Deswell Industries, Inc. Announces Third Quarter Results.51.5% Increase in Net Income in Third Quarter Company also Announces Third Quarter Dividend of $0.17 Per Share MACAO -- Deswell Industries, Inc. (Nasdaq: DSWL) today announced financial results for the third quarter and nine months ended December 31, 2006. Deswell reported 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, 2006 were $39.0 million, compared to $30.0 million for the same quarter of 2005, an increase of 30.1%. 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 $3.8 million, compared to $2.7 million for the same quarter of 2005, an increase of 44.1%. Net income for the quarter increased 51.5% to $3.6 million compared to $2.4 million for the year-ago quarter. Basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. net income per share for the quarter increased to $0.24 and $0.24, respectively (based on 14,948,000 and 15,066,000 weighted average shares outstanding, respectively), compared to $0.16 and $0.16, respectively (based on 14,924,000 and 14,924,000 weighted average shares outstanding, respectively), for the quarter ended December 31, 2005. During the quarter, the company closed down is Shenzen plastics factory to consolidate its plastics operation at its new Dongguan facility. Hence, third quarter gross margin and SG&A realized one time costs of $692,000 and $167,000 respectfully for severance payments. Net sales for the nine months ended December 31, 2006 were $106.4 million, an increase of 19.4% compared to sales of $89.1 million for the corresponding period in 2005. Operating income increased 22.3% to $11.5 million, compared to $9.4 million for the nine months of fiscal 2006, and net income increased 27.4% to $10.6 million, compared to $8.3 million in the previous year. Basic and diluted net income per share for the nine months increased to $0.71 and $0.71, respectively (based on 14,936,000 and 14,994,000 weighted average shares outstanding, respectively), compared to $0.56 and $0.56, respectively (based on 14,903,000 and 14,931,000 weighted average shares outstanding, respectively), for the nine months ended December 31, 2005. The Company's balance sheet remains strong, with cash and cash equivalents on December 31, 2006 totaling $22.1 million, compared to $25.4 million on March 31, 2006. Working capital totaled $59.6 million as of December 31, 2006, versus $55.1 million as of March 31, 2006. The Company has no long-term or short-term borrowings. Mr. Franki Tse, the chief executive officer, commented, "This quarter's revenue growth in both our plastic and electronic division was strong with 25.5% and 33.8% growth respectively. The increase in the plastic sales was mainly due to the increase in business from newer customers as well as the pick up in business from a telecommunication customer. The growth in the electronic division was due to increased orders from existing customers and the pick up of delayed orders from last quarter. During the quarter, the plastic division closed down its manufacturing plant in Shenzhen and incurred a total of $859,000 in severance expenses, though there was also a one-time gain of $427,000 on disposal of property, plant & equipments upon the closure. Moreover, one of our plastic subsidiaries in China had recently been reassessed by the local tax bureau for the tax year 2004 and 2005 on the transfer pricing Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be issue and the case is not yet finalized See finalization. . We are still in negotiation with the local tax bureau. However, an estimated tax Federal and state tax laws require a quarterly payment of estimated taxes due from corporations, trusts, estates, non-wage employees, and wage employees with income not subject to withholding. amount of $347,000 set aside for this in addition to the $326,000 which we paid in 2006. " Mr. Tse concluded, "The closure of the Shenzhen plan and centralization cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. in our new Dongguan plant, coupled with a pick up in delayed OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and orders at our electronics & metallic division, give us confidence as we look out over the next year" Third Quarter Dividends The Company also announced that on February 9, 2007 its board of directors declared a dividend of $0.17 per share for the third quarter. The dividend will be payable on March 9, 2007 to shareholders of record as of February 23, 2007. 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 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 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. [TABLE OMITTED] [TABLE OMITTED] |
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