Deswell Announces First Quarter 2014 Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal first quarter ended June 30, 2013.

Net sales for the first quarter ended June 30, 2013 were $11.1 million, a decrease of 23.2% compared to net sales of $14.5 million for the same quarter ended June 30, 2012. Net sales decreased by 18.2% to $5.8 million in the Company’s plastic segment and decreased by 28.1% to $5.3 million in the electronic and metallic segment. The operating loss in the first quarter was $1.4 million, compared to an operating loss of $0.3 million for the same quarter of fiscal 2013.

Total gross margin decreased to 7.0% in the first quarter ended June 30, 2013 compared to 15.4% in the same quarter last year. Gross profit margin in the plastic segment decreased to 8.7% of net sales for the first quarter of fiscal 2014 compared to 19.1% of net sales for the same quarter of last fiscal year. The decrease in gross profit and margin in the plastic segment was mainly due to increases in labor cost resulting from a raise in minimum wage rate, and in factory overheads as a percentage of sales. Gross profit margin in the electronic and metallic segment decreased to 5.0% of net sales for the first quarter ended June 30, 2013 compared to 12.0% of net sales for the year-ago quarter. The decrease in gross profit and margin in the electronic and metallic segment was mainly attributed to increases in raw materials and labor costs as a percentage of sales, resulting from a higher labor rate.

The Company reported a net loss of $1.7 million for the first quarter ended June 30, 2013 compared to a net income of $0.04 million for the quarter ended June 30, 2012. Deswell reported a basic and diluted loss per share of ($0.11) for the first quarter of fiscal 2014, (based on 16,289,000 and 16,289,000 weighted average shares outstanding, respectively) compared to a basic and diluted income per share of $0.0025, (based on 16,203,000 and 16,207,000 weighted average shares outstanding, respectively) for the quarter ended June 30, 2012.

The Company's financial position remained strong at the end of the first quarter of fiscal year 2014, with $29.5 million in cash and cash equivalents at June 30, 2013, compared to $32.0 million at June 30, 2012. Working capital totaled $56.2 million as of June 30, 2013, versus $58.2 million as of June 30, 2012. Furthermore, the Company has no long-term or short-term borrowings as of June 30, 2013.

Mr. Franki Tse, Chief Executive Officer, commented, “We are still facing a challenging environment which is reflected in our decreased sales in the quarter. Given the increases in labor wages, RMB appreciation and weak export sales, we believe the situation will remain difficult for the near term, but expect to see some slight improvement later this fiscal year. We will continue to be cautious with our expenses, and plan to sell some out of date SMT and idle injection machines, restructure our factory operations and keep strengthening our R&D and marketing teams. We are working closely with customers on both OEM and ODM projects, to explore more sales, business and investment opportunities. Our balance sheet remains strong with no short-term or long term debt..”

First Quarter Dividends

The Company also announced that on August 30, 2013 its board of directors declared a cash dividend of $0.05 per share and a special cash dividend of $0.02 for the fiscal first quarter ended June 30, 2013. The dividends will be payable on September 30, 2013 to shareholders of record as of September 11, 2013.

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 Lenbrook Industries, Ltd.

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)

June 30, 2013
   

March 31, 2013
ASSETS (Unaudited) (Audited)
 
Current assets :
Cash and cash equivalents $ 29,460 $ 32,030
Fixed deposits maturing over three months 9,878 8,684
Marketable securities 5,687 6,168
Available-for-sale securities 1,474 1,586
Accounts receivable, net 10,495 8,291
Inventories 11,727 11,376
Prepaid expenses and other current assets   1,319   1,152
Total current assets 70,040 69,287
Property, plant and equipment - net 41,676 42,694
Deferred income tax assets 195 192
Goodwill   392   392
Total assets $ 112,303 $ 112,565
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 4,771 $ 3,144
Accrued payroll and employee benefits 4,337 4,133
Customer deposits 1,184 1,254
Other accrued liabilities 1,396 1,260
Income taxes payable 629 592
Deferred income tax liabilities 653 606
Dividend payable   838   -
Total current liabilities   13,808   10,989
 
Shareholders' equity

Common shares nil par value - authorized 30,000,000 shares,

shares issued and outstanding June 30, 2013 - 16,228,308 (note 6);

March 31, 2013 - 16,387,648
 
52,457 52,443
Additional paid-in capital 6,406 6,831
Accumulated other comprehensive income 5,176 5,288
Retained earnings   34,456   37,014
Total shareholders' equity   98,495   101,576
Total liabilities and shareholders' equity $ 112,303 $ 112,565
DESWELL INDUSTRIES, INC.
 
CONSOLIDATED STATEMENT OF OPERATIONS &
  COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
( U.S. dollars in thousands, except per share data )
       
 
 
Quarter endedJune 30, Quarter endedJune 30,

2013

2012
 
Net sales $ 11,120 $ 14,488
Cost of sales   10,347     12,250  
Gross profit 773 2,238
Selling, general and administrative expenses 2,579 2,579
Other income, net   414     22  
Operating loss (1,392 ) (319 )
Non-operating income (loss), net   (250 )   443  
Income (Loss) before income taxes (1,642 ) 124
Income taxes   78     84  
Net income (loss) attributable to Deswell Industries, Inc. $ (1,720 )

 
$ 40
 
Other comprehensive loss
Unrealized loss on available-for-sale securities $ (112 ) $ (49 )
Comprehensive loss attributable to Deswell Industries, Inc. $ (1,832 ) $ (9 )
 
 
Net income (loss) per share attributable to
Deswell Industries, Inc.
Basic:
Net income (loss) per share $ (0.11 ) $ 0.0025  
Weighted average common shares outstanding

 
shares (in thousands)   16,289     16,203  
 
Diluted:
Net income (loss) per share $ (0.11 ) $ 0.0025  
Weighted average number of shares
outstanding (in thousands)   16,289     16,207  

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