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 19, 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/Harriet C. Fried
Lippert/Heilshorn & Associates
212-838-3777
e-mail: hfried@lhai.com
DESWELL INDUSTRIES INC.
ANNOUNCES FOURTH-QUARTER AND YEAR-END RESULTS
-DESWELL ALSO ANNOUNCES FOURTH-QUARTER DIVIDEND OF $0.22 PER SHARE-
HONG KONG (August 19, 2003) - Deswell Industries, Inc. (Nasdaq: DSWL) (the
"Company" or "Deswell") today announced its financial results for the fourth
quarter and year ended March 31, 2003.
Net sales for the fourth fiscal quarter ended March 31, 2003 increased 3.7% to
$19.7 million from $19.0 million in the fourth fiscal quarter ended March 31,
2002. Operating income for the fourth quarter ended March 31, 2003 increased
1.5% to $2.8 million for the most recent quarter, compared to $2.7 million for
same period last year. Net loss for the fourth quarter of fiscal 2003 was $0.9
million, primarily resulting from a $3.5 million tax provision.
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.
Net sales for the year ended March 31, 2003 were $90.9 million, an increase of
9.1% compared to net sales of $83.3 million for the year ended March 31, 2002.
Operating income increased 4.4% to $14.5 million for the year ended March 31,
2003, compared to $13.9 million for fiscal 2002. Primarily due to the $3.5
million tax provision made in the fourth quarter of fiscal 2003, net income
decreased 23.1% to $10.2 million for the year ended March 31, 2003 from $13.3
million in the previous year. Basic earnings per share and diluted earnings per
share decreased to $1.18 and $1.16, respectively (based on 8,672,000 and
8,852,000 weighted average shares outstanding, respectively), compared to $1.59
and $1.57, respectively (based on 8,403,000 and 8,467,000 weighted average
shares outstanding, respectively), for the year ended March 31, 2002.
The Company continues to maintain a strong financial position. The Company's
cash and cash equivalents increased to $34.4 million at March 31, 2003, compared
to $31.5 million on March 31, 2002. Working capital was $58.2 million as of
March 31, 2003, versus $54.9 million as of March 31, 2002. The Company has no
long-term or short-term borrowings.
Mr. Richard Lau, chairman and chief executive officer, commented, "Our results
for the year were solid given the difficult economic environment throughout the
year. Our expanded marketing team continues to focus on high-end customers and
higher-margin sales opportunities.
Mr. Lau continued, "We are very pleased that phase I construction of our new
factory in Dongguan is complete. Small size injection-molding machines have been
installed and the coating and clean room will be in operation by the end of
August 2003. The installation of medium and large size injection-molding
machines will be completed by the end of October and November 2003,
respectively. Moreover, our tooling section will also be completed and occupied
by the end of December 2003. When all the facilities are in operation, we expect
savings in rental and manpower expenses and can better service additional
clients. We also plan to upgrade our software to further increase our
competitive advantage. Phase II and III of our expansion are both moving
forward, and we expect all construction to be completed in 18 to 24 months.
After the completion of phase II and III, we expect capacity at our plastics
division to expand by approximately 50%.
FOURTH-QUARTER DIVIDENDS
Deswell also announced that on August 18, 2003, its board of directors declared
a cash dividend of $0.22 per share, bringing cash dividends per share for the
year ended March 31, 2003 to $0.80. The dividend will be payable on September
15, 2003 to shareholders of record as of September 1, 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.,
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.
TABLES FOLLOW
CONSOLIDATED STATEMENT OF INCOME
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended Year ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
(Unaudited) (Unaudited) (Audited) (Audited)
Net sales $ 19,725 $ 19,030 $ 90,905 $ 83,320
Cost of sales 13,479 12,470 61,006 54,448
-------- -------- -------- --------
Gross profit 6,246 6,560 29,899 28,872
Selling, general and administrative expenses 3,481 3,613 15,354 14,939
-------- -------- -------- --------
Operating income 2,765 2,724 14,545 13,933
Interest expense -- (7) (6) (26)
Other income, net (217) 397 818 877
-------- -------- -------- --------
Income before income taxes 2,548 3,114 15,357 14,784
Income taxes (note 5) 3,747 43 3,826 535
-------- -------- -------- --------
Income before minority interests (1,199) 3,071 11,531 14,249
Minority interests (292) 181 1,288 925
-------- -------- -------- --------
Net income $ (907) $ 2,890 $ 10,243 $ 13,324
======== ======== ======== ========
Basic earnings per share (note 3) $ (0.10) $ 0.34 $ 1.18 $ 1.59
======== ======== ======== ========
Weighted average number of shares 8,969 8,409 8,672 8,403
======== ======== ======== ========
outstanding (in thousands) (note 4)
Diluted earnings per share (note 3) $ (0.10) $ 0.34 $ 1.16 $ 1.57
======== ======== ======== ========
Diluted weighted average number of shares 9,164 8,617 8,852 8,467
======== ======== ======== ========
outstanding (in thousands) (note 4)
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. DOLLARS IN THOUSANDS)
March 31, March 31,
2003 2002
--------- ---------
ASSETS (Audited) (Audited)
Current assets :
Cash and cash equivalents $ 34,400 $ 31,534
Restricted cash 2,366 2,861
Marketable securities 4,821 1,115
Accounts receivable, net 16,727 16,888
Inventories 14,784 13,225
Prepaid expenses and other current assets 2,648 3,421
Income taxes receivable 323 428
-------- --------
Total current assets 76,069 69,472
Property, plant and equipment - net 29,623 24,794
Investment in associates 2 --
Goodwill 478 478
-------- --------
Total assets $106,172 $ 94,744
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,643 $ 7,583
Bank loans -- 482
Customer deposits and accrued expenses 4,257 6,320
Income taxes payable 3,946 165
-------- --------
Total current liabilities 17,846 14,550
-------- --------
Minority interests 6,465 10,528
-------- --------
Deferred income tax 15 15
-------- --------
Shareholders' equity
Common stock
-- authorized 30,000,000 shares; issued and outstanding
9,030,835 shares at March 31, 2003 and
8,370,496 shares at March 31, 2002 (note 4) 28,247 19,608
Additional paid-in capital 6,970 6,970
Retained earnings 46,629 43,073
-------- --------
Total shareholders' equity 81,846 69,651
-------- --------
Total liabilities and shareholders' equity $106,172 $ 94,744
======== ========
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (AUDITED)
(U.S. DOLLARS IN THOUSANDS)
Year ended Year ended
March 31, March 31,
---------- ------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 10,243 $ 13,324
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 4,692 4,918
Loss on disposal of property, plant and equipment 6 7
Minority interests 1,288 925
Changes in current assets and liabilities:
Accounts receivable 161
(1,111)
Marketable securities (3,706) (1,115)
Inventories (1,559) (1,191)
Prepaid expenses and other current assets 773 (1,588)
Income taxes receivable 105
--------
Accounts payable 2,060 3,309
Customer deposits and accrued expenses (2,063) 857
Income taxes payable 3,781 (132)
-------- --------
Net cash provided by operating activities 15,781 18,203
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (9,731) (4,397)
Proceeds from disposal of property, plant and 127 276
Equipment
Decrease/(increase) in restricted cash 495 (873)
Acquisition of investment in an associate (2) --
-------- --------
Net cash used in investing activities (9,111) (4,994)
-------- --------
Cash flows from financing activities
Dividends paid (6,687) (7,229)
Dividends paid to minority shareholders of subsidiaries (851) --
Repurchase of Common Stock -- (564)
Issue of Common Stock 4,217 243
Odd share redemption upon stock split (1) --
Decrease/(increase) of bank loans (482) 482
Contribution from minority shareholders of a subsidiary -- 63
-------- --------
Net cash used in financing activities (3,804) (7,005)
-------- --------
Net increase in cash and cash equivalents 2,866 6,204
Cash and cash equivalents, at beginning of year 31,534 25,330
-------- --------
Cash and cash equivalents, at end of year 34,400 31,534
======== ========
Supplementary disclosures of cash flow information:
Cash paid/(refund) during the year for:
Interest $ 6 $ 26
Income taxes (60) 669
======== ========
Supplementary disclosures of significant non-cash transactions:
Issuance of common stock in connection with acquisition
of additional 20% shareholdings of a subsidiary $ 4,423 $ --
======== ========
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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 March 31, 2003
and March 31, 2002, the results of operations for the quarters and
year ended March 31, 2003 and March 31, 2002, and the cash flows for
the year ended March 31, 2003 and March 31, 2002. The notes to the
Consolidated Financial Statements that 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
March 31, March 31,
2003 2002
--------- ---------
Inventories by major categories :
Raw materials $ 7,432 $ 7,368
Work in progress 4,454 3,213
Finished goods 2,898 2,644
--------- ---------
$ 14,784 $ 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 quarters and years ended March 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 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.
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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 inexpensive labor rates as compared to
Hong Kong.
QUARTER ENDED MARCH 31, 2003 COMPARED TO QUARTER ENDED MARCH 31, 2002
The Company's net sales for the quarter ended March 31, 2003 were $19,725,000,
an increase of $695,000 or 3.7% as compared to the corresponding period in 2002.
The increase in sales was mainly related to an increase in sales of
injection-molded plastic products of $825,000 offset by a decrease in sales of
electronic and metallic products of $130,000. This represented an increase of
7.7% and a decrease of 1.6% respectively, as compared with the net sales in the
corresponding period in the prior year.
The increase in net sales in the injection-molded plastic division was mainly
due to an increase in orders from their existing customers, together with the
orders from new customers during the quarter ended March 31, 2003, as compared
to the prior-year period.
The gross profit for the quarter ended March 31, 2003 was $6,246,000,
representing a gross profit margin of 31.7%. This compares with the overall
gross profit and gross profit margin of $6,560,000 or 34.5% for the quarter
ended March 31, 2002.
Selling, general and administrative expenses for the quarter ended March 31,
2003 were $3,481,000, amounting to 17.6% of total net sales, as compared to
$3,836,000 or 20.2% of total net sales for the quarter ended March 31, 2002. The
decrease in selling, general and administrative expenses of $355,000 over the
corresponding period was mainly attributed to the reduction control in general
and administrative expenses.
As a result of the increase in net sales, operating income was $2,765,000 for
the quarter ended March 31, 2003, an increase of $41,000 or 1.5% as compared
with the corresponding quarter in the prior year.
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 (CONTINUED)
In January 2003, the Company acquired an additional 20% interest in the holding
company of the electronics and metallics 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
decrease in minority interest to a loss of $292,000 for the quarter ended March
31, 2003, from income of $181,000 for the corresponding quarter in the prior
year reflects the decrease in minority interest in the subsidiaries.
As a result of the above factors, net loss was $907,000 for the quarter ended
March 31, 2003, a decrease of $3,797,000 or 131.4%, as compared to net income of
$2,890,000 for the quarter ended March 31, 2002.
YEAR ENDED MARCH 31, 2003 COMPARED TO YEAR ENDED MARCH 31, 2002
The Company's net sales for the year ended March 31, 2003, were $90,905,000, an
increase of $7,585,000 or 9.1% as compared to year ended March 31, 2002. The
increase in sales was mainly related to the increase in sales of plastic
injection-molding products of $2,403,000 and the increase in sales of electronic
and metallic products of $5,182,000. This represented an increase of 5.1% and
14.5%, respectively, as compared with the net sales in the prior year.
The increase in net sales in both divisions was mainly due to an increase in
orders from their existing customers, together with orders from new customers
during the year.
The gross profit for the year ended March 31, 2003 was $29,899,000, representing
a gross profit margin of 32.9%. This compares with the overall gross profit and
gross profit margin of $28,872,000 or 34.7% for the year ended March 31, 2002.
Selling, general and administrative expenses for the year ended March 31, 2003
were $15,354,000, amounting to 16.9% of total net sales, as compared to
$14,939,000 or 17.9% of total net sales for the year ended March 31, 2002.
As a result, operating income was $14,545,000 for the year ended March 31, 2003,
an increase of $612,000 or 4.4% as compared with the prior year.
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.
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 $1,288,000 for the year ended March 31, 2003,
from
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$925,000 for the year ended March 31, 2002, reflects that both the electronics
and metallic division and the marketing division generated more profits in the
current year as compared to the prior year.
As a result of the above factors, net income was $10,243,000 for the year ended
March 31, 2003, a decrease of $3,081,000 or 23.1%, as compared to the year ended
March 31, 2002, and net income as a percentage of net sales decreased to 11.3%
from 16.0%.
LIQUIDITY AND CAPITAL RESOURCES
During the past five years, 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 March 31, 2003, the Company had a working-capital surplus of $58,223,000.
This compares with a working-capital surplus of $54,922,000 at March 31, 2002.
The increase in working capital was mainly attributed to net cash generated from
its operating activities of $15,781,000 and exercise of stock options of
$4,217,000 during the year offset by the cash dividend distributed of
$6,687,000, the capital investment of $9,731,000 and repayment of short-term
bank loan of 482,000 during the year ended March 31, 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 with cash generated from operations. The Company has no long-term
debt or short-term borrowings at March 31, 2003. The Company plans to fund the
payment of its tax settlement with the IRD discussed above and which resulted in
a provision of $3,532,000 to the Company's consolidated income statements for
the three months and year ended March 31, 2003 with cash on hand. Deswell
expects to make the payment in September 2003.
As of March 31, 2003, the Company had in place general banking facilities with
three financial institutions aggregating approximately $20,839,000. Such
facilities, which are subject to annual review, include overdrafts, letters of
credit, import facilities, trust receipt financing, inward bills financing as
well as fixed loans. As of March 31, 2003, the Company had ( i ) unused credit
facilities of $20,839,000 ( ii ) cash and cash equivalents of $34,400,000 and (
iii ) restricted cash of $2,366,000, which has been pledged as collateral for
those credit facilities. The restricted cash of $2,366,000 and leasehold land
and buildings of $1,318,000 have been pledged as collateral for those credit
facilities. The Company also had $21,000 pledged as deposit for customs duty in
Dongguan, China.
The Company expects that working capital requirements and capital additions will
be funded through a combination of internally generated funds and existing
facilities.
- 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: August 20, 2003