- as to what the amount would be is the simple fact that the SEC hasn't really decided on a set of guidelines yet. Until they've done that, I don't think we're gonna be able to be even -- to calculate the number with great specificity although I very very much want to do this. Without -- without saying for a second that we think that this was handled well. It is a non-cash expense, and we'd like to get from just a booking standpoint that booked so that we can move forward with the normal course of operations of the business. That was not to imply that we -- we take this matter lightly. We believe that those things that happened are necessarily justified. Daniel Amir: OK. Thanks a lot. Operator: Thank you, Mr. Amir. Our next question does come from Mr. Michael Cohen of Pacific American Securities. Please proceed with your question, Sir. Michael Cohen: Great. Thank you. You guys -- you had a previous license with Elpida which was reduced to a fixed fee pending some threshold event, and I was wondering with -- in regard to the win in Phase 2 of the Hynix case, has that threshold now been reached? Indistinct Voice: Sharon, take that? Sharon Holt: Yes. Hi, Michael. This is Sharon Holt. I'm here to help answer some questions. Michael Cohen: Hey, Sharon. Sharon Holt: Hi. So, without -- there are a lot details of the Elpida agree -- agreement is quite complicated, but I can tell you that the current state of the Hynix litigation has not triggered any change to the payments from Elpida. Michael Cohen: OK. If you would win Phase 3 of the conduct, could you tell us if that would trigger the threshold event? Sharon Holt: It would not. Michael Cohen: OK. And my next question is regarding to the backdating issue. In the press release you issued this morning, you referred to it as correcting errors related to accounting for stock-based compensation, and my belief -- and it's not just with Rambus but most technology companies that have backdating issues -- that these aren't mere errors but rather something that has been done intentionally to enrich management at the expense of shareholders. In light of that, are you doing anything to investigate who, basically, the wrongdoers are, and are you gonna do anything to pursue the wrongdoers to the protection of shareholders? Satish Rishi: Michael ... Satish. When -- I -- I agree with you that this is, you know, it's, well, unde -- under the -- under the option plans we have, we were allowed to grant options that were in the money, but with the mispricing of the dates, the grants were done incorrectly. That's why call them an error, and we, you know -- we -- we will -- we will do what it takes to make the company whole. Right now, we have not found any intentionality in any of the findings from the -- from the independent investigations, and as Harold mention -- mentioned, the investigation is independent, so management is not very involved in the results. Until -- 'til -- 'til the investigation is complete, we will not be told in terms of -- of what the actual dates were, what the actual intent was, but as of now, we have not been shown any proof or been told of any intent at this point in time. Michael Cohen: OK. In the event that your independent investigating team did discover that there was intent involved, what would you do if you were given that information? Satish Rishi: Mike, I don't want to speculate on that at this poin -- this point in time, but if we find any wrongdoing, we would definitely pursue it to the extent we can. Michael Cohen: OK. And my next question is: Harold mentioned that DDR3 may be infringing Rambus patents with regard to FlexPhase and other technology. We've also previously heard that systems companies are likely infringing Rambus's patents. My next question is: Has any letters of infringement been sent to any systems companies or in relation to DDR3? And if letters have not been sent, why the delay? Bob Kramer: Michael, it's not our policy to -- to disclose whether or not we've sent letters out or contacted individual companies for potential licensing negotiations. That said, I'll point you to the DDR2 case that we have here in the Northern District of California filed about a year and half ago, and that case includes some contentions that our patents are infringed by a company because of controllers or system products. Michael Cohen: OK. And my final question, for at least this round -- Sharon Holt: Michael, I just -- I just thought I would add -- Michael Cohen: Sure. Sharon Holt: -- something on that. The other -- The other comment I want to make is that the DDR3 spec is not complete and finalized and in the public domain, nor is anyone shipping devices or systems using DDR3 yet, and, so, we certainly would not be making any -- any claims in that regard until we actually have product in the market and a finalized spec. Michael Cohen: OK. And it would be more likely product in the market as opposed to a finalized spec being the more important of those 2. Bob Kramer: That's correct. Michael Cohen: OK. My next question is probably for Bob. In light of Judge Whyte's offering you a new trial on damages, previously you had elected to have willful infringement not included so that it could be bundled in, and Judge Whyte had -- had some concern that if willful infringement was in, that some -- the evidence might be prejudicial to the -- the issue of infringement. If you're having a separate trial, is it likely that that willful infringement could come back in? Bob Kramer: Michael, I don't believe so, but we're considering our options at this point. Michael Cohen: OK. And would the same motion in limines that prevented David Teece from really offering anything above -- strong evidence supporting anything above 108.6 other than to show that his estimate was conservative, would the motion in limines potentially be different if you were to choose a new trial? Bob Kramer: The answer is: I just don't know at this point, Michael, whether that would be the case. Michael Cohen: OK. OK. Thank you very much. Operator: Thank you, Mr. Cohen. Once again, for those of you who have a question, please press *1 on your touch tone phone, and your questions will be answered in the order that they're received. Our next question comes from Mr. Mike Crawford of Barrington Partners. Please proceed, Sir. Mike Crawford: Thank you. In a few weeks, it looks like there's scheduled to be a antitrust case in the Eastern District of Texas with Tessera, and, I think, it's Micron and Infineon, and I believe there's some relevant information in that case including depositions maybe from the CEO of Micron to the FTC and the DOJ and maybe some additional ADT [Advanced DRAM Technology] documents that -- that you might not have had access to -- are -- do you have access -- have -- have you -- do you have access to all the documents in that case -- in this -- in that case at this time? Bob Kramer: We -- We don't generally comment on other parties' litigation. We are full aware of the documents that we have, but we're not close enough to the litigation of that matter to -- to speak to that issue. Mike Crawford. OK. And, if, maybe you can't answer this ... either, but, hypothetically, if that case, you know, goes to trial then if you would then likely be able to bring that into your Micron case in Delaware? Bob Kramer: I guess it's possible that there are some consequences from that litigation that could reflect favorably in our litigation, but you really have to wait and see how that litigation plays out, and it's way too early to -- to make that call at this point. Mike Crawford: OK. Thank you. Operator: Thank you, Mr. Crawford. Once again, for those of you who have a question, please press *1. There -- Oh, here we go, thank you. Our next question comes from Mr. Ted Wachtel of Millennium Partners. Please proceed, Sir, with your question. Ted Wachtel: Yeah. I just wanted to ask again about the options grant issue. Way back in May at this point, you -- you outlined that you had a special committee looking at it. Then in late June -- and, by the way, I believe in May you indicated they were -- they were principally looking at 2003 and prior -- and then in June, late June, you indicated that there were -- that there may well be some materiality here and some restatements without saying anything further as to the dates, and then today, you indicated that '04 and '05 are a problem. And I'm just wondering was there something learned in the interim between -- between May -- the May date and the June date, and was there something learned in the interim between the June date and today that caused you not in your disclosure to -- that caused you in your late June disclosure to not say anything about '04 and '05 as years that presented potential restatements? Do you follow my question? Satish Rishi: Yes, yes, I do. Ted, let me explain the restatements, though. The restatement is for the latest 10K that we have on file, and that is as of December 2005. In -- In the 10K, we have the fiscal years 2005, 2004, and 2003, so you can only restate the last filing that you have, so when we say we restate 2003, '4, and '5, technically, that is the only one we can restate, because that's -- that's our latest filing, but, feeding into 2003, will be any errors that might be corrected in financial statements prior to 2003, so if there are issues of grants found in 1998, 1999, 2001 -- as these follow through, the opening balances for 2003 will change. So that'll be reflected -- all those years will be reflected in the restatement, but, technically, we don't go and restate or refile all the 10Ks for the prior years. Ted Wachtel: OK. Maybe I wasn't clear with my question now. Let me rephrase my question. Back in May, you said you were principally looking at years 2003 and prior. In the late June disclosure, you said nothing further to change that. Yet, today, you disclose that you have restatements in '04 and '05, so my question is: Why, in the late June disclosure, did you not make it clear that you were not just principally looking at years '03 and prior, but that there were also issues in years '04 and '05? Satish Rishi: Yeah, Ted. I -- I don't know there are issues in '04 and '05, but if we had issues in '03, automatically, when we -- Ted Wachtel: it will Satish Rishi: -- it will -- it will al -- it will require us to restate our latest filing that we have which is -- Ted Wachtel: as well. OK. I understand. So, so, so, I guess my question then is, you know: Was there a change in this options granting policy in '04 and '05, or do the same issues that existed in '03 and '0 and prior also exist in '04 and '05? Satish Rishi: Well, ever since Sarbanes-Oxley was implemented, the disclosure was -- was reduced to 2 days for Section 16 officers. Prior to that, it was 40 days or so. So, our -- we followed the policy -- the -- so, there were some changes in how we granted options, but as Harold mentioned, we want to do this once and do it correctly. The independent investigators are looking at all the years to 2005. At this point in time, we have not been apprised of anything in 2004 or 2005. We only have been apprised of a very limited number at this point in time, and the investigation is still ongoing, so as we get more information, you know, we'll try and provide more color on where we are at -- at a -- at a particular point in time. Ted Wachtel: OK. But -- but -- but at this point in time, the problems are as you first indicated in '03 and prior. It just -- it just causes a further restatement in -- in -- in additional years '04 and '05, because of the problem in '03 and prior. Satish Rishi: Yeah. I can't -- I can't emphatically say which years we have problems with, because, we -- I'm, you know -- I'm not involved in investigation. So, the investi -- the investigation is still ongoing. So, we -- we could have problems in -- in other years, also, but I don't know that for a fact. Ted Wachtel: Right. But to date, you don't see -- you have not been apprised of problems in '04 and '05. Satish Rishi: I have not. Harold Hughes: Nor have I. Ted Wachtel: Great. Thank you. It took me a long -- long time, but I think I got to the answer. Harold Hughes: [Laughs.] Well, thank you, Ted. Ted Wachtel: OK. Operator: Thank, you, Sir. Our next question comes from Michael Cohen of Pacific American Securities. Please proceed once again, Sir. Michael Cohen: Thank you. I -- I have one more question. This one's probably for either Bob or Harold. I was in the -- in court in the Hynix case when we heard Judge Whyte ask both Hynix and you to have a mediated settlement discussion before Judge Seeborg. We've been patiently watching Judge Seeborg's calendar and have not seen that pop up. I was wondering if -- if the date has been set, and, if so, if you can disclose that date? Bob Kramer: We -- We try to keep the -- I know this'll probably displease you, Michael. We try to keep the dates of mediation private. Michael Cohen: OK. Bob Kramer: And -- and that the court prefers that as well. Michael Cohen: In light of -- Bob Kramer: Judge Seeborg -- Judge Seeborg is setting the rules for those mediation. Michael Cohen: Got it. In light of that, you're probably not gonna answer my next question, but I'll go ahead and answer it anyway. I understand in the DDR2 case against Micron there's also a settlement discussion, and I'm not aware of a settlement discussion with Samsung. Can you tell us if there is going to be any discussions, possible licensing discussions, with Samsung prior to Phase 3 of the conduct trial? Conduct trial within -- with Hynix, that is. Bob Kramer: Yeah, I guess -- let me address the premise of your question, which is that there are some mediation discussions with Micron related to DDR2, and we don't understand that to be the case. Howard Hughes: We know that not to be the case, since I would likely know of it. Michael Cohen: OK. OK. Well, that definitely clarifies something. Thank you very -- Howard Hughes: Let me -- Let me, if I could, Michael, let me contrast what goes on. The mediations are best done through the court venue and kept secret. That does not mean that we don't attempt, through our technology relationships, to have discussions with parties, 'cause we believe that can be effective in redu -- producing resolutions as well. We have continued technical discussions, technology discussions with Hynix, and we intend to continue to do so. But please bear with us on the -- on the mediation issues. I am aware only of the one ordered by Judge Whyte under the aegis of -- of -- of -- of Judge Seeborg. I am aware of no such mediation direction on -- in the Micron case or in the Samsung case. Michael Cohen: OK. Thank you very much. Howard Hughes: Respectively, respectively. Obviously, you know that we had previous ones. Michael Cohen: Yes, I'm aware of that. I'm, so we're talk -- referring to going forward. Howard Hughes: Yes, Sir. Michael Cohen: OK. Thank you. Howard Hughes: Mm hm. Operator: There appears to be no questions at this time, Sir. I'd like to turn the talk back over to you with the closing statements. Satish Rishi: I would like to thank everyone for your questions today and your continued interest in Rambus. Thank you very much. Operator: Thank you. And this concludes the Rambus conference call. Thank you, everyone, for joining. You may now disconnect.