D-Link 2004 Annual Report Download

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D-Link 2004 Annual Report
“Our business in 2004 was profitable in every geographic
market, customer segment and product category.”
- Ken Kao
Chairman and CEO

Table of contents

  • Page 1
    D-Link 2004 Annual Report "Our business in 2004 was profitable in every geographic market, customer segment and product category." - Ken Kao Chairman and CEO

  • Page 2
    ...Link drove global revenue and net income to record highs. D-Link's extensive network of in-country business units allowed the company to compete aggressively with in-market data and technology assessments, delivering quality products to best serve each market individually. D-Link 2004 Annual Report

  • Page 3
    ...: NT$33.36=US$1, The average annual exchange rate for 2004 NT$34.36=US$1, The average annual exchange rate for 2003 NT$34.62=US$1, The average annual exchange rate for 2002 (U.S. Dollars in Thousands) Cash & Cash Equivalents Total Assets Working Capital Long Term Loans Shareholders' Equity Shares...

  • Page 4
    ... Income This extensive sales network has enabled D-Link to drive sales revenues evenly from the major 3 markets of the world; i.e. North America (33%), EMEA (Europe including Russia, Middle East and Africa) (33%) and APAC and Others (34%). 2000 2001 2002 2003 2004 2 D-Link 2004 Annual Report

  • Page 5
    ... home, including high-growth areas such as wireless, VoIP and multimedia. The North America region also realized significant growth from new business opportunities with increased penetration to corporate customers through the company's extensive channel structure. Europe, the Middle East and Africa...

  • Page 6
    ...through 90 offices in over 5 continents Broadband 27% LAN 24% The company maintains revenue streams from multiple product market segments through extensive breadth and diversity Sales by Region Asia Pacific and Others 34% North America 33% Europe, Middle East, Africa 33% D-Link business is strong...

  • Page 7
    ... to "Building Networks for People." This "Building Networks for People" connectivity solutions concept is designed to give users the ability to share broadband access, voice, video, data and more importantly, ideas - whether they're around the world or in the next room. D-Link 2004 Annual Report 5

  • Page 8
    ... D-Link remains a dominant player in the burgeoning Wireless home networking market The major trend in the industry is enabling seamless connections between computers and consumer electronic devices; D-Link makes quality digital home devices to bridge these connections 6 D-Link 2004 Annual Report

  • Page 9
    ...global revenue for 2004. D-Link North America teams serve one of the world's largest markets for information technology from the North America headquarters in Fountain Valley, California, overseeing business in the U.S., Canada and Mexico. D-Link North America wireless networking revenue grew faster...

  • Page 10
    ..., secure wireless network connectivity throughout the region Secure connections for the business traveler present growing opportunities for D-Link firewall and VPN solutions D-Link EMEA continues to be the dominant player in Ethernet switching and corporate connectivity 8 D-Link 2004 Annual Report

  • Page 11
    ..., the Middle East and Africa. In 2004, strong brand recognition coupled with high-quality products at affordable price points enabled D-Link EMEA to win share of emerging market sectors arising from the widespread adoption of broadband connectivity for both consumer and business. Wireless networking...

  • Page 12
    ...India, deployed a D-Link Gigabit switching solution using state-of-the-art layer 3 switching technology supported by a fiber backbone, with a Gigabit interface for inter-departmental connectivity. The D-Link high-speed, secure network gives remote access from any of the campus buildings, with remote...

  • Page 13
    ... adoption of broadband Internet access worldwide is a driving force for the region's growth. The company had major wins in the telecommunication markets in Brazil, Taiwan, India and Australia/New Zealand with large deployments of ADSL, VDSL and VoIP products through extensive service provider...

  • Page 14
    ...connectivity devices perfectly suited for the burgeoning online gaming market Home Network Storage D-Link plug-and-play home drives are ideal storage devices for consumers to house their entire library of digital music, photos and data files for instant access Anytime, anywhere access to broadband...

  • Page 15
    ... of connectivity solutions for consumers in the digital home. D-Link successfully extended its Digital Home campaign in 2004 with numerous product introductions of next-generation networking, storage, multimedia, gaming, VoIP and security solutions for the consumer market. The D-Link Digital Home...

  • Page 16
    ... core competency is in wired Ethernet connectivity and the company delivers next generation 10-Gigabit networks for today's growing business D-Link is empowering the business traveler with remote connections, wireless connectivity and secure access to corporate offices 14 D-Link 2004 Annual Report

  • Page 17
    ... network scalability, and decreased costs over time for the information technology (IT) manager and decision maker. D-Link delivers powerful solutions for deploying or upgrading to Gigabit Ethernet throughout an entire network including server farms, ISP backbone and campus-wide connectivity. D-Link...

  • Page 18
    ... calling options over an Internet connection Wireless Media Players D-Link media players and settop boxes are next-generation, value-add devices for the service providers selling to the home consumer Video Conferencing D-Link video-phones represent another value-add solution for service providers...

  • Page 19
    ... set of viable network extension options for the service provider, including home networking, media streaming and content delivery, IP-based remote security monitoring, firewall protection, VoIP and videoconferencing technology. Broadband service providers are also marketing business applications...

  • Page 20
    ... D-Link has built an extensive network of distribution and delivery channels that brings products to over 100 countries everyday Automated robotic manufacturing equipment allows D-Link to deliver mass quantities of product while reducing overall production costs 18 D-Link 2004 Annual Report

  • Page 21
    ... the right product to the right market at the right time with increased consistency and success for Consumer, Business and Broadband market segments. D-Link continues to be a global leader in the design, manufacturing, and global delivery of networking, broadband and communications technology...

  • Page 22
    ... Trust Commercial Bank 83, 6F., Chung-Ching South Road Sec. 1 Taipai Taiwan, R.O.C. TEL: 886-2-2361-3033 FAX: 886-2-2311-6723 Investor Relations 4F, No. 289, Xinhu 3rd Road, Neihu District, Taipai 114 Taiwan TEL: 886-2-2916-1600 FAX: 886-2-2914-6299 URL: ir.dlink.com 20 D-Link 2004 Annual Report

  • Page 23
    D-LINK CORPORATION AND SUBSIDIARIES Consolidated Financial Statements December 31, 2003 and 2004 (With Independent Auditors' Report Thereon)

  • Page 24
    Independent Auditors' Report The Board of Directors D-Link Corporation: We have audited the consolidated balance sheets of D-Link Corporation and subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the ...

  • Page 25
    D-LINK CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2003 and 2004 (in thousands of New Taiwan dollars) 2003 2004 3,826,361 1,364,172 5,643,083 148,327 138,423 6,042,779 855,923 1,595,013 19,614,081 1,476,267 675,006 2,151,273 ...

  • Page 26
    D-LINK CORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2003 and 2004 (in thousands of New Taiwan dollars, except for net income per common share) 2003 Sales (note 18) Cost of goods sold (note 18) Net changes in unrealized profit on inter-company sales Gross ...

  • Page 27
    D-LINK CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 2003 and 2004 (in thousands of New Taiwan dollars) Retained Earnings Common stock $ 5,163,307 2,790,203 523,254 275,530 1,379,825 (14,255) 1,724,066 103,204 2,894,829 5,475,211 ...

  • Page 28
    D-LINK CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2003 and 2004 (in thousands of New Taiwan dollars) 2003 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Net gain ...

  • Page 29
    ... if D-Link directly or indirectly owns 50% or more of its voting stock. The consolidated subsidiaries are summarized below. Percentage of Ownership at December 31, 2003 2004 1. D-Link Systems, Inc. ("DSI") 2. D-Link Holding Company Ltd. ("DHCL") (1) D-Link (Europe) Ltd. ("DEL") y D-Link (Holding...

  • Page 30
    ...DB") (6) D-Link Latin America ("DLA") 3. D-Link Canada Inc. ("DCI") 4. D-Link Australia Pty Ltd. ("DAPL") 5. D-Link Taiwan Inc. ("DTI") 6. D-Link International Pte. Ltd. ("DLI") y D-Link Middle East FZCO ("DMEFZCO") y D-Link Middle East ("DME") y D-Link Sudamerica S.A. ("DSA") 7. Alpha Networks Inc...

  • Page 31
    ...of DHCL, and Netpro International Trading (Shanghai) Co., Ltd. were the subsidiaries of DSCL and Wink-Link System, Inc. that were not consolidated in the accompanying consolidated financial statements as of and for the years ended December 31, 2003 and 2004, and Viva Wisdom Services Co. Ltd. was the...

  • Page 32
    ...stated at the lower of cost or market value. Market value is determined using the net asset value of open-end mutual funds on the last day of the period, and the average closing price of the last month of the period for domestic publicly listed securities and the closing price on the last day of the...

  • Page 33
    ... the basis of replacement cost, and the market values of finished goods and work in process are determined on the basis of net realizable value. (8) Long-term equity investments Long-term equity investments in publicly traded companies whereby D-Link directly or indirectly, owns less than 20 percent...

  • Page 34
    ... straightline method over the estimated useful lives of the respective assets. The useful lives of property, plant and equipment are as follows: (a) Buildings and improvements: 5~55 years. (b) Machinery and equipment: 3~10 years. (c) Transportation, office equipment and others: 2~8 years. Gains or...

  • Page 35
    ... all regular employees in Taiwan. In accordance with the Plans, employees are eligible for retirement or are required to retire after reach certain age or service requirements. Payments of retirement benefits are based on years of service and the average salary for the six-month period before the...

  • Page 36
    ...plans are expensed as incurred. (14) Revenue recognition Revenue is recognized when title to the products and the risks and rewards of ownership are transferred to the customers, which occurs principally at the time of shipment. Allowances and related provisions for sales returns are estimated based...

  • Page 37
    9 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (16) Treasury stock Pursuant to ROC SFAS No. 30, "Accounting for Treasury Stock", the outstanding shares of DLink purchased back by itself should be recorded as treasury stock at the purchasing cost before such shares ...

  • Page 38
    ...Short-term Investments The components of short-term investments as of December 31, 2003 and 2004, are summarized below: December31, 2003 2004 Publicly listed stocks Mutual funds Less: allowance for decline in market value Market value $ $ $ 53,472 3,474,089 3,527,561 (16,129) 3,511,432 3,526,099 14...

  • Page 39
    ... of December 31, 2003 and 2004, are summarized below: December31, 2003 2004 Finished goods Work in process Raw materials Provision for obsolescence and devaluation Insurance coverage on inventories $ $ $ 3,903,202 514,863 1,333,526 5,751,591 (669,426) 5,082,165 3,657,833 5,150,566 422,542 1,060,757...

  • Page 40
    ...India Ltd. $ Cameo Communication, Inc. (CSI) Bothhand Enterprise Inc. (BEI) Cellvision System Inc. (CSI) Quie Tek Corp. (QTC) Others Lower-of-cost-or market method: Abocom Systems, Inc. (ACS) Dray Tek Corp. Lanner Electronics Inc. Cost method: Z-Com, Inc. (Z-Com) IC Plus Corp. Azure Venture Partners...

  • Page 41
    ... in the value of their equity investment in Z COM Inc., IC Plus Corporation, Max Edge Electronics., etc. An investment loss of $128,712 thousand was recognized to reflect such decline. In 2004, ACS was valued using the lower-of-cost-or-market method and recognized unrealized valuation losses on long...

  • Page 42
    ... Lease and Idle Assets D-Link purchased a plant located in the Neihu district of Taipei from Globe Sun Electronic, Inc. for $880,000 thousand, as appraised by China Credit Information Service, Ltd. The plant was temporarily leased to Globe Sun Electronic Inc. As of December 31, 2004, the plant was...

  • Page 43
    ..., 2003 and 2004, is as follows: (1) The second issuance of domestic convertible bonds £» Par value: $1.5 billion. £» Issue date: September 28, 1999. £» Issue price: at par value. £» Duration: seven-years, maturing on September 27, 2006. £» Coupon rate: 0% £» Conversion objective: D-Link...

  • Page 44
    ...when the bonds were issued. As of July 19, 2004, the conversion price was adjusted to 31.8 New Taiwan dollars per share based on the prescribed formula. £» Conversion period: The bondholders may exercise their conversion right at any time during the period from three months after the issuance date...

  • Page 45
    17 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements £» Conversion price: The conversion price was 50 New Taiwan dollars per share when the bonds were issued. On July 19, 2004, the conversion price was adjusted to 27.76 New Taiwan dollars per share based on the ...

  • Page 46
    ... of plant and equipment; however, the rate of 4.95% was increased to 5.2%. D-Link must maintain a current ratio (current assets/current liabilities) over 150% and a debt ratio (liabilities/equities) lower than 100%. These financial ratios should be determined based on the D-Link' s audited financial...

  • Page 47
    19 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements According to the agreement, D-Link Systems and Alpha Holding Inc. issued some notes payable to the leasing company. The par value of the unpaid notes as of December 31, 2004, are summarized below: Year ending December...

  • Page 48
    ...2003 and 2004, the issued capital amounted to $5,137,771 thousand and $5,475,211 thousand, respectively. The par value of D-Link' s common stock is ten New Taiwan dollars per share. On February 28, 2005, because the convertible bonds had been fully converted or redeemed revised, a board of directors...

  • Page 49
    ... employee stock options is 25,000 thousand shares. D-Link will issue new common shares to redeem the stock options. The application was approved by the SFC on June 6, 2003, but the employee stock options had not been issued as of December 31, 2004. (b) Capital surplus Pursuant to the ROC Company Law...

  • Page 50
    ...' remuneration for 2004 is subject to the proposal of the board of directors and a resolution of the stockholders. Relevant information would be available on the Market Observation Post System of the Taiwan Stock Exchange after the related meetings. (d) Treasury stock D-Link bought back 26...

  • Page 51
    ... 11, 2005. As of December 31, 2004, D-Link had bought back 12,000 thousand common shares for $448,716 thousand, recorded under stockholders' equity. Pursuant to the ROC Securities and Exchange Law, treasury stock should not exceed 10% of a company' s total issued shares, and the total amount of the...

  • Page 52
    ... net income per common share (New Taiwan dollars) $ 16. Income Taxes 48,102 547,914 2.87 After taxes 48,102 547,914 2.59 Before taxes 2004 After taxes 2,768 541,828 4.80 2,768 541,828 5.32 (1) D-Link is subject to a maximum income tax rate of 25 percent. D-Link' s subsidiaries are subject to the...

  • Page 53
    25 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2003 2004 Deferred tax assets-current: Investment tax credits Unrealized inter-company profits Unrealized foreign exchange loss (gain), net Allowance for decline in value of inventories Provision for ...

  • Page 54
    ...high tech companies, significant emerging strategic industries and venture capitals also entitle D-link...of December 31, 2004, the unused loss carryforwards of D-Link Europe were $404,770... and related expiration dates were as follows: Year 2001 (assessed) 2002 (assessed) 2003 (reported) 2004 (estimated...

  • Page 55
    ..., etc. As of December 31, 2004, the related appeals had not been approved by the tax authorities (please see note 20). (8) In 1998, an integrated income tax system was implemented in the ROC. Under the new tax system, the income tax paid at the corporate level can be used to offset the ROC resident...

  • Page 56
    28 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (a) Non-trading purpose derivative financial instruments (i) Foreign currency option contracts As of December 31, 2003 and 2004, D-Link and subsidiaries had the following foreign currency option contracts outstanding:...

  • Page 57
    ...-parties is considered remote. (ii) Market price risk Market price risk represents the accounting loss that would be recognized at the reporting date for the derivative financial instruments due to the changes in market interest rates or foreign exchange rates. As D-Link and subsidiaries' derivative...

  • Page 58
    ...term investments is based on publicly quoted market prices. Refer to note 4 for the fair value of short-term investments as of December 31, 2003 and 2004. (c) It is not practicable to determine the fair value of long-term investments when these investments are not publicly traded. (d) Except for the...

  • Page 59
    ... D-Link India Ltd. (DIL) Cameo Communications, Inc. (CCI) Abocom Systems, Inc. (ACS) Cellvision System Inc. (CSI) W-Link System Inc. (WSI) Dray Tek Corp. (DTC) Bothhand Enterprise Inc. (BEI) Globe Sun Electronic Inc. (GSEI) Relationship Investee Investee YCI has one seat of ACS on board of directors...

  • Page 60
    ...thousand and $0 thousand in the years 2003 and 2004, respectively. The average credit terms extended to related parties and third-party customers were approximately 30-90 days. However, credit terms to related parties might be further extended when necessary. (b) Purchases and others 2003 Percentage...

  • Page 61
    33 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (c) Accounts receivable/payable December 31, 2003 2004 Amount Percentage Amount Percentage Accounts receivable: DIL Others $ $ 26,270 182,095 208,365 1 2 3 79,033 69,294 148,327 1 1 2 December 31, 2003 2004 Amount ...

  • Page 62
    ... December 31, 2003 2004 Pledged assets Time deposits (recorded in other financial assets-noncurrent) Time deposits (recorded in restricted assets) Time deposits (recorded in other financial assets-noncurrent) Time deposits (recorded in restricted assets) Pledged to secure Customs guarantees of the...

  • Page 63
    ...to a compromise with the three abovementioned defendants and VIA Technology, Inc. in August 2004. (5) Accton Technology Company ("Accton") brought a suit for breach of the Fair Trading Law against D-Link. After public prosecution was begun by the prosecutor, Accton brought an additional civil action...

  • Page 64
    ... AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) 3Com Corporation ("3Com") asserted that D-Link Systems, a D-Link' s subsidiary, sold a chip that was included in products that infringed certain 3Com patents relating to network interface technology, and brought an assumpsit against...

  • Page 65
    ... industry segment: network communication products. (2) Geographic information The geographical breakdown of sales for the years ended December 31, 2003 and 2004, is summarized as follows: 2003 Adjustments and eliminations Americas Area revenue: Third-party customers Inter-company Area profit before...

  • Page 66
    38 D-LINK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 2004 Adjustments and eliminations Americas Area revenue: Third-party customers Inter-company Area profit (loss) before taxes and minority interest Area identifiable assets $ 8,896,913 21,435 $ 8,918,348 Europe Asia...

  • Page 67
    ... B-1000 Brussels Belgium TEL: +32 (0)2 517 7111 FAX: +32 (0)2 517 6500 URL: www.dlink.lu Mexico TEL: 001-877-453-5465 URL: www.dlink.com.mx Middle East (Dubai) P.O.Box: 500376 Office No.:103, Building:3 Dubai Internet City Dubai, United Arab Emirates Tel: +971-4-3916480 Fax: +971-4-3908881 URL: www...

  • Page 68
    ... are trademarks or registered trademarks of D-Link Corporation or its subsidiaries in the United States and other countries. All other company or product names mentioned herein are trademarks or registered trademarks of their respective companies. Copyright © 2005 D-Link Corporation/D-Link Systems...