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 June 28 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 Fourth Quarter and Year-End Results;
Revenues Increase 35% for the Quarter and 29% for the Year;
Deswell also Announces Fourth Quarter Dividend of $0.17 per Share
MACAO--(BUSINESS WIRE)--June 21, 2005--Deswell Industries, Inc.
(Nasdaq: DSWL) today announced its financial results for the fourth
quarter and year ended March 31, 2005.
Net sales for the fourth fiscal quarter ended March 31, 2005
increased 35.0% to $28.7 million from $21.3 million in the fourth
fiscal quarter ended March 31, 2004. Operating income for the fourth
quarter ended March 31, 2005 increased 28.4% to $3.6 million for the
most recent quarter, compared to $2.8 million for same period last
year. Net income for the fourth quarter of fiscal 2005 increased 23.7%
to $3.4 million compared to $2.7 million for the same period last
year. Basic earnings per share and diluted earnings per share for the
quarter increased to $0.23 and $0.23, respectively (based on
14,690,000 and 14,777,000 weighted average shares outstanding,
respectively), compared to $0.20 and $0.19, respectively (based on
13,722,000 and 14,227,000 weighted average shares outstanding,
respectively), in the quarter ended March 31, 2004.
Net sales for the year ended March 31, 2005 increased 29.2% to
$125.6 million from net sales of $97.2 million for the year ended
March 31, 2004. Operating income increased 8.5% to $17.8 million for
the year ended March 31, 2005, compared to $16.4 million for fiscal
2004. Net income for the year was $15.2 million, an increase of 3.1%
over net income of $14.7 million for the year ended March 31, 2004.
Basic earnings per share and diluted earnings per share decreased to
$1.04 and $1.02, respectively (based on 14,656,000 and 14,933,000
weighted average shares outstanding), compared to $1.08 and $1.04
respectively (based on 13,664,000 and 14,159,000 weighted average
shares outstanding), for the year ended March 31, 2004.
Total gross margin decreased to 25.6% in the fourth quarter ended
March 31, 2005 from 29.6% in the fourth quarter last year. Gross
profit in the plastic segment of 34.3% was approximately the same as
the fourth quarter of last year. Gross profit in the electronic &
metallic segment decreased to 18.0% of net sales for the quarter ended
March 31, 2005 compared to 23.4% of net sales last year. Materials
costs in the electronic & metallic segment increased approximately 5%
during the year. In most cases, this increase could not be passed
along to customers. Furthermore, Deswell offered volume pricing for
large orders obtained by its electronics division during the year.
The Company continues to maintain a strong financial position. The
Company's cash and cash equivalents on March 31, 2005 were $28.1
million, as compared to $30.2 million on March 31, 2004. Working
capital was $57.6 million as of March 31, 2005, versus $52.9 million
as of March 31, 2004. The Company has no long-term or short-term
borrowings.
Mr. Richard Lau, chairman and chief executive officer, commented,
"We are pleased to have reported growth in both our plastics, and
electronic & metallic divisions during the fourth quarter of 9.2% and
69.7% respectively and for the year of 12.4% and 49.4% respectively.
This year was a tough year for our plastic injection business segment,
especially with the significant increase in oil prices during the
early part of the year. In addition, we continued to see ongoing
pricing pressure. We continue to focus on improving our efficiency
through such initiatives as software upgrades and employee training,
while keeping a close eye on capacity and capital utilization."
"Looking ahead to fiscal 2006, we expect our electronics and
metallic division to continue to see strong sales growth of 20% to 30%
and our plastics segment revenues to remain fairly stable. The
construction of the next phase of our Dongguan plastic manufacturing
plant will likely be completed in early calendar 2006. We are in the
process of installing large-scale mould-making machines for our new
Export Tooling business. We are optimistic about the prospects for
this new division and look forward to aggressively marketing it to new
customers. Given our facility expansion, upgrade and new growth
opportunities, we expect outstanding performance in our plastics
division in fiscal 2007."
Fourth-Quarter Dividends
Deswell also announced that on June 20, 2005, its board of
directors declared a cash dividend of $0.17 per share, bringing cash
dividends per share for the year ended March 31, 2005 to $0.66. The
dividend will be payable on July 18, 2005 to shareholders of record as
of June 28, 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.
This press release may contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements in this press release are based on current
expectations and are subject to change. Actual results may differ
materially from the forward-looking statements. Deswell does not
undertake to update any such forward-looking statements or to publicly
announce developments or events relating to the matters described
herein. Uncertainties and risks are described in Deswell's most
recently filed SEC documents, such as its most recent form 20-F.
CONSOLIDATED STATEMENT OF INCOME
(U.S. dollars in thousands, except per share data )
Quarter ended Year ended
March 31, March 31,
2005 2004 2005 2004
---------- ---------- --------- -----------
(Unaudited)(Unaudited) (Unaudited) (Audited)
Net sales $ 28,693 $ 21,257 $ 125,590 $ 97,195
Cost of sales 21,356 14,959 92,072 66,105
---------- ---------- --------- -----------
Gross profit 7,337 6,298 33,518 31,090
Selling, general and
administrative expenses 3,726 3,486 15,759 14,718
---------- ---------- --------- -----------
Operating income 3,611 2,812 17,759 16,372
Interest expense (5) - (12) (16)
Other income, net 250 382 342 910
---------- ---------- --------- -----------
Income before income
taxes 3,856 3,194 18,089 17,266
Income taxes (note 5) 88 78 576 589
---------- ---------- --------- -----------
Income before minority
interests 3,768 3,116 17,513 16,677
Minority interests 415 406 2,330 1,957
---------- ---------- --------- -----------
Net income $ 3,353 $ 2,710 $ 15,183 $ 14,720
========== ========== ========= ===========
Basic earnings per
share (note 3) $ 0.23 $ 0.20 $ 1.04 $ 1.08
========== ========== ========= ===========
Weighted average number
of shares outstanding
(in thousands) (note 4) 14,690 13,722 14,656 13,664
========== ========== ========= ===========
Diluted earnings per
share (note 3) $ 0.23 $ 0.19 $ 1.02 $ 1.04
========== ========== ========= ===========
Diluted weighted average
number of shares
outstanding (in
thousands) (note 4) 14,777 14,227 14,933 14,159
========== ========== ========= ===========
DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
March 31, March 31,
2005 2004
---------- ---------
ASSETS (Unaudited) (Audited)
Current assets :
Cash and cash equivalents $ 28,073 $ 30,193
Restricted cash 1,040 390
Marketable securities 244 -
Accounts receivable, net 25,091 18,957
Inventories 21,136 16,174
Prepaid expenses and other current assets 4,761 2,952
Income taxes receivable 20 127
---------- ---------
Total current assets 80,365 68,793
Property, plant and equipment - net 56,133 44,261
Investment in associates - 2
Goodwill 478 478
---------- ---------
Total assets $ 136,976 $ 113,534
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,449 $ 11,168
Customer deposits and accrued expenses 6,015 4,619
Income taxes payable 325 130
---------- ---------
Total current liabilities 22,789 15,917
---------- ---------
Minority interests 9,420 7,872
---------- ---------
Deferred income tax - 15
---------- ---------
Shareholders' equity
Common stock
- authorized 30,000,000 shares; issued and
outstanding 14,778,730 shares at
March 31, 2005 and 13,723,627 shares at
March 31, 2004 (note 4) 39,068 29,980
Additional paid-in capital 6,970 6,970
Retained earnings 58,729 52,780
---------- --------
Total shareholders' equity 104,767 89,730
---------- --------
Total liabilities and shareholders' equity $ 136,976 $113,534
========== ========
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. dollars in thousands)
Year Year
ended ended
March 31, March 31,
---------------------
2005 2004
----------- ---------
(Unaudited) (Audited)
----------- ---------
Cash flows from operating activities:
Net income $ 15,183 $ 14,720
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 4,970 4,402
Loss on disposal of property, plant and
equipment 125 392
Realized gain on disposal of investment in
associated (297) -
Unrealized loss on revaluation of marketable
securities 53 -
Net realized gain on marketable securities - (533)
Minority interests 2,330 1,901
Deferred tax (15) -
Changes in current assets and liabilities:
Accounts receivable (6,134) (2,230)
Inventories (4,962) (1,390)
Prepaid expenses and other current assets (1,809) (304)
Income taxes receivable 107 196
Accounts payable 5,281 1,525
Customer deposits and accrued expenses 1,396 362
Income taxes payable 195 (3,816)
-------- --------
Net cash provided by operating activities 16,423 15,225
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (17,003) (19,862)
Proceeds from disposal of property, plant and
Equipment 36 430
Acquisition of marketable securities - (1,056)
Proceeds from disposal of investment in
associated 2 -
Proceeds from sale of marketable securities - 6,410
-------- --------
Net cash used in investing activities (16,965) (14,078)
-------- --------
Cash flows from financing activities
Dividends paid (9,234) (8,569)
Dividends paid to minority shareholders of
subsidiaries (756) (582)
Issue of Common Stock 9,092 1,733
Odd share redemption upon stock split (4) -
(Increase)/decrease in restricted cash (650) 1,976
Contribution from minority shareholders of
subsidiaries (26) 88
-------- --------
Net cash used in financing activities (1,578) (5,354)
-------- --------
Net increase/(decrease) in cash and cash
equivalents (2,120) (4,207)
Cash and cash equivalents, at beginning of year 30,193 34,400
-------- --------
Cash and cash equivalents, at end of year 28,073 30,193
======== ========
Supplementary disclosures of cash flow
information:
Cash paid/(refund) during the year for:
Interest $ 12 $ 16
Income taxes 289 4,210
======= =========
DESWELL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands except per share data)
1. Management's Statement
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and
recurring in nature) necessary to present fairly the financial
position of Deswell Industries, Inc. (the Company) at March 31,
2005 and March 31, 2004, the results of operations for the
quarters and year ended March 31, 2005 and March 31, 2004, and the
cash flows for the year ended March 31, 2005 and March 31, 2004.
The notes to the Consolidated Financial Statements contained in
the Form 20-F Annual Report filed on July 16, 2004 under the
Securities Exchange Act of 1934 should be read in conjunction with
these Consolidated Financial Statements.
2. Inventories
March 31, March 31,
2005 2004
Inventories by major categories:
Raw materials $ 8,329 $ 7,816
Work in progress 8,088 4,465
Finished goods 4,719 3,893
----------- ----------
$ 21,136 $ 16,174
============ ===========
3. Earnings Per Share
The basic net income per share and diluted net income per
share are computed in accordance with the Statement of
Financial Accounting Standards No.128 "Earnings Per Share".
The basic net income per share is computed by dividing income
available to common holders by the weighted average number of
common shares outstanding during the period. Diluted net
income per share gives effect to all dilutive potential common
shares outstanding during the period. The weighted average
number of common shares outstanding is adjusted to include the
number of additional common shares that would have been
outstanding if the dilutive potential common shares had been
issued. In computing the dilutive effect of potential common
shares, the average stock price for the period is used in
determining the number of treasury shares assumed to be
purchased with the proceeds from exercise of options.
The net income for the quarters and years ended March 31, 2005
and 2004 were both from the Company's continuing operations.
4. Stock Split
On February 22, 2005, the Company announced that it is
effecting a three-for-two stock split of its outstanding
shares to holders of record on March 15, 2005 and payable on
March 29, 2005.
The common stock, additional paid-in capital and earnings per
shares are presented with regard to the effects of stock split
on March 15, 2005.
DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company's revenues are derived from the manufacture and sale
of (i) injection-molded plastic parts and components, (ii) electronic
products and subassemblies and (iii) metallic parts and components.
The Company carries out all of its manufacturing operations in
southern China, where it is able to take advantage of the lower
overhead costs and inexpensive labor rates as compared to Hong Kong.
Quarter Ended March 31, 2005 Compared to Quarter Ended March 31,
2004
Net Sales - The Company's net sales for the quarter ended March
31, 2005 were $28,693,000, an increase of $7,436,000 or 35.0% as
compared to the corresponding period in 2004. This net increase was
due to the increase in sales within the plastic segment of $1,125,000
and the increase in sales within the electronic & metallic segment of
$6,311,000. This represented an increase of 9.2% and 69.7%
respectively, as compared with net sales from these segments in the
corresponding period in the prior year.
The revenue increase in the plastic segment was mainly a result of
an increase in orders from its existing and new customers of $390,000
and $735,000 respectively during the quarter. The increase in net
sales in the electronic & metallic segment was mainly due to an
increase in orders from both its existing customers and new customers
of $6,075,000 and $768,000 respectively, offsetting the net decrease
in orders from old customers of $532,000 during the quarter ended
March 31, 2005. The net increase resulted from a change in the
customer mix during the period as compared with last year.
Gross Profit - The gross profit for the quarter ended March 31,
2005 was $7,337,000, representing a gross profit margin of 25.6%. This
compares with the overall gross profit and gross profit margin of
$6,298,000 or 29.6% for the quarter ended March 31, 2004.
Gross profit in the plastic segment increased by $383,000 to
$4,567,000 or 34.3% of net sales, for the quarter ended March 31, 2005
compared to $4,184,000 or 34.3% of net sales, for fiscal 2004. Gross
profit in the electronic & metallic segment increased by $656,000 to
$2,770,000 or 18.0% of net sales, for the quarter ended March 31, 2005
compared to $2,114,000 or 23.4% of net sales, for the same period last
year. This was mainly attributed to the change in sales mix and the
increased demand in lower margin products over the corresponding prior
period. There was also an increase in electronic material cost which
could not be reflected in the selling price to customers. Finally,
Deswell offered volume pricing for large orders obtained by its
electronics division.
Selling, general and administrative expenses - SG&A expenses for
the quarter ended March 31, 2005 were $3,726,000, amounting to 13.0%
of total net sales, as compared to $3,486,000 or 16.4% of total net
sales for the quarter ended March 31, 2004. There was an increase in
selling, general and administrative expenses of $240,000 over the
corresponding period.
The SG&A expenses in the plastic segment decreased by $96,000 or
4.2% to $2,171,000 or 16.3% of net sales for the quarter ended March
31, 2005 compared to $2,267,000 or 18.6% of net sales, for the
corresponding period in 2004. This was mainly due to tightened expense
control.
The SG&A expenses in the electronic & metallic segment increased
by $336,000 or 27.6% to $1,555,000 or 10.1% of net sales, for the
quarter ended March 31, 2005 compared to $1,219,000 or 13.5% of net
sales for corresponding period in 2004. The increase was primarily
related to the increase in salary expenses of $120,000, other general
administration expenses of $133,000 and selling expenses of $102,000
during the quarter ended March 31, 2005.
Operating income - Operating income was $3,611,000 for the quarter
ended March 31, 2005, an increase of $799,000 or 28.4% as compared
with the corresponding quarter in the prior year.
On a segment basis, the operating income of the plastic division
increased $479,000 to $2,396,000 or 18.0% of net sales, in the quarter
ended March 31, 2005 compared to $1,917,000 or 15.7% of net sales in
the corresponding period in 2004. The increase in operating income was
attributable to the increase in net sales together with the decrease
in SG&A expenses.
The operating income of electronic & metallic segment increased
$320,000 to $1,215,000 or 7.9% or net sales, in the quarter ended
March 31, 2005 compared to $895,000 or 9.9% of net sales in the
corresponding period in 2004. The increase in operating income was
attributable to the increase in gross profit offsetting the increase
in SG&A expenses as described above.
Other income - Other income was $250,000 for the quarter ended
March 31, 2005, a decrease of $132,000 as compared with the
corresponding period in prior year.
On a segment basis, other income attributable to the plastic
segment decreased $160,000 to $16,000 in the quarter ended March 31,
2005, compared to $176,000 in the prior period. This decrease in other
income was primarily attributable to the decrease in loss on disposal
of fixed assets of $108,000 in the quarter ended March 31, 2005 as
compared with corresponding period in 2004.
Other income attributable to the electronic & metallic segment
increased $28,000 to $234,000 in the quarter ended March 31, 2005,
compared to $206,000 in the prior period. This increase in other
income was mainly due to a gain on disposal of investments of
$295,000, offsetting the unrealized loss on revaluation of marketable
securities of $53,000, increase in exchange loss of $25,000, the
decrease in rental income and other miscellaneous income of $34,000
and $183,000 in the quarter ended March 31, 2005.
Income Taxes - Income tax expenses for the quarter were $88,000,
an increase of $10,000 as compared with the corresponding quarter in
the prior year.
On a segment basis, the income taxes of plastic segment increased
$111,000 to $90,000 for the quarter ended March 31, 2005 whereas the
income tax expenses for the electronic & metallic segment decreased
$101,000 from $99,000 for the quarter ended March 31, 2004,
respectively. The increase in the plastic segment was primarily due to
an increase in net sales and tax provision in the quarter ended March
31, 2005 whereas the decrease in the electronic & metallic segment was
due to the increase in tax exemption received since we relocated our
trading operation to Macao since June 2004 offsetting the increase in
net sales during the quarter ended March 31, 2005.
Minority Interest - Minority interests represent a 29% minority
interest in Integrated International Limited, the holding company
holding the capital stock of Deswell's electronic & metallic
subsidiaries and a 49% minority interest in the subsidiary conducting
marketing for Deswell's plastic and electronic businesses. In January
2003, the Company acquired an additional 20% interest in Integrated,
increasing its ownership in that subsidiary from 51% to 71%. In
January 2005, the marketing subsidiary ceased operations and was
dormant during the quarter ended March 31, 2005. Despite the decrease
in minority interest in Deswell's electronic & metallic segment, the
dollar amount of minority interest increased to $415,000 for the
quarter ended March 31, 2005, from $406,000 for the corresponding
quarter in the prior year, which reflects that the electronics and
metallic subsidiaries generated more net income in the quarter ended
March 31, 2005, compared with corresponding quarter in fiscal 2004.
Net Income - Net income was $3,353,000 for the quarter ended March
31, 2005, an increase of $643,000 or 23.7%, as compared to $2,710,000
for the quarter ended March 31, 2004, and net income as a percentage
of net sales was slightly decreased from 12.7% to 11.7% for the
quarter ended March 31, 2005.
Net income for the plastic segment increased by 16.2% to
$2,323,000 for the quarter ended March 31, 2005 compared to $1,999,000
for the corresponding quarter in 2004. The increase in net income of
the plastic segment was mainly the result of the increase in operating
income, the decrease in SG&A expenses and in minority interest,
offsetting the decrease in other income and the increase in income tax
expenses, as described above.
Net income for the electronic & metallic segment increased by
44.9% to $1,030,000 for the quarter ended March 31, 2005 compared to
$711,000 for the corresponding quarter in 2004. The increase in net
income of the electronic & metallic segment was mainly the result of
the increase in operating profit, the increase in other income and the
decrease in income tax expenses, offsetting the increase in minority
interest, as described above.
Year Ended March 31, 2005 Compared to Year Ended March 31, 2004
Net Sales - The Company's net sales for the year ended March 31,
2005, were $125,590,000, an increase of $28,395,000 or 29.2% as
compared to year ended March 31, 2004. The increase in sales was
mainly related to the increase in sales of plastic segment of
$6,596,000 and the increase in sales of electronic & metallic segment
of $21,799,000. This represented an increase of 12.4% and 49.4%,
respectively, as compared with the respective net sales from these
segments in the prior year.
The revenue increase in the plastics segment was mainly a result
of increase in orders from its existing and new customers of
$5,461,000 and $1,135,000 respectively as compared to the
corresponding period last year. The increase in net sales in the
electronic & metallic segment was mainly due to an increase in orders
from both existing and new customers of $21,041,000 and $1,950,000
respectively, offsetting the net decrease in orders from old customers
of $1,192,000 during the year ended March 31, 2005. The net increase
resulted from a change in the customer mix during the period as
compared with last year.
Gross Profit - The gross profit for the year ended March 31, 2005
was $33,518,000, representing a gross profit margin of 26.7%. This
compares with the overall gross profit and gross profit margin of
$31,090,000 or 32.0% for the year ended March 31, 2004.
Gross profit in plastic segment decreased by $266,000, to
$20,752,000 or 34.8% of net sales, for fiscal year ended March 31,
2005 compared to $21,018,000 or 39.6% of net sales for fiscal 2004.
This was mainly attributed to an average 20% to 30% increase in resin
cost and the increase in net sales of relatively lower margin plastic
injection assembly over fiscal year 2005, and therefore offsetting the
increase in net sales for the year.
Gross profit in the electronic & metallic segment increased by
$2,694,000 to $12,766,000 or 19.4% of net sales, for fiscal year ended
March 31, 2005 compared to $10,072,000 or 22.8% of net sales, for
fiscal 2004. This was mainly attributed to the change in sales mix and
the increased demand for lower margin products over the corresponding
year. There was also an increase in electronic material cost which
could not be reflected in the selling price to customers. Finally,
Deswell offered volume pricing for large orders obtained by its
electronics division.
Selling, general and administrative expenses - SG&A expenses for
the year ended March 31, 2005 were $15,759,000, amounting to 12.5% of
total net sales, as compared to $14,718,000 or 15.1% of total net
sales for the year ended March 31, 2004.
The SG&A expenses in the plastic segment increased by $86,000 or
0.9%, to $9,890,000 or 16.6% of net sales, for the year ended March
31, 2005 compared to $9,804,000 or 18.5% of net sales, for fiscal
2004.
The SG&A expenses in the electronic & metallic segment increased
by $955,000 or 19.4%, to $5,869,000 or 8.9% of net sales, for the year
ended March 31, 2005 compared to $4,914,000 or 11.1% of net sales for
fiscal 2004. The increase was primarily related to the increase in
salary expenses of $542,000, other general administration expenses of
$350,000 and selling expenses of $218,000 offsetting the decrease in
depreciation expenses of $159,000 during the year ended March 31,
2005.
Operating income - Operating income was $17,759,000 for the year
ended March 31, 2005, an increase of $1,387,000 or 8.5% as compared
with the prior year.
On a segment basis, the operating income of plastic segment
decreased $352,000 to $10,862,000 or 18.2% of net sales, in fiscal
2005 compared to $11,214,000 or 21.1% of net sales in fiscal 2004. The
decrease in operating income was due to the decrease in gross profit
together with the increase in SG&A expenses.
The operating income of electronic & metallic segment increased
$1,739,000 to $6,897,000 or 10.5% of net sales, in fiscal 2005
compared to $5,158,000 or 11.7% of net sales in fiscal 2004. The
increase in operating income is attributable to the increase in net
sales and gross profit, despite the increase in SG&A expenses
described above.
Income Taxes - Income tax expense was $576,000 for the year ended
March 31, 2005, compared to $589,000 for the prior year.
On a segment basis, the income taxes of plastic segment decreased
$51,000 to $202,000 for the year ended March 31, 2005 whereas the
income tax expenses for the electronic & metallic segment increased
$38,000 to $374,000 for the year ended March 31, 2005, respectively.
The decrease in the plastic segment was primarily due to the increase
in net sales in the subsidiary which are still in tax exemption
holiday period during the year ended March 31, 2005 whereas the
increase in the electronic & metallic segment was due to the increase
in net sales despite the tax exemption received since we relocated our
trading operation to Macao in June 2004 during the fiscal year 2005.
Minority Interest -Minority interests represent a 29% minority
interest in Integrated International Limited, the holding company
holding the capital stock of Deswell's electronic & metallic
subsidiaries and a 49% minority interest in the subsidiary conducting
marketing for Deswell's plastic and electronic businesses. In January
2003, the Company acquired an additional 20% interest in Integrated,
increasing its ownership in that subsidiary from 51% to 71%. In
January 2005, the marketing subsidiary ceased operations and has been
dormant since then. Despite the decrease in minority interest in
Deswell's electronic & metallic segment, the dollar amount of minority
interest increased to $2,330,000 for the year ended March 31, 2005,
from $1,957,000 in the prior year, which reflects that the electronics
and metallic subsidiary generated more net income in the quarter ended
March 31, 2005, compared with corresponding quarter in fiscal 2004.
Net Income - Net income was $15,183,000 for the year ended March
31, 2005, an increase of $463,000 or 3.6%, as compared to the year
ended March 31, 2004, and net income as a percentage of net sales
decreased to 12.1% from 15.1%.
Net income for the plastic segment decreased by 5.7% to
$10,374,000 for fiscal 2005 compared to $10,996,000 for fiscal 2004.
The decrease in net income of the plastic segment was mainly the
result of the decrease in operating income and other income offsetting
the decrease in tax expenses described above.
Net income for the electronic & metallic segment increased
$1,085,000 or 29.1% to $4,809,000 for fiscal 2005 compared to
$3,724,000 for fiscal 2004. The increase in net income of the
electronic & metallic segment was mainly the result of the increase in
operating income offsetting the decrease in other income, the increase
in income tax expenses and minority interest as described above.
Liquidity and Capital Resources
During the past five years, the Company has relied primarily upon
internally generated funds and short-term borrowings (including trade
finance facilities) to finance its operations and expansion.
As of March 31, 2005, the Company had a working-capital surplus of
$57,576,000 and cash and cash equivalent of $28,073,000. This compares
with a working-capital surplus of $52,876,000 and cash and cash
equivalent of $30,193,000 at March 31, 2004. The decrease in cash and
cash equivalent was mainly attributed to net cash generated from its
operating activities of $16,423,000 and the exercise of stock options
of $9,092,000, offsetting the cash dividend distributed of $9,234,000
and the capital investment of $17,003,000 during the year. The
increase in capital investment was mainly related to the construction
and purchase of machinery for our new plastic-injection manufacturing
plant in Dongguan.
The Company has generated sufficient funds from its operating
activities to finance its operations and there is little need for
external financing other than short-term borrowings that are used to
finance accounts receivable and are generally paid with cash generated
from operations. The Company has no long-term debt or short-term
borrowings at March 31, 2005.
As of March 31, 2005, the Company had in place general banking
facilities with three financial institutions aggregating approximately
$8,078,000. Such facilities, which are subject to annual review,
include overdrafts, letters of credit, import facilities, trust
receipt financing, inward bills financing as well as fixed loans. As
of March 31, 2005, the Company had (i) unused credit facilities of
$8,078,000 (ii) cash and cash equivalents of $28,073,000 and (iii)
restricted cash of $1,040,000, which has been pledged as collateral
for those credit facilities. The restricted cash of $1,040,000 and
leasehold land and buildings of $1,259,000 have been pledged as
collateral for those credit facilities.
The Company expects that working capital requirements and capital
additions will be funded through a combination of internally generated
funds and existing facilities.
CONTACT: The Investor Relations Group
John G. Nesbett
Jordan Silverstein
212-825-3210
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: June 28, 2005