Deswell Announces Fourth Quarter Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal fourth quarter ended March 31, 2012.

Net sales for the fourth quarter ended March 31, 2012 were $12.2 million, a decrease of 23.7% compared to net sales of $16.0 million for the same quarter ended March 31, 2011. Net sales decreased by 33.5% to $4.9 million in the Company’s plastic segment and by 15.1% to $7.3 million in the electronic and metallic segment. The operating loss in the fourth quarter was $1.7 million, compared to an operating loss of $0.4 million for the same quarter of fiscal 2011.

Total gross margin decreased to 11.6% in the fourth quarter ended March 31, 2012 compared to 15.3% in the same quarter last year. Gross profit margin in the plastic segment decreased to 12.6% of net sales for the fourth quarter of fiscal 2012 compared to 19.5% of net sales for the same quarter of last fiscal year. The decrease of gross profit and margin in the plastic segment was mainly due to an increase in factory overheads as a percentage of net sales. Gross profit margin in the electronic and metallic segment decreased to 10.8% of net sales for the fourth quarter ended March 31, 2012 compared to 11.6% of net sales for the year-ago quarter. The decrease in gross margin in the electronic and metallic segment was mainly attributed to an increase in labor cost as well as an increase in factory overheads, offsetting a decrease in raw materials cost as a percentage of net sales.

The Company reported a net loss of $0.7 million for the fourth quarter ended March 31, 2012 compared to a net loss of $0.6 million for the quarter ended March 31, 2011. Deswell reported a basic and diluted loss per share of $0.04 for the fourth quarter of fiscal 2012, (based on 16,197,000 and 16,202,000 weighted average shares outstanding, respectively) compared to a basic and diluted loss per share of $0.04, (based on 16,195,000 and 16,204,000 weighted average shares outstanding, respectively) for the same quarter ended March 31, 2011.

Net sales for the year ended March 31, 2012 were $64.8 million, a decrease of 22.9%, compared to sales of $84.0 million for fiscal year 2011. Total gross margin for fiscal year 2012 increased to 14.6% compared to total gross margin of 11.4% in fiscal year 2011. Operating loss for the year ended March 31, 2012 was $2.2 million, compared to operating loss of $8.8 million for fiscal year 2011. The Company reported a net loss of $1.5 million in the fiscal year of 2012, compared to a net loss of $8.1 million for the year ended March 31, 2011. Deswell reported a basic and diluted net loss per share of $0.09 for the year ended March 31, 2012, (based on 16,197,000 and 16,207,000 weighted average shares outstanding, respectively), compared to a basic and diluted loss per share of $0.50, (based on 16,193,000 and 16,203,000 weighted average shares outstanding, respectively), for the prior fiscal year.

Net cash provided by operating activities during the year ended March 31, 2012 was $11.3 million compared to net cash of $3.2 million used in operating activities during the last fiscal year.

The Company's financial position remained strong at the end of the fourth quarter of fiscal year 2012, with $33.1 million in cash and cash equivalents at March 31, 2012, compared to $35.6 million at March 31, 2011. Working capital totaled $60.9 million as of March 31, 2012, versus $59.7 million as of March 31, 2011. Furthermore, the Company has no long-term or short-term borrowings at March 31, 2012.

Mr. Franki Tse, Chief Executive Officer, commented, “Our sales were affected primarily by weakening worldwide demand, although the seasonal effect of labor supply was also an issue given the Chinese New Year in late January. We continue to see a challenging environment, especially in Europe and the U.S. We are managing our overhead, working closely with current customers and driving new business initiatives. Our balance sheet remains particularly strong with cash and no long or short term debt."

Fourth Quarter Dividends

The Company also announced that on June 18, 2012 its board of directors declared a cash dividend of $0.05 per share and a special dividend of $0.10 for the fiscal fourth quarter ended March 31, 2012. The dividends will be payable on July 27, 2012 to shareholders of record as of July 6, 2012.

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 Vtech Telecommunications Ltd. and Digidesign Inc.

To learn more about Deswell Industries, Inc., please visit the Company’s website 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 BALANCE SHEET
( U.S. dollars in thousands)
  March 31, March 31,
2012 2011
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 33,073 $ 35,635
Fixed deposits maturing over three months 4,008 -
Marketable securities - 1,045
Available-for-sale securities 7,630 -
Accounts receivable, net 12,476 17,210
Inventories 15,852 19,517
Prepaid expenses and other current assets   2,164   2,154
Total current assets 75,203 75,561
Property, plant and equipment - net 46,177 51,052
Deferred income tax assets 187 154
Goodwill   392   392
Total assets $ 121,959 $ 127,159
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,741 $ 6,864
Accrued payroll and employee benefits 3,778 3,971
Customer deposits 2,257 1,965
Other accrued liabilities 1,311 1,453
Income taxes payable 438 596
Deferred income tax liabilities 421 213
Dividend payable   324   810
Total current liabilities   14,270   15,872
Shareholders' equity

Common shares nil par value - authorized 30,000,000 shares, shares issued and outstanding March 31, 2012 - 16,196,810; March 31, 2011 - 16,194,810
50,816 50,809
Additional paid-in capital 8,265 7,719
Accumulated other comprehensive income 4,570 5,316
Retained earnings   44,038   47,443
Total shareholders' equity   107,689   111,287
Total liabilities and shareholders' equity   121,959 $ 127,159
 
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,
2012   2011 2012   2011
 
Net sales $ 12,198 $ 15,978 $ 64,783 $ 84,022
Cost of sales   10,789     13,538     55,318     74,474
Gross profit 1,409 2,440 9,465 9,548
Selling, general and administrative expenses 3,235 2,788 12,273 13,941
Other income (expenses), net   174     (57)     639     (4,435)
Operating loss (1,652) (405) (2,169) (8,828)
Non-operating income, net   982     29     1,190     1,096
Loss before income taxes (670) (376) (979) (7,732)
Income taxes   43     277     482     382
Net loss attributable to Deswell Industries, Inc. $ (713) $ (653) $ (1,461) $ (8,114)
 
Other comprehensive loss
Unrealized gain (loss) on available-for-sale securities $ 779   $ -   $ (746)   $ -
 
Net loss per share attributable to
Deswell Industries, Inc.
Basic:
Net loss per share $ (0.04)   $ (0.04)   $ (0.09)   $ (0.50)
Weighted average common shares outstanding shares in thousands)   16,197     16,195     16,197     16,193
 
Diluted:
Net loss per share $ (0.04)   $ (0.04)   $ (0.09)   $ (0.50)
Weighted average number of shares outstanding (in thousands)   16,202     16,204     16,207     16,203

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