DESWELL
CONTACT:
John G. Nesbett
Lippert/Heilshorn & Associates
212-838-3777, ext. 6631
e-mail: jnesbett@lhai.com
DESWELL INDUSTRIES, INC. ANNOUNCES THIRD QUARTER RESULTS
- NET SALES UP 20% AND NET INCOME UP 22% -
- EARNINGS PER SHARE OF $0.67 -
HONG KONG (February 21, 2001) - Deswell Industries, Inc. (Nasdaq Symbol: DSWL)
today announced its results for the third quarter and nine months ended December
31, 2000.
Net sales for the quarter were $21.4 million, an increase of 20% compared to
sales of $17.8 million in the third quarter ended December 31, 1999. Operating
income increased 4% to $3.3 million, compared to $3.2 million in the previous
year, and net income increased 22% to $3.6 million, compared to $2.9 million in
the previous year. Basic earnings per share and diluted earnings per share
increased 22% and 21% to $0.67 and $0.66 respectively (based on 5,358,000 and
5,454,000 weighted average shares outstanding, respectively), compared to $0.55
and $0.54 respectively (based on 5,348,000 and 5,415,000 weighted average shares
outstanding, respectively), in the third quarter ended December 31, 1999.
Net sales for the nine months ended December 31, 2000 were $64.0 million, an
increase of 39% compared to sales of $46.0 million for the corresponding period
in 1999. Operating income increased 31% to $11.2 million, compared to $8.6
million in the previous year, and net income increased 23% to $10.4 million,
compared to $8.4 million in the previous year. Basic earnings per share and
diluted earnings per share increased 25% and 24% to $1.94 and $1.92 respectively
(based on 5,352,000 and 5,407,000 weighted average shares outstanding,
respectively), compared to $1.55 and $1.54 respectively (based on 5,433,000 and
5,451,000 weighted average shares outstanding, respectively), for the nine
months ended December 31, 1999.
The Company reported a continued strong financial position with book value per
share of $10.97 and cash per share of $4.51. The Company has no short-term or
long-term debt.
Mr. Richard Lau, chief executive officer, commented, "We are pleased with our
continued growth in revenue in the third quarter ended December 31, 2000.
Jetcrown, our plastics division, recorded a 21% and 30% increase in net revenue
for the quarter and for the nine months respectively over the prior year. Our
plastic injection plant in Dongguan began to provide the much needed added
capacity for the business we anticipate from existing customers. Our aggressive
build-out of the new Dongguan facility impacted our operating margin during the
quarter as the factory started to come on-line, but we anticipate operating
margins to improve as volume increases. Furthermore, we are very excited about
the recently leased 1.3 million square feet of land in Dongguan, and we are
currently preparing designs and selecting contractors which we expect will take
three to five months."
"Kwanasia and Kwanta, our electronics and metallics divisions, recorded a 18%
and 56% increase in net revenue for the quarter and for the nine months
respectively over the prior year and we expect that all divisions should perform
well for the rest of the year. Our focus in coming years is on building out our
capacity for our existing and new customers while focusing on cost controls to
maximize profitability for shareholders," concluded Mr. Lau.
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 pin-through
hole ("PHT") interconnection technologies; and finished products such as
telephones, telephone answering machines, sophisticated studio-quality audio
equipment and computer peripherals. The Company's customers include Kyocera Mita
Industrial Co. (H.K.) Limited, Epson Precision (H.K.) Ltd., Namtai Electronics
(Shenzhen) Co. Ltd., Inter-Tel Incorporated, Vtech Communications Ltd., Peavey
Electronics Corporation and Emerson.
To learn more about Deswell Industries, Inc., please visit the Company's web
site at www.deswell.com.
TABLES FOLLOW
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
( U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
Quarter ended Nine months ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $ 21,376 $ 17,809 $ 63,971 $ 46,000
Cost of sales 13,757 11,554 40,942 28,426
----------- ------------ ------------ -------------
Gross profit 7,619 6,255 23,029 17,574
Selling, general and administrative expenses 4,282 3,054 11,801 8,998
----------- ------------ ------------ -------------
Operating income 3,337 3,201 11,228 8,576
Interest expense - - (5) -
Other income, net 436 281 610 926
----------- ------------ ------------ -------------
Income before income taxes 3,773 3,482 11,833 9,502
Income taxes 97 339 560 698
----------- ------------ ------------ -------------
Income before minority interests 3,676 3,143 11,273 8,804
Minority interests 87 199 916 411
----------- ------------ ------------ -------------
Net income $ 3,589 $ 2,944 $ 10,357 $ 8,393
======== ======== ======== ========
Basic earnings per share (note 3) $ 0.67 $ 0.55 $ 1.94 $ 1.55
======== ======== ======== ========
Weighted average number of shares 5,358 5,348 5,352 5,433
outstanding (in thousands) ======== ======== ======== ========
Diluted earnings per share (note 3) $ 0.66 $ 0.54 $ 1.92 $ 1.54
======== ======== ======== ========
Diluted weighted average number of shares 5,454 5,415 5,407 5,451
outstanding (in thousands) ======== ======== ======== ========
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DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
( U.S. DOLLARS IN THOUSANDS)
December 31, March 31,
2000 2000
---- ----
ASSETS (Unaudited)
Current assets :
Cash and cash equivalents $ 21,905 $ 27,156
Restricted cash 2,244 2,129
Marketable securities - 1,308
Accounts receivable, net 17,994 10,607
Inventories 12,247 10,932
Prepaid expenses and other current assets 4,321 2,295
Income taxes receivable - 164
------------ -------------
Total current assets 58,711 54,591
Property, plant and equipment - net 21,275 16,701
Goodwill 522 549
------------ -------------
Total assets $ 80,508 $ 71,841
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,834 $ 5,401
Customer deposits and accrued expenses 5,640 4,362
Income taxes payable 415 101
------------ -------------
Total current liabilities 11,889 9,864
------------ -------------
Minority interests 9,835 8,931
------------ -------------
Deferred income tax 15 15
------------ -------------
Shareholders' equity
Common stock
- authorized 20,000,000 shares; issued and outstanding
5,357,931 shares at December 31, 2000 and
5,347,931 shares at March 31, 2000 54 53
Additional paid-in capital 24,227 24,100
Retained earnings 34,488 28,878
------------ -------------
Total shareholders' equity 58,769 53,031
------------ -------------
Total liabilities and shareholders' equity $ 80,508 $ 71,841
============ =============
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
( U.S. DOLLARS IN THOUSANDS )
Nine months ended
December 31,
------------------------------------------
2000 1999
---- ----
Cash flows from operating activities :
Net income $ 10,357 $ 8,393
Adjustments to reconcile net income to net cash
provided by operating activities :
Depreciation and amortization 3,707 3,541
Loss on disposal of property, plant and equipment 15 19
Minority interests 916 437
Changes in current assets and liabilities :
Accounts receivable (7,401) (3,553)
Marketable securities 1,306 134
Inventories (1,329) (3,044)
Prepaid expenses and other current assets (2,029) 2,413
Income taxes receivable 164 233
Accounts payable 440 2,069
Customer deposits and accrued expenses 1,284 (277)
Income taxes payable 314 314
------------------- -------------------
Net cash provided by operating activities 7,744 10,679
------------------- -------------------
Cash flows from investing activities
Purchase of property, plant and equipment (8,297) (4,998)
Proceeds from disposal of property, plant and equipment 6
173
Acquisition, excluding cash acquired - (32)
Increase in long term investment - (1,072)
(Increase)/decrease in restricted cash (118) 444
------------------- -------------------
Net cash used in investing activities (8,409) (5,485)
------------------- -------------------
Cash flows from financing activities
Common stock repurchased & cancelled - (1,257)
Common stock issued
159 -
Exchange difference on translation (35) -
Dividends paid (4,710) (4,777)
------------------- -------------------
Net cash used in financing activities (4,586) (6,034)
------------------- -------------------
Net decrease in cash and cash equivalents (5,251) (840)
Cash and cash equivalents, at beginning of period 27,156 27,556
------------------- -------------------
Cash and cash equivalents, at end of period 21,905 26,716
=================== ===================
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Supplementary disclosures of cashflow information: Cash paid during the period
for:
Interest 5 -
Income taxes 404 154
=================== ===================
Acquisition of subsidiary, excluding cash acquired:
Goodwill - 224
Minority Interests -
(192)
------------------- -------------------
Cash paid, net of cash acquired - 32
=================== ===================
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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 December 31,
2000 and March 31, 2000, the results of operations for the quarters
and nine months ended December 31, 2000 and December 31, 1999, and
the cash flows for the nine months ended December 31, 2000 and
December 31, 1999. The notes to the Consolidated Financial Statements
that are contained in the Form 20-F Annual Report filed on July 6,
2000 under the Securities Exchange Act of 1934 should be read in
conjunction with these Consolidated Financial Statements.
2. INVENTORIES
-----------
December 31, March 31,
2000 2000
----------------- ---------------
Inventories by major categories:
Raw materials $ 7,162 $ 6,924
Work in progress 2,626 1,553
Finished goods 2,459 2,455
---------------- --------------
$ 12,247 $ 10,932
================ ==============
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 nine months ended December 31,
2000 and 1999 were both from the Company's continuing operations.
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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 DECEMBER 31, 2000 COMPARED TO QUARTER ENDED DECEMBER 31, 1999
- ---------------------------------------------------------------------------
The Company's net sales for the quarter ended December 31, 2000 were
$21,376,000, an increase of $3,567,000, or 20.0%, as compared to the
corresponding period in 1999. The increase in sales was mainly related to
increases in sales of injection-molded plastic products and electronic and
metallic products of $2,349,000 and $1,218,000, respectively. This represented
increases of 21.2% and 18.1%, respectively, as compared with the net sales in
the corresponding period in the prior year.
The increase in net sales in both operations was attributed to the increase in
orders from the existing strong customer base together with the new orders from
new customers.
The gross profit for the quarter ended December 31, 2000 was $7,619,000,
representing a gross profit margin of 35.6%. This compares with the overall
gross profit and gross profit margin of $6,255,000 or 35.1% respectively for the
quarter ended December 31, 1999.
Selling, general and administrative expenses for the quarter ended December 31,
2000 were $4,282,000, or 20.0% of total net sales, compared with $3,054,000 or
17.1% of total net sales for the quarter ended December 31, 1999. The increase
in selling, general and administrative expenses of $1,228,000 over the
corresponding period was mainly attributed to the increase in general and
administrative expenses resulted from the commencement of operation of our
Dongguan plant since July 2000.
As a result of the increase in sales revenue, operating income was $3,337,000
for the quarter ended December 31, 2000; an increase of $136,000 or 4.2% as
compared with the corresponding quarter in the prior year.
Minority interest represents the 49% minority interest in both the electronics
and metallics subsidiaries. The decrease in minority interest to $87,000 for the
quarter ended December 31, 2000 from $199,000 for the quarter ended December 31,
2000 reflects the decreased profits generated by the electronics and metallics
business.
As a result of the above factors, net income was $3,589,000 for the quarter
ended December 31, 2000, an increase of $645,000 or 21.9%, as compared to the
quarter ended December 31, 1999 and net income as a percentage of net sales
increased slightly to 16.8% from 16.5%.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS
- -----------------------------------------------------------
ENDED DECEMBER 31, 1999
- -----------------------
The Company's net sales for the nine months ended December 31, 2000 were
$63,971,000, an increase of $17,971,000 or 39.1% as compared to corresponding
period in 1999. The increase in sales was mainly related to increases in sales
of injection-molded plastic products and electronic and metallic products of
$8,719,000 and $9,252,000, respectively. This represented increases of 29.6% and
56.0%, respectively, as compared with the net sales in the corresponding period
in the prior year.
The increase in net sales in both operations was attributed to the substantial
increase in orders from existing strong customer base together with the new
orders from new customers.
The gross profit for the nine months ended December 31, 2000 was $23,029,000,
representing a gross profit margin of 36.0%. This compares with the overall
gross profit and gross profit margin of $17,574,000 or 38.2% for the nine months
ended December 31, 1999. The decrease in the overall gross profit margin of 2.2%
was mainly attributed to the combined effect of the increase in resin costs and
electronics component costs in the plastic and electronic division respectively.
Selling, general and administrative expenses for the nine months ended December
31, 2000 were $11,801,000, amounting to 18.4% of total net sales, as compared to
$8,998,000 or 19.6% of total net sales for the nine months ended December 31,
1999. The increase in selling, general and administrative expenses of $2,803,000
over the corresponding period was mainly attributed to the increase in general
and administrative expenses resulted from the commencement of operation of our
Dongguan plant since July 2000.
As a result, operating income was $11,228,000 for the nine months ended December
31, 2000, an increase of $2,652,000 or 30.9% as compared with the corresponding
period in the prior year.
Minority interest represents the 49% minority interest in both the electronics
and metallic subsidiaries. The increase in minority interest to $916,000 for the
nine months ended December 31, 2000 from $411,000 for the nine months ended
December 31, 1999 reflects the increased profits generated by the electronic and
metallic business.
As a result of the above factors, net income was $10,357,000 for the nine months
ended December 31, 2000, an increase of $1,964,000 or 23.4%, as compared to the
nine months ended December 31, 1999 and net income as a percentage of net sales
slightly decreased to 16.2% from 18.2%.
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DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Traditionally, 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 December 31, 2000, the Company had a working capital surplus of
$46,822,000. This compares with a working capital surplus of $44,727,000 at
March 31, 2000. The increase in working capital was mainly attributed to the
increase in net sales netting off a dividend distribution of $4,710 and the
capital investment of $8,297,000 during the nine months ended December 31, 2000.
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 which are used to finance accounts receivable and are
generally paid from cash generated from operations. The Company has no
outstanding short-term borrowings and long-term debt at December 31, 2000.
As of December 31, 2000, the Company had in place general banking facilities
with two financial institutions aggregating approximately $15,698,000. 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 December 31, 2000, the Company had ( i ) unused
credit facilities of $15,698,000 ( ii ) cash and cash equivalents of $21,905,000
and ( iii ) restricted cash of $2,244,000, which has been pledged as collateral
for those credit facilities. The restricted cash of $2,151,000 and leasehold
land and buildings of $1,385,000 have been pledged as collateral for those
credit facilities. The Company also had $93,000 pledged as deposit for customs
duty in Dongguan, China.
The Company expects that working capital requirements and capital additions will
be funded through a combination of internally generated funds and existing
facilities.
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