D-Link 2004 Annual Report Download - page 35

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7
D-LINK CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
When the bondholders exercise their conversion right, the amounts of unamortized issuance costs,
forfeited unpaid interest, reserve for redemption premium, and par value of the extinguished
bonds are transferred to stockholders’ equity. The excess of such amounts over the par value of
the certificates for conversion of convertible bonds is recorded as capital surplus in the
accompanying consolidated balance sheets.
(12) Financial derivatives
(a) Forward foreign currency exchange contracts
Forward foreign currency exchange contracts are purchased to hedge currency fluctuations
affecting foreign currency receivables and payables. These forward exchange contract
receivables and payables are recorded at the spot rate at the date of inception. The difference
between the forward and the spot rate on the date the contract is entered into is amortized as
an exchange gain or loss over the term of the contract. Realized and unrealized gains and
losses on these contracts resulting from actual settlement or balance sheet date translation are
charged or credited to current operations.
(b) Foreign currency option contracts
Foreign currency option contracts are not for trading purposes .For those contracts entered to
hedge the risk of assets and liabilities, gain or losses on these contracts resulting from actual
exercise and settlement are charged or credited to current operations. Contracts which are
entered must not qualified to hedge the risk effectively, are make to market on the balance
sheet date. The differences between the market value and book value charged or
credited to current operations.
(13) Retirement plan
D-Link, DTI and Alpha have established employee noncontributory retirement plans (the “Plans”)
covering 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 employee’ s retirement. Each employee earns two months of salary for the first
fifteen years of service, and one month of salary for each year of service thereafter. The
maximum retirement benefit is 45 months of salary. D-Link, DTI and Alpha contribute two
percent of wages and salaries to a pension fund maintained with the Central Trust of China on a
monthly basis. Retirement benefits are paid to eligible participants on a lump-sum basis upon
retirement. After transferring its ODM/OEM operations and employees to Alpha, D-Link paused
its contribution to the pension fund from November 2003 to October 2005.