Deswell Announces Second Quarter 2013 Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal second quarter ended September 30, 2012.

Net sales for the second quarter ended September 30, 2012 were $16.3 million, a decrease of 9.5% compared to net sales of $18.0 million for the same quarter ended September 30, 2011. Net sales increased by 9.2% to $8.4 million in the Company’s plastic segment and decreased by 23.5% to $7.9 million in the electronic and metallic segment. The operating loss in the second quarter was $0.08 million, compared to an operating loss of $0.2 million for the same quarter of fiscal 2012.

Total gross margin increased to 16.1% in the second quarter ended September 30, 2012 compared to 14.0% in the same quarter last year. Gross profit margin in the plastic segment increased to 19.3% of net sales for the second quarter of fiscal 2013 compared to 16.3% of net sales for the same quarter of last fiscal year. The increase of gross profit and margin in the plastic segment was mainly due to decreases in factory overhead and depreciation expense as a percentage of net sales. Gross profit margin in the electronic and metallic segment slightly improved to 12.7% of net sales for the second quarter ended September 30, 2012 compared to 12.3% of net sales for the year-ago quarter. The improvement in gross profit margin in the electronic and metallic segment was mainly attributed to efficient usage of raw materials, offsetting an increase in labor cost as a percentage of net sales.

The Company reported a net income of $0.2 million for the second quarter ended September 30, 2012 compared to net loss of $0.9 million for the quarter ended September 30, 2011. Deswell reported a basic and diluted income per share of $0.011 for the second quarter of fiscal 2013, (based on 16,726,000 and 16,749,000 weighted average shares outstanding, respectively) compared to a basic and diluted loss per share of ($0.056), (based on 16,197,000 and 16,199,000 weighted average shares outstanding, respectively) for the same quarter ended September 30, 2011.

Net sales for the six months ended September 30, 2012 were $30.7 million, a decrease of 15.3%, compared to sales of $36.3 million for the corresponding period in fiscal 2012. Operating loss for the six months ended September 30, 2012 was $0.4 million, compared to operating loss of $0.1 million for the first six months of fiscal 2012. The Company reported a net income of $0.2 million in the first half of fiscal 2013, compared to a net loss of $0.8 million for the six months ended September 30, 2011. Deswell reported basic and diluted net income per share of $0.014 for the first six months of fiscal 2013, (based on 16,596,000 and 16,654,000 weighted average share outstanding, respectively), compared to basic and diluted loss per share of ($0.052), (based on 16,197,000 and 16,201,000 weighted average shares outstanding, respectively), for the prior corresponding period.

The Company's financial position remained strong at the end of the second quarter of fiscal year 2013, with $26.7 million in cash and cash equivalents at September 30, 2012, compared to $33.1 million at March 31, 2012. Working capital totaled $61.1 million as of September 30, 2012, versus $60.9 million as of March 31, 2012. Furthermore, the Company has no long-term or short-term borrowings as of September 30, 2012.

Mr. Franki Tse, Chief Executive Officer, commented, “In the plastic segment, our more consumer-related business, sales and gross margin have improved. Recently we obtained the quality management system ISO13485:2003 certification which allows us to manufacture plastic parts for medical devices, a new market opportunity for us. In our electronic and metallic segment, the softening demand prevails and sales of professional audio products and fixtures are still suffering from the global economic situation. We are devoting more effort and resources into product design and development and expect this will help us to secure more orders and improved gross margins in the future. Our balance sheet remains particularly strong with cash and no long or short term debt and we expect to declare dividends in each of the coming three quarters of at least $0.05 per share.

Second Quarter Dividends

The Company also announced that on November 16, 2012 its board of directors declared a cash dividend of $0.05 per share for the fiscal second quarter ended September 30, 2012. The dividends will be payable on December 18, 2012 to shareholders of record as of November 29, 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)
  9/30/2012   3/31/2012
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 26,749 $ 33,073
Fixed deposits maturing over three months 5,967 4,008

Marketable securities
2,082 -

Available-for-sale securities
8,194 7,630
Accounts receivable, net 14,559 12,476

Inventories
15,241 15,852
Prepaid expenses and other current assets   1,695   2,164
Total current assets 74,487 75,203
Property, plant and equipment - net 44,201 46,177
Deferred income tax assets 187 187
Goodwill   392   392
Total assets $ 119,267 $ 121,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,874 $ 5,741
Accrued payroll and employee benefits 3,655 3,778
Customer deposits 1,482 2,257
Other accrued liabilities 1,268 1,311
Income taxes payable 524 438
Deferred income tax liabilities 500 421
Dividend payable   -   324
Total current liabilities   13,303   14,270
Shareholders' equity

Common shares nil par value - authorized 30,000,000 shares, shares issued and outstanding September 30, 2012 - 16,635,101; March 31, 2012 - 16,196,810
52,443 50,816
Additional paid-in capital 7,478 8,265
Accumulated other comprehensive income 5,134 4,570
Retained earnings   40,909   44,038
Total shareholders' equity   105,964   107,689
Total liabilities and shareholders' equity $ 119,267 $ 121,959
 
       
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS &
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(U.S. dollars in thousands, except per share data)
Quarter ended Six months ended
September 30, September 30,
2012 2011 2012 2011
 
Net sales $ 16,303 $ 18,020 $ 30,791 $ 36,344
Cost of sales   13,678     15,492     25,928     30,655  
Gross profit 2,625 2,528 4,863 5,689
Selling, general and administrative expenses 2,767 3,145 5,346 6,240
Other income, net   67     392     89     440  
Operating loss (75 ) (225 ) (394 ) (111 )
Non-operating income (expenses), net   345     (370 )   788     (381 )
Income (Loss) before income taxes 270 (595 ) 394 (492 )
Income taxes   81     319     165     347  
Net income (loss) attributable to Deswell Industries, Inc. $ 189 $ (914 ) $ 229 $ (839 )
Other comprehensive loss
Unrealized gain (loss) on available-for-sale securities $ 613   $ (292 ) $ 564   $ (520 )
Comprehensive loss attributable to Deswell Industries, Inc. $ 802   $ (1,206 ) $ 793   $ (1,359 )

Net income (loss) per share attributable to Deswell Industries, Inc.
Basic:
Net income (loss) per share $ 0.011   $ (0.056 ) $ 0.014   $ (0.052 )

Weighted average common shares outstanding shares (in thousands)
  16,726     16,197     16,596     16,197  
Diluted:
Net income (loss) per share $ 0.011   $ (0.056 ) $ 0.014   $ (0.052 )

Weighted average number of shares outstanding (in thousands)
  16,749     16,199     16,654     16,201  

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