DSWL Deswell Industries Inc

- Company Announces Second Half Cash Dividend of 0.04 Per Share -

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the second half of the fiscal year ended March 31, 2018.

Net sales for the six months ended March 31, 2018 were $30.9 million, an increase of 29.4% compared to net sales of $23.9 million for the six months ended March 31, 2017. Net sales increased by 13.7% to $14.4 million in the plastic segment and increased by 47.2% to $16.5 million in the Company’s electronic segment.

Total gross margin decreased to 12.6% during the six months ended March 31, 2018, as compared to 18.9% in the same period last year. Gross profit margin in the plastic segment decreased to 14.7% of net sales for the second half of fiscal 2018, as compared to 24.4% of net sales for the corresponding period of last fiscal year. The decrease in gross profit and margin in the plastic segment was mainly due to the appreciation of Renminbi and the increase in raw materials cost, offsetting a slight decrease in factory overhead, as a percentage of sales. Gross profit for the electronic segment for the six months ended March 31, 2018 decreased from 12.6% in second half of fiscal 2017 to 10.8% in the second half of fiscal 2018. The decrease was mainly due to the appreciation of Renminbi and increased raw materials costs.

Operating income for the second half of fiscal 2018 was $0.2 million, as compared to an operating loss of $0.3 million for the same period of fiscal 2017.

The Company reported net income of $2.5 million for the six months ended March 31, 2018, as compared to a net income of $0.7 million for the six months ended March 31, 2017. Non-operating income for the six months ended March 31, 2018 was $2.3 million, as compared to non-operating income of $1.1 million in the year-ago six months. Non-operating income during the six months ended March 31, 2018 was primarily comprised of $630,000 from rental income, $459,000 of dividend income from securities investment, $133,000 from interest income, $865,000 from change in the fair value of marketable securities, as well as $268,000 of realized gain from sale of marketable securities, Deswell reported basic and diluted income per share of $0.16 for the second half of fiscal 2018 (based on 15,885,000 and 15,953,000 weighted average shares outstanding, respectively), as compared to basic and diluted income share of $0.04 (based on 16,013,000 weighted average shares outstanding), for the six months ended March 31, 2017.

Net sales for the year ended March 31, 2018 were $60.7 million, an increase of 36.3% compared to net sales of $44.5 million for fiscal 2017. Operating income for the year ended March 31, 2018 increased to $1.8 million, as compared to operating loss of $2.1 million for fiscal 2017. The Company reported net income of $6.2 million in fiscal 2018, as compared to net income of $1.4 million for the year ended March 31, 2017. Deswell reported basic and diluted net income per share of $0.39 for fiscal 2018, (based on 15,885,000 and 15,985,000 weighted average share outstanding, respectively), as compared to basic and diluted income per share of $0.09 (based on 16,035,000 weighted average shares outstanding), for the prior fiscal year.

The Company's financial position remained strong, with $15.2 million in cash and cash equivalents and working capital totaled $49.8 million as of March 31, 2018. Furthermore, the Company has no long-term or short-term borrowings as of March 31, 2018.

Mr. Edward So, Chief Executive Officer, commented, “During the second half of 2018, we experienced strong revenue growth in both our plastic and electronic segments. In addition to our core audio customers, we saw increased business in new end markets such as kitchen appliances and gardening equipment. Gross margins were negatively impacted by currency, but we continue to focus on cost control and maintained our selling, general and administrative expenses consistent with the prior year period resulting in a positive operating income. Other income grew considerably, benefiting from rental income as well as to investment returns from marketable securities, helping to drive considerable net income growth for the period.”

Second Half Dividend

The Company also announces that its board of directors today declared a cash dividend of $0.04 per share for the second half of the fiscal year ended March 31, 2018. The dividend will be payable on July 12, 2018 to shareholders of record as of June 26, 2018.

Dividends to be declared in the future will depend upon the Company’s future growth and earnings, of which there can be no assurance, and the Company’s cash flow needs for future development.

About Deswell

Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic molds and accessory parts 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.

To learn more about Deswell Industries, Inc., please visit the Company’s website at www.deswell.com.

Forward-Looking Statements

Statements in this press release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. For example, our statements regarding our expected growth in sales from the electronic division in the coming year and our efforts to reduce overhead costs in our plastic division are forward-looking statements. Actual results could differ materially because of the following factors, among others, which may cause revenues and income to fall short of anticipated levels or our overhead expenses to increase: our dependence on a few major customers; vigorous competition forcing product price reductions or discounts; the timing and amount of significant orders from our relatively few significant customers; continuing increases in resin prices that cannot be passed on to customers; unexpected production delays; obsolete inventory or product returns; losses resulting from fraudulent activity of our customers or employees; labor shortages that increase labor and costs; changes in the mix of product products we manufacture and sell; adverse currency fluctuations in the Renminbi and Hong Kong dollar when translated to US dollars; potential new accounting pronouncements; and the effects of travel restrictions and quarantines associated with major health problems, such as the Severe Acute Respiratory Syndrome, on general economic activity.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” section of Company’s Annual Report on Form 20-F, copies of which may be obtained from the Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

All information in this release is made as of the date of this press release. Deswell undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Deswell’s expectations.

    DESWELL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (U.S. dollars in thousands)   March 31, March 31,

2018

2017

ASSETS (Unaudited) (Audited)   Current assets : Cash and cash equivalents $ 15,192 $ 8,078 Fixed deposits maturing over three months 2,190 5,422 Time deposits maturing over twelve months 3,129 - Marketable securities (note 2) 17,282 16,327 Accounts receivable, net 15,912 13,159 Inventories (note 3) 12,933 10,688 Prepaid expenses and other current assets 2,267 2,419 Total current assets 68,905 56,093 Property, plant and equipment - net 31,494 31,992 Time deposits maturing over twelve months - 2,902 Total assets $ 100,399 $ 90,987   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable $ 8,596 $ 5,152 Accrued payroll and employee benefits 5,566 4,643 Customer deposits 1,707 2,152 Other accrued liabilities 1,873 1,474 Income taxes payable 603 476 Deferred income tax liabilities 775 889 Total current liabilities 19,120 14,786   Shareholders' equity Common shares nil par value - authorized 30,000,000 shares, 17,031,810 shares issued as of March 31, 2018 and 2017; 15,885,239 shares outstanding as of March 31, 2018 and 2017 53,063 53,063 Treasury stock at cost; 1,146,571 shares as of March 31, 2018 and 2017 (2,821 ) (2,821 ) Additional paid-in capital 8,005 8,005 Accumulated other comprehensive income 5,316 5,316 Retained earnings 17,716 12,638 Total shareholders' equity 81,279 76,201 Total liabilities and shareholders' equity $ 100,399 90,987       DESWELL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (U.S. dollars in thousands, except per share data)   Six months ended Year ended March 31, March 31,

2018

 

2017

2018

 

2017

  Net sales $ 30,908 $ 23,888 $ 60,667 $ 44,522 Cost of sales 27,015 19,385 50,953 37,073 Gross profit 3,893 4,503 9,714 7,449 Selling, general and administrative expenses 4,372 4,329 8,806 8,856 Other income (expense), net 696 (457 ) 894 (696 ) Operating income (loss) 217 (283 ) 1,802 (2,103 ) Non-operating income, net (note 3) 2,265 1,073 4,395 3,688 Income before income taxes 2,482 790 6,197 1,585 Income taxes (39 ) 123 7 209 Net income attributable to Deswell Industries, Inc. $ 2,521 $ 667 $ 6,190 $ 1,376   Other comprehensive income (loss) Unrealized loss on available-for-sale securities $ - $ - $ - $ (3 ) Reclassification adjustment in connection with loss on disposal of available-for-sale securities transferred to profit or loss - - - 14 Comprehensive income (loss) attributable to Deswell Industries, Inc. $ 2,521 $ 667 $ 6,190 $ 1,387     Net income per share attributable to Deswell Industries, Inc. (note 5) Basic: Net income per share $ 0.16 $ 0.04 $ 0.39 $ 0.09

Weighted average common shares outstanding shares (in thousands)

15,885 16,013 15,885 16,035   Diluted: Net income (loss) per share $ 0.16 $ 0.04 $ 0.39 $ 0.09

Weighted average number of shares outstanding (in thousands)

15,953 16,013 15,985 16,035       DESWELL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (U.S. dollars in thousands)   Year ended Year ended March 31, March 31,

2018

2017

Cash flows from operating activities : Net income $ 6,190 $ 1,376 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,138 2,135 Provision for doubtful accounts (674 ) 371 Additional charges (usage) of inventories, net 296 (65 ) Loss on disposal of property, plant and equipment 61 162 Unrealized holding gain on marketable securities (1,401 ) (1,999 ) Gain on sales of marketable securities (609 ) (69 ) Loss on disposal of available-for-sale securities - 14 Scrip dividend received (168 ) - Deferred tax (114 ) 64 Changes in operating assets and liabilities : Accounts receivable (2,079 ) (4,322 ) Inventories (2,541 ) (2,509 ) Prepaid expenses and other current assets 152 (761 ) Accounts payable 3,444 2,924 Accrued payroll and employee benefits 923 608 Customer deposits (445 ) 729 Other accrued liabilities 399 185 Income taxes payable 127 75 Net cash provided by (used in) operating activities 5,699 (1,082 )   Cash flows from investing activities Purchase of property, plant and equipment (1,707 ) (2,152 ) Proceeds from sale of property, plant and equipment, net of transaction costs 6 993 Purchase of marketable securities (5,357 ) (3,159 ) Proceeds from sales of marketable securities 6,580 920 Proceeds from disposal of available-for-sale securities - 1,600 Increase in fixed deposits maturing over three months 3,232 (146 ) (Increase in) decrease in fixed deposits maturing over twelve months (227 ) 1,664 Net cash from (used in) investing activities 2,527 (280 )   Cash flows from financing activities Dividends paid (1,112 ) (2,248 ) Repurchase of common stock - (308 ) Net cash used in financing activities (1,112 ) (2,556 )   Net increase (decrease) in cash and cash equivalents 7,114 (3,918 ) Cash and cash equivalents, at beginning of year 8,078 11,996 Cash and cash equivalents, at end of year 15,192 8,078   Supplementary disclosures of cashflow information: Cash paid during the period for: Interest - - Income taxes 85 21  

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Investor Relations:Institutional Marketing Services (IMS)John Nesbett/Jennifer Belodeau203-972-9200