FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FEBRUARY 23, 2004
DESWELL INDUSTRIES, INC.
(Registrant's name in English)
17B, Edificio Comercial Rodrigues
599 Avenida da Praia Grande, Macau
(Address of principal executive offices)
[logo] DESWELL
Contact:
John G. Nesbett / Ryan Daniels
The Investor Relations Group
212-825-3210
e-mail: jnesbett@investorrelationsgroup.com
DESWELL INDUSTRIES, INC.
ANNOUNCES EARNINGS OF $0.42 PER SHARE FOR THE THIRD QUARTER
- THIRD QUARTER DIVIDEND OF $0.24 PER SHARE -
HONG KONG (February 23, 2004) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced results for the third quarter and nine months ended December 31, 2003.
Net sales for the quarter were $24.8 million, a decrease of 2% compared to sales
of $25.3 million in the third quarter ended December 31, 2002. Operating income
decreased 4% to $4.4 million, compared to $4.6 million in the previous year. Net
income for the quarter was $3.8 million, a slight increase compared to the same
quarter last year. The basic earnings per share and diluted earnings per share
decreased slightly to $0.42 and $0.40, respectively (based on 9,121,000 and
9,518,000 weighted average shares outstanding, respectively), compared to $0.43
and $0.43, respectively (based on 8,726,000 and 8,850,000 weighted average
shares outstanding, respectively), in the quarter ended December 31, 2002.
Net sales for the nine months ended December 31, 2003 were $75.9 million, an
increase of 7% compared to sales of $71.2 million for the corresponding period
in 2002. Operating income increased 15% to $13.6 million, compared to $11.8
million in the previous year. Net income was $12.0 million, compared to $11.2
million in the previous year. The basic earnings per share and diluted earnings
per share increased to $1.32 and $1.29, respectively (based on 9,097,000 and
9,316,000 weighted average shares outstanding, respectively), compared to $1.30
and $1.28, respectively (based on 8,574,000 and 8,706,000 weighted average
shares outstanding, respectively), in the nine months ended December 31, 2002.
The Company's cash and cash equivalents at December 31, 2003 were $28.5 million,
as compared to $34.4 million on March 31, 2003, due to internal funding for its
new plastic-injection manufacturing plant construction in Dongguan and for the
acquisition of the electronic and metal manufacturing factory in July 2003. The
Company has no long-term or short-term borrowings.
Mr. Richard Lau, chairman and chief executive officer, commented, "We continue
to realize the benefits of last year's additional 20% investment in our
electronic and metallic division. Revenues grew 11% in this division for the
quarter, largely offsetting the 11% decrease in our plastics division. During
the quarter, revenues at our plastic division were decreased as a result of some
customers retiring old molds as they shift to new products. We will begin
production with the new molds over the next six months which should translate
into modest growth in the June quarter."
"Also during the quarter, we moved substantial machinery to the new Dongguan
factory premises. Additionally, we relocated our Hong Kong corporate offices to
Macau to further reduce our SG&A expenses."
THIRD QUARTER DIVIDENDS
The Company also announced that on February 20, 2004 its board of directors
declared a dividend of $0.24 per share for the third quarter. The dividend will
be payable on March 23, 2004 to shareholders of record as of March 9, 2004.
Deswell manufactures injection-molded plastic parts and components, electronic
products and subassemblies, and metallic products for original equipment
manufacturers ("OEMs") and contract manufacturers at its factories in the
People's Republic of China. The Company produces a wide variety of plastic parts
and components used in the manufacture of consumer and industrial products;
printed circuit board assemblies using surface mount ("SMT"), and pin-through
hole ("PHT") interconnection technologies; and finished products such as
telephones, telephone answering machines, sophisticated studio-quality audio
equipment and computer peripherals. The Company's customers include Kyocera Mita
Industrial Co. (H.K.) Limited, Epson Precision (H.K.) Ltd., Inter-Tel
Incorporated, Vtech Communications Ltd., Peavey Electronics Corporation and
Emerson.
To learn more about Deswell Industries, Inc., please visit the Company's web
site at www.deswell.com.
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
( U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
Quarter ended Nine months ended
December 31, December 31,
-------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $ 24,784 $ 25,272 $ 75,938 $ 71,180
Cost of sales 16,383 16,799 51,146 47,527
-------- -------- -------- --------
Gross profit 8,401 8,473 24,792 23,653
Selling, general and
administrative expenses 3,998 3,890 11,232 11,103
-------- -------- -------- --------
Operating income 4,403 4,583 13,560 11,780
Interest expense (1) -- (16) (6)
Other income, net (17) 206 528 1,035
-------- -------- -------- --------
Income before income taxes 4,385 4,789 14,072 11,670
Income taxes 81 366 511 79
-------- -------- -------- --------
Income before minority interests 4,304 4,423 13,561 11,178
Minority interests 480 636 1,551 1,580
-------- -------- -------- --------
Net income $ 3,824 $ 3,787 $ 12,010 $ 11,150
======== ======== ======== ========
Basic earnings per share (note 3) $ 0.42 $ 0.43 $ 1.32 $ 1.30
======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands) (note 4) 9,121 8,726 9,097 8,574
======== ======== ======== ========
Diluted earnings per share (note 3) $ 0.40 $ 0.43 $ 1.29 $ 1.28
======== ======== ======== ========
Diluted weighted average number of shares
outstanding (in thousands) (note 4) 9,518 8,850 9,316 8,706
======== ======== ======== ========
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
( U.S. DOLLARS IN THOUSANDS)
December 31, March 31,
2003 2003
---- ----
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 28,517 $ 34,400
Restricted cash 390 2,366
Marketable securities -- 4,821
Accounts receivable 21,754 16,727
Inventories 16,497 14,784
Prepaid expenses and other current assets 3,907 2,648
Income taxes receivable 76 323
-------- --------
Total current assets 71,141 76,069
Property, plant and equipment - net 43,413 29,623
Other investments 2 2
Goodwill 478 478
-------- --------
Total assets $115,034 $106,172
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 12,749 $ 9,643
Customer deposits and accrued expenses 4,792 4,257
Income taxes payable 903 3,946
-------- --------
Total current liabilities 18,444 17,846
-------- --------
Minority interests 7,466 6,465
-------- --------
Deferred income tax
15 15
-------- --------
Shareholders' equity
Common stock
-- authorized 30,000,000 shares; issued
and outstanding 9,144,085 shares
at December 31, 2003 and 9,030,835
shares at March 31, 2003 (note 4) 29,874 28,247
Additional paid-in capital 6,970 6,970
Retained earnings 52,265 46,629
-------- --------
Total shareholders' equity 89,109 81,846
-------- --------
Total liabilities and shareholders' equity $115,034 $106,172
======== ========
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
( U.S. DOLLARS IN THOUSANDS )
Nine months ended
December 31,
---------------------
2003 2002
---- ----
Cash flows from operating activities :
Net income $ 12,010 $ 11,150
Adjustments to reconcile net income to net cash
provided by operating activities :
Depreciation and amortization 3,308 3,898
Loss/(gain) on disposal of property,
plant and equipment 406 (21)
Minority interests 1,001 1,361
Changes in operating assets and liabilities :
Accounts receivable (5,027) (5,255)
Marketable securities 4,821 (3,915)
Inventories (1,713) 9
Prepaid expenses and other current assets (1,259) (406)
Income taxes receivable 247 56
Accounts payable 3,106 2,292
Customer deposits and accrued expenses 535 (1,174)
Income taxes payable (3,043) 395
-------- --------
Net cash provided by operating activities 14,392 8,429
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (17,768) (6,142)
Proceeds from disposal of property, plant & equipment 264 77
Decrease/(increase) in restricted cash 1,976 430
-------- --------
Net cash used in investing activities (15,528) (5,653)
-------- --------
Cash flows from financing activities
Common Stock issued 1,627 4,160
(Decrease)/increase in bank loans -- (482)
Dividends paid (6,374) (4,881)
-------- --------
Net cash used in financing activities (4,747) (1,203)
-------- --------
Net increase in cash and cash equivalents (5,883) 1,573
ash and cash equivalents, at beginning of period 34,400 31,534
-------- --------
Cash and cash equivalents, at end of period 28,517 33,107
======== ========
Supplementary disclosures of cashflow information :
Cash paid during the period for :
Interest 16 6
Income taxes 3,309 (315)
======== ========
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DESWELL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. MANAGEMENT'S STATEMENT
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and
recurring in nature) necessary to present fairly the financial position
of Deswell Industries, Inc. (the Company) at December 31, 2003 and
March 31, 2003, the results of operations for the quarters and nine
months ended December 31, 2003 and December 31, 2002, and the cash
flows for the nine months ended December 31, 2003 and December 31,
2002. The notes to the Consolidated Financial Statements contained in
the Form 20-F Annual Report filed on September 15, 2003 under the
Securities Exchange Act of 1934 should be read in conjunction with
these Consolidated Financial Statements.
2. INVENTORIES
December 31, March 31,
2003 2003
--------------------
Inventories by major categories:
Raw materials $ 6,089 $ 7,432
Work in progress 5,632 4,454
Finished goods 4,776 2,898
------- -------
$16,497 $14,784
======= =======
3. EARNINGS PER SHARE
The basic net income per share and diluted net income per share are
computed in accordance with the Statement of Financial Accounting
Standards No.128 "Earnings Per Share."
The basic net income per share is computed by dividing income available
to common holders by the weighted average number of common shares
outstanding during the period. Diluted net income per share gives
effect to all potentially dilutive common shares outstanding during the
period. The weighted average number of common shares outstanding is
adjusted to include the number of additional common shares that would
have been outstanding if the potentially dilutive common shares had
been issued. In computing the dilutive effect of potential common
shares, the average stock price for the period is used in determining
the number of treasury shares assumed to be purchased with the proceeds
from exercise of options.
The net income for the nine months ended December 31, 2003 and 2002
were both from the Company's continuing operations.
4. STOCK SPLIT
On June 17, 2002, the Company announced that it is effecting a
three-for-two stock split of its outstanding shares to holders of
record on July 8, 2002 and payable on July 22, 2002. In conjunction
with and proportionate to this stock split, the Memorandum of
Association was amended effective on July 8, 2002 to increase
authorized capital to 30,000,000 common shares. This amendment will
also result in the par value of its shares converting to no par value
per share.
The common stock and additional paid-in capital are presented with
regard to the effects of the stock split on July 22, 2002 and the
change in par value on July 8, 2002.
-6-
5. INCOME TAXES
During 2003, the Company has been engaged in discussions with the
Hong Kong Inland Revenue Department, or IRD, regarding whether
Deswell should be assessed taxes on profits derived from activities
of certain of its subsidiaries during the six fiscal years ended
March 31, 2002, which the Company believed were conducted outside of
Hong Kong and were not subject to a profits tax under the Hong Kong
Revenue Ordinance. While, based on consultations with Hong Kong tax
experts, Deswell believes that its tax position for these years was
sound and supportable, management nevertheless concluded that it
would be in the Company's best interest to reach an immediate
resolution of the tax issue with the IRD in order to avoid the
expenditure of substantial time, effort and expense involved in
proceedings that could extend years. The resolution also limits the
assessment of taxes, interest, and/or penalties that would be
incurred if the Company did not prevail or sought to settle the
dispute later. Accordingly, in June 2003 the Company made a proposal
to settle the entire tax dispute, and in July 2003, the IRD accepted
the proposal. As a result, a provision of $3,532,000 has been charged
to the Company's consolidated income statements for the three months
and year ended March 31, 2003.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived from the manufacture and sale of (i)
injection-molded plastic parts and components, (ii) electronic products and
subassemblies and (iii) metallic parts and components. The Company carries out
all of its manufacturing operations in southern China, where it is able to take
advantage of the lower overhead costs and less expensive labor rates as compared
with Hong Kong.
QUARTER ENDED DECEMBER 31, 2003 COMPARED TO QUARTER ENDED DECEMBER 31, 2002
The Company's net sales for the quarter ended December 31, 2003 were
$24,784,000, a decrease of $488,000, or 1.9%, as compared to the corresponding
period in 2002. The decrease in sales was mainly related to the decrease in
sales of injection-molded plastic products of $1,628,000 offsetting the increase
in sales of electronic and metallic products of $1,140,000. This represented an
increase of 10.9% and a decease of 11.0%, respectively, as compared with the net
sales in the corresponding period in the prior year. The revenue decrease at our
plastic division was mainly a result of some customers retiring old molds as
they shift to new products.
The gross profit for the quarter ended December 31, 2003 was $8,401,000,
representing a gross profit margin of 33.9%. This compares with the overall
gross profit and gross profit margin of $8,473,000 or 33.5% respectively for the
quarter ended December 31, 2002.
Selling, general and administrative expenses for the quarter ended December 31,
2003 were $3,998,000, or 16.1% of total net sales, compared with $3,890,000 or
15.4% of total net sales for the quarter ended December 31, 2002.
As a result, operating income was $4,403,000 for the quarter ended December 31,
2003; a decrease of $180,000 or 3.9% as compared with the corresponding quarter
in the prior year.
In January 2003, the Company acquired an additional 20% interest in the holding
company of the electronics and metallic subsidiaries. As a result, the minority
interests represent a 29% interest in the electronics and metallic subsidiaries
and a 49% interest in the marketing subsidiary. The decrease in minority
interest to $480,000 for the nine months ended December 31, 2003, from $636,000
for the corresponding period in the prior year reflects the increased profits
generated by the subsidiaries offsetting the decrease in minority interest
resulting from the additional acquisition.
As a result of the above factors, net income was $3,824,000 for the quarter
ended December 31, 2003, an increase of $37,000, or 1.0%, as compared to the
quarter ended December 31, 2002, and net income as a percentage of net sales
increased slightly to 15.4% from 15.0%.
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-8-
DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 2002
The Company's net sales for the nine months ended December 31, 2003 were
$75,938,000, an increase of $4,758,000 or 6.7% as compared to the corresponding
period in 2002. The increase in sales was mainly related to the increase in
sales of plastic injection-molding products by $2,502,000 and the increase in
sales of electronic and metallic products by $2,256,000. This represented an
increase of 6.5% and 6.9%, respectively, as compared with the net sales in the
corresponding period in the prior year.
The gross profit for the nine months ended December 31, 2003 was $24,792,000,
representing a gross profit margin of 32.6%. This compares with the overall
gross profit and gross profit margin of $23,653,000 and 33.2%, respectively, for
the nine months ended December 31, 2002.
Selling, general and administrative expenses for the nine months ended December
31, 2003 were $11,232,000, amounting to 14.8% of total net sales, as compared to
$11,873,000 or 16.7% of total net sales for the nine months ended December 31,
2002.
As a result, operating income was $13,560,000 for the nine months ended December
31, 2003, an increase of $1,780,000, or 15.1%, as compared with the
corresponding period in the prior year.
In January 2003, the Company acquired an additional 20% interest in the holding
company of the electronics and metallic subsidiaries. As a result, the minority
interests represent a 29% interest in the electronics and metallic subsidiaries
and a 49% minority interest in the marketing subsidiary. The decrease in
minority interest to $1,551,000 for the nine months ended December 31, 2003,
from $1,580,000 for the corresponding period in the prior year reflects the
increased profits generated by the subsidiaries offsetting the decrease in
minority interest resulting from the additional acquisition.
As a result of the above factors, net income was $12,010,000 for the nine months
ended December 31, 2002, an increase of $860,000, or 7.7%, as compared to the
nine months ended December 31, 2002, and net income as a percentage of net sales
increased slightly to 15.8% from 15.7%.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Traditionally, the Company has relied primarily upon internally generated funds
and short-term borrowings (including trade finance facilities) to finance its
operations and expansion.
Capital expenditure has been partly financed by long-term debt, including
capital leases.
As of December 31, 2003, the Company had a working capital surplus of
$52,697,000 and cash and cash equivalent of $28,517,000. This compares with a
working capital surplus of $58,223,000 and cash and cash equivalent of
$34,400,000 at March 31, 2003. The decrease in cash and cash equivalent was
mainly attributed to the net cash generated from operating activities of
$14,392,000 and the exercise of stock options of $1,627,000, offset by a
dividend distribution of $6,374,000 and the capital investment of $17,768,000
during the nine months ended December 31, 2003. The increase in capital
investment was mainly related to the construction and purchase of machinery for
our new plastic-injection manufacturing plant in Dongguan and for the
acquisition of the electronic and metal manufacturing factory in July 2003.
The Company has generated sufficient funds from its operating activities to
finance its operations and there is little need for external financing other
than short-term borrowings that are used to finance accounts receivable and are
generally paid from cash generated from operations. The Company has no
short-term borrowings and no long-term debt at December 31, 2003.
As of December 31, 2003, the Company had in place general banking facilities
with three financial institutions aggregating approximately $10,118,000. Such
facilities, which are subject to annual review, include overdrafts, letters of
credit, import facilities, trust receipt financing, bills negotiation
facilities, factoring facilities as well as fixed loans. As of December 31,
2003, the Company had ( i ) unused credit facilities of $10,118,000, ( ii ) cash
and cash equivalents of $28,517,000, and ( iii ) restricted cash of $390,000.
The restricted cash of 390,000 and leasehold land and buildings of $1,296,000
have been pledged as collateral for those credit facilities.
The Company expects that working capital requirements and capital additions will
continue to be funded through a combination of cash on hand and internally
generated funds.
# # #
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
For and on behalf of
Deswell Industries, Inc.
By: /s/ RICHARD LAU
-----------
Richard Lau
Chief Executive Officer
Date: February 24, 2004