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 FIRST-QUARTER RESULTS
- 32% INCREASE IN FIRST-QUARTER OPERATING INCOME -
-COMPANY ALSO ANNOUNCES FIRST-QUARTER DIVIDEND OF $0.24 PER SHARE-
HONG KONG (August 19, 2003) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced its financial results for the first quarter ended June 30, 2003.
Net sales for the quarter ended June 30, 2003 were $26.1 million, an increase of
11.9% compared to net sales of $23.3 million for the quarter ended June 30,
2002. Operating income increased 31.5% to $4.6 million, compared to $3.5 million
for the same quarter in 2002. Net income for the quarter increased 18.0% to $4.4
million compared to $3.7 million for the year-ago quarter. The basic earnings
per share and diluted earnings per share increased to $0.48 and $0.47,
respectively (based on 9,065,000 and 9,274,000 weighted average shares
outstanding, respectively), compared to $0.44 and $0.43, respectively (based on
8,396,000 and 8,650,000 weighted average shares outstanding, respectively), in
the first quarter ended June 30, 2002.
The Company's balance sheet remains strong. The Company's cash and cash
equivalents for the quarter were $39.8 million, as compared to $34.4 million on
March 31, 2003. Working capital was $62.5 million as of June 30, 2003, versus
$58.2 million as of March 31, 2003. The Company has no long-term or short-term
borrowings.
Mr. Richard Lau, chairman and chief executive officer, commented, "The improved
results for the first quarter are mainly attributable to the increase in orders
-- primarily for new models -- from existing, as well as new, customers in our
plastics division. Furthermore, our electronics and metallics divisions reported
stable results. Looking forward, we expect growth to continue, especially when
our clean-room facility in our new Dongguan factory ramps up at the end of
August 2003. Moreover, installation of our medium- and large-size plastic
injection molding machines during October and December 2003, respectively,
should further drive growth in our plastics division during the year."
APPOINTMENT OF NEW INDEPENDENT DIRECTOR
Deswell also announced that it has appointed Mr. Allen Yau-Nam Cham as
independent director effective August 11, 2003. Mr. Cham, 56, has been the
Managing Director and shareholder of Kwong Fat Hong (Securities) Limited since
1995. He has over 20 years of experience in the securities industry. He is a
Certified General Accountant in Canada. He obtained his Bachelor of Science
degree from St. Mary's University, Halifax, Canada, Bachelor of Engineering
(Electrical) degree from Nova Scotia Technical College, Halifax, Canada and
Master of Business Administration degree from University of British Columbia,
Canada.
Mr. Cham replaces Mr. Stephen Seung, who resigned from the Board of Directors
effective July 29, 2003.
ANNUAL GENERAL MEETING
The Company announced that the 2003 Annual General Meeting will be held at 9:30
a.m. on September 30, 2003 at the Bellagio Hotel, 3600 Las Vegas Blvd South, Las
Vegas, Nevada 89109, U.S.A.
FIRST-QUARTER DIVIDENDS
The Company also announced that on August 18, 2003 its board of directors
declared a dividend of $0.24 per share for the first quarter. The dividend will
be payable on September 15, 2003 to shareholders of record as of September 1,
2003. The first-quarter dividend will be paid at the same time as the $0.22 per
share dividend for the fourth quarter ended March 31, 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.
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- MORE -
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended
June 30,
2003 2002
---------------------
Net sales $ 26,075 $ 23,305
Cost of sales 17,664 15,858
-------- --------
Gross profit 8,411 7,447
Selling, general and administrative expenses 3,765 3,915
-------- --------
Operating income 4,646 3,532
Interest expense -- (6)
Other income, net 562 430
-------- --------
Income before income taxes 5,208 3,956
Income taxes 291 (290)
-------- --------
Income before minority interests 4,917 4,246
Minority interests 563 555
-------- --------
Net income $ 4,354 $ 3,691
======== ========
Basic:
Net income per share (note 3) $ 0.48 $ 0.44
======== ========
Weighted average common shares 9,065 8,396
======== ========
outstanding (in thousands) (note 4)
Diluted:
Net income per share (note 3) $ 0.47 $ 0.43
======== ========
Weighted average common and potential 9,274 8,650
======== ========
Common shares (in thousands) (note 4)
- MORE -
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. DOLLARS IN THOUSANDS)
June 30, March 31,
2003 2003
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,800 $ 34,400
Restricted cash 2,367 2,366
Marketable securities 109 4,821
Accounts receivable, net 19,633 16,727
Inventories 13,943 14,784
Prepaid expenses and other current assets 6,266 2,648
Income taxes receivable 323 323
-------- --------
Total current assets 82,441 76,069
Property, plant and equipment - net 31,063 29,623
Investment in associates 2 2
Goodwill 478 478
-------- --------
Total assets $113,984 $106,172
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,742 $ 9,643
Customer deposits and accrued expenses 5,154 4,257
Income taxes payable 4,026 3,946
-------- --------
Total current liabilities 19,922 17,846
-------- --------
Deferred income tax 15 15
-------- --------
Minority interests 7,028 6,465
-------- --------
Shareholders' equity
Common stock
-- authorized 30,000,000 shares; issued and outstanding
9,103,085 shares at June 30, 2003 and
9,030,835 at March 31, 2003 (note 4) 29,066 28,247
Additional paid-in capital 6,970 6,970
Retained earnings 50,983 46,629
-------- --------
Total shareholders' equity 87,019 81,846
-------- --------
Total liabilities and shareholders' equity $113,984 $106,172
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- MORE -
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. DOLLARS IN THOUSANDS )
Quarter ended
June 30,
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 4,354 $ 3,691
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,000 1,339
Gain on sale of property, plant and equipment 74 (2)
Minority interests 563 555
Changes in current assets and liabilities:
Accounts receivable (2,906) (1,794)
Marketable securities 4,712 (2,559)
Inventories 841 161
Prepaid expenses and other current assets (3,618) (3,852)
Income taxes receivable -- (323)
Accounts payable 1,099 2,174
Customer deposits and accrued expenses 897 (1,100)
In income taxes payable 80 (5)
-------- --------
Net cash (used in)/provided by operating activities 7,096 (1,715)
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (2,520) (2,241)
Proceeds from disposal of property, plant and equipment 6 6
Increase in restricted cash (1) 82
-------- --------
Net cash used in investing activities (2,515) (2,153)
-------- --------
Cash flows from financing activities
Common stock issued 819 1,021
(Decrease)/increase in bank loans -- (482)
-------- --------
Net cash provided by financing activities 819 539
-------- --------
Net (decrease)/increase in cash and cash equivalents 5,400 (3,329)
Cash and cash equivalents, at beginning of period 34,400 31,534
-------- --------
Cash and cash equivalents, at end of period 39,800 28,205
======== ========
Supplementary disclosures of cashflow information:
Cash paid during the period for:
Interest -- 6
Income taxes 212 38
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- MORE -
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, 2003
and March 31, 2003, the results of operations for the quarters ended
June 30, 2003 and June 30, 2002, and the cash flows for the quarters
ended June 30, 2003 and June 30, 2002. 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
June 30, March 31,
2003 2003
------- -------
Inventories by major categories :
Raw materials $ 7,175 $ 7,432
Work in progress 3,693 4,454
Finished goods 3,075 2,898
------- -------
$13,943 $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 quarters ended June 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.
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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.
- 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 JUNE 30, 2003 COMPARED TO QUARTER ENDED JUNE 30, 2002
The Company's net sales for the quarter ended June 30, 2003 were $26,075,000, an
increase of $2,770,000 or 11.9% 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 of $2,497,000 and the increase in sales of electronic
and metallic products of $273,000. This represented an increase of 21.8% and
2.3%, respectively, as compared with the net sales in the corresponding period
in the prior year.
The increase in net sales in the plastic injection-molding products 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 June 30, 2003 was $8,411,000,
representing a gross profit margin of 32.3%. This compares with the overall
gross profit and gross profit margin of $7,447,000 or 32.0% for the quarter
ended June 30, 2002.
Selling, general and administrative expenses for the quarter ended June 30, 2003
were $3,765,000, amounting to 14.4% of total net sales, as compared to
$3,915,000 or 16.8% of total net sales for the quarter ended June 30, 2002. The
decrease in selling, general and administrative expenses of $150,000 over the
corresponding period was mainly attributed to the reduction control in general
and administrative expenses.
As a result, operating income was $4,646,000 for the quarter ended June 30,
2003, an increase of $1,114,000 or 31.5% 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 $563,000 for the quarter ended June 30, 2003,
from $555,000 for the corresponding quarter in the prior year reflects the
increased profits generated by the subsidiaries offsetting the decrease in
minority interest resulted from the additional acquisition.
As a result of the above factors, net income was $4,354,000 for the quarter
ended June 30, 2003, an increase of $663,000 or 18.0%, as compared to the
quarter ended June 30, 2002 and net income as a percentage of net sales slightly
increased to 16.7% from 15.8%.
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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 June 30, 2003, the Company had a working capital surplus of $62,519,000.
This compares with a working capital surplus of $58,223,000 at March 31, 2003.
The increase in working capital was mainly attributed to net cash generated from
its operating activities of $7,096,000 and exercise of stock options of $819,000
during the quarter offset by capital investment of $2,520,000 during the quarter
ended June 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 that are used to finance accounts receivable and are
generally paid with cash generated from operations. The Company has no
short-term borrowings and no long-term debt at June 30, 2003. The Company plans
to fund the payment of its tax settlement with the IRD discussed in note (5) 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 June 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, inward bills financing as
well as fixed loans. As of June 30, 2003, the Company had ( i ) unused credit
facilities of $21,666,000 ( ii ) cash and cash equivalents of $39,800,000 and (
iii ) restricted cash of $2,367,000, which has been pledged as collateral for
those credit facilities. The restricted cash of $2,367,000 and leasehold land
and buildings of $1,311,000 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