UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal
year Ended December 31, 2010
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OR
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TRANSITION REPORTING PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission File
Number: 0-20784
TRIDENT MICROSYSTEMS,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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77-0156584
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(State or other jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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1170 Kifer Road, Sunnyvale,
California
(Address of principal
executive offices)
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94086-5303
(Zip Code)
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(408) 962-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.001 par value
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
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
As of June 30, 2010, the last business day of the
Registrants most recently completed second fiscal quarter,
the aggregate market value of shares of registrants Common
Stock held by non-affiliates of registrant was approximately
$101,252,215 (based on the closing sale price of the
registrants common stock on that date). Shares of
registrants common stock held by the registrants
executive officers and directors and by each entity that owns 5%
or more of registrants outstanding common stock have been
excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
At February 28, 2011, the number of shares of the
Registrants common stock outstanding was 178,192,826.
DOCUMENTS
INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Companys 2011 Annual
Meeting of Stockholders Part III of this
Form 10-K.
TRIDENT
MICROSYSTEMS, INC.
TABLE OF
CONTENTS
2
FORWARD-LOOKING
STATEMENTS
This Report on
Form 10-K
contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
which provides a safe harbor for statements about
future events, products and future financial performance that
are based on the beliefs of, estimates made by and information
currently available to the management of Trident Microsystems,
Inc. (we, our, Trident or
the Company). The outcome of the events described in
these forward-looking statements is subject to risks and
uncertainties. Actual results and the outcome or timing of
certain events may differ significantly from those projected in
these forward-looking statements due to factors including those
listed under Risk Factors, and from time to time in
our other filings with the Securities and Exchange Commission,
or SEC. For this purpose, statements concerning industry or
market segment outlook; market acceptance of or transition to
new products; revenues, earnings growth, other financial results
and any statements using the terms believe,
expect, expectation,
anticipate, can, should,
would, could, estimate,
appear, based on, may,
intended, potential, are
emerging and possible or similar statements
are forward-looking statements that involve risks and
uncertainties that could cause our actual results and the
outcome and timing of certain events to differ materially from
those projected or managements current expectations. By
making forward-looking statements, we have not assumed any
obligation to, and you should not expect us to, update or revise
those statements because of new information, future events or
otherwise, except as required by law.
PART I
Change in
Fiscal Year End
As previously announced, in 2009, we changed our fiscal year end
to December 31 from June 30. We made this change to better
align our financial reporting period, as well as our annual
planning and budgeting process, with our business cycle. The
change became effective at the end of the quarter ended
December 31, 2009. All references to years,
unless otherwise noted, refer to the
12-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.
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, 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.
3
We operate in one reportable segment: digital media solutions.
During the year ended December 31, 2010, six months ended
December 31, 2009, and years ended June 30, 2009 and
2008, the digital media solutions segment accounted for all of
our revenues, which totaled $557.2 million,
$63.0 million, $75.8 million and $257.9 million,
respectively.
Business
Combinations
On May 14, 2009, we completed our 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, we issued 7.0 million shares of our common
stock and warrants to acquire up to 3.0 million additional
shares of our 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 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, to primarily provide sales liaison, marketing and
engineering services in Europe. TMEU is located in Freiburg,
Germany and TMNM and TMH are located in Nijmegen, The
Netherlands.
On February 8, 2010, we 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, we 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 accordance with
U.S. generally accepted accounting principles, the closing
price on February 8, 2010 was used to value our common
stock. In addition, we issued to NXP four shares of a newly
created Series B Preferred Stock, or the Preferred Shares.
The purchase price and fair value of the consideration
transferred by us was $140.8 million. In connection with
this acquisition, we acquired or established additional
subsidiaries in Asia, India and Europe and established a branch
office in France of an existing European entity. For details of
the acquisition, see Note 13, Business
Combinations, of Notes to Consolidated Financial
Statements.
Industry
Environment and Our Business Strategy
Digital
Television:
A digital television, or DTV, receives digital content and
processes it to display a picture which has far greater
resolution and sharper, more clearly defined images than a
television based on older analog technology. Standard definition
televisions generally contain 480 lines with 720 pixels per
line. High definition television, or (HDTV), sets contain 1280
to 1920 pixels per line and up to 1080 lines. The aspect ratio
of standard definition sets is 4:3, compared to 16:9 and
extending to 21:9 for HDTV. The lines may be displayed using
different techniques, often referred to as interlacing or
alternatively progressive scan.
We have been investing in the DTV market for several years.
During that time, the DTV market has continued to grow. We
believe that this industry remains in a growth phase. The DTV
market has continued to be driven by television picture quality,
realism and connectivity in the home although growth in any
period or in any particular market segments may be affected by
numerous factors, including economic conditions. We believe that
consumers not only want a more visually realistic television
picture display, but also the ability to integrate their DTV,
Internet and entertainment systems into one connected device
that works seamlessly throughout the home.
To date, we continue to invest in developing strong
relationships with top tier OEMs in the TV area such as
Samsung, LG, Sony, Sharp, Philips, Vizio and others. The TV
original design manufacturers, or ODM, business has become an
integrated, important part of the TV OEM business because many
TV OEMs use ODMs in Taiwan and China. Accordingly, we believe
that it is important to have strong relationships among
customers as design and development resources. We have also been
investing in integrating key technologies and intellectual
property, or IP, into a single system on a chip, or SoC. We
believe that the combination of critical DTV technologies and
IP, our unique know-how in enhancing digital image quality, and
our production experience with top-tier TV manufacturers
provides a strategic advantage for Trident in the DTV market.
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Notably, we have developed products that include motion
estimation and motion compensation technology, or MEMC, which
helps to eliminate motion judder, which is most visible when a
camera pans across a wide area. In addition, we have continued
to focus on enhancing our highly integrated solution that adds
Moving Picture Experts Group or MPEG, decoding to image
processing in the form of our high definition digital
television, or
HiDTV®,
product lines. We have focused on increasing our capabilities in
picture quality by implementing use of halo-free algorithms in
our MEMC technology and products and developing internet
software called TWIS (Trident Widget Internet Solution) to
enable connected TV. TWIS allows a cost-effective Internet TV
solution for OEMs and ODMs.
Our acquisition of the FRC, DRX and audio decoder product lines
from Micronas not only provided us with discrete products and an
additional revenue stream, but it also gave us critical
intellectual property necessary to further improve
Tridents SoC and discrete product offerings. The
acquisition also allowed us to improve the quality of our legacy
audio intellectual property, as well as providing new audio
products. The DRX product line acquired from Micronas includes
DVB-T, ATSC and DTMB. Together with our regionalized software
stacks, these products enable customers to implement a worldwide
TV solution with a short development cycle.
Our acquisition of the televisions systems and set-top box
business lines from NXP has also provided us with an additional
revenue stream and critical intellectual property necessary to
further improve Tridents product offerings. See
Note 13, Business Combinations, of Notes to
Consolidated Financial Statements.
Set-top
Box:
The capability to receive and process DTV signals can be
contained in a set-top box, which then drives a television that
is capable of displaying digital content. Digital content is
broadcasted via satellite, cable networks or over the air
(terrestrial broadcast) in multiple regions throughout the world.
Todays set-top box market is characterized by advanced
video services that drive new capabilities such as 3DTV, 3D
graphics user interfaces, personalized multi-screen services,
rich navigation and improved multimedia and Internet TV
experiences. Service providers are competing to deliver these
solutions at the highest quality level, the lowest cost and with
the highest security protection in order to win new and retain
existing subscribers for
pay-TV
services today. At the same time, this market is also
experiencing a rapid transition towards a connected home where
semiconductor solutions are making it possible for consumers to
access their entertainment and content anywhere and at any time
throughout the home.
Through our acquisition of NXPs television and set-top box
lines, we are actively participating in this market. Our set-top
box products include SoCs and discrete components for worldwide
satellite, terrestrial, cable and IPTV networks. We have in our
line of set-top box products, a fully integrated 45nm set-top
box SoC platform, providing an optimized system that reduces the
manufacturer
bill-of-materials
costs and power consumption, enabling an improved home
entertainment experience. Complete reference designs that help
manufacturers reduce cost and speed
time-to-market
are available, and can be bundled with a range of operating
systems, middleware, drivers and development tools.
By integrating NXPs set-top box and digital television
business lines with our legacy products, we have enhanced our
ability to deliver the size and economies of scale necessary to
be successful in the digital home entertainment market, with the
broad product portfolio, IP expertise and operational
infrastructure to support growth. Both the digital TV and
set-top box markets share a significant amount of intellectual
property. Through this acquisition, we believe that we can
further accelerate innovation by leveraging an expanded IP
portfolio, SoC design expertise, competitive cost structure and
deep relationships throughout the TV and set-top box OEM
customer base and ecosystem.
Markets
and Applications
In the year ended December 31, 2010, six months ended
December 31, 2009 and years ended June 30, 2009 and
2008, we principally focused our efforts on continuing
development of leading edge video, audio and demodulator
processing capabilities, which are marketed as discrete
components, and the design, development and marketing of our SoC
products, which integrate our IP as well as licensed IP from
other providers. Our digital media solutions products accounted
for all of our total revenues for the year ended
December 31, 2010, six months
5
ended December 31, 2009 and for the years ended
June 30, 2009 and 2008. We plan to continue developing our
next generation SoC and discrete products for the worldwide DTV
and set-top box markets.
The extension of our product portfolio through the acquisition
of the FRC, DRX and audio decoder product lines from Micronas
allows us to address new markets and develop new technologies
for existing markets. There is synergy between the SoC and
discrete component business. It is possible that new technology,
such as improved picture quality, higher frame rates and higher
resolution will first be introduced in discrete products and
later migrate as proven solutions into the main SoC for TV
applications. A new discrete component is required when a new
standard emerges. For example, in certain parts of the European
Union market, (United Kingdom and Finland), the reception
(demodulation) technology standard changed from DVB-T to DVB-T2,
starting in 2010. The DRX products address the TV market either
as part of a NIM (Network Interface Module) or on the main
processor board. These DRX products are also used in PC TV and
STB applications.
Our audio intellectual property acquired from Micronas supports
the high quality requirements of TV manufacturers through
integration of audio features into our SoC products. In
addition, our new discrete audio products are suitable for
home-audio markets. We are currently offering our discrete audio
products for use in sound-projectors, surround sound, sound bars
and home theater audio systems.
The high level of functional integration and video quality of
our TV SoCs and FRCs enables our customers to have flexibility
and cost advantages in their advanced TV designs. Our video
processor converts both standard and high-definition analog TV
signals into a high-quality progressive-scan video signal
suitable for todays advanced digital televisions. The
HiDTV®
family applies the same concept of functional integration and
video quality excellence to standard-definition and
high-definition digital broadcast signals, as well as internet
content. We expect that the transition to digital broadcasting
will continue, and we believe our future success in large part
depends on our ability to integrate new technologies and have
products that support market volume opportunity on an ongoing
basis.
We currently are shipping SoCs that have been designed using the
45 nanometer process. It provides significant benefits over the
older geometries by enabling lower power consumption, smaller
size, higher yields and higher levels of integration.
Digital
Television Products:
We have been developing products for digital media applications
since 1999 and have focused our strategy around providing our
customers with advanced picture quality independent of signal
input, supporting advanced video technologies such as 3D and
providing superior connectivity technologies. The DTV market in
particular has emerged as a high volume market for our products.
Our DTV products are designed to optimize and enhance video
quality for various display devices, including LCD, plasma and
3D televisions.
System-on-Chip
(SoC) Products for TV
Our SoC family of products provides high levels of functional
integration and video quality, enabling our customers both
flexibility and cost advantages in their advanced TV designs.
Our rich portfolio of IP enables the integration of all required
functions for a given market segment including demodulators,
video decoding and picture quality processing as well as
frame-rate conversion and audio. Our newest SoC products offer
connected TV features that enable TV sets to accept digital
media through a storage device, home network, cable and
satellite, or the Internet. These products also feature support
for a variety of widget engines and applications that enable
consumers to easily use a wide range of content from the
Internet, including data and streaming video, through their TV.
FRC
Our family of frame rate converter products provides superior
solutions for digital display picture quality, removing
disturbing film judder and eliminating motion blur as well as
enhancing color and sharpness. It removes motion blur for
standard and high-definition content by up-converting the
picture frame rate up to 240Hz. It calculates and inserts
additional picture frames based on motion vector estimation and
compensation. This
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eliminates the unpleasant film judder which appears with film
material displayed on a conventional 50Hz or 60Hz Flat Panel TV
and provides a lively and vibrant viewing experience. Our FRCs
also support LED backlight dimming, a leading panel technology
that is important for increasing contrast as well as reducing
overall power consumption of the TV.
DRX
Our DTV demodulator family accommodates most worldwide DTV
transmission standards. It covers DVB-C (Europe and China), ATSC
(North America and Korea) and DVB-T (Europe). The DRX-J (for
North America) and DRX-K (for Europe) devices are a family of
pin-to-pin
compatible demodulators supporting the broadcast standards in
Europe and North America. DRX are unique hybrid demodulators for
analog and digital broadcast, both terrestrial and via cable. We
continue to develop products for new standards like DVB-T2, ISDB
and China Terrestrial.
Audio
Decoder
The MAP-M / MSP-M IC families represent solutions
comprised of all required building blocks to address
high-quality home-audio and TV-audio applications. The MAP-M
combines a powerful digital signal processing, or DSP, for
decoding and post processing with digital interfaces such as
S/PDIF, asynchronous
I2S and
Hi-resolution PWM. On-chip analog I/Os include line, phono, and
microphone inputs as well as D/A converters for line and
amplifier outputs. An integrated
HP-amplifier
completes the system. The MSP-M has the same building blocks as
the MAP-M, but is additionally equipped with a
demodulator/stereo decoder for all analog TV-audio standards
including NIC AM and FM stereo radio. In addition to the
available licensed technologies from BBE, Dolby or SRS and our
own sophisticated meloD Audio Processing,
MAP-M / MSP-M can be easily extended with customer
specific algorithms avoiding the cost for an additional DSP.
Set-top
Box (STB) Products:
Our set-top box
line-up now
features the worlds first fully integrated 45nm STB SoC
platform, providing a family of solutions that deliver advanced
performance, industry leading power management and support for
on-line VOD services. We offer products targeted for the major
markets within set-top box: Satellite, Cable & IPTV
and Terrestrial STB as follows:
Satellite
STB
We offer a full range of chip-set solutions for
pay-TV
operator and
Free-to-air
STBs including DVB-S/DVB-S2/8-PSK demodulators, highly
integrated SoCs and PSTN modem interface ICs. The STB SoC
portfolio covers a broad spectrum of customer needs from very
low cost SD MPEG-2 SoCs to high performance HD H.264 DVR SoCs.
Multiple generations of Trident SoCs have been deployed in
leading operator networks worldwide and support the industry
leading conditional access security systems and middleware
platforms.
Cable &
IPTV STB
We offer a full range of chip-set solutions for cable
operator & IPTV STBs including highly integrated
SoCs. The STB SoC portfolio covers a broad spectrum of customer
needs from very low cost SD MPEG-2 SoCs to high performance HD
H.264 DVR SoCs. We also offer products for
DOCSISR
modems. Multiple generations of Trident SoCs have been deployed
in leading operator networks worldwide and support the industry
leading conditional access security systems and middleware
platforms.
Terrestrial
STB
We offer a full range of chip-set solutions for
Free-to-air &
pay-TV STBs
including DVB-T demodulators and highly integrated SoCs. The STB
SoC portfolio covers a broad spectrum of customer needs from
very low cost SD MPEG-2 SoCs to high performance HD H.264 DVR
SoCs. Multiple generations of Trident SoCs have been deployed in
terrestrial broadcast networks worldwide and support leading
industry middleware platforms.
7
Our STB chip-set solutions are supported with complete system
hardware reference designs and embedded system software.
Manufacturing
Wafer
Fabrication
We have adopted a fabless manufacturing strategy
whereby we contract-out our wafer fabricating needs to qualified
contractors that we believe provide cost, technology or capacity
advantages for specific products. As a result, we have generally
been able to avoid the significant capital investment required
for wafer fabrication facilities and to focus our resources on
product design, quality assurance, marketing and customer
support. During the year ended December 31, 2010, our
manufacturing requirements were principally served by Taiwan
Semiconductor Manufacturing Corporation, or TSMC; United
Microelectronics Corporation, or UMC, NXP and Micronas. During
the year ended December 31, 2009, UMC and Micronas provided
all of our foundry requirements.
Assembly
and Test
We purchase product in wafer form from foundries and contract
with third-party subcontractors and one related party to provide
chip packaging and testing. Our wafer probe testing is conducted
principally by independent wafer probe test subcontractors in
Taiwan. After the completion of the wafer probe tests, the dies
are assembled into packages and tested by our primary
subcontractors, Siliconware Precision Industries Co., Ltd., ASE
and NXP in Taiwan and Micronas in Germany. The availability of
assembly and testing services from these subcontractors could be
materially and adversely affected by the financial conditions of
the subcontractors given the recent global economic environment.
See Risk Factors under Item 1A of this Report
for a more detailed discussion of the risks associated with our
dependence on third party assembly and test subcontractors.
Quality
Assurance
In order to manage the production and back-end operations, we
have maintained personnel closer to our manufacturing and test
subcontractors. Our goal is to increase the quality assurance of
the products while reducing manufacturing cost. To ensure the
integrity of our suppliers quality assurance procedures,
we develop detailed test procedures and test specifications for
each product produced and we require the third-party contractors
to follow those procedures and meet our specifications before
shipping finished products. In general, we have experienced a
relatively low amount of product returns from our customers;
however, our future return experience may vary because our more
advanced, more complex SoC products are more difficult to
manufacture and test. In addition, some of our customers may
subject our more advanced products to more rigid testing
standards than have been applied to our prior products.
Research
and Development
Developing products based on advanced technological concepts is
essential to our ability to compete effectively in the digital
media market. We maintain a team of product research and
development and engineering staff responsible for product design
and engineering. We have conducted substantially all of our
product development in-house and, as of December 31, 2010,
December 31, 2009 and June 30, 2009, our staff of
research and development personnel comprised 1,128, 464, and
517 people, respectively. Research and development
expenditures totaled approximately $175 million,
$59.7 million and $53 million in the year ended
December 31, 2010, year ended December 31, 2009
(unaudited) and the year ended June 30, 2009, respectively.
We believe that the achievement of higher levels of SoC
integration and the timely introduction of new products is
essential to our growth. We have previously invested the largest
component of our engineering resources in our Shanghai, China
facility. Through the acquisitions of the Micronas and NXP
product lines, we also have research and development facilities
in Freiburg, Germany, Eindhoven and Nijmegen, The Netherlands,
and Bangalore and Hyderabad, India. In addition to our
facilities discussed above, we have design centers in Austin,
Texas and Sunnyvale, California, San Diego, California,
Haifa, Israel and Beijing, China.
8
Sales,
Marketing and Distribution
We sell our products primarily to digital television and set-top
box OEMs in South Korea, Japan, Europe and Asia Pacific, either
directly or through supplier channels. We consider these OEMs to
be our customers. Our products are sold through direct sales
efforts, distributors and independent sales representatives.
Historically, a large portion of our revenues have been
generated by sales to a relatively small number of customers.
All of our revenues to date have been denominated in
U.S. dollars or in 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. Our DTV and STB products are marketed around the world.
Our future success depends in large part on the success of our
sales to leading DTV and STB manufacturers. Accordingly, the
focus of our sales and marketing efforts is to increase sales to
the leading DTV and STB manufacturers and OEM channels.
Competitive factors of particular importance to success in such
markets include platform support, product performance and
features, and the integration of functions on a single
integrated circuit chip.
We service our customers primarily through our offices in the
United States, Taiwan, China, Europe, South Korea and Japan. As
digital media is rapidly developing in the United States,
Europe, Japan, South Korea, China, and elsewhere, we expect that
leadership in the digital media industry will also rapidly
change. Our goal is to become a leading supplier to a broad
range of manufacturers in this marketplace and to manufacturers
for other markets as DTV and STB sales increase in those markets.
During the year ended December 31, 2010, six months ended
December 31, 2009, and years ended June 30, 2009 and
2008, nearly all of our revenues were generated through sales to
customers located in Asia and Europe. A small number of
customers have historically accounted for a majority of our
revenues in any quarter. For the year ended December 31,
2010 and six months ended December 31, 2009, sales to our
top three customers represented approximately 40% and 54%, of
our total revenues, respectively. For the years ended
June 30, 2009 and 2008, sales to our top three customers
represented approximately 59% and 76% of our total revenues,
respectively. Sales to any particular customer may fluctuate
significantly from quarter to quarter and have in fact
fluctuated significantly in the past. For additional segment and
geographic information, see Note 14, Geographic
Information and Major Customers, of Notes to Consolidated
Financial Statements.
Backlog
Our sales are primarily made pursuant to standard purchase
orders and not pursuant to long term agreements specifying
future quantities or delivery dates. Also, we recognize product
revenues on sales made to our distributor channel mostly on a
deferred revenue basis and this channel represents approximately
27% of our revenues. Backlog comprised of orders from
distributors is not directly indicative of our near term
revenues. Backlog is influenced by several factors including
market demand, pricing and customer order patterns in reaction
to product lead times. The semiconductor industry is
characterized by short lead time orders and quick delivery
schedules. The quantity of products purchased by our customers
as well as shipment schedules are subject to revisions that
reflect changes in both the customers requirements and in
manufacturing availability. Backlog quantities and shipment
schedules under outstanding purchase orders are frequently
revised to reflect changes in customer needs, and agreements
calling for the sale of specific quantities are either
contractually subject to quantity revisions or, as a matter of
industry practice, are sometimes not enforced. Therefore, a
significant portion of our order backlog may be cancellable and
has in fact been cancelled in the past due to changes in
customer needs.
For these reasons, in light of industry practice and this
experience, we do not believe that backlog as of any particular
date is indicative of future results.
Seasonality
Our products largely serve the consumer electronics market.
Typically we experience slower sales of our TV products in the
first calendar quarter, and the strongest sales of TV products
in the third calendar quarter. There is no
9
apparent seasonal pattern in demand for our set-top box
products. The impact of seasonality is not of a consistent
magnitude year to year, but as a general rule it is
directionally consistent.
Competition
The global digital media market and related industries are
highly competitive and characterized by rapid technological
change. Our ability to compete depends primarily on our ability
to commercialize our technology, continually improve our
products and develop new products that meet constantly evolving
customer requirements. We expect competition to continue. We
believe that the principal factors upon which competitors
compete in our markets include, but are not limited to:
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customer interface and support
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time-to-market;
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system cost;
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product capabilities;
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price;
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product quality; and
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intellectual property.
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We compete with a number of major domestic and international
suppliers of integrated circuits and related applications in the
digital media market. In TV, our principal competitors are
captive solutions from large TV OEMs as well as merchant
solutions from Broadcom Corporation, MediaTek Inc., MStar
Semiconductor, NEC Corporation, Novatek, STMicroelectronics and
Zoran Corporation. In set-top box, our principal competitors are
Broadcom and STMicroelectronics. This competition has resulted
and will continue to result in declining average selling prices
for a given level of functionality and performance as well as
requirements for greater functionality, performance, and
integration at various price points. In our target markets, we
also may face competition from newly established competitors and
suppliers of products based on new or emerging technologies. We
also expect to encounter further consolidation in the market in
which we compete.
Many of our current competitors have greater name recognition,
larger customer bases and significantly greater financial, sales
and marketing, manufacturing, distribution, technical and other
resources than we do. Consequently, these competitors may be
able to adapt more quickly to new or emerging technologies and
changes in customer requirements or to devote greater resources
to the promotion and sale of their products. In addition,
competitors may develop technologies that more effectively
address our target market with products that offer enhanced
features, lower power requirements or lower costs. Increased
competition could result in pricing pressures, decreased gross
margins and loss of market share and may materially and
adversely affect our business, financial condition and results
of operations.
Intellectual
Property
Our success and future revenue growth depend, in part, on our
ability to protect our intellectual property. We attempt to
protect our trade secrets and other proprietary information
primarily through agreements with customers and suppliers,
proprietary information agreements with employees and
consultants and other security measures. Although we intend to
protect our rights vigorously, there can be no assurance that
these measures will be successful. As of December 31, 2010,
we had over 340 U.S. patents and 1100 patents in foreign
jurisdictions, and 750 patent applications pending in different
countries, including patent and patent applications acquired in
connection with the May 2009 and February 2010 acquisitions of
assets and intellectual property from Micronas and NXP,
respectively. The patents and applications cover various
technologies, such as motion estimation/motion compensation,
video decoding, demodulators and conditional access security, as
well as advanced 45nm SoC technology. However, there can be no
assurance that third parties will not independently develop
similar or competing technology or design around any patents
that may be issued to us.
10
We may from time to time enter into license agreements with
third parties permitting them to practice certain of our
patents. For example, in December 2010, we entered into a
license agreement with MStar Semiconductors, Inc. relating to a
part of our motion estimation/motion compensation patent
portfolio. The licensed patents are directed to the display of
high definition and 3D images for high-quality televisions and
other video enabled LCD display devices.
The semiconductor industry is characterized by frequent
litigation regarding patent and other intellectual property
rights. From time to time, we have received notices claiming
that we or our customers have infringed third-party patents or
other intellectual property rights. To date, licenses generally
have been available to us where third-party technology was
necessary or useful for the development or production of our
products. There can be no assurance that third parties will not
assert additional claims against us with respect to existing or
future products or that licenses will be available on reasonable
terms, or at all, with respect to any third-party technology.
Any litigation to determine the validity of any third-party
claims could result in significant expense to us and divert the
efforts of our technical and management personnel, whether or
not such litigation is determined in our favor. In the event of
an adverse result in any such litigation, we could be required
to expend significant resources to develop non-infringing
technology or to obtain licenses to the technology that is the
subject of the litigation. There can be no assurance that we
will be successful in such development or that any such licenses
would be available. Patent disputes in the semiconductor
industry have often been settled through cross licensing
arrangements. We may not be able to settle any alleged patent
infringement claim through a cross-licensing arrangement. In the
event any third party made a valid claim against us, or our
customers, and a license was not made available to us on
commercially reasonable terms, we would be adversely affected.
In addition, the laws of certain countries in which our products
have been or may be developed, manufactured or sold, including
China, Taiwan and South Korea, may not protect our products and
intellectual property rights to the same extent as the laws of
the U.S.
We may in the future initiate claims or proceedings against
third parties for infringement of our proprietary rights to
determine the scope and validity of our proprietary rights. Any
such claims could be time-consuming, result in costly litigation
and diversion of technical and management personnel or require
us to develop non-infringing technology or enter into royalty or
licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our
failure or inability to develop non-infringing technology or
license the proprietary rights on a timely basis, our business,
operating results and financial condition could be materially
adversely affected.
Employees
As of December 31, 2010, we had 1,522 full-time
employees, including 1,128 individuals engaged in research and
development, 109 engaged in finance, legal, and general
administration, 159 engaged in sales and marketing, and 126
engaged in manufacturing operations. Our future success will
depend in great part on our ability to continue to attract,
retain and motivate highly qualified technical, marketing,
engineering and management personnel, and to successfully
integrate the new employees who joined us in connection with the
NXP Transaction. Outside of Europe, where certain of our
employees are represented by employee works councils, our labor
relations with employees are generally not subject to collective
bargaining agreements. We have never experienced a work stoppage
and we believe that our employee relations are good.
Set forth below and elsewhere in this Report on
Form 10-K
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.
11
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. The integration process has resulted in the loss of
some key employees and other senior management, and could 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:
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failure to effectively coordinate sales and marketing efforts to
communicate our product capabilities and product roadmap of our
combined business lines;
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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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retention of key Trident employees and integration of key
employees acquired from NXP or Micronas;
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failure to successfully integrate and harmonize financial
systems required to support our larger operations, including the
development and implementation of a global enterprise resource
planning system designed to integrate legacy systems from
Trident and NXP.
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retention of customers and strategic partners of products that
we have acquired with each acquisition;
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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;
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effective coordination of the diversion of managements
attention from business matters to integration issues;
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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;
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effective anticipation of the market needs and achievement of
market acceptance of our products and services utilizing the
technology acquired in each acquisition;
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the transition to a common information technology environment at
all facilities acquired in each acquisition;
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combination of our business culture with the business culture
previously operated by NXP or Micronas;
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compliance with local laws as we take steps to integrate and
rationalize operations in diverse geographic locations; and
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difficulties in creating uniform standards, controls (including
internal control over financial reporting), procedures, policies
and information systems.
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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.
We
depend on a small number of large customers for a significant
portion of our sales. The loss of a significant design win, loss
of a key customer or a significant reduction in or cancellation
of sales to a key customer could significantly reduce our
revenues and negatively impact our results of
operations.
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 year ended December 31, 2010, for
instance, 40% of our revenues were from sales to three 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. A
significant portion of our revenue in any period may also depend
on a single product design win with a particular customer. As a
result, the loss of any such key design win or any significant
delay in the ramp of volume productions of the customers
products into which our product is designed could materially and
adversely affect our financial condition and results of
operations. Our results in the fourth quarter of fiscal 2010
were negatively impacted, in part, due to reductions,
cancellations or delays in orders from key customers.
We may be unable to replace 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:
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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;
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our customers may purchase integrated circuits from our
competitors;
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our customers may develop and manufacture their own
solutions; or
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our customers may discontinue sales or lose market share in the
markets for which they purchase our products.
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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 Micronas and NXP Transactions and the
reorganization of senior management during 2010, we appointed an
interim Chief Executive Officer following the January 2011
resignations of our former Chief Executive Officer and former
President. Our senior management team, which was reorganized
following the NXP Transaction, has only worked together or a
short period of time. During 2010 we reorganized our Board of
Directors, and now have eight members of the Board of Directors,
four of whom joined following completion of the NXP Transaction,
and one vacancy. 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.
13
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 as we develop and begin to execute our
operational and product development strategies. 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 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. During 2010, we experienced, and may
continue to experience, difficulty in hiring and retaining
qualified engineering personnel in Shanghai, China, Austin,
Texas and Taiwan. If we are not successful in attracting,
assimilating or retaining qualified personnel to fulfill our
current or future needs, our business may be harmed.
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 U.S., Europe, Asia, and other locations, which
have increased the difficulty of managing our operations. Prior
to 2010, we did not have a significant number of employees in
Europe, particularly Germany and The Netherlands, and had 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.
Our
reliance upon a very small number of foundries for the
manufacture, assembly and testing of our integrated circuits
could make it difficult to maintain product flow and negatively
affect our customer relationships, revenues and operating
margins.
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 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
14
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, during 2010 we
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. As a result of these conditions, our foundry
subcontractors could experience financial difficulties that
would impede their ability to operate effectively. 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 product revenues, cost of product revenues
and results of operations would 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 NXP or Micronas or at our assembly or
testing houses, delays in additional production at existing
foundries or in 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.
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, Novatek,
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.
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.
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
15
demand of some of our customers for certain products due to
shortages in wafer supply that occurred during 2010. The lack of
a readily available second source could cause significant delays
in shipping products, or even shortages which could damage our
relationships with current and prospective customers and harm
our sales and financial results.
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.
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.
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.
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 will create an obligation to
purchase the inventory in excess of expected demand. If such
excess inventory becomes obsolete or we cannot sell or use it,
our operating results could be harmed. 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.
16
Our
success depends upon the digital media market and we must
continue to develop new products and to enhance our existing
products, including transitioning to smaller geometry process
technologies.
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 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, using smaller geometry process technologies, in
order to permit enhanced systems at the same or lower cost.
Our failure to predict market needs accurately or to timely
develop new competitively priced products or product
enhancements that incorporate new industry standards and
technologies, including integrated circuits with increasing
levels of integration and new features, using smaller geometry
process technologies, 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.
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.
Our
ability to borrow under our credit facility and the financial
covenants in the facility may adversely affect our financial
position, results of operations and liquidity.
Our revolving credit facility agreement with Bank of America
contains financial and other covenants that must be met for us
to remain in compliance with the agreement, including a covenant
which would initially preclude us from accessing funds under the
credit facility in excess of our cash and equivalent resources.
The agreement also contains customary restrictions, requirements
and other limitations, including our ability to incur additional
indebtedness, grant liens, make capital expenditures, merge or
consolidate, dispose of assets, pay dividends or make
distributions, change the method of accounting, make investments
and enter into certain transactions with affiliates, in each
case subject to materiality and other qualifications, baskets
and exceptions customary for a credit facility of this size and
type. The agreement also contains a financial covenant that
requires us to maintain a specified fixed charge coverage ratio
if liquidity or availability under the agreement drops below
certain thresholds.
We may borrow under the agreement based upon a certain
percentage of our eligible accounts receivable outstanding,
subject to eligibility requirements, limitations and covenants.
As of March 4, 2011 there are no borrowings outstanding
under the agreement. However, if we are not in compliance in the
future with covenants under the agreement and are therefore
unable to borrow under the credit facility or to refinance
existing indebtedness, we may be prevented from using the
agreement to fund our working capital needs.
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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, which could adversely impact our operating
results.
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, who build display
devices and other products based on specifications provided by
branded suppliers. We have a more traditional distributor
relationship with our remaining distributors, one that involves
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, production forecasts and sales to their end
user customers. Our sales are made on the basis of customer
purchase orders rather than long-term purchase commitments. Our
distributors and customers may cancel or defer orders at any
time, but we must order wafer inventory from our foundries
several months in advance. This requires us to manage a more
complex supply chain as well as 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 lead to
significant charges for obsolete inventory or cause us to forego
significant revenue opportunities, lose market share, damage
customer relationships and accurately report revenue derived
from distributor sales, any of which could adversely impact our
operating results.
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.
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.
Further, as a result of the departure of our prior CEO in
January 2011, directors appointed by NXP currently constitute
four of the eight members on our Board. 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.
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
2010 was uncertain, and this uncertainty is expected to continue
during 2011. 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 during calendar 2011.
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, reducing our workforce and implementing other cost
saving initiatives.
We recorded restructuring charges of $0.8 million in the
quarter ended December 31, 2008, and $1.6 million in
the quarter ended September 30, 2009. In connection with
the NXP Transaction, we implemented further restructurings or
work force reductions that took place during 2010. During the
year ended December 31, 2010, we recorded
$28.3 million of restructuring expenses related to
severance and related employee benefits. Restructuring charges
are recorded under Restructuring charges in our
Consolidated Statement of Operations.
Prior to the close of the NXP Transaction, NXP initiated a
restructuring plan pursuant to which the employment of some NXP
employees was terminated upon the close of the NXP Transaction.
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 $28.3 million for the year ended
December 31, 2010. The $3.6 million of severance cost
was paid by NXP after the close of the NXP transaction,
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.
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 year ended June 30, 2006 filed on August 7,
2007, we conducted an investigation into our
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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 the 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 Item 3, 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.
Plaintiffs in all cases alleged 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
appointed a Special Litigation Committee, or SLC, 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.
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. The details of
that partial settlement, which disposed of the federal
litigation as to all individual defendants other than
Mr. Lin and as to the consolidated state court action in
its entirety, were previously disclosed in our
Form 8-K
filed on February 10, 2010. 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.
On February 15, 2011, we entered into a Stipulation of
Settlement to resolve the federal litigation in its entirety, or
Proposed Settlement, and on February 17, 2011, the federal
court preliminarily approved the Proposed Settlement. A hearing
for consideration of final approval of the Proposed Settlement
has been scheduled for April 15, 2011. Final approval,
without appeal, of the Proposed Settlement would satisfy the
contingency in the settlement of Mr. Lins claims
against us. We cannot predict whether the federal court will
order the final approval of the Proposed Settlement and, if it
does, whether such decision will be successfully appealed. As a
result, we cannot predict whether Mr. Lins
counterclaims against us in the federal litigation 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 and relating to the Proposed Settlement, including
expenses for the reimbursement of certain legal fees of at least
Mr. Lin 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 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 intangible assets
for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. 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
Consolidated Financial Statements during the period in which any
impairment of our 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
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fair value estimates on assumptions believed to be reasonable,
but which are inherently uncertain. For example, in the year
ended December 31, 2010, we recorded a $2.5 million
impairment charge for technology licenses and prepaid royalties.
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 from sales to
manufacturers in the consumer electronics industry. Demand from
these customers fluctuates significantly by year and by quarter,
driven by consumer preferences, the development of new
technologies and brand performance. Downturns in this industry
can cause abrupt fluctuations in product demand, production
over-capacity and accelerated average selling price declines.
The success of our products depends on the success of the end
customers for these products in the market place. The current
global downturn makes it difficult for our customers, our
suppliers and us to accurately forecast and plan future business
activities. Our 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.
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:
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our ability to obtain the anticipated benefits of each of the
NXP Transaction and the Micronas Transaction;
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our ability to develop, introduce, ship and support new products
and product enhancements, especially our newer SoC products, and
to manage product transitions;
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new product introductions by our competitors;
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delayed new product introductions;
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uncertain demand in the digital media markets in which we have
limited experience;
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our ability to achieve required product cost reductions;
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the mix of products sold and the mix of distribution channels
through which they are sold;
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fluctuations in demand for our products, including seasonality;
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unexpected product returns or the cancellation or rescheduling
of significant orders;
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our ability to attain and maintain production volumes and
quality levels for our products;
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unfavorable responses to new products;
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adverse economic conditions, particularly in the United States
and Asia; and
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unexpected costs associated with our investigation of our
historical stock option grant practices and related issues, and
any related litigation or regulatory actions.
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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
21
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 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.
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 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 video decoding 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
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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 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.
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, changes in our senior management, unfavorable
conditions in the digital media market, failure to obtain design
wins, industry consolidation, wafer supply constraints, and any
litigation or regulatory actions arising in connection with
these matters, 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 publicly traded securities, particularly those of
high-technology companies, could cause the price of our stock to
fluctuate from time to time.
Our
operating results may be adversely affected by the European
financial restructuring and related global economic
conditions.
The current 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 U.S. or other key
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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
U.S.
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:
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exchange rate variations, tariffs, import/export restrictions
and other trade barriers;
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potential adverse tax consequences;
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challenges in effectively managing distributors or
representatives to maximize sales;
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difficulties in collecting accounts receivable;
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political and economic instability, civil unrest, war or
terrorist activities that impact international commerce;
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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 U.S.; and
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unexpected changes in regulatory requirements.
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Our international sales for the year ended December 31,
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.
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.
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.
24
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Information regarding our principal properties as of
December 31, 2010 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
|
Location
|
|
Type
|
|
Principal Use
|
|
Footage
|
|
Ownership
|
|
Expiration
|
|
Sunnyvale, CA (Headquarters)
|
|
Office
|
|
Principal Executive Offices, Research, Engineering, Marketing,
and Sales and General Administration
|
|
|
57,642
|
|
|
Lease
|
|
|
3/31/2015
|
|
Austin, TX
|
|
Office
|
|
General and Administrative, Research & Engineering
|
|
|
71,003
|
|
|
Lease
|
|
|
Various1
|
|
Chicago, IL
|
|
Office
|
|
Sales and administration
|
|
|
6,126
|
|
|
Lease
|
|
|
8/31/2011
|
|
Taipei, Taiwan
|
|
Office
|
|
General and Administration, Operation,
|
|
|
20,436
|
|
|
Lease
|
|
|
8/31/2011
|
|
|
|
|
|
Sales Administration, Research, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
|
|
|
|
|
|
|
|
Kaohsiung, Taiwan
|
|
Office
|
|
Operations
|
|
|
10,600
|
|
|
Lease
|
|
|
5/31/2013
|
|
Tokyo, Japan
|
|
Office
|
|
Sales Administration
|
|
|
4,852
|
|
|
Lease
|
|
|
5/31/2013
|
|
Seoul, Korea
|
|
Office
|
|
Sales Administration
|
|
|
5,226
|
|
|
Lease
|
|
|
1/31/2012
|
|
Beijing, China
|
|
Office
|
|
Research and Engineering
|
|
|
5,371
|
|
|
Lease
|
|
|
6/15/2013
|
|
Hong Kong, China
|
|
Office and warehouse
|
|
General and Administration, Sales Administration, and Warehouse
|
|
|
5,216
|
|
|
Lease
|
|
|
3/31/2012
|
|
Shanghai, China
|
|
Office
|
|
General and Administration, Research, Engineering, and Sales
Administration
|
|
|
107,639
|
|
|
Owned
|
|
|
|
|
Haifa, Israel
|
|
Office
|
|
Research and Engineering
|
|
|
17,222
|
|
|
Lease
|
|
|
6/30/2012
|
|
Hyderabad, India
|
|
Office
|
|
Research and Engineering
|
|
|
24,700
|
|
|
Lease
|
|
|
1/31/2014
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
|
Location
|
|
Type
|
|
Principal Use
|
|
Footage
|
|
Ownership
|
|
Expiration
|
|
Belfast, Ireland
|
|
Office
|
|
Research and Engineering
|
|
|
5,270
|
|
|
Lease
|
|
|
8/31/2015
|
|
Freiburg, Germany
|
|
Office
|
|
Research and Engineering
|
|
|
17,812
|
|
|
Lease
|
|
|
8/31/2019
|
|
Eindhoven, The Netherlands
|
|
Office
|
|
Sales, Research and Engineering
|
|
|
22,550
|
|
|
Lease
|
|
|
3/31/2014
|
|
Nijmegen, The Netherlands
|
|
Office
|
|
Research and Engineering
|
|
|
10,370
|
|
|
Lease
|
|
|
12/31/2014
|
|
|
|
|
(1) |
|
We have leases for a 35,252 and 35,751 square foot office
space that expire October 31, 2012 and June 30, 2016,
respectively. |
As of December 31, 2010, we owned or leased a total of
approximately 445,243 square feet of space worldwide
including the locations listed above and office space for
smaller sales and service offices in several locations
throughout the world. Our operating leases expire at various
times through August 31, 2019. Additional information
regarding these leases is incorporated herein by reference from
Note 6, Commitments and Contingencies of the
Notes to Consolidated Financial Statements. We believe our
properties are adequately maintained and suitable for our
intended use.
|
|
ITEM 3.
|
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 video decoding products
infringe a patent relating generally to compressing and
decompressing digital video. The complaint seeks a permanent
injunction against Trident 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.
Shareholder
Derivative Litigation
Trident has been named as a nominal defendant in several
purported 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.
Plaintiffs in all cases alleged 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 its financial statements); and that as a result those
officers and directors are liable to us. No particular amount of
damages has been alleged, and by the nature of the lawsuit no
damages will be alleged against us. Our Board of Directors
appointed a Special Litigation Committee (SLC)
composed solely of independent directors to review and manage
any claims that we may have relating to the stock option grant
practices investigated by the Special Committee. The scope of
the SLCs authority includes the claims asserted in the
derivative actions.
On March 26, 2010, the federal court approved settlements
with all defendants other than Frank Lin, our former CEO. The
details of that partial settlement, which disposed of the
federal litigation as to all individual defendants other than
Mr. Lin and as to the consolidated state court action in
its entirety, were previously disclosed in our
Form 8-K
filed on February 10, 2010.
On June 8, 2010, Mr. Lin filed a counterclaim against
Trident. In that counterclaim, Mr. Lin sought recovery of
payments he claimed he was promised during the negotiations
surrounding his eventual termination and also losses he claimed
he has suffered because he was not permitted to exercise his
Trident stock options between January 2007 and March 2008. On
February 11, 2011, we entered into a settlement agreement
with Mr. Lin regarding his counterclaims, contingent on the
settlement of the derivative litigation pursuant to certain
terms.
26
On February 15, 2011, we entered into a Stipulation of
Settlement to resolve the federal litigation in its entirety, or
Proposed Settlement, and on February 17, 2011, the federal
court preliminarily approved the Proposed Settlement. A hearing
for consideration of final approval of the Proposed Settlement
has been scheduled for April 15, 2011 at 9:00 a.m. in
Courtroom 3 of the United States District Court in
San Jose, California. Final approval, without appeal, of
the Proposed Settlement would satisfy the contingency in the
settlement of Mr. Lins counterclaims against us. We
cannot predict whether the federal court will order the final
approval of the Proposed Settlement and, if it does, whether
such decision will be appealed. As a result, we cannot predict
whether Mr. Lins counterclaims against us in the
federal litigation 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 and related to the Proposed
Settlement, including expenses for the reimbursement of certain
legal fees of at least Mr. Lin 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. . Pursuant to
the same judgment, we received a payment of $817,509 from
Mr. Lin, representing $650,772 in disgorged profits gained
as a result of conduct alleged by the SEC in its civil complaint
against him, together with prejudgment interest thereon of
$166,737. 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 2006 Plan
S-8 in order
to exercise their vested options. During the three months 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 three months 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
27
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) the written
permission of us.
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 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 year then ended.
Following the March 2010 partial settlement of the derivative
litigation, which included a release of claims by our two former
non-employee directors, we reduced the contingent liability by
$1.5 million. However, because the derivative litigation is
still pending with respect to Mr. Lin, who may seek
compensation from us relating to the exercise of his fully
vested stock options in the event that the Proposed Settlement
entered into during February 2011 is either not finally approved
by the federal court or successfully appealed thereafter; a
$2.8 million contingent liability remained in Accrued
expenses and other current liabilities in the Consolidated
Balance Sheet as of December 31, 2010.
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 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 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
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.
Commercial
Litigation
In June 2010, Exatel Visual Systems, Ltd (Exatel)
filed a complaint against Trident and NXP Semiconductors USA,
Inc. (NXP), in Superior Court for the State of
California,
No. 1-10-CV-174333,
alleging the following five counts: (1) breach of contract,
(2) breach of implied covenant of good faith and fair
dealing, (3) fraud by misrepresentation and concealment,
(4) negligent misrepresentation, and (5) breach of
fiduciary duty. The complaint arises from a series of alleged
transactions between Exatel and NXPs predecessor, Conexant
Systems, Inc. pertaining to a joint product development project
they undertook commencing in 2007. Trident and NXP have each
tendered an indemnity claim to the other for damages and fees
arising out of the lawsuit pursuant to a contractual indemnity
agreement between them. Both have refused. We have filed a
demurrer seeking to dismiss the lawsuit primarily on the grounds
that we are not a party to any contract with Exatel. Prior to
the hearing on demurrer, Exatel dismissed NXP without prejudice
from the lawsuit and agreed to arbitration after NXP filed a
motion to compel arbitration for the claims against it pursuant
to contractual arbitration provisions within the relevant
contracts. On December 7, 2010, the court sustained our
demurrer as to all causes of action, with leave to amend. Exatel
has filed an amended complaint. We will demur again, with the
hearing set for June 23, 2011. 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.
28
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.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information and Holders
Our common stock has been traded on the NASDAQ Global Select
Market since our initial public offering on December 16,
1992 under the symbol TRID. The following table sets
forth, for the periods indicated, the quarterly high and low
sales prices for our common stock as reported by NASDAQ:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
For the year ended December 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
2.27
|
|
|
$
|
1.41
|
|
Second Quarter
|
|
$
|
2.03
|
|
|
$
|
1.35
|
|
Third Quarter
|
|
$
|
1.85
|
|
|
$
|
1.27
|
|
Fourth Quarter
|
|
$
|
2.56
|
|
|
$
|
1.63
|
|
Six Months Ended December 31, 2009
|
|
$
|
3.10
|
|
|
$
|
1.60
|
|
Three Months Ended September 30, 2009
|
|
$
|
3.10
|
|
|
$
|
1.60
|
|
Three Months Ended December 31, 2009
|
|
$
|
3.09
|
|
|
$
|
1.70
|
|
For the year ended June 30, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.31
|
|
|
$
|
2.26
|
|
Second Quarter
|
|
$
|
2.34
|
|
|
$
|
1.30
|
|
Third Quarter
|
|
$
|
2.24
|
|
|
$
|
1.24
|
|
Fourth Quarter
|
|
$
|
2.11
|
|
|
$
|
1.34
|
|
For the year ended June 30, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
19.49
|
|
|
$
|
13.52
|
|
Second Quarter
|
|
$
|
17.05
|
|
|
$
|
5.35
|
|
Third Quarter
|
|
$
|
6.57
|
|
|
$
|
4.62
|
|
Fourth Quarter
|
|
$
|
5.37
|
|
|
$
|
3.63
|
|
Approximate
Number of Stockholders
As of December 31, 2010 and December 31, 2009, there
were 70 and 166 registered holders of record of our common
stock, respectively. The number of beneficial stockholders of
our shares is greater than the number of stockholders of record.
Dividends
Our present policy is to retain earnings, if any, to finance
future growth. We have never paid cash dividends and have no
present intention to pay cash dividends.
Issuer
Repurchases of Equity Securities
We did not repurchase any of our equity securities during the
year ended December 31, 2010. However, from time to time we
evaluate whether to repurchase our equity securities.
29
Stock
Performance Graphs and Cumulative Total Return
The following graph compares the cumulative 5 year total
return attained by shareholders of our common stock relative to
the cumulative total returns of the NASDAQ Composite Index and
the Philadelphia Semiconductor Index for the year ended
December 31, 2010 and each of the last five years, assuming
an investment of $100 at the beginning of such period and the
reinvestment of any dividends. The comparisons in the graphs
below are based upon historical data and are not indicative of,
nor intended to forecast, future performance of our common stock.
COMPARISON
OF 5 YEARS CUMULATIVE RETURN
Among Trident Microsystems, Inc., The NASDAQ Composite Index
and
The Philadelphia Semiconductor Sector Index
|
|
|
|
|
Assumes $100 invested on December 31, 2005 in stock or
index-including reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/05
|
|
12/06
|
|
12/07
|
|
12/08
|
|
12/09
|
|
12/10
|
TRID
|
|
|
100.00
|
|
|
|
101.00
|
|
|
|
36.44
|
|
|
|
10.50
|
|
|
|
10.33
|
|
|
|
9.89
|
|
Philadelphia Semiconductor Sector Index
|
|
|
100.00
|
|
|
|
97.40
|
|
|
|
85.10
|
|
|
|
44.25
|
|
|
|
75.06
|
|
|
|
85.89
|
|
NASDAQ Composite Index
|
|
|
100.00
|
|
|
|
109.52
|
|
|
|
120.27
|
|
|
|
71.51
|
|
|
|
102.89
|
|
|
|
120.29
|
|
30
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Change in
Fiscal Year End
The following selected financial data should be read in
conjunction with our financial statements and the notes thereto,
and with Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations.
The consolidated statements of operations data and consolidated
balance sheet data have been derived from and should be read in
conjunction with our audited consolidated financial statements
and the notes thereto included elsewhere in this Annual Report
on
Form 10-K.
As previously announced, in 2009, we changed our fiscal year end
to December 31 from June 30. We made this change to better
align our financial reporting period, as well as our annual
planning and budgeting process, with our business cycle. The
change became effective at the end of the quarter ended
December 31, 2009. All references to years,
unless otherwise noted, refer to the
12-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.
The following tables include selected consolidated summary
financial data for the year ended December 31, 2010 and
each of the last five years.
TRIDENT
MICROSYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
Years Ended June 30,
|
|
|
2010(1)
|
|
2009
|
|
2009(2)
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In millions, except per share amounts)
|
|
Summary of Operations :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
557.2
|
|
|
$
|
63.0
|
|
|
$
|
75.8
|
|
|
$
|
257.9
|
|
|
$
|
270.8
|
|
|
$
|
171.4
|
|
Income (loss) from operations
|
|
|
(172.7
|
)
|
|
|
(38.3
|
)
|
|
|
(62.2
|
)
|
|
|
18.8
|
|
|
|
40.1
|
|
|
|
28.4
|
|
Net income (loss)
|
|
|
(128.9
|
)
|
|
|
(40.5
|
)
|
|
|
(70.2
|
)
|
|
|
10.2
|
|
|
|
30.1
|
|
|
|
26.2
|
|
Net income (loss) per share Basic
|
|
|
(0.79
|
)
|
|
|
(0.58
|
)
|
|
|
(1.12
|
)
|
|
|
0.17
|
|
|
|
0.52
|
|
|
|
0.48
|
|
Net income (loss) per share Diluted
|
|
|
(0.79
|
)
|
|
|
(0.58
|
)
|
|
|
(1.12
|
)
|
|
|
0.16
|
|
|
|
0.48
|
|
|
|
0.42
|
|
Financial Position at Period End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
93.2
|
|
|
$
|
148.0
|
|
|
$
|
187.9
|
|
|
$
|
240.0
|
|
|
$
|
199.3
|
|
|
$
|
152.7
|
|
Working capital
|
|
|
109.1
|
|
|
|
124.4
|
|
|
|
164.9
|
|
|
|
215.9
|
|
|
|
158.3
|
|
|
|
125.3
|
|
Total assets
|
|
|
370.9
|
|
|
|
228.5
|
|
|
|
263.3
|
|
|
|
309.3
|
|
|
|
283.9
|
|
|
|
207.2
|
|
Stockholders equity
|
|
|
224.3
|
|
|
|
156.1
|
|
|
|
192.9
|
|
|
|
237.3
|
|
|
|
201.8
|
|
|
|
153.7
|
|
|
|
|
(1) |
|
On February 8, 2010, we completed the acquisition of the
television systems and set-top box business lines from NXP. |
|
(2) |
|
On May 14, 2009, we completed the acquisition of selected
assets of the FRC, DRX and audio decoder product lines of the
Consumer Division of Micronas. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
This section and other parts of this Report on
Form 10-K
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
31
statements. Factors that might cause such differences
include, but are not limited to, those discussed in
Item 1A Risk Factors above. The
following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in
Item 8 of this report. We assume no obligation to revise or
update any forward-looking statements for any reason, except as
required by law.
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and the
notes to consolidated financial statements included elsewhere in
this
Form 10-K.
This Report on
Form 10-K
contains forward looking statements that involve
risks and uncertainties. See the disclosure regarding
Forward-Looking Statements on page 3 of this
Form 10-K.
All references to years, unless otherwise noted,
refer to the
12-month
calendar year. For example a reference to 2010 or
fiscal year 2010 means the
12-month
period that ended on December 31, 2010.
Change in
Fiscal Year End
As previously announced, on November 16, 2009, we changed
our fiscal year end to December 31 from June 30. We made
this change to better align our financial reporting period, as
well as our annual planning and budgeting process, with our
business cycle. This
Form 10-K
reports our financial results for the year ended
December 31, 2010. Our financial results for the comparable
year ended December 31, 2009 have not been audited. All
references to years, unless otherwise noted, refer
to the
12-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.
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
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 managing digital content from multiple sources and
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, 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 any time throughout the home.
Although our revenues grew substantially in 2010, revenues in
the fourth quarter ended December 31, 2010 declined
33 percent from the prior sequential quarter. Our
TV-related revenues typically decline sequentially due to
seasonal factors in the calendar fourth and first quarters of
every year. However our revenue decline in the fourth quarter
exceeded the normal seasonal pattern. We believe that capacity
constraints at our foundry partners generally led to
over-ordering earlier in 2010 as our customers had high
expectations for consumer demand for higher-end TVs, including
TVs featuring
3-D
technology. When this consumer demand did not materialize as
expected, our FRC and SOC business turned down dramatically in
Q4. In addition, we lost market share with our largest customer
as a result of the capacity constraints in 2010, which led to
lower revenues from this customer in the fourth quarter of 2010
and will result in significantly reduced revenues from this
customer in 2011. Finally, in the fourth quarter of 2010, we
experienced weak sales of our standard definition set-top box
products that are sold in the non-cable and non-satellite
operator channels. We expect these factors as well as slower
than expected program
ramp-up and
a weaker retail segment for our set-top box products to
negatively impact our financial results in the first quarter
ending March 31, 2011 and in general we believe that the
first half of calendar 2011 will be challenging.
We ended the year ended December 31, 2010 with cash and
cash equivalents of $93.2 million, consisting of cash and
money market funds invested in U.S. treasuries. Our primary
source of liquidity is our current cash balance and we expect a
significant decline in our cash balance during the first half of
calendar 2011. On February 9, 2011, we entered into a
$40 million revolving line of credit agreement with Bank of
America, N.A., to finance working capital. The new credit
facility matures in February 2014. However, this credit facility
has restrictive financial
32
covenants which would initially preclude us from accessing funds
under the credit facility in excess of our cash and equivalent
resources. Our current cash balance together with our new
revolving credit facility, should provide us with adequate
resources to fund our anticipated ongoing cash requirements.
We have and may continue to access external financing from time
to time depending on our cash requirements, assessments of
current and anticipated market conditions and after-tax cost of
capital. Our access to capital markets can be impacted by
factors outside our control, including economic conditions and
there are no guarantees that funds will be available at terms
that will be acceptable to us.
We expect to ramp new products and customer programs in the
second half of 2011
and will see the benefit of ongoing cost reduction
activities, with the goal of positioning us for cash flow
positive operations in the second half of calendar 2011.
Recent
Acquisitions
On May 14, 2009, we completed our 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, we issued 7.0 million shares of our common
stock and warrants to acquire up to 3.0 million additional
shares of our 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, 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, to primarily provide sales liaison, marketing and
engineering services in Europe. TMEU is located in Freiburg,
Germany and TMNM and TMH are located in Nijmegen, The
Netherlands.
On February 8, 2010, we and our 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, we issued
104,204,348 shares of Trident common stock to NXP, equal to
60% of our 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 accordance
with U.S. generally accepted accounting principles, the
closing price on February 8, 2010 was used to value Trident
common stock issued which is traded in an active market and
considered a level 1 input. In addition, we issued to NXP
four shares of a newly created Series B Preferred Stock or
the Preferred Shares.
The purchase price and fair value of the consideration
transferred by Trident was $140.8 million. For details of
the acquisition, see Note 13, Business
Combinations, of Notes to Consolidated Financial
Statements.
Critical
Accounting Estimates
The preparation of our financial statements and related
disclosures in conformity with US 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
Form 10-K
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 Consolidated Financial
Statements included in this Report on
Form 10-K,
we consider the critical accounting policies described below to
be affected by critical accounting estimates. Our critical
accounting policies that are affected by accounting estimates
include revenue recognition, stock-based compensation expense,
goodwill and acquired intangible assets, long-lived assets,
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 consolidated financial statements, and
actual results could differ materially from these estimates. For
a discussion of how these estimates and other factors may affect
our business, also see Risk Factors In Item 1A.
33
Revenue
Recognition
We recognize revenues in accordance with GAAP when persuasive
evidence of an arrangement exists, delivery has occurred, the
price is fixed or determinable and collectability is reasonably
assured.
A portion of our sales are made through distributors under
agreements allowing for rights of return. We defer recognition
of product revenue and costs from sales to significant
distributors which contain such rights of return until the
products are resold by the distributor to the end user
customers. Our revenue reporting is highly dependent on
receiving pertinent and accurate data from such distributors in
a timely fashion. Distributors provide us with periodic data
regarding the product, price, quantity, and end customer when
products are resold as well as the quantities of our products
they still have in stock. At times, we must use estimates and
apply judgments to reconcile distributors reported
inventories to their activities. Any error in our judgment could
lead to inaccurate reporting of our revenues, deferred income
and allowances on sales to distributors, and net income.
We record estimated reductions to revenue for customer incentive
offerings and sales returns allowance in the same period that
the related revenue is recognized. Our customer incentive
offerings primarily involve volume rebates for our products in
various target markets. If market conditions were to decline, we
may take actions to increase customer incentive offerings,
possibly resulting in an incremental reduction of revenue at the
time the incentive is offered. Our sales returns allowance for
estimated product returns is based primarily on historical sales
returns, analysis of credit memo data and other known factors at
that time. If product returns for a particular year exceed
historical return rates, we may determine that additional sales
returns allowance are required to properly reflect our estimated
exposure for product returns.
Stock-based
Compensation Expense
We account for share-based payments, including grants of stock
options and awards to employees and directors, in accordance
with GAAP, which requires that share-based payments be
recognized in our consolidated statements of operations based on
their fair values and the estimated number of shares we
ultimately expect will vest. In addition, we recognize
stock-based compensation expense on a straight-line basis over
the service period of all stock options and awards other than
the performance-based awards with market conditions that are
expensed using the accelerated method.
We value our stock-based compensation awards using the
Black-Scholes option pricing model, except for performance-based
options with market conditions, for which we use a Monte Carlo
simulation to value the award. 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. Tridents stock options have characteristics
significantly different from those of traded options. Changes in
the assumptions used in Black-Scholes model can materially
affect the fair value estimates. 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. We use historical
volatility in deriving our expected volatility assumption as
allowed under GAAP because we believe that future volatility
over the expected term of the stock options is not likely to
differ materially from the past. The risk-free interest rate
assumption is based upon observed interest rates appropriate for
the expected term of our stock options. The expected dividend
assumption is based on our history and expectation of not paying
dividends in the foreseeable future.
Goodwill
and Acquired Intangible Assets
We record goodwill when the consideration paid for an
acquisition exceeds the fair value of net tangible and
intangible assets acquired. We record gains on acquisitions when
the fair value of net tangible and intangible assets acquired
exceeds the consideration paid for an acquisition. We amortize
acquisition-related identified intangibles on a straight-line
basis, reflecting the pattern in which the economic benefits of
the intangible asset is consumed, over their estimated economic
lives of 4 to 5 years for core and developed technology, 2
to 3 years for customer relationships, 1 year for
backlog, 4 to 5 years for patents and the contractual term
for service agreements.
34
Goodwill is not amortized. However, we measure and test goodwill
on an annual basis during the quarter ended June 30 or more
frequently if we believe indicators of impairment exist. The
performance of the test involves a two-step process. Each step
requires us to make judgments and involves the use of
significant estimates and assumptions, we believe to be
reasonable but that are unpredictable and inherently uncertain.
The first step requires comparing the fair value of the
reporting unit to its net book value, including goodwill. We
operate under two reporting units, television systems and set
top boxes. To determine the fair values of the reporting units
used in the first step, we use a discounted cash flow approach.
A potential impairment exists if the fair value of the reporting
unit is lower than its net book value. The television systems
reporting unit failed step one of the annual goodwill impairment
test at June 30, 2010. We perform the second step of the
process, and it involved determining the difference between the
fair value of the reporting units net assets other than
goodwill to the fair value of the reporting unit and the
difference was less than the net book value of goodwill.
Consequently, we recorded an impairment of Goodwill.
We have acquired in-process research and development, or
IPR&D, projects as the result of our business combinations.
The fair values of the acquired IPR&D projects were
determined through estimates and valuation techniques based on
the terms and details of the related acquisitions. The amounts
allocated to IPR&D projects are not expensed until
technological feasibility is reached for each project. Upon
completion of development for each project, the acquired
IPR&D will be amortized over its useful life.
Long-lived
Assets.
We account for long-lived assets, including other purchased
finite-lived intangible assets, in accordance with current
authoritative guidance, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators
of impairment, such as reductions in demand or significant
economic slowdowns in the semiconductor industry, are present.
Reviews are performed to determine whether the carrying value of
an asset is impaired, based on comparisons to undiscounted
expected future cash flows. If this comparison indicates that
there is impairment, the impaired asset is written down to fair
value, which is typically calculated using: (1) quoted
market prices or (2) discounted expected future cash flows.
Impairment is based on the excess of the carrying amount over
the fair value of those assets. Our estimates regarding future
anticipated net revenue and cash flows, the remaining economic
life of the products and technologies, or both, may differ from
those used to assess the recoverability of assets. In that
event, impairment charges or shortened useful lives of certain
long-lived assets may be required, resulting in a reduction in
net income or an increase to net loss in the period when such
determinations are made.
Inventories
Inventories are computed using the lower of cost or market,
which approximates actual cost on a
first-in-first-out
basis. Inventory components are
work-in-process
and finished goods. Finished goods are reported as inventories
until the point of title transfer to the customer. We write down
our inventory value for excess and for estimated obsolescence
for the difference between the cost of inventory and the
estimated market value based upon assumptions about future
demand and market conditions. These factors are impacted by
market and economic conditions, technology changes, new product
introductions and changes in strategic direction and require
estimates that may include uncertain elements. Actual demand may
differ from forecasted demand, and such differences may have a
material effect on recorded inventory values. At
December 31, 2010, we had an inventory reserve balance of
$4.6 million. In addition, we recorded a $2.8 million
liability for ordered product with no expected demand from
customers for the year ended December 31, 2010.
Income
Taxes
We account for income taxes in accordance with applicable
accounting guidance, which requires that deferred tax assets and
liabilities be recognized by using enacted tax rates for the
effect of temporary differences between the book and tax bases
of recorded assets and liabilities.
We also have to assess the likelihood that we will be able to
realize our deferred tax assets. If realization is not more
likely than not, we are required to record a valuation allowance
against the deferred tax assets that we estimate
35
we will not ultimately realize. We believe that we will not
ultimately realize a substantial amount of the deferred tax
assets recorded on our consolidated balance sheets. However,
should there be a change in our ability to realize our deferred
tax assets, our valuation allowance will be released, resulting
in a corresponding reduction in income tax expense in the period
in which we determined that the realization is more likely than
not.
Under GAAP, we are required to make certain estimates and
judgments in determining income tax expense for financial
statement purposes. The calculation of our tax liabilities
involves dealing with uncertainties in the application of
complex tax regulations. We recognize liabilities for uncertain
tax positions based on the two-step process prescribed within
the interpretation. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained on audit, including
resolution of related appeals or litigation, if any. The second
step requires us to estimate and measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon
ultimate settlement. Because we are required to determine the
probability of various possible outcomes, such estimates are
inherently difficult and subjective. We reevaluate these
uncertain tax positions on a quarterly basis based on factors
including, but not limited to, changes in facts or circumstances
and changes in tax law. A change in recognition or measurement
would result either in the recognition of a tax benefit or in an
additional charge to the tax provision for the period.
Business
Combinations
We estimate the fair value of assets acquired and liabilities
assumed in a business combination. Our assessment of the
estimated fair value of each of these might have a significant
effect on our reported results as intangible assets are
amortized over various lives. Furthermore, a change in the
estimated fair value of an asset or liability often has a direct
impact on the amount to recognize as goodwill, which is an asset
that is not amortized. Often determining the fair value of these
assets and liabilities assumed requires an assessment of
expected use of the asset, the expected cost to extinguish the
liability or our expectations related to the timing and the
successful completion of development of an acquired in-process
technology. Such estimates are inherently difficult and
subjective and can have a material impact on our financial
statements.
Results
of Operations
Our results of operations for the year ended December 31,
2010, year ended December 31, 2009 (unaudited) and the
years ended June 30, 2009 and 2008, respectively, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended June 30,
|
(In thousands)
|
|
2010
|
|
2009 (unaudited)
|
|
2009
|
|
2008
|
|
Net revenue
|
|
$
|
557,198
|
|
|
$
|
84,775
|
|
|
$
|
75,761
|
|
|
$
|
257,938
|
|
Gross profit
|
|
$
|
117,563
|
|
|
$
|
20,829
|
|
|
$
|
23,328
|
|
|
$
|
120,026
|
|
Operating income (loss)
|
|
$
|
(172,711
|
)
|
|
$
|
(73,682
|
)
|
|
$
|
(62,244
|
)
|
|
$
|
18,820
|
|
Net income (loss)
|
|
$
|
(128,889
|
)
|
|
$
|
(78,206
|
)
|
|
$
|
(70,232
|
)
|
|
$
|
10,152
|
|
The scale of our business has expanded significantly as a result
of the acquisition of the NXP TV and Set Top Box product lines
in February 2010 and, to a lesser extent, the Micronas Frame
Rate Converter, Demodulator, and Audio Decoder product lines in
May 2009. This is reflected in prior-year comparisons of most
operating metrics for the years ended December 31, 2010 and
2009 (unaudited).
Revenues for the year ended December 31, 2010 increased to
$557.2 million compared to $84.8 million (unaudited)
in the year ended December 31, 2009 and $75.8 million
in the year ended June 30, 2009. Revenues in the year ended
December 31, 2010 increased over the year ended
December 31, 2009 primarily as a result of revenue
contributions from the acquired NXP products. In addition, we
realized significant revenue in 2010 from its Pro
SA-1
product, which was new in 2010 and was based on existing Trident
technology as well as acquired Micronas audio and demod
technology. We also benefited from a full year of revenue
contribution from the Micronas products acquired in May 2009.
Net loss for the year ended December 31, 2010 was
$128.9 million compared to a net loss of $78.2 million
(unaudited) for the year ended December 31, 2009 and a net
loss of $70.2 million for the year ended June 30,
2009.
36
The increased loss in 2010 compared with 2009 is primarily the
result of increased amortization of intangible assets acquired
in the NXP transaction of $55.7 million, restructuring
costs of $28.3 million, goodwill impairment of
$7.9 million and significantly higher operating expenses
related to the acquired NXP product lines, particularly labor
costs related to the addition of former NXP employees and
transitional support services from NXP. The increase was
partially offset by a gain on acquisition of the NXP product
lines of $43.4 million.
Financial Data for the Year Ended December 31, 2010 and
2009 (unaudited).
Net
Revenues
Digital media product solutions revenues represented all of our
revenues for the year ended December 31, 2010 and year
ended December 31, 2009 (unaudited). Our digital media
solutions products include integrated circuit chips used in
digital television and liquid crystal display television, or LCD
TV, as well as set-top boxes. 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 year ended
December 31, 2010 and 2009 (unaudited):
Net
revenues comparison by dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
Revenues by region(1)
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
Variance
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
South Korea
|
|
$
|
188,365
|
|
|
$
|
33,698
|
|
|
$
|
154,667
|
|
|
|
459
|
%
|
Europe
|
|
|
138,309
|
|
|
|
21,239
|
|
|
|
117,070
|
|
|
|
551
|
%
|
Asia Pacific(2)
|
|
|
120,659
|
|
|
|
16,360
|
|
|
|
104,299
|
|
|
|
638
|
%
|
Japan
|
|
|
69,941
|
|
|
|
12,553
|
|
|
|
57,388
|
|
|
|
457
|
%
|
Americas
|
|
|
39,924
|
|
|
|
925
|
|
|
|
38,999
|
|
|
|
4,216
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
557,198
|
|
|
$
|
84,775
|
|
|
$
|
472,423
|
|
|
|
557
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues comparison by percentage of total net
revenues
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Revenues by region(1)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
South Korea
|
|
|
33.8
|
%
|
|
|
39.7
|
%
|
Europe
|
|
|
24.8
|
%
|
|
|
25.1
|
%
|
Asia Pacific(2)
|
|
|
21.7
|
%
|
|
|
19.3
|
%
|
Japan
|
|
|
12.6
|
%
|
|
|
14.8
|
%
|
Americas
|
|
|
7.1
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
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. |
During the year ended December 31, 2010 compared to the
year ended December 31, 2009, net revenues increased in all
regions. The increase in all regions is primarily attributable
to revenues resulting from the acquisition of the NXP product
lines in February of 2010 and the Trident Micronas SA1 new
product revenue.
37
Our commitments to and from customers are typically of very
limited duration and customer actions can be unpredictable,
making impracticable reliable evaluations of trends likely to
have a material adverse effect on our financial condition or
results of operations.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Gross profit
|
|
$
|
117,563
|
|
|
$
|
20,829
|
|
|
|
464.4
|
%
|
Gross profit%
|
|
|
21.1
|
%
|
|
|
24.6
|
%
|
|
|
|
|
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.
Our gross profit margin can vary significantly based on product
mix and, to a lesser extent, absorption of our fixed
manufacturing support costs.
Gross profit dollars increased 464% for the year ended
December 31, 2010 compared to the year ended
December 31, 2009, principally as a result of the
additional revenues from the acquired NXP products. Gross profit
margin percentage decreased for the year ended December 31,
2010 compared to the year ended December 31, 2009 primarily
as a result of the amortization of intangible assets acquired
from NXP.
Gross profit dollars were impacted by intangible asset
amortization expense of $48.2 million or 8.7% of net
revenues for the year ended December 31, 2010.
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:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Additions to inventory reserves
|
|
$
|
1,346
|
|
|
$
|
2,372
|
|
Accrual for ordered product with no demand
|
|
|
2,192
|
|
|
|
2,750
|
|
Lower of cost or market adjustment
|
|
|
135
|
|
|
|
1,300
|
|
Sales of previously reserved product
|
|
|
(2,897
|
)
|
|
|
(5,887
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in gross profit
|
|
$
|
776
|
|
|
$
|
535
|
|
|
|
|
|
|
|
|
|
|
In the year ended December 31, 2010 and 2009 (unaudited),
as shown in the table above, inventory write-downs and reserves
and sales of previously reserved product represents 0.1% and
0.6% (unaudited) 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.
38
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Research and development
|
|
$
|
175,001
|
|
|
$
|
59,748
|
|
|
|
192.9
|
%
|
As a percentage of net revenues
|
|
|
31.4
|
%
|
|
|
70.5
|
%
|
|
|
|
|
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 and depreciation of property
and equipment. 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 year ended
December 31, 2010, compared to the year ended
December 31, 2009, primarily due to significant increases
in headcount resulting from the acquisition from NXP. As a
result of these activities, we incurred $57.8 million of
additional headcount related costs for the year ended
December 31, 2010 that was not incurred in the year ended
December 31, 2009. In addition, during the year ended
December 31, 2010, we incurred $21.5 million of
additional depreciation and amortization expense compared with
the year ended December 31, 2009. Research and development
expenses also included $17.6 million of transition service
costs related to the acquisition of NXP assets during the year
ended December 31, 2010. These transition service costs
consisted principally of personnel and facilities provided by
NXP. Research and development expenses also included
$5.7 million of additional mask tooling costs for the year
ended December 31, 2010 that were not incurred during the
year ended December 31, 2009.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands)
|
|
Selling, general and administrative
|
|
$
|
79,161
|
|
|
$
|
31,027
|
|
|
|
|
|
|
|
155.1
|
%
|
As a percentage of net revenues
|
|
|
14.2
|
%
|
|
|
36.6
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses consist primarily
of personnel related expenses including stock-based
compensation, commissions paid to sales representatives and
distributors and professional fees.
Selling, general and administrative expenses increased for the
year ended December 31, 2010, compared to the same period
last year, primarily due to significant increases in headcount
from the acquisition of the NXP business lines, as well as
subsequent restructuring, attrition, and hiring activity. As a
result of these activities, we incurred $21.4 million of
additional headcount related costs for the year ended
December 31, 2010 that were not incurred in the comparable
periods last year. We also incurred $11.5 million of
additional professional fees, temporary labor and transition
support services-related costs during 2010, not incurred during
2009 principally related the integration of the NXP product line
acquisition.
Goodwill
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Goodwill impairment
|
|
$
|
7,851
|
|
|
$
|
1,432
|
|
|
|
448.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
1.4
|
%
|
|
|
1.7
|
%
|
|
|
|
|
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 year ended
December 31,
39
2010, due to the excess of the carrying value over the estimated
market value for the television systems operating segment.
During the three 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 (unaudited) for the year ended
December 31, 2009.
In
Process Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
In process research and development
|
|
$
|
|
|
|
$
|
697
|
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
0.0
|
%
|
|
|
0.8
|
%
|
|
|
|
|
We acquired in-process research and development of
$18.0 million in 2010 in connection with the acquisition of
the NXP products, which has been capitalized in accordance with
the updated business combination guidance, whereas under prior
authoritative guidance the amount would have been expensed
immediately. During the year ended December 31, 2009,
in-process research and development was expensed in connection
with the acquisition of certain product lines of Micronas.
Restructuring
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Restructuring charges
|
|
$
|
28,261
|
|
|
$
|
1,607
|
|
|
|
1,659
|
%
|
As a percentage of net revenues
|
|
|
5.1
|
%
|
|
|
1.9
|
%
|
|
|
|
|
During 2010, we implemented restructuring related to integration
of the NXP product lines acquisition. The intent of the
integration is to retain technical expertise in those geographic
locations where we develop unique technology and to transition
the majority of our software and SoC development and certain
customer support activities to lower cost regions in Asia. As a
result of these activities, during 2010 we substantially reduced
our headcount in multiple European and U.S. locations and
closed facilities in Munich, Germany and Chicago, Illinois. We
also moved our corporate headquarters in California to
consolidate our local workforce into one facility and
restructured the lease of the property we vacated. As a result
of these activities, we recorded $28.3 million of
restructuring expenses for severance, related employee benefits
and costs related to closure of certain facilities.
We anticipate conducting additional restructuring in 2011 to
further integrate our operations. Restructuring charges are
recorded under Restructuring charges in our
Consolidated Statement of Operations.
Prior to the close of our 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. 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
by us as an expense on the acquisition date and is included in
total restructuring charges of $28.3 million for the year
ended December 31, 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 13, Business Combinations, of Notes to
Consolidated Financial Statements.
40
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Interest income
|
|
$
|
868
|
|
|
$
|
694
|
|
|
|
25.1
|
%
|
As a percentage of net revenues
|
|
|
0.2
|
%
|
|
|
0.8
|
%
|
|
|
|
|
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.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Other income (expense), net
|
|
$
|
951
|
|
|
$
|
(1,326
|
)
|
|
|
(171.7
|
)%
|
As a percentage of net revenues
|
|
|
0.2
|
%
|
|
|
(1.6
|
)%
|
|
|
|
|
The increase in other income, net for year ended
December 31, 2010, compared to the year ended
December 31, 2009 (unaudited), was primarily attributable
to (i) a $2.5 million legal settlement of the
shareholder derivative lawsuit, as described in Note 6
Commitments and Contingencies of the Notes to
Consolidated Financial Statements, (ii) a $0.4 million
increase in gains from the sale of
available-for-sale
securities, and partially offset by (iii) a
$1.9 million foreign currency remeasurement loss related to
income taxes payable in foreign jurisdictions, which resulted
from the relative weakening of the U.S. dollar in year
ended December 31 2010 compared to a $1.5 million foreign
currency remeasurement loss in year ended December 31, 2009
(unaudited).
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
Income Tax Provision
|
|
|
1,096
|
|
|
|
3,911
|
|
|
|
(72.0
|
)%
|
Effective tax rate
|
|
|
(0.9
|
)%
|
|
|
(5.3
|
)%
|
|
|
|
|
A provision for income taxes of $1.1 million and
$3.9 million was recorded for the years ended
December 31, 2010 and 2009 (unaudited), respectively. The
change in our effective tax rate from year ended
December 31, 2009 was primarily due to the recognition of
the tax benefit resulting from net operating losses in foreign
jurisdictions, 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.
Financial
Data for the Years Ended June 30, 2009 and 2008
Net
Revenues
Digital media product revenues represented all of our total
revenues in years ended June 30, 2009 and 2008. Our digital
media products include integrated circuit chips used in digital
television and liquid crystal display television, or LCD TV. 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
years ended June 30, 2009 and 2008.
41
Net revenues comparison by dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
Revenues by Region(1)
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
Variance
|
|
|
|
(Dollars in thousands)
|
|
|
Japan
|
|
$
|
41,615
|
|
|
$
|
91,306
|
|
|
$
|
(49,691
|
)
|
|
|
(54
|
)%
|
Europe
|
|
|
13,841
|
|
|
|
53,801
|
|
|
|
(39,960
|
)
|
|
|
(74
|
)%
|
Asia Pacific(2)
|
|
|
14,061
|
|
|
|
32,618
|
|
|
|
(18,557
|
)
|
|
|
(57
|
)%
|
South Korea
|
|
|
5,819
|
|
|
|
79,608
|
|
|
|
(73,789
|
)
|
|
|
(93
|
)%
|
Americas
|
|
|
425
|
|
|
|
605
|
|
|
|
(180
|
)
|
|
|
(30
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
75,761
|
|
|
$
|
257,938
|
|
|
$
|
(182,177
|
)
|
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues comparison by percentage of total net
revenues
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
Revenues by Region(1)
|
|
2009
|
|
|
2008
|
|
|
Japan
|
|
|
54.9
|
%
|
|
|
35.4
|
%
|
Europe
|
|
|
18.2
|
%
|
|
|
20.9
|
%
|
Asia Pacific(2)
|
|
|
18.6
|
%
|
|
|
12.6
|
%
|
South Korea
|
|
|
7.7
|
%
|
|
|
30.9
|
%
|
Americas
|
|
|
0.6
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
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. |
Digital media product revenues decreased by $182.2 million
in the year ended June 30, 2009 compared to the year ended
June 30, 2008. In year ended June 30, 2009, total SVP
revenues decreased by $188.6 million, while SoC revenues
decreased by $1.5 million. These decreases were partially
offset by increased revenues of $7.9 million resulting from
the sale of FRC, demodulator and audio decoder products that
were acquired from Micronas following the acquisition which
closed on May 14, 2009. Our unit sales volume of digital
media products decreased by 58% in the year ended June 30,
2009 compared to the year ended June 30, 2008 and the
year-over-year
average selling prices of these products decreased by
approximately 29%.
During the year ended June 30, 2009, net revenues decreased
in all regions. Revenues in South Korea decreased significantly
primarily due to a major South Korean customer shifting its
strategy to design and produce portions of its silicon products
internally rather than outsourcing the design to a third-party
vendor. Revenues in Japan and Europe decreased primarily due to
the absence of major design wins for our SoC products at tier
one customers and lower revenues generated from our existing
products that are going to be phased out of production. Revenues
in Asia Pacific decreased primarily due to the continued
decrease in sales of SVP products and intense price competition
in the market where we sell discrete image process controllers.
Overall, the revenue decline in the year ended June 30,
2009 was primarily due to decreased sales of our legacy SVP
products, the loss of design win opportunities relating to our
new SoC products, and to a lesser extent, due to the global
economic downturn.
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Gross profit
|
|
$
|
23,328
|
|
|
$
|
120,026
|
|
|
|
(81
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
30.8
|
%
|
|
|
46.5
|
%
|
|
|
|
|
42
Cost of revenues includes the cost of purchasing wafers
manufactured by an independent foundry, costs associated with
our purchase of assembly, test and quality assurance services,
royalties, product warranty costs, provisions for excess and
obsolete 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 margin is calculated as net revenues less cost of revenues
as a percentage of net revenue. Gross margin has continued to be
impacted by our product mix and volume of product sales,
including sales to high volume customers, royalties, competitive
pricing programs, product warranty costs, provisions for excess
and obsolete inventories, and cost associated with operational
support.
Gross margin decreased 15.7 percentage points in the year
ended June 30, 2009 compared to the year ended
June 30, 2008, principally as a result of
(i) significantly lower revenues that did not offer the
economies of scale needed to cover fixed manufacturing support
costs, (ii) a weaker product mix of SVP and SoC products,
(iii) write down of acquisition-related intangible assets,
and (iv) an increase in intangible assets amortization as a
percentage of decreasing revenues.
The net impact on gross profit of the increases in inventory
write-downs and sales of previously reserved products is as
follow:
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Additions to inventory reserves
|
|
$
|
3,148
|
|
|
$
|
2,747
|
|
Sales of previously reserved products
|
|
|
(5,082
|
)
|
|
|
(4,676
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in gross profit
|
|
$
|
(1,934
|
)
|
|
$
|
(1,929
|
)
|
|
|
|
|
|
|
|
|
|
In the year ended June 30, 2009, as shown in the table
above, revenues from the sale of previously reserved products
were $5.1 million or 6.7% of total net revenues. Due to the
previously recorded reserves, there was no cost of revenues
reflected with respect to these product sales, which in effect,
provided a benefit to the current income statement to the extent
of the selling price. Concurrently, we recorded additional
inventory reserves for year ended June 30, 2009 in the
amount of approximately $3.1 million.
Sales of previously reserved inventory largely depend on the
timing of transitions to newer generations of similar products.
When we introduce new products that are designed to enhance or
replace our older products, we typically provide inventory
reserves on our older products based on the expected timing and
volume of customer purchases of the new product. The timing and
volume of the new product introductions can be significantly
affected by events out of our control, including changes in
customer product introduction schedules. Accordingly, we may end
up selling more of our older fully reserved product until the
customer is able to execute on its changeover plan.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Research and development
|
|
$
|
53,016
|
|
|
$
|
52,608
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
70
|
%
|
|
|
20
|
%
|
|
|
|
|
Research and development expenses as a percentage of net
revenues increased significantly from the year ended
June 30, 2008 to the year ended June 30, 2009 due
primarily to the significant decrease in revenues in the year
ended June 30, 2009. The increase in research and
development expenses for the year ended June 30, 2009
compared to the year ended June 30, 2008 was primarily due
to (i) a $4.5 million increase in third-party IP
licenses, (ii) a $2.8 million increase in
employee-related expenses associated with increased employee
headcount in connection with the acquisition in May 2009 and
(iii) $1.7 million third-party IP impairment write-off
due to a change in business strategy and a change in business
use of assets associated with the acquisition, offset by
(iv) a
43
$4.1 million decrease in stock-based compensation expense
principally due to certain option modifications and contingent
liabilities associated with vested options of certain terminated
employees that occurred only during the year ended June 30,
2008, (v) a $2.6 million decrease in new product
development expenditures was attributable to a $1.4 million
reversal of software license fee adjustment for prior software
usage during the year ended June 30, 2009, and (vi) a
$1.9 million decrease from lower mask tooling fees due to
decrease in production.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Selling, general and administrative
|
|
$
|
29,617
|
|
|
$
|
48,598
|
|
|
|
(39
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
39
|
%
|
|
|
19.0
|
%
|
|
|
|
|
Selling, general and administrative expenses as a percentage of
net revenues increased significantly from the year ended
June 30, 2008 to the year ended June 30, 2009 due
primarily to the significant decrease in revenues in the year
ended June 30, 2009. The decrease in selling, general and
administrative expenses for year ended June 30, 2009
compared to year ended June 30, 2008, resulted primarily
from (i) a $10.9 million decrease in stock-based
compensation expense primarily related to the extension of the
option exercise period and contingent liabilities associated
with vested options of certain terminated employees that
occurred only in year ended June 30, 2008, (ii) a
$5.7 million decrease in sales commission paid to
distributors representatives due to the decreased product
sales in year ended June 30, 2009 compared to year ended
June 30, 2008, (iii) a $5.3 million decrease in
legal and professional fees due to the completion of our
investigation into our stock option granting process in
September 2007, partially offset by (iv) a
$1.5 million increase in salary and payroll-related expense
associated with increased employee headcount in the year ended
June 30, 2009 compared to the year ended June 30, 2008
and (v) a $1.3 million increase in consulting fees.
During the year ended June 30, 2009, we capitalized
approximately $4.1 million of legal and professional fees
related to due diligence in connection with the acquisition of
Micronas.
Goodwill
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Goodwill impairment
|
|
$
|
1,423
|
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
2
|
%
|
|
|
0
|
%
|
|
|
|
|
During the year ended June 30, 2009, an impairment test was
conducted resulting from redeploying our engineering resources
in TMBJ and by canceling our STB efforts to better support our
focus on SoC development. This factor was considered an
indicator of potential impairment, and as a result, we performed
an interim impairment analysis of our goodwill. Based on the
results of this goodwill impairment analysis, we determined that
there would be no remaining implied value attributable to
goodwill at TMBJ, and accordingly, we wrote off the entire
goodwill balance at TMBJ and recognized goodwill impairment
charges of $1.4 million under Goodwill
impairment in the Consolidated Statement of Operations for
year ended June 30, 2009.
In-Process
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
In process research and development
|
|
$
|
697
|
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
1
|
%
|
|
|
0
|
%
|
|
|
|
|
The in-process research and development (IPR&D)
expense was incurred in connection with the acquisition of
certain product lines of Micronas in year ended June 30,
2009. The IPR&D relates to masks and tools that were
44
completed after the announcement date but prior to the closing
date of the acquisition and that have no alternative future use.
Restructuring
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Restructuring charges
|
|
$
|
810
|
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
1
|
%
|
|
|
0
|
%
|
|
|
|
|
During year ended June 30, 2009, we implemented a global
cost reduction plan that reduced the number of our employees by
approximately 100 employees worldwide. The reduction plan
consisted primarily of involuntary employee termination and
benefit costs. We recorded a restructuring charge of
$0.8 million for the year ended June 30, 2009, in
connection with the restructuring.
Loss
on Sale of Short-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Loss on sale of short-term investments
|
|
$
|
(8,940
|
)
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
(12
|
)%
|
|
|
0
|
%
|
|
|
|
|
During the year ended June 30, 2009, we sold all of our
52.5 million shares of UMC common stock for net proceeds of
$17.2 million and recorded a loss on sale of approximately
$9.0 million under Loss on sale of short-term
investments in our Consolidated Statement of Operations.
Impairment
Loss on UMC Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Impairment loss on UMC investment
|
|
$
|
(556
|
)
|
|
$
|
(6,480
|
)
|
|
|
(91
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
(1
|
)%
|
|
|
(3
|
)%
|
|
|
|
|
Impairment loss on UMC investment represents the impairment
charge when the decline in the fair value of our investment
below our cost basis is determined to be
other-than-temporary.
For the years ended June 30, 2009 and 2008, we recorded
impairment charges of $0.6 million and $6.5 million,
respectively, to reflect the decrease in carrying value of the
UMC securities we held. We have determined whether an impairment
charge is
other-than-temporary
in nature in accordance with accounting guidance.
Interest
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Interest income, net
|
|
$
|
2,968
|
|
|
$
|
6,166
|
|
|
|
(52
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
|
|
We invest our cash and cash equivalents in interest-bearing
accounts consisting primarily of certificates of deposits and
U.S. Treasuries. The average interest rates earned during
the years ended June 30, 2009 and 2008 were 1.6% and 2.9%,
respectively. The decrease in the average interest income for
the year ended June 30, 2009 was primarily due to
(i) the reduction of federal funds rate from 2.0% to 0.21%
by the Federal Reserve Bank and (ii) a larger percentage of
our investment portfolio having been shifted from money market
funds to lower yielding U.S. Treasuries during the year
ended June 30, 2009.
45
Other
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Other income, net
|
|
$
|
4,053
|
|
|
$
|
445
|
|
|
|
811
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
5
|
%
|
|
|
0
|
%
|
|
|
|
|
Other income, net primarily represents dividend income received
from our investments and the foreign currency remeasurement gain
or loss. The increase in other income, net for year ended
June 30, 2009, compared to the year ended June 30,
2008, was primarily attributable to (i) a $2.6 million
foreign currency remeasurement gain related to income taxes
payable in foreign jurisdictions, which resulted from the
relative strengthening of the U.S. dollar in year ended
June 30 2009 compared to a $2.7 million foreign currency
remeasurement loss related to income taxes payable in foreign
jurisdictions, which resulted from the relative weakness of the
U.S. dollar in year ended June 30, 2008, partially
offset by (ii) a $1.0 million decrease in gains from
the sale of
available-for-sale
investments and (iii) a $0.6 million decrease in
dividend income from the UMC investment compared to the year
ended June 30, 2008.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Income tax provision
|
|
$
|
5,513
|
|
|
$
|
8,799
|
|
|
|
(37
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(9
|
)%
|
|
|
46
|
%
|
|
|
(55
|
)%
|
A provision for income taxes of $5.5 million and
$8.8 million was recorded for years ended June 30,
2009 and 2008, respectively. The decrease in our effective tax
rate from the year ended June 30, 2008 to the year ended
June 30, 2009 was primarily due to a decrease in
$4.4 million of amortization of foreign taxes associated
with intercompany profit on assets remaining within
Tridents consolidated group. The amortization of foreign
taxes associated with intercompany profit on assets remaining
within Tridents consolidated group was completed in year
ended June 30, 2009.
Liquidity
and Capital Resources
Our principal uses of cash include funding operating activities,
the creation of new products, acquisitions of intangible assets,
ongoing investments in our businesses, capital expenditures,
commitments to equity affiliates and acquisitions of businesses.
We manage our use of cash with a goal of maintaining adequate
cash resources to fund our future operations.
Sources
and Uses of Cash
Cash and cash equivalents at December 31, 2010 and 2009
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Cash and cash equivalents
|
|
$
|
93,224
|
|
|
$
|
147,995
|
|
46
Our primary cash inflows and outflows for the year ended
December 31, 2010 and 2009 (unaudited) were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(79,055
|
)
|
|
$
|
(50,844
|
)
|
Investing activities
|
|
|
24,095
|
|
|
|
(13,594
|
)
|
Financing activities
|
|
|
189
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(54,771
|
)
|
|
$
|
(64,199
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash used in operating activities is net loss adjusted for
certain non-cash items and changes in current assets and current
liabilities. For the year ended December 31, 2010, cash
used in operating activities was $79.0 million compared to
$50.8 million (unaudited) cash used in operating activities
for year ended December 31, 2009. The increase was
primarily due to a net loss of $128.9 million in the year
ended December 31, 2010 versus a net loss of
$78.2 million (unaudited) in year ended December 31,
2009 which resulted from a significant increase in operating
expenses related to the NXP acquisition.
On our consolidated balance sheet as of December 31, 2010,
accounts receivable increased compared to December 31,
2009, primarily due to our granting credit terms to the new
customers which were acquired as a result of the NXP
acquisition. Inventories increased primarily due to sales demand
from the acquired NXP product lines. Accounts payable decreased
due to decreased manufacturing activities and inventory
purchases as well as the general timing of payments.
Investing
Activities
Cash used in investing activities consists primarily of cash
used in business combinations, capital expenditures and
purchases of intellectual property. For the year ended
December 31, 2010, cash provided by investing activities
was $24.1 million compared to a $13.6 million
(unaudited) cash used in investing activities for year ended
December 31, 2009. The increase in net cash provided by
investing activities was primarily attributable to the NXP
acquisition, partially offset by the purchase of technologies
licenses and the purchase of fixed assets.
Financing
Activities
Cash provided by financing activities consists primarily of cash
proceeds from the issuance of common stock to employees upon
exercise of stock options. Cash provided by financing activities
for the year ended December 31, 2010 was $0.2 million.
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. The majority of our cash and cash equivalents
are held outside the United States, and, therefore, might be
subjected to uncertainties in foreign countries. We believe our
current resources are sufficient to meet our needs for at least
the next 12 months.
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 $44.0 million. Our liquidity may also be affected if we
fail to realize some or all of the anticipated benefits of our
acquisitions of business lines of NXP and Micronas. See
Note 13, Business Combinations, Notes to
Consolidated Financial Statements of Notes to Consolidated
Financial Statements.
47
On February 9, 2011, Trident, TMFE and Trident Microsystems
(HK) Ltd., or TMHK, entered into a $40 million revolving
line of credit agreement with Bank of America, N.A., to finance
working capital. Borrowings under the agreement will bear
interest at the base rate, as defined in the agreement, plus a
margin ranging from 1.50% to 3.00% per annum, or at our option,
rates based on LIBOR plus a margin ranging from 2.25% to 3.75%
per annum. Under the credit agreement, we may access credit
based upon a certain percentage of our eligible accounts
receivable outstanding, subject to eligibility requirements,
limitations and covenants. The credit agreement contains both
affirmative and negative covenants, including covenants that
limit or restrict our ability to, among other things, incur
indebtedness, grant liens, make capital expenditures, merge or
consolidate, dispose of assets, pay dividends or make
distributions, change the method of accounting, make investments
and enter into certain transactions with affiliates, in each
case subject to materiality and other qualifications, baskets
and exceptions customary for a credit agreement of this size and
type. The credit agreement also contains a financial covenant
that requires us to maintain a specified fixed charge coverage
ratio if either our liquidity or availability under the credit
agreement drops below certain thresholds.
Contractual
Obligations
The following summarizes our contractual obligations as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011
|
|
|
Fiscal 2012
|
|
|
Fiscal 2013
|
|
|
Fiscal 2014
|
|
|
Fiscal 2015
|
|
|
Thereafter
|
|
|
Total
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases(1)
|
|
$
|
5.1
|
|
|
$
|
4.6
|
|
|
$
|
3.5
|
|
|
$
|
2.6
|
|
|
$
|
1.5
|
|
|
$
|
1.3
|
|
|
$
|
18.6
|
|
Purchase Obligations(2)
|
|
|
21.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.3
|
|
|
$
|
5.6
|
|
|
$
|
3.5
|
|
|
$
|
2.6
|
|
|
$
|
1.5
|
|
|
$
|
1.3
|
|
|
$
|
40.8
|
|
|
|
|
|
|
|
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(1) |
|
At December 31, 2010, we leased office space and have 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 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 having a
$3.6 million total future lease obligation. |
|
(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. As of December 31, 2010, we had
purchase commitments in the amount of $13.0 million that
were not included in the consolidated balance sheet at that
date. Of this amount, $1.2 million represents purchase
commitments by us to UMC for intellectual properties, software
licensing purchases and other commitments. In addition, we
entered into an engineering software license and maintenance
agreement with NXP on March 5, 2010 having a future net
cash obligation of $9.2 million. NXP is obligated under the
engineering software license and maintenance agreement to
reimburse the Company for $9.2 million. |
Rental expense for the year ended December 31, 2010, six
months ended December 31, 2009 and the years ended
June 30, 2009 and 2008, was $5.9 million,
$1.4 million, $1.5 million, and $1.5 million,
respectively.
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
$0.6 million as of December 31, 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
48
the agreement ends on the readiness of our enterprise resource
planning system which is planned to occur in fiscal 2012. The
terms of the agreements allow cancellation of either or both the
Transition Services Agreement and the Manufacturing Services
Agreement with minimum notice periods.
Contingencies
Shareholder
Derivative Litigation
Trident has been named as a nominal defendant in several
purported 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.
Plaintiffs in all cases alleged 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 its financial statements); and that as a result those
officers and directors are liable to the Company. No particular
amount of damages has been alleged, and by the nature of the
lawsuit no damages will be alleged against the Company. Our
Board of Directors appointed a Special Litigation Committee
(SLC) composed solely of independent directors to
review and manage any claims that we may have relating to the
stock option grant practices investigated by the Special
Committee. The scope of the SLCs authority includes the
claims asserted in the derivative actions.
On March 26, 2010, the federal court approved settlements
with all defendants other than Frank Lin, our former CEO. The
details of that partial settlement, which disposed of the
federal litigation as to all individual defendants other than
Mr. Lin and as to the consolidated state court action in
its entirety, were previously disclosed in our
Form 8-K
filed on February 10, 2010.
On June 8, 2010, Mr. Lin filed a counterclaim against
Trident. In that counterclaim, Mr. Lin sought recovery of
payments he claimed he was promised during the negotiations
surrounding his eventual termination and also losses he claimed
he has suffered because he was not permitted to exercise his
Trident stock options between January 2007 and March 2008. On
February 11, 2011, we entered into a settlement agreement
with Mr. Lin regarding his counterclaims, contingent on the
settlement of the derivative litigation pursuant to certain
terms.
On February 15, 2011, we entered into a Stipulation of
Settlement to resolve the federal litigation in its entirety, or
Proposed Settlement, and on February 17, 2011, the federal
court preliminarily approved the Proposed Settlement. A hearing
for consideration of final approval of the Proposed Settlement
has been scheduled for April 15, 2011 at 9:00 a.m. in
Courtroom 3 of the United States District Court in
San Jose, California. Final approval, without appeal, of
the Proposed Settlement would satisfy the contingency in the
settlement of Mr. Lins counterclaims against us. We
cannot predict whether the federal court will order the final
approval of the Proposed Settlement and, if it does, whether
such decision will be appealed. As a result, we cannot predict
whether Mr. Lins counterclaims against us in the
federal litigation 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 and related to the Proposed
Settlement, including expenses for the reimbursement of certain
legal fees of at least Mr. Lin 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.
49
Pursuant to the same judgment, we received a payment of $817,509
from Mr. Lin, representing $650,772 in disgorged profits
gained as a result of conduct alleged by the SEC in its civil
complaint against him, together with prejudgment interest
thereon of $166,737. 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 2006 Plan
S-8 in order
to exercise their vested options. During the three months 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 three months 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 seeking compensation
from us relating to the exercise of his fully vested stock
options. As a result, as of December 31, 2010, we
maintained a contingent liability totaling $2.7 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 year ended December 31, 2010. See
Note 5, Shareholder Derivative Litigation in
Commitment and Contingencies, of Notes to Condensed
Consolidated Financial Statements.
50
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 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 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
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.
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.
Recent
Accounting Pronouncements
See Recent Accounting Pronouncements in Note 2,
Significant Accounting Policies, of Notes to
Consolidated Financial Statements in Item 8, of this
Report, which is incorporated herein by reference.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to two primary types of market risks: foreign
currency exchange rate risk and interest rate risk.
Foreign
currency exchange rate risk
As of December 31, 2010, we had operations in the United
States, Taiwan, China, Hong Kong, India, Germany, The
Netherlands, Japan, Singapore and South Korea. The functional
currency of all of these operations is the U.S. dollar.
Approximately $66.7 million, or 71.5% of our cash and cash
equivalents, were held outside the United States as of
December 31, 2010, 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. Although
personnel and facilities-related expenses are primarily incurred
in local currencies due to the location of our subsidiaries
outside the United States, substantially all of our other
expenses are incurred in U.S. dollars. Since we acquired
certain product lines from Micronas in May 2009, we have also
incurred manufacturing and related expenses in Euros, and expect
to incur additional expenses in Euros in the future as a result
of the NXP Transaction.
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.
51
Interest
rate risk
We currently maintain our cash equivalents primarily in
certificates of deposit, 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 December 31, 2010, we have approximately
$93.2 million in cash and cash equivalents, of which
$62.2 million is cash and $31.0 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 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.
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 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 requires no collateral to secure
accounts receivable. Historically, a relatively small number of
customers have accounted for a significant portion of our
revenues. Our products have been manufactured primarily by two
foundries, United Microelectronics Corporation, or (UMC), based
in Taiwan and Micronas, based in Germany. Effective with the
February 8, 2010 closing of our acquisition of certain
assets from NXP B.V., we also have products manufactured by
Taiwan Semiconductor Manufacturing Company, or TSMC.
52
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
TRIDENT
MICROSYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenues
|
|
$
|
557,198
|
|
|
$
|
63,011
|
|
|
$
|
75,761
|
|
|
$
|
257,938
|
|
Cost of revenues
|
|
|
439,635
|
|
|
|
47,265
|
|
|
|
52,433
|
|
|
|
137,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117,563
|
|
|
|
15,746
|
|
|
|
23,328
|
|
|
|
120,026
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
175,001
|
|
|
|
32,512
|
|
|
|
53,016
|
|
|
|
52,608
|
|
Selling, general and administrative
|
|
|
79,161
|
|
|
|
19,980
|
|
|
|
29,617
|
|
|
|
48,598
|
|
Goodwill impairment
|
|
|
7,851
|
|
|
|
|
|
|
|
1,432
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
Restructuring charges
|
|
|
28,261
|
|
|
|
1,558
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
290,274
|
|
|
|
54,050
|
|
|
|
85,572
|
|
|
|
101,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(172,711
|
)
|
|
|
(38,304
|
)
|
|
|
(62,244
|
)
|
|
|
18,820
|
|
Loss on sale of short-term investments
|
|
|
(303
|
)
|
|
|
|
|
|
|
(8,940
|
)
|
|
|
|
|
Impairment loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
(556
|
)
|
|
|
(6,480
|
)
|
Gain on acquisition
|
|
|
43,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
868
|
|
|
|
118
|
|
|
|
2,968
|
|
|
|
6,166
|
|
Other income (expense), net
|
|
|
951
|
|
|
|
(1,212
|
)
|
|
|
4,053
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(127,793
|
)
|
|
|
(39,398
|
)
|
|
|
(64,719
|
)
|
|
|
18,951
|
|
Provision for income taxes
|
|
|
1,096
|
|
|
|
1,129
|
|
|
|
5,513
|
|
|
|
8,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(128,889
|
)
|
|
$
|
(40,527
|
)
|
|
$
|
(70,232
|
)
|
|
$
|
10,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share Basic
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share Diluted
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share
Basic
|
|
|
163,438
|
|
|
|
69,372
|
|
|
|
62,535
|
|
|
|
59,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share
Diluted
|
|
|
163,438
|
|
|
|
69,372
|
|
|
|
62,535
|
|
|
|
62,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
53
TRIDENT
MICROSYSTEMS, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands, except
|
|
|
|
|
|
|
par values)
|
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
93,224
|
|
|
$
|
147,995
|
|
|
|
|
|
Accounts receivable, net
|
|
|
62,328
|
|
|
|
4,582
|
|
|
|
|
|
Accounts receivable from related parties
|
|
|
7,337
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
23,025
|
|
|
|
14,536
|
|
|
|
|
|
Notes receivable from related parties
|
|
|
20,884
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
18,330
|
|
|
|
7,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
225,128
|
|
|
|
174,470
|
|
|
|
|
|
Property and equipment, net
|
|
|
31,566
|
|
|
|
26,168
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
7,851
|
|
|
|
|
|
Intangible assets, net
|
|
|
82,921
|
|
|
|
5,635
|
|
|
|
|
|
Long-term receivable from related parties
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
29,826
|
|
|
|
14,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
370,941
|
|
|
$
|
228,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,828
|
|
|
$
|
18,883
|
|
|
|
|
|
Accounts payable to related parties
|
|
|
26,818
|
|
|
|
2,401
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
70,401
|
|
|
|
26,739
|
|
|
|
|
|
Deferred margin
|
|
|
8,904
|
|
|
|
329
|
|
|
|
|
|
Income taxes payable
|
|
|
2,077
|
|
|
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,028
|
|
|
|
50,048
|
|
|
|
|
|
Long-term income taxes payable
|
|
|
25,476
|
|
|
|
22,262
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
200
|
|
|
|
94
|
|
|
|
|
|
Other long-term liabilities
|
|
|
4,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
146,637
|
|
|
|
72,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value: 500 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 250,000 shares and
95,000 shares authorized; 177,046 and 70,586 shares
issued and outstanding at December 31, 2010 and 2009,
respectively
|
|
|
177
|
|
|
|
71
|
|
|
|
|
|
Additional paid-in capital
|
|
|
434,825
|
|
|
|
237,827
|
|
|
|
|
|
Retained earnings (accumulated deficit)
|
|
|
(210,698
|
)
|
|
|
(81,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
224,304
|
|
|
|
156,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
370,941
|
|
|
$
|
228,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
54
TRIDENT
MICROSYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(128,889
|
)
|
|
$
|
(40,527
|
)
|
|
$
|
(70,232
|
)
|
|
$
|
10,152
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
6,903
|
|
|
|
3,455
|
|
|
|
12,673
|
|
|
|
24,270
|
|
Depreciation and amortization
|
|
|
27,829
|
|
|
|
6,745
|
|
|
|
9,544
|
|
|
|
5,354
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(96
|
)
|
|
|
(561
|
)
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
Amortization of acquisition-related intangible assets
|
|
|
55,714
|
|
|
|
2,048
|
|
|
|
3,985
|
|
|
|
5,725
|
|
Impairment of goodwill
|
|
|
7,851
|
|
|
|
|
|
|
|
1,432
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
2,689
|
|
|
|
|
|
Impairment of technology licenses and prepaid royalties
|
|
|
2,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on short-term investments
|
|
|
|
|
|
|
200
|
|
|
|
556
|
|
|
|
6,480
|
|
Gain on acquisition
|
|
|
(43,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sales of investments
|
|
|
303
|
|
|
|
(125
|
)
|
|
|
8,966
|
|
|
|
(969
|
)
|
Loss on disposal of property and equipment
|
|
|
377
|
|
|
|
96
|
|
|
|
83
|
|
|
|
52
|
|
Deferred income taxes
|
|
|
(2,989
|
)
|
|
|
306
|
|
|
|
63
|
|
|
|
(722
|
)
|
Changes in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(57,746
|
)
|
|
|
(496
|
)
|
|
|
612
|
|
|
|
4,665
|
|
Accounts receivable from related party
|
|
|
3,987
|
|
|
|
4,954
|
|
|
|
(5,289
|
)
|
|
|
|
|
Inventories
|
|
|
(8,489
|
)
|
|
|
(7,708
|
)
|
|
|
1,852
|
|
|
|
7,583
|
|
Notes receivable from related parties
|
|
|
19,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(7,850
|
)
|
|
|
(2,484
|
)
|
|
|
5,885
|
|
|
|
6,088
|
|
Accounts payable
|
|
|
(11,252
|
)
|
|
|
8,009
|
|
|
|
(577
|
)
|
|
|
(8,902
|
)
|
Accounts payable to related party
|
|
|
24,417
|
|
|
|
(3,112
|
)
|
|
|
5,512
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
20,479
|
|
|
|
7,522
|
|
|
|
(7,309
|
)
|
|
|
(3,574
|
)
|
Deferred margin
|
|
|
8,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
3,595
|
|
|
|
(10,807
|
)
|
|
|
(2,897
|
)
|
|
|
2,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(79,055
|
)
|
|
|
(31,924
|
)
|
|
|
(31,850
|
)
|
|
|
57,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(9,237
|
)
|
|
|
(1,134
|
)
|
|
|
(3,189
|
)
|
|
|
(6,246
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
18
|
|
|
|
294
|
|
|
|
48
|
|
Acquisition of businesses, net of cash acquired
|
|
|
46,380
|
|
|
|
(140
|
)
|
|
|
(2,531
|
)
|
|
|
(1,960
|
)
|
Proceeds from the capital reduction of UMC investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,829
|
|
Proceeds from sale of investments
|
|
|
|
|
|
|
223
|
|
|
|
17,234
|
|
|
|
6,079
|
|
Proceeds from sale of investments in private companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,056
|
|
Purchases of technology licenses
|
|
|
(13,048
|
)
|
|
|
(7,223
|
)
|
|
|
(6,471
|
)
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
24,095
|
|
|
|
(8,256
|
)
|
|
|
5,337
|
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock to employees
|
|
|
189
|
|
|
|
238
|
|
|
|
1,058
|
|
|
|
5,523
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
189
|
|
|
|
238
|
|
|
|
1,154
|
|
|
|
6,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(54,771
|
)
|
|
|
(39,942
|
)
|
|
|
(25,359
|
)
|
|
|
65,734
|
|
Cash and cash equivalents at beginning of year
|
|
|
147,995
|
|
|
|
187,937
|
|
|
|
213,296
|
|
|
|
147,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
93,224
|
|
|
$
|
147,995
|
|
|
$
|
187,937
|
|
|
$
|
213,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,817
|
|
|
$
|
12,296
|
|
|
$
|
1,588
|
|
|
$
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, preferred shares, and warrants issued in
connection with acquisitions of businesses
|
|
$
|
188,610
|
|
|
$
|
|
|
|
$
|
12,087
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
55
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at June 30, 2007
|
|
|
57,748
|
|
|
|
58
|
|
|
|
179,390
|
|
|
|
18,798
|
|
|
|
3,602
|
|
|
|
201,848
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,152
|
|
|
|
|
|
|
|
10,152
|
|
Unrealized losses on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,6544
|
)
|
|
|
(3,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued pursuant to stock awards, net
|
|
|
3,490
|
|
|
|
3
|
|
|
|
5,520
|
|
|
|
|
|
|
|
|
|
|
|
5,523
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
24,270
|
|
|
|
|
|
|
|
|
|
|
|
24,270
|
|
Net cash settlement of stock options
|
|
|
|
|
|
|
|
|
|
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,274
|
)
|
Tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
61,238
|
|
|
|
61
|
|
|
|
208,299
|
|
|
|
28,950
|
|
|
|
(52
|
)
|
|
|
237,258
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,232
|
)
|
|
|
|
|
|
|
(70,232
|
)
|
Unrealized gain on short-term investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued pursuant to stock awards, net
|
|
|
1,682
|
|
|
|
2
|
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
1,058
|
|
Shares and warrant issued in connection with the acquisition of
Micronas assets
|
|
|
7,000
|
|
|
|
7
|
|
|
|
12,080
|
|
|
|
|
|
|
|
|
|
|
|
12,087
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
12,673
|
|
|
|
|
|
|
|
|
|
|
|
12,673
|
|
Net cash settlement for TMTs stock options
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
69,920
|
|
|
|
70
|
|
|
|
234,134
|
|
|
|
(41,282
|
)
|
|
|
|
|
|
|
192,922
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,527
|
)
|
|
|
|
|
|
|
(40,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued pursuant to stock awards, net
|
|
|
666
|
|
|
|
1
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
70,586
|
|
|
|
71
|
|
|
|
237,827
|
|
|
|
(81,809
|
)
|
|
|
|
|
|
|
156,089
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,889
|
)
|
|
|
|
|
|
|
(128,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with the acquisition of NXP assets
|
|
|
104,204
|
|
|
|
104
|
|
|
|
188,506
|
|
|
|
|
|
|
|
|
|
|
|
188,610
|
|
Shares issued pursuant to stock awards, net
|
|
|
2,256
|
|
|
|
2
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,476
|
|
|
|
|
|
|
|
|
|
|
|
8,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
177,046
|
|
|
$
|
177
|
|
|
$
|
434,825
|
|
|
$
|
(210,698
|
)
|
|
$
|
|
|
|
$
|
224,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
56
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
|
Business
and Business Combinations
Business
Trident Microsystems, Inc. (including our subsidiaries, referred
to collectively in this Report as Trident or the
Company) 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.
Business
Combinations
On May 14, 2009, we completed our 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, we issued 7.0 million shares of our common
stock and warrants to acquire up to 3.0 million additional
shares of our 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 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, to primarily provide sales liaison, marketing and
engineering services in Europe. TMEU is located in Freiburg,
Germany and TMNM and TMH are located in Nijmegen, The
Netherlands.
On February 8, 2010, we 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, we 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 accordance with
U.S. generally accepted accounting principles, the closing
price on February 8, 2010 was used to value our common
stock. In addition, we issued to NXP four shares of a newly
created Series B Preferred Stock, or the Preferred Shares.
The purchase price and fair value of the consideration
transferred by us was $140.8 million. In connection with
this acquisition, we acquired or established additional
subsidiaries in Asia, India and Europe and established a branch
office in France of an existing European entity. For details of
the acquisition, see Note 13, Business
Combinations, of Notes to Consolidated Financial
Statements.
Basis
of Consolidation and Presentation
The accompanying Consolidated Financial Statements include the
accounts and operations of the Company. All intercompany
accounts and transactions have been eliminated. The
U.S. dollar is the functional currency for Trident and its
subsidiaries; therefore, the Company does not have a translation
adjustment recorded through accumulated other comprehensive
income (loss). Certain reclassifications have been made to prior
period amounts to conform to the current period presentation, as
follows: (i) part of the accounts receivable from related
party has been reclassified as accounts receivable;
(ii) technology licenses classified as prepaid expenses and
other current assets have been reclassified as other assets;
(iii) deferred margin previously classified as accrual
expenses and other
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities has been separately classified. Such
reclassifications did not have a significant impact on the
Companys gross profit, net loss of net cash (used in)
provided by operating activities.
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
quarter ended December 31, 2009. All references to
years, unless otherwise noted, refer to the
12-month
fiscal year, which prior to July 1, 2009, ended on
June 30, and beginning with January 1, 2010, ends on
December 31, of each year. In addition, the Company
presents the Consolidated Statement of Operations and
Consolidated Statement of Cash Flows for the transition six
month period ended December 31, 2009.
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
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.
Foreign
Currency Remeasurement
The Company uses the U.S. dollar as the functional currency
for all of its foreign subsidiaries. Sales and purchase
transactions are generally denominated in U.S. dollars. The
Company has not engaged in hedging transactions to reduce its
foreign currency exposure to such fluctuations; however, it may
take action in the future to reduce its foreign exchange risk.
Gains and losses from foreign currency remeasurements are
included in Other income (expense), net in the
Consolidated Statements of Operations. The Company recorded
foreign currency remeasurement losses of $3.1 million
during the year ended December 31, 2010, $0.6 million
for the six months ended December 31, 2009 and
$2.4 million for the year ended June 30, 2008,
respectively. The Company recorded a foreign currency
remeasurement gain of $1.8 million during the year ended
June 30, 2009.
Cash
and Cash Equivalents
Cash equivalents consist of highly liquid investments in money
market funds invested in Treasuries and certificates of deposits
purchased with an original maturity of ninety days or less from
the date of purchase.
Fair
Value of Financial Instruments
Currently, the Companys financial instruments consist
principally of cash and cash equivalents, accounts receivable,
notes receivable and accounts payable. The Company believes that
the recorded values of all of its other financial instruments
approximate their recorded values because of their nature and
respective maturity dates or durations.
Concentrations
of Credit Risk and Other Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and cash equivalents, notes receivable 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 the Companys trade receivables is derived
from sales to large multinational OEMs 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 the Companys
customers were typically
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
made on a prepaid or letter of credit basis while sales to a few
customers were made on open accounts. The Company performs
ongoing credit evaluations of its newly acquired customers
financial condition and generally requires no collateral to
secure accounts receivable. Historically, a relatively small
number of customers have accounted for a significant portion of
its revenues. The Companys products have been manufactured
primarily by two foundries, United Microelectronics Corporation,
or UMC, based in Taiwan and Micronas, based in Germany.
Effective with the February 8, 2010 closing of the
Companys acquisition of certain assets from NXP B.V., the
Company also has products manufactured by Taiwan Semiconductor
Manufacturing Company, or TSMC.
Foreign
currency exchange rate risk
As of December 31, 2010, the Company had operations in the
United States, United Kingdom, India, Taiwan, China, Hong Kong,
Germany, The Netherlands, Japan, Singapore and South Korea. The
functional currency of all of these operations is the
U.S. dollar. Approximately $66.7 million, or 71.5% of
the Companys cash and cash equivalents, were held by
entities outside the United States as of December 31, 2010,
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. Although personnel and
facilities-related expenses are primarily incurred in local
currencies due to the location of the Companys
subsidiaries outside the United States, substantially all of the
Companys other expenses are incurred in U.S. dollars.
Since the Company acquired certain product lines from Micronas
in May 2009, the Company has also incurred manufacturing and
related expenses in Euros, and expects to incur additional
expenses in Euros in the future as a result of the NXP
Transaction.
While the Company expects international revenues to continue to
be denominated primarily in U.S. dollars, an increasing
portion of the Companys international revenues may be
denominated in foreign currencies, such as Euros. In addition,
the Companys 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. The Company analyzes its 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 the Companys
financial results in the future. Following the NXP Transaction,
the Company now has many foreign locations, and a large
percentage of the Companys 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 the Companys operating costs in the
future.
Fluctuations in foreign exchange rates may have an adverse
effect on the Companys 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
The Company currently maintains its cash equivalents primarily
in certificates of deposit, U.S. Treasuries, and other highly
liquid investments. The Company does not have any derivative
financial instruments. The Company places cash investments in
instruments that meet high credit quality standards, as
specified in the Companys investment policy guidelines.
These guidelines also limit the amount of credit exposure to any
one issue, issuer or type of instrument.
The Companys cash and cash equivalents are not subject to
significant interest rate risk due to the short maturities of
these instruments. As of December 31, 2010, the Company has
approximately $93.2 million in cash and cash equivalents,
of which $62.2 million is cash and $31.0 million is
money market funds invested in U.S. Treasuries. The Company
currently intends to continue investing a significant portion of
its existing cash equivalents in interest bearing, investment
grade securities, with maturities of less than three months. The
Company does not believe that investments, in the aggregate,
have significant exposure to interest rate risk. However, the
Company will continue to monitor the health of the financial
institutions with which these investments and deposits have been
made due to the global financial environment.
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories are computed using the lower of cost or market,
which approximates actual cost on a
first-in-first-out
basis. Inventory components are
work-in-process
and finished goods. Finished goods are reported as inventories
until the point of title transfer to the customer. The Company
writes down its inventory value for excess and for estimated
obsolescence for the difference between the cost of inventory
and the estimated market value based upon assumptions about
future demand and market conditions. These factors are impacted
by market and economic conditions, technology changes, new
product introductions and changes in strategic direction and
require estimates that may include uncertain elements. Actual
demand may differ from forecasted demand, and such differences
may have a material effect on recorded inventory values. At
December 31, 2010, the Company had an inventory reserve
balance of $4.6 million. In addition, the Company recorded
a $2.8 million liability for ordered product with no
expected demand from customers for the year ended
December 31, 2010.
Long-lived
Assets
Property
and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Major improvements are
capitalized, while repairs and maintenance are expensed as
incurred. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the
assets. Furniture and fixtures are depreciated over five years.
Machinery, equipment and software are depreciated over three
years. Leasehold improvements are depreciated over the shorter
of the estimated useful lives of the assets or the lease terms.
The Companys Shanghai office building is depreciated over
a twenty year life and the office building land is subject to a
customary local property right certificate. Construction in
progress is not subject to depreciation until the asset is
placed in service. When assets are retired or otherwise disposed
of, the assets and related accumulated depreciation are removed
from the accounts. Gains or losses resulting from retirements or
disposals are included in Other income (expense),
net in the Consolidated Statements of Operations.
Depreciation expense was $14.5 million for the year ended
December 31, 2010, $2.4 million for the six months
ended December 31, 2009, and $3.5 million and
$2.5 million for the years ended June 30, 2009 and
2008, respectively.
Amortizable
Intangible Assets
The Company has two types of intangible
assets: acquisition-related intangible assets and
purchased intangible assets from third-party vendors. Intangible
assets are carried at cost, net of accumulated amortization. The
Company amortizes acquisition-related identified intangibles on
a straight-line basis, reflecting the pattern in which the
economic benefits of the intangible asset is consumed, over
their estimated economic lives of 4 to 5 years for core and
developed technology, 2 to 3 years for customer
relationships, 1 year for backlog, 4 to 5 years for
patents and the contractual term for service agreements.
Management evaluates the recoverability of its identifiable
intangible assets and long-lived assets in accordance with
applicable accounting guidance, which requires the assessment of
these assets for recoverability when events or circumstances
indicate a potential impairment exists. Certain events and
circumstances the Company considered in determining whether the
carrying value of identifiable intangible assets and other
long-lived assets may not be recoverable include, but are not
limited to: significant changes in performance relative to
expected operating results; significant changes in the use of
the assets; significant negative industry or economic trends; a
significant decline in its stock price for a sustained period of
time; and changes in its business strategy. In determining if an
impairment exists, the Company estimates the undiscounted cash
flows to be generated from the use and ultimate disposition of
these assets. If an impairment is indicated based on a
comparison of the assets carrying values and the
undiscounted cash flows, the impairment loss is measured as the
amount by which the carrying amount of the assets exceeds the
fair value of the assets.
During the year ended December 31, 2010, the Company wrote
off $2.5 million of technology licenses and prepaid
royalties under Cost of revenues in the Consolidated
Statement of Operations. During the year ended June 30,
2009, the Company recognized a $1.0 million impairment loss
on acquisition-related intangible assets. In
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
addition, the Company wrote off $1.7 million of third-party
purchased IP under Research and development in the
Consolidated Statement of Operations for the year ended
June 30, 2009. There was no impairment loss recorded during
the six month period ended December 31, 2009.
Goodwill
The Company accounts for goodwill in accordance with applicable
accounting guidance. Goodwill is recorded when the purchase
price of an acquisition exceeds the fair value of the net
purchased tangible and intangible assets acquired and is carried
at cost. Goodwill is not amortized, but is subject to an
impairment test annually. The Company will continue to perform
its annual goodwill impairment analysis in the quarter ended
June 30 of each year or more frequently if the Company believes
indicators of impairment exist. Factors that the Company
considers important which could trigger an impairment review
include the following:
|
|
|
|
|
significant underperformance relative to historical or projected
future operating results;
|
|
|
|
significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition;
|
|
|
|
significant negative industry or economic trends; and
|
|
|
|
significant decline in the Companys market capitalization.
|
The performance of the test involves a two-step process. The
first step requires a comparison of the fair value of the
reporting unit to its net book value, including goodwill. The
fair value of the reporting unit is determined based on the
present value of estimated future cash flows of the reporting
unit. A potential impairment exists if the fair value of the
reporting unit is lower than its net book value. The second step
of the process is only performed if a potential impairment
exists, and it involves determining the difference between the
fair values of the reporting units net assets, other than
goodwill, and the fair value of the reporting unit, and, if the
difference is less than the net book value of goodwill, an
impairment charge is recorded. In the event that the Company
determines that the value of goodwill has become impaired, the
Company will record a charge for the amount of impairment during
the quarter in which the determination is made. The Company
performed its annual goodwill impairment analysis in the quarter
ended June 30, 2010 and recorded an impairment charge of
$7.9 million, 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.
Revenue
Recognition
The Company recognizes revenues upon shipment directly to end
customers provided that persuasive evidence of an arrangement
exists, delivery has occurred, title has transferred, the price
is fixed or determinable, there are no customer acceptance
requirements, there are no remaining significant obligations and
collectability of the resulting receivable is reasonably assured.
The Company records estimated reductions to revenue for customer
incentive offerings, including rebates and sales returns
allowance in the same period that the related revenue is
recognized. The Companys customer incentive offerings
primarily involve volume rebates for its products in various
target markets and the Company accrues for 100% of the potential
rebates when it is likely that the relevant criteria will be
met. A sales returns allowance, which is presented as a
reduction to accounts receivable on the Companys
Consolidated Balance Sheet, is established based primarily on
historical sales returns, analysis of credit memo data and other
known factors at that time.
A significant amount of the Companys revenue is generated
through distributors that may benefit from pricing protection
and/or
rights of return. The Company defers recognition of product
revenue and costs from sales to such distributors until the
products are resold by the distributor to the end user customers
and records deferred revenue less cost of deferred revenues as a
net liability on the Companys Consolidated Balance Sheet.
At the time of shipment to such distributors, the Company
records a trade receivable at the selling price since there is a
legally enforceable obligation from the distributor to pay the
Company currently for product delivered and relieve
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
inventory for the carrying value of goods shipped since legal
title has passed to the distributor. During the year ended
December 31, 2010, the Company recognized
$131.2 million of product revenue from products that were
sold by distributors to the end user customers.
The Company presents any taxes assessed by a governmental
authority that are both imposed on and concurrent with our sales
on a net basis, excluded from revenues.
Stock-based
Compensation
The Company accounts for share-based payments, including grants
of stock options and awards to employees and directors, in
accordance with applicable accounting guidance, which requires
that share-based payments be recognized in its Consolidated
Statements of Operations based on their fair values and the
estimated number of shares the Company ultimately expects to
vest. The Company recognizes stock-based compensation expense on
a straight-line basis over the service period of all stock
options and awards other than performance-based restricted stock
awards with market conditions.
Shipping
and Handling Costs
Shipping and handling costs are included as a component of cost
of revenues.
Research
and Development Costs
Research and development costs are expensed as incurred. These
costs primarily include employees compensation, consulting
fees, software licensing fees and tape-out expenses.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist primarily
of personnel related expenses including stock-based
compensation, commissions paid to sales representatives and
distributors and professional fees.
Income
Taxes
The Company accounts for income taxes in accordance with
applicable accounting guidance, which requires that deferred tax
assets and liabilities be recognized by using enacted tax rates
for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities.
The Company also has to assess the likelihood that it will be
able to realize its deferred tax assets. If realization is not
more likely than not, the Company is required to record a
valuation allowance against deferred tax assets that the Company
estimates it will not ultimately realize. The Company believes
that it will not ultimately realize a substantial amount of the
deferred tax assets recorded on its consolidated balance sheets.
However, should there be a change in the ability to realize
deferred tax assets; the valuation allowance against deferred
tax assets would be released, resulting in a corresponding
reduction in the Companys tax provision.
The Company is required to make certain estimates and judgments
in determining income tax expense for financial statement
purposes. The Company recognizes liabilities for uncertain tax
positions based on the two-step process. The first step is to
evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including
resolution of related appeals or litigation, if any. The second
step requires us to estimate and measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon
ultimate settlement. Because the Company is required to
determine the probability of various possible outcomes, such
estimates are inherently difficult and subjective. The Company
reevaluates these uncertain tax positions on a quarterly basis.
This reevaluation is based on factors including, but not limited
to, changes in facts or circumstances and changes in tax law. A
change in recognition or measurement would result either in the
recognition of a tax benefit or in an additional charge to the
tax provision for the period.
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Income (loss) per Share
The Company computes net income (loss) per share in accordance
with applicable accounting guidance. Basic net income (loss) per
share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding for the
reporting period. Diluted net income (loss) per share is
computed by dividing net income by the combination of dilutive
common share equivalents, comprised of shares issuable under the
Companys stock-based compensation plans and the weighted
average number of shares of common stock outstanding during the
reporting period. Dilutive common share equivalents include the
dilutive effect of
in-the-money
options and warrants to purchase shares, which is calculated
based on the average share price for each period using the
treasury stock method. Under the treasury stock method, the
exercise price of an option, the amount of compensation cost, if
any, for future service that the Company has not yet recognized,
and the amount of estimated tax benefits that would be recorded
in paid-in capital, if any, when the option is exercised are
assumed to be used to repurchase shares in the current period.
Comprehensive
Income (Loss)
Comprehensive income (loss) is defined as the change in the
equity of a company during a period from transactions and other
events and circumstances excluding transactions resulting from
investments by owners and distributions to owners. Unrealized
gains and losses on investments are comprehensive income (loss)
items applicable to the Company and are reported as a separate
component of equity as Accumulated other comprehensive
income (loss).
Product
Warranty
The Companys products are generally subject to warranty,
which provides for the estimated future costs of repair,
replacement or customer accommodation upon revenue recognition
in the accompanying statements of operations. The Company
warrants its products against material defects for a period of
time usually between 90 days and one year.
Advertising
Expense
Advertising costs are expensed when incurred.
Recent
Accounting Pronouncements
Effective July 1, 2009, the Company adopted the FASBs
updated guidance related to business combinations. The updated
guidance establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree. The
updated standard also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial
effects of the business combination. Under the updated guidance,
the Company is expensing the transaction and employee
termination costs associated with the NXP product lines
acquisitions, while under the prior accounting standards such
costs would have been capitalized. In addition, the Company
acquired in-process research and development of
$18.0 million in 2010, which has been capitalized in
accordance with the updated guidance, whereas under prior
authoritative guidance the amount would have been expensed
immediately. Therefore, the Company believes the updated
guidance had a material impact on its future consolidated
financial statements.
Effective January 1, 2010, the Company adopted the
FASBs updated guidance related to fair value measurements
and disclosures, which requires a reporting entity to disclose
separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and to
describe the reasons for the transfers. In addition, in the
reconciliation for fair value measurements using significant
unobservable inputs, or Level 3, a reporting entity should
disclose separately information about purchases, sales,
issuances and settlements (that is, on a gross basis rather than
one net number). The updated guidance also requires that an
entity should provide fair value measurement disclosures for
each class of assets and liabilities and disclosures about the
valuation techniques
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and inputs used to measure fair value for both recurring and
non-recurring fair value measurements for Level 2 and
Level 3 fair value measurements. The guidance is effective
for interim or annual financial reporting periods beginning
after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward
activity in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years.
Therefore, the Company has not yet adopted the guidance with
respect to the roll forward activity in Level 3 fair value
measurements. The Company has updated its disclosures to comply
with the updated guidance; however, adoption of the updated
guidance did not have an impact on the Companys
consolidated results of operations or financial condition.
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. The adoption of this guidance did not
significantly impact the Companys Consolidated financial
statements. This guidance was incorporated into the
Companys recognition of revenue.
In December 2010, the FASB updated its guidance related to when
to perform step two of the goodwill impairment test for
reporting units with zero or negative carrying amounts. The
updated guidance requires that for any reporting unit with a
zero or negative carrying amount, an entity is required to
perform Step 2 of the goodwill impairment test if it is more
likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment
may exist. The updated guidance is effective for fiscal years,
and interim periods within those years, beginning after
December 15, 2010. The Company does not expect adoption to
have a material impact on its consolidated results of operations
or financial condition.
In December 2010, the FASB updated its guidance related to
disclosure of supplementary pro forma information for business
combinations. The updated guidance requires that if comparative
financial statements are presented, the pro forma revenue and
earnings of the combined entity for the comparable prior
reporting period should be reported as though the acquisition
date for all business combinations that occurred during the
current year had been as of the beginning of the comparable
prior annual reporting period only. The updated guidance is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010, with early adoption permitted. The Company has not yet
adopted the updated guidance and the Company does not expect
adoption to have an impact on its consolidated results of
operations or financial condition as the updated guidance only
affects disclosures related to future business combinations.
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
BALANCE
SHEET COMPONENTS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
62,226
|
|
|
$
|
86,382
|
|
Money market funds invested in U.S. Treasuries
|
|
|
30,998
|
|
|
|
61,613
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
93,224
|
|
|
$
|
147,995
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
$
|
62,962
|
|
|
$
|
4,902
|
|
Allowance for sales returns and doubtful accounts
|
|
|
(634
|
)
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
$
|
62,328
|
|
|
$
|
4,582
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work in process
|
|
$
|
4,751
|
|
|
$
|
12,539
|
|
Finished goods
|
|
|
18,274
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
23,025
|
|
|
$
|
14,536
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
VAT receivable
|
|
|
9,488
|
|
|
|
3,886
|
|
Prepaid and deferred taxes
|
|
|
658
|
|
|
|
|
|
Prepaid insurance
|
|
|
524
|
|
|
|
|
|
Other
|
|
|
7,660
|
|
|
|
3,471
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets:
|
|
$
|
18,330
|
|
|
$
|
7,357
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Building and leasehold improvements
|
|
$
|
21,068
|
|
|
$
|
19,522
|
|
Machinery and equipment
|
|
|
29,889
|
|
|
|
15,427
|
|
Software
|
|
|
4,816
|
|
|
|
4,096
|
|
Furniture and fixtures
|
|
|
3,411
|
|
|
|
2,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,184
|
|
|
|
41,341
|
|
Accumulated depreciation
|
|
|
(27,618
|
)
|
|
|
(15,173
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
31,566
|
|
|
$
|
26,168
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
22,098
|
|
|
$
|
4,482
|
|
Price rebates
|
|
|
6,414
|
|
|
|
5,913
|
|
Wafer and substrate fees
|
|
|
4,203
|
|
|
|
2,227
|
|
VAT Tax payable
|
|
|
4,203
|
|
|
|
1,256
|
|
Royalties
|
|
|
2,579
|
|
|
|
939
|
|
Contingent liabilities
|
|
|
2,758
|
|
|
|
4,336
|
|
Professional fees
|
|
|
2,133
|
|
|
|
2,912
|
|
Restructuring accrual
|
|
|
4,518
|
|
|
|
|
|
Warranty accrual
|
|
|
1,596
|
|
|
|
|
|
Software licenses
|
|
|
5,989
|
|
|
|
|
|
Other
|
|
|
13,910
|
|
|
|
4,674
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
|
$
|
70,401
|
|
|
$
|
26,739
|
|
|
|
|
|
|
|
|
|
|
Deferred margin:
|
|
|
|
|
|
|
|
|
Deferred revenue on shipments to distributors
|
|
$
|
18,841
|
|
|
$
|
709
|
|
Deferred cost of sales on shipments to distributors
|
|
|
(9,937
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred margin
|
|
$
|
8,904
|
|
|
$
|
329
|
|
|
|
|
|
|
|
|
|
|
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
Goodwill
and impairment
The following table presents goodwill balances:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of June 30, 2008
|
|
$
|
1,432
|
|
|
|
|
|
|
Goodwill acquired
|
|
|
7,708
|
|
Impairment charge
|
|
|
(1,432
|
)
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
|
7,708
|
|
Goodwill acquired
|
|
|
|
|
Impairment charge/other
|
|
|
143
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
7,851
|
|
Goodwill acquired
|
|
|
|
|
Impairment charge
|
|
|
(7,851
|
)
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
The Company performed a goodwill impairment analysis in the
quarter ended March 31, 2009 and determined TMBJs net
book value exceeded the estimated fair value since there will be
no future revenues for the products developed by TMBJ, and the
Company decided to reallocate its resources to the SOC market
and the acquisition of the Micronas product lines. Accordingly,
the Company wrote off the entire goodwill balance at TMBJ and
recognized a goodwill impairment charge of $1.4 million.
The Company performed an annual goodwill impairment analysis in
the quarter ended June 30, 2010 and recorded an impairment
charge of $7.9 million, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Amortization
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Amortization
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
and Impairment
|
|
|
Amount
|
|
|
Amount
|
|
|
and Impairment
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core & developed
|
|
$
|
84,607
|
|
|
$
|
(40,716
|
)
|
|
$
|
43,891
|
|
|
$
|
27,751
|
|
|
$
|
(22,366
|
)
|
|
$
|
5,385
|
|
Customer relationships
|
|
|
25,120
|
|
|
|
(11,795
|
)
|
|
|
13,325
|
|
|
|
2,120
|
|
|
|
(1,944
|
)
|
|
|
176
|
|
Backlog
|
|
|
15,166
|
|
|
|
(15,166
|
)
|
|
|
|
|
|
|
166
|
|
|
|
(92
|
)
|
|
|
74
|
|
Patents
|
|
|
13,000
|
|
|
|
(2,588
|
)
|
|
|
10,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process R&D
|
|
|
9,144
|
|
|
|
|
|
|
|
9,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service agreements
|
|
|
16,000
|
|
|
|
(9,851
|
)
|
|
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163,037
|
|
|
$
|
(80,116
|
)
|
|
$
|
82,921
|
|
|
$
|
30,037
|
|
|
$
|
(24,402
|
)
|
|
$
|
5,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 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
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
technology reaches technical feasibility. As of
December 31, 2010, approximately $8.9 million of the
in-process research and development has reached technological
feasibility and the unamortized portion is included in the
estimated future amortization expense of intangible assets. See
Note 13, Business Combinations, of Notes to
Consolidated Financial Statements for a further description of
the Companys in-process research and development.
The following table presents details of the amortization of
intangible assets included in net revenues, cost of revenues,
research and development and selling, general and administrative
expense categories for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
48,206
|
|
|
$
|
1,949
|
|
|
$
|
3,567
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
4,690
|
|
|
|
102
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,714
|
|
|
$
|
2,051
|
|
|
$
|
3,965
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the estimated future amortization
expense of intangible assets in the table above is as follows,
excluding in-process research and development intangible asset
that has not reached technological feasibility:
|
|
|
|
|
|
|
Estimated
|
|
Year Ending
|
|
Amortization
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
38,310
|
|
2012
|
|
|
26,706
|
|
2013
|
|
|
7,015
|
|
2014
|
|
|
1,746
|
|
2015 and thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,777
|
|
|
|
|
|
|
The Company replaces defective products that are expected to be
returned by its customers under its warranty program and
includes such estimated product returns in its Allowance
for sales returns analysis. The following table reflects
the changes in the Companys accrued product warranty for
expected customer claims related to known product warranty
issues for the year ended December 31, 2010, six months
ended December 31, 2009 and years ended June 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Accrued product warranty, beginning of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
800
|
|
|
|
|
|
Charged to (reversal of) cost of revenues
|
|
|
1,666
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
(372
|
)
|
|
|
|
|
Actual product warranty expenses
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued product warranty, end of period
|
|
$
|
1,596
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
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
$0.6 million as of December 31, 2010.
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 15, Related Party Transactions, of Notes
to Consolidated Financial Statements.
Contractual
Obligations
The following summarizes our contractual obligations as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011
|
|
|
Fiscal 2012
|
|
|
Fiscal 2013
|
|
|
Fiscal 2014
|
|
|
Fiscal 2015
|
|
|
Thereafter
|
|
|
Total
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases(1)
|
|
$
|
5.1
|
|
|
$
|
4.6
|
|
|
$
|
3.5
|
|
|
$
|
2.6
|
|
|
$
|
1.5
|
|
|
$
|
1.3
|
|
|
$
|
18.6
|
|
Purchase Obligations(2)
|
|
|
21.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.3
|
|
|
$
|
5.6
|
|
|
$
|
3.5
|
|
|
$
|
2.6
|
|
|
$
|
1.5
|
|
|
$
|
1.3
|
|
|
$
|
40.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2010, the Company leased office space and
has 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 and includes
lease commitments resulting from the acquisition of selected
assets and liabilities of NXP on February 8, 2010 and its
corporate headquarters lease that commenced on April 1,
2010 having a $3.6 million total future lease obligation. |
|
(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. As of December 31, 2010, the
Company had purchase commitments in the amount of
$13.0 million that were not included in the consolidated
balance sheet at that date. Of this amount, $1.2 million
represents purchase commitments by the Company to UMC for
intellectual properties, software licensing purchases and other
commitments. In addition, the Company entered into an
engineering software license and maintenance agreement with NXP
on March 5, 2010 having a future net cash obligation of
$9.2 million. NXP is obligated under the engineering
software license and maintenance agreement to reimburse the
Company for $9.2 million. |
Rental expense for the year ended December 31, 2010, six
months ended December 31, 2009 and the years ended
June 30, 2009 and 2008, was $5.9 million,
$1.4 million, $1.5 million, and $1.5 million,
respectively.
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 video decoding products
infringe a patent relating generally to compressing and
decompressing digital
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
video. The complaint seeks a permanent injunction against
Trident 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.
Shareholder
Derivative Litigation
Trident has been named as a nominal defendant in several
purported 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.
Plaintiffs in all cases alleged 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 its financial statements); and that as a result those
officers and directors are liable to the Company. No particular
amount of damages has been alleged, and by the nature of the
lawsuit no damages will be alleged against the Company. Our
Board of Directors appointed a Special Litigation Committee
(SLC) composed solely of independent directors to
review and manage any claims that we may have relating to the
stock option grant practices investigated by the Special
Committee. The scope of the SLCs authority includes the
claims asserted in the derivative actions.
On March 26, 2010, the federal court approved settlements
with all defendants other than Frank Lin, our former CEO. The
details of that partial settlement, which disposed of the
federal litigation as to all individual defendants other than
Mr. Lin and as to the consolidated state court action in
its entirety, were previously disclosed in our
Form 8-K
filed on February 10, 2010.
On June 8, 2010, Mr. Lin filed a counterclaim against
Trident. In that counterclaim, Mr. Lin sought recovery of
payments he claimed he was promised during the negotiations
surrounding his eventual termination and also losses he claimed
he has suffered because he was not permitted to exercise his
Trident stock options between January 2007 and March 2008. On
February 11, 2011, we entered into a settlement agreement
with Mr. Lin regarding his counterclaims, contingent on the
settlement of the derivative litigation pursuant to certain
terms.
On February 15, 2011, we entered into a Stipulation of
Settlement to resolve the federal litigation in its entirety, or
Proposed Settlement, and on February 17, 2011, the federal
court preliminarily approved the Proposed Settlement. A hearing
for consideration of final approval of the Proposed Settlement
has been scheduled for April 15, 2011 at 9:00 a.m. in
Courtroom 3 of the United States District Court in
San Jose, California. Final approval, without appeal, of
the Proposed Settlement would satisfy the contingency in the
settlement of Mr. Lins counterclaims against us. We
cannot predict whether the federal court will order the final
approval of the Proposed Settlement and, if it does, whether
such decision will be appealed. As a result, we cannot predict
whether Mr. Lins counterclaims against us in the
federal litigation 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 and related to the Proposed
Settlement, including expenses for the reimbursement of certain
legal fees of at least Mr. Lin 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
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Pursuant to the same judgment, we received
a payment of $817,509 from Mr. Lin, representing $650,772
in disgorged profits gained as a result of conduct alleged by
the SEC in its civil complaint against him, together with
prejudgment interest thereon of $166,737. 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 2006 Plan
S-8 in order
to exercise their vested options. During the three months 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 three months 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) the written
permission of us.
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 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 year then ended. Following the March 2010 partial settlement
of the derivative litigation, which included a release of claims
by our two former non-employee directors, we reduced the
contingent liability by $1.6 million. However, because the
derivative litigation is still pending with respect to
Mr. Lin, who may seek compensation from us relating to the
exercise of his fully vested stock options in the event that the
Proposed Settlement entered into during February 2011 is either
not finally approved by the federal court or successfully
appealed thereafter; a $2.8 million contingent liability
remained in Accrued expenses and other current
liabilities in the Consolidated Balance Sheet as of
December 31, 2010.
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 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
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.
Commercial
Litigation
In June 2010, Exatel Visual Systems, Ltd (Exatel)
filed a complaint against Trident and NXP Semiconductors USA,
Inc. (NXP), in Superior Court for the State of
California,
No. 1-10-CV-174333,
alleging the following five counts: (1) breach of contract,
(2) breach of implied covenant of good faith and fair
dealing, (3) fraud by misrepresentation and concealment,
(4) negligent misrepresentation, and (5) breach of
fiduciary duty. The complaint arises from a series of alleged
transactions between Exatel and NXPs predecessor, Conexant
Systems, Inc. pertaining to a joint product development project
they undertook commencing in 2007. Trident and NXP have each
tendered an indemnity claim to the other for damages and fees
arising out of the lawsuit pursuant to a contractual indemnity
agreement between them. Both have refused. We have filed a
demurrer seeking to dismiss the lawsuit primarily on the grounds
that we are not a party to any contract with Exatel. Prior to
the hearing on demurrer, Exatel dismissed NXP without prejudice
from the lawsuit and agreed to arbitration after NXP filed a
motion to compel arbitration for the claims against it pursuant
to contractual arbitration provisions within the relevant
contracts. On December 7, 2010, the court sustained our
demurrer as to all causes of action, with leave to amend. Exatel
has filed an amended complaint. We will demur again, with the
hearing set for June 23, 2011. 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, the Company is involved in other legal
proceedings arising in the ordinary course of our 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 its business, financial
position, results of operation or cash flows.
Common
Stock Warrants
In connection with the Micronas acquisition, the Company issued
warrants to acquire up to 3.0 million additional shares of
its common stock. The warrants were valued using the
Black-Scholes option pricing model with the following inputs:
volatility factor 68%, contractual terms of 5 years,
risk-free interest rate of 1.98%, and a market value for Trident
stock of $1.43 per share at the acquisition date, May 14,
2009. Warrants to purchase one million shares will vest on each
of the second, third and fourth anniversaries of the closing of
the transaction, with exercise prices of $4.00 per share, $4.25
per share and $4.50 per share, respectively. The warrants
provide for customary anti-dilution adjustments, including for
stock splits, dividends, distributions, rights issuances and
certain tender offers or exchange offers. If not yet exercised,
the warrants will expire on May 14, 2014.
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Preferred
Stock
In connection with the NXP acquisition, the Company issued to
NXP four shares of a newly created Series B Preferred
Stock, having the rights, privileges and preferences set forth
in the Certificate of Designation of the Series B Preferred
Stock filed on February 5, 2010 (Series B
Certificate). The number of shares of Series B
Preferred Stock is fixed at four. Each share has a liquidation
preference of $1.00, which must be paid prior to any
distribution to holders of common stock upon any liquidation of
the Company, and no subsequent right to participate in further
distributions on liquidation. The shares of Series B
Preferred Stock have no dividend rights. The voting rights of
the shares of Series B Preferred Stock primarily relate to
the nomination and election of up to four members of the
Companys Board of Directors (Series B
Directors), as distinguished from the other members of the
Companys Board of Directors. For so long as the holders of
the Series B Preferred Stock beneficially own 11% or more
of the Companys common stock and are entitled to elect a
director, the size of the Companys Board will be fixed at
nine directors. The holders of the Series B Preferred Stock
are solely entitled to elect a number of Series B Directors
based on a formula relating to their aggregate beneficial
ownership of the Companys common stock as follows:
(a) at 40% or greater, four Series B Directors,
(b) less than 40% but at least 30%, three series B
Directors, (c) less than 30% but at least 20%, two
Series B Directors and (d) less than 20% but at least
11%, one Series B Director. The Series B Certificate
sets forth the rights of the holders of the Series B
Preferred Stock to remove and replace the Series B
Directors, as well as their rights to vote as a class to amend,
alter or repeal any of its provisions that would adversely
affect the powers, designations, preferences and other special
rights of the Series B Preferred Stock.
Preferred
Shares Rights
On July 24, 1998, the Companys Board of Directors
adopted a Preferred Shares Rights Agreement (the
Original Rights Agreement). Pursuant to the
Agreement, the Companys Board of Directors authorized and
declared a dividend of one preferred share purchase right
(Right) for each outstanding share of the
Companys common stock, par value $0.001 (Common
Shares) of the Company as of August 14, 1998. The
Rights are designed to protect and maximize the value of the
outstanding equity interests in Trident in the event of an
unsolicited attempt by an acquirer to take over Trident, in a
manner or terms not approved by the Board of Directors.
On July 23, 2008, the Board approved an amendment to the
Original Rights Agreement pursuant to an Amended and Restated
Rights Agreement dated as of July 23, 2008 (the
Amended and Restated Rights Agreement). The Amended
and Restated Rights Agreement (i) extended the Final
Expiration Date, as defined in the Original Rights Agreement,
through July 23, 2018; (ii) adjusted the number of
shares of Series A Preferred Stock (Preferred
Shares) issuable upon exercise of each Right from one
one-hundredth to one one-thousandth; (iii) changed the
purchase price (the Purchase Price) of each Right to
$38.00; and (iv) added a provision requiring periodic
evaluation (at least every three years after July 23,
2008) of the Amended and Restated Rights Agreement by a
committee of independent directors to determine if maintenance
of the Amended and Restated Rights Agreement continues to be in
the best interests of the Company and its stockholders. The
Company subsequently amended the Amended and Restated Rights
Agreement to provide that the issuance of shares of Trident
common stock to Micronas and to NXP, respectively, does not
trigger the Rights under the Amended and Restated Rights
Agreement.
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 on March 10, 2010.
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
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
who were subject to U.S. income taxation received 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.
Equity
Incentive Plans
The Company grants nonstatutory and incentive stock options,
restricted stock awards, and restricted stock units to attract
and retain officers, directors, employees and consultants. As of
December 31, 2010, the Company made awards under two equity
incentive plans: the 2006 Equity Incentive Plan (the 2006
Plan), the 2002 Stock Option Plan (the 2002
Plan). The Company has also adopted the 2001 Employee
Stock Purchase Plan; however purchases under this plan have been
suspended. Options to purchase Tridents common stock
remain outstanding under three incentive plans which have
expired or been terminated: the 1992 Stock Option Plan, the 1994
Outside Directors Stock Option Plan and the 1996 Nonstatutory
Stock Option Plan. In addition, options to purchase
Tridents common stock are outstanding as a result of the
assumption by the Company of options granted to TTIs
officers, employees and consultants under the TTI 2003 Employee
Option Plan (TTI Plan). The options granted under
the TTI Option 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.
In May 2006, Tridents stockholders approved the 2006 Plan,
which 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, deferred
compensation awards, cash-based and other stock-based awards and
nonemployee director awards of up to 4,350,000 shares. On
March 31, 2008, Tridents Board of Directors approved
an amendment to the 2006 Plan to increase the number of shares
available for issuance from 4,350,000 shares to
8,350,000 shares, which was subsequently approved in a
special stockholders meeting on May 16, 2008. For
purposes of the total number of shares available for grant under
the 2006 Plan, any shares that are subject to awards of stock
options, stock appreciation rights, deferred compensation award
or other award that requires the option holder to purchase
shares for monetary consideration equal to their fair market
value determined at the time of grant shall be counted against
the
available-for-grant
limit as one share for every one share issued, and any shares
issued in connection with awards other than stock options, stock
appreciation rights, deferred compensation award or other award
that requires the option holder to purchase shares for monetary
consideration equal to their fair market value determined at the
time of grant shall be counted against the
available-for-grant
limit as 1.38 shares for every one share issued. Stock
options granted under the 2006 Plan 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. In February, 2010, the stockholders of the
Company approved the adoption of the 2010 Equity Incentive Plan,
which supersedes the 2006 Plan and the 2002 Plan. The 2006 Plan
and 2002 Plan were terminated on January 26, 2010.
Stock options granted under the TTI Plan expire no later than
ten years from the grant date. Options granted under the TTI
Plan were generally exercisable one or two years after date of
grant and vest over a requisite service
73
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
period of generally two or four years following the date of
grant. No further awards may be made under the TTI Plan.
In December 2002, Trident adopted the stockholder-approved 2002
Plan under which shares of common stock could be issued to
officers, directors, employees and consultants. Stock options
granted under the 2002 Plan must have an exercise price equal to
at least 85% of the closing market price of the underlying stock
on the grant date and expire no later than ten years from the
grant date. Options granted under the 2002 Plan were generally
exercisable in cumulative installments of one-third or
one-fourth each year, commencing one year following the date of
grant.
The Company accounts for share-based payments, including grants
of stock options and awards to employees and directors, in
accordance with applicable accounting guidance, which requires
that share-based payments be recognized in its consolidated
statements of operations based on their fair values and the
estimated number of shares the Company ultimately expects will
vest. Stock-based compensation expense recognized in the
Consolidated Statements of Operations for the year ended
December 31, 2010, six month period ended December 31,
2009 and the years ended June 30, 2009 and 2008 include
compensation expense for stock-based payment awards granted
prior to, but not yet vested as of, June 30, 2005 based on
the grant date fair value estimated in accordance with the pro
forma provisions of previous accounting guidance, and
compensation expense for the stock-based payment awards granted
subsequent to June 30, 2005 based on the grant date fair
value estimated in accordance with the provisions accounting
guidance applicable since then. In accordance with applicable
accounting guidance, the Company recognizes stock-based
compensation expense on a straight-line basis over the service
period of all stock options and awards other than the
performance-based restricted stock award with market conditions
that was granted to its former Chief Executive Officer under the
2006 Plan. For purposes of expensing this single
performance-based grant, the Company elected to use the
accelerated method.
Valuation
Assumptions
The Company values its stock-based payment awards granted using
the Black-Scholes model, except for the performance-based
restricted stock award with a market condition granted under the
2006 Plan during the year ended June 30, 2008, for which
the Company elected to use a Monte Carlo simulation to value the
award.
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 characteristics significantly different from those of
traded options, and changes in the assumptions can materially
affect the fair value estimates.
For the year ended December 31, 2010, six months ended
December 31, 2009 and the years ended June 30, 2009
and 2008, respectively, the fair value of options granted were
estimated at the date of grant using the Black-Scholes model
with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Six Months Ended
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
Years Ended June 30,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
Expected terms (in years)
|
|
|
4.78
|
|
|
|
4.74
|
|
|
|
3.94
|
|
|
|
4.20
|
|
Volatility
|
|
|
69.02
|
%
|
|
|
68.58
|
%
|
|
|
62.68
|
%
|
|
|
52.25
|
%
|
Risk-free interest rate
|
|
|
2.25
|
%
|
|
|
2.41
|
%
|
|
|
2.83
|
%
|
|
|
3.97
|
%
|
Expected dividend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
|
|
|
1.79
|
|
|
$
|
1.13
|
|
|
$
|
1.27
|
|
|
$
|
5.04
|
|
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 as allowed under
applicable accounting guidance 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
74
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
Consolidated Statements of Operations for the year ended
December 31, 2010, six months ended December 31, 2009
and the years ended June 30, 2009 and 2008 is based on
awards ultimately expected to vest, it has been reduced for
estimated forfeitures. Accounting guidance requires forfeitures
to be estimated 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. The Company adjusts stock-based compensation expense
based on its actual forfeitures on an annual basis, if necessary.
Stock-Based
Compensation Expense
The following table summarizes the impact of recording
stock-based compensation expense under applicable accounting
guidance for the year ended December 31, 2010, six months
ended December 31, 2009 and the years ended June 30,
2009 and 2008. The Company has not capitalized any stock-based
compensation expense in inventory for the year ended
December 31, 2010, six months ended December 31, 2009
or the years ended June 30, 2009 and 2008 as such amounts
were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended,
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Year Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of revenues
|
|
$
|
372
|
|
|
$
|
124
|
|
|
$
|
587
|
|
|
$
|
763
|
|
Research and development
|
|
|
3,550
|
|
|
|
1,665
|
|
|
|
7,539
|
|
|
|
12,418
|
|
Selling, general and administrative
|
|
|
2,981
|
|
|
|
1,666
|
|
|
|
4,547
|
|
|
|
15,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
6,903
|
|
|
$
|
3,455
|
|
|
$
|
12,673
|
|
|
$
|
28,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.3 million of the $15.4 million in selling, general
and administrative expenses for the year ended June 30,
2008 was related to the contingent liability and we reduced
selling, general and administrative expense and the contingent
liability by $1.5 million during the year ended
December 31, 2010, due to a partial settlement with two
former non-employee directors as discussed below in
Modification of Certain Options.
The following table summarizes the Companys stock option
activities for the year ended December 31, 2010, six months
ended December 31, 2009 and for the years ended
June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Options Outstanding
|
|
|
|
Available for
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Grant
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(Shares in thousands, except per share amounts)
|
|
|
Balance at June 30, 2007
|
|
|
3,584
|
|
|
|
9,802
|
|
|
$
|
6.82
|
|
Options increase under 2006 Plan
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
Plan shares expired
|
|
|
(594
|
)
|
|
|
|
|
|
|
|
|
Restricted stock granted(1)
|
|
|
(1,273
|
)
|
|
|
|
|
|
|
|
|
Restricted stock cancellation(1)
|
|
|
192
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(1,870
|
)
|
|
|
1,870
|
|
|
|
10.60
|
|
Options exercised
|
|
|
|
|
|
|
(2,778
|
)
|
|
|
2.01
|
|
Options cancelled, forfeited or expired
|
|
|
1,369
|
|
|
|
(1,369
|
)
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
5,408
|
|
|
|
7,525
|
|
|
$
|
8.94
|
|
Plan shares expired
|
|
|
(594
|
)
|
|
|
|
|
|
|
|
|
Restricted stock granted(1)
|
|
|
(1,512
|
)
|
|
|
|
|
|
|
|
|
Restricted stock cancellation(1)
|
|
|
424
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(1,859
|
)
|
|
|
1,859
|
|
|
|
2.57
|
|
75
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Options Outstanding
|
|
|
|
Available for
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Grant
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(Shares in thousands, except per share amounts)
|
|
|
Options exercised
|
|
|
|
|
|
|
(1,062
|
)
|
|
|
1.23
|
|
Options cancelled, forfeited or expired
|
|
|
1,454
|
|
|
|
(1,454
|
)
|
|
|
9.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
3,321
|
|
|
|
6,868
|
|
|
$
|
8.21
|
|
Plan shares expired
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
Restricted stock granted(1)
|
|
|
(1,486
|
)
|
|
|
|
|
|
|
|
|
Restricted stock cancellation(1)
|
|
|
304
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(891
|
)
|
|
|
891
|
|
|
|
1.98
|
|
Options exercised
|
|
|
|
|
|
|
(321
|
)
|
|
|
1.18
|
|
Options cancelled, forfeited or expired
|
|
|
749
|
|
|
|
(749
|
)
|
|
|
10.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
1,683
|
|
|
|
6,690
|
|
|
$
|
7.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan shares expired
|
|
|
(4,335
|
)
|
|
|
|
|
|
|
|
|
Options increase under 2010 Plan
|
|
|
42,300
|
|
|
|
|
|
|
|
|
|
Restricted stock granted(1)
|
|
|
(5,150
|
)
|
|
|
|
|
|
|
|
|
Restricted stock cancellation(1)
|
|
|
790
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(794
|
)
|
|
|
794
|
|
|
|
1.79
|
|
Options exercised
|
|
|
|
|
|
|
(159
|
)
|
|
|
1.19
|
|
Options cancelled, forfeited or expired
|
|
|
2,298
|
|
|
|
(2,298
|
)
|
|
|
13.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
36,792
|
|
|
|
5,027
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Restricted stock is deducted from shares available for grant
under the 2006 Plan at a 1 to 1.38 ratio and under the 2010 plan
at a 1 to 1.20 ratio. |
As of December 31, 2010 the total number of stock options
exercisable was approximately 2,760,000 with a weighted average
exercise price of $5.49. As of December 31, 2009 the total
number of stock options exercisable was approximately 3,531,000
with a weighted average exercise price of $8.72. At
June 30, 2009 and 2008, the total number of stock options
exercisable was approximately 3,412,000 and 3,817,000,
respectively. At June 30, 2009 and 2008, the aggregate
outstanding exercisable stock options had a weighted average
exercise price of $8.22 and $5.65, respectively.
During the year ended December 31, 2010, six months ended
December 31, 2009, and the years ended June 30, 2009
and 2008, the total pre-tax intrinsic value of stock options
exercised was $0.9 million, $0.3 million and
$2.2 million, respectively.
76
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about the
Companys stock options outstanding and exercisable as of
December 31, 2010 (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Term
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
(in Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
$0.78 $1.70
|
|
|
1,282
|
|
|
|
4.1
|
|
|
$
|
1.30
|
|
|
|
1,082
|
|
|
$
|
1.27
|
|
$1.73 $2.02
|
|
|
1,412
|
|
|
|
9.0
|
|
|
$
|
1.91
|
|
|
|
231
|
|
|
$
|
2.01
|
|
$2.06 $4.34
|
|
|
1,301
|
|
|
|
7.4
|
|
|
$
|
2.93
|
|
|
|
580
|
|
|
$
|
3.03
|
|
$4.69 $24.40
|
|
|
1,032
|
|
|
|
5.9
|
|
|
$
|
12.92
|
|
|
|
867
|
|
|
$
|
13.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,027
|
|
|
|
6.7
|
|
|
$
|
4.28
|
|
|
|
2,760
|
|
|
$
|
5.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options outstanding as of
December 31, 2010 was $0.6 million. The aggregate
intrinsic value represents the total pre-tax intrinsic value,
which is computed based on the difference between the exercise
price and the $1.78 per share closing price of Tridents
common stock on December 31, 2010, which would have been
received by the option holders had all option holders exercised
and sold their options on that date.
The aggregate intrinsic value and weighted average remaining
contractual term of options vested and expected to vest at
December 31, 2010 was $0.6 million and 6.6 years,
respectively. The aggregate intrinsic value and weighted average
remaining contractual term of options exercisable at
December 31, 2010 was $0.6 million and 5.3 years,
respectively. The aggregate intrinsic value is calculated based
on the closing price of Tridents common stock for all
in-the-money
options on December 31, 2010.
As of December 31, 2010, there was $2.1 million of
total unrecognized compensation cost related to stock options
granted under all Employee Benefit Plans. This unrecognized
compensation cost is expected to be recognized over a weighted
average period of 2.0 years.
77
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Awards and Restricted Stock Units
The following table summarizes the activity for Tridents
restricted stock awards, or RSAs, and restricted stock units, or
RSUs, for the year ended December 31, 2010, six months
ended December 31, 2009 and the years ended June 30,
2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant-Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
|
(Shares in thousands, except per share amounts)
|
|
|
Nonvested balance at June 30, 2007
|
|
|
275
|
|
|
$
|
19.98
|
|
Granted
|
|
|
923
|
|
|
|
12.20
|
|
Vested
|
|
|
(50
|
)
|
|
|
19.64
|
|
Forfeited
|
|
|
(140
|
)
|
|
|
13.92
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at June 30, 2008
|
|
|
1,008
|
|
|
$
|
13.71
|
|
Granted
|
|
|
1,096
|
|
|
|
3.33
|
|
Vested
|
|
|
(247
|
)
|
|
|
3.85
|
|
Forfeited
|
|
|
(307
|
)
|
|
|
10.86
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at June 30, 2009
|
|
|
1,551
|
|
|
$
|
7.02
|
|
Granted
|
|
|
1,076
|
|
|
|
1.92
|
|
Vested
|
|
|
(379
|
)
|
|
|
7.55
|
|
Forfeited
|
|
|
(220
|
)
|
|
|
5.94
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2009
|
|
|
2,028
|
|
|
$
|
4.44
|
|
Granted
|
|
|
4,292
|
|
|
|
1.75
|
|
Vested
|
|
|
(1,255
|
)
|
|
|
1.55
|
|
Forfeited
|
|
|
(613
|
)
|
|
|
2.46
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2010
|
|
|
4,452
|
|
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
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 issued to the Companys former
Chief Executive Officer on October 23, 2007 as part of her
initial new hire award. As part of the Resignation Agreement and
Release of Claims between the Company and the former Chief
Executive Officer, the 110,000 performance-based shares were
accelerated and an insignificant amount of expense was
recognized in January 2011.
The table above also includes performance-based RSU awards of
67,000 shares under the 2006 Plan, granted on
October 4, 2009, to the Companys former Chief
Executive Officer. The RSU award granted to the former Chief
Executive Officer were cancelled during January 2011 and no
expense was recognized in January 2011.
The table above also includes performance-based RSU awards of
35,000 shares under the 2006 Plan, granted on
October 4, 2009, to the Senior Vice President of
Engineering. 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 year
ended December 31, 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 year ended December 31, 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 year ended December 31, 2010, stock-based
compensation
78
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense $0.3 million was recorded, respectively for these
performance share awards based on service conditions having been
met. As of December 31, 2010, none of these performance
share awards had vested.
The Company recognized expense for RSAs and RSUs, including
performance share awards granted under the 2010 Plan, for the
year ended December 31, 2010, of $5.7 million. A total
of $7.1 million of unrecognized compensation cost is
expected to be recognized over a weighted average period of
2.0 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 three months 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 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 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 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.
79
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
On March 26, 2010, the claims by these two former
non-employee directors against the Company, valued at
approximately $1.5 million in the aggregate, were waived as
part of a comprehensive settlement with the Company. However,
because the derivative litigation is still pending with respect
to Mr. Lin, who may seek compensation from us relating to
the exercise of his fully vested stock options in the event that
the Proposed Settlement entered into during February 2011 is
either not finally approved by the federal court or successfully
appealed thereafter; a $2.8 million contingent liability
remained in Accrued expenses and other current
liabilities in the Consolidated Balance Sheet as of
December 31, 2010. See Note 6, Shareholder
Derivative Litigation in Commitment and
Contingencies, of Notes to Consolidated Financial
Statements.
As of December 31, 2010, there was $7.1 million of
total unrecognized compensation cost related to RSAs and RSUs
granted under the Employee Stock Plans. This unrecognized
compensation cost is expected to be recognized over a weighted
average period of 2.0 years.
The Company is required to recognize and measure all uncertain
tax positions taken that may not be sustained, or may only be
partially sustained, upon examination by the relevant taxing
authorities.
The Companys unrecognized tax benefits as of
December 31, 2010 relate to various domestic and foreign
jurisdictions. A reconciliation of the year ended
December 31, 2010, six months ended December 31, 2009
and year ended June 30, 2009 reflects the amount of
unrecognized tax benefits as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
Balance at beginning of period
|
|
$
|
43,571
|
|
|
$
|
42,366
|
|
|
$
|
42,987
|
|
Increases related to current year tax positions
|
|
|
4,840
|
|
|
|
739
|
|
|
|
4,486
|
|
Increases (decreases) related to prior year tax positions
|
|
|
(12,543
|
)
|
|
|
466
|
|
|
|
(4,767
|
)
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
(952
|
)
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
34,916
|
|
|
$
|
43,571
|
|
|
$
|
42,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $34.9 million
as of December 31, 2010 was $25.5 million of tax
benefits that, if recognized, would reduce the Companys
annual effective tax rate. In addition to the unrecognized tax
benefits noted above, the Company accrued $0.2 million of
interest expense and penalties for the year ended
December 31, 2010. In addition, the amounts associated with
the interest and penalties for six months ended
December 31, 2009 and year ended June 30, 2009 are
immaterial.
The Internal Revenue Service has initiated an examination of the
Companys U.S. corporate income tax returns for the
years ended December 31, 2009, June 30, 2009 and
June 30, 2008. At this time, it is not possible to estimate
the potential impact that the examination may have on income tax
expense. Substantially all material foreign income tax matters
have been concluded through calendar year 2003. Although timing
of the resolution or closure on audits is highly uncertain, the
Company believes it is reasonably possible that our unrecognized
tax benefits could decrease between zero and $3 million
within the next 12 months due to the outcome of certain tax
audits or statute of limitations in foreign jurisdictions.
The Company has provided for U.S. federal and foreign
withholding taxes on
non-U.S. subsidiaries
undistributed earnings of approximately $37 million as of
December 31, 2010. No material provision has been made for
80
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
taxes that might be payable upon remittance of the
Companys non U.S. subsidiaries undistributed earnings
due to the accumulated deficit as of December 31, 2010.
Income (loss) before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
United States
|
|
$
|
3,990
|
|
|
$
|
(11,316
|
)
|
|
$
|
(20,374
|
)
|
|
$
|
(34,419
|
)
|
Foreign
|
|
|
(131,783
|
)
|
|
|
(28,082
|
)
|
|
|
(44,345
|
)
|
|
|
53,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(127,793
|
)
|
|
$
|
(39,398
|
)
|
|
$
|
(64,719
|
)
|
|
$
|
18,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Ended December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(6
|
)
|
|
$
|
(3
|
)
|
|
$
|
181
|
|
|
$
|
311
|
|
State
|
|
|
12
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Foreign
|
|
|
4,079
|
|
|
|
825
|
|
|
|
5,268
|
|
|
|
9,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,085
|
|
|
$
|
823
|
|
|
$
|
5,450
|
|
|
$
|
9,521
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(2,989
|
)
|
|
|
306
|
|
|
|
63
|
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,989
|
)
|
|
|
306
|
|
|
|
63
|
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,096
|
|
|
$
|
1,129
|
|
|
$
|
5,513
|
|
|
$
|
8,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The deferred tax assets (liabilities) are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development credits
|
|
$
|
8,317
|
|
|
$
|
13,861
|
|
|
$
|
13,557
|
|
Net operating losses
|
|
|
6,907
|
|
|
|
7,962
|
|
|
|
5,665
|
|
Capital loss
|
|
|
609
|
|
|
|
9,424
|
|
|
|
9,424
|
|
Reserves and accruals
|
|
|
2,436
|
|
|
|
865
|
|
|
|
733
|
|
Other
|
|
|
4,769
|
|
|
|
4,484
|
|
|
|
5,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
23,038
|
|
|
|
36,596
|
|
|
|
34,470
|
|
Valuation allowance
|
|
|
(15,275
|
)
|
|
|
(32,443
|
)
|
|
|
(30,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets, net
|
|
|
7,763
|
|
|
|
4,153
|
|
|
|
4,460
|
|
Total deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
|
|
(3,806
|
)
|
|
|
(3,981
|
)
|
|
|
(3,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(3,806
|
)
|
|
|
(3,981
|
)
|
|
|
(3,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
3,957
|
|
|
$
|
172
|
|
|
$
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 13, 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 loss carry
forwards from $142 million and $120 million for
federal and state income tax purposes, respectively, to a range
between $45 million and $18 million for each federal
and state income tax purposes. Federal and state net operating
losses will begin to expire in the year ending 2018 and 2012,
respectively. Federal tax credit carry forwards were also
reduced to $2.0 million. Federal tax credits will begin to
expire in the year ending 2030. As of December 31, 2010,
state tax credits of $12.1 million are available for
carryforward indefinitely.
Recognition is prohibited of a deferred tax asset for excess tax
benefits due to stock-based compensation deductions that have
not yet been realized through a reduction in income taxes
payable. As of December 31, 2010, the Companys
non-recognized deferred tax asset and the offsetting valuation
allowance relating to excess tax benefits for stock-based
compensation deductions was reduced from $33 million to
$7 million also due to the NXP transaction and resulted 382
limitation as discussed above. Such unrecognized deferred tax
benefits would have been accounted for as a credit to additional
paid-in capital, if and when realized, through a reduction in
income taxes payable.
82
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the income tax provisions computed at the
United States federal statutory rate to the effective tax rate
for the recorded provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended,
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
5.4
|
|
|
|
5.7
|
|
|
|
7.0
|
|
|
|
11.7
|
|
Research and development credit
|
|
|
(4.3
|
)
|
|
|
0.7
|
|
|
|
1.2
|
|
|
|
(3.5
|
)
|
Foreign rate differential
|
|
|
(36.9
|
)
|
|
|
(27.8
|
)
|
|
|
(32.2
|
)
|
|
|
(53.8
|
)
|
Valuation allowance
|
|
|
(2.6
|
)
|
|
|
(15.4
|
)
|
|
|
(28.7
|
)
|
|
|
19.7
|
|
Permanent differences
|
|
|
3.4
|
|
|
|
0.0
|
|
|
|
7.4
|
|
|
|
35.7
|
|
Other
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(0.9
|
)%
|
|
|
(2.9
|
)%
|
|
|
(8.5
|
)%
|
|
|
46.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
BASIC AND
DILUTED NET INCOME (LOSS) PER SHARE
|
The following table sets forth the computation of basic and
diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net income (loss)
|
|
$
|
(128,889
|
)
|
|
$
|
(40,527
|
)
|
|
$
|
(70,232
|
)
|
|
$
|
10,152
|
|
Shares used in computing basic per share amounts
|
|
|
163,438
|
|
|
|
69,372
|
|
|
|
62,535
|
|
|
|
59,367
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted per share amounts
|
|
|
163,438
|
|
|
|
69,372
|
|
|
|
62,535
|
|
|
|
62,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities(1)
|
|
|
5,027
|
|
|
|
6,690
|
|
|
|
6,868
|
|
|
|
4,916
|
|
|
|
|
(1) |
|
Dilutive potential common shares consist of stock options.
Warrants, restricted stock awards, and restricted stock units
are excluded because their effect would have been anti-dilutive.
The potentially dilutive common shares are excluded from the
computation of diluted net income (loss) per share for the above
periods because their effect would have been anti-dilutive. |
|
|
11.
|
FAIR
VALUE MEASUREMENTS
|
Effective July 1, 2008, the Company adopted new fair value
accounting guidance. The adoption of the guidance was limited to
financial assets and liabilities and did not have a material
effect on the Companys financial condition or results of
operations.
The guidance defines fair value as the price that would be
received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements
for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most
advantageous market in which the Company would transact business
and considers
83
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assumptions that market participants would use when pricing the
asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance.
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.
Level 3 Unobservable inputs to
the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
All of the Companys
available-for-sale
investments and non-marketable equity securities are subject to
a periodic impairment review. Investments are considered to be
impaired when a decline in fair value is judged to be
other-than-temporary.
This determination requires significant judgment. For publicly
traded investments, impairment is determined based upon the
specific facts and circumstances present at the time, including
a review of the closing price over the previous six months,
general market conditions and the Companys intent and
ability to hold the investment for a period of time sufficient
to allow for recovery. For non-marketable equity securities, the
impairment analysis requires the identification of events or
circumstances that would likely have a significant adverse
effect on the fair value of the investment, including revenue
and earnings trends, overall business prospects and general
market conditions in the investees industry or geographic
area. Investments identified as having an indicator of
impairment are subject to further analysis to determine if the
investment is
other-than-temporarily
impaired, in which case the investment is written down to its
impaired value.
Cost-based investments are subject to periodic impairment
review. In determining that a decline in value of one of our
investments has occurred during the period ended
December 31, 2009 and is other than temporary, an
assessment was made by considering available evidence, including
the general market conditions, the Companys financial
condition, near-term prospects, market comparables and
subsequent rounds of financing. The valuation also takes into
account the capital structure, liquidation preferences for its
capital and other economic variables. The valuation methodology
for determining the decline in value of non-marketable equity
securities is based on inputs that require management judgment.
Assets
Measured at Fair Value on a Recurring Basis
The following table presents the Companys financial
assets, measured at fair value, as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Money market funds invested in U.S. Treasuries(1)
|
|
$
|
30,998
|
|
|
$
|
30,998
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,998
|
|
|
$
|
30,998
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Active
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Money market funds invested in U.S. Treasuries(1)
|
|
$
|
61,613
|
|
|
$
|
61,613
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,613
|
|
|
$
|
61,613
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Cash and cash equivalents on the Companys
Consolidated Balance Sheets. |
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 year ended December 31, 2010
$28.3 million of restructuring expenses related to
severance, related employee benefits and closure of certain
facilities. Included in restructuring expenses for the year
ended December 31, 2010 is $6.5 million of costs
related to the closure of the Companys Munich office.
Current restructuring plans were substantially completed by the
end of the year; however, some restructuring activity is likely
to extend into 2011. Restructuring charges are recorded under
Restructuring charges in the Companys
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
$28.3 million for the year ended December 31, 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 13, Business
Combinations, of Notes to Consolidated Financial
Statements.
The following table presents the changes in the Companys
restructuring accrual for the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Restructuring liabilities, beginning of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Severance and related charges
|
|
|
28,261
|
|
|
|
1,558
|
|
|
|
810
|
|
|
|
|
|
Net cash payments
|
|
|
(23,743
|
)
|
|
|
(1,558
|
)
|
|
|
(810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities, end of period
|
|
$
|
4,518
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
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 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. As a result of the
85
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 accordance with
U.S. generally accepted accounting principles, the closing
price on February 8, 2010, of $1.81 per share, was used to
value Trident Microsystems common stock issued which is traded
in an active market and considered a Level 1 input. In
addition, the Company issued to NXP four shares of a newly
created Series B Preferred Stock or the Preferred
Shares.
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. The
determination that Trident was the accounting acquirer was based
on a review of all pertinent facts and circumstances. The
following key factors of the acquisition transaction were
considered by the Company to conclude that Trident was the
acquirer:
The composition of the governing body of the combined
entity Major decisions require the approval
of at least two-thirds of the members of Tridents Board of
Directors. Five of the nine members of the Board of Directors
following the closing of the acquisition were legacy Trident
directors.
The composition of senior management of the combined
entity The senior management of the Company
following the acquisition was primarily composed of members of
the Companys pre-acquisition senior management.
The relative voting rights in the combined entity after
the business combination NXPs voting
rights are limited, such that if all outstanding shares of
Common Stock of Trident not held by NXP (i.e., 40% of the Common
Stock) vote all 40% in favor of a stockholder proposal, then NXP
is limited to voting 30% of the outstanding shares against the
proposal, and the remaining 30% of the Common Stock of Trident
held by NXP must be voted either (a) in accordance with the
non-NXP stockholders, in this case for such proposal, or
(b) in accordance with the recommendation of the Board of
Directors as approved by a majority of the non-NXP members of
the Trident Board of Directors.
The existence of a large minority voting interest in the
combined entity if no other owner or organized group of owners
has a significant voting interest NXP may
vote 30% of the outstanding shares freely, with the remaining
30% of shares owned by NXP restricted to voting either
(a) in accordance with the recommendation of the Board of
Directors as approved by a majority of the non-NXP directors, or
(b) in the same proportion as the votes cast by all other
stockholders.
The terms of the exchange of equity interests
The acquisition represented the purchase of
a relatively small portion of the total NXP business.
Based upon the analysis of all relevant facts and circumstances,
most notably the factors described above, the Company determined
that the preponderance of such factors indicated that Trident
was the acquiring entity.
The following is the consideration transferred by the Company
representing the total purchase price:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Issuance of Trident common shares to NXP
|
|
|
104,204,348
|
|
|
$
|
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(a)
|
|
|
|
|
|
|
(3,588
|
)
|
|
|
|
|
|
|
|
|
|
Acquisition date fair value of total consideration transferred
|
|
|
|
|
|
$
|
140,787
|
|
|
|
|
|
|
|
|
|
|
86
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The final purchase price of $140.8 million was allocated to
the net tangible and intangible assets acquired and liabilities
assumed as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
2,145
|
|
Prepaid expenses and other current assets
|
|
|
14,375
|
|
Inventory notes receivable(b)
|
|
|
39,900
|
|
Fixed assets(c)
|
|
|
10,487
|
|
Non-current assets
|
|
|
4,500
|
|
Service agreements(d)
|
|
|
16,000
|
|
Acquired intangible assets(e)
|
|
|
117,000
|
|
Deferred tax asset(f)
|
|
|
796
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accrued liabilities
|
|
|
(16,199
|
)
|
Non-current liabilities
|
|
|
(4,815
|
)
|
|
|
|
|
|
Fair market value of the net assets acquired
|
|
|
184,189
|
|
Gain on acquisition(g)
|
|
|
(43,402
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
140,787
|
|
|
|
|
|
|
Under the purchase method of accounting, the total purchase
price is allocated to the net tangible and identifiable
intangible assets acquired and liabilities assumed in connection
with the acquisition based on their 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. Assets acquired in the
acquisition as of February 8, 2010 were reviewed and
adjusted, if required, to their 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.
|
|
|
(a) |
|
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. |
|
(b) |
|
As of the effective date of the asset acquisition, the Company
acquired two inventory notes receivable (the Note or
Notes). The first Note is for $19.1 million and
allowed the Company to purchase finished goods inventory on
March 22, 2010. |
|
|
|
The second Note is for $20.8 million and allows the Company
to purchase
work-in-process
inventory on the readiness of the Companys enterprise
resource planning system which is projected to be implemented in
fiscal 2012. For additional details related to notes receivable,
see Note 15, Related Party Transactions, of
Notes to Consolidated Financial Statements. |
|
(c) |
|
Fixed assets (property and equipment) were measured at fair
value and could include assets that are not intended to be used
in their highest and best use. The Companys fixed assets
were reduced by $1.4 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. |
87
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(d) |
|
Service agreements were 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. |
|
(e) |
|
Identifiable intangible assets were measured at fair value and
could include assets that are not intended to be used in their
highest and best use. Developed technology consisted of products
which have reached technological feasibility. The value of the
developed technology was determined by using the discounted
income approach. |
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 discounted income approach.
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 represents the value of the standing
orders for the products acquired in the acquisition as of the
close of the acquisition.
The acquired intangible assets, their fair values and 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development, or IPR&D, consisted of
the in-process set-top box projects awaiting completion
development at the time of the acquisition. 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
were 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.
Efforts necessary to complete the in-process research and
development include additional design, testing and feasibility
analyses.
The values assigned to IPR&D were based upon discounted
cash flows related to the future products projected income
stream. The discount rate of 33.9% used in the present value
calculations were derived from a weighted average cost of
capital, adjusted upward to reflect the additional risks
inherent in the development life cycle, including the useful
life of the technology, profitability levels of the technology,
and the uncertainty of technology advances that are known at the
date of acquisition.
88
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the significant assumptions at
the acquisition date underlying the valuations of IPR&D for
the NXP acquisition completed on February 8, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 8, 2010
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
Estimated
|
|
|
Commencement
|
|
|
|
|
|
|
Cost to
|
|
|
Date of Significant
|
|
Set-Top Box Development Projects
|
|
Fair Value
|
|
|
Complete
|
|
|
Cash Flows
|
|
|
|
(In thousands)
|
|
|
Apollo/Shiner
|
|
$
|
8,856
|
|
|
$
|
1,400
|
|
|
|
Completed
|
|
Kronos
|
|
|
7,731
|
|
|
|
1,800
|
|
|
|
February 2012
|
|
Other
|
|
|
1,413
|
|
|
|
2,700
|
|
|
|
February 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,000
|
|
|
$
|
5,900
|
|
|
|
|
|
The Company received and sampled first silicon on the
Apollo/Shiner product and in November 2010 determined that the
project is complete. Minor validation and testing work will
continue prior to achieving high volume production which is
anticipated to occur in 2011. The asset was re-designated a
finite-lived intangible asset within the core technology
category and amortization of the asset commenced in November
2010 over an expected useful live of 3 years. The Company
continues to develop the Kronos and other product lines with the
expectation the products will be fully developed in 2012 and
2013, respectively.
|
|
|
(f) |
|
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. |
|
(g) |
|
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 was reduced by
$5.1 million and the Companys deferred tax assets and
fixed assets were reduced by $3.7 million and
$1.4 million, respectively, resulting from new information
received by the Company subsequent to filing the Companys
Form 10-Q
for the three months ended March 31, 2010. |
The Company used the income approach to determine fair value of
the assets. The key factor that led to the recognition of a gain
on acquisition was a decline of $54.2 million in the fair
value of Tridents common stock purchase consideration
between the date that the definitive agreement was signed on
October 4, 2009 (based on a closing price of $2.33 per
share) and the acquisition date of February 8, 2010 (based
on a closing price of $1.81 per share), as determined in
accordance with applicable accounting guidance.
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 (the 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.
Micronas agreed to sublease 17,000 square feet of the
office spaces located in Munich, Germany to the Company. The
Company used the office spaces for general and administration,
research and engineering services. The Munich office was closed
during 2010 and the Company incurred a restructuring charge of
$1.1 million representing the remaining lease payment
obligation.
The acquisition was accounted for using the purchase method of
accounting in accordance with applicable accounting guidance.
Under the purchase method of accounting, the total purchase
price, discussed below, is allocated to the net tangible and
identifiable intangible assets of the Micronas Assets acquired
in connection with the acquisition based on their fair value as
of the closing of the acquisition.
89
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total purchase price for the acquisition is as follows (in
thousands):
|
|
|
|
|
Fair value of common stock
|
|
$
|
10,668
|
|
Acquisition-related costs
|
|
|
4,136
|
|
Fair value of common stock warrants
|
|
|
1,419
|
|
In-process research and development
|
|
|
697
|
|
Value added taxes
|
|
|
336
|
|
Cash paid in exchange for outstanding shares of Micronas
Netherlands B.V
|
|
|
10
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
17,266
|
|
|
|
|
|
|
The fair value of common stock issued in the acquisition was
valued at $1.524 per share using an average of Tridents
closing share prices beginning two trading days before and
ending two trading days after the acquisition was announced,
which was March 31, 2009. The warrants were valued using
the Black-Scholes option pricing model with the following
inputs: volatility factor 68%, expected life of 5 years,
risk-free interest rate of 1.98%, and a market value for Trident
common stock of $1.43 per share at the acquisition date,
May 14, 2009.
Purchase
Price Allocation
The allocation of the purchase price of the tangible and
identifiable intangible assets acquired and liabilities assumed
in the acquisition was based on their fair values. The excess of
the purchase price over the tangible and identifiable intangible
assets acquired and liabilities assumed has been allocated to
goodwill. Under the purchase method of accounting, the total
purchase price was allocated to net tangible and identifiable
intangible assets acquired based on their fair values as of the
date of the completion of the acquisition as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Tangible assets acquired:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
142
|
|
Accounts receivable
|
|
|
|
|
|
|
259
|
|
Other current assets
|
|
|
|
|
|
|
97
|
|
Property and equipment
|
|
|
|
|
|
|
4,818
|
|
Deferred tax assets
|
|
|
|
|
|
|
175
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
(133
|
)
|
Accrued liabilities
|
|
|
|
|
|
|
(366
|
)
|
Above market lease liability
|
|
|
|
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
|
|
|
|
|
4,636
|
|
Amortizable intangible assets acquired:
|
|
|
Useful life
|
|
|
|
|
|
Core technology
|
|
|
3 years
|
|
|
|
4,059
|
|
Backlog
|
|
|
13 months
|
|
|
|
166
|
|
Goodwill
|
|
|
Indefinite
|
|
|
|
7,708
|
|
In-process research and development
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
Total purchase price allocation
|
|
|
|
|
|
$
|
17,266
|
|
|
|
|
|
|
|
|
|
|
Assets acquired and liabilities assumed in the acquisition as of
May 14, 2009 were reviewed and adjusted, if required, to
their fair value. Existing technology consists of products that
have reached technological feasibility. The Company valued the
core technology utilizing a discounted cash flow
(DCF) model, which uses forecasts of future revenues
and expenses related to the products that use the technology.
Backlog valued at $0.2 million represented the value of the
standing orders for the products acquired in the acquisition as
of the close of the acquisition. Backlog was valued using a DCF
model. Of the total purchase price, $0.7 million has been
allocated to
90
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in-process research and development (IPR&D) and
was expensed during the year ended June 30, 2009.
IPR&D relates to expense spent on masks and tools, which
has no alternative future use and was completed after the
announcement date but prior to the closing date.
Of the total purchase price, $7.7 million has been
allocated to goodwill. Goodwill represents the excess of the
purchase price over the fair value of the underlying net
tangible and identifiable intangible assets acquired and is not
deductible for tax purposes. The technology acquired in the
acquisition will provide a greater diversity of products and
enhanced research and development capabilities, which will allow
the Company to pursue expanded market opportunities. These
opportunities, along with the ability to leverage the existing
workforce acquired in the acquisition, were the significant
contributing factors to the establishment of the purchase price,
resulting in the recognition of a significant amount of
goodwill. In accordance with applicable guidance, goodwill is
not amortized but will be reviewed at least annually for
impairment or more frequently if certain triggering events
occur. In the event that management determines the value of
goodwill has become impaired, the Company will incur an expense
in the amount of the impairment during the quarter in which the
determination is made. See Note 4, Goodwill and
Intangible Assets, Notes to Consolidated Financial
Statements of Notes to Consolidated Financial Statements for
additional details. The Company performed its annual goodwill
impairment analysis in the quarter ended June 30, 2010 and
recorded an impairment charge of $7.9 million, due to the
excess of the carrying value over the estimated market value for
the television systems operating segment.
Goodwill and amortization of intangibles are not tax deductible.
The estimated future amortization expense of the Companys
purchased finite-lived intangible assets acquired is as follows
(amounts in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Year ended December 31, 2011
|
|
$
|
1,353
|
|
Year ended December 31, 2012
|
|
$
|
504
|
|
|
|
|
|
|
Total
|
|
$
|
1,857
|
|
|
|
|
|
|
Unaudited
Pro Forma Financial Information
The following table summarizes unaudited pro forma financial
information for the years ended December 31, 2010 and 2009
assuming the business combinations had been consummated at the
beginning of the periods presented. 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):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Pro forma net revenues
|
|
$
|
604,616
|
|
|
$
|
579,959
|
|
Pro forma net loss
|
|
|
(126,813
|
)
|
|
|
(278,860
|
)
|
Pro forma net loss per share
|
|
|
|
|
|
|
|
|
basic and diluted
|
|
|
(0.73
|
)
|
|
|
(1.63
|
)
|
All of the Companys identifiable intangible assets from
its acquisitions, including backlog, core and developed
technology acquired and customer relationships are subject to
amortization. The weighted average useful lives of acquired
intangibles are approximately 4 to 5 years for core
technology, 2-3 years for customer relationships, and
approximately 1 year for backlog, 4 to 5 years for
patents and the contractual term for service agreements. See
Note 4, Goodwill and Intangible Assets, of
Notes to Consolidated Financial Statements for additional
details.
91
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
GEOGRAPHIC
INFORMATION AND MAJOR CUSTOMERS
|
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. The digital media solutions business segment
designs, develops and markets integrated circuits for digital
media applications, such as digital television and liquid
crystal display, or LCD, television. Generally accepted
accounting principles in the United States of America establish
standards for the way public business enterprises report
information about operating segments in annual consolidated
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports. The accounting guidance also establishes
standards for related disclosures about products and services,
geographic areas and major customers. The Companys Chief
Executive Officer, who is considered to be the chief operating
decision maker, reviews financial information presented on an
operating segment basis for purposes of making operating
decisions and assessing financial performance.
Geographic
Information
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Years Ended June 30,
|
|
Revenues:
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in
|
|
|
(Dollars in
|
|
|
|
|
|
|
|
|
|
thousands)
|
|
|
thousands)
|
|
|
|
|
|
|
|
|
Japan
|
|
$
|
69,941
|
|
|
$
|
5,257
|
|
|
$
|
41,615
|
|
|
$
|
91,306
|
|
Europe
|
|
|
138,309
|
|
|
|
17,557
|
|
|
|
13,841
|
|
|
|
53,801
|
|
Asia Pacific
|
|
|
120,659
|
|
|
|
11,317
|
|
|
|
14,061
|
|
|
|
32,618
|
|
South Korea
|
|
|
188,365
|
|
|
|
28,353
|
|
|
|
5,819
|
|
|
|
79,608
|
|
Americas
|
|
|
39,924
|
|
|
|
527
|
|
|
|
425
|
|
|
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
557,198
|
|
|
$
|
63,011
|
|
|
$
|
75,761
|
|
|
$
|
257,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys long-lived assets are located in the
following countries:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
China
|
|
$
|
21,422
|
|
|
$
|
21,277
|
|
Europe
|
|
|
3,076
|
|
|
|
3,361
|
|
Americas
|
|
|
5,068
|
|
|
|
1,050
|
|
Taiwan
|
|
|
760
|
|
|
|
465
|
|
Asia Pacific
|
|
|
1,240
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,566
|
|
|
$
|
26,168
|
|
|
|
|
|
|
|
|
|
|
92
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major
Customers
The following table shows the percentage of the Companys
revenues for the year ended December 31, 2010, the six
months ended December 31, 2009 and the years ended
June 30, 2009 and 2008 that was derived from customers who
individually accounted for more than 10% of revenues in that
period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Year Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samsung
|
|
|
21
|
%
|
|
|
29
|
%
|
|
|
*
|
|
|
|
29
|
%
|
Philips
|
|
|
13
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
19
|
%
|
LG
|
|
|
*
|
|
|
|
15
|
%
|
|
|
*
|
|
|
|
*
|
|
Midoriya (supplier to Sony)
|
|
|
*
|
|
|
|
*
|
|
|
|
38
|
%
|
|
|
28
|
%
|
Sharp
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
|
|
*
|
|
|
|
|
* |
|
Less than 10% of net revenues |
As of December 31, 2010, the Company had a high
concentration of accounts receivable with Philips Group which
accounted for 20% of gross accounts receivable.
|
|
15.
|
RELATED
PARTY TRANSACTIONS
|
NXP
In connection with the NXP acquisition, the Company acquired two
inventory notes receivable. The first Note bears interest at an
annual interest 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 in 2011.
Total purchases from NXP for the year ended December 31,
2010 were $309.9 million. Total purchases for the year
ended December 31, 2010 include approximately
$25.7 million of transition services and approximately
$284.2 million of primarily product purchases. As of
December 31, 2010, the outstanding accounts payable to NXP
was $25.8 million, the outstanding accounts receivable from
NXP was $7.3 million and the outstanding long-term
receivable from NXP was $1.5 million. At December 31,
2010, the Company had a note receivable from NXP of
$20.9 million associated with inventory purchases from NXP,
of which the entire balance was a current asset on the
Companys 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 $51.8 million, all of which was paid
in the three months ended September 30, 2010. The accounts
receivable from NXP of $7.3 million at December 31,
2010, was not related to the sales of product.
In connection with the Acquisition, the Company and NXP entered
into the following agreements, each effective as of
February 8, 2010:
|
|
|
|
|
Intellectual Property Transfer and License
Agreement: Under this agreement, between TMFE and
NXP, 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 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.
|
93
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Stockholder Agreement: This agreement, between
the Company and NXP, sets 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 this
agreement, NXP has agreed to standstill restrictions for nine
years, including restrictions on the 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.
|
|
|
|
Transition Services Agreement: Under this
agreement, 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.
|
|
|
|
Manufacturing Services Agreement: Under this
agreement, contract manufacturing services are 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
agreement ends following the readiness of the Companys
enterprise resource planning system, which is currently
projected to be implemented in fiscal 2012.
|
|
|
|
Contract Services Agreement: Under this
agreement, certain employees of NXP are to 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
$0.6 million as of December 31, 2010.
Micronas
Total purchases from Micronas for the year ended
December 31, 2010, were $28.0 million. As of
December 31, 2010, the outstanding accounts payable to
Micronas was $1.1 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 13, 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.
|
|
16.
|
EMPLOYEE
BENEFIT PLANS
|
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
94
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of $3.1 million is included in other non-current
liabilities on the Companys Consolidated Balance Sheets. A
corresponding asset of $3.1 million is included in other
assets, on the Companys Consolidated Balance Sheets. The
underfunded balance of this plan was $0.06 million as of
December 31, 2010.
The Companys India subsidiary has a gratuity plan and a
compensated absence plan pursuant to which the Company is
required to make payments. The Companys liability for
gratuity plan is calculated based on the salary of employees
multiplied by years of service. The Companys liability for
the compensated absence plan is calculated based on the daily
salary of the employees multiplied by 30 days of
compensated absence. The resulting balances of $0.6 million
is included in other non-current liabilities on the
Companys Consolidated Balance Sheets. A corresponding
asset of $0.5 million is included in other assets, on the
Companys Consolidated Balance Sheets. The underfunded
balance of these plans was $0.1 million as of
December 31, 2010.
Employee
401(k) Plan
The Company sponsors the Trident Microsystems, Inc. 401(k)
Retirement Plan (the Retirement Plan) a
defined contribution plan that is available to substantially all
of its employees in the United States. Under Section 401(k)
of the Internal Revenue Code, the Retirement Plan allows for
tax-deferred salary contributions by eligible employees.
Participants can contribute from 1% to 25% of their annual
compensation to the Plan on a pretax and after-tax basis.
Employee contributions are limited to a maximum annual amount as
set periodically by the Internal Revenue Code. The Company
matches eligible participant contributions at 25% of the first
5% of eligible base compensation (for those employees with one
or more years of service with the Company). The Retirement Plan
allows employees who meet the age requirements and reach the
Plan contribution limits to make a
catch-up
contribution not exceed the lesser of 50% of their eligible
compensation or the limit set forth in the Internal Revenue
Code. The
catch-up
contributions are not eligible for matching contributions. All
matching contributions vest immediately. The Companys
matching contributions to the Plan totaled $0.3 million for
the year ended December 31, 2010 and $0.05 million for
the six months ended December 31, 2009 and each of the
years ended June 30, 2009 and 2008. During January 2010,
the Company changed the fiscal year of the Retirement Plan from
June 30 to December 31.
Executive
Severance Agreements
On January 20, 2011, the Company and its former President,
Christos Lagomichos, entered into a Confidential Retirement
Agreement and Release of Claims. Under the terms of the
agreement, the Company will pay Mr. Lagomichos a lump sum
payment of approximately $1.3 million, subject to
applicable withholding. In addition, the Company will pay
certain premiums for coverage under COBRA. In consideration of
these benefits, Mr. Lagomichos granted the Company a
release of claims.
On February 10, 2011, the Company and its former Chief
Executive Officer, Sylvia Summers, entered into a Resignation
Agreement and Release of Claims. Under the terms of the
agreement, the Company will pay Ms. Summers a lump sum
payment of $1.3 million, subject to applicable withholding.
In addition, the vesting of any equity awards that might vest
within twelve months will be accelerated and the Company will
pay certain premiums for coverage under COBRA. In consideration
of these benefits, Ms. Summers granted the Company a
release of claims.
Bank
Line Of Credit
On February 9, 2011, the Company, TMFE and Trident
Microsystems (HK) Ltd., or TMHK, entered into a $40 million
revolving line of credit agreement with Bank of America, N.A.,
to finance working capital. Borrowings under the agreement will
bear interest at the base rate, as defined in the agreement,
plus a margin ranging from 1.50% to 3.00% per annum, or at the
option of the Company, rates based on LIBOR plus a margin
ranging from 2.25% to 3.75% per annum. Under the credit
agreement, the Company may access credit based upon a certain
percentage of its eligible accounts receivable outstanding,
subject to eligibility requirements, limitations and
95
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
covenants. The credit agreement contains both affirmative and
negative covenants, including covenants that limit or restrict
the Companys ability to, among other things, incur
indebtedness, grant liens, make capital expenditures, merge or
consolidate, dispose of assets, pay dividends or make
distributions, change the method of accounting, make investments
and enter into certain transactions with affiliates, in each
case subject to materiality and other qualifications, baskets
and exceptions customary for a credit agreement of this size and
type. The credit agreement also contains a financial covenant
that requires the Company to maintain a specified fixed charge
coverage ratio if either the Companys liquidity or
availability under the credit agreement drops below certain
thresholds.
|
|
18.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
The following is a summary of the Companys quarterly
consolidated results of operations (unaudited) for the year
ended December 31, 2010 and 2009. The sum of quarterly net
loss per share, basic and diluted, may not equal total net loss
per share, basic and diluted, due to variation in shares
outstanding.
TRIDENT
MICROSYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Net revenues
|
|
$
|
90,404
|
|
|
$
|
171,648
|
|
|
$
|
176,568
|
|
|
$
|
118,578
|
|
|
$
|
557,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
13,786
|
|
|
$
|
32,901
|
|
|
$
|
48,170
|
|
|
$
|
22,706
|
|
|
$
|
117,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,779
|
)
|
|
$
|
(48,817
|
)
|
|
$
|
(17,514
|
)
|
|
$
|
(53,779
|
)
|
|
$
|
(128,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share Basic:
|
|
$
|
(0.07
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share Diluted:
|
|
$
|
(0.07
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share Basic
|
|
|
129,969
|
|
|
|
174,018
|
|
|
|
174,553
|
|
|
|
174,772
|
|
|
|
163,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share Diluted
|
|
|
129,969
|
|
|
|
174,018
|
|
|
|
174,553
|
|
|
|
174,772
|
|
|
|
163,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 accordance with
U.S. generally accepted accounting principles, the closing
price on February 8, 2010 was used to value Trident
Microsystems common stock. In addition, the Company issued to
NXP four shares of a newly created Series B Preferred Stock
or the Preferred Shares. The purchase price and fair
value of the consideration transferred by Trident was
$140.8 million.
96
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
TRIDENT
MICROSYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Net revenues
|
|
$
|
6,852
|
|
|
$
|
14,912
|
|
|
$
|
31,093
|
|
|
$
|
31,918
|
|
|
$
|
84,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
461
|
|
|
$
|
4,622
|
|
|
$
|
10,501
|
|
|
$
|
5,245
|
|
|
$
|
20,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,604
|
)
|
|
$
|
(21,075
|
)
|
|
$
|
(17,156
|
)
|
|
$
|
(23,371
|
)
|
|
$
|
(78,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share Basic and Diluted:
|
|
$
|
(0.27
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share Basic
and Diluted a
|
|
|
61,829
|
|
|
|
65,565
|
|
|
|
69,237
|
|
|
|
69,506
|
|
|
|
163,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Trident
Microsystems, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, cash flows
and stockholders equity and comprehensive income present
fairly, in all material respects, the financial position of
Trident Microsystems, Inc. and its subsidiaries at
December 31, 2010, December 31, 2009, June 30,
2009 and June 30, 2008, and the results of their operations
and their cash flows for the year ended December 31, 2010,
for the six months in the period ended December 31, 2009
and for each of the two years in the period ended June 30,
2009 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing
under Item 15(a)(2), presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations in the six month transition period
ended December 31, 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
San Jose, California
March 4, 2011
98
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Report on
Form 10-K,
we carried out an evaluation under the supervision and with the
participation of our Disclosure Committee and our management,
including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15(e)
and
15d-15(e).
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed under
the Exchange Act, such as this Report on
Form 10-K,
is recorded, processed, summarized and reported within the time
periods specified by the U.S. Securities and Exchange
Commission. Disclosure controls and procedures are also designed
to ensure that such information is accumulated and communicated
to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of December 31, 2010, the
end of the period covered by this Report on
Form 10-K.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2010 based on the guidelines established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Our internal control over financial
reporting includes policies and procedures that provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external reporting purposes in accordance with
U.S. generally accepted accounting principles.
Based on the results of our evaluation, our management concluded
that our internal control over financial reporting was effective
as of December 31, 2010.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included in
Part II, Item 8 of this Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
In February 2010, we acquired the set top box product line from
NXP. During the year ended December 31, 2010, we completed
the incorporation of processes previously separately operated by
Micronas and NXP into our own systems and control environment.
There were no other changes in our internal control over
financial reporting that occurred during the year ended
December 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
99
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item is included in the Trident
Microsystems Inc. Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed within 120 days of
Tridents year ended December 31, 2010 (the
Proxy Statement) and is incorporated herein by
reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is included in the Proxy
Statement and is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is included in the Proxy
Statement and is incorporated herein by reference.
Equity
Compensation Plan Information
We currently maintain the 2010 Equity Incentive Plan, or 2010
Plan, a plan approved by our stockholders at the 2010 Annual
Meeting of Stockholders on January 25, 2010. The 2010 Plan
provides for the issuance of our common stock to officers,
directors, employees and consultants. In addition, we have
adopted our 2001 Employee Stock Purchase Plan, which is
currently suspended. Options to purchase our common stock remain
outstanding under five equity incentive plans which have expired
or been terminated: the 2006 Equity Incentive Plan, or 2006
Plan, the 2002 Stock Option Plan, or 2002 Plan, the 1992 Stock
Option Plan, or 1992 Plan, the 1994 Outside Directors Stock
Option Plan, or 1994 Plan and the 1996 Nonstatutory Stock Option
Plan, or 1996 Plan. In addition, options to purchase
Tridents common stock are outstanding as a result of the
assumption by the Company of options granted to TTI s
officers, employees and consultants under the TTI 2003 Employee
Option Plan, or TTI Plan. The options granted under the TTI
option 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 following table sets forth information regarding outstanding
options and shares reserved for future issuance under the
foregoing plans as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
B
|
|
|
B
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Number of
|
|
|
|
|
|
Remaining
|
|
|
|
Securities to
|
|
|
Weighted
|
|
|
Available for
|
|
|
|
be Issued
|
|
|
Average
|
|
|
Future Issuance
|
|
|
|
upon
|
|
|
Exercise
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Price of
|
|
|
Compensation
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
Options,
|
|
|
Options,
|
|
|
Securities
|
|
|
|
Warrants and
|
|
|
Warrants and
|
|
|
Reflected in
|
|
Plan Category
|
|
Rights
|
|
|
Rights
|
|
|
Column A)
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,461,847
|
(1)
|
|
$
|
4.32
|
|
|
|
36,790,585
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
565,300
|
(2)
|
|
$
|
3.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,027,117
|
|
|
$
|
4.28
|
|
|
|
36,790,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 391,000 shares that are reserved and issuable upon
exercise of options outstanding under the 2002 Plan,
635,750 shares that are reserved and issuable upon exercise
of options outstanding under the 2005 Plan, |
100
|
|
|
|
|
2,702,097 shares that are reserved and issuable upon
exercise of options outstanding under the 2006 Plan, and
733,000 shares that are reserved and issuable upon exercise
of options outstanding under the 2010 Plan. |
|
(2) |
|
Consists of shares subject to options that are outstanding
pursuant to the 1996 Plan, which plan was terminated on
June 19, 2007. |
Material
Features of the 1996 Nonstatutory Stock Option Plan
As of December 31, 2010, we had reserved an aggregate of
1,452,000 shares of common stock for issuance under the
1996 Plan, which was terminated on June 19, 2007. The 1996
Plan provides for the granting of nonstatutory stock options to
employees and consultants who are not our officers or directors,
with exercise prices per share equal to no less than 85% of the
fair market value of our Common Stock on the date of grant.
Options granted under the 1996 Plan generally have a
10-year term
and vest at the rate of 25% of the shares subject to the option
on each of the first four anniversaries of the date of grant.
The vesting of options granted under the 1996 Plan will be
accelerated in full in the event of a merger of us with or into
another corporation in which the outstanding options are neither
assumed nor replaced by equivalent options granted by the
successor corporation or a parent or subsidiary of the successor
corporation. The 1996 Plan was not required to be and has not
been approved by our stockholders.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information required by this item is included in the Proxy
Statement and is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this item is included in the Proxy
Statement and is incorporated herein by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
report:
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
1. Financial Statements:
|
|
|
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
98
|
|
|
|
|
108
|
|
101
|
|
|
|
|
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)
|
|
10
|
.5(*)
|
|
1990 Stock Option Plan, together with forms of Incentive Stock
Option Agreement and Non-statutory Stock Option Agreement.(13)
|
|
10
|
.6(*)
|
|
Form of the Companys Employee Stock Purchase Plan.(13)
|
|
10
|
.9(*)
|
|
Summary description of the Companys 401(k) plan.(13)
|
|
10
|
.10(*)
|
|
Form of Indemnity Agreement for officers, directors and
agents.(13)
|
|
10
|
.13(*)
|
|
Form of 1992 Stock Option Plan amending and restating the 1990
Stock Option Plan included as Exhibit 10.5.(13)
|
|
10
|
.16
|
|
Foundry Venture Agreement dated August 18, 1995 by and between
the Company and United Microelectronics Corporation.(14)
|
|
10
|
.18(*)
|
|
Form of Nonstatutory Stock Option Agreement for non-plan grants
to directors.(15)
|
|
10
|
.19(+)
|
|
Form of 1996 Nonstatutory Stock Option Plan.(15)
|
|
10
|
.20
|
|
Lease agreement dated April 11, 2006 between the Company and
Cooperage Rose Properties for the Companys principal
offices located at 3408-3410 Garrett Drive., Santa Clara,
CA(16)
|
|
10
|
.22(*)
|
|
2006 Equity Incentive Plan.(17)
|
|
10
|
.23(*)
|
|
Form of Agreements under the 2006 Equity Incentive Plan.(18)
|
|
10
|
.24(*)
|
|
Offer Letter of Sylvia D. Summers, Chief Executive Officer.(19)
|
|
10
|
.25(*)
|
|
Offer Letter of Peter J. Mangan, Vice President, Finance.(20)
|
|
10
|
.28(*)
|
|
First Amendment to Trident Microsystems, Inc. 2006 Equity
Incentive Plan.(21)
|
|
10
|
.29(*)
|
|
Resignation and Consulting Agreement and General Release of
Claims dated February 28, 2008 between Jung-Herng Chang and
Trident Microsystems, Inc.(22)
|
|
10
|
.30(*)
|
|
2009 Executive Bonus Plan(23)
|
|
10
|
.31(*)
|
|
Amended Form of Indemnity Agreement for officers and
directors(23)
|
|
10
|
.34
|
|
Form of Warrant for the Purchase of Shares of Common Stock of
Trident Microsystems, Inc. to Micronas Semiconductor Holding
AG.(11)
|
102
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.35(**)
|
|
Cross License Agreement dated May 14, 2009, between Trident
Microsystems (Far East) Ltd. and Micronas Semiconductor Holding
AG.(11)
|
|
10
|
.36
|
|
Stockholder Agreement dated May 14, 2009, between Trident
Microsystems, Inc. and Micronas Semiconductor Holding AG.(11)
|
|
10
|
.37
|
|
Services Agreement dated May 15, 2009, between Trident
Microsystems (Far East) Ltd. and Micronas Semiconductor Holding
AG.(11)
|
|
10
|
.38(*)
|
|
Trident Microsystems, Inc. Executive Retention and Severance
Plan.(24)
|
|
10
|
.39
|
|
Stockholder Agreement between Trident Microsystems, Inc. and NXP
B.V. dated February 8, 2010.(26)
|
|
10
|
.40(*)
|
|
Letter Agreement with Christos Lagomichos dated February 2,
2010.(12)
|
|
10
|
.41(*)
|
|
Trident Microsystems, Inc. 2010 Equity Incentive Plan(25)
|
|
10
|
.42(**)
|
|
Intellectual Property Transfer and License Agreement between
Trident Microsystems (Far East) Ltd. and NXP B.V. dated February
8, 2010.(26)
|
|
10
|
.43(**)
|
|
Transition Services Agreement between Trident Microsystems, Inc.
and NXP B.V. dated February 8, 2010.(26)
|
|
10
|
.44(**)
|
|
Manufacturing Services Agreement between Trident Microsystems,
Inc. and NXP B.V. dated February 8, 2010.(26)
|
|
10
|
.45(*)
|
|
Forms of Agreements under 2010 Equity Incentive Plan.(26)
|
|
10
|
.46(*)
|
|
Confidential Retirement Agreement and General Release of Claims
between Trident Microsystems, Inc. and Dr. Donna Hamlin
effective January 14, 2010.(26)
|
|
10
|
.47
|
|
Lease Agreement by and between Kifer Tech Investors LLC and
Trident Microsystems, Inc. dated March 5, 2010.(26)
|
|
10
|
.48(*)
|
|
Amended and Restated Executive Retention and Severance Plan,
effective as of December 15, 2010.(27)
|
|
10
|
.49
|
|
Change of Control Policy for Non-Executive Officers and
Employees.(27)
|
|
10
|
.50(*)
|
|
Amended Forms of Agreements under 2010 Equity Incentive Plan.(27)
|
|
10
|
.51(*)
|
|
Letter Agreement dated January 21, 2011 between Philippe Geyres
and Trident Digital Systems (UK) Ltd.(28)
|
|
10
|
.52(*)
|
|
Letter Agreement dated January 21, 2011 between Philippe Geyres
and the Company.(28)
|
|
10
|
.53(*)
|
|
First Half 2011 Executive Incentive Plan.(29)
|
|
10
|
.54(*)
|
|
Confidential Retirement Agreement and General Release of Claims
between Christos Lagomichos and the Company, dated January 20,
2011.(31)
|
|
10
|
.55(**)
|
|
Loan, Guaranty and Security Agreement among the Company, Trident
Microsystems (Far East) Ltd., Trident Microsystems (HK) Ltd. and
Bank of America, N.A., acting through its Singapore branch,
dated February 9, 2011.(31)
|
|
10
|
.56(*)
|
|
Resignation Agreement and General Release of Claims between
Sylvia Summers and the Company, dated February 10, 2011.(31)
|
|
10
|
.57
|
|
Stipulation of Settlement dated February 15, 2011.(30)
|
|
10
|
.58(*)
|
|
Participation Agreement of David Teichmann under Amended and
Restated Executive Retention and Severance Plan, effective as of
February 7, 2011.(31)
|
|
21
|
.1
|
|
Subsidiaries of Registrant(31)
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm(31)
|
|
24
|
.1
|
|
Power of Attorney (Included on signature page)
|
|
31
|
.1
|
|
Rule 13a 14(a) Certification of Chief Executive
Officer.(31)
|
|
31
|
.2
|
|
Rule 13a 14(a) Certification of Chief Financial
Officer.(31)
|
|
32
|
.1
|
|
Section 1350 Certification of Chief Executive Officer.(31)
|
|
32
|
.2
|
|
Section 1350 Certification of Chief Financial Officer.(31)
|
103
|
|
|
(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) |
|
Incorporated by reference to exhibit of the same number to the
Companys Registration Statement on
Form S-1
(File
No. 33-53768). |
|
(14) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 1995. Confidential treatment
has been requested for a portion of this document. |
|
(15) |
|
Incorporated by reference to exhibit of same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002. |
|
(16) |
|
Incorporated by reference to exhibit of same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. |
|
(17) |
|
Incorporated by reference to the Companys Proxy Statement
filed with the Securities and Exchange Commission on
April 26, 2006. |
|
(18) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K/A
filed with the Securities and Exchange Commission on
August 22, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 99.2 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
October 1, 2007. |
|
(20) |
|
Incorporated by reference to exhibit of the same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2007 |
|
(21) |
|
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 19, 2008. |
|
(22) |
|
Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
March 5, 2008. |
|
(23) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 2008. |
104
|
|
|
(24) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 2009. |
|
(25) |
|
Incorporated by reference to exhibit 99.1 to Registration
Statement on
Form S-8
(No. 333-164532)
filed with the Securities and Exchange Commission on
January 26, 2010. |
|
(26) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-KT
filed with the Securities and Exchange Commission on
March 15, 2010. |
|
(27) |
|
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
December 17, 2010. |
|
(28) |
|
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 24, 2011. |
|
(29) |
|
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, 2011. |
|
(30) |
|
Incorporated by reference to exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 16, 2011. |
|
(31) |
|
Filed herewith. |
|
(*) |
|
Management contracts or compensatory plans or arrangements
covering executive officers or directors of the Company. |
|
(+) |
|
Compensatory plans, contracts or arrangements adopted without
the approval of security holders pursuant to which equity may be
awarded. |
|
(**) |
|
Confidential treatment has been granted or requested for
portions of this agreement. |
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRIDENT MICROSYSTEMS, INC.
Philippe
Geyres
Interim
Chief Executive Officer
Dated: March 4, 2011
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philippe Geyres, Pete J.
Mangan and David L. Teichmann, each of them acting individually,
as his attorney-in-fact, with the full power of substitution,
for him or her in any and all capacities, to sign any and all
amendments to this Report on
Form 10-K,
and to file same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact, and each of
them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming our
signatures as they may be signed by our said attorney-in-fact
and any and all amendments to this Report on
Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Philippe
Geyres
Philippe
Geyres
|
|
Interim Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Pete
J. Mangan
Pete
J. Mangan
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Richard
H. Janney
Richard
H. Janney
|
|
Vice President and Corporate Controller (Principal Accounting
Officer)
|
|
March 4, 2011
|
|
|
|
|
|
/s/ Brian
R. Bachman
Brian
R. Bachman
|
|
Director
|
|
March 2, 2011
|
|
|
|
|
|
/s/ Richard
L. Clemmer
Richard
L. Clemmer
|
|
Director
|
|
March 3, 2011
|
|
|
|
|
|
/s/ David
H. Courtney
David
H. Courtney
|
|
Chairman of the Board
|
|
March 2, 2011
|
|
|
|
|
|
/s/ A.
C. DAugustine
A.
C. DAugustine
|
|
Director
|
|
March 1, 2011
|
106
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ J.
Carl Hsu
J.
Carl Hsu
|
|
Director
|
|
March 3, 2011
|
|
|
|
|
|
/s/ David
M. Kerko
David
M. Kerko
|
|
Director
|
|
March 2, 2011
|
|
|
|
|
|
/s/ Raymond
K. Ostby
Raymond
K. Ostby
|
|
Director
|
|
March 2, 2011
|
107
Schedule II
TRIDENT
MICROSYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Write-offs or
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Credit)
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
to
|
|
|
Charged to
|
|
|
Balance at
|
|
Year
|
|
Description
|
|
Period
|
|
|
Revenue
|
|
|
Allowance
|
|
|
End of Period
|
|
|
|
|
|
(In thousands)
|
|
|
12/31/10
|
|
Allowance for sales returns and
|
|
$
|
320
|
|
|
$
|
314
|
|
|
$
|
|
|
|
$
|
634
|
|
|
|
allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/09
|
|
Allowance for sales returns and
|
|
$
|
56
|
|
|
$
|
264
|
|
|
$
|
|
|
|
$
|
320
|
|
|
|
allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/09
|
|
Allowance for sales returns and
|
|
$
|
300
|
|
|
$
|
(244
|
)
|
|
$
|
|
|
|
$
|
56
|
|
|
|
allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/08
|
|
Allowance for sales returns and
|
|
$
|
1,101
|
|
|
$
|
(801
|
)
|
|
$
|
|
|
|
$
|
300
|
|
|
|
allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Write-offs or
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Credit)
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
to
|
|
|
Charged to
|
|
|
Balance at End
|
|
Year
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Allowance
|
|
|
of Period
|
|
|
|
|
|
(In thousands)
|
|
|
12/31/10
|
|
Valuation allowance for deferred tax assets
|
|
$
|
32,443
|
|
|
$
|
|
|
|
$
|
(17,168
|
)
|
|
$
|
15,275
|
|
12/31/09
|
|
Valuation allowance for deferred tax assets
|
|
$
|
30,010
|
|
|
$
|
|
|
|
$
|
2,433
|
|
|
$
|
32,443
|
|
6/30/09
|
|
Valuation allowance for deferred tax assets
|
|
$
|
20,820
|
|
|
$
|
|
|
|
$
|
9,190
|
|
|
$
|
30,010
|
|
6/30/08
|
|
Valuation allowance for deferred tax assets
|
|
$
|
23,641
|
|
|
$
|
|
|
|
$
|
(2,821
|
)
|
|
$
|
20,820
|
|
108
EXHIBIT INDEX
|
|
|
|
|
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)
|
|
10
|
.5(*)
|
|
1990 Stock Option Plan, together with forms of Incentive Stock
Option Agreement and Non-statutory Stock Option Agreement.(13)
|
|
10
|
.6(*)
|
|
Form of the Companys Employee Stock Purchase Plan.(13)
|
|
10
|
.9(*)
|
|
Summary description of the Companys 401(k) plan.(13)
|
|
10
|
.10(*)
|
|
Form of Indemnity Agreement for officers, directors and
agents.(13)
|
|
10
|
.13(*)
|
|
Form of 1992 Stock Option Plan amending and restating the 1990
Stock Option Plan included as Exhibit 10.5.(13)
|
|
10
|
.16
|
|
Foundry Venture Agreement dated August 18, 1995 by and between
the Company and United Microelectronics Corporation.(14)
|
|
10
|
.18(*)
|
|
Form of Nonstatutory Stock Option Agreement for non-plan grants
to directors.(15)
|
|
10
|
.19(+)
|
|
Form of 1996 Nonstatutory Stock Option Plan.(15)
|
|
10
|
.20
|
|
Lease agreement dated April 11, 2006 between the Company and
Cooperage Rose Properties for the Companys principal
offices located at 3408-3410 Garrett Drive., Santa Clara,
CA(16)
|
|
10
|
.22(*)
|
|
2006 Equity Incentive Plan.(17)
|
|
10
|
.23(*)
|
|
Form of Agreements under the 2006 Equity Incentive Plan.(18)
|
|
10
|
.24(*)
|
|
Offer Letter of Sylvia D. Summers, Chief Executive Officer.(19)
|
|
10
|
.25(*)
|
|
Offer Letter of Peter J. Mangan, Vice President, Finance.(20)
|
|
10
|
.28(*)
|
|
First Amendment to Trident Microsystems, Inc. 2006 Equity
Incentive Plan.(21)
|
|
10
|
.29(*)
|
|
Resignation and Consulting Agreement and General Release of
Claims dated February 28, 2008 between Jung-Herng Chang and
Trident Microsystems, Inc.(22)
|
|
10
|
.30(*)
|
|
2009 Executive Bonus Plan(23)
|
|
10
|
.31(*)
|
|
Amended Form of Indemnity Agreement for officers and
directors(23)
|
|
10
|
.34
|
|
Form of Warrant for the Purchase of Shares of Common Stock of
Trident Microsystems, Inc. to Micronas Semiconductor Holding
AG.(11)
|
|
10
|
.35(**)
|
|
Cross License Agreement dated May 14, 2009, between Trident
Microsystems (Far East) Ltd. and Micronas Semiconductor Holding
AG.(11)
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.36
|
|
Stockholder Agreement dated May 14, 2009, between Trident
Microsystems, Inc. and Micronas Semiconductor Holding AG.(11)
|
|
10
|
.37
|
|
Services Agreement dated May 15, 2009, between Trident
Microsystems (Far East) Ltd. and Micronas Semiconductor Holding
AG.(11)
|
|
10
|
.38(*)
|
|
Trident Microsystems, Inc. Executive Retention and Severance
Plan.(24)
|
|
10
|
.39
|
|
Stockholder Agreement between Trident Microsystems, Inc. and NXP
B.V. dated February 8, 2010.(26)
|
|
10
|
.40(*)
|
|
Letter Agreement with Christos Lagomichos dated February 2,
2010.(12)
|
|
10
|
.41(*)
|
|
Trident Microsystems, Inc. 2010 Equity Incentive Plan(25)
|
|
10
|
.42(**)
|
|
Intellectual Property Transfer and License Agreement between
Trident Microsystems (Far East) Ltd. and NXP B.V. dated February
8, 2010.(26)
|
|
10
|
.43(**)
|
|
Transition Services Agreement between Trident Microsystems, Inc.
and NXP B.V. dated February 8, 2010.(26)
|
|
10
|
.44(**)
|
|
Manufacturing Services Agreement between Trident Microsystems,
Inc. and NXP B.V. dated February 8, 2010.(26)
|
|
10
|
.45(*)
|
|
Forms of Agreements under 2010 Equity Incentive Plan.(26)
|
|
10
|
.46(*)
|
|
Confidential Retirement Agreement and General Release of Claims
between Trident Microsystems, Inc. and Dr. Donna Hamlin
effective January 14, 2010.(26)
|
|
10
|
.47
|
|
Lease Agreement by and between Kifer Tech Investors LLC and
Trident Microsystems, Inc. dated March 5, 2010.(26)
|
|
10
|
.48(*)
|
|
Amended and Restated Executive Retention and Severance Plan,
effective as of December 15, 2010.(27)
|
|
10
|
.49
|
|
Change of Control Policy for Non-Executive Officers and
Employees.(27)
|
|
10
|
.50(*)
|
|
Amended Forms of Agreements under 2010 Equity Incentive Plan.(27)
|
|
10
|
.51(*)
|
|
Letter Agreement dated January 21, 2011 between Philippe Geyres
and Trident Digital Systems (UK) Ltd.(28)
|
|
10
|
.52(*)
|
|
Letter Agreement dated January 21, 2011 between Philippe Geyres
and the Company.(28)
|
|
10
|
.53(*)
|
|
First Half 2011 Executive Incentive Plan.(29)
|
|
10
|
.54(*)
|
|
Confidential Retirement Agreement and General Release of Claims
between Christos Lagomichos and the Company, dated January 20,
2011.(31)
|
|
10
|
.55(**)
|
|
Loan, Guaranty and Security Agreement among the Company, Trident
Microsystems (Far East) Ltd., Trident Microsystems (HK) Ltd. and
Bank of America, N.A., acting through its Singapore branch,
dated February 9, 2011.(31)
|
|
10
|
.56(*)
|
|
Resignation Agreement and General Release of Claims between
Sylvia Summers and the Company, dated February 10, 2011.(31)
|
|
10
|
.57
|
|
Stipulation of Settlement dated February 15, 2011.(30)
|
|
10
|
.58(*)
|
|
Participation Agreement of David Teichmann under Amended and
Restated Executive Retention and Severance Plan effective as of
February 7, 2011.(31)
|
|
21
|
.1
|
|
Subsidiaries of Registrant(31)
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm(31)
|
|
24
|
.1
|
|
Power of Attorney (Included on signature page)
|
|
31
|
.1
|
|
Rule 13a 14(a) Certification of Chief Executive
Officer.(31)
|
|
31
|
.2
|
|
Rule 13a 14(a) Certification of Chief Financial
Officer.(31)
|
|
32
|
.1
|
|
Section 1350 Certification of Chief Executive Officer.(31)
|
|
32
|
.2
|
|
Section 1350 Certification of Chief Financial Officer.(31)
|
|
|
|
(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) |
|
Incorporated by reference to exhibit of the same number to the
Companys Registration Statement on
Form S-1
(File
No. 33-53768). |
|
(14) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 1995. Confidential treatment
has been requested for a portion of this document. |
|
(15) |
|
Incorporated by reference to exhibit of same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002. |
|
(16) |
|
Incorporated by reference to exhibit of same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. |
|
(17) |
|
Incorporated by reference to the Companys Proxy Statement
filed with the Securities and Exchange Commission on
April 26, 2006. |
|
(18) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K/A
filed with the Securities and Exchange Commission on
August 22, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 99.2 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
October 1, 2007. |
|
(20) |
|
Incorporated by reference to exhibit of the same number to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2007 |
|
(21) |
|
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 19, 2008. |
|
(22) |
|
Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
March 5, 2008. |
|
(23) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 2008. |
|
(24) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-K
for the year ended June 30, 2009. |
|
(25) |
|
Incorporated by reference to exhibit 99.1 to Registration
Statement on
Form S-8
(No. 333-164532)
filed with the Securities and Exchange Commission on
January 26, 2010. |
|
(26) |
|
Incorporated by reference to exhibit of the same number to the
Companys Annual Report on
Form 10-KT
filed with the Securities and Exchange Commission on
March 15, 2010. |
|
|
|
(27) |
|
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
December 17, 2010. |
|
(28) |
|
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 24, 2011. |
|
(29) |
|
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, 2011. |
|
(30) |
|
Incorporated by reference to exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 16, 2011. |
|
(31) |
|
Filed herewith. |
|
(*) |
|
Management contracts or compensatory plans or arrangements
covering executive officers or directors of the Company. |
|
(+) |
|
Compensatory plans, contracts or arrangements adopted without
the approval of security holders pursuant to which equity may be
awarded. |
|
(**) |
|
Confidential treatment has been granted or requested for
portions of this agreement. |