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 NOVEMBER 10, 2003
DESWELL INDUSTRIES, INC.
(Registrant's name in English)
Unit 516 517, Hong Leong Industrial Complex,
No. 4 Wang Kwong Road, Kowloon Bay,
Kowloon, Hong Kong
(Address of principal executive offices)
DESWELL [LOGO]
Contact:
John G. Nesbett
Ryan Daniels
The Investor Relations Group
212-825-3210
e-mail: jnesbett@investorrelationsgroup.com
DESWELL INDUSTRIES, INC.
ANNOUNCES SALES UP 11% AND NET INCOME UP 12%,
EPS OF $0.45 PER SHARE FOR THE SECOND QUARTER
- SECOND QUARTER DIVIDEND OF $0.24 PER SHARE -
HONG KONG (November 10, 2003) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced results for the second quarter and six months ended September 30,
2003.
Net sales for the quarter were $25.1 million, an increase of 11.0%, compared to
sales of $22.6 million in the second quarter ended September 30, 2002. Operating
income increased 23.1% to $4.5 million, compared to $3.7 million in the previous
year, and net income increased 12.2% to $4.1 million, compared to $3.7 million
in the previous year. The basic earnings per share and diluted earnings per
share increased to $0.45 and $0.44, respectively (based on 9,103,000 and
9,375,000 weighted average shares outstanding, respectively), compared to $0.43
and $0.43, respectively (based on 8,600,000 and 8,609,000 weighted average
shares outstanding, respectively), in the quarter ended September 30, 2002.
Net sales for the six months ended September 30, 2003 were $51.1 million, an
increase of 11.4%, compared to sales of $45.9 million for the corresponding
period in 2002. Operating income increased 27.2% to $9.2 million, compared to
$7.2 million in the previous year, and net income increased 15.1% to $8.5
million, compared to $7.4 million in the previous year. The basic earnings per
share and diluted earnings per share increased to $0.93 and $0.92, respectively
(based on 9,084,000 and 9,205,000 weighted average shares outstanding,
respectively), compared to $0.87 and $0.86, respectively (based on 8,498,000 and
8,599,000 weighted average shares outstanding, respectively), in the six months
ended September 30, 2002.
The Company's cash and cash equivalents at September 30, 2003 were $33.6
million, as compared to $34.4 million on March 31, 2003. The cash position
decreased slightly due to funding from cash flow of the new plastic-injection
manufacturing plant in Dongguan and the acquisition of the Company's electronic
and metal factory in Cheung On, Dongguan. Working capital was $55.0 million as
of September 30, 2003, versus $58.2 million as of March 31, 2003. The Company
has short-term borrowings of $0.6 million and no long-term borrowings at
September 30, 2003.
Mr. Lau, chairman and chief executive officer, commented, "We are pleased with
the performance for the quarter. We experienced healthy revenue growth in both
of our plastics and electronics divisions of 14% and 8% respectively. We
continued to focus on reducing cost and realized the benefit of the recent
purchase of our electronics facility and reduced labor rates as we move more of
our labor to Dongguan.
"We are on track to complete phase one expansion of our plastics division by the
end of December. As anticipated, we invested significantly in medium- and
large-size plastic injection molding machines for our new 440,000 square-foot
facility in Dongguan. Installation and testing of the new machines is gradual
and ongoing. Completion of phase one will increase our plastics capacity by 40%.
Phase two expansion of our plastics division, which we anticipate to be
completed by April 2004, will provide us with an additional 220,000 square-foot
facility.
"We are optimistic about the performance in our electronic and metal division in
the coming year. Since acquiring an additional 20% interest in January 2002, we
have made progress in positioning this division for further growth. We have
reduced our operating costs by acquiring the factory premise, which we
previously leased."
SECOND QUARTER DIVIDENDS
The Company also announced that on November 6, 2003 its board of directors
declared a dividend of $0.24 per share for the second quarter. The dividend will
be payable on December 1, 2003 to shareholders of record as of November 17,
2003.
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 Kyocera Mita Industrial Co. (H.K.) Limited, Epson Precision (H.K.) Ltd.,
Digidesign, Inc., Inter-Tel Incorporated, Vtech Telecommunications 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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- MORE -
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPRATIONS (UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATE)
Quarter ended Six months ended
September 30, September 30
----------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $25,079 $22,603 $51,154 $45,908
Cost of sales 17,099 14,870 34,763 30,728
------------------ ----------------- ------------------ ------------------
Gross profit 7,980 7,733 16,391 15,180
Selling, general and
administrative expenses 3,469 4,068 7,234 7,983
------------------ ----------------- ------------------ ------------------
Operating income 4,511 3,665 9,157 7,197
Interest expense (15) - (15) (6)
Other income, net 272 399 834 829
------------------ ----------------- ------------------ ------------------
Income before income taxes 4,768 4,064 9,976 8,020
Income taxes 139 3 430 (287)
------------------ ----------------- ------------------ ------------------
Income before minority interests 4,629 4,061 9,546 8,307
Minority interests 508 389 1,071 944
------------------ ----------------- ------------------ ------------------
Net income $4,121 $3,672 $8,475 $7,363
================== ================= ================== ==================
Basic earnings per share (note 3) $0.45 $0.43 $0.93 $0.87
================== ================= ================== ==================
Weighted average number of shares
outstanding (in 9,103 8,600 9,084 8,498
thousands) (note 4)
================== ================= ================== ==================
Diluted earnings per share (note 3) $0.44 $0.43 $0.92 $0.86
================== ================= ================== ==================
Diluted weighted average number
of shares outstanding (in thousands) 9,375 8,609 9,205 8,599
(note 4)
================== ================= ================== ==================
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
( U.S. DOLLARS IN THOUSANDS)
September 30, March 31,
2003 2003
---- ----
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 33,556 $ 34,400
Restricted cash 2,368 2,366
Marketable securities -- 4,821
Accounts receivable 19,583 16,727
Inventories 14,649 14,784
Prepaid expenses and
other current assets 3,805 2,648
Income taxes receivable 4 323
-------- --------
Total current assets 73,965 76,069
Property, plant and equipment - net 38,685 29,623
Other investments 2 2
Goodwill 478 478
-------- --------
Total assets $113,130 $106,172
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,942 $ 9,643
Bank loans 603 --
Customer deposits and accrued expenses 5,401 4,257
Income taxes payable
--------
3,039 3,946
-------- --------
Total current liabilities 18,985 17,846
-------- --------
Minority interests 7,109 6,465
-------- --------
Deferred income tax 15 15
-------- --------
Shareholders' equity
Common stock
-- authorized 30,000,000 shares; issued
and outstanding 9,109,085 shares at
September 30, 2003 and 9,030,835 shares
at March 31, 2003 (note 4) 29,134 28,247
Additional paid-in capital 6,970 6,970
Retained earnings 50,917 46,629
-------- --------
Total shareholders' equity 87,021 81,846
-------- --------
Total liabilities and
shareholders' equity $113,130 $106,172
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
( U.S. DOLLARS IN THOUSANDS )
Six months ended
September 30,
----------------------
2003 2002
---- ----
Cash flows from operating activities :
Net income $ 8,475 $ 7,363
Adjustments to reconcile net income
to net cash
provided by operating activities :
Depreciation and amortization 2,024 2,638
(Gain)/loss on disposal of property,
plant and equipment 75 (2)
Minority interests 644 724
Changes in current assets and liabilities :
Accounts receivable (2,856) (4,767)
Marketable securities 4,821 (3,725)
Inventories 135 (511)
Prepaid expenses and other current assets (1,157) (2,942)
Income taxes receivable 319 56
Accounts payable 299 1,504
Customer deposits and accrued expenses
1,144 (933)
Income taxes payable 29 (907)
-------- --------
Net cash (used in)/provided by
operating activities 13,016 (566)
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (11,167) (4,151)
Proceeds from disposal of property,
plant and equipment 6 6
Decrease/(increase) in restricted cash (2) 589
-------- --------
Net cash used in investing activities (11,163) (3,556)
-------- --------
Cash flows from financing activities
Common stock issued 887 3,151
(Decrease)/increase in bank loans 603 (482)
Dividends paid (4,187) (3,223)
-------- --------
Net cash used in financing activities (2,697) (554)
-------- --------
Net decrease in cash and cash equivalents (844) (4,676)
Cash and cash equivalents, at beginning of period 34,400 31,534
-------- --------
Cash and cash equivalents, at end of period 33,556 26,858
======== ========
Supplementary disclosures of cashflow information :
Cash paid during the period for :
Interest 15 6
Income taxes 1,019 (315)
======== ========
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 September 30,
2003 and March 31, 2003, the results of operations for the quarters
and six months ended September 30, 2003 and September 30, 2002, and
the cash flows for the six months ended September 30, 2003 and
September 30, 2002. The notes to the Consolidated Financial
Statements, which are 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
September 30, March 31,
2003 2003
-------------------------
Inventories by major categories :
Raw materials $ 7,468 $ 7,432
Work in progress 4,189 4,454
Finished goods 2,992 2,898
--------- --------
$ 14,649 $ 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 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 six months ended September 30, 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 this stock split and proportionate to it, the Memorandum of
Association will be 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 stock split on July 22, 2002 and change in
par value on July 8, 2002.
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.
- MORE -
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 SEPTEMBER 30, 2003 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2002
The Company's net sales for the quarter ended September 30, 2003 were
$25,079,000, an increase of $2,476,000 or 11.0% 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 and electronic & metallic products
of $1,633,000 and $843,000, respectively. This represented an increase of 13.6%
and 8.0% respectively, as compared with the net sales in the corresponding
period in the prior year.
The increase in net sales in both divisions was mainly due to an increase in
orders from its existing customers as well as new customers.
The gross profit for the quarter ended September 30, 2003 was $7,980,000,
representing a gross profit margin of 31.8%. This compares with the overall
gross profit and gross profit margin of $7,733,000 or 34.2% for the quarter
ended September 30, 2002.
Selling, general and administrative expenses for the quarter ended September 30,
2003 were $3,469,000, amounting to 13.8% of total net sales, as compared to
$4,068,000 or 18.0% of total net sales for the quarter ended September 30, 2002.
The decrease in selling, general and administrative expenses of $599,000 or
14.7% was mainly attributed to reduction control in general and administration
expenses, specifically write back of last year's bonus provision and reduction
in current year's provision.
As a result, operating income was $4,511,000 for the quarter ended September 30,
2003, an increase of $846,000 or 23.1% 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 the 29% minority interest in the electronics and metallic
subsidiaries and the 49% minority interest in the marketing subsidiary. The
increase in minority interest to $508,000 for the quarter ended September 30,
2003, from $389,000 for the corresponding quarter in the prior year reflects the
increased profits generated by the subsidiaries offsetting the decrease in
minority interest as a result of the additional acquisition.
As a result of the above factors, net income was $4,121,000 for the quarter
ended September 30, 2003, an increase of $449,000 or 12.2%, as compared to the
quarter ended September 30, 2002 and net income as a percentage of net sales
slightly increased to 16.4% from 16.2%.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 2002
The Company's net sales for the six months ended September 30, 2003 were
$51,154,000, an increase of $5,246,000 or 11.4% as compared to corresponding
period in 2002. The increase in sales was mainly related to the increase in
sales of plastic injection-molded products and electronics and metallic products
of $4,130,000 and $1,116,000 respectively. This represented an increase of 17.6%
and 5.0% respectively, as compared with the net sales in the corresponding
period in the prior year.
The increase in net sales in both divisions was attributed to the increase in
orders in from its existing customers as well as new customers.
The gross profit for the six months ended September 30, 2003 was $16,391,000,
representing a gross profit margin of 32.0%. This compares with the overall
gross profit and gross profit margin of $15,180,000 or 33.1% for the six months
ended September 30, 2002.
Selling, general and administrative expenses for the six months ended September
30, 2003 were $7,234,000, amounting to 14.1% of total net sales, as compared to
$7,983,000 or 17.4% of total net sales for the six months ended September 30,
2002. The decrease in selling, general and administrative expenses of $749,000
or 9.4% was mainly attributed to a one-time employee compensation payment in the
prior year corresponding period together with the reduction control in general
and administrative expenses, specifically write back of last year's bonus
provision and reduction in current year's provision.
As a result, operating income was $9,157,000 for the six months ended September
30, 2003, an increase of $1,960,000 or 27.2% 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 the 29% minority interest in the electronics and metallic
subsidiaries and the 49% minority interest in the marketing subsidiary. The
increase in minority interest to $1,071,000 for the six months ended September
30, 2003, from $944,000 for the corresponding period in the prior year reflects
the increased profits generated by the subsidiaries offsetting the decrease in
minority interest as a result of the additional acquisition.
As a result of the above factors, net income was 8,475,000 for the six months
ended September 30, 2003, an increase of $1,112,000 or 15.1%, as compared to the
six months ended September 30, 2002 and net income as a percentage of net sales
slightly increased to 16.6% from 16.0%.
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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, although capital expenditure has been partly financed
by long-term debt, including capital leases.
As of September 30, 2003, the Company had a working capital surplus of
$54,980,000 and cash and cash equivalent of $33,556,000. This compares with a
working capital surplus of $58,223,000 and cash and cash equivalent of
$34,400,000 as of March 31, 2003. The decrease in cash and cash equivalent was
mainly attributed to the net cash generated from operating activities of
13,016,000 and the exercise of stock options of $887,000, offset by a dividend
distribution of $4,187,000 and the capital investment of $11,167,000 during the
six months ended September 30, 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. The Company has short-term borrowings of $603,000
and no long-term debt as of September 30, 2003. The short-term borrowing was
mainly used to finance the acquisition of factory premises of the electronic and
metal division in Dongguan.
As of September 30, 2003 the Company had in place general banking facilities
with three financial institutions aggregating approximately $21,666,000. Such
facilities, which are subject to annual review, include overdrafts, letters of
credit, import facilities, trust receipt financing, bills negotiation facilities
as well as fixed loans. As of September 30, 2003, the Company had ( i ) unused
credit facilities of $21,064,000 ( ii ) cash and cash equivalents of $33,556,000
and ( iii ) restricted cash of $2,368,000. The restricted cash of $2,368,000 and
leasehold land and buildings of $1,304,000 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 cash on hand and 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/ RICHARD LAU
---------------
Richard Lau
Chief Executive Officer
Date: November 17, 2003