Attached files
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EX-32.2 - EX-32.2 - TRIDENT MICROSYSTEMS INC | f56560exv32w2.htm |
EX-31.1 - EX-31.1 - TRIDENT MICROSYSTEMS INC | f56560exv31w1.htm |
EX-31.2 - EX-31.2 - TRIDENT MICROSYSTEMS INC | f56560exv31w2.htm |
EX-32.1 - EX-32.1 - TRIDENT MICROSYSTEMS INC | f56560exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-20784
TRIDENT MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
77-0156584 (I.R.S. Employer Identification Number) |
|
1170 Kifer Road Sunnyvale, California (Address of principal executive offices) |
94086-5303 (Zip Code) |
(408)-962-5000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
At July 31, 2010, the number of shares of the Registrants common stock outstanding was
176,692,392.
TRIDENT MICROSYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
INDEX
2
Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net revenues |
$ | 171,648 | $ | 14,912 | $ | 262,052 | $ | 21,764 | ||||||||
Cost of revenues |
138,722 | 10,290 | 215,340 | 16,681 | ||||||||||||
Gross profit |
32,926 | 4,622 | 46,712 | 5,083 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
49,866 | 15,802 | 87,081 | 27,236 | ||||||||||||
Selling, general and administrative |
22,311 | 7,421 | 42,447 | 11,047 | ||||||||||||
Goodwill impairment |
7,851 | | 7,851 | 1,432 | ||||||||||||
In process research and development |
| 697 | | 697 | ||||||||||||
Restructuring charges |
4,470 | 8 | 12,865 | 49 | ||||||||||||
Total operating expenses |
84,498 | 23,928 | 150,244 | 40,461 | ||||||||||||
Loss from operations |
(51,572 | ) | (19,306 | ) | (103,532 | ) | (35,378 | ) | ||||||||
Interest income |
228 | 116 | 498 | 576 | ||||||||||||
Gain on acquisition |
| | 44,784 | | ||||||||||||
Other income (expense), net |
59 | (922 | ) | 107 | (95 | ) | ||||||||||
Loss before provision for income taxes |
(51,285 | ) | (20,112 | ) | (58,143 | ) | (34,897 | ) | ||||||||
Provision for (benefit from) income taxes |
(2,255 | ) | 963 | (1,529 | ) | 2,782 | ||||||||||
Net loss |
$ | (49,030 | ) | $ | (21,075 | ) | $ | (56,614 | ) | $ | (37,679 | ) | ||||
Net loss per share basic and diluted |
$ | (0.28 | ) | $ | (0.32 | ) | $ | (0.37 | ) | $ | (0.59 | ) | ||||
Shares used in computing net loss per share -basic and diluted |
174,018 | 65,565 | 152,059 | 63,708 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(Unaudited)
June 30, | December 31, | |||||||
(In thousands, except par values) | 2010 | 2009 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 96,915 | $ | 147,995 | ||||
Accounts receivable, net |
97,813 | 4,582 | ||||||
Accounts receivable from related party |
8,488 | | ||||||
Inventories |
32,475 | 14,536 | ||||||
Notes receivable from related parties |
7,476 | | ||||||
Prepaid expenses and other current assets |
26,812 | 13,962 | ||||||
Total current assets |
269,979 | 181,075 | ||||||
Property and equipment, net |
33,544 | 26,168 | ||||||
Goodwill |
| 7,851 | ||||||
Intangible assets, net |
108,046 | 5,635 | ||||||
Long-term note receivable from related party |
20,882 | | ||||||
Other assets |
18,664 | 7,764 | ||||||
Total assets |
$ | 451,115 | $ | 228,493 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 20,242 | $ | 18,883 | ||||
Accounts payable to related parties |
38,362 | 2,401 | ||||||
Accrued expenses and other current liabilities |
71,235 | 27,068 | ||||||
Income taxes payable |
2,532 | 1,696 | ||||||
Total current liabilities |
132,371 | 50,048 | ||||||
Long-term income taxes payable |
22,265 | 22,262 | ||||||
Deferred income tax liabilities |
94 | 94 | ||||||
Other long-term liabilities |
3,768 | | ||||||
Total liabilities |
158,498 | 72,404 | ||||||
Commitments and contingencies (Note 5) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.001 par value; 500 shares authorized; .004 shares issued
and outstanding at June 30, 2010 |
| | ||||||
Common stock, $0.001 par value; 250,000 shares authorized; 176,283 and
70,586 shares issued and outstanding at June 30, 2010, and December 31,
2009, respectively |
176 | 71 | ||||||
Additional paid-in capital |
430,864 | 237,827 | ||||||
Accumulated deficit |
(138,423 | ) | (81,809 | ) | ||||
Total stockholders equity |
292,617 | 156,089 | ||||||
Total liabilities and stockholders equity |
$ | 451,115 | $ | 228,493 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
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TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
(In thousands) | 2010 | 2009 | ||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (56,614 | ) | $ | (37,679 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation expense |
2,898 | 6,063 | ||||||
Depreciation and amortization |
13,294 | 5,197 | ||||||
Amortization of acquisition-related intangible assets |
30,589 | 1,542 | ||||||
In-process research and development |
| 697 | ||||||
Loss on disposal of property and equipment |
4 | 79 | ||||||
Impairment of goodwill |
7,851 | 1,432 | ||||||
Impairment of technology licenses and prepaid royalties |
2,078 | 2,302 | ||||||
Severance paid by NXP |
3,588 | | ||||||
Gain on acquisition |
(44,784 | ) | | |||||
Loss on sales of investments |
209 | 7 | ||||||
Deferred income taxes |
(2,259 | ) | 112 | |||||
Changes in assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable |
(93,231 | ) | (3,367 | ) | ||||
Accounts receivable from related parties |
(8,488 | ) | (5,289 | ) | ||||
Inventories |
(6,397 | ) | (3,180 | ) | ||||
Prepaid expenses and other assets |
(1,389 | ) | 2,546 | |||||
Accounts payable |
1,359 | 2,030 | ||||||
Accounts payable to related parties |
35,961 | 5,513 | ||||||
Accrued expenses and other liabilities |
28,500 | 3,416 | ||||||
Income taxes payable |
839 | (341 | ) | |||||
Net cash used in operating activities |
(85,992 | ) | (18,920 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(3,222 | ) | (946 | ) | ||||
Proceeds from sale of investments |
| 2 | ||||||
Acquisition of businesses, net of cash acquired |
46,380 | (2,531 | ) | |||||
Proceeds from sale of property and equipment |
134 | 106 | ||||||
Purchases of technology licenses |
(8,436 | ) | (1,969 | ) | ||||
Net cash provided by (used in) investing activities |
34,856 | (5,338 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock to employees |
56 | 1 | ||||||
Net cash provided by financing activities |
56 | 1 | ||||||
Net decrease in cash and cash equivalents |
(51,080 | ) | (24,257 | ) | ||||
Cash and cash equivalents at beginning of the period |
147,995 | 212,194 | ||||||
Cash and cash equivalents at end of the period |
$ | 96,915 | $ | 187,937 | ||||
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of Trident Microsystems, Inc.,
or Trident, and its subsidiaries (collectively the Company) after elimination of all significant
intercompany accounts and transactions. In the opinion of the Company, the Condensed Consolidated
Financial Statements reflect all adjustments, consisting only of normal recurring adjustments
necessary for a fair statement of the financial position, operating results and cash flows for
those periods presented. The Condensed Consolidated Financial Statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, and are
not audited. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These Condensed Consolidated Financial Statements should be
read in conjunction with the audited consolidated financial statements and notes thereto for the
six months ended December 31, 2009 included in the Companys transition report on Form 10-KT, for
the transition period ended December 31, 2009, filed with the SEC. The results of operations for
the interim periods presented are not necessarily indicative of the results that may be expected
for any other period or for the entire fiscal year ending December 31, 2010.
Change in Fiscal Year End
On November 16, 2009, the Board of Directors approved a change in the fiscal year end from June 30
to December 31. The change became effective at the end of the December 31, 2009 quarter. All
references to years, unless otherwise noted, refer to the twelve-month fiscal year, which prior
to July 1, 2009, ended on June 30, and beginning with December 31, 2009, ends on December 31, of
each year.
Business Combinations
On February 8, 2010, the Company and its wholly-owned subsidiary Trident Microsystems, (Far East),
Ltd., or TMFE, a corporation organized under the laws of the Cayman Islands, completed the
acquisition of the television systems and set-top box business lines from NXP B.V., a Dutch
besloten vennootschap; or NXP. As a result of the acquisition, the Company issued 104,204,348
shares of Trident common stock to NXP, or Shares, equal to 60% of the Companys total outstanding
shares of Common Stock, after giving effect to the share issuance to NXP, in exchange for the
contribution of selected assets and liabilities of the television systems and set-top box business
lines from NXP and cash proceeds in the amount of $44 million. In addition, the Company issued to
NXP four shares of a newly created Series B Preferred Stock or the Preferred Shares. For details
of the acquisition, see Note 12, Business Combinations, of Notes to Condensed Consolidated
Financial Statements.
On May 14, 2009, the Company completed its acquisition of selected assets of the frame rate
converter or FRC, demodulator or DRX, and audio decoder product lines from Micronas Semiconductor
Holding AG, or Micronas, a Swiss corporation. In connection with the acquisition, the Company
issued 7.0 million shares of its common stock and warrants to acquire up to 3.0 million additional
shares of its common stock, with a combined fair value of approximately $12.1 million, and incurred
approximately $5.2 million of acquisition-related transaction costs and liabilities, for a total
purchase price of approximately $17.3 million. In connection with the acquisition, the Company
established three new subsidiaries in Europe, Trident Microsystems (Europe) GmbH, or TMEU, Trident
Microsystems Nederland B.V., or TMNM, and Trident Microsystems Holding B.V., or TMH, to primarily
provide sales liaison, marketing and engineering services in Europe. TMEU is located in Munich,
Germany and TMNM and TMH are located in Nijmegen, The Netherlands.
Revenue Recognition
The Company recognizes revenues in accordance with applicable accounting guidance, when persuasive
evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and
collectability is reasonably assured. The Company recognizes revenues for certain distributors at
point of shipment to end customers, based on contractual terms with these distributors. The Company
recognizes revenue on this basis for the majority of shipments made to distributors. The Company
recognizes revenue for the remaining portion of its revenues at the point it ships product to
distributors or to end customers. The Company records estimated reductions to revenues for
incentive offerings and sales returns allowances in the same period that the related revenues are
recognized.
6
Table of Contents
TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company also records a provision for doubtful accounts based on historical
experience and for specific accounts receivable balances for which collectability is not reasonably
assured.
The Companys incentive offerings primarily involve volume rebates for its products in various
target markets. The Company may take actions to increase customer incentive offerings, possibly
resulting in an incremental reduction of revenue at the time the incentive is offered. A sales
returns allowance, which is presented as a reduction to accounts receivable on the Companys
Condensed
Consolidated Balance Sheet, is established based primarily on known factors at that time and
historical rates of sales returns. Additional reductions to revenue could result if actual results
are different from estimates. A limited amount of the Companys revenue is generated through its
distributors under agreements allowing for rights of return.
Reclassifications
Prior period amounts presented in these Condensed Consolidated Financial Statements include
reclassifications to conform to the current period presentation. The preliminary purchase price
allocation, associated with the acquisition of the television systems and set-top box business
lines from NXP, assigned $48.5 million to gain on acquisition. Subsequently, in accordance with
applicable accounting guidance, the gain on acquisition and the Companys deferred tax assets, were
reduced by $3.7 million resulting from new information received by the Company subsequent to filing
the Companys Form 10-Q for the three months ended March 31, 2010. See Note 12, Business
Combinations, of Notes to Condensed Consolidated Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
In April 2010, new accounting guidance was issued for the milestone method of revenue recognition.
Under the new guidance, an entity can recognize revenue from consideration that is contingent upon
achievement of a milestone in the period in which the milestone is achieved only if the milestone
meets all criteria to be considered substantive. This guidance is effective prospectively for
milestones achieved in fiscal years, and interim period within those years, beginning on or after
June 15, 2010. Early adoption is permitted, and if this update is adopted early in other than the
first quarter of an entitys fiscal year, then it must be applied retrospectively to the beginning
of that fiscal year. The Company is currently assessing the impact of the adoption on its
consolidated financial statements. The Company does not expect the new guidance to significantly
impact its Condensed Consolidated Financial Statements.
7
Table of Contents
TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. BALANCE SHEET COMPONENTS
The following table provides details of selected balance sheet components:
June 30, | December 31, | |||||||
(Dollars in thousands) | 2010 | 2009 | ||||||
Cash and cash equivalents: |
||||||||
Cash |
$ | 45,280 | $ | 86,382 | ||||
Money market funds invested in U.S. Treasuries |
51,635 | 61,613 | ||||||
Total cash and cash equivalents |
$ | 96,915 | $ | 147,995 | ||||
Accounts receivable: |
||||||||
Accounts receivable, gross |
$ | 99,273 | $ | 4,902 | ||||
Allowances
for sales returns and for doubtful accounts |
(1,460 | ) | (320 | ) | ||||
Total accounts receivable |
$ | 97,813 | $ | 4,582 | ||||
Inventories: |
||||||||
Work in process |
$ | 10,384 | $ | 12,539 | ||||
Finished goods |
22,091 | 1,997 | ||||||
Total inventories |
$ | 32,475 | $ | 14,536 | ||||
Prepaid expenses and other current assets: |
||||||||
Prepaid licenses |
$ | 8,477 | $ | 6,605 | ||||
VAT receivable |
6,397 | 3,886 | ||||||
Israel, severance plan assets |
2,829 | | ||||||
Miscellaneous receivables |
1,770 | | ||||||
Prepaid insurance |
1,249 | | ||||||
Prepaid and deferred taxes |
1,108 | | ||||||
Other |
4,982 | 3,471 | ||||||
Total prepaid expenses and other current assets: |
$ | 26,812 | $ | 13,962 | ||||
Property and equipment, net: |
||||||||
Machinery and equipment |
$ | 29,187 | $ | 15,427 | ||||
Building and leasehold improvements |
21,016 | 19,522 | ||||||
Software |
4,429 | 4,096 | ||||||
Furniture and fixtures |
3,173 | 2,296 | ||||||
57,805 | 41,341 | |||||||
Accumulated depreciation and amortization |
(24,261 | ) | (15,173 | ) | ||||
Total property and equipment, net |
$ | 33,544 | $ | 26,168 | ||||
Accrued expenses and other current liabilities: |
||||||||
Compensation and benefits |
$ | 19,681 | $ | 4,482 | ||||
Price rebate |
10,047 | 5,913 | ||||||
Deferred revenues less cost of revenues |
7,594 | 329 | ||||||
Professional fees |
4,970 | 2,912 | ||||||
Royalties |
4,606 | 939 | ||||||
Israel, severance plan liability |
3,008 | | ||||||
Contingent liabilities |
2,758 | 4,336 | ||||||
Vat payable |
2,514 | 1,256 | ||||||
Wafer and substrate fees |
2,415 | 2,227 | ||||||
Other |
13,642 | 4,674 | ||||||
Accrued expenses and other current liabilities |
$ | 71,235 | $ | 27,068 | ||||
8
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill and impairment
The following table presents goodwill balance activity for the six months ended June 30, 2010 and
six months ended December 31, 2009:
Six Months Ended | ||||||||
June 30, | December 31, | |||||||
(In thousands) | 2010 | 2009 | ||||||
Balance at beginning of period |
$ | 7,851 | $ | 7,708 | ||||
Goodwill acquired |
| | ||||||
Impairment charge |
(7,851 | ) | 143 | |||||
Balance at end of period |
$ | | $ | 7,851 | ||||
The Company operates in one reportable segment called digital media solutions. The Company has
two operating segments, television systems and set-top boxes, aggregated as one reportable segment.
In accordance with applicable accounting guidance, the Company assigned it goodwill, resulting from
the acquisition of the Micronas product lines, to its television systems operating segment.
The Company assesses potential impairment of goodwill on an annual basis, and more frequently if
events or changes in circumstances indicate that the carrying value may not be recoverable. The
Company performed its annual goodwill impairment analysis and recorded an impairment charge of $7.9
million for the three months ended June 30, 2010, due to the excess of the carrying value over the
estimated market value for the television systems operating segment. The market approach method and
the Companys stock price at June 30, 2010, were used to determine the estimated market value of
the television systems operating segment.
Intangible assets and impairment
The following table summarizes the components of intangible assets and related accumulated
amortization, including impairment, for the periods presented:
June 30, 2010 | December 31, 2009 | |||||||||||||||||||||||
Gross | Accumulated | Gross | Accumulated | Net | ||||||||||||||||||||
Carrying | Amortization | Net Carrying | Carrying | Amortization | Carrying | |||||||||||||||||||
(In thousands) | Amount | and Impairment | Amount | Amount | and Impairment | Amount | ||||||||||||||||||
Intangible assets: |
||||||||||||||||||||||||
Core & developed |
$ | 76,645 | $ | (31,448 | ) | $ | 45,197 | $ | 28,645 | $ | (23,260 | ) | $ | 5,385 | ||||||||||
Customer relationships |
25,535 | (6,736 | ) | 18,799 | 2,535 | (2,359 | ) | 176 | ||||||||||||||||
Backlog |
15,166 | (12,495 | ) | 2,671 | 166 | (92 | ) | 74 | ||||||||||||||||
Patents |
13,000 | (1,143 | ) | 11,857 | | | | |||||||||||||||||
In-process R&D |
18,000 | | 18,000 | | | | ||||||||||||||||||
Service agreements |
16,000 | (4,478 | ) | 11,522 | | | | |||||||||||||||||
Total |
$ | 164,346 | $ | (56,300 | ) | $ | 108,046 | $ | 31,346 | $ | (25,711 | ) | $ | 5,635 | ||||||||||
Additions to intangible assets during the first six months of 2010 resulted primarily from the
February 8, 2010, acquisition of the television systems and set-top box business lines from NXP.
The preliminary purchase price allocation assigned $48.5 million to gain on acquisition.
Subsequently, in accordance with applicable accounting guidance, the preliminary estimate was
reduced by $3.7 million as a result of new information received by the Company subsequent to filing
the Companys Form 10-Q for the three months ended March 31, 2010. Gain on acquisition represents
the amount of the purchase price which is less than the fair value of the underlying net tangible
and identifiable intangible assets acquired. Gain on acquisition is not considered income for tax
purposes. See Note 12, Business Combinations of Notes to Condensed Consolidated Financial
Statements.
9
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents details of the amortization of intangible assets included in the cost
of revenue, research and development and selling, general and administrative expense categories for
the periods presented:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Cost of revenue |
$ | 16,972 | $ | 769 | $ | 27,187 | $ | 1,699 | ||||||||
Research and development |
823 | | 1,308 | | ||||||||||||
Selling, general and administrative |
1,339 | 51 | 2,094 | 421 | ||||||||||||
Net revenues |
| 18 | | 18 | ||||||||||||
$ | 19,134 | $ | 838 | $ | 30,589 | $ | 2,138 | |||||||||
As of June 30, 2010, the estimated future amortization expense of intangible assets in the
table above is as follows, excluding in-process research and development intangible asset:
(In thousands) | Estimated | |||
Fiscal Year Ending | Amortization | |||
2010 (remaining 6 months) |
$ | 24,636 | ||
2011 |
35,358 | |||
2012 |
23,751 | |||
2013 |
4,556 | |||
2014 |
1,745 | |||
Thereafter |
| |||
Total |
$ | 90,046 | ||
As of June 30, 2010, the status of in-process research and development is consistent with the
Companys expectation at the time the in-process research and development was acquired. Future
period intangible assets amortization expense will include the amortization of in-process research
and development, if and when the technology reaches technical feasibility.
4. GUARANTEES
The Company provides for estimated future costs of warranty obligations in accordance with
applicable accounting guidance, which requires an entity to disclose and recognize a liability for
the fair value of the obligation it assumes upon issuance of a guarantee. The Company warrants its
products against material defects for a period of time, usually between 90 days and one year. The
Company replaces defective products that are expected to be returned by its customers under its
warranty program.
5. COMMITMENTS AND CONTINGENCIES
Commitments
NXP Acquisition Related Commitments
On February 8, 2010, as a result of the acquisition of selected assets and liabilities of the
television systems and set-top box business lines from NXP, the Company entered into a Transition
Services Agreement, pursuant to which NXP provides to the Company, for a limited period of time,
specified transition services and support. Depending on the service provided, the term for the
majority of services range from three to eighteen months, and limited services could continue into
the fourth quarter of 2011. The total remaining payment obligation under the Transition Services
Agreement is approximately $9.4 million as of June 30, 2010. The Company also entered into a
Manufacturing Services Agreement pursuant to which NXP provides manufacturing services to the
Company for a limited period of time. The term of the agreement ends on the readiness of the
Companys enterprise resource planning system which is estimated to be June 30, 2011. The terms of
the agreements allow the Company to cancel either or both the Transition Services Agreement and the
Manufacturing Services Agreement with minimum notice periods. Also see Note 13, Related Party
Transactions, of Notes to Condensed Consolidated Financial Statements.
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contingencies
Intellectual Property Proceedings
In March 2010, Intravisual Inc. filed complaints against Trident and multiple other
defendants, including NXP, in the United States District Court for the Eastern District of Texas,
No. 2:10-CV-90 TJW alleging that certain Trident products infringe a patent relating generally to
compressing and decompressing digital video. The complaint seeks a permanent injunction against the
Company as well as the recovery of unspecified monetary damages and attorneys fees. On May 28,
2010, Trident filed its answer, affirmative defenses and counterclaims. No date for trial
has been set. The Company intends to contest this action vigorously. Because this action is in the very early stages, and due to the inherent uncertainty
surrounding the litigation process, the Company is unable to reasonably estimate the ultimate
outcome of this litigation at this time.
From time to time, the Company receives communications from third parties asserting patent or other
rights allegedly covering its products and technologies. Based upon its evaluation, the Company may
take no action or the Company may seek to obtain a license, redesign an accused product or
technology, initiate a formal proceeding with the appropriate agency (e.g., the U.S. Patent and
Trademark Office) and/or initiate litigation. There can be no assurance in any given case that a
license will be available on terms the Company considers reasonable or that litigation can be
avoided if the Companys desire is to do so. If litigation does ensue, the adverse third party will
likely seek damages (potentially including treble damages) and may seek an injunction against the
sale of the Companys products that incorporate allegedly infringed intellectual property or
against the operation of its business as presently conducted, which could result in the Company
having to stop the sale of some of its products or to increase the costs of selling some of its
products. Such lawsuits could also damage the Companys reputation. The award of damages, including
material royalty payments, or the entry of an injunction against the sale of some or all of the
Companys products, could have a material adverse affect on the Company. Even if the Company were
to initiate litigation, such action could be extremely expensive and time-consuming and could have
a material adverse effect on the Company. The Company cannot assure you that litigation related to
its patent or other rights or the patent or other rights of others can always be avoided or
successfully concluded.
Shareholder Derivative Litigation
Trident has been named as a nominal defendant in several shareholder derivative lawsuits concerning
the granting of stock options. The federal court cases have been consolidated as In re Trident
Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed
in State court, Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that
certain of the Companys current or former officers and directors caused it to grant options at
less than fair market value, contrary to the Companys public statements (including its financial
statements), and that this represented a breach of their fiduciary duties to the Company, and as a
result those officers and directors are liable to the Company. The Companys Board of Directors has
appointed a Special Litigation Committee, or SLC, which has been composed solely of independent
directors, to review and manage any claims that the Company may have relating to the stock option
granting practices and related issues investigated by the SLC. The scope of the SLCs authority
includes the claims asserted in the derivative actions. In federal court, the Company moved to stay
the case pending the assessment by the SLC that was formed to consider nominal plaintiffs claims.
On March 26, 2010, the federal court approved settlements with all defendants other than Frank Lin,
the Companys former CEO, and all defendants other than Mr. Lin were dismissed with prejudice from
the state and federal actions. In connection with the approved settlements, payments of
approximately $1.7 million were made to the Company, by certain
of the defendants, and recorded in other income (expense), net on the
Companys Condensed Consolidated Statement of Operations during the three
months ended June 30, 2010. The state court derivative action was dismissed following the approval
of the settlement in the federal action. No particular amount of damages has been alleged in the
federal action, and by the nature of the lawsuit no damages will be alleged against the Company.
On June 8, 2010, Mr. Lin filed a counterclaim against Trident. In that counterclaim, Mr. Lin seeks
recovery of payments he claims he was promised during the negotiations surrounding his eventual
termination and also losses he claims he has suffered because he was not permitted to exercise his
Trident stock options between January 2007 and March 2008. The Company cannot predict whether the
federal action against Mr. Lin and his counterclaims are likely to result in any material recovery
by or expense to Trident. In addition, on July 1, 2010, the derivative plaintiffs filed an amended
complaint in the federal action stating claims against Mr. Lin relating to his actions in
connection with the Companys stock option granting practices. The Company expects to continue to
incur legal fees in responding to this lawsuit, including expenses for the reimbursement of certain
legal fees of at least Mr. Lin under its advancement obligations. The expense of defending such
litigation may be significant. The amount of time to
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
resolve this and any additional lawsuits is
unpredictable and these actions may divert managements attention from the day-to-day operations of
the Companys business, which could adversely affect its business, results of operations and cash
flows.
Regulatory Actions
As previously disclosed, the Company was subject to a formal investigation by the Securities and
Exchange Commission, or SEC, in connection with its investigation into the Companys historical
stock option granting practices and related issues. On July 16, 2010, the Company entered into a
settlement with the SEC regarding this investigation. The Company agreed to settle with the SEC
without admitting or denying the allegations in the SECs complaint. The Company consented to
entry of a permanent injunction against future violations of anti-fraud provisions, reporting
provisions and the books and records requirements of the Securities Exchange Act of 1934 and the
Securities Act of 1933. On July 19, 2010, the U.S. District Court for the District of Columbia
entered a final judgment incorporating the judgment consented to by the Company. The final
judgment did not require the Company to pay a civil penalty or other money damages. Although the
Department of Justice, or DOJ, commenced an informal investigation relating to the same issues,
the DOJ has not requested information from the Company since February 20, 2009 and the Company
believes that the DOJ has concluded its investigation without taking any action against the
Company. The Company believes that the settlement with the SEC concluded the governments
investigations into its historical stock option practices.
Indemnification Obligations
The Company indemnifies, as permitted under Delaware law and in accordance with its Bylaws, Company
officers, directors and members of the Companys senior management for certain events or
occurrences, subject to certain limits, while they were serving at the Companys request in such
capacity. In this regard, the Company has received, or expects to receive, requests for advancement
and indemnification by certain current and former officers, directors and employees in connection
with the Companys investigation of its historical stock option granting practices and related
issues, and the related governmental inquiries and shareholder derivative litigation. The maximum
amount of potential future advancement and indemnification is unknown and potentially unlimited;
therefore, it cannot be estimated. The Company has directors and officers liability insurance
policies that may enable it to recover a portion of such future advancement and indemnification
claims paid, subject to coverage limitations of the policies, and plan to make claim for
reimbursement from the Companys insurers of any potentially covered future indemnification
payments. In certain circumstances, the Company also would have the right to seek to recover sums
advanced to an indemnitee.
Commercial Litigation
In June 2010, Exatel Visual Systems, Ltd. filed a complaint against NXP Semiconductors USA, Inc.
and Trident, in Superior Court for the State of California, No. 1-10-CV-174333, alleging breach of
contract and related tort claims relating generally to an alleged product development project
undertaken by Tridents predecessor, NXP, and its predecessor, Conexant Systems, Inc. Trident has
not yet filed an answer and no date for trial has been set. Because this action is in the very
early stages, and due to the inherent uncertainty surrounding the litigation process, the Company
is unable to reasonably estimate the ultimate outcome of this litigation at this time.
General
From time to time, the Company is involved in other legal proceedings arising in the ordinary
course of its business. While the Company cannot be certain about the ultimate outcome of any
litigation, management does not believe any pending legal proceeding will result in a judgment or
settlement that will have a material adverse effect on the Companys business, financial position,
results of operation or cash flows.
6. EMPLOYEE STOCK PLANS
Voluntary stock option exchange program
On February 10, 2010, the Company commenced a voluntary stock option exchange program, or Exchange
Program, previously approved by stockholders at the Companys annual stockholder meeting on January
25, 2010. The Exchange Program offer period commenced on February 10, 2010 and concluded at 9:00
p.m., Pacific Standard Time, on March 10, 2010.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Under the Exchange Program, eligible employees were able to exchange certain outstanding options to
purchase shares of the Companys common stock having a per share exercise price equal to or greater
than $4.69 for a lesser number of shares of restricted stock or restricted stock units. Eligible
employees participating in the offer who were subject to U.S. income taxation receive shares of
restricted stock, while all other eligible employees participating in the offer received restricted
stock units. Members of the Companys Board of Directors and the Companys executive officers and
named executive officers, as identified in the Companys definitive proxy statement filed on
December 18, 2009, were not eligible to participate in the Exchange Program.
Pursuant to the terms and conditions of the Exchange Program, the Company accepted for exchange
eligible options to purchase 1,637,750 shares of the Companys common stock, representing 88.83% of
the total number of options originally eligible for
exchange. These surrendered options were cancelled on March 11, 2010 and in exchange therefore the
Company granted a total of 120,001 new shares of restricted stock and a total of 198,577 new
restricted stock units under the Trident Microsystems, Inc. 2010 Equity Incentive Plan, in
accordance with the applicable Exchange Program conversion ratios. Under applicable accounting
guidance, the exchange was accounted for as a modification and the incremental stock-based
compensation expense recognized by the Company as a result of the Exchange Program was immaterial.
Employee Stock Incentive Plans
The Company grants nonstatutory and incentive stock options, restricted stock awards, restricted
stock units and performance share awards to attract and retain officers, directors, employees and
consultants. For the six months ended June 30, 2010, the Company made awards under the 2010 Equity
Incentive Plan, or 2010 Plan, which was approved by the Companys stockholders on January 25, 2010.
Previously, the Company had also adopted the 2001 Employee Stock Purchase Plan, however, purchases
under this plan have been suspended for several years. Options to purchase Tridents common stock
remain outstanding under the following incentive plans which have expired or been terminated: the
1992 Stock Option Plan, the 1994 Outside Directors Stock Option Plan, the 1996 Nonstatutory Stock
Option Plan, or 1996 Plan, the 2002 Stock Option Plan, or 2002 Plan, and the 2006 Equity Incentive
Plan, or 2006 Plan. In addition, options to purchase Tridents common stock are outstanding as a
result of the assumption by the Company of options granted to Trident Technologies, Inc., or TTI,
officers, employees and consultants under the TTI 2003 Employee Option Plan, or TTI Plan. The
options granted under the TTI Plan were assumed in connection with the acquisition of the minority
interest in TTI on March 31, 2005 and converted into options to purchase Tridents common stock.
Except for the 1996 Plan, all of the Companys equity incentive plans, as well as the assumption
and conversion of options granted under the TTI Plan, have been approved by the Companys
stockholders.
The 2010 Plan provides for the grant of equity incentive awards, including stock options, stock
appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock
units, performance shares, performance units and cash-based and other stock-based awards of up to
32,200,000 shares, subject to increase for unissued predecessor plan shares as set forth in the
2010 Plan. For purposes of the total number of shares available for grant under the 2010 Plan, any
shares that are subject to awards of stock options, stock appreciation rights or other awards that
require the option holder to purchase shares for monetary consideration equal to their fair market
value determined at the time of grant are counted against the available-for-grant limit as one
share for every one share issued, and any shares issued in connection with any other awards, or
full value awards, are counted against the available-for-grant limit as 1.2 shares for every one
share issued. Stock options granted under the 2010 Plan generally must have an exercise price equal
to the closing market price of the underlying stock on the grant date and generally expire no later
than ten years from the grant date. Options generally become exercisable beginning one year after
the date of grant and vest as to a percentage of shares annually over a period of three to four
years following the date of grant. The 2010 Plan supersedes the 2006 Plan and the 2002 Plan. The
2006 Plan and 2002 Plan were terminated on January 26, 2010 following approval of the 2010 Plan by
the Companys stockholders.
Valuation of Employee Stock Options
The Company values its stock-based incentive awards granted using the Black-Scholes model, except
for performance-based restricted stock awards with a market condition granted during the fiscal
year ended June 30, 2008 and during the six months ended June 30, 2010, for which the Company used
a Monte Carlo simulation model to value the awards.
The Black-Scholes model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input
of certain assumptions. The Companys stock options have
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
characteristics significantly different
from those of traded options, and changes in the assumptions can materially affect the fair value
estimates.
For the three and six months ended June 30, 2010 and 2009, the fair value of options granted were
estimated at the date of grant using the Black-Scholes model with the following weighted average
assumptions:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Employee Incentive Plans | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Expected term (in years) |
5.03 | 4.74 | 4.78 | 4.11 | ||||||||||||
Expected volatility |
69.88 | % | 69.37 | % | 68.95 | % | 67.98 | % | ||||||||
Risk-free interest rate |
2.43 | % | 2.42 | % | 2.28 | % | 1.86 | % | ||||||||
Expected dividend rate |
| | | | ||||||||||||
Weighted average fair value at grant date |
$ | 1.08 | $ | 1.07 | $ | 1.03 | $ | 0.79 |
The expected term of stock options represents the weighted average period the stock options
are expected to remain outstanding. The expected term is based on the observed and expected time to
exercise and post-vesting cancellations of options by employees. The Company uses historical
volatility in deriving its expected volatility assumption because it believes that future
volatility over the expected term of the stock options is not likely to differ from the past. The
risk-free interest rate assumption is based upon observed interest rates appropriate for the
expected term of options to purchase Trident common stock. The expected dividend assumption is
based on the Companys history and expectation of dividend payouts.
As stock-based compensation expense recognized in the Condensed Consolidated Statements of
Operations for the three and six months ended June 30, 2010 and 2009 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures
were estimated based on historical experience.
Stock-Based Compensation Expense
The following table summarizes Tridents stock-based award activities for the three and six months
ended June 30, 2010 and 2009:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Cost of revenues |
$ | 86 | $ | 149 | $ | 190 | $ | 294 | ||||||||
Research and development |
902 | 1,710 | 1,782 | 3,050 | ||||||||||||
Selling, general and administrative |
1,246 | 1,401 | 2,505 | 2,719 | ||||||||||||
Total stock-based compensation expense |
$ | 2,234 | $ | 3,260 | $ | 4,477 | $ | 6,063 | ||||||||
The Company has not capitalized any stock-based compensation expense in inventory for the
three and six months ended June 30, 2010 and 2009 as such amounts were immaterial.
During the three and six months ended June 30, 2010, total stock-based compensation expense
recognized in income before taxes was $2.2 million and $4.5 million, respectively, with no related
recognized tax benefit. Total stock-based compensation expense recognized in income before taxes
for the six months ended June 30, 2010, includes a $1.6 million reduction in a contingent liability
that was recorded as a reduction in Selling, general and administrative expenses on the Companys Condensed
Consolidated Statement of Operations. This contingent liability related to the investigation by the
Companys Special Litigation Committee and is further described in the Contingent Liabilities
section below. During the three and six months ended June 30, 2009, total stock-based compensation
expense recognized in income before taxes was $3.3 million and $6.1 million, respectively, with no
related recognized tax benefit.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Option Awards
The following table summarizes the Companys stock option and restricted stock activities for the
six months ended June 30, 2010:
Options Outstanding | ||||||||||||||||||||
Weighted | ||||||||||||||||||||
Average | ||||||||||||||||||||
Remaining | ||||||||||||||||||||
Shares | Weighted | Contractual | ||||||||||||||||||
Available for | Number of | Average | Term (in | Aggregate | ||||||||||||||||
(In thousands, except per share data and contractual term) | Grant | Shares | Exercise Price | years) | Intrinsic Value | |||||||||||||||
Balance at December 31, 2009 |
1,682 | 6,690 | $ | 7.48 | ||||||||||||||||
Newly authorized (2010 Plan) |
42,300 | |||||||||||||||||||
Plan shares expired |
(3,785 | ) | $ | | ||||||||||||||||
Granted |
(769 | ) | 769 | $ | 1.80 | |||||||||||||||
Exercised |
| (50 | ) | $ | 1.02 | |||||||||||||||
Cancelled, forfeited or expired |
1,900 | (1,900 | ) | $ | 14.51 | |||||||||||||||
Restricted stock granted (1) |
(3,887 | ) | | |||||||||||||||||
Restricted stock cancelled, forfeited or expired (1) |
297 | | ||||||||||||||||||
Balance at June 30, 2010 |
37,738 | 5,509 | $ | 4.34 | 7.12 | $ | 300 | |||||||||||||
Vested and expected to vest at June 30, 2010 |
5,246 | $ | 4.44 | 7.02 | $ | 299 | ||||||||||||||
Exercisable at June 30, 2010 |
2,469 | $ | 6.06 | 5.06 | $ | 289 | ||||||||||||||
(1) | Restricted stock is deducted from and added back to shares available for grant under the 2010 Plan at a 1 to 1.20 ratio and at a 1 to 1.38 ratio for restricted stock deducted and canceled or expired under other previous Plans. |
The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed
based on the difference between the exercise price and Tridents closing common stock price of
$1.42 as of June 30, 2010, which would have been received by the option holders had all option
holders exercised their options as of that date. Total unrecognized compensation cost of options
granted but not yet vested as of June 30, 2010 was $3.4 million, which is expected to be recognized
over the weighted average service period of 2.36 years.
Restricted Stock Awards and Restricted Stock Units
The following table summarizes the activity for Tridents restricted stock awards (RSA) and
restricted stock units (RSU) for the six months ended June 30, 2010:
Restricted Stock Awards and | ||||||||
Weighted | ||||||||
Average Grant | ||||||||
Number of | Date Fair | |||||||
(In thousands, except per share data) | Shares | Value | ||||||
Restricted stock balance at December 31 2009 |
2,028 | $ | 4.44 | |||||
Granted |
3,239 | $ | 1.84 | |||||
Vested |
(519 | ) | $ | 2.87 | ||||
Forfeited |
(225 | ) | $ | 2.89 | ||||
Restricted stock balance at June 30, 2010 |
4,523 | $ | 2.84 | |||||
Both RSAs and RSUs typically vest over a three or four year period. The fair value of the RSAs
and RSUs was based on the closing market price of the Companys common stock on the date of award.
The table above includes an RSA of 110,000 performance-based shares with vesting subject to
achievement of specific market conditions granted under the 2006 Plan. This RSA was issued to the
Companys Chief Executive Officer on October 23, 2007 as part of her initial new hire award. The
award will vest in four equal tranches, with the vesting of each tranche requiring that Tridents
common stock price target, established by the Compensation Committee, be achieved on or after one
of the first four anniversaries of her employment start date. The CEO needs to be employed with the
Company as of each anniversary date in order for vesting to occur. The table above also includes
performance-based RSU
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
awards of 67,000 shares and 35,000 shares under the 2006 Plan, granted on
October 4, 2009, to the Companys Chief Executive Officer and Senior Vice President of Engineering,
respectively. The RSUs vest subject to achievement of specific Company earnings during the year
ending December 31, 2011. The units vest only if the performance goal has been met in full. The RSU award granted to the Vice President of Engineering was cancelled during January 2010 and an
insignificant amount of expense was recognized for the six month period ended June 30, 2010. The
table above also includes awards of 650,000 performance-based shares with market conditions and
service conditions that were granted to certain Company executives during the six months ended June
30, 2010. These awards vest subject to achievement of a minimum price for the Companys stock for
fiscal years 2011 through 2013.
The fair value of the performance share awards with market and service conditions was estimated at
the grant date using a Monte Carlo simulation with the following weighted-average assumptions:
volatility of Tridents common stock of 72%; and a risk-free interest rate of 1.83%. The
weighted-average grant-date fair value of the performance share awards was $1.11. During the three
and six months ended June 30, 2010, stock-based compensation expense of $0.09 million and $0.17
million was recorded, respectively for these performance share awards based on service conditions
having been met. As of June 30, 2010, none of these performance share awards had vested.
The Company recognized an insignificant amount of expense for RSAs and RSUs granted under the
Employee Stock Plans for the six months ended June 30, 2010. A total of $9.6 million of
unrecognized compensation cost is expected to be recognized over a weighted average period of 2.29
years.
Modification of Certain Options
Extended Exercise
Effective at the close of trading on September 25, 2006, the Company temporarily suspended the
ability of optionees to exercise vested options to purchase shares of the Companys common stock
until the Company became current in the filing of its periodic reports with the SEC and filed a
Registration Statement on Form S-8 for the shares issuable under the 2006 Plan (2006 Plan S-8).
This suspension continued in effect through August 22, 2007, the date of the filing of the
registration statement on Form S-8 covering issuances under the 2006 Plan, which followed the
Companys filing, on August 21, 2007, of its Quarterly Reports on Form 10-Q for the periods ended
September 30, 2006, December 31, 2006, and March 31, 2007.
As a result, the Company extended the exercise period of approximately 550,000 fully vested options
held by 10 employees, who were terminated during the suspension period, giving them either 30 days
or 90 days after the Company became current in the filings of its periodic reports with the SEC and
filed the 2006 Plan S-8 in order to exercise their vested options. During the quarter ended
September 30, 2007, eight of these ten former employees stated above exercised all of their vested
options. However, on September 21, 2007, the Special Litigation Committee of the Board of Directors
(SLC) decided that it was in the best interests of the Companys stockholders not to allow the
remaining two former employees, as well as the Companys former CEO and two former non-employee
directors, to exercise their vested options during the pendency of the SLCs proceedings, and
extended, until March 31, 2008, the period during which these five former employees could exercise
approximately 428,000 of their fully vested options. Moreover, the SLC allowed one former employee
to exercise all of his fully vested stock options and another former employee agreed to cancel all
of such individuals fully vested stock options during the second quarter of fiscal year ended June
30, 2008. On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the
two former non-employee directors could exercise their unexpired vested options. For the fiscal
year ended June 30, 2008, the Company recorded aggregate incremental stock-based compensation
expense totaling approximately $5.4 million related to the modifications of option exercise rights
of the five former employees as described above, and the related expenses were included in
Selling, General and Administrative Expenses in the Consolidated Statement of Operations as of
that date.
Contingent Liabilities
As stated in the Extended Exercise section above, on September 21, 2007, the SLC decided not
to allow the Companys former CEO and two former non-employee directors to exercise their vested
options until March 31, 2008. Moreover, on January 30, 2008, the SLC extended, until August 1,
2008, the period during which the two former non-employee directors could exercise their vested
options. On March 31, 2008, the SLC entered into an agreement with the Companys former CEO
allowing him to exercise all of his fully vested stock options. Under this agreement, he agreed
that any shares obtained through these exercises or net proceeds obtained
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
through the sale of such
shares would be placed in an identified securities brokerage account and not withdrawn, transferred
or otherwise removed without either (i) a court order granting him permission to do so or (ii) the
written permission of the Company. On May 29, 2008, the SLC permitted one of the Companys former
non-employee directors to exercise his fully vested stock options without seeking the authorization
of the SLC and entered into an agreement with the other former non-employee director on terms
similar to the agreement entered into with the Companys former CEO, allowing him to exercise all
of his fully vested stock options without seeking the authorization from the SLC. Because Tridents
stock price was lower than the prices at which the Companys former CEO and each of the two former
directors had desired to exercise their options, as indicated in previous written notices to the
SLC, the Company recorded a contingent liability totaling $4.3 million, which was included in
Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets as of
December 31, 2009 and the related expenses were included in Selling, General and Administrative
Expenses in the Consolidated Statement of Operations for the quarter ended December 31, 2009. On
March 26, 2010, the claims by these two former non-employee directors against the Company, valued
at approximately $1.6 million in the aggregate, were waived as part of a comprehensive settlement
with the Company. Currently, the SLC investigation is still in progress only with respect to the
Companys former CEO. In June 2010, he filed a claim against the Company seeking compensation from
the Company relating to the exercise of his fully vested stock options. As a result, as of June 30,
2010, the Company maintained a contingent liability totaling $2.8 million in Accrued expenses and
other current liabilities in the Condensed Consolidated Balance Sheets and the related expenses
were included in Selling, General and Administrative Expenses in the Consolidated Statement of
Operations for the six months ended June 30, 2010. See Note 5, Shareholder Derivative Litigation
in Commitment and Contingencies, of Notes to Condensed Consolidated Financial Statements.
7. INCOME TAXES
The Company accrued an insignificant amount for interest and penalties, following applicable
accounting guidance, related to gross unrecognized tax benefits, which are included in the
provision for income taxes for the three and six months ended June 30, 2010. The Company included
in its unrecognized tax benefit of $43.3 million at June 30, 2010, $22.2 million of tax benefits
that, if
recognized, would reduce the Companys annual effective tax rate. It is reasonably possible that
the Companys unrecognized tax benefits could decrease by a range between zero and $2.8 million
within the next twelve months, depending on the outcome of certain tax audits or statutes of
limitations in foreign jurisdictions.
A benefit from income taxes of $2.3 million and $1.5 million was recorded for the three and six
months ended June 30, 2010, respectively. A provision for income taxes of $1.0 million and $2.8
million was recorded for the three and six months ended June 30, 2009, respectively. The effective
income tax rate for the three and six months ended June 30, 2010, increased by 9.2 and 10.6
percentage points, respectively, compared to the three and six months ended June 30, 2009. The
increase in the Companys effective tax rate was primarily due to the recognition of the tax
benefit resulting from net operating losses generated in foreign jurisdictions as a result of
restructuring activities, the release of tax reserves in a foreign jurisdiction associated with the
remeasurement of an unrecognized tax benefit due to new information received in the period
associated with legal guidance provided, and a lapse of a statute of limitation in the jurisdiction
relevant the Companys business operations, as compared to tax expense incurred on a loss in the
three and six months ended June 30, 2009.
The Companys ability to use federal and state net operating loss and credit carry forwards to
offset future taxable income and future taxes, respectively, is subject to restrictions
attributable to equity transactions that result from changes in ownership as defined by Internal
Revenue Code (IRC) Sections 382 and 383. As discussed in Note 12, Business Combinations, on
February 8, 2010, Trident issued 104,204,348 newly issued shares of Trident common stock to NXP,
equal to 60% of the total outstanding shares of Trident common stock. The impact of this event
reduced the Companys availability of net operating loss and tax credit carry forwards for federal
and state income tax purposes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share for the
three and six months ended June 30, 2010 and 2009:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net loss |
$ | (49,030 | ) | $ | (21,075 | ) | $ | (56,614 | ) | $ | (37,679 | ) | ||||
Shares used in computing net loss per share basic
and diluted |
174,018 | 65,565 | 152,059 | 63,708 | ||||||||||||
Net loss per share basic and diluted |
$ | (0.28 | ) | $ | (0.32 | ) | $ | (0.37 | ) | $ | (0.59 | ) | ||||
Potentially dilutive common shares are excluded from the computation of basic and diluted net
loss per share for the above periods because their effect would have been anti-dilutive.
Potentially dilutive common shares, for the three and six months ended June 30, 2010, respectively,
were 5.7 million and 5.6 million. Potentially dilutive common shares, for both the three and six
months ended June 30, 2009, were 7.0 million.
9. FAIR VALUE MEASUREMENTS
The Company follows applicable accounting guidance for its fair value measurements. The guidance
establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. A financial instruments
categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The guidance establishes three levels of inputs that may
be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which all significant inputs are observable or can
be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
The Companys insurance policies and mutual funds, that are
used to fund the pension liability for our Israeli employees, are
classified within Level 2, and are used as the market inputs to
value these investments, and are observable, for example market yields, but the assets are not actively traded.
Level 3 Unobservable inputs to the valuation methodology significant to the measurement of fair
value of assets or liabilities.
Determination of fair value
Cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued
using quoted market prices.
Assets Measured at Fair Value on a Recurring Basis
The following table presents the Companys financial assets, measured at fair
value, as of June 30, 2010:
Fair Value Measurement at Reporting Date | ||||||||||||||||
Quoted Prices | ||||||||||||||||
In Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
(In thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Israel, severance plan assets invested in insurance policies and mutual funds (1) |
$ | 2,829 | $ | | $ | 2,829 | $ | | ||||||||
Money market funds invested in U.S. Treasuries (2) |
51,635 | 51,635 | | | ||||||||||||
Total |
$ | 54,464 | $ | 51,635 | $ | 2,829 | $ | | ||||||||
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the Companys financial assets, measured at fair
value, as of December 31, 2009:
Fair Value Measurement at Reporting Date | ||||||||||||||||
Quoted Prices In | Significant | |||||||||||||||
Active Markets for | Significant | Unobservable | ||||||||||||||
Identical Assets | Observable | Inputs | ||||||||||||||
(In thousands) | Fair Value | (Level 1) | Inputs (Level 2) | (Level 3) | ||||||||||||
Money market funds invested in U.S. Treasuries (2) |
$ | 61,613 | $ | 61,613 | $ | | $ | |
(1) | Included in Prepaid and other current assets on the Companys Condensed Consolidated Balance Sheets. | |
(2) | Included in Cash and cash equivalents on the Companys Condensed Consolidated Balance Sheets. |
10. RESTRUCTURING
During the first quarter of 2010, the Company began procedures to streamline its operations. As a
result of this decision, the Company recorded for the three and six months ended June 30, 2010,
$4.5 million and $12.9 million, respectively, of restructuring expenses related to severance and
related employee benefits. The restructuring is expected to be completed by the end of the calendar
year. Restructuring charges are recorded under Restructuring charges in the Companys Condensed
Consolidated Statement of Operations.
Prior to the close of the Companys acquisition of selected assets and liabilities of NXPs
television systems and set-top box business lines, NXP initiated a restructuring plan pursuant to
which the employment of some NXP employees was terminated upon the close of the merger. The Company
has determined that the restructuring plan was a separate plan from the business combination
because the plan to terminate the employment of certain employees was made in contemplation of the
acquisition. Therefore, a severance cost of $3.6 million was recognized by the Company as an
expense on the acquisition date and is included in the total restructuring charge of $12.9 million
for the six months ended June 30, 2010. The $3.6 million of severance cost was paid by NXP after
the close of the acquisition, effectively reducing the purchase consideration transferred. See Note
12, Business Combinations, of Notes to Condensed Consolidated Financial Statements.
The following table presents the changes in the Companys restructuring accrual for the three and
six months ended June 30, 2010 and 2009:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Restructuring liabilities, beginning of period |
$ | 153 | $ | | $ | | $ | | ||||||||
Severance and related charges |
4,470 | 8 | 12,875 | 49 | ||||||||||||
Cash payments |
(3,518 | ) | (8 | ) | (11,770 | ) | (49 | ) | ||||||||
Restructuring liabilities, end of period |
$ | 1,105 | $ | | $ | 1,105 | $ | | ||||||||
11. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
Geographic Information
The Company operates in one reportable segment called digital media solutions. The digital media
solutions business segment designs, develops and markets integrated circuits for digital media
applications, such as digital television, set-top boxes, and liquid crystal display, or LCD,
television. The Company has determined its operating segments based on current applicable
accounting literature. The Company has two operating segments, television systems and set-top
boxes, aggregated as one reportable segment, based on current applicable accounting literature.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenues by region are classified based on the locations of the customers principal offices even
though customers revenues are attributable to end customers that are located in a different
location. The following is a summary of the Companys net revenues by geographic operations for the
periods presented:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues: |
||||||||||||||||
South Korea |
$ | 60,756 | $ | 4,987 | $ | 99,969 | $ | 5,345 | ||||||||
Europe |
43,216 | 2,673 | 64,621 | 3,681 | ||||||||||||
Asia Pacific |
36,586 | 3,152 | 51,749 | 5,043 | ||||||||||||
Japan |
22,123 | 3,702 | 33,386 | 7,297 | ||||||||||||
Americas |
8,967 | 398 | 12,327 | 398 | ||||||||||||
Total revenues |
$ | 171,648 | $ | 14,912 | $ | 262,052 | $ | 21,764 | ||||||||
Major Customers
The following table shows the percentage of the Companys revenues during the three and six months
ended June 30, 2010 and 2009 that were derived from customers who individually, or through their
Electronic Manufacturing Service providers accounted for more than 10% of revenues for those
periods:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Samsung Electronics, Co., Ltd. |
24 | % | 23 | % | 26 | % | 16 | % | ||||||||
Philips Consumer Electronics International B.V. |
14 | % | * | 13 | % | * | ||||||||||
Sony |
* | 11 | % | * | 18 | % |
* | Less than 10% of net revenues |
The Company recognizes revenues for its largest distributors at the point these distributors
ship to end customers (sell-through basis), representing approximately 86% of shipments made to
distributors for the six months ended June 30, 2010. For the three and six months ended June 30,
2010, distribution revenue recognized on a sell-through basis was 27% and 24% of total revenues,
respectively. For the three and six months ended June 30, 2009, distribution revenue recognized on
a sell-through basis was 36% and 50% of total revenues, respectively.
As of June 30, 2010, the Company had a high concentration of accounts receivable with Samsung
Electronics, Co., Ltd., representing 28% of net accounts receivable.
Deferred revenues, cost of revenues and gross profit
The following table presents deferred revenues, cost of revenues and gross profit as of June 30,
2010 and December 31, 2009:
June 30, | December 31, | |||||||
(Dollars in thousands) | 2010 | 2009 | ||||||
Deferred revenues |
$ | 16,046 | $ | 709 | ||||
Deferred cost of revenues |
8,452 | 380 | ||||||
Deferred gross profit |
$ | 7,594 | $ | 329 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. BUSINESS COMBINATIONS
Acquisition of the television systems and set-top box business lines from NXP B.V.
On February 8, 2010, the Company and its wholly-owned subsidiary, TMFE, a corporation organized
under the laws of the Cayman Islands, completed the acquisition of the television systems and
set-top box business lines from NXP B.V., a Dutch besloten vennootschap. As a result of the
acquisition, the Company issued 104,204,348 shares of Trident common stock to NXP, equal to 60% of
the Companys total outstanding shares of Common Stock, after giving effect to the share issuance
to NXP, in exchange for the contribution of selected assets and liabilities of the television
systems and set-top box business lines from NXP and cash proceeds in the amount of $44 million. In
addition, the Company issued to NXP four shares of a newly created Series B Preferred Stock or the
Preferred Shares.
The following is the consideration transferred by Trident representing the total purchase price:
(In thousands) | ||||||||
Shares | Amount | |||||||
Issuance of Trident common shares to NXP |
104,204 | $ | 188,610 | |||||
Issuance of Trident preferred shares to NXP |
4 | | ||||||
Purchase of Trident common shares by NXP |
(30,000 | ) | ||||||
Net cash payment by NXP |
(14,235 | ) | ||||||
Contingent returnable consideration (g) |
(3,588 | ) | ||||||
Acquisition date fair value of total consideration transferred |
$ | 140,787 | ||||||
The acquisition was accounted for using the purchase method of accounting, and the Company was
deemed to be the acquirer, in accordance with applicable accounting guidance. Under the purchase
method of accounting, the total estimated purchase price is allocated to the net tangible and
identifiable intangible assets acquired and liabilities assumed in connection with the acquisition
based on their estimated fair value as of the closing of the acquisition. Total acquisition related
expenses incurred through March 31, 2010, recorded as operating expenses, were approximately $11.7
million.
The total purchase price of $140.7 million was allocated to the net tangible and intangible assets
acquired and liabilities assumed as follows:
(In thousands) | ||||
Amount | ||||
Cash |
$ | 2,145 | ||
Prepaid expenses and other current assets |
14,375 | |||
Inventory notes receivable (a) |
39,900 | |||
Fixed assets (b) |
11,869 | |||
Non-current assets |
4,500 | |||
Service agreements (c) |
16,000 | |||
Acquired intangible assets (d) |
117,000 | |||
Deferred tax asset (e) |
796 | |||
Liabilities assumed: |
||||
Accrued liabilities |
(16,199 | ) | ||
Non-current liabilities |
(4,815 | ) | ||
Fair market value of the net assets acquired |
185,571 | |||
Gain on acquisition (f) |
(44,784 | ) | ||
Total purchase price |
$ | 140,787 | ||
(a) | As of the effective date of the asset acquisition, Trident acquired two inventory notes receivable (the Note or Notes). The first Note is for $19.6 million and allowed Trident to purchase finished goods inventory on March 22, 2010. The second Note is for $20.3 million and allows Trident to purchase work-in-process inventory on the readiness of the Companys enterprise resource planning system which is projected to be implemented in June 2011. The first Note bears interest at an annual interest |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
rate of 2.75%, and the second Note bears interest at a rate per annum of 250 basis points in excess of the 3-month LIBOR rate. The Company settled the first Note, totaling $19.0 million, during the three months ended June 30, 2010, of which $11.6 million was settled in finished goods inventory, and $7.4 million was settled in cash. The Company received the cash during the quarter ended September 30, 2010. The Company expects the second Note to be settled by June 30, 2011. For additional details related to notes receivable, see Note 13, Related Party Transactions, of Notes to Condensed Consolidated Financial Statements. | ||
(b) | Fixed assets (property and equipment) are required to be measured at fair value and these acquired assets could include assets that are not intended to be used in a manner other than their highest and best use. Depreciation is calculated on a straight-line basis over the expected useful lives. Expected useful lives are deemed to be one to two years. | |
(c) | Service agreements are required to be measured at fair value and these acquired assets are amortized over the remaining life of the agreement or up to 33 months from the closing date of the transaction. These service agreements include manufacturing and distributor agreements and other services from NXP. The other services include payroll processing, benefits administration, accounting, information technology and real estate administration. | |
(d) | Identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used in a manner other than their highest and best use. |
Assets acquired in the acquisition as of February 8, 2010 were reviewed and adjusted, if required,
to their estimated fair value. The Company utilized a methodology referred to as the income
approach, which discounts expected future cash flows to present value. The discount rate used in
the present value calculations was derived from a weighted-average cost of capital analysis,
adjusted to reflect additional risks.
Developed technology consisted of products which have reached technological feasibility. The value
of the developed technology was determined by using the income approach and discounting estimated
net future cash flows of these products.
Customer relationships relate to the Companys ability to sell existing and future versions of
products to existing NXP customers. The fair value of the customer relationships was determined by
using the income approach and discounting estimated net future cash flows from the customer
contracts.
Patents represent various patents previously owned by NXP. The fair value of patents was determined
by using the royalty relief method and estimating a benefit from owning the asset rather than
paying a royalty to a third party for the use of the asset.
The backlog fair value relates represents the value of the standing orders for the products
acquired in the acquisition as of the close of the acquisition.
In-process research and development, or IPR&D, consisted of the in-process projects to complete
development. The value assigned to IPR&D was determined by considering the importance of products
under development to the overall development plan, estimating costs to develop the purchased IPR&D
into commercially viable products, estimating the resulting net cash flows from the projects when
completed and discounting the net cash flows to their present value. Acquired IPR&D assets are
initially recognized at fair value and are classified as indefinite-lived assets until the
successful completion or abandonment of the associated research and development efforts.
Accordingly, during the development period after the acquisition date, these assets are not
amortized as charges to earnings; instead this asset will be subject to periodic impairment
testing. At the completion of the development process for the acquired IPR&D project, when and if
technological feasibility is achieved, it will be considered a finite-lived intangible asset and
amortization will commence. As of June 30, 2010, the status of in-process research and development
is consistent with the Companys expectation at the time the in-process research and development
was acquired.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The acquired intangible assets, their fair values and estimated weighted average amortized lives,
are as follows (dollars in thousands):
Weighted | ||||||||
Average | ||||||||
Fair Value | Amortized Life | |||||||
Backlog |
$ | 15,000 | 0.5 years | |||||
Customer relationships |
23,000 | 2.24 years | ||||||
Developed technology |
48,000 | 3.0 years | ||||||
Patents |
13,000 | 4.5 years | ||||||
In-process research and development |
18,000 | |||||||
$ | 117,000 | |||||||
(e) | The preliminary purchase price allocation assigned $4.5 million to deferred tax assets associated with the fair value adjustment of the intangible assets acquired. Subsequently, in accordance with applicable accounting assets guidance, the preliminary estimate was reduced by $3.7 million as a result of new information received by the Company subsequent to filing the Companys Form 10-Q for the three months ended March 31, 2010. | |
(f) | The preliminary purchase price allocation assigned $48.5 million to gain on acquisition. Subsequently, in accordance with applicable accounting guidance, the preliminary estimate was reduced by $3.7 million as a result of new information received by the Company subsequent to filing the Companys Form 10-Q for the three months ended March 31, 2010. Gain on acquisition represents the amount of the purchase price which is less than the fair value of the underlying net tangible and identifiable intangible assets acquired. | |
(g) | Prior to the close of the Acquisition, NXP initiated a restructuring plan pursuant to which the employment of some NXP employees was terminated upon the close of the Acquisition. The Company has determined that the restructuring plan was a separate plan from the business combination because the plan to terminate the employment of certain employees was made in contemplation of the Acquisition. Therefore, the full severance cost of $3.6 million was recognized by the Company as an expense on the Acquisition close date. The entire severance cost was paid by NXP after the close of the Acquisition, was reflected under applicable accounting guidance as contingent returnable consideration, effectively reducing the purchase consideration transferred. |
Acquisition of the Frame Rate Converter, Demodulator and Audio Decoder product lines of the
Consumer Division of Micronas Semiconductor Holding AG
On May 14, 2009, the Company completed its acquisition of the selected assets of the FRC, DRX, and
audio product lines of Micronas, or Micronas Assets. In connection with the acquisition, the
Company issued 7.0 million shares of its common stock, representing approximately 10% of its
outstanding common stock, and warrants to acquire up to 3.0 million additional shares of its common
stock, with a fair value of approximately $12.1 million and incurred approximately $5.2 million of
acquisition-related costs and liabilities, for a total purchase price of approximately $17.3
million.
Due to the acquisition of the FRC, DRX, and Audio Decoder product lines from Micronas on May 14,
2009, the Company entered into the following agreements with Micronas.
On May 14, 2009, the Company entered into a Service Level Agreement or SLA, with Micronas. Under
the SLA, Micronas agreed to provide to the Company specified transition services and support,
including intellectual property transitional services for a limited period of time to assist the
Company in achieving a smooth transition of the acquired products and product lines. The transition
services include certain manufacturing design, maintenance and support services, sales of inventory
and newly-manufactured products and certain finance and administration, IT, infrastructure,
warehousing and similar services, to be provided pursuant to specified service level agreements.
Moreover, on May 14, 2009, the Company entered into an exclusive Distributor Agreement with
Micronas. Under the Distributor Agreement, Micronas served as the exclusive supplier and OEM to the
Company on the FRC, DRX, and Audio Decoder product lines from May 15, 2009 to June 15, 2009.
On May 14, 2009, the Company entered into a Cross License Agreement, or Cross License, with
Micronas, pursuant to which Micronas has granted to the Company a royalty-free, perpetual,
irrevocable, fully assignable and transferable worldwide license,
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
including the right to
sublicense, to patents that are relevant to, but not exclusive to, the FRC line of frame-rate
converters, the DRX line of demodulators and all of the audio processing product lines acquired in
the acquisition. Ownership of these patents remains with Micronas following completion of the
acquisition. The license is exclusive for the first three years, subject to certain exceptions, and
is non-exclusive thereafter. The Company has granted to Micronas a royalty-free, perpetual,
irrevocable, non-exclusive, fully assignable and transferable worldwide license, including the
right to sublicense, to patents exclusively relevant to the FRC line of frame rate converters, the
DRX line of demodulators and all of the audio processing product lines acquired in the acquisition.
During the first three years, the license granted by the Company to Micronas is limited to use for
products that are not a DRX, Audio or FRC Product. Following this three year period, Micronas may
use the licensed rights on any product.
On May 14, 2009, the Company entered into a Stockholder Agreement, or Stockholder Agreement, with
Micronas, setting forth specified registration rights associated with the shares, including demand
and piggyback registration rights, restrictions on transfer of the Shares and provides Micronas
certain pre-emptive rights to acquire additional shares of its Common Stock. Under the Stockholders
Agreement, Micronas has agreed to vote the Shares in support of acquisition proposals approved by
the disinterested members of its Board of Directors, and together with the recommendation of the
disinterested members of the Board of Directors on other stockholder proposals, and Micronas
ability to engage in certain solicitations and activities encouraging support for or against
proposals inconsistent with its voting agreements is restricted.
On May 14, 2009, the Company and Micronas entered into a lease agreement. Micronas agreed to
sublease 17,000 square footage of the office spaces located in Munich, Germany to the Company. The
Company is currently using the office spaces for general and administration, research and
engineering services. The lease expires on May 31, 2012.
Unaudited Pro Forma Financial Information
The following unaudited pro forma information presents a summary of the results of operations of
the Company assuming the acquisition of the television systems and set-top box business lines of
NXP B.V. had occurred at the beginning of the period presented below, and that the acquisition of
the Micronas assets had occurred on January 1, 2009. This pro forma financial information is for
informational purposes only and does not reflect any operating efficiencies or inefficiencies which
may result from the business combination and therefore is not necessarily indicative of results
that would have been achieved had the businesses been combined during the periods presented
(amounts in thousands, except per share date):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Pro forma net revenues |
$ | 171,648 | $ | 144,575 | $ | 309,470 | $ | 250,780 | ||||||||
Pro forma net loss |
$ | (49,030 | ) | $ | (88,056 | ) | $ | (55,520 | ) | $ | (171,639 | ) | ||||
Pro forma net loss per share Basic |
$ | (0.28 | ) | $ | (0.50 | ) | $ | (0.37 | ) | $ | (0.98 | ) | ||||
Shares used in computing pro forma net loss per share Basic |
174,018 | 176,769 | 152,059 | 174,901 |
The Company recorded net revenues of approximately $124 million and $172 million and net
operating losses of approximately $10 million and $31 million, from the Acquisition for the three
and six months ended June 30, 2010.
13. RELATED PARTY TRANSACTIONS
NXP
Total purchases from NXP for the three and six months ended June 30, 2010 were $63.9 million and
$110.6 million, respectively. Total purchases for the three and six months ended June 30, 2010
include approximately $7.2 million and $15.0 million of transition services, respectively, and
approximately $56.7 million and $95.6 million of primarily product purchases, respectively. As of
June 30, 2010, the outstanding accounts payable to NXP was $36.8 million, and the outstanding
accounts receivable from NXP was $8.5 million. At June 30, 2010, the Company had a note receivable
from NXP of $28.4 million associated with inventory purchases from NXP, of which $7.5 million was a
current asset, and $20.9 million was a noncurrent asset, on the Companys Condensed Consolidated
Balance Sheet. During the period from February 8, 2010 to March 22, 2010, the Company and NXP had a
commissionaires agreement whereby NXP acted on the Companys behalf for product sales. Total
revenue during this period was $52.6 million, all of
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
which was paid by June 30, 2010. The accounts receivable from NXP of $8.5 million at June 30, 2010,
was not related to the sales of product.
In connection with the Acquisition, Trident and NXP entered into the following agreements, each
effective as of February 8, 2010:
An Intellectual Property Transfer and License Agreement, or License Agreement, between TMFE and
NXP, pursuant to which NXP has transferred to a newly formed Dutch besloten vennootschap acquired
by TMFE, or Dutch Newco, certain patents, software and technology, including those exclusively
related to the acquired business lines. Pursuant to the terms of the License Agreement, NXP has
granted a license to Dutch Newco to certain patents, software and technology used in other parts of
NXPs business and Dutch Newco has granted a license back to NXP to certain of the patents,
software and technology.
A Stockholder Agreement, or NXP Stockholder Agreement, between the Company and NXP, setting forth
the designation of nominees to the Trident Board, providing certain restrictions on the right of
NXP to freely vote its shares of Trident common stock received pursuant to the Share Exchange
Agreement, and providing a two year lock up during which NXP cannot transfer its shares of Trident
common stock, subject to certain exceptions, including transfers to affiliates. In addition, under
the NXP Stockholder Agreement, NXP has agreed to standstill restrictions for six years, including
restrictions on future acquisition of Trident securities, participation in a solicitation of
proxies, and effecting or seeking to effect a change of control of Trident. The NXP Stockholder
Agreement also sets forth certain major decisions that may only be taken by the Trident Board upon
a supermajority vote of two-thirds of the directors present. The NXP Stockholder Agreement provides
NXP with certain demand and piggy-back registration rights related to the Shares, and grants
certain preemptive rights to NXP with respect to future issuances of Trident common stock.
A Transition Services Agreement, between Trident and NXP, pursuant to which NXP agrees to provide
to Trident for a limited period of time specified transition services and support, including order
fulfillment and delivery; accounting services and financial reporting services; human resources
management (including compensation and benefit plan management, payroll services and training);
pensions; office and infrastructure services (including access to certain facilities for a limited
period of time); sales and marketing support; supply chain management (including logistics and
warehousing); quality control; financial administration; ICT hardware and ICT software and
infrastructure; general IT services; export, customs and licensing services; and
telecommunications. Depending on the service provided, the term ranges from three to 18 months,
provided that the services for IT and ITC could continue into the fourth quarter of 2011.
A Manufacturing Services Agreement, or MSA, between Trident and NXP relating to contract
manufacturing services to be provided by NXP for a limited period of time for finished goods as
well as certain front end, back end and other related manufacturing services for products acquired
by Trident. The term of the MSA ends on the readiness of the Companys enterprise resource planning
system which is projected to be implemented in June 2011.
A Contract Services Agreement between Trident and NXP whereby certain employees of NXP shall
provide contract services to Trident for a limited period of time for services including R&D, IP
development, design in support and account management, as well as support for the transition of
these activities to Trident personnel. Depending on the service provided, the term ranges from 2 to
12 months.
The total remaining payment obligation for services through the end of the terms of these
agreements was approximately $9.4 million as of June 30, 2010.
Micronas
Total purchases from Micronas for the three and six months ended June 30, 2010, were $12.1 million
and $17.4 million, respectively.
As of June 30, 2010, the outstanding accounts payable to Micronas was $1.6 million. Total purchases
from Micronas for the six months ended December 31, 2009, were $16.2 million. As of December 31,
2009, the outstanding accounts payable to Micronas was $2.4 million, and the outstanding accounts
receivable from Micronas was $0.3 million.
See Note
12, Business Combinations, of Notes to Condensed Consolidated Financial Statements, which
provides a summary of the related party agreements entered into with Micronas due to the
acquisition of the FRC, DRX, and Audio Decoder product lines from Micronas on May 14, 2009.
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TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. EMPLOYEE BENEFIT PLANS
The Companys Israeli subsidiary has a pension and severance investment plan pursuant to which
the Company is required to make pension and severance payments to its retired or former Israeli
employees, and in certain circumstances, other Israeli employees whose employment is terminated.
The Companys severance investment plan liability is calculated based on the salary of employees
multiplied by years of service, and the resulting balance is included in accrued expenses and other
current liabilities on the Companys Condensed Consolidated Balance Sheets. A corresponding asset
is included in prepaid and other current assets, on the Companys Condensed Consolidated Balance
Sheets. The severance investment plan underfunded balance was $0.2 million as of June 30, 2010.
Israeli severance investment plan asset and liability balances are disclosed in Note 2, Balance
Sheet Components, of Notes to Condensed Consolidated Financial Statements.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Forward-looking statements can also be identified
by words such as anticipates, expects, believes, plans, predicts, and similar terms.
Forward-looking statements are not guarantees of future performance and our actual results may
differ significantly from the results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to, those discussed in Item 1A Risk
Factors. The following discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and notes thereto included in Item 1 of this report. We assume no obligation
to revise or update any forward-looking statements for any reason, except as required by law.
Change in Fiscal Year End
On November 16, 2009 the Board of Directors approved a change in our fiscal year end from June 30
to December 31. The change became effective at the end of the quarter ended December 31, 2009. All
references to years, unless otherwise noted, refer to our twelve-month fiscal year, which prior
to July 1, 2009, ended on June 30 and beginning with December 31, 2009 ends on December 31 of each
year. For example a reference to 2009 or fiscal year 2009 means the twelve-month period that
ended on June 30, 2009.
Overview
Trident Microsystems, Inc. (including our subsidiaries, referred to collectively in this Report as
Trident, we, our and us) is a provider of high-performance multimedia semiconductor
solutions for the digital home entertainment market. We design, develop and market integrated
circuits, or ICs, and related software for processing, displaying and transmitting high quality
audio, graphics and images in home consumer electronics applications such as digital TVs (DTV), PC
and analog TVs, and set-top boxes. Our product line includes system-on-a-chip, or SoC,
semiconductors that provide completely integrated solutions for processing and optimizing video,
audio and computer graphic signals to produce high-quality and realistic images and sound. Our
products also include frame rate converter, or FRC, demodulator or DRX and audio decoder products,
DOCSISR modems, interface devices and media processors. Tridents customers include many of the
worlds leading original equipment manufacturers, or OEMs, of consumer electronics, computer
display and set-top box products. Our goal is to become a leading provider for the connected
home, with innovative semiconductor solutions that make it possible for consumers to access their
entertainment and content (music, pictures, internet, data) anywhere and at anytime throughout the
home.
Trident was incorporated in California in 1987 and reincorporated in Delaware in 1992. Our
principal executive offices are located at 1170 Kifer Road, Sunnyvale, California 94086-5303, and
our telephone number at that location is (408) 962-5000. Our internet address is
www.tridentmicro.com. The inclusion of our website address in this Report does not include
or incorporate by reference into this Report any information on our website. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports
and other SEC filings are available free of charge through our website as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the SEC.
Business Structure
In June 2003, when we announced a restructuring of our business to divest our legacy graphics
business, we focused our business primarily in the high definition television, or HDTV, market and
related areas. In a separate transaction completed in June 2003, we merged our digital media
segment with Trident Technologies, Inc., or TTI, a Taiwanese company, to strengthen and extend our
DTV business. TTI, which was liquidated in September 2006, had previously operated primarily as a
Taiwan-based semiconductor design house, developing video processing technologies useful for
digital media applications. Starting September 1, 2006, we conducted business primarily through a
Cayman Islands subsidiary, Trident Microsystems (Far East) Ltd., or TMFE. Research and development
services relating to existing projects and certain new projects have been conducted principally by
Trident Microsystems, Inc. and our subsidiaries, Trident Multimedia Technologies (Shanghai) Co.
Ltd., or TMT, and Trident Microsystems (Beijing) Co., Ltd., or TMBJ. TMBJ was previously a
privately held company known as Beijing Tiside Electronics Design Co., Ltd., or Tiside, which we
acquired in March 2008 and subsequently renamed TMBJ. Operations, field application engineering
support and certain sales activities have been conducted principally through our Taiwanese
subsidiaries, Trident Microelectronics Co. Ltd., or TML, and Trident Microsystems (Taiwan) Ltd., or
TMTW, and other affiliates. On May 14, 2009, we completed the acquisition of selected assets of
certain product
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lines from the Consumer Division of Micronas Semiconductor Holding AG, or Micronas,
a Swiss corporation. In May 2009, in connection with this acquisition, we established three new
subsidiaries in Europe: Trident Microsystems (Europe) GmbH, or TMEU, Trident Microsystems Nederland
B.V., or TMNM, and Trident Microsystems Holding B.V., or TMH. The purpose of these entities is
primarily to provide sales liaison, marketing and engineering services in Europe. TMEU is located
in Munich, Germany and TMNM and TMH are located in Nijmegen, The Netherlands. On February 8, 2010
we acquired selected assets and liabilities of the television systems and set-top box business
lines of NXP B.V., a Dutch besloten vennootschap, or NXP. As a result of this acquisition, we now
have subsidiaries in three additional new countries, the United Kingdom, Israel and India. The
primary purpose of these subsidiaries is to provide sales liaison, marketing and engineering
services to us.
In the fiscal period ended June 30, 2009, we established a new subsidiary in South Korea, Trident
Microsystems Korea Limited, or TMK, primarily to provide sales liaison and marketing services in
South Korea and a new subsidiary in Hong Kong, Trident Microsystems Hong Kong Ltd., or TMHK, to
handle sales and inventory distribution for the entire Company. Trident Multimedia Systems, Inc.,
or TMS, was inactive at June 30, 2009.
Business Combinations
On October 4, 2009, Trident and TMFE entered into a Share Exchange Agreement, or Share Exchange
Agreement, with NXP B.V., a Dutch besloten vennootschap, or NXP, providing for the acquisition of
selected assets and liabilities of NXPs television systems and set-top box business lines, or
Purchase, through a pre-closing restructuring by NXP and subsequent transactions at closing, or NXP
Transaction. We completed the NXP Transaction on February 8, 2010. Upon completion, we issued to
NXP 104,204,348 newly issued shares of Trident common stock, equal to 60% of the total outstanding
shares of Trident Common Stock, or Shares, after giving effect to the share issuance to NXP, in
exchange for the contribution of selected assets and liabilities of the television systems and
set-top box business lines from NXP, or Business, and cash proceeds in the amount of $44 million,
or Cash Payment. In addition, we issued to NXP four shares of a newly created Series B Preferred
Stock, or Preferred Shares. The Preferred Shares were issued pursuant to an Amended and Restated
Certificate of Designation of Series B Preferred Stock that we filed with the Secretary of State of
Delaware in February 2010, or Certificate of Designation. The holder of the Preferred Shares has
the voting rights set forth in the Certificate of Designation, including the right to designate
four nominees to our Board of Directors.
Critical Accounting Estimates
The preparation of our financial statements and related disclosures in conformity U.S. generally
accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. References included in this
Quarterly Report on Form 10-Q to accounting guidance means GAAP. These estimates and assumptions
are based on historical experience and on various other factors that we believe are reasonable
under the circumstances. We periodically review our accounting policies and estimates and make
adjustments when facts and circumstances dictate. In addition to the accounting policies that are
more fully described in the Notes to the Condensed Consolidated Financial Statements included in
this Quarterly Report on Form 10-Q, we consider the critical accounting policies to be affected by
critical accounting estimates. Our critical accounting policies that are affected by accounting
estimates include revenue recognition, allowance for sales returns, stock-based compensation
expense, goodwill and purchased intangible assets, valuation of equity investments in privately
held companies and funds, inventories, fair value measurements, product warranty, income taxes,
litigation and other loss contingencies and business combinations. Such accounting policies are
impacted significantly by judgments, assumptions and estimates used in the preparation of the
condensed consolidated financial statements, and actual results could differ materially from these
estimates. Discussion of these critical accounting estimates can be found in the Managements
Discussion & Analysis of Financial Condition and Results of Operations section included in our
Transition Report on Form 10-KT for the six months ended December 31, 2009.
Results of Operations
Because the NXP Transaction closed on February 8, 2010, approximately 21 weeks of activity related
to this acquisition are included in our financial results for the six months ended June 30, 2010.
Net revenues, gross profit, research and development expenses, and selling, general and
administrative expenses all increased substantially in the three and six months ended June 30,
2010, as compared to the same three and six month periods in the prior year, as a result of this
acquisition. Net revenues, gross profit, research and development expenses, and selling, general
and administrative expenses also increased in the three months ended June 30, 2010, as compared to
the three months ended March 31, 2010, because the three months ended June 30, 2010, included the
results of the NXP business lines for the entire period.
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Financial Data for the Three and Six Months Ended June 30, 2010 Compared to the Three and Six
Months Ended June 30, 2009
Net Revenues
Our revenue has been affected in the past, and may continue to be affected in the future, by
various factors, including, but not limited to, market demand; supply constraints, including
manufacturing capacity at the foundries that are our primary source for manufacturing our products;
capabilities of our products relative to market requirements and the timeliness of our products
relative to our customers design-in windows; and competitive factors, including product pricing.
From time to time, our key customers may cancel purchase orders with us, thereby causing our net
revenues to fluctuate significantly. Our products are manufactured primarily by two foundries,
Taiwan Semiconductor Manufacturing Corp., or TSMC, and United Microelectronics Corporation, or UMC,
both based in Taiwan. We also use certain manufacturing capabilities that currently are provided by
Micronas and NXP.
Digital media solutions revenues represented all of our revenues for the three and six months ended
June 30, 2010 and 2009. Net revenues are revenues less reductions for rebates and allowances for
sales returns.
The following tables present the comparison of net revenues by regions in dollars and in
percentages for the three and six months ended June 30, 2010 and 2009:
Net revenues comparison by dollars
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
(Dollars in thousands) | June 30, | June 30, | ||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
Revenues by region (1) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
South Korea |
$ | 60,756 | $ | 4,987 | $ | 55,769 | 1118 | % | $ | 99,969 | $ | 5,345 | $ | 94,624 | 1770 | % | ||||||||||||||||
Europe |
43,216 | 2,673 | 40,543 | 1517 | % | 64,621 | 3,681 | 60,940 | 1656 | % | ||||||||||||||||||||||
Asia Pacific (2) |
36,586 | 3,152 | 33,434 | 1061 | % | 51,749 | 5,043 | 46,706 | 926 | % | ||||||||||||||||||||||
Japan |
22,123 | 3,702 | 18,421 | 498 | % | 33,386 | 7,297 | 26,089 | 358 | % | ||||||||||||||||||||||
Americas |
8,967 | 398 | 8,569 | 2153 | % | 12,327 | 398 | 11,929 | 2997 | % | ||||||||||||||||||||||
Total net revenues |
$ | 171,648 | $ | 14,912 | $ | 156,736 | 1051 | % | $ | 262,052 | $ | 21,764 | $ | 240,288 | 1104 | % | ||||||||||||||||
As a result of the acquisition of the television systems and set-top box business lines from
NXP, net revenues increased in all regions for the three and six months ended June 30, 2010,
compared to the three and six months ended June 30, 2009.
Net revenues comparison by percentage of total net revenues
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Revenues by region (1) | 2010 | 2009 | Variance | 2010 | 2009 | Variance | ||||||||||||||||||
South Korea |
35.4 | % | 33.4 | % | 2.0 | % | 38.1 | % | 24.6 | % | 13.6 | % | ||||||||||||
Europe |
25.2 | % | 17.9 | % | 7.3 | % | 24.7 | % | 16.9 | % | 7.7 | % | ||||||||||||
Asia Pacific (2) |
21.3 | % | 21.1 | % | 0.2 | % | 19.7 | % | 23.2 | % | (3.4 | )% | ||||||||||||
Japan |
12.9 | % | 24.8 | % | (11.9 | )% | 12.7 | % | 33.5 | % | (20.8 | )% | ||||||||||||
Americas |
5.2 | % | 2.7 | % | 2.6 | % | 4.7 | % | 1.8 | % | 2.9 | % | ||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
(1) | Net revenues by region are classified based on the locations of the customers principal offices even though our customers revenues may be attributable to end customers that are located in a different location. | |
(2) | Net revenues from China, Taiwan and Singapore are included in the Asia Pacific region. |
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The
following table shows the percentage of our revenues during the three
and six months ended June 30, 2010 and 2009 that were derived from
customers who individually, or through their Electronic Manufacturing
Service providers accounted for more than 10% of revenues for those
periods:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Revenues: | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Samsung Electronics, Co., Ltd. |
24 | % | 23 | % | 26 | % | 16 | % | ||||||||
Philips Consumer Electronics International B.V. |
14 | % | * | 13 | % | * | ||||||||||
Sony |
* | 11 | % | * | 18 | % |
* | Less than 10% of net revenues |
We recognize revenues for our largest distributors at the point these distributors ship to end
customers (sell-through basis), representing approximately 86% of shipments made to distributors
for the six months ended June 30, 2010. For the three and six months ended June 30, 2010,
distribution revenue recognized on a sell-through basis was 27% and 24% of total revenues,
respectively. For the three and six months ended June 30, 2009, distribution revenue recognized on
a sell-through basis was 36% and 50% of total revenues, respectively.
As of June 30, 2010, we had a high concentration of accounts receivable with Samsung Electronics,
Co., Ltd., representing 28% of net accounts receivable.
Gross Profit
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Gross profit |
$ | 32,926 | $ | 4,622 | $ | 28,304 | 612.4 | % | $ | 46,712 | $ | 5,083 | $ | 41,629 | 819.0 | % | ||||||||||||||||
Percentage of net revenues |
19.2 | % | 31.0 | % | 17.8 | % | 23.4 | % |
Cost of revenues includes the cost of purchasing wafers manufactured by independent foundries,
costs associated with our purchase of assembly, test and quality assurance services, royalties,
product warranty costs, provisions for excess and obsolete inventories, provisions related to lower
of cost or market adjustments for inventories, operation support expenses that consist primarily of
personnel-related expenses including payroll, stock-based compensation expenses, and manufacturing
costs related principally to the mass production of our products, tester equipment rental and
amortization of acquisition-related intangible assets. Gross profit is calculated as net revenues
less cost of revenues.
Gross profit increased significantly in the three and six months ended June 30, 2010, compared with
the three and six months ended June 30, 2009, as a result of significantly higher revenues
recognized during the current period related to the television systems and set-top box business
lines acquired on February 8, 2010.
Cost of revenues includes impairment charges of $0.9 million and $2.1 million for the three and six
months ended June 30, 2010, respectively, due to changes in our roadmap and project cancellations,
and consisted primarily of prepaid royalties and other intellectual property. No impairment charges
were included in cost of revenues for the three months ended June 30, 2009, and $0.3 million were
included in cost of revenues for the six months ended June 30, 2009.
The net impact on gross profit due to an increase in inventory write-downs and
reserves and sales of previously reserved product is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Dollars in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Additions to inventory reserves |
$ | 9 | $ | 1,274 | $ | 576 | $ | 1,317 | ||||||||
Accrual for ordered product with no demand |
702 | 325 | 702 | 650 | ||||||||||||
Lower of cost or market adjustment |
| | 135 | | ||||||||||||
Sales of previously reserved product |
(260 | ) | (3,902 | ) | (746 | ) | (4,574 | ) | ||||||||
Net (increase) decrease in gross profit |
$ | 451 | $ | (2,303 | ) | $ | 667 | $ | (2,607 | ) | ||||||
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No cost of revenues was recorded with respect to sales of previously reserved product,
for the three and six months ended June 30, 2010 and 2009. For the three months and six
months ended June 30, 2010, inventory write-downs and reserves and sales of previously
reserved product represents 0.3% and 0.3% of total net revenues, respectively. For the
three and six months ended June 30, 2009, inventory write-downs and reserves and sales of
previously reserved product represents 15.4% and 12% and of total net revenues, respectively.
Sales of previously reserved inventory largely depend on the timing of transitions to
newer generations of similar products. We typically expect declines in demand of current
products when we introduce new products that are designed to enhance or replace our older
products. We provide inventory reserves on our older products based on the expected decline
in customer purchases of the new product. The timing and volume of the new product
introductions can be significantly affected by events outside of our control, including
changes in customer product introduction schedules. Accordingly, we may sell older fully
reserved product until the customer is able to execute on its changeover plan.
Research and Development
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Research and development |
49,866 | 15,802 | 34,064 | 215.6 | % | 87,081 | 27,236 | 59,845 | 219.7 | % | ||||||||||||||||||||||
Percentage of net revenues |
29.1 | % | 106.0 | % | 33.2 | % | 125.1 | % |
Research and development expenses consist primarily of personnel-related expenses including
payroll expenses, stock-based compensation, engineering costs related principally to the design of
our new products, depreciation of property and equipment and amortization of intangible assets.
Because the number of new designs we release to our third-party foundries can fluctuate from period
to period, research, development and related expenses may fluctuate significantly.
Research and development expenses increased for the three and six months ended June 30, 2010,
compared to the same periods last year, primarily due to significant increases in headcount
resulting from the February 8, 2010, acquisition of the television systems and set-top box business
lines, as well as subsequent attrition, and hiring activity. As a result of these activities, we
incurred $17.4 million and $31.7 million, respectively, of additional headcount related costs
during the current periods not incurred in the comparable periods last year. Also as a result of
these activities, during the three and six months ended June 30, 2010, we incurred $4.5 million and
$7.1 million, respectively, of additional depreciation and amortization expense not incurred in the
same periods last year. We incurred $7.1 million and $13.2 million, respectively, of transition
service costs during the three and six months ended June 30, 2010, that were not incurred during
the same periods last year. These transition service costs consisted principally of personnel and
facilities provided by NXP.
Selling, General and Administrative
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Selling, general and administrative |
22,311 | 7,421 | 14,890 | 200.6 | % | 42,447 | 11,047 | 31,400 | 284.2 | % | ||||||||||||||||||||||
Percentage of net revenues |
13.0 | % | 49.8 | % | 16.2 | % | 50.8 | % |
Selling, general and administrative expenses consist primarily of personnel related expenses
including salary and benefits, stock-based compensation, commissions paid to sales representatives
and distributors and professional fees.
Selling, general and administrative expenses increased for the three and six months ended June 30,
2010, compared to the same periods last year, primarily due to significant increases in headcount
from the February 8, 2010 acquisition of the television systems and set-top box business lines, as
well as subsequent restructuring, attrition, and hiring activity. As a result of these activities,
we incurred $6.8 million and $10.4 million, respectively, of additional headcount related costs
during the current periods not incurred in the comparable periods last year. We also incurred $2.8
million and $8.7 million, respectively, of additional professional fees related costs during the
three and six months ended June 30, 2010, not incurred during the same periods last year. During
the three and six months ended June 30, 2010, we also incurred $1.3 million and $3.2 million,
respectively, of transition service costs that were not incurred during the same periods last year.
These transition service costs consisted principally of personnel and facilities provided by NXP.
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Goodwill Impairment
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Goodwill Impairment |
7,851 | | 7,851 | N/A | 7,851 | 1,432 | 6,419 | 448.3 | % | |||||||||||||||||||||||
Percentage of net revenues |
4.6 | % | .0 | % | 3.0 | % | 6.6 | % |
We assess potential impairment of goodwill on an annual basis, and more frequently if events
or changes in circumstances indicate that the carrying value may not be recoverable. We performed
the annual goodwill impairment analysis and recorded an impairment charge of $7.9 million for the
three months ended June 30, 2010, due to the excess of the carrying value over the estimated market
value for the television systems operating segment. In prior periods, no events or changes in circumstances indicated that the carrying value of the goodwill might not be recoverable. During the six months ended June 30, 2009, an
impairment test was conducted due to a redeployment of engineering resources conducted at our
subsidiary TMBJ, to focus on other development projects. As a result, we wrote off the entire
goodwill balance of TMBJ, and recorded an impairment charge of $1.4 million for the six months
ended June 30, 2009.
In Process Research and Development
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
In process research and development |
| 697 | (697 | ) | (100.0 | )% | | 697 | (697 | ) | (100.0 | )% | ||||||||||||||||||||
Percentage of net revenues |
.0 | % | 4.7 | % | .0 | % | 3.2 | % |
No in process research and development expense was incurred during the three and six months
ended June 30, 2010. During the six months ended June 30, 2009, in process research and development
expense was incurred in connection with the acquisition of certain product lines of Micronas
related to masks and tools determined to have no alternative future use.
Restructuring Charges
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Restructuring charges |
4,470 | 8 | 4,462 | 55775.0 | % | 12,865 | 49 | 12,816 | 26155.1 | % | ||||||||||||||||||||||
Percentage of net revenues |
2.6 | % | 0.1 | % | 4.9 | % | 0.2 | % |
During the first quarter of 2010, we began procedures to streamline its operations. As a
result of this decision, we recorded for the three and six months ended June 30, 2010, $4.5 million
and $12.9 million, respectively, of restructuring expenses related to severance and related
employee benefits. The restructuring is expected to be completed by the end of the calendar year.
Restructuring charges are recorded under Restructuring charges in our Condensed Consolidated
Statement of Operations.
Prior to the close of our acquisition from NXP of selected assets and liabilities of NXPs
television systems and set-top box business lines, NXP initiated a restructuring plan pursuant to
which the employment of some NXP employees was terminated upon the close of the merger. We have
determined that the restructuring plan was a separate plan from the business combination because
the plan to terminate the employment of certain employees was made in contemplation of the
acquisition. Therefore, a severance cost of $3.6 million was recognized as an expense on the
acquisition date and is included in the total restructuring charge of $12.9 million for the six
months ended June 30, 2010. The $3.6 million of severance cost was paid by NXP after the close of
the acquisition, effectively reducing the purchase consideration transferred. See Note 12,
Business Combinations, of Notes to Condensed Consolidated Financial Statements.
Interest Income
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Interest income |
228 | 116 | 112 | 96.6 | % | 498 | 576 | (78 | ) | (13.5 | )% | |||||||||||||||||||||
Percentage of net revenues |
0.1 | % | 0.8 | % | 0.2 | % | 2.6 | % |
We invest our cash and cash equivalents in interest-bearing accounts consisting primarily of
certificates of deposits and money market funds investing in U.S. Treasuries. The average interest
rates earned during three and six months ended June 30, 2010, were .24% and .23%, respectively. The
average interest rates earned during three and six months ended June 30, 2009, were .25% and .62%,
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respectively. The increase in interest income for the three months ended June 30, 2010, compared to
the same period last year, was primarily due to interest earned on notes receivable from related
parties during 2010. The decrease in interest income for the six months ended June 30, 2010,
compared to the same period last year, was primarily due to a larger percentage of our investment
portfolio having been shifted to lower yielding money market funds investing in U.S. Treasuries and
a decrease in our average cash balance for 2010. Interest earned during the three and six months
ended June 30, 2010, includes $0.2 million and $0.4 million, respectively, of interest earned on
notes receivable from related parties.
Gain on Acquisition
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Gain on acquisition |
| | | 0 | % | 44,784 | | 44,784 | 100 | % | ||||||||||||||||||||||
Percentage of net revenues |
(0.0 | %) | (0.0 | %) | (17.1 | %) | (0.0 | %) |
The preliminary purchase price allocation assigned $48.5 million to gain on acquisition.
Subsequently, in accordance with applicable accounting guidance, the preliminary estimate was
reduced by $3.7 million as a result of new information received by the Company subsequent to filing
our Form 10-Q for the three months ended March 31, 2010. Gain on acquisition represents the amount
of the purchase price which is less than the fair value of the underlying net tangible and
identifiable intangible assets acquired.
Other Income (Expense), Net
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Other income (expense), net |
59 | (922 | ) | 981 | (106.4 | )% | 107 | (95 | ) | 202 | (212.6 | )% | ||||||||||||||||||||
Percentage of net revenues |
0.0 | % | (6.2 | )% | 0.0 | % | (0.4 | )% |
The change in other income (expense), net for the three and six months ended June 30, 2010,
compared to the same periods last year, was primarily attributable to litigation settlements of
approximately $1.7 million received during the six months ended June 30, 2010. See Note 5, Commitments and
Contingencies of Notes to Condensed Consolidated Financial Statements.
Provision for Income Taxes
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
Dollar | Percent | Dollar | Percent | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2009 | Variance | Variance | 2010 | 2009 | Variance | Variance | ||||||||||||||||||||||||
Provision for income taxes |
(2,255 | ) | 963 | (3,218 | ) | (334.2 | )% | (1,529 | ) | 2,782 | (4,311 | ) | (155.0 | )% | ||||||||||||||||||
Effective income tax rate |
4.4 | % | (4.8 | )% | 2.6 | % | (8.0 | )% |
We accrued an insignificant amount for interest and penalties, following applicable accounting
guidance, related to gross unrecognized tax benefits, which are included in the provision for
income taxes for the three and six months ended June 30, 2010. We included in our unrecognized tax
benefit of $43.3 million at June 30, 2010, $22.2 million of tax benefits that, if recognized, would
reduce our annual effective tax rate. It is reasonably possible that our unrecognized tax benefits
could decrease by a range between zero and $2.8 million within the next twelve months, depending on
the outcome of certain tax audits or statutes of limitations in foreign jurisdictions.
A benefit from income taxes of $2.3 million and $1.5 million was recorded for the three and six
months ended June 30, 2010, respectively. A provision for income taxes of $1.0 million and $2.8
million was recorded for the three and six months ended June 30, 2009, respectively. The effective
income tax rate for the three and six months ended June 30, 2010 increased by 9.2 and 10.6
percentage points, respectively, compared to the three and six months ended June 30, 2009. The
increase in our effective tax rate was primarily due to the recognition of the tax benefit
resulting from net operating losses generated in foreign jurisdictions as a result of restructuring
activities, the release of tax reserves in a foreign jurisdiction associated with the
remeasurement of an unrecognized tax benefit due to new information received in the period
associated with legal guidance provided, and a lapse of a statute of limitation in the jurisdiction
relevant to our business operations, as compared to tax expense incurred on a loss in the three and
six months ended June 30, 2009.
Our ability to use federal and state net operating loss and credit carry forwards to offset
future taxable income and future taxes, respectively, is subject to restrictions attributable to
equity transactions that result from changes in ownership as defined by Internal Revenue Code
(IRC) Sections 382 and 383. As discussed in Note 12,
Business Combinations, on February 8,
2010, Trident
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issued 104,204,348 newly issued shares of Trident common stock to NXP, equal to 60%
of the total outstanding shares of our common stock. The impact of this event reduced our
availability of net operating loss and tax credit carry forwards for federal and state income tax
purposes.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2010 and December 31, 2009 were as follows:
June 30, | December 31, | |||||||
(Dollars in thousands) | 2010 | 2009 | ||||||
Cash and cash equivalents |
$ | 96,915 | $ | 147,995 | ||||
At June 30, 2010, approximately $34.9 million or 36% of our total cash and cash equivalents
was held in the United States. The remaining balance, representing approximately $62.0 million, or
64% of total cash and cash equivalents, was held outside the United States, primarily in Hong Kong,
and could be subject to additional taxation if it were to be repatriated to the United States.
Our primary cash inflows and outflows for the six months ended June 30, 2010 and 2009 were as
follows:
Six Months Ended | ||||||||
June 30, | ||||||||
(Dollars in thousands) | 2010 | 2009 | ||||||
Net cash flow provided by (used in): |
||||||||
Operating activities |
$ | (85,992 | ) | $ | (18,920 | ) | ||
Investing activities |
34,856 | (5,338 | ) | |||||
Financing activities |
56 | 1 | ||||||
Net decrease in cash and cash equivalents |
$ | (51,080 | ) | $ | (24,257 | ) | ||
Operating Activities
Cash used in operating activities includes net loss adjusted for certain non-cash items and changes
in current assets and current liabilities. For the six months ended June 30, 2010, cash used in
operating activities was $86.0 million compared to $18.9 million used in operating activities for
the six months ended June 30, 2009. The significant increase in cash usage was primarily due to
working capital requirements resulting from the significant revenue increases and corresponding
increases in receivables, inventory and payables. The larger working capital requirements are the
result of the acquisition of the television systems and set-top box business lines from NXP in
February 2010, and the acquisition of Micronas in May 2009, each of which contributed to higher
revenue levels in the first six months of 2010 as compared to the same period in the prior year.
Additionally, the net loss increased from $37.7 million in the six months ended June 30, 2009, as
compared to $56.6 million in the six months ended June 30, 2010. The greater loss for the six
months ended 2010 is attributable to a significant increase in expenses since the NXP and Micronas
businesses acquired were not profitable when acquired and cost efficiencies anticipated from the
acquisitions are not yet fully realized.
Investing Activities
For the six months ended June 30, 2010, cash
provided by investing activities was $34.9 million,
compared to cash used in investing activities of $5.3 million in the six months ended June 30,
2009. The cash provided in the first six months of 2010 was primarily attributable to $46.4 million
from NXP as part of the Companys acquisition of that business, partially offset by other asset
acquisitions related to licensing of software as well as purchases of property and equipment.
Financing Activities
Cash used in financing activities consisted of net cash proceeds from the issuance of common stock
to employees upon exercise of stock options and excess tax benefit from stock-based compensation,
that were minor amounts for the six months ended June 30, 2010 and 2009.
Liquidity
Our liquidity is affected by many factors, some of which result from the normal ongoing
operations of our business and some of which arise from uncertainties and conditions in Asia and
the global economy. Although the majority of our cash and cash equivalents is held
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outside the United States, and, therefore, might be subjected to the factors described above,
we believe our current resources are sufficient to meet our needs for at least the next twelve
months. We will consider transactions to finance our activities, including debt and equity
offerings and new credit facilities or other financing transactions, as needed in the future. For
example, we expect to enter into an agreement with a major U.S. commercial bank to establish an
asset-based credit facility during the quarter ending September 30, 2010.
On February 8, 2010, we issued 104,204,348 new shares of our common stock to NXP, equal to 60% of
the total outstanding shares of our Common Stock after giving effect to the share issuance to NXP,
in exchange for the contribution of selected assets and liabilities of the television systems and
set-top box business lines acquired from NXP and cash proceeds in the amount of $44 million. Our
liquidity may also be affected if we fail to realize some or all of the anticipated benefits of our
acquisitions of the business lines of NXP and Micronas.
Days Sales Outstanding
Trade accounts receivable days sales outstanding were 52 days as of June 30, 2010 and 15 days as of
December 31, 2009.
Commitments
Lease and Purchase Commitments
The following summarizes our contractual obligations as of June 30, 2010:
Payments Due by Period | ||||||||||||||||||||
Less Than 1 | More Than 5 | |||||||||||||||||||
Year | 1-3 Years | 3-5 Years | Years | Total | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Contractual Obligations: |
||||||||||||||||||||
Operating Leases (1) |
$ | 5.6 | $ | 5.5 | $ | 3.1 | $ | 1.4 | $ | 15.6 | ||||||||||
Purchase Obligations (2) |
12.3 | | | | 12.3 | |||||||||||||||
Total |
$ | 17.9 | $ | 5.5 | $ | 3.1 | $ | 1.4 | $ | 27.9 | ||||||||||
(1) | At June 30, 2010, we lease office space and have entered into lease commitments, which expire at various dates through August 2019, in North America as well as various locations in Japan, Hong Kong, China, Taiwan, South Korea, Singapore, Germany, The Netherlands, the United Kingdom, Israel and India. Operating lease obligations include future minimum lease payments under non-cancelable operating leases as of June 30, 2010 and includes lease commitments resulting from the acquisition of selected assets and liabilities of NXP on February 8, 2010 and our corporate headquarters lease that commenced on April 1, 2010. | |
(2) | Purchase obligations primarily represent unconditional purchase order commitments with contract manufacturers and suppliers for wafers and software licensing including engineering software license and maintenance. |
NXP Acquisition Related Commitments
On February 8, 2010, as a result of the acquisition of selected assets and liabilities of the
television systems and set-top box business lines acquired from NXP, we entered into a Transition
Services Agreement, pursuant to which NXP provides to the us, for a limited period of time,
specified transition services and support. Depending on the service provided, the term for the
majority of services range from three to eighteen months, and limited services could continue into
the fourth quarter of 2011. The total remaining payment obligation under the Transition Services
Agreement is approximately $9.4 million as of June 30, 2010. Also, as a result of the acquisition
of the NXP business lines, we entered into a Manufacturing Services Agreement pursuant to which NXP
provides manufacturing services to us for a limited period of time. The term of the agreement ends
on the readiness of our enterprise resource planning system which is planned to be June 30, 2011.
The terms of the agreements allow cancellation of either or both the Transition Services Agreement
and the Manufacturing Services Agreement with minimum notice periods.
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Contingencies
Intellectual Property Proceedings
In March 2010, Intravisual Inc. filed complaints against Trident and multiple other
defendants, including NXP, in the United States District Court for the Eastern District of Texas,
No. 2:10-CV-90 TJW alleging that certain Trident products infringe a patent relating generally to
compressing and decompressing digital video. The complaint seeks a permanent injunction against us
as well as the recovery of unspecified monetary damages and attorneys fees. On May 28, 2010,
Trident filed its answer, affirmative defenses and counterclaims. No date for trial has
been set. We intend to contest this action vigorously. Because this action is in the very early stages, and due to the inherent uncertainty
surrounding the litigation process, we are unable to reasonably estimate the ultimate outcome of
this litigation at this time.
From time to time, we receive communications from third parties asserting patent or other
rights allegedly covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license, redesign an accused product or technology, initiate a
formal proceeding with the appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or
initiate litigation. There can be no assurance in any given case that a license will be available
on terms we consider reasonable or that litigation can be avoided if our desire is to do so. If
litigation does ensue, the adverse third party will likely seek damages (potentially including
treble damages) and may seek an injunction against the sale of our products that incorporate
allegedly infringed intellectual property or against the operation of its business as presently
conducted, which could result in us having to stop the sale of some of our products or to increase
the costs of selling some of its products. Such lawsuits could also damage our reputation. The
award of damages, including material royalty payments, or the entry of an injunction against the
sale of some or all of our products, could have a material adverse affect on us. Even if we were to initiate
litigation, such action could be extremely expensive and time-consuming and could have a material
adverse effect on us. We cannot assure you that litigation related to our patent or other
rights or the patent or other rights of others can always be avoided or successfully concluded.
Shareholder Derivative Litigation
Trident has been named as a nominal defendant in several shareholder derivative lawsuits
concerning the granting of stock options. The federal court cases have been consolidated as In re
Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been
filed in State court, Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that
certain of our current or former officers and directors caused us to grant options at less than
fair market value, contrary to our public statements (including our financial statements), and that
this represented a breach of their fiduciary duties to us, and as a result those officers and
directors are liable to us. Our Board of Directors has appointed a Special Litigation Committee, or
SLC, which has been composed solely of independent directors, to review and manage any claims that
we may have relating to the stock option granting practices and related issues investigated by the
SLC. The scope of the SLCs authority includes the claims asserted in the derivative actions. In
federal court, Trident moved to stay the case pending the assessment by the SLC that was formed to
consider nominal plaintiffs claims. On March 26, 2010, the federal court approved settlements
with all defendants other than Frank Lin, our former CEO, and all defendants other than Mr. Lin
were dismissed with prejudice from the state and federal actions. In connection with the approved
settlements, payments of approximately $1.7 million were made to us, by certain of the defendants, and recorded in other income (expense), net on our Condensed Consolidated Statement of Operations during the three months ended June 30, 2010. The state court derivative action was dismissed
following the approval of the settlement in the federal action. No particular amount of damages has
been alleged in the federal action, and by the nature of the lawsuit no damages will be alleged
against us. On June 8, 2010, Mr. Lin filed a counterclaim against Trident. In that counterclaim,
Mr. Lin seeks recovery of payments he claims he was promised during the negotiations surrounding
his eventual termination and also losses he claims he has suffered because he was not permitted to
exercise his Trident stock options between January 2007 and March 2008. We cannot predict whether
the federal action against Mr. Lin and his counterclaims are likely to result in any material
recovery by or expense to Trident. In addition, on July 1, 2010, the derivative plaintiffs filed an
amended complaint in the federal action stating claims against Mr. Lin relating to his actions in
connection with our stock option granting practices. We expect to continue to incur legal fees in
responding to this lawsuit, including expenses for the reimbursement of certain legal fees of at
least our former CEO under our advancement obligations. The expense of defending such litigation
may be significant. The amount of time to resolve this and any additional lawsuits is unpredictable
and these actions may divert managements attention from the day-to-day operations of our business,
which could adversely affect our business, results of operations and cash flows.
Regulatory Actions
As previously disclosed, we were subject to a formal investigation by the Securities and Exchange
Commission, or SEC, in connection with its investigation into our historical stock option granting
practices and related issues. On July 16, 2010, we entered into a settlement with the SEC
regarding this investigation. We agreed to settle with the SEC without admitting or denying the
allegations in the SECs complaint. We consented to entry of a permanent injunction against future
violations of anti-fraud provisions, reporting provisions and the books and records requirements of
the Securities Exchange Act of 1934 and the Securities Act of 1933. On July 19, 2010, the U.S.
District Court for the District of Columbia entered a final judgment incorporating the judgment
consented to by us. The final judgment did not require us to pay a civil penalty or other money
damages. Although the Department of Justice, or DOJ, commenced an informal investigation relating
to the same issues, the DOJ has not requested information from us since February 20, 2009 and we
believe that the DOJ has concluded its investigation without taking any action against us. We
believe that the settlement with the SEC concluded the governments investigations into our
historical stock option practices.
Special Litigation Committee
Effective at the close of trading on September 25, 2006, we temporarily suspended the ability of
optionees to exercise vested options to purchase shares of our common stock, until we became
current in the filing of our periodic reports with the SEC and filed a Registration Statement on
Form S-8 for the shares issuable under the 2006 Plan, or 2006 Plan S-8. This suspension continued
in effect through August 22, 2007, the date of the filing of the 2006 Plan S-8, which followed our
filing, on August 21, 2007, of our Quarterly Reports on Form 10-Q for the periods ended September
30, 2006, December 31, 2006 and March 31, 2007. As a result, we extended the exercise period of
approximately 550,000 fully vested options held by 10 employees, who were terminated during the
suspension period, giving them either 30 days or 90 days after we became current in the filings of
our periodic reports with the SEC and filed the
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2006 Plan S-8 in order to exercise their vested options. During the quarter ended September 30,
2007, eight of these ten former employees stated above exercised all of their vested options.
However, on September 21, 2007, the SLC decided that it was in the best interests of our
stockholders not to allow the remaining two former employees, as well as our former CEO and two
former non-employee directors, to exercise their vested options during the pendency of the SLCs
proceedings, and extended, until March 31, 2008, the period during which these five former
employees could exercise approximately 428,000 of their fully vested options. Moreover, the SLC
allowed one former employee to exercise all of his fully vested stock options and another former
employee agreed to cancel all of such individuals fully vested stock options during the quarter
ended March 31, 2008.
On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the two
former non-employee directors could exercise their unexpired vested options. On March 31, 2008, the
SLC entered into an agreement with our former CEO allowing him to exercise all of his fully vested
stock options. Under this agreement, he agreed that any shares obtained through these exercises or
net proceeds obtained through the sale of such shares would be placed in an identified securities
brokerage account and not withdrawn, transferred or otherwise removed without either (i) a court
order granting him permission to do so or (ii) our written permission.
On May 29, 2008, the SLC permitted one of our former non-employee directors to exercise his fully
vested stock and entered into an agreement with the other former non-employee director on terms
similar to the agreement entered into with our former CEO, allowing him to exercise all of his
fully vested stock options. Because Tridents stock price as of June 30, 2008 was lower than the
prices at which our former CEO and each of the two former non-employee directors had desired to
exercise their options, as indicated in previous written notices to the SLC, we recorded a
contingent liability in accordance with applicable accounting guidance, totaling $4.3 million,
which was included in Accrued expenses and other current liabilities in the Consolidated Balance
Sheet as of June 30, 2008 and the related expenses were included in Selling, general and
administrative expenses in the Consolidated Statement of Operations for the fiscal year then
ended. On March 26, 2010, the claims by these two former non-employee directors against us, valued
at approximately $1.6 million, were waived as part of a comprehensive settlement with us.
Currently, the SLC investigation is still in progress only with respect to our former CEO. In June
2010, he filed a claim against us seeking compensation from us relating to the exercise of his
fully vested stock options. As a result, as of June 30, 2010, we maintained a contingent liability
totaling $2.8 million in Accrued expenses and other current liabilities in the Condensed
Consolidated Balance Sheets and the related expenses were included in Selling, General and
Administrative Expenses in the Consolidated Statement of Operations for the six months ended June
30, 2010. See Note 5, Shareholder Derivative Litigation in Commitment and Contingencies, of
Notes to Condensed Consolidated Financial Statements.
Indemnification Obligations
We indemnify, as permitted under Delaware law and in accordance with our Bylaws, our officers,
directors and members of our senior management for certain events or occurrences, subject to
certain limits, while they were serving at our request in such capacity. In this regard, we have
received, or expect to receive, requests for advancement and indemnification by certain current and
former officers, directors and employees in connection with our investigation of our historical
stock option granting practices and related issues, and the related governmental inquiries and
shareholder derivative litigation. The maximum amount of potential future advancement and
indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. We have
directors and officers liability insurance policies that may enable us to recover a portion of
such future advancement and indemnification claims paid, subject to coverage limitations of the
policies, and plan to make claim for reimbursement from our insurers of any potentially covered
future indemnification payments. In certain circumstances, we also would have the right to seek to
recover sums advanced to an indemnitee.
Commercial Litigation
In June 2010, Exatel Visual Systems, Ltd. filed a complaint against NXP Semiconductors USA, Inc.
and Trident, in Superior Court for the State of California, No. 1-10-CV-174333, alleging breach of
contract and related tort claims relating generally to an alleged product development project
undertaken by Tridents predecessor, NXP, and its predecessor, Conexant Systems, Inc. Trident has
not yet filed an answer and no date for trial has been set. Because this action is in the very
early stages, and due to the inherent uncertainty surrounding the litigation process, we are unable
to reasonably estimate the ultimate outcome of this litigation at this time.
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General
From time to time, we are involved in other legal proceedings arising in the ordinary course of our
business. While we cannot be certain about the ultimate outcome of any litigation, management does
not believe any pending legal proceeding will result in a judgment or settlement that will have a
material adverse effect on our business, financial position, results of operation or cash flows.
Off-Balance Sheet Arrangements
None
Recent Accounting Pronouncements
In April 2010, new accounting guidance was issued for the milestone method of revenue recognition.
Under the new guidance, an entity can recognize revenue from consideration that is contingent upon
achievement of a milestone in the period in which the milestone is achieved only if the milestone
meets all criteria to be considered substantive. This guidance is effective prospectively for
milestones achieved in fiscal years, and interim period within those years, beginning on or after
June 15, 2010. Early adoption is permitted, and if this update is adopted early in other than the
first quarter of an entitys fiscal year, then it must be applied retrospectively to the beginning
of that fiscal year. The Company is currently assessing the impact of the adoption on its
consolidated financial statements. We do not expect the new guidance to significantly impact our
Condensed Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to three primary types of market risks: foreign currency exchange rate risk,
interest rate risk and investment risk.
Foreign currency exchange rate risk
As of June 30, 2010, we had operations in the United States, Taiwan, China, Hong Kong, Germany, The
Netherlands, Japan, Singapore, South Korea, the United Kingdom, Israel and India. The functional
currency of all of these operations is the U.S. dollar. Approximately $62 million, or 64% of total
cash and cash equivalents, was held outside the United States, primarily in Hong Kong, a majority
of which is denominated in U.S. dollars. In addition, income tax payable in foreign jurisdictions
is denominated in foreign currencies and is subject to foreign currency exchange rate risk. Since
we acquired certain product lines from Micronas in May 2009 and NXP in February 2010, we have also
incurred manufacturing and related expenses in Euros.
While we expect our international revenues to continue to be denominated primarily in U.S. dollars,
an increasing portion of our international revenues may be denominated in foreign currencies, such
as Euros. In addition, our operating results may become subject to significant fluctuations based
upon changes in foreign currency exchange rates of certain currencies relative to the U.S. dollar.
We analyze our exposure to foreign currency fluctuations and may engage in financial hedging
techniques in the future to attempt to minimize the effect of these potential fluctuations;
however, foreign currency exchange rate fluctuations may adversely affect our financial results in
the future. Following the NXP Transaction, we now have research and development facilities in
additional foreign locations and a large percentage of our international operational expenses are
denominated in foreign currencies. As a result, foreign currency exchange rate volatility,
particularly in Euros and Chinas currency, Renminbi, could negatively or positively affect our
operating costs in the future.
Fluctuations in foreign exchange rates may have an adverse effect on our financial results due to
the NXP acquired business lines, as a substantial proportion of expenses of the acquired business
lines are incurred in various denominations, while most of the revenues are denominated in U.S.
dollars.
Interest rate risk
We currently maintain our cash equivalents primarily in money market funds invested in U.S.
Treasuries, and other highly liquid investments. We do not have any derivative financial
instruments. We place our cash investments in instruments that meet high credit quality standards,
as specified in our investment policy guidelines. These guidelines also limit the amount of credit
exposure to any one issue, issuer or type of instrument.
Our cash and cash equivalents are not subject to significant interest rate risk due to the short
maturities of these instruments. As of June 30, 2010, we have $96.9 million in cash and cash
equivalents, of which $45.3 million is cash and $51.6 million is money market funds invested in
U.S. Treasuries. We currently intend to continue investing a significant portion of our existing
cash equivalents in interest bearing, investment grade securities, with maturities of less than
three months. We do not believe that our investments, in the
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aggregate, have significant exposure
to interest rate risk. However, we will continue to monitor the health of the financial
institutions with which these investments and deposits have been made due to the current global
financial environment.
Investment risk
Investment in Privately Held Companies and Funds
We are exposed to changes in the value of our investments in privately-held companies and funds,
including privately-held start-up companies. Long-term equity investments in technology companies
are primarily carried at cost. However, the carrying values of these long-term equity investments
could be impaired due to the volatility of the industries in which these companies participate and
other factors such as the continuing deterioration of macroeconomic conditions. We will continue to
evaluate the financial status of these investments as well as monitor the status of the investments
which are held by any underlying venture capital funds. The balance of our long-term equity
investments in privately-held companies which is included in Other assets on the Condensed
Consolidated Balance Sheet at June 30, 2010, was $1.6 million.
Concentrations of Credit Risk and Other Risk
Financial instruments that potentially subject us to significant concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts receivable. Cash and cash
equivalents held with financial institutions may exceed the amount of insurance provided by the
Federal Deposit Insurance Corporation on such deposits.
A majority of our trade receivables is derived from sales to large multinational OEMs, or their
electronic manufacturing service providers, who manufacture digital TVs, located throughout the
world, with a majority located in Asia. Prior to May 14, 2009, the date of the acquisition of the
Micronas business lines, sales to most of our customers were typically made on a prepaid or letter
of credit basis while sales to a few customers were made on open accounts. We perform ongoing
credit evaluations of its newly acquired customers financial condition and generally require no
collateral to secure accounts receivable. Historically, a relatively small number of customers have
accounted for a significant portion of our revenues. Prior to February 8, 2010, our products were
manufactured primarily by two foundries, United Microelectronics Corporation, or UMC, based in
Taiwan and Micronas, based in Germany. Effective with the closing of our acquisition of certain
assets from NXP on February 8, 2010, we also have products
manufactured by TSMC.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our chief executive officer and our chief
financial officer, our management conducted an evaluation of the effectiveness of our disclosure
controls and procedures, as defined in the Securities Exchange Act of 1934, as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive
officer and chief financial officer have concluded that, at the level of reasonable assurance, as
of the end of such period, our disclosure controls and procedures are effective to ensure that the
information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms and that such information is accumulated and communicated to our management including our
principal executive and principal financial officers, as appropriate, to allow timely decisions
regarding required disclosure.
The internal control over financial reporting of the television systems and set-top box business
lines from NXP B.V., a Dutch besloten vennootschap (the NXP Assets) was excluded from the
evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2010
because it was acquired in a purchase business combination consummated during February 2010. Assets
acquired in the NXP acquisition represent approximately 39% of total assets at June 30, 2010.
Revenues of the business lines acquired from NXP represent approximately 72% and 66% of total
revenue for the three and six months ended June 30, 2010, respectively.
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Changes in Internal Controls
On February 8, 2010, we acquired the NXP Assets. The NXP Assets operated under its own set of
systems and internal controls. We have not completed incorporating NXPs processes into our systems
and control environment as of June 30, 2010. In addition, we have not completed incorporating NXPs
processes relating to their enterprise resource planning system into our systems and control
environment as of June 30, 2010. We believe that we have taken the necessary steps to monitor and
maintain appropriate internal control over financial reporting during this change. There were no
other changes in our internal control over financial reporting that occurred during the three and
six months ended June 30, 2010, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Intellectual Property Proceedings
In March 2010, Intravisual Inc. filed complaints against Trident and multiple other
defendants, including NXP, in the United States District Court for the Eastern District of Texas,
No. 2:10-CV-90 TJW alleging that certain Trident products infringe a patent relating generally to
compressing and decompressing digital video. The complaint seeks a permanent injunction against us
as well as the recovery of unspecified monetary damages and attorneys fees. On May 28, 2010,
Trident filed its answer, affirmative defenses and counterclaims. No date for trial has
been set. We intend to contest this action vigorously. Because this action is in the very early stages, and due to the inherent uncertainty
surrounding the litigation process, we are unable to reasonably estimate the ultimate outcome of
this litigation at this time.
From time to time, we receive communications from third parties asserting patent or other
rights allegedly covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license, redesign an accused product or technology, initiate a
formal proceeding with the appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or
initiate litigation. There can be no assurance in any given case that a license will be available
on terms we consider reasonable or that litigation can be avoided if our desire is to do so. If
litigation does ensue, the adverse third party will likely seek damages (potentially including
treble damages) and may seek an injunction against the sale of our products that incorporate
allegedly infringed intellectual property or against the operation of its business as presently
conducted, which could result in us having to stop the sale of some of our products or to increase
the costs of selling some of its products. Such lawsuits could also damage our reputation. The
award of damages, including material royalty payments, or the entry of an injunction against the
sale of some or all of our products, could have a material adverse affect on us. Even if we were to initiate
litigation, such action could be extremely expensive and time-consuming and could have a material
adverse effect on us. We cannot assure you that litigation related to our patent or other
rights or the patent or other rights of others can always be avoided or successfully concluded.
Shareholder Derivative Litigation
Trident has been named as a nominal defendant in several shareholder derivative lawsuits concerning
the granting of stock options. The federal court cases have been consolidated as In re Trident
Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed
in State court, Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that
certain of our current or former officers and directors caused us to grant options at less than
fair market value, contrary to our public statements (including our financial statements), and that
this represented a breach of their fiduciary duties to us, and as a result those officers and
directors are liable to us. Our Board of Directors has appointed a Special Litigation Committee, or
SLC, which has been composed solely of independent directors, to review and manage any claims that
we may have relating to the stock option granting practices and related issues investigated by the
SLC. The scope of the SLCs authority includes the claims asserted in the derivative actions. In
federal court, Trident moved to stay the case pending the assessment by the SLC that was formed to
consider nominal plaintiffs claims.
On March 26, 2010, the federal court approved settlements with all defendants other than Frank Lin,
our former CEO, and all defendants other than Mr. Lin were dismissed with prejudice from the state
and federal actions. In connection with the approved settlements, payments of approximately $1.7
million were made to us, by certain of the defendants, and recorded in other income (expense), net on our Condensed Consolidated Statement of Operations during the three months ended June 30, 2010.
The state court derivative action was dismissed following the approval of the settlement in the
federal action. No particular amount of damages has been alleged in the federal action, and by the
nature of the lawsuit no damages will be alleged against us. On June 8, 2010, Mr. Lin filed a
counterclaim against Trident. In that counterclaim, Mr. Lin seeks recovery of payments he claims
he was promised during the negotiations surrounding his eventual termination and also losses he
claims he has suffered because he was not permitted to exercise his Trident stock options between
January 2007 and March 2008. We cannot predict whether the federal action against Mr. Lin and his
counterclaims are likely to result in any material recovery by or expense to Trident. In addition,
on July 1, 2010, the derivative plaintiffs filed an amended complaint in the federal action stating
claims against Mr. Lin relating to his actions in connection with our stock option granting
practices. We expect to continue to incur legal fees in responding to this lawsuit, including
expenses for the reimbursement of certain legal fees of at least our former CEO under our
advancement obligations. The expense of defending such litigation may be significant. The amount of
time to resolve this and any additional lawsuits is unpredictable and these actions may divert
managements attention from the day-to-day operations of our business, which could adversely affect
our business, results of operations and cash flows.
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Regulatory Actions
As previously disclosed, we were subject to a formal investigation by the Securities and Exchange
Commission (SEC) in connection with its investigation into our historical stock option granting
practices and related issues. On July 16, 2010, we entered into a settlement with the SEC
regarding this investigation. We agreed to settle with the SEC without admitting or denying the
allegations in the SECs complaint. We consented to entry of a permanent injunction against future
violations of anti-fraud provisions, reporting provisions and the books and records requirements of
the Securities Exchange Act of 1934 and the Securities Act of 1933. On July 19, 2010, the U.S.
District Court for the District of Columbia entered a final judgment incorporating the judgment
consented to by us. The final judgment did not require us to pay a civil penalty or other money
damages. Although the Department of Justice (DOJ) commenced an informal investigation relating
to the same issues, the DOJ has not requested information from us since February 20, 2009 and we
believe that the DOJ has concluded its investigation without taking any action against us. We
believe that the settlement with the SEC concluded the governments investigations into our
historical stock option practices.
Special Litigation Committee
Effective at the close of trading on September 25, 2006, we temporarily suspended the ability
of optionees to exercise vested options to purchase shares of our common stock, until we became
current in the filing of our periodic reports with the SEC and filed a Registration Statement on
Form S-8 for the shares issuable under the 2006 Plan, or 2006 Plan S-8. This suspension continued
in effect through August 22, 2007, the date of the filing of the 2006 Plan S-8, which followed our
filing, on August 21, 2007, of our Quarterly Reports on Form 10-Q for the periods ended September
30, 2006, December 31, 2006 and March 31, 2007. As a result, we extended the exercise period of
approximately 550,000 fully vested options held by 10 employees, who were terminated during the
suspension period, giving them either 30 days or 90 days after we became current in the filings of
our periodic reports with the SEC and filed the 2006 Plan S-8 in order to exercise their vested
options. During the quarter ended September 30, 2007, eight of these ten former employees stated
above exercised all of their vested options. However, on September 21, 2007, the SLC decided that
it was in the best interests of our stockholders not to allow the remaining two former employees,
as well as our former CEO and two former non-employee directors, to exercise their vested options
during the pendency of the SLCs proceedings, and extended, until March 31, 2008, the period during
which these five former employees could exercise approximately 428,000 of their fully vested
options. Moreover, the SLC allowed one former employee to exercise all of his fully vested stock
options and another former employee agreed to cancel all of such individuals fully vested stock
options during the quarter ended March 31, 2008.
On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the two
former non-employee directors could exercise their unexpired vested options. On March 31, 2008, the
SLC entered into an agreement with our former CEO allowing him to exercise all of his fully vested
stock options. Under this agreement, he agreed that any shares obtained through these exercises or
net proceeds obtained through the sale of such shares would be placed in an identified securities
brokerage account and not withdrawn, transferred or otherwise removed without either (i) a court
order granting him permission to do so or (ii) our written permission.
On May 29, 2008, the SLC permitted one of our former non-employee directors to exercise his fully
vested stock and entered into an agreement with the other former non-employee director on terms
similar to the agreement entered into with our former CEO, allowing him to exercise all of his
fully vested stock options. Because Tridents stock price as of June 30, 2008 was lower than the
prices at which our former CEO and each of the two former non-employee directors had desired to
exercise their options, as indicated in previous written notices to the SLC, we recorded a
contingent liability in accordance with applicable accounting guidance, totaling $4.3 million,
which was included in Accrued expenses and other current liabilities in the Consolidated Balance
Sheet as of June 30, 2008 and the related expenses were included in Selling, general and
administrative expenses in the Consolidated Statement of Operations for the fiscal year then
ended. On March 26, 2010, the claims by these two former non-employee directors against us, valued
at approximately $1.6 million, were waived as part of a comprehensive settlement with us.
Currently, the SLC investigation is still in progress only with respect to our former CEO. In June
2010, he filed a claim against us seeking compensation from us relating to the exercise of his
fully vested stock options. As a result, as of June 30, 2010, we maintained a contingent liability
totaling $2.8 million in Accrued expenses and other current liabilities in the Condensed
Consolidated Balance Sheets and the related expenses were included in Selling, General and
Administrative Expenses in the Consolidated Statement of Operations for the six months ended June
30, 2010. See Note 5, Shareholder Derivative Litigation in Commitment and Contingencies, of
Notes to Condensed Consolidated Financial Statements.
Indemnification Obligations
We indemnify, as permitted under Delaware law and in accordance with our Bylaws, our officers,
directors and members of our senior management for certain events or occurrences, subject to
certain limits, while they were serving at our request in such capacity. In this regard, we have
received, or expect to receive, requests for advancement and indemnification by certain current and
former officers, directors and employees in connection with our investigation of our historical
stock option granting practices and related issues, and the related governmental inquiries and
shareholder derivative litigation. The maximum amount of potential future advancement and
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indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. We have
directors and officers liability insurance policies that may enable us to recover a portion of
such future advancement and indemnification claims paid, subject to coverage limitations of the
policies, and plan to make claim for reimbursement from our insurers of any potentially covered
future indemnification payments. In certain circumstances, we also would have the right to seek to
recover sums advanced to an indemnitee.
Commercial Litigation
In June 2010, Exatel Visual Systems, Ltd. filed a complaint against NXP Semiconductors USA, Inc.
and Trident, in Superior Court for the State of California, No. 1-10-CV-174333, alleging breach of
contract and related tort claims relating generally to an alleged product development project
undertaken by Tridents predecessor, NXP, and its predecessor, Conexant Systems, Inc. Trident has
not yet filed an answer and no date for trial has been set. Because this action is in the very
early stages, and due to the inherent uncertainty surrounding the litigation process, we are unable
to reasonably estimate the ultimate outcome of this litigation at this time.
General
From time to time, we are involved in other legal proceedings arising in the ordinary course of our
business. While we cannot be certain about the ultimate outcome of any litigation, management does
not believe any pending legal proceeding will result in a judgment or settlement that will have a
material adverse effect on our business, financial position, results of operation or cash flows.
ITEM 1A. RISK FACTORS
Set forth below and elsewhere in this Quarterly Report on Form 10-Q are descriptions of the
risks and uncertainties that could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained herein. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we presently deem less significant may also impair our business operations. If
any of the following risks actually occur, our business, operating results, and financial condition
and/or liquidity could be materially adversely affected.
We may fail to realize some or all of the anticipated benefits of our acquisition of the television
systems and set-top box business lines from NXP, or the frame rate converter, demodulator and audio
decoder product lines from Micronas, which may adversely affect the value of our common stock.
On February 8, 2010, we completed the acquisition of the television systems and set-top box
business lines from NXP, or NXP Transaction, and on May 14, 2009, we completed the purchase of
selected assets of the frame rate converter, demodulator and audio decoder product lines of
Micronas, or Micronas Transaction. We continue to integrate these assets, and the operations
acquired with these assets, into our existing operations. The integration has required, and will
continue to require significant efforts, including the coordination of future product development
and sales and marketing efforts. These integration efforts continue to require resources and
managements time and efforts. The success of each of these acquisitions will depend, in part, on
our ability to realize the anticipated benefits and cost savings from combining the acquired
product lines with our legacy operations. However, to realize these anticipated benefits and cost
savings, we must successfully combine the acquired business lines with our legacy operations and
integrate our respective operations, technologies and personnel. If we are not able to achieve
these objectives within the anticipated time frame, or at all, the anticipated benefits and cost
savings of the acquisitions may not be realized fully or at all or may take longer to realize than
expected and the value of our common stock may be adversely affected. It is possible that the
integration process could result in the loss of key employees and other senior management, result
in the disruption of our business or adversely affect our ability to maintain relationships with
customers, suppliers, distributors and other third parties, or to otherwise achieve the anticipated
benefits of either acquisition.
Specifically, risks in integrating the operations of the business lines acquired from NXP and
Micronas into our operations in order to realize the anticipated benefits of each acquisition
include, among other things:
| failure to effectively coordinate sales and marketing efforts to communicate our product capabilities and product roadmap of our combined business lines; | |
| failure to compete effectively against companies already serving the broader market opportunities that are now expected to be available to us and our expanded product offerings; |
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| failure to successfully integrate and harmonize financial reporting and information technology systems required to support our larger operations following completion of each acquisition; | |
| retention of customers and strategic partners of products that we have acquired with each acquisition; | |
| retention of key Trident employees integration of key employees acquired from NXP or Micronas; | |
| coordination of research and development activities to enhance the introduction of new products and technologies utilizing technology acquired from NXP or Micronas, especially in light of rapidly evolving markets for those products and technologies; | |
| effective coordination of the diversion of managements attention from business matters to integration issues; | |
| effective combination of the business lines acquired from NXP and Micronas into our legacy product offerings, including the acquired technology and intellectual property rights effectively and quickly; | |
| the transition to a common information technology environment at all facilities acquired in each acquisition; | |
| combination of our business culture with the business culture previously operated by NXP or Micronas; | |
| effective anticipation of the market needs and achievement of market acceptance of our products and services utilizing the technology acquired in each acquisition; | |
| compliance with local laws as we take steps to integrate and rationalize operations in diverse geographic locations; and | |
| difficulties in creating uniform standards, controls (including internal control over financial reporting), procedures, policies and information systems. |
Integration efforts will also divert management attention and resources. An inability to realize
the anticipated benefits of the acquisitions, as well as any delays encountered in the integration
process, could have an adverse effect on our business and results of operations.
In addition, as we complete the integration process, we may incur additional and unforeseen
expenses, and the anticipated benefits of each acquisition may not be realized. Actual cost
synergies may be lower than we expect and may take longer to achieve than anticipated. If we are
not able to adequately address these challenges, we may be unable to realize the anticipated
benefits of either the NXP Transaction or the Micronas Transaction.
NXP owns approximately 60% of our outstanding shares of common stock, which could cause NXP to be
able to exercise significant influence over the outcome of various corporate matters and could
discourage third parties from proposing transactions resulting in a change in our control.
As a result of the NXP Transaction, NXP owns approximately 60% of our issued and outstanding shares
of common stock and has elected four of the nine members of our board of directors. Although the
Stockholders Agreement between us and NXP imposes limits on NXPs ability to take specified actions
related to the acquisition of additional shares of our common stock and the voting of its shares of
our common stock, among other restrictions, NXP is still able to exert significant influence over
the outcome of a range of corporate matters, including significant corporate transactions requiring
a stockholder vote, such as a merger or a sale of our company or our assets. NXPs ownership could
affect the liquidity in the market for our common stock.
Furthermore, the ownership position of NXP could discourage a third party from proposing a change
of control or other strategic transaction concerning Trident. As a result, our common stock could
trade at prices that do not reflect a control premium to the same extent as do the stocks of
similarly situated companies that do not have a stockholder with an ownership interest as large as
NXPs ownership interest.
In addition, we issued 7 million shares of our common stock to Micronas and warrants to purchase an
additional 3 million shares of our common stock to Micronas. The issuance of these shares to
Micronas caused a reduction in the relative percentage interests of Trident stockholders in
earnings, voting power, liquidation value and book and market value, and a further reduction will
occur if Micronas exercises the warrants in the future.
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Sales by NXP of the shares of our common stock acquired in the NXP Transaction following the two
year lock up period could cause our stock price to decrease.
The sale of shares of common stock that NXP received in the NXP Transaction are restricted and not
freely tradeable, but NXP may begin to sell these shares under certain circumstances, including
pursuant to a registered underwritten public offering under the Securities Act of 1933, as amended,
or in accordance with Rule 144 under the Securities Act, following February 8, 2012. We have
entered into a Stockholders Agreement with NXP, which includes registration rights and which gives
NXP the right to require us to register all or a portion of its shares of our common stock at any
time following this two year period, subject to certain limitations. The sale of a substantial
number of shares of our common stock by NXP within a short period of time could cause our stock
price to decrease, and make it more difficult for us to raise funds through future offerings of
common stock.
We have incurred significant transaction and transaction-related costs in connection with the NXP
Transaction and the Micronas Transaction.
We have incurred a number of non-recurring costs associated with the NXP Transaction and the
Micronas Transaction, and expect to continue to incur costs of integrating the operations of the
acquired business lines with our existing business. The substantial majority of non-recurring
expenses resulting from these two transactions has been and is expected to continue to be comprised
of transaction costs related to each transaction, facilities and systems consolidation costs and
employment-related costs, including severance and other employee separation costs. Additional
unanticipated costs may be incurred as we continue integrating the acquired businesses. Although we
expect that the elimination of duplicative costs, as well as the realization of other efficiencies
related to the integration of the businesses, should allow us to offset incremental
transaction-related costs over time, this net benefit may not be achieved in the
near term, or at all. If the benefits of each transaction do not exceed the costs such transaction,
our financial results may be adversely affected.
We must continue to retain, motivate and recruit executives and other key employees following
integration of the NXP Transaction and the Micronas Transaction, and failure to do so could
negatively affect our operations.
We must retain key employees acquired from Micronas and NXP. Experienced executives are in high
demand and competition for their talents can be intense. To be successful, we must also retain and
motivate our existing executives and other key employees. Our employees may experience uncertainty
about their future role with us until, or even after, strategies with regard to our operations and
product development following completion of each transaction is announced and executed. These
potential distractions may adversely affect our ability to attract, motivate and retain executives
and other key employees and keep them focused on applicable strategies and goals. A failure to
retain and motivate executives and other key employees during the period after the completion of
the Transactions could have a material and adverse impact on our business.
Our success depends to a significant degree upon the continued contributions of the principal
members of our technical sales, marketing and engineering teams, many of whom perform important
management functions and would be difficult to replace. During the past year, we hired several
members of our current executive management team. We have reorganized our sales, marketing and
engineering teams and continue to make changes. We depend upon the continued services of key
management personnel at our overseas subsidiaries, especially in China, Taiwan and Europe. Our
officers and key employees are not bound by employment agreements for any specific term, and may
terminate their employment at any time. In order to continue to expand our product offerings both
in the U.S. and abroad, we must hire and retain a number of research and development personnel.
Hiring technical sales personnel in our industry is very competitive due to the limited number of
people available with the necessary technical skills and understanding of our technologies. Our
ability to continue to attract and retain highly skilled personnel will be a critical factor in
determining whether we will be successful in the future. Competition for highly skilled personnel
continues to be increasingly intense, particularly in the areas where we principally operate,
specifically in China, Taiwan, Northern California and Texas. If we are not successful in
attracting, assimilating or retaining qualified personnel to fulfill our current or future needs,
our business may be harmed.
The operation of our business could be adversely affected by the transition of key personnel as we
rebuild our executive leadership team and make additional organizational changes.
In addition to the uncertainties created among personnel as a result of the acquisitions, many of
our senior management are relatively new, and our senior management has been reorganized following
the NXP Transaction, including the appointment of a former NXP executive to the position of
President. We recently hired a new Chief Technology Officer, Vice President of Human Resources, and
Senior Vice President of our Set-top Box Business Unit, and promoted another executive to serve as
Senior Vice President of our TV
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Business Unit. We have also reorganized our Board of Directors, and
now have nine members of the Board of Directors, four of whom joined following completion of the
NXP Transaction. Two of our former board members resigned as a result of the NXP Transaction. It is
important to our success that our Chief Executive Officer continues building an effective
management team and global organization. It may take some time for each of the new members of our
management team to become fully integrated into our business. Our failure to manage these
transitions, or to find and retain experienced management personnel, could adversely affect our
ability to compete effectively and could adversely affect our operating results.
As a result of the NXP Transaction and the Micronas Transaction, we are a larger and more
geographically diverse organization, and if we are unable to manage this larger organization
efficiently, our operating results will suffer.
As a result of the acquisitions of assets from NXP and Micronas, we have a larger number of
employees in widely dispersed operations in the United States, Europe, Asia Pacific, and other
locations, which have increased the difficulty of managing our operations. Previously, we have not
had a significant number of employees in Europe, particularly Germany and The Netherlands, and none
in India. As a result, we now face challenges inherent in efficiently managing an increased number
of employees over large geographic distances, including the need to implement appropriate systems,
policies, benefits and compliance programs. The inability to manage successfully this
geographically more diverse and substantially larger organization could have a material adverse
effect on our operating results and, as a result, on the market price of our common stock.
Product supply and demand in the semiconductor industry is subject to cyclical variations.
The semiconductor industry is subject to cyclical variations in product supply and demand.
Downturns in the industry often occur in connection with, or in anticipation of, maturing product
cycles for both semiconductor companies and their customers and declines in general economic
conditions. These downturns have been characterized by abrupt fluctuations in product demand and
production capacity and accelerated decline of average selling prices. The emergence of a number of
negative economic factors, including heightened fears of a prolonged recession, could lead to such
a downturn. We cannot predict whether we will achieve timely, cost-
effective access to that capacity when needed, or what capacity patterns may emerge in the future.
A downturn in the semiconductor industry could harm our sales and revenues if demand for our
products drops, or cause our gross margins to suffer if average selling prices decline.
Our reliance upon a very small number of foundries could make it difficult to maintain product flow
and affect our sales.
If the demand for our products grows or decreases by material amounts, we will need to adjust the
levels of our material purchases, contract manufacturing capacity and internal test and quality
functions. Any disruptions in product flow could limit our ability to meet orders, impact our
revenue and our ability to consummate sales, adversely affect our competitive position and
reputation and result in additional costs or cancellation of orders.
We do not own or operate fabrication facilities and do not manufacture our products internally.
Prior to the NXP Transaction, we have relied principally upon one independent foundry to
manufacture substantially all of our SoC products and non-audio discrete products in wafer form and
other contract manufacturers for assembly and testing of our products and we rely upon Micronas for
the manufacture of our discrete audio products on a turnkey basis pursuant to a services agreement.
Following the NXP Transaction, we have begun to manufacture some of our products in wafer form at a
second independent foundry. Generally, we place orders by purchase order, and the foundries are not
obligated to manufacture our products on a long-term fixed-price basis, so they are not obligated
to supply us with products for any specific period of time, in any specific quantity or at any
specific price, except as may be provided in a particular purchase order. Our foundry and contract
manufacturers could re-allocate capacity to other customers, even during periods of high demand for
our products. In fact, we have recently experienced wafer supply constraints and expect to face
such constraints in the future. We have limited control over delivery schedules, quality assurance,
manufacturing yields, potential errors in manufacturing and production costs. We could experience
an interruption in our access to certain process technologies necessary for the manufacture of our
products. From time to time, there are manufacturing capacity shortages in the semiconductor
industry and current global economic conditions make it more likely those disruptions in supply
chain cycles could occur. If we encounter shortages and delays in obtaining components, our ability
to meet customer orders would be materially adversely affected. In addition, during periods of
increased demand, putting pressure on the foundries to meet orders, we may have reduced control
over pricing and timely delivery of components, and if the foundries increase the cost of
components or subassemblies, our margins will be adversely affected, and we may not have
alternative sources of supply to manufacture such components.
Constraints or delays in the supply of our products, whether because of capacity constraints,
unexpected disruptions at our independent foundries, at Micronas or at our assembly or testing
houses, delays in additional production at existing foundries or in
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obtaining additional production
from existing or new foundries, shortages of raw materials, or other reasons, could result in the
loss of customers and other material adverse effects on our operating results, including effects
that may result should we be forced to purchase products from higher cost foundries or pay
expediting charges to obtain additional supplies. In addition, to the extent we elect to use
multiple sources for certain products, our customers may be required to qualify multiple sources,
which could adversely affect their desire to design-in our products and reduce our revenues.
We do not have long-term commitments from our customers, and we plan purchases based upon our
estimates of customer demand, which may require us to contract for the manufacturing of our
products based on inaccurate estimates.
Our sales are made on the basis of purchase orders rather than long-term purchase commitments. Our
customers may cancel or defer purchases at any time. This requires us to forecast demand based upon
assumptions that may not be correct. If we or our customers overestimate demand, we may create
inventory that we may not be able to sell or use, resulting in excess inventory, which could become
obsolete or negatively affect our operating results. Conversely, if we or our customers
underestimate demand, or if sufficient manufacturing capacity is not available, we may lose revenue
opportunities, damage customer relationships and we may not achieve expected revenue.
We depend on a small number of large customers for a significant portion of our sales. The loss of,
a significant reduction in or cancellation of sales to any key customer would significantly reduce
our revenues.
We are and will continue to be dependent on a limited number of distributors and customers for a
substantial amount of our revenue. For the three and six months ended June 30, 2010, approximately
38% and 39%, respectively, of our revenues were derived from sales to two major customers. Our
revenues to date have been denominated in U.S. dollars and Euros. Sales to our largest customers
have fluctuated significantly from period to period primarily due to the timing and number of
design wins with each customer and will likely continue to fluctuate significantly in the future.
Accordingly, a reduction in purchases of our products by any of these customers could cause our
revenues to decline during the period and have a material adverse impact on our financial results.
We may be unable to replace any such lost revenues by sales to any new customers or increased sales
to existing customers. Our operating results in the foreseeable future will continue to depend on
sales to a
relatively small number of customers, as well as the ability of these customers to sell products
that incorporate our products. In the future, these customers may decide not to purchase our
products at all, purchase fewer products than they did in the past, or alter their purchasing
patterns in some other way, particularly because:
| substantially all of our sales are made on a purchase order basis, which permits our customers to cancel, change or delay product purchase commitments with little or no notice to us and without penalty; | |
| our customers may purchase integrated circuits from our competitors; | |
| our customers may develop and manufacture their own solutions; or | |
| our customers may discontinue sales or lose market share in the markets for which they purchase our products. |
If we engage in further cost-cutting or workforce reductions, we may be unable to successfully
implement new products or enhancements or upgrades to our products.
We expect to continue to introduce new and enhanced products, and our future financial performance
will depend on customer acceptance of our new products and any upgrades or enhancements that we may
make to our products. However, if our efforts to streamline operations and reduce costs and our
workforce following our recent acquisitions are insufficient to bring our structure in line with
current and projected near-term demand for our products, we may be forced to make additional
workforce reductions or implement further cost saving initiatives. Workforce reductions we have
already initiated and possible future reductions could impact our research and development and
engineering activities, which may slow our development of new or enhanced products. We may be
unable to successfully introduce new or enhanced products, and may not succeed in obtaining or
maintaining customer satisfaction, which could negatively impact our reputation, future sales of
our products and our future revenues.
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A decline in revenues may have a disproportionate impact on operating results and require further
reductions in our operating expense levels.
Because expense levels are relatively fixed in the near term for a given quarter and are based in
part on expectations of our future revenues, any decline in our revenues to a level that is below
our expectations would have a disproportionately adverse impact on our operating results for that
quarter. If revenues further decline, we may be required to incur additional material restructuring
charges in connection with efforts to contain and reduce costs.
The impact of changes in global economic conditions on our current and potential customers may
adversely affect our revenues and results of operations.
Our operating results have been adversely affected over the past quarters by reduced levels of
consumer spending and by the overall weak economic conditions affecting our current and potential
customers. The economic environment that we faced in fiscal year 2009 was uncertain, and that
uncertainty continued through the three and six months ended quarter June 30, 2010, and is expected
to continue into the year ending December 31, 2010. If our end customers continue to refrain from
making purchases of products from us until general economic conditions improve, this could continue
to adversely affect our business and operating results for additional quarters during the year
ending December 31, 2010.
As a result of our investigation into our historical stock option granting practices and the
restatement of our previously filed financial statements, we are subject to civil litigation claims
that could have a material adverse effect on our business, customer relationships, results of
operations and financial condition.
As previously described in Managements Discussion and Analysis of Financial Condition and Results
of Operations and in Note 3, Restatement of Consolidated Financial Statements and Special
Committee and Company Findings of Notes to Consolidated Financial Statements, included in Part II,
Item 8 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2006 filed on August 7,
2007, we conducted an investigation into our historical stock option practices and related
accounting. Based upon the findings of the investigation, we restated our financial statements for
each of the years ended June 30, 1993 through June 30, 2005, and restated our financial statements
for the interim first three quarters of fiscal year ended June 30, 2006 as well.
Our past stock option granting practices and the restatement of our prior financial statements have
exposed and may continue to expose us to greater risks associated with litigation as described in
Part II, Item 1, Legal Proceedings. This litigation could impact our relationships with customers
and our ability to generate revenues.
We have been named as a party to derivative action lawsuits, and we may be named in additional
litigation, all of which will require significant management time and attention and result in
significant legal expenses and may result in an unfavorable outcome which could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
Trident has been named as a nominal defendant in several shareholder derivative lawsuits concerning
the granting of stock options. The federal court cases have been consolidated as In re Trident
Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed
in State court, Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that
certain of our current or former officers and directors caused us to grant options at less than
fair market value, contrary to our public statements (including our financial statements), and that
this represented a breach of their fiduciary duties to us, and as a result those officers and
directors are liable to us. Our Board of Directors has appointed a Special Litigation Committee, or
SLC, which has been composed solely of independent directors, to review and manage any claims that
we may have relating to the stock option granting practices and related issues investigated by the
SLC. The scope of the SLCs authority includes the claims asserted in the derivative actions. In
federal court, Trident moved to stay the case pending the assessment by the SLC that was formed to
consider nominal plaintiffs claims.
On March 26, 2010, the federal court approved settlements with all defendants other than Frank Lin,
our former CEO, and all defendants other than Mr. Lin were dismissed with prejudice from the state
and federal actions. In connection with the approved settlements, payments of approximately $1.7
million were made to us, by certain of the defendants, during the three months ended June 30, 2010.
The state court derivative action was dismissed following the approval of the settlement in the
federal action. No particular amount of damages has been alleged in the federal action, and by the
nature of the lawsuit no damages will be alleged against us. On July 1, 2010, the derivative
plaintiffs filed an amended complaint in the federal action stating claims against Mr. Lin relating
to his actions in connection with our stock option granting practices. On June 8, 2010, Mr. Lin
filed a counterclaim against Trident. In that counterclaim, Mr. Lin seeks recovery of payments he
claims he was promised during the negotiations surrounding his eventual termination and also losses
he claims he has suffered because he was not permitted to exercise his Trident stock options
between January 2007 and March 2008. We cannot predict whether the federal action against Mr. Lin
and his counterclaims are likely to result in any material recovery by or expense to Trident. We
expect to continue to incur legal fees in responding to this lawsuit,
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including expenses for the reimbursement of certain legal fees of at least our former CEO
under our advancement obligations. The expense of defending such litigation may be significant. The
amount of time to resolve this and any additional lawsuits is unpredictable and these actions may
divert managements attention from the day-to-day operations of our business, which could adversely
affect our business, results of operations and cash flows.
We are subject to the risks of additional lawsuits in connection with our historical stock option
grant practices and related issues, the resulting restatements, and the remedial measures we have
taken.
In addition to the possibilities that there may be additional shareholder lawsuits against us, we
may be sued or taken to arbitration by former employees in connection with their stock options,
employment terminations and other matters. These lawsuits may be time consuming and expensive, and
cause further distraction from the operation of our business. The adverse resolution of any
specific lawsuit could have a material adverse effect on our business, financial condition and
results of operations.
Intense competition exists in the market for digital media products.
The digital media market in which we compete is intensely competitive and characterized by rapid
technological change and declining average unit selling prices. Competition typically occurs at the
design stage, when customers evaluate alternative design approaches requiring integrated circuits.
Because of short product life cycles, there are frequent design win competitions for
next-generation systems.
We believe the digital media market will remain competitive, and will require us to incur
substantial research and development, technical support, sales and other expenditures to stay
competitive in this market. In the digital media market, our principal competitors are captive
solutions from large TV OEMs as well as merchant solutions from Broadcom Corporation, MediaTek
Inc., MStar Semiconductor, NEC Corporation, STMicroelectronics, and Zoran Corporation. Industry
consolidation has been occurring recently as, in addition to our acquisition of certain assets from
NXP and Micronas, some of our competitors have acquired or are considering acquiring other
competitors or divisions of companies that provide them with the opportunity to compete against us.
Many of our current competitors and many potential competitors have significantly greater
technical, manufacturing, financial and marketing resources. Some of them may also have broader
product lines and longer standing relationships with key customers and suppliers than we have,
which makes competing more difficult. Therefore, we expect to devote significant resources to the
digital TV and set-top box markets even though some of our competitors are substantially more
experienced than we are in these markets.
The level and intensity of competition have increased over the past year. Competitive pricing
pressures have resulted in continued reductions in average selling prices of our existing products,
and continued or increased competition could require us to further reduce the prices of our
products, affect our ability to recover costs or result in reduced gross margins. If we are unable
to timely and cost-effectively integrate more functionality onto single chip designs to help our
customers reduce costs, we may lose market share, our revenues may decline and our gross margins
may decrease significantly.
Our success depends upon the digital media market and we must continue to develop new products and
to enhance our existing products.
The digital media industry is characterized by rapidly changing technology, frequent new product
introductions, and changes in customer requirements. Our future success depends on our ability to
anticipate market needs and develop products that address those needs. As a result, our products
could quickly become obsolete if we fail to predict market needs accurately or develop new products
or product enhancements in a timely manner. The long-term success in the digital media business
will depend on the introduction of successive generations of products in time to meet the design
cycles as well as the specifications of original equipment manufacturers of televisions. The
digital media industry is characterized by an increasing level of integration and incorporation of
greater numbers of features on a single chip, in order to permit enhanced systems at the same or
lower cost. Our failure to predict market needs accurately or to timely develop new products or
product enhancements, including integrated circuits with increasing levels of integration and new
features, at competitive prices may harm market acceptance and sales of our products. If the
development or enhancement of these products or any other future products takes longer than we
anticipate, or if we are unable to introduce these products to market, our sales could decrease.
Even if we are able to develop and commercially introduce these new products, the new products may
not achieve the widespread market acceptance necessary to provide an adequate return on our
investment.
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If we do not achieve additional design wins in the future, our ability to sell additional products
could be adversely affected.
Our future success depends on manufacturers of consumer televisions, set-top boxes and other
digital media products designing our products into their products. To achieve design wins with OEM
customers and ODMs, we must define and deliver cost-effective, innovative and high performance
integrated circuits on a timely basis, before our competitors do so. In addition, some OEM
customers have begun to utilize digital video processor components produced by their own internal
affiliates, which decreases our opportunity to achieve design wins. Thus, even if we achieve a
design win with an ODM, their OEM customer may subsequently elect to purchase an integrated digital
media solution from the ODM that does not incorporate our products. Once a suppliers products have
been designed into a system, a manufacturer may be reluctant to change components due to costs
associated with qualifying a new supplier and determining performance capabilities of the
component. Customers can choose at any time to discontinue using our products in their designs or
product development efforts. Accordingly, we may face narrow windows of opportunity to be selected
as the supplier of component parts by significant new customers. It may be difficult for us to sell
to a particular customer for a significant period of time once that customer selects a competitors
product, and we may not be successful in obtaining broader acceptance of our products. If we are
unable to achieve broader market acceptance of our products, we may be unable to maintain and grow
our business and our operating results and financial condition will be adversely affected.
The average selling prices of our products may decline over relatively short periods.
Average selling prices for our products may decline over relatively short time periods. This annual
pace of price decline for products or technology is generally expected in the consumer electronics
industry. It is also possible for the pace of average selling price declines to accelerate beyond
these levels for certain products in a commoditizing market. Price declines can be exacerbated by
competitive pressures at specific customers and for specific products. When our average selling
prices decline, our gross profits decline unless we are able to sell more products at higher gross
margin or reduce the cost to manufacture our products. We generally attempt to combat average
selling price declines by designing new products for reduced costs, innovating to integrate
additional functions or features and working with our manufacturing partners to reduce the costs of
manufacturing existing products. We have in the past experienced and may in the future experience
declining sales prices, which could negatively impact our revenues, gross profits and financial
results. We therefore need to sell our higher margin products in increasing volumes to offset any
decline in the average selling prices of our products, and introduce new higher margin products for
sale in the future, which we may not be able to do on a timely basis.
We may be required to record future charges to earnings if our intangible assets become impaired.
We are required under generally accepted accounting principles in the United States of America to
review our goodwill and intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is required to be tested for
impairment at least annually. Factors that may be considered a change in circumstances indicating
that the carrying value of our intangible assets may not be recoverable include a decline in stock
price and market capitalization, slower growth rates, and changes in our financial results and
outlook. We may be required to incur additional charges in our Condensed Consolidated Financial
Statements during the period in which any impairment of our goodwill or intangible assets is
determined. In determining the fair value of intangible assets in connection with our impairment
analysis, we consider various factors including Tridents estimates of future market growth and
trends, forecasted revenue and costs, discount rates, expected periods over which our assets will
be utilized and other variables. Our assumptions are based on historical data and internal
estimates developed as part of our long-term planning process. We base our fair value estimates on
assumptions believed to be reasonable, but which are inherently uncertain. If future conditions are
different from managements estimates at the time of an acquisition or market conditions change
subsequently, we may incur future charges for impairment of our goodwill or intangible assets,
which could adversely impact our results of operations.
The demand for our products depends to a significant degree on the demand for the end products of
customers of the acquired business lines into which they are incorporated.
The vast majority of our revenues are derived from sales to manufacturers in the consumer
electronics industry. Demand from these customers fluctuates significantly, driven by consumer
preferences, the development of new technologies and brand performance. The success of the acquired
business lines depends on the success of its customers in the market place. Such customers may vary
order levels significantly from period to period, request postponements to scheduled delivery
dates, modify their orders or reduce lead times, any of which could have a material adverse effect
on our business, financial condition or results of operations.
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Our dependence on sales to distributors increases the risks of managing our supply chain and may
result in excess inventory or inventory shortages.
Prior to the NXP Transaction, the majority of our sales through distributors were made by companies
that function as purchasing conduits for each of two large Japanese OEM customers. Generally, these
distributors take certain inventory positions and resell to their respective OEM customers. We have
a more traditional distributor relationship with our remaining distributors that involve the
distributor taking inventory positions and reselling to multiple customers. In our significant
distributor relationships, we have recognized revenue when the distributors sell the product
through to their end user customers. These distributor relationships have reduced our ability to
forecast sales and increased risks to our business. Since our distributors act as intermediaries
between us and the end user customers, we must rely on our distributors to accurately report
inventory levels and production forecasts. This requires us to manage a more complex supply chain
and monitor the financial condition and credit worthiness of our distributors and the end user
customers. Our failure to manage one or more of these risks could result in excess inventory or
shortages that could adversely impact our operating results and financial condition.
We have had fluctuations in quarterly results in the past and may continue to experience such
fluctuations in the future.
Our quarterly revenue and operating results have varied in the past and may fluctuate in the future
due to a number of factors including:
| our ability to obtain the anticipated benefits of each of the NXP Transaction and the Micronas Transaction our ability to develop, introduce, ship and support new products and product enhancements, especially our newer SoC products, and to manage product transitions; | |
| new product introductions by our competitors; | |
| delayed new product introductions; | |
| uncertain demand in the digital media markets in which we have limited experience; | |
| our ability to achieve required product cost reductions; | |
| the mix of products sold and the mix of distribution channels through which they are sold; | |
| fluctuations in demand for our products, including seasonality; | |
| unexpected product returns or the cancellation or rescheduling of significant orders; | |
| our ability to attain and maintain production volumes and quality levels for our products; | |
| unfavorable responses to new products; | |
| adverse economic conditions, particularly in the United States and Asia; and | |
| unexpected costs associated with our investigation of our historical stock option grant practices and related issues, and any related litigation or regulatory actions. |
These factors are often difficult or impossible to forecast or predict, and these or other factors
could cause our revenue and expenses to fluctuate over interim periods, increase our operating
expenses, or adversely affect our results of operations or business condition.
We are vulnerable to undetected product problems.
Although we establish and implement test specifications, impose quality standards upon our
suppliers and perform separate application-based compatibility and system testing, our products may
contain undetected defects, which may or may not be material, and which may or may not have a
feasible solution. Although we have experienced such errors in the past, significant errors have
generally been detected relatively early in a products life cycle and therefore the costs
associated with such errors have been immaterial. We cannot ensure that such errors will not be
found from time to time in new or enhanced products after commencement
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of commercial shipments. These problems may materially adversely affect our business by causing us to incur significant
warranty and repair costs, diverting the attention of our engineering personnel from our product
development efforts and causing significant customer relations problems. Defects or other performance problems in our products could result in
financial or other damages to our customers or could damage market acceptance of our products. Our
customers could seek damages from us for their losses as a result of problems with our products or
order less of our products, which would harm our financial results.
As a result of the difficult global macroeconomic and industry conditions, we have implemented
restructuring and workforce reductions, and may be required to make additional such reductions,
which may adversely affect the morale and performance of our personnel and our ability to hire new
personnel.
In connection with our efforts to streamline operations, reduce costs and better align our staffing
and structure with current demand for our products, we implemented a restructuring of our Company
during the quarter ended December 31, 2008 and the quarter ended September 30, 2009, reducing our
workforce and implementing other cost saving initiatives. We recorded restructuring charges of $0.8
million in the quarter ended December 31, 2008, amd $1.6 million in the quarter ended September 30,
2009. In connection with the NXP Transaction, we have begun to implement further restructurings or
work force reductions that are taking place during calendar year 2010. We recorded for the three
and six months ended June 30, 2010, $4.5 million and $12.9 million, respectively, of restructuring
expenses related to severance and related employee benefits. The restructuring is expected to be
completed by the end of the calendar year. Restructuring charges are recorded under Restructuring
charges in our Condensed Consolidated Statement of Operations.
Prior to the close of the Companys acquisition from NXP of selected assets and liabilities of
NXPs television systems and set-top box business lines, NXP initiated a restructuring plan
pursuant to which the employment of some NXP employees was terminated upon the close of the merger.
We have determined that the restructuring plan was a separate plan from the business combination
because the plan to terminate the employment of certain employees was made in contemplation of the
acquisition. Therefore, a severance cost of $3.6 million was recognized as an expense on the
acquisition date and is included in the total restructuring charge of $12.9 million for the six
months ended June 30, 2010. The $3.6 million of severance cost was paid by NXP after the close of
the acquisition, effectively reducing the purchase consideration transferred.
Our restructuring may yield unanticipated consequences, such as attrition beyond our planned
reduction in workforce and loss of employee morale and decreased performance. In addition, the
recent trading levels of our stock have decreased the value of our stock options granted to
employees under our stock option plans. As a result of these factors, our remaining personnel may
seek employment with companies that they perceive as having less volatile stock prices. Continuity
of personnel can be a very important factor in the sales and implementation of our products and
completion of our research and development efforts.
If we have to qualify new contract manufacturers or foundries for any of our products, we may
experience delays that result in lost revenues and damaged customer relationships.
We rely on a limited number of principal suppliers to manufacture our products in wafer form. The
lead time required to establish a relationship with a new foundry is long, and it takes time to
adapt a products design and technological requirements to a particular manufacturers processes.
Accordingly, there is no readily available alternative source of supply for any specific product.
We have already experienced an inability to meet the unconstrained demand of some of our customers
for certain products due to shortages in wafer supply that occurred during 2010. This lack of a
readily available second source could cause significant delays in shipping products, or even
shortages, if we have to change our source of supply and manufacture quickly, which could damage
our relationships with current and prospective customers and harm our sales and financial results.
Our success depends in part on our ability to protect our intellectual property rights, which may
be difficult.
The digital media market is a highly competitive industry in which we, and most other participants,
rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect proprietary rights. The competitive
nature of our industry, rapidly changing technology, frequent new product introductions, changes in
customer requirements and evolving industry standards heighten the importance of protecting
proprietary technology rights. Since patent applications with the United States Patent and
Trademark Office may be kept confidential, our pending patent applications may attempt to protect
proprietary technology claimed in a third-party patent application. Our existing and future patents
may not be sufficiently broad to protect our proprietary technologies as policing unauthorized use
of our products is difficult. The laws of certain foreign countries in which our products are or
may be developed, manufactured or sold, including various countries in Asia, may not protect our
products or intellectual property rights to the same extent as do the laws of the United States and
thus make the possibility
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of piracy of our technology and products more likely in these countries. Our competitors may independently develop similar technology, duplicate our products or design
around any of our patents or other intellectual property. If we are unable to adequately protect
our proprietary technology rights, others may be able to use our proprietary technology without
having to compensate us, which could reduce our revenues and negatively impact our ability to
compete effectively. We have filed in the past, and may file in the future, lawsuits to enforce our
intellectual property rights or to determine the validity or scope of the proprietary rights of
others.
As a result of any such litigation or resulting counterclaims, we could lose our proprietary rights
and incur substantial unexpected operating costs. Any action we take to protect our intellectual
property rights could be costly and could absorb significant management time and attention. In
addition, failure to adequately protect our trademark rights could impair our brand identity and
our ability to compete effectively.
The television systems and set-top box business lines that we acquired from NXP depend on patents
and other intellectual property rights to protect against misappropriation by competitors or
others. The patents we have acquired as part of the acquired business lines may be insufficient to
provide meaningful protection. We may not be able to obtain patent protection or secure other
intellectual property rights in all the countries in which the acquired business lines operate,
and, under the laws of such countries, patents and other intellectual property rights may be
unavailable or limited in scope. Any inability to adequately protect the intellectual property
rights of the acquired business lines may have an adverse effect on our results.
We have been involved in intellectual property infringement claims, and may be involved in other
claims in the future, which can be costly.
Our industry is very competitive and is characterized by frequent litigation alleging infringement
of intellectual property rights. Numerous patents in our industry have already been issued and as
the market further develops and additional intellectual property protection is obtained by
participants in our industry, litigation is likely to become more frequent. From time to time,
third parties have asserted and are likely in the future to assert patent, copyright, trademark and
other intellectual property rights to technologies or rights that are important to our business.
Historically we have been involved in such disputes. For example, in March 2010, Intravisual Inc.
filed complaints against us and multiple other defendants, including NXP, in the United States
District Court for the Eastern District of Texas, No. 2:10-CV-90 TJW alleging that certain Trident
products infringe a patent relating generally to compressing and decompressing digital video. The
complaint seeks a permanent injunction against us as well as the recovery of monetary damages and
attorneys fees. We filed an answer on May 28, 2010, however, no date for trial has been set. The
pending proceeding involves complex questions of fact and law and may require the expenditure of
significant funds and the diversion of other resources to defend. In addition, we have and may in
the future enter into agreements to indemnify our customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of third parties.
Litigation or other disputes or negotiations arising from claims asserting that our products
infringe or may infringe the proprietary rights of third parties, whether with or without merit,
has been and may in the future be, time-consuming, resulting in significant expenses and diverting
the efforts of our technical and management personnel. We do not have insurance against any alleged
infringement of intellectual property of others. Any such claims that may be filed against us in
the future, if resolved adversely to us, could cause us to stop sales of our products which
incorporate the challenged intellectual property and could also result in product shipment delays
or require us to redesign or modify our products or to enter into licensing agreements. These
licensing agreements, if required, would increase our product costs and may not be available on
terms acceptable to us, if at all. If there is a successful claim of infringement or we fail to
develop non-infringing technology or license the proprietary rights on a timely and reasonable
basis, our business could be harmed.
Certain intellectual property used in the television systems and set-top box business lines
acquired from NXP was transferred or licensed to NXP from Philips and may not be sufficient to
protect the position of the acquired business lines in the industry.
Some of the intellectual property that we acquired from NXP was originally acquired by NXP in
connection with its separation from Koninklijke Philips Electronics N.V., or Philips. In connection
with the separation of NXP from Philips, Philips transferred a set of patent families to NXP
subject to certain limitations. These limitations give Philips the right to sublicense to third
parties in certain circumstances. The strength and value of this intellectual property may be
diluted if Philips licenses or otherwise transfers such intellectual property or such rights to
third parties, especially if such third parties compete with the acquired business lines.
If necessary licenses of third-party technology are not available to us or are very expensive, our
products could become obsolete.
From time to time, we may be required to license technology from third parties to develop new
products or enhance current products. Third-party licenses may not be available on commercially
reasonable terms, if at all. If we are unable to obtain any third-party license required to develop
new products and enhance current products, or if our licensors technology is no longer available
to us because it
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is determined to infringe another third-partys intellectual property rights, we
may have to obtain substitute technology of lower quality or performance standards or at greater
cost, either of which could seriously harm the competitiveness of our products.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax
rates.
Unanticipated changes in our tax rates could affect our future results of operations. Our future
effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of
tax laws, by unanticipated decreases in the amount of revenue or earnings in countries with low
statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. We
are also subject to the interpretations of foreign regulatory bodies in connection with reviews
conducted of our subsidiaries and their operations.
While we believe our tax reserves adequately provide for any tax contingencies, the ultimate outcomes of
any current or future tax audits are uncertain, and we can give no assurance as to whether an
adverse result from one or more of them will have a material effect on our financial position,
results of operation or cash flows.
The market price of our common stock has been, and may continue to be, volatile.
The market price of our common stock has been, and may continue to be volatile. Factors such as new
product announcements by us or our competitors, quarterly fluctuations in our operating results,
unfavorable conditions in the digital media market, failure to obtain design wins, as well as the
results of our investigation of our historical stock option grant practices and related issues, and
any litigation or regulatory actions arising as a result, may have a significant impact on the
market price of our common stock. These conditions, as well as factors that generally affect the
market for stocks, and stocks in high-technology companies in particular, could cause the price of
our stock to fluctuate from time to time.
Our operating results may be adversely affected by the current sovereign debt crisis in Europe and
related global economic conditions.
The current Greek debt crisis and related European financial restructuring efforts may cause the
value of the Euro to further deteriorate, thus reducing the purchasing power of European customers.
In addition, this European crisis is contributing to instability in global credit markets. The
world has recently experienced a global macroeconomic downturn, and if global economic and market
conditions, or economic conditions in Europe, the United States or other key markets, remain
uncertain, persist, or deteriorate further, we may experience material impacts on our business,
operating results, and financial condition.
We currently rely on certain international customers for a substantial portion of our revenue and
are subject to risks inherent in conducting business outside of the United States.
As a result of our focus on digital media products, we expect to be primarily dependent on
international sales and operations, particularly in Japan, South Korea, Europe, and Asia Pacific.
Our revenues may continue to be highly concentrated in a small number of geographic regions in the
future. There are a number of risks arising from our international business, which could adversely
affect future results, including:
| exchange rate variations, tariffs, import/export restrictions and other trade barriers; | |
| potential adverse tax consequences; | |
| challenges in effectively managing distributors or representatives to maximize sales; | |
| difficulties in collecting accounts receivable; | |
| political and economic instability, civil unrest, war or terrorist activities that impact international commerce; | |
| difficulties in protecting intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States; and | |
| unexpected changes in regulatory requirements. |
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Our international sales for the three and six months ended June 30, 2010, are principally U.S.
dollar-denominated. As a result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets. We cannot be sure
that those of our international customers who currently place orders in U.S. dollars will continue
to be willing to do so. If they do not, our revenues would become subject to foreign exchange
fluctuations.
Our operations are vulnerable to interruption or loss due to natural disasters, power loss, strikes
and other events beyond our control, which would adversely affect our business.
We conduct a significant portion of our activities including manufacturing, administration and data
processing at facilities located in the State of California, Taiwan and other seismically active
areas that have experienced major earthquakes in the past, as well as other natural disasters. The
insurance coverage may not be adequate or continue to be available at commercially reasonable rates
and terms. A major earthquake or other disaster affecting our suppliers facilities and our
administrative offices could significantly disrupt our operations, and delay or prevent product
manufacture and shipment during the time required to repair, rebuild or replace our suppliers
manufacturing facilities and our administrative offices; these delays could be lengthy and result
in significant expenses. In addition, our administrative offices in the State of California may be
subject to a shortage of available electrical power and other energy supplies. Any shortages may
increase our costs for power and energy supplies or could result in blackouts, which could disrupt
the operations of our affected facilities and harm our business. In addition, our products are
typically shipped from a limited number of ports, and any natural disaster, strike or other event
blocking shipment from these ports could delay or prevent shipments and harm our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. (RESERVED)
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibit | Description | |
2.1
|
Purchase Agreement dated March 31, 2009 among Micronas Semiconductor Holding AG, Trident Microsystems, Inc. and Trident Microsystems (Far East) Ltd.(1) | |
2.2
|
Share Exchange Agreement dated October 4, 2009 among Trident Microsystems, Inc., Trident Microsystems (Far East) Ltd., and NXP B.V.(2) | |
3.1
|
Restated Certificate of Incorporation.(3) | |
3.3
|
Amended and Restated Bylaws.(4) | |
3.4
|
Amendment to Article VIII of the Bylaws.(5) | |
3.5
|
Amendments to Article I, Section 2 and Article I, Section 7 of the bylaws.(6) | |
3.6
|
Certificate of Amendment of Restated Certificate of Incorporation of Trident Microsystems, Inc. filed on January 27, 2010.(7) | |
3.7
|
Amended and Restated Certificate of Designation of Series B Preferred Stock (par value $0.001) of Trident Microsystems, Inc., as filed with the Delaware Secretary of State on February 5, 2010.(8) |
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Table of Contents
Exhibit | Description | |
4.1
|
Reference is made to Exhibits 3.1, 3.3, 3.4, 3.5 and 3.6. | |
4.2
|
Specimen Common Stock Certificate.(9) | |
4.3
|
Amended and Restated Rights Agreement between the Company and Mellon Investor Services, LLC, as Rights Agent dated as of July 23, 2008 (including as Exhibit A the Form of Certificate of Amendment of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).(10) | |
4.4
|
First Amendment to Amended and Restated Rights Agreement, dated May 14, 2009.(11) | |
4.5
|
Second Amendment to Amended and Restated Rights Agreement, dated December 11, 2009.(12) | |
31.1
|
Rule 13a 14(a) Certification of Chief Executive Officer. (13) | |
31.2
|
Rule 13a 14(a) Certification of Chief Financial Officer. (13) | |
32.1
|
Section 1350 Certification of Chief Executive Officer. (13) | |
32.2
|
Section 1350 Certification of Chief Financial Officer. (13) |
(1) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed on April 1, 2009. | |
(2) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed on October 5, 2009. | |
(3) | Incorporated by reference to exhibit of the same number to the Companys Annual Report on Form 10-K for the year ended June 30, 1993. | |
(4) | Incorporated by reference to Exhibit 3.2 to the Companys Form 10-Q dated December 31, 2003, and as further amended by Exhibit 3.3 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2009, incorporated by reference hereto.. | |
(5) | Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007. | |
(6) | Incorporated by reference to Exhibit 3.3 to the Companys Current Report on Form 8-K filed on March 6, 2009. | |
(7) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2010. | |
(8) | Incorporated by reference to Exhibit 3.6 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2010. | |
(9) | Incorporated by reference to exhibit of the same number to the Companys Registration Statement on Form S-1 (File No. 33-53768). | |
(10) | Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008. | |
(11) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2009. | |
(12) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2010. | |
(13) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Trident Microsystems, Inc. has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRIDENT MICROSYSTEMS, INC. (Registrant) |
||||
Dated: August 6, 2010 | By: | /s/ PETE J. MANGAN | ||
Pete J. Mangan | ||||
Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
||||
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Index to Exhibits
Exhibit | Description | |
2.1
|
Purchase Agreement dated March 31, 2009 among Micronas Semiconductor Holding AG, Trident Microsystems, Inc. and Trident Microsystems (Far East) Ltd.(1) | |
2.2
|
Share Exchange Agreement dated October 4, 2009 among Trident Microsystems, Inc., Trident Microsystems (Far East) Ltd., and NXP B.V.(2) | |
3.1
|
Restated Certificate of Incorporation.(3) | |
3.3
|
Amended and Restated Bylaws.(4) | |
3.4
|
Amendment to Article VIII of the Bylaws.(5) | |
3.5
|
Amendments to Article I, Section 2 and Article I, Section 7 of the bylaws.(6) | |
3.6
|
Certificate of Amendment of Restated Certificate of Incorporation of Trident Microsystems, Inc. filed on January 27, 2010.(7) | |
3.7
|
Amended and Restated Certificate of Designation of Series B Preferred Stock (par value $0.001) of Trident Microsystems, Inc., as filed with the Delaware Secretary of State on February 5, 2010.(8) | |
4.1
|
Reference is made to Exhibits 3.1, 3.3, 3.4, 3.5 and 3.6. | |
4.2
|
Specimen Common Stock Certificate.(9) | |
4.3
|
Amended and Restated Rights Agreement between the Company and Mellon Investor Services, LLC, as Rights Agent dated as of July 23, 2008 (including as Exhibit A the Form of Certificate of Amendment of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).(10) | |
4.4
|
First Amendment to Amended and Restated Rights Agreement, dated May 14, 2009.(11) | |
4.5
|
Second Amendment to Amended and Restated Rights Agreement, dated December 11, 2009.(12) | |
31.1
|
Rule 13a 14(a) Certification of Chief Executive Officer. (13) | |
31.2
|
Rule 13a 14(a) Certification of Chief Financial Officer. (13) | |
32.1
|
Section 1350 Certification of Chief Executive Officer. (13) | |
32.2
|
Section 1350 Certification of Chief Financial Officer. (13) |
(1) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed on April 1, 2009. | |
(2) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed on October 5, 2009. | |
(3) | Incorporated by reference to exhibit of the same number to the Companys Annual Report on Form 10-K for the year ended June 30, 1993. | |
(4) | Incorporated by reference to Exhibit 3.2 to the Companys Form 10-Q dated December 31, 2003, and as further amended by Exhibit 3.3 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2009, incorporated by reference hereto.. | |
(5) | Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007. | |
(6) | Incorporated by reference to Exhibit 3.3 to the Companys Current Report on Form 8-K filed on March 6, 2009. |
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(7) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2010. | |
(8) | Incorporated by reference to Exhibit 3.6 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2010. | |
(9) | Incorporated by reference to exhibit of the same number to the Companys Registration Statement on Form S-1 (File No. 33-53768). | |
(10) | Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008. | |
(11) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2009. | |
(12) | Incorporated by reference to exhibit of the same number to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2010. | |
(13) | Filed herewith. |
58