Deswell Industries, Inc. Announces Fourth Quarter and Year-End Results; Company also Announces Fourth Quarter Dividend of $0.14 Per Share.MACAU Macau: see Macao. Macau or Macao Chinese Aomen Special administrative region (pop., 2005 est.: 470,000), southern China. -- Deswell Industries, Inc. (Nasdaq: DSWL) today announced it financial results for the fourth quarter and year ended March 31, 2006. Deswell reported that net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the fourth quarter ended March 31, 2006 were $26.2 million, compared to $28.7 million for the same quarter of 2005, a decrease of 8.7%. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. totaled $0.9 million, compared to $3.6 million for the same quarter of 2005. Net income for the quarter decreased to $0.5 million compared to $3.4 million for the year-ago quarter. Basic earnings per share and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the quarter decreased to $0.03 and $0.03, respectively (based on 14,924,000 and 14,924,000 weighted average shares outstanding, respectively), compared to $0.23 and $0.23, respectively (based on 14,690,000 and 14,777,000 weighted average shares outstanding, respectively), for the quarter ended March 31, 2005. Net sales for the year ended March 31, 2006 were $115.3 million, a decrease of 8.2% compared to sales of $125.6 million for the year ended March 31, 2005. Operating income decreased 41.6% to $10.4 million, compared to $17.8 million for the year ended March 31, 2005, and net income decreased 42.2% to $8.8 million, compared to $15.2 million in the previous year. Basic earnings per share and diluted earnings per share decreased to $0.59 and $0.59, respectively (based on 14,908,000 and 14,936,000 weighted average shares outstanding, respectively), compared to $1.04 and $1.02, respectively (based on 14,656,000 and 14,933,000 weighted average shares outstanding, respectively), for the year ended March 31, 2005. Total gross margin decreased to 19.2% in the fourth quarter ended March 31, 2006 from 25.6% in the fourth quarter last year. Gross profit in the plastic segment decreased to 24.4% of net sales for the quarter ended March 31, 2006 compared to 34.3% of net sales for the year-ago quarter. The decrease was mainly due to a provision for obsolete OBSOLETE. This term is applied to those laws which have lost their efficacy, without being repealed, 2. A positive statute, unrepealed, can never be repealed by non-user alone. 4 Yeates, Rep. 181; Id. 215; 1 Browne's Rep. Appx. 28; 13 Serg. & Rawle, 447. stock of $645,000 made in the quarter ended March 31, 2006. Furthermore, plastic resin resin, any of a class of amorphous solids or semisolids. Resins are found in nature and are chiefly of vegetable origin. They are typically light yellow to dark brown in color; tasteless; odorless or faintly aromatic; translucent or transparent; brittle, fracturing costs remain high. Gross profit in the electronic and metallic segment decreased to 14.8% of net sales for the quarter ended March 31, 2006 compared to 18.0% of net sales for the year-ago quarter. The decrease was mainly due to an increased charge of $407,000, for value-added taxation (VAT VAT See: Value-added tax VAT See value-added tax (VAT). ). Other income for the quarter was a loss of $606,000 for the quarter ended March 31, 2006, an increase in expenses of $856,000 as compared to other income of $250,000 for the quarter ended March 31, 2005. On a segment basis, other expenses attributable to the plastic segment were $623,000, an increase of $639,000 as compared with other income of $16,000 for the quarter in last year. The increase was mainly attributed to a doubtful account's receivable provision of $970,000 in the quarter ended March 31, 2006 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc a telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. customer's financial issues due to a failed European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. product launch. This offset the tax refunded Tax refund Money back from the government when too much tax has been paid or withheld from a salary. on reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. of certain retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. in one of our PRC subsidiaries of $173,000; the increase in interest income of $68,000 resulted from the increase in interest rates and other income of $95,000 as compared with the corresponding period in 2005. The Company's balance sheet remains strong, with cash and cash equivalents on March 31, 2006 totaling $25.4 million, compared to $28.1 million on March 31, 2005. Working capital totaled $55.1 million as of March 31, 2006, versus $57.6 million as of March 31, 2005. The Company has no long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. or short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. borrowings. Mr. Richard Lau, chief executive officer, commented, "In our plastics division, we saw a 10.5% decrease in sales in the quarter due to a $3.9 million decrease in business from a printer customer which could not be offset by increasing orders from some long standing as well as newer customers. Our electronics and metals division experienced a 7.2% decrease in sales during the quarter. Some of that decrease was due to the shortage of certain materials that delayed production and shipments in the quarter." Mr. Lau continued, "The profitability of our business has also been impacted by raw material prices and labor rate increases. The margin decrease was compounded by the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of obsolete stock of $645,000 in the plastic segment and $342,000 in the electronic & metallic segment, respectively during the year. A total of $1.6 million in write-offs for stock and doubtful account receivables account receivable Any amount owed to a business as the result of a purchase of goods or services from it on a credit basis. Although the firm making the sale receives no written promise of payment, it enters the amount due as a current asset in its books. in the fourth quarter, coupled with a $1 million write-off of doubtful sales in relation to our metallic parts division in the quarter ended September 2005, contributed significantly to the decrease in net income during the fiscal year. " Mr. Lau continued, "We are confident that we will see long-term growth in the electronics segment of our business. We have established a very strong brand over the past decade as a preeminent pre·em·i·nent or pre-em·i·nent adj. Superior to or notable above all others; outstanding. See Synonyms at dominant, noted. [Middle English, from Latin prae manufacturer in the audio equipment industry. Furthermore, in 2005 we initiated a new division to help companies distribute audio equipment in China. During the quarter we realized over $300,000 in revenues from this initiative." Mr. Lau concluded, "We believe that our performance in the coming quarter will recover as most of the provisions aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. are one-time charges. We remain confident about our business performance in the coming year." Fourth Quarter Dividends The Company also announced that on June 21, 2006 its board of directors declared a dividend of $0.14 per share for the fourth quarter, bringing cash dividends per share Dividends per share Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term. for the year ended March 31, 2006 to $0.60 per share. The dividend will be payable on July 20, 2006 to shareholders of record as of June 30, 2006. Appointment of Chief Financial Officer Deswell also announced that the Company has appointed Ms Pang Yuk yuk 1 Informal n. 1. An exuberant laugh. 2. One, such as a joke, that causes such a laugh. tr. & intr.v. Ping, Eliza as the Chief Financial Officer effective from April 1, 2006. Ms Pang has been the Financial Controller of the Company since 1995. 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 People's Republic n. A political organization founded and controlled by a national Communist party. 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 (1) (Surface Mount Technology) See surface mount. (2) (Station ManagemenT) An FDDI network management protocol that provides direct management. Only one node requires the software. SMT - Station Management ") 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 Communicating information, including data, text, pictures, voice and video over long distance. See communications. Ltd., Epson Precision (H.K.) Ltd., Inter-Tel Incorporated, Line 6 Manufacturing and Peavey Electronics Peavey Electronics Corporation is one of the largest audio equipment manufacturers in the world, headquartered in Meridian, Mississippi in the United States. History Hartley Peavey founded Peavey Electronics in 1965 after building his first amplifier in 1957. Corporation. To learn more about Deswell Industries, Inc., please visit the Company's web site at www.deswell.com. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements in this press release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. For example, our statements regarding our expected growth in sales from the electronic and metallic division in the coming year and our efforts to reduce overhead costs overhead costs see fixed costs. in our plastic division are forward-looking statements. Actual results could differ materially because of the following factors, among others, which may cause revenues and income to fall short of anticipated levels or our overhead expenses to increase: our dependence on a few major customers; vigorous competition forcing product price reductions or discounts; the timing and amount of significant orders from our relatively few significant customers; continuing increases in resin prices that cannot be passed on to customers; unexpected production delays; obsolete inventory Obsolete Inventory Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company. or product returns; losses resulting from fraudulent The description of a willful act commenced with the Specific Intent to deceive or cheat, in order to cause some financial detriment to another and to engender personal financial gain. activity of our customers or employees; labor shortages A Labor shortage is an economic condition in which there are insufficient qualified candidates (employees) to fill the market-place demands for employment at any price. This condition is sometimes referred to by Economists as "an insufficiency in the labor force. that increase labor and costs; changes in the mix of product products we manufacture and sell; adverse currency fluctuations in the renminbi and Hong Kong dollar Noun 1. Hong Kong dollar - the basic unit of money in Hong Kong dollar - the basic monetary unit in many countries; equal to 100 cents when translated to US dollars; potential new accounting pronouncements; and the effects of travel restrictions and quarantines associated with major health problems, such as the Severe Acute Respiratory Syndrome Severe Acute Respiratory Syndrome (SARS) Definition Severe acute respiratory syndrome (SARS) is the first emergent and highly transmissible viral disease to appear during the twenty-first century. , on general economic activity. For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Risk Factors" section of Company's Annual Report on Form 20-F, copies of which may be obtained from the Website maintained by the Securities and Exchange Commission at http://www.sec.gov. All information in this release is made as of the date of this press release. Deswell undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Deswell's expectations.
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
( U.S. dollars in thousands, except per share data )
Quarter ended Year ended
March 31, March 31,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- --------- --------
(Unaudited) (Unaudited)
Net sales $ 26,183 $ 28,693 $115,276 $125,590
Cost of sales 21,167 21,356 89,850 92,072
-------- -------- -------- --------
Gross profit 5,016 7,337 25,426 33,518
Selling, general and
administrative expenses 4,083 3,726 15,052 15,759
-------- -------- -------- --------
Operating income 933 3,611 10,374 17,759
Interest expense (6) (5) (6) (12)
Other income (expenses), net (606) 250 (376) 342
-------- -------- -------- --------
Income before income taxes 321 3,856 9,992 18,089
Income taxes (expenses)
benefits 191 (88) 27 (576)
-------- -------- -------- --------
Income before minority
interests 512 3,768 10,019 17,513
Minority interests 59 415 1,240 2,330
-------- -------- -------- --------
Net income $ 453 $ 3,353 $ 8,779 $ 15,183
======== ======== ======== ========
Basic earnings per share $ 0.03 $ 0.23 $ 0.59 $ 1.04
======== ======== ======== ========
Weighted average number of
shares outstanding (in
thousands) 14,924 14,690 14,908 14,656
======== ======== ======== ========
Diluted earnings per share $ 0.03 $ 0.23 $ 0.59 $ 1.02
======== ======== ======== ========
Diluted weighted average
number of shares
outstanding (in thousands) 14,924 14,777 14,936 14,933
======== ======== ======== ========
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
March 31, March 31,
2006 2005
----------- ----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 25,369 $ 28,073
Restricted cash 649 1,040
Marketable securities 164 244
Accounts receivable, less allowance of
doubtful Accounts of $970 and $0 at
March 31, 2006 and 2005 respectively 18,318 25,091
Inventories 21,845 21,136
Prepaid expenses and other current assets 5,035 4,761
Income taxes receivable - 20
----------- ----------
Total current assets 71,380 80,365
Property, plant and equipment - net 58,286 56,133
Goodwill 710 478
Deferred income tax assets 294 -
----------- ----------
Total assets $ 130,670 $ 136,976
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,886 $ 16,449
Customer deposits and accrued expenses 5,196 6,015
Income taxes payable 184 325
----------- ----------
Total current liabilities 16,266 22,789
----------- ----------
Deferred income tax - -
----------- ----------
Minority interests 7,636 9,420
----------- ----------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued
and outstanding 14,923,730 shares at
March 31, 2006 and 14,778,730 at March
31, 2005 41,254 39,068
Additional paid-in capital 6,970 6,970
Exchange Reserve 436 -
Retained earnings 58,108 58,729
----------- ----------
Total shareholders' equity 106,768 104,767
----------- ----------
Total liabilities and
shareholders' equity $ 130,670 $ 136,976
=========== ==========
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