##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2007
 OR
 o
    
    TRANSITION REPORTING 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.
  Delaware
(State or other jurisdiction of 
Incorporation or Organization)
    
    77-0156584
(I.R.S. Employer
Identification Number)3408 Garrett Drive, Santa Clara, California
(Address of principal executive offices)
    
    95054-2803
(Zip Code)
 (408) 764-8808
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.001 par value
    
    NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act: None
 þ o
 o þ
 þ o
 o
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TRIDENT MICROSYSTEMS, INC.
TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    10Item 1B Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    66Item 9A. Controls and Procedures
    
    
    66Item 9B Other Information
    
    
    68PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    69Item 11. Executive Compensation
    
    
    70Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    71Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    71Item 14. Principal Accounting Fees and Services
    
    
    71PART IVItem 15.
Exhibits and Financial Statement Schedules
    
    
    72Power of Attorney
    
    
    75Signatures
    
    
    75EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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FORWARD-LOOKING STATEMENTS
 This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which provides a safe harbor for statements
about future events, products and future financial performance that are based on the beliefs of,
estimates made by and information currently available to the management of Trident Microsystems,
Inc. (we, our, Trident or the Company). The outcome of the events described in these
forward-looking statements is subject to risks and uncertainties. Actual results and the outcome or
timing of certain events may differ significantly from those projected in these forward-looking
statements due to the factors listed under Risk Factors, and from time to time in our other
filings with the Securities and Exchange Commission, or SEC. For this purpose, statements
concerning industry or market segment outlook; market acceptance of or transition to new products;
revenues, earnings growth, other financial results and any statements using the terms believe,
expect, expectation, anticipate, can, should, would, could, estimate, appear,
based on, may, intended, potential, are emerging and possible or similar statements are
forward-looking statements that involve risks and uncertainties that could cause our actual results
and the outcome and timing of certain events to differ materially from those projected or
managements current expectations. By making forward-looking statements, we have not assumed any
obligation to, and you should not expect us to, update or revise those statements because of new
information, future events or otherwise, except as required by law.
 
 PART I
 
 ITEM 1. BUSINESS
 Overview
 TM
    3




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®
  Markets and Applications
   Product Family
    
    Description
    
    MarketsDPTV
    
    Integrated multi-standard video
decoding, format conversion, and
image enhancement processors
    
    Advanced TV including cathode ray tube, or
CRT, plasma, LCD, rear-projection and
front-projection display types, AV Notebook
PC, Multi-function LCD Monitors.HiDTV
    
    Integrated ATSC/DVB (MPEG2)
decoding, format conversion, and
image enhancement processors
    
    Digital TV including CRT, plasma, LCD,
rear-projection and front-projection display
types.TDM
    
    Demodulation for ATSC, DVB-C,
DTMB IF signals
    
    Digital TV including CRT, plasma, LCD,
rear-projection and front-projection display
types.
 4




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Current Digital Media Products:
  DCRe ® .
 SVP-UX/WX TM .
 SVP-AX TM
 SVP-PX TM .
 SVP-LX TM .
 SVP-CX TM .
 5




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SVP-EX TM . TM
 HiDTV ® .
  HiDTV ® PRO.
 HiDTV ® LX.
 HiDTV ® Pro PX/LX .
 TAFE TM .
 Current PCTV Application Products:
 TV Master TM TM6000.
 6




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TV Master TM TM5600.
 Sales, Marketing and Distribution
      Competition
  7




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Research and Development
   Manufacturing
     8




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Backlog
  Seasonality
  Patent and Proprietary Rights
    Trademarks
  Employees
  9




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Available Information
   
 ITEM 1A. RISK FACTORS
  As a result of our investigation into our historical stock option granting practices and the
restatement of our previously-filed financial statements, we are
subject to civil litigation claims
and regulatory investigations that could have a material adverse effect on our business, customer
relationships, results of operations and financial condition.
   We face risks related to Securities and Exchange Commission, or SEC, Department of Justice, or DOJ,
and other investigations into our historical stock option grant practices and related accounting,
which could require significant management time and attention, and could require us to pay fines or
other penalties.
  10




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We have been named as a party to derivative action lawsuits, and we may be named in additional
litigation, all of which will require significant management time and attention and result in
significant legal expenses and may result in an unfavorable outcome which could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
 In re
Trident Microsystems Inc. Derivative Litigation Limke v. Lin et al
 We are subject to the risks of additional lawsuits in connection with our historical stock option
grant practices and related issues, the resulting restatements, and the remedial measures we have
taken.
  The operation of our business could be adversely affected by the departure of certain executives
and the search for a permanent Chief Executive Officer.
  The process of restating our financial statements, making the associated disclosures, and complying
with SEC requirements are subject to uncertainty and evolving requirements.
  11




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We are exposed to increased costs and risks associated with complying with increasing and new
regulation of corporate governance and disclosure standards.
  We continue to have material weaknesses in internal control over financial reporting and cannot
assure you that additional material weaknesses will not be identified in the future. If our
internal control over financial reporting or disclosure controls and procedures are not effective,
there may be errors in our financial statements that could require a restatement or our filings may
not be timely.
    Due to the failure to meet continued listing standards, we may be delisted from the Nasdaq Global
Market, which could adversely affect our stock price and our ability to raise capital.
  12




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Our success depends upon the digital media market and we must continue to develop new products and
to enhance our existing products.
  We depend on a small number of large customers for a significant portion of our sales. The loss of,
or a significant reduction or cancellation in sales to, any key customer would significantly reduce
our revenues.
    13




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
    
    substantially all of our sales are made on a purchase order basis, which permits our
customers to cancel, change or delay product purchase commitments with little or no notice
to us and without penalty;
    
    our customers may develop their own solutions;
    
    our customers may purchase integrated circuits from our competitors; or
    
    our customers may discontinue sales or lose market share in the markets for which they purchase our products.
 We currently rely on certain international customers for a substantial portion of our revenue and
are subject to risks inherent in conducting business outside of the United States.
  
    
    exchange rate variations, tariffs, import restrictions and other trade barriers;
    
    difficulties in collecting accounts receivable;
    
    difficulties in managing distributors or representatives;
    
    political and economic instability, civil unrest, war or terrorist activities that impact international commerce;
    
    potential adverse tax consequences;
    
    difficulties in protecting intellectual property rights, particularly in countries
where the laws and practices do not protect proprietary rights to as great an extent as do
the laws and practices of the United States; and
    
    unexpected changes in regulatory requirements.
  Our dependence on sales to distributors increases the risks of managing our supply chain and may
result in excess inventory or inventory shortages.
  The cyclical nature of the semiconductor industry may lead to significant variances in the demand
for our products.
  14




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Intense competition exists in the market for digital media products.
   The average selling prices of our products may decline over relatively short periods.
  We do not have long-term commitments from our customers, and plan purchases based upon our
estimates of customer demand, which may require us to contract for the manufacture of our products
based on inaccurate estimates.
  If we do not achieve additional design wins in the future, our ability to sell additional products
could be adversely affected.
  15




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We have had fluctuations in quarterly results in the past and may continue to experience such
fluctuations in the future.
  
    
    uncertain demand in the digital media markets in which we have limited experience;
    
    fluctuations in demand for our products, including seasonality;
    
    unexpected product returns or the cancellation or rescheduling of significant orders;
    
    our ability to develop, introduce, ship and support new products and product
enhancements and to manage product transitions;
    
    new product introductions by our competitors;
    
    seasonality, particularly in the third quarter of each fiscal year (March quarter), due
to the extended holidays relating to the Chinese New Year;
    
    our ability to achieve required cost reductions;
    
    our ability to attain and maintain production volumes and quality levels for our products;
    
    delayed new product introductions;
    
    unfavorable responses to new products;
    
    adverse economic conditions, particularly in Asia;
    
    the mix of products sold and the mix of distribution channels through which they are sold; and
    
    unexpected costs associated with our investigation of our historical stock option grant
practices and related issues, and any related litigation or regulatory actions.
  We are vulnerable to undetected product problems.
  Our reliance upon independent foundries could make it difficult to maintain product flow and affect
our sales.
   16




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If we have to qualify a new contract manufacturer or foundry for any of our products, we may
experience delays that result in lost revenues and damaged customer relationships.
  The market price of our common stock has been, and may continue to be volatile.
  Our success depends to a significant degree on the continued employment of key personnel.
  Our success depends in part on our ability to protect our intellectual property rights, which may
be difficult.
  17




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We have been involved in intellectual property infringement claims, and may be involved in others
in the future, which can be costly.
  Our operations are vulnerable to interruption or loss due to natural disasters, power loss, strikes
and other events beyond our control, which would adversely affect our business
  The effect of terrorism or an outbreak of epidemic diseases may negatively affect sales and hinder
our operations
  Changes in our business organization will affect our operations.
  
 ITEM
1B. UNRESOLVED STAFF COMMENTS
  18




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ITEM 2. PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
 Shareholder Derivative Litigation
 In re
Trident Microsystems Inc. Derivative Litigation Limke v. Lin et al
 Intellectual Property Litigation
   Regulatory Actions
  19




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Nasdaq Proceedings
    Indemnification Obligations
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
  20




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Part II
 
 ITEM 5.
    
    MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
      High
    
    LowFiscal Year 2007First Quarter
    
    
    25.24
    
    
    
    14.85Second Quarter
    
    
    25.54
    
    
    
    18.17Third Quarter
    
    
    23.16
    
    
    
    16.54Fourth Quarter
    
    
    23.59
    
    
    
    18.00Fiscal Year 2006First Quarter
    
    
    18.59
    
    
    
    11.23Second Quarter
    
    
    21.38
    
    
    
    13.95Third Quarter
    
    
    31.14
    
    
    
    18.55Fourth Quarter
    
    
    31.49
    
    
    
    16.87
 Approximate Number of Stockholders
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Dividends
  Issuer Repurchases of Equity Securities
  Stock Performance Graphs and Cumulative Total Return
  
 
 
 *
    
    $100 invested on 6/30/02 in stock or index-including reinvestment of dividends. Fiscal year ending June 30. 
 22




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ITEM 6. SELECTED FINANCIAL DATA
  Fiscal Years(In millions, except per share amounts)
    
    2007 (1)
    
    2006 (1)
    
    2005 (2)
    
    2004 (2)
    
    2003 (2)(3)Summary of Operations:Revenues
    
    $
    270.8
    
    
    $
    171.4
    
    
    $
    69.0
    
    
    $
    52.6
    
    
    $
    52.8Income (loss) from operations
    
    $
    40.1
    
    
    
    28.4
    
    
    
    (29.9
    )
    
    
    (11.9
    )
    
    
    (19.8
    )Net income (loss)
    
    $
    30.1
    
    
    
    26.2
    
    
    
    (30.2
    )
    
    
    (4.8
    )
    
    
    (26.1
    )Net income (loss) per share  Basic
    
    
    0.52
    
    
    
    0.48
    
    
    
    (0.64
    )
    
    
    (0.11
    )
    
    
    (0.64
    )Net income (loss) per share  Diluted
    
    
    0.48
    
    
    
    0.42
    
    
    
    (0.64
    )
    
    
    (0.11
    )
    
    
    (0.64
    )Financial Position at Fiscal Year End:Cash, cash equivalents,
and short-term investments
    
    $
    199.3
    
    
    $
    152.7
    
    
    $
    92.2
    
    
    $
    84.3
    
    
    $
    49.9Working capital
    
    $
    158.3
    
    
    
    125.3
    
    
    
    81.6
    
    
    
    75.5
    
    
    
    41.2Total assets
    
    $
    283.9
    
    
    
    207.2
    
    
    
    135.0
    
    
    
    96.3
    
    
    
    70.1Stockholders equity
    
    $
    201.8
    
    
    
    153.7
    
    
    
    109.3
    
    
    
    74.4
    
    
    
    52.2
 
 (1)
    
    Effective July 1, 2005, we adopted SFAS No. 123(R), Share-Based Payment, which requires the
measurement and recognition of compensation expense for all stock-based payment awards made to
employees and directors, including stock options, based on their fair values.(2)
    
    Information regarding the effect of the restatement on our financial position and results of
operations is provided in Note 3 of Notes to Consolidated Financial Statements, included in
Part II, Item 8 of the Annual Report for the fiscal year ended June 30, 2006 on Annual Report
on Form 10-K.(3)
    
    The statements of operations for the year ended June 30, 2003 included the graphics division,
which was transferred to XGI Technology, Inc. in July 2003. 23




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
 This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which provides a safe harbor for statements
about future events, products and future financial performance that are based on the beliefs of,
estimates made by and information currently available to the management of Trident Microsystems,
Inc. (we, our or the Company). The outcome of the events described in these forward-looking
statements is subject to risks and uncertainties. Actual results and the outcome or timing of
certain events may differ significantly from those projected in these forward-looking statements
due to the factors listed under Risk Factors, and from time to time in our other filings with the
Securities and Exchange Commission, or SEC. For this purpose, statements concerning industry or
market segment outlook; market acceptance of or transition to new products; revenues, earnings
growth, other financial results and any statements using the terms believe, expect,
expectation, anticipate, can, should, would, could, estimate, appear, based on,
may, intended, potential, are emerging and possible or similar statements are
forward-looking statements that involve risks and uncertainties that could cause our actual results
and the outcome and timing of certain events to differ materially from those projected or
managements current expectations. By making forward-looking statements, we have not assumed any
obligation to, and you should not expect us to, update or revise those statements because of new
information, future events or otherwise.
  Overview
     Critical Accounting Estimates
  24




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Revenue Recognition
 Revenue Recognition
 Stock-based Compensation Expense
 Share-Based Payment Accounting for
Stock Issued to Employees
 Accounting for Stock-Based
Compensation
    25




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Accounting
for Stock-Based Compensation.
 Investments
  Allowance for Sales Returns
  Inventories
  Intangible Assets
  26




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Business
Combinations Goodwill and Other Intangible Assets
 Product Warranty
  Income Taxes
 Accounting for Income
Taxes
  Litigation and Other Loss Contingencies
 Accounting
for Contingencies
 27




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Results of Operations
  Financial Data for Fiscal Years Ended June 30, 2007, 2006 and 2005
 Revenues
 Fiscal YearsRevenues by region(1)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005(Dollars in million)South Korea
    
    
    115.5
    
    
    
    107
    %
    
    
    55.7
    
    
    
    436
    %
    
    
    10.4Japan
    
    
    91.7
    
    
    
    37
    %
    
    
    66.7
    
    
    
    215
    %
    
    
    21.2China
    
    
    31.3
    
    
    
    13
    %
    
    
    27.6
    
    
    
    -9
    %
    
    
    30.2Taiwan
    
    
    14.4
    
    
    
    15
    %
    
    
    12.5
    
    
    
    136
    %
    
    
    5.3Europe
    
    
    17.5
    
    
    
    108
    %
    
    
    8.4
    
    
    
    1100
    %
    
    
    0.7Others
    
    
    0.4
    
    
    
    -20
    %
    
    
    0.5
    
    
    
    -58
    %
    
    
    1.2Total
    
    
    270.8
    
    
    
    58
    %
    
    
    171.4
    
    
    
    148
    %
    
    
    69.0
 
 (1)
    
    Revenues by region are classified based on the locations of
the customers principal offices
even though our customers revenues are attributable to end customers that are located in a
different location.    Gross Margin
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Gross profit
    
    $
    132.7
    
    
    
    50
    %
    
    $
    88.4
    
    
    
    142
    %
    
    $
    36.5Gross margin
    
    
    49.0
    %
    
    
    
    
    
    
    51.6
    %
    
    
    
    
    
    
    52.9
    %
  28




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Research and Development
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Research and development
    
    $
    44.5
    
    
    
    32
    %
    
    $
    33.8
    
    
    
    (9
    )%
    
    $
    37.3As a percentage of total revenues
    
    
    16
    %
    
    
    
    
    
    
    20
    %
    
    
    
    
    
    
    54
    %
    29




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Selling, General and Administrative
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Sales, general and administrative
    
    $
    48.0
    
    
    
    83
    %
    
    $
    26.2
    
    
    
    10
    %
    
    $
    23.9As a percentage of total revenues
    
    
    18
    %
    
    
    
    
    
    
    15
    %
    
    
    
    
    
    
    35
    %
   In-Process Research and Development
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005In-process research and
development
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    (100
    )%
    
    $
    5.2As a percentage of total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    %
  Interest Income
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Interest income
    
    $
    4.9
    
    
    
    113
    %
    
    $
    2.3
    
    
    
    320
    %
    
    $
    0.5As a percentage of total revenues
    
    
    2
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %
  Other Income (Expense), Net
 Fiscal Years(Dollars in thousands)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Other income/(expense), net
    
    $
    1,947
    
    
    
    15077
    %
    
    
    ($13
    )
    
    
    (103
    )%
    
    $
    425As a percentage of total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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Provision for Income Taxes
 Fiscal Years2007
    
    Change
    
    2006
    
    Change
    
    2005Effective tax rate
    
    
    35
    %
    
    
    14
    %
    
    
    21
    %
    
    
    26
    %
    
    
    (5
    )%
  Cumulative Effect of Change in Accounting Principle
 Fiscal Years(Dollars in millions)
    
    2007
    
    % Change
    
    2006
    
    % Change
    
    2005Cumulative effect of
change in accounting
principle, net of tax
    
    $
    (0.2
    )
    
    
    (110
    )%
    
    $
    1.8
    
    
    
    100
    %
    
    $
    
 Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for compensated
absences,
 Liquidity and Capital Resources
  (In millions)
    
    June 30, 2007
    
    
    June 30, 2006Cash and cash equivalents and short-term investments:Cash and cash equivalents
    
    $
    147.6
    
    
    $
    103.0Short-term investments
    
    
    51.7
    
    
    
    49.6Total
    
    $
    199.3
    
    
    $
    152.6
  Years Ended June 30,(In millions)
    
    2007
    
    
    2006
    
    
    2005Net cash flow provided by (used in):Operating activities
    
    $
    62.1
    
    
    $
    60.8
    
    
    $
    9.3Investing activities
    
    
    (17.7
    )
    
    
    (5.4
    )
    
    
    (8.1
    )Financing activities
    
    
    0.1
    
    
    
    10.0
    
    
    
    3.9Net increase in cash and cash equivalents
    
    $
    44.5
    
    
    $
    65.4
    
    
    $
    5.1
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Operating Activities
   Investing Activities
  Financing Activities
  Liquidity
  32




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Contractual Obligations
  Payments due by periodLess than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More thanContractual Obligations
    
    1 year
    
    
    years
    
    
    Years
    
    
    5 years
    
    
    TotalOperating Leases (1)
    
    $
    1.1
    
    
    $
    1.5
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    3.2New Building construction Contract (2)
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6Purchase Obligations (3)
    
    
    22.8
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    23.4Total
    
    $
    26.5
    
    
    $
    2.1
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    29.2
 
 (1)
    
    We lease office space and have entered into other lease commitments in North America as well
as various locations in Japan, China and Taiwan. Operating leases include future minimum lease
payments under all our noncancelable operating leases as of June 30, 2007.(2)
    
    We are currently constructing a new research and development building in Shanghai, China,
which we expect to be completed during the first quarter of fiscal 2008.(3)
    
    Purchase obligations primarily represent unconditional purchase order commitments with
contract manufacturers and suppliers for wafers and chipsets. Contingencies
 Shareholder Derivative Litigation
 In re
Trident Microsystems Inc. Derivative Litigation Limke v. Lin et al
 Intellectual Property Litigation
   33




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##### Table of Contents



Regulatory Actions
  Nasdaq Proceedings
    Indemnification Obligations
  34




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##### Table of Contents



Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Fair Value Measurements
 Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
 Accounting for Compensated Absences
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 35




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign currency exchange rate risk
   Interest rate risk
  Investment risk
   36




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 TRIDENT MICROSYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Years Ended June 30, 2007(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2005Revenues
    
    $
    270,795
    
    
    $
    171,442
    
    
    $
    69,011Cost of revenues (1)
    
    
    138,142
    
    
    
    83,061
    
    
    
    32,562Gross profit
    
    
    132,653
    
    
    
    88,381
    
    
    
    36,449Operating expenses:Research and development (1)
    
    
    44,516
    
    
    
    33,809
    
    
    
    37,295Selling, general and administrative (1)
    
    
    47,993
    
    
    
    26,178
    
    
    
    23,870In-process research and development
    
    
    
    
    
    
    
    
    
    
    5,171Total operating expenses
    
    
    92,509
    
    
    
    59,987
    
    
    
    66,336Income (loss) from operations
    
    
    40,144
    
    
    
    28,394
    
    
    
    (29,887
    )Interest income
    
    
    4,890
    
    
    
    2,293
    
    
    
    546Other income (expense), net
    
    
    1,947
    
    
    
    (13
    )
    
    
    425Minority interests in subsidiaries
    
    
    
    
    
    
    
    
    
    
    158Income (loss) before provision for income taxes and
cumulative effect of change in accounting principle
    
    
    46,981
    
    
    
    30,674
    
    
    
    (28,758
    )Provision for income taxes
    
    
    16,673
    
    
    
    6,317
    
    
    
    1,426Income (loss) before cumulative
effect of change in accounting principle
    
    
    30,308
    
    
    
    24,357
    
    
    
    (30,184
    )Cumulative effect of change in accounting principle, net of tax
    
    
    (190
    )
    
    
    1,819
    
    
    
    Net income (loss)
    
    $
    30,118
    
    
    $
    26,176
    
    
    $
    (30,184
    )Net income (loss) per share  Basic:Income (loss) before change in accounting principle
    
    
    0.52
    
    
    
    0.45
    
    
    
    (0.64
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.03
    
    
    
    Net income (loss) per share  Basic
    
    
    0.52
    
    
    
    0.48
    
    
    
    (0.64
    )Net income (loss) per share  Diluted:Income (loss) before change in accounting principle
    
    
    0.48
    
    
    
    0.39
    
    
    
    (0.64
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.03
    
    
    
    Net income (loss) per share  Diluted
    
    $
    0.48
    
    
    $
    0.42
    
    
    $
    (0.64
    )Shares used in computing net income per share  Basic
    
    
    57,637
    
    
    
    54,822
    
    
    
    47,418Shares used in computing net income per share  Diluted
    
    
    63,380
    
    
    
    62,526
    
    
    
    47,418
 
 (1)
    
    Effective July 1, 2005, we adopted SFAS 123 (R), Share-Based Paymentsand used the modified
prospective method to value
our stock-based payments. Accordingly, for the fiscal years ended June 30, 2007 and 2006,
stock-based compensation was
accounted under SFAS 123(R), while for the year ended June 30, 2005, stock-based compensation
was accounted under APB 25, Accounting for Stock Issued to Employees. The accompanying notes are an integral part of these consolidated financial statements.
 37




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##### Table of Contents



TRIDENT MICROSYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30, 2007 and 2006(In thousands, except par values)
    
    2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    147,562
    
    
    $
    103,046Investments
    
    
    51,744
    
    
    
    49,612Accounts receivable, net of allowances for sales returns
of $1,101 and $1,475 in 2007 and 2006, respectively.
    
    
    9,161
    
    
    
    4,278Inventories
    
    
    16,263
    
    
    
    14,641Prepaid expenses and other current assets
    
    
    13,668
    
    
    
    5,659Total current assets
    
    
    238,398
    
    
    
    177,236Property and equipment, net
    
    
    19,581
    
    
    
    3,451Intangible assets, net
    
    
    12,845
    
    
    
    19,190Other assets
    
    
    13,055
    
    
    
    7,313Total assets
    
    $
    283,879
    
    
    $
    207,190LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    20,683
    
    
    $
    19,472Accrued expenses
    
    
    23,235
    
    
    
    21,332Income taxes payable
    
    
    36,171
    
    
    
    11,125Total current liabilities
    
    
    80,089
    
    
    
    51,929Deferred income tax liabilities
    
    
    1,942
    
    
    
    1,604Total liabilities
    
    
    82,031
    
    
    
    53,533Commitments and contingencies (Note 7)Stockholders equity:Preferred stock, $0.001 par value; 500 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 95,000 shares authorized;
57,748 and 57,206 shares issued and outstanding at
June 30, 2007 and 2006, respectively
    
    
    58
    
    
    
    57Additional paid-in capital
    
    
    179,390
    
    
    
    162,801Retained earnings (accumulated deficit)
    
    
    18,798
    
    
    
    (11,320
    )Accumulated other comprehensive income
    
    
    3,602
    
    
    
    2,119Total stockholders equity
    
    
    201,848
    
    
    
    153,657Total liabilities and stockholders equity
    
    $
    283,879
    
    
    $
    207,190
 The accompanying notes are an integral part of these consolidated financial statements.
 38




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TRIDENT MICROSYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Years Ended June 30, 2007
    
    2007
    
    
    2006
    
    
    2005(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    30,118
    
    
    $
    26,176
    
    
    $
    (30,184
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Cumulative effect of change in accounting principle
    
    
    190
    
    
    
    (1,819
    )
    
    
    Stock-based compensation expense
    
    
    15,607
    
    
    
    13,183
    
    
    
    30,500Excess tax benefit from stock-based compensation
    
    
    (855
    )
    
    
    (1,742
    )
    
    
    Depreciation and amortization
    
    
    1,501
    
    
    
    1,230
    
    
    
    1,010Provision for (reversal of) sales returns
    
    
    (374
    )
    
    
    1,062
    
    
    
    113Amortization of intangible assets
    
    
    6,345
    
    
    
    5,469
    
    
    
    1,155Loss on disposal of property and equipment
    
    
    59
    
    
    
    106
    
    
    
    253(Gain) loss on investments
    
    
    (216
    )
    
    
    560
    
    
    
    (331
    )Deferred income taxes
    
    
    1,179
    
    
    
    (1,378
    )
    
    
    Minority interests in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (158
    )In-process research and development
    
    
    
    
    
    
    
    
    
    
    5,171Changes in assets and liabilities:Accounts receivable
    
    
    (4,509
    )
    
    
    976
    
    
    
    (3,994
    )Inventories
    
    
    (1,622
    )
    
    
    (11,906
    )
    
    
    368Prepaid expenses and other current assets
    
    
    5,742
    
    
    
    (2,728
    )
    
    
    (1,221
    )Accounts payable
    
    
    1,211
    
    
    
    12,795
    
    
    
    3,213Accrued expenses
    
    
    1,571
    
    
    
    11,553
    
    
    
    2,581Income taxes payable
    
    
    6,145
    
    
    
    7,259
    
    
    
    818Net cash provided by operating activities
    
    
    62,092
    
    
    
    60,796
    
    
    
    9,294Cash flows from investing activities:Purchases of property and equipment
    
    
    (17,690
    )
    
    
    (2,633
    )
    
    
    (1,045
    )Purchases of stock of privately held companies
    
    
    (500
    )
    
    
    (1,492
    )
    
    
    (1,012
    )Proceeds from sale of stock of privately held companies
    
    
    1,228
    
    
    
    
    
    
    
    22Other assets
    
    
    (748
    )
    
    
    (1,189
    )
    
    
    (824
    )Purchase of minority interests in subsidiary
    
    
    
    
    
    
    (61
    )
    
    
    (6,145
    )Proceeds from sale of minority interests in subsidiaries
    
    
    
    
    
    
    
    
    
    
    877Net cash used in investing activities
    
    
    (17,710
    )
    
    
    (5,375
    )
    
    
    (8,127
    )Cash flows from financing activities:Proceeds from issuance of common stock to employees
    
    
    805
    
    
    
    8,285
    
    
    
    3,253Excess tax benefit from stock-based compensation
    
    
    855
    
    
    
    1,742
    
    
    
    Net cash settlements of stock options in connection with IRC Section 409A
    
    
    (1,526
    )
    
    
    
    
    
    
    Proceeds from exercise of TTI options
    
    
    
    
    
    
    
    
    
    
    690Net cash provided by financing activities
    
    
    134
    
    
    
    10,027
    
    
    
    3,943Net increase in cash and cash equivalents
    
    
    44,516
    
    
    
    65,448
    
    
    
    5,110Cash and cash equivalents at beginning of year
    
    
    103,046
    
    
    
    37,598
    
    
    
    32,488Cash and cash equivalents at end of year
    
    $
    147,562
    
    
    $
    103,046
    
    
    $
    37,598Supplemental disclosure of cash flow information:Trident Microsystems, Inc. common stock
issued in connection with the purchase of TTI minority interests
    
    $
    
    
    
    $
    
    
    
    $
    31,146Cash paid for income taxes
    
    $
    2,080
    
    
    $
    44
    
    
    $
    553Prepaid
taxes in connection with intercompany profit on assets remaining
within consolidated group
    
    $
    20,583
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements.
 39




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##### Table of Contents



TRIDENT MICROSYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
 Retained
    
    
    AccumulatedAdditional
    
    
    Deferred
    
    
    Earnings
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Stock-based
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Stockholders(In thousands)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    EquityBalance at June 30, 2004
    
    
    45,762
    
    
    $
    46
    
    
    $
    101,868
    
    
    $
    (22,853
    )
    
    $
    (7,312
    )
    
    $
    3,887
    
    
    $
    75,636Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,184
    )
    
    
    
    
    
    
    (30,184
    )Unrealized gain on investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,454
    
    
    
    1,454Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,730
    )Stock compensation expense related to minority interest
    
    
    
    
    
    
    
    
    
    
    (2,485
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,485
    )Issuance of common stock
    
    
    6,078
    
    
    
    6
    
    
    
    34,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,399Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    30,834
    
    
    
    (30,834
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,500
    
    
    
    
    
    
    
    
    
    
    
    30,500Balance at June 30, 2005
    
    
    51,840
    
    
    
    52
    
    
    
    164,610
    
    
    
    (23,187
    )
    
    
    (37,496
    )
    
    
    5,341
    
    
    
    109,320Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,176
    
    
    
    
    
    
    
    26,176Elimination of deferred stock-based compensation
due to adoption of SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (23,187
    )
    
    
    23,187
    
    
    
    
    
    
    
    
    
    
    
    Unrealized loss on investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,222
    )
    
    
    (3,222
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,954Issuance of common stock
    
    
    5,366
    
    
    
    5
    
    
    
    8,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,277Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    13,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,183Excess tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,742Cumulative effect of change in accounting principle,
net of tax
    
    
    
    
    
    
    
    
    
    
    (1,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,819
    )Balance at June 30, 2006
    
    
    57,206
    
    
    
    57
    
    
    
    162,801
    
    
    
    
    
    
    
    (11,320
    )
    
    
    2,119
    
    
    
    153,657Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,118
    
    
    
    
    
    
    
    30,118Unrealized gain on investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,483
    
    
    
    1,483Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,601Issuance of common stock
    
    
    542
    
    
    
    1
    
    
    
    804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    15,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,607Tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,704
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,704Net cash settlement of stock options
in connection with IRC Section 409A
    
    
    
    
    
    
    
    
    
    
    (1,526
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,526
    )Balance at June 30, 2007
    
    
    57,748
    
    
    $
    58
    
    
    $
    179,390
    
    
    
    
    
    
    $
    18,798
    
    
    $
    3,602
    
    
    $
    201,848
 The accompanying notes are an integral part of these consolidated financial statements.
 40




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##### Table of Contents



TRIDENT MICROSYSTEMS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
   Principles of Consolidation
  Use of Estimates
  Fair Value of Financial Instruments
  Foreign Currency Transactions
  Cash and Cash Equivalents
  Investments
   41




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##### Table of Contents



Concentrations of Credit Risk and Other Risk
    Inventories
  Property and Equipment
  Long-lived Assets
  Intangible Assets
 Goodwill and Other Intangible Assets
 42




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##### Table of Contents



Revenue Recognition
 Revenue Recognition
  Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
  Stock-based Compensation
 Share-Based Payment Accounting for
Stock Issued to Employees
 Accounting for Stock-Based Compensation
  43




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##### Table of Contents



Transition Election Related to Accounting for Tax Effects of Share-based Payment
Awards,
 Shipping and Handling Costs
  Research and Development
  Software Development Costs
 Computer
Software to be Sold, Leased, or Otherwise Marketed.
 Income Taxes
 Accounting for Income Taxes
 Cumulative Effect of Change in Accounting Principle
 Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43,
Accounting for Compensated Absences
 Net Income (Loss) per Share
  44




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##### Table of Contents



Accumulated Other Comprehensive Income (Loss)
  Reclassifications
  Critical Accounting Policies and Estimates Applied to the Restatement of Tridents Consolidated
Financial Statements for the Years Ended June 30, 2006 and 2005
  Recent Accounting Pronouncements
 Fair Value Measurements
 Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
 Accounting for Compensated Absences
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 45




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##### Table of Contents



2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS AND SPECIAL COMMITTEE AND COMPANY FINDINGS
 Special Committee Investigation of Historical Stock Option Grant Practices and Related Issues
   Findings
 Accounting for Certain Transactions Involving
Stock Compensation,
 Issues Related to the Accounting for Stock
Compensation under APB Opinion No. 25 and FASB Interpretation No. 44
  46




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##### Table of Contents



Impact of Internal Revenue Code Section 409A
     47




---



##### Table of Contents



3. INVESTMENTS AND RELATED PARTY TRANSACTIONS
 Accounting
for Certain Investments in Debt and Equity Securities
      48




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##### Table of Contents



4. BALANCE SHEET COMPONENTS
 June 30,(In thousands)
    
    2007
    
    
    2006Inventories:Work in process
    
    $
    9,416
    
    
    $
    9,566Finished goods
    
    
    6,847
    
    
    
    5,075Total inventories
    
    $
    16,263
    
    
    $
    14,641Property and equipment, net:Machinery, equipment and software
    
    $
    9,882
    
    
    $
    8,937Leasehold improvements
    
    
    1,044
    
    
    
    944Furniture and fixtures
    
    
    974
    
    
    
    1,237Construction in progress
    
    
    15,148
    
    
    
    1727,048
    
    
    
    11,135Accumulated depreciation and amortization
    
    
    (7,467
    )
    
    
    (7,684
    )Total property and equipment, net
    
    $
    19,581
    
    
    $
    3,451Accrued expenses :Accrued compensation and benefits
    
    $
    6,644
    
    
    $
    9,633Professional fees
    
    
    4,269
    
    
    
    1,527Deferred revenue
    
    
    1,448
    
    
    
    1,665Others
    
    
    10,874
    
    
    
    8,507Total accrued expenses
    
    $
    23,235
    
    
    $
    21,332
 5. INTANGIBLE ASSETS
  2007
    
    
    2006Accumulated
    
    
    
    
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetCore and
developed
technologies
    
    $
    23,694
    
    
    $
    (11,991
    )
    
    $
    11,703
    
    
    $
    23,694
    
    
    $
    (6,249
    )
    
    $
    17,445Customer relationships
    
    
    2,120
    
    
    
    (978
    )
    
    
    1,142
    
    
    
    2,120
    
    
    
    (375
    )
    
    
    1,745Total
    
    $
    25,814
    
    
    $
    (12,969
    )
    
    $
    12,845
    
    
    $
    25,814
    
    
    $
    (6,624
    )
    
    $
    19,190
  (In thousands)
    
    2007
    
    
    2006
    
    
    2005Reported as:Cost of revenues
    
    $
    5,742
    
    
    $
    5,128
    
    
    $
    1,121Selling, general and administrative
    
    
    603
    
    
    
    341
    
    
    
    34Total
    
    $
    6,345
    
    
    $
    5,469
    
    
    $
    1,155
  6. GUARANTEES
 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 49




---



##### Table of Contents



(In thousands)
    
    2007
    
    
    2006Accrued product warranty, beginning of fiscal year
    
    $
    1,082
    
    
    $
    Charged to cost of revenues
    
    
    1,171
    
    
    
    1,190Actual product warranty expenditures
    
    
    (1,453
    )
    
    
    (108
    )Accrued product warranty, end of fiscal year
    
    $
    800
    
    
    $
    1,082
 7. COMMITMENTS AND CONTINGENCIES
 Commitments
 Lease Commitments
  Purchase Commitments
  Contingencies
 Shareholder Derivative Litigation
 In re
Trident Microsystems Inc. Derivative Litigation Limke v. Lin et al
 Intellectual Property Litigation
   50




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##### Table of Contents



Regulatory Actions
  Nasdaq Proceedings
    Indemnification Obligations
  51




---



##### Table of Contents



8. STOCKHOLDERS EQUITY
 Preferred Shares Rights
  Stock Split
  Comprehensive Income (Loss)
  9. EMPLOYEE STOCK PLANS
 Equity Incentive Plans
   52




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##### Table of Contents



Equity Incentive Plans
    
    Employee Stock Purchase PlanYear Ended June 30,
    
    2007
    
    2006
    
    2005
    
    2007 (1)
    
    2006 (1)
    
    2005Expected terms (in
years)
    
    
    4.25
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    0.5Volatility
    
    
    61.92
    %
    
    
    68.81
    %
    
    
    48.00
    %
    
    
    
    
    
    
    
    
    
    39% to 64%Risk-free interest rate
    
    
    4.77
    %
    
    
    4.14
    %
    
    
    3.25%  4.33
    %
    
    
    
    
    
    
    
    
    
    1.17% to 3.19%Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value
    
    $
    10.65
    
    
    $
    10.37
    
    
    $
    7.95
    
    
    
    
    
    
    
    
    
    
    $
    3.14
 
 (1)
    
    Beginning on May 2, 2005, the Employee Stock Purchase Plan was suspended.
  53




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##### Table of Contents



Year Ended June 30,(In thousands)
    
    2007
    
    
    2006Cost of revenues
    
    $
    526
    
    
    $
    113Research and development
    
    
    9,271
    
    
    
    8,912Selling, general and administrative
    
    
    5,810
    
    
    
    4,158Total stock-based compensation expense
    
    $
    15,607
    
    
    $
    13,183
  54




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##### Table of Contents



Options OutstandingShares Available for
    
    
    
    
    
    Weighted Average(In thousands, except per share amounts)
    
    Grant
    
    Number of Shares
    
    Exercise PriceBalance at June 30, 2004
    
    
    3,560
    
    
    
    9,065
    
    
    $
    1.89Additional shares reserved
    
    
    5,868
    
    
    
    
    
    
    
    Plan shares expired
    
    
    (36
    )
    
    
    
    
    
    
    Options granted
    
    
    (308
    )
    
    
    308
    
    
    
    7.86Options assumed through acquisition
    
    
    (5,868
    )
    
    
    5,868
    
    
    
    0.79Options exercised
    
    
    
    
    
    
    (2,351
    )
    
    
    1.35Options cancelled, forfeited or expired
    
    
    120
    
    
    
    (120
    )
    
    
    1.27Balance at June 30, 2005
    
    
    3,336
    
    
    
    12,770
    
    
    $
    1.65Additional shares reserved
    
    
    4,350
    
    
    
    
    
    
    
    Plan shares expired
    
    
    (161
    )
    
    
    
    
    
    
    Options granted
    
    
    (2,423
    )
    
    
    2,423
    
    
    
    12.99Options exercised
    
    
    
    
    
    
    (5,366
    )
    
    
    1.54Options cancelled, forfeited or expired
    
    
    233
    
    
    
    (233
    )
    
    
    3.43Balance at June 30, 2006
    
    
    5,335
    
    
    
    9,594
    
    
    $
    4.49Plan shares expired
    
    
    (622
    )
    
    
    
    
    
    
    Options granted
    
    
    (1,553
    )
    
    
    1,553
    
    
    
    20.17Restricted stock granted (1)
    
    
    (380
    )
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    (541
    )
    
    
    1.49Options cancelled, forfeited or expired
    
    
    804
    
    
    
    (804
    )
    
    
    8.34Balance at June 30, 2007
    
    
    3,584
    
    
    
    9,802
    
    
    $
    6.82Vested and expected to vest at June 30, 2007
    
    
    
    
    
    
    9,647
    
    
    $
    6.70
 
 (1)
    
    Restricted stock is deducted from shares available for grant under the 2006 Plan at a 1 to 1.38
ratio.
    55




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted Average
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageContractual Term
    
    Exercise
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Number of Shares
    
    (in Years)
    
    Price
    
    Number of Shares
    
    Price$  0.79    $  0.79
    
    
    3,519
    
    
    
    6.7
    
    
    $
    0.79
    
    
    
    1,814
    
    
    $
    0.79$  0.88    $  6.89
    
    
    2,599
    
    
    
    5.1
    
    
    $
    2.54
    
    
    
    2,320
    
    
    $
    2.17$  8.75    $20.22
    
    
    2,562
    
    
    
    8.4
    
    
    $
    13.17
    
    
    
    714
    
    
    $
    11.84$20.36    $29.65
    
    
    1,122
    
    
    
    9.6
    
    
    $
    21.19
    
    
    
    31
    
    
    $
    23.32Total
    
    
    9,802
    
    
    
    7.0
    
    
    $
    6.82
    
    
    
    4,879
    
    
    $
    3.20
    Stock-Based Compensation Expense Computed in Accordance with SFAS 123
  Year Ended June 30,(In thousands, except per share data)
    
    2005Net loss:Net loss as reported
    
    $
    (30,184
    )Add: stock-based employee compensation
included in reported net loss
    
    
    30,500Less: stock-based employee compensation determined
under the fair value based method for all rewards
    
    
    (7,761
    )Pro forma net loss
    
    $
    (7,445
    )Net loss per share  Basic:As reported:
    
    $
    (0.64
    )Pro forma:
    
    $
    (0.16
    )Net loss per share  Diluted:As reported:
    
    $
    (0.64
    )Pro forma:
    
    $
    (0.16
    )Basic and diluted shares
    
    
    47,418
 56




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##### Table of Contents



Weighted AverageGrant-Date Fair(In thousands, except per share amounts)
    
    Shares
    
    ValueNonvested balance at June 30, 2006
    
    
    
    
    
    $
    Granted
    
    
    275
    
    
    
    19.98Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested balance at June 30, 2007
    
    
    275
    
    
    $
    19.98
  Modification of Certain Options
   Employee Stock Purchase Plan
  10. INCOME TAXES
 Accounting for Income Taxes .
 57




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##### Table of Contents



Year Ended June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2005Loss subject to domestic income taxes only
    
    $
    (20,358
    )
    
    $
    (12,243
    )
    
    $
    (11,200
    )Income (loss) subject to foreign income taxes, and in
certain cases, domestic income taxes
    
    
    67,339
    
    
    
    42,917
    
    
    
    (17,558
    )$
    46,981
    
    
    $
    30,674
    
    
    $
    (28,758
    )
  Year Ended June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    180
    
    
    $
    (610
    )
    
    $
    66State
    
    
    2
    
    
    
    2
    
    
    
    2Foreign
    
    
    15,312
    
    
    
    8,303
    
    
    
    1,358$
    15,494
    
    
    $
    7,695
    
    
    $
    1,426Deferred:Federal
    
    
    
    
    
    
    197
    
    
    
    (197
    )State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    1,179
    
    
    
    (1,575
    )
    
    
    1971,179
    
    
    
    (1,378
    )
    
    
    $
    16,673
    
    
    $
    6,317
    
    
    $
    1,426
  June 30,(in thousands)
    
    2007
    
    
    2006Deferred income tax assets:Reserves and accruals
    
    $
    790
    
    
    $
    2,184Research and development credits
    
    
    12,054
    
    
    
    14,706Net operating loss carryforwards
    
    
    6,623
    
    
    
    6,893Other
    
    
    6,593
    
    
    
    7,718Deferred income tax assets
    
    
    26,060
    
    
    
    31,501Valuation allowance
    
    
    (23,641
    )
    
    
    (24,151
    )Deferred income tax assets, net
    
    
    2,419
    
    
    
    7,350Total deferred income tax liabilities:Capital gains not recognized for tax
    
    
    (1,860
    )
    
    
    (1,413
    )Unremitted earnings of foreign subsidiaries
    
    
    (2,220
    )
    
    
    (5,972
    )Total deferred income tax liabilities
    
    
    (4,080
    )
    
    
    (7,385
    )Net deferred income tax assets
    
    $
    (1,661
    )
    
    $
    (35
    )
 June 30,2007
    
    
    2006Reported As:Current deferred income tax assets (included in Prepaid expenses and other
current assets)
    
    $
    83
    
    
    $
    622Noncurrent deferred income tax assets (included in Other assets)
    
    
    338
    
    
    
    947Current deferred income tax liabilities (included in Accrued expenses)
    
    
    (140
    )
    
    
    Noncurrent deferred tax liabilities
    
    
    (1,942
    )
    
    
    (1,604
    )Net deferred income tax liabilities
    
    $
    (1,661
    )
    
    $
    (35
    )
  58




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Year Ended June 30,2007
    
    
    2006
    
    
    2005Federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes, net of federal tax benefit
    
    
    5.8
    
    
    
    5.0
    
    
    
    5.0Research and development credit
    
    
    1.4
    
    
    
    (6.5
    )
    
    
    6.1Foreign rate differential
    
    
    (15.1
    )
    
    
    (27.0
    )
    
    
    (26.8
    )Valuation allowance
    
    
    8.0
    
    
    
    15.5
    
    
    
    (24.7
    )Other
    
    
    0.4
    
    
    
    (1.3
    )
    
    
    0.5Effective income tax rate
    
    
    35.5
    %
    
    
    20.7
    %
    
    
    (4.9
    )%
  11. NET INCOME (LOSS) PER SHARE
  Year Ended June 30,(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    30,118
    
    
    $
    26,176
    
    
    $
    (30,184
    )Shares used in computing basic per share amounts
    
    
    57,637
    
    
    
    54,822
    
    
    
    47,418Dilutive potential common shares
    
    
    5,743
    
    
    
    7,704
    
    
    
    Shares used in computing diluted per share amounts
    
    
    63,380
    
    
    
    62,526
    
    
    
    47,418Net income (loss) per share:Basic
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    (0.64
    )Diluted
    
    $
    0.48
    
    
    $
    0.42
    
    
    $
    (0.64
    )
  59




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##### Table of Contents



12. BUSINESS COMBINATION
  Business Combinations
 Fair value of TMI common stock
    
    $
    31,146Cash
    
    
    6,206Transaction costs
    
    
    501Total purchase price
    
    $
    37,853Purchase price allocation:Net tangible assets acquired
    
    $
    6,176In-process research and development
    
    
    5,171Inventory write-up
    
    
    366Customer relationships
    
    
    2,147Core and developed technologies
    
    
    23,993Total purchase price
    
    $
    37,853
     60




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##### Table of Contents



For the Years Ended(In thousands except per share amounts, unaudited)
    
    June 30, 2005Revenue
    
    $
    69,011Pro forma net loss
    
    $
    (31,311
    )Pro forma net loss per share  basic and fully diluted
    
    $
    (0.64
    )Shares used in calculating basic and fully diluted amounts
    
    
    49,274
 13. SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
 Segment and Geographic Information
   Year Ended June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2005Revenues:South Korea
    
    $
    115,513
    
    
    $
    55,742
    
    
    $
    10,461Japan
    
    
    91,721
    
    
    
    66,705
    
    
    
    21,190China
    
    
    31,337
    
    
    
    27,573
    
    
    
    30,176Taiwan
    
    
    14,388
    
    
    
    12,512
    
    
    
    5,318Europe
    
    
    17,421
    
    
    
    8,383
    
    
    
    721Others
    
    
    415
    
    
    
    527
    
    
    
    1,145Total
    
    $
    270,795
    
    
    $
    171,442
    
    
    $
    69,011
 June 30,(In thousands)
    
    2007
    
    
    2006Long-lived assets:China
    
    $
    17,401
    
    
    $
    1,884United States
    
    
    1,681
    
    
    
    1,134Taiwan
    
    
    425
    
    
    
    385Japan
    
    
    74
    
    
    
    48Total
    
    $
    19,581
    
    
    $
    3,451
  Major Customers
  61




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##### Table of Contents



Years Ended June 30,Revenue:
    
    2007
    
    2006
    
    2005Customer A
    
    
    41
    %
    
    
    31
    %
    
    
    10
    %Customer B
    
    
    25
    %
    
    
    30
    %
    
    
    22
    %Customer C
    
    
    
    
    
    
    
    
    
    
    14
    %
  14. SUBSEQUENT EVENTS
    62




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15. QUARTERLY FINANCIAL DATA (UNAUDITED)
  Fiscal 2007First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalRevenues
    
    $
    71,363
    
    
    $
    68,260
    
    
    $
    60,579
    
    
    $
    70,593
    
    
    $
    270,795Gross margin
    
    $
    35,332
    
    
    $
    34,613
    
    
    $
    29,586
    
    
    $
    33,122
    
    
    $
    132,653Income from cumulative effect of change
in accounting principle
    
    $
    10,703
    
    
    $
    7,229
    
    
    $
    5,615
    
    
    $
    6,761
    
    
    $
    30,308Cumulative effect of change in
accounting principle
    
    
    (190
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190
    )Net income
    
    $
    10,513
    
    
    $
    7,229
    
    
    $
    5,615
    
    
    $
    6,761
    
    
    $
    30,118Net income per share  Basic:Income from cumulative effect of change
in accounting principle
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.52Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income per share  Basic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.52Net income per share  Diluted:Income from cumulative effect of change
in accounting principle
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.48Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income per share  Diluted
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.48Shares used in computing net income per
share  Basic
    
    
    57,303
    
    
    
    57,748
    
    
    
    57,748
    
    
    
    57,748
    
    
    
    57,637Shares used in computing net income per
share  Diluted
    
    
    63,116
    
    
    
    63,501
    
    
    
    63,440
    
    
    
    63,571
    
    
    
    63,380
 Fiscal 2006First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalRevenues
    
    $
    33,203
    
    
    $
    40,614
    
    
    $
    44,743
    
    
    $
    52,882
    
    
    $
    171,442Gross margin
    
    $
    17,551
    
    
    $
    20,883
    
    
    $
    22,790
    
    
    $
    27,157
    
    
    $
    88,381Income from cumulative effect of change
in accounting principle
    
    $
    3,823
    
    
    $
    7,193
    
    
    $
    5,588
    
    
    $
    7,753
    
    
    $
    24,357Cumulative effect of change in
accounting principle
    
    
    1,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,819Net income
    
    $
    5,642
    
    
    $
    7,193
    
    
    $
    5,588
    
    
    $
    7,753
    
    
    $
    26,176Net income per share  Basic:Income from cumulative effect of change
in accounting principle
    
    $
    0.08
    
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.45Cumulative effect of change in
accounting principle
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03Net income per share  Basic
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.48Net income per share  Diluted:Income from cumulative effect of change
in accounting principle
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.39Cumulative effect of change in
accounting principle
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03Net income per share  Diluted
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.42Shares used in computing net income per
share  Basic
    
    
    52,560
    
    
    
    53,591
    
    
    
    56,025
    
    
    
    57,160
    
    
    
    54,822Shares used in computing net income per
share  Diluted
    
    
    62,049
    
    
    
    62,418
    
    
    
    63,716
    
    
    
    63,738
    
    
    
    62,526
 63




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control  Integrated Framework
   64




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65




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Stock Option Investigation
  Evaluation of Disclosure Controls and Procedures
    Managements Report on Internal Control over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
    
    provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
 66




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##### Table of Contents




    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.  Internal ControlIntegrated
Framework
  (1) Failure to Maintain Effective
Control Environment.
 (2) Insufficient controls relating to
our stock-based compensation expense.
 
    
    Effective controls, including monitoring, were not maintained to ensure the proper
exercise of authority to grant and administer stock options as well as the existence,
completeness, valuation and presentation of our stock-based compensation transactions.
    
    There was insufficient segregation of duties with respect to stock option administration
between those who had authority to grant options and those who maintained our stock administration
records.
   67




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##### Table of Contents



Limitations on the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
    
    In April 2007 we appointed a General Counsel, Vice President
of Human Resources & Corporate Secretary. Our recently appointed General Counsel was named as our new compliance
officer. We terminated our employment relationship with our former Chief Accounting Officer.
One of our other executives resigned in May 2007, at our request, although he continues to
provide consulting service to us.  The Board of Directors is searching for a new Chief Executive
Officer.
    
    Two members of our Board of Directors resigned from the Board of Directors effective
May 1, 2007, and we appointed two new independent members of the Board of Directors in May 2007.
As a result of the resignation of these two directors, Mr. Phelps and Mr. Ostby were appointed to
the Compensation Committee in May 2007. In addition, Mr. Bachman, one of our newly-appointed
independent directors, was appointed to the Compensation Committee on May 16, 2007, and elected
Chairperson of the Compensation Committee on May 23, 2007.
    
    The Audit Committee of the Board of Directors determined to establish an
internal audit function that will report to the Audit Committee.
    
    In May 2007 we amended our code of conduct.
Throughout the quarter we continued to review our corporate governance practices and
considered recommendations for improvements, if any, that might enhance the ability of the
Board of Directors to carry out its responsibilities. The Nominating and Corporate Governance
Committee continued to make recommendations for certain improvements in corporate governance
policies and procedures that might be implemented by the Board of Directors to enhance corporate
governance.
 Status
of Remediation
of Material Weaknesses in Internal Control over Financial
Reporting
   
 ITEM 9B. OTHER INFORMATION
  68




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Information about the Members of the Board of Directors
  Information about the Executive Officers
  Name
    
    Age
    
    PositionGlen M. Antle
    
    
    69
    
    
    Acting Chief Executive Officer and Chairman of the Board of DirectorsDr. Jung-Herng Chang
    
    
    51
    
    
    PresidentJohn S. Edmunds
    
    
    50
    
    
    Chief Financial OfficerDavid L. Teichmann (1)
    
    
    51
    
    
    General Counsel, Vice President of Human Resources & Corporate SecretaryChris P. Siu (2)
    
    
    36
    
    
    Chief Accounting Officer and Director of FinanceFormer OfficersFrank C. Lin (3)
    
    
    62
    
    
    Former President, Chief Executive Officer and Chairman of the BoardPeter Jen(4)
    
    
    61
    
    
    Former Senior Vice President, Asia Operations and Chief Administrative
Officer
 
 (1)
    
    Mr. Teichmann joined effective April 2, 2007(2)
    
    Mr. Siu joined effective February 5, 2007(3)
    
    Mr. Lin resigned effective November 15, 2006.(4)
    
    Mr. Jen ceased acting as Chief Accounting Officer on December 3, 2006, and was terminated on
April 30, 2007. Dr. Jung-Herng Chang
 John S. Edmunds
 David L. Teichmann
 69




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##### Table of Contents



Chris P. Siu
 Former Officers
 Frank C. Lin
 Peter Jen
 Independence of the Board of Directors
  Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Conduct and Committee Charters
 http://www.tridentmicro.com.
 
 ITEM 11. EXECUTIVE COMPENSATION
 Executive Compensation
  70




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Director Compensation
  Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Equity Compensation Plan Information
 June 30, 2007:
 A
    
    
    B
    
    
    CNumber of
    
    
    Weighted
    
    
    Number of securitiessecurities to be
    
    
    average exercise
    
    
    remaining availableissued upon
    
    
    price of
    
    
    for future issuanceexercise of
    
    
    outstanding
    
    
    under equityoutstanding
    
    
    options,
    
    
    compensation plansoptions, warrants
    
    
    warrants and
    
    
    (excluding securitiesPlan Category
    
    and rights
    
    
    rights
    
    

reflected in column A)Equity compensation plans approved by security holders
    
    
    6,691,990
    (1)
    
    $
    6.61
    
    
    
    4,485,826
    (2)Equity compensation plans not approved by security holders (3)
    
    
    3,110,166
    (3)
    
    $
    7.28
    
    
    
    Total
    
    
    9,802,156
    
    
    $
    6.82
    
    
    
    4,485,826
 
 (1)
    
    Includes 639,000 shares that are reserved and issuable upon exercise
of options outstanding under the 1992 Plan, which plan expired on
October 16, 2002, 215,000 shares that are reserved and issuable upon
exercise of options outstanding under the 1994 Plan, which expired on
January 13, 2004, 1,854,735 shares that are reserved and issuable upon
exercise of options outstanding under the 2002 Plan, 3,518,855
shares that are reserved and issuable upon exercise of options
outstanding under the 2005 Stock Option Plan and 464,400 shares that
are reserved and issuable upon exercise of options outstanding under
the 2006 Plan.(2)
    
    Includes 901,128 shares reserved for future issuance under the
Purchase Plan, 78,598 shares reserved for future issuance under the
2002 Plan and 3,506,100 shares reserved for issuance under the 2006
Plan.(3)
    
    Consists of shares subject to options that are outstanding pursuant to
the 1996 Plan, which plan was terminated on June 19, 2007.
 Material Features of the 1996 Nonstatutory Stock Option Plan
  
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  71




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##### Table of Contents



PART IV
 
 ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Page Number1. Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    64Consolidated Statements of Operations  For the Years Ended June 30, 2007, 2006 and 2005
    
    
    37Consolidated Balance Sheets  As of June 30, 2007 and 2006
    
    
    38Consolidated Statements of Cash Flows For the Years Ended June 30, 2007, 2006 and 2005
    
    
    39Consolidated Statements of Changes in Stockholders Equity For the Years Ended June 30, 2007, 2006 and 2005
    
    
    40Notes to Consolidated Financial Statements
    
    
    412. Financial Statement Schedules:II  Valuation and Qualifying Accounts for each of the Years Ended June 30, 2007, 2006 and 2005
    
    
    76
 3. Exhibits:
 Exhibit
    
    Description3.1
    
    Restated Certificate of Incorporation.(1)3.2
    
    Certificate of Amendment of
Restated Certificate of Incorporation.(11)3.3
    
    Amended and Restated Bylaws.(10)3.4
    
    Amendment to Article VIII of
the Bylaws.(15)4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2
    
    Specimen Common Stock Certificate.(2)4.3
    
    Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, LLC, as Rights Agent
(including as Exhibit A the form of Certificates 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).(3)10.5(*)
    
    1990 Stock Option Plan, together with forms of Incentive Stock Option Agreement and Non-statutory Stock
Option Agreement.(2)10.6(*)
    
    Form of the Companys Employee Stock Purchase Plan.(2)10.7(*)
    
    Summary description of the Companys Fiscal 1992 Bonus Plan.(2)10.8(*)
    
    Form of the Companys Fiscal 1993 Bonus Plan.(2)10.9(*)
    
    Summary description of the Companys 401(k) plan.(2)10.10(*)
    
    Form of Indemnity Agreement for officers, directors and agents.(2)10.12(*)
    
    Form of Non-statutory Stock Option Agreement between the Company and Frank C. Lin.(4)10.13(*)
    
    Form of 1992 Stock Option Plan amending and restating the 1990 Stock Option Plan included as Exhibit 10.5.(2)10.15 (*)
    
    Form of Change of Control Agreement
between the Company and Frank C. Lin.(8)10.16
    
    Foundry Venture Agreement dated August 18, 1995 by and between the Company and United Microelectronics
Corporation.(5)(7)10.18 (*)
    
    Form of Nonstatutory Stock Option
Agreement for non-plan grants to directors.(9)
 72




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##### Table of Contents



Exhibit
    
    Description10.19 (+)
    
    Form of 1996 Nonstatutory Stock
Option Plan.(9)10.20
    
    Lease agreement dated April 11, 2006 between the Company and Cooperage Rose Properties for the Companys
principal offices located at 3408-3410 Garrett Drive., Santa Clara,
CA (12)10.21
    
    2006 Executive Bonus Plan (13)10.22
    
    2006 Equity Incentive Plan.(14)10.23
    
    Form of Agreements under the 2006
Equity Incentive Plan.(16)21.1
    
    List of Subsidiaries.(6)23.1
    
    Consent of Independent Registered
Public Accounting Firm(6)24.1
    
    Power of Attorney (included on
signature page).(6)31.1
    
    Rule 13a-14(a) Certification
of Chief Executive Officer(6)31.2
    
    Rule 13a-14(a) Certification
of Chief Financial Officer(6)32.1
    
    Section 1350 Certification of
Chief Executive Officer(6)32.2
    
    Section 1350 Certification of
Chief Financial Officer (6)
 
 1.
    
    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, 1993.2.
    
    Incorporated by reference to exhibit of the same number to the Companys Registration
Statement on Form S-1 (File No. 33-53768).3.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K filed
August 21, 1998.4.
    
    Incorporated by reference to exhibit of the same number to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.5.
    
    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, 1995.6.
    
    Filed herewith.7.
    
    Confidential treatment has been requested for a portion of this document.8.
    
    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, 20019
    
    Incorporated by reference to exhibit of the same number to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002.10.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
December 31, 2003.11.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
March 31, 2004.12.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
March 31, 2006.13.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K dated
July 26, 2005 and filed August 1, 2005.14.
    
    Incorporated by reference to the Companys Proxy Statement filed April 26, 2006. 73




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##### Table of Contents



15.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K dated
July 24, 2007 and filed July 30, 2007.16.
    
    Incorporated by reference to exhibit of the same number to
the Companys Annual Report on Form 10K/A filed August 22, 2007.(*)
    
    Management contracts or compensatory plans or arrangements covering executive officers or
directors of the Company.(+)
    
    Compensatory plans, contracts or arrangements adopted without the approval of security
holders pursuant to which equity may be awarded. 74




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##### Table of Contents



SIGNATURES
   TRIDENT MICROSYSTEMS, INC.By:
    /s/ Glen M. AntleGlen M. AntleActing Chief Executive Officer 
 POWER OF ATTORNEY
   Signature
    
    Capacity
    
    Date/s/ Glen M. Antle
    
    Acting Chief Executive Officer and Chairman of the Board
    
    September 10, 2007Glen M. Antle
    
    and
Director (Principal Executive Officer)/s/ John S. Edmunds
    
    Chief Financial Officer
    
    September 10, 2007John S. Edmunds
    
    (Principal
Financial Officer)/s/ Chris P. Siu
    
    Chief Accounting Officer and Director of Finance
    
    September 10, 2007Chris P. Siu
    
    (Principal
Accounting Officer)/s/ Brian R. Bachman
    
    Director
    
    September 10, 2007Brian R. Bachman/s/ Hans Geyer
    
    Director
    
    September 10, 2007Hans Geyer/s/ Raymond K. Ostby
    
    Director
    
    September 10, 2007Raymond K. Ostby/s/ Millard Phelps
    
    Director
    
    September 10, 2007Millard Phelps
 75




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##### Table of Contents



Schedule II
 TRIDENT MICROSYSTEMS, INC.
 
 VALUATION AND QUALIFYING ACCOUNTS
 Write-offs orBalance at
    
    Charged as a
    
    AdjustmentsFiscal
    
    
    
    Beginning of
    
    Reduction (Credit) to
    
    Charged to
    
    Balance atYear
    
    Description
    
    Period
    
    Revenue
    
    Allowance
    
    End of Period(In thousands)2007
    
    
    Allowance for sales returns
    
    $
    1475
    
    
    $
    (374
    )
    
    $
    
    
    
    $
    11012006
    
    
    Allowance for sales returns
    
    $
    413
    
    
    $
    1062
    
    
    $
    
    
    
    $
    14752005
    
    
    Allowance for sales returns
    
    $
    300
    
    
    $
    113
    
    
    $
    
    
    
    $
    413
 Balance atFiscal
    
    
    
    Beginning of
    
    Increase
    
    Balance at EndYear
    
    Description
    
    Period
    
    (decrease)
    
    of Period(In thousands)2007
    
    
    Valuation allowance for deferred tax assets
    
    $
    24,151
    
    
    $
    (510
    )
    
    $
    23,6412006
    
    
    Valuation allowance for deferred tax assets
    
    $
    33,654
    
    
    $
    (9,503
    )
    
    $
    24,1512005
    
    
    Valuation allowance for deferred tax assets
    
    $
    15,415
    
    
    $
    18,239
    
    
    $
    33,654
 76




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##### Table of Contents



INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT
 Exhibit
    
    Description3.1
    
    Restated Certificate of Incorporation.(1)3.2
    
    Certificate of Amendment of
Restated Certificate of Incorporation.(11)3.3
    
    Amended and Restated Bylaws.(10)3.4
    
    Amendment to Article VIII of
the Bylaws.(15)4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2
    
    Specimen Common Stock Certificate.(2)4.3
    
    Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, LLC, as Rights Agent
(including as Exhibit A the form of Certificates 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).(3)10.5(*)
    
    1990 Stock Option Plan, together with forms of Incentive Stock Option Agreement and Non-statutory Stock
Option Agreement.(2)10.6(*)
    
    Form of the Companys Employee Stock Purchase Plan.(2)10.7(*)
    
    Summary description of the Companys Fiscal 1992 Bonus Plan.(2)10.8(*)
    
    Form of the Companys Fiscal 1993 Bonus Plan.(2)10.9(*)
    
    Summary description of the Companys 401(k) plan.(2)10.10(*)
    
    Form of Indemnity Agreement for officers, directors and agents.(2)10.12(*)
    
    Form of Non-statutory Stock Option Agreement between the Company and Frank C. Lin.(4)10.13(*)
    
    Form of 1992 Stock Option Plan amending and restating the 1990 Stock Option Plan included as Exhibit 10.5.(2)10.15(*)
    
    Form of Change of Control Agreement
between the Company and Frank C. Lin.(8)10.16
    
    Foundry Venture Agreement dated August 18, 1995 by and between the Company and United Microelectronics
Corporation.(5)(7)10.18(*)
    
    Form of Nonstatutory Stock Option
Agreement for non-plan grants to directors.(9)10.19(+)
    
    Form of 1996 Nonstatutory Stock
Option Plan.(9)10.20
    
    Lease agreement dated April 11, 2006 between the Company and Cooperage Rose Properties for the Companys
principal offices located at 3408-3410 Garrett Drive., Santa Clara,
CA (12)10.21
    
    2006 Executive Bonus Plan.(13)10.22
    
    2006 Equity Incentive Plan.(14)10.23
    
    Form of Agreements under the 2006
Equity Incentive Plan.(16)21.1
    
    List of Subsidiaries.(6)23.1
    
    Consent of Independent Registered
Public Accounting Firm(6)24.1
    
    Power of Attorney (included on
signature page).(6)31.1
    
    Rule 13a-14(a) Certification
of Chief Executive Officer(6)
 77




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##### Table of Contents



Exhibit
    
    Description31.2
    
    Rule 13a-14(a) Certification
of Chief Financial Officer(6)32.1
    
    Section 1350 Certification of
Chief Executive Officer(6)32.2
    
    Section 1350 Certification of
Chief Financial Officer (6)
 
 1.
    
    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, 1993.2.
    
    Incorporated by reference to exhibit of the same number to the Companys Registration
Statement on Form S-1 (File No. 33-53768).3.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K filed
August 21, 1998.4.
    
    Incorporated by reference to exhibit of the same number to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.5.
    
    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, 1995.6.
    
    Filed herewith.7.
    
    Confidential treatment has been requested for a portion of this document.8.
    
    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, 20019.
    
    Incorporated by reference to exhibit of the same number to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002.10.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
December 31, 2003.11.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
March 31, 2004.12.
    
    Incorporated by reference to exhibit of the same number to the Companys Form 10-Q dated
March 31, 2006.13.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K dated
July 26, 2005 and filed August 1, 2005.14.
    
    Incorporated by reference to the Companys Proxy Statement filed April 26, 2006.15.
    
    Incorporated by reference to exhibit 99.1 to the Companys Current Report on Form 8-K dated
July 24, 2007 and July 30, 2007.16.
    
    Incorporated by reference to exhibit of the same number to
the Companys Annual Report on Form 10-K/A filed August 22, 2007.(*)
    
    Management contracts or compensatory plans or arrangements covering executive officers or
directors of the Company.(+)
    
    Compensatory plans, contracts or arrangements adopted without the approval of security
holders pursuant to which equity may be awarded. 78