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 December 16, 2005
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)
Deswell Industries, Inc. Announces
Second Quarter Results; Company Also Announces Second Quarter Dividend
of $0.16 Per Share
MACAO--(BUSINESS WIRE)--Dec. 14, 2005--Deswell Industries, Inc.
(Nasdaq: DSWL) today announced its financial results for the second
fiscal quarter and six months ended September 30, 2005.
Deswell reported that net sales for the second quarter ended
September 30, 2005 were $29.0 million, compared to $31.9 million for
the same quarter of 2004, a decrease of 9.0%. Operating income totaled
$2.8 million, compared to $4.5 million for the same quarter of 2004, a
decrease of 38.5%. Net income for the quarter decreased 23.0% to $2.8
million compared to $3.6 million for the year-ago quarter. Basic
earnings per share and diluted earnings per share for the quarter
decreased to $0.19 and $0.19, respectively (based on 14,920,000 and
14,967,000 weighted average shares outstanding, respectively),
compared to $0.26 and $0.26, respectively (based on 13,783,000 and
14,149,000 weighted average shares outstanding, respectively), for the
quarter ended September 30, 2004.
Net sales for the six months ended September 30, 2005 were $59.1
million, a decrease of 2.6%, compared to sales of $60.7 million for
the corresponding period in 2004. Operating income decreased 27.5% to
$6.8 million, compared to $9.3 million in the first six months of
fiscal 2005, and net income decreased 22.0% to $5.9 million, compared
to $7.6 million in the first six months of fiscal 2005. Basic earnings
per share and diluted earnings per share for the six months decreased
to $0.40 and $0.40, respectively (based on 14,893,000 and 14,921,000
weighted average shares outstanding, respectively), compared to $0.55
and $0.54, respectively (based on 13,754,000 and 14,173,000 weighted
average shares outstanding, respectively), for the six months ended
September 30, 2004.
The Company's balance sheet remains strong, with cash and cash
equivalents on September 30, 2005 totaling $27.0 million, compared to
$28.1 million on March 31, 2005. Working capital totaled $58.3 million
as of September 30, 2005, versus $57.6 million as of March 31, 2005.
The Company has no long-term or short-term borrowings.
Mr. Richard Lau, chief executive officer, commented, "We regret
that we had to delay announcing our financial results until we could
assess the impact of certain transactions on these results. These
transactions, which consisted of orders primarily from three customers
for products of the metallic parts division of our electronic &
metallic parts business segment that were shown as shipped to, and
received by, the customers but in fact had been surreptitiously
cancelled without shipment, were discovered in October 2005.
Documentation reflecting the cancellation of the orders was uncovered
following the departure of the General Manager of the Company's
metallic parts division who, with the assistance of a Production and
Materials Control Supervisor in that division (who has since
resigned), had previously concealed such documentation. As a result of
an investigation into these matters by our internal auditors, we
determined to record provisions in our financial results for the
quarter and six months ended September 30, 2005 of approximately $1
million for doubtful sales and of approximately $160,000 for obsolete
inventory attributable to the metallic parts division. We have
disclosed these matters to the Audit Committee of our Board of
Directors and to our independent registered public accounting firm.
Based on the recommendations of our audit committee, the Company has
retained independent forensic accountants to continue the
investigation, reported the matter to the local police for
investigation and prosecution and retained local counsel to consider
and advise the Company concerning appropriate legal proceedings
against the former General Manager of the Company's metallic parts
division."
"During the quarter, both our plastic division and the electronic
& metallic division recorded a 16.9% and 3.2% decrease in revenue
respectively. The decrease in revenue in the plastic division was
primarily attributed to the following reasons: First, our business
with one of our key customers decreased by approximately 60% as
compared to the comparable quarter of fiscal 2005 as we chose not to
accept significantly lower margin business from this customer. Second,
technical issues involved with another customer's next generation of
product models delayed the progress of production of the new models,
resulting in 100% drop in purchase orders from this customer for the
quarter. Third, margins for many of our longer term products decreased
since over 50% of the higher resin and oil prices could not be passed
through to our customers. In addition, labor rates have increased
approximately 20% in the regions where our facilities are and the
Chinese renminbi currency has appreciated approximately 2%. Finally,
some new orders from existing customers were delayed until next fiscal
year. "
Mr. Lau continued, "Excluding the effect of the provision for
approximately $1 million in doubtful sales of metallic products and
the decrease in metallic product sales of $563,000 this quarter, the
revenue of our electronic product sales increased 5.7% as compared
with the corresponding quarter in the prior year. Revenues during the
quarter were impacted by pricing pressure. During the quarter we
strengthened our material sourcing strategy and improved procurement
efficiency in an effort to improve our net margins."
Mr. Lau continued, "We are very focused on higher end products to
help drive improved gross margins. Nonetheless, our plastic segment
will need at least twelve months to recover and we do not see growth
in sales from our plastic segment before then. Following the
completion of phase III construction of our Dongguan plastic plant in
mid 2006, we plan to centralize some operating functions in an effort
to lower our overhead costs in the plastic segment. Finally, despite
the slower growth in the electronics & metallic division during the
quarter, we expect to see steady growth in sales in that division
during the coming year."
Second-Quarter Dividends
The Company also announced that on December 12, 2005 its board of
directors declared a dividend of $0.16 per share for the second
quarter. The dividend will be payable on December 30, 2005 to
shareholders of record as of December 22, 2005.
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, Line 6 Manufacturing and Peavey Electronics Corporation.
To learn more about Deswell Industries, Inc., please visit the
Company's web site at www.deswell.com.
Forward-Looking Statements
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 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 or product
returns; losses resulting from fraudulent activity of our customers or
employees; labor shortages 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 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, 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.
-0-
*T
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
---------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $29,046 $31,924 $ 59,121 $ 60,712
Cost of sales 22,837 23,463 45,272 43,933
------- ------- ------- -------
Gross profit 6,209 8,461 13,849 16,779
Selling, general and
administrative expenses 3,443 3,962 7,097 7,468
------- ------- ------- -------
Operating income 2,766 4,499 6,752 9,311
Interest expense - (3) - (3)
Other income, net 479 32 119 62
------- ------- ------- -------
Income before income taxes 3,245 4,528 6,871 9,370
Income taxes 49 178 74 309
------- ------- ------- --------
Income before minority
interests 3,196 4,350 6,797 9,061
Minority interests 401 722 851 1,438
------- ------- ------- -------
Net income $ 2,795 $ 3,628 $ 5,946 $ 7,623
======= ======= ======= =======
Basic earnings per share $ 0.19 $ 0.26 $ 0.40 $ 0.55
======= ======= ======= =======
Weighted average number of
shares outstanding (in
thousands) 14,920 13,783 14,893 13,754
======= ======= ======= =======
Diluted earnings per share $ 0.19 $ 0.26 $ 0.40 $ 0.54
======= ======= ======= =======
Diluted weighted average
number of shares outstanding
(in thousands) 14,967 14,149 14,921 14,173
======= ======= ======= =======
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
September 30, March 31,
2005 2005
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,988 $ 28,073
Restricted cash 801 1,040
Marketable securities 204 244
Accounts receivable, net 23,513 25,091
Inventories 22,916 21,136
Prepaid expenses and other current assets 5,167 4,761
Income taxes receivable - 20
--------- ---------
Total current assets 79,589 80,365
Property, plant and equipment - net 57,430 56,133
Goodwill 710 478
--------- ---------
Total assets $ 137,729 $ 136,976
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,107 $ 16,449
Customer deposits and accrued expenses 5,866 6,015
Income taxes payable 298 325
--------- ---------
Total current liabilities 21,271 22,789
--------- ---------
Deferred income tax - -
--------- ---------
Minority interests 8,046 9,420
--------- ---------
Shareholders' equity
Common stock - authorized 30,000,000 shares;
issued and outstanding 14,923,730 shares at
September 30, 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 59,752 58,729
--------- ---------
Total shareholders' equity 108,412 104,767
--------- ---------
Total liabilities and shareholders' equity $ 137,729 $ 136,976
--------- ---------
CONTACT: The Investor Relations Group
John Nesbett or Jordan Silverstein, 212-825-3210
SIGNATURE
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: December 16, 2005