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 February 24, 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)
CONTACT:
John G. Nesbett
David Waldman
Lippert/Heilshorn & Associates
212-838-3777
email: jnesbett@lhai.com
DESWELL INDUSTRIES INC.
ANNOUNCES EARNINGS OF $0.43 PER SHARE FOR THE THIRD QUARTER
- SALES UP 25% AND OPERATING INCOME UP 33% -
- THIRD QUARTER DIVIDEND OF $0.20 PER SHARE -
- COMPANY CORRECTS WEIGHTED AVERAGE SHARES OUTSTANDING
FOR THE SECOND QUARTER AND FIRST HALF OF FISCAL 2003 -
HONG KONG (February 24, 2003) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced its results for the third quarter and nine months ended December 31,
2002.
Net sales for the quarter were $25.3 million, an increase of 25% compared to
sales of $20.2 million in the third quarter ended December 31, 2001. Operating
income increased 33% to $4.6 million, compared to $3.4 million in the previous
year. Net income for the quarter increased 10% to $3.8 million, compared to $3.4
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 $0.43 (based on 8,850,000 weighted average shares outstanding),
compared to $0.41 (based on 8,433,000 weighted average shares outstanding) in
the third quarter ended December 31, 2001.
Net sales for the nine months ended December 31, 2002 were $71.2 million, an
increase of 11% compared to sales of $64.3 million for the corresponding period
in 2001. Operating income increased 5% to $11.8 million, compared to $11.2
million in the previous year. Net income was $11.1 million, compared to $10.4
million in the previous year. Diluted earnings per share increased to $1.28
based on 8,706,000 weighted average shares outstanding, compared to $1.24 based
on 8,418,000 weighted average shares outstanding for the nine months ended
December 31, 2001.
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The Company also announced that it has corrected its weighted average shares
outstanding for the second quarter and six months ended September 30, 2002 (see
attached table). This miscalculation affected earnings per share results for the
three and six-month periods. After accounting for the stock split, diluted
earnings per share were $0.43 (based on 8,609,000 weighted average shares
outstanding), compared to $0.43 (based on 8,421,000 weighted average shares
outstanding) in the second quarter ended December 31, 2001. After accounting for
the stock split, diluted earnings per share for the six months were $0.86 (based
on 8,599,000 weighted average shares outstanding), compared to $0.83 (based on
8,409,000 weighted average shares outstanding) for the six months ended
September 30, 2001.
The Company's cash and cash equivalents on December 31, 2002 were $33.1 million,
as compared to $31.5 million on March 31, 2002. Working capital was $64.5
million as of December 31, 2002, 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, "We are quite
pleased with our 25% growth for the quarter. It is particularly gratifying that
we performed well in both of our divisions. Specifically, we posted a 22%
increase in injection-molded plastic products, as well as a 29% increase in our
electronic and metallic products. We believe this continued strong performance
is reflective of our outstanding reputation for superior quality and customer
service. During the quarter, we reduced our SG&A as a percentage of revenue by
over three hundred basis points. We also increased our working capital and
strengthened our balance sheet. As a result of our solid performance and growing
cash position, we decided to increase our dividend to $0.20 per share. Looking
ahead, we remain focused on increasing our market share, while effectively
managing our expenses."
Mr. Lau continued, "Our electronic and metallic products continue to generate
strong results. Given the solid performance of this division, we recently
acquired an additional 20% interest from our minority shareholders. We believe
this investment reflects our long-term confidence in the future of this
business. We currently anticipate 15%-20% growth in our electronic and metallic
products business for fiscal 2003."
Mr. Lau concluded, "We are also pleased to announce that we recently completed
construction of our Dongguan facility. We expect this new facility will
substantially increase the capacity of our plastic injection molding business.
The new facility will also help reduce payroll and other operating costs.
However, due to a governmental delay in the approval of our facility, we do not
expect the plant to be fully operational until the end of June. We do not
anticipate that this delay in getting Phase I
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operational will impact our ability to serve the growing needs of our customers.
Furthermore, we remain confident that we will achieve 20%-25% growth in our
injection-molded plastic products for fiscal 2003."
THIRD QUARTER DIVIDENDS
The Company also announced that on February 18, 2003 its board of directors
declared a dividend of $0.20 per share for the third quarter. The dividend will
be payable on March 24, 2003 to shareholders of record as of March 10, 2003.
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.
---------------
TABLES FOLLOW
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended Nine months ended
December 31, December 31,
------------------------------- -------------------------------
2002 2001 2002 2001
-------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
Net sales $ 25,272 $ 20,217 $ 71,180 $ 64,290
Cost of sales 16,799 12,992 47,527 41,978
-------------- --------------- --------------- ---------------
Gross profit 8,473 7,225 23,653 22,312
Selling, general and administrative expenses 3,890 3,778 11,873 11,103
-------------- --------------- --------------- ---------------
Operating income 4,583 3,447 11,780 11,209
Interest expense - (8) (6) (19)
Other income, net 206 156 1,035 480
-------------- --------------- --------------- ---------------
Income before income taxes 4,789 3,595 12,809 11,670
Income taxes 366 87 79 492
-------------- --------------- --------------- ---------------
Income before minority interests 4,423 3,508 12,730 11,178
Minority interests 636 78 1,580 744
-------------- --------------- --------------- ---------------
Net income $ 3,787 $ 3,430 $ 11,150 $ 10,434
============== =============== =============== ===============
Basic earnings per share (note 3) $ 0.43 $ 0.41 $ 1.30 $ 1.24
============== =============== =============== ===============
Weighted average number of shares
outstanding (in thousands) (note 4) 8,726 8,402 8,574 8,401
============== =============== =============== ===============
Diluted earnings per share (note 3) $ 0.43 $ 0.41 $ 1.28 $ 1.24
============== =============== =============== ===============
Diluted weighted average number of shares
outstanding (in thousands) (note 4) 8,850 8,433 8,706 8,418
============== =============== =============== ===============
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DESWELL INDUSTRIES, INC.
CORRECTED EPS AND WEIGHTED AVERAGE SHARES OUTSTANDING FOR FISCAL SECOND QUARTER
AND FIRST HALF 2002 (UNAUDITED)
Quarter ended Six months ended
September 30, September 30,
------------------------------ ------------------------------
2002 2001 2002 2001
-------------- -------------- ------------- --------------
(revised) (revised)
Basic earnings per share (note 3) $ 0.43 $ 0.43 $ 0.87 $ 0.83
============== ============== ============= ==============
Weighted average number of shares
outstanding (in thousands) (note 4) 8,600 8,402 8,498 8,400
============== ============== ============= ==============
Diluted earnings per share (note 3) $ 0.43 $ 0.43 $ 0.86 $ 0.83
============== ============== ============= ==============
Diluted weighted average number of shares
outstanding (in thousands) (note 4) 8,609 8,421 8,599 8,409
============== ============== ============= ==============
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. DOLLARS IN THOUSANDS)
December 31, March 31,
2002 2002
----------------- -----------------
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 33,107 $ 31,534
Restricted cash
2,431 2,861
Marketable securities
5,030 1,115
Accounts receivable, net 22,143 16,888
Inventories 13,216 13,225
Prepaid expenses and other current assets
3,827 3,421
Income taxes receivable
372 428
----------------- -----------------
Total current assets 80,126 69,472
Property, plant and equipment - net 27,320 24,794
Goodwill 119 478
----------------- -----------------
Total assets $ 107,565 $ 94,744
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,875 $ 7,583
Bank loans - 482
Customer deposits and accrued expenses 5,146 6,320
Income taxes payable 560 165
----------------- -----------------
Total current liabilities 15,581 14,550
----------------- -----------------
Deferred income tax 15 15
----------------- -----------------
Minority interests 11,889 10,528
----------------- -----------------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued and outstanding
8,773,955 shares at December 31, 2002 and
8,370,496 shares at March 31, 2002 (note 4) 57 56
Additional paid-in capital 30,681 26,522
Retained earnings 49,342 43,073
----------------- -----------------
Total shareholders' equity 80,080 69,651
----------------- -----------------
Total liabilities and shareholders' equity $ 107,565 $ 94,744
================= =================
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. DOLLARS IN THOUSANDS)
Nine months ended
December 31,
------------------------------------
2002 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 11,150 $ 10,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,898 3,663
Loss/(gain) on disposal of property, plant and equipment 18 (21)
Minority interests 1,361 807
Changes in operating assets and liabilities:
Accounts receivable (5,255) (1,342)
Marketable securities (3,915) (564)
Inventories 9 (915)
Prepaid expenses and other current assets (406) (1,334)
Income taxes receivable 56 -
Accounts payable 2,292 2,801
Customer deposits and accrued expenses (1,174) 1,818
Income taxes payable 395 (5)
-------- --------
Net cash provided by operating activities
8,429 15,342
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (6,142) (2,216)
Proceeds from disposal of property, plant & equipment 59 77
Decrease/(increase) in restricted cash 430 (839)
-------- --------
Net cash used in investing activities (5,653) (2,978)
-------- --------
Cash flows from financing activities
Common Stock issued 4,160 51
(Decrease)/increase in bank loans (482) 482
Dividends paid (4,881) (5,880)
-------- --------
Net cash used in financing activities (1,203) (5,347)
-------- --------
Net increase in cash and cash equivalents 1,573 7,017
Cash and cash equivalents, at beginning of period 31,534 25,330
-------- --------
Cash and cash equivalents, at end of period 33,107 32,347
======== ========
Supplementary disclosures of cashflow information:
Cash paid during the period for:
Interest 6 19
Income taxes (315) 497
======== ========
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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 December 31, 2002 and
March 31, 2002, the results of operations for the quarters and nine
months ended December 31, 2002 and December 31, 2001, and the cash
flows for the nine months ended December 31, 2002 and December 31,
2001. 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
December 31, March 31,
2002 2002
------------- -------------
Inventories by major categories :
Raw materials $ 6,166 $ 7,368
Work in progress 4,374 3,213
Finished goods 2,676 2,644
------------- --------------
$ 13,216 $ 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 nine months ended December 31, 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.
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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 DECEMBER 31, 2002 COMPARED TO QUARTER ENDED DECEMBER 31, 2001
The Company's net sales for the quarter ended December 31, 2002 were
$25,272,000, an increase of $5,055,000, or 25.0%, as compared to the
corresponding period in 2001. The increase in sales was mainly related to the
increase in sales of injection-molded plastic products of $2,683,000 and the
increase in sales of electronic and metallic products of $2,372,000. This
represented increases of 22.1% and 29.3%, respectively, as compared with the net
sales in the corresponding period in the prior year.
The gross profit for the quarter ended December 31, 2002 was $8,473,000,
representing a gross profit margin of 33.5%. This compares with the overall
gross profit and gross profit margin of $7,225,000 or 35.7% respectively for the
quarter ended December 31, 2001.
Selling, general and administrative expenses for the quarter ended December 31,
2002 were $3,890,000, or 15.4% of total net sales, compared with $3,778,000 or
18.7% of total net sales for the quarter ended December 31, 2001.
As a result of the increase in sales revenue, operating income was $4,583,000
for the quarter ended December 31, 2002; an increase of $1,136,000 or 33.0% 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 $636,000 for the quarter ended December 31, 2002 from $78,000 for
the quarter ended December 31, 2001 reflects the increased profits generated by
the electronic and metallic business.
As a result of the above factors, net income was $3,787,000 for the quarter
ended December 31, 2002, an increase of $357,000 or 10.4%, as compared to the
quarter ended December 31, 2001 and net income as a percentage of net sales
decreased slightly to 15.0% from 17.0%.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 2001
The Company's net sales for the nine months ended December 31, 2002 were
$71,180,000, an increase of $6,890,000 or 10.7% as compared to corresponding
period in 2001. The increase in sales was mainly related to the increase in
sales of plastic injection-molding products of $1,578,000 and the increase in
sales of electronic and metallic products of $5,312,000. This represented an
increase of 4.3% and 19.3%, respectively, as compared with the net sales in the
corresponding period in the prior year.
The gross profit for the nine months ended December 31, 2002 was $23,653,000,
representing a gross profit margin of 33.2%. This compares with the overall
gross profit and gross profit margin of $22,312,000 or 34.7% for the nine months
ended December 31, 2001.
Selling, general and administrative expenses for the nine months ended December
31, 2002 were $11,873,000, amounting to 16.7% of total net sales, as compared to
$11,103,000 or 17.3% of total net sales for the nine months ended December 31,
2001.
As a result, operating income was $11,780,000 for the nine months ended December
31, 2002, an increase of $571,000 or 5.1% 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 $1,580,000 for the nine months ended December 31, 2002 from
$744,000 for the nine months ended December 31, 2001 reflects the increased
profits generated by the electronic and metallic business.
As a result of the above factors, net income was $11,150,000 for the nine months
ended December 31, 2002, an increase of $716,000 or 6.9%, as compared to the
nine months ended December 31, 2001 and net income as a percentage of net sales
decreased slightly to 15.7% from 16.2%.
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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 December 31, 2002, the Company had a working capital surplus of
$64,545,000 and cash and cash equivalent of $33,107,000. 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 increase in working capital was mainly
attributed to the net cash generated from operating activities and the exercise
of stock options of $4,160,000 offset by a dividend distribution of $4,881,000
and the capital investment of $6,142,000 during the nine months ended December
31, 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 December 31, 2002.
As of December 31, 2002, 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, bills negotiation
facilities, factoring facilities as well as fixed loans. As of December 31,
2002, the Company had ( i ) unused credit facilities of $20,839,000 ( ii ) cash
and cash equivalents of $33,107,000 and ( iii ) restricted cash of $2,431,000.
The restricted cash of 2,431,000 and leasehold land and buildings of $1,326,000
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 a combination of cash on hand and internally
generated funds.
# # #
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: February 25, 2003