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 August 17, 2008
DESWELL INDUSTRIES, INC.
(Registrant's name in English)
17B Edificio Comercial Rodrigues
599 Avenida Da Praia Grande,
Macao, China
(Address of principal executive offices)
Contact:
John G. Nesbett
Institutional Marketing Services (IMS)
203.972.9200
jnesbett@institutionalms.com
DESWELL INDUSTRIES, INC. ANNOUNCES FIRST QUARTER RESULTS
- 21.3% Increase in Net Sales in First Quarter -
- Company also Announces First Quarter Dividend of $0.17 Per Share -
MACAO (August 17, 2007) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced its financial results for the fiscal first quarter ended June 30,
2007.
Deswell reported net sales for the first quarter ended June 30, 2007 of $38.5
million, compared to $31.7 million for the first quarter 2006, an increase of
21.3%. Operating income totaled $3.3 million, compared to $3.9 million for the
same quarter in 2006, a decrease of 14.5%. Net income for the quarter decreased
8.6% to $3.1 million from $3.4 million in the year-ago quarter. Basic and
diluted net income per share for the quarter decreased to $0.21 and $0.21,
respectively (based on 15,058,000 and 15,163,000 weighted average shares
outstanding, respectively), compared to $0.23 and $0.23, respectively (based on
14,924,000 and 14,955,000 weighted average shares outstanding, respectively),
for the comparable period in 2006.
Total gross margin decreased to 17.6% in the quarter ended June 30, 2007 from
26.7% in the same quarter last year. Gross profit in the plastic segment
decreased to 26.5% of net sales for the quarter ended June 30, 2007 compared to
31.7% of net sales for the year-ago quarter. The decreased gross margin was
mainly due to the combination of a change in customer and product mix as
compared with last year's quarter, an increase in labor rate of 21% and
increased overhead cost of 3.6% of net sales as compared with year-ago quarter
due to an approximately 5.8% appreciation in Chinese renminbi currency since the
year-ago quarter.
Gross profit in the electronic and metallic segment decreased to 12.5% of net
sales for the quarter ended June 30, 2007 compared to 22.2% of net sales for the
year-ago quarter. The decrease was mainly attributable to the combined effect of
a 7.5% increase in material cost as a percentage of sales, a stock provision of
$500,000 in the quarter as a result of two customers pushing-out orders, the
increase in value added tax cost as a result of the change in value added tax
policy by the government of People's Republic of China for different categories
of export products in this quarter, an approximately 5.8% appreciation in
Chinese renminbi currency since the year-ago quarter, and an increased labor
rate of approximately 45% in the quarter as compared with the year-ago quarter.
The Company's balance sheet remains strong, with cash and cash equivalents for
the quarter totaling $23.4 million, compared to $24.5 million on March 31, 2007.
Working capital totaled $62.4 million as of June 30, 2007, versus $58.7 million
as of March 31, 2007. The Company has no long-term or short-term borrowings.
Mr. Franki Tse, chief executive officer, commented, "Revenues increased
primarily as a result of the 45% growth at our electronics division which
continues to build its position as a premier manufacturer of audio equipment.
This growth was offset by a 6% decrease in sales in our plastics division as
some customers delayed product introductions. Even though business grew at more
than 20 percent, margins continue to primarily be impacted by various forces,
such as tax rates and labor rates, that are making it more expensive to do
business in China. To overcome these cost pressures and market challenges, we
are cutting costs while increasing our focus on attracting new customers and
building up a new R&D team. This new R&D team will focus on developing new
concepts and products, with better margin, and providing more comprehensive
product solutions. We look forward to presenting these new concepts and products
to our customers over time in order to establish an even closer business
relationship. In summary, we remain strategically focused on offering customers
the higher value, and hence higher margin plastic parts and electronic assembly
while maximizing efficiencies across our business."
First-Quarter Dividends
-----------------------
The Company also announced that on August 14, 2007 its board of directors
declared a dividend of $0.17 per share for the fiscal first quarter 2007. The
dividend will be payable on September 12, 2007 to shareholders of record as of
August 31, 2007.
About Deswell
-------------
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 finished
products such as telephones, telephone answering machines, sophisticated
studio-quality audio equipment and computer peripherals. The Company's customers
include Digidesign Inc., Vtech Telecommunications Ltd., Epson Precision (H.K.)
Ltd., Inter-Tel Incorporated, Line 6 Manufacturing and Peavey Electronics
Corporation.
To learn more about Deswell Industries, Inc., please visit the Company's web
site at www.deswell.com.
Forward-Looking Statements
Statements in this press release that are "forward-looking statements" are based
on current expectations and assumptions that are subject to risks and
uncertainties. For example, our statements regarding our expected growth in
sales from the electronic and metallic division in the coming year and our
efforts to reduce overhead costs in our plastic division are forward-looking
statements. Actual results could differ materially because of the following
factors, among others, which may cause revenues and income to fall short of
anticipated levels or our overhead expenses to increase: our dependence on a few
major customers; vigorous competition forcing product price reductions or
discounts; the timing and amount of significant orders from our relatively few
significant customers; continuing increases in resin prices that cannot be
passed on to customers; unexpected production delays; obsolete inventory or
product returns; losses resulting from fraudulent activity of our customers or
employees; labor shortages that increase labor and costs; changes in the mix of
product products we manufacture and sell; adverse currency fluctuations in the
renminbi and Hong Kong dollar when translated to US dollars; potential new
accounting pronouncements; and the effects of travel restrictions and
quarantines associated with major health problems, such as the Severe Acute
Respiratory Syndrome, on general economic activity.
For further information regarding risks and uncertainties associated with the
Company's business, please refer to the "Risk Factors" section of Company's
Annual Report on Form 20-F, copies of which may be obtained from the Website
maintained by the Securities and Exchange Commission at http://www.sec.gov.
All information in this release is made as of the date of this press release.
Deswell undertakes no duty to update any forward-looking statement to conform
the statement to actual results or changes in Deswell's expectations.
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. dollars in thousands, except per share data)
Quarter ended
June 30,
2007 2006
------------------------
Net sales $ 38,452 $ 31,689
Cost of sales 31,690 23,243
---------- ----------
Gross profit 6,762 8,446
Selling, general and administrative expenses 4,468 4,666
Other income(expenses), net 1,010 86
---------- ----------
Operating income 3,304 3,866
Interest expense - -
Other income, net 235 101
---------- ----------
Income before income taxes 3,539 3,967
Income taxes 198 151
---------- ----------
Income before minority interests 3,341 3,816
Minority interests 230 413
---------- ----------
Net income $ 3,111 $ 3,403
Other comprehensive income
Foreign currency translation adjustment 170 710
---------- ----------
Comprehensive income 3,281 4,113
========== ==========
Net income per share (note 3) Basic:
Net income per share $ 0.21 $ 0.23
========== ==========
Weighted average common shares
outstanding (in thousands) 15,058 14,924
========== ==========
Diluted:
Net income per share (note 3) $ 0.21 $ 0.23
========== ==========
Weighted average common shares
outstanding (in thousands) 15,163 14,955
========== ==========
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
June 30, March 31,
2007 2007
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,445 $ 24,549
Restricted cash - -
Marketable securities 179 107
Accounts receivable, net 26,357 21,063
Inventories 29,489 29,495
Prepaid expenses and other current assets 7,031 4,999
Income taxes receivable - 130
------------- -------------
Total current assets 86,501 80,343
Property, plant and equipment - net 60,793 60,157
Goodwill 707 710
------------- -------------
Total assets $ 148,001 $ 141,210
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,255 $ 15,865
Customer deposits and accrued expenses 6,037 5,035
Income taxes payable 514 450
Deferred income taxes liability 320 321
------------- -------------
Total current liabilities 24,126 21,671
------------- -------------
Minority interests 8,072 7,884
------------- -------------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued and outstanding
15,143,730 shares at June 30, 2007 and
15,038,730 at March 31, 2007 43,432 42,393
Additional paid-in capital 7,429 7,601
Accumulated other comprehensive income 1,276 1,106
Retained earnings 63,666 60,555
------------- -------------
Total shareholders' equity 115,803 111,655
------------- -------------
Total liabilities and shareholders' equity $ 148,001 $ 141,210
============= =============
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. dollars in thousands)
Quarter ended
June 30,
--------
2007 2006
---- ----
Cash flows from operating activities:
Net income $ 3,111 $ 3,403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,507 1,291
(Gain)/loss on sale of property, plant and equipment 18 (111)
Unrealized holding (gain)loss on marketable securities (73) 54
Stock based compensation cost - 820
Minority interests 230 432
Changes in operating assets and liabilities:
Accounts receivable (5,436) (8,271)
Inventories (150) (3,687)
Prepaid expenses and other current assets (2,061) (253)
Income taxes receivable 129 -
Accounts payable 1,487 5,789
Customer deposits and accrued expenses 1,029 654
Income taxes payable 66 (174)
Deferred income tax - 69
---------- ----------
Net cash (used in) provided by operating activities (143) 16
---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (994) (2,279)
Proceeds from disposal of property, plant and equipment 128 112
---------- ----------
Net cash used in investing activities (866) (2,167)
---------- ----------
Cash flows from financing activities
Dividend paid - (2,089)
Exercise of stock options 867 -
Decrease in restricted cash - 649
---------- ----------
Net cash provide by (used in) financing activities 867 (1,440)
---------- ----------
Effect of exchange rate changes (962) 132
Net decrease in cash and cash equivalents (1,104) (3,459)
Cash and cash equivalents, at beginning of period 24,549 25,369
---------- ----------
Cash and cash equivalents, at end of period 23,445 21,910
========== ==========
Supplementary disclosures of cashflow information:
Cash paid during the period for:
Interest - -
Income taxes 3 256
========== ==========
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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 June 30, 2007 and March 31, 2007, the
results of operations for the quarters ended June 30, 2007 and June 30,
2006, and the cash flows for the quarters ended June 30, 2007 and June 30,
2006. The notes to the Consolidated Financial Statements, which are
contained in the Form 20-F Annual Report filed on August 1, 2007 under the
Securities Exchange Act of 1934 should be read in conjunction with these
Consolidated Financial Statements.
2. Inventories
-----------
June 30, March 31,
2007 2007
---------- ----------
Inventories by major categories :
Raw materials $ 13,932 $ 13,196
Work in progress 9,505 10,227
Finished goods 6,052 6,072
---------- ----------
$ 29,489 $ 29,495
========== ==========
3. Net Income 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 net 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 dilutive potential 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 dilutive potential 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 quarters ended June 30, 2007 and 2006 were both from
the Company's continuing operations.
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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 inexpensive labor rates as compared to
Hong Kong.
Quarter Ended June 30, 2007 Compared to Quarter Ended June 30, 2006
-------------------------------------------------------------------
Net Sales - The Company's net sales for the quarter ended June 30, 2007 were
$38,452,000, an increase of $6,763,000 or 21.3% as compared to the corresponding
period in 2006. The increase was mainly related to the increase in sales at our
electronic and metallic segment of $7,731,000 offset by the decrease in sales at
our plastic segment of $968,000. This represented an increase of 45.9% and a
decrease of 6.5% respectively, as compared with the net sales in the
corresponding period in the prior year.
The revenue decrease at our plastic segment was mainly the result of the
decrease in orders from existing customers of $5,031,000 which was partly due to
customers delaying the progress of new model productions, offsetting the
increase in orders from other existing customers of $4,063,000, out of which
$2,709,000 was related to electronic entertainment products.
The increase in net sales in the electronic and metallic segment was mainly due
to the increase in orders from OEM products from new and existing customers of
$391,000 and $9,899,000 respectively, of which the increase in order of
$7,826,000 and $2,073,000 were related to professional audio equipments and
telecommunication equipments respectively. These increases, together with the
increase in distribution sales of $505,000, offset the decrease in orders of
electronics and metallic products from existing customers of $2,936,000 and
$128,000 respectively.
Gross Profit - The gross profit for the quarter ended June 30, 2007 was
$6,762,000, representing a gross profit margin of 17.6%. This compares with the
overall gross profit and gross profit margin of $8,446,000 or 26.7% for the
quarter ended June 30, 2006.
Gross profit in the plastic segment decreased by $1,020,000 to $3,676,000 or
26.5% of net sales, for the quarter ended June 30, 2007 compared to $4,696,000
or 31.7% of net sales, for the quarter ended June 30, 2006. This was mainly
attributable to the combined effect of change in customer and product mix as
compared with last year quarter, an increased labor rate of 21% and increased
overhead cost of 3.6% of net sales as compared with year-ago quarter due to an
approximately 5.8% appreciation in Chinese renminbi currency where most of our
direct overhead is denominated, as compared with the quarter last year.
Gross profit in the electronic & metallic segment decreased by $664,000 to
$3,086,000 or 12.5% of net sales, for the quarter ended June 30, 2007 compared
to $3,750,000 or 22.2% of net sales, for the same period last year. This was
mainly attributed to a combined effect of increased material cost of 7.4% as a
percentage of sales, which was due to a stock provision of $500,000 in the
quarter as a result of the two customers pushing-out orders, the increase in
value added tax cost as a result of the change in value added tax policy by the
government of People's Republic of China for different categories of export
products in this quarter and an approximately 5.8% appreciation in Chinese
renminbi currency since the year-ago quarter; and an increased labor rate of
approximately 45% in the quarter as compared with year-ago quarter.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses - SG&A expenses for the quarter
ended June 30, 2007 were $4,468,000, amounting to 11.6% of total net sales, as
compared to $4,666,000 or 14.7% of total net sales for the quarter ended June
30, 2006. There was a decrease in selling, general and administrative expenses
of $198,000 over the corresponding period.
The SG&A expenses in the plastic segment decreased by $424,000 or 15.2% to
$2,366,000 or 17.1% of net sales, for the quarter ended June 30, 2007 compared
to $2,790,000 or 18.8% of net sales, for the corresponding period in 2006. The
decrease was primarily related to a stock based compensation of $820,000 in the
year-ago quarter but nil for this quarter offsetting the increase in staff cost
and welfare expenses of $167,000, director remuneration of $40,000, traveling
expense of $24,000, selling expenses of 48,000 and depreciation expense of
$53,000 as compared with last year quarter.
The SG&A expenses in the electronic & metallic segment increased by $226,000 or
12.0% to $2,102,000 or 8.5% of net sales, for the quarter ended June 30, 2007
compared to $1,876,000 or 11.1% of net sales for corresponding period in 2006.
The increase was primarily related to the increase in staff cost and welfare
expenses of $221,000 as a result of expanding our marketing, technical and
quality assurance force as compared with the year-ago quarter.
Other operating income - Other operating income was $1,010,000 for the quarter
ended June 30, 2007, an increase of $924,000 as compared to other income of
$86,000 for the quarter ended June 30, 2006.
On a segment basis, other operating income attributable to the plastic segment
was $957,000, an increase of $807,000 as compared with other operating income of
$150,000 for the quarter in last year. The increase was mainly attributed to the
increase in exchange gain on foreign currency transactions and translation gain
of $888,000 during the quarter as a result of the appreciation in Chinese
renminbi ; offsetting the decrease in gain on disposal of fixed assets of
$127,000 as compared with the year-ago quarter.
Other operating income attributable to the electronic & metallic segment was
$53,000, an increase of $117,000 as compared with other operating expense of
$64,000 for year-ago quarter. This increase was mainly due to the increase in
exchange gain of $38,000, scrap sale of $23,000 and the decrease in doubtful
debt provision of $43,000 as compared with the year-ago quarter.
Operating income - Operating income was $3,304,000 for the quarter ended June
30, 2007, a decrease of $562,000 or 14.5% as compared with the corresponding
quarter in the prior year.
On a segment basis, the operating income of plastic segment increased $211,000
to $2,267,000 or 16.4% of net sales, in quarter ended June 30, 2007 compared to
$2,056,000 or 13.9% of net sales in corresponding period in 2006. The increase
in operating income was attributable to the increase in other operating income
and the decrease in SG&A expenses offsetting the decrease in gross profit as
described above.
The operating income of electronic & metallic segment decreased $773,000 to
$1,037,000 or 4.2% of net sales, in the quarter ended June 30, 2007 compared to
$1,810,000 or 10.7% of net sales in the corresponding period in 2006. The
decrease in operating income was attributable to the decrease in gross profit,
the increase in SG&A expenses offsetting the increase in other operating income
as described above.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-operating income - Non-operating income for the quarter increased by
$134,000 to $235,000 for the quarter ended June 30, 2007 as compared with other
income of $101,000 in the year-ago quarter . This is mainly attributed to the
increase in unrealized gain on revaluation of marketable securities during the
quarter of $74,000 versus an unrealized loss of $55,000 in the quarter ended
June 30, 2006.
Income Taxes - Income taxes expenses for the quarter was $198,000, an increase
of $47,000 as compared with the corresponding quarter in the prior year. On a
segment basis, the income taxes of plastic segment decreased $22,000 to $47,000
in the quarter ended June 30, 2007 whereas the income tax expenses for the
electronic & metallic segment increased $69,000 to $151,000 for the quarter
ended June 30, 2007, respectively.
Minority Interest - Minority interests represent a 24% minority interest in
Integrated International Limited, the holding company holding the capital stock
of Deswell's electronic and metallic subsidiaries. The dollar amount of minority
interest decreased to $230,000 for the quarter ended June 30, 2007, from
$413,000 for the corresponding quarter in the prior year. This represented a
decrease in minority interest of $183,000 in the electronics and metallic
subsidiaries in the quarter ended June 30, 2007.
Net Income - Net income was $3,111,000 for the quarter ended June 30, 2007, a
decrease of $292,000 or 8.6%, as compared to net income of $3,403,000 for the
quarter ended June 30, 2006, and net income as a percentage of net sales was
decreased from 10.7% to 8.1% for the quarter ended June 30, 2007.
Net income for the plastic segment increased by 13.1% to $2,363,000 for the
quarter ended June 30, 2007 compared to $2,089,000 for the corresponding quarter
in 2006. The increase in net income of the plastic segment was mainly the result
of the increase in operating income and other non-operating income and the
decrease in income tax as described above.
Net income for the electronic & metallic segment was $748,000 for the quarter
ended June 30, 2007 compared to $1,314,000 for the corresponding quarter in
2006. The decrease in net income of the electronic & metallic segment was mainly
the result of the decrease in operating income and the increase in income tax
offsetting the increase in other non-operating income, as described above.
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.
As of June 30, 2007, the Company had a working capital surplus of $62,375,000
and cash and cash equivalent of $23,445,000. This compares with a working
capital surplus of $58,672,000 and cash and cash equivalent of $24,549,000 at
March 31, 2007. The decrease in cash and cash equivalent of $1,104,000 was
mainly attributed to the capital investment of $994,000, effect on exchange rate
changes of $962,000 and the net cash used in operating activities of $143,000,
offsetting the exercise of stock options by directors and officers of $867,000
and proceeds from disposal of property, plant and equipment of $128,000 during
the quarter ended June 30, 2007.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 with cash generated from operations. The Company has no long-term
debt or short-term borrowings at June 30, 2007.
As of June 30, 2007, the Company had no general banking facilities. The Company
expects that working capital requirements and capital additions will be funded
through internally generated funds.
- end -
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/ Franki Tse
--------------
Franki Tse
Chief Executive Officer
Date: August 17, 2007