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 6, 2002
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
Contact:
John G. Nesbett
David Waldman
Lippert/Heilshorn & Associates
212-838-3777
e-mail: jnesbett@lhai.com
DESWELL INDUSTRIES, INC.
ANNOUNCES EPS OF $0.44 PER SHARE FOR THE SECOND QUARTER
- SECOND QUARTER DIVIDEND OF $0.19 PER SHARE -
HONG KONG (November 6, 2002) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced results for the second quarter and six months ended September 30,
2002.
Net sales for the quarter were $22.6 million, an increase of 1.9%, compared to
sales of $22.2 million in the second quarter ended September 30, 2001. Operating
income decreased 3.7% to $3.7 million, compared to $3.8 million in the previous
year, and net income increased 1.0% to $3.7 million, compared to $3.6 million in
the previous year.
The Company previously announced a 3-for-2 stock split of record date July 8,
2002 payable on July 22, 2002. The stock split increased the number of fully
diluted shares outstanding from approximately 5.7 million shares to 8.5 million
shares. After accounting for the stock split, diluted earnings per share
increased to $0.44, compared to $0.43 in the second quarter ended September 30,
2001.
Net sales for the six months ended September 30, 2002 were $45.9 million, an
increase of 4.2%, compared to sales of $44.1 million for the corresponding
period in 2001. Operating income decreased 7.3% to $7.2 million, compared to
$7.8 million in the previous year, and net income increased 5.1% to $7.4
million, compared to $7.0 million in the previous year. Diluted earnings per
share increased to $1.04, compared to $0.83 for the six months ended September
30, 2001.
The Company's cash and cash equivalents for the quarter were $26.9 million, as
compared to $31.5 million on March 31, 2002, due to internal funding for new
plant construction in Dongguan. Working capital was $61.4 million as of
September 30, 2002, versus $54.9 million as of March 31, 2002. . The Company has
no long-term or short-term borrowings.
Mr. Lau, chairman and chief executive officer, commented, "Despite continued
pricing pressure in the market, we continue to enhance the quality of our
products, improve customer service and increase the overall efficiency of our
plants in order to gain market share. For example, we recently invested in
state-of-the-art mold-making software, which we believe provides us a distinct
competitive advantage. As a result of these and similar initiatives, we expect a
20% to 25% increase in our mold manufacturing business this year. Moreover, our
metallic products business performed well and we anticipate a 15% to 20%
increase in sales from this division this year."
"We are excited as we move forward with plans for our new plastics manufacturing
facility in Dongguan, which we believe will help further reduce payroll and
other operating costs. Although inclement weather conditions have slowed the
pace of construction, Phase I construction is expected to commence operations in
March 2003, while Phase II construction could begin operations in June. Our
balance sheet remains strong and we are extremely optimistic about the future
growth opportunities for our business."
SECOND QUARTER DIVIDENDS
------------------------
The Company also announced that on November 5, 2002 its board of directors
declared a dividend of $0.19 per share for the second quarter. The dividend will
be payable on November 27, 2002 to shareholders of record as of November 15,
2002.
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.
- 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
----------------------------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $22,603 $22,189 $45,908 $44,073
Cost of sales 14,870 14,625 30,728 28,986
--------------- --------------- --------------- ---------------
Gross profit 7,733 7,564 15,180 15,087
Selling, general and administrative expenses 4,068 3,758 7,983 7,325
--------------- --------------- --------------- ---------------
Operating income 3,665 3,806 7,197 7,762
Interest expense - - (6) (11)
Other income, net 399 245 829 324
--------------- --------------- --------------- ---------------
Income before income taxes 4,064 4,051 8,020 8,075
Income taxes 3 195 (287) 405
--------------- --------------- --------------- ---------------
Income before minority interests 4,061 3,856 8,307 7,670
Minority interests 389 221 944 666
--------------- --------------- --------------- ---------------
Net income $3,672 $3,635 $7,363 $7,004
=============== =============== =============== ===============
Basic earnings per share (note 3) $0.44 $0.43 $1.05 $0.83
=============== =============== =============== ===============
Weighted average number of shares 8,364 8,402 6,983 8,400
outstanding (in thousands) (note 4)
=============== =============== =============== ===============
Diluted earnings per share (note 3) $0.44 $0.43 $1.04 $0.83
=============== =============== =============== ===============
Diluted weighted average number of shares 8,363 8,421 7,084 8,409
outstanding (in thousands)
(note 4)
=============== =============== =============== ===============
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
( U.S. DOLLARS IN THOUSANDS)
September 30, March 31,
2002 2002
---- ----
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 26,858 $ 31,534
Restricted cash
2,272 2,861
Marketable securities 4,840 1,115
Accounts receivable, net 21,655 16,888
Inventories
13,736 13,225
Prepaid expenses and other current assets
6,363 3,421
Income taxes receivable
372 428
----------- -------------
Total current assets 76,096 69,472
Property, plant and equipment - net 26,542 24,794
Goodwill 239 478
----------- -------------
Total assets $ 102,877 $ 94,744
========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,087 $ 7,583
Bank loans - 482
Customer deposits and accrued expenses 5,387 6,320
Income taxes payable 194 165
----------- -------------
Total current liabilities 14,668 14,550
----------- -------------
Deferred income tax 15 15
----------- -------------
Minority interests 11,252 10,528
----------- -------------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued and
outstanding 8,680,955 shares at
September 30, 2002 and 8,370,496 shares
at March 31, 2002 (note 4)
57 56
Additional paid-in capital 29,672 26,522
Retained earnings 47,213 43,073
----------- -------------
Total shareholders' equity 76,942 69,651
----------- -------------
Total liabilities and shareholders' equity $ 102,877 $ 94,744
=========== =========
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
( U.S. DOLLARS IN THOUSANDS )
Six months ended
September 30,
---------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 7,363 $ 7,004
Adjustments to reconcile net income to net cash
provided by operating activities :
Depreciation and amortization
2,638 2,459
(Gain)/loss on disposal of property, plant and equipment
(2) (21)
Minority interests 724 729
Changes in current assets and liabilities :
Accounts receivable
(4,767) (2,834)
Marketable securities
(3,725) (493)
Inventories (511) (666)
Prepaid expenses and other current assets (2,942) (806)
Income taxes receivable 56 --
Accounts payable
1,504 3,130
Customer deposits and accrued expenses
(933) 1,047
Income taxes payable 29
27
-------- --------
Net cash (used in)/provided by operating activities (566) 9,576
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (4,151) (1,721)
Proceeds from disposal of property, plant and equipment 6 77
Decrease/(increase) in restricted cash 589 (441)
-------- --------
Net cash used in investing activities (3,556) (2,085)
-------- --------
Cash flows from financing activities
Common stock issued 3,151 51
(Decrease)/increase in bank loans (482) 482
Dividends paid
(3,223) (4,537)
-------- --------
Net cash used in financing activities (554) (4,004)
-------- --------
Net increase/(decrease) in cash and cash equivalents
(4,676) 3,487
Cash and cash equivalents, at beginning of period 31,534 25,330
-------- --------
Cash and cash equivalents, at end of period 26,858 28,817
======== ========
Supplementary disclosures of cashflow information :
Cash paid during the period for :
Interest 6 11
Income taxes
(315) 379
======== ========
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, 2002 and
March 31, 2002, the results of operations for the quarters and six
months ended September 30, 2002 and September 30, 2001, and the cash
flows for the six months ended September 30, 2002 and September 30,
2001. The notes to the Consolidated Financial Statements, which are
contained in the Form 20-F Annual Report filed on July 11, 2002 under
the Securities Exchange Act of 1934 should be read in conjunction with
these Consolidated Financial Statements.
2. INVENTORIES
-----------
September 30, March 31,
2002 2002
----------------- ---------------
Inventories by major categories:
Raw materials $ 8,267 $ 7,368
Work in progress 3,351 3,213
Finished goods 2,118 2,644
----------- ----------
$ 13,736 $ 13,225
=========== ==========
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, 2002 and 2001
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.
- 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, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
-----------------------------------------------------------------------------
The Company's net sales for the quarter ended September 30, 2002 were
$22,603,000, an increase of $414,000 or 1.9% as compared to the corresponding
period in 2001. The increase in sales was mainly related to the increase in
sales of electronic & metallic products of $686,000 offset by a decrease in
sales of plastic injection molding products of $272,000. This represented an
increase of 6.9% and a decrease of 2.2% respectively, as compared with the net
sales in the corresponding period in the prior year.
The increase in net sales in the electronic and metallic division 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, 2002 was $7,733,000,
representing a gross profit margin of 34.2%. This compares with the overall
gross profit and gross profit margin of $7,564,000 or 34.1% for the quarter
ended September 30, 2001.
Selling, general and administrative expenses for the quarter ended September 30,
2002 were $4,068,000, amounting to 18.0% of total net sales, as compared to
$3,758,000 or 16.9% of total net sales for the quarter ended September 30, 2001.
As a result, operating income was $3,665,000 for the quarter ended September 30,
2002, a decrease of $141,000 or 3.7% as compared with the corresponding quarter
in the prior year.
Minority interests represent the 49% minority interest in both the electronics
and metallic subsidiaries and the marketing subsidiary. The increase in minority
interests to $389,000 for the quarter ended September 30, 2002 from $221,000 for
the quarter ended September 30, 2001 reflects the increased profits generated by
the electronic and metallic business.
As a result of the above factors, net income was $3,672,000 for the quarter
ended September 30, 2002, an increase of $37,000 or 1.0%, as compared to the
quarter ended September 30, 2001 and net income as a percentage of net sales
decreased to 16.2% from 16.4%.
- more -
DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 2001
The Company's net sales for the six months ended September 30, 2002 were
$45,098,000, an increase of $1,835,000 or 4.2% as compared to corresponding
period in 2001. The increase in sales was mainly related to the increase in
sales of electronics and metallic products of $2,940,000 offset by a decrease in
sales of plastic injection-molded products of $1,105,000. This represented an
increase of 15.1% and a decrease of 4.5% respectively, as compared with the net
sales in the corresponding period in the prior year.
The increase in net sales in electronics and metallic products 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, 2002 was $15,180,000,
representing a gross profit margin of 33.1%. This compares with the overall
gross profit and gross profit margin of $15,087,000 or 34.2% for the six months
ended September 30, 2001.
Selling, general and administrative expenses for the six months ended September
30, 2002 were $7,983,000, amounting to 17.4% of total net sales, as compared to
$7,325,000 or 16.6% of total net sales for the six months ended September 30,
2001.
As a result, operating income was $7,197,000 for the six months ended September
30, 2002, a decrease of $565,000 or 7.3% as compared with the corresponding
period in the prior year.
Minority interests represent the 49% minority interest in both the electronics
and metallic subsidiaries and the marketing subsidiary. The increase in minority
interests to $944,000 for the six months ended September 30, 2002 from $666,000
for the six months ended September 30, 2001 reflects the increased profits
generated by the electronic and metallic business.
As a result of the above factors, net income was $7,363,000 for the six months
ended September 30, 2002, an increase of $359,000 or 5.1%, as compared to the
six months ended September 30, 2001 and net income as a percentage of net sales
slightly increased to 16.0% from 15.9%.
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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, 2002, the Company had a working capital surplus of
$61,428,000 and cash and cash equivalent of $26,858,000. This compares with a
working capital surplus of $54,922,000 and cash and cash equivalent of
$31,534,000 at March 31, 2002. The decrease in cash and cash equivalent was
mainly attributed to the exercise of stock options of $3,151,000 offset by a
dividend distribution of $3,223,000 and the capital investment of $4,151,000
during the six months ended September 30, 2002.
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 September 30, 2002.
As of September 30, 2002 the Company had in place general banking facilities
with three financial institutions aggregating approximately $16,194,000. 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, 2002, the Company had ( i ) unused
credit facilities of $16,133,000 ( ii ) cash and cash equivalents of $26,858,000
and ( iii ) restricted cash of $2,272,000. The restricted cash of $2,203,000 and
leasehold land and buildings of $1,333,000 have been pledged as collateral for
those credit facilities. The Company also had $69,000 pledged as a deposit for
custom duties in Dongguan, China.
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
Chief Executive Officer
Date: November 13, 2002