Deswell Industries, Inc. Announces Second Quarter ResultsTuesday November 20 11:00 PMDeswell reported net sales for the second quarter ended September 30, 2007 of $38.4 million, compared to $35.7 million for the same quarter of 2006, an increase of 7.6%. Operating income totaled $1.7 million, compared to $4.0 million for the same quarter of 2006, a decrease of 57.7%. Net income for the quarter decreased 51.2% to $1.8 million compared to $3.6 million for the year-ago quarter. Basic and diluted net income per share for the quarter decreased to $0.11 and $0.11, respectively (based on 15,428,000 and 15,496,000 weighted average shares outstanding, respectively), compared to $0.24 and $0.24, respectively (based on 14,938,000 and 15,005,000 weighted average shares outstanding, respectively), for the quarter ended September 30, 2006. Total gross margin decreased to 17.4% in the quarter ended September 30, 2007 from 24.8% in the same quarter last year. Gross profit in the plastic segment decreased to 25.4% of net sales for the quarter ended September 30, 2007 compared to 35.6% of net sales for the year-ago quarter. The decreased gross margin was mainly due to the combination of a change in customer and product mix as compared with last year's quarter, an increase in labor rate of 17.2% and increased overhead cost of 2.7% of net sales as compared with the year-ago quarter due to an approximately 5.8% appreciation in Chinese renminbi currency since the year-ago quarter. Gross profit in the electronic and metallic segment decreased to 11.6% of net sales for the quarter ended September 30, 2007 compared to 15.0% of net sales for the year-ago quarter. The decrease was mainly attributable to the combined effect of the change in customer and product mix, and the increased material pricing pressure on some of our electronic materials; an increased labor rate of 22.7% as compared with last year's corresponding quarter; the increased in value added tax cost and an average of 5.8% appreciation in Chinese renminbi currency where most of our direct overhead and increased local material sourcing are denominated, as compared with last year. Net sales for the six months ended September 30, 2007 were $76.9 million, an increase of 14.0%, compared to sales of $67.4 million for the corresponding period in 2006. Operating income decreased 36.4% to $5.0 million, compared to $7.8 million in the first six months of fiscal 2007, and net income decreased 30.5% to $4.9 million, compared to $7.0 million in the first six months of fiscal 2007. Basic and diluted net income per share for the six months decreased to $0.32 and $0.32, respectively (based on 15,244,000 and 15,287,000 weighted average shares outstanding, respectively), compared to $0.47 and $0.47, respectively (based on 14,931,000 and 14,959,000 weighted average shares outstanding, respectively), for the six months ended September 30, 2006. The Company's balance sheet remains strong, with cash and cash equivalents on September 30, 2007 totaling $16.5 million, compared to $24.5 million on March 31, 2007. Working capital totaled $57.5 million as of September 30, 2007, versus $58.7 million as of March 31, 2007. The Company has no long-term or short-term borrowings. Mr. Franki Tse, chief executive officer, commented, "While we saw modest overall revenue improvement, margins continue to be impacted by high raw material and component costs, increasing labor rates and the increased value of the Chinese renminbi. Furthermore, higher value added tax rates were imposed by the government of People's Republic of China for different categories of export products in the first quarter of fiscal 2008." Mr. Tse continued, "To help absorb the higher costs, we recently initiated price increases across our business. Additionally, we have made capital investments in our electronic and metals operation to service and attract new higher margin projects while also looking to discontinue some lower margin business. We also expect a slight headcount reduction in the upcoming quarter." Second-Quarter Dividends The Company also announced that on November 16, 2007 its board of directors declared a dividend of $0.10 per share for the second quarter. The dividend will be payable on December 18, 2007 to shareholders of record as of November 30, 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 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.
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
---------------------------------
2007 2006 2007 2006
-------- ------- -------- -------
(Unaudited) (Unaudited)
Net sales $38,414 $35,715 $ 76,866 $67,404
Cost of sales 31,716 26,850 63,406 50,093
-------- ------- -------- -------
Gross profit 6,698 8,865 13,460 17,311
Selling, general and administrative
expenses 4,642 4,892 9,110 9,558
Other income/(expenses), net (375) - 635 86
-------- ------- -------- -------
Operating income 1,681 3,973 4,985 7,839
Interest expense - - - -
Non-operating income/(expenses), net 147 143 382 244
-------- ------- -------- -------
Income before income taxes 1,828 4,116 5,367 8,083
Income taxes 75 394 273 545
-------- ------- -------- -------
Income before minority interests 1,753 3,722 5,094 7,538
Minority interests (2) 125 228 538
-------- ------- -------- -------
Net income 1,755 3,597 4,866 7,000
Other comprehensive income
Foreign currency translation
adjustment - 170 - 710
-------- ------- -------- -------
Comprehensive income $ 1,755 $ 3,767 $ 4,866 $ 7,710
======== ======= ======== =======
Net income per share (note 3)
Basic:
Net income per share $ 0.11 $ 0.24 $ 0.32 $ 0.47
======== ======= ======== =======
Weighted average common shares
outstanding (in thousands) 15,428 14,938 15,244 14,931
======== ======= ======== =======
Diluted:
Net income per share (note 3) $ 0.11 $ 0.24 $ 0.32 $ 0.47
======== ======= ======== =======
Weighted average common shares
outstanding (in thousands) 15,496 15,005 15,287 14,959
======== ======= ======== =======
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
September 30, March 31,
2007 2007
------------- -------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,512 $ 24,549
Restricted cash - -
Marketable securities 196 107
Accounts receivable, net 28,506 21,063
Inventories 27,812 29,495
Prepaid expenses and other current
assets 6,110 4,999
Income taxes receivable - 130
------------- ------------
Total current assets 79,136 80,343
Property, plant and equipment - net 60,904 60,157
Goodwill 389 710
------------- -------------
Total assets $ 140,429 $ 141,210
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,486 $ 15,865
Customer deposits and accrued
expenses 5,534 5,035
Income taxes payable 324 450
Deferred income taxes liability 320 321
------------- -------------
Total current liabilities 21,664 21,671
------------- -------------
Minority interests - 7,884
------------- -------------
Shareholders' equity
Common stock
- authorized 30,000,000 shares;
issued and outstanding 15,790,810
shares at September 30, 2007 and
15,038,730 at March 31, 2007 49,923 42,393
Additional paid-in capital 7,404 7,601
Accumulated other comprehensive
income 1,276 1,106
Retained earnings 60,162 60,555
------------- -------------
Total shareholders' equity 118,765 111,655
------------- -------------
Total liabilities and
shareholders' equity $ 140,429 $ 141,210
============= =============
Contact: Institutional Marketing Services (IMS) John G. Nesbett, 203-972-9200 jnesbett@institutionalms.com |
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