cyberlink 2004 consolidatedannual report english

CYBERLINK CORP.

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

These English financial statements and report of independent accountants were translated from the financial statements and report of independent accountants originally prepared in Chinese.

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Report of Independent Accountants (05)R.C3GP.0004 To the Board of Directors and Stockholders of CyberLink Corp. We have audited the accompanying consolidated balance sheets of CyberLink Corp. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, of changes in stockholders' equity and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements for the financial years ended 2004 and 2003 of CyberLink.Com Corporation (CyberLink-USA) a consolidated subsidiary, which statements reflect total assets of $262,800 thousand (US$8,288 thousand) and $145,935 thousand (US$4,296 thousand) constituting 7.20% and 4.57%, respectively. Total revenues of $686,794 thousand (US$21,659 thousand) and $406,933 thousand (US$11,979 thousand) constituting 33.25% and 24.46%, respectively, of the related totals. The statements were audited by other auditors, whose reports thereon have been finished to us and our opinion expressed herein, insofar as it relates to this subsidiary, is solely based on the reports of the other auditors. We conducted our audits in accordance with the “Rules Governing the Examination of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those rules and standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CyberLink Corp. and its subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with “The Rules Governing the Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China.

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The consolidated financial statements of the Company and its subsidiaries as of and for the years ended December 31, 2004 and 2003 expressed in United States dollars were translated from New Taiwan dollars financial statements using the exchange rates of NT$31.71:US$1 and NT$33.97:US$1, respectively, and are presented solely for the convenience of the reader. This basis of translation is not in accordance with generally accepted accounting principles in the Republic of China. As disclosed in Note 1, CyberLink Europe B.V. (CyberLink-B.V.) and CyberLink Investment Corp. (CyberLink-Investment) are included in the consolidated subsidiaries commencing from 2004 and this results in a change in the reporting entity. Therefore the Company restated the consolidated financial statements of 2003 to include CyberLink-B.V. and CyberLink-Investment. February 21, 2005 ----------------------------------------------------------------------------------------------------------- The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

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CYBERLINK CORP. CONSOLIDATED BALANCE SHEETS

DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

2004 2003 Amount Amount NT$ US$

(Unaudited - Note 2) % NT$

(Restated) US$ (Unaudited - Note 2)

%

ASSETS Current Assets

Cash and cash equivalents (Note 4(1)) $ 412,313 $ 13,003 11 $ 377,104 $ 11,101 12

Short-term investments (Note 4(2)) 2,466,124 77,771 68 2,116,605 62,308 66

Notes receivable (Note 4(3)) 4,001 126 - 1,964 58 -

Accounts receivable (Note 4(3)) 249,782 7,877 7 259,302 7,633 8

Other receivables 16,440 518 1 16,375 482 1

Inventories 7,418 234 - 12,567 370 1

Deferred income tax assets-current (Note 4(6)) 3,641 115 - 11,443 337 -

Other current assets-others (Note 10) 8,676 274 - 4,142 122 -

3,168,395 99,918 87 2,799,502 82,411 88

Long-term Investments (Note 4(4))

Investment accounted for under the cost method 32,416 1,022 1 7,042 207 -

32,416 1,022 1 7,042 207 -

Property, Plant and Equipment (Note 4(5))

Cost 285,574 9,006 8 336,174 9,896 10

Less: accumulated depreciation ( 20,200) ( 637) ( 1) ( 11,525) ( 339) -

265,374 8,369 7 324,649 9,557 10

Intangible Assets

Other intangible assets 67,781 2,138 2 35,630 1,049 1

67,781 2,138 2 35,630 1,049 1

Other Assets

Assets held for lease 59,593 1,879 2 6,819 201 -

Refundable deposits 302 9 - 4,428 130 -

Deferred charges 2,437 77 - 6,056 178 -

Deferred income tax assets-non current (Note 4(6)) 47,396 1,495 1 10,724 316 1

Other assets-others 4,220 133 - 313 9 -

113,948 3,593 3 28,340 834 1

TOTAL ASSETS $ 3,647,914 $ 115,040 100 $ 3,195,163 $ 94,058 100

The accompanying notes are an integral part of the consolidated financial statements.

See PricewaterhouseCoopers’ audit report dated February 21, 2005.

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CYBERLINK CORP. CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

2004 2003 Amount Amount NT$ US$ % NT$ US$ % (Unaudited - Note 2) (Restated) (Unaudited - Note 2) LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Notes payable $ 144 $ 5 - $ 12,012 $ 354 -

Accounts payable 27,541 869 1 34,629 1,019 1

Income tax payable (Note 4(6)) 47,330 1,493 1 21,996 648 1

Accrued expenses (Note 4(7)) 281,972 8,892 8 247,533 7,287 8

Other payables (Note 4(4)) 6,134 193 - 30,754 905 1

Other current liabilities 14,343 452 - 12,726 374 -

377,464 11,904 10 359,650 10,587 11

Long-term Liabilities

Bonds payable (Note 4(8)) - - - 339,400 9,991 11

- - - 339,400 9,991 11

Other Liabilities

Accrued pension liabilities (Note 4(9)) 2,310 73 - 856 26 -

Deposits - in 660 21 - - - -

Other liabilities-others 3,000 94 - 3,416 100 -

5,970 188 - 4,272 126 -

Total Liabilities 383,434 12,092 10 703,322 20,704 22

Stockholders’ Equity

Common stock (Notes 4(8) and (10)) 857,231 27,033 24 677,643 19,948 21

Capital reserve (Notes 4(8) and (11))

Paid-in capital in excess of par value 508,486 16,036 14 503,213 14,814 16

Paid-in capital in excess of par, convertible bonds 867,363 27,353 24 574,876 16,923 18

Long-term investments 810 26 - 810 23 -

Retained earnings (Note 4(12))

Legal reserve 124,034 3,911 3 74,378 2,190 2

Special reserve 2,116 67 - 2,116 62 -

Unappropriated earnings 908,964 28,665 25 647,596 19,064 20

Other adjustments

Cumulative translation adjustment ( 7,097) ( 224) - ( 98) ( 3) -

Minority interest 2,573 81 - 11,307 333 1

Total Stockholders’ Equity 3,264,480 102,948 90 2,491,841 73,354 78 Commitments and Contingent Liabilities (Note 4(4)) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,647,914 $ 115,040 100 $ 3,195,163 $ 94,058 100



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CYBERLINK CORP. CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)

2004 2003 Amount Amount NT$ US$

(Unaudited - Note 2) % NT$

(Restated) US$ (Unaudited - Note 2)

%

Operating revenues (Note 5)

Sales revenue $ 2,085,564 $ 65,770 101 $ 1,687,295 $ 49,670 101

Less: Sales returns ( 17,284) ( 545) ( 1) ( 22,765) ( 670) ( 1)

Sales allowances ( 6,362) ( 201) - ( 3,575) ( 106) -

Net sales 2,061,918 65,024 100 1,660,955 48,894 100

Gain from sales of portfolio securities (Note 1) 568 18 - - - -

Service revenue 3,151 99 - 2,434 72 -

2,065,637 65,141 100 1,663,389 48,966 100

Operating costs

Cost of sales ( 82,920) ( 2,615) ( 4) ( 114,829) ( 3,381) ( 7)

Gross profit 1,982,717 62,526 96 1,548,560 45,585 93

Operating expenses (Notes 4(9) and (14))

Selling ( 1,071,510) ( 33,791) ( 52) ( 794,758) ( 23,396) ( 48)

General ( 98,084) ( 3,093) ( 5) ( 94,491) ( 2,782) ( 6)

Research and development ( 187,060) ( 5,899) ( 9) ( 139,178) ( 4,097) ( 8)

Operating expenses ( 1,356,654) ( 42,783) ( 66) ( 1,028,427) ( 30,275) ( 62)

Operating income 626,063 19,743 30 520,133 15,310 31

Non-operating income

Interest income 3,308 104 - 7,495 220 -

Gain on investments accounted for under the equity method (Note 4(4)) 6,918 218 1 - - -

Gain on disposal of investments 39,373 1,242 2 26,940 793 2

Other income 21,019 663 1 13,159 387 1

Non-operating income 70,618 2,227 4 47,594 1,400 3

Non-operating expenses

Loss on investments accounted for under the equity method (Note 4(4)) - - - ( 9,417) ( 277) ( 1)

Loss on disposal of property, plant and equipment - net - - - ( 6,867) ( 202) -

Exchange loss-net ( 23,499) ( 741) ( 1) ( 18,346) ( 540) ( 1)

Other expenses ( 8,426) ( 266) ( 1) ( 397) ( 12) -

Non-operating expenses ( 31,925) ( 1,007) ( 2) ( 35,027) ( 1,031) ( 2)

Income before income tax and minority interest 664,756 20,963 32 532,700 15,679 32

Income tax expense (Note 4(6)) ( 59,517) ( 1,877) ( 3) ( 36,350) ( 1,070) ( 2)

Minority interest in net loss of consolidated subsidiaries 2,560 81 - 207 6 -

Net income $ 607,799 $ 19,167 29 $ 496,557 $ 14,615 30

Before tax After tax Before tax After tax Before tax After tax Before tax After tax Basic earnings per share (Note 4(13))

(In dollars) $ 7.99 $ 7.30 $ 0.25 $ 0.23 $ 7.30 $ 6.80 $ 0.21 $ 0.20

Diluted earnings per share (Note 4(13))

(In dollars) $ 7.82 $ 7.15 $ 0.25 $ 0.23 $ 6.63 $ 6.18 $ 0.20 $ 0.18



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CYBERLINK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Retained earnings

Common stock

Capital reserve Legal reserve Special reserve

Unappropriated earnings

Cumulative translation adjustment

Minority interest in consolidated subsidiaries

Total

2003 (Restated) Balance at January 1, 2003 $ 487,100 $ 504,023 $ 41,423 $ 2,116 $ 379,953 ($ 725) $ 7,992 $1,421,882

Distribution of 2002 earnings:

Legal reserve - - 32,955 - ( 32,955) - - -

Stock dividends 85,242 - - - ( 85,242) - - -

Cash dividends - - - - ( 85,243) - - ( 85,243)

Remunerations of directors and supervisors - - - - ( 5,878) - - ( 5,878)

Employees’ stock bonus 19,596 - - - ( 19,596) - - -

Net income for 2003 - - - - 496,557 - - 496,557

Conversion of bonds payable to common stock 85,705 574,876 - - - - - 660,581

Cumulative translation adjustment - - - - - 627 675 1,302

Increase in minority interest - - - - - - 2,847 2,847

Minority interest in net loss of consolidated subsidiaries - - - - - - ( 207) ( 207)

Balance at December 31, 2003 677,643 1,078,899 74,378 2,116 647,596 ( 98) 11,307 2,491,841

2004


Legal reserve - - 49,656 - ( 49,656) - - -

Stock dividends 101,919 - - - ( 101,919) - - -

Cash dividends - - - - ( 156,276) - - ( 156,276)

Remunerations of directors and supervisors - - - - ( 8,903) - - ( 8,903)

Employees’ stock bonus 29,677 - - - ( 29,677) - - -

Net income for 2004 - - - - 607,799 - - 607,799


Exercise of employee stock options 1,086 5,273 - - - - - 6,359

Cumulative translation adjustment - - - - - ( 6,999) ( 61) ( 7,060)

Increase in minority interest - - - - - - ( 6,113) ( 6,113)

Minority interest in net loss of consolidated subsidiaries - - - - - - ( 2,560) ( 2,560)

Balance at December 31, 2004 $ 857,231 $1,376,659 $ 124,034 $ 2,116 $ 908,964 ($ 7,097) $ 2,573 $3,264,480


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CYBERLINK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(EXPRESSED IN THOUSANDS OF US DOLLARS)

Retained earnings

Common stock

Capital reserve Legal reserve Special reserve

Unappropriated earnings

Cumulative translation adjustment

Minority interest in consolidated subsidiaries

Total

2003 (Unaudited – Note 2) Balance at January 1, 2003 $ 14,017 $ 14,504 $ 1,192 $ 61 $ 10,933 ($ 21) $ 230 $ 40,916


Legal reserve - - 970 - ( 970) - - -

Stock dividends 2,509 - - - ( 2,509) - - -

Cash dividends - - - - ( 2,509) - - ( 2,509)

Remunerations of directors and supervisors - - - - ( 173) - - ( 173)

Employees’ stock bonus 577 - - - ( 577) - - -

Net income for 2003 - - - - 14,615 - - 14,615


Cumulative translation adjustment 322 333 28 1 254 18 25 981

Increase in minority interest - - - - - - 84 84


Balance at December 31, 2003 19,948 31,760 2,190 62 19,064 ( 3) 333 73,354

2004 (Unaudited – Note 2)


Legal reserve - - 1,566 - ( 1,566) - - -

Stock dividends 3,214 - - - ( 3,214) - - -

Cash dividends - - - - ( 4,928) - - ( 4,928)

Remunerations of directors and supervisors - - - - ( 281) - - ( 281)

Employees’ stock bonus 936 - - - ( 936) - - -

Net income for 2004 - - - - 19,167 - - 19,167


Exercise of employee stock options 34 166 - - - - - 200

Cumulative translation adjustment 1,422 2,265 155 5 1,359 ( 221) 22 5,007

Increase in minority interest - - - - - - ( 193) ( 193)


Balance at December 31, 2004 $ 27,033 $ 43,415 $ 3,911 $ 67 $ 28,665 ($ 224) $ 81 $ 102,948


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CYBERLINK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

2004 2003 NT$ US$ NT$ US$ (Unaudited - Note 2) (Restated) (Unaudited - Note 2) Cash flows from operating activities Net income $ 607,799 $ 19,167 $ 496,557 $ 14,615

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Minority interest in net loss of consolidated subsidiaries ( 2,560) ( 81) ( 207) ( 6)

Gain on disposal of investments ( 39,373) ( 1,242) ( 26,940) ( 793)

Bad debts expense 948 30 1,268 37

Loss on obsolescence of inventories 7,294 230 - -

Long-term investment (gain) loss accounted for under the equity method ( 6,918) ( 218) 9,417 277

Loss on disposal of property, plant, and equipment 160 5 6,867 202

Depreciation expenses 12,078 381 7,277 214

Amortization expenses 24,842 783 11,139 328

Changes in assets and liabilities:

(Increase) decrease in assets:

Short-term investments-portfolio securities 285 9 - -

Notes and accounts receivable 2,461 78 ( 47,326) ( 1,393)

Other receivables ( 65) ( 2) ( 9,820) ( 289)

Inventories 4,857 153 ( 6,897) ( 203)

Other current assets ( 4,703) ( 148) 6,763 199

Deferred income tax assets ( 28,870) ( 910) ( 2,321) ( 68)

Other assets-others ( 3,907) ( 123) ( 313) ( 9)

Increase (decrease) in liabilities:

Notes and accounts payable ( 21,871) ( 690) 34,175 1,006

Income tax payable 25,334 799 4,363 128

Accrued expenses 34,439 1,086 55,296 1,628

Other payables 1,315 41 ( 384) ( 11)

Other current liabilities 1,892 60 7,485 220

Accrued pension liabilities 1,454 46 856 25

Net cash provided by operating activities 616,891 19,454 547,255 16,107

Cash flows from investing activities

Increase in short-term investments, net ( 311,696) ( 9,830) ( 458,428) ( 13,495)

Increase in long term investments-third parties ( 31,710) ( 1,000) - -

Proceeds from sale of long-term investments 7,771 245 - -

Proceeds from capital reduction of long-term investments 6,337 200 - -

Acquisition of property, plant, and equipment ( 31,466) ( 992) ( 158,539) ( 4,667)

Proceeds from sale of property, plant, and equipment 270 9 310 9

Decrease (increase) in refundable deposits-net 4,126 130 ( 63) ( 1)

Increase in other intangible assets ( 53,292) ( 1,681) ( 40,756) ( 1,200)

Increase in deferred charges ( 128) ( 4) ( 1,972) ( 58)

Net cash used in investing activities ( 409,788) ( 12,923) ( 659,448) ( 19,412)

(Continued on next page)

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CYBERLINK CORP. CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)

YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

2004 2003 NT$ US$

(Unaudited - Note 2) NT$ (Restated)

US$ (Unaudited - Note 2)

Cash flows from financing activities

Increase (decrease) in deposits-in, net $ 660 $ 21 ($ 231) ($ 7)

Payment of cash dividends ( 156,276) ( 4,928) ( 85,243) ( 2,509)

Payment of directors’ and supervisors’ remuneration ( 8,903) ( 281) ( 5,878) ( 173)

Exercise of employee stock options 6,359 201 - -

(Decrease) increase in minority interest ( 6,174) ( 195) 3,522 104

Net cash used in financing activities ( 164,334) ( 5,182) ( 87,830) ( 2,585)

Effects of changes in exchange rates on foreign currency holdings ( 7,560) 553 ( 744) 362

Net increase (decrease) in cash and cash equivalents 35,209 1,902 ( 200,767) ( 5,528)

Cash and cash equivalents at beginning of the year 377,104 11,101 577,871 16,629

Cash and cash equivalents at end of the year $ 412,313 $ 13,003 $ 377,104 $ 11,101

Supplemental disclosure of cash flows information:

Cash paid during the year for:

Income taxes $ 64,413 $ 2,031 $ 21,404 $ 630

Interest $ - $ - $ - $ -

Cash used for the acquisition of property, plant and equipment

Total acquisition of property, plant and equipment $ 6,099 $ 192 $ 183,906 $ 5,414

Add: Payable at beginning of year 25,367 800 - -

Less: Payable at end of year - - ( 25,367) ( 747)

Cash paid $ 31,466 $ 992 $ 158,539 $ 4,667



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CYBERLINK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT AS INDICATED)

(2003 Restated) 1. COMPANY HISTORY AND SUBSIDIARIES

1) CyberLink Corp. (the “Company”) was incorporated under the Company Law of the Republic of China (R.O.C.) in August 1990. The Company’s original name was Jing-Hua Corp., which was changed to CyberLink Corp. in February 1996. The main activities of the Company are the design and sale of computer peripheral equipment and computer software. The Securities and Futures Commission of the Republic of China had approved the Company’s shares to be listed on the GreTai Securities Market (formerly Over-The-Counter Securities Exchange) and the shares started trading on October 11, 2001. The Company’s shares have been listed on the Taiwan Stock Exchange Corporation since September 27, 2004. As of December 31, 2004, the Company and consolidated subsidiaries had approximately 290 employees.

2) Consolidated subsidiaries:

A. CyberLink Japan Co., Ltd. (CyberLink-Japan), a 90% owned subsidiary, was

incorporated under the Company Law of Japan in May 1998. The main activity of CyberLink-Japan is the sale of computer software.

B. CyberLink.Com Corporation (CyberLink-USA), a wholly owned subsidiary, was incorporated under the Company Law of the United States (USA) in January 1999. The main activity of CyberLink-USA is the sale of computer software.

C. CyberLink Europe B.V. (CyberLink B.V.), a wholly owned subsidiary, was incorporated under the Company Law of The Netherlands in July 2003. The main activity of CyberLink-B.V. is the sale of computer software.

D. CyberLink International Technology Corp. (CyberLink-B.V.I), a wholly owned subsidiary, was incorporated under the Company Law of British Virgin Island in June 2004. The main activity of CyberLink-B.V.I is the investment in shares of listed and unlisted companies.

E. CyberLink Investment Corp. (CyberLink-Investment), a wholly owned subsidiary, was incorporated under the Company Law of Taiwan in July 2002. The main activity of CyberLink-Investment is the investment in shares of listed and unlisted companies.

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3) The 2004 consolidated financial statements increased consolidated subsidiaries of CyberLink Europe B.V. and CyberLink Investment. As such, the 2003 consolidated financial statements were restated to include these subsidiaries for comparison purpose.

4) Adjustment and approach for difference of accounting period and policy of subsidiaries: None.

5) Special operating risk of foreign subsidiaries:

The functional currency of CyberLink-Japan is Japanese Yen. The functional currency of CyberLink-USA and CyberLink-B.V.I is US dollars. The functional currency of CyberLink-B.V. is European dollars. There is no exchange rate risk since there was no significant change in the respective exchange rates in 2004.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in accordance with the “Rules Governing the Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China. Summaries of significant accounting policies of the Company are as follows: 1) Principles of preparing consolidated financial statements

A. Consolidated financial statements are prepared based on Financial Accounting

Standard (FAS) No. 7 of the ROC. All transactions between the Company and the consolidated subsidiaries are eliminated in the consolidated financial statements.

B. In accordance with the ROC generally accepted accounting principles and R.O.C. Securities and Futures Commission (SFC) regulations, the Company prepares annual financial statements both on a non-consolidated and consolidated basis, which include all majority owned subsidiaries.

2) Translation of foreign subsidiaries’ financial statements

Assets and liabilities of the foreign subsidiaries are translated into New Taiwan dollars using the exchange rate at the balance sheet date; stockholders’ equity accounts are translated at historical exchange rates, except for beginning retained earnings, which is stated at the carrying amount of the prior year; and profit and loss accounts are translated at the average exchange rate during the year.

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The translation differences arising from the translation of foreign financial statements are included in the stockholders' equity account as "Cumulative Translation Adjustments".

3) Foreign currency translation

The accounts of the Company and the consolidated subsidiaries are maintained in their functional currencies. Transactions arising in foreign currencies are translated into their functional currencies at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into their functional currencies at the exchange rate prevailing at the balance sheet date. Foreign exchange gains or losses are included in the current year’s net income.

4) Derivative financial instruments

A. Foreign Currency Forward Contracts

Forward exchange contracts in the form of hedges are recorded and translated using the exchange rates prevailing on the contract date. The discount or premium on the forward exchange contracts is amortized over the contract period. The balance at period-end is translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date, and any translation difference is recognized in the current year’s net income.

B. Option Contracts

Premiums on option contracts are recorded at cost. Unrealized gains and loses on option contracts entered into for hedging purpose are deferred and recognized as income (loss) at settlement date. Options contracts entered into for trading purpose are carried at market value.

5) Short-term investments

Equity securities are recorded at cost. Cost is determined using the weighted average method. Any excess of aggregate cost over the market value is recorded as unrealized losses. Subsequent recovery in market value is recognized to the extent of the original cost and is reflected under other non-operating income.

6) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on past experience and the evaluation of the collectibility of accounts and notes receivable and other receivables.

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7) Inventories

Inventories are stated at the lower of cost or market value based on the aggregate value method. Allowance for loss is provided on obsolete inventories. Cost is determined by the weighted average method for the Company. Cost for CyberLink-Japan, CyberLink-USA and CyberLink-B.V. is determined by the first-in, first-out method. The market value for finished goods inventories is determined based on net realizable value. Loss for decline in market value and obsolescence of inventories is charged to current income.

8) Long-term investments

A) Long-term investments in which the Company owns less than 20% of an investee company’s voting rights and has no ability to exercise significant influence over the investee company are accounted for at the lower of cost or market value for listed companies or at cost for unlisted companies. Any unrealized decline in market value is recognized as a deduction from stockholders’ equity. When it becomes evident that there has been a permanent decrease in value and the chance of recovery is minimal, the loss is recognized in the current year’s net income.

B) If the Company owns at least 20% of an investee company's voting rights, the

investment is accounted for using the equity method, unless there is evidence that the Company has no ability to exercise significant influence over the investee company, in which case it is accounted for under the cost method.

C) Foreign investments in which the Company owns at least 20 percent of the

affiliated company's voting rights are accounted for using the equity method. The procedures for accounting are as follows:

a. The initial investment is stated at the amount of New Taiwan dollars

remitted out for the foreign currency transaction; b. Any investment income or loss is translated into New Taiwan dollars at the

average exchange rate for the year; and c. The foreign investee company’s financial statements are translated into New

Taiwan dollars at year-end. Assets and liabilities are translated using the exchange rate at the balance sheet date, while equity accounts are translated at historical rates, except for beginning retained earnings which are transferred from prior year’s ending retained earnings. Profit and loss accounts are translated using a weighted average rate. The cumulative translation adjustments resulting from these translation procedures are included as a component of the investee companies' stockholders’ equity. The proportionate share of these cumulative translation adjustments is recognized by the Company and included in the shareholders' equity account

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as "Cumulative Translation Adjustment".

9) Property, plant and equipment

A. Property, plant and equipment are stated at cost. The Company and CyberLink-B.V. calculates depreciation using the straight-line method over the estimated useful lives of the assets plus one year as estimated salvage value. CyberLink-USA calculates depreciation using the straight-line method over the estimated useful lives of the assets less estimated salvage value. CyberLink-Japan calculates depreciation using the declining-balance method. Salvage values of fixed assets still in use after the end of their original estimated useful lives are depreciated based on their newly estimated remaining useful lives. The estimated useful lives of the assets are 50 years for buildings and 3 to 15 years for the other assets.

B. Significant renewals and improvements are treated as capital expenditure and

depreciated accordingly. Maintenance and repairs are expensed as incurred. When an asset is sold or retired, the cost and accumulated depreciation are removed from the respective accounts. Gains or losses on disposal of fixed assets are recorded as non-operating income or expenses in the current year.

10) Intangible assets

Intangible assets represent royalties paid for software patents and are amortized over the estimated useful lives using the straight-line method.

11) Deferred Charges

Costs for telephone circuit installation and acquisition of computer software are deferred and amortized over 1 to 3 years.

12) Convertible bonds

A) The costs of issuing convertible bonds are capitalized as issuance cost.

B) When a bondholder exercises his/her conversion right, the book value of bonds, interest payable on redemption, interest payable, and deferred issuance costs are credited to “New Share Entitlement Certificates” at an amount equal to the par value of the shares to be issued, and the excess is credited to capital reserve; no gain or loss is recognized on bond conversion.

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13) Retirement plan and reserve for retirement plan

A) The Company recognizes pension liabilities and net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation, pension gains/losses and prior service cost, based on an actuarial valuation.

B) Subsidiaries have no retirement plan.

14) Employee stock options

In accordance with the Accounting Research and Development Foundation Letter No. 72 (2003) “Accounting Treatment of Employee Stock Options”, employee stock options of a compensatory nature issued after January 1, 2004 are recognized as an expense using the intrinsic value method. The pro forma net income in the current period and earnings per share information is also disclosed using the fair value method.

15) Revenue recognition

Revenue is recognized when the earnings process is substantially completed. Costs are charged against revenue as incurred. Expenses are recognized when incurred.

16) Income tax

a) Income tax is calculated based on accounting income after adjusting for permanent differences for the Company、CyberLink Europe B.V. and CyberLink Investment. Provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes, loss carry-forward and investment tax credits. The tax effect of taxable temporary differences, deductible temporary differences, net operating loss carry-forward and investment tax credits are recognized as deferred income tax liabilities or assets. A valuation allowance is provided for deferred income tax assets to the extent that it is most likely that the tax benefits will not be realized. Deferred income tax is classified as current or non-current based on the classification of the related assets or liabilities or the period when the temporary differences are expected to reverse. Income tax credits are charged to deferred income tax assets and credited to income tax expense in the year the tax credits arise.

b) Current year's income tax is adjusted for over or under provision of prior year's income tax.

c) The R.O.C. imputation tax system requires that any undistributed current earnings, on a tax basis, of a company derived on or after January 1, 1998 be subjected to an additional 10% corporate income tax if the earnings are

~ 18 ~

not distributed before a specific time. This additional 10% corporate income tax is included in income tax expense in the following year when the stockholders approve a resolution to retain the earnings.

d) The income tax of CyberLink-USA and CyberLink-Japan is calculated based on the deferred income tax accounting method.

17) Use of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.

18) Convenience translation to US dollars (unaudited) The Company maintains its accounting records and prepares its consolidated financial statements in New Taiwan dollars. The United States dollar amounts disclosed in the consolidated financial statements for 2004 and 2003 are presented solely for the convenience of the reader and were translated into US dollars using the respective exchange rate prevailing at December 31, 2004 and 2003. Such translation amounts are unaudited and should not be construed as representations that the New Taiwan dollar amounts represent, have been, or could be converted into US dollars at that or any other rate.

3. EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

None.

4. SIGNIFICANT ACCOUNTS

1) Cash and cash equivalents

December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)

(Note 2) (Unaudited)

(Note 2) Cash in hand $ 271 $ 9 $ 301 $ 9

Demand deposits 411,455 12,976 352,682 10,382

Checking accounts 587 18 6,190 182

Time deposits - - 17,931 528

$ 412,313 $ 13,003 $ 377,104 $ 11,101

2) Short-term investments

~ 19 ~



(Note 2) Money market

funds $ 2,466,124 $ 77,771 $ 2,116,605 $ 62,308

3) Notes and accounts receivable



(Note 2) Notes receivable $ 4,031 $ 127 $ 1,994 $ 59

Accounts receivable 254,303 8,020 262,930 7,740

258,334 8,147 264,924 7,799

Less: Allowance for doubtful accounts

( 4,551)

( 144)

( 3,658)

( 108)

$ 253,783 $ 8,003 $ 261,266 $ 7,691

4) Long-term investments

a) List of long-term investments:

December 31, 2004 Investee company

Amount

% ownership

NT$ US$ (Unaudited - Note 2) Cost method:

Buylow Corp. $ 706 $ 22 14.67

DivXNetworks, Inc. 31,710 1,000 0.86

$ 32,416 $ 1,022

~ 20 ~

December 31, 2003 Investee companies

Amount

% ownership

NT$ US$ (Unaudited - Note 2) Equity method: CyberLink Europe GmbH

(CyberLink-Europe) $ - $ - 100.00

Cost method:

Buylow Corp. 7,042 207 14.67

$ 7,042 $ 207

b) In 2004 and 2003, the investments gain (loss) on long-term investments

under the equity method are as follows:

Years ended December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)


(Note 2) CyberLink-Europe $ 6,918 $ 218 ($

9,417)

($ 277)

The long-term investments gain (loss) was recognized based on the unaudited financial statements.

c) The Company recognized its investment loss, accounted for under the equity method in CyberLink-Europe in excess of the original investment amount due to the Company’s commitment to provide continuing financial support to CyberLink-Europe for its operation. The negative investment balance is presented under other payables as of December 31, 2003.

~ 21 ~

5) Property, plant and equipment December 31, 2004 (NT$) Item

Original cost

Accumulated depreciation

Book value

Land $ 141,564 $ - $ 141,564

Buildings 121,856 ( 10,092) 111,764

Machinery 12,533 ( 5,887) 6,646

Transportation equipment 1,430 ( 459) 971

Furniture and fixtures 8,191 ( 3,762) 4,429

$ 285,574 ($ 20,200) $ 265,374

December 31, 2003 (NT$) Item

Original cost


Book value

Land $ 176,520 $ - $ 176,520

Buildings 140,699 ( 3,248) 137,451

Machinery 10,062 ( 5,074) 4,988

Transportation equipment 1,330 ( 1,022) 308

Furniture and fixtures 7,563 ( 2,181) 5,382

$ 336,174 ($ 11,525) $ 324,649

December 31, 2004 (US$: Unaudited - Note 2) Item

Original cost


Book value

Land $ 4,464 $ - $ 4,464

Buildings 3,843 ( 318) 3,525

Machinery 395 ( 186) 209

Transportation equipment 45 ( 14) 31

Furniture and fixtures 259 ( 119) 140

$ 9,006 ($ 637) $ 8,369

~ 22 ~

December 31, 2003 (US$: Unaudited - Note 2) Item

Original cost


Book value

Land $ 5,197 $ - $ 5,197

Buildings 4,142 ( 96) 4,046

Machinery 296 ( 149) 147

Transportation equipment 38 ( 30) 8

Furniture and fixtures 223 ( 64) 159

$ 9,896 ($ 339) $ 9,557

6) Income tax For the year ended December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)

( Note 2) (Unaudited)

( Note 2) Income tax expense $ 59,517 $ 1,877 $ 36,350 $ 1,070

Over (under) provision of prior year’s income tax

1,751

55

( 1,861)

( 54)

Effect of deferred income tax assets 28,870 910 2,321 68

Prepaid royalty tax ( 42,692) ( 1,346) ( 12,895) ( 380)

Prepaid income tax ( 116) ( 3) ( 1,919) ( 56)

Income tax payable $ 47,330 $ 1,493 $ 21,996 $ 648

A. As of December 31, 2004 and 2003, the deferred income tax assets (liabilities) were

as follows: December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)


( Note 2) Total deferred income

tax assets $ 88,782 $ 2,800 $ 72,820 $ 2,144

Valuation allowance of deferred income tax assets ($ 37,745) ($ 1,190) ($ 50,653) ($ 1,491)

~ 23 ~

B. As of December 31, 2004 and 2003, details of deferred income tax assets and liabilities were as follows:

December 31, 2004 2003 (NT$) Items

Amount

Income tax effect

Amount

Income tax effect

Current:

Unrealized exchange loss $ 10,700 $ 2,675 $ 5,912 $ 1,478

Unrealized profit on intercompany sales 3,866 966 7,161 1,790

Royalty - - 32,700 8,175

3,641 11,443

Non current:

Investment loss on foreign long-term investments accounted for under the equity method

52,464 13,116 94,002 23,501

Loss carry-forward 98,328 24,582 35,218 8,805

Others 188 47 486 122

Investment tax credits 47,396 28,949

Valuation allowance ( 37,745) ( 50,653

)

47,396 10,724

$ 51,037 $ 22,167

~ 24 ~

December 31, 2004 2003 (US$: Unaudited - Note 2) Items

Amount

Income tax effect

Amount

Income tax effect

Current:

Unrealized exchange loss $ 337 $ 84 $ 174 $ 44

Unrealized sales profit 122 31 211 53

Royalty - - 963 240

115 337

Non current:

Investment loss on foreign long-term investments accounted for under the equity method

1,654 414 2,767 692

Loss carry forward 3,101 775 1,037 259

Others 6 1 14 4

Investment tax credits 1,495 852

Valuation allowance ( 1,190) ( 1,491

)

1,495 316

$ 1,610 $ 653

C. As of December 31, 2004, details of the unused portion of the Company’s

income tax credits were as follows:

Item Total tax-exempt amount

Unused tax-exempt amount Expiry year

Statute for Upgrading Industries

NT$53,252

(US$ 1,679)

NT$47,396

(US$ 1,495)

2008

D. The Company was granted five-year tax holidays in respect to the income

derived from its design and sale of software. The expiry dates are as follows:

Approval date and no.

Completion date of investment plan

Tax-exempt period

Tax-exempt income

Tai-Tsai-Shuey No 0900456774 on 21st Nov. 2001

December 31, 2000 December 31, 2000 - December 30, 2005

NT$ 298,161

(US$ 9,403)

~ 25 ~

E. The Company’s income tax returns for the years through 2000 have been

assessed and approved by the Tax Authority. CyberLink-Investment’s income tax returns for the years through 2002 have been assessed and approved by the Tax Authority.

F. For the years ended December 31, 2004 and 2003, the income tax expense

included the additional 10% corporate income tax related to the 2003 and 2002 undistributed earnings amounting to NT$17,427 (US$550) and $13,398 (US$394), respectively. These amounts were recognized based on the resolution adopted in the Company and local subsidiaries’ stockholders’ meeting to retain the 2003 and 2002 earnings.

7) Accrued expenses December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)


( Note 2) Royalty expense $210,440 $ 6,636 $178,224 $ 5,246

Payroll 24,782 782 18,362 541

Professional service fees 16,886 533 3,655 108

Commission expense 6,287 198 12,210 359

Advertisement Expense 137 4 9,790 288

Others 23,440 739 25,292 745

$281,972 $ 8,892 $247,533 $ 7,287

8) Bonds payable December 31, 2004 2003 NT$ US$ NT$ US$ (Unaudited)


( Note 2) Convertible bonds $ - $ - $ 339,400 $ 9,991

A) In November 2002, the Company issued 0% unsecured convertible bonds in

the amount of NT$1,000,000 (US$28,777) at par value due in 2007. The significant terms of the bonds are as follows:

~ 26 ~

a) Conversion right: Unless previously redeemed, converted or purchased

and cancelled, the bonds may be converted into common stock of the Company during the conversion periods at a conversion price as specified in the contract.

b) Conversion periods: The bonds are convertible at anytime on or after February 20, 2003 to November 9, 2007.

c) Conversion price adjustment: The initial conversion price per share was set at NT$90 (in dollars). After the issuance of the bonds, the conversion price will be adjusted based on the terms in the contract. As of November 19, 2004, the adjusted conversion price was NT$62.2 (in dollars).

d) Conversion price reset: The conversion price will be adjusted on the reset date (the “Reset Date”) which shall be June 22, 2003 to 2007 in the event that (i) the product of (a) the average closing price for the 10 consecutive trading days prior to the Reset Date and (b) the principal amount of one bond divided by (ii) the conversion price is less than the principal amount of one bond; provided that any adjustment to the conversion price pursuant to the conversion price reset shall be limited so that the adjusted conversion price shall not be less than 80% of the conversion price then in effect.

e) Redemption at the option of bondholders: The Company will, at the option of the holder of any bond, redeem such bond on October 21, 2004 and 2005 at its principal amount.

B) As of November 19, 2004, all bonds had been converted into 13,261,138

common shares based on the conversion price per share at the date of conversion. The excess of the bond cost over par value of the shares amounting to NT$867,363 (US$27,353) was credited to capital reserve.

9) Retirement plan

A) The Company has a non-contributory and funded defined benefit pension plan

covering all regular employees with the following provisions:

a) (1) Employee earns 2 units for each year of service for the first 15 years and earns one unit each year thereafter.

(2) The maximum number of units is 45.

(3) Any fraction of a year which is equal to or greater than six months shall be counted as one year of service, and any fraction of year which is less than six months, shall be counted as a half year.

~ 27 ~

(4) Upon retirement, each base unit of payment represents the average monthly salary under the Labor Standards Law of R.O.C..

b) The Company may ask the employees to retire after reaching the age 60 or if they are not able to perform their job due to injury or mental problems.

c) The Company has established an independent retirement fund in accordance with the Labor Standards Law. Contributions are made monthly to the independent retirement fund, kept with the Central Trust of China, at the rate of 2% of total monthly salaries and wages. As of December 31, 2004 and 2003, the balance of the retirement fund with the Central Trust of China was NT$10,611 (US$335) and NT$7,553 (US$222), respectively.

B) The related actuarial assumptions to calculate the accrued pension cost, based on the measurement dates of December 31, 2004 and 2003, were as follows:

December 31, 2004 December 31, 2003

Discount rate 3.50% 3.50%

Rate of salary increase 3.00% 3.00%

Expected return on plan assets 2.50% 2.75%

C) Reconciliations of the plan funded status and the accrued pension cost were as follows: December 31, 2004 2003 Benefit obligation: (NT$)

Vested benefit obligation $ - $ -

Non-vested benefit obligation ( 10,859

)

( 6,714

)

Accumulated benefit obligation ( 10,859

)

( 6,714

)

Additional benefits based on future salaries ( 9,007

)

( 6,035

)

Projected benefit obligation ( 19,866

)

( 12,749

)

Plan assets at fair value 10,719 7,553

Funded status ( 9,147

)

( 5,196

)

Unrecognized net obligation at transition 370 411

~ 28 ~

Unrecognized pension loss 6,467 3,929

Accrued pension liabilities ($

2,310)

($

856)

Vested benefit $ - $ -

~ 29 ~

December 31, 2004 2003 (US$: Unaudited - Note 2) Benefit obligation:

Vested benefit obligation $ - $ -

Non-vested benefit obligation ( 342

)

( 198

)

Accumulated benefit obligation ( 342

)

( 198

)

Additional benefits based on future salaries

( 284

)

( 178

)

Projected benefit obligation ( 626

)

( 376

)

Plan assets at fair value 338 222

Funded status ( 288

)

( 154

)

Unrecognized net obligation at transition 11 12

Unrecognized pension loss 204 116

Accrued pension liabilities ($

73)

($

26)

Vested benefit $ - $ -

D) In 2004 and 2003, the net periodic pension costs were as follows:

2004 NT$ US$

(Unaudited) ( Note 2)

Service cost $ 3,902 $ 123

Interest cost 446 14

Expected return on plan assets ( 207) ( 7)

Amortization of unrecognized transition obligation 41 1


Net periodic pension cost $ 4,423 $ 139

~ 30 ~

2003 NT$ US$

(Unaudited) ( Note 2)

Service cost $ 2,942 $ 87

Interest cost 348 10

Expected return on plan assets ( 166) ( 5)

Amortization of unrecognized transition obligation 41 1


Net periodic pension cost $ 3,414 $ 100

10) Capital stock

A. According to the resolution adopted at the stockholders meeting in May 2004 and as approved by the R.O.C. SFC, the Company issued common stock by capitalizing the unappropriated retained earnings of NT$101,919 (US$3,214) and employees’ stock bonus of NT$29,677 (US$936). The registration of this capital increase was completed. As of December 31, 2004, the Company’s authorized capital was NT$1,000,000 (US$28,612), and the issued and outstanding capital was NT$857,231 (US$27,033) (including exercise of employee stock options NT$1,086 (US$34) and conversion of bonds payable to capital stock NT$132,611 (US$4,002)).

B. The R.O.C. SFC approved the issuance of stock options under the employee stock option plan. Each option is equivalent to one share of common stock and new stock will be issued when the employees exercise their options. The purchase price is based on the Company’s closing price on the issuance date. The Company uses par value as purchase price if the closing price is less than par value. The employees may exercise their stock options 2 years after receiving them. The stock option is valid for 7 years.

~ 31 ~

a) The amount and aggregate exercise price of the stock options for the compensation employee stock option plan during 2004 and 2003 are as follows:

2004 2003 Quantity (in

thousands of shares)

Aggregate Exercise Price (in dollars)

Quantity (in thousands of shares)

Aggregate Exercise Price (in dollars)

Beginning balance 3,580 NT＄ 62.16

(US＄

1.96)

1,817 NT＄ 74.68

(US＄ 2.20)

Options issued during the period

275 NT$ 79.30

(US＄ 2.50)

1,620 NT＄ 81.70

(US＄ 2.41)

Adjustment from issuance of stock dividends

448 - 348 -

Exercised ( 109) - - -

Canceled ( 191) - ( 206) -

Ending balance 4,003 3,579

690 -

Authorized but not issued stock options 2,525 580

b) As of December 31, 2004, the details of the employee stock options plans

are as follows:

Outstanding ending balance

Exercisable ending balance

Exercise price

Quantity (in thousands of shares) Valid year

Weighted average exercise price (in dollars)

Quantity (in thousands of shares)

Weighted average exercise price (in dollars)

$58.60~62.40 1,489 4.53 NT$ 59.42

(US$

1.87)

690 NT$ 59.42

(US$

1.87)

$65.10 2,189 5.50 NT$ 65.10

(US$

2.05)

- -

$79.30 325 6.67 NT$ 79.30

(US$

2.50)

- -

~ 32 ~

~ 33 ~

c) Informations of pro forma net income and EPS calculated by fair value-based method for the stock options plan issued or modified after 2004 were as follows:

2004 Financial statements

information Pro forma

information Net income NT$ 607,799

(US$ 19,167)

NT$ 605,739

(US$ 19,102)

Basic earnings per share (dollar) NT$ 7.30 NT$ 7.28

Diluted earnings per share (dollar) NT$ 7.15 NT$ 7.13

The fair value of the above stock options plan is calculated by Black-Scholes Option Pricing Model. Information of the factors and average time value are as follows: Divided yield rate 0.00%

Expected price volatility 62.22%

Risk-free rate 2.33%

Time to expiration on the options 7 years

Options issued during the period 325 units

Average fair value (dollar) NT$ 59.76

11) Capital reserve

A. According to the R.O.C. Company Law, capital reserve shall be exclusively used to offset against accumulated deficit. However, capital reserve arising from paid-in capital in excess of par and donation can be used to increase capital, after covering accumulated deficit, which shall not exceed 10% of the Company's capital each year. In addition, capital reserve can only be utilized to offset against accumulated deficit if the legal reserve is insufficient to cover the accumulated deficit.

B. According to the ROC SFC regulations, the Company may apply once a year to capitalize the capital reserve arising from the paid in capital in excess of par from the issuance of stock for cash starting in the year following the issuance, subject to certain limitations prescribed in the regulations.

~ 34 ~

12) Retained earnings

A. According to the Company’s Articles of Incorporation, distribution of earnings would be based on the Company’s operating and capital needs and issuance of stock dividends would take preference over cash dividends. The annual net income should be used initially to pay income tax and then cover any accumulated deficit; 10% of the annual net income should be set aside as legal reserve; thereafter, the board of directors shall propose and the stockholders shall then approve to appropriate the amount of retained earnings to be distributed. When distributing the remaining retained earnings, the distributions should be in accordance with the following allocations:

a) Stockholders’ dividend 88% b) Employees’ stock bonus 10%

c) Remuneration of directors and supervisors 2%

B. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after 1st January, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed before a specific time. This 10% additional tax on undistributed earnings paid by the Company can be used as tax credit by the shareholders, including foreign shareholders, against the withholding tax on dividends. In addition, the domestic shareholders can claim a proportionate share in the Company’s corporate income tax as a tax credit against its individual income tax liability effective 1998. The actual creditable tax ratio of distributed earnings in 2004 was 4.64%. As of December 31, 2004, the imputation tax credit account balance was NT$13,602 (US$429). The estimate creditable tax ratio of distributed earnings in 2005 is 5.94%. As of December 31, 2004, the Company’s undistributed earnings derived before and after the adoption of the imputation tax system were NT$9,932 (US$284) and NT$899,032 (US$28,352), respectively.

C. According to Article 41 of the ROC Security Exchange Act, in addition to the amount appropriated for legal reserve, the Company should, set aside a special reserve from retained earnings should the total of the cumulative translation adjustment and unrealized loss on long-term investments result in a net reduction of the stockholders’ equity as of the end of the current year.

D. In 2004, the Company’s board of stockholders approved to appropriate cash dividends of NT$2.3 per share and stock dividends of NT$1.5 per share.

~ 35 ~

E. As of February 21, 2005, the board of directors has not approved the earnings distribution proposed by the management. The information regarding the board of directors’ approval of earnings distribution will be posted to the Market Observation Post System of Taiwan Stock Exchange Corporation website when it is available. The amount of the retained earnings distributed in 2004 for employee bonuses and directors’ and supervisors’ remunerations are as follows: The amount of the actual

earnings distribution approved by the board of directors and the stockholders

a) The amount of the retained earnings distributed

Employees’ stock bonuses

Shares (in thousands) 2,968

Amounts NT$ 29,677

(US$ 936)

As a percentage of outstanding common shares

4.38%

Directors’ and supervisors’ remunerations NT$ 8,903

(US$ 281)

b) Information regarding earnings per common share (in dollars)

Original earnings per common share (Note a)

NT$ 8.13

(US$ 0.26)

Adjusted earnings per common share (Note b)

NT$ 7.50

(US$ 0.24)

Note a: Not including the number of retroactively adjusted common shares

issued on capitalization of earnings, capital reserve and capitalization of employees’ dividends in 2004.

Note b: Adjusted earnings per share=(Net income-Employees’ bonus-Remunerations to directors and supervisors)/Weighted average outstanding common shares.

~ 36 ~

13 Earnings per common share

For the year ended December 31, 2004 Amount

Earnings per common share (in dollars)

Before income tax

After income tax

Weighted average outstanding common shares (in thousands)

Before income tax

After income tax

Net income $ 664,756

(US$ 20,963)

$ 607,799

(US$ 19,167)

Basic earnings per share

83,245 $ 7.99

(US$0.25)

$ 7.30

(US$0.23)

Effect of diluted common stock equivalent:

Employees stock options - - 1,735

Diluted earnings per share

$ 664,756

(US$ 20,963)

$ 607,799

(US$ 19,167)

84,980 $ 7.82

(US$0.25)

$ 7.15

(US$0.23)

For the year ended December 31, 2003 Amount

Earnings per common share (in dollars)

Before income tax

After income tax

Weighted average outstanding common shares (in thousands)

Before income tax

After income tax

Net income $ 532,700

(US$ 15,679)

$ 496,557

(US$ 14,615)

Basic earnings per share

72,988 $ 7.30

(US$0.21)

$ 6.80

(US$0.20)

Effect of diluted common stock equivalent:

Convertible bonds - - 4,568

Employees stock options - - 2,805

Diluted earnings per share

$ 532,700

(US$ 15,679)

$ 496,557

(US$ 14,615)

80,361 $ 6.63

(US$0.20)

$ 6.18

(US$0.18)

~ 37 ~

14) Salary, depreciation expense and various amortization

The Company’s salary, depreciation expense and various amortization were as follows:

For the year ended December 31, 2004

Operating costs Operating expenses Total

NT$ US$ NT$ US$ NT$ US$

(Unaudited) (Note 2)



Salary

Payroll expense $ - $ - $282,79

2

$ 8,918 $282,79

2

$ 8,918

Insurance expense - - 13,067 412 13,067 412

Pension cost - - 4,423 139 4,423 139

Others - - 7,439 235 7,439 235

Depreciation expense - - 13,955 440 13,955 440

Amortization - - 24,842 783 24,842 783

For the year ended December 31, 2003

Operating costs Operating expenses Total

NT$ US$ NT$ US$ NT$ US$




Salary

Payroll expense $ - $ - $236,01

8

$ 6,948 $236,01

8

$ 6,948

Insurance expense - - 10,877 320 10,877 320

Pension cost - - 2,398 71 2,398 71

Others - - 5,058 149 5,058 149

Depreciation expense - - 7,197 212 7,197 212

Amortization - - 11,139 328 11,139 328

~ 38 ~

5. RELATED PARTY TRANSACTIONS

1) Name and relationships of related party

Name Relationship with the Company

CyberLink Europe GmbH (CLE) Wholly owned subsidiary

Gish Japan Inc. The general manager of a subsidiary company is a director of Gish Japan Inc.

Buylow Corp. (Buylow) The general manager is a director of Buylow

2) Significant transaction with related party

A. Sales 2004 2003 Amount Amount

NT$ US$ % of net sales NT$ US$

% of net sales



CLE $ - $ - - $ 4,649 $ 137 -

Buylow - - - 46 - -

$ - $ - - $ 4,695 $ 137 -

Sales to Subsidiary are at normal selling price and are collected 90 days after the delivery of goods are made (sales to ordinary customers are either collected in advance or 30~45 days after the delivery of goods).

B. Rental Revenue

2004 2003 Amount Amount NT$ US$ NT$ US$ Gish Japan Inc. $ 1,153 $ 36 $ 1,214 $ 36

6. DETAILS OF PLEDGED ASSETS

None.

7. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2004, CyberLink-USA leased certain office space. The total future minimum lease payments under the operating lease agreement were NT$13,331 (US$420). In 2004, CyberLink-USA paid NT$3,680 (US$116) under the lease expense.

~ 39 ~

8. SIGNIFICANT LOSS OR DAMAGE EXPERIENCE

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. OTHERS

1) Financial instruments disclosure: A. Fair value of non-derivative financial instruments:

December 31, 2004 December 31, 2003 Book value Fair value Book value Fair value Book value Fair value Book value Fair value NT$ US$ NT$ US$ Assets (Unaudited – Note 2) (Unaudited – Note 2) Financial assets with book

value equal to fair value $ 682,536 $ 682,536 $ 21,524 $ 21,524 $ 654,745 $ 654,745 $ 19,274 $ 19,274

Short-term investments 2,466,124 2,466,320 77,771 77,777 2,116,605 2,116,605 62,308 62,308

Long-term investments 32,416 32,416 1,022 1,022 7,042 7,042 207 207

Liabilities

Financial liabilities with book value equal to fair value 378,124 378,124 11,924 11,924 699,050 699,050 20,578 20,578

Accrued pension liabilities 2,310 9,147 73 288 856 5,196 25 153

~ 40 ~

B. Fair value of derivative financial instruments:

December 31, 2004 December 31, 2003 Book value Fair value Book value Fair value Book value Fair value Book value Fair value NT$ US$ NT$ US$ Assets (Unaudited – Note 2) (Unaudited – Note 2) Forward exchange

contracts $ 810 $ 810 $ 25.54 $ 25.54 $ - $ - $ - $ -

Foreign currency option contracts

- 71 - 2.24 - - - -

The methods and assumptions adopted by the Company in evaluating the fair value of financial instruments are as follows: A) The carrying amounts of short-term financial instruments, which include cash and cash equivalents, receivables, payables

and other current liabilities, approximate the fair values due to their short maturities. B) The fair value of short-term and long-term investments was based on market value, or underling equity in net assets or

financial/other information, if market value is not available.

C) The fair value of accrued pension liabilities was estimated according to the appropriation listed on the actuarial pension report, the measurement dates of which were December 31, 2004 and 2003.

D) The fair values of derivative financial instruments are based on the estimated amount the Company will receive or pay if

the contract is cancelled at the balance sheet date, including the unrealized gains or losses outstanding at the balance sheet date. Such fair values are estimated using discounted future cash flows.

~ 41 ~

2) Information on derivative instruments:

As of December 31, 2004 and 2003, the Company’s outstanding derivative financial instruments contracts were as follows: A. Forward exchange contracts

A) Contract amount or nominal principal and credit risk

December 31, 2004 December 31, 2003 Contract amount

(Nominal principal) Credit risk

Contract amount (Nominal principal)

Credit risk

Forward exchange contracts

US$ 2,000 $ - $ - $ -

″ EUR$ 120 - - -

The banks which the Company deals with are all in good credit standing and, therefore, the possibility is low for the banks not to comply with the terms of the contracts. In the event that the banks fail to comply with the contracts, these will not cause any major losses to the Company.

B) Market risk

The main purpose of the forward contracts is to hedge exchange losses. The exchange gain or loss from rate fluctuation will be hedged by these transactions. Accordingly, no market risks are expected.

C) Future cash flow, periods and risk

From January 7, 2005 to February 22, 2005, the forward contracts cash inflow is expected to be in the amount of NT$64,143 and US$162; the related cash outflow is US$2,000 and EUR$120. No significant cash flow risks are expected.

D) Terms, characteristics and purposes of the derivative contracts

The Company entered into forward foreign exchange contracts with banks to hedge the risk on the identifiable purchase commitments of machinery and equipment and accounts payable. The Company reviews the hedge strategy periodically.

E) Disclosure

The net future cash flow of the forward foreign exchange contracts is shown as current assets or liabilities.

~ 42 ~

B. Foreign currency option contracts

A) Contract amount, nominal principal and credit risk

December 31, 2004 December 31, 2003 Contract amount

(Nominal principal) Credit risk

Contract amount (Nominal principal)

Credit risk

Purchase of put option contracts US$ 500

$ - US$ -

$ -

The banks which the Company deals with are all in good credit standing and, therefore, the possibility is low for the banks not to comply with the terms of the contracts.

B) Market risk

The main purpose of the transaction is to hedge exchange loss. The exchange gain or loss from rate fluctuation will be hedged by these transactions. Accordingly, no market risks are expected.

C) Future cash flow periods and risk

The Company entered into foreign currency option contracts to hedge foreign exchange losses. There is no cash flow risk because the Company’s working capital is sufficient to settle the contracts. Whether the option contracts would be settled depends on the effect of variability of exchange rate upon the counterparties. Therefore, the time and amount of future cash flows are determined by the future exchange rate. If the Company settles all option contracts, the related cash inflow would be NT$16,360 and the related cash outflow would be US$500.

D) Term, characteristics and purpose of the derivative contracts

For the year ended December 31, 2004 Contracts Inception dates Settlement dates Settlement rates Purchase of put option 2004.02.17 2005.02.22 32.72(dollar)

(US$:NT$) The Company entered into foreign option contracts with banks to hedge the risk of exchange rate fluctuations. The Company reviews the hedge strategy periodically.

~ 43 ~

E) Disclosure The unamortized premium of foreign currency option contracts is shown as other current assets or liabilities. As of December 31, 2004 the unamortized balance was $0.

3) Elimination of transactions between the Company and subsidiaries.

2004 2003

Amount Amount

Transactions Subsidiaries NT$ US$ NT$ US$

(Unaudited)

(Note 2)

(Unaudited)

(Note 2)

CyberLink-Japan $ 23,138 $ 730 $ 26,384 $ 777 A) Elimination of long-term investments and stockholders’ equity

CyberLink-USA 81,644 2,575 53,622 1,579

CyberLink-B.V. 6,508 205 9,366 276

CyberLink-B.V.I 34,922 1,101 - -

CyberLink-Investment

20,598 650 - -

B) Elimination of balance

sheet accounts

Accounts receivable CyberLink-Japan 53,176 1,677 44,530 1,311

CyberLink-USA 59,246 1,868 23,580 694

CyberLink-B.V. 36,187 1,141 1,333 39

Other receivables CyberLink-Japan 4,905 155 - -

CyberLink-USA 393 12 824 24

Other payables CyberLink-Japan 1,349 43 1,753 52

CyberLink-USA 155 5 - -

Accrued expenses CyberLink-Japan 4,715 149 - -

CyberLink-B.V. 759 24 - -

~ 44 ~

2004 2003

Amount Amount

Transactions Subsidiaries NT$ US$ NT$ US$

(Unaudited)

(Note 2)

(Unaudited)

(Note 2)

C) Elimination of income statement accounts

Sales CyberLink-Japan $ 103,591 $ 3,267 $ 74,268 $ 2,186

CyberLink-USA 166,287 5,244 201,094 5,920

CyberLink-B.V. 89,370 2,818 1,331 39

Commission expense CyberLink-Japan 1,511 48 3,790 112

CyberLink-B.V. 4,557 144 - -

Service expense CyberLink-B.V. 5,301 167 - -

CyberLink-Japan 7,001 221 17,408 512 Unrealized profit on intercompany transactions

CyberLink-USA 160 5 - -

CyberLink-Japan 3,016 95 7,001 206

CyberLink-USA 108 3 160 5

Realized profit on intercompany transactions CyberLink-B.V. 742 23 - -

4) Other significant disclosure or description: None.

~ 45 ~

11. ADDITIONAL DISCLOSURE REQUIRED BY SFC 1) Related information of significant transactions

A. Lending to others : None.

B. Guarantees on behalf of others: None.

C. Marketable securities at December 31, 2004:

(NT$)

Name of the investor Type and name of marketable securities

Relationship with the issuer General ledger account Number of

shares Book value Percentage

Market value or net asset

CyberLink Corp. CyberLink Japan Co., Ltd. A subsidiary of the Company Long-term investments 810 $ 23,138 90.00 $ 23,138

″ CyberLink.Com Corporation ″ ″ 4,000,000 81,644 100.00 81,644

″ CyberLink Europe B.V. ″ ″ 1,500,000 6,508 100.00 6,508

″ CyberLink International Technology Corp.

″ ″ 1,150,000 34,922 100.00 34,922

″ CyberLink Investment Corp. ″ ″ 2,000,000 20,598 100.00 20,598

″ Buylow Corp. A manager is also a director of the affiliated company

″ 70,411 706 14.67 -

″ B. B. Bond Fund None Short-term investments 21,319,003 292,294 - 292,324

″ ABN Amro Select Bond Fund None ″ 44,023,651 485,638 - 485,695

″ UBS Taiwan Bond Fund None ″ 21,054,700 304,439 - 304,464

″ Yuanta Duo Li-2 None ″ 10,727,327 152,843 - 152,857

″ SKIT Gi-Shin Fund None ″ 26,567,316 370,715 - 370,758

″ JF First Bond Fund None ″ 19,660,552 269,251 - 269,279

″ JF Taiwan Bond Fund None ″ 35,305,327 524,563 - 524,616

″ Yuanta Wan-Tai Bond Fund None ″ - 46,381 - 46,223

CyberLink Investment Corp.

ABN Amro Select Bond Fund None Short-term investments 1,370,604 20,000 - 20,104

CyberLink International

Technology Corp.

DivXNetworks, Inc. None Long-term investments - 31,710 - -

~ 46 ~

(US$)

Name of the investor Type and name of marketable securities

Relationship with the issuer General ledger account Number of

shares Book value Percentage

Market value or net asset

CyberLink Corp. CyberLink Japan Co., Ltd. A subsidiary of the Company Long-term investments 810 $ 730 90.00 $ 730

″ CyberLink.Com Corporation ″ ″ 4,000,000 2,575 100.00 2,575

″ CyberLink Europe B.V. ″ ″ 1,500,000 205 100.00 205

″ CyberLink International Technology Corp.

″ ″ 1,150,000 1,101 100.00 1,101

″ CyberLink Investment Corp. ″ ″ 2,000,000 650 100.00 650

″ Buylow Corp. A manager is also a director of the affiliated company

″ 70,411 22 14.67 -

″ B. B. Bond Fund None Short-term investments 21,319,003 9,218 - 9,219

″ ABN Amro Select Bond Fund None ″ 44,023,651 15,315 - 15,317

″ UBS Taiwan Bond Fund None ″ 21,054,700 9,601 - 9,602

″ Yuanta Duo Li-2 None ″ 10,727,327 4,820 - 4,820

″ SKIT Gi-Shin Fund None ″ 26,567,316 11,691 - 11,692

″ JF First Bond Fund None ″ 19,660,552 8,491 - 8,492

″ JF Taiwan Bond Fund None ″ 35,305,327 16,543 - 16,544

″ Yuanta Wan-Tai Bond Fund None ″ - 1,463 - 1,458

CyberLink Investment Corp.

ABN Amro Select Bond Fund None Short-term investments 1,370,604 631 - 634

CyberLink International

Technology Corp.

DivXNetworks, Inc. None Long-term investments - 1,000 - -

~ 47 ~

D. Accumulated additions and disposals of each single marketable security exceeding NT$100,000 or 20% of contributed capital:

January 1, 2004 – December 31, 2004

(NT$)

Beginning balance Additions Disposals Ending balance

Name of Company Name of the security

Account used to record transaction Counterparty

Relationship with the

counterparty

Number of shares (thousand units) Amount


Number of shares (thousand units) Sales price Book value

Gain (loss) from

disposal


CyberLink Corp.

AIG Giant Bond Fund

Short-term investments

- - 16,421 $ 200,000 20,918 $ 257,429 37,339 $459,810 $ 457,429 $ 2,381 - $ -

″ Solomon Fund ″ - - 17,969 200,000 17,969 202,327 35,938 404,819 402,327 2,492 - -

″ B. B. Bond Fund ″ - - 18,515 200,000 18,515 202,194 37,030 404,562 402,194 2,368 - -

″ ABN Amro Select Bond Fund

″ - - 27,663 300,000 102,227 1,123,742 85,866 944,742 938,104 6,638 44,024 485,638

″ Core Pacific Well Pool Fund

″ - - - - 36,587 442,827 36,587 444,542 442,827 1,715 - -

″ UBS Taiwan Bond Fund

″ - - 21,055 300,000 42,109 607,170 42,109 607,169 602,731 4,438 21,055 304,439

″ Yuanta Duo Li-2 ″ - - 14,305 200,000 17,809 253,025 21,387 302,932 300,182 2,750 10,727 152,843

″ JF First Bond Fund ″ - - 14,843 200,000 39,321 536,927 34,503 471,227 467,676 3,551 19,661 269,251

″ JF Taiwan Bond Fund

″ - - - - 70,610 1,046,563 35,305 524,563 522,000 2,563 35,305 524,563

″ SKIT Gi-Shin Bond Fund

″ - - 14,592 200,000 53,135 739,604 41,159 572,904 568,889 4,015 26,568 370,715

″ Weily Bond Fund ″ - - - - 19,228 196,300 19,228 196,880 196,300 580 - -

″ HSBC Fu-Tai Bond Fund

″ - - - - 42,651 583,394 21,332 292,468 291,100 1,368 21,319 292,294

″ Grade Cathay Bond Fund

″ - - 14,970 185,535 26,158 327,760 41,128 515,713 513,295 2,418 - -

~ 48 ~


(US$)

Beginning balance Additions Disposals Ending balance

Name of Company Name of the security

Account used to record transaction Counterparty

Relationship with the

counterparty



Number of shares (thousand units) Sales price Book value

Gain (loss) from

disposal


CyberLink Corp.

AIG Giant Bond Fund

Short-term investments

- - 16,421 $ 6,307 20,918 $ 8,118 37,339 $ 14,500 $ 14,425 $ 75 - $ -

″ Solomon Fund ″ - - 17,969 6,307 17,969 6,381 35,938 12,766 12,688 78 - -

″ B. B. Bond Fund ″ - - 18,515 6,307 18,515 6,376 37,030 12,758 12,683 75 - -

″ ABN Amro Select Bond Fund

″ - - 27,663 9,461 102,227 35,438 85,866 29,793 29,584 209 44,024 15,315

″ Core Pacific Well Pool Fund

″ - - - - 36,587 13,965 36,587 14,019 13,965 54 - -

″ UBS Taiwan Bond Fund

″ - - 21,055 9,461 42,109 19,148 42,109 19,148 19,008 140 21,055 9,601

″ Yuanta Duo Li-2 ″ - - 14,305 6,307 17,809 7,979 21,387 9,553 9,466 87 10,727 4,820

″ JF First Bond Fund ″ - - 14,843 6,307 39,321 16,933 34,503 14,861 14,749 112 19,661 8,491

″ JF Taiwan Bond Fund ″ - - - - 70,610 33,004 35,305 16,543 16,461 81 35,305 16,543

″ SKIT Gi-Shin Bond Fund

″ - - 14,592 6,307 53,135 23,324 41,159 18,067 17,940 127 26,568 11,691

″ Weily Bond Fund ″ - - - - 19,228 6,190 19,228 6,209 6,190 19 - -

″ HSBC Fu-Tai Bond Fund-2

″ - - - - 42,651 18,398 21,332 9,223 9,180 43 21,319 9,218

″ Grade Cathay Bond Fund

″ - - 14,970 5,851 26,158 10,336 41,128 16,263 16,187 76 - -

~ 49 ~

E. Additions of real estate exceeding NT$100,000 or 20% of contributed capital: None.

F. Disposals of real estate exceeding NT$100,000 or 20% of contributed capital: None.

G. Purchases and sales with related parties exceeding NT$100,000 or 20% of contributed capital:


Description of the transactions

Description of and reasons for difference in transaction terms compared to non-related party transactions Accounts or notes receivable (payable)

Name of the Company

Name of the counterparty Relationship

Purchases (Sales) Amount

% of total purchases (Sales)

Credit terms (Note) Unit price Credit terms Balance

% of total accounts or notes receivable (payable)

CyberLink Corp. CyberLink.Com Corp A subsidiary of the Company

Sales NT$166,287

(US$ 5,244)

12 Note The same as those with third-parties

Note NT$ 59,246

(US$ 1,868)

23

CyberLink Japan Co., Ltd.

〞〞 Nt$103,591

(US$ 3,267)

7 Note 〞 Note NT$ 50,114

(US$ 1,580)

20

Note: Sales to CyberLink.Com Corp. are at normal selling price and are collected 90 days after the delivery of goods are made.

H. Receivables from related parties exceeding NT$100,000 or above 20% of contributed capital: None. I. Transactions of financial instruments: Note 10.

~ 50 ~

2) Relevant information regarding investee companies as of December 31, 2004:

(NT$)

Original investment amount Holding status Name of the

company

Name of the invested companies

Address Major operating activities December 31, 2004

December 31, 2003

Shares Percentage

(%) Book value

Net income (loss) of investee company

Recognized investment

income (loss)

Relationship with the Company

CyberLink Corp.


Japan Sale of software $ 21,838 $ 15,725 810 90.00 $ 23,138 ($ 10,971) ($ 8,411) A subsidiary of the Company

″ CyberLink.Com Corp. America ″ 136,327 136,327 4,000,000 100.00 81,644 33,293 33,293 ″ ″ CyberLink Europe B.V. Europe ″ 11,874 11,874 1,500,000 100.00 6,508 ( 3,511) ( 3,511) ″ ″ CyberLink International

Technology Corp. British Virgin Islands Investment activities 37,983 - 1,150,000 100.00 34,922 ( 1,627) ( 1,627) ″

″ CyberLink Investment Corp.

Taipei ″ 20,000 20,000 2,000,000 100.00 20,598 492 492 ″

(US$)

Original investment amount Holding status Name of the

company

Name of the invested companies

Address Major operating activities December 31, 2004

December 31, 2003

Shares Percentage

(%) Book value

Net income (loss) of investee company

Recognized investment

income (loss)

Relationship with the Company

CyberLink Corp.


Japan Sale of software $ 689 $ 463 810 90.00 $ 730 ($ 346) ($ 265) A subsidiary of the Company

″ CyberLink.Com Corp. America ″ 4,299 4,013 4,000,000 100.00 2,575 1,050 1,050 ″ ″ CyberLink Europe B.V. Europe ″ 374 350 1,500,000 100.00 205 ( 111) ( 111) ″ ″ CyberLink International

Technology Corp. British Virgin Islands Investment activities 1,198 - 1,150,000 100.00 1,101 ( 51) ( 51) ″

″ CyberLink Investment Corp.

Taipei ″ 631 589 2,000,000 100.00 650 16 16 ″

3) Disclosures of relevant information regarding indirect investments in Mainland China: None.

~ 51 ~

12. SEGMENTAL REPORTING 1) Financial information by business segments: The Company is engaged only in software designing.

2) Financial information by geographic area: The financial information of the Company and its consolidated subsidiaries by geographic area in 2004 and 2003 are as follows: 2004 Taiwan America Asia Europe Elimination Consolidated NT$ US$ NT$ US$ NT$ US$ NT$ US$ NT$ US$ NT$ US$ Sales to unaffiliated customers $ 1,052,853 $ 33,203 $ 686,794 $ 21,659 $ 206,684 $ 6,518 $ 119,306 $ 3,764 $ - $ - $ 2,065,637 $ 65,142

Sales to the Company and its consolidated subsidiaries 359,248 11,329 - - 1,511 48 9,858 311 ( 370,617)

( 11,688) - $ -

Total sales $ 1,412,101 $ 44,532 $ 686,794 $ 21,659 $ 208,195 $ 6,566 $ 129,164 $ 4,073 ($ 370,617) ($ 11,688) $ 2,065,637 $ 65,142

Operating income $ 604,019 $ 19,048 $ 32,183 $ 1,015 ($ 10,251) ($ 323) $ 112 $ 4 $ 626,063 $ 19,743

Investment income under the equity method

6,918 218

Interest expense - -

Other non-operating income, net

31,775 1,002

Income before income taxes $ 664,756 $ 20,964

Identifiable assets $ 3,181,195 $ 100,322 $ 262,692 $ 8,284 $ 154,939 $ 4,886 $ 47,361 $ 1,494 $ 3,646,187 $ 114,985

Long-term investments under the equity method

- -

Total assets $ 3,646,187 $ 114,985

2003 Taiwan America Asia Europe Elimination Consolidated NT$ US$ NT$ US$ NT$ US$ NT$ US$ NT$ US$ NT$ US$ Sales to unaffiliated customers $ 1,070,924 $ 31,526 $ 406,933 $ 11,979 $ 184,108 $ 5,420 $ 1,424 $ 42 $ - $ - $ 1,663,389 $ 48,966

Sales to the Company and its consolidated subsidiaries 276,693

8,145 -

- 3,790 112 -

- ( 280,483) ( 8,257) - -

Total sales $ 1,347,617 $ 39,671 $ 406,933 $ 11,979 $ 187,898 $ 5,531 $ 1,424 $ 42 ($ 280,483) ($ 8,257) $ 1,663,389 $ 48,966

Operating income $ 509,000 $ 14,984 $ 23,591 $ 694 ($ 9,768) ($ 288) ($ 2,690) ($ 79) $ 520,133 $ 15,312

Investment income under the equity method

( 9,417) ( 277)

Interest expense - -

Other non-operating income, net 21,984 647

Income before income taxes $ 532,700 $ 15,681

Identifiable assets $ 2,917,820 $ 85,894 $ 145,775 $ 4,291 $ 117,785 $ 3,467 $ 13,783 $ 406 $ 3,195,163 $ 94,058

Long-term investments under the equity method

- -

Total assets $ 3,195,163 $ 94,058

~ 52 ~

3) Information about the Company’s export sales: For the years ended December 31, 2004 and 2003, the Company’s export sales were NT$1,783,223 (US$56,235) and NT$1,411,586 (US$41,554), respectively. The information on export sales are as follows:

2004 2003

NT$ US$ NT$ US$

America $ 849,571 $ 26,792 $ 489,682 $ 14,415

Asia 600,999 18,953 553,171 16,289

Europe 328,428 10,357 325,322 9,577

Others 4,225 133 43,411 1,273

$1,783,223 $ 56,235 $1,411,586 $ 41,554

4) Information regarding important customers: Sales to customers constituting more than 10% of the Company’s total sales were as follows:

2004 2003

Customer Amount Percentage Amount Percentage

Customer A NT$606,252

(US$ 19,119)

29% NT$331,764

(US$ 9,766)

20%

cyberlink 2004 consolidatedannual report english

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