Ruentex Industries Limited and Subsidiary Consolidated Financial Statements for the Years Ended December 31, 2004 and 2003 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT The Board of Directors and Stockholders Ruentex Industries Limited and Subsidiary We have audited the accompanying consolidated balance sheets of Ruentex Industries Limited and subsidiary (collectively, the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended (all expressed in New Taiwan dollars). 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 did not audit the financial statements of some investees. Long-term investments in those investees were accounted for using the equity method based on the investees’ financial statements audited by other auditors. Our opinion, insofar as it relates to the amounts included for those investees and disclosures in Note 11, is based solely on the reports of the other auditors. As of December 31, 2004 and 2003, long-term investments in those investees amounted to $3,853,377 thousand and $4,052,823 thousand, which were 24.01% and 22.51% of consolidated total assets of the Company, respectively. For the years ended December 31, 2004 and 2003, investment loss on those investees totaled $117,337 thousand and $104,182 thousand, which was 71.69% and (13.34%) of continuing operations’ income (loss) before income tax. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ruentex Industries Limited and its consolidated subsidiary, Chin-An Investment Company at December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

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As described in Note 3 to the financial statements, effective December 31, 2004, the Company adopted Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment”. March 22, 2005

Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. Also, as stated in Note 2 to the financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars) 2004 2003 ASSETS Amount % Amount % CURRENT ASSETS

Cash and cash equivalents (Notes 2 and 4) $ 38,271 - $ 132,011 1Short-term investments, net (Notes 2 and 5) 321,597 2 328,863 2Notes receivable, net (Notes 2 and 6) 47,652 - 67,877 -Notes receivable, related parties, net (Note 28) 1,264 - 649 -Accounts receivable, net (Notes 2 and 7) 284,591 2 262,529 2Accounts receivable, related parties, net (Note 28) 7,703 - 15,825 -Other receivables (Notes 2 and 8) 67,485 1 47,859 -Other receivable, related parties, net (Note 28) 385,242 2 226,387 1Inventories (Notes 2 and 9) 1,300,957 8 1,667,992 9Prepaid expenses 20,788 - 23,430 -Other prepayments (Notes 2 and 10) 86,920 1 78,647 1Deferred income tax assets (Note 25) 48,911 - 42,902 -Restricted current assets (Note 29) 226,000 2 879,633 5Other current assets (Note 2) 15,061 - 19,669 -

Total current assets 2,852,442 18 3,794,273 21

LONG-TERM INVESTMENTS (Notes 2 and 11) 7,484,678 47 8,059,251 45 PROPERTY, PLANT AND EQUIPMENT, NET (Notes 2

and 12) 5,229,697 33 5,678,881 32 INTANGIBLE ASSETS -

Deferred pension cost 82,992 - 42,126 - OTHER ASSETS

Idle assets (Note 13) 2,068 - 2,490 -Guarantee deposits paid (Note 13) 27,436 - 28,323 -Deferred charges (Note 2) 43,733 - 49,113 -Long-term notes and accounts receivable (Note 13) 224,610 1 224,610 1Deferred income tax (Note 25) 35,552 - 60,604 -Other assets - other (Notes 13 and 29) 66,515 1 68,231 1

Total other assets 399,914 2 433,371 2

TOTAL $ 16,049,723 100 $ 18,007,902 100

2004 2003 LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT LIABILITIES

Short-term borrowings (Notes 2 and 14) $ 1,505,733 10 $ 2,368,559 13Short-term notes and bills payable (Notes 2 and 15) 1,884,036 12 1,362,485 8Notes payable (Notes 2 and 16) 83,735 1 106,844 1Notes payable, related parties (Note 28) 2,658 - 34,491 -Accounts payable 508,348 3 188,947 1Accounts payable, related parties (Note 28) 173,814 1 906,263 5Income tax payable 15,138 - - -Accrued expenses 210,982 1 266,019 1Other payable, related parties 765 - - -Other payables 14,622 - 67,548 -Advance receipts 43,165 - 105,456 1Long-term liabilities, current portion (Notes 17 and 18 ) 142,504 1 2,296,727 13Other current liabilities 46,482 - 62,784 -

Total current liabilities 4,631,982 29 7,766,123 43

LONG-TERM LIABILITIES

Long-term borrowings (Note 18) 3,789,911 24 2,666,230 15 RESERVE

Reserve for land increment value tax 19,863 - 29,805 - OTHER LIABILITIES

Accrued pension liability (Note 20) 128,753 1 80,226 -Guarantee deposits received (Note 19) 550,095 3 521,555 3Other liabilities - other 3,020 - 3,040 -

Total other liabilities 681,868 4 604,821 3 Total liabilities 9,123,624 57 11,066,979 61

STOCKHOLDERS’ EQUITY

Capital stock (Note 21) 7,880,511 49 7,880,511 44Capital surplus (Note 22)

Reserve for land revaluation increment 127,963 1 127,953 1Adjustment on long-term equity investment 342,395 2 341,285 2

Legal reserve 28,408 - - -Accumulated earnings (Note 23) 363,063 3 284,084 2Cumulative translation adjustments 70,391 - 196,858 1Treasury stock (Note 24) (1,886,632) (12) (1,889,768) (11)

Total stockholders’ equity 6,926,099 43 6,940,923 39

TOTAL $ 16,049,723 100 $ 18,007,902 100

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 22, 2005)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except for Earnings Per Share) 2004 2003 Amount % Amount % OPERATING REVENUES

Sales (Notes 2 and 28) $ 5,947,291 87 $ 7,784,111 86Less

Sales returns (31,783) (1) (70,591) (1Sales discounts and allowances (15,147) - (34,707) -

Investment income 7,358 - - -Interest income 3,261 - 1,323 -Dividends income 43,970 1 57,218 1Construction income 730,662 11 982,082 11Other operating income 148,638 2 295,389 3

Net operating revenues 6,834,250 100 9,014,825 100

OPERATING COSTS

Cost of goods sold (Notes 2 and 28) 4,897,590 72 6,708,433 74Losses on sale of investment 145 - 198 -Investment losses 41,540 1 59,284 1Interest expense 37,068 - 46,207 -Cost of construction sales 596,877 9 799,353 9

Total operating costs 5,573,220 82 7,613,475 84 GROSS INCOME FROM OPERATIONS 1,261,030 18 1,401,350 16 REALIZED GAIN ON AFFILIATE ACCOUNTS 22 - 22 - NET GROSS INCOME FROM OPERATIONS 1,261,052 18 1,401,372 16 OPERATING EXPENSES

Selling expenses 731,515 11 1,054,216 12General and administrative expenses 231,060 3 250,390 3

Total operating expenses 962,575 14 1,304,606 15 INCOME FROM OPERATIONS 298,477 4 96,766 1 NON-OPERATING INCOME

Interest income 33,839 - 27,065 -Equity in net earnings of affiliates 42,072 1 - -Investment income 85,019 1 87,425 1Gains on disposal of property, plant and equipment

(Notes 2 and 28) 54 - 484,754 6Gains on sale of investments (Note 2) 211,017 3 28,286 -Gains on exchange (Note 2) 6,908 - 3,793 -Rent revenue 493 - 429 -Income from sale of scrap and wastes 6,702 - 6,310 -Gains on market price recovery of short-term investment - - 89,361 1Gains from price recovery of inventory - - 79,202 1Miscellaneous income (Note 28) 102,732 2 668,222 8

Total non-operating income 488,836 7 1,474,847 17

(Continued)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Except for Earnings Per Share) 2004 2003 Amount % Amount % NON-OPERATING EXPENSES

Interest expense $ 241,571 4 $ 413,988 5Equity in net earnings of affiliates - - 115,075 1Investment losses (Note 2) 33,629 1 129,720 1Losses on disposal of property, plant and equipment

(Note 2) 12,511 - 45,256 1Losses on sale of investments (Note 2) 5,702 - 40,334 1Losses on physical inventory - - 1,418 -Loss for market price decline and obsolete and slow-

moving inventories 24,053 - - -Losses on idle assets depreciation and valuation loss 2,533 - 13,520 -Impairment losses (Note 3) 280,298 4 - -Miscellaneous disbursements 23,338 - 31,240 -

Total non-operating expenses 623,635 9 790,551 9

CONTINUING OPERATIONS’ INCOME BEFORE TAX 163,678 2 781,062 9 INCOME TAX EXPENSE (Notes 2 and 25) (37,218) - (78,576) 1 CONTINUING OPERATIONS’ INCOME AFTER TAX 126,460 2 702,486 8 LOSS FOR MINORITY INTEREST 80 - 167 - NET INCOME $ 126,540 2 $ 702,653 8 BASIC EARNINGS PER SHARE (Notes 2 and 26)

Net income $0.19 $1.03 PROFORMA DATA AS SHARES OF THE COMPANY

HELD BY SUBSIDIARY TREATED AS NON-TREASURY-STOCK Net income $0.02 $0.78

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 22, 2005) (Concluded)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars)

Capital Surplus Retained Earnings Change of Equity

Capital Stock

Reserve for Land

Revaluation Increment

Adjustment on Long-Term

Equity Investment

Legal Reserve

UnappropriatedEarnings (Deficit)

Cumulative Translation Adjustments

Unrealized Valuation

Losses on Long-Term Equity Investments

Treasury Stock

Total Stockholders’

Equity BALANCE, JANUARY 1, 2003 $ 7,880,511 $ 127,953 $ 362,066 $ - $(436,245) $ 239,257 $ (349,730) $ (1,889,768) $ 5,934,044

Prior period adjustment - investee - - - - 17,676 - - - 17,676 Effect on capital surplus of change in ownership percentage - - (18,049) - - - - - (18,049) Effect on change of capital surplus - investee - - (2,732) - - - - - (2,732) Cumulative translation adjustments - - - - - (42,399) - - (42,399) Unrealized valuation losses on long-term equity investment - - - - - - 349,730 - 349,730 Net gain after tax for the year of 2003 - - - - 702,653 - - - 702,653

BALANCE, DECEMBER 31, 2003 7,880,511 127,953 341,285 - 284,084 196,858 - (1,889,768) 6,940,923

Prior period adjustment - investee - - - - (16,672) - - - (16,672) Appropriation of prior year’s earnings

Legal reserve - - 28,408 (28,408) - - - - Reserve for assets revaluation increment - 10 - - - - - - 10 Effect on change of capital surplus - investee - - 1,110 - - - - - 1,110 Cumulative translation adjustments - - - - - (126,467) - - (126,467) Transfer of gain on disposal of treasury stock - - - - (2,481) - - 3,136 655 Net gain after tax for the year of 2004 - - - - 126,540 - - - 126,540

BALANCE, DECEMBER 31, 2004 $ 7,880,511 $ 127,963 $ 342,395 $ 28,408 $ 363,063 $ 70,391 $ - $ (1,886,632) $ 6,926,099 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 22, 2005)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars)

2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 126,540 $ 702,653Adjustments to reconcile net income to net cash provided by

operating activities Bad debts - 216Gain on reversal of bad debts (171) (935)Depreciation expense 244,677 293,875Transfer of property, plant and equipment to expense 1,687 103Amortization expense 25,853 36,777Transfer of deferred assets to expense 3,435 8,954(Gains) loss on sale of long-term investments (210,312) 4,458Gain on sale of short-term investment (705) (28,286)Losses on sale of short-term investment 5,702 35,876Loss for minority interest (80) (167)Valuation losses on short-term investments 7,346 10,876Gains on market price recovery of short-term investment - (89,361)Losses on disposal of assets 12,511 45,256Gains on disposal of assets (54) (484,754)Abandonment losses on assets 3,012 909Loss for market price decline and obsolete and slow-

moving inventories 24,053 -Gain on market price recovery of short-term investment - (79,202)Losses on idle assets’ valuation loss - 9,291Realized gross profits (22) (22)Amount of (income) loss under equity method exceeding

cash dividends received from the investee (49,429) 156,499Impairment losses 280,299 -Losses on decrease of capital and liquidation of short and

long-term investments 67,823 136,704Amortization of consolidation debits 300 300Net changes in operating assets and liabilities

Notes receivable 20,548 31,271Notes receivable, related parties (613) (613)Accounts receivable (21,824) 75,725Accounts receivable, related parties 8,122 (5,224)Other receivable (19,627) 33,627Other receivable, related parties 3,780 4,140Inventories 598,615 829,181Prepaid expenses 2,642 (3,935)Other prepayments (8,272) 113,670Other current assets 4,608 (7,149)Overdue accounts receivable (389) (746)Deferred income tax assets, noncurrent 25,053 69,133Deferred income tax assets, current (6,008) 6,694Notes payable (23,109) (21,785)Notes payable, related parties (31,833) 28,401Accounts payable 319,401 (47,587)Accounts payable, related parties (618,184) (27,552)

(Continued)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars)

2004 2003

Income tax payable $ 15,138 $ -Accrued expenses (55,038) (4,267)Other payables, related parties 765 -Other payables (52,651) 53,275Advance receipts (62,290) 36,109Other current liabilities (16,305) 5,230Accrued pension liabilities 7,662 744 Net cash provided by operating activities 632,656 1,928,362

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease (increase) in restricted current assets 653,633 (504,178)Proceeds from sales of short-term investment 6,711,569 4,361,164Acquisitions of short-term investment (6,716,567) (4,009,923)Proceeds from sale of long-term investments 542,683 17,560Acquisitions of long-term investments (150,240) (359,456)Proceeds from disposal of property, plant and equipment 2,688 883,517Acquisitions of property, plant and equipment (127,602) (97,429)Proceeds from disposal of idle assets 118 20,788Increase in other receivable - related parties (276,900) (100,900)Decrease in guarantee deposits paid 887 334Increase in deferred charges (23,182) (16,903)Decrease in long-term notes and accounts receivable - 224,250Decrease in other assets - others 68 -

Net cash provided by investing activities 617,155 418,824 CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in short-term borrowings (862,826) (231,512)Increase (decrease) in short-term notes and bills payable 521,551 (653,470)Decrease in corporate bonds payable (600,000) (200,000)Decrease in long-term borrowings (430,542) (1,317,410)Increase in guarantee deposits received 28,540 28,000Cash dividends paid (274) (23)

Net cash used in financing activities (1,343,551) (2,374,415) NET DECREASE IN CASH AND CASH EQUIVALENTS (93,740) (27,229) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 132,011 159,240 CASH AND CASH EQUIVALENTS, END OF YEAR $ 38,271 $ 132,011 SUPPLEMENTAL DISCLOSURES OF CASH FLOW

INFORMATION Cash paid during the year

Interests (excluding capitalized interest) $ 303,965 $ 469,421Income tax $ 2,981 $ 5,141

Current portion of long-term liabilities $ 142,504 $ 2,296,727

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 22, 2005) (Concluded)

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RUENTEX INDUSTRIES LIMITED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS

The consolidated financial statements are prepared for Ruentex Industries Limited (the “Parent Company”) and its subsidiary, Chin-An Investment Company Limited (collectively, the “Company”). Ruentex Industries Limited holds 99.87 percent of ownership in Chin-An Investment Company Limited. Ruentex Industries Limited (Formerly Hua-Hsin & Ruen-Tai Company Limited) was consolidated from Hua-Hsin Textile Company Limited and Ruen-Tai Textile Dyeing Finishing Industries Company Limited on January 14, 1976. Its major operating activities include: (a) yarning of natural cotton, chemical fiber, synthetic fabric and line wool, etc.;

manufacturing, processing, finishing, printing and marketing of weave cloth, knitted fabric and products;

(b) import and export of fabric products and materials; (c) import of raw cotton, chemical fiber, dyeing materials, and raw materials; (d) construction and leasing of commercial buildings and government funded residential

housing units; (e) manufacturing, processing and marketing of construction materials and (f) retailing and wholesaling of consumer products. Chin-An Investment Company Limited was incorporated on January 19, 1988 under the provisions of the Company Law of the Republic of China (ROC). Major businesses of this subsidiary are investments in: (a) textile products; (b) constructions and (c) security investment firms, banks, insurance companies, trading companies and cultural

businesses.

At December 31, 2004 the parent and the subsidiary company have 1,553 and 1 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with generally accepted accounting principles in the ROC and conform to general practices within the industry. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. However, the accompanying financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted

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accounting principles but are required by the Securities and Futures Bureau (SFB, formerly the “Securities and Futures Commission” before July 1, 2004) for their oversight purposes. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements is as follows:

Basis of Presentation of Consolidated Financial Statements

The consolidated financial statements include the accounts of the Parent Company, Ruentex Industries Limited and its subsidiary, Chin-An Investment Company Limited. Since the individual total assets and operating revenues of Chin-An Investment Company Limited were more than 10% of the corresponding amount of the Parent Company as of December 31, 2004 and 2003, the financial statements of the subsidiary should be included in the consolidated financial statements. Reporting Classifications of Current and Noncurrent Items

The Parent Company’s construction - related assets and liabilities are divided into current and non-current sections based on the normal operating cycle. The classification standard for other business related items is one year.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and so near their maturity that there is little risk of changes in value because of changes in interest rates.

Short-Term Investments

Marketable securities are recorded at cost when acquired and stated at the lower of aggregate cost or market value. Stock dividends received are not recognized as income but are reflected as an increase in the number of shares held. The cost of marketable securities sold is determined on the weighted average method.

Government bonds are recorded at cost when acquired and stated at the lower of aggregate cost or market value on the balance sheet date, if the market value is available. The cost of the bonds, interest revenue, and gain or loss either due to maturity or sale before maturity are determined by the specific identification cost method.

Short-term notes are recorded at cost when acquired and stated at the lower of aggregate cost or market value on the balance sheet date, if the market value is available. The cost of the notes, interest revenue, and gain or loss either due to maturity or sale before maturity are determined by the specific identification cost method.

Beneficiary certificates are recorded at cost when acquired and stated at the lower of aggregate cost or market value on the balance sheet date. The cost of beneficiary certificates sold and gain or loss are determined by the weighted average method. Any provision for decline in market value is classified as a non-operating loss.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is provided for notes, accounts receivable, overdue accounts and other receivables based on management’s evaluation of the collectibility of accounts, past loss experience, aging of accounts, notes, overdue and other receivables and other pertinent factors.

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Inventories

The inventory system which the Company has adopted is perpetual inventory system. Inventories are recorded at cost when purchased. The inventories are stated at the lower of cost or market with cost being determined by the weighted average method. The lower of cost or market rule is applied to the total of the inventories. Market for inventories is either the net realizable value or the replacement cost. Inventories that are defective, damaged or obsolete are stated at their net realizable value.

The inventories of construction business are temporarily listed under land held for sale upon acquisition of land and before work commencement and listed under land under construction during work in progress. Cost incurred for construction is temporarily listed under prepayment for construction prior to commencement of work and listed under construction in progress when construction is engaged.

Construction in progress and land for development and sale are carried at cost. The related construction profits or losses are recognized by the percentage-of-completion method. The cost is allocated to building and land for development based on the average ratio of construction area for different batches and land holding percentage. Construction in progress and land for development and sale are stated at the lower of aggregate cost or market value on the balance sheet date. The interest incurred should be capitalized in accordance with generally accepted accounting principles.

Long-Term Investments

Investments in stocks of non-publicly-traded companies in which the Company’s ownership interest is less than 20% and over which the Company is unable to exercise significant influence are accounted for by the cost method. Other than temporary declines, any loss in value of an investment is reflected in income. Stock dividends received are recorded only as an increase in the number of shares, not as an investment income. The Company uses the lower-of-cost-or-market method to account for investments in stocks of listed companies in which the Company’s ownership interest is less than 20% on the balance sheet date. Unrealized loss on long-term equity investments resulting from decline in market value is reflected as a separate component of stockholders’ equity.

Investments in corporations in which the Company’s ownership interest is 20% or more, except where the Company cannot exercise significant influence, are accounted for by use of the equity method of accounting. Investments in majority-owned subsidiaries of the Company are also accounted for under the equity method as permitted under accounting principles generally accepted in the Republic of China. Under the equity method, investments, originally recorded at cost, are adjusted to recognize the Company’s share of the net earnings or losses of the affiliates as they occur, rather than as dividends or other distributions are received, limited to the extent of the Company’s investment in, advances to, and guarantees for the investees. The Company’s share of net earnings or losses of affiliates includes amortization of purchase adjustment. The difference between the underlying equity in net assets of the investee and the cost of the investment is fully amortized at once when the situation of under-or-over-valuation no longer exists. When the reason of the difference cannot be identified, the difference is amortized on a straight-line basis over ten years. Other than temporary declines, any loss in value of an investment is reflected in income.

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A company is consolidated as a subsidiary if more than 50% of its outstanding voting stocks are held by the Parent Company. Consolidated financial statements should be prepared including all such subsidiaries except for subsidiaries that have different business nature from that of the Parent Company or whose individual total assets and operating revenues are less than 10% of the corresponding amount of the Parent Company. If the total assets and operating revenues of subsidiaries not otherwise required to be consolidated are in aggregate more than 30% of the corresponding amount of the Parent Company, in which case a subsidiary whose total assets or operating revenues are more than 3% of the corresponding amount of the Parent Company must be consolidated to the extent that total assets and operating revenues of the remaining non-consolidated subsidiaries are not more than 20% of the corresponding amount of the Parent Company.

When additional shares issued by an investee are not purchased on a prorated basis by its existing stockholders, the change in the Company’s share of the investee’s equity is adjusted to capital surplus and long-term investments accounts. If there is any deficiency in the capital surplus account, the differences will be debited to the retained earnings account.

The cost on the disposal of an investment and gain or loss on the sale of an investment are determined by the weighted average method.

Gains or losses resulting from the transactions between the Company and its investees accounted for by the equity method or transactions among investees are deferred and recognized when realized. Gains or losses resulting from transactions of depreciable or amortizable assets are deferred and recognized over the assets’ estimated useful life. Gains or losses resulting from transactions of other assets are recognized in the year of realization.

Real Estate Investments

Real estate investments are stated at cost. Major replacements and improvements that would increase the value or extend the useful lives of the assets are capitalized, while regular repairs and maintenance are expensed.

Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any related loss is charged to non-operating expenses. Gain on sale of property, plant and equipment is included in non-operating income. Impairment loss is recognized immediately for any significant decline in the value of PPE-LTREI. If the loss is reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is immediately recognized as gain. If PPE-LTREI revaluation based on certain regulations shows impairment loss, this loss should be recognized as a reduction of the capital surplus-property, plant and equipment revaluation increment. If the impairment loss is greater than this revaluation increment, the difference is recognized as loss. A reversal of an impairment loss on a revalued asset is recognized as the addition to the revaluation increment. However, to the extent that an impairment loss on the same revalued asset was previously recognized as loss, a reversal of the impairment loss on PPE-LTREI revaluation is recognized as gain.

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Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, or at cost plus revaluation increment for certain assets which have been revalued in accordance with government regulations. The revaluation increment, net of reserve for land value increment tax, is credited to capital surplus.

Expenditures that increase the value or extend the useful lives of property, plant and equipment are capitalized, while normal repairs and maintenance costs are expensed in the period incurred. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any related loss is charged to non-operating expenses. Gain on sale of property, plant and equipment is included in non-operating income.

Depreciation is calculated on a straight-line basis over the following estimated useful lives of the related assets, plus one additional year for salvage:

Buildings and improvements 10 to 60 yearsLand improvements 10 yearsMachinery equipment 3 to 7 yearsLease-out assets 5 to 60 yearsTransportation equipment 5 to 8 yearsLeasehold improvement 1 to 3 yearsLeasehold assets 7 yearsOther equipment 5 to 8 years

The useful lives of the related assets may be modified, if the assets are still usable after being fully depreciated over their depreciation bases. The salvage values of the assets may be depreciated over their estimated additional useful lives.

Impairment loss is recognized immediately for any significant decline in the value of PPE-LTREI. If the loss is reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is immediately recognized as gain. If PPE-LTREI revaluation based on certain regulations shows impairment loss, this loss should be recognized as a reduction of the capital surplus-property, plant and equipment revaluation increment. If the impairment loss is greater than this revaluation increment, the difference is recognized as loss. A reversal of an impairment loss on a revalued asset is recognized as the addition to the revaluation increment. However, to the extent that an impairment loss on the same revalued asset was previously recognized as loss, a reversal of the impairment loss on PPE-LTREI revaluation is recognized as gain.

Capitalization of Interest Costs

Interest is capitalized in connection with the property, plant and equipment constructed. Depreciation is provided over the estimated useful lives.

Deferred Charges

Deferred charges are amortized on the straight-line method over the contract period or the estimated service lives. Electric wire subsidy is amortized over five years and interior decoration is amortized over ten years. All other accounts are amortized over three years.

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Retirement Plan

The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 18, “Accounting for Pensions,” issued by the Accounting Research and Development Foundation of the ROC. Based on the actuarial report, minimum liability is determined by the amounts of accrued pension cost and accumulated benefits obligation exceeding fair value of plan assets. The related benefits obligation and recognition of net periodic pension cost are disclosed.

Foreign Currency Transactions and Translation

Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Gains or losses caused by different foreign exchange rates applied when foreign currency is actually converted into New Taiwan dollars, or when the foreign currency receivables or payables are settled, are credited or charged to income in the year of actual conversion or settlement. Year-end balances of cash, receivables and payables denominated in foreign currencies are translated at the year-end exchange rates, and resulting gains or losses are credited or charged to current income.

Gains or losses (the differences between the balance sheet date spot exchange rates and the spot exchange rates at the inception of the contracts, multiplied by the principal amounts of foreign currencies) on all hedge forward foreign exchange contracts are recognized in net income of the period in which the exchange rate changes. The discounts or premiums (the differences between the contract rates and the spot rates on the dates of purchase, multiplied by the principal amounts of foreign currencies) involved in all forward foreign exchange contracts are separately accounted for and amortized to net income over the terms of the contracts.

A foreign subsidiary’s financial statements accounted for by the equity method are translated into New Taiwan dollars as follows: All assets and liabilities denominated in foreign currencies are translated at the rates of exchange on the balance sheet date. The accounts of stockholders’ equity are translated at the applicable historical rates except for the beginning balance of retained earnings which is taken directly from the year-end balance of prior year.

The accounts of income statements are translated at weighted average rate for the year. Differences arising from translation are recorded as cumulative translation adjustments and reported as a separate component of stockholders’ equity.

If the recording currency is not the functional currency, the financial statements of the subsidiary should be first translated into functional currency before they are further translated into New Taiwan dollars. As such re-measurements affect the cash flows of foreign subsidiary, any differences due to the re-measurements are treated as exchange gains or losses in the current period.

Income Tax

The Company adopted the provisions of SFAS No. 22, “Accounting for Income Tax,” which require an asset and liability approach to financial accounting and reporting for income tax. Deferred income tax assets and liabilities are computed at balance sheet dates for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

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If a property, plant and equipment of the Company meets the requirements of “Statute for Encouragement of Investment” and “Statute for Upgrading Industries,” the income tax credit resulting from machinery acquisition or R&D expenditure is accounted for as a deduction of the estimated income tax payable in the year of actual expenditure.

The distributable unappropriated earnings may be reserved at the discretion of the Board of Directors. Starting from January 1, 1998, the unappropriated earnings may subject to one-time additional 10% tax rate if they are not appropriated within certain period according to the modified Tax Law of the ROC.

Revenue and Expense Recognition

The Company recognizes revenues and expenses as follows:

Textile and wholesales: The Company recognizes revenues from product sales upon shipment or sale of goods. Revenue from service contracts is recognized when services are performed. Revenue is considered realized when the earnings process is complete or virtually complete, and an exchange has taken place. Anticipated sales returns and allowances are charged against sales revenue in the statement of operations. Expenses are determined by applying the expense recognition principles on the basis of relationships between costs and either the independently determined revenue or accounting periods. In order to match expenses against revenue and to reflect the proper liabilities at the end of the period, expenses are recognized based on accrual basis.

Construction: Construction revenues are classified into three categories:

Pre-sold residential units: The Company pre-sells residential units to customers prior to completion of construction. The Company recognized income under percentage-of-completion method when the Company subcontract the construction with a third party and the following conditions exist. Otherwise, completed-contract method is used:

(a) The planning stage is completed. That is, designing, planning, subcontracting and land

clearing of the construction are all completed. (b) Total sales exceed estimated total construction cost. (c) The payments from buyers exceed fifteen percent of total contract price. (d) The collectibility of contracts receivable can be reasonably estimated. (e) The total construction costs and percentage of completion can be reasonably estimated. (f) The cost for the sales of residential units can be reasonably identified.

Residential units ready for sales: It is the unsold residential units (finished goods) that have been completed. The Company recognized operating income when they are sold out.

Construction site: Operating income is recognized when the construction site is sold (Title is transferred).

Construction costs are totaled on a project-by-project basis. Under the completed-contract method, the costs are allocated to each construction unit (Ping) upon completion. Percentage-of-ping method or percentage-of-revenue method is used to allocate the costs.

Costs of construction sites are totaled on a lot-by-lot basis. The costs are allocated to each construction unit (Ping) under percentage-of-ping method. Upon sales, the cost of goods sold is determined based in the number of pings sold. Construction income is recognized when titles of land and building have been registered and exchange of properties has taken place. Revenue is considered realized when either registration is complete or an exchange has taken place by balance sheet date.

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Rental Income and Costs

Rental income is recognized for properties rented by other companies, organizations or individuals. Revenue is considered realized when earning process of the rent service is complete according to the contract terms.

Rental costs include depreciation and handling expenses.

Deferred Costs and Current Costs

Costs incurred in connection with potential future benefits are capitalized and will be amortized over the estimated lives. Costs incurred in connection with immaterial future benefits or without future benefits are recognized as expenses or losses.

Derivative Financial Instruments

The Company is a party to certain derivative transactions, including forward exchange contracts and option contracts. These contracts are entered into for purposes of reducing the Company’s price risk in those transactions engaged in foreign currencies. These derivative financial instruments qualify for hedge accounting. As such, the realized and unrealized gains and losses on these contracts are deferred and included as a component of the related transaction. Also, any premium or discount on forward exchange contracts, determined based on the foreign currency amount of the contract multiplied by the difference between the contracted forward rate and the spot rate at the date of inception of the contract, is accreted or amortized over the life of the forward contract and included in net income. Any contracts that do not qualify for hedge accounting are marked to market with the resulting gains or loss recognized in other income or expense.

Non-Derivative Financial Instruments

Recognition and valuation of non-derivative financial assets and liabilities, and revenues and expenses arising by those assets and liabilities are based on the accounting policies previously stated and generally accepted accounting principles.

Treasury Stocks

Parent Company’s shares held by subsidiaries are treated as stocks re-acquired by the Parent Company in consolidation. Such treasury stocks are accounted for as deduction from stockholders’ equity of consolidated balance sheet.

Consolidated Debit (Credit)

Consolidated debit (credit) is the excess (deficiency) of the Parent Company’s acquisition costs of subsidiaries against the net equity of the subsidiaries. Consolidated debit (credit) is amortized on a straight-line basis over five to ten years.

3. REASONS AND EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLE

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 35, “Accounting for Asset Impairment,” effective from the year ended December 31, 2004, accordingly, the Company’s long-term investment decreased $303,163 thousand, property, plant and equipment decreased $47,562 thousand and consolidated debit decreased $1,348 thousand on December 31, 2004. The Company recognized investment losses under equity method $71,775 thousand and impairment losses $280,298 thousand in 2004.

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4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents at December 31, 2004 and 2003 consist of the following:

2004 2003 Cash on hand $ 2,576 $ 14,463Revolving fund 4,678 2,429Cash in banks 27,248 93,789Time certificates of deposit 1,690 21,330Cash equivalents 2,079 - $ 38,271 $ 132,011 At December 31, 2004 and 2003, cash equivalents were those securities - short-term notes that mature within 3 months from the investment dates.

5. SHORT-TERM INVESTMENTS

The carrying value of short-term investments at December 31, 2004 and 2003 is as follows:

2004 2003 Marketable securities of listed companies $ 640,377 $ 637,165Beneficiary’s certificates 38,944 38,944 679,321 676,109Less allowance for valuation loss of short-term investment (357,724) (347,246) $ 321,597 $ 328,863

At December 31, 2004 and 2003, some of the short-term investments were pledged as collaterals. See Note 29.

6. NOTES RECEIVABLE

A summary of notes receivable at December 31, 2004 and 2003 is as follows:

2004 2003 Notes receivable $ 49,890 $ 70,329Other notes receivable 260 367Less allowance for doubtful accounts (2,498) (2,819) $ 47,652 $ 67,877

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7. ACCOUNTS RECEIVABLE

A summary of accounts receivable at December 31, 2004 and 2003 is as follows:

2004 2003 Accounts receivable $ 287,740 $ 265,916Less allowance for doubtful accounts (3,149) (3,387) $ 284,591 $ 262,529

8. OTHER RECEIVABLES

A summary of other receivables at December 31, 2004 and 2003 is as follows:

2004 2003 Tax refund receivable $ 13,120 $ 1,679Non-operating revenues receivable 52,728 39,426Other non-operating receivables 1,637 6,754 $ 67,485 $ 47,859

9. INVENTORIES

Inventories at December 31, 2004 and 2003 consist of the following:

2004 2003 Textile

Raw materials $ 541,002 $ 596,218Supplies 41,033 44,879Work-in-process 58,069 78,652Finished goods 279,915 238,913Goods in transit 15 162

920,034 958,824Less allowance for inventory valuation losses (29,782) (3,879) 890,252 954,945

Wholesale

Work-in-process 1,623 896Merchandise inventory 102,516 116,517Less allowance for inventory valuation losses (4,107) (4,272)

100,032 113,141

Constructions

Land for sale 53,476 189,448Parking spaces for sale 16,220 12,312Land for construction 240,977 407,176Less allowance for inventory valuation losses - (9,030)

310,673 599,906

$ 1,300,957 $ 1,667,992

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As of December 31, 2004 and 2003, inventories pledged as collateral amounted to approximately $241,519 thousand and $482,864 thousand, respectively. See Note 29.

As of December 31, 2004 and 2003, insurance coverage of the Parent Company for inventories amounted to approximately $1,132,866 thousand and $1,401,011 thousand, respectively.

10. OTHER PREPAYMENTS

Other prepayments at December 31, 2004 and 2003 are summarized as follows:

2004 2003 Prepaid materials $ 86,465 $ 77,718Other prepayments 455 929 $ 86,920 $ 78,647

11. LONG-TERM INVESTMENTS

Long-term bond investments at December 31, 2004 and 2003 are summarized as follows:

2004 2003 Corporate Bond $ 50,000 $ 50,000Bank Bond 15,000 15,000 $ 65,000 $ 65,000

Long-term equity investments at December 31, 2004 and 2003 are summarized as follows:

2004 2003 Carrying Ownership Carrying Ownership Value Percentage Value Percentage

At equity method

Full Shine International Holdings Ltd. $ 604,916 100.00 $ 600,621 100.00 Gold Leaf International Group Co., Ltd. 10,180 100.00 11,130 100.00 Kompass Global Sourcing Solutions Ltd. 65,161 100.00 83,991 100.00 East Capital International Limited. 10,908 100.00 21,554 100.00 New Zone International Limited 63,859 100.00 - - Fu-Li Investment Co., Ltd. 132,643 99.97 134,088 99.97 Fu-Yi Investment Co., Ltd. 331,377 56.67 321,480 56.67 Gin-Hong Investment Co., Ltd. 363,224 55.00 519,519 55.00 Ruentex Cement Co., Ltd. 86,401 52.44 86,878 52.44 Ruenfu Newlife Corp. 2,418 40.00 3,590 40.00 Ruentex Development Co., Ltd. 2,882,987 36.99 2,839,877 36.99 Shing Yen Construction & Development

Co., Ltd. 128,838 25.26 242,497 25.26 Hau-Hsia Leasing Ltd. - 21.96 38,979 21.96 Concord Greater China Limited 899,608 21.92 867,116 21.92 Ho-Chi Investment Co., Ltd. 14,995 9.80 16,769 9.80

At cost method or lower of cost or market Ruentex Resources Integration Co., Ltd. 165,360 19.22 165,360 19.22 Fu-Hwan Securities Co., Ltd. - - 190,350 14.27

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2004 2003 Carrying Ownership Carrying Ownership Value Percentage Value Percentage

Fuh Hua Real Estate Management Co.,

Ltd. 17 0.02 67,840 14.13 RT-MART International Ltd. 351,951 10.78 336,132 10.78 Sinopac Co., Ltd. - - 142,021 8.71 China Recreation Development Co., Ltd. 5,000 8.33 5,000 8.33 CDC Finance & Leasing Corp. 57,000 7.13 57,000 7.13 BA-HE Investment Co., Ltd. 2,500 6.49 2,500 6.49 Sunny Friend Environmental Technology

Co., Ltd. 30,000 5.95 - - Cheng-Feng Co., Ltd. 16,946 5.46 16,946 5.46 Cosmactive Broadband Networks Co.,

Ltd. 12,500 4.63 12,500 4.63 Bank Sinopac Co., Ltd. 2,498,427 4.08 2,498,427 4.16 IP Fund Two Co. 19,620 3.29 - - Bigger Buyer Co., Ltd. 39,462 2.90 39,462 2.90 Century Development Corp. 23,750 1.44 23,750 1.44 Tai-Sur Co., Ltd. 8,973 1.05 8,973 1.05 Evengreen Development Corp. 13,320 0.47 13,320 0.47 Naluwan Corporation & Development

Co., Ltd. 2,857 0.42 2,857 0.42 Uni Airlines Co., Ltd. 7,567 0.31 7,567 0.31 City Link Co., Ltd. 934 0.04 934 0.04 Less treasury stocks (1,601,497) (1,604,633) Less allowance for decline in value of

long-term investments (5,000) (5,000) $ 7,247,202 $ 7,769,395

The investments accounted by equity method, including Ruentex Development Co., Ltd., Ruenfu Newlife Corp, Shing Yen Construction & Development Co., Ltd., Fu Yi Investment Co., Ltd., Gin-Hong Investment Co., Ltd, Ho-Chi Investment Co., Ltd., Kompass Global Sourcing Solutions Ltd., Full Shine International Holdings Ltd., Concord Greater China Limited were computed by financial statements audited by other auditors. Equities in earnings (losses) of affiliates for the years ended December 31, 2004 and 2003 are summarized as follows:

2004 2003 Ruentex Development Co., Ltd. $ 82,385 $ 53,732Ruentex Cement Co., Ltd. 12 (282)Ruenfu Newlife Corp. (1,172) (330)Shing Yen Construction & Development Co., Ltd. (112,588) (62,140)Hau-Hsia Leasing Ltd. (38,979) (37,072)Full Shine International Holdings Ltd. 36,850 7,732Concord Greater China Limited 97,648 40,005Fu-Yi Investment Co., Ltd. 11,888 (22,452)Fu-Li Investment Co., Ltd. (1,445) (1,875)Gin-Hong Investment Co., Ltd. 21,743 (76,886)Ho-Chi Investment Co., Ltd. (587) (5,008)Gold Leaf International Group Co., Ltd. (406) (5,139)Kompass Global Sourcing Solutions Ltd. (18,830) (38,835)East Capital International Limited. (9,902) (7,949)New Zone International Limited (17,188) - $ 49,429 $ (156,499)

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The Company according to the different amount between investment cost and stockholders’ equity of investment in Shing Yen Construction & Development Co., Ltd., Gin-Hong Investment Co., Ltd. and Ho-Chi Investment Co., Ltd. estimated the recoverable amount and recognized impairment losses $180,297 thousand included in non-operating losses - impairment loss. The Company’s investee adopted Statement of Financial Accounting Standards (SFAS) No. 35, “Accounting for Asset Impairment,” for the year ended December 31, 2004. The Company according to the holding rate recognized impairment loss $71,775 thousand included in investment losses under equity method. According to SFAS No. 30, “Accounting for Treasury Stock” and SFC’s related rulings, the Company is required to treat its subsidiaries’ interest holdings on the Company as treasury stock. These are as follows:

Investee 2004 2003

Chin-An Investment Co., Ltd. $ 285,135 $ 285,135Ruentex Cement Co., Ltd. 8,272 8,917Fu-Yi Investment Co., Ltd. 702,275 704,766Fu-Li Investment Co., Ltd. 153,079 153,079Gin-Hong Investment Co., Ltd. 737,871 737,871 $ 1,886,632 $ 1,889,768

Equity in earnings of Ruentex Cement Co., Ltd., Fu-Yi Investment Co., Ltd., Fu-Li Investment Co., Ltd. and Gin-Hong Investment Co., Ltd. was based on treasury stock method and investment income (loss) accounted for by the equity method follows:

Investee 2004 2003

Chin-An Investment Co., Ltd. $ 16,949 $ 13,396Ruentex Cement Co., Ltd. 404 419Fu-Yi Investment Co., Ltd. 41,410 33,110Fu-Li Investment Co., Ltd. 9,099 7,192Gin-Hong Investment Co., Ltd. 43,861 34,665 $ 111,723 $ 88,782

Equity in earnings of Ruentex Development Co., Ltd. was based on treasury stock method since the Parent Company and Ruentex Construction and Development Co. invested in each other and were accounted for by the equity method.

Shing Yen Construction & Development Co., Ltd. (“Shing Yen”) increased capital by cash subscription in 2003. The Parent Company did not invest according to the interest holding in Shing Yen that resulted in a decrease in capital surplus amounted to approximately $18,263 thousand.

On March 27, 2003 the Board of Directors of the Parent Company resolved to invest in Fuhwa Trust Co., Ltd. which acquired 4,500,000 shares for $202,500 thousand that resulted in an ownership interest of 14.57%. And the Board of Directors made a resolution to sell this investment on February 11, 2004 at $83 dollars per share totalling $373,500 thousand, gain was $182,029 thousand.

In 2003, Concord Greater China Limited, an investee under equity method, increased capital by cash subscription, the Parent Company did not follow its subscription ratio. As a result, the change of interest holding increased the Company’s capital surplus by $214 thousand.

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In 2003, RT-MART International Ltd, an investee under cost method, increased capital by cash subscription. The Parent Company increased investment in RT-MART International Ltd. by 431,999 shares and 53,551 shares. On October 31, 2003, Trans Asia Development Co. was merged with RT-MART International Ltd., the share transfer ratio was 5.3:1. On December 31, 2003, the interest holdings change to 10.78%. On March 1, 2004, the Board of Directors of the Parent Company resolved to sell shares in Sinopac Co., Ltd. and sold 14,202,058 shares for $170,815 thousand, with gain of $28,283 thousand. The Parent Company in order to promote the international position of textile industry and expand the business, the Board of Directors on March 30, 2004 resolved to invest in New Zone International Limited and invested US$2,500 thousand. The investment was filed to the Ministry of Economic Affairs and approved by document no. 093008691, and finished investment procedures on August 16, 2004 and started operating in September 2004.

The Parent Company provided 20,000,000 shares of Ruentex Construction & Development Co., Ltd., 55,065,000 shares and 13,000,000 shares of Sinopac Holding Co., Ltd., and RT-MART International Co., Ltd., respectively, as collateral to secure borrowings. Details of collateral pledged are described in Note 29.

Chin-An Investment Co., Ltd., the consolidated subsidiary, provided 86,217,000 shares of Bank Sinopac and 15,804,000 shares of Ruentex Development Co., Ltd. as collateral to secure bank borrowings and issuance of commercial papers. Details of collateral pledged are described in Note 29.

A company is considered as a subsidiary if the Parent Company holds more than 50% of its outstanding voting stocks. Consolidated financial statements, however, are not prepared if combined total assets and operating income of all unconsolidated subsidiaries are less than 30% of the corresponding amount of the Parent Company.

Investments in real estate by the consolidated subsidiary at December 31, 2004 consist of the following:

Cost Accumulated Depreciation

Accumulated Impairment

Carrying Value

Land $ 169,759 $ - $ (38,161) $ 131,598Buildings 61,863 (8,055) (12,930) 40,878 $ 231,622 $ (8,055) $ (51,091) $ 172,476

Investments in real estate by the consolidated subsidiary at December 31, 2003 consist of the following:

Cost Accumulated Depreciation

Carrying Value

Land $ 169,759 $ - $ 169,759Buildings 61,863 (6,766) 55,097 $ 231,622 $ (6,766) $ 224,856

The investments of Chin-An Investment Co., Ltd., in real estate were pledged as collateral for

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issuance of commercial papers. See Note 29. The consolidated subsidiary company according to the recoverable amount of real estate investment recognized impairment loss of $51,091 thousand included in non-operating losses - impairment losses. As of December 31, 2004 and 2003, the insurance coverage for investments in real estate amounted to $90,000 thousand for both years.

12. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment at December 31, 2004 consists of the following:

Cost Revaluation

Surplus Accumulated Depreciation

Accumulated Impairment

Carrying Value

Land $ 1,029,566 $ 27,254 $ - $ - $ 1,056,820Land improvement 37,756 - (28,030) - 9,726Buildings 1,404,473 20,716 (365,363) - 1,059,826Machinery and equipment 2,254,314 10,925 (1,240,528) - 1,024,711Transportation equipment 50,805 - (44,207) - 6,598Leasehold improvement 89,887 - (81,602) 8,285Other equipments 179,056 22 (133,250) 45,828Lease-out assets - land 954,345 - - (13,351) 940,994Lease-out assets - buildings 1,171,521 - (113,438) (34,211) 1,023,872Lease-out assets - others 1,646 - (1,198) - 448Leasehold assets 6,780 - (404) - 6,376 7,180,149 58,917 (2,008,020) (47,562) 5,183,484Prepayments for purchase of equipment 46,213 - - - 46,213 $ 7,226,362 $ 58,917 $ (2,008,020) $ (47,562) $ 5,229,697

A summary of property, plant and equipment at December 31, 2003 consists of the following:

Cost Revaluation

Surplus Accumulated Depreciation

Carrying Value

Land $ 1,029,566 $ 27,254 $ - $ 1,056,820Land improvement 37,756 - (24,597) 13,159Buildings 1,399,671 20,716 (337,268) 1,083,119Machinery and equipment 2,249,279 10,925 (1,128,356) 1,131,848Transportation equipment 53,133 - (42,969) 10,164Leasehold improvement 81,981 - (68,664) 13,317Other equipments 197,694 22 (139,996) 57,720Lease-out assets - land 1,061,359 - - 1,061,359Lease-out assets - buildings 1,317,169 - (97,341) 1,219,828Lease-out assets - others 2,234 - (1,556) 678 7,429,842 58,917 (1,840,747) 5,648,012Construction in progress 3,434 - - 3,434Prepayments for purchase of

equipment 27,435 - - 27,435 $ 7,460,711 $ 58,917 $ (1,840,747) $ 5,678,881

At December 31, 2004 and 2003, certain property, plant and equipment were pledged to

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secure short-term and long-term debts. The approximate carrying values of the collateralized properties are summarized in Note 29.

The Company according to the recoverable amount of lease-out assets recognized impairment loss of $47,562 thousand included in non-operating losses - impairment loss. Capitalized interest for the years ended December 31, 2004 and 2003 amounted to approximately $695 thousand and $847 thousand, respectively.

As of December 31, 2004 and 2003, the insurance coverage for property, plant and equipment amounted to approximately $4,542,281 thousand and $4,936,096 thousand, respectively. The subsidiary had insurance coverage for its transportation equipments.

13. OTHER ASSETS

Idle assets at December 31, 2004 consist of the following:

Cost Accumulated Depreciation

Carrying Value

Buildings $ 2,073 $ (1,478) $ 595Machinery and equipment 110,837 (96,241) 14,596Transportation equipment 180 (150) 30Other equipments 1,917 (1,812) 105 $ 115,007 $ (99,681) 15,326Less allowance for valuation losses (13,258) $ 2,068

Idle assets at December 31, 2003 consist of the following:

Cost Accumulated Depreciation

Carrying Value

Buildings $ 2,073 $ (1,379) $ 694Machinery and equipment 111,592 (93,964) 17,628Transportation equipment 180 (145) 35Other equipments 3,364 (3,071) 293 $ 117,209 $ (98,559) 18,650Less allowance for valuation losses (16,160) $ 2,490

Idle assets were the Parent Company’s property, plant and equipment not used in operation.

At December 31, 2004 and 2003, certain idle assets were pledged to secure short-term and long-term debts. The approximate carrying values of the collateralized properties are summarized in Note 29.

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A summary of accounts receivable - overdue at December 31, 2004 and 2003 is as follows:

2004 2003 Accounts receivable - overdue $ 41,750 $ 41,361Less allowance for doubtful accounts (41,390) (41,001) $ 360 $ 360

Accounts receivable which are overdue for one year or more are accounted as overdue receivable.

Guarantee deposits paid at December 31, 2004 and 2003 consist of the following:

2004 2003

Foreign labor guarantee deposit $ 17,053 $ 17,053Others 10,383 11,270 $ 27,436 $ 28,323

Long-Term Notes and Accounts Receivable

As of December 31, 2004 and 2003, long-term notes and accounts receivable are summarized as follows:

2004 2003

Accounts receivable $ 224,250 $ 224,250

On December 21, 2000, the Board of Directors of the Parent Company approved the disposal of investment in RT-MART to Isenbourg - SGPS, LDA (Isenbourg SA) totaling 20,182,500 shares amounted to $1,579,000 thousand (approximately $78.2555 per share). According to the agreement, stocks should be delivered on February 8, 2001. In order to make sure each shopping center of RT-MART’s continue operating, Isenbourg SA agreed to reserve $22.2 per share, totaling $448,500 thousand, for 6 years to be collected in 3 installments, including interest with compound interest rate of 6%. According to contract, the second installment of $224,250 thousand was already received in 2003.

Other Assets - Others

As of December 31, 2004 and 2003, other assets - others are summarized as follows:

2004 2003

Land in Hsin-Feng $ 66,515 $ 66,583Consolidated debits - 1,648 $ 66,515 $ 68,231

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Land in Da-Mei section of Hsin-Feng is for construction of office spaces. However, the registration of the land is for agriculture use only and it is not allowed to be owned by any company before the change of registration. The land was acquired in Ms. Yin’s name. Ms. Yin is the spouse of the Chairman of the Parent Company. The land was pledged as collateral to secure the Parent Company’s bank borrowings. Details of collateral pledged are described in Note 29.

14. SHORT-TERM BORROWINGS

A summary of short-term borrowings at December 31, 2004 and 2003 is as follows:

2004 2003 Chattel loans - materials $ 77,333 $ 193,470Credit loans 1,121,100 1,802,850Mortgage loans 307,300 372,239 $ 1,505,733 $ 2,368,559 Interest rate range 1.95%~6.00% 1.75%~7.95%

As of December 31, 2004 and 2003, unused balance of available credit line amounted to $1,866,171 thousand and $962,161 thousand, respectively.

As of December 31, 2004, the Company provided stocks and time certificates of deposit as collateral to secure mortgage loans. Details of collateral pledged are described in Note 29.

15. SHORT-TERM NOTES AND BILLS PAYABLE

2004 2003 Commercial papers payable $ 1,894,000 $ 1,367,000Discount on commercial papers payable (9,964) (4,515) $ 1,884,036 $ 1,362,485 Interest rate range 1.00%~4.08% 1.10%~4.35%

As of December 31, 2004 and 2003, the Company pledged its assets to secure commercial papers payable, details are described in Note 29.

16. NOTES PAYABLE

Notes payable at December 31, 2004 and 2003 consist of the following:

2004 2003 Notes payable - operating $ 49,987 $ 67,169Other notes payable - non-operating 33,748 39,675 $ 83,735 $ 106,844

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17. CORPORATE BONDS PAYABLE

A summary of corporate bonds payable at December 31, 2004 and 2003 is as follows:

2004 2003 Domestic secured corporate bonds payable $ - $ 600,000Less bonds payable, current portion - (600,000) $ - $ -

Issuance of Corporate Bonds

On June 22, 1999, the Securities and Futures Commission gave approval for the Company to issue the secured corporate bonds. Details of the bonds issuance are summarized as follows:

(a) Total principal: $600,000 thousand, include six different bonds, $100,000 thousand for

each (b) Denomination: $1,000 thousand (c) Issue date:

June 28, 1999 for Bonds A and D June 29, 1999 for Bonds B and E June 30, 1999 for Bonds C and F

(d) Period: 5 years (e) Interest rates: A, B and C: 6.15%; D, E and F: 6.0582%, per annum (f) For A, B and C, interest will be paid annually. For D, E and F, interest will be paid

annually on a semiannual basis. (g) Principal will be paid at maturity (h) The Company has provided Cash pledged in Land Bank Tunghwa Branch as collateral for

the bonds. 18. LONG-TERM BORROWINGS

Long-term borrowings at December 31, 2004 and 2003 consist of the following:

2004 2003 First Commercial Bank

Tunghwa Branch Period: 9/1989 to 9/2006

Interest rate: 4.15% Terms: monthly from 7/1997

$ - $ 92,515

First Commercial Bank Tunghwa Branch

Period: 6/1999 to 6/2006 Interest rate: 4.15% Terms: semiannually from 12/2001

- 250,000

First Commercial Bank Tunghwa Branch

Period: 3/2003 to 9/2006 Interest rate: 4.15% Terms: monthly from 04/2004

- 350,000

Chinese Bank Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 100,000

Chinese Bank Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

100,000 -

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2004 2003 Shanghai Commercial

and Savings Bank Period: 11/2001 to 11/2004

Interest rate: 5.66% Terms: pay at maturity

- 100,000

Chiaotung Bank Period: 08/2002 to 08/2007 Interest rate: 6.66% Terms: quarterly from 02/2004

- 600,000

Chiaotung Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

142,573 -

Chiaotung Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

17,000 -

Ta Chong Bank Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 150,000

Ta Chong Bank Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

200,000 -

Kao Shin Commercial Bank

Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 50,000

Kao Shin Commercial Bank

Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

50,000 -

Fuhwa Bank Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

100,000 -

Fuhwa Bank Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 100,000

China United Trust & Investment Corporation

Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 200,000

China United Trust & Investment Corporation

Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

200,000 -

China United Trust & Investment Corporation

Period: 06/2004 to 06/2011 Interest rate: 3.5% Terms: semiannually from 06/2006

142,573 -

China United Trust & Investment Corporation

Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

17,000 -

Central Trust of China Period: 9/1998 to 9/2008 Interest rate: 3.73% Terms: semiannually from 03/2006

168,000 168,000

COTA Commercial Bank Period: 6/2003 to 6/2006 Interest rate: 3.5% Terms: monthly from 08/2003

78,545 128,532

COTA Commercial Bank Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

50,000 -

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2004 2003 International Bank of

Taipei Period: 10/2003 to 10/2008

Interest rate: 3.75% Terms: monthly from 10/2004

- 31,700

Taiwan Corporate Bank Period: 04/2004 to 04/2007 Interest rate: 3.41% Terms: pay at maturity

200,000 -

Taiwan Corporate Bank Period: 06/2004~06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

213,469 -

Taiwan Corporate Bank Period: 06/2004~06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

26,000 -

Taiwan Corporate Bank Period: 12/1999 to 12/2004 Interest rate: 2.77% Terms: semiannually from 06/2003

- 20,000

Taiwan Corporate Bank Period: 12/1999 to 12/2004 Interest rate: 2.77% Terms: semiannually from 06/2003

- 145,250

Taiwan Corporate Bank Period: 11/2001 to 11/2004 Interest rate: 5.66% Terms: pay at maturity

- 300,000

Land Bank Tunghwa Branch

Period: 06/2004~06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

50,000 -

Land Bank Tunghwa Branch

Period: 06/2004~06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

350,588 -

Land Bank Tunghwa Branch

Period: 03/2004~03/2006 Interest rate: 3.35% Terms: pay at maturity

100,000 -

Land Bank Tunghwa Branch

Period: 12/2003 to 12/2013 Interest rate: 3.35% Terms: monthly from 01/2006

650,000 650,000

Land Bank Tunghwa Branch

Period: 7/2000 to 7/2005 Interest rate: 3.61% Terms: pay at maturity

- 726,960

Bank of China Period: 12/2003 to 12/2008 Interest rate: 3.37% Terms: semiannually from 06/2005

177,700 200,000

Farmer Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

213,469 -

Farmer Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

26,000 -

Taiwan Business Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

70,118 -

Taiwan Business Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

10,000 -

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2004 2003 Bank of Overseas

Chinese Period: 04/2004 to 04/2007

Interest rate: 3.41% Terms: pay at maturity

100,000 -

Chang Hwa Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

142,573 -

Chang Hwa Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

17,000 -

Hwatai Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

70,117 -

Hwatai Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

10,000 -

First Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

142,573 -

First Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

17,000 -

Shin Kong Bank Period: 06/2004 to 06/2011 Interest rate: 3.50% Terms: semiannually from 06/2006

70,117 -

Shin Kong Bank Period: 06/2004 to 06/2009 Interest rate: 3.625% Terms: semiannually from 06/2005

10,000 -

3,932,415 4,362,957Less current portion of

long-term debt (142,504) (1,696,727) Long-term debt $ 3,789,911 $ 2,666,230 The interest rates range from 2.77% to 5.66% and from 2.77% to 6.66% for the years ended December 31, 2004 and 2003, respectively.

All long-term debts were provided with the land, buildings, machinery and equipment, and stock for collaterals, see Note 29. The Company made a contract with Ta Chong Bank at April 2004, in order to increase operating earnings, terms for three years, and the limited amount is $1,000 million, the Company promised to do as follows: (a) Financial rate should keep as follows:

(i) Current ratio not lower than 50%. (ii) Total debt to total assets not higher than 200%. Consolidated statements not higher

than 280%. (iii) The Company’s total stockholders’ equity not lower than $5,000 million.

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(b) In the period of validity of this contract, it should notify the bank or get the agreement of bank, to do as follows:

(i) The Company will change the nature of business or deal with main assets by selling,

transferring or renting etc. (ii) To guarantee for other persons, except that when the rules of the Company provide

guarantee of the subsidiary or cause the relationship of investment, the stockholder according to the ratio of putting up capital provide the endorsement.

The Company made a contract with the group of Chiaotung banks at June 2004, in order to increase operating earnings and improve financial structures, the period is seven and five years, the limited amount is $2,000 million and $200 million. The Company promised to do as follows: (a) Financial rate should keep as follows:

(i) Total debt to total assets should keep under 120%. (ii) Current ratio should keep above 70%. (iii) Interest coverage should keep above 2.5.

(b) In the period of this contract, if the Company wanted to pay cash dividend of 2006 to 2008, it needs to get 2/3 agreements of the group of banks.

(c) In the period of this contract, unless it gets 2/3 agreements of the group of banks, it can’t

do as follows:

(i) Company merges or divides. (ii) Change the nature of business.

19. GUARANTEE DEPOSITS

Guarantee deposits received at December 31, 2004 and 2003 consist of the following:

2004 2003 Purchase guarantee $ 21,361 $ 21,527Buildings guarantee and rental guarantee 528,734 500,028 $ 550,095 $ 521,555

20. RETIREMENT PLAN

The Company adopted the provisions of Statement of Financial Accounting Standards No. 18, “Accounting for Pensions,” issued by the Accounting Research and Development Foundation of the Republic of Ltd.

The pension fund information is disclosed as follows based on the actuarial report:

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Net Periodic Pension Cost

2004 2003 Service cost $ 29,270 $ 24,674Interest cost 10,513 13,204Actual return on plan assets (2,835) (2,568)Loss on deferred plan assets (3,538) (3,936)Amortization 14,069 15,796 Net pension costs $ 47,479 $ 47,170 Funding Status

2004 2003

Vested benefit obligation $ (99,395) $ (71,258)Non-vested benefit obligation (229,557) (201,532) Accumulated benefit obligation (328,952) (272,790)Effects of projected future salary increase (66,450) (65,696) Projected benefit obligation (395,402) (338,486)Plan assets at fair value 200,656 192,705 Funded status (194,746) (145,781)Unrecognized net assets at transition 84,412 98,481Unrecognized losses 65,030 9,341Additional minimum liability (82,992) (42,125) Accrued pension cost at year-end $ (128,296) $ (80,084) Vested benefits $ (125,034) $ (87,928)

Actuarial Assumption

2004 2003

Discount rate 3.25% 3.25%Rate of increase in future compensation levels 2.00% 2.00%Expected rate of return on plan assets 3.25% 3.25%

21. CAPITAL STOCK

As of December 31, 2004 and 2003, the shares issued and outstanding were both 788,051,145 shares at $10 par value each.

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22. CAPITAL SURPLUS

Capital surplus at December 31, 2004 and 2003 consist of the following:

2004 2003 Capital surplus from assets revaluation $ 127,963 $ 127,953Long-term investments 342,395 341,285 $ 470,358 $ 469,238

In accordance with the regulations of the Company Law, capital surplus can only be used to offset deficit or issue stock dividends. Unless the earnings had been used up to offset the deficit, the Company cannot use the capital surplus to offset such deficit.

In accordance with the regulations of the Securities & Exchange Laws, capital surplus, as a result of additional paid-in capital or donation, are allowed to transfer to capital stock. Such transfers should not exceed 10% of capital for each year.

Capital surplus arising from the capital increase through cash subscriptions can only be transferred to capital stock once each year. The transfer shall not be done in the year of capital increase through cash and must follow the limits of the regulations.

23. RETAINED EARNINGS

According to the Ltd. Company Law, the Company should appropriate 10% of its annual net income as legal reserve until such reserve equals the amount of capital. Legal reserve can be used to offset a deficit or transfer to capital when the reserve equals 50% of capital stock. The reserve can not be used for purpose of distributing cash dividends.

Any remaining balance of the annual net income together with distributable unappropriated earnings of prior years are then distributable currently. The priority and the percentage of distribution should be stipulated by the Company’s Articles of Incorporation No. 34, which are as follows:

(a) pay income tax; (b) use the remaining balance to offset any accumulated deficit; and (c) After paying income tax, making up any accumulated deficit, and appropriating 10%

thereof as legal reserve, any remainder should be appropriated or retained as approved in the shareholders’ meeting. However, appropriated as bonuses to employees should be no less than 1%.

According to the Statute for Upgrading Industries prior to 1998, when the unappropriated retained earnings exceed the amount of the capital, the Company must distribute cash dividends or stock dividends in the subsequent year after the tax authority approves the tax return. Otherwise, an income tax will be levied on each stockholder on a proportional basis. Alternatively, the distributable unappropriated earnings may be reserved at the discretion of the Board of Directors and the Company may pay an extra 10% income tax on the unappropriated retained earnings. Consequently, the income taxes will not be imposed on individual stockholders. Starting from January 1, 1998, the unappropriated retained earnings for the year will be levied a one-time 10% income tax.

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24. TREASURY STOCK

For the year ended December 31, 2004, the invested company held parent company’s stocks as follows:

Investee Holding Stocks Sold

Par Value Each Share

Chin-An Investment Ltd., Ltd. 16,240,392 - 16,240,392Ruentex Cement Ltd., Ltd. 967,260 70,000 897,260Fu-Yi Investment Ltd., Ltd. 70,741,230 250,000 70,491,230Fu-Li Investment Ltd., Ltd. 8,710,200 - 8,710,200Gin-Hong Investment Ltd., Ltd. 76,368,600 - 76,368,600 173,027,682 320,000 172,707,682 As of December 31, 2004, the above-mentioned investees still held 172,707,682 shares, with market value $17.58 per share, of the Parent Company.

25. INCOME TAX

The total of income tax, income tax payable and deferred income tax at December 31, 2004 consist of the following:

Income

Tax

Income Tax

Payable

Deferred Income

Tax Asset Ruentex Industries Limited $ 33,668 $ 15,138 $ 84,463Chin-An Investment Ltd., Ltd. 3,550 - - $ 37,218 $ 15,138 $ 84,463

Components of income tax expense (benefit) in 2004 are summarized as follows:

Current income tax expense $ 5,047Estimated 10% of income tax on 2003 undistributed earnings 34,036Investment tax credits (20,049)Valuation allowance adjustment 17,030Other 1,154 Income tax expense $ 37,218

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The tax effects of temporary differences and tax credits that gave rise to deferred tax assets as of December 31, 2004 were as follows:

Deferred tax assets

Losses of prior year carryforward $ 86,197Net operating loss carryforward 19,721Provision for impairment loss on property, plant and equipment 24,663Pension expense over legal limit 6,922Investment income under equity method (73,796)Unrealized exchange loss 356Inventory valuation losses 38,416Bad debts over legal limit 10,190Investment losses under equity method 617,452Unrealized idle assets’ valuation losses 3,315Recognition of investments in real estate 648Unrealized gross profits 479Realized valuation losses on long-term equity investment 3,950

738,513Less valuation allowance (654,050)Less current portion (48,911) Deferred tax assets, noncurrent $ 35,552

Current income tax expense in 2004 and income tax payable as of December 31, 2004 is reconciled as follows:

Income tax expense at statutory rate of 25% (rounded) $ 20,561Increase (decrease) in tax resulting from

Tax-exempt gain on sale of equity investments (51,293)Dividend income (30,530)Investment income under equity method 16,528Loss on disposal of land 25,528Capitalized interest of land not belong to property, plant and equipment (2,894)Short-term investment valuation gain 6,213Interest revenue of separate taxation (16)Share the expense of selling negotiable securities 3,424Share the interest expense of selling negotiable securities 7,368Unpaid bonuses to employees and rewards to directors (4,861)Minibus over legal limit 279Loss of this year not deductible 14,740

Current income tax expense 5,047Deferred income tax expense (benefit)

Provision for impairment loss on property, plant and equipment 24,663Investment income under equity method 32,717Pension expense over legal limit 1,834Realized exchange loss (361)Unrealized exchange loss 356Amortization of investments in real estate (628)Inventory valuation losses 6,013Unrealized idle assets’ valuation losses (725)Unrealized gross profits (6)Losses of prior year carryforward (68,910)

Income tax payable in 2004 -Estimated 10% income tax on undistributed 2003 earnings 34,036Less investment tax credits (17,018)Less withholding (1,880) Income tax payable as of December 31, 2004 $ 15,138

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The Parent Company qualifies for the investment tax credits according to the statute for Upgrading Industries. The deductible investment tax credits are summarized as follows:

Year Occurred

Tax Credits

Credits Deducted– Before

Credits Deducted –This Year

Remaining Deductible

Deductible Year

2000 $ 16,439 $ 16,192 $ 247 $ - 2000~20042001 3,582 - 3,582 - 2001~20052003 12,861 - 12,861 - 2003~20072004 20,049 - 328 19,721 2004~2008

$ 52,931 $ 16,192 $ 17,018 $ 19,721

The Company’s loss carryforwards as of December 31, 2004 for income tax purposes were as follows:

Expiry Year

Net Operating Loss Tax

Credit 2006 $ 10,005 2007 76,192 $ 86,197

The Parent Company’s income tax returns through 2002 have been examined and assessed by the tax authority.

Chin-An Investment Ltd., Ltd. income tax returns through 2002 have bee examined and assessed by the tax authority.

As of December 31, 2004 and 2003, the balance of stockholders’ tax-deductible account amounted to $123,223 thousand and $95,296 thousand, respectively.

The estimated rate is adjusted based on the tax deductibles calculated in accordance with the Tax Law of Ltd. before the appropriation of earnings.

Unappropriated earnings as of December 31, 2004 and 2003 are summarized as follows:

2004 2003

1997 and before $ - $ -1998 and after 363,063 284,084 $ 363,063 $ 284,084

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26. EARNINGS PER SHARE

Earnings per share as of December 31, 2004 and 2003 are computed as follows:

2004 2003 Continuing operations’ income $ 126,460 $ 702,486Loss for minority interest 80 167 Net income after income tax (A) $ 126,540 $ 702,653 Number of shares (’000) outstanding at the end of the year 680,734 680,556Weighted-average number (’000) of shares outstanding (B) 680,699 680,556Earnings per share $0.19 $1.03 Proforma data as shares of the Company held by subsidiaries are treated as non-treasury-stock:

2004 2003

Continuing operations’ income $ 14,737 $ 613,704Loss for minority interest 80 167 Net income after income tax (A) $ 14,817 $ 613,871 Number of share (’000) outstanding at the end of the year 788,051 788,051Weighted-average number (’000) of shares outstanding (B) 788,051 788,051Earnings per share $0.02 $0.78

27. PERSONNEL EXPENSE, DEPRECIATION AND AMORTIZATION

Personnel expense, depreciation, and amortization in 2004 and 2003 are summarized as follows:

2004 2003 Function

Expense Item Operating Cost

Operating Expenses Total Operating

Cost Operating Expenses Total

Personnel expense Salary $352,871 $316,553 $669,424 $353,260 $403,078 $756,338Labor / health insurance 28,389 18,673 47,062 29,306 25,632 54,938Pension cost 22,144 25,662 47,806 23,387 23,783 47,170Others 15,381 10,773 26,154 15,936 14,535 30,471

Depreciation 197,455 43,401 240,856 219,168 70,478 289,646Amortization 1,150 24,689 25,839 2,289 34,488 36,777

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28. RELATED PARTY TRANSACTIONS

Names of related parties and their relationships with the Company are summarized as follows:

Name of Related Party Relationship with the Company Ruentex Development Ltd., Ltd. Accounted for by the equity method Shing Yen Construction and Development

Ltd., Ltd. Accounted for by the equity method

Ruenfu New Life Ltd. Accounted for by the equity method Rung-Hung Pretech Engineering Ltd., Ltd. Same Chairman Fu-Li Investment Ltd., Ltd. Accounted for by the equity method RT-MART International Ltd. Director Ruen Hua Dyeing and Weaving Ltd., Ltd. Chairman is the spouse of the Company’s

chairman Ri Di Interiors Design Inc. Subsidiary Bank Sinopac Ltd., Ltd. Director is the spouse of the Company’s

chairman Ho-Chi Investment Ltd., Ltd. Accounted for by the equity method Ruentex Cement Ltd., Ltd. Accounted for by the equity method Kompass Global Sourcing Solution Ltd. Accounted for by the equity method Full Shine International Holdings Ltd. Accounted for by the equity method East Capital International Limited Accounted for by the equity method New Zone International Limited Accounted for by the equity method Ruentex Property Management &

Maintenance Ltd., Ltd. Subsidiary

Huei Hong Investment Ltd., Ltd. The Control Company Ming Doun Huang Vice-chairman of the Parent Company Gin-Hong Investment Ltd., Ltd. Accounted for by the equity method Gold Leaf International Group Ltd., Ltd. Accounted for by the equity method Fu-Yi Investment Ltd., Ltd. Accounted for by the equity method Sinopac Holding Ltd., Ltd. Director is the Company’s subsidiary

The Company’s major transactions with the related parties are summarized as follows:

Rental Income

Rental income from related parties for the years ended December 31, 2004 and 2003 are summarized as follows:

2004 2003 Amount % Amount % Rung-Hung Pretech Engineering Ltd., Ltd. $ 19,391 14 $ 17,638 16Ruentex Development Ltd., Ltd. 4,761 3 5,636 5 $ 24,152 $ 23,274

The Parent Company’s rent income from related parties are based on market price.

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Purchases

Wholesale: RT-MART acted as an agent for the Company to purchase and pay for the goods for wholesale business. The Company would pay RT-MART the amount owed within thirty days after receiving the payment notice. There was no markup for the goods purchased by RT-MART.

Purchases from related parties for the years ended December 31, 2004 and 2003 are summarized as follows:

2004 2003

Amount % Amount % Textile

Gold Leaf International Group Ltd., Ltd. $ 53,132 3 $ 101,823 5

The Parent Company’s purchase from related parties is based on market price. The payment period of the accounts payable is 30 to 60 days.

Sales

Sales to related parties for the years ended December 31, 2004 and 2003 are summarized as follows:

2004 2003

Amount % Amount % Textile

Bank Sinopac Ltd., Ltd. $ 10,372 - $ 6,131 -

The collection period of the accounts receivable is 30 to 45 days. The Company’s management has determined that such sales transactions were conducted at arm’s length basis.

Wholesale: The Parent Company sold goods for the amount of $1,848 thousand to related parties for the year ended December 31, 2004.

Property Transaction

Property transaction with related parties is as follows:

2004 Transaction Amount Gain

Sinopac Holding Ltd., Ltd. Sinopac Ltd., Ltd. shares $ 170,815 $ 28,283

2003 Transaction Amount Gain

RT-MART International Ltd. Sale of Land and Buildings of

Ping-Zhen and other fixed assets

$ 915,970 $ 484,751

Transfer of the ownership 584,030 584,030

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In order to earn profits and improve the financial position, the Board of Directors of the Parent Company approved on November 13, 2003 to sell the property, plant and equipment of Ping-Zhen and transfer the ownership to RT-MART International Ltd, according to the cost of the expert report and market price, the business transaction amounted to $1,500 million and December 31, 2003 as the trade date, all of the money are collected in this day. This transaction let the Parent Company to make a profit amounted to $1,068,781 thousand.

Receivables

Receivables from related parties at December 31, 2004 and 2003 are summarized as follows:

2004 2003

Amount % Amount % Notes receivable

Rung-Hung Pretech Engineering Ltd., Ltd. $ 894 2 $ 577 1Ruentex Development Ltd., Ltd. 309 1 - -Others 61 - 72 -

$ 1,264 $ 649

Accounts receivable

RT-MART International Ltd. $ 4,220 1 $ 8,397 3Rung-Hung Pretech Engineering Co., Ltd. 1,640 1 4,086 1Bank Sinopac Co., Ltd. 1,061 - - -Ruenfu New Life Corp. 538 - 1,016 -Others 244 - 2,326 1

$ 7,703 $ 15,825

Other receivables

Shin Yen Construction & Development Co., Ltd. $ 327,821 72 $ 40,010 15

Gin-Hong Investment Co., Ltd. 40,000 9 55,002 20RT-MART International Ltd. 5,951 1 124,351 45Others 11,470 3 7,024 3

$ 385,242 $ 226,387

Payables

Payables to related parties at December 31, 2004 and 2003 are summarized as follows:

2004 2003

Amount % Amount % Notes payable

RT-MART International Ltd. $ 2,274 3 $ 27,757 20Ruenfu New Life Corp. 378 - 3,720 3Others 6 - 3,014 2

$ 2,658 $ 34,491

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2004 2003 Amount % Amount % Accounts payable

RT-MART International Ltd. $ 160,900 24 $ 868,824 79Others 12,914 2 37,439 3

$ 173,814 $ 906,263

Other accounts payable

RT-MART International Ltd. $ 765 5 $ - - Accrued expenses

RT-MART International Ltd. $ 6,943 3 $ 32,727 12Others 99 - 78 -

$ 7,042 $ 32,805

Advance Receipts

Advance receipts at December 31, 2004 and 2003 are summarized as follows:

2004 2003

Amount % Amount % Ming Doun Huang $ 3,780 9 $ 3,780 4Ruentex Development Co., Ltd. 2,399 6 2,399 2 $ 6,179 $ 6,179

Rent Expense

The Company leases certain office and spaces from its related parties. For the years ended December 31, 2004 and 2003, rent payments made to its related parties are listed as follows:

2004 2003

Location Rent Deposits Rent DepositsRuentex Construction and

Development Co., Ltd. Trade Center $ 2,057 $ 200 $ 2,057 $ 200Shing Yen Construction &

Development Co., Ltd. Basement and

parking spot 26,348 6,395 26,348 6,395 $ 28,405 $ 6,595 $ 28,405 $ 6,595

Rent payments were determined based on market price and paid monthly.

Bank account related parties as of December 31, 2004 and 2003 are as follows:

Related Parties Transaction 2004 2003 Bank Sinopac Co., Ltd. Demand deposit $ - $ 25 Check 82 4,801

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Revolving Funds

Revolving funds with related parties are as follows:

2004

Highest Outstanding

Loans Balance Interest Rate % Interest Income

Other receivables

Shin Yen Construction & Development Co., Ltd. $ 437,800 $ 327,800 3.03~5.00 $ 8,697

Gin-Hong Investment Co., Ltd. 60,000 40,000 3.03~5.00 1,523

Ho-Chi Investment Co., Ltd. 67,000 10,000 3.03~5.00 255

2003

Highest Outstanding

Loans Balance Interest Rate % Interest Income

Other receivables

Shin Yen Construction & Development Co., Ltd. $ 40,000 $ 40,000 4.01~5.12 $ 89

Gin-Hong Investment Co., Ltd. 55,000 55,000 4.01~5.12 1,060

Ho-Chi Investment Co., Ltd. 5,900 5,900 5 992

The above revolving funds did not acquire any collateral.

Endorsement and Guarantee

Endorsements and guarantees for notes involving related parties as of December 31, 2004 and 2003 are summarized as follows:

2004 2003

RT-MART International Ltd. $ 2,168,077 $ 2,266,746Ruentex Development Co., Ltd. 225,000 225,000Shing Yen Construction & Development Co., Ltd. 149,697 228,710Ruen Hua Dyeing & Weaving Co., Ltd. 60,000 60,000Gold Leaf International Group Co., Ltd. 47,208 50,000Rung-Hung Pretech Engineering Co., Ltd. 15,000 15,000Fu-Yi Investment Co., Ltd. - 24,000Gin-Hong Investment Co., Ltd. - 80,000 $ 2,664,982 $ 2,949,456

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Guarantee notes issued by the Company for related parties as of December 31, 2004 and 2003 are summarized as follows:

2004 2003

Shing Yen Construction & Development Co., Ltd. $ 504,000 $ 522,000Gold Leaf International Group Co., Ltd. 120,010 117,369Ho-Chi Investment Co., Ltd. 66,000 95,700Fu-Yi Investment Co., Ltd. 24,000 -Rung-Hung Pretech Engineering Co., Ltd. 9,600 9,600RT-MART International Ltd. - 60,000 $ 723,610 $ 804,669

Others

Ruen Hua Dyeing and Weaving Co., Ltd. provided export quota to the Parent Company for free.

The Parent Company charged commission from Ruentex Development Co., Ltd. amounted to $10,659 thousand for the disposal of investments in RT-MART and Trans Asia Development Corp. As of December 31, 2004, advanced receipt amounted to $2,399 thousand.

The Parent Company charged commission from Ming Doun Hung amounted to $16,801 for the disposal of RT-MART stocks. As of December 31, 2004, advanced receipt amounted to $3,780 thousand. RT-MART entered into an agreement with the Company to act as an agent for the Company in management of stores and purchase of goods. The service charge equaled to one percent of monthly sales revenue. RT-MART was also entitled to fifty percent of income or loss before tax of the wholesale business after the rent was deducted. For the year ended December 31, 2004, the Company had paid $26,908 thousand. The Parent Company provided Rung-Hung Pretech Engineering Co., Ltd. computer service and foreign laborer accommodation etc. amounted to $8,168 thousand.

29. ASSETS PLEDGED

Assets pledged as collateral for bank borrowings as of December 31, 2004 and 2003 are as follows:

2004 2003

Inventory - land for sale $ 24,277 $ 71,878Inventory - buildings for sale 36,335 68,311Inventory - land for construction 180,907 342,675Restricted current assets - fixed deposit 226,000 279,633Restricted current assets - current deposit of Land Bank - 600,000Short-term investment 244,426 239,720Treasury stock 230,064 307,134Long-term investments 2,689,247 2,868,914Investments in real estate - land 97,257 128,020Investments in real estate - buildings 40,878 55,097Land 1,056,820 1,065,523

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2004 2003 Buildings 1,059,267 691,446Machinery and equipment 314,274 -Property, plant and equipment - leased 1,932,559 2,190,710Lease assets - land 14,010 15,088Lease assets - buildings 3,633 4,017Other assets - land 33,735 33,735

$ 8,183,689 $ 8,961,901

Amounts of pledged assets are their net carrying values.

30. COMMITMENTS AND CONTINGENCIES

The Parent Company has guaranteed the borrowings of related parties amounted to $3,388,592 thousand and $3,754,125 thousand, respectively, as of December 31, 2004 and 2003.

Outstanding letters of credit for purchase of supplies not reflected in the accompanying financial statements at December 31, 2004 amounted to $161,511 thousand.

31. SIGNIFICANT SUBSEQUENT EVENTS

On March 4, 2005 the Board of Directors of the Parent Company resolved to dispose Ruentex Finance Building, by selling for $606,347 thousand and gain of $384,000 thousand, and the deal had transferred ownership at March 30, 2005.

32. SIGNIFICANT EVENTS

None. 33. PRESENTATION OF FINANCIAL STATEMENTS

Some of the accounts in the financial statements of 2003 have been reclassified in order to be consistent with the presentation of financial statements of 2004.

34. FINANCIAL INSTRUMENTS

Derivative Financial Instruments

The Company losses on exchange from such contracts amounted to $450 thousand and were accounted under non-operating expenses in 2004. As of December 31, 2004, there is no transaction on derivative financial instruments.

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Non-Derivative Financial Instruments

At December 31, 2004 and 2003 the carrying values of the Company’s non-derivative financial instruments presented in the accompanying balance sheets reflect the fair values of these instruments, except as follows: 2004 2003

Carrying

Value Fair

Value Carrying

Value Fair

Value Long-term investment

Sinopac Holding Co., Ltd. $ 1,010,156 $ 1,285,989 $ 1,010,156 $ 1,010,156

The Company’s methodologies and assumptions used to estimate the fair value of non-derivative financial instruments are summarized below:

(a) Fair value of short-term financial instruments such as cash and cash equivalents,

receivables, and payables are reasonably estimated from their carrying amounts because the balance sheet date is close to their maturity.

(b) The fair value of investments is estimated based on market prices, if available. If a

market price is not available, the fair value is estimated based on available financial and non-financial information.

35. SEGMENT INFORMATION

A summary of segment information at December 31, 2004 is as follows:

Textile Wholesale Construction Investment Adjustment Total Revenue $ 4,116,011 $ 1,932,988 $ 730,806 $ 54,589 $ (144) $ 6,834,250 Other operating revenues $ 8,187 $ 5,072 $ - $ 32,935 $ - $ 46,194 Income (loss) $ 373,857 $ 29,772 $ 102,928 $ (77,964 ) $ 15,323 $ 443,916 Investment income (equity method) 42,071 Long-term investment - impairment loss (232,736)Administration income 604,928 General expense (258,783)Administration expense (194,147)Interest expense (241,571) Continuing operations’ income before tax $ 163,678 Identifiable assets $ 3,299,820 $ 1,139,756 $ 2,672,050 $ 415,751 $ (230,126) $ 7,297,251 Long-term investment 7,482,321 General assets 1,269,151 Total assets $ 16,049,723 Depreciation $ (184,727) $ (18,856) $ (23,934) $ (2,655 ) Capital expenditures $ 122,203 $ 2,652 $ - $ - Impairment loss $ (46,205) $ (1,357 )

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A summary of segment information at December 31, 2003 is as follows:

Textile Wholesale Construction Investment Adjustment Total Revenue $ 3,615,619 $ 4,358,583 $ 982,226 $ 58,541 $ (144) $ 9,014,825 Other operating revenues $ 74,201 $ 1,101,676 $ 3,098 $ 13,429 $ - $ 1,192,404 Income (loss) $ 93,682 $ 1,239,737 $ 149,528 $ (68,595 ) $ 13,017 $ 1,427,369 Investment loss (equity method) (115,075)Administration income 453,979 General expense (372,217)Administration expense (199,006)Interest expense (413,988) Continuing operations’ income before tax $ 781,062 Identifiable assets $ 3,495,435 $ 1,159,626 $ 2,925,300 $ 416,914 $ (245,533) $ 7,751,742 Long-term investment 8,059,251 General assets 2,196,909 Total assets $ 18,007,902 Depreciation $ (209,428) $ (41,924) $ (25,203) $ (1,367 ) Capital expenditures $ 86,457 $ 6,350 $ 1,188 $ -

Ruentex Industries Limited is mainly engaged in textile, construction and wholesale businesses. Chin-An Investment Company’s major operations are investments in various industries. The segment revenues in the above include sales to unaffiliated customers. The Company makes no inter-segment sales. The segment revenues do not include investment income realized by the equity method and income earned by the administration, except Chin-An Investment Company Limited.

Operating profit is total revenue less operating expenses. In computing operating profit, none of the following items have been added or deducted:

(a) general corporate expenses, and (b) interest expenses, except Chin-An Investment Company Limited.

Identifiable assets of a reportable industry segments are the tangible and intangible assets that are used by the segment, excluding:

(a) assets maintained for general corporate purposes; (b) investments in unconsolidated subsidiaries accounted for by the equity method; and (c) investments in real estate; except Chin-An Investment Company Limited.

The total export of the Company amounted to $3,376,835 thousand and $2,771,974 thousand for the years ended December 31, 2004 and 2003 as follows:

2004 2003

Asia $ 2,145,426 $ 1,921,772Others 1,231,409 850,202 $ 3,376,835 $ 2,771,974

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Information of Major Customers

Sales to a single customer that exceed 10% of sales of the Parent Company for the years ended December 31, 2004 and 2003 are summarized as follows:

2004 2003 Amount % Amount %

Client A $ 698,224 10 $ 538,292 6