UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

TRIDENT MICROSYSTEMS, INC.

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 [ X ] No [   ]

     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, 2003 ($17.42 per share), as reported on the NASDAQ National Market was approximately $235,219,281. 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 affiliates. 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, 2004, was 22,941,958.

     Part III incorporates by reference from the definitive proxy statement for the registrant’s 2004 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.

TABLE OF CONTENTS

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PART I

Item 1. Business

     We are a designer, developer and marketer of integrated circuits (ICs) for digital media applications, such as digital television, LCD TV and digital set-top boxes (STB). Since 1987 we have designed, developed and marketed very large-scale ICs for graphics applications, historically for the personal computer (PC) market, and since 1999 for digitally processed televisions (DPTV) for the consumer television market. In June 2003 we announced a restructuring of our business to divest our legacy graphics business and in a separate transaction merge the company’s Digital Media division (DM) with Trident Technologies Inc (TTI) – a majority owned Taiwanese subsidiary to strengthen and extend the company’s digital TV business. TTI had previously been operating primarily as a Taiwan based semiconductor design house which had developed among other things, scaling technology useful for digital media applications. One of the parent company’s principal suppliers United Microelectronics Corporation (“UMC”) was, and continues to be a strategic minority shareholder in TTI. As of July 30, 2004, TTI was an 83% owned subsidiary of Trident Microsystems.

     Since the fall of 2003 we have focused our business primarily on the rapidly growing DPTV market and related areas. Our DPTV business is operated primarily through our majority-owned subsidiary, Trident Technologies, Inc. (TTI). We are also focused on the operations of our subsidiary in China in which we conduct and plan to expand our VLSI operations.

     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. To date we have invested in developing strong relationships with Tier I Consumer Electronics OEM’s like Samsung, Toshiba and Sony as well as others. In addition, we are also focused on developing strong relationships with fast growing Chinese manufacturers like Skyworth, TCL, Konka, Changhong, Xoceco and Hisense. We believe over time more of the high volume digital television business will migrate to the Chinese manufacturers so we believe it’s important to have strong relationships on both ends of the market spectrum. We have also invested in integrating different technologies and providing integrated system-on-chip (SOC) advantages to our customers as well as innovation in video quality. We believe our early entrance and success in this market place, our many years of expertise in the business of enhancing digital image quality and our growing reputation and success with top tier manufacturers will provide a strategic advantage for us in this emerging market.

     Trident’s market strategy relies on leveraging television display controller design wins to further supply digital decoding and other value-added portions of television systems to leading consumer electronics OEMs. Trident believes that creating an integrated video decoder and processor that achieves superior image quality attractive to the world’s leading Television OEMs requires both mixed signal semiconductor and television system knowledge as well as a capacity to work with customers who are experts in these areas in a heuristic learning process through many design cycles. With this goal already achieved, we believe that our customers will accept many additional complimentary standard function solutions from Trident such as High Definition Media Interface (HDMI) and ATSC/DVB decoding.

     Executing this strategy demands that Trident be an early mover with new technology, achieving outstanding execution of complex system-on-chip designs. Trident has established it’s position as an early mover through the industry’s first integration of multi-standard video decoding and comb filtering with advanced video processing with the DPTV-DX chip in 2001. Trident again demonstrated its ability to lead with new technology with the introduction of the industry’s first integrated 10-bit ADC in the DPTV 3D Pro in 2002. Trident plans continue this tradition in the next two quarters with the introduction of advanced video processing integrated with ATSC/DVB decoding and HDMI integrated with 10-bit 3D multi-standard video decoding. Achieving such industry firsts demonstrates the Company’s continuing ability to execute highly complex chip designs which add significant additional features and performance within standard market cycle timeframes.

     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 83% owned as of June 30, 2004.

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Markets and Applications

     As we go forward into fiscal year 2005, our principal design, development and marketing effort will focus primarily on our Digital Media products. Our Digital Media Division accounted for 95% and 49% of total revenues for fiscal years ended June 30, 2004 and 2003, 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, Taiwan and Europe. 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. We can also provide many of these same video processing advantages to digitally broadcast television content and we have developed additional technology to support this type of signal processing as well. Eventually the worldwide television market is expected to be dominated by digitally broadcast content and we believe our future success depends on our ability to integrate additional technologies and have our products support that market volume opportunity on an ongoing basis. While we have developed valuable experience in many areas over the years, following the divestiture of our Graphics Division assets, we anticipate in the near term the digital television and AV Notebooks markets to generate substantially all of our revenues. However, there can be no guarantee that our products will be accepted by the market or increase our revenues or profitability.

The following table illustrates our product families and markets:

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 devices, such as Cathode Ray Television (“CRTTV”), Liquid Crystal Display Television (“LCDTV”), Plasma Display Panel (“PDP”), Projection Television, Liquid Crystal Display Projection TV and AV Notebooks. Trident’s DPTV™ product family propels the corporate mission of Digital Media For The Masses by delivering tomorrow’s digital media technology to today’s consumer.

     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 a user-friendly and graphic-oriented TV menu control interface.

     DPTV™MV. DPTV™MV is a derivative of DPTV3DP. It has all the features of DPTV-3D, except that DPTV™MV’s integrative video decoder is a 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

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single chip DPTV™ 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 DPTV™-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.

     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.

     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.

     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 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.

     DPTV™SVP. The DPTV™ SVP is Trident’s 4th generation TV-on-a-chip mixed-signal video processor product. It integrates the 4th generation TCD3™3D color comb video decoder, an object-based 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™SVP integrates extra circuitry for enhancing video images, horizontal and vertical sharpness, spatial noise reduction, and black and white extension to provide a cinema-perfect™ picture. DPTV™SVP uses Trident’s patented Unified Memory Architecture (UMA), which allows both 3D comb 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™SVP integrates wide ranges of video interfaces to support converging digital and analog TV chassis applications. Designed for LCD TVs, the DPTV™SVP built-in LCD-BRITE™ feature improves the ordinary

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LCD panel response time. DPTV™SVP 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.

     PANELTV™SVP. The PanelTV™SVP is Trident’s 4th generation TV-on-a-chip mixed-signal video processor product. It integrates the 4th generation TCD3™3D color comb video decoder, an object-based 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™SVP integrates extra circuitry for enhancing video images, horizontal and vertical sharpness, spatial noise reduction, and black and white extension to provide a cinema-perfect picture. PanelTV™SVP uses a 320 BGA package allowing multiple video data input and output configurations. PanelTV™SVP uses Trident’s patented Unified Memory Architecture (UMA), which allows both 3D comb 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™SVP integrates wide ranges of video interfaces to support converging digital and analog TV chassis applications. Designed for LCD TVs, the PanelTV™SVP built-in LCD-BRITE™ feature improves the ordinary LCD panel response time. PanelTV™SVP 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.

     SVP-EX. The SVP-EX is Trident’s fifth and the latest generation all-in-one video processor product family. It features the industry’s first Truevideo™ 10-bit video processing technology that is optimized for 1080i HDTV component input. Embedded with a DCRe™ engine, the SVP-EX video processor deliverers the highest quality digital video images. The DCRe™ technology integrates an advanced 3D-comb video decoder, advance motion adaptive de-interlacing engine for up to 1080i input, object-based digital noise reduction, cubic-4 image scaling, film mode support, average picture level (APL) feedback to increase the TV set dynamic range, edge smoothing, and dynamic sharpness enhancement. The SVP-EX video processor is equipped with numerous outputs including a 24-bit TTL, DAC, and LVDs interface, making it extremely versatile with Trident proprietary DCRe™ technology delivering vivid cinema-realistic motion and still images the new SVP-EX processor family is ideal for high-performance flat-panel LCD, Rear-Projection, Flat CRT and Plasma Display TVs.

     DCRe™. DCRe, Digital Cinema Reality Engine, is Trident’s proprietary technology to address the need for today’s high-end multimedia digital television application requirement. It embodies Trident’s DPTV design vision in offering a highly integrated and common-chassis multimedia digital television design platform that is both a high quality television set as well as a multimedia display terminal for PC graphics. This design platform is able to receive and decode the conventional NTSC/PAL/SECAM broadcasting signals, to display PC VGA inputs and to receive high definition component inputs from the digital set-top box.

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. Currently, our TTI subsidiary and Silicon Image, Inc. are working on a joint product development to accelerate the adoption of the emerging industry-standard High-Definition Multimedia Interface™ (HDMI™) to the mainstream digital TVs segments. Not only will Trident license the HDMI technology from Silicon Image for future product integration into the DPTV™ and the HiDTV™ product families, but also, the two companies are collaborating in the development and plan to collaborate in the sales and marketing of a mainstream high-quality analog front-end device to be used in the advanced TV and HDTV market. Our product design combine the advanced video technologies from both companies. In addition, TTI is currently working on the next-generation, system-on-chip digital TV engine (“HiDTV™”) for the design of High Definition Digital TV systems. The processor design integrates a majority of key functions including HD MPEG2 decode needed to support both digital and analog TV broadcasting with minimum external components.

     Trident and TrueVideo are registered trademarks DPTV™3D, DPTV™MV, DPTV™3DPRO, PANELTV™3DPRO, PANELPRO-MM™, DPTV™ SVP, PanelTV™SVP, DCRe™, and HiDTV™ are trademarks of the Company as of June 30, 2004. Other trademarks used in this report are the property of their respective owners.

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Graphics Products:

     As a result of the sale of the assets of our Graphics Division, we 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 offices in Taipei, Taiwan; Shanghai, China; and Sunnyvale, California. Our offices are staffed with sales, applications engineering, technical support, customer service and administrative personnel to support our 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 customers include leading manufacturers of TVs in China, Taiwan, Japan and Korea. We service these customers primarily through our offices 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 year 2004, we generated nearly all of our revenues from 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 10 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. Our subsidiary, Trident Technology, Inc. has provided manufacturing operations for our Digital Media Business Unit since the closing of our restructuring in August 2003. In fiscal 2004, United Microelectronic Corporation (“UMC”), in which we held an investment valued at $51.8 million as of June 30, 2004, provided substantially all of our foundry requirements.

     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 may subject those products to more rigid testing standards than in the past.

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

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technologies, and 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.

     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 $11.5 million, $21.6 million and $22.2 million on Company sponsored research and development activities during fiscal 2004, 2003 and 2002, respectively. The decrease in research and development spending for fiscal 2004 was primarily the result of decreased headcount subsequent to our restructuring effective July 2003. We have conducted substantially all of our product development in-house and, as of June 30, 2004, our staff of research and development personnel equaled 163.

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., Genesis Microchip, Inc., ATI Technologies Inc., Zoran Corporation, ST Microelectronics, and Media Tek, Ltd. 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 marketing efforts to stay competitive in this market. 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.

Our Operations and Management Structure

     Prior to July 2003, we operated two business divisions — the graphics division and the digital media division. In July 2003, we undertook several transactions to restructure our operations. The assets of our graphics division were acquired by XGI Technology, Inc. (XGI), the graphics business previously spun off from Silicon Integrated System Corp, and we simultaneously made a 30% equity investment in XGI. We later sold a portion of our investment in XGI and we now hold an approximately 20% equity interest in XGI.

     In a separate transaction, the assets of our digital media division were merged with our subsidiary, TTI, in August 2003 which brought our equity interest in TTI to 90%. In September 2003, we sold a portion of our equity interest in TTI and now hold an approximately 83% equity interest in TTI. However, our current equity interest in TTI may decline in the future, as discussed more fully below, due to dilution of interest resulting from employee exercises of stock options in TTI or further sales of equity interests in TTI.

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     As a result of the above-described transactions, our operations were significantly restructured to focus our resources on our digital media business and capitalize on opportunities in the growing digital media market. Our operations are now organized as follows: TMI’s wholly owned subsidiary, Trident Microsystems, (Far East) Ltd. (TMFE), a holding company organized in the Cayman Islands, owns an 83% equity interest in TTI and a 100% equity interest in each of Trident Multimedia Technologies Co., Ltd (TMT) and Trident Multimedia Systems (TMS). The operational structures of TMI and TTI are explained more fully below.

     Trident Microsystems, Inc. (TMI)

     Trident Microsystems, Inc. (TMI) is a public company, organized in the United States, with headquarters in Sunnyvale, California. TMI designs, develops and markets integrated circuits for digital media applications through its operation of TTI and its other subsidiaries.

     Set forth below is the name, age and position of each of TMI’s executive officers and directors as of June 30, 2004, including Jung-Herng Chang who does not hold an executive officer title with TMI but, as the President of our primary subsidiary, TTI, is considered an executive officer and affiliate of TMI:

     In addition to the above positions that Mr. Lin and Mr. Jen hold with TMI, they also hold positions with certain of TMI’s subsidiaries, as described below. Mr. Lin, Mr. Edmunds and Mr. Jen receive cash compensation for their services solely through TMI. However, Mr. Lin, Mr. Edmunds and Mr. Jen each hold options to acquire common stock in both TMI and TTI. As of June 30, 2004, Mr. Lin, Mr. Edmunds and Mr. Jen hold options to acquire an aggregate of 1,027,500, 150,000 and 412,000 shares of TMI common stock, respectively, and 2,270,000, 130,000 and 130,000 shares of TTI common stock, respectively. Dr. Jung-Herng Chang receives cash compensation and equity compensation solely through TTI and holds options to acquire 460,000 shares of TMI common stock. As of June 30, 2004, Dr. Chang holds options to acquire an aggregate of 1,900,000 shares of TTI common stock. The options to acquire TMI shares for Mr. Lin, Mr. Jen and Dr. Chang were granted over a series of years and are now 100% vested and exercisable. These options provide a new forward looking retention incentive to key executives which will vest over four years.

Trident Technologies, Inc. (TTI)

     With the assistance of TMI and its other subsidiaries, TTI is responsible for development, sales and marketing of our digital media products. Our current TTI subsidiary is the result of a reorganization in September 2003. Combining the Digital Media division with TTI allowed us to aggressively focus on developing more exciting products in the emerging digital television market, and the restructured TTI has the potential to seek a separate IPO in

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Taiwan. To facilitate this opportunity TTI added independent members to its board of directors. As TTI would be viewed as a “pre IPO” company in Taiwan we were in a far better position to attract and retain good multimedia engineering talent in the Far East.

     While we currently own approximately 83% of TTI, our interest in TTI may decline over time, as discussed below. The quarterly results of TMI depend, in part, on the charges we incur as a result of the minority ownership of TTI. In general, such minority interest charges represent the share of income relating to minority shareholders of our consolidated subsidiaries. If our equity interest in TTI were to decline, the percentage of income taken as a charge for minority interests in our consolidated subsidiaries would increase, thereby affecting our financial results.

     TTI grants stock options separately in TTI to its employees, and virtually all of the previous parent company employees, other than our executive officers, stopped vesting in TMI options when they became part of TTI. To ensure a continuity of interests in both parent and subsidiary activities executive officers continued to vest in equity in both companies. As is the practice in Taiwan the exercise price of these options is initially fixed at the inception of the plan for a given pool of options and then available for grant at that price until the pool has expired. The initial fixed exercise price of NT$ 10 for TTI’s initial 16.2 million share pool was customary for an emerging company as equivalent to the par value of the stock. As stock options are granted this fixed exercise price may be well below the fair market value of the stock at that time, as a result, consistent with generally accepted accounting principles, TMI measures the intrinsic value of these stock options and records deferred compensation at the time of grant to be amortized to expense over the vesting period of the option.

     TMI and TTI continue to explore the possibility of an IPO in Taiwan but no final decision has been reached in this regard. The IPO process typically takes approximately 2 years in Taiwan, at this point, even if the company were to decide to move forward the earliest such an event might take place would be during the summer of 2005. As is the practice in Taiwan, an IPO is not required for shares of private companies to trade in limited volumes in so called “emerging market” transactions and this is true today of TTI. Going forward, whether an IPO occurs or not, TMI’s long-term strategy is to maintain a majority interest in TTI. As a majority shareholder, TMI expects to continue to consolidate TTI operations as part of it’s financial statements. TMI will continue to be actively involved in overseeing the operations of TTI.

     As of June 30, 2004, there were 65.0 million shares of TTI common stock outstanding and options to purchase 14.1 million shares of TTI common stock outstanding, none of which were exercisable as of that date. Such options vest over a period of four years from the grant date. The vast majority of options were granted on August 29, 2003 when TTI was reconstituted. So for example, as of September 2004, if the vested shares to date were exercised and the Company did not otherwise reacquire or sell additional shares, the Company’s interest in TTI would be diluted from 83% to approximately 82%. Likewise, in the absence of the Company reacquiring or selling additional shares, dilution of the Company’s interest in TTI may be seen in future periods as vested options are exercised. There are approximately 2.1 million options available for grant remaining in the initial pool, after which the company must have sufficiently prospered and declared sufficient stock dividends to investors that the cumulative historical grants to employees falls below 15% of the new higher number of shares then outstanding. At that point, TTI may add to the pool and bring the cumulative options granted or available to grant up to the 15% level if it so chooses, which increment will then have an exercise price fixed at no less than 85% of the fair market value of the stock at that time.

     Dilution of our interest in TTI would also result if we determine in the future to sell further interests in TTI. We have considered the possibility of a public offering by our TTI subsidiary in Taiwan and have taken steps to prepare for such an offering, including facilitating the trading of unlisted shares on Taiwan’s emerging stock market, which is a necessary step in the IPO process. However, no final decision has been made to proceed with such an offering. Our long-term strategy is to retain a majority interest in TTI in all cases, but any such offering would increase the minority ownership in TTI.

     As of June 30, 2004, TTI’s Board Members are Mr. Frank Lin, Chairman and CEO of Trident Microsystems, Inc.; Mr. Jung-Herng Chang, President of Trident Technologies, Inc.; Mr. Charles Kau, President of Inotera Memories, Inc.; Mr. Gary Cheng, General Partner of Venglobal Capital; Mr. Daniel Wu, Chief Strategy Officer, Taishin Financial Holding Co., Ltd. As of June 30, 2004, TTI’s executive officers are Jung-Herng Chang, President and Jason Wang, Chief Financial Officer, Vice President of Operations and Finance.

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     Trident Multimedia Technologies (Shanghai) Co., Ltd (“TMT”)

     We are also focused on the operations of our subsidiary in China, Trident Multimedia Technologies (Shanghai) Co., Ltd (“TMT”). Over the past few years, Trident has established a strong and powerful VLSI design team in TMT. Our strategy is for the VLSI team to provide integrated design services to TTI and third parties, and to utilize Trident’s existing graphics and digital media IP’s to develop new products. We believe that by restructuring our operations and combining the technical strength of Trident and it’s subsidiaries we have emerged as a profitable company and will continue to emerge as a leading player in the semiconductor industry.

International Operations

     During fiscal years 2004 and 2003, practically all of our Digital Media sales occurred in Asia. 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 and other patent applications are 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 in July 2003.

     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 was resolved in our favor as is described in more detail under “Item 3. Legal Proceedings.” There can be no assurance 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. Any 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 large 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

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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.

Backlog

     Our business is generally characterized by 6-8 weeks of backlog at any given time. We are also organized and make some level of investment in inventory to be able to respond to short lead time orders and quick delivery schedules. As a result we operate with a modest amount of backlog for any given 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. Further, a substantial portion of our customers are required to post a letter of credit or pay for the goods in advance of shipment, so that if the customer does not provide this type of security on a timely basis the backlog may be rescheduled or simply never materialize. Consequently, we do not believe that backlog is a reliable indicator of future sales.

Segments

     For fiscal years ended June 30, 2004, 2003 and 2002, the digital media segment accounted for $50.1 million, $25.9 million and $6.5 million in revenues, respectively. As a percentage of revenues for fiscal years ended June 30, 2004, 2003 and 2002, the digital media segment accounted for 95%, 49% and 6%, respectively. The digital media segment had operating income of $10.6 million and $0.6 million for the fiscal years ended June 30, 2004 and June 30, 2003, respectively.

Employees

     As of June 30, 2004, we had 300 full time employees, including 163 in research and development, 27 in product testing, quality assurance and operations functions, 67 in marketing and sales and 43 in finance, human resources, and administration. As of June 30, 2004, we had 49 employees in the United States, 171 in Shanghai, China, 67 in Taiwan and 13 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 most recent annual report on Form 10-K and any amendments to the report on the day of filing with the SEC or on our website on the World Wide Web at http://www.tridentmicro.com.

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We do not make available on our website quarterly reports on Form 10-Q or 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, two sales offices located in Taipei, Taiwan totaling 13,000 square-feet, a 5,000 square-foot research and development facility in Hsinchu, Taiwan, a 6,000 square-foot sales office in Shenzhen, China; a 38,000 square-foot research and development facility in Shanghai, China, and a 1,000 square-foot sales office in Beijing, China.

Item 3. Legal Proceedings

     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 and after several years of legal action, the Court issued an 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. NeoMagic appealed this decision and, on August 5, 2004, the Federal Circuit issued a unanimous decision affirming summary judgment in the Company’s favor. Trident’s counterclaim against NeoMagic remains pending in Delaware federal district court.

     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 the Company’s products, the Company 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. 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.

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, 2004, the executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, were as follows:

     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 a 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. Edmunds joined the Company in June 2004. Mr. Edmunds was formerly with Zoran Corporation, where he was Vice President of Finance. Previously he served as Senior Vice President/CFO of Oak Technology which was acquired by Zoran in August 2003. Prior to Oak Technology, Mr. Edmunds was Corporate Controller/Director of Internal Audit at Electronics for Imaging. Mr. Edmunds previously held several senior level finance positions during his eleven years at Tandem Computers as well as during six years with the international accounting firm Coopers and Lybrand. Mr. Edmunds holds a C.P.A. and a BS in Finance and Accounting from University of California, Berkeley.

     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, Related Stockholder Matters and Issuer Purchases of Common Stock

     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:

     As of June 30, 2004, there were approximately 83 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.

     The Company did not make any repurchases of its common stock during the fourth quarter of fiscal 2004.

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Item 6. Selected and Supplementary Financial Data

TRIDENT MICROSYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA

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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 include our expectations and beliefs concerning:

•

our prospects for success in the digital television market and its effect on our future financial results,

•

the effects of our restructuring on our business and future financial results,

•

future prospects for the digital television industry in general,

•

allocation of resources and control of expenses related to the digital television market, new products and internal business strategies,

•

our plans and timeline for future product development in the digital television market,

•

future gross margin levels and our strategy to maintain and improve gross margins,

•

demand for and trends in revenue for our products,

•

trends in average selling prices,

•

the percentage of export sales,

•

maintenance of majority ownership in our subsidiaries,

•

the sufficiency of our financial resources over the next twelve months,

•

denomination of our international revenues and exposure to interest rate risk,

•

the adequacy of our internal controls over financial reporting,

•

the outcome of pending litigation,

•

future investments and/or acquisitions.

We 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 Consolidated Financial Statements and Notes thereto.

Overview of Business

     We design, develop and market integrated circuits for digital media applications, such as digital television, liquid crystal display (LCD) television and digital set-top boxes. Our system-on-chip semiconductors provide the “intelligence” for these new types of displays by processing and optimizing video and computer graphic signals to produce high-quality and realistic images. Many of the world’s leading manufacturers of consumer electronics and computer display products utilize our technology to enhance image quality and ease of use of their products. Our goal is to provide the best image quality enhanced digital media integrated circuits at competitive prices to users.

     We sell our products primarily to digital television original equipment manufacturers in China, Korea, Taiwan and Japan. Historically, significant portions of our revenue have been generated by sales to a relatively small number of customers. Our top five customers accounted for 67% of our total revenue for the fiscal year ended June 30, 2004. Substantially all of our revenue to date has been denominated in U.S. dollars. Our products are manufactured primarily by United Microelectronics Corporation (UMC), a semiconductor manufacturer located in Taiwan, which also owns a minority interest in TTI.

     We operate primarily through subsidiaries and offices located in California, Taiwan and China. Trident Microsystems, Inc. (TMI), located in Sunnyvale, California, acts as an administrative home office, operating through our 83% owned subsidiary, Trident Technology, Inc. (TTI), located in Taipei, Taiwan, TTI’s US Branch located in Sunnyvale, California and our 100% owned subsidiary, Trident Multimedia Technologies (Shanghai) Co., Ltd.

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(TMT), located in Shanghai, China. Our net income is determined after taking a charge for the share of income relating to the minority interest in TTI.

     References to “we,” “Trident,” or the “Company” in this report refer to Trident Microsystems, Inc. and its subsidiaries, including TTI which was 83% owned by TMI as of June 30, 2004, and was 63% owned by TMI as of June 30, 2003.

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 with rights of return or price protection are generally recognized upon shipment to end user customers. Approximately 10% of sales in fiscal 2004 flowed through distributors.

     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 account for stock-based employee compensation arrangements in accordance with the provisions of APB No. 25, “Accounting for Stock Issued to Employees” and comply 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 our stock on the date of grant and the amount an employee must pay to acquire the stock.

     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

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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. 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.

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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, 2004, 2003 and 2002:

The following table provides statement of operations data and the percentage change from the prior year (in thousands):