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)
Contact:
John G. Nesbett
Jordan Silverstein
The Investor Relations Group
212-825-3210
DESWELL INDUSTRIES, INC. ANNOUNCES SECOND-QUARTER RESULTS
- 27% Increase in Second Quarter Net Sales -
-Company also Announces Second Quarter Dividend of $0.24 Per Share-
HONG KONG (November 16, 2004) - Deswell Industries, Inc. (Nasdaq: DSWL) today
announced its financial results for the second quarter ended September 30, 2004.
Net sales for the quarter ended September 30, 2004 were $31.9 million, an
increase of 27.3% compared to net sales of $25.1 million for the quarter ended
September 30, 2003. Operating income decreased 0.3% to $4.50 million, compared
to $4.51 million for the same quarter in 2003. Net income for the quarter
decreased 12.0% to $3.6 million compared to $4.1 million for the year-ago
quarter. The basic earnings per share and diluted earnings per share decreased
to $0.39 and $0.38, respectively (based on 9,189,000 and 9,432,000 weighted
average shares outstanding, respectively), compared to $0.45 and $0.44,
respectively (based on 9,103,000 and 9,375,000 weighted average shares
outstanding, respectively), in the first quarter ended September 30, 2003.
Net sales for the six months ended September 30, 2004 were $60.7 million, an
increase of 18.7%, compared to sales of $51.2 million for the corresponding
period in 2003. Operating income increased 1.7% to $9.3 million, compared to
$9.2 million in the previous year, and net income decreased 10.1% to $7.6
million, compared to $8.5 million in the previous year. The basic earnings per
share and diluted earnings per share decreased to $0.83 and $0.81, respectively
(based on 9,169,000 and 9,448,000 weighted average shares outstanding,
respectively), compared to $0.93 and $0.92, respectively (based on 9,084,000 and
9,205,000 weighted average shares outstanding, respectively), in the six months
ended September 30, 2003.
The Company's cash and cash equivalents for the quarter were $16.5 million, as
compared to $30.2 million on March 31, 2004. The decreased in cash position was
mainly attributed to the funding from cash flow for the construction and
acquisition of machinery for the plastic-injection manufacturing plant in
Dongguan and for the rapid growth of the electronic and metallic segment.
Working capital was $50.3 million as of September 30, 2004, versus $52.9 million
as of March 31, 2004. The Company has short-term borrowings of $0.9 million and
no long-term borrowings at September 30, 2004.
Mr. Richard Lau, chairman and chief executive officer, commented, "During the
quarter, our 27% sales increase was driven by 61% revenue growth at our
electronic & metallic division due to our continued penetration of the audio
equipment market. Unfortunately, raw material pricing impacted both of our
business segments, particularly the plastics operation. Raw material pricing was
up 70% to 100% compared to last year. With at least 60% of the sales price
already fixed, we have not been able to pass through much of the increased raw
material prices on existing contracts. In addition to this, both segments also
faced increasing competitions in the marketplace which has led to pricing
pressure on our products."
Mr. Lau continued, "We expect growth at our plastic segment to pick up again in
late fiscal 2005. An important new growth driver in this segment will be a new
Export Tooling Division that will exclusively manufacture large-scale molds.
These molds will not be used for manufacturing plastic parts at our facility but
rather these molds will be sent directly to customers. The machinery for this
division will be fully installed by April 2005."
Second-Quarter Dividends
------------------------
The Company also announced that on November 12, 2004 its board of directors
declared a dividend of $0.24 per share for the second quarter. The dividend will
be payable on December 7, 2004 to shareholders of record as of November 29,
2004.
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 Digidesign Inc., Vtech Telecommunications Ltd., Epson Precision (H.K.)
Ltd., Inter-Tel Incorporated, Kyocera Mita Industrial Co. (H.K.) Limited, Peavey
Electronics Corporation and Emerson.
To learn more about Deswell Industries, Inc., please visit the Company's web
site at www.deswell.com.
This press release may contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
in this press release are based on current expectations and are subject to
change. Actual results may differ materially from the forward-looking
statements. Deswell does not undertake to update any such forward-looking
statements or to publicly announce developments or events relating to the
matters described herein. Uncertainties and risks are described in Deswell's
most recently filed SEC documents, such as its most recent form 20-F.
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. dollars in thousands, except per share data)
Quarter ended Six months ended
September 30, September 30
----------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $31,924 $25,079 $60,712 $51,154
Cost of sales 23,463 17,099 43,933 34,763
--------------- --------------- --------------- ---------------
Gross profit 8,461 7,980 16,779 16,391
Selling, general and administrative expenses 3,962 3,469 7,468 7,234
--------------- --------------- --------------- ---------------
Operating income 4,499 4,511 9,311 9,157
Interest expense (3) (15) (3) (15)
Other income, net 32 272 62 834
--------------- --------------- --------------- ---------------
Income before income taxes 4,528 4,768 9,370 9,976
Income taxes 178 139 309 430
--------------- --------------- --------------- ---------------
Income before minority interests 4,350 4,629 9,061 9,546
Minority interests 722 508 1,438 1,071
--------------- --------------- --------------- ---------------
Net income $3,628 $4,121 $7,623 $8,475
=============== =============== =============== ===============
Basic earnings per share (note 3) $0.39 $0.45 $0.83 $0.93
=============== =============== =============== ===============
Weighted average number of shares 9,189 9,103 9,169 9,084
outstanding (in thousands) (note 4)
=============== =============== =============== ===============
Diluted earnings per share (note 3) $0.38 $0.44 $0.81 $0.92
=============== =============== =============== ===============
Diluted weighted average number of shares 9,432 9,375 9,448 9,205
outstanding (in thousands)
(note 4)
=============== =============== =============== ===============
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
September 30, March 31,
2004 2004
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,454 $ 30,193
Restricted cash 1,039 390
Accounts receivable, net 29,407 18,957
Inventories 21,525 16,174
Prepaid expenses and other current assets 4,944 2,952
Income taxes receivable 127 127
---------------- -----------------
Total current assets 73,496 68,793
Property, plant and equipment - net 51,993 44,261
Investment in associates 2 2
Goodwill 478 478
---------------- -----------------
Total assets $ 125,969 $ 113,534
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,186 $ 11,168
Bank loan 903 -
Customer deposits and accrued expenses 6,779 4,619
Income taxes payable 316 130
---------------- -----------------
Total current liabilities 23,184 15,917
---------------- -----------------
Deferred income tax - 15
---------------- -----------------
Minority interests 9,158 7,872
---------------- -----------------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued and outstanding
9,209,085 shares at September 30, 2004 and
9,149,085 at March 31, 2004 (note 4) 30,660 29,980
Additional paid-in capital 6,970 6,970
Retained earnings 55,997 52,780
---------------- -----------------
Total shareholders' equity 93,627 89,730
---------------- -----------------
Total liabilities and shareholders' equity $ 125,969 $ 113,534
=============== ===============
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
( U.S. dollars in thousands )
Six months ended
September 30,
-------------
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 7,623 $ 8,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,345 2,024
Gain/(loss) on sale of property, plant and equipment (15) 75
Minority interests 1,438 644
Deferred taxes 15 -
Changes in current assets and liabilities:
Accounts receivable (10,450) (2,856)
Marketable securities - 4,821
Inventories (5,351) 135
Prepaid expenses and other current assets (1,992) (1,157)
Income taxes receivable - 319
Accounts payable 4,018 299
Customer deposits and accrued expenses 2,160 1,144
In income taxes payable 186 (907)
----------- ----------
Net cash (used in)/provided by operating activities (23) 13,016
----------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (10,099) (11,167)
Proceeds from disposal of property, plant and equipment 7 6
----------- ----------
Net cash used in investing activities (10,092) (11,161)
----------- ----------
Cash flows from financing activities
Common stock issued 680 887
Dividends paid to minority shareholders of a subsidiary (126) -
Contribution from minority shareholders of a subsidiary (26) -
Dividend paid (4,406) (4,187)
Increase in bank loan 903 603
Increase in restricted cash (649) (2)
----------- ----------
Net cash (used in)/provided by financing activities (3,624) (2,699)
----------- ----------
Net decrease) in cash and cash equivalents (13,739) (844)
Cash and cash equivalents, at beginning of period 30,193 34,400
----------- ----------
Cash and cash equivalents, at end of period 16,454 33,556
=========== ==========
Supplementary disclosures of cashflow information:
Cash paid during the period for:
Interest 3 15
Income taxes 138 1,019
=========== ==========
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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 September 30, 2004 and
March 31, 2004, the results of operations for the quarters and six
months ended September 30, 2004 and September 30, 2003, and the cash
flows for the six months ended September 30, 2004 and September 30,
2003. The notes to the Consolidated Financial Statements, which are
contained in the Form 20-F Annual Report filed on July 16, 2004 under
the Securities Exchange Act of 1934 should be read in conjunction with
these Consolidated Financial Statements.
2. Inventories
-----------
September 30, March 31,
2004 2004
------------ ------------
Inventories by major categories :
Raw materials $ 9,242 $ 7,832
Work in progress 7,946 4,467
Finished goods 4,337 3,875
------------ ------------
$ 21,525 $ 16,174
============ =============
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, 2004 and 2003
were both from the Company's continuing operations.
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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 September 30, 2004 Compared to Quarter Ended September 30, 2003
-----------------------------------------------------------------------------
Net Sales - The Company's net sales for the quarter ended September 30, 2004
were $31,924,000, an increase of $6,845,000 or 27.3% as compared to the
corresponding period in 2003. The increase was related to increase in sales of
electronic and metallic segment of $6,982,000 offsetting the decrease in sales
of plastic segment of $137,000. This represented an increase of 61.2% and a
decrease of 1.0% respectively, as compared with the respective net sales from
these segments in the corresponding period in the prior year.
The increase in net sales in the electronic and metallic segment was mainly due
to an increase in orders from both its existing and new customers of $7,487,000
and $127,000 respectively, offsetting the net decrease in orders from old
customers of $632,000 in the corresponding period in the prior year. The net
increase was resulted from a change in customer mix during the period as
compared with last year.
Gross Profit - The gross profit for the quarter ended September 30, 2004 was
$8,461,000, representing a gross profit margin of 26.5%. This compares with the
overall gross profit and gross profit margin of $7,980,000 or 31.8% for the
quarter ended September 30, 2003.
Gross profit in the plastic segment decreased by $470,000 to $4,972,000 or 36.7%
of net sales, for the quarter ended September 30, 2004 compared to $5,442,000 or
39.8% of net sales, for the quarter ended September 30, 2003. This decrease was
mainly attributed to the range of 70% to 100% increase in plastic resin costs
since last year, mostly of which we could not pass on to our customers.
Gross profit in the electronic & metallic segment increased by $951,000 to
$3,489,000 or 19.0% of net sales, for the quarter ended September 30, 2004
compared to $2,538,000 or 22.3% of net sales, for the same period last year.
This decrease was mainly attributed to the general increase in raw material
pricing and labor cost of an average 4% and 10% over the prior year. While we
continue our long-term focus on attracting higher margin sales, pricing pressure
resulted in generally lower selling prices during the quarter.
Selling, general and administrative expenses - SG&A expenses for the quarter
ended September 30, 2004 were $3,962,000, amounting to 12.4% of total net sales,
as compared to $3,469,000 or 13.8% of total net sales for the quarter ended
September 30, 2003. There was an increase in selling, general and administrative
expenses of $493,000 over the corresponding period.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
SG&A expenses in the plastic segment increased by $94,000 or 4.0% to $2,454,000
or 18.1% of net sales, for the quarter ended September 30, 2004 compared to
$2,360,000 or 17.3% of net sales, for the corresponding period in 2003. The
increase was primarily related to the increase in depreciation expenses of
$49,000 during the quarter ended September 30, 2004. The SG&A expenses in the
electronic & metallic segment increased by $399,000 or 36.0% to $1,508,000 or
8.2% of net sales, for the quarter ended September 30, 2004 compared to
$1,109,000 or 9.7% of net sales for corresponding period in 2003. The increase
was primarily related to the increase in salary and logistic expenses of
$278,000 and $88,000 respectively, offsetting the decrease in depreciation
expenses of $46,000 during the quarter ended September 30, 2004.
Operating income - Operating income was $4,499,000 for the quarter ended
September 30, 2004, a decrease of $12,000 or 0.3% as compared with the
corresponding quarter in the prior year.
On a segment basis, the operating income of the plastics division decreased
$564,000 to $2,518,000 or 18.6% of net sales, in quarter ended September 30,
2004 compared to $3,082,000 or 22.5% of net sales in corresponding period in
2003. The decrease in operating income was attributable to the decrease in gross
profit and the increase in SG&A expenses as described above.
The operating income of electronic & metallic segment increased $552,000 to
$1,981,000 or 10.8% of net sales, in the quarter ended September 30, 2004
compared to $1,429,000 or 12.5% of net sales in the corresponding period in
2003. The increase in operating income was attributable to the increase in gross
profit offsetting the increase in SG&A expenses as described above.
Other income - Other income was $32,000 for the quarter ended September 30,
2004, a decrease of $240,000 or 88.2% as compared with the corresponding period
in the prior year. On a segment basis, other income attributable to the plastic
segment decreased $124,000 to $20,000 in the quarter ended September 30, 2004.
This decrease in other income was primarily attributable to decrease in interest
income of $50,000 and an increase in exchange loss of $67,000 in the quarter
ended September 30, 2004 as compared with corresponding period in 2003. Other
income attributable to the electronic & metallic segment decreased $116,000 to
$12,000 in the quarter ended September 30, 2004. This decrease in other income
was mainly due to an increase in exchange loss of $51,000 in the quarter ended
September 30, 2004.
Income Taxes - Income taxes expenses for the quarter was $178,000, an increase
of $39,000 or 28.1% as compared with the corresponding quarter in the prior
year. On a segment basis, the income taxes of plastic segment decreased $61,000
to nil for the quarter ended September 30, 2004 whereas the income tax expenses
for the electronic & metallic segment increased $100,000 to $178,000 for the
quarter ended September 30, 2004, respectively. The decrease in the plastic
segment was primarily due to the tax holiday enjoyed in our Dongguan
manufacturing plant whereas the increase in the electronic & metallic segment
was due to increase in net sales as described above.
Minority Interest - Minority interests represent a 29% minority interest in
Integrated International Limited, the holding company holding the capital stock
of Deswell's electronic and metallic subsidiaries and a 49% minority interest in
the subsidiary conducting marketing for Deswell's plastic and electronic
businesses. In January 2003, the Company acquired an additional 20% interest in
Integrated, increasing its ownership in that subsidiary from 51% to 71%. Despite
the decrease in minority interest in Deswell's electronic & metallic segment,
the dollar amount of minority interest increased to $722,000 for the quarter
ended September 30, 2004, from $508,000 for the corresponding quarter in the
prior year, which reflects that both the electronics and metallic subsidiaries
and marketing subsidiary generated more net income in the quarter ended
September 30, 2004, compared with corresponding quarter in fiscal 2003.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Income - Net income was $3,628,000 for the quarter ended September 30, 2004,
a decrease of $493,000 or 12.0%, as compared to net income of $4,121,000 for the
quarter ended September 30, 2003, and net income as a percentage of net sales
was decreased from 16.4% to 11.4% for the quarter ended September 30, 2004. The
decrease in net income was mainly the result of the decrease in operating income
and other income, coupled with the increase in minority interest and increase in
income tax expenses as described above.
Net income for the plastic segment decreased by 24.1% to $2,337,000 for the
quarter ended September 30, 2004 compared to $3,079,000 for the corresponding
quarter in 2003. The decrease in net income of the plastic segment was mainly
the result of the decrease in operating profits coupled with the decrease in
other income as described above.
Net income for the electronic & metallic segment increased by 23.9% to
$1,291,000 for the quarter ended September 30, 2004 compared to $1,042,000 for
the corresponding quarter in 2003. The increase in net income of the electronic
& metallic segment was mainly the result of the increase in operating profit
offsetting the decease in other income, the increase in income taxes and
minority interest, as described above.
Six Months Ended September 30, 2004 Compared to Six Months Ended
----------------------------------------------------------------
September 30, 2003
------------------
Net Sales - The Company's net sales for the six months ended September 30, 2004
were $60,712,000, an increase of $9,558,000 or 18.7% as compared to
corresponding period in 2003. The increase in sales was mainly related to the
increase in sales of plastic segment and electronics and metallic segment of
$605,000 and $8,953,000 respectively. This represented an increase of 2.2% and
38.1% respectively, as compared with the respective net sales from these
segments in the corresponding period in the prior year.
The increase in net sales in the electronic and metallic segment was mainly due
to an increase in orders from both existing and new customers of $9,994,000 and
$178,000 respectively, offsetting the net decrease in orders from old customers
of $1,219,000 in the corresponding period in the prior year. The net increase
was resulted from a change in customer mix during the period as compared with
last year.
Gross Profit - The gross profit for the six months ended September 30, 2004 was
$16,779,000, representing a gross profit margin of 27.6%. This compares with the
overall gross profit and gross profit margin of $16,391,000 or 32.0% for the six
months ended September 30, 2003.
Gross profit in the plastic segment decreased by $1,146,000 to $9,976,000 or
35.3% of net sales, for the six months ended September 30, 2004 compared to
$11,122,000 or 40.2% of net sales, for the six months ended September 30, 2003.
This was mainly attributed to the range of 70% to 100% increase in plastic resin
costs since last year, mostly of which we could not pass on to our customers.
Gross profit in the electronic & metallic segment increased by $1,534,000 to
$6,803,000 or 21.0% of net sales, for the six months ended September 30, 2004
compared to $5,269,000 or 22.4% of net sales, for the same period last year.
This decrease was mainly attributed to the general increase in raw material
pricing and labor cost of an average 4% and 10% over the prior year. While we
continue our long-term focus on attracting higher margin sales, pricing pressure
resulted in generally lower selling prices during the quarter.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses - SG&A expenses for the six months
ended September 30, 2004 were $7,468,000, amounting to 12.3% of total net sales,
as compared to $7,234,000 or 14.1% of total net sales for the six months ended
September 30, 2003. There was an increase in selling, general and administrative
expenses of $234,000 or 3.2% over the corresponding period.
The SG&A expenses in the plastic segment decreased by $286,000 or 5.9% to
$4,592,000 or 16.3% of net sales, for the six months ended September 30, 2004
compared to $4,878,000 or 17.6% of net sales, for the corresponding period in
2003. The decrease was primarily related to a write back of staff welfare
provision of $95,000, the decrease in depreciation expenses of $82,000 and the
tightened expenses control during the six months ended September 30, 2004.
The SG&A expenses in the electronic & metallic segment increased by $520,000 or
22.1% to $2,876,000 or 8.9% of net sales, for the six months ended September 30,
2004 compared to $2,356,000 or 10.0% of net sales for corresponding period in
2003. The increase was primarily related to the increase in salary expenses of
$379,000 and increase in selling logistic expenses of $92,000 offsetting the
decrease in depreciation expenses of $132,000 during the six months ended
September 30, 2004. The other expenses were increased due to the increase in
sales activities in the electronic & metallic segment.
Operating income - Operating income was $9,311,000 for the six months ended
September 30, 2004, an increase of $154,000 or 1.7% as compared with the
corresponding period in the prior year.
On a segment basis, the operating income of plastic segment decreased $860,000
to $5,384,000 or 19.1% of net sales, in the six months ended September 30, 2004
compared to $6,244,000 or 22.6% of net sales in corresponding period in 2003.
The decrease in operating income was attributable to the decrease in gross
profit offsetting the decrease in SG&A expenses as described above.
The operating income of electronic & metallic segment increased $1,014,000 to
$3,927,000 or 12.1% of net sales, in the six months ended September 30, 2004
compared to $2,913,000 or 12.4% of net sales in the corresponding period in
2003. The increase in operating income was attributable to the increase in gross
profit offsetting the increase in SG&A expenses as described above.
Other income - Other income was $62,000 for the six months ended September 30,
2004, a decrease of $772,000 or 92.6% as compared with the corresponding period
in the prior year. On a segment basis, other income attributable to the plastic
segment decreased $634,000 to $22,000 in the six months ended September 30,
2004. This decrease in other income was primarily attributable to the realized
gain on disposal of investment securities of $520,000 in the six months ended
June 30, 2003 but none in 2004 and the decrease in interest income of $94,000 in
fiscal 2004 as compared with corresponding period in 2003. Other income
attributable to the electronic & metallic segment decreased $138,000, to $40,000
in the six months ended September 30, 2004. This decrease in other income was
mainly due to the increase in exchange loss of $47,000 in the six months ended
September 30, 2004.
Income Taxes - Income taxes expenses for the quarter was $309,000, a decrease of
$121,000 or 28.1% as compared with the corresponding quarter in the prior year.
On a segment basis, the income taxes of plastic segment decreased $248,000 to
nil for the six months ended September 30, 2004 whereas the income tax expenses
for the electronic & metallic segment increased $127,000 to $309,000 for the six
months ended September 30, 2004, respectively. The decrease in the plastic
segment was primarily due to the tax holiday enjoyed in our Dongguan
manufacturing plant whereas the increase in the electronic & metallic segment
was due to increase in net sales as described above.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Minority Interest - Minority interests represent a 29% minority interest in
Integrated International Limited, the holding company holding the capital stock
of Deswell's electronic and metallic subsidiaries and a 49% minority interest in
the subsidiary conducting marketing for Deswell's plastic and electronic
businesses. In January 2003, the Company acquired an additional 20% interest in
Integrated, increasing its ownership in that subsidiary from 51% to 71%. Despite
the decrease in minority interest in Deswell's electronic & metallic segment,
the dollar amount of minority interest increased to $1,438,000 for the six
months ended September 30, 2004, from $1,071,000 for the corresponding period in
the prior year, which reflects that both the electronics and metallic
subsidiaries and marketing subsidiary generated more net income in the six
months ended September 30, 2004, compared with corresponding period in fiscal
2003.
Net Income - Net income was $7,623,000 for the six months ended September 30,
2004, a decrease of $852,000 or 10.1%, as compared to net income of $8,475,000
for the six months ended September 30, 2003, and net income as a percentage of
net sales was decreased from 16.6% to 12.6% for the six months ended September
30, 2004. The decrease in net income was mainly the result of the decrease in
other income and the increase in minority interest offsetting the increase in
operating income as described above.
Net income for the plastic segment decreased by 21.6% to $5,020,000 for the six
months ended September 30, 2004 compared to $6,401,000 for the corresponding
quarter in 2003. The decrease in net income of the plastic segment was mainly
the result of the decrease in operating profits of $860,000 coupled with the
decrease in other income of $634,000, despite the decrease in income tax of
$248,000 as described above.
Net income for the electronic & metallic segment increased to $2,603,000 for the
six months ended September 30, 2004 compared to $2,074,000 for the corresponding
quarter in 2003. The increase in net income of the electronic & metallic segment
was mainly the result of the increase in operating profit of $1,012,000
offsetting the decease in other income of $138,000, the increase in income taxes
of $127,000 and minority interest of $233,000, as described above.
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.
As of September 30, 2004, the Company had a working capital surplus of
$50,312,000 and cash and cash equivalent of $16,454,000. This compares with a
working capital surplus of $52,876,000 and cash and cash equivalent of
$30,193,000 at March 31, 2004. The decrease in cash and cash equivalent was
mainly attributed to the capital investment of $10,099,000, dividend
distribution of $4,406,000 and the increase in restricted cash of $649,000
during the six months ended September 30, 2004.
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 a short-term
borrowings of $903,000 and no long-term borrowings at September 30, 2004.
- more -
DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As of September 30, 2004, the Company had in place general banking facilities
with three financial institutions aggregating approximately $6,788,000. 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 September 30, 2004, the Company had ( i ) unused
credit facilities of $5,884,000 ( ii ) cash and cash equivalents of $16,454,000
and ( iii ) restricted cash of $1,039,000, which has been pledged as collateral
for those credit facilities.
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: November 23, 2004