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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934


|                                        |  |                               
|--------------------------------------- |  | ------------------------------
|For the fiscal year ended June 30, 2003 |  | Commission file number 0-20784

TRIDENT MICROSYSTEMS, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 77-0156584
(I.R.S. Employer
Identification No.)

|                                                                                       |  |                 
|-------------------------------------------------------------------------------------- |  | ----------------
|1090 East Arques Avenue
Sunnyvale, California
(Address of principal executive offices) |  | 94085
(Zip code)

Registrants telephone number, including area code: (408) 991-8800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $0.001 Par Value
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act. Yes [  ] No [ X ]

The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the closing price of the Common Stock on December
31, 2002 ($3.70 per share), as reported on the NASDAQ National Market was
approximately $32,168,214. Shares of Common Stock held by executive officers
and directors and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliate.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The number of shares of the registrants $0.001 par value Common Stock
outstanding on August 31, 2003, was 14,427,850.

Part III incorporates by reference from the definitive proxy statement for
the registrants 2003 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.

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|                                                         |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                  
|                                                         | Item 1. Business                                                                             
|                                                         | Item 2. Properties                                                                           
|                                                         | Item 3. Legal Proceedings                                                                    
|                                                         | Item 4. Submission of Matters to a Vote of Securities Holders                                
|PART II                                                 
|                                                         | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|                                                         | Item 6. Selected and Supplementary Financial Data                                            
|                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                         | Item 8. Financial Statements and Supplementary Data                                          
|                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                         | Item 9A. Controls and Procedures                                                             
|PART III                                                
|                                                         | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                         | Item 11. Executive Compensation                                                              
|                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                 
|                                                         | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|POWER OF ATTORNEY                                       
|SIGNATURES                                              
|INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT
|EXHIBIT 21.1                                            
|EXHIBIT 23.1                                            
|EXHIBIT 31.1                                            
|EXHIBIT 31.2                                            
|EXHIBIT 32.1                                            
|EXHIBIT 32.2                                            



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TABLE OF CONTENTS

|                                                         |  |          |    |                                                                                       |    |      |    | 
|-------------------------------------------------------- |  | -------- | -- | ------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                         |  |          |    |                                                                                       |    | Page
|                                                         |  |          |    |                                                                                       |    |     
|PART I                                                   |  |          |    |                                                                                       |    |      | 3  | 
|                                                         |  | Item 1.  |    | Business                                                                              |    |      | 3  | 
|                                                         |  | Item 2.  |    | Properties                                                                            |    |      | 9  | 
|                                                         |  | Item 3.  |    | Legal Proceedings                                                                     |    |      | 10 | 
|                                                         |  | Item 4.  |    | Submission of Matters to a Vote of Security Holders                                   |    |      | 11 | 
|PART II                                                  |  |          |    |                                                                                       |    |      | 13 | 
|                                                         |  | Item 5.  |    | Market for the Registrants Common Stock and Related Stockholder Matters              |    |      | 13 | 
|                                                         |  | Item 6.  |    | Selected and Supplementary Financial Data                                             |    |      | 14 | 
|                                                         |  | Item 7.  |    | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |      | 15 | 
|                                                         |  | Item 7A. |    | Quantitative and Qualitative Disclosures About Risk                                   |    |      | 27 | 
|                                                         |  | Item 8.  |    | Financial Statements and Supplementary Data                                           |    |      | 29 | 
|                                                         |  | Item 9.  |    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |    |      | 54 | 
|                                                         |  | Item 9A. |    | Controls and Procedures                                                               |    |      | 54 | 
|PART III                                                 |  |          |    |                                                                                       |    |      | 54 | 
|                                                         |  | Item 10. |    | Directors and Executive Officers of the Registrant                                    |    |      | 54 | 
|                                                         |  | Item 11. |    | Executive Compensation                                                                |    |      | 54 | 
|                                                         |  | Item 12. |    | Security Ownership of Certain Beneficial Owners and Management                        |    |      | 54 | 
|                                                         |  | Item 13. |    | Certain Relationships and Related Transactions                                        |    |      | 56 | 
|PART IV                                                  |  |          |    |                                                                                       |    |      | 56 | 
|                                                         |  | Item 15. |    | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |    |      | 56 | 
|POWER OF ATTORNEY                                        |  |          | 59 |                                                                                      
|SIGNATURES                                               |  |          |    |                                                                                       | 59 |     
|INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT |  |          | 60 |                                                                                      

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PART I




Item 1. Business

Since 1987 we have designed, developed and marketed very large-scale
integrated circuits (IC) for videographics and multi-media products for the
desktop personal computer (PC) market. In 1995 we began design and
development of videographic ICs for the notebook PC market which became our
largest selling product area through 2002. In 2000, we restructured our
organization into two business units, the Graphics Division, which concentrated
primarily on videographics for the desktop and notebook PC market, and the
Digital Media Division (DM), which designed and developed integrated circuits
for digitally processed television (DPTV) for the consumer television market.

On June 12, 2003 we announced that the assets of our Graphics Division
will be acquired by XGI Technology, Inc. (XGI), the graphics unit previously
spun off from Silicon Integrated System Corp (SiS). XGI will be capitalized
through a cash infusion from outside investors. This transaction closed on
July 25, 2003 and we received a 30% equity interest in XGI. In a separate
transaction, the assets of our Digital Media Division were merged with our
subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on August 25, 2003 to
strengthen and extend our digitally processed television business. As a result
of these transactions, we will be able to focus our resources on our
restructured DM business as well as focus on other challenges and opportunities
in the rapidly growing digital media market. After the close of this
transaction we held a 90% equity interest in TTI.

We have been investing in and experiencing success in the digital
television market for several years. During that time, the digital television
industry has grown rapidly and we believe that this industry is on the verge of
a further, significant growth phase. We undertook our restructuring to allow
us to build upon our prior success in this market by focusing our resources
primarily on digital media products. We are optimistic that this will position
Trident for a return to profitability.

As a result of the restructuring, we expect to increase the resources
devoted to the digital television market, but still reduce our overall expense
level. We expect to experience additional benefits from focusing on digital
media products. These include a broader customer base and, consequently, less
dependence on a limited group of customers, as well as a longer product life
and longer design cycle for our products. We believe these and other factors
will position Trident for success in the market and for a more effective
business model than the one we operated in the graphics industry.

References to we, Trident, or the Company in this report refer to
Trident Microsystems, Inc. and its subsidiaries, including Trident
Technologies, Inc. (TTI) which was 63% owned as of June 30, 2003.

Markets and Products

As we go forward into fiscal year 2004, our principle design, development
and marketing effort will focus primarily on our Digital Media products. Our
Digital Media Division accounted for 48% and 6% of total revenues for fiscal
years ended June 30, 2003 and 2002, respectively. We plan to continue
developing the next generation DPTV product as well as other advanced products
for digital TV and digital STB for the world wide digital television market
including specifically China, Japan, Korea and Taiwan. Designed for system
design flexibility, and high integration level, our goal is for users of our
single chip DPTV Video Processors(s) to benefit from feature rich devices at
competitive prices. The DPTV video processor converts analog TV into an
advanced progressive digital quality television. While we have developed
valuable experience with digital video television, following the acquisition of
our Graphics Division assets, we anticipate this market to generate
substantially all of our revenues. However, there can be no guarantee that our
digital television products will be accepted by the market or increase our
revenues or profitability.

Current Digital Media Products:

We have been developing products for other digital media applications,
such as set top boxes and progressive television sets since 1999. The DPTV
market in particular has begun to emerge as a high volume market for these
products. Our DPTV products are designed to optimize and enhance video quality
for various display

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devices, such as Cathode Ray Television (CRTTV), Liquid
Crystal Display Television (LCDTV), Plasma Display Panel (PDP), Projection
TV, Liquid Crystal Display projection.

DPTV3D.DPTV3D integrates an advanced 3-D digital comb video decoder
for NTSC, PAL, and SECAM formats. Based on Tridents patented proprietary
Unified Memory Architecture (UMA), DPTV-3D digital comb video decoder does not
require extra frame buffers for performing 3D comb filtering. With film-mode
recovery, DPTV-3D can accurately detect the frame rates of incoming video
sources, and then correctly restore the video source to the original film mode
sequences in play back. The motion adaptive de-interlacing and edge-smoothing
feature of the DPTV-3D further refines the video display quality. The DPTV
chip enables a SDTV signal to display in Picture-In-Picture mode,
Picture-Out-Picture mode, and 16:9 or 4:3 aspect ratio modes. DPTV-3D
supports non-linear scaling in panorama mode to ensure the most natural picture
aspect ratio for the viewers. DPTV-3Ds integrated 3-D digital comb video
decoder has a built-in VBI circuit for closed captioning and V-chip for
parental control that is EIA 608 compliant. Furthermore, DPTV-3Ds
graphic-based On-Screen Display provides the most user-friendly and
graphic-oriented TV menu control interface.

DPTVMV.DPTVTMMV is a derivative of DPTV3DP. It has all the features of
DPTV-3D, except that DPTVTMMVs integrative video decoder is 2D comb filter
video decoder. The DPTVMV is the main component in the premier TV chipset
solution on the market. Designed for maximum system design flexibility, users
of Tridents single chip DPTVTM Video Processor(s) will benefit from one of the
most feature rich devices available while maintaining a price competitive
advantage over the existing solution(s). The DPTVTM-MV converts todays analog
TV into an advanced progressive TV quality. Decoded HDTV digital video streams
can be formatted to different output display modes by DPTV.
Tridents DPTVTM
product family propels the corporate mission of Digital Media For The Masses by
delivering tomorrows digital media technology to todays consumer.

DPTV3DPRO.The DPTV3DPRO is Tridents third generation DPTV single-chip
mixed-signal video processor product. It integrates a high performance,
multi-region 3D digital comb video decoder, a motion and edge adaptive
de-interlacer with film mode recovery, scan rate and frequency conversion
circuitries, and a graphical-based OSD for full support of todays premier
digital TV applications. DPTV3DPRO uses Tridents patented Unified Memory
Architecture (UMA), which allows both 3D comb filter video decoding and video
enhancement processing to share the same frame buffer memory made up of
high-speed and cost-effective PC graphic memory. Designed for maximum system
design flexibility, DPTV3DPRO integrates all video interfaces to support
hybrid digital and analog TV chassis applications. DPTV3DPRO is ideal for
applications in Digital TVs, Plasma TVs, LCD TVs, and Set-top boxes, where high
precision video processing and scan rate frequency conversion are required.
The users of Tridents single chip DPTV video processor(s) will benefit from
many features available while maintaining a price competitive advantage over
the existing solution(s).

PANELTV3DPRO.The PANELTV3DPRO is Tridents third generation DPTV
single-chip mixed-signal video processor product. It integrates a high
performance, multi-region 3D digital comb video decoder, a motion and edge
adaptive de-interlacer with film mode recovery, scan rate and frequency
conversion circuitries, and a graphical-based OSD for full support of todays
premier digital TV applications. PANELTV3DPRO uses Tridents patented Unified
Memory Architecture (UMA), which allows both 3D comb filter video decoding and
video enhancement processing to share the same frame buffer memory made up of
high-speed and cost-effective PC graphic memory. Designed for maximum system
design flexibility, PANELTV3DPRO integrates all video interfaces to support
hybrid digital and analog TV chassis applications. The PANELTV3DPRO uses a
320-pin BGA package allowing multiple video data input and output
configurations. PANELTV3DPRO is ideal for applications in Digital TVs, Plasma
TVs, LCD TVs, and Set-top boxes, where high precision video processing and scan
rate frequency conversion are required. The users of Tridents single chip
DPTV video processor(s) will benefit from many features available while
maintaining a price competitive advantage over the existing solution(s).

PANELPRO-MM.The PanelPro-MM is an advanced high-quality controller
chip that designed with an external CPU for maximum system design flexibility,
users of Tridents single chip PanelPro-MM Video Processor will benefit from
one of the most feature rich devices available while maintaining a price
competitive advantage over the existing solution(s). The PanelPro-MM
integrates - Clamping, pre-amp, ADC, sync separator, scaling engine, and
external SDRAM/SGRAM interface - to deliver a high quality, high integration
controller for the mainstream LCD monitors with dual (VGA analog and digital)
interfaces plus video inputs up to D4. The chip handles dual 24-bit digital
RGB port, SYNC input, and separated 8-bit /16-bit digital port for video
decoder
connection. The SYNC input interfaces directly with any VGA/SVGA/XGA/UXGA
graphics board or any other compatible source. The PanelPro-MM accepts video
signals from both 8/16-bit YUV CCIR601 or 8-bit CCIR656 formats from a video
decoder and receives digital signals from an external DVI transmitter. It
delivers 48-bit digital

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data and all essential control signals for driving an
8-bit or 6-bit TFT LCD panel. Frame rate conversion is also supported with
external SDRAM / SGRAM.

TVX2.Tridents TVX2 is a versatile NTSC/PAL TV encoder chip equipped
with an advanced, programmable multi-tap TV de-flicker and UV chroma filter
that provides sharp text, superb graphics, and vivid video quality while
substantially reducing dot crawl and color bleeding for computer images
displaying on TV. TVX2 enables Entertainment PC applications such as 3D
gaming, web TV, video conferencing, etc. to be displayed on television.

Products in Development:

Tridents product market strategy is to continually provide the most
integrated video processor solution to the market. Trident is the worlds
first and in many cases, the only company to integrate high precision ADC,
advanced 3D comb filter video decoder, de-interlacer, and scaler into a single
chip. We intend to lead the industry in innovations and we are planning
introductions of the next generation of DPTV chips in the current fiscal year.

Trident and TrueVideo are registered trademarks DPTV3D, DPTVMV,
DPTV3DPRO, PANELTV3DPRO, PANELPRO-MM, and are trademarks of the Company as
of June 30, 2003. Other trademarks used in this report are the property of
their respective owners.

Graphics Products:

As a result of the sale of the assets of our Graphics Division, we will no
longer produce graphics chips for the PC market. Graphics chips accounted for
the majority of our revenue in fiscal 2003 and all prior periods.

Sales, Marketing and Distribution

We sell our products primarily through direct sales efforts. Our
digitally processed television products are marketed primarily from our sales
offices in Taipei, Taiwan; Shanghai, China; and Sunnyvale, California. Our
graphics products were marketed from our sales offices in Taipei, Taiwan; Hong
Kong, China; Houston, Texas and Sunnyvale, California. Our offices are staffed
with sales, applications engineering, technical support, customer service and
administrative personnel to support its direct customers. We also market our
products through independent sales representatives and distributors.

Our future success depends in large part on the success of our sales to
leading digital television manufacturers. The focus of our sales and marketing
efforts will be to increase sales to the leading digital television
manufacturers and OEM channels. Competitive factors of particular importance
in such markets including TV platform support, performance and the integration
of functions on a single integrated circuit chip.

Our digitally processed television manufacturers include leading
manufacturers of TVs in China, Taiwan, Japan and Korea. We service these
customers primarily through our sales forces in the United States, Taiwan and
China. As digital television is rapidly developing in the United States,
Europe, Japan, Korea, China and elsewhere, we expect that leadership in this
industry will also rapidly change, and our objective is to become a supplier to
a broad range of manufacturers in this marketplace, and to manufacturers for
other markets as DPTV is deployed in those markets.

During fiscal 2003 our desktop customers were primarily Asian adapter card
manufacturers who sell their products to PC manufacturers, and distributors.
However, in the past few years leading PC systems manufacturers have
significantly increased their share of the PC market, displacing in part some
of the Asian adapter card manufacturers. While many PC manufacturers based in
Asia may sell PCs to leading systems manufacturers for resale, the choice of
components for these PCs generally is made by the leading systems
manufacturers. Consequently, we made a major effort to design products to fill
the needs of leading PC systems manufacturers as well as the needs of adapter
card manufacturers.

Our notebook customers were primarily worldwide brandname notebook PC
manufacturers and Taiwanese OEM/ODM (original equipment manufacturers/original
design manufacturers) notebook PC manufacturers. Whether

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manufactured by the
PC company or an OEM/ODM, the notebook product was distributed primarily
through brandname sales channels. With the merging of the assets of our
Graphics Division into XGI, technical support required by these customers will
be supplied by XGI.

During fiscal year 2003, we generated 98% of our revenues from Asia.
Major PC systems manufacturers often take delivery of their products in Asia
for production purposes, and such sales by us are reflected in the Companys
revenues in Asia. A small number of customers frequently account for a
majority of our sales in any quarter. However, sales to any particular
customer may fluctuate significantly from quarter to quarter. Fluctuations in
sales to key customers may adversely affect our operating results in the
future. For additional information on foreign and domestic operations, see
Note 11 to the Consolidated Financial Statements.

Manufacturing

We have adopted a fabless manufacturing strategy whereby we contract-out
our wafer fabricating needs to qualified contractors that we believe provide
cost, technology or capacity advantages for specific products. As a result, we
have generally been able to avoid the significant capital investment required
for wafer fabrication facilities and to focus our resources on product design,
quality assurance, marketing and customer support. We have, however, made a
substantial investment to help ensure capacity, as described below. Our
wholly-owned subsidiary, Trident Technology, Inc. will provide manufacturing
operations for our Digital Media Business Unit after the closing of our
restructuring in August 2003.

In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, we entered into a joint
venture agreement in August 1995 with United Microelectronics Corporation
(UMC), a Taiwanese publicly traded company and one of our current foundries,
under which we invested approximately U.S.$49.3 million for an equity interest
in a joint venture with UMC and other venture partners known as United
Integrated Circuits Corporation (UICC). We are guaranteed a maximum wafer
capacity of approximately 3,000 wafers per month from the wafer fabrication
facility of the venture. On January 3, 2000, UMC acquired UICC. As a result
of this merger, and a 20% stock dividend payable to shareholders of record May
16, 2000, the total shares of our investment in UMC equals approximately 73.8
million shares as of June 30, 2003 which represents about 0.5% of the
outstanding stock of UMC. In order to preserve our wafer capacity guarantee
with UMC, there are certain limitations on our ability to sell the shares. If
our total shareholdings fall below one-half of their initial percentage of
shares, our production capacity will be reduced by at least 50%, and depending
on the interpretation of the foundry capacity agreement between the parties,
our production capacity could be reduced by substantially more than 50%. In
addition, one-third of the shares are subject to a two-year lock-up period in
accordance with an investment agreement entered into with UMC. After a
two-year period, one-fifth of the shares will be available for sale from the
lock-up portion every six months. As of June 30, 2003, approximately 6.4
million shares with a carrying value of $4.4 million are subject to this
lock-up restriction. While we are an operating company not in the business of
investing, reinvesting, owning, holding or trading in securities, we do intend
to monitor the advisability of disposing of our UMC stock and intend to sell
all or part of the stock when it is in the best interests of our shareholders
to do so. However, at present, we do not have an intent to sell any of the
stock in the immediate future.

In fiscal 2003, our primary foundry was UMC. We will continue to explore
arrangements for additional capacity commitments, although there is no
assurance that any additional agreements will be executed, or that additional
capacity is required.

We purchase product in wafer form from the foundries and we manage the
contracting with third parties for the chip packaging and testing. In order to
manage the production back-end operations, we have been adding personnel and
equipment to this area. Our goal is to increase the quality assurance of the
products while reducing manufacturing cost. To ensure the integrity of the
suppliers quality assurance procedures, we have developed and maintained test
tools, detailed test procedures and test specifications for each product, and
we require the foundry and third party contractors to use those procedures and
specifications before shipping finished products. We have experienced few
customer returns based on the quality of our products. However, our future
return experience may vary because our more advanced, more complex products are
more difficult to manufacture and test. In addition, some of our customers,
including major PC systems manufacturers, may subject those products to more
rigid testing standards than in the past.

Our reliance on third party foundries and assembly and testing houses
involves several risks including the absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies,
and

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reduced control over delivery schedules, manufacturing yields, quality
assurance and costs. We often conduct business with foundries by delivering
written purchase orders specifying the particular product ordered, quantity,
price, delivery date and shipping terms and, therefore, except as set forth in
the above-mentioned contracts or agreements, such foundries are not obligated
to supply products to us for any specific period, in any specific quantity or
at any specified price, except as may be provided in a particular purchase
order.

While we have obtained and continue to seek additional capacity, the
qualification process and the production ramp-up for additional foundries has
in the past taken and could in the future take longer than anticipated. There
can be no assurance that such additional capacity from current foundries and
new foundry sources will be available and will satisfy our requirements on a
timely basis or at acceptable quality or per unit prices. Constraints or
delays in the supply of our products, whether because of capacity constraints,
unexpected disruptions at the foundries or assembly or testing houses, delays
in additional production at existing foundries or in obtaining additional
production from existing or new foundries, shortages of raw materials, or other
reasons, could result in the loss of customers and other material adverse
effects on our operating results, including effects that may result should we
be forced to purchase products from higher cost foundries or pay expediting
charges to obtain additional supply. In addition, to the extent we elect to
use multiple sources for certain products, customers may be required to qualify
multiple sources, which could adversely affect the customers desire to
design-in our products.

Research and Development

We have spent approximately $21.6 million, $22.2 million and $20.0 million
on Company sponsored research and development activities during fiscal 2003,
2002 and 2001, respectively. We have conducted substantially all of our
product development in-house and as of June 30, 2003 our staff of research and
development personnel equaled 259, which included 109 employees under the
graphics division.

Competition

The markets in which we compete are highly competitive and we expect that
competition will increase. The principal factors of competition in our markets
include, but are not limited to price, performance, the timing of new product
introductions by us and our competitors, product features, level of integration
of various functions, quality and customer support. In the digital television
market our principal competitors are Toshiba, Philips Electronics, Micronas AG,
Pixelworks, Inc. and Genesis Microchip, Inc. Other smaller competitors
supplying LCDTV chip sets may arise in the future. Certain of our current
competitors and many potential competitors have significantly greater
technical, manufacturing, financial and marketing resources than we have.

We plan to continue developing the next generation DPTV product as well
as other advanced products for digitally processed television and digital set
top boxes for the digitally processed television market in China, Japan, Korea
and Taiwan. We believe the market for digital television will be competitive,
and will require substantial research and development, sales and other
expenditures to stay competitive in this market. However, we believe that
DPTV products will have a longer product life cycle than other current
products. Therefore we expect to devote significant resources to the DPTV
market even though competitors are substantially more experienced than we are
in this market. However, these efforts may not be successful.

International Operations

Our wholly-owned subsidiary, Trident Far East, maintains offices in Hong
Kong, China. Trident Far East is responsible for the manufacturing of our
products and is principally responsible for international sales activities and
for operation of the Hong Kong and Taiwan offices. The Hong Kong office
provides sales and technical support for customers in Hong Kong and logistical
support for customers in Hong Kong and Taiwan. The Taiwan office provides
sales and technical support for customers in their respective regions. The
Taiwan office directly hires its own employees. We have established research
and development facilities in Hsinchu, Taiwan and Shanghai, China. Management
has combined the Taiwan office and the Taiwan research and development facility
into one company, Trident Technologies Inc. On August 25, 2003, the assets of
our Digital Media Division, which were previously operated under the U.S. head
office, were merged with our subsidiary, Trident Technologies, Inc. (TTI) in
Taiwan, to strengthen and extend our digitally processed television business.

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During fiscal years 2003 and 2002, all of our DPTV sales occurred in Asia.
During fiscal year 2003, 2002 and 2001, sales to OEM, ODM and adapter card
customers in Asia accounted for approximately 97% of our net sales of graphic
chips. We anticipate that sales to customers in Asia will continue to account
for a substantial percentage of revenues. In addition, the foundries that
manufacture our products are located in Asia. Due to this concentration of
international sales and manufacturing capacity in Asia, we are subject to the
risks of conducting business internationally, including unexpected changes in
regulatory requirements, fluctuations in the U.S. dollar which could increase
the sales price in local currencies of our products in foreign markets, tariffs
and other barriers and restrictions, and the burdens of complying with a wide
variety of foreign laws. In addition, we are subject to general geopolitical
risks, such as political and economic instability and changes in diplomatic and
trade relationships, in connection with our sales, support and third-party
fabrication efforts in Hong Kong, Taiwan and elsewhere. Also, political
instability or significant changes in economic policy could disrupt our
operations in foreign countries or result in the curtailment or termination of
such operations. While we have not experienced any material adverse effects on
our operations as a result of other regulatory or geopolitical factors, there
can be no assurance that such factors will not adversely impact our operations
in the future or require us to modify our current business practices.

Intellectual Property

We attempt to protect our trade secrets and other proprietary information
primarily through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures. Although we intend to protect our rights vigorously, there can be no
assurance that these measures will be successful. We have obtained various
digital video processing technology patents with other patents pending.
Furthermore, there can be no assurance that others will not independently
develop similar or competing technology or design around any patents that may
be issued. While we will maintain certain rights and obligations with respect
to our graphics technology, substantially all such rights for the PC graphics
field were transferred as part of the XGI transaction.

The semiconductor industry is characterized by frequent litigations
regarding patent and other intellectual property rights. From time to time, we
have received notices claiming that we have infringed third-party patents or
other intellectual property rights. To date, licenses generally have been
available to us where third-party technology was necessary or useful for the
development or production of our products. However, we have been in litigation
with NeoMagic Corporation which is described in more detail under Item 3.
Legal Proceedings. There can be no assurance that this litigation will be
resolved in favor of us or that third parties will not assert additional claims
against us with respect to existing or future products or that licenses will be
available on reasonable terms, or at all, with respect to any third-party
technology. The NeoMagic litigation or similar litigation to determine the
validity of any third-party claims could result in significant expense to us
and divert the efforts of our technical and management personnel, whether or
not such litigation is determined in our favor. In the event of an adverse
result in any such litigation, we could be required to expend significant
resources to develop non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation. There can be no assurance
that we will be successful in such development or that any such licenses would
be available. Patent disputes in the semiconductor industry have often been
settled through cross licensing arrangements. Because we currently do not have
a portfolio of patents, we may not be able to settle any alleged patent
infringement claim through a cross-licensing arrangement. In the event any
third party made a valid claim against us or our customers and a license was
not made available to us on commercially reasonable terms, we would be
adversely affected. In addition, the laws of certain countries in which our
products have been or may be developed, manufactured or sold, including the
Peoples Republic of China,
Taiwan and Korea, may not protect our products and intellectual property rights
to the same extent as the laws of the United States of America.

We may in the future initiate claims or litigations against third parties
for infringement of our proprietary rights to determine the scope and validity
of our proprietary rights. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our failure or inability
to develop non-infringing technology or license the proprietary rights on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.

8



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Backlog

Because our business is characterized by short lead-time orders and quick
delivery schedules, we seek to ship products within a few weeks of receipt of
orders. As a result, we operate without significant backlog, and rely on
bookings each quarter to comprise a predominant portion of our sales for that
quarter. Additionally, purchase orders may be cancelable without significant
penalty or subject to price renegotiations, changes in unit quantities or
delivery schedules to reflect changes in customers requirements or
manufacturing availability. Consequently, we do not believe that backlog is a
reliable indicator of future sales.

Segments

For fiscal years ended June 30, 2003, 2002 and 2001, the digital media
segment accounted for $25.6 million, $6.2 million and $2.8 million in revenues,
respectively. As a percentage of revenues for fiscal years ended June 30,
2003, 2002 and 2001, the digital media segment accounted for 48%, 6% and 2%,
respectively. The digital media segment had an operating income of $1.9
million for the fiscal year ended June 30, 2003, and an operating loss of $3.9
million for the fiscal year ended June 30, 2002.

Employees

As of June 30, 2003, we had 257 full time employees in our Digital Media
division, including 150 in research and development, 31 in product testing,
quality assurance and operations functions, 41 in marketing and sales and 35 in
finance, human resources, and administration. As of June 30, 2003, our Digital
Media division had 45 employees in the United States, 149 in Shanghai, China,
46 in Taiwan and 17 in Hong Kong. Our future success will depend in great part
on our ability to continue to attract, retain and motivate highly qualified
technical, marketing, engineering and management personnel. Our employees are
not represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We believe that our employee relations are good.

Available Information

We file electronically with the Securities and Exchange Commission (SEC)
our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. The public may read or copy any materials we file with
the SEC at the SECs Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC. The
address of that site is http://www.sec.gov.

You may obtain a free copy of our annual reports on Form 10-K and
quarterly reports on Form 10-Q and any amendments to these reports on the day
of filing with the SEC or on our website on the World Wide Web at
http://www.tridentmicro.com. We do not make available on our website current
reports on Form 8-K because we state on our website the location where such
filings can be found on the SEC website and on http://www.FreeEdgar.com. You
may obtain a free copy of our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to these reports by
contacting the Investor Relations
Department at our corporate offices by calling 408 991-8090 or by sending an
e-mail message to investor@tridentmicro.com .




Item 2. Properties

We lease a building of approximately 34,000 square feet on 1090 East
Arques Avenue in Sunnyvale, California, pursuant to a lease which expires in
June 2006. This building is used as our headquarters and includes development,
marketing and sales, and administrative offices. Our other leases include a
6,000 square-foot office in Hong Kong, China, for the Hong Kong branch office
of our Trident Far East subsidiary, a 9,000 square-foot sales office in Taipei,
Taiwan, a 14,000 square-foot research and development facility in Hsinchu,
Taiwan, a 4,000 square-

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foot sales office in Shenzhen, China; a 36,000
square-foot research and development facility in Shanghai, China, and a 1,000
square-foot sales office in Beijing, China. Also, in fiscal year 2003, we
leased a 500 square-foot sales office in Houston, Texas for marketing our
graphics products.




Item 3. Legal Proceedings

On December 14, 1998, NeoMagic Corporation (NeoMagic) filed a patent
infringement action against us in the United States District Court for the
District of Delaware, Case No. 98-CV-699. On January 25, 1999, we answered the
complaint and filed a counterclaim alleging violation of Section 2 of the
Sherman Act. The antitrust counterclaim was stayed by the Court pending the
outcome of NeoMagics patent infringement claim. The parties filed motions for
summary judgment concerning infringement on December 23, 1999 and January 11,
2000. The Court issued its order regarding patent claim construction on May 8,
2000. Following additional briefing on the issue of infringement, on February
1, 2001, the Court issued its second order regarding patent claim construction
and granted our motion for summary judgment of non-infringement. On February
28, 2001, NeoMagic filed its notice of appeal of the Courts February 1, 2001
order to the United States Court of Appeal for the Federal Circuit. On April
5, 2001, we filed a motion to lift the stay on its antitrust counterclaim. On
September 7, 2001, the District Court granted our motion to lift the stay on
our antitrust counterclaim and discovery on the counterclaim is proceeding.

On May 7, 2001, NeoMagic filed its opening appeal brief. On May 17, 2001,
we filed a motion to dismiss NeoMagics appeal for lack of jurisdiction because
there is no final appealable order and our antitrust counterclaim remained
pending. On August 1, 2001, the Federal Circuit granted our motion and
dismissed NeoMagics appeal.

On August 3, 2001, NeoMagic requested that the United States District
Court of Delaware enter an order under the Federal Rules of Civil Procedure
Rule 54(b) certifying the February 1, 2001 summary judgment order as a final
judgment. On August 27, 2001, the Court certified the February 1, 2001 order
as a final judgment, and on August 29, 2001, NeoMagic again filed its Notice of
Appeal with the United States Court of Appeals for the Federal Circuit.
NeoMagic filed its brief with the Federal Circuit on October 15, 2001 and we
filed our reply brief on November 23, 2001. Argument was heard before the
Federal Circuit on March 6, 2002.

On April 17, 2002, the Federal Circuit issued an Order affirming-in-part
and vacating-in-part the District Courts summary judgment of non-infringement.
The Federal Circuit upheld the District Courts summary judgment determination
as to non-infringement of U.S. Patent No. 5,650,955 in favor of us, but
vacated-in-part the District Courts summary judgment determination as to
non-infringement of U.S. Patent No. 5,703,806, remanding the case back to the
District Court for additional briefing on the issue.

The case was assigned to Magistrate Judge Thynge. The parties filed
opening briefs in connection with claim construction and cross motions for
summary judgment. Oral argument on these motions occurred on November 5, 2002.
The Court issued its Order on May 9, 2003, granting our motion for summary
judgment of non-infringement and denying NeoMagics motion for summary judgment
of infringement. On May 21, 2003, we filed a motion for clarification
requesting that the Court clarify its Memorandum Opinion by restating the final
paragraph on page 31 of the Opinion. On May 23, 2003, NeoMagic filed a motion
for reconsideration of the Courts May 9, 2003 Order. On July 30, 2003, the
Court issued an Order denying NeoMagics motion for reconsideration of the
Courts May 9, 2003 summary judgment decision and granting our motion for
clarification of the Courts May 23, 2003 summary judgment decision. NeoMagic
has asked us to stipulate to an order pursuant to Federal Rule of Civil
Procedure Rule 54(b) certifying the July 30, 2003 Order as a final judgment and
allowing immediate appeal of this decision to the Federal Circuit. We
anticipate that NeoMagic will make a motion under Rule 54(b) if we decline to
stipulate, and that such motion most likely would be granted, allowing
immediate appeal of the July 30 Order
granting us summary judgment of non-infringement.

On April 10, 2003, Trident Microsystems (Far East) Ltd. filed suit against
iGlobe Partners Fund, L.P. (iGlobe Fund), and certain related persons and
entities, in the Superior Court of the State of California, County of Santa
Clara. Trident Microsystems (Far East) Ltd. is a wholly-owned subsidiary of
Trident Microsystems, Inc. In the lawsuit, Trident and other limited partners
of the iGlobe Fund seek to rescind their multi-million dollar investment in the
iGlobe Fund, or alternatively, to be excused from satisfying past and future
capital calls of the iGlobe Fund. A tentative settlement of the suit has been
reached by the parties.

The results of any litigation matters are inherently uncertain. In the
event of an adverse decision in the described legal actions or disputes, or any
other related litigation with third parties that could arise in the future with

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respect to patents or other intellectual property rights relevant to our
products, we could be required to pay damages and other expenses, to cease the
manufacture, use and sale of infringing products, to expend significant
resources to develop non-infringing technology or to obtain licenses to the
infringing technology. We cannot make any assurance that these matters will
not materially and adversely affect the Companys business, financial
condition, operating results, or cash flows.




Item 4. Submission of Matters to a Vote of Securities Holders.

None.

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Executive Officers of the Registrant

As of June 30, 2003, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, were as
follows:

|                        |  |     |    |          |  |                                                                     |  |  |      | 
|----------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------- |  |  | ---- | 
|Name                    |  | Age |    | Position |  | Employed Since                                                     
|                        |  |     |    |          |  |                                                                    
|Frank C. Lin            |  |     | 58 |          |  | President, Chief Executive
Officer and Chairman of the Board        |  |  | 1987 | 
|                        |  |     |    |          |  |                                                                     |  |  |      | 
|Jung-Herng Chang, Ph.D. |  |     | 47 |          |  | Senior Vice President, Engineering                                  |  |  | 1992 | 
|                        |  |     |    |          |  |                                                                     |  |  |      | 
|Peter Jen               |  |     | 57 |          |  | Senior Vice President, Asia
Operations and Chief Accounting
Officer |  |  | 1988 | 

Mr. Lin founded Trident in July 1987 and has served in his present
position since that time. His career spans 25 years in the computer and
communications industries. Prior to Trident, he was Vice President of
Engineering and co-founder of Genoa Systems, Inc., a graphics and storage
product company. Before Genoa, Mr. Lin worked for GTE, ROLM, and was a senior
manager at Olivetti Advanced Technical Center in Cupertino, CA. He holds a
M.S.E.E. from the University of Iowa and an B.S.E.E. from National Chiao Tung
University, Taiwan.

Dr. Chang joined the Company in July 1992. He was appointed to his
present position in January 1998. He was appointed Vice President, Engineering
in July 1994, and served as Chief Technical Officer from July 1992 through June
1994. From October 1988 through July 1992, he was a hardware design manager at
Sun Microsystems, Inc. From September 1985 through September 1988, he was a
research member at IBMs Thomas J. Watson Research Center. Dr. Chang holds a
Ph.D. in Computer Science and a M.S. in Electrical Engineering and Computer
Science from the University of California, Berkeley, and a B.S. in Electrical
Engineering from the National Taiwan University.

Mr. Jen joined the Company in August 1988. He was appointed to the
position of Chief Accounting Officer in September 1998 and Senior Vice
President, Asia Operations in January 1998. He was appointed to the position
of Vice President, Asia Operations in April 1995, and served as General Manager
of Asia Operations from April 1994 to April 1995. He served as Vice President,
Operations from September 1992 to March 1994, and served as Vice President,
Finance from October 1990 through August 1992. From September 1985 to July
1988, he was Controller at Genoa Systems, Inc., a graphics chipset design
company. Prior to that time, Mr. Jen served in finance and operations
positions for various corporations, including Bristol-Myers (Taiwan), Pacific
Glass Corporation, a subsidiary of Corning Glass Works, and Philips
Telecommunicatie Industrie, B.V. Mr. Jen holds an M.B.A. in Marketing from
Central Missouri State University and a B.S. in Accounting from National Taiwan
University.

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PART II




Item 5. Market for the Registrants Common Stock and Related Stockholder Matters

The Companys stock has been traded on the NASDAQ National Market since
the Companys initial public offering on December 16, 1992 under the NASDAQ
symbol TRID. The following table sets forth, for the periods indicated, the
quarterly high and low sales prices for the Companys common stock as reported
by NASDAQ:

|                    |  |      |      |     |  |  |      | 
|------------------- |  | ---- | ---- | --- |  |  | ---- | 
|Year Ended June 30, |  | High |      | Low
|                    |  |      |      |    
|2002                |  |      |      |     |  |  |      | 
|First Quarter       |  |      | 7.75 |     |  |  | 3.60 | 
|Second Quarter      |  |      | 7.97 |     |  |  | 4.15 | 
|Third Quarter       |  |      | 8.23 |     |  |  | 6.10 | 
|Fourth Quarter      |  |      | 8.56 |     |  |  | 7.95 | 
|2003                |  |      |      |     |  |  |      | 
|First Quarter       |  |      | 6.29 |     |  |  | 2.75 | 
|Second Quarter      |  |      | 4.20 |     |  |  | 2.31 | 
|Third Quarter       |  |      | 4.15 |     |  |  | 2.75 | 
|Fourth Quarter      |  |      | 9.70 |     |  |  | 3.30 | 

As of June 30, 2003, there were approximately 113 registered holders of
record of the Companys common stock.

The Company has never paid cash dividends on its common stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.

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Item 6. Selected and Supplementary Financial Data

TRIDENT MICROSYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA

|                                           |  |                     |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                           |  | Year ended June 30,
|                                           |  | 2003                |         | 2002 |  | 2001 |         | 2000 |  | 1999
|(in thousands, except per share data)      |  |                     |         |      |  |      |         |      |  |     
|CONSOLIDATED STATEMENT OF OPERATIONS DATA: |  |                     |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Revenues                             |  | $                   | 52,752  |      |  | $    | 105,766 |      |  | $    | 128,226 |   |  | $ | 122,682 |   |  | $ | 89,255  |  
|Income (loss) from operations              |  |                     | (18,454 | )    |  |      | (13,006 | )    |  |      | 2,394   |   |  |   | (4,206  | ) |  |   | (14,251 | )
|Net income (loss)                          |  |                     | (24,764 | )    |  |      | (35,651 | )    |  |      | (43,640 | ) |  |   | 68,107  |   |  |   | (12,195 | )
|Basic net income (loss) per share          |  |                     | (1.81   | )    |  |      | (2.66   | )    |  |      | (3.33   | ) |  |   | 5.07    |   |  |   | (0.94   | )
|Diluted net income (loss) per share        |  |                     | (1.81   | )    |  |      | (2.66   | )    |  |      | (3.33   | ) |  |   | 4.43    |   |  |   | (0.94   | )

|                                                   |  |          |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------------------------------- |  | -------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                   |  | June 30,
|                                                   |  | 2003     |        | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                   |  |          |        |      |  |      |         |      |  |     
|CONSOLIDATED BALANCE SHEET DATA:                   |  |          |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents,
and short-term investments |  | $        | 49,867 |      |  | $    | 84,018  |      |  | $    | 79,385  |  |  | $ | 149,706 |  |  | $ | 32,469  | 
|Working capital                                    |  |          | 41,171 |      |  |      | 73,802  |      |  |      | 79,191  |  |  |   | 115,211 |  |  |   | 37,498  | 
|Total assets                                       |  |          | 70,123 |      |  |      | 118,524 |      |  |      | 147,419 |  |  |   | 222,376 |  |  |   | 110,910 | 
|Long-term debt, less current portion               |  |          |       |      |  |      |        |      |  |      |        |  |  |   | 46      |  |  |   | 82      | 
|Total stockholders equity                         |  |          | 52,160 |      |  |      | 90,656  |      |  |      | 105,366 |  |  |   | 155,961 |  |  |   | 93,381  | 

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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

When used in this report the words expects, anticipates, estimates
and similar expressions are intended to identify forward-looking statements.
Such statements, which include statements concerning:



| |  | the effects of our recent restructuring on our business and future financial results,                           
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | our prospects for success in the digital television market and its effect on our future financial results,      
| 
| |  | demand for and trends in revenue for our products,                                                              
| 
| |  | the timing of availability and functionality of products under development,                                     
| 
| |  | future prospects for the digital television market,                                                             
| 
| |  | trends in average selling prices,                                                                               
| 
| |  | the percentage of export sales,                                                                                 
| 
| |  | outcome of pending litigation,                                                                                  
| 
| |  | future investments and/or acquisitions,                                                                         
| 
| |  | devotion of resources and control of expenses related to new products, markets and internal business strategies,

are subject to risks and uncertainties, including those set forth below under
Factors That May Affect
Our Results and elsewhere in this report, that could cause actual results to
differ materially from those projected. These forward-looking statements speak
only as of the date hereof. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which
any statement is based.

The following discussion should be read in conjunction with our Financial
Statements and Notes thereto.

Overview of Business

The PC marketplace is characterized by intense price competition and rapid
technological changes as leading PC systems manufacturers compete among
themselves and other PC clone makers for market share. It is in this difficult
environment that we determined that it was in the best interest of our
stockholders to merge our Graphics Division with another high tech company to
improve the Graphics Divisions competitive situation and provide it with
additional resources. On June 12, 2003 we announced that the assets of our
Graphics Division will be acquired by XGI Technology, Inc. (XGI), the graphics
unit previously spun off from Silicon Integrated System Corp (SiS). XGI will
be capitalized through cash infusion from outside investors. This transaction
closed on July 25, 2003 and we received a 30% equity interest in XGI. In a
separate transaction, the assets of our Digital Media Division were merged with
our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on August 25, 2003
to strengthen and extend the companys digitally processed television business.
As a result of these transactions, we will be able to focus our resources on
our restructured DM business as well as focus on other challenges and
opportunities in the rapidly growing digital media market. After the close of
this transaction we held a 90% equity interest in TTI.

We have been investing in and experiencing success in the digital
television market for several years. During that time, the digital television
industry has grown rapidly and we believe that this industry is on the verge of
a further, significant growth phase. We undertook our restructuring to allow
us to build upon our prior success in this market by focusing our resources
primarily on digital media products. We are optimistic that this will position
Trident for a return to profitability.

As a result of the restructuring, we expect to increase the resources
devoted to the digital television market, but still reduce our overall expense
level. We expect to experience additional benefits from focusing on digital
media products. These include a broader customer base and, consequently, less
dependence on a limited group of customers, as well as a longer product life
and longer design cycle for our products. We believe these and other factors
will position Trident for success in the market and for a more effective
business model than the one we operated in the graphics industry.

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Recent Developments

In September 2003, we entered into an agreement with an independent
venture capital fund to sell approximately one-third of our equity investment
in XGI for cash of approximately $7.4 million. Upon consummation of the
transaction, we will hold approximately 20% equity interests in XGI.

In September 2003, we entered into an agreement with UMC and its designees
to sell approximately 7% equity interests in our subsidiary, TTI, for cash of
approximately $2.7 million. Upon consummation of the transaction, we will hold
approximately 83% equity interests in TTI.

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to customer programs and incentives, product returns, bad debts,
inventories, equity investments, income taxes, financing operations, warranty
obligations, excess component order cancellation costs, restructuring,
long-term service contracts, pensions and other post-retirement benefits, and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.

We recognize product sales as revenue, generally upon shipment, when
persuasive evidence of an arrangement exists, title and risk of loss pass to
the customer, the price is fixed or determinable, and collection of the
receivable is reasonably assured. A reserve for sales returns is established
based on historical trends in product returns. Sales to resellers are
generally recognized upon shipment to end user customers.

We record estimated reductions to revenue for customer programs and
incentive offerings including special pricing agreements, promotions,
historical returns, inventory levels at distributors and other volume-based
incentives. If market conditions were to decline, we may take actions to
increase customer incentive offerings possibly resulting in an incremental
reduction of revenue at the time the incentive is offered.

We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs
and processes, including actively monitoring and evaluating the quality of our
component suppliers, our warranty obligation is affected by product failure
rates and material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or
service delivery costs differ from our estimates, revisions to the estimated
warranty liability would be required.

We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.

We currently evaluate our long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets,
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable.

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Factors considered important that could
result in an impairment review include significant underperformance relative to
historical or projected future operating results, significant changes in the
manner of use of acquired assets or the strategy for the our business,
significant negative industry or economic trends, and/or a significant decline
in the our stock price for a sustained period of time.

We hold minority interests in companies having operations or technology in
areas within our strategic focus, three of which are publicly traded and have
highly volatile share prices. We record an investment impairment charge when
we believe an investment has experienced a decline in value that is
other-than-temporary. Future adverse changes in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that may not be
reflected in an investments current carrying value, thereby possibly requiring
an impairment charge in the future.

Results of Operations

The following table sets forth the percentages that consolidated statement
of operations items are to revenues for the years ended June 30, 2003, 2002 and
2001:

|                                        |  |                     |     |      |  |      |     |   |  |  |     |  
|--------------------------------------- |  | ------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                        |  | Year ended June 30,
|                                        |  |                    
|                                        |  | 2003                |     | 2002 |  | 2001
|                                        |  |                     |     |      |  |     
|Revenues                                |  |                     | 100 | %    |  |      | 100 | % |  |  | 100 | %
|Cost of revenues                        |  |                     | 72  |      |  |      | 78  |   |  |  | 70  |  
|                                        |  |                     |     |      |  |      |     |   |  |  |     |  
|Gross margin                            |  |                     | 28  |      |  |      | 22  |   |  |  | 30  |  
|Research and development                |  |                     | 41  |      |  |      | 21  |   |  |  | 15  |  
|Selling, general and administrative     |  |                     | 22  |      |  |      | 13  |   |  |  | 13  |  
|                                        |  |                     |     |      |  |      |     |   |  |  |     |  
|Income (loss) from operations           |  |                     | (35 | )    |  |      | (12 | ) |  |  | 2   |  
|Loss on investments, net                |  |                     | (9  | )    |  |      | (41 | ) |  |  | (61 | )
|Interest and other income(expense), net |  |                     | (1  | )    |  |      | 1   |   |  |  | 2   |  
|                                        |  |                     |     |      |  |      |     |   |  |  |     |  
|Loss before income taxes                |  |                     | (45 | )    |  |      | (52 | ) |  |  | (57 | )
|Provision (benefit) for income taxes    |  |                     | 2   |      |  |      | (19 | ) |  |  | (23 | )
|                                        |  |                     |     |      |  |      |     |   |  |  |     |  
|Net loss                                |  |                     | (47 | )    |  |      | (33 | ) |  |  | (34 | )
|                                        |  |                     |     |      |  |      |     |   |  |  |     |  

Revenues

Total revenues decreased in fiscal 2003 to $52.8 million, or 50%, from
$105.8 million reported in fiscal 2002. The decrease in net product sales was
primarily due to the decrease in unit volume shipments of desktop and notebook
PC products in fiscal 2003. Sales of digitally processed television products
represented approximately $25.6 million or 48% of total revenues in fiscal 2003
as compared to approximately $6.2 million or 6% in fiscal 2002. Sales of
notebook products of $25.2 million were approximately 47% of total revenues in
fiscal 2003 as compared to $96.2 million or 91% of total revenues in fiscal
2002. Sales of GUI desktop products were approximately $1 million or 2% of
total revenues in fiscal 2003 as compared to approximately $2.6 million or 2%
in fiscal 2002.

Net product sales decreased in fiscal 2002 to $105.8 million, or 11%, from
$119.0 million reported in fiscal 2001. The decrease in net product sales was
primarily due to the decrease in unit volume shipments of desktop and notebook
products in fiscal 2002. Sales of notebook products of $96.2 million were
approximately 91% of total revenues in fiscal 2002 as compared to $102.3
million or 80% of total revenues in fiscal 2001. Sales of GUI desktop products
were approximately $2.6 million or 2% of total revenues in fiscal 2002 as
compared to approximately $8.7 million or 7% in fiscal 2001. Sales of
digitally processed television products represented approximately $6.2 million
or 6% of total revenues in fiscal 2002 as compared to approximately $2.8
million or 2% in fiscal 2001. Royalty and license revenue of $9.3 million was
recorded in fiscal 2001 resulting primarily from a final payment from VIA in
settlement of our litigation against VIA for products sold prior to March 31,
2000. We did not recognize the royalties in earnings until the quarter ended
December 31, 2000 when the disputes were settled and the collectibility was
assured.

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Sales to Asian customers, primarily in Japan, Hong Kong, Taiwan and China
accounted for 98% of net sales
in fiscal 2003. Sales to Asian customers, primarily in Japan and Taiwan,
accounted for 99% of net sales in fiscal 2002. Sales to two customers, Inno
Micro, which is a supplier of Toshiba, and Skyworth, a television original
equipment manufacturer located in China, accounted for approximately 43% and
11% of net sales, respectively, for fiscal 2003. Sales to one customer, Inno
Micro, which is a supplier of Toshiba, accounted for approximately 58% of net
sales for fiscal 2002. Sales to three customers, Inno Micro, which is a
supplier of Toshiba, and Quanta and Arima, which are suppliers of Compaq,
accounted for approximately 23%, 16% and 15% of net sales for fiscal 2001,
respectively. Substantially all of the sales transactions were denominated in
U.S. dollars during all periods. In fiscal years 2003 and 2002 our sales to
distributors were negligible. Sales to distributors represented 30% of net
sales during the fiscal year ended June 30, 2001.

On June 12, 2003, we announced a significant restructuring of our
operations involving both our Graphics and Digital Media businesses. The
assets of our Graphics Division were acquired by XGI Technology, Inc. (XGI),
the graphics unit previously spun off from Silicon Integrated System Corp
(SiS). XGI was capitalized through a cash infusion from outside investors.
This transaction closed on July 25, 2003 and we received a 30% equity interest
in XGI. In a separate transaction, the assets of our Digital Media Division
were merged with our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on
August 25, 2003 to strengthen and extend our digital TV business. As a result
of these transactions, we will be able to focus our resources on our
restructured DM business as well as focus on other challenges and opportunities
in the rapidly growing digital media market. We believe that this
restructuring will position us as one of the leading contenders in the emerging
digital media space and put us on track to return to profitability.

Gross Margin

Gross margin as a percentage of total revenues increased to 28% in fiscal
2003 from 22% in fiscal 2002. The 6% increase was primarily due to an increase
in the sales of DPTV chips which have higher margins than PC graphics products.
Gross margin as a percentage of total revenues decreased to 22% in fiscal 2002
from 30% in fiscal 2001. The 8% decrease was primarily due to an increase in
the cost of production of notebook chips. Our strategy is to maintain and
improve gross margins by (1) developing new products that have higher margins,
and (2) reducing manufacturing costs by improving production yield and
utilizing newer process technology. There is no assurance that we will be able
to develop and introduce new products on a timely basis or that we can reduce
manufacturing costs.

Research and Development

Research and development expenses decreased to $21.6 million in fiscal
2003 from $22.2 million in fiscal 2002, and increased from $20.0 million in
fiscal 2001. Research and development expenses as a percentage of total
revenues were 41%, 21% and 15% in fiscal 2003, 2002 and 2001, respectively.
The decrease in absolute dollars spent in fiscal 2003 was primarily the result
of decreased spending on research and development relating to graphics
products. The increase in the amount spent in fiscal 2002 was primarily the
result of increased headcount relating to our efforts in developing advanced
graphic and digitally processed television products such as the XP4 graphics
chip and our digitally processed television chip DPTV-3D.

We are currently planning to continue developing the next generation DPTV
product as well as other advanced products for digital TV and digital Set Top
Boxes (STB) for the digital television market in China, Japan, Korea and
Taiwan. However, there can be no assurance that these products will be quickly
or widely accepted by consumers in the market place, or that the new products
will be developed and shipped in a timely manner.

Selling, General and Administrative

Selling, general and administrative expenses decreased to $11.9 million in
fiscal 2003 from $13.6 million in fiscal 2002 and $16.5 million in fiscal 2001.
Selling, general and administrative expenses as a percentage of revenues were
23%, 13% and 13% in fiscal 2003, 2002 and 2001, respectively. Selling expenses
were $6.5 million in fiscal 2003 as compared to $8.5 million and $7.9 million
in fiscal 2002 and 2001, respectively. General and administrative

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expenses
were $5.4 million in fiscal 2003 as compared to $5.1 million and $8.6 million
in fiscal 2002 and 2001, respectively. Selling cost decreased in fiscal 2003
due to declining sales in graphics products. Selling costs
increased in fiscal 2002 from 2001 due to higher sales representative
commissions for our integrated notebook products. General and administrative
expenses increased in fiscal 2003 compared to fiscal 2002 primarily due to an
increase in consulting and legal expenses primarily relating to our
restructuring activities. General and administrative expenses decreased in
fiscal 2002 compared to fiscal 2001 primarily due to a decrease in legal
expenses.

Interest and Other Income(Expense) , Net

Interest and other expense, net was $269,000 in fiscal 2003 representing
an expense of $503,000 partially offset by interest income of $234,000.
Interest income declined in fiscal 2003 due to lower cash balances and lower
applicable interest rates as compared to the corresponding period in fiscal
2002. Net interest income decreased to $486,000 in fiscal 2002 from $1.7
million in fiscal 2001 due to lower cash balances and declining interest rates
in money market accounts. The amount of interest income earned by us varies
directly with the amount of our cash and cash equivalents balances and
prevailing interest rates.

Provision/benefit for Income Taxes

For fiscal 2003 we recorded a provision for income taxes of $1.0 million
to increase our valuation allowance and reduce the carrying amount of our net
deferred tax asset to zero. Based on our assessment of all available evidence,
including consideration of historical and future estimated taxable losses, we
concluded that it was more likely than not our net deferred tax asset was
would not be realized. The net deferred tax asset arose during fiscal 2003 due
to decreases in our deferred tax liabilities associated with cumulative
unrealized holding gains on our UMC investment.

We recorded a benefit for income taxes of $19.6 million and $30.1 million
for the fiscal years ended June 30, 2002 and 2001, respectively. In both
years, the income tax benefit was primarily due to the reversal of deferred tax
liabilities as a result of the write-downs of our UMC investment.

Loss on investments, net

On January 3, 2000, UMC acquired United Integrated Circuits Corporation
(UICC), a company in which we had previously made an investment. We recorded
a pre-tax gain of $117 million as a nonoperating gain in investment in our
statement of operations during the year ended June 30, 2000. The gain
represented the difference between the cost of our previous investment in UICC
and the quoted market value of the UMC shares listed on the Taiwan Stock
Exchange as of the date UMC acquired UICC. As of June 30, 2003, we owned
approximately 73.8 million shares of UMC which represents about 0.5% of the
outstanding stock of UMC. In the quarter ended September 30, 2001, we
concluded that due to a substantial decline in the market value of UMCs stock
price from June 30, 2001, the continued decline in stock prices of publicly
traded semiconductor companies and the continuing unfavorable outlook for the
semiconductor industry, that the decline in the investment value in UMC had
become other-than-temporary. Accordingly, $40.0 million, which represents the
difference between the carrying value on March 31, 2001 and the quoted fair
value on September 30, 2001, was written off against earnings as an impairment
loss on investments in accordance with Statements of Financial Accounting
(SFAS) No. 115 and Accounting Principles Board Opinion (APB) No. 18. See
Part IV, Item 14, Note 4 to the Consolidated Financial Statements for
discussion of this investment and the related losses.

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During the fiscal year ended June 30, 2003, we also recognized net
impairment loss on investments other than UMC totaling $5.0 million as follows
(in thousands):

|                               |  |            |       |  
|------------------------------ |  | ---------- | ----- | -
|                               |  | Year ended
|                               |  | June 30,  
|                               |  | 2003      
|Optical applications company   |  | $          | 987   |  
|Fiber optic technology company |  |            | 151   |  
|Circuit design company         |  |            | 500   |  
|Analog circuit design company  |  |            | 753   |  
|Optical networking company     |  |            | 831   |  
|Broadband networking company   |  |            | 1,370 |  
|Software development company   |  |            | 110   |  
|Venture capital funds          |  |            | 460   |  
|System design software company |  |            | (167  | )
|                               |  |            |       |  
|Total                          |  | $          | 4,995 |  
|                               |  |            |       |  

During the year ended June 30, 2003, we recognized a gain on investment of
$167,000 resulting from the additional shares received upon the achievement of
certain milestones during the year ended June 30, 2003.

During the fiscal year ended June 30, 2002, we recognized net impairment loss
on investments other than UMC totaling $2.7 million as follows (in thousands):

|                                      |  |            |       |  
|------------------------------------- |  | ---------- | ----- | -
|                                      |  | Year ended
|                                      |  | June 30,  
|                                      |  | 2002      
|ADSL company                          |  | $          | 270   |  
|Communications company                |  |            | 66    |  
|Broadband communications company      |  |            | 750   |  
|Voice over DSL communications company |  |            | 850   |  
|Optical networking company            |  |            | 349   |  
|Broadband server technology company   |  |            | 275   |  
|Venture capital funds                 |  |            | 743   |  
|System design software company        |  |            | (568  | )
|                                      |  |            |       |  
|Total                                 |  | $          | 2,735 |  
|                                      |  |            |       |  

See Part II, Item 8, Note 5 to the Consolidated Financial Statements for
discussion of these investments and the related losses.

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Liquidity and Capital Resources

As of June 30, 2003, our principal sources of liquidity included cash and
cash equivalents of $5.1 million, decreased from $21.2 million at June 30,
2002. In fiscal year 2003, $16.8 million of cash was used by operations, as
compared to $4.1 million in fiscal year 2002. The cash used by operations was
primarily due to the operating loss and a decrease in income taxes payable,
partially offset by a decrease in accounts receivable, prepaid expenses and an
increase in accounts payable.

Gross Accounts receivable decreased to $4.9 million at June 30, 2003 from
$6.4 million at June 30, 2002. The decrease in accounts receivable was
primarily due to a decrease in revenues in fiscal year 2003.

Prepaid expenses declined to $734,000 at June 30, 2003 from $2.0 million
at June 30, 2002. The decline was primarily due to a decrease in prepaid
royalties, prepaid software maintenance and the repayment of an other
receivable.

The increase of $1.8 million in assets held for sale represents inventory
of $1.7 million and fixed assets of $100,000 that represents assets to be
transferred to XGI at the close of the merging transaction of the assets of
our Graphics Division with XGI.

Accounts payable increased to $8.0 million at June 30, 2003 from $6.7
million at June 30, 2002. The increase is mainly the consequence of materials
purchases during fiscal year ended June 30, 2003.

Capital expenditures in fiscal 2003, 2002, and 2001 were $457,000, $2.7
million and $2.1 million, respectively. Other significant cash outflows from
investing and financing activities for the year ended June 30, 2001 represented
the purchases of long-term investments of $6.1 million and treasury stock of
$7.7 million.

We occupy our facilities under several non-cancelable operating lease
agreements expiring at various dates through 2006, and require payment of
property taxes, insurance, maintenance and utilities. Future minimum lease
payments under non-cancelable operating leases at June 30, 2003 were as follows
(in thousands):

|                             |      |   |       |       | 
|---------------------------- | ---- | - | ----- | ----- | 
|Years ending June 30:        |      |   |       |      
|                             | 2004 |   | $     | 1,800 | 
|                             | 2005 |   |       | 1,500 | 
|                             | 2006 |   |       | 1,600 | 
|                             |      |   |       |      
|Total minimum lease payments |      | $ | 4,900 |      
|                             |      |   |       |      

As of June 30, 2003, we had unconditional purchase order commitments of
approximately $ 2.0 million for wafers and chipsets.

In October 1999, our Board of Directors authorized a one-year budget of
$20.0 million allowing our President and executive officers to make equity
investments in companies, with no more than $3.0 million in any one company or
technology. As of June 30, 2003 cumulative purchases of investments totaled
$14.7 million. Substantially all of these investments are in private companies
developing technologies in areas in which we are focusing.

As of June 30, 2003, the market value of our short-term investment in UMC
was $43.5 million. In addition, we held $4.4 million in stock in other
entities which was not available for resale as it is subject to certain
contractual and other restrictions. We acquired the shares we hold in UMC as a
result of a transaction we engaged in for the purpose of obtaining additional
foundry capacity for our operations. In order to preserve our wafer capacity
guarantee with UMC, there are certain limitations on our ability to sell the
UMC shares. One-third of the shares are subject to a two-year lock-up period
in accordance with an investment agreement entered into with UMC. After a
two-year period, one-fifth of the shares will be available for sale from the
lock-up portion every six months. As of June 30, 2003, approximately 6.4
million shares are subject to this lock-up restriction. While we are an
operating company and not in the business of investing, reinvesting, owning,
holding or trading in securities, we do intend to monitor the advisability of
disposing of our UMC stock and intend to sell all or part of the stock when it
is in the best interests of our shareholders to do so.

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We believe our current resources are sufficient to meet our needs for at
least the next twelve months. We regularly consider transactions to finance
our activities, including debt and equity offerings and new credit facilities
or other financing transactions. We believe our current reserves are adequate.

As a result of our reorganization and the disposal of our graphics
business, we believe that our liquidity will be positively affected as a result
of the termination of a line of business which was using cash. In addition, we
believe that we may be able to enhance our cash position through sales of
equity interests in XGI and TTI.

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Factors That May Affect Our Results

We incurred an operating loss in fiscal 2003.

We incurred an operating loss of $18.5 million in the fiscal year ended June
30, 2003 primarily due to unprofitable graphics operations.

Our recent reorganization is intended to reduce our operating expenses and
position the Company in a market in which we may be profitable in the future.
In addition, we are trying to expedite new digital media product launchings
and to control operating expenses. However, there is no guarantee that our
efforts will be successful. Sales and marketing, product development and
general and administrative expenses may increase as a result of shifts in the
market place, our efforts in developing and marketing new products such as
DPTV3D, DPTVMV, DPTV3DPRO, PANELTV3DPRO, PANELPRO-MM, DPTVSVP and our
need to respond to these shifts, which could result in the need to generate
significantly higher revenue to achieve and sustain profitability.

Our success depends upon the digital television market and we must continue to
develop new products and to enhance our existing products.

The digitally processed television industry is characterized by rapidly
changing technology, frequent new product introductions, changes in customer
requirements and evolving industry standards. Our future success depends on
our ability to anticipate market needs and develop products that address those
needs. As a result, our products could quickly become obsolete if we fail to
predict market needs accurately or develop new products or product enhancements
in a timely manner. Any return to profitability and long term success in the
digitally process television business will depend on the introduction of
successive generations of products in time to meet the design cycles as well as
to specifications of television original equipment manufacturers. Our failure
to predict market needs accurately or to develop new products or product
enhancements in a timely manner will harm market acceptance and sales of our
products. If the development or enhancement of these products or any other
future products takes longer than we anticipate, or if we are unable to
introduce these products to market, our sales will not increase. Even if we
are able to develop and commercially introduce these new products, the new
products may not achieve widespread market acceptance necessary to provide an
adequate return on our investment.

We have had fluctuations in quarterly results in the past and will continue to
do so in the future.

While we expect to experience improved financial performance as result of
our restructuring, our quarterly revenue and operating results have varied in
the past and may fluctuate in the future due to a number of factors including:



| |  |  | uncertain demand in new 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;                                                                               
|
| |  |  | 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;                                  

We currently rely on certain international customers for a substantial portion
of our revenue.

Our revenues have historically been generated primarily from Asian
customers, particularly customers in Taiwan, China and Japan. As a result of
our focus on Digital Media products, we expect to be primarily dependent on
international sales and operations, particularly in Taiwan, Japan, Korea and
China, which are expected to constitute a significant portion of our sales in
the future. There are a number of risks arising from our international
business which could adversely affect future results, including:

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| |  |  | potential adverse tax consequences; and       
| | - |  | ----------------------------------------------
|
| |  |  | unexpected changes in regulatory requirements.

Our international sales currently are U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets.

Intense competition exist in the market for digital media products.

We plan to continue developing the next generation DPTV product as well
as other advanced products for digital TV and digital STB for the digital
television market in China, Japan, Korea and Taiwan. We believe the market for
digital television will be competitive, and will require substantial research
and development, technical support, sales and other expenditures to stay
competitive in this market. In the digital television market our principal
competitors are Toshiba, Philips Electronics, Micronas AG, Pixelworks, Inc. and
Genesis Microchip, Inc. However, we believe that DPTV products will have a
longer product life cycle than other current products. Therefore we expect to
devote significant resources to the DPTV market even though competitors are
substantially more experienced than we are in this market.

We are vulnerable to undetected product problems.

Although we establish and implement test specifications, impose quality
standards upon our suppliers and perform separate application-based
compatibility and system testing, our products may contain undetected defects,
which may or may not be material, and which may or may not have a feasible
solution. We have experienced such errors in the past, and we cannot ensure
that such errors will not be found from time to time in new or enhanced
products after commencement of commercial shipments. These problems may
materially adversely affect our business by causing us to incur significant
warranty and repair costs, diverting the attention of our engineering personnel
from our product development efforts and causing significant customer relations
problems.

We rely upon independent foundries to manufacture our products.

If the demand for our products grows, we will need to increase our
material purchases, contract manufacturing capacity and internal test and
quality functions. Any disruptions in product flow could limit our revenue,
adversely affect our competitive position and reputation and result in
additional costs or cancellation of orders under agreements with our customers.

We currently rely on one third-party foundry to manufacture our products
either in finished form or wafer form. Generally, foundries are not obligated
to manufacture our products on a long-term fixed price base; however, due to
the Companys investment in one third-party foundry, a certain level of
guaranteed wafer capacity does exist. If we encounter shortages and delays in
obtaining components, our ability to meet customer orders could be materially
adversely affected.

We have experienced delays in product shipments from a contract
manufacturer and production problems, which in turn, delayed product shipments
to our customers. Such delays often result in purchasing at a higher per unit
product cost from other foundries or the payment of expediting charges so that
we can obtain the required supply in a timely manner. We may in the future
experience delays in shipments from foundries or other problems, such as
inferior quality and insufficient quantity of product, any of which could
materially adversely affect our business and operating results. There can be
no assurance that these manufacturers will meet our future requirements for
timely delivery of products of sufficient quality and quantity. The inability
of our contract manufacturers to provide us with adequate supplies of
high-quality products would cause a delay in our ability to fulfill orders
while we obtain a replacement manufacturer and would have a material adverse
effect on our business, operating results and financial condition.

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The market price of our common stock has been, and may continue to be volatile.

The market price of our common stock has been, and may continue to be
volatile. Factors such as new product announcements by us or our competitors,
quarterly fluctuations in our operating results and unfavorable conditions in
the digital television market may have a significant impact on the market price
of our common stock. These conditions, as well as factors that generally
affect the market for stocks in general and stocks in high-technology companies
in particular, could cause the price of our stock to fluctuate from time to
time.

Our success depends to a significant degree on the continued employment of key
personnel.

Our success depends to a significant degree upon the continued
contributions of the principal members of our technical sales, marketing,
engineering and management personnel, many of whom perform important management
functions and would be difficult to replace. We particularly depend upon the
continued services of our executive officers, particularly Frank Lin, our
President and Chief Executive Officer, Dr. Jung-Herng Chang, Senior Vice
President, Engineering, and Peter Jen, our Senior Vice President, Asia
Operations and other key engineering, sales, marketing, finance, manufacturing
and support personnel. In addition, we depend upon the continued services of
key management personnel at our overseas subsidiaries. Our officers and key
employees are not bound by employment agreements for any specific term, and may
terminate their employment at any time. In addition, we do not have key
person life insurance policies covering any of our employees. In order to
continue to expand our product offerings both in the U.S. and abroad, we must
hire a number of research and development personnel. Hiring technical sales
personnel in our industry is very competitive due to the limited number of
people available with the necessary technical skills and understanding of our
technologies. Our ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining whether we will be
successful in the future. Competition for highly skilled personnel is intense,
particularly in Northern California. If we are not successful in attracting,
assimilating or retaining qualified personnel to fulfill our current or future
needs, our business may be harmed.

Our success depends in part on our ability to protect our intellectual property
rights, which may be difficult.

The digital media market is a highly competitive industry in which we, and
most other participants, rely on a combination of patent, copyright, trademark
and trade secret laws, confidentiality procedures and licensing arrangements to
establish and protect proprietary rights. The competitive nature of our
industry, rapidly changing technology, frequent new product introductions,
changes in customer requirements and evolving industry standards heighten the
importance of protecting proprietary technology rights. Since the United
States Patent and Trademark Office keeps patent applications confidential until
a patent is issued, our pending patent applications may attempt to protect
proprietary technology claimed in a third party patent application. Our
existing and future patents may not be sufficiently broad to protect our
proprietary technologies as policing unauthorized use of our products is
difficult and we cannot be certain that the steps we have taken will prevent
the misappropriation or unauthorized use of our technologies, particularly in
foreign countries where the laws may not protect our proprietary rights as
fully as U.S. law. Our competitors may independently develop similar
technology, duplicate our products or design around any of our patents or other
intellectual property. If we are unable to adequately protect our proprietary
technology rights, others may be able to use our proprietary technology without
having to compensate us, which could reduce our revenues and negatively impact
our ability to compete effectively. We have filed a number of lawsuits to
enforce our intellectual property rights or to determine the validity or scope
of the proprietary rights of others. As a result of any such litigation, we
could lose our proprietary rights and incur substantial unexpected operating
costs. Any action we take to protect our intellectual property rights could be
costly and could absorb significant management time and attention. In
addition, failure to adequately protect our trademark rights could impair our
brand identity and our ability to compete effectively.

We are currently involved in intellectual property infringement claims, and may
be involved in others in the future, which can be costly.

Our industry is very competitive and is characterized by frequent
litigation alleging infringement of intellectual property rights. Numerous
patents in our industry have already been issued and as the market further
develops and additional intellectual property protection is obtained by
participants in our industry, litigation is likely

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to become more frequent.
From time to time, third parties have asserted and are likely in the future to
assert patent, copyright, trademark and other intellectual property rights to
technologies or rights that are important to our business.
We are currently involved in such disputes. See Part I, Item 3 (Legal
Proceedings). In addition, we may in the future enter into agreements to
indemnify our customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties. Our
pending litigation and any future litigation arising from claims asserting that
our products infringe or may infringe the proprietary rights of third parties,
whether the litigation is with or without merit, has been and may in the future
be, time-consuming, resulting in significant expenses and diverting the efforts
of our technical and management personnel. We do not have insurance against
our alleged or actual infringement of intellectual property of others. These
claims, if resolved adversely to us, could cause us to stop selling our
products which incorporate the challenged intellectual property and could also
result in product shipment delays or require us to redesign or modify our
products or to enter into licensing agreements. These licensing agreements, if
required, would increase our product costs and may not be available on terms
acceptable to us, if at all. If there is a successful claim of infringement or
we fail to develop non-infringing technology or license the proprietary rights
on a timely basis, our business could be harmed.

Natural disasters could limit our ability to supply products.

Our primary suppliers are located in California and Taiwan, both active
earthquake fault zones. These regions have experienced large earthquakes in
the past and may experience them in the future. A large earthquake in any of
these areas could disrupt our manufacturing operations for an extended period
of time, which would limit our ability to supply our products to our customers
in sufficient quantities on a timely basis, harming our customer relationships.

Future terrorist attacks may affect our business.

We cannot guarantee that our business will be unaffected by terrorist
attacks in the future. The impact and future effects of terrorism are
currently uncertain, and we are unable to predict the future impact that
terrorist attacks may have on our business and operations, the international
markets in which we operate and the global economy in general.

Dilution of shareholders interest may occur.

As part of our business strategy, we review acquisition and strategic
investment prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We are very aggressively seeking
investment opportunities in new businesses, and we expect to make investments
in and may acquire businesses, products or technologies in the future. In the
event of any future acquisitions, we could issue equity securities which would
dilute current stockholders percentage ownership.

These actions could affect our operating results and/or the price of our
common stock. Acquisitions and investment activities also entail numerous
risks, including: difficulties in the assimilation of acquired operations,
technologies or products; unanticipated costs associated with the acquisition
or investment transaction; adverse effects on existing business relationships
with suppliers and customers; risk associated with entering markets in which we
have no or limited prior experience; and potential loss of key employees of
acquired organizations.

We cannot assure that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could harm our business, operating results and
financial condition.

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Changes in our business organization will affect our operations.

On June 12, 2003 we announced that the assets of our Graphics Division
will be acquired by XGI Technology, Inc. (XGI), the graphics unit previously
spun off from Silicon Integrated System Corp (SiS). XGI will
be capitalized through cash infusion from outside investors. This transaction
closed on July 25, 2003 and we received a 30% equity interest in XGI. In a
separate transaction, the assets of our Digital Media Division were merged with
our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on August 25, 2003
to strengthen and extend the companys digitally processed television business.
As a result of these transactions, we will be able to focus our resources on
our restructured DM business as well as focus on other challenges and
opportunities in the rapidly growing digital media market. After the close of
this transaction we held a 90% equity interest in TTI.

As a result of our recently concluded reorganization and as we go forward
into fiscal year 2004, our principle design, development and marketing effort
will focus primarily on our Digital Media products. These products are now our
only product line and our success in the near term depends upon the growth of
the market for these products and our success in this market. Our success in
the longer term will also depend on our ability to develop and introduce other
digital media products. Our Digital Media Division accounted for 48% and 6% of
revenues for fiscal years ended June 30, 2003 and 2002, respectively. Through
our TTI subsidiary, we plan to continue developing the next generation DPTV
product as well as other advanced products for digital TV and digital STB for
the digital television market in China, Japan, Korea and Taiwan. While we
anticipate this market to generate an increasing percentage of our revenues, we
have limited experience with digital video television. There can be no
guarantee that our digital television products will be accepted by the market
or increase our revenues or profitability.

The performance of our equity investments is currently uncertain.

We maintain an investment portfolio including minority equity investments
in several publicly traded companies. Generally, these investments are made to
more closely align our interests with those of potential strategic partners.
The values of these investments are subject to market price volatility. We
have also made investments in a number of privately held companies, many of
which are in the early development stages. These investments are inherently
risky as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. We
have in the past incurred losses on our investments. In the future, we could
further lose a portion of or our entire investment in these companies.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We currently maintain our cash equivalents primarily in money market funds
and highly liquid marketable securities. We do not have any derivative
financial instruments. As of June 30, 2003, approximately $5.1 million of our
investments matured in less than three months. We will continue to invest a
significant portion of our existing cash equivalents in interest bearing,
investment grade securities, with maturities of less than twelve months. We do
not believe that our investments, in the aggregate, have significant exposure
to interest rate risk.

Exchange rate risk

We currently have operations in the United States, Taiwan and China. The
functional currency of all our operations is the U.S. dollar. Though some
expenses are incurred in local currencies by our Taiwan and China operations,
substantially all of our transactions are made in U.S. dollars, hence, we have
minimal exposure to foreign currency rate fluctuations relating to our
transactions.

While we expect our international revenues to continue to be denominated
predominately in U.S. dollars, an increasing portion of our international
revenues may be denominated in foreign currencies in the future. In addition,
we plan to continue to expand our overseas operations. As a result, our
operating results may become subject to significant fluctuations based upon
changes in exchange rates of certain currencies in relation to the U.S. dollar.
We will analyze our exposure to currency fluctuations and may engage in
financial hedging techniques in the future to attempt to minimize the effect of
these potential fluctuations; however, exchange rate fluctuations may adversely
affect our financial results in the future.

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Investment risk

We are exposed to market risk as it relates to changes in the market value
of our investments in public companies. We invest in equity instruments of
public companies for business and strategic purposes and we have classified
these securities as available-for-sale. These available-for-sale equity
investments, primarily in technology companies, are subject to significant
fluctuations in fair market value due to the volatility of the stock market and
the industries in which these companies participate. We have realized
significant gains and losses on our equity investments. For the fiscal year
ended June 30, 2001, we recognized a pre-tax loss of $77.8 million of which
$76.4 million related to a decline in the market value of shares in UMC that we
concluded was other-than-temporary. For the fiscal year ended June 30, 2002,
we recognized a pre-tax loss of $40.3 million of our investments in public
companies of which $40.0 million related to a decline in the market value of
shares in UMC that we concluded was other-than-temporary. As of June 30, 2003,
we had available-for-sale equity investments with a fair market value of $44.8
million including $43.5 million related to shares of UMC. Our objective in
managing our exposure to stock market fluctuations is to minimize the impact of
stock market declines to our earnings and cash flows. There are, however, a
number of factors beyond our control. Continued market volatility, as well as
mergers and acquisitions, have the potential to have a material impact on our
results of operations in future periods.

We are also exposed to changes in the value of our investments in
non-public companies, including start-up companies. These long-term equity
investments in technology companies are subject to significant fluctuations in
fair value due to the volatility of the industries in which these companies
participate and other factors. For the fiscal year ended June 30, 2003, we
recognized a net loss of approximately $5.2 million of our investments in
private companies that we concluded was other-than-temporary. As of June 30,
2003, the balance of our long-term equity investments in non-public companies
was $3.6 million.

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Item 8. Financial Statements and Supplementary Data

The following documents are filed as a part of this Report:

|   |  |                                                                                                   |  |            
|-- |  | ------------------------------------------------------------------------------------------------- |  | -----------
|   |  |                                                                                                   |  | Page Number
|   |  |                                                                                                   |  |            
|1. |  | Financial Statements:                                                                             |  |            
|   |  | Report of Independent Auditors                                                                    |  | 30         
|   |  | Consolidated Balance Sheet -
As of June 30, 2003 and 2002                                         |  | 31         
|   |  | Consolidated Statement of Operations -
For the Three Years Ended June 30, 2003                    |  | 32         
|   |  | Consolidated Statement of Changes in Stockholders Equity
For the Three Years Ended June 30, 2003 |  | 33         
|   |  | Consolidated Statement of Cash Flows
For the Three Years Ended June 30, 2003                      |  | 34         
|   |  | Notes to Consolidated Financial Statements                                                        |  | 35         
|2. |  | Financial Statement Schedules:                                                                    |  |            
|   |  | II  Valuation and Qualifying Accounts for Each of the Three
Years
Ended June 30, 2003            |  | 53         

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Report of Independent Auditors

To the Board of Directors and Stockholders of
Trident Microsystems, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders equity and of cash
flows present fairly, in all material respects, the financial position of
Trident Microsystems, Inc. and its subsidiaries at June 30, 2003 and 2002, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2003, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Jose, California
July 22, 2003

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Trident Microsystems, Inc.
Consolidated Balance Sheet

|                                                |                                                                                                           |                                            |       |          |        |  |        |         |         | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -------- | ------ |  | ------ | ------- | ------- | 
|                                                |                                                                                                           |                                            |       | June 30,
|(in thousands, except per share data)           |                                                                                                           | 2003                                       |       | 2002    
|                                                |                                                                                                           |                                            |       |         
|ASSETS                                          |                                                                                                           |                                            |       |          |        |  |        |        
|Current assets:                                 |                                                                                                           |                                            |       |          |        |  |        |        
|                                                | Cash and cash equivalents                                                                                 |                                            | $     | 5,085    |        |  | $      | 21,193  |        
|                                                | Short-term investment - UMC                                                                               |                                            |       | 43,541   |        |  |        | 61,672  |        
|                                                | Short-term investments - other                                                                            |                                            |       | 1,241    |        |  |        | 1,153   |        
|                                                | Accounts receivable, net                                                                                  |                                            |       | 4,338    |        |  |        | 4,284   |        
|                                                | Inventories                                                                                               |                                            |       | 2,318    |        |  |        | 3,190   |        
|                                                | Deferred income taxes                                                                                     |                                            |       |         |        |  |        | 1,247   |        
|                                                | Prepaid expenses and other current assets                                                                 |                                            |       | 734      |        |  |        | 1,953   |        
|                                                | Assets held for sale                                                                                      |                                            |       | 1,800    |        |  |        |        |        
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total current assets                       |       |          | 59,057 |  |        |         | 94,692  | 
|Property and equipment, net                     |                                                                                                           |                                            | 2,789 |          |        |  | 4,710  |        
|Investment - UMC                                |                                                                                                           |                                            | 4,375 |          |        |  | 10,063 |        
|Investments - other                             |                                                                                                           |                                            | 3,569 |          |        |  | 8,642  |        
|Other assets                                    |                                                                                                           |                                            | 333   |          |        |  | 417    |        
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total assets                               |       | $        | 70,123 |  |        | $       | 118,524 | 
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                           |                                            |       |          |        |  |        |        
|Current liabilities:                            |                                                                                                           |                                            |       |          |        |  |        |        
|                                                | Accounts payable                                                                                          |                                            | $     | 7,974    |        |  | $      | 6,709   |        
|                                                | Accrued expenses                                                                                          |                                            |       | 8,332    |        |  |        | 10,201  |        
|                                                | Income taxes payable                                                                                      |                                            |       | 1,580    |        |  |        | 3,980   |        
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total current liabilities                  |       |          | 17,886 |  |        |         | 20,890  | 
|Deferred income taxes  non-current             |                                                                                                           |                                            |      |          |        |  | 6,338  |        
|Minority interest in subsidiary                 |                                                                                                           |                                            | 77    |          |        |  | 640    |        
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total liabilities                          |       |          | 17,963 |  |        |         | 27,868  | 
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|Commitments and contingencies (Notes 12 and 13) |                                                                                                           |                                            |       |          |        |  |        |        
|Stockholders equity:                           |                                                                                                           |                                            |       |          |        |  |        |        
|                                                | Common stock, $0.001 par value; 30,000 shares authorized;
15,945 and 15,548 shares issued and outstanding |                                            |       | 16       |        |  |        | 16      |        
|                                                | Additional paid-in capital                                                                                |                                            |       | 57,736   |        |  |        | 56,303  |        
|                                                | Treasury stock, at cost, 1,950 shares                                                                     |                                            |       | (17,952  | )      |  |        | (17,952 | )      
|                                                | Retained earnings                                                                                         |                                            |       | 14,581   |        |  |        | 39,345  |        
|                                                | Accumulated other comprehensive income (loss)                                                             |                                            |       | (2,221   | )      |  |        | 12,944  |        
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total stockholders equity                 |       |          | 52,160 |  |        |         | 90,656  | 
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        
|                                                |                                                                                                           | Total liabilities and stockholders equity |       | $        | 70,123 |  |        | $       | 118,524 | 
|                                                |                                                                                                           |                                            |       |          |        |  |        |         |        

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

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Trident Microsystems, Inc.
Consolidated Statement of Operations

|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|------------------------------------------------------------ | --------------------------- | ---- | ------------------- | ------ |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                             |                             |      | Year Ended June 30,
|(in thousands, except per share data)                        |                             | 2003 |                     | 2002   |  | 2001
|                                                             |                             |      |                     |        |  |     
|Revenues                                                     |                             |      |                     |        |  |      |         |         |  |   |         |        
|                                                             | Product sales               |      | $                   | 52,752 |  |      | $       | 105,766 |  |   | $       | 118,959 | 
|                                                             | Royalty and license revenue |      |                     |       |  |      |         |        |  |   |         | 9,267   | 
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Total revenues                                               |                             |      | 52,752              |        |  |      | 105,766 |         |  |   | 128,226 |        
|Cost of revenues                                             |                             |      | 37,720              |        |  |      | 82,970  |         |  |   | 89,346  |        
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Gross profit                                                 |                             |      | 15,032              |        |  |      | 22,796  |         |  |   | 38,880  |        
|Research and development expenses                            |                             |      | 21,600              |        |  |      | 22,218  |         |  |   | 20,031  |        
|Selling, general and administrative expenses                 |                             |      | 11,886              |        |  |      | 13,584  |         |  |   | 16,455  |        
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Income (loss) from operations                                |                             |      | (18,454             | )      |  |      | (13,006 | )       |  |   | 2,394   |        
|Loss on investments, net                                     |                             |      | (4,995              | )      |  |      | (42,715 | )       |  |   | (77,808 | )      
|Interest and other income (expense), net                     |                             |      | (269                | )      |  |      | 486     |         |  |   | 1,712   |        
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Loss before income taxes                                     |                             |      | (23,718             | )      |  |      | (55,235 | )       |  |   | (73,702 | )      
|Provision (benefit) for income taxes                         |                             |      | 1,046               |        |  |      | (19,584 | )       |  |   | (30,062 | )      
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Net loss                                                     |                             | $    | (24,764             | )      |  | $    | (35,651 | )       |  | $ | (43,640 | )      
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Basic and diluted net loss per share                         |                             | $    | (1.81               | )      |  | $    | (2.66   | )       |  | $ | (3.33   | )      
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 
|Shares used in computing basic and diluted per share amounts |                             |      | 13,683              |        |  |      | 13,419  |         |  |   | 13,087  |        
|                                                             |                             |      |                     |        |  |      |         |         |  |   |         |         | 

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

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Trident Microsystems, Inc.
Consolidated Statement of Stockholders Equity

|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------ | ------ | ------ |  | ------- | -- | ---------- |  | -------- | ------ | ------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | ----- |  | ----------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  | Accumulated |         |   |  |   |         |   |  |  
|                                          |  |        |        |        |  | Common  |    | Additional |  |          |        |               |  |               |         |               |  | Other         |         | Total |  |             |         |  
|                                          |  |        |        |        |  | Stock   |    | Paid-in    |  | Treasury |        | Retained      |  | Comprehensive |         | Stockholders |  | Comprehensive
|(in thousands)                            |  | Shares |        | Amount |  | Capital |    | Stock      |  | Earnings |        | Income (Loss) |  | Equity        |         | Income(Loss) 
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |              
|Balance at June 30, 2000                  |  |        | 14,479 |        |  | $       | 14 |            |  | $        | 52,240 |               |  | $             | (10,281 | )             |  | $             | 118,636 |       |  | $           | (4,648  | ) |  | $ | 155,961 |   |  |   |         |  
|Issuance of common stock                  |  |        | 732    |        |  |         | 1  |            |  |          | 2,851  |               |  |               |        |               |  |               |        |       |  |             |        |   |  |   | 2,852   |   |  |   |         |  
|Purchase of treasury stock                |  |        |       |        |  |         |   |            |  |          |       |               |  |               | (7,671  | )             |  |               |        |       |  |             |        |   |  |   | (7,671  | ) |  |   |         |  
|Unrealized loss on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |       |  |             | (2,136  | ) |  |   | (2,136  | ) |  | $ | (2,136  | )
|Net loss                                  |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | (43,640 | )     |  |             |        |   |  |   | (43,640 | ) |  |   | (43,640 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Comprehensive income                      |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  | $ | (45,776 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2001                  |  |        | 15,211 |        |  |         | 15 |            |  |          | 55,091 |               |  |               | (17,952 | )             |  |               | 74,996  |       |  |             | (6,784  | ) |  |   | 105,366 |   |  |   |         |  
|Issuance of common stock                  |  |        | 337    |        |  |         | 1  |            |  |          | 1,212  |               |  |               |        |               |  |               |        |       |  |             |        |   |  |   | 1,213   |   |  |   |         |  
|Unrealized gain on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |       |  |             | 19,728  |   |  |   | 19,728  |   |  | $ | 19,728  |  
|Net loss                                  |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | (35,651 | )     |  |             |        |   |  |   | (35,651 | ) |  |   | (35,651 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Comprehensive loss                        |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  | $ | (15,923 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2002                  |  |        | 15,548 |        |  |         | 16 |            |  |          | 56,303 |               |  |               | (17,952 | )             |  |               | 39,345  |       |  |             | 12,944  |   |  |   | 90,656  |   |  |   |         |  
|Issuance of common stock                  |  |        | 397    |        |  |         |   |            |  |          | 1,433  |               |  |               |        |               |  |               |        |       |  |             |        |   |  |   | 1,433   |   |  |   |         |  
|Unrealized loss on short-term
investments |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               |        |       |  |             | (15,165 | ) |  |   | (15,165 | ) |  | $ | (15,165 | )
|Net loss                                  |  |        |       |        |  |         |   |            |  |          |       |               |  |               |        |               |  |               | (24,764 | )     |  |             |        |   |  |   | (24,764 | ) |  |   | (24,764 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Comprehensive loss                        |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  | $ | (39,929 | )
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2003                  |  |        | 15,945 |        |  | $       | 16 |            |  | $        | 57,736 |               |  | $             | (17,952 | )             |  | $             | 14,581  |       |  | $           | (2,221  | ) |  | $ | 52,160  |   |  |   |         |  
|                                          |  |        |        |        |  |         |    |            |  |          |        |               |  |               |         |               |  |               |         |       |  |             |         |   |  |   |         |   |  |   |         |  

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

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Trident Microsystems, Inc.
Consolidated Statement of Cash Flows

|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |         |        |  
|---------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ------- | ------------------- | ------ | ------ | ------- | ------- | ------ | ------- | ------- | ------- | ------ | -
|                                               |                                                                                       |                                                   |                                           |         | Year Ended June 30,
|(in thousands)                                 |                                                                                       | 2003                                              |                                           | 2002    |                     | 2001  
|                                               |                                                                                       |                                                   |                                           |         |                     |       
|Cash flows from operating activities:          |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |        
|                                               | Net loss                                                                              |                                                   | $                                         | (24,764 | )                   |        | $      | (35,651 | )       |        | $       | (43,640 | )      
|                                               | Adjustments to reconcile net loss to cash
provided by (used in) operating activities: |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|                                               |                                                                                       | Depreciation and amortization                     |                                           |         | 1,320               |        |        |         | 1,551   |        |         |         | 2,397   |       
|                                               |                                                                                       | Provision for doubtful accounts and sales returns |                                           |         | (1,493              | )      |        |         | 692     |        |         |         | 311     |       
|                                               |                                                                                       | Loss on investments, net                          |                                           |         | 4,995               |        |        |         | 42,715  |        |         |         | 77,808  |       
|                                               |                                                                                       | Deferred income taxes, net                        |                                           |         | 3,642               |        |        |         | (21,351 | )      |         |         | (28,946 | )     
|                                               |                                                                                       | Stock-based compensation                          |                                           |         | 105                 |        |        |         |        |        |         |         |        |       
|                                               |                                                                                       | Changes in assets and liabilities:                |                                           |         |                     |        |        |         |         |        |         |         |         |       
|                                               |                                                                                       |                                                   | Accounts receivable                       |         |                     | 1,439  |        |         |         | 4,271  |         |         |         | (3,466 | )
|                                               |                                                                                       |                                                   | Inventories                               |         |                     | 872    |        |         |         | 7,479  |         |         |         | (7,293 | )
|                                               |                                                                                       |                                                   | Prepaid expenses and other current assets |         |                     | 719    |        |         |         | 1,524  |         |         |         | (1,259 | )
|                                               |                                                                                       |                                                   | Assets held for sale                      |         |                     | (1,800 | )      |         |         |       |         |         |         |       |  
|                                               |                                                                                       |                                                   | Other assets                              |         |                     | 84     |        |         |         | 213    |         |         |         | 304    |  
|                                               |                                                                                       |                                                   | Accounts payable                          |         |                     | 1,265  |        |         |         | (5,120 | )       |         |         | 4,505  |  
|                                               |                                                                                       |                                                   | Accrued expenses                          |         |                     | (788   | )      |         |         | (2,945 | )       |         |         | 630    |  
|                                               |                                                                                       |                                                   | Income taxes payable                      |         |                     | (2,400 | )      |         |         | 2,940  |         |         |         | (556   | )
|                                               |                                                                                       |                                                   | Minority interest in subsidiary           |         |                     | (563   | )      |         |         | (428   | )       |         |         | (188   | )
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|                                               | Net cash provided by (used in) operating activities                                   |                                                   |                                           | (17,367 | )                   |        |        | (4,110  | )       |        |         | 607     |        
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|Cash flows from investing activities:          |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |        
|                                               | Sales of long-term investments                                                        |                                                   |                                           |        |                     |        |        | 650     |         |        |         |        |        
|                                               | Purchases of property and equipment                                                   |                                                   |                                           | (458    | )                   |        |        | (2,702  | )       |        |         | (2,055  | )      
|                                               | Purchases of long-term investments                                                    |                                                   |                                           | (111    | )                   |        |        | (503    | )       |        |         | (6,059  | )      
|                                               | Repayment of other current assets                                                     |                                                   |                                           | 500     |                     |        |        |        |         |        |         |        |        
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|                                               | Net cash used in investing activities                                                 |                                                   |                                           | (69     | )                   |        |        | (2,555  | )       |        |         | (8,114  | )      
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|Cash flows from financing activities:          |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |        
|                                               | Issuance of common stock                                                              |                                                   |                                           | 1,328   |                     |        |        | 1,213   |         |        |         | 2,852   |        
|                                               | Principal repayments of capital leases                                                |                                                   |                                           |        |                     |        |        | (32     | )       |        |         | (38     | )      
|                                               | Purchase of treasury stock                                                            |                                                   |                                           |        |                     |        |        |        |         |        |         | (7,671  | )      
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|                                               | Net cash provided by (used in) financing activities                                   |                                                   |                                           | 1,328   |                     |        |        | 1,181   |         |        |         | (4,857  | )      
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|Net decrease in cash and cash equivalents      |                                                                                       |                                                   | (16,108                                   | )       |                     |        | (5,484 | )       |         |        | (12,364 | )      
|Cash and cash equivalents at beginning of year |                                                                                       |                                                   | 21,193                                    |         |                     |        | 26,677 |         |         |        | 39,041  |        
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        
|Cash and cash equivalents at end of year       |                                                                                       | $                                                 | 5,085                                     |         |                     | $      | 21,193 |         |         | $      | 26,677  |        
|                                               |                                                                                       |                                                   |                                           |         |                     |        |        |         |         |        |         |         |        

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

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|1. |  | The Company and Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Trident Microsystems, Inc. (the Company) designs, develops and markets
integrated circuits for videographics, multimedia and digitally processed
television products for the desktop and notebook PC market and consumer
television market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | On June 12, 2003, the Company announced that it would transfer its graphics
division in Sunnyvale, California to XGI Technology, Inc. (XGI), a company
incorporated in Taiwan, in exchange for stock of XGI. XGI is a newly formed
company to which Silicon Integrated System Corporation, a company
incorporated in Taiwan, transferred its graphics business. The transaction
was structured as two simultaneous transactions, with the Company receiving
cash for the assets of the Graphics Division in one transaction, and
simultaneously using that cash to acquire a 30% equity interest in XGI.                                                                                                                                                                                                                                                                           
|  
|   |  | On July 25, 2003, the Company closed the transaction and received cash of
approximately $13.1 million in connection with the transfer of its graphics
division to XGI. The Company estimates it will record a pre-tax gain of
approximately $8.6 million related to the transaction in the quarter ending
September 30, 2003. The Company also made a 30% equity investment in XGI
for cash of approximately $13.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In September 2003, the Company entered into an agreement with an independent
venture capital fund to sell approximately one-third of its equity
investment in XGI for cash of approximately $7.4 million. Upon consummation
of the transaction, the Company will hold approximately 20% equity interests
in XGI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | In September 2003, the Company entered into an agreement with UMC and its
designees to sell approximately 7% equity interests in our subsidiary, TTI,
for cash of approximately $2.7 million. Upon consummation of the
transaction, the Company will hold approximately 83% equity interests in
TTI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Basis of Presentation.The consolidated financial statements include the
accounts of the Company and its subsidiaries after elimination of all
significant intercompany accounts and transactions. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts; actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Cash Equivalents and Short-Term Investments.Cash equivalents consist of
highly liquid investments in money market accounts and certificates of
deposits purchased with an original maturity of ninety days or less from the
date of purchase. The Company classifies its short-term investments as
available-for-sale. Such investments are recorded at fair value based on
quoted market prices; unrealized gains and losses which are considered to be
temporary are recorded as other comprehensive income or loss. The Company
reviews its investments on a regular basis and considers factors including
the operating results, available evidence of the market value and economic
outlook of the relevant industry sector. When the Company concludes that an
investment has suffered impairment that is other-than-temporary, the
impairment is written off against earnings.
|  
|   |  | Inventories.Inventories are stated at the lower of cost (first-in,
first-out method) or market (net realizable value).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives which range from three to seven years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated life of the assets or the extended lease term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Impairment of Long-lived Assets.The Company reviews long-lived assets based
on a gross cash flow basis and will record for impairment whenever events or
changes in circumstances indicate the carrying amount of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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##### Table of Contents



Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | assets may not
be fully recoverable. The Company did not have any impairment charge
against the value of the property, plant and equipment during the periods
presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Investments.Equity investments of less than 20% in which the Company does
not have the ability to exert significant influence are accounted for using
the cost method. The Company reviews its investments on a regular basis and
considers factors including the operating results, available evidence of the
market value and economic outlook of the relevant industry sector. When the
Company concludes that an other-than-temporary impairment has resulted, the
difference between the fair value and the carrying value is written off and
recorded in the statement of operations.                                                                                                                                          
|
| |  | Revenue Recognition.Revenue from product sales is generally recognized
upon shipment when persuasive evidence of an arrangement exists, the price
is fixed or determinable, shipment is made and collectibility is reasonably
assured. Provision is made for expected future sales returns and allowances
when revenue is recognized. The Company has no obligation to provide any
modification or customization upgrades, enhancements or other post-sale
customer support. The Company grants certain distributors limited rights of
return and price protection on unsold products. Product revenue on
shipments to distributors with such rights is deferred until the products
are shipped to end customers by the distributors.
|
| |  | The Companys license revenues are recognized when all of the following
criteria are met: persuasive evidence of an arrangement exists, delivery has
occurred, the vendors fee is fixed or determined, and the collectibility is
reasonably assured. The Companys license revenue does not require
significant production, modification or customization of software. Royalty
revenue is recognized when the Company is informed that the related products
have been sold provided that collectibility is assured.                                                                                                                                                                                                                 
|
| |  | Software Development Costs.To date, the period between achieving
technological feasibility and the general availability of such software has
been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any
software development costs.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Income Taxes.The Company accounts for income taxes using the asset and
liability method, under which the expected future tax consequences of
temporary differences between the book and tax bases of assets and
liabilities are recognized as deferred tax assets and liabilities. The
Company does not record a deferred tax provision on unremitted earnings of
foreign subsidiaries to the extent that such earnings are considered
permanently invested. A valuation allowance is provided against deferred
tax assets unless it is considered to be more likely than not that they will
be realized.                                                                                                                            
|
| |  | Net Loss per Share.Basic net loss per share is computed by dividing net
loss available to common shareholders by the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
calculated using the weighted average number of outstanding shares of common
stock plus potential common stock shares. The calculation of diluted net
loss per share excludes potential common stock if the effect is
antidulitive. Potential common stock shares consist of common stock
options, computed using the treasury stock method based on the average stock
price for the period.                                                                                                              
|
| |  | Foreign Currency Transactions.The functional currency of the Companys
operations in all countries is the U.S. dollar. Sales and purchase
transactions are generally denominated in U.S. dollars. Foreign transaction
gains and losses were not material for each period presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Stock-based Compensation.The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of APB No. 25,
Accounting for Stock Issued to Employees and complies with the disclosure
provisions of Statements of SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. Under APB No. 25, compensation cost is
generally recognized based on the difference, if any, between the quoted
market price of the Companys stock on the date of grant and the amount an
employee must pay to acquire the stock.                                                                                        

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | Had compensation cost for the Companys stock-based compensation awards been
determined based on the fair value method consistent with the method
prescribed SFAS No. 123, the Companys net loss and net loss per share would
have been adjusted amounts as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      |                                                                                              |      |                     |         |   |      |   |         |   |  |   |         |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ---- | ------------------- | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                      |                                                                                              |      | Year Ended June 30,
|(in thousands, except per share data) |                                                                                              | 2003 |                     | 2002    |   | 2001
|                                      |                                                                                              |      |                     |         |   |     
|Net loss:                             |                                                                                              |      |                     |         |   |      |   |         |   |  |   |        
|                                      | Net loss as reported                                                                         |      | $                   | (24,764 | ) |      | $ | (35,651 | ) |  | $ | (43,640 | )
|                                      | Add: stock-based compensation included in
reported net loss.                                 |      |                     | 105     |   |      |   |        |   |  |   |        |  
|                                      | Less: stock-based compensation determined
under the fair value based method for all rewards. |      |                     | (2,171  | ) |      |   | (2,444  | ) |  |   | (2,896  | )
|                                      |                                                                                              |      |                     |         |   |      |   |         |   |  |   |         |  
|                                      | Pro forma net loss                                                                           |      | $                   | (26,830 | ) |      | $ | (38,095 | ) |  | $ | (46,536 | )
|                                      |                                                                                              |      |                     |         |   |      |   |         |   |  |   |         |  
|Basic and diluted net loss per share: |                                                                                              |      |                     |         |   |      |   |         |   |  |   |        
|                                      | As reported:                                                                                 |      | $                   | (1.81   | ) |      | $ | (2.66   | ) |  | $ | (3.33   | )
|                                      |                                                                                              |      |                     |         |   |      |   |         |   |  |   |         |  
|                                      | Pro forma:                                                                                   |      | $                   | (1.96   | ) |      | $ | (2.84   | ) |  | $ | (3.56   | )
|                                      |                                                                                              |      |                     |         |   |      |   |         |   |  |   |         |  



| |  | Weighted average fair value of options granted were $3.01, $3.26 and $3.13
for fiscal years ended June 30, 2003, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Comprehensive income/loss.The unrealized gains and losses on marketable
equity securities are comprehensive income items applicable to the Company,
and are reported as a separate component of equity as Accumulated other
comprehensive income/loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity. The principal difference between SFAS
No.146 and EITF Issue No. 94-3 relates to SFAS No.146s timing for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
Under EITF Issue No. 94-3 a liability for an exit cost as generally defined
in EITF Issue No. 94-3 was recognized at the date of an entitys commitment
to an exit plan. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. SFAS No. 146 is applied
prospectively upon adoption.
|
| |  | In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that upon issuance of a guarantee, the guarantor must recognize a liability
for the fair value of the obligation it assumes under that guarantee and
further requires a guarantor to provide additional disclosures regarding
guarantees. The Interpretations provisions for initial recognition and
measurement should be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
for financial statements of periods that end after December 15, 2002. The
adoption of this Interpretation does not have any effect on the Companys
consolidated financial statements.                                                                                                                                                                                                                                                                                                       
|
| |  | In November 2002, the Emerging Issues Task Force (EITF) reached a consensus
on Issue 00-21, addressing how to account for arrangements that involve the
delivery or performance of multiple products, services, and/or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | rights to use
assets. Revenue arrangements with multiple deliverables are divided into
separate units of accounting if the deliverables in the arrangement meet the
following criteria: (1) the delivered item has value to the customer on a
standalone basis; (2) there is objective and reliable evidence of the fair
value of undelivered items; and (3) delivery of any undelivered item is
probable. Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values, with the amount
allocated to the delivered item being limited to the amount that is not
contingent on the delivery of additional items or meeting other specified
performance conditions. The final consensus is applicable to agreements
entered into in fiscal periods beginning after June 15, 2003. The
provisions of this consensus are not expected to have a significant effect
on the Companys results of operations or financial position.                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
and requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and effect of the method used on reported results. SFAS No.
148 is effective for fiscal years ended after December 15, 2002 and is
effective for interim periods, beginning after December 15, 2002, the
adoption of this statement does not have a material effect on the Companys
financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual period beginning
after June 15, 2003. The Company believes that the adoption of this
Interpretation will have no material impact on its consolidated financial
statements.                                                                                                                                                                                                                                               
|
| |  | In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. Restatement is
not permitted. The Company will adopt this Statement in the quarter ending
September 30, 2003 and the adoption of this Statement is not expected to
have a material impact on the Companys consolidated financial statements.

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|2. |  | Balance Sheet Components
|-- |  | ------------------------

|                             |                                                         |      |          |        |   |   |        |         |  
|---------------------------- | ------------------------------------------------------- | ---- | -------- | ------ | - | - | ------ | ------- | -
|                             |                                                         |      | June 30,
|(in thousands)               |                                                         | 2003 |          | 2002  
|                             |                                                         |      |          |       
|Accounts receivable, net:    |                                                         |      |          |        |   |   |        |        
|                             | Trade accounts receivable                               |      | $        | 4,947  |   |   | $      | 6,386   |  
|                             | Less: allowance for doubtful accounts and sales returns |      |          | (609   | ) |   |        | (2,102  | )
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         | $    | 4,338    |        |   | $ | 4,284  |        
|                             |                                                         |      |          |        |   |   |        |         |  
|Inventories:                 |                                                         |      |          |        |   |   |        |        
|                             | Work in process                                         |      | $        | 549    |   |   | $      | 585     |  
|                             | Finished goods                                          |      |          | 1,769  |   |   |        | 2,605   |  
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         | $    | 2,318    |        |   | $ | 3,190  |        
|                             |                                                         |      |          |        |   |   |        |         |  
|Assets held for sale:        |                                                         |      |          |        |   |   |        |        
|                             | Inventories                                             |      | $        | 1,700  |   |   | $      |        |  
|                             | Property and equipment                                  |      |          | 100    |   |   |        |        |  
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         | $    | 1,800    |        |   | $ |       |        
|                             |                                                         |      |          |        |   |   |        |         |  
|Property and equipment, net: |                                                         |      |          |        |   |   |        |        
|                             | Machinery and equipment                                 |      | $        | 10,264 |   |   | $      | 12,140  |  
|                             | Furniture and fixtures                                  |      |          | 1,435  |   |   |        | 1,644   |  
|                             | Leasehold improvements                                  |      |          | 838    |   |   |        | 944     |  
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         |      | 12,537   |        |   |   | 14,728 |        
|                             | Less: accumulated depreciation and amortization         |      |          | (9,748 | ) |   |        | (10,018 | )
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         | $    | 2,789    |        |   | $ | 4,710  |        
|                             |                                                         |      |          |        |   |   |        |         |  
|Accrued expenses:            |                                                         |      |          |        |   |   |        |        
|                             | Compensation accruals                                   |      | $        | 2,375  |   |   | $      | 2,670   |  
|                             | Professional fee accruals                               |      |          | 1,341  |   |   |        | 1,456   |  
|                             | Sales rebate accruals                                   |      |          | 464    |   |   |        | 784     |  
|                             | Nonrecurring engineering charges                        |      |          | 142    |   |   |        | 654     |  
|                             | Dealer commission accruals                              |      |          | 330    |   |   |        | 512     |  
|                             | Other                                                   |      |          | 3,680  |   |   |        | 4,125   |  
|                             |                                                         |      |          |        |   |   |        |         |  
|                             |                                                         | $    | 8,332    |        |   | $ | 10,201 |        
|                             |                                                         |      |          |        |   |   |        |         |  

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|3. |  | Net Loss Per Share                                                                                                         
|-- |  | ---------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Reconciliations of the numerators and denominators of the basic and diluted
net loss per share calculations are as follows:

|                                                                                       |  |                     |         |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                       |  | Year Ended June 30,
|(in thousands, except per share data)                                                  |  | 2003                |         | 2002 |  | 2001
|                                                                                       |  |                     |         |      |  |     
|Basic and diluted net loss per share                                                   |  |                     |         |      |  |      |         |   |  |   |         |  
|Net loss                                                                               |  | $                   | (24,764 | )    |  | $    | (35,651 | ) |  | $ | (43,640 | )
|Weighted average common shares                                                         |  |                     | 13,683  |      |  |      | 13,419  |   |  |   | 13,087  |  
|Basic and diluted net loss per share                                                   |  | $                   | (1.81   | )    |  | $    | (2.66   | ) |  | $ | (3.33   | )
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |         |  
|Common stock equivalents not
included in the calculation because
they are antidilutive |  |                     | 2,101   |      |  |      | 3,605   |   |  |   | 3,034   |  
|                                                                                       |  |                     |         |      |  |      |         |   |  |   |         |  



|4. |  | Investment in UMC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In August 1995, the Company made an investment of $49.3 million in United
Integrated Circuits Corporation (UICC). On January 3, 2000, United
Microelectronics Corporation (UMC) acquired UICC and, as a result of this
merger, the Company received approximately 46.5 million shares of UMC.
Subsequently, UMC announced a 20% stock dividend payable to shareholders of
record May 16, 2000, and a 15% stock dividend payable to shareholders of
record July 21, 2001. The only change in the number of shares in UMC held
by the Company from January 3, 2000 to June 30, 2003 was the increase
resulting from the stock dividends. As of June 30, 2003, the Company owned
approximately 73.8 million shares of UMC which represents about 0.5% of the
outstanding stock of UMC.                                                                     
|  
|   |  | On January 3, 2000, the Company recognized a pre-tax gain of $117.0 million
upon the receipt of UMC shares in exchange for the UICC shares. In the
quarter ended March 31, 2001, based on the decline of UMCs stock price, the
decline in stock prices of publicly traded semiconductor companies and the
unfavorable outlook regarding the demand and operating environment of the
semiconductor industry, the Company concluded that the decline in the
investment value in UMC had become other-than-temporary. Accordingly, the
difference of $76.4 million between the carrying value on January 3, 2000
and the quoted fair value on March 31, 2001 was written off and included in
earnings as impairment loss on investments in accordance with SFAS No. 115
and APB No. 18 for the short-term and long-term portions of investments,
respectively.
|  
|   |  | In the quarter ended September 30, 2001, the Company concluded that due to a
substantial decline in the market value of UMCs stock price from March 31,
2001 to September 30, 2001, the continued decline in stock prices of
publicly traded semiconductor companies and the continuing unfavorable
outlook for the semiconductor industry, the decline in the investment value
in UMC had become other-than-temporary. Accordingly, the difference of
$40.0 million between the carrying value on March 31, 2001 and the quoted
fair value on September 30, 2001, was written off against earnings as an
impairment loss on investments in accordance with SFAS No. 115 and APB No.
18, for the short-term and long-term portions of investments, respectively.                                                                                           
|  
|   |  | Due to an increase in the market value of UMCs stock price from October 1,
2001 to June 30, 2002, an unrealized gain of $13.0 million was recorded in
equity as accumulated other comprehensive loss in accordance with SFAS No.
130, Reporting Comprehensive Income. The $13.0 million is equal to a
$21.6 million increase in market value of our short-term investment in UMC
from October 1, 2001 to June 30, 2002, less deferred income taxes of $8.6
million relating to the unrealized gain.                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Due to a decrease in the market value of UMCs stock price from October 1,
2002 to June 30, 2003, an unrealized loss of $15.2 million was recorded in
equity as accumulated other comprehensive loss in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|   |  | accordance with SFAS No.
130, Reporting Comprehensive Income. The $15.2 million is equal to a
$23.8 million decrease in market value of our short-term investment in UMC
from October 1, 2002 to June 30, 2003, and the reversal of deferred income
taxes of $8.6 million relating to the unrealized gain for the year ended
June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In order to preserve the 12.5% wafer capacity guarantee of the UICC
facility, which guarantees a maximum of approximately 3,000 wafers per
month, there are certain limitations on the Companys ability to sell the
UMC shares. If the Companys total shareholdings fall below one-half of the
initial percentage of shares held in UMC, the Companys production capacity
will be reduced by at least 50%, and depending on the interpretation of the
foundry capacity agreement between the parties, the Companys production
capacity could be reduced by substantially more than 50%. In addition,
one-third of the shares are subject to a two-year lock-up period in
accordance with an investment agreement entered into with UMC on January 3,
2000. After a two-year period, one-fifth of the shares will be available
for sale from the lock-up portion every six months. As of June 30, 2003,
approximately 6.4 million shares with a carrying value of $4.4 million are
subject to this lock-up restriction. These shares are accounted for as
long-term investments using the cost method in accordance with
APB No. 18.
|  
|   |  | Shares of the Companys UMC investment are listed on the Taiwan Stock
Exchange. In accordance with SFAS No. 115, the 67.4 million unrestricted
shares are treated as available-for-sale securities and are classified as
short-term investments. These unrestricted shares had a market value of
$43.5 million as of June 30, 2003. Unrestricted shares include shares that
may need to be held by the Company to retain wafer capacity, as described in
the prior paragraph.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|5. |  | Investments in other companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | During the fiscal years ended June 30, 2003 and 2002, the Company also
recognized net impairment loss on investments other than UMC totaling
approximately $5.0 million and $2.7 million, respectively, as follows (in
thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                               |  |            |       |  
|------------------------------ |  | ---------- | ----- | -
|                               |  | Year ended
|                               |  | June 30,  
|                               |  | 2003      
|Optical applications company   |  | $          | 987   |  
|Fiber optic technology company |  |            | 151   |  
|Circuit design company         |  |            | 500   |  
|Analog circuit design company  |  |            | 753   |  
|Optical networking company     |  |            | 831   |  
|Broadband networking company   |  |            | 1,370 |  
|Software development company   |  |            | 110   |  
|Venture capital funds          |  |            | 460   |  
|System design software company |  |            | (167  | )
|                               |  |            |       |  
|Total                          |  | $          | 4,995 |  
|                               |  |            |       |  



| |  | In May 2000, the Company invested $750,000 in a private company engaged in
optical applications technology. In June 2001, an additional $509,000 was
invested in the company. In the year ended June 30, 2003, the Company
determined that the fair value of the shares had decreased significantly.
Therefore, the Company
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | assessed the fair value of its investment based on
the latest financing transaction and concluded that the impairment was
other-than-temporary. Accordingly, an amount of the investment of $987,000
was written off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2000, the Company invested $500,000 in a private company engaged in
fiber optic technology. In the quarter ended June 30, 2002, the Company
recorded an other-than-temporary impairment of $349,000. In the year ended
June 30, 2003, the Company further determined that the prospects for
recovery of the investment were unfavorable given the market position of the
company and the companys operating losses. Therefore, the Company
concluded that the impairment was other-than-temporary. Accordingly, the
remaining investment of $151,000 was written off against earnings in
accordance with APB No. 18. The company ceased its operations during the
quarter ended March 31, 2003.
|
| |  | In February 2000, the Company invested $500,000 in a private company engaged
in integrated circuit design. In the year ended June 30, 2003, the Company
determined that the prospects for recovery of the investment were
unfavorable given the deteriorating cash position of the company and the
companys operating losses. Accordingly, all of the investment was written
off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                       
|
| |  | In May 2000 to May 2002, the Company invested $753,000 in a private company
engaged in analog integrated circuit design. In the year ended June 30,
2003, the Company determined that the cash position of the company was poor
and there was reasonable doubt the company may not be able to raise
additional funds. Therefore, the Company concluded that the impairment was
other-than-temporary. Accordingly, all of the investment was written off
against earnings in accordance with APB No. 18.                                                                                                                                                                                                 
|
| |  | In December 1999 and January 2003, the Company invested a total of $1.1
million in a private company engaged in optical networking. In the year
ended June 30, 2003, the Company determined that the fair value of the
shares had decreased significantly based on the purchase price agreed by an
acquiring company. Therefore, the Company assessed the fair value of its
investment and concluded that the impairment was other-than-temporary.
Accordingly, $831,000 of the investment was written off against earnings in
accordance with APB No. 18.                                                                                                                                              
|
| |  | In July 2000, the Company invested $1.6 million in a private company engaged
in broadband networking. In the quarter ended March 31, 2003, the Company
determined that the fair value of the shares had decreased significantly.
Therefore, the Company assessed the fair value of its investment based on
the latest financing transaction and concluded that the impairment was
other-than-temporary. Accordingly, $1,370,000 of the investment was written
off against earnings in accordance with APB No. 18.                                                                                                                                                                                       
|
| |  | In March 2000, the Company invested $287,000 in a private company engaged in
software development. In the year ended June 30, 2003, the Company
determined that revenue growth had not been achieved and the investments
financial position had deteriorated significantly. Therefore, the Company
assessed the fair value of its investment based on the investments latest
financial position and concluded that the impairment was
other-than-temporary. Accordingly, $110,000 of the investment was written
off against earnings in accordance with APB No. 18.                                                                                                                                   
|
| |  | From December 1999 to November 2001, the Company invested $3.4 million in
several venture capital funds. In the year ended June 30, 2003, losses of
$460,000 were recorded as an other-than-temporary impairment and written off
against earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | In May 2000, the Company invested $250,000 in a private system design
software company. This company was acquired by a publicly traded design
software company during May 2002. The acquisition resulted in the Company
receiving shares of the acquiring company which had fair value in excess of
the original investment. Therefore, a gain of $568,000 was recorded in the
year ended June 30, 2002. During the year ended June 30, 2003, the Company
received additional shares in the acquiring company upon the achievement of
certain milestones, and accordingly, an additional realized gain of $167,000
was recognized.                                                                      

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | During the fiscal year ended June 30, 2002, the Company recognized net
impairment losses on investments other than UMC totaling approximately $2.7
million as follows (thousands):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      |  |            |       |  
|------------------------------------- |  | ---------- | ----- | -
|                                      |  | Year ended
|                                      |  | June 30,  
|                                      |  | 2002      
|ADSL company                          |  | $          | 270   |  
|Communications company                |  |            | 66    |  
|Broadband communications company      |  |            | 750   |  
|Voice over DSL communications company |  |            | 850   |  
|Optical networking company            |  |            | 349   |  
|Broadband server technology company   |  |            | 275   |  
|Venture capital funds                 |  |            | 743   |  
|System design software company        |  |            | (568  | )
|                                      |  |            |       |  
|Total                                 |  | $          | 2,735 |  
|                                      |  |            |       |  



| |  | In September 1999, the Company invested $909,000 in an ADSL company for
227,250 shares of preferred stock which were then converted into the same
number of common stock shares upon the companys initial public offering in
August 2000. On March 31, 2001 the fair value of these shares as quoted was
$498,000. Because the company experienced declining earnings in relation to
its competitors in the ADSL market and erosion of its market share, the
decline in value was considered other-than-temporary. Accordingly, the
difference between the carrying value and the quoted fair value on March 31,
2001 was written off against earnings in accordance with SFAS No. 115. On
September 30, 2001, due to decreasing value in the companys shares, the
difference between the carrying value and the quoted fair value on September
30, 2001 of $270,000 was considered an other-than-temporary impairment and
was written off against earnings in accordance with SFAS No. 115. Due to an
increase in the market value of the ADSL companys stock price from October
1, 2001 to June 30, 2002, an unrealized gain of $83,000 was recorded in
equity as other comprehensive income. The net gain of $83,000 is equal to
a $139,000 increase in market value of the short-term investment from
October 1, 2001 to June 30, 2002, less deferred taxes relating to the
unrealized loss of $55,000.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2000, the Company invested $600,000 in a communications company
which was subsequently acquired by a listed company. On March 31, 2001, the
fair value of the shares of the listed company owned by the Company was
$221,000. Because of the significant losses incurred by this company, the
Company concluded that the decline in value was other-than-temporary.
Accordingly, the difference between the carrying value and the quoted fair
value on March 31, 2001 was written off against earnings in accordance with
SFAS No. 115. On September 30, 2001 due to the continued deteriorating
industry outlook and decreasing value in the companys shares, the
difference between the carrying value and the quoted fair value on September
30, 2001 of $66,000 was considered an other-than-temporary impairment and
was written off against earnings in accordance with SFAS No. 115. Due to a
decrease in the market value of the communications companys stock price
from October 1, 2001 to June 30, 2002, an unrealized loss of $13,000 was
recorded in equity as other comprehensive loss. The net loss of $13,000
is equal to a $21,000 decrease in market value of the short-term investment
from October 1, 2001 to June 30, 2002, less deferred tax benefits relating
to the unrealized loss of $8,000.                                                                             
|
| |  | In April 2000, the Company invested $650,000 in a private company engaged in
broadband communication technology. In June 2000, an additional $100,000
was invested in the company. In the quarter ended September 30, 2001, the
Company determined that the prospects for recovery of the investment were
unfavorable given the market position of the company and the companys
operating losses. Therefore, the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|   |  | Company concluded that the impairment was
other-than-temporary. Accordingly, the full investment of $750,000 was
written off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In September 2000, the Company invested $1,500,000 in a private company
engaged in voice over DSL communication technology. In the quarter ended
September 30, 2001, the Company determined that this communications company
was in a product reengineering process. It was considered likely that the
company would cease operations. The Company assessed the estimated cash
recoverable from this investment and concluded that the estimated shortfall
was an other-than-temporary impairment. Accordingly, $1,000,000 of the
investment was written off against earnings in accordance with APB No. 18.
In December 2001, this investment was sold for $650,000 and a gain of
$150,000 was recognized as Gain on investments for the three months ended
December 31, 2001.                                                                                                              
|  
|   |  | In June 2000, the Company invested $500,000 in a private company engaged in
fiber optic technology. In the quarter ended June 30, 2002, the Company
determined that the fair value of the shares had decreased significantly.
Therefore, the Company assessed the fair value of the shares and concluded
that the estimated
shortfall was an other-than-temporary impairment. Accordingly, $349,000 of
the investment was written off against earnings in accordance with APB No.
18.                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | In March 2000, the Company invested $550,000 in a private company engaged in
broadband server technology. In the quarter ended June 30, 2002, the
Company determined that the product outlook and future cash position for
this company was unfavorable. Therefore, the Company assessed the estimated
fair value of the investment held and concluded that the estimated shortfall
was an other-than-temporary impairment. Accordingly, $275,000 of the
investment was written off against earnings in accordance with APB No. 18.                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | From December 1999 to September 2000, the Company invested a total of
$2,900,000 in several venture capital funds. In the quarter ended June 30,
2002, substantial losses were recorded by the funds. Accordingly, the
Company recorded an other-than-temporary impairment of $743,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In May 2000, the Company invested $250,000 in a private system design
software company. This company was acquired by a publicly traded design
software company during May 2002. The acquisition resulted in the Company
receiving shares of the acquiring company which had fair value in excess of
the original investment. Therefore, a gain of $568,000 was recorded in the
quarter ended June 30, 2002. Subsequent to the acquisition, and prior to
June 30, 2002, the fair value of the acquiring companys stock decreased,
resulting in an unrealized loss of $99,000 which was recorded in equity as
other comprehensive loss in accordance with SFAS No. 130, Reporting
Comprehensive Income. The net loss of $99,000 is equal to a $165,000
decrease in market value of the short-term investment on June 30, 2002, less
deferred taxes relating to the unrealized loss of $66,000.
|  
|6. |  | Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Under SFAS No. 130, Reporting Comprehensive Income any unrealized gains or
losses on the short-term investments which are classified as
available-for-sale equity securities are to be reported as a separate
adjustment to equity. The components of accumulated other comprehensive
income (loss) as of June 30, 2003 and 2002 are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                  |  |          |        |      |  |   |        |  
|------------------------------------------------- |  | -------- | ------ | ---- |  | - | ------ | -
|                                                  |  | June 30,
|                                                  |  | 2003     |        | 2002
|                                                  |  |          |        |     
|Unrealized gain (loss) on short-term investments: |  |          |        |      |  |   |        |  
|UMC                                               |  | $        | (2,245 | )    |  | $ | 12,973 |  
|Other                                             |  |          | 24     |      |  |   | (29    | )
|                                                  |  |          |        |      |  |   |        |  
|Total                                             |  | $        | (2,221 | )    |  | $ | 12,944 |  
|                                                  |  |          |        |      |  |   |        |  

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|7. |  | Other current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Included in other current assets at June 30, 2002 was a $500,000 loan to Mr.
Frank Lin, the Companys President and Chief Executive Officer. In
accordance with an agreement dated April 27, 2000 and an amendment to this
agreement approved by the Companys Board of Directors on April 22, 2002,
this loan was provided to Mr. Lin for his personal use. It was settled in
full on April 27, 2003 with accrued interest of $60,350. Mr. Lin used
shares of the Companys stock he acquired several years ago as collateral
for the loan. This loan was not provided in relation to any purchase of the
Companys stock or the exercise of the Companys stock options.
|  
|8. |  | Income Taxes
The components of loss before income taxes are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                           |  | Year Ended June 30,
|(in thousands)                                                                             |  | 2003                |         | 2002 |  | 2001
|                                                                                           |  |                     |         |      |  |     
|Income (loss) subject to domestic income taxes only                                        |  | $                   | (4,643  | )    |  | $    | (43,515 | ) |  | $ | (79,970 | )
|Income (loss) subject to foreign income taxes, and in
certain cases, domestic income taxes |  |                     | (19,075 | )    |  |      | (11,720 | ) |  |   | 6,268   |  
|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  
|                                                                                           |  | $                   | (23,718 | )    |  | $    | (55,235 | ) |  | $ | (73,702 | )
|                                                                                           |  |                     |         |      |  |      |         |   |  |   |         |  



| |  | The provision (benefit) for income taxes is comprised of the following:
| |  | -----------------------------------------------------------------------

|               |  |                     |       |      |  |      |         |   |  |   |         |  
|-------------- |  | ------------------- | ----- | ---- |  | ---- | ------- | - |  | - | ------- | -
|               |  | Year Ended June 30,
|(in thousands) |  | 2003                |       | 2002 |  | 2001
|               |  |                     |       |      |  |     
|Current:       |  |                     |       |      |  |      |         |   |  |   |         |  
|Federal        |  | $                   |      |      |  | $    | (6,722  | ) |  | $ |        |  
|State          |  |                     |      |      |  |      | (762    | ) |  |   |        |  
|Foreign        |  |                     |      |      |  |      |        |   |  |   | 309     |  
|               |  |                     |       |      |  |      |         |   |  |   |         |  
|               |  | $                   |      |      |  | $    | (7,484  | ) |  | $ | 309     |  
|               |  |                     |       |      |  |      |         |   |  |   |         |  
|Deferred:      |  |                     |       |      |  |      |         |   |  |   |         |  
|Federal        |  |                     | 915   |      |  |      | (9,624  | ) |  |   | (26,136 | )
|State          |  |                     | 131   |      |  |      | (2,476  | ) |  |   | (4,235  | )
|               |  |                     |       |      |  |      |         |   |  |   |         |  
|               |  |                     | 1,046 |      |  |      | (12,100 | ) |  |   | (30,371 | )
|               |  |                     |       |      |  |      |         |   |  |   |         |  
|               |  | $                   | 1,046 |      |  | $    | (19,584 | ) |  | $ | (30,062 | )
|               |  |                     |       |      |  |      |         |   |  |   |         |  

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

The deferred tax assets (liabilities) are comprised of the following:

|                          |                                             |      |          |         |   |   |        |        |  
|------------------------- | ------------------------------------------- | ---- | -------- | ------- | - | - | ------ | ------ | -
|                          |                                             |      | June 30,
|(in thousands)            |                                             | 2003 |          | 2002   
|                          |                                             |      |          |        
|Deferred tax assets:      |                                             |      |          |         |   |   |        |       
|                          | Reserves and accruals                       |      | $        | 2,085   |   |   | $      | 1,246  |  
|                          | Research and development credits            |      |          | 9,753   |   |   |        | 7,686  |  
|                          | Net operating losses                        |      |          | 1,784   |   |   |        | 1,851  |  
|                          | Capital loss                                |      |          | 549     |   |   |        |       |  
|                          | Other                                       |      |          | 90      |   |   |        | 250    |  
|                          |                                             |      |          |         |   |   |        |        |  
|Deferred tax assets       |                                             |      | 14,261   |         |   |   | 11,033 |       
|                          | Valuation allowance                         |      |          | (12,353 | ) |   |        |       |  
|                          |                                             |      |          |         |   |   |        |        |  
|Deferred tax assets, net  |                                             |      | 1,908    |         |   |   | 11,033 |       
|Deferred tax liabilities: |                                             |      |          |         |   |   |        |       
|                          | Capital gains not recognized for tax        |      |          |        |   |   |        | (8,978 | )
|                          | Unremitted earnings of foreign subsidiaries |      |          | (1,908  | ) |   |        | (7,146 | )
|                          |                                             |      |          |         |   |   |        |        |  
|                          |                                             | $    |         |         |   | $ | (5,091 | )     
|                          |                                             |      |          |         |   |   |        |        |  
|Presented as:             |                                             |      |          |         |   |   |        |       
|                          | Deferred tax assets  current               |      | $        |        |   |   | $      | 1,247  |  
|                          | Deterred tax liabilities  long-term        |      |          |        |   |   |        | (6,338 | )
|                          |                                             |      |          |         |   |   |        |        |  
|                          |                                             | $    |         |         |   | $ | (5,091 | )     
|                          |                                             |      |          |         |   |   |        |        |  



| |  | As of June 30, 2003, the Companys federal and state net operating loss
carryforwards for income tax purposes were approximately $4.6 million and
$3.7 million, respectively. Federal and state net operating losses will
begin to expire in fiscal year ending 2019 and 2004, respectively. Federal
and state tax-credit carryforwards were $6.7 million and $3.0 million,
respectively. Federal tax credits will begin to expire in fiscal year
ending 2017.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The reconciliation of the income tax provisions computed at the United
States federal statutory rate to the effective tax rate for the recorded
provision for income taxes is as follows:                                                                                                                                                                                                                                                                     

|                                        |  |                     |       |      |  |  |       |   
|--------------------------------------- |  | ------------------- | ----- | ---- |  |  | ----- | --
|                                        |  | Year ended June 30,
|                                        |  | 2003                |       | 2002
|                                        |  |                     |       |     
|Federal statutory rate                  |  |                     | (35.0 | )%   |  |  | (35.0 | )%
|State taxes, net of federal tax benefit |  |                     | (5.9  | )    |  |  | (5.9  | ) 
|Research and development credit         |  |                     | (6.3  | )    |  |  | (2.5  | ) 
|Unbenefited foreign losses              |  |                     | 30.0  |      |  |  | 7.9   |   
|Valuation allowance                     |  |                     | 21.6  |      |  |  |      |   
|                                        |  |                     |       |      |  |  |       |   
|Effective income tax rate               |  |                     | 4.4   | %    |  |  | (35.5 | )%
|                                        |  |                     |       |      |  |  |       |   



| |  | The Company has fully provided for U.S. federal income and foreign
withholding taxes on a non-U.S. subsidiarys undistributed earnings as of
June 30, 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|9. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Stock Purchase Plans.In December, 2002, the Board of Directors of the
Company (the Board) adopted the 2002 Employee Stock Purchase Plan
reserving 675,000 shares of the Companys common stock for future issuance.
In October 1998, the Board adopted the 1998 Employee Stock Purchase Plan
under which 500,000 shares of the Companys common stock may be issued.
This plan replaced the 1992 Employee Stock Purchase Plan which was
terminated on October 30, 1998. Shares are to be purchased from payroll
deductions; employees of the Company who are based outside the United States
may participate by making direct contributions to the Company for the
purchase of stock. Such payroll deductions or direct contributions may not
exceed 10% of an employees compensation. The purchase price per share at
which the shares of the Companys common stock are sold in an offering
generally will be equal to 85% of the lesser of the fair market value of the
common stock on the first or the last day of the offering. During fiscal
years 2003, 2002 and 2001, 146,000, 100,000 and 114,000 shares were issued
under the 1998 Employee Stock Purchase Plan, respectively. During fiscal
year 1999, 144,000 shares were issued under the 1992 Employee Stock Purchase
Plan.
|  
|   |  | Stock Options.The Company grants nonstatutory and incentive stock options
to key employees, directors and consultants. At June 30, 2003, shares of
common stock reserved for issuance upon exercise of the stock options
aggregated 9,440,000. Stock options are granted at prices determined by the
Board. Nonstatutory and incentive stock options may be granted at prices
not less than 85% of the fair market value and at not less than fair market
value, respectively, at the date of grant. Options generally become
exercisable one year after date of grant and vest over a maximum period of
five years following the date of grant. The Company has not granted stock
options or equity instruments to non-employees other than members of its
Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The following table summarizes the option activities for the years ended
June 30, 2001, 2002 and 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |  |              | 
|------------------------------------- |  | ------------- | ------ | --------- |  | ---------------- | ----- | ----------- |  | - | ---- |  |  |  | ------------ | 
|                                      |  | Options       |        | Options   |  | Weighted Average |       | Outstanding
|                                      |  | Available for |        | Number of |  | Exercise         |       | Price Per  
|(in thousands, except per share data) |  | Grant         |        | Options   |  | Price            |       | Option     
|                                      |  |               |        |           |  |                  |       |            
|Balance at June 30, 2000              |  |               | 788    |           |  |                  | 3,716 |             |  |   |      |  |  |  | $1.05-$34.38 | 
|Additional shares reserved            |  |               | 600    |           |  |                  |      |             |  |   |      |  |  |  |              | 
|Options granted                       |  |               | (1,015 | )         |  |                  | 1,015 |             |  | $ | 4.71 |  |  |  | $4.28-$8.00  | 
|Options exercised                     |  |               |       |           |  |                  | (617  | )           |  | $ | 3.57 |  |  |  | $2.63-$6.50  | 
|Options canceled                      |  |               | 887    |           |  |                  | (887  | )           |  | $ | 4.82 |  |  |  | $2.63-$20.50 | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |  |              | 
|Balance at June 30, 2001              |  |               | 1,260  |           |  |                  | 3,227 |             |  |   |      |  |  |  | $1.05-$34.38 | 
|Additional shares reserved            |  |               | 1,110  |           |  |                  |      |             |  |   |      |  |  |  |              | 
|Options granted                       |  |               | (937   | )         |  |                  | 937   |             |  | $ | 4.59 |  |  |  | $3.87-$7.75  | 
|Options exercised                     |  |               |       |           |  |                  | (237  | )           |  | $ | 3.29 |  |  |  | $1.05-$5.50  | 
|Options canceled                      |  |               | 102    |           |  |                  | (102  | )           |  | $ | 4.52 |  |  |  | $3.06-$5.89  | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |  |              | 
|Balance at June 30, 2002              |  |               | 1,535  |           |  |                  | 3,825 |             |  |   |      |  |  |  | $2.63-$34.38 | 
|Additional shares reserved            |  |               | 675    |           |  |                  |      |             |  |   |      |  |  |  |              | 
|Plan shares expired                   |  |               | (245   | )         |  |                  |      |             |  |   |      |  |  |  |              | 
|Options granted                       |  |               | (1,098 | )         |  |                  | 1,098 |             |  | $ | 4.32 |  |  |  | $2.78-$6.19  | 
|Options exercised                     |  |               |       |           |  |                  | (251  | )           |  | $ | 3.91 |  |  |  | $2.63-$7.75  | 
|Options canceled                      |  |               | 205    |           |  |                  | (205  | )           |  | $ | 4.25 |  |  |  | $3.50-$9.75  | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |  |              | 
|Balance at June 30, 2003              |  |               | 1,072  |           |  |                  | 4,467 |             |  |   |      |  |  |  | $2.63-$34.38 | 
|                                      |  |               |        |           |  |                  |       |             |  |   |      |  |  |  |              | 

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | At June 30, 2003, 2002 and 2001, options for 2,526,000, 2,196,000, and
1,806,000 shares of common stock were vested but not exercised,
respectively. In October 1998, the Company canceled 3,643,000 outstanding
options with exercise prices greater than $3.50 and reissued the options
with an exercise price of $3.50. In January 1998, the Company canceled
1,702,000 outstanding options granted after July 28, 1997 with exercise
prices greater than $8.63 and reissued the options with an exercise price of
$8.63.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
June 30, 2003:

|                                     |       |                                 |  |                  |  |                |   |             |  |                |  |       |  |  |                  |     |          |  |   |      |  |  |          |       |  |  |   |      | 
|------------------------------------ | ----- | ------------------------------- |  | ---------------- |  | -------------- | - | ----------- |  | -------------- |  | ----- |  |  | ---------------- | --- | -------- |  | - | ---- |  |  | -------- | ----- |  |  | - | ---- | 
|Options Outstanding                  |       | Options Exercisable            
|(in thousands except per share data) |       | (in thds except per share data)
|                                     |       |                                
|                                     |       |                                 |  |                  |  |                |   |             |  |                |  |       |  |  | Weighted Average |     | Weighted |  |   |      |  |  | Weighted
|Range of                             |       | Number                          |  | Remaining        |  | Average        |   | Number      |  | Average       
|Exercise Prices                      |       | Outstanding                     |  | Contractual Life |  | Exercise Price |   | Exercisable |  | Exercise Price
|                                     |       |                                 |  |                  |  |                |   |             |  |               
|                                     | $2.63 |                                 |  | -                |  |                | $ | 3.38        |  |                |  | 587   |  |  |                  | 8.0 |          |  | $ | 3.00 |  |  |          | 183   |  |  | $ | 3.14 | 
|                                     | $3.50 |                                 |  | -                |  |                | $ | 3.50        |  |                |  | 1,098 |  |  |                  | 5.3 |          |  | $ | 3.50 |  |  |          | 1,098 |  |  | $ | 3.50 | 
|                                     | $3.87 |                                 |  | -                |  |                | $ | 4.31        |  |                |  | 1,117 |  |  |                  | 7.3 |          |  | $ | 4.15 |  |  |          | 643   |  |  | $ | 4.21 | 
|                                     | $4.39 |                                 |  | -                |  |                | $ | 5.08        |  |                |  | 1,026 |  |  |                  | 9.3 |          |  | $ | 4.86 |  |  |          | 147   |  |  | $ | 4.44 | 
|                                     | $5.16 |                                 |  | -                |  |                | $ | 34.38       |  |                |  | 639   |  |  |                  | 6.4 |          |  | $ | 7.68 |  |  |          | 455   |  |  | $ | 8.20 | 
|                                     |       |                                 |  |                  |  |                |   |             |  |                |  |       |  |  |                  |     |          |  |   |      |  |  |          |       |  |  |   |     
|                                     | $2.63 |                                 |  | -                |  |                | $ | 34.38       |  |                |  | 4,467 |  |  |                  | 7.2 |          |  | $ | 4.50 |  |  |          | 2,526 |  |  | $ | 4.56 | 
|                                     |       |                                 |  |                  |  |                |   |             |  |                |  |       |  |  |                  |     |          |  |   |      |  |  |          |       |  |  |   |     



| |  | As part of the restructuring of its graphics division, on June 11, 2003, the
exercise period of stock options granted to the employees under the graphics
division was extended for several months after their termination effective
June 30, 2003. Accordingly, the stock options were subject to remeasurement
and the intrinsic value of $105,000 was charged as stock-based compensation
in the year ended June 30, 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in fiscal 2003, 2002
and 2001, respectively:                                                                                                                                                                          

|                    |                                 |  |                     |              |      |  |      |              |   |  |  |              |  
|------------------- | ------------------------------- |  | ------------------- | ------------ | ---- |  | ---- | ------------ | - |  |  | ------------ | -
|                    |                                 |  | Year Ended June 30,
|                    |                                 |  | 2003                |              | 2002 |  | 2001
|                    |                                 |  |                     |              |      |  |     
|Stock Options Plans |                                 |  |                     |              |      |  |      |              |   |  |  |             
|                    | Expected dividend yield         |  |                     |             |      |  |      |             |   |  |  |             |  
|                    | Expected stock price volatility |  |                     | 88%          |      |  |      | 90%          |   |  |  | 80%          |  
|                    | Risk-free interest rate         |  |                     | 2.34% - 2.92 | %    |  |      | 3.92% - 4.97 | % |  |  | 4.63% - 5.85 | %
|                    | Expected life (years)           |  |                     | 5            |      |  |      | 5            |   |  |  | 5            |  
|Stock Purchase Plan |                                 |  |                     |              |      |  |      |              |   |  |  |             
|                    | Expected dividend yield         |  |                     |             |      |  |      |             |   |  |  |             |  
|                    | Expected stock price volatility |  |                     | 78% - 90%    |      |  |      | 80% - 92%    |   |  |  | 71% - 82%    |  
|                    | Risk-free interest rate         |  |                     | 2.24% - 2.67 | %    |  |      | 4.09% - 5.44 | % |  |  | 4.38% - 5.37 | %
|                    | Expected life (years)           |  |                     | 0.5          |      |  |      | 0.5          |   |  |  | 0.5          |  

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|    |  | Stock Repurchases.There were no stock repurchases during fiscal years 2003
and 2002. During fiscal year 2001 and 2000, 734,000 and 680,000 shares of
common stock were repurchased for $7.7 million and $6.2 million,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|10. |  | Preferred Rights Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | On July 24, 1998, the Board adopted a Preferred Shares Rights Agreement
(Agreement) and pursuant to the Agreement authorized and declared a
dividend of one preferred share purchase right (Right) for each common
share outstanding of the Company on August 14, 1998. The Rights are
designed to protect and maximize the value of the outstanding equity
interests in the Company in the event of an unsolicited attempt by an
acquirer to take over the Company, in a manner or terms not approved by the
Board. Each Right becomes exercisable to purchase one-hundredth of a share
of Series A Preferred Stock of the Company at an exercise price of $50.00
and expire on July 23, 2008. The Company may redeem the Rights at a price
of $0.001 per Right.
|   
|11. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Company has two reportable segments for fiscal 2003: videographics and
digital media. As of June 30, 2002, the assets attributed to the digital
media segment were negligible. As of June 30, 2003, the assets attributable
to the graphics segment amounted to approximately $1.8 million. The
following is a summary of the Companys segment information (in thousands):                                                                                                                                                                                                                                                                                                                                                                                      

|                                                |  |                     |         |      |  |   |         |  
|----------------------------------------------- |  | ------------------- | ------- | ---- |  | - | ------- | -
|                                                |  | Year Ended June 30,
|                                                |  |                    
|                                                |  | 2003                |         | 2002
|                                                |  |                     |         |     
|Graphics                                        |  |                     |         |      |  |   |         |  
|Total revenues                                  |  | $                   | 26,247  |      |  | $ | 98,788  |  
|Operating loss                                  |  | $                   | (16,780 | )    |  | $ | (4,878  | )
|Digital Media:                                  |  |                     |         |      |  |   |         |  
|Total revenues                                  |  | $                   | 25,566  |      |  | $ | 6,222   |  
|Operating income (loss)                         |  | $                   | 1,853   |      |  | $ | (3,924  | )
|Other:                                          |  |                     |         |      |  |   |         |  
|Total revenues                                  |  | $                   | 939     |      |  | $ | 756     |  
|Unallocated general and
administrative expenses |  | $                   | (3,527  | )    |  | $ | (4,204  | )
|Total:                                          |  |                     |         |      |  |   |         |  
|Total revenues                                  |  | $                   | 52,752  |      |  | $ | 105,766 |  
|Operating loss                                  |  | $                   | (18,454 | )    |  | $ | (13,006 | )

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

The following is a summary of the Companys geographic operations:

|                  |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|----------------- | ----------------- | ------------- | - | ------ |  | ----- | - | --------- |  | ----- | - | ------ |  | ------------ | - | ------ |  |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|(in thousands)    |                   | United States |   | Taiwan |  | Japan |   | Hong Kong |  | China |   | Others |  | Consolidated
|                  |                   |               |   |        |  |       |   |           |  |       |   |        |  |             
|Fiscal Year 2003: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |        |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 67     |  |       | $ | 6,768     |  |       | $ | 22,803 |  |              | $ | 13,408 |  |  | $ | 5,672 |  |  | $ | 4,034  |  |  | $ | 52,752  | 
|                  | Long-lived assets |               |   | 816    |  |       |   | 356       |  |       |   |       |  |              |   | 74     |  |  |   | 1,543 |  |  |   |       |  |  |   | 2,789   | 
|Fiscal Year 2002: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |        |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 347    |  |       | $ | 30,880    |  |       | $ | 61,550 |  |              | $ | 4,267  |  |  | $ | 2,483 |  |  | $ | 6,239  |  |  | $ | 105,766 | 
|                  | Long-lived assets |               |   | 2,339  |  |       |   | 499       |  |       |   |       |  |              |   | 15     |  |  |   | 1,857 |  |  |   |       |  |  |   | 4,710   | 
|Fiscal Year 2001: |                   |               |   |        |  |       |   |           |  |       |   |        |  |              |   |        |  |  |   |       |  |  |   |        |  |  |   |        
|                  | Product sales     |               | $ | 387    |  |       | $ | 61,029    |  |       | $ | 35,659 |  |              | $ | 6,809  |  |  | $ | 986   |  |  | $ | 14,089 |  |  | $ | 118,959 | 
|                  | Long-lived assets |               |   | 1,106  |  |       |   | 677       |  |       |   |       |  |              |   | 50     |  |  |   | 1,726 |  |  |   |       |  |  |   | 3,559   | 



|    |  | Product sales are attributed to countries based on delivery locations.
Long-lived assets comprise property and
equipment.                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|12. |  | Commitments and Concentration of Sales and Credit Risk                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | Building Leases.The Company leases facilities under noncancelable
operating lease agreements, which expire at various dates through 2006.
Rental expense for the years ended June 30, 2003, 2002 and 2001 was $2.3
million, $2.5 million and $2.2 million, respectively. Future minimum lease
payments under non-cancelable operating leases at June 30, 2003 were as
follows (in thousands):

|                             |  |   |       | 
|---------------------------- |  | - | ----- | 
|Years ending June 30:        |  |   |       | 
|2004                         |  | $ | 1,800 | 
|2005                         |  |   | 1,500 | 
|2006                         |  |   | 1,600 | 
|                             |  |   |       | 
|Total minimum lease payments |  | $ | 4,900 | 
|                             |  |   |       | 



| |  | Concentration of Sales and Credit Risks.Product sales to two customers,
Inno Micro, which is a supplier of Toshiba, and Skyworth, a television
original equipment manufacturer located in China, accounted for
approximately 43% and 11% of net sales, respectively, for the fiscal year
ended 2003. Product sales to one customer, Inno Micro, accounted for 58% of
product sales for the fiscal year ended June 30, 2002. Product sales to
three customers, Quanta and Arima, which are suppliers of Compaq, and Inno
Micro accounted for approximately 16%, 15% and 23% of product sales for the
fiscal year ended June 30, 2001, respectively.         
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, and trade accounts receivable. The Company places its cash and
cash equivalents primarily in market rate accounts. The Company offers
credit terms on the sale of its products to certain customers. The Company
performs ongoing credit evaluations of its customers financial condition
and, generally, requires no collateral from its customers. The Company
maintains an allowance for uncollectible accounts receivable based upon the
expected collectibility of all accounts receivable.
|
| |  | In addition to cash equivalents and short-term investments, the Companys
financial instruments include accounts receivable and accounts payable,
which are carried at cost. This approximates the fair value because of the
short-term maturity of these instruments.                                                                                                                                                                                                                                                                                                                                                                                     

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



|13. |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On December 14, 1998, NeoMagic Corporation (NeoMagic) filed a patent
infringement action against the Company in the United States District Court
for the District of Delaware, Case No. 98-CV-699. On January 25, 1999, the
Company answered the complaint and filed a counterclaim alleging violation
of Section 2 of the Sherman Act. The antitrust counterclaim was stayed by
the Court pending the outcome of NeoMagics patent infringement claim. The
parties filed motions for summary judgment concerning infringement on
December 23, 1999 and January 11, 2000. The Court issued its order
regarding patent claim construction on May 8, 2000. Following additional
briefing on the issue of infringement, on February 1, 2001, the Court issued
its second order regarding patent claim construction and granted the
Companys motion for summary judgment of non-infringement. On February 28,
2001, NeoMagic filed its notice of appeal of the Courts February 1, 2001
order to the United States Court of Appeal for the Federal Circuit. On
April 5, 2001, the Company filed a motion to lift the stay on its antitrust
counterclaim. On September 7, 2001, the District Court granted the
Companys motion to lift the stay on its antitrust counterclaim and
discovery on the counterclaim is proceeding.                                                                                                                                                
|   
|    |  | On May 7, 2001, NeoMagic filed its opening appeal brief. On May 17, 2001,
the Company filed a motion to dismiss NeoMagics appeal for lack of
jurisdiction because there is no final appealable order and the Companys
antitrust counterclaim remained pending. On August 1, 2001, the Federal
Circuit granted the Companys motion and dismissed NeoMagics appeal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On August 3, 2001, NeoMagic requested that the United States District Court
of Delaware enter an order under the Federal Rules of Civil Procedure Rule
54(b) certifying the February 1, 2001 summary judgment order as a final
judgment. On August 27, 2001, the Court certified the February 1, 2001
order as a final judgment, and on August 29, 2001, NeoMagic again filed its
Notice of Appeal with the United States Court of Appeals for the Federal
Circuit. NeoMagic filed its brief with the Federal Circuit on October 15,
2001 and the Company filed its reply brief on November 23, 2001. Argument
was heard before the Federal Circuit on March 6, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On April 17, 2002, the Federal Circuit issued an Order affirming-in-part and
vacating-in-part the District Courts summary judgment of non-infringement.
The Federal Circuit upheld the District Courts summary judgment
determination as to non-infringement of U.S. Patent No. 5,650,955 in favor
of the Company, but vacated-in-part the District Courts summary judgment
determination as to non-infringement of U.S. Patent No. 5,703,806, remanding
the case back to the District Court for additional briefing on the issue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The case was assigned to Magistrate Judge Thynge. The parties filed opening
briefs in connection with claim construction and cross motions for summary
judgment. Oral argument on these motions occurred on November 5, 2002. The
Court issued its Order on May 9, 2003, granting Tridents motion for summary
judgment of non-infringement and denying NeoMagics motion for summary
judgment of infringement. On May 21, 2003, Trident filed a motion for
clarification requesting that the Court clarify its Memorandum Opinion by
restating the final paragraph on page 31 of the Opinion. On May 23, 2003,
NeoMagic filed a motion for reconsideration of the Courts May 9, 2003
Order. On July 30, 2003, the Court issued an Order denying NeoMagics
motion for reconsideration of the Courts May 9, 2003 summary judgment
decision and granting Tridents motion for clarification of the Courts May
23, 2003 summary judgment decision. NeoMagic has asked the Company to
stipulate to an order pursuant to Federal Rule of Civil Procedure Rule 54(b)
certifying the July 30, 2003 Order as a final judgment and allowing
immediate appeal of this decision to the Federal Circuit. The Company
anticipates that NeoMagic will make a motion under Rule 54(b) if the Company
declines to stipulate, and that such motion most likely would be granted,
allowing immediate appeal of the July 30 Order granting the Company summary
judgment of non-infringement.
|   
|    |  | The results of any litigation matters are inherently uncertain. In the
event of an adverse decision in the described legal actions or disputes, or
any other related litigation with third parties that could arise in the
future with respect to patents or other intellectual property rights
relevant to our products, the Company could be                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

51



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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| |  | required to pay damages and
other expenses, to cease the manufacture, use and sale of infringing
products, to expend significant resources to develop non-infringing
technology or to obtain licenses to the infringing technology. The Company
cannot make any assurance that these matters will not materially and
adversely affect the Companys business, financial condition, operating
results, or cash flows.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interim Financial Information (Unaudited)



| |  | The following table contains selected unaudited consolidated statements of
operations data for each quarter of fiscal years 2002 and 2003. See Note 1
to the Consolidated Financial Statements for an explanation of the
computation of basic and diluted net loss per share.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL AND QUARTERLY CONSOLIDATED FINANCIAL DATA

|                                       |  |                           |        |          |  |             |        |              |  |   |        |   |  |   |        |  
|-------------------------------------- |  | ------------------------- | ------ | -------- |  | ----------- | ------ | ------------ |  | - | ------ | - |  | - | ------ | -
|                                       |  | FISCAL
2003 QUARTER ENDED
|(in thousands, except per share data)  |  | JUNE 30                   |        | MARCH 31 |  | DECEMBER 31 |        | SEPTEMBER 30
|Revenues                               |  | $                         | 14,620 |          |  | $           | 11,614 |              |  | $ | 13,283 |   |  | $ | 13,235 |  
|Gross profit                           |  |                           | 2,890  |          |  |             | 4,183  |              |  |   | 4,081  |   |  |   | 3,878  |  
|Loss from operations                   |  |                           | (4,462 | )        |  |             | (4,264 | )            |  |   | (4,918 | ) |  |   | (4,810 | )
|Net loss                               |  |                           | (4,589 | )        |  |             | (7,543 | )            |  |   | (6,802 | ) |  |   | (5,830 | )
|Net loss per share - basic and diluted |  |                           | (0.33  | )        |  |             | (0.55  | )            |  |   | (0.50  | ) |  |   | (0.43  | )

|                                       |  |                           |        |          |  |             |        |              |  |   |        |   |  |   |         |  
|-------------------------------------- |  | ------------------------- | ------ | -------- |  | ----------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                                       |  | FISCAL
2002 QUARTER ENDED
|(in thousands, except per share data)  |  | JUNE 30                   |        | MARCH 31 |  | DECEMBER 31 |        | SEPTEMBER 30
|Revenues                               |  | $                         | 21,009 |          |  | $           | 28,839 |              |  | $ | 30,178 |   |  | $ | 25,740  |  
|Gross profit                           |  |                           | 4,963  |          |  |             | 6,239  |              |  |   | 5,655  |   |  |   | 5,939   |  
|Loss from operations                   |  |                           | (3,737 | )        |  |             | (2,622 | )            |  |   | (3,680 | ) |  |   | (2,967  | )
|Net loss                               |  |                           | (2,032 | )        |  |             | (2,076 | )            |  |   | (3,334 | ) |  |   | (28,209 | )
|Net loss per share - basic and diluted |  |                           | (0.15  | )        |  |             | (0.15  | )            |  |   | (0.25  | ) |  |   | (2.12   | )

52



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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

Schedule II

Valuation and Qualifying Accounts
(in thousands)

Allowance for doubtful accounts and sales returns:

|              |  |            |       |                 |  |               |     |           |  |            |        |   |  |   |       | 
|------------- |  | ---------- | ----- | --------------- |  | ------------- | --- | --------- |  | ---------- | ------ | - |  | - | ----- | 
|              |  |            |       |                 |  | Sales Returns |     |           |  |            |        |   |  |  
|              |  | Balance at |       | Charged to      |  |               |     |           |  | Balance at
|For the       |  | Beginning  |       | Expenses        |  |               |     |           |  | End       
|Year Ended    |  | Of Period  |       | or Other Assets |  | Deductions    |     | Of Period
|              |  |            |       |                 |  |               |     |          
|June 30, 2001 |  | $          | 1,099 |                 |  | $             | 311 |           |  |            |       |   |  | $ | 1,410 | 
|June 30, 2002 |  |            | 1,410 |                 |  |               | 911 |           |  |            | (219   | ) |  |   | 2,102 | 
|June 30, 2003 |  |            | 2,102 |                 |  |               | 99  |           |  |            | (1,592 | ) |  |   | 609   | 

53



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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




Item 9A. Controls and Procedures

Under the supervision and with the participation of our management,
including our chief executive officer and chief accounting officer, we
evaluated the effectiveness of our disclosure controls and procedures, as such
term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934, as amended. Based on this evaluation, our chief executive officer and
chief accounting officer concluded that our disclosure controls and procedures
were effective as of the end of the last fiscal quarter in providing reasonable
assurance that information required to be disclosed by Trident Microsystems,
Inc. in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules
and forms. No significant changes were made to Trident Microsystems, Inc.s
internal controls during the registrants most recent quarter that have
materially affected, or are reasonably likely to materially affect, the
registrants internal controls over financial reporting.




PART III




Item 10. Directors and Executive Officers of the Registrant

The information required by Item 401 of Regulation S-K is incorporated by
reference from the definitive proxy statement for the Companys 2003 annual
meeting of stockholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report (the Proxy Statement). Information relating to our executive officers
is set forth in Part I of this report under the caption Executive Officers of
the Registrant.

The information required by Item 405 of Regulation S-K is incorporated by
reference from the Proxy Statement under the caption EXECUTIVE COMPENSATION
AND OTHER MATTERSSection 16(a) Beneficial Ownership Reporting Compliance.




Item 11. Executive Compensation

The information required by this Item is incorporated by reference from
the Proxy Statement under the caption EXECUTIVE COMPENSATION AND OTHER
MATTERS.




Item 12. Security Ownership of Certain Beneficial Owners and Management

EQUITY COMPENSATION PLAN INFORMATION

We currently maintain four compensation plans that provide for the
issuance of our Common Stock to officers, directors, other employees or
consultants. These consist of the 1992 Stock Option Plan (the 1992 Plan),
1994 Outside Directors Stock Option Plan (the 1994 Plan), 2002 Stock Option
Plan (the 2002 Plan) and 2001 Employee Stock Purchase Plan (the Purchase
Plan), which have been approved by stockholders, and the 1996 Nonstatutory
Stock Option Plan (the 1996 Plan), which has not been approved by
stockholders. The following table sets forth information regarding outstanding
options and shares reserved for future issuance under the foregoing plans as of
June 30, 2003:

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

|                                                          |       |     |                         |           |                      |     |                    |      |  |  |                     |           | 
|--------------------------------------------------------- | ----- | --- | ----------------------- | --------- | -------------------- | --- | ------------------ | ---- |  |  | ------------------- | --------- | 
|                                                          |       |     |                         |           |                      |     |                    |      |  |  | Number of shares   
|                                                          |       |     |                         |           |                      |     |                    |      |  |  | remaining available
|                                                          |       |     |                         |           |                      |     |                    |      |  |  | for future issuance
|                                                          |       |     |                         |           |                      |     |                    |      |  |  | under equity       
|                                                          |       |     | Number of shares to be  |           | Weighted-average     |     | compensation plans
|                                                          |       |     | issued upon exercise of |           | exercise price of    |     | (excluding shares 
|                                                          |       |     | outstanding options,    |           | outstanding options, |     | reflected in      
|                                                          |       |     | warrants and rights     |           | warrants and rights  |     | column (a))       
|Plan Category                                             |       | (a) |                         | (b)       |                      | (c)
|                                                          |       |     |                         |           |                      |    
|Equity compensation
plans approved by
stockholders        |       |     | 1,775,427               | (1)       |                      | $   | 4.60               |      |  |  | 993,456             | (2)      
|Equity compensation
plans not approved
by stockholders(3) |       |     | 2,691,125               | (4)       |                      | $   | 4.42               | (5)  |  |  | 312,925             |          
|                                                          | Total |     |                         | 4,466,552 |                      |     | $                  | 4.49 |  |  |                     | 1,306,381 | 



---

|(1) |  | These shares include 194,177 shares that will be issued upon exercise of
outstanding options under the 1994 Plan and 1,581,250 shares that are
reserved and issuable upon exercise of outstanding options under the 1992
Plan which expired on October 16, 2002.                                                                                                                         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These shares include 318,456 shares reserved for issuance under the
Purchase Plan and 675,000 shares reserved under the 2002 Plan, but exclude
245,134 shares which ceased to be so reserved when the 1992 Plan expired
on October 16, 2002.                                                                                                                                             
|   
|(3) |  | Consists of shares subject to options that are outstanding or may be
issued pursuant to the 1996 Plan and pursuant to two options granted to
two non-employee directors in 1996 and 1998 outside of the Companys stock
option plans and without stockholder approval (the Director Options).

The material features of the 1996 Plan and the two Director Options are
described below.
|   
|(4) |  | These shares include 11,250 shares that are subject to the Director
Options.                                                                                                                                                                                                                                                                                                             
|   
|(5) |  | The weighted-average exercise price of the 11,250 shares subject to the
Director Options is $8.04.                                                                                                                                                                                                                                                                                       

Material Features of the 1996 Nonstatutory Stock Option Plan

As of August 31, 2003, we had reserved an aggregate of 4,100,000 shares of
Common Stock for issuance under the 1996 Plan. As of that date, 740,050 shares
were available for the future grant of options under the 1996 Plan, including
411,375 shares returned to the 1996 Plan from unexercised options canceled in
July 2003 in connection with our restructuring. The 1996 Plan provides for the
granting of nonstatutory stock options to employees and consultants who are not
officers or directors of the Company, with exercise prices per share equal to
no less than 85% of the fair market value of our Common Stock on the date of
grant. Options granted under the 1996 Plan generally have a 10-year term and
vest at the rate of 25% of the shares subject to the option on each of the
first four anniversaries of the date of grant. The vesting of options granted
under the 1996 Plan will be accelerated in full in the event of a merger of the
Company with or into another corporation in which the outstanding options are
neither assumed nor replaced by equivalent options granted by the successor
corporation or a parent or subsidiary of the
successor corporation. The 1996 Plan is not required to be and has not been
approved by the Companys stockholders.

55



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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

Material Features of the Director Options

As of June 30, 2003, Millard Phelps held a nonstatutory stock option to
purchase 5,000 shares of Common Stock at a price of $13.875 per share granted
to him by the Compensation Committee of the Board of Directors in April 1996,
while Glen Antle held a nonstatutory stock option to purchase 6,250 shares of
Common Stock at a price of $3.375 per share granted to him by the Compensation
Committee in October 1998. The exercise price of each option is equal to the
per share closing price of the Common Stock on the date of grant. Each option
has a term of 10 years measured from the date of grant and became exercisable
in full one year after the date of grant.




Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from
the Proxy Statement under the caption CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.




PART IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this report:

|   |                                |                                                                                                   |  |  |    |             |  | 
|-- | ------------------------------ | ------------------------------------------------------------------------------------------------- |  |  | -- | ----------- |  | 
|   |                                |                                                                                                   |  |  |    | Page Number
|   |                                |                                                                                                   |  |  |    |            
|1. | Financial Statements:          |                                                                                                   |  |  |   
|   |                                | Report of Independent Auditors                                                                    |  |  | 30 |            
|   |                                | Consolidated Balance Sheet - As of June 30, 2003 and 2002                                         |  |  | 31 |            
|   |                                | Consolidated Statement of Operations - For the Three Years Ended June 30, 2003                    |  |  | 32 |            
|   |                                | Consolidated
Statement of Changes in Stockholders Equity For the Three Years Ended June 30, 2003 |  |  | 33 |            
|   |                                | Consolidated Statement of Cash Flows For the Three Years Ended June 30, 2003                      |  |  | 34 |            
|   |                                | Notes to Consolidated Financial Statements                                                        |  |  | 35 |            
|2. | Financial Statement Schedules: |                                                                                                   |  |  |   
|   |                                | II  Valuation and Qualifying Accounts for Each of the Three Years Ended June 30, 2003            |  |  | 53 |            



|3. |  | Exhibits:
|-- |  | ---------

|        |  |                                                                   
|------- |  | ------------------------------------------------------------------
|Exhibit |  | Description                                                       
|        |  |                                                                   
|3.1     |  | Restated Certificate of Incorporation.(1)                         
|        |  |                                                                   
|3.2     |  | Bylaws of Trident Delaware Corporation, a Delaware Corporation.(2)

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements

|         |  |                                                                                                                                                                                                                                                                                                                                                         
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1      |  | Securities Purchase Agreement between XGI Technology Inc. and Trident Microsystems
(Far East) Ltd. (10)                                                                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.2      |  | Amendment to Securities Purchase Agreement between XGI Technology Inc. and Trident
Microsystems (Far East) Ltd. (10)                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.3      |  | Share Subscription Agreement between XGI Technology Inc. and Trident Microsystems
(Far East) Ltd. (10)                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.4      |  | Asset Purchase Agreement between XGI Cayman Ltd. and Trident Microsystems (Far East)
Ltd. (10)                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.5      |  | Amendment to Asset Purchase Agreement between XGI Cayman Ltd. and Trident
Microsystems (Far East) Ltd. (10)                                                                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.6      |  | License Agreement between Trident Microsystems, Inc. and XGI Cayman Ltd. (10)                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|2.7      |  | Capitalization Agreement between XGI Technology Inc. and Trident Microsystems (Far
East) Ltd.(10)                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|4.1      |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|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)                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.14    |  | Lease Agreement dated May 16, 2001 between the Company and iStar Financial , Inc.
for the Companys principal offices located at 1090 East Arques Avenue, Sunnyvale,
California.(9)                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.15(*) |  | Form of Change of Control Agreement between the Company and Frank C. Lin.(9)                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.16    |  | Foundry Venture Agreement dated August 18, 1995 by and between the Company and
United Microelectronics Corporation.(5)(8)                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.17(*) |  | Form of 1998 Stock Option Plan which replaces the 1992 Stock Option Plan.(6)                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.18(*) |  | Form of Nonstatutory Stock Option Agreement for non-plan grants to directors.(11)                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|10.19(+) |  | Form of 1996 Nonstatutory Stock Option Plan.(11)                                                                                                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|21.1     |  | List of Subsidiaries.(7)                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|23.1     |  | Consent of Independent Accountants.(7)                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|24.1     |  | Power of Attorney(7)                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|31.1     |  | Section 302 Certification of Chief Executive Officer(7)                                                                                                                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|31.2     |  | Section 302 Certification of Principal Accounting Officer(7)                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|32.1     |  | Section 906 Certification of Chief Executive Officer(7)                                                                                                                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                         
|32.2     |  | Section 906 Certification of Principal Accounting Officer(7)                                                                                                                                                                                                                                                                                            



---

| | 1. |  | Incorporated by reference from 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 from exhibit of the same number to the
Companys Registration Statement on Form S-1 (File No. 33-53768),
except that Exhibit 3.2 is incorporated from Exhibit 3.4.
|
| | 3. |  | Incorporated by reference from exhibit 99.1 to the Companys
Current Report on Form 8-K filed August 21, 1998.                                                                              
|
| | 4. |  | Incorporated by reference from exhibit of the same number to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.                                              

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Trident Microsystems, Inc.
Notes to Consolidated Financial Statements



| | 5.  |  | Incorporated by reference from exhibit of the same number to the
Companys Annual Report on Form 10-K for the year ended June 30, 1995.                                                                       
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 6.  |  | Incorporated by reference to the Companys 1998 Employee Stock
Purchase Plan Individual Stock Option Agreements and 1996 Nonstatutory
Stock Option Plan on Form S-8 filed April 23, 1999 (File No.
333-76895).
|
| | 7.  |  | Filed herewith.                                                                                                                                                                                               
|
| | 8.  |  | Confidential treatment has been requested for a portion of this
document.                                                                                                                                     
|
| | 9.  |  | Incorporated by reference from exhibit of the same number to the
Companys Annual Report on Form 10-K for the year ended June 30, 2001                                                                        
|
| | 10. |  | Incorporated by reference from the Companys Current Report on Form
8-K dated July 25, 2003.                                                                                                                  
|
| | 11. |  | Incorporated by reference from exhibit of the same number to the
Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 2002.                                                            



|(*) |  | 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.

(b)  Reports on Form 8-K:



| |  |  | We filed a Current Report on Form 8-K, dated April 22, 2003,
pursuant to Item 7 and Item 12.
| |  |  | --------------------------------------------------------------------------------------------
|
| |  |  | We filed a Current Report on Form 8-K, dated June 12, 2003, pursuant to Item 5
and Item 7.  

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Trident Microsystems, Inc.




POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Peter Jen as his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                          |  |                           
|------------------------- |  | --------------------------
|                          |  | TRIDENT MICROSYSTEMS, INC.
|                          |  |                           
|Dated: September 26, 2003 |  | /s/ FRANK C. LIN          
|                          |  |                           
|                          |  | Frank C. Lin              
|                          |  | Chief Executive Officer   

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 26, 2003 by the following persons on
behalf of the registrant and in the capacities indicated.

|                                           |  |                                                                                                                 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|Signature                                  |  | Title                                                                                                           
|/s/ Frank C. Lin

(Frank C. Lin)           |  | President, Chief Executive Officer and Chairman of
the Board (Principal Executive Officer)                      
|                                           |  |                                                                                                                 
|/s/ Peter Jen

(Peter Jen)                 |  | Senior Vice President, Asia Operations and Chief
Accounting Officer (Principal Financial and
Accounting Officer)
|                                           |  |                                                                                                                 
|/s/ Glen M. Antle

(Glen M. Antle)         |  | Director                                                                                                        
|                                           |  |                                                                                                                 
|/s/ Yasushi Chikagami

(Yasushi Chikagami) |  | Director                                                                                                        
|                                           |  |                                                                                                                 
|/s/ John Luke

(John Luke)                 |  | Director                                                                                                        
|                                           |  |                                                                                                                 
|/s/ Millard Phelps

(Millard Phelps)       |  | Director                                                                                                        

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Trident Microsystems, Inc.




INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT

|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
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|Exhibit  |  | Description                                                                                                                                                                                                                                                                                                                                              |  | Number
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|3.1      |  | Restated Certificate of Incorporation.(1)                                                                                                                                                                                                                                                                                                                |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|3.2      |  | Bylaws of Trident Delaware Corporation, a Delaware Corporation.(2)                                                                                                                                                                                                                                                                                       |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.1      |  | Securities Purchase Agreement between XGI Technology Inc. and Trident Microsystems
(Far East) Ltd. (10)                                                                                                                                                                                                                                                  |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.2      |  | Amendment to Securities Purchase Agreement between XGI Technology Inc. and Trident
Microsystems (Far East) Ltd. (10)                                                                                                                                                                                                                                     |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.3      |  | Share Subscription Agreement between XGI Technology Inc. and Trident Microsystems
(Far East) Ltd. (10)                                                                                                                                                                                                                                                   |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.4      |  | Asset Purchase Agreement between XGI Cayman Ltd. and Trident Microsystems (Far East)
Ltd. (10)                                                                                                                                                                                                                                                           |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.5      |  | Amendment to Asset Purchase Agreement between XGI Cayman Ltd. and Trident
Microsystems (Far East) Ltd. (10)                                                                                                                                                                                                                                              |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.6      |  | License Agreement between Trident Microsystems, Inc. and XGI Cayman Ltd. (10)                                                                                                                                                                                                                                                                            |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|2.7      |  | Capitalization Agreement between XGI Technology Inc. and Trident Microsystems (Far
East) Ltd. (10)                                                                                                                                                                                                                                                       |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|4.1      |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                                                               |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|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)                                                                                                                                                                                                                                            |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.14    |  | Lease Agreement dated May 16, 2001 between the Company and iStar Financial , Inc.
for the Companys principal offices located at 1090 East Arques Avenue, Sunnyvale,
California.(9)                                                                                                                                                                      |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.15(*) |  | Form of Change of Control Agreement between the Company and Frank C. Lin.(9)                                                                                                                                                                                                                                                                             |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.16    |  | Foundry Venture Agreement dated August 18, 1995 by and between the Company and
United Microelectronics Corporation.(5)(8)                                                                                                                                                                                                                                |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.17(*) |  | Form of 1998 Stock Option Plan which replaces the 1992 Stock Option Plan.(6)                                                                                                                                                                                                                                                                             |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.18(*) |  | Form of Nonstatutory Stock Option Agreement for non-plan grants to directors.(11)                                                                                                                                                                                                                                                                        |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|10.19(+) |  | Form of 1996 Nonstatutory Stock Option Plan.(11)                                                                                                                                                                                                                                                                                                         |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|21.1     |  | List of Subsidiaries.(7)                                                                                                                                                                                                                                                                                                                                 |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|23.1     |  | Consent of Independent Accountants.(7)                                                                                                                                                                                                                                                                                                                   |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|24.1     |  | Power of Attorney(7)                                                                                                                                                                                                                                                                                                                                     |  | 59    
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|31.1     |  | Section 302 Certification of Chief Executive Officer(7)                                                                                                                                                                                                                                                                                                  |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|31.2     |  | Section 302 Certification of Principal Accounting Officer(7)                                                                                                                                                                                                                                                                                             |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|32.1     |  | Section 906 Certification of Chief Executive Officer(7)                                                                                                                                                                                                                                                                                                  |  |       
|         |  |                                                                                                                                                                                                                                                                                                                                                          |  |       
|32.2     |  | Section 906 Certification of Principal Accounting Officer(7)                                                                                                                                                                                                                                                                                             |  |       



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| | (1) |  | Incorporated by reference from 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 from exhibit of the same number to the
Companys Registration Statement on Form S-1 (File No. 33-53768),
except that Exhibit 3.2 is incorporated from Exhibit 3.

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##### Table of Contents



Trident Microsystems, Inc.



| | (3)  |  | Incorporated by reference from exhibit 99.1 to the Companys
Current Report on Form 8-K filed August 21, 1998.                                                                                                
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (4)  |  | Incorporated by reference from exhibit of the same number to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.                                                                
|
| | (5)  |  | Incorporated by reference from exhibit of the same number to the
Companys Annual Report on Form 10-K for the year ended June 30, 1995.                                                                       
|
| | (6)  |  | Incorporated by reference to the Companys 1998 Employee Stock
Purchase Plan Individual Stock Option Agreements and 1996 Nonstatutory
Stock Option Plan on Form S-8 filed April 23, 1999 (File No.
333-76895).
|
| | (7)  |  | Filed herewith.                                                                                                                                                                                               
|
| | (8)  |  | Confidential treatment has been requested for a portion of this
document.                                                                                                                                     
|
| | (9)  |  | Incorporated by reference from exhibit of the same number to the
Companys Annual Report on Form 10-K for the year ended June 30, 2001                                                                        
|
| | (10) |  | Incorporated by reference from the Companys Current Report on Form
8-K dated July 25, 2003.                                                                                                                  
|
| | (11) |  | Incorporated by reference from exhibit of the same number to the
Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 2002.                                                            

(*) 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.

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