<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
or
[ ] 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 No.)
189 North Bernardo Avenue, Mountain View, CA 94043-5203
----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(650) 691-9211
--------------
(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 X No
----- -----
The number of shares of the registrant's $0.001 par value Common Stock
outstanding at September 30, 1997 was 12,989,128.
This document (including exhibits) contains 17 pages.
<PAGE> 2
TRIDENT MICROSYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Unaudited Financial Information
Condensed Consolidated Balance Sheet - September 30, 1997 (Unaudited) and
June 30, 1997 3
Condensed Consolidated Statement of Operations (Unaudited) for the Three Months
Ended September 30, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three Months
Ended September 30, 1997 and 1996 5
Notes to the Condensed Consolidated Financial Statements (Unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities Not Applicable
Item 3: Defaults upon Senior Securities Not Applicable
Item 4: Submission of Matters to Vote by Security Holders Not Applicable
Item 5: Other Information Not Applicable
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE> 3
TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30,
1997 June 30,
(unaudited) 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash, cash equivalents $ 31,951 $ 29,745
Short-term investments 30,614 30,200
Accounts receivable, net 24,259 20,160
Inventories 10,098 7,296
Deferred income taxes 2,926 2,926
Prepaid expenses and other assets 1,402 1,171
--------- ---------
Total current assets 101,250 91,498
Property and equipment, net 8,166 7,463
Investment in joint venture 39,631 39,631
Other assets 534 441
--------- ---------
Total assets $ 149,581 $ 139,033
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,398 $ 14,274
Accrued expenses and other liabilities 8,995 10,220
Current portion of obligation under capital lease 351 286
Income taxes payable 4,385 1,766
--------- ---------
Total current liabilities 33,129 26,546
Deferred income taxes 2,223 2,223
Obligations under capital lease 566 707
--------- ---------
Total liabilities 35,918 29,476
--------- ---------
Stockholders' equity:
Capital stock and additional paid-in capital 43,845 42,812
Retained earnings 70,903 67,830
Treasury stock, at cost 100 shares (1,085) (1,085)
--------- ---------
Total stockholders' equity 113,663 109,557
--------- ---------
Total liabilities and stockholders equity $ 149,581 $ 139,033
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------- -------
<S> <C> <C>
Net sales $38,539 $44,838
Cost of sales 22,993 29,575
------- -------
Gross margin 15,546 15,263
Research and development expenses 6,591 5,035
Sales, general and administrative expenses 5,512 5,398
------- -------
Income from operations 3,443 4,830
Interest income, net 825 354
------- -------
Income before income taxes 4,268 5,184
Provision for income taxes 1,195 1,659
------- -------
Net income $ 3,073 $ 3,525
======= =======
Net income per share $ 0.21 $ 0.26
======= =======
Common and common equivalent shares used
in computing per share amount 14,602 13,626
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
TRIDENT MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,073 $ 3,525
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 853 707
Changes in assets & liabilities:
Accounts receivable (4,099) (1,842)
Inventories (2,802) 4,213
Prepaid expenses and other current assets (231) 1,848
Other assets (93) 1,265
Accounts payable 5,124 (5,964)
Accrued expenses and other liabilities (1,266) 73
Income tax payable 2,619 2
-------- --------
Net cash provided by operating activities 3,178 3,827
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments, net (414) 6,757
Purchase of property and equipment (1,556) (339)
-------- --------
Net cash provided by (used in) investing activities (1,970) 6,418
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 998 162
-------- --------
Net cash provided by financing activities 998 162
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,206 10,407
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,745 16,894
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,951 $ 27,301
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
<PAGE> 6
TRIDENT MICROSYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
In the opinion of Trident Microsystems, Inc. (the "Company"), the
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation 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
and are not audited. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or 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 June 30, 1997 included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission.
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 which ends June 30, 1998.
NOTE 2: REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment. Provision is
made for expected sales returns and allowances when revenue is recognized.
NOTE 3: INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Work in process $ 4,784 $12,470
Finished goods 5,315 10,183
------- -------
$10,098 $22,653
======= =======
</TABLE>
NOTE 4: JOINT VENTURE AGREEMENT
In August 1995, the Company entered into a joint venture agreement
with United Microelectronics Corporation (UMC), under which the Company
committed to invest an amount of New Taiwan dollars currently equivalent to
approximately U.S. $55 million for a 9.7% equity ownership in a joint venture
with UMC and other venture partners to establish a new foundry, United
Integrated Circuits Corporation (UICC). Under the agreement, the new foundry
guarantees to Trident 12 .5% of the foundry's total wafer supply. The Company
made the first payment, amounting to U.S. $13.7 million, in January 1996. The
Company made an additional payment of U.S. $25.9 million in January 1997. The
final payment under the joint venture agreement, estimated to be U.S. $15
million, is currently anticipated in December 1997. On October 3, 1997, a fire
at UICC's fabrication plant in Hsin Chu, Taiwan, Republic of China, completely
destroyed its fabrication equipment. The fabrication plant, and the destroyed
equipment, was fully insured. Trident was not currently utilizing the UICC
fabrication plant as a primary source for wafers, and there are no existing
Trident products on UICC's production lines. The UICC foundry is being rebuilt
and is expected to be in production in 1999.
-6-
<PAGE> 7
NOTE 5: NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (FAS No. 128),"Earnings per
Share." FAS No. 128 establishes financial accounting and reporting standards for
calculation of basic earnings per share, and diluted earnings per share. FAS No.
128 supercedes APB No. 15, and is effective for the periods ending after
December 15, 1997, including interim periods. On a pro forma basis, basic
earnings per share under FAS No. 128 for the three months ended September 30,
1997 and 1996 would have been $ .24 and $ .28, respectively; diluted earnings
per share would have been the same as the reported amounts under APB No. 15.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (FAS No. 130), "Reporting
Comprehensive Income" and No. 131 (FAS No. 131), "Disclosures About Segments of
an Enterprise and Related Information." FAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. FAS No. 131 supercedes FAS No. 14 and
requires segment information be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments in quarterly and annual reports. FAS No. 131 is effective for annual
reports for fiscal years beginning after December 15, 1997 and applicable to
interim financial statements beginning in the second year of application. The
Company believes that the effect of adopting the new standards will not be
material to its consolidated financial statements.
-7-
<PAGE> 8
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
The following table sets forth the results of operations expressed
as percentages of net sales for the three months ended September 30, 1997 and
1996:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------ ------
1997 1996
------ ------
<S> <C> <C>
Net sales 100% 100%
------ ------
Cost of sales 60 66
------ ------
Gross margin 40 34
Research and development 17 11
Selling, general and administrative 14 12
------ ------
Income from operations 9 11
Interest income, net 2 1
------ ------
Income before income taxes 11 12
Provision for income taxes 3 4
------ ------
Net income 8% 8%
====== ======
</TABLE>
Net Sales
Net sales for the three months ended September 30, 1997 were $38.5
million or 14% less than the $44.8 million reported in the three months ended
September 30, 1996 and an increase of 11% from $34.7 million from the prior
quarter ended June 30, 1997. The decrease in net sales, for the three month
period, is attributable to a decrease in unit volume of products for the desktop
market offset slightly by an increase in our portable line. Desktop and portable
products accounted for 52% and 45%, respectively, of the Company's sales in the
three month period ended September 30, 1997, and 59% and 34%, respectively, for
the three months ended September 30, 1996. The increase in sales of portable
products, with higher average selling prices, tended to lessen the average
selling price declines in other product areas.
Sales to North American and European customers represented 21% in
the three months ended September 30, 1997 from 34% in the three months ended
September 30, 1996. The Company expects Asian customers will continue to account
for a significant portion of the Company's sales. Sales to Asian customers,
primarily in Hong Kong, Taiwan Korea and Japan, accounted for approximately 79%
in the three months ended September 30, 1997 up from 66% in the three months
ended September 30, 1996. Sales to the Company's top three customers and their
affiliates accounted for 16%, 13% and 12% of net sales for the three months
ended September 30, 1997, compared to 24%, 15% and 13% of net sales for the
three months ended September 30, 1996. The Company derives a portion of its
revenues from sales to
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<PAGE> 9
distributors. Sales to distributors represented 20% and 22% of revenues during
the three months ended September 30, 1997 and 1996, respectively. Sales returns
from distributors have historically not been material. However, during the
quarter ended September 30, 1997 the Company experienced higher than usual
returns resulting from certain distributors adjusting their inventory mix and
levels. Substantially all of the sales transactions were denominated in U.S.
dollars during both periods.
The Company plans from time to time to introduce new and higher
performance desktop and portable graphics controller and multimedia video
products which it will seek to sell to existing customers as well as new
customers in Asia, North America and Europe. The Company's future success
depends upon the regular and timely introduction of these and other new products
and upon those products meeting customer requirements. There can be no assurance
that the Company will be able to successfully complete the development of these
products or to commence shipments of these products in a timely manner, or that
product specifications will not be changed during the development period. In
addition, even if regularly and timely developed and shipped, there can be no
assurance that the products described above will be well accepted in the market
place.
Gross Margin
Gross margin rose to $15.5 million or 40% of net sales for the three
months ended September 30, 1997, from $15.3 million or 34% of net sales in the
three months ended September 30, 1996, and $13.4 million or 39% of net sales in
the three months ended June 30, 1997. The increase in gross margin was primarily
due to a shift to higher margin 3D products and growth in the portable business
which now accounts for 45% of the Company's sales.
The Company believes that prices of semiconductor products will
decline over time as availability and competition increase and advanced products
are introduced. The Company expects to see continued competitive pressure on
gross margins in the desktop and notebook business in the foreseeable future.
The Company continues to maintain a strategy based on maintaining gross margins
through the introduction of new products with higher margins, reducing
manufacturing costs accomplished through the Company's custom design methodology
and the migrating to the newest process technology. As a result, the Company
depends upon the success of new product development and the timely introduction
of new products, as well as upon the achievement of its manufacturing cost
reduction efforts. There can be no assurance that the Company can successfully
or timely develop and introduce new products, that such products will gain
market acceptance, or that it can continue to successfully reduce manufacturing
costs.
Research and Development
Research and development expenditures for the three months ended
September 30, 1997 increased to $6.6 million from the September 30, 1996 three
month period of $5.0 million and from the June 30, 1997 three month period of
$5.9 million. This represents an increase of 32% over the three month period
ended September 30, 1996. The Company has increased its research and development
efforts to introduce new products and intends to continue making substantial
investments in research and development personnel and other expenses. In
particular, the Company has increased its investment in its multimedia
development to bring stand-alone and integrated multimedia products to the
marketplace.
-9-
<PAGE> 10
Selling, General and Administrative
Selling, general and administrative expenditures increased to $5.5
million in the three months ended September 30, 1997 from $5.4 million in the
three months ended September 30, 1996 and $5.3 million in the three months ended
June 30, 1997. Selling, general and administrative expenditures increased to 14%
of net sales for the three months ended September 30, 1997 from 12% of net sales
in the three months ended September 30, 1996.
Interest Income, Net
The amount of interest income earned by the Company varies directly
with the amount of its cash, cash equivalents, short-term investments and
long-term investments and the prevailing interest rates. Interest income
increased to $825,000 in the three months ended September 30, 1997 from $354,000
in the same prior year period and $676,000 in the three months ended June 30,
1997 primarily as the result of higher average cash levels invested by the
Company.
Provision for Income Taxes
As a percentage of income before income taxes, the provision for
income taxes is 28% for the three months ended September 30, 1997, and 32% for
the three month period ended September 30, 1996. The effective income tax rates
were below the U. S. statutory rate primarily because operations in foreign
countries were subject to lower income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's principal sources of
liquidity included cash and cash equivalents of $32.0 million and short-term
investments of $30.6 million.
In the three months ended September 30, 1997, $3.2 million of cash
was provided by operating activities mainly as a result of profitable
operations, an increase in accounts payable, and an increase in income taxes
payable; offset in part by an increase in accounts receivable, inventories, and
accrued liabilities. Capital expenditures were $1.6 million for the three months
ended September 30, 1997. The increase in inventories and accounts payable was
due to the end of quarter stocking of 3D products for future sales.
In August 1995, the Company entered into a joint venture agreement
with United Microelectronics Corporation (UMC), under which the Company
committed to invest an amount of New Taiwan dollars currently equivalent to
approximately U.S. $55 million for a 10% equity ownership in a joint venture
with UMC and other venture partners to establish a new foundry, United
Integrated Circuits Corporation (UICC). Under the agreement, the new foundry
guarantees to Trident 12 .5% of the foundry's total wafer supply. The Company
made the first payment, amounting to U.S. $13.7 million, in January 1996. The
Company made an additional payment of U.S. $25.9 million in January 1997. The
final payment under the joint venture agreement, estimated to be U.S. $15
million, is currently anticipated in December 1997. On October 3, 1997, a fire
at UICC's fabrication plant in Hsin Chu, Taiwan, Republic of China, completely
destroyed its fabrication equipment. The fabrication plant, and the destroyed
equipment, are fully insured. Trident is not currently using the UICC
fabrication plant as a primary source for wafers, and there are no existing
Trident products on UICC's production lines. Trident believes that it has
secured sufficient wafer capacities from UMC, Taiwan Semiconductor Manufacturing
Company ("TSMC"), and Samsung Semiconductor Company to facilitate its new
product production. The
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<PAGE> 11
Company feels its wafer supplies are sufficient, and currently anticipates no
shortfall in revenues due to a shortage of wafers. The UICC foundry is being
rebuilt and is expected to begin production in 1999.
The joint venture investment with UMC is intended to secure capacity
so that the Company can meet increased demand, should it occur. There are
certain risks associated with such investment including the ability of UMC
together with its partners, to successfully rebuild the foundry and of the
Company to utilize the additional capacity. These agreements and the risks
associated with these and other foundry relationships are described under the
caption "Manufacturing" of the Form 10-K Annual Report.
The Company will continue to consider possible transactions to
secure additional foundry capacity when and if circumstances warrant the need.
The aforementioned agreement with UMC has caused the Company to expend a
significant amount of its available capital resources. However, the Company
believes its current resources are sufficient to meet its needs for at least the
next twelve months.
In May 1996, the Company obtained a credit facility of an unsecured
revolving line of credit of $15 million with a maturity date of December 31,
1997. Under the terms of the line of credit, the Company may elect to convert a
portion or the total credit into a three-year term loan. The facility requires
the Company to comply with certain covenants regarding financial ratios and
reporting requirements. In addition to the $15 million line of credit, the
Company regularly considers transactions to finance its activities, including
debt and equity offerings and new credit facilities or other financing
transactions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements herein are forward looking statements, including
those regarding the Company's intention to continue to introduce new products,
expected sales to Asian customers, the Company's expectations regarding pricing
pressures and gross margin from new products and the Company's plan to invest in
research and development and in selling, general, and administrative. The actual
results could vary from the Company's expectations, and are subject to a number
of risks and dependent on a variety of factors, including those set forth below.
The Company's business is influenced by a variety of factors which
include the overall market for desktop and notebook PC computers, the general
economic climate, the success of the Company's customers and their resultant net
orders, seasonal customer demand, timing of new product introductions,
marketplace acceptance of new product offerings, overall product mix, sales
returns from distributors, competitors' activities and the availability of
foundry and assembly capacities. The Company's future operating results are also
influenced by its dynamic product area and by its planned growth in expenditures
and the relation of planned increased expenses to future operating results as
well as by a variety of global, political, regulatory and foreign exchange
factors. These factors will all affect the Company's results and there can be no
assurance of the Company's future operating results.
The Company supplies components to a variety of OEM customers that
in turn sell their products into the overall PC marketplace. Their success
influences the overall net orders that the Company may receive and attempt to
fill. Should there be a downturn in the overall PC business or should the
existing customers not be in a position to place orders or to accept order
fulfillment, the Company's performance would be adversely impacted and there can
be no assurance that the Company would be successful in achieving offsetting
orders. The success of the Company's marketing and sales efforts can also be
affected by changes in the global graphics marketplace. Because the Company's
customers distribute their products worldwide, such factors as shifts in market
share from Asian clone makers to other manufacturers have in the past affected
the Company's operating results. It is likely that future shifts would continue
to influence
-11-
<PAGE> 12
the Company's business. Since a substantial portion of the Company's revenues
has been and is expected to continue to be generated from customers in Asia, it
is likely that the Company's operating results will fluctuate with changes in
the Asian economies, particularly those of Taiwan and Hong Kong. During the
quarter ended September 30, 1997, the Company experienced higher than usual
returns resulting from certain distributors adjusting their inventory mix and
levels. These product exchanges are the result of the industry transition from
2D to 3D, and we cannot predict that these exchanges will not reoccur in the
future. Past performance has indicated that seasonal performance variations
should be expected with the historic slowest PC sales occurring during the
summer. These factors influence when the Company's customers place their orders
and when delivery is required.
Because the Company operates in the increasingly competitive
graphics controller product area, timely introductions of new products are
required. In order to be able to timely introduce new products a number of risk
factors have to be overcome. A fundamental business risk is whether or not the
Company can continue to develop products that will be accepted by a
fast-changing marketplace. The Company attempts to determine which products have
a high likelihood of marketplace acceptance and attempts to create functional
and manufacturable designs for those products. However, the Company can not
assure that product development, the timing of the product introductions the
marketplace acceptance of current products under development and the hiring of
the personnel required to support new product introductions and new customers,
including leading PC systems manufacturers will be successful. Should there be a
shortfall in the Company's business performance from its expected results, the
Company's financial results would be adversely impacted by the planned growth in
expenditures. Additional influences on the Company's performance will be the
actions of existing or future competitors, the development of new technologies,
the incorporation of graphics functionality into other PC system components and
possible claims by third parties of infringement of patent or similar
intellectual property rights.
The Company relies exclusively upon independent foundries to
manufacture its products either in finished or in wafer form, and orders
production either on contract or spot basis. The Company's ability to supply
product to its customers is thus dependent upon its continuing relationships
with those foundries and in turn upon their uninterrupted ability to supply the
Company's product. In calendar year 1995, there was a worldwide shortage of
advanced process technology foundry capacity. In response to this shortage, the
Company entered into a number of contracts providing for additional capacity.
Certain of such contracts require substantial advance payments. There can be no
assurance that the Company will obtain sufficient foundry capacity to meet
customer demands in the future, particularly if that demand should increase, or
that the additional capacity from current foundries and new foundry sources will
be available and will satisfy the Company's quality, delivery schedule, and/or
price requirements.
The Company's products are assembled and tested by a variety of
independent subcontractors. The Company's reliance on independent assembly and
testing houses to provide these services involves a number of risks, including
the absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance and costs.
Constraints or delays in the supply of the Company's products,
whether due to the factors above or to other unanticipated factors, could have
adverse effects on the Company's results. Such adverse effects could include the
Company electing to purchase products from higher cost sources and which could
result in lower orders, or inability to fulfill orders, resulting in the loss of
orders.
The market price of the Company's common stock has been, and may
continue to be, extremely volatile. Factors such as new product announcements by
the Company or its competitors, quarterly fluctuations in the Company's
operating results, the performance of leading PC manufacturers and general
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<PAGE> 13
conditions in the high technology and graphics controller markets may have a
significant impact on the market price of the Company's common stock.
The Company has recently experienced a period of significant growth,
which has and could continue to strain its personnel, financial and other
resources. In particular, the sale and distribution of products to numerous
leading PC systems manufacturers in diverse markets and the requirements of such
manufacturers for design support places substantial demands on the Company's
research and development and sales functions. Continued expansion of sales and
distribution of products to numerous large system manufacturing customers,
should it occur, would require expansion of the Company's research and
development, production and marketing and sales capabilities. Sales growth,
should it occur, will require additional foundry capacity and the Company has
contracted to expand available foundry capacity. Future results will in part
depend upon and could be significantly impacted by the Company's ability to
manage its resources to support future activities and upon its ability to
finance further expanded foundry capitalization and production costs.
The Company's future operating results also may be affected by
various factors which are beyond the Company's control. These include adverse
changes in general economic conditions, political instability, governmental
regulation or intervention affecting the personal computer industry, government
regulation resulting from U.S. foreign and trade policy, fluctuations in foreign
exchange rates particularly with regard to the relationship of the U.S. dollar
and Asian currencies. The Company is unable to predict future economic,
political, and regulatory and foreign exchange changes and cannot determine
their impact on future performance.
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<PAGE> 14
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On June 24, 1996, Core 2 Electronics, Inc. ("Core 2"), a former
sales representative of Trident Microsystems, Inc. (the "Company"), filed a
Demand for Arbitration with the American Arbitration Association. Pursuant to
the Demand, Core 2 is seeking approximately $410,000 plus interest with respect
to certain breach of contract claims and unspecified punitive damages. The
arbitration commenced on October 27, 1997 and has been continued until December
10, 1997. The Company believes that Core 2's claims are without merit and
intends to oppose them vigorously. However, no assurance can be given that the
Company will prevail in this matter.
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSIONS OF MATTERS TO VOTE BY SECURITY HOLDERS
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable
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<PAGE> 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this Form:
Exhibit Description
------- -----------
11.1 Statement Re Computation of Per Share Earnings.
27.1 Financial Data Schedule.
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on November 13, 1997 on its
behalf by the undersigned thereunto duly authorized.
Trident Microsystems, Inc.
(Registrant)
/S/ Frank C. Lin
- --------------------------------------------
Frank C. Lin
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
/S/ Pete J. Mangan
- --------------------------------------------
Pete J. Mangan
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
11.1 Statement Re Computation of Per Share Earnings.
27.1 Financial Data Schedule. (2)
<PAGE> 1
EXHIBIT 11.1
TRIDENT MICROSYSTEMS, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1997 1996
------- -------
<S> <C> <C>
Net Income $ 3,073 $ 3,525
======= =======
Weighted average outstanding stocks 12,935 12,615
Weighted average incremental common
equivalents from dilutive stock options 1,667 1,011
------- -------
Weighted average common and common
equivalent shares 14,602 13,626
------- -------
Net income per share $ 0.21 $ 0.26
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 31,951
<SECURITIES> 30,614
<RECEIVABLES> 24,259
<ALLOWANCES> 0
<INVENTORY> 10,098
<CURRENT-ASSETS> 101,250
<PP&E> 8,166
<DEPRECIATION> 0
<TOTAL-ASSETS> 149,581
<CURRENT-LIABILITIES> 33,129
<BONDS> 0
0
0
<COMMON> 42,760
<OTHER-SE> 70,903
<TOTAL-LIABILITY-AND-EQUITY> 149,581
<SALES> 38,539
<TOTAL-REVENUES> 38,539
<CGS> 22,993
<TOTAL-COSTS> 22,993
<OTHER-EXPENSES> 12,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (825)
<INCOME-PRETAX> 4,268
<INCOME-TAX> 1,195
<INCOME-CONTINUING> 3,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,073
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
