| DESWELL
INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (U.S. dollars in thousands, except per share data) |
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Quarter
ended
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Year
ended
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March
31
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March
31
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|
2000
|
1998
|
2000
|
1998
|
|
|
(Unaudited)
|
(Unaudited)
|
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| Net sales | $ 14,958 | $ 9,585 | $ 60,958 | $ 53,439 |
| Cost of sales | 9,836 | 6,247 | 38,262 | 32,179 |
| Gross profit | 5,122 | 3,338 | 22,696 | 21,260 |
| Selling, general and administrative expenses | 2,972 |
2,312 |
11,970 | 10,364 |
| Operating income | 2,150 | 1,026 | 10,726 | 10,896 |
| Interest expense | (3) | - | (3) | (306) |
| Other income, net | (28) | (380) | 898 | 939 |
| Income before income taxes | 2,119 | 646 | 11,621 | 11,529 |
| Income taxes | 192 | (173) | 890 | 462 |
| Income before minority interests | 1,927 | 819 | 10,731 | 11,067 |
| Minority interests | 22 | (33) | 433 | 1,575 |
| Net income | $ 1,905 | $ 852 | $ 10,298 | $9,492 |
| Basic earnings per share (note 3) | $ 0.36 | $ 0.16 | $ 1.90 | $ 1.73 |
| Weighted average number of shares outstanding (in thousands) | 5,348 | 5,476 | 5,412 | 5,478 |
| Diluted earnings per share (note 3) | $ 0.35 | $ 0.16 | $ 1.89 | $ 1.72 |
| Diluted weighted average number of shares | 5,424 | 5,476 | 5,449 | 5,524 |
| Common shares (in thousands) | ||||
| DESWELL INDUSTRIES, INC. | ||
| CONSOLIDATED BALANCE SHEET | ||
| (U.S. dollars in thousands) | ||
|
Mar
31,
|
March
31,
|
|
|
2000
|
1999
|
|
|
(unaudited)
|
|
|
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $27,156 | $27,556 |
| Restricted cash | 2,129 | 2,376 |
| Accounts receivable, net | 10,607 | 7,796 |
| Trading investment | - | 134 |
| Inventories | 10,932 | 5,902 |
| Prepaid expenses and other current assets | 2,295 | 4,116 |
| Income taxes receivable | 164 | 397 |
| Total current assets | 53,283 | 48,277 |
| Long term investments | 1,308 | - |
| Property, plant and equipment - net | 16,701 | 15,639 |
| Goodwill | 549 | 357 |
| Total current assets | $71,841 | $64,273 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $5,401 | $2,873 |
| Customer deposits and accrued expenses | 4,362 | 4,138 |
| Income taxes payable | 101 | 200 |
| Total current liabilities | 9,864 | 7,211 |
| Minority interests | 8,931 | 8,280 |
| Deferred income tax | 15 | 15 |
| Shareholders' equity | ||
| Common stock | ||
| - authorized 20,000,000 shares; issued and outstanding | ||
| 5,347,931 shares at December 31, 1999 | ||
| 5,476,131 shares at March 31, 1999 | 53 | 55 |
| Additional paid-in capital | 27,007 | 25,355 |
| Retained earnings | 25,971 | 23,357 |
| Total shareholders' equity | 53,031 | 48,767 |
| Total liabilities and shareholders' equity | $71,841 | $64,273 |
| DESWELL INDUSTRIES, INC. | ||
| CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) | ||
| ( U.S. dollars in thousands ) | ||
|
Year
Ended
|
Year
Ended
|
|
|
March
31,
|
March
31,
|
|
|
2000
|
1999
|
|
| Cash flows from operating activities: | ||
| Net income | $10,298 | $9,492 |
| Adjustments to reconcile net income to net cash | ||
| provided by operating activities : | ||
| Depreciation and amortization | 4,778 | 4,223 |
| Loss on sale of property, plant and equipment | 35 | 14 |
| Minority interests | 459 | 1,575 |
| Changes in current assets and liabilities: | ||
| Accounts receivable | (2,811) | 2,283 |
| Investment in trading securities | 134 | (134) |
| Inventories | (5,030) | 513 |
| Prepaid expenses and other current assets | 1,821 | (2482) |
| Income taxes receivable | 233 | (179) |
| Accounts payable | 2,528 | (890) |
| Customer deposits and accrued expenses | 224 | 963 |
| In income taxes payable | (99) | (75) |
| Net cash provided by operating activities | 12,570 | 15,303 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment | (6,019) | (4,282) |
| Proceeds from disposal of property, plant and equipment | 176 | 18 |
| Acquisition, excluding cash acquired | (32) | - |
| Increase in long term investment | (1,308) | - |
| Decrease in restricted cash | 247 | 551 |
| Net cash used in investing activities | (6,936) | (3,713) |
| Cash flows from financing activities | ||
| Common stock repurchased & cancelled | (1,257) | (19) |
| Dividends paid | (4,777) | (5,917) |
| Net cash used in financing activities | (6,034) | (5,936) |
| Net (decrease) / increase in cash and cash equivalents | (400) | 5,654 |
| Cash and cash equivalents, at beginning of period | 27,556 | 21,902 |
| Cash and cash equivalents, at end of period | 27,156 | 27,556 |
| Supplementary disclosures of cashflow information: | ||
| Cash paid during the period for: | ||
| Interest | 3 | 306 |
| Income taxes | 755 | 717 |
| Acquisition of subsidiary, excluding cash acquired: | ||
| Goodwill | 224 | - |
| Minority Interests | (192) | - |
| Cash paid, net of cash acquired | 32 | - |
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, 2000 and March 31, 1999, the results of operations for the quarters and years ended March 31, 2000 and March 31, 1999, and the cash flows for the years ended March 31, 2000 and March 31, 1999. The notes to the Consolidated Financial Statements, which are contained in the Form 20-F Annual Report filed on July 6, 1999 under the Securities Exchange Act of 1934 should be read in conjunction with these Consolidated Financial Statements.
2. Inventories
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, 2000 and 1999 were from the Company's continuing 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, 2000 Compared to Quarter Ended March 31, 1999
The Company's net sales for the quarter ended March 31, 2000 were $14,958,000, an increase of $5,373,000 or 56.1% as compared to corresponding period in 1999. The increase in sales was mainly related to increased sales of injection-molded plastic products of $2,713,000 and electronic & metallic products of $2,660,000 respectively, or increases of 44.1% and 77.5% respectively, as compared with the net sales in the corresponding period in the prior year.
The increase in net sales in the respective divisions was mainly due to increase in orders from its existing strong customer base together with the new orders from new customers as a result of the improving economic environment faced by our customers in the Asian Market.
The gross profit for the quarter ended March 31, 2000 was $5,122,000, representing a gross profit margin of 34.2%. This compares with the overall gross profit and gross profit margin of $3,338,000 or 34.8% for the quarter ended March 31, 1999.
Selling, general and administrative expenses for the quarter ended March 31, 2000 were $2,972,000, amounting to 19.9% of total net sales, as compared to $2,312,000 or 24.1% of total net sales for the quarter ended March 31, 1999. The increase in selling, general and administrative expenses of $660,000 over the corresponding period was mainly attributed to the increase in general and administrative expenses resulted from improved business over last year.
As a result of the increase in net sales, operating income was $2,150,000 for the quarter ended March 31, 2000, an increase of $1,124,000 or 109.6% as compared with the corresponding quarter in the prior year.
Minority interests represent the 49% minority interest in both the electronics and metallic subsidiaries. The increase in minority interest to $22,000 for the quarter ended March 31, 2000 from the deficiency of $33,000 for the corresponding quarter in the prior year reflects the increased profits generated by the electronic and metallic business.
As a result of the above factors, net income was $1,905,000 for the quarter ended March 31, 2000, an increase of $1,053,000 or 123.6%, as compared to the quarter ended March 31, 1999 and net income as a percentage of net sales increased to 12.7% from 8.9%.
Year Ended March 31, 2000 Compared to Year Ended March 31, 1999
March 31
March 31
2000
1999
Inventories by major categories :
Raw materials
$ 6,924
$ 3,241
Work in progress
1,553
1,595
Finished goods
2,455
1,066
$ 10,932
$ 5,902
The Company's net sales for the year ended March 31, 2000 were $60,958,000, an increase of $7,519,000 or 14.1% as compared to year ended March 31, 1999. The increase in sales was mainly related to an increase in sales of injection-molded plastic products of $8,250,000 offset by a decrease in sales of electronic and metallic products of $731,000. This represented an increase of 27.4% and a decrease of 3.1% respectively, as compared with the net sales in the prior year.
The increase in net sales from the plastic operation was attributed to the increase in orders from its existing strong customer base together with the new orders from new customers. The decrease in net sales of electronic and metallic products was mainly attributed to the decrease in demand from its customers, especially the sub-contracted PCB assembly customers, coupled with the reduction in selling prices in both OEM and sub-contracted sales as compared to the prior year.
The gross profit for the year ended March 31, 2000 was $22,696,000, representing a gross profit margin of 37.2%. This compares with the overall gross profit and gross profit margin of $21,260,000 or 39.8% for the year ended March 31, 1999.
Selling, general and administrative expenses for the year ended March 31, 2000 were $11,970,000, amounting to 19.6% of total net sales, as compared to $10,364,000 or 19.4% of total net sales for the year ended March 31, 1999. The increase in selling, general and administrative expenses of $1,606,000 over prior year was the increase in general and administrative expenses resulted from improved business over last year.
As a result, operating income was $10,726,000 for the year ended March 31, 2000, a decrease of $170,000 or 1.6% as compared with the prior year.
During the year ended March 31, 2000, the Company acquired an additional 17.9% equity interest in the metal subsidiary. As a result, minority interests represent the 49% minority interest in both the electronics and metallic subsidiaries. The decrease in minority interest to $433,000 for the year ended March 31, 3000 from $1,575,000 for the year ended March 31, 1999 reflects the fact that the electronic and metallic business generated less profits in the current year as compared to the prior year.
As a result of the above factors, net income was $10,298,000 for the year ended March 31, 2000, an increase of $806,000 or 8.5%, as compared to the year ended March 31, 1999 and net income as a percentage of net sales decreased slightly to 16.9% from 17.8%.
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, 2000, the Company had a working capital surplus of $43,419,000. This compares with a working capital surplus of $41,066,000 at March 31, 1999. The increase in working capital was mainly attributed to net cash generated from its operating activities offset by the cash dividend distributed of $4,777,000 in June and December 1999 and the repurchase of common shares of $1,257,00 during the year.
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 with cash generated from operations. The Company has no outstanding short-term borrowings and no long-term debt as of March 31, 2000.
As of March 31, 2000, the Company had in place general banking facilities with two financial institutions aggregating approximately $15,439,000. 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, 2000, the Company had ( i ) unused credit facilities of $15,439,000 ( ii ) cash and cash equivalents of $27,156,000 and ( iii ) restricted cash of $1,951,000, which has 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.