Deswell Industries, Inc. Announces Third Quarter Results; Company Also Announces Third 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 third quarter and nine months ended December December: see month. 31, 2005. 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 third quarter ended December 31, 2005 were $30.0 million, compared to $36.2 million for the same quarter of 2004, a decrease of 17.2%. 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 $2.7 million, compared to $4.8 million for the same quarter of 2004, a decrease of 44.4%. Net income for the quarter decreased 43.4% to $2.4 million compared to $4.2 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 $0.16 and $0.16, respectively (based on 14,924,000 and 14,924,000 weighted average shares outstanding, respectively), compared to $0.30 and $0.30, respectively (based on 14,074,000 and 14,114,000 weighted average shares outstanding, respectively), for the quarter ended December 31, 2004. Net sales for the nine months ended December 31, 2005 were $89.1 million, a decrease of 8.1% compared to sales of $96.9 million for the corresponding period in 2004. Operating income decreased 33.3% to $9.4 million, compared to $14.1 million for the nine months of fiscal 2005, and net income decreased 29.6% to $8.3 million, compared to $11.8 million in the previous year. Basic earnings per share and diluted earnings per share for the nine months decreased to $0.56 and $0.56, respectively (based on 14,903,000 and 14,931,000 weighted average shares outstanding, respectively), compared to $0.85 and $0.84, respectively (based on 13,861,000 and 14,109,000 weighted average shares outstanding, respectively), for the nine months ended December 31, 2004. The Company's balance sheet remains strong, with cash and cash equivalents on December 31, 2005 totaling $24.6 million, compared to $28.1 million on March 31, 2005. Working capital totaled $57.4 million as of December 31, 2005, 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 Ri·chard , Joseph Henri Maurice Known as "Rocket." 1921-2000. Canadian hockey player. A right wing for the Montreal Canadiens (1942-1960), he led his team to eight Stanley Cup championships and was the first player to score 50 goals in a Lau, chief executive officer, commented, "In our plastics division, we saw a 26.5% decrease in sales due to a significant decrease in orders from a telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. customer coupled with delayed new product introductions across our customer base. We are very focused on expanding our customer base, and hope to see some revenues in the September September: see month. quarter as a result of current business development. Our new facility is unquestionably un·ques·tion·a·ble adj. Beyond question or doubt. See Synonyms at authentic. un·ques  tion·a·bil one of the best in the industry. While
the sales cycle in our business is long, we are seeing significant
interest from quality potential customers touring our factory. Gross
margins in our plastics division decreased to 25% of sales from 34% of
sales for the quarter. Labor rates increased 26% during the year, and we
continued to see very high 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 prices. Resin typically accounts for
approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 40% of our cost of sales at our plastics division." Mr. Lau continued, 'Our electronics and metals division experienced a 7.9% 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. Even with the decrease in sales, we are confident that we will see long-term growth in this 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 half a million in revenues from this initiative. Gross profits in the electronic & metallic segment increased by $55,000 to $3,248,000, or 19.5% of net sales, for the quarter compared to $3,193,000 or 17.6% of net sales, for the same period last year. This was mainly due to improved pricing on materials and tighter overhead control." Mr. Lau concluded, "We were able to reduce our SG&A by 15% for the quarter. Nonetheless, while our business is still extremely profitable, we saw a decrease in our earnings. We don't don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. expect our performance to change significantly in the next few quarters. Longer term, we remain very confident that our state-of-the-art injection molding injection molding n. A manufacturing process for forming objects, as of plastic or metal, by heating the molding material to a fluid state and injecting it into a mold. facility and leadership in audio manufacturing, coupled with our healthy balance sheet, position us well for long-term growth." Third Quarter Dividends The Company also announced that on March 9, 2006 its board of directors declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. a dividend of $0.14 per share for the third quarter. The dividend will be payable on April 11, 2006 to shareholders of record as of March 31, 2006. 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 Digidesign is an American digital audio technology company. It was founded in 1984 by Peter Gotcher and Evan Brooks. The company began as a project to raise money for the founders' band, selling EPROM chips for drum machines. Inc., Vtech Telecommunications 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 See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. . 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 Nine months ended
December 31, December 31,
----------------- -----------------
2005 2004 2005 2004
-------- ------- -------- -------
(Unaudited) (Unaudited)
Net sales $29,972 $36,185 $89,093 $96,897
Cost of sales 23,411 26,783 68,683 70,716
-------- -------- -------- --------
Gross profit 6,561 9,402 20,410 26,181
Selling, general and
administrative expenses 3,872 4,565 10,969 12,033
-------- -------- -------- --------
Operating income 2,689 4,837 9,441 14,148
Interest expense - (4) - (7)
Other income, net 111 30 230 92
-------- -------- -------- --------
Income before income taxes 2,800 4,863 9,671 14,233
Income taxes 90 179 164 488
-------- -------- -------- --------
Income before minority interests 2,710 4,684 9,507 13,745
Minority interests 330 477 1,181 1,915
-------- -------- -------- --------
Net income $ 2,380 $ 4,207 $ 8,326 $11,830
======== ======== ======== ========
Basic earnings per share $ 0.16 $ 0.30 $ 0.56 $ 0.85
======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands) 14,924 14,074 14,903 13,861
======== ======== ======== ========
Diluted earnings per share $ 0.16 $ 0.30 $ 0.56 $ 0.84
======== ======== ======== ========
Diluted weighted average number of
shares outstanding (in thousands) 14,924 14,114 14,931 14,109
======== ======== ======== ========
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
December 31, March 31,
2005 2005
------------ -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,610 $ 28,073
Restricted cash 646 1,040
Marketable securities 182 244
Accounts receivable, net 23,495 25,091
Inventories 23,096 21,136
Prepaid expenses and other current
assets 5,518 4,761
Income taxes receivable - 20
------------ -----------
Total current assets 77,547 80,365
Property, plant and equipment - net 57,831 56,133
Goodwill 710 478
------------ -----------
Total assets $ 136,088 $ 136,976
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,781 $ 16,449
Customer deposits and accrued expenses 5,998 6,015
Income taxes payable 327 325
------------ -----------
Total current liabilities 20,106 22,789
------------ -----------
Deferred income tax - -
------------ -----------
Minority interests 7,577 9,420
------------ -----------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued
and outstanding 14,923,730 shares at
December 31, 2005 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 59,745 58,729
------------ -----------
Total shareholders' equity 108,405 104,767
------------ -----------
Total liabilities and
shareholders' equity $ 136,088 $ 136,976
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