TRIDENT MICROSYSTEMS INC - FORM 10-Q

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EX-31.1 - RULE 13A - 14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER. - TRIDENT MICROSYSTEMS INC	d229656dex311.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER. - TRIDENT MICROSYSTEMS INC	d229656dex322.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-20784

TRIDENT MICROSYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware		77-0156584
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

1170 Kifer Road		94086-5303
Sunnyvale, California		(Zip Code)
(Address of principal executive offices)

(408)-962-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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 þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨	Accelerated filer þ	Non-accelerated filer ¨	Smaller reporting company ¨
		(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 ¨ No þ

At October 31, 2011, the number of shares of the Registrant’s common stock outstanding was 182,870,161.

TRIDENT MICROSYSTEMS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

INDEX


Part I. Financial Information			3
Item 1. Financial Statements			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (Unaudited)			3
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (Unaudited)			4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)			5
Notes to Condensed Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			41
Part II. Other Information			41
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. (Reserved)
Item 5. Other Information
Item 6. Exhibits			43
Signatures			45
Index to Exhibits

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share data)	2011			2010			2011			2010
Net revenues	$	80,088		$	176,568		$	237,990		$	438,619
Cost of revenues		61,957			128,398			181,980			343,738

Gross profit		18,131			48,170			56,010			94,881
Operating expenses:
Research and development		36,607			44,709			107,957			131,426
Selling, general and administrative		16,707			19,459			53,090			61,906
Goodwill impairment		—			—			—			7,851
Restructuring charges		3,496			2,301			8,148			15,166

Total operating expenses		56,810			66,469			169,195			216,349

Loss from operations		(38,679	)		(18,299	)		(113,185	)		(121,468	)
Gain on investments		—			(94	)		2,098			(303	)
Interest income		34			183			382			681
Gain on acquisition		—			—			—			43,402
Other income, net		401			2,445			5,930			2,797

Loss before provision for income taxes		(38,244	)		(15,765	)		(104,775	)		(74,891	)
Provision for income taxes		874			1,749			1,375			219

Net loss	$	(39,118	)	$	(17,514	)	$	(106,150	)	$	(75,110	)

Net loss per share — basic and diluted	$	(0.22	)	$	(0.10	)	$	(0.60	)	$	(0.47	)

Shares used in computing net loss per share — basic and diluted		178,237			174,553			176,744			159,624

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except par values)	September 30, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	35,928		$	93,224
Accounts receivable, net		39,475			62,328
Accounts receivable from related party		5,052			7,337
Inventories		19,018			23,025
Notes receivable from related party		20,884			20,884
Prepaid expenses and other current assets		11,463			14,338

Total current assets		131,820			221,136
Property and equipment, net		25,962			31,566
Acquired intangible assets, net		52,001			82,921
Long-term note receivable from related party		—			1,500
Other non-current assets		27,057			29,826

Total assets	$	236,840		$	366,949

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,365		$	7,828
Accounts payable to related parties		21,443			26,818
Accrued expenses and other current liabilities		41,116			66,409
Deferred margin		7,322			8,904
Income taxes payable		3,523			2,077

Total current liabilities		88,769			112,036
Non-current income taxes payable		22,764			25,476
Deferred income tax liabilities		200			200
Other long-term liabilities		1,055			4,933

Total liabilities		112,788			142,645

Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.001 par value: 500 shares authorized; .004 and 0 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively (Note 11)		—			—
Common stock, $0.001 par value; 250,000 shares authorized; 182,858 and 177,046 shares issued and outstanding at September 30, 2011, and December 31, 2010, respectively		183			177
Additional paid-in capital		440,717			434,825
Accumulated deficit		(316,848	)		(210,698	)

Total stockholders’ equity		124,052			224,304

Total liabilities and stockholders’ equity	$	236,840		$	366,949

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In thousands)	2011			2010
Cash flows from operating activities:
Net loss	$	(106,150	)	$	(75,110	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		4,939			4,763
Bonus paid via issuance of RSUs and RSAs		1,323			—
Depreciation and amortization		21,409			20,239
Amortization of acquisition-related intangible assets		30,222			44,305
Loss on disposal of property and equipment		(58	)		4
Impairment of goodwill		—			7,851
Write-off of in process research and development		698			—
Write-off of ERP system		4,025			—
Write-off of technology licenses		729			2,078
Write-off of loan origination fees		933			—
Severance paid by NXP		—			3,588
Gain on acquisition		—			(43,402	)
(Gain) Loss on sales of investments		(2,098	)		303
Deferred income taxes		298			(2,001	)
Changes in current assets and liabilities, net of effect from acquisition:
Accounts receivable		22,854			(91,524	)
Accounts receivable from related parties		3,785			(9,085	)
Inventories		4,007			(920	)
Notes receivable from related parties		—			11,281
Prepaid expenses and other current assets		3,886			(3,374	)
Accounts payable		5,472			(6,389	)
Accounts payable to related parties		(5,375	)		24,963
Accrued expenses and other liabilities		(27,825	)		31,889
Income taxes payable		(1,267	)		2,188

Net cash used in operating activities		(38,193	)		(78,353	)

Cash flows from investing activities:
Purchases of property and equipment		(3,974	)		(4,979	)
Acquisition of businesses, net of cash acquired		—			46,380
Proceeds from sale of property, plant and equipment		71			37
Purchases of technology licenses		(15,264	)		(8,436	)

Net cash provided by (used in) investing activities		(19,167	)		33,002

Cash flows from financing activities:
Proceeds from issuance of common stock to employees		64			67

Net cash provided by financing activities		64			67

Net decrease in cash and cash equivalents		(57,296	)		(45,284	)
Cash and cash equivalents at beginning of the period		93,224			147,995

Cash and cash equivalents at end of the period	$	35,928		$	102,711

Supplemental schedule of non-cash investing and financing activities:
Common stock and preferred shares issued in connection with acquisition of business	$	—		$	188,610

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TRIDENT MICROSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF OPERATIONS

Trident Microsystems, Inc., (including its subsidiaries, referred to collectively in this Report as “the Company”) with headquarters in Sunnyvale, California, is in the digital home entertainment market, delivering an extensive range of platform solutions that enhance the consumer experience in the Connected Home and select Consumer Electronics (CE) products. As one of the top semiconductor providers to both the TV and set-top box markets, Trident’s solutions can be found in the products of leading OEMs and channel partners worldwide. The company’s extensive IP portfolio has been driving key innovations in image quality, 3D TV, audio, low power, and 45nm designs.

Liquidity and Management Plans

As of September 30, 2011, the Company had an accumulated deficit of $316.8 million. The Company has incurred operating losses and generated negative cash flows for the last three years. As of September 30, 2011, the Company had cash and cash equivalents of $35.9 million and working capital of $43.1 million. Cash used in the nine months ended September 30, 2011 was $57.3 million. Given the loss of a significant expected intellectual property licensing and engineering transaction, delays in mass production of new programs, the continuing costs of the Company’s previously announced restructuring activities and a soft consumer electronics market, the Company anticipates that the quarterly loss in the fourth quarter will be at least as large as what the Company has seen over the past year, further eroding the Company’s cash position. The Company’s near term liquidity has been negatively impacted by these factors and it will be required to secure additional sources of cash sooner than previously expected. The Company’s current expectation is to successfully develop strategic alternatives to improve near term liquidity. However, the Company can make no assurances and there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively over at least the next twelve months, which raises substantial doubt as to its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. BASIS OF PRESENTATION

Basis of Presentation

The condensed consolidated financial statements include the accounts of Trident Microsystems, Inc., or Trident and its subsidiaries (collectively the “Company”) after elimination of all significant intercompany accounts and transactions. In the opinion of the Company, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the financial position, operating results and cash flows for those periods presented. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, and are not audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K, for the period ended December 31, 2010, filed with the SEC. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for any other period or for the entire fiscal year ending December 31, 2011.

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 Company’s customer incentive offerings primarily involve volume rebates for its products in various target markets. The Company accrues for 100% of the potential rebates when it is likely that the relevant criteria will be met. A sales returns allowance, based primarily on historical sales returns, credit memo data and other factors known at that time, is presented as a reduction in accounts receivable on the Company’s Condensed Consolidated Balance Sheet.

A significant amount of the Company’s 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, Deferred margin, on the Company’s Condensed 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 relieves inventory for the carrying value of goods shipped since legal title has passed to the distributor. During the three and nine months ended September 30, 2011, the Company recognized $22.0 million and $69.0 million, respectively, and $46.0 million and $99.4 million during the three and nine months ended September 30, 2010, respectively, 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.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period presentation, as follows:

(i)

VAT payables have been reclassified to present the net receivable position of the Company.

Recent Accounting Pronouncements

In May, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The ASU is the result of joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop a single, converged fair value framework. While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands existing disclosure requirements for fair value measurements and makes other amendments. Key additional disclosures include quantitative disclosures about unobservable inputs in Level 3 measures, qualitative information about sensitivity of Level 3 measures and valuation process, and classification within the fair value hierarchy for instruments where fair value is only disclosed in the footnotes but carrying amount is on some other basis. For public companies, the ASU is effective for interim and annual periods beginning after December 15, 2011. We do not expect adoption of this ASU to have a material impact on our results of operations, financial position or cash flow.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income: Presentation of Comprehensive Income,” which amends current comprehensive income guidance. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, it requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used today, and the second statement would include components of other comprehensive income (“OCI”). The ASU does not change the items that must be reported in OCI. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. We do not expect adoption of this ASU to have a material impact on our results of operations, financial position or cash flow.

3. BALANCE SHEET COMPONENTS

The following table provides details of selected balance sheet components:


(Dollars in thousands)	September 30, 2011			December 31, 2010
*Cash and cash equivalents:*
Cash	$	35,928		$	62,226
Money market funds invested in U.S. Treasuries		—			30,998

Total cash and cash equivalents	$	35,928		$	93,224

*Accounts receivable:*
Accounts receivable, gross	$	40,525		$	62,962
Allowance for sales returns and doubtful accounts		(1,050	)		(634	)

Total accounts receivable	$	39,475		$	62,328

*Inventories:*
Work in process	$	10,246		$	4,751
Finished goods		8,772			18,274

Total inventories	$	19,018		$	23,025

*Prepaid expenses and other current assets:*
VAT receivable		6,085			5,496
Prepaid and deferred taxes		1,156			658
Other		4,222			8,184

Total prepaid expenses and other current assets:	$	11,463		$	14,338

*Property and equipment, net:*
Building and leasehold improvements	$	21,474		$	21,068
Machinery and equipment		28,564			29,889
Software		3,752			4,816
Furniture and fixtures		3,656			3,411

		57,446			59,184
Accumulated depreciation and amortization		(31,484	)		(27,618	)

Total property and equipment, net	$	25,962		$	31,566

*Accrued expenses and other current liabilities:*
Compensation and benefits	$	9,450		$	22,098
Software licenses		7,562			5,989
Wafer and substrate fees		6,028			4,203
Price rebate		2,605			6,414
Restructuring accrual		2,538			4,518
Royalties		1,438			2,579
Professional fees		655			2,133
Warranty accrual		605			1,596
VAT payable		218			211
Contingent liability related to legal settlement		—			2,758
Other		10,017			13,910

Accrued expenses and other current liabilities	$	41,116		$	66,409

*Deferred margin:*
Deferred revenue on shipments to distributors		15,822			18,841
Deferred cost of sales on shipments to distributors		(8,500	)		(9,937	)

Total deferred margin	$	7,322		$	8,904

4. FAIR VALUE MEASUREMENTS

The Company follows applicable accounting guidance for its fair value measurements. The guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s 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.

Determination of fair value

Cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis which were comprised of the following types of instruments as of December 31, 2010:


	Fair Value Measurement at Reporting Date
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Money market funds invested in U.S. Treasuries(1)	$	30,998	$	30,998	$	—	$	—

Total	$	30,998	$	30,998	$	—	$	—

(1)	Included in Cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheets.

The Company did not have cash equivalents as of September 30, 2011.

5. 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, or NXP. As a result of the acquisition, the Company issued 104,204,348 shares of Trident common stock to NXP, equal to 60% of the Company’s then 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 the Company’s common stock because it 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 Trident’s Board of Directors. Five of the nine members of the Board of Directors following the closing of the acquisition in February 2010 were legacy Company 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 Company’s pre-acquisition senior management.

The relative voting rights in the combined entity after the business combination — NXP’s voting rights are limited, such that if all outstanding shares of Common Stock of Trident not held by NXP vote in favor of a stockholder proposal, then NXP is limited to voting a number of shares of Common Stock of Trident equal to 30% of the total outstanding shares against the proposal, and the remainder of the shares of the Common Stock 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 a number of shares of Common Stock of Trident equal to 30% of the total outstanding shares freely, with its voting of the remaining shares restricted such that the remaining shares may be voted 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

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 date 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.

Other NXP related items:

(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 acquisition, the Company acquired two inventory notes receivable (the “Note” or “Notes”). The first Note was for $19.1 million and allowed the Company to purchase finished goods inventory on March 22, 2010. The second Note was for $20.8 million and allows the Company to purchase work-in-process inventory on the readiness of the Company’s enterprise resource planning system which is projected to be implemented in the first half of fiscal 2012, but no later than August 31, 2012. For additional details related to notes receivable, see Note 14, “Related Party Transactions,” of Notes to Condensed 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 Company’s fixed assets were reduced by $1.4 million, resulting from new information received by the Company subsequent to filing the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2010.

(d)

Service agreements acquired from NXP were measured at fair value and are amortized over the remaining life of the agreement, up to 33 months from the closing date of the transaction. These service agreements include manufacturing and distributor agreements as well as 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 Company’s 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):


	Fair Value		Weighted Average 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.

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:


	Fair Value		February 8, 2010
Set-Top Box Development Projects	Fair Value		Estimated Cost to Complete		Expected Commencement Date of Significant 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 was complete. Minor validation and testing work will continue prior to achieving high volume production which is anticipated to occur in the fourth quarter of 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.

NXP Related Tax Items:

(f)	The Company’s deferred tax assets were reduced by $3.7 million, resulting from new information received by the Company subsequent to filing the Company’s Quarterly Report on 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 Company’s 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 Company’s Form 10-Q for the three months ended March 31, 2010.

The Company utilized 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 the Company’s 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.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisition of the television systems and set-top box business lines of NXP had occurred on January 1, 2010. 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 data):


	Nine Months Ended September 30, 2010
Pro forma net revenues	$	486,038
Pro forma net loss		(73,034	)
Pro forma net loss per share — Basic		(0.46	)
Shares used in computing pro forma net loss per share — Basic		159,624

The Company recorded net revenues of approximately $302.7 million and net operating loss of $15.9 million from the acquisition for the nine months ended September 30, 2010 respectively.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill and impairment

The following table presents goodwill balances and movements for the nine months ended September 30, 2010:


	September 30,
(In thousands)	2010
Balance at beginning of quarter	$	7,851
Impairment charge		(7,851	)

Balance at end of quarter	$	—

The Company did not have goodwill balances for the nine months ended September 30, 2011.

Disclosures for Assets Measured at Fair Value on a Non-Recurring Basis

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. In determining whether impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured and recorded as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The Company experienced adverse changes from prior expectations during the three months ended September 30, 2011 which negatively impacts the projected revenues and contributed to a decline in the market price of Trident common stock. The Company recognized this as a triggering event and, based on an impairment analysis, determined that the carrying amounts of its intangible assets (an element of asset groups evaluated for impairment) were recoverable taking into account the undiscounted cash flows expected to result from the use of each asset group over its expected useful life. The Company’s cash flow assumptions are established using historical data and internal estimates developed as part of its long-term planning process.

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 Company’s 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 September 30, 2011							As of December 31, 2010
	Gross Carrying Amount		Accumulated Amortization and Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization and Impairment			Net Carrying Amount
	(In thousands)
Intangible assets:
Core & developed	$	84,607	$	(55,944	)	$	28,663	$	84,607	$	(40,716	)	$	43,891
Customer relationships		25,120		(19,312	)		5,808		25,120		(11,795	)		13,325
Patents		13,000		(4,755	)		8,245		13,000		(2,588	)		10,412
In-process R&D		9,144		(698	)		8,446		9,144		—			9,144
Service agreements		16,000		(15,161	)		839		16,000		(9,851	)		6,149

Total	$	147,871	$	(95,870	)	$	52,001	$	147,871	$	(64,950	)	$	82,921

As of September 30, 2011, the status of in-process research and development is consistent with the Company’s expectation at the time the in-process research and development was acquired. Future period intangible assets amortization expense will include the amortization of in-process research and development, if and when the technology reaches technical feasibility. See Note 5, “Business Combinations,” of Notes to Condensed Consolidated Financial Statements for a further description of the Company’s 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:


	Three months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Cost of revenues	$	7,915	$	11,612	$	25,793	$	38,799
Operating expenses:
Research and development		627		775		2,685		2,083
Selling, general and administrative		318		1,329		2,442		3,423

	$	8,860	$	13,716	$	30,920	$	44,305

As of September 30, 2011, the estimated future amortization expense of intangible assets in the table above is as follows, excluding two in-process research and development intangible assets that have not reached technological feasibility:


Year Ending	Estimated Amortization
	(In thousands)
2011( remaining 3 months)	$	8,088
2012		26,706
2013		7,015
2014		1,746
2015 and thereafter		—

Total	$	43,555

7. RESTRUCTURING

On September 21, 2011, the Board of Directors of the Company approved a workforce reduction and authorized management to proceed with the reduction. On September 26, 2011, the Company issued a press release announcing the workforce reduction plan, which provides for a reduction in the number of employee positions at the Company from approximately 1,275 to approximately 1,000 by early 2012. The total cost of the restructuring plan is expected to be approximately $8.0 to $10.0 million. The Company has incurred $2.1 million of related charges to date and expects to recognize the remaining expenses over the next nine months. The Company is taking these actions in order to reduce operating costs and realign its organization in the current competitive operating environment.

The Company incurred a restructuring charge of $3.5 million and $8.1 million for the three and nine months ended September 30, 2011, respectively, including $2.1 million for non-recurring employee-related termination benefits, including severance payments and continuation of medical insurance benefits related to the September 26, 2011 plan. Restructuring charges also include $1.4 million for similar benefits related to a previous reduction in force, subject to local laws and regulations and in consultation with local works councils in Europe. These charges were not estimable until settlement, which occurred during the three months ended September 30, 2011. The September 26, 2011 plan also includes actions subject to local works council requirements in Europe for which the charges are currently not estimable.

During the three months ended March 31, 2011, the Company approved plans to restructure some of its research and development operations. These plans included the closure of a facility in Israel and significant downsizing of a facility in San Diego, California during the quarter ended June 30, 2011. The remaining liability related to restructuring actions taken prior to September 26, 2011 is primarily related to operating lease commitments on exited facilities.

Prior to the close of the Company’s acquisition from NXP of selected assets and liabilities of NXP’s 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 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 approximately $8.4 million for the three months ended March 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 5, “Business Combinations,” of Notes to Condensed Consolidated Financial Statements. Also during the three months ended March 31, 2010, the Company shut down one of its European locations in an effort to streamline its operations and recorded $4.5 million of restructuring expenses related to severance and related employee benefits to employees who will be terminated. Restructuring charges are recorded under Restructuring charges in the Company’s Condensed Consolidated Statement of Operations.

The following table presents the changes in the Company’s restructuring accrual for the three and nine months ended September 30, 2011 and 2010:


	Three months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2011	2010	2011	2010


Restructuring liabilities, beginning of period	$	1,215		$	1,105		$	2,983		$	—
Severance and related charges		3,496			2,301			8,148			15,166
Adjustments		16			—			1,218			—
Net cash payments		(2,131	)		(1,252	)		(9,789	)		(13,012	)
Foreign exchange loss		(58	)		—			(22	)		—

Restructuring liabilities, end of period	$	2,538		$	2,154		$	2,538		$	2,154

The Company expects to pay the remaining liability over the next twelve months.

8. WARRANTY PROVISION

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 cost of goods sold. The following table reflects the changes in the Company’s accrued product warranty for expected customer claims related to known product warranty issues for the three and nine months ended September 30, 2011 and September 30, 2010:


	Three months Ended September 30,					Nine Months Ended September 30,
	2011			2010		2011			2010
Accrued product warranty, beginning of period	$	770		$	481	$	1,596		$	—
Charged to (reversal of) cost of revenues		(165	)		759		(83	)		1,240
Actual product warranty expenses		—			—		(908	)		—

Accrued product warranty, end of period	$	605		$	1,240	$	605		$	1,240

9. 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 (the “Agreement”) with Bank of America, N.A., to finance working capital. In order to access credit under the Agreement, the Company was subject to eligibility requirements, limitations and covenants. The Company has been unable to borrow under the credit facility or to refinance future indebtedness and has been prevented from using the Agreement to fund its working capital needs. The Company incurred loan origination costs and related expenses of $1.0 million, of which $0.2 million had been amortized prior to the three months ended September 30, 2011. As of September 30, 2011, the Company had not borrowed funds from the revolving line of credit. On August 8, 2011, the Company amended the credit agreement. As a result of the modification of the Agreement, the company wrote off the remaining unamortized portion of the loan origination fees of $0.8 million in the three months ended September 30, 2011, which was included in Other income, net on the Condensed Consolidated Statement of Operations. On November 1, 2011, the Company cancelled the Agreement, resulting in cancellation and legal fees of $0.2 million, incurred in the three months ending December 31, 2011. As a result of the cancellation, the Company and its subsidiaries will have no obligations under the Agreement and any collateral for the Agreement will be available to the Company without restriction.

10. EMPLOYEE STOCK PLANS

Employee Stock Incentive Plans

The Company grants nonstatutory and incentive stock options, restricted stock awards, restricted stock units and performance share awards to attract and retain officers, directors, employees and consultants. For the quarter ended March 31, 2010, the Company granted awards under the 2010 Equity Incentive Plan (the “2010 Plan”), which was approved by the Company’s stockholders on January 25, 2010. Previously, the Company had also adopted the 2001 Employee Stock Purchase Plan, however, purchases under this plan have been suspended for several years. Options to purchase Trident’s common stock remain outstanding under the following incentive plans which have expired or been terminated: the 1992 Stock Option Plan, the 1994 Outside Directors Stock Option Plan, the 1996 Nonstatutory Stock Option Plan (the “1996 Plan”), the 2002 Stock Option Plan (the “2002 Plan”) and the 2006 Equity Incentive Plan (the “2006 Plan”). In addition, options to purchase Trident’s 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 (the “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 Trident’s common stock. Except for the 1996 Plan, all of the Company’s equity incentive plans, as well as the assumption and conversion of options granted under the TTI Plan, have been approved by the Company’s stockholders.

At the Company’s Annual Stockholder Meeting held on June 16, 2011, the Company’s stockholders approved an increase of 35,000,000 shares to be available for issuance under the 2010 Plan. The 2010 Plan provides for the grant of equity incentive awards, including stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units and cash-based and other stock-based awards of up to 67,200,000 shares, subject to increase for unissued predecessor plan shares as set forth in the 2010 Plan. For purposes of the total number of shares available for grant under the 2010 Plan, any shares that are subject to awards of stock options, stock appreciation rights or other awards that require the option holder to purchase shares for monetary consideration equal to their fair market value determined at the time of grant are counted against the available-for-grant limit as one share for every one share issued, and any shares issued in connection with any other awards, or “full value” awards, are counted against the available-for-grant limit as 1.2 shares for every one share issued. Stock options granted under the 2010 Plan generally must have an exercise price equal to the closing market price of the underlying stock on the grant date and generally expire no later than ten years from the grant date. Options generally become exercisable beginning one year after the date of grant and vest as to a percentage of shares annually over a period of three to four years following the date of grant. The 2010 Plan supersedes the 2006 Plan and the 2002 Plan. The 2006 Plan and 2002 Plan were terminated on January 26, 2010 following approval of the 2010 Plan by the Company’s stockholders.

Valuation of Employee Stock Options

The Company values its stock-based incentive awards granted using the Black-Scholes model, except for performance-based restricted stock awards with a market condition granted during the fiscal year ended June 30, 2008 and during the quarter ended March 31, 2010, for which the Company used a Monte Carlo simulation model to value the awards.

The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of certain assumptions. The Company’s 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 three and nine months ended September 30, 2011 and 2010, the fair value of options granted were estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:


	Three months Ended September 30,					Nine Months Ended September 30,
Employee Incentive Plans	2011		2010			2011			2010
Expected term (in years)		—		5.03			5.03			4.78
Expected volatility		—		71.28	%		71.93	%		69.02	%
Risk-free interest rate		—		1.25	%		2.23	%		2.25	%
Expected dividend rate		—		—			—			—
Weighted average fair value at grant date	$	—	$	1.00		$	0.57		$	1.03

No options were granted during the three months ended September 30, 2011.

The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees. The

Company uses historical volatility in deriving its expected volatility assumption because it believes that future volatility over the expected term of the stock options is not likely to differ from the past. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of options to purchase Trident common stock. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Stock-Based Compensation Expense

The following table summarizes the Company’s stock-based award activities for the quarters ended September 30, 2011 and 2010. The Company has not capitalized any stock-based compensation expense in inventory for the quarters ended September 30, 2011 and 2010 as such amounts were immaterial.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2011		2010		2011		2010
Cost of revenues	$	82	$	82	$	232	$	272
Research and development		698		845		2,309		2,627
Selling, general and administrative		763		938		2,398		1,864

Total stock-based compensation expense	$	1,543	$	1,865	$	4,939	$	4,763

During the three months ended September 30, 2011, total stock-based compensation expense recognized in income before taxes was $1.5 million, and there was no related recognized tax benefit. During the three months ended September 30, 2010, total stock-based compensation expense recognized in income before taxes was $1.9 million, with no related recognized tax benefit; during the nine months ended September 30, 2010, total stock-based compensation expense recognized in income before taxes was $4.8 million, with no related recognized tax benefit, that was reduced by a reduction in a contingent liability of $1.6 million associated with the “modification of certain options” that was recorded in Selling, general administrative expenses on the Company’s Condensed Consolidated Statement of Operations for the quarter ended March 31, 2010. See Note 16, “Commitments and Contingencies — “Special Litigation Committee,” in the Notes to Condensed Consolidated Financial Statements for further discussion regarding the modification of certain options.

Stock Option Awards

During the three months ended September 30, 2011, the Company did not grant any stock options to purchase its common stock and no options to purchase common stock were exercised.

Total compensation expense related to stock options outstanding during the three months ended September 30, 2011 was $0.3 million. Total gross unrecognized compensation cost of options granted but not yet vested as of September 30, 2011 was $2.8 million, which is expected to be recognized over the weighted average service period of 3.34 years.

Restricted Stock Awards and Restricted Stock Units

For the three months ended September 30, 2011, the Company granted approximately 2.7 million stock awards (“RSAs”) and restricted stock units (“RSUs”) with a weighted average grant date value of $0.65 per share.

For the three months ended September 30, 2011, the Company recognized expense for RSAs and RSUs, excluding performance share awards with market and service conditions, of $2.5 million. Included in the $2.5 million of expense was a one-time fully vested bonus issuance of RSAs and RSUs of approximately $1.3 million, as settlement of employee bonuses previously accrued. A total of $6.5 million of unrecognized compensation cost is expected to be recognized over a weighted average period of 2.52 years.

For the three months ended September 30, 2011, the Company recognized expense related to performance share awards with market and service conditions granted under the 2010 Plan, of $0.1 million. A total of $0.5 million of unrecognized compensation cost is expected to be recognized over a weighted average period of 2.28 years.

11. STOCKHOLDERS’ EQUITY

Common Stock Warrants

In connection with the acquisition of selected assets from Micronas in 2009, 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 the Company’s 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.

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 two members of the Company’s Board of Directors (“Series B Directors”), as distinguished from the other members of the Company’s Board of Directors. On April 28, 2011, the Company and NXP entered into an Amended and Restated Shareholder Agreement, and on June 16, 2011, the Company’s stockholders approved the amendment of the Series B Certificate to reduce the number of Series B Directors from four to two. For so long as the holders of the Series B Preferred Stock beneficially own 11% or more of the Company’s common stock and are entitled to elect a director, the size of the Company’s Board will consist of seven to nine directors, as fixed by a resolution of the board of directors. On July 21, 2011, the Company’s board of directors set the number at eight 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 Company’s common stock as follows: (a) less than 30% but at least 20%, two Series B Directors and (b) 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 Company’s Board of Directors adopted a Preferred Shares Rights Agreement or Original Rights Agreement. Pursuant to the Agreement, the Company’s Board of Directors authorized and declared a dividend of one preferred share purchase right or Right for each outstanding share of the Company’s 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 or 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, (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.

12. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share:


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share amounts)	2011			2010			2011			2010
Net loss	$	(39,118	)	$	(17,514	)	$	(106,150	)	$	(75,110	)

Shares used in computing net loss per share — basic and diluted		178,237			174,553			176,744			159,624
Net loss per share — basic and diluted	$	(0.22	)	$	(0.10	)	$	(0.60	)	$	(0.47	)

Potentially dilutive securities(1)		7,564			7,109			7,564			6,592

(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.

13. INCOME TAXES

The Company accrued an insignificant amount for interest and penalties, following applicable accounting guidance, related to gross unrecognized tax benefits, which are included in the provision for income taxes for the three and nine months ended September 30, 2011.

The Company included in its unrecognized tax benefit of $29.9 million at September 30, 2011, $20.5 million of tax benefits that, if recognized, would reduce the Company’s annual effective tax rate. It is reasonably possible that the Company’s unrecognized tax benefits could decrease by a range between zero and $2.8 million within the next twelve months, depending on the outcome of certain tax audits or statutes of limitations in foreign jurisdictions.

A provision for income taxes of $0.9 million and $1.4 million was recorded for the three and nine months ended September 30, 2011, respectively. A provision for income taxes of $1.7 million and $0.2 million was recorded for the three and nine months ended September 30, 2010, respectively. While the Company is in a loss position on a consolidated basis for the three and nine months ended September 30, 2011, tax expense recorded in the three and nine month period ended September 30, 2011 resulted primarily from income earned in various jurisdictions as a result of reimbursements for intercompany services. Tax expense recorded for the three and nine months ended September 30, 2010, also resulted primarily from income earned in various jurisdictions as a result of reimbursements for intercompany services. As a result, the Company’s effective tax rates were (2.3%) and (1.3%) in the three and nine months ended September 30, 2011, giving rise to a significant difference between the 35% federal statutory rate and the Company’s effective tax rates, in the three and nine months ended September 30, 2011 and September 30, 2010.

The Company’s ability to use federal and state net operating loss and credit carry forwards to offset future taxable income and future taxes, respectively, is subject to restrictions attributable to equity transactions that result from changes in ownership as defined by Internal Revenue Code (“IRC”) Sections 382 and 383. As discussed in Note 5, “Business Combinations” of Notes to Condensed Consolidated Financial Statements, on February 8, 2010, Trident issued 104,204,348 newly issued shares of Trident common stock to NXP, equal to 60% of the then total outstanding shares of Trident common stock. The impact of this event reduced the Company’s availability of net operating loss and tax credit carry forwards for federal and state income tax purposes.

The Internal Revenue Service has initiated an examination of the Company’s U.S. corporate income tax returns for fiscal years ended December 31, 2009, June 30, 2008 and June 30, 2009. At this time, it is not possible to estimate the potential impact that the examination may have on income tax expense. Although timing of the resolution or closure on audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

14. RELATED PARTY TRANSACTIONS

NXP

In connection with the NXP acquisition, the Company acquired two inventory notes receivable. The first Note was settled during the quarter ended September 30, 2010. The second Note originally bore interest at a rate per annum of 250 basis points in excess of the 3-month LIBOR rate from February 8, 2010 to June 30, 2011. Effective July 1, 2011, the arrangement was renegotiated so as to make the note non-interest bearing. The Company expects the second Note to be settled no later than August 31, 2012, when the company successfully implements an enterprise resource planning system.

Since the Company was unable to successfully implement an enterprise resource planning system by June 30, 2011, the Company entered into an arrangement with NXP to extend the Manufacturing Services Agreement and a Transition Service Agreement for ICT Hardware and ICT Software at a monthly charge of $0.2 million and $0.3 million, respectively. The term of these agreements ends following the readiness of the Company’s enterprise resource planning system, which is currently projected to be implemented in the first half of fiscal 2012, but no later than August 31, 2012.

Total purchases from NXP for the three months ended September 30, 2011 were $38.4 million. As of September 30, 2011, the outstanding accounts payable to NXP was $20.4 million and the outstanding accounts receivable from NXP was $5.1 million, which was not related to the sales of product. At September 30, 2011, the Company had a note receivable from NXP of $20.9 million related to future inventory purchases from NXP, of which the entire balance was a current asset on the Company’s Condensed Consolidated Balance Sheet.

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 NXP’s business and Dutch Newco has granted a license back to NXP to certain of the patents, software and technology.

•

Stockholder Agreement: This agreement, between the Company and NXP, sets forth the designation of nominees to the Company’s Board, providing certain restrictions on the right of NXP to freely vote its shares of Company common stock received pursuant to the Share Exchange Agreement, and providing a two year lock up during which NXP cannot transfer its shares of Company 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 Company securities, participation in a solicitation of proxies, and effecting or seeking to effect a change of control of Company. The NXP Stockholder Agreement also sets forth certain major decisions that may only be taken by the Company 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 the Company’s common stock.

•

Transition Services Agreement: Under this agreement, NXP agrees to provide to the Company 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 ranged from three to 18 months.

•

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 the Company. The term of the agreement ends following the readiness of the Company’s 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 the Company 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 Company personnel. Depending on the service provided, the term ranges from 2 to 12 months.

15. EMPLOYEE BENEFIT PLANS

Employee Benefit Plans

The Company’s Israeli subsidiary had a pension and severance investment plan pursuant to which the Company was 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. This subsidiary has been closed and all severance costs had been paid as of June 30, 2011.

The Company’s India subsidiary has a gratuity plan and a compensated absence plan pursuant to which the Company is required to make payments. The Company’s liability for gratuity plan is calculated based on the salary of employees multiplied by years of service. The Company’s 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 balance of $0.6 million is included in other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets. A corresponding asset of $0.3 million is included in other assets, on the Company’s Condensed Consolidated Balance Sheets. The underfunded balance of these plans was $0.3 million as of September 30, 2011.

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 100% of their annual eligible compensation to the Plan on a pretax 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. The Retirement Plan allows employees who meet the age requirements and reach the Plan contribution limits to make a catch-up contribution not to exceed the limit set forth in the Internal Revenue Code. The catch-up contributions are eligible for matching contributions. All matching contributions vest immediately, but participants must be employed on the last day of the plan year in order to receive the matching contribution. The Company’s matching contributions to the Plan totaled $0.2 million for the nine months ended September 30, 2011.

16. COMMITMENTS AND CONTINGENCIES

The Company has been, and expects that it will in the future be, a party to various legal proceedings, investigations or claims. In accordance with applicable accounting guidance, the Company records accruals for certain of its outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable and reasonably estimable. The Company discloses the amount of the accrual if the financial statements would be otherwise misleading. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

However, if the loss (or an additional loss in excess of a prior accrual) is at least a reasonable possibility and material, then the Company discloses an estimate of the possible loss or range of loss, if such estimate can be made, or discloses that an estimate cannot be made. The assessment whether a loss is probable or a reasonable possibility, and whether the loss or a range of loss is estimable, involves a series of complex judgments about future events. Even as to a loss that is reasonably possible, management may be unable to estimate a range of possible loss, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel or unsettled legal theories or a large number of parties. In such cases, there is considerable uncertainty regarding the ultimate resolution of such matters, including the amount of any possible loss, fine or penalty. Accordingly, for some proceedings, the Company is currently unable to estimate the loss or a range of possible loss. However, an adverse resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations in a particular quarter or fiscal year.

The Company has not determined that any current legal proceeding is reasonably likely to result in a loss.

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 third quarter of 2012.

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 14, “Related Party Transactions,” of Notes to Condensed Consolidated Financial Statements.

Contingencies

Intellectual Property Proceedings

In March 2010, Intravisual Inc. filed complaints against the Company 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. The Company intends to contest this action vigorously. Because this action is in the very early stages, and due to the inherent uncertainty surrounding the litigation process, the Company is unable to reasonably estimate the ultimate outcome of this litigation at this time.

Shareholder Derivative Litigation

The Company had been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases were consolidated as In re Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. Plaintiffs in all cases alleged that certain of the Company’s current or former officers and directors caused it to grant options at less than fair market value, contrary to its public statements (including its financial statements); and that as a result those officers and directors were liable to the Company. No particular amount of damages was alleged against the Company. The Company’s Board of Directors appointed a Special Litigation Committee (“SLC”) composed solely of independent directors to review and manage any claims that it may have had relating to the stock option grant practices investigated by the Special Committee. The scope of the SLC’s authority included the claims asserted in the derivative actions.

On March 26, 2010, the federal court approved settlements with all defendants other than Frank Lin, the Company’s 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 the Company’s Form 8-K filed on February 10, 2010.

On June 8, 2010, Mr. Lin filed a counterclaim against the Company. 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 had suffered because he was not permitted to exercise his Trident stock options between January 2007 and March 2008. On February 11, 2011, the Company 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, the Company entered into a Stipulation of Settlement to resolve the federal litigation in its entirety, or Settlement, and on February 17, 2011, the federal court preliminarily approved the Settlement. The details of the Settlement were previously disclosed in the Company’s Form 8-K filed on February 16, 2011. On April 19, 2011, the federal court entered an order finally approving the Settlement. On May 19, 2011, the Settlement became effective, thus satisfying the contingency in the settlement of Mr. Lin’s counterclaims against the Company and ending the derivative actions. In connection with the approved settlements, payments of approximately $5.4 million were made to the Company and recorded in Other income, net on the Company’s Condensed Consolidated Statement of Operations during the nine months ended September 30, 2011. In addition, the Company transferred certain investments to Mr. Lin. The Company concluded that the value of these investments approximated the $2.8 million that it had previously recorded as a contingent liability accrual. As the book value of the transferred investments was $0.6 million, the Company recorded the remaining $2.1 million as a gain on investment in Other income, net during the period to reflect the fair value of the transferred assets.

Special Litigation Committee

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 its 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, 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 the Company’s 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 the Company’s 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 the Company’s stockholders not to allow the remaining two former employees, as well as the Company’s former CEO, Frank Lin, and two former non-employee directors, to exercise their vested options during the pendency of the SLC’s 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 individual’s 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 Mr. Lin 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 Company’s 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 Mr. Lin, allowing him to exercise all of his fully vested stock options. Because the Company’s stock price as of June 30, 2008 was lower than the prices at which Mr. Lin and each of the two former non-employee directors had desired to exercise their options, as indicated in previous written notices to the SLC, the Company 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 the Company’s two former non-employee directors, the Company reduced the contingent liability by $1.6 million. On April 19, 2011, the federal court approved a comprehensive settlement with Mr. Lin and the Company, which became effective on May 19, 2011.

Indemnification Obligations

The Company indemnifies as permitted under Delaware law and in accordance with its Bylaws, the Company officers, directors and members of its senior management for certain events or occurrences, subject to certain limits, while they were serving at the Company’s 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 the Company’s investigation of its historical stock option granting practices and related issues, and the related governmental inquiries and shareholder derivative litigation. The maximum amount of potential future indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. The Company has 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 the Company’s insurers of any potentially covered future indemnification payments.

Commercial Litigation

In June 2010, Exatel Visual Systems, Ltd (“Exatel”) filed a complaint against the Company 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 NXP’s predecessor, Conexant Systems, Inc. pertaining to a joint product development project they undertook commencing in 2007. The Company 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. The Company has filed a demurrer seeking to dismiss the lawsuit primarily on the grounds that it is 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 the Company’s demurrer as to all causes of action, with leave to amend. Exatel has filed an amended complaint. The Company demurred again and the demurrer was sustained with leave to amend at a hearing held on June 23, 2011. On July 22, 2011, Exatel filed a Second Amended Complaint. The Company demurred to the Second Amended Complaint. The demurrer is scheduled to be heard on January 17, 2012. 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. The Company intends to contest this action vigorously.

General

From time to time, the Company is involved in other legal proceedings arising in the ordinary course of its business. While the Company cannot be certain about the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on its business, financial position, results of operation or cash flows.

17. 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 method public business enterprises use to report information about operating segments in annual consolidated financial statements and require 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 Company’s 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 customer’s 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 Company’s net revenues by geographic operations:


(In thousands)	Three months Ended September 30,				Nine Months Ended September 30,
Revenues:	2011		2010		2011		2010
Asia Pacific	$	28,100	$	35,082	$	83,642	$	85,964
Europe		20,680		45,748		69,600		110,369
Americas		14,821		17,732		29,672		30,925
South Korea		13,966		55,195		45,585		155,164
Japan		2,521		22,811		9,491		56,197

Total revenues	$	80,088	$	176,568	$	237,990	$	438,619

The Company’s long-lived assets, net property and equipment, are located in the following countries:


	September 30, 2011		December 31, 2010
	(Dollars in thousands)
China	$	19,738	$	21,422
Americas		2,806		5,068
Europe		1,697		3,076
Asia Pacific		1,002		1,240
Taiwan		719		760

Total	$	25,962	$	31,566

Major Customers

The following table shows the percentage of the Company’s revenues for the three and nine months ended September 30, 2011 and September 30, 2010 that was derived from customers who individually accounted for more than 10% of revenues in that period.


	Three months Ended September 30,						Nine Months Ended September 30,
Revenue:	2011			2010			2011			2010
Philips		13	%		15	%		14	%		14	%
Arrow Electronics		12	%		*			13	%		*
Samsung		*			19	%		*			23	%

*	Less than 10% of net revenues

As of September 30, 2011, the Company had a high concentration of accounts receivable with Philips group of companies which accounted for 19% of gross accounts receivable and Motorola Mobility, Inc. which accounted for 14%.

18. SUBSEQUENT EVENTS

On October 19, 2011, the Company entered into an agreement with Shanghai Lingang Economic Development Group Investment Management Co., Ltd. to sell and leaseback its property in Shanghai, China. The sale price is the equivalent of approximately $24.0 million. The Company expects fees, transactional taxes and income taxes of approximately $4.0 million associated with the sale to be incurred within three to six months. The Company received a deposit of $4.8 million on October 20, 2011 and expects to receive the remaining proceeds of approximately $19.2 million during the three months ended December 31, 2011. These funds are expected to be used primarily in China. The Company will pay annual rents of approximately $2.1 million for a lease term of five years.

The Company previously announced a Loan, Guaranty and Security Agreement dated as of February 9, 2011 (the Agreement) with Bank of America, N.A. The Company has not used the line of credit available under the Agreement and had no borrowings outstanding under the Agreement. The Company terminated the Agreement on November 1, 2011. As a result, the Company and its subsidiaries will have no obligations under the Agreement and any collateral for the Agreement will be available to the Company without restriction.

On November 8, 2011, the Company and NXP entered into amendments to certain of the agreements between NXP and the Company, to extend the period during which NXP will provide the Company with manufacturing services until December 31, 2012, subject to certain requirements and limitations. In addition, NXP, the Company’s largest supplier, agreed to certain payment terms which the Company expects will increase its liquidity during the short term. The Company and NXP agreed that the Company will have extended payment terms for all purchase orders placed from October 24, 2011 through January 31, 2012. The Company believes these terms will assist it in managing short term liquidity, providing an opportunity for the Company to continue to fulfill customer orders and meet customer requirements.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated condensed financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows.

Various sections of this MD&A contain a number of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing (see also “Risk Factors” in Part II, Item 1A of this Form 10-Q). Our future results could differ significantly from the forward-looking statements contained herein.

Our MD&A is organized as follows:

•

Overview. Discussion of our business.

•

Recent Acquisitions. Discussion of our recent acquisition of the NXP product lines and the Micronas product lines.

•

Outlook and Challenges. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.

•

Critical Accounting Policies. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

•

Results of Operations. An analysis of our financial results comparing the three months ended September 30, 2011 to the three months ended September 30, 2010.

•

Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.

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. Trident’s customers include many of the world’s 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.

Recent Acquisitions

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, or Shares, equal to 60% of our total outstanding shares of Common Stock at that time, 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 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 5, “Business Combinations,” of Notes to Condensed Consolidated Financial Statements.

Outlook and Challenges

Our results of operations were as follows:


(In thousands)	Q3 2011			Q2 2011			Q3 2010
Net revenue	$	80,088		$	69,569		$	176,568
Gross profit		18,131			18,002			48,170
Operating loss		(38,679	)		(33,935	)		(18,299	)
Net loss		(39,118	)		(26,259	)		(17,514	)

Our revenues have declined significantly over the past year as a result of the loss of TV SOC and FRC market share, particularly in South Korea and Japan, and reduced demand for older TV and STB products that were acquired through the NXP and Micronas acquisitions. We have had difficulty winning new design sockets with many of the largest global TV OEMs. In addition, mass production of many of our newest TV and STB products, has been delayed as a result of lengthy software certification processes and slower customer program roll-outs. In addition, weak economic growth in many global markets has reduced demand for our customers’ products, which has hurt our sales. In this difficult environment, we have significantly lowered operating expenses through restructuring actions taken in 2011. Net loss for the third quarter was $39.1 million, or $0.22 per share. This compares with a net loss of $26.3 million, or $0.15 per share in the prior sequential quarter and a net loss of $17.5 million, or $0.10 per share, in the quarter ended September 30, 2010.

As of September 30, 2011, we had an accumulated deficit of $316.8 million. We have incurred operating losses and generated negative cash flows for the last three years. As of September 30, 2011, we had cash of $35.9 million and working capital of $43.1 million. Cash used in the nine months ended September 30, 2011 was $57.3 million. Given the loss of a significant expected intellectual property transaction, delays in mass production of new programs, the continuing costs of our previously announced restructuring activities and a soft consumer electronics market, we anticipate that the quarterly loss in the fourth quarter will be at least as large as what we have seen over the past year, further eroding our cash position. Our near term liquidity has been negatively impacted by these factors and we will be required to secure additional sources of cash sooner than we had previously expected. Our current expectation is to successfully develop strategic alternatives to improve near term liquidity. Subsequent to the quarter end we announced a contract for the sale of our facility in Shanghai and we made modifications to our agreements with NXP, each of which we expect to improve our short term liquidity. However, we can make no assurances and there is uncertainty regarding our ability to conclude additional transactions necessary for us to maintain liquidity sufficient to operate our business effectively over at least the next twelve months, which raises substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In our fourth quarter ending December 31, 2011, we expect our revenues to be in the range of $50 to $56 million. We expect the decrease from the prior sequential quarter and the prior year’s fourth quarter as a result of continued delays in new customer programs for TV and STB products and a reduction in sales of existing legacy products. We expect to report a GAAP operating loss in the range of $38 million to $43 million, including the impact of approximately $11 million of non-cash intangibles amortization and stock-based compensation. We expect to consume cash to support operations and for cash restructuring severance for the fourth quarter of 2011 and expect our cash balance as of the end of the quarter to be in the range of $25 million to $35 million. This includes the expected net proceeds from our Shanghai building sale of approximately $20 million and assumes more favorable terms with certain vendors. Please note the Shanghai building proceeds are expected to be used primarily in China.

Critical Accounting Estimates

References included in this Quarterly Report on Form 10-Q to “accounting guidance” means U.S. generally accepted accounting principles, or GAAP. The preparation of our financial statements and related disclosures in conformity with GAAP, requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company’s critical accounting policies are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our critical accounting policies and make adjustments when facts and circumstances dictate. Our critical accounting policies that are affected by estimates, assumptions, and judgments, and are used in used in the preparation of the Company’s condensed consolidated financial statements, could differ from actual results and have a material financial impact on the Company’s reported financial condition and results of operations. The Company’s critical accounting policies include revenue recognition, long-lived assets, inventories and income taxes. A summary of the Company’s critical accounting policies can be found in the Management’s Discussion & Analysis of Financial Condition and Results of Operations section included in our Report on Form 10-K for the year ended December 31, 2010.

Recent Accounting Standards

For a description of the recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see Note 2, “Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Financial Data for the Quarter Ended September 30, 2011 Compared to the Quarter Ended September 30, 2010

Net Revenues

Our revenues have decreased over the last year as a result of the loss of TV SOC and FRC market share, particularly in South Korea and Japan, and reduced demand for older TV and STB products acquired through the NXP and Micronas acquisitions. Our revenue has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, market demand; supply constraints, including manufacturing capacity at the foundries that are our critical source for manufacturing our products; capabilities of our products relative to market requirements and the timeliness of our products relative to our customers’ design-in windows; and competitive factors, including product pricing.

From time to time, our key customers may cancel purchase orders with us, thereby causing our net revenues to fluctuate significantly. Our products are manufactured primarily by two foundries, Taiwan Semiconductor Manufacturing Corp., or TSMC, and United Microelectronics Corporation, or UMC, both based in Taiwan. We also use certain manufacturing capabilities that currently are provided by Micronas and NXP.

Digital media solutions revenues represented all of our revenues for the three and nine months ended September 30, 2011 and September 30, 2010. Net revenues are revenues less reductions for rebates and allowances for sales returns.

The following tables present the comparison of net revenues by regions in dollars and in percentages for the three and nine months ended September 30, 2011 and 2010:

Net revenues comparison by dollars


(Dollars in thousands)	Three Months Ended September 30,				Dollar Variance			Percent Variance			Nine Months Ended September 30,				Dollar Variance			Percent Variance
Revenues by region(1)	2011		2010		Dollar Variance			Percent Variance			2011		2010		Dollar Variance			Percent Variance
Asia Pacific(2)	$	28,100	$	35,082	$	(6,982	)		(19.9	%)	$	83,642	$	85,964	$	(2,322	)		(2.7	%)
Europe		20,680		45,748		(25,068	)		(54.8	%)		69,600		110,369		(40,769	)		(36.9	%)
Americas		14,821		17,732		(2,911	)		(16.4	%)		29,672		30,925		(1,253	)		(4.1	%)
South Korea		13,966		55,195		(41,229	)		(74.7	%)		45,585		155,164		(109,579	)		(70.6	%)
Japan		2,521		22,811		(20,290	)		(88.9	%)		9,491		56,197		(46,706	)		(83.1	%)

Total net revenues	$	80,088	$	176,568	$	(96,480	)		(54.6	%)	$	237,990	$	438,619	$	(200,629	)		(45.7	%)

Net revenues comparison by percentage of total net revenues


	Three Months Ended September 30,						Variance			Nine Months Ended September 30,						Variance
Revenues by region(1)	2011			2010			Variance			2011			2010			Variance
Asia Pacific(2)		35.1	%		19.9	%		15.2	%		35.1	%		19.6	%		15.5	%
Europe		25.8	%		25.9	%		(0.1	%)		29.2	%		25.2	%		4.0	%
Americas		18.5	%		10.0	%		8.5	%		12.5	%		7.0	%		5.5	%
South Korea		17.4	%		31.3	%		(13.9	%)		19.2	%		35.4	%		(16.2	%)
Japan		3.2	%		12.9	%		(9.7	%)		4.0	%		12.8	%		(8.8	%)

Percentage of net revenues		100	%		100	%					100	%		100	%

(1)	Net revenues by region are classified based on the locations of the customers’ principal offices even though our customers’ revenues may be attributable to end customers that are located in a different location.

(2)	Net revenues from China, Taiwan and Singapore are included in the Asia Pacific region.

The following table shows the percentage of our revenues during the three and nine months ended September 30, 2011 and 2010 that were derived from customers who individually, or through their Electronic Manufacturing Service providers accounted for more than 10% of revenues for those quarters:


	Three Months Ended September 30,						Nine Months Ended September 30,
Revenues:	2011			2010			2011			2010
Philips		13	%		15	%		14	%		14	%
Arrow Electronics		12	%		*			13	%		*
Samsung		*			19	%		*			23	%

*	Less than 10% of net revenues

The majority of sales made to distributors are recognized when shipment is made to end user customers (sell-through basis). For the quarter ended September 30, 2011, distribution revenue recognized on a sell-through basis was 27.5% of total revenues.

As of September 30, 2011, we had a high concentration of accounts receivable with the Philips group of companies which accounted for 19% of gross accounts receivable and Motorola Mobility, Inc. which accounted for 14%.

Gross Profit


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance			Percent Variance
Gross profit	$	18,131		$	48,170		$	(30,039	)		(62.4	)%	$	56,010		$	94,881		$	(38,871	)		(41.0	)%
Gross profit %		22.6	%		27.3	%								23.5	%		21.6	%

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.

Gross profit declined significantly in the three months ended September 30, 2011, compared with the three months ended September 30, 2010, as a result of significantly lower sales. Gross margin percentage decreased to 22.6 percent, compared with 27.3 percent in the third quarter of 2010. Standard manufacturing costs as a percentage of sales improved as a result of improved sales mix and continued manufacturing cost improvements, however, these were more than offset by reserves taken on inventory due to reduced product demand.

The net impact on gross profit due to an increase in inventory write-downs and reserves and sales of previously reserved product is as follows:


	Three months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2011			2010			2011			2010
Additions to inventory reserves	$	3,028		$	64		$	4,942		$	640
Accrual for ordered product with no demand		3,447			682			4,716			1,384
Lower of cost or market adjustment		—			—			—			135
Sales of previously reserved product		(139	)		(825	)		(417	)		(1,571	)

Net (increase) decrease in gross profit	$	6,336		$	(79	)	$	9,241		$	588

In the quarters ended September 30, 2011 and 2010, as shown in the table above, inventory write-downs and reserves and sales of previously reserved product represents 7.9% and 0.0% of total net revenues respectively. No cost of revenues was recorded with respect to sales of previously reserved product, for the quarters ended September 30, 2011 and 2010.

In order to accommodate customer requests for shorter shipment lead times, we manufacture product based on customer forecasts. These forecasts are based on multiple assumptions. While we believe our relationships with our customers, combined with our understanding of the end markets we serve, provide us with the ability to make reliable forecasts, our previous forecasts of customer demand have resulted in excess and obsolete inventory that has reduced our profit margins. Our assumptions and processes are currently under review so as to align future production with appropriate demand levels.

Sales of previously reserved inventory largely depend on the timing of transitions to newer generations of similar products. We typically expect declines in demand of current products when we introduce new products that are designed to enhance or replace our older products. We provide inventory reserves on our older products based on the expected decline in customer purchases of the new product. The timing and volume of the new product introductions can be significantly affected by events outside of our control, including changes in customer product introduction schedules. Accordingly, we may sell older fully reserved product until the customer is able to execute on its changeover plan.

Research and Development


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance			Percent Variance
Research and Development	$	36,607		$	44,709		$	(8,102	)		(18.1	%)	$	107,957		$	131,426		$	(23,469	)		(17.9	%)
Percentage of net revenues		45.7	%		25.3	%								45.4	%		30.0	%

Research and development expenses consist primarily of personnel-related expenses including payroll expenses, stock-based compensation, engineering costs related principally to the design of our new products, depreciation of property and equipment and amortization of intangible assets. Because the number of new designs we release to our third-party foundries can fluctuate from period to period, research, development and related expenses may fluctuate significantly.

Research and development expenses decreased in the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010, primarily as a result of lower transition support services from NXP and lower headcount as a result of the continuing integration of our product roadmap and workforce since completing the NXP and Micronas acquisitions.

Selling, General and Administrative


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance			Percent Variance
Selling, general and administrative	$	16,707		$	19,459		$	(2,752	)		(14.1	%)	$	53,090		$	61,906		$	(8,816	)		(14.2	%)
Percentage of net revenues		20.9	%		11.0	%								22.3	%		14.1	%

Selling, general and administrative expenses consist primarily of personnel related expenses including salary and benefits, stock-based compensation, commissions paid to sales representatives and distributors and professional fees. During the three and nine months ended, On August 21, 2011, we signed an agreement to purchase a new enterprise resource planning system and, therefore, recorded a $4.0 million write-off of our previous enterprise resource planning system to Selling, general and administrative expenses.

Selling, general and administrative expenses for the third quarter declined $2.8 million from the third quarter of 2010 as a result of lower transition support services from NXP, primarily related to information technology, and lower headcount as a result of continuing workforce integration.

In July 2011, one of our customers decided to apply for controlled management under the laws of Luxembourg to secure continuation of its current operations. We recognized $0.7 million of bad debt expense to this customer as we are uncertain of the collectability of the account receivable as of the date of this Form 10-Q. We recognized $0.7 million in revenue for the nine months ended September 30, 2011 to this customer and had an accounts receivable balance at September 30, 2011 of $0.7 million. On October 6, 2011 this customer filed for bankruptcy under the laws of Luxembourg and on October 7, 2011 a bankruptcy administrator was appointed by the Luxembourg court. The company is evaluating the economics of filing claims with the Luxembourg court for the unpaid receivable.

Restructuring Charges


	Three Months Ended September 30,											Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance		Percent Variance			2011			2010			Dollar Variance			Percent Variance
Restructuring charges	$	3,496		$	2,301		$	1,195		51.9	%	$	8,148		$	15,166		$	(7,018	)		(46.3	%)
Percentage of net revenues		4.4	%		1.3	%							3.4	%		3.5	%

We incurred a restructuring charge of $3.5 million for the quarter ended September 30, 2011 and expect future restructuring charges based on a workforce reduction plan approved by the Board of Directors on September 21, 2011. Due to delayed ramps of newer Trident SOCs and market weakness in some older legacy products, we necessarily needed to reduce operational expenses and lower its break-even profitability threshold. The process will follow applicable procedures and selection processes within each country and will be subject to completion of legally mandatory local works council consultation requirements and/or additional information obligations in a few of our European locations.

Based on current estimates, the total cost of the most recent restructuring plan will be $8.0 to $10.0 million. We have not yet incurred costs relative to this plan associated with contract terminations or other associated costs and will continue to evaluate this issue in future periods.

Relative to future restructuring cost, a large portion of the expenses will be recognized in periods subsequent to the initial announcement date in September 2011. We expect to have material expense and cash outlays in the next six to nine months, including those matters to be settled with foreign works councils.

Interest Income


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance			Percent Variance
Interest income	$	34		$	183		$	(149	)		(81.4	%)	$	382		$	681		$	(299	)		(43.9	%)
Percentage of net revenues		0.0	%		0.1	%								0.2	%		0.2	%

We invest our cash and cash equivalents in interest-bearing accounts consisting primarily of cash accounts, short term investments, certificates of deposits and money market funds investing in U.S. Treasuries. The average interest rates earned during the three months ended September 30, 2011 and 2010 were 0.52% and 0.26%, respectively and during the nine months ended September 30, 2011 and 2010 were 0.37% and 0.24%, respectively. The decrease in interest income for the quarter ended September 30, 2011, compared to the same quarter of the prior year, was primarily attributable to significantly lower interest-bearing cash balances.

Gain (loss) on Investments


	Three Months Ended September 30,											Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance		Percent Variance			2011			2010			Dollar Variance		Percent Variance
Gain (loss) on investments	$	—		$	(94	)	$	94		100.0	%	$	2,098		$	(303	)	$	2,401		(792.4	%)
Percentage of net revenues		0.0	%		(0.1	%)							0.9	%		(0.1	%)

We recorded a $2.1 million gain for the nine months ended September 30, 2011 to reflect the fair value of assets transferred to Mr. Lin in conjunction with the settlement of his counterclaims against the Company. See Note 16, “Commitments and Contingencies”, in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion of this matter. During the nine months ended September 30, 2010, we recorded a loss on investments of $0.3 million.

Gain on Acquisition


	Three Months Ended September 30,										Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance		Percent Variance		2011			2010			Dollar Variance			Percent Variance
Gain on acquisition	$	—		$	—		$	—		—	$	—		$	43,402		$	(43,402	)		(100.0	%)
Percentage of net revenues		0.0	%		0.0	%						0.0	%		(9.9	%)

No gain on acquisition was recognized for the three months ended September 30, 2011. As a result of the NXP Transaction, we recognized a gain on acquisition of $48.5 million for three months ended March 31, 2010. Subsequently, in accordance with applicable accounting guidance, the preliminary estimate was reduced by $5.1 million as a result of new information received by us subsequent to filing our Quarterly Report on Form 10-Q for the three months ended March 31, 2010, including a reduction to fixed assets of $1.4 million. Gain on acquisition represents the amount of the purchase price which was less than the fair value of the underlying net tangible and identifiable intangible assets acquired. Gain on acquisition is not considered income for tax purposes.

Other Income, Net


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance		Percent Variance
Other income, net	$	401		$	2,445		$	(2,044	)		(83.6	%)	$	5,930		$	2,797		$	3,133		112.0	%
Percentage of net revenues		0.5	%		1.4	%								2.5	%		0.6	%

The decrease in Other income, net for the three months ended September 30, 2011 is predominantly due to the inclusion of a benefit for litigation settlements of approximately $0.8 million received and a currency translation amount of $1.4 million in the three months ended September 30, 2010. The increase in Other income, net for the nine months ended September 30, 2011, compared to nine months ended September 30, 2010, was primarily attributable to the $5.4 million settlement with Frank Lin as previously disclosed in our Form 8-K filed on February 16, 2011. Other income, net for the nine months ended September 30, 2010, included litigation settlements of approximately $2.5 million.

Provision for Income Taxes


	Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in thousands)	2011			2010			Dollar Variance			Percent Variance			2011			2010			Dollar Variance		Percent Variance
Provision for income taxes	$	874		$	1,749		$	(875	)		(50.0	%)	$	1,375		$	219		$	1,156		527.9	%
Effective income tax rate		2.3	%		11.1	%								1.3	%		0.3	%

A provision for income taxes of $0.9 million and $1.4 million was recorded for the three and nine months ended September 30, 2011, respectively. A provision for income taxes of $1.7 million and $0.2 million was recorded for the three and nine months ended September 30, 2010, respectively. The effective income tax rate for the three months ended September 30, 2011 decreased by 8.8 percentage points compared to the three months ended September 30, 2010. The effective income tax rate for the nine months ended September 30, 2011 increased by 1.0 percentage point compared to the nine months ended September 30, 2010. The change in our effective tax rate was primarily due to the recognition of the tax benefit resulting from net operating losses in foreign jurisdictions, and 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 three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2011 in which no tax benefit was recognized due to net operating losses in foreign jurisdictions.

Liquidity and Capital Resources

Liquidity

As of September 30, 2011, we had an accumulated deficit of $316.8 million. We have incurred operating losses and generated negative cash flows for the last three years. As of September 30, 2011, we had cash of $35.9 million and working capital of $43.1 million. Cash used in the nine months ended September 30, 2011 was $57.3 million. Given the loss of a significant expected intellectual property transaction, delays in mass production of new programs, the continuing costs of our previously announced restructuring activities and a soft consumer electronics market, we anticipate that the quarterly loss in the fourth quarter will be at least as large as what we have seen over the past year, further eroding our cash position. Our near term liquidity has been negatively impacted by these factors and will be required to secure additional sources of cash sooner than we had previously expected. Our current expectation is to successfully develop strategic alternatives to improve near term liquidity. Subsequent to the quarter end, we announced a contract for the sale of our facility in Shanghai and we made modifications to our agreements with NXP, each of which we expect to improve our short term liquidity. However, we can make no assurances and there is uncertainty regarding our ability to conclude additional transactions necessary for us to maintain liquidity sufficient to operate our business effectively over at least the next twelve months, which raises substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cash and cash equivalents at September 30, 2011 and 2010 were as follows:


	September 30, 2011		September 30, 2010
	(Dollars in thousands)
Cash and cash equivalents	$	35,928	$	102,711

At September 30, 2011, approximately $9.2 million or 25.6% of our total cash and cash equivalents was held in the United States. The remaining balance, representing approximately $26.7 million, or 74.4% of total cash and cash equivalents, was held outside the United States, primarily in Hong Kong, and could be subject to additional taxation if it were to be repatriated to the United States. We do not currently expect to repatriate cash or cash equivalents to the United States.

Our primary cash inflows and outflows for the nine months ended September 30, 2011 and 2010 were as follows:


	Nine Months Ended September 30,
(Dollars in thousands)	2011			2010
Net cash flow provided by (used in):
Operating activities	$	(38,193	)	$	(78,353	)
Investing activities		(19,167	)		33,002
Financing activities		64			67

Net decrease in cash and cash equivalents	$	(57,296	)	$	(45,284	)

Operating Activities

Cash used in operating activities includes net loss adjusted for certain non-cash items and changes in current assets and current liabilities. For the nine months ended September 30, 2011, cash used in operating activities was $38.2 million compared to $78.4 million used in operating activities for the nine months ended September 30, 2010. The significant decrease in cash usage was primarily due to reduced working capital resulting from the significant revenue decreases and corresponding decreases in receivables, inventory and payables. Net changes in accounts receivable, inventory, payables and accruals provided cash of $4.5 million in the nine months ended September 30, 2011 as compared with net cash usage of $66.9 million in the nine months ended September 30, 2010. The reduced working capital are the result of a significant decrease in revenues of the television systems and set-top box business lines acquired from NXP in February 2010 and a reduction in revenues in the business lines acquired from Micronas in May 2009 which resulted in an increased net loss of $106.2 million for the nine months ended September 30, 2011, compared with $75.1 million for the nine months ended September 30, 2010. The net loss combined with non-cash income and expense items increased to $43.7 million in the nine months ended September 30, 2011, as compared to $37.4 million in the nine months ended September 30, 2010. Net losses and working capital demands are expected to continue using cash in the fourth quarter of 2011.

Investing Activities

For the nine months ended September 30, 2011, cash used in investing activities was $19.2 million, compared to cash provided by investing activities of $33.0 million in the nine months ended September 30, 2010. The cash used in the first nine months of 2011 was primarily attributable to the acquisition of property and equipment and technology licenses. The cash provided in the first nine months of 2010 was primarily attributable to $46.4 million from NXP as part of the our acquisition of that business, partially offset by other asset acquisitions related to licensing of software as well as purchases of property and equipment.

Financing Activities

Cash used in financing activities consisted of net cash proceeds from the issuance of common stock to employees upon exercise of stock options and excess tax benefit from stock-based compensation, and was negligible for the first nine months of both 2011 and 2010.

Commitments

Lease and Purchase Commitments

The following summarizes our contractual obligations as of September 30, 2011:


	Payments Due by Period
	Remainder of Fiscal 2011		Fiscal 2012		Fiscal 2013		Fiscal 2014		Fiscal 2015		There after		Total
	(Dollars in thousands)
Contractual Obligations:
Operating Leases (1)	$	1,402	$	4,200	$	3,582	$	2,993	$	1,670	$	1,551	$	15,398
Purchase Obligations (2)		16,173		4,798		3,376		362		350		350		25,409

Total	$	17,575	$	8,998	$	6,958	$	3,355	$	2,020		1,901	$	40,807

(1)

At September 30, 2011, we 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.

(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.

Rental expense for the three months and nine months ended September 30, 2011 was $1.4 million and $4.4 million, respectively, and was $1.4 million and $4.1 million for the three and nine months ended September 30, 2010 respectively.

As of September 30, 2011, we had total gross unrecognized tax benefits and related interest liabilities of $20.5 million. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors. Accordingly, the timing of payment cannot be estimated, and therefore, $20.5 million of unrecognized tax benefits have not been included in the contractual obligations table above.

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 were originally to continue into the fourth quarter of 2011. 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. Originally, the term of the agreement was to end on the readiness of our enterprise resource planning system which was planned to be June 30, 2011. The terms of the agreements allow cancellation of either or both the Transition Services Agreement and the Manufacturing Services Agreement with minimum notice periods. Since we were unable to successfully implement an enterprise resource planning system by June 30, 2011, we entered into an arrangement with NXP on November 8, 2011 to extend the Manufacturing Services Agreement and a Transition Service Agreement for ICT Hardware and ICT Software at a monthly charge of $0.2 million and $0.3 million, respectively. The term of these agreements ends following the readiness of our enterprise resource planning system, which is currently projected to be implemented in the first half of fiscal 2012, but no later than August 31, 2012. See Note 18, “Subsequent Events” of Notes to Condensed Consolidated Financial Statements.

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 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, we filed our answer, affirmative defenses and counterclaims. No date for trial has been set. We intend to contest this action vigorously. Because this action is in the very early stages, and due to the inherent uncertainty surrounding the litigation process, we are unable to reasonably estimate the ultimate outcome of this litigation at this time.

From time to time, we receive communications from third parties asserting patent or other rights allegedly covering our products and technologies. Based upon our evaluation, we may take no action or we may seek to obtain a license, redesign an accused product or technology, initiate a formal proceeding with the appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or initiate litigation. There can be no assurance in any given case that a license will be available on terms we consider reasonable or that litigation can be avoided if we desire to do so. If litigation does ensue, the adverse third party will likely seek damages (potentially including treble damages) and may seek an injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the operation of our business as presently conducted, which could result in our having to stop the sale of some of our products or to increase the costs of selling some of our products. Such lawsuits could also damage our reputation. The award of damages, including material royalty payments, or the entry of an injunction against the sale of some or all of our products, could have a material adverse affect on us. Even if we were to initiate litigation, such action could be extremely expensive and time-consuming and could have a material adverse effect on us. We cannot assure you that litigation related to our patent or other rights or the patent or other rights of others can always be avoided or successfully concluded

Shareholder Derivative Litigation

We have been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases were 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 as a result those officers and directors were liable to us. No particular amount of damages was alleged against Trident. 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 had relating to the stock option grant practices investigated by the Special Committee. The scope of the SLC’s authority included 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 us. 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 had 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 Settlement, and on February 17, 2011, the federal court preliminarily approved the Settlement. The details of the Settlement were previously disclosed in our Form 8-K filed on February 16, 2011. On April 19, 2011, the federal court entered an order finally approving the Settlement. On May 19, 2011, the Settlement became effective, thus satisfying the contingency in the settlement of Mr. Lin’s counterclaims against us and ending the derivative actions. In connection with the approved settlements, payments of approximately $5.4 million were made to us and recorded in Other income, net on our Condensed Consolidated Statement of Operations during the nine months ended September 30, 2011.

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, Frank Lin, and two former non-employee directors, to exercise their vested options during the pendency of the SLC’s 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 individual’s fully vested stock options during the three months ended March 31, 2008.

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 Mr. Lin, allowing him to exercise all of his fully vested stock options. Because our stock price as of June 30, 2008 was lower than the prices at which Mr.

Lin 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. On April 19, 2011, the federal court approved a comprehensive settlement with Mr. Lin and us, which became effective on May 19, 2011. We transferred investments to settle the liability, previously recorded as an accrual of $2.8 million. We included a “Gain on investment” of $2.1 million in the Condensed Consolidated Statements of Operations to reflect the fair value of assets transferred to Mr. Lin, which fully satisfied the contingency in the settlement of Mr. Lin’s counterclaims against us. In connection with the approved settlements, payments of approximately $5.4 million were made to us and recorded in Other income, net on our Condensed Consolidated Statement of Operations during the nine months ended September 30, 2011.

Indemnification Obligations

We indemnify, as permitted under Delaware law and in accordance with our Bylaws, our officers, directors and members of our senior management for certain events or occurrences, subject to certain limits, while they were serving at our request in such capacity. In this regard, we have received, or expect to receive, requests for advancement and indemnification by certain current and former officers, directors and employees in connection with our investigation of our historical stock option granting practices and related issues, and the related governmental inquiries and shareholder derivative litigation. The maximum amount of potential future advancement and indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. We have directors’ and officers’ liability insurance policies that may enable us to recover a portion of such future advancement and indemnification claims paid, subject to coverage limitations of the policies, and plan to make claim for reimbursement from our insurers of any potentially covered future indemnification payments. In certain circumstances, we also would have the right to seek to recover sums advanced to an indemnitee.

Commercial Litigation

In June 2010, Exatel Visual Systems, Ltd (“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 NXP’s 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 it is 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 demurred again and the demurrer was sustained with leave to amend at a hearing held on June 23, 2011. On July 22, 2011, Exatel filed a Second Amended Complaint. We demurred to the Second Amended Complaint. The demurrer is scheduled to be heard on January 17, 2012. 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. We intend to contest this action vigorously.

General

From time to time, we are involved in other legal proceedings arising in the ordinary course of our business. While we cannot be certain about the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on our business, financial position, results of operation or cash flows.

Off-Balance Sheet Arrangements

None

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 2, “Basis of Presentation”, in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to three primary types of market risks: foreign currency exchange rate risk, interest rate risk and investment risk.

Foreign currency exchange rate risk

As of September 30, 2011, we had operations in the United States, Taiwan, China, Hong Kong, Germany, The Netherlands, Japan, Singapore, South Korea, the United Kingdom, Israel and India. The functional currency of all of these operations is the U.S. dollar. Approximately $26.7 million, or 74.4% of total cash and cash equivalents, was held outside the United States, primarily in Hong Kong. However, a majority of cash held outside of the United States is denominated in U.S. dollars. A majority of our sales are denominated in US dollars. Substantial amounts of our obligations are also denominated in US dollars.

Our investments in several foreign wholly-owned subsidiaries are recorded in currencies other than the U.S. dollar. The financial statements of these subsidiaries are translated from the foreign currency to U.S. dollars and the resulting gains or losses are recorded in our results of operations.

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. As a result, our international operations give rise to transactional market risk associated with exchange rate movements primarily of the U.S. dollar, the euro, the Japanese yen, the Taiwanese dollar, the Indian rupee and the Chinese renminbi. Foreign exchange transactions totaled losses of $0.8 million and $0.9 million for the three and nine months ended September 30, 2011, and a $0.8 million loss and a $0.6 million gain for the three and nine months ended September 30, 2010. We will continue to analyze our exposure to currency exchange rate fluctuations in the future and may engage in financial hedging techniques in the future to attempt to minimize the effect of these potential fluctuations. Exchange rate fluctuations may adversely affect our financial results in the future. As of the date of this report, we do not hedge our non-U.S. dollar denominated asset and liability positions.

Fluctuations in foreign currency exchange rates are reflected in net income as a component of Other income, net. Our results of operations and financial condition could be significantly impacted by either a 10% increase or decrease in relevant foreign currency exchange rates, depending on our exposures at the time.

Interest rate risk

We currently maintain our cash primarily in cash accounts 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 September 30, 2011, we have approximately $35.9 million in cash and cash equivalents, of all of which is in checking or short-term investments. 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. 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, 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.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our chief executive officer and our chief financial officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, at the level of reasonable assurance, as of the end of such period, our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Information with respect to this item may be found in Note 16, “Commitments and Contingencies,” in Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see Part II, Item 1A, “Risk Factors,” below.

ITEM 1A.

RISK FACTORS

Before deciding to purchase, hold or sell our common shares, you should carefully consider the risks described below, which we think are the most important risks affecting our business, as well as the other cautionary statements and risks described elsewhere and the other information contained in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent reports on Forms 10-Q and 8-K. Many of these risks and uncertainties are beyond our control, including business cycles and seasonal trends of the computing, semiconductor and related industries.

We have experienced lower than expected year-to-date sales volume and our near-term liquidity has been negatively impacted, which will require us to secure additional sources of cash in order to continue to operate our business effectively.

We have incurred operating losses and generated negative cash flows for the last three years. As of September 30, 2011, we had cash of $35.9 million and working capital of $43.1 million. Cash used in the nine months ended September 30, 2011 was $57.3 million. Given the loss of a significant expected intellectual property transaction, delays in mass production of new programs, the continuing costs of our previously announced restructuring activities and a soft consumer electronics market, we anticipate that the quarterly loss in the fourth quarter will be at least as large as what we have seen over the past year, further eroding our cash position. Our near term liquidity has been negatively impacted by these factors and we will be required to secure additional sources of cash sooner than we had previously expected. Our current expectation is to successfully develop strategic alternatives to improve near term liquidity. While we have been able to conclude some transactions that we anticipate will improve short term liquidity, we can make no assurances and there is uncertainty regarding our ability to conclude additional transactions which will be necessary for us to maintain liquidity sufficient to operate our business effectively over at least the next twelve months, which raises substantial doubt as to its ability to continue as a going concern. Unless we are able to conclude additional strategic transactions, such as asset sales or intellectual property transactions, we could be forced to liquidate and our existing stockholders might not receive any benefit in a liquidation. Further, even if we are able to complete one or more strategic transactions that improve our liquidity, the terms of such transactions may not be adequate to provide us with capital to continue to operate our business effectively.

Our liquidity may be adversely affected by our operational results.

Our operations require careful management of our cash and working capital balances. In addition to our need to pursue and close strategic transactions to improve our short-term liquidity, our liquidity is affected by many factors including, among others, fluctuations in our revenue, gross profits and operating expenses, as well as changes in our operating assets and liabilities. Our current liquidity position may result in risks and uncertainties affecting our operations and financial position, including the following:

•

we may be required to reduce planned expenditures or investments;

•

we may be unable to compete in our newer or developing markets;

•

we may not be able to obtain and maintain normal terms with suppliers;

•

suppliers may require standby letters of credit before delivering goods and services, which will result in additional demands on our cash;

•

customers may delay or discontinue entering into contracts with us; and

•

our ability to retain management and other key individuals may be negatively affected.

Failure to generate sufficient cash flows from operations, identify and complete one or more strategic transactions or reduce spending would have a material adverse effect on our ability to achieve our intended long-term business objectives.

We expect to continue to incur significant expenses for research and development, sales and marketing, customer support and general and administrative functions as we continue to support our TV and set-top box businesses on a global basis.

We cannot guarantee that we will achieve profitability in the future. We will have to generate and sustain significantly increased revenue, while continuing to control our expenses, in order to achieve and then maintain profitability. We may also incur significant losses in the future for a number of reasons, including the risks discussed in this “Risk Factors” section and factors that we cannot anticipate. If we are unable to generate positive operating income and cash flow from operations, our liquidity, results of operations and financial condition will be adversely affected.

ITEM 6.

EXHIBITS


Exhibit		Description

2.1		Purchase Agreement dated March 31, 2009 among Micronas Semiconductor Holding AG, Trident Microsystems, Inc. and Trident Microsystems (Far East) Ltd.(1)

2.2		Share Exchange Agreement dated October 4, 2009 among Trident Microsystems, Inc., Trident Microsystems (Far East) Ltd., and NXP B.V.(2)

3.1		Restated Certificate of Incorporation.(3)

3.3		Amended and Restated Bylaws.(4)

3.4		Amendment to Article VIII of the Bylaws.(5)

3.5		Amendments to Article I, Section 2 and Article I, Section 7 of the bylaws.(6)

3.6		Certificate of Amendment of Restated Certificate of Incorporation of Trident Microsystems, Inc. filed on January 27, 2010.(7)

3.8		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 June 17, 2011.(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)

10.63*		Second Half Fiscal Year 2011 Executive Incentive Plan.(13)

31.1		Rule 13a — 14(a) Certification of Chief Executive Officer.(14)

31.2		Rule 13a — 14(a) Certification of Chief Financial Officer.(14)

32.1		Section 1350 Certification of Chief Executive Officer.(14)

32.2		Section 1350 Certification of Chief Financial Officer.(14)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed on April 1, 2009.

(2)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed on October 5, 2009.

(3)	Incorporated by reference to exhibit of the same number to the Company’s Annual Report on Form 10-K for the year ended June 30, 1993.

(4)	Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q dated December 31, 2003, and as further amended by Exhibit 3.3 to the Company’s 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 Company’s 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 Company’s Current Report on Form 8-K filed on March 6, 2009.

(7)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2010.

(8)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 17, 2011.

(9)	Incorporated by reference to exhibit of the same number to the Company’s Registration Statement on Form S-1 (File No. 33-53768).

(10)	Incorporated by reference to Exhibit 99.1 to the Company’s 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 Company’s 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 Company’s 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 Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 26, 2011.

(14)	Filed herewith

(*)	Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Trident Microsystems, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TRIDENT MICROSYSTEMS, INC. (Registrant)

Dated: November 9, 2011	By:	/s/ PETE J. MANGAN
		Pete J. Mangan
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

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)

3.8		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)

10.63*		Second Half Fiscal Year 2011 Executive Incentive Plan.(13)

31.1		Rule 13a — 14(a) Certification of Chief Executive Officer.(14)

31.2		Rule 13a — 14(a) Certification of Chief Financial Officer.(14)

32.1		Section 1350 Certification of Chief Executive Officer.(14)

32.2		Section 1350 Certification of Chief Financial Officer.(14)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed on April 1, 2009.

(2)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed on October 5, 2009.

(3)	Incorporated by reference to exhibit of the same number to the Company’s Annual Report on Form 10-K for the year ended June 30, 1993.

(4)	Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q dated December 31, 2003, and as further amended by Exhibit 3.3 to the Company’s 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 Company’s 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 Company’s Current Report on Form 8-K filed on March 6, 2009.

(7)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2010.

(8)	Incorporated by reference to exhibit of the same number to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2011.

(9)	Incorporated by reference to exhibit of the same number to the Company’s Registration Statement on Form S-1 (File No. 33-53768).

(10)	Incorporated by reference to Exhibit 99.1 to the Company’s 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 Company’s 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 Company’s 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 Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 26, 2011.

(14)	Filed herewith

(*)	Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.

TRIDENT MICROSYSTEMS INC - FORM 10-Q - November 9, 2011

Attached files

TRIDENT MICROSYSTEMS INC Reports