Deswell
Announces Third Quarter Results
FOR IMMEDIATE
RELEASE
MACAO
(March 2, 2010) - Deswell Industries, Inc. (Nasdaq: DSWL) today announced its
financial results for the fiscal third quarter ended December 31,
2009.
Net sales
for the third quarter ended December 31, 2009 were $21.4 million, a decrease of
42.4% compared to net sales of $37.1 million for the same quarter ended December
31, 2008. Net sales decreased by 36.7% to $13.1 million in the plastic segment
and by 49.7% to $8.2 million in the Company’s electronic and metallic segment.
The operating income in the third quarter was $0.3 million, compared
to an operating income of $0.9 million for the same quarter of
2008.
Total
gross margin improved to 18.9% in the third quarter ended December 31, 2009
compared to 17.3% in the same quarter last year. Gross profit in the
plastic segment slightly increased to 25.3% of net sales for the third quarter
of fiscal 2010 compared to 25.1% of net sales for the same quarter of last
year. The increased gross margin in the plastic segment was mainly
due to lower materials usage and drop in plastic resin price, offsetting the
increase in labor costs due to overtime allowance, as well as an increase in
factory overhead. Gross profit in the electronic and metallic
segment increased to 8.5% of net sales for the third quarter ended December 31,
2009, compared to 7.3% of net sales for the year-ago quarter. The
improved gross margin in the electronic and metallic segment was mainly
attributed to lower materials cost offsetting higher factory
overheads.
The
Company reported a net loss of $0.4 million for the third quarter ended December
31, 2009 compared to net income of $1.0 million for the quarter ended December
31, 2008. Basic net loss per share and diluted net loss per share
decreased to $0.03 and $0.03 respectively, (based on 16,003,000 and 16,017,000
weighted average shares outstanding, respectively) compared to earnings per
share of $0.06 and $0.06 respectively, (based on 15,791,000 and 15,791,000
weighted average shares outstanding, respectively) for the same quarter ended
December 31, 2008.
Net sales
for the nine months ended December 31, 2009 were $65.0 million, a decrease of
37.8%, compared to sales of $104.4 million for the corresponding period in
2008. Operating loss for the nine months ended December 31, 2009 was
$1.2 million, compared to operating income of $0.5 million for the first nine
months of fiscal 2009. The Company reported net income of $2.4
million for the nine months ended December 31, 2009, compared to net income of
$0.6 million for the nine months ended December 30, 2008. Deswell
reported basic and diluted net income per share for the nine months ended
December 31, 2009 of $0.15 and $0.15, respectively (based on 15,892,000 and
15,962,000 weighted average share outstanding, respectively), compared to
earnings per share of $0.04 and $0.04, respectively (based on 15,791,000 and
15,799,000 weighted average shares outstanding, respectively), for the nine
months ended December 31, 2008.
The
Company's financial position remained strong at the end of the third quarter of
fiscal year 2010, with $42.2 million in cash and cash equivalents at December
31, 2009, compared to $23.1 million on March 31, 2009. Working
capital totaled $60.7 million as of December 31, 2009, versus $52.6 million as
of March 31, 2009. Furthermore, the Company has no long-term or
short-term borrowings at December 31, 2009.
Mr. Franki
Tse, chief executive officer, commented, “During the past quarter, we continued
to see the impact of the difficult global economy and our sequential sales
performance was essentially flat. We continuously drive efforts to
diversify our customer base and products. There has been some
strengthening in order volume recently and we believe that we are well
positioned to benefit from a recovering global economy. That being
said, we remain cautious and continue to evaluate ways to reduce
expenses. Gross margins were strong and we maintained SG&A
consistent with the second quarter.”
Mr. Tse
continued, “Deswell has maintained a strong balance sheet with third quarter
book value per share of more than $7.00 and working capital over $61
million. Nonetheless, given our loss for the quarter, we have
suspended the dividend to conserve cash and best position us to drive future
performance.”
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
N&J Company, Digidesign Inc., Vtech Telecommunications Ltd., Inter-Tel
Incorporated, Focusrite Audio Engineering, Ltd.
To learn
more about Deswell Industries, Inc., please visit the Company’s web site 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.
Investor
Relations Contact:
John
Nesbett/Jennifer Belodeau
Institutional
Marketing Services (IMS)
203.972.9200
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DESWELL INDUSTRIES, INC.
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CONSOLIDATED BALANCE SHEET
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(
U.S. dollars in thousands)
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December
31,
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March
31,
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2009
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2009
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ASSETS
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(Unaudited)
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(Audited)
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Current
assets :
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Cash
and cash equivalents
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$ |
42,239 |
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$ |
23,134 |
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Marketable
securities
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269 |
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100 |
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Accounts
receivable, net
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17,257 |
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22,227 |
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Inventories
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16,028 |
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21,445 |
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Assets
held for sale
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- |
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987 |
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Prepaid
expenses and other current assets
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1,361 |
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1,887 |
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Total
current assets
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77,154 |
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69,780 |
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Property,
plant and equipment - net
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62,056 |
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66,564 |
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Deferred
income tax assets
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421 |
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746 |
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Goodwill
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392 |
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392 |
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Total
assets
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$ |
140,023 |
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$ |
137,482 |
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities
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Accounts
payable
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$ |
9,613 |
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$ |
10,370 |
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Accrued
payroll and employee benefits
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1,236 |
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2,473 |
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Customer
deposits
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1,104 |
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1,460 |
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Other
accrued liabilities
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3,225 |
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2,167 |
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Income
taxes payable
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1,283 |
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705 |
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Total
current liabilities
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16,461 |
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17,175 |
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Minority
interests
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- |
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- |
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Shareholders'
equity
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Common
stock
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- authorized
30,000,000 shares; issued and outstanding
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16,188,810
shares at December 31, 2009 and
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15,790,810
shares at March 31, 2009, respectively
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50,795 |
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49,923 |
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Additional
paid-in capital
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7,720 |
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7,771 |
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Accumulated
other comprehensive income
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5,316 |
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5,316 |
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Retained
earnings
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59,731 |
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57,297 |
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Total
shareholders' equity
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123,562 |
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120,307 |
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Total
liabilities and shareholders' equity
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$ |
140,023 |
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$ |
137,482 |
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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, 2009 and March 31, 2009, the results of operations for the nine
months ended December 31, 2009 and December 31, 2008, and the cash flows for the
nine months ended December 31, 2009 and December 31, 2008. The notes
to the Consolidated Financial Statements contained in the Form 20-F Annual
Report filed on August 14, 2009 under the Securities Exchange Act of 1934 should
be read in conjunction with these Consolidated Financial
Statements.
2.
Inventories
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December
31,
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March
31,
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2009
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2009
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Inventories
by major categories :
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Raw
materials
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$ |
10,118 |
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$ |
11,930 |
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Work in progress
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2,820 |
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4,941 |
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Finished
goods
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3,090 |
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4,574 |
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$ |
16,028 |
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$ |
21,445 |
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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 potentially
dilutive 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 potentially
dilutive 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 ended December 31, 2009 and 2008 were both from the
Company’s continuing operations.
4.
Foreign
currency translation
Prior to
January 1, 2009, the functional currencies of the Company’s subsidiaries were
Hong Kong dollars and Chinese renminbi. The effects of translating
the financial position and results of operations of local currency functional
operations into the U.S. dollars were included in a separate component of
stockholder’s equity as “Accumulated other comprehensive income”.
Effective
January 1, 2009, the Company’s subsidiaries’ functional currencies were all
changed to the U.S. dollars. The translation adjustments that applied
to the Company and that have been accumulated in other comprehensive income
until December 31, 2008, have been retained in that account; and nonmonetary
assets that Deswell owned at December 31, 2008, the end of the period
immediately before the change, were translated in subsequent periods at the
exchange rate that was current at the end of that period. And,
exchange rate gains and losses on transactions in currencies other than the U.S.
dollar are recognized and included in operations for the period in which the
exchange rates changed. The change in functional currencies did not
have a material effect on the Company’s business, results of operations or
financial position for the fourth quarter of fiscal 2009 as well as the first 3
quarters of fiscal 2010.
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 and distribution sales of
audio equipment. 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 less expensive labor rates as compared with Hong
Kong.
Quarter Ended December 31,
2009 Compared to Quarter Ended December 31, 2008
Net Sales
- The Company’s net sales for the quarter ended December 31, 2009 were
$21,358,000, a decrease of $15,743,000, or 42.4%, as compared to the
corresponding period in 2008. The decrease in sales was mainly
related to the decrease in sales at our plastic segment of $7,615,000 as well as
in our electronic and metallic segment of $8,128,000. This
represented decreases of 36.7% and 49.7% respectively, as compared with the net
sales from these segments in the corresponding period in the prior
year.
The
decrease of net sales at our plastic segment was mainly due to decrease of net
sales from existing customers of $8,995,000 offsetting the increase
of net sales from other existing and new customers of $1,119,000 and $261,000,
respectively, as a result of the continuing weak global
economy. About 78% of the drop in net sales for the quarter ended
December 31, 2009 was accounted to a sales decrease from one of the segment’s
major customers related to plastic component sales of electronic entertainment
products. Net sales from this major customer for this quarter
had decreased by 55% due to lower orders for one of their products,
as compared with the same quarter in prior year.
The
decrease in net sales in the electronic and metallic segment was mainly due to
the decrease in orders from existing and new customers for professional audio
and telecommunication equipment of $6,909,000 and $2,094,000, respectively, as
well as a decrease in distribution sales of $617,000, offsetting the increase in
orders for professional audio equipment of $1,492,000. The decrease
in orders was due to the combined factors of the generally slow economic
condition and change in product and customer mix.
Gross
Profit - The gross profit for the quarter ended December 31, 2009 was
$4,027,000, representing a gross profit margin of 18.9%. This
compares with the overall gross profit and gross profit margin of $6,413,000 or
17.3% for the quarter ended December 31, 2008.
Gross
profit in the plastic segment decreased by $1,885,000 to $3,325,000 or 25.3% of
net sales, for the quarter ended December 31, 2009 compared to $5,210,000 or
25.1% of net sales, for the quarter ended December 31, 2008. Gross
profit as a percentage of sales was favorably impacted by a lower material cost
as percentage of sales due to a 17% drop in resin price and a 30% decrease in
resin usage during this quarter, as compared with same quarter in prior
year. The increase in gross profit as a percentage of sales was
partially offset by increases in labor cost due to overtime allowance and in
factory overhead as a percentage of sales, when compared with the same quarter
in 2008.
Gross
profits in the electronic & metallic segment decreased by $501,000 to
$702,000 or 8.5% of net sales, for the quarter ended December 31, 2009 compared
to $1,203,000 or 7.3% of net sales, for the same period last year. The Company’s
ability to improve the gross profit as a percentage of sales was mainly
attributed to lower raw materials cost as a percentage of sales during the
quarter ended December 31, 2009, when compared with the year ago
quarter. The increase in gross profit as a percentage of sales
was partially offset by an increase in factory overhead as a percentage of
sales, when compared with the same quarter in prior year.
Selling,
General and Administrative Expenses – SG&A expenses for the quarter ended
December 31, 2009 were $3,875,000, or 18.1% of total net sales, compared to
$5,015,000, or 13.5% of total net sales for the quarter ended December 31,
2008. There was a decrease in selling, general and administrative
expenses of $1,140,000 over the corresponding period.
The
SG&A expenses in the plastic segment decreased by $795,000 to $2,590,000, or
19.7% of net sales, for the quarter ended December 31, 2009 compared to
$3,385,000 or 16.3% of net sales for the corresponding period in
2008. The lower SG&A expense for the quarter was primarily
related to the decrease of $105,000 in selling expense, $389,000 in staff costs
and directors’ remuneration due to salary cut, $119,000 in traveling, as well as
$49,000 in legal and professional fees, as compared with the year-ago
quarter.
The
SG&A expenses in the electronic and metallic segment decreased by $345,000
to $1,285,000, or 15.6% of net sales, for the quarter ended December
31, 2009 compared to $1,630,000, or 10.0% of net sales for the corresponding
period in 2008. As a result of a continued effort in cost
controlling, the decrease in SG&A expenses was primarily related to a
decrease of $65,000 in selling expense, $87,000 in depreciation and
amortization, $191,000 in staff costs and welfare due to salary reduction,
$32,000 in travelling and entertainment expenses and $27,000 in office
maintenance, offsetting the increase of $96,000 in government taxes and
registration fees, as compared with the corresponding quarter in the prior
year.
Other
operating income - Other operating income was $143,000 for the quarter ended
December 31, 2009, as compared to other operating expense of $521,000 for the
quarter ended December 31, 2008.
On a
segment basis, the other operating income attributable to the plastic segment
was $81,000 as compared to an expense of $36,000 for the same quarter last
year. The other operating income for the quarter ended December 31,
2009 mainly include reversals of provision for doubtful receivables of $98,000
made in prior periods as compared to provisions of $93,000 in doubtful
receivables made in the year-ago quarter.
The other
operating income attributable to the electronic and metallic segment was $62,000
in the quarter ended December 31, 2009 as compared to the other operating
expense of $485,000 for the year-ago quarter. The increase in other operating
income for the quarter ended December 31, 2009 was mainly due to lesser foreign
currency fluctuation and no write-off of other receivables. Exchange loss was
$155,000 and a write-off of other receivables for $350,000 was made in the
year-ago quarter.
Operating
income - Operating income was $296,000 for the quarter ended December 31, 2009,
as compared with the operating income of $878,000 from the corresponding quarter
in the prior year.
On a
segment basis, the operating income of the plastic division was $816,000 or 6.2%
of net sales in the quarter ended December 31, 2009 compared to operating income
of $1,790,000 or 8.6% of net sales in the corresponding period in
2008. The decrease in operating income in the plastic division
was mainly due to the decrease in sales revenues as well as increase in SG&A
expense as a percentage of sales offsetting the increase in other operating
income as described above.
The
operating loss of the electronic & metallic segment was $520,000,
or (6.3%) of net sales in the quarter ended December 31, 2009 compared to
operating expense of $912,000 or (5.6%) of net sales in the corresponding period
in 2008. The decrease in electronic & metallic operating loss was
due to the improved gross profit margin as well as an increase in other
operating income offsetting the increase in SG&A expenses as a percentage of
net sales as described above.
Non-operating
income – Non-operating income for the quarter increased by $41,000 to $171,000
for the quarter ended December 31, 2009 as compared with the year-ago
quarter. This is mainly attributable to the increase of $93,000 in
unrealized gain on revaluation of marketable securities in the electronic &
metallic segment during the quarter as well as increase of $22,000 in other
income in the plastic segment offsetting a decrease of $87,000 in the division’s
interest income.
Income
Taxes – Income tax for the quarter ended December 31, 2009 represented an income
tax expense of $687,000 and a deferred tax provision of $217,000 as compared to
an income tax expense of $20,000 in the corresponding quarter of prior
year.
On a
segment basis, there was an income tax expense of $578,000 in the plastic
segment for the quarter ended December 31, 2009, of which $379,000 was
incurred and payable by one of the Company’s subsidiaries
which had sold the former manufacturing plant in Shekou, Shenzhen, China during
the second quarter of fiscal year 2010. Such income tax was charged on the
current taxable profit of the subsidiary after accounting for the gain on
disposal of the manufacturing plant and setting off its accumulated taxable loss
brought forward from last fiscal year. There was no income tax for the plastic
segment in the year-ago quarter. An income tax expense of $109,000
and deferred tax provision of $217,000 were incurred by the electronic &
metallic segment for the quarter ended December 31, 2009, as compared to the
$20,000 tax expense in the corresponding quarter of 2008.
Net Loss –
The Company has a net loss of $437,000 for the quarter ended December 31, 2009,
a decrease of net income of $1,425,000, as compared to net income of $988,000
for the quarter ended December 31, 2008. Net loss for the quarter
ended December 31, 2009 represented (2.0%) of net sales, compared to net income
of 2.7% of net sales in the same quarter of prior year. The decrease
in net income was mainly the result of the increase in income tax expense as
described above.
Net income
for the plastic segment for the quarter ended December 31, 2009 totaled
$238,000, as compared to the net income of $1,912,000 for the corresponding
quarter in 2008. The decrease in net income of the plastic segment
was mainly the result of decline in sales volume as well as increases in
SG&A expense as a percentage of sales and in income tax expense as described
above.
Net loss
for the electronic & metallic segment for the quarter ended December 31,
2009 was $675,000, as compared to the net loss of $924,000 for the corresponding
quarter in 2008. The decrease in net loss of the electronic &
metallic segment was mainly the result of improvement in gross profit margin,
increases in other operating income and non-operating income as described
above.
Nine Months Ended December
31, 2009 Compared to Nine Months Ended December 31, 2008
Net Sales
- The Company's net sales for the nine months ended December 31, 2009 were
$64,947,000, a decrease of $39,433,000 or 37.8% as compared to corresponding
period in 2008. The decrease was related to a decrease in sales revenue at our
plastic segment of $20,933,000 as well as $18,500,000 at our electronic and
metallic segment. This represented decreases of 35.6% and 40.6%
respectively, as compared with the respective net sales from these segments in
the corresponding period in the prior year.
The
revenue decrease at the plastic segment was mainly due to the decrease in orders
from existing customers of $24,555,000 offsetting the increase in net sales from
other existing and new customers of $2,732,000 and $890,000, respectively, as a
result of the weak general economy. About 76% of the decrease in net
sales for the nine months ended December 31, 2009 was accounted by one of the
segment’s major customers related to plastic component sales of electronic
entertainment products. Net sales from this major customer for the
nine months ended December 31, 2009 had dropped by about 53% due to decrease in
orders for one of their products, as compared with the same period in prior
year.
The
revenue decrease in the electronic and metallic segment was mainly due to the
decrease in orders of professional audio and electronics products from existing
customers of $19,976,000 and $1,002,000, respectively, and a decrease in
distributions sales of $378,000, offsetting the increase in orders from existing
and new customers for professional audio instrument products of
$2,857,000. The decrease in orders was due to the combined effect of
continuing demand decline from the still weak global economy, persistent
pressure of losing orders to lower-priced competitors, as well as change to
higher-end product and customer mix.
Gross
Profit - The gross profit for the nine months ended December 31, 2009 was
$10,537,000, representing a gross profit margin of 16.2%. This compared with the
overall gross profit and gross profit margin of $15,838,000 or 15.2% for the
nine months ended December 31, 2008.
Gross
profit in the plastic segment decreased $2,382,000 to $7,818,000 or 20.6% of net
sales for the nine months ended December 31, 2009, as compared to $10,200,000 or
17.3% of net sales, for the same period in the prior year. Gross
profit as a percentage of sales was favorably impacted by a lower material cost
as percentage of sales due to 16% drop in resin price and 35% decrease in resin
usage during the nine months ended December 31, 2009, as compared with the same
period in the prior year. The increase in gross profit as a
percentage of sales was partially offset by increases in labor cost due to
overtime allowance and in factory overhead as a percentage of sales, when
compared with the same period in last year.
Gross
profit in the electronic and metallic segment decreased by $2,919,000 to
$2,720,000 or 10.0% of net sales, for the nine months ended December 31, 2009,
as compared to $5,639,000 or 12.4% of net sales, for the same period last
year. Decrease in the gross profit as a percentage of
sales was mainly attributed to higher raw materials cost as a percentage of
sales for the nine months ended December 31, 2009, when compared with the same
period a year ago.
Selling,
general and administrative expenses - SG&A expenses for the nine months
ended December 31, 2009 were $11,657,000, amounting to 17.9% of total net sales,
as compared to $15,528,000 or 14.9% of total net sales for the nine months ended
December 31, 2008. There was a decrease in selling, general and administrative
expenses of $3,870,000 or 24.9% over the corresponding period of last
year.
The
SG&A expenses in the plastic segment decreased by $1,494,000 or 15.7% to
$8,004,000 or 21.1% of net sales, for the nine months ended December 31, 2009
compared to $9,498,000 or 16.2% of net sales, for the corresponding period in
2008. The decrease was primarily related to the decrease in selling expenses of
$355,000, staff costs and director remuneration of $848,000, as well as in
traveling and entertainment of $339,000, as compared with the same period in
prior year.
The
SG&A expenses in the electronic & metallic segment decreased by
$2,376,000 or 39.4% to $3,653,000 or 13.5% of net sales, for the nine months
ended December 31, 2009 compared to $6,030,000 or 13.2% of net sales for
corresponding period in 2008. The decrease was primarily related to the decrease
in selling expense of $338,000, staff costs and director remuneration of
$1,585,000, travelling and entertainment expenses of $135,000 and office
operating and maintenance expense of $135,000, as compared with the
corresponding period in prior year.
Other
operating expense - Other operating expense was $116,000 for the nine months
ended December 31, 2009, as compared to the other operating income of $215,000
for the nine months ended last year.
On a
segment basis, other operating expense attributable to the plastic segment for
the nine months ended December 31, 2009 was $389,000, as compared to an
operating income of $630,000 for the corresponding period in the prior year. The
other operating expense for the nine months ended December 31, 2009 was mainly
attributable to exchange loss of $81,000 and provision for doubtful receivables
of $379,000, as compared to exchange gain of $830,000 and provision of doubtful
receivables of $192,000 for the same period in prior year.
Other
operating income attributable to the electronic & metallic segment for the
nine months ended December 31, 2009 was $273,000, as compared to other operating
expense of $415,000 for the corresponding period in prior
year. There was an exchange gain of $54,000 and no write-off of other
receivables for the nine months ended December 31, 2009, as compared to $193,000
in exchange loss and $350,000 in write-off of other receivables for the same
period of last year.
Operating
Loss - Operating loss was $1,236,000 for the nine months ended December 31,
2009, as compared with the operating income of $526,000 from the corresponding
nine months in the prior year.
On a
segment basis, the operating loss of the plastic division was $575,000, or
(1.5%) of net sales in the nine months ended December 31, 2009 compared to
operating income of $1,332,000 or 2.3% of net sales in the corresponding period
in 2008. Decrease of operating income in the plastic division
was mainly due to the decrease in sales revenue and increase in SG&A expense
as a percentage of sales, offsetting the improved gross margin as a result of
lower material cost and usage as described above.
The
operating loss of the electronic & metallic segment was $660,000, or (2.4%)
of net sales in the nine months ended December 31, 2009 compared to operating
loss of $807,000 or (1.8%) of net sales in the corresponding period in
2008. The operating loss is a higher percentage of sales than that in
same period of prior year for the electronic & metallic segment mainly due
to lower gross profit margin and relatively higher SG&A expense in terms of
sales as described above.
Non-operating
income – Non-operating income for the nine months ended December 31, 2009
increased by $4,426,000 to $4,574,000 as compared with the year-ago nine
months. This is mainly attributable to the net gain of $4,198,000
recognized from disposal of the former manufacturing plant in Shekou, Shenzhen,
China in the plastic division, as well as the unrealized gain of $169,000 on
securities revaluation in the electronic & metallic division during the nine
months ended December 31, 2009.
Income
Taxes – Income tax for the nine months ended December 31, 2009 was an income tax
expense of $688,000 and a deferred tax provision of $217,000 as compared to an
income tax expense of $67,000 for the corresponding period in prior
year.
On a
segment basis, the income tax expense incurred by the plastic segment was
$578,000 for the nine months ended December 31, 2009, as compared to the $38,000
tax expense incurred during the year-ago nine months. The segment’s
year-to-date income tax expense included $379,000 tax expense incurred and
payable by one of the Company’s subsidiary. Such income tax was
charged on the subsidiary’s current taxable profit after recognizing a gain on
the sale of its former manufacturing plant in the second fiscal quarter of 2010
and setting off the subsidiary’s accumulated taxable loss brought forward from
last fiscal year. The income tax expense and deferred tax provision for the
electronic & metallic segment was $110,000 and $217,000, respectively for
nine months ended December 31, 2009, as compared to the income tax expense of
$29,000 for the corresponding nine months in 2008.
Net Income
– The Company has a net income of $2,434,000 for the nine months ended December
31, 2009, an increase of $1,827,000, as compared to net income of $606,000 for
the nine months ended December 31, 2008. Net income for the nine
months ended December 31, 2009 represented 3.7% as a percentage of net sales,
comparing to 0.6% of net sales for the net income in the same nine months of
prior year. The increase in net income was mainly the result of the
increase in non-operating income as described above.
Net income
for the plastic segment for the nine months ended December 31, 2009 totaled
$2,986,000, as compared to the net income of $1,453,000 for the corresponding
nine months in 2008. The increase in net income of the plastic
segment was mainly the result of increase in non-operating income as described
above.
Net loss
for the electronic & metallic segment for the nine months ended December 31,
2009 was $553,000, compared to the net loss of $847,000 for the corresponding
nine months in 2008. The decrease in net loss of the electronic &
metallic segment was mainly the result of increases in other operating income
and non-operating income as described above.
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, 2009, the Company had a working capital of $61,022,000 and cash and
cash equivalents of $42,239,000. This compares with a working capital of
$52,605,000 and cash and cash equivalents of $23,134,000 at March 31,
2009. The increase in cash and cash equivalents was mainly attributed
to net cash provided by operating activities of $13,963,000, by investing
activities from disposal of former manufacturing plant for $5,185,000 and from
disposal of property, plant and equipment for $190,000, and by financing
activities from exercise of stock options for $696,000 offsetting net cash used
for purchase of property, plant and equipment for $929,000 during the nine
months ended December 31, 2009.
The
Company has generated sufficient funds from its operating activities to finance
its operations and there is little need for external financing. The
Company has no short-term borrowings or long-term borrowings at December 31,
2009.
As of
December 31, 2009, the Company had no general banking facilities. The
Company expects that working capital requirements and capital additions will be
funded through internally generated funds.
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.
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For
and on behalf of
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Deswell
Industries, Inc.
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by
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/s/ Franki Tse |
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Franki Tse |
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Chief Executive
Officer |
Date: March 2, 2010