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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark one)
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o |
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to ;
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Date of event requiring this shell company report |
For the transition period from to
Commission File Number: 001-31583
Nam Tai Electronics, Inc.
(Exact name of registrant as specified in its charter)
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Kee Wong, Corporate Secretary |
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Gushu Industrial Estate,
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Tele: (852) 2341 0273; Fax
(852) 2263
1001(1); |
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Xixiang,
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E-mail: lkwong@namtai.com.hk |
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Baoan, Shenzhen,
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Unit 1201, 12th Floor, Tower 1, Lippo Centre, |
British Virgin Islands
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Peoples Republic of China
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89 Queensway, Admiralty, Hong Kong(1) |
(Jurisdiction of incorporation or organization)
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(Address of principal executive offices)
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(Name, Telephone, E-mail and/or Facsimile number |
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and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act: Common
shares, $0.01 par value per share
Securities registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the
Act: NONE
As of December 31, 2010, there were 44,803,735 common shares of the registrant
outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. o Yes þ No
If this report is an annual or transition report, indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 o Yes þ No
Note
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.
Indicate by check mark whether the registrant: (i) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (ii) has
been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). þ Yes(2) o No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:
U.S. GAAP þ International Financial Reporting Standards as issued by the
International Accounting Standards Board o Other o
If Other has been checked, indicate by check mark which financial statement item
the registrant has elected to follow: o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule12b-2 of the Exchange Act). o Yes þ No
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(1) |
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Fax and address effective April 1, 2011. Until
April 1, 2011, registrants address is Units 5811-12,
58/F, The Center, 99 Queens Road Central, Central, Hong Kong
and its fax number is (852) 2263 1223 |
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Interactive data filings are not required of registrant until its Annual Report on Form 20-F
for its year ending December 31, 2011. |
Table of Contents
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3 |
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3 |
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3 |
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3 |
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3 |
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3 |
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3 |
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21 |
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36 |
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36 |
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49 |
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57 |
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59 |
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61 |
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62 |
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69 |
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71 |
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72 |
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72 |
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72 |
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72 |
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72 |
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73 |
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74 |
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74 |
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74 |
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74 |
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75 |
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75 |
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75 |
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75 |
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76 |
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76 |
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76 |
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76 |
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-8 |
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F-30 |
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F-31 |
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F-32 |
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F-33 |
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F-34 |
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77 |
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79 |
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Certification required by Rule 13a-14(a) and 18 U.S.C. Section 1350 |
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Exhibit 12.1 |
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Certification required by Rule 13a-14(a) and 18 U.S.C. Section 1350 |
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Exhibit 12.2 |
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Certification Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350 |
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Exhibit 13.1 |
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Consent of
Independent Registered Public Accounting Firm-Moore Stephens |
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Exhibit 15.1 |
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Consent of
Independent Registered Public Accounting Firm-Deloitte Touche Tohmatsu |
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Exhibit 15.2 |
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EX-4.8 |
EX-4.10 |
EX-4.11 |
EX-4.12 |
EX-4.13 |
EX-12.1 |
EX-12.2 |
EX-13.1 |
EX-15.1 |
EX-15.2 |
2
NOTE REGARDING USE OF FORWARD LOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section entitled Risk Factors
under Item3. Key Information. Readers should not place undue reliance on forward-looking
statements, which reflect managements view only as of the date of this Report. The Company
undertakes no duty to update any forward-looking statement to conform the statement to actual
results or changes in managements expectations. Readers should also carefully review the risk
factors described in other documents the Company files from time to time with the U.S. Securities
and Exchange Commission, which we refer to in this Report as the SEC.
FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
The Company prepares its consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America and publishes its financial
statements in United States dollars.
INTRODUCTION
Except where the context otherwise requires and for purposes of this Annual Report only:
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we, us, our company, our, the Company and Nam Tai refer to Nam Tai
Electronics, Inc. and, in the context of describing our operations, also include our PRC
operating companies; |
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shares refer to our common shares, $0.01 par value; |
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China or PRC refers to the Peoples Republic of China, excluding Taiwan, Hong Kong and Macao; |
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Hong Kong refers to the Hong Kong Special Administrative Region of the Peoples
Republic of China and HK$ refers to the legal currency of Hong Kong; |
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Macao refers to the Macao Special Administrative Region of the Peoples
Republic of China, and |
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all references to Renminbi, RMB or yuan are to the legal currency of China;
all references to U.S. dollars, dollars, $ or US$ are to the legal currency of
the United States. |
Note with respect to our use of Bluetooth: The Bluetooth® word mark and logos are owned by
the Bluetooth SIG, Inc. and any use of such marks by Nam Tai is under license. Other trademarks and
trade names used in this Report, if any, are those of their respective owners.
PART I
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ITEM 1. |
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not applicable to Nam Tai.
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ITEM 2. |
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OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable to Nam Tai.
Our historical consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States, or U.S. GAAP, and are presented in
U.S. dollars. The following selected consolidated statements of income data for each of the three
years in the period ended December 31, 2010 and the consolidated balance sheets data as of December
31, 2009 and 2010 are derived from our consolidated financial statements and notes thereto included
in this Report. The selected consolidated statements of income data for each of the two-year
periods ended December 31, 2006 and 2007 and the consolidated balance sheets data as of December
31, 2006, 2007 and 2008 were derived from our audited financial statements, which are not included
in this Report. The following data should be read in conjunction with the Section of the Report
entitled Item 5, Operating and Financial Review and
Prospects, and our consolidated financial statements including the related footnotes which are
included in the F pages of this report immediately following page 76.
3
Selected Financial Information
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Year ended December 31, |
Consolidated statements of income data: |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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(in thousands, except per share data) |
Net sales |
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$ |
870,174 |
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$ |
780,822 |
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$ |
622,852 |
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$ |
408,137 |
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$ |
534,420 |
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Cost of sales |
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(783,953 |
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(693,804 |
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(552,174 |
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(367,817 |
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(483,126 |
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Gross profit |
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86,221 |
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87,018 |
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70,678 |
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40,320 |
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51,294 |
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Gain on disposal of asset held for sale |
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9,258 |
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Operating expenses: |
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General and administrative expenses (1)(2) |
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(26,203 |
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(29,986 |
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(29,112 |
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(28,393 |
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(25,232 |
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Selling expenses (1) |
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(4,465 |
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(6,564 |
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(6,945 |
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(5,266 |
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(5,504 |
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Research and development expenses |
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(7,866 |
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(9,798 |
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(10,890 |
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(6,273 |
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(5,757 |
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Impairment loss on goodwill |
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(17,345 |
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Losses arising from the judgment to reinstate redeemed shares |
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(14,465 |
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Total operating expenses |
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(52,999 |
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(46,348 |
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(64,292 |
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(39,932 |
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(36,493 |
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Income from operations |
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42,480 |
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40,670 |
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6,386 |
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388 |
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14,801 |
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Other (expenses) income net |
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(1,265 |
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2,219 |
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6,428 |
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(256 |
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3,972 |
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Gain on sale of subsidiaries shares |
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390 |
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20,206 |
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Gain on disposal of marketable securities |
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43,815 |
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Loss on marketable securities arising from split share
structure reform |
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(1,869 |
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Interest income |
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8,542 |
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9,163 |
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6,282 |
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818 |
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1,484 |
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Interest expense |
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(602 |
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(452 |
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(356 |
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(202 |
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Income before income tax |
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47,286 |
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95,805 |
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38,946 |
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748 |
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20,257 |
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Income tax expenses(3) |
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(377 |
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(4,030 |
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(2,877 |
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(1,283 |
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(5,251 |
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Consolidated net income (loss) |
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46,909 |
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91,775 |
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36,069 |
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(535 |
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15,006 |
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Net (income) loss attributable to noncontrolling interests |
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(6,153 |
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(22,272 |
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(5,434 |
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2,187 |
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Net income attributable to Nam Tai shareholders |
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40,756 |
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69,503 |
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30,635 |
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1,652 |
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15,006 |
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Earnings per share: |
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Basic |
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$ |
0.93 |
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$ |
1.56 |
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$ |
0.68 |
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$ |
0.04 |
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$ |
0.33 |
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Diluted |
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$ |
0.93 |
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$ |
1.55 |
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$ |
0.68 |
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$ |
0.04 |
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$ |
0.33 |
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Consolidated balance sheet data: |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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(in thousands, except per share data) |
Cash and cash equivalents |
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$ |
221,084 |
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$ |
272,459 |
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$ |
237,017 |
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$ |
182,722 |
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$ |
228,067 |
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Fixed deposits maturing over three months |
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12,903 |
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Working capital (4) |
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238,105 |
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266,306 |
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239,037 |
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197,718 |
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222,234 |
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Land use rights and property, plant and equipment, net |
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105,394 |
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98,599 |
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121,660 |
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121,406 |
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101,159 |
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Total assets |
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529,235 |
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544,818 |
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514,061 |
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403,924 |
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450,780 |
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Short-term debt, including current portion of long-term debt |
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6,266 |
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6,570 |
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8,199 |
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Long-term debt, less current portion |
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1,100 |
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1,558 |
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Total debt |
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7,366 |
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8,128 |
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8,199 |
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Total Nam Tai shareholders equity (5) |
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317,094 |
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330,181 |
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322,261 |
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326,410 |
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334,134 |
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Common shares |
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438 |
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448 |
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448 |
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448 |
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448 |
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Total dividend per share(6) |
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1.52 |
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0.84 |
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0.88 |
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0.20 |
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Total number of common shares issued |
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43,787 |
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44,804 |
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44,804 |
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44,804 |
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44,804 |
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Total number of common shares to be issued |
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1,017 |
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(1) |
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The Companys consolidated statements of income for years prior to 2009, as originally
published, combined general and administrative expenses and selling expenses as a single line
items labeled Selling, general and administrative expenses. In the above presentation of
Selected Financial Data and in the Companys consolidated financial statements included in
this Report, such expenses have been presented separately to conform to the 2009 and 2010
presentation. |
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(2) |
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General and administrative expenses for the years ended December 31, 2009 and 2010 included
employee severance benefits of $5.1 million and $656,000, respectively. General and
administrative expenses for the years ended December 31, 2009 and 2010 also included accruals
of $833,333 and $750,000, respectively, for a compensation obligation payable to the Companys
CFO at the end of three years continuous service. In October 2010, the Companys compensation
obligation payable at the end of three years to its CFO was terminated. In accordance with
Staff Accounting Bulletin (SAB) Topics 1B.1 and 5T, Financial Accounting Standard Board
(FASB) Accounting Standards Codification (ASC) 718-10-15-4, the aggregate of approximately
$1.6 million previously accrued on this obligation during the periods from March 1, 2009
through December 31, 2009 and from January 1, 2010 to September 30, 2010 was reclassified and
added to additional paid-in capital on the Companys Balance Sheet as at December 31, 2010. |
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(3) |
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Income tax expenses for the year ended December 31, 2010 included a deferred tax credit of
$2.6 million arising from tax losses of the Companys flexible printed circuit, or FPC,
business in Wuxi. However, the actual utilization of such deferred tax asset depends on future
profit streams of that business. |
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(4) |
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Working Capital represents the excess of current assets over current liabilities. |
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(5) |
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In November 2009, Nam Tai successfully completed the privatization of Nam Tai Electronic &
Electrical Products Limited, or NTEEP, by tendering for and acquiring the 25.12 percent of
NTEEP that it did not previously own, i.e., NTEEPs noncontrolling shares, resulting in NTEEP
becoming the Companys wholly-owned subsidiary. Beginning with its consolidated financial
statements for the year ended December 31, 2009, Nam Tai reclassified noncontrolling interests
for years prior to 2009 as equity in accordance with FASB ASC 810-10-45-16
Consolidated-Overall-Other Presentation Matter Noncontrolling Interest in a Subsidiary.
The presentation in the table above includes such reclassification for 2006, 2007 and 2008.
Total Nam Tai shareholders equity at December 31, 2010 also included approximately $1.6
million previously accrued on a compensation obligation payable to the Companys CFO, which
was terminated in October 2010. See footnote (2) above. |
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(6) |
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For 2010, the Company declared a dividend payable quarterly in 2011. See the table entitled
Dividends declared for 2011 in Item 8 Financial Information Dividends on page 61 of this
Report for the schedule of dividend payments for 2011. |
4
Risk Factors
We may from time to time make written or oral forward-looking statements. Written
forward-looking statements may appear in this document and other documents filed with the SEC, in
press releases, in reports to shareholders, on our website, and other documents. The Private
Securities Reform Act of 1995 contains a safe harbor for forward-looking statements on which the
Company relies in making such disclosures. In connection with this safe harbor, we are hereby
identifying important factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by us or on our behalf. Any such statements are
qualified by reference to the following cautionary statements.
We are dependent on a few large customers, the loss of any of which could substantially harm our
business and operating results.
Historically, a substantial percentage of our sales have been made to a small number of
customers. During the years ended December 31, 2008, 2009 and 2010, sales to our customers
accounting for 10% or more of our net sales for those years, aggregated approximately 57.7%, 63.3%
and 71.0%, respectively, of our net sales. During these same years, sales to our largest 10
customers accounted for 85.5%, 86.2% and 88.4%, respectively, of our net sales. We currently
depend, and expect to continue to depend, on a relatively small number of customers for significant
percentages of our net revenue and their growth, viability and financial stability. If our
customers, particularly our major customers, experience a decline in the demand for their products
as a result of the prevailing economic environment or other factors, the electronic manufacturing
services, or EMS, that we provide to these customers could be curtailed or possibly even
terminated. The loss of any one of our major customers or a substantial reduction in orders from
any of them would adversely impact our sales and decrease our net income or cause us to incur
losses unless and until we were able to replace the customer or order with one or more of
comparable size.
In addition, we generate significant account receivables in connection with the EMS we provide
to our customers. If one or more of our customers become insolvent or otherwise were unable to pay
for the services provided by us on a timely basis, or at all, our operating results and financial
position could be adversely affected. Such adverse effects could include one or more of the
following: a further decline in revenue or net income, a charge for bad debts, a charge for
inventory write-offs, a decrease in inventory turns, an increase in days in inventory and an
increase in days in accounts receivable.
Continuing economic weakness may adversely affect our earnings, liquidity and financial position.
The business environment in the electronics industry has been challenging recently as a
consequence of adverse worldwide economic conditions. In particular, there has been an erosion of
global consumer confidence from concerns over declining asset values, price instability,
geopolitical issues, the availability and cost of credit, rising unemployment, and the stability
and solvency of financial institutions, financial markets, businesses, and sovereign nations. These
concerns slowed global economic growth and resulted in recessions in many countries, including in
the U.S., Europe and certain countries in Asia. The global economic weakness negatively impacted
our operating results beginning in the second half of 2008 and continued through the first quarter
ended March 31, 2010.
Even though there are signs that an overall economic recovery is beginning, such recovery may
be weak or short-lived. Recessionary conditions may return. If any of these potential negative
economic conditions occur, a number of negative effects on our business could result and adversely
affect:
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the demand for our customers products, |
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the amount, timing and stability of their orders to us, |
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the financial strength of our customers and suppliers, |
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our customers and suppliers ability or willingness to do business with us, |
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our willingness to do business with them, |
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our suppliers and customers ability to fulfill their obligations to us, |
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the ability of our customers, our suppliers or us to obtain credit, secure funds or raise capital, and |
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the prices at which we can sell our products and services. |
Any of these effects could impact our ability to effectively manage inventory levels and
collect receivables, increase our need for cash, and decrease our net revenue and profitability.
Our quarterly and annual operating results are subject to significant fluctuations as a result of a wide variety of factors.
Substantially all of our sales are made on purchase order bases, and we are not always able to
predict with certainty the timing or magnitude of these orders, especially during the global
economic downturn. We cannot guarantee that we will continue to receive any orders from our
customers, and our net sales will be harmed if we are unable to obtain a sufficient number of
orders from, perform a sufficient number of EMS for, or ship a sufficient number of products to,
customers in each quarter. In addition, our customers may
5
cancel, change or delay product purchase
orders with little or no advance notice to us. Also, we believe customers may be increasing the
number of vendors upon which they rely for manufacturing. Our quarterly and annual operating
results are affected by a wide variety of factors that could materially and adversely affect our
business and operating results during any period. This could result from any one or a combination
of factors, such as:
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the timing, cancellation or deferral of orders; |
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adverse changes in global economic conditions, particularly those affecting the electronics industry; |
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the level of capacity utilization of our manufacturing facilities and associated fixed costs; |
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the composition of the costs of revenue between materials, labor and manufacturing overhead; |
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changes in demand for our products or services; |
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changes in demand in our customers end markets, which affect the type of product and related margins; |
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our customers announcement and introduction of new products or new generations of products; |
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the efficiencies we achieve in managing inventories and fixed assets; |
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the degree to which we are able to utilize our available manufacturing capacity; |
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long, national official, seasonal breaks in the PRC, such as the Chinese New Year
holidays in our first quarter and the National Day Golden week in our fourth quarter,
during which our ability to manufacture products, obtain components and materials from
suppliers and receive and process orders from customers are adversely affected; |
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fluctuations in materials costs and availability of materials; |
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the life cycles of our customers products; |
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variability in our manufacturing yields; |
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long lead times and advance financial commitments for our factories and equipment expenditures; |
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long lead times and advance financial commitments for components required to
complete anticipated customer orders; |
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our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components; |
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changes in the specific products or quantities our customers order; |
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extended payment terms demanded by our major customers which, for competitive
reasons, we choose to accommodate and result in longer periods for us to receive payment
and increase our accounts receivable; |
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customer insolvencies resulting in bad debt or inventory exposures that are in
excess of our reserves; |
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charges to our operating results because of impairments to the values of
long-lived assets or goodwill carried on our balance sheet; and |
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price reductions caused by competitive pressure. |
The volume and timing of orders received during a quarter have been, even in normal economic
climates, difficult to forecast and fluctuate as a consequence of variation in demand for our
customers products; our customers attempts to manage their inventory; electronic design changes;
changes in our customers manufacturing strategies; and acquisitions of or consolidations among our
customers. Customers generally order based on their forecasts. Further, we do not typically operate
with any significant backlog in orders, and this makes it difficult for us to forecast our
revenues, plan our production and allocate resources for future periods (including for our capital
expenditures). If demand falls below such forecasts or if customers do not control inventories
effectively, they may reduce, cancel or postpone shipments of orders.
Because of any of the above factors, our operating results in any period should not be
considered indicative of results to be expected in any future period, and fluctuations in operating
results may also result in fluctuations in the market price of our common shares. Our operating
results in future periods may fall below the expectations of public market analysts and investors.
This failure to meet expectations could cause the trading price of our common shares to decline.
We face increasing competition, which has had and may continue to have, an adverse effect on our
gross margins.
Although there are certain barriers to entry into the EMS industry, including technical
expertise, substantial capital requirements, difficulties relating to building customer
relationships and a large and loyal customer base, the barriers to entry are
6
comparatively low and
we are aware that manufacturers in Hong Kong and China may be developing or have developed the
required technical capability and customer base to compete with our existing business.
Competition in the EMS industry is intense, characterized by price erosion, rapid
technological change and competition from major international companies. This intense competition
has resulted in pricing pressures and a lower gross margins percentage in certain years. Our gross
margin percentages during the year ended December 31, 2010 and in each of the four preceding years
are shown in the chart below.
During 2010, we were burdened with start-up expenses at our newly operational manufacturing
and assembly facility in Wuxi, which reduced our overall gross profit margin in 2010 by 2.1%, to
9.6%. However, in the future, we may not be able to improve on, or even maintain, our gross margin
percentage at the level of 2010. If, as a result of competitive forces, we are compelled to lower
our unit prices and are unable to otherwise offset the recent trend of decreases in our gross
margins percentage, our financial position may be harmed and our stock price may fall.
Consolidation in industries that utilize or manufacture electronics components may adversely affect
our business.
Consolidation in industries that utilize electronics components may further increase as
companies combine to achieve further economies of scale and other synergies, which could result in
an increase in excess manufacturing capacity as companies seek to divest manufacturing operations
or eliminate duplicative product lines. Excess manufacturing capacity may decrease pricing and
competitive pressures for our industry as a whole and for us in particular. Consolidation could
also result in an increasing number of very large companies offering products in multiple
industries. The significant purchasing power and market power of these large companies could
decrease pricing and competitive pressures for us. If one of our customers is acquired by another
company that does not rely on us to provide services and has its own production facilities or
relies on another provider of similar services, we may lose that customers business. Such
consolidation among our customers may further reduce the number of customers that generate a
significant percentage of our net revenue and exposes us to increased risks relating to reliance on
a small number of customers. Any of the foregoing results of industry consolidation could adversely
affect our business.
In addition, consolidation in our industry results in larger and more geographically diverse
competitors, which have significant combined resources with which to compete against us, may permit
the competitors involved to devote significantly greater resources to the expansion of EMS that
they offer and the marketing of existing competitive services to their larger installed customer
bases or to new customers attracted to larger global manufacturing organizations.
We may not be able to compete successfully with our competitors, many of which have substantially
greater resources than we do. We will face intense competition when we soon begin large-scale
production of flexible printed circuit, or FPC boards and FPC subassemblies.
The electronic manufacturing services we provide are available from many independent sources
as well as from our current and potential customers with in-house manufacturing capabilities. The
following table identifies those companies, which we believe are our principal competitors (listed
alphabetically) by category of products or services we provide:
7
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Product/Service |
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Competitor |
EMS
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Celestica, Inc. |
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Flextronics International Ltd. |
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Hon Hai Precision Industry Co., Ltd. |
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Jabil Circuit, Inc |
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Sanmina-SCI Corporation |
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Image capturing devices and their modules
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Altus Technology Inc (controlled by Foxconn) |
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Lite-on Technology Corporation |
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Logitech International S.A. |
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The Primax Group |
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Mobile phone accessories
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Balda-Thong Fook Solutions Sdn., Bhd. |
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Celestica, Inc. |
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Elcoteq Network Corp. |
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Flextronics International Ltd. |
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Foster Corporation |
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Foxlink Group |
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Merry Electronics Co. Ltd. |
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WKK International (Holdings) Ltd. |
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Liquid crystal display, or LCD panels
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Tianma Microelectronics Co., Ltd |
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Truly International Holdings Ltd. |
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Varitronix International Ltd. |
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Yeebo (International) Holdings Ltd. |
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Telecommunication subassemblies and components
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Flextronics International Ltd. |
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LG. Philips LCD Co., Ltd. |
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Samsung Electronics |
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Varitronix International Ltd. |
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Consumer electronic products (calculators, personal organizers and linguistic products)
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Computime Limited Inventec Co. Ltd. |
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Kinpo Electronics, Inc. |
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VTech Holdings Limited |
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FPC boards/FPC subassemblies
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Ichia Technologies Inc. |
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Nitto Denko (HK) Ltd. |
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NOK Corporation |
Many of our competitors have greater financial, technical, marketing, manufacturing, regional
shipping capabilities and logistics support and personnel resources than we do and consolidations
among our competitors could result in even larger competitors emerging. As a result, we may be
unable to compete successfully with these organizations in the future.
In addition to intense competition from large FPC board manufacturers located in Taiwan,
China, Korea, Singapore, North America, Japan and Europe, such as those listed in the above table
opposite FPC boards/FPC subassemblies, we also face such competition from large, established EMS
providers that have acquired or, like we have, developed their own FPC manufacturing capabilities,
and have extensive experience in electronics assembly. Furthermore, many companies in our target
customer base are moving the design and manufacturing of their products to original engineering
manufacturers, or OEMs, in Asia. Such competitions could create pressure on us to provide discounts
or lower prices to gain or maintain market share, which could adversely affect our margins and the
profitability of our FPC business and our operating results as a whole. In addition, if we are
unable to capture significant original design manufactures (ODMs) as customers, we may be unable
to sustain or grow our FPC business.
Cancellations or delays in orders could materially and adversely affect our gross margins and
operating results.
Our sales to OEMs are primarily based on purchase orders that we receive from time to time
rather than firm, long-term purchase commitments. Although it is our general practice to purchase
raw materials only upon receiving a purchase order, for certain customers we will occasionally
purchase raw materials based on such customers rolling forecasts. Further, during times of
potential component shortages, we have purchased, and may continue to purchase, raw materials and
component parts in the expectation of receiving purchase orders for products that use these
components. In the event actual purchase orders are delayed, are not received or are cancelled, we
would experience increased inventory levels or possible write-offs of obsolete inventory,
write-downs of raw materials
8
inventory or the underutilization of our manufacturing capacity if, for example, we decline
other potential orders because we expect to use our capacity to produce orders that are later
delayed, reduced or canceled.
Our customers face numerous competitive challenges, such as rapid technological changes and short
life cycles for their products, which may materially adversely affect their business, and also
ours.
Factors affecting the industries that utilize electronics components in general, and our
customers specifically, could seriously harm our customers and, as a result, us. These factors
include:
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The inability of our customers to adapt to rapidly changing technology and
evolving industry standards, which result in short product life cycles. |
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The inability of our customers to develop and market their products, some of
which are new and untested, the potential that our customers products may become
obsolete or the failure of our customers products to gain widespread commercial
acceptance. |
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Recessionary periods in our customers markets. |
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Increased competition among our customers and their respective competitors which
may result in a loss of business, or a reduction in pricing power, for our customers. |
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New product offerings by our customers competitors may prove to be more
successful than our customers product offerings. |
If our customers are unsuccessful in addressing these competitive challenges, or any others
that they may face, then their business may be materially adversely affected, and as a result, the
demand for our services could decline.
Our business has been characterized by a rapidly changing mix of products and customers.
Since 2007, we have targeted markets that we believe offer significant growth opportunities
and for which OEMs sell complex products that are subject to rapid technological change. We believe
that markets involving complex, rapidly changing products offer us opportunities to produce
products with higher margins because these products require higher value-added manufacturing
services and may also include advanced components. We expect that our current mix of customers and
products will continue to change rapidly, and we believe this to be relatively common in the EMS
industry. If the products of our customers that we manufacture become obsolete or less profitable
and we are not able to diversify our product offerings or customer base in a timely manner, our
business would be materially and adversely affected.
There may not be a sufficient market for new products that our customers or we develop.
Our customers may not develop new products in a timely and cost-effective manner, or the
market for products they choose to develop may not grow or be sustained in line with their
expectations. This would reduce the overall businesses they outsource, which would seriously affect
our business and operating results. Even if we develop capabilities to manufacture new products,
there can be no guarantee that a market exists or will develop for such products or that such
products will adequately respond to market trends. If we invest resources to develop capabilities
to manufacture or expand capabilities for existing and new products, like the investments we have
made in our new factory in Wuxi, PRC to manufacture FPC boards, FPC subassemblies and other
products, for which sales do not develop, our business and operating results would be seriously
harmed. Even if the market for our services grows, it may not grow at an adequate pace.
We must spend substantial amounts to maintain and develop advanced manufacturing processes and
engage additional engineering personnel in order to attract new customers and business.
We operate in a rapidly changing industry. Technological advances, the introduction of new
products and new manufacturing and design techniques could materially and adversely affect our
business unless we are able to adapt to those changing conditions. As a result, we are continually
required to commit substantial funds for, and significant resources to, engaging additional
engineering and other technical personnel and to purchase advanced design, production and test
equipment. Our future operating results will depend to a significant extent on our ability to
continue to provide new manufacturing solutions which, based on time to introduction, cost and
performance with the manufacturing capabilities of OEMs and competitive third-party suppliers
compare favorably to those offered by our competitors. Our success in attracting new customers and
developing new business depends on various factors, including:
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utilization of advances in technology; |
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development of new or improved manufacturing processes for our customers products; |
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delivery of efficient and cost-effective services; and |
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timely completion of the manufacture of new products. |
9
Our business is capital intensive and the failure to generate sufficient cash could require that we
curtail capital expenditures.
To remain competitive, we must continue to make investments in capital equipment, facilities
and technological improvements. We plan to finance our expansion with capital we generate from
operations. If we are unable to generate sufficient funds to conduct existing operations and fund
our expansion, we may have to curtail our capital expenditures. Any curtailment of our capital
expenditures could result in a reduction in net sales, reduction or elimination of our dividends to
shareholders, reduced quality of our products, increased manufacturing costs for our products, harm
to our reputation, reduced manufacturing efficiencies or other harm to our business.
Our inability to obtain local government approvals to release or obtain lands needed for our
planned expansion projects would limit our future manufacturing capacity and adversely impact our
growth and potentially our financial results when our existing capacity is reached.
Currently, we have two separate projects planned for expansion, including:
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the development of raw land in the Guangming Hi-Tech Industrial Park Shenzhen,
China that we acquired in 2007 into new manufacturing and support facilities to
supplement manufacturing that we conduct at our principal manufacturing facilities in
Shenzhen, China, and |
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the acquisition and development of raw land adjacent to our recently operational
manufacturing facility in Wuxi, China in order to construct structures, such as
dormitories, canteen, labor activity center, research laboratory and testing and
training centers, to support operations at our Wuxi manufacturing facility. |
All capital construction and expansion projects in China require a number of governmental
approvals, which are subject to a variety of regulatory, economic and policy factors that are
beyond our control. For example, although we fully paid the local government for the land use
rights to our Guangming property in 2007, the government has delayed the release of this land to us
and we have as yet been unable to commence development of the property. In the case of our planned
expansion in Wuxi, while the local Wuxi government has indicated to us that it strongly supports
our expansion and development on the site we have selected, it has been slow in providing the
approvals and documentation necessary for us to consummate the acquisition of land use rights on
the property and begin development.
We believe that immediate expansion of our manufacturing facilities in Shenzhen is needed
because we expect that the production capacity at our principal manufacturing facilities in
Shenzhen to be fully utilized by the end of 2011 or early 2012. Similarly, we expect that our
existing Wuxi facilities to reach full capacity in 2013 and we believe we need to complete
construction of the planned adjunct facilities by then to house additional factory workers in order
to increase capacity at these facilities.
Even if we immediately obtained from the local governments the necessary approvals to release
of our Guangming property and to consummate our acquisition of the Wuxi site, construction of the
facilities planned for our expansion could be forstalled because of construction delays, equipment
delays or shortages, labor shortages or disputes or other unexpected events. If we reach the
limits of our manufacturing capacity before we are able to complete development of our planned
expansion projects we may not be able to accept new customers or serve our existing customers
adequately and potentially lose them, either of which would harm our growth, profitability and
financial results.
We generally have no written agreements with suppliers to obtain components and our margins and
operating results could suffer from increases in component prices.
For certain customers, we are responsible for purchasing components used in manufacturing
their products. We do not have written agreements with some of our suppliers of components. This
typically results in our bearing the risk of component price increases because we may be unable to
procure the required materials at a price level necessary to generate anticipated margins from the
orders of our customers. Accordingly, increases in component prices could materially and adversely
affect our gross margins and operating results.
Our business and operating results would be materially and adversely affected if our suppliers of
needed components fail to meet our needs.
At various times, we have experienced and expect to continue to experience, shortages of some
of the electronic components that we use, and suppliers of some components lack sufficient capacity
to meet the demand for these components. In some cases, supply shortages and delays in deliveries
of particular components have resulted in curtailed production, or delays in production, of
assemblies using that component, which contributed to an increase in our inventory levels and
reduction in our gross margins. We expect that shortages and delays in deliveries of some
components will continue. If we are unable to obtain sufficient components on a timely basis, we
may experience manufacturing delays, which could harm our relationships with current or prospective
customers and reduce our sales. We also depend on a small number of suppliers for certain
components that we use in our business. If we were unable to continue to purchase components from
these limited source suppliers, our business and operating results would be materially and
adversely affected.
10
We may be required to write down our long-lived assets and a significant impairment charge would
adversely affect our operating results.
At December 31, 2010, we had $101.2 million in long-lived assets on our balance sheet. The
valuation of our long-lived assets requires us to make assumptions about future sales prices and
sales volumes for our products. Our assumptions are used to forecast future undiscounted cash
flows. Given the current economic environment, uncertainties regarding the duration and severity of
these conditions, forecasting future business is difficult and subject to modification. If actual
market conditions differ or our forecasts change, we may be required to reassess long-lived assets
and could record an impairment charge. Any impairment charge relating to long-lived assets would
have the effect of decreasing our earnings or increasing our losses in such period. If we are
required to take a substantial impairment charge, our operating results could be materially
adversely affected in the periods and year in which the charge is incurred.
The PRCs labor law could penalize Nam Tai if it needs to make additional workforce reductions.
In June 2007, the National Peoples Congress of the PRC enacted new labor law legislation
called the Labor Contract Law, which became effective on January 1, 2008. It formalizes workers
rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade
unions. Considered one of the strictest labor laws in the world, among other things, this new law
requires an employer to conclude an open-ended employment contract with any employee who either
has worked for the employer for 10 years or more or has had two consecutive fixed-term contracts.
An open-ended employment contract is in effect a lifetime, permanent contract, which is
terminable only in specified circumstances, such as a material breach of the employers rules and
regulations, or for a serious dereliction of duty. Under the new law, downsizing by 20% or more of
each individual entity may occur only under specified circumstances, such as a restructuring
undertaken pursuant Chinas Enterprise Bankruptcy Law, or where a company suffers serious
difficulties in production and/or business operations. Also, if we
lay off more than 20 employees at
one time, we have to communicate with the labor union of our Company and report to the District
Labor Bureau.
Although we reduced
our headcount in 2009 in response to then-prevailing economic conditions,
we increased our workforce by approximately 12% during 2010, from approximately 5,200
employees at December 31, 2009 to approximately 5,800 at December 31, 2010. For information
regarding our employees, their geographic location and their main category of activity during the
years ended December 31, 2008, 2009 and 2010, please see Item 6 Employees on page 55 of this
Report. We can expect to incur much higher costs under Chinas labor laws if we are forced in the
future to downsize our workforce materially and such costs could have a material adverse effect on
our financial results and financial condition.
The economy of China has been experiencing significant growth, leading to inflation and increased
labor costs. Any material increases in the labor costs for workers in the PRC may have a material
and adverse effect on our financial operating results and profitability.
We generate all revenues
from sales of products that we manufacture at our facilities in the
PRC. The economy in China has grown significantly over the past 20 years, which has resulted in an
increased inflation and the average cost of labor, especially in the coastal cities. Chinas
consumer price index, the broadest measure of inflation, rose 4.9% in January 2011 from the level
in January 2010. Chinas overall economy and the average wage in the PRC are expected to continue
to grow. For example, wages of our direct labor workforce increased substantially in 2010 and at
December 31, 2010, average wage level was approximately 57% higher than that at December 31, 2009.
Continuing increases in Chinas inflation and material increases in the cost of labor would
diminish our competitive advantage and, unless we are able pass on these increased labor costs to
our customers by increasing prices for our products and services, our profitability and results of
operations could be materially and adversely affected.
We are exposed to impact of global business trends in the mobile phone industry, which could result
in even lower gross margins on the mobile phone components and subassemblies we manufacture.
During the year ended December 31, 2010, approximately 60.6% of our sales were derived from
subassemblies and components for mobile phones and mobile phone accessories. Accordingly, any
fluctuations in the size of the mobile phone market, market trends, increased competition or
pricing pressure of mobile phone industry may affect our business and operating results. For
example, the mobile phone industry has been experiencing rapid growth, particularly from emerging
economies such as India and China. The growth in these markets, however, does not necessarily
translate into increased margins or growing profits as mobile phones sold in developing countries
are typically stripped down to basic features and sold for low prices. Competition in developing
markets is fierce, even more intense than in countries with advanced economies. Accordingly, we
expect that our margins and profitability of the components and assemblies we manufacture for use
in mobile phones that our customers target for emerging economies to continue to undergo severe
pricing pressures, resulting in lower margins on these products than those we have experienced
historically.
Our customers are dependent on shipping companies for delivery of our products and interruptions to
shipping could materially and adversely affect our business and operating results.
Our customers rely on a variety of carriers for product transportation through various
international ports. A work stoppage, strike or shutdown of one or more major ports or airports
could result in shipping delays materially and adversely affecting our
11
customers, which in turn could have a material adverse effect on our business and operating
results. Similarly, an increase in freight surcharges from rising fuel costs or general price
increases could materially and adversely affect our business and operating results.
Our products are sold internationally and the effect of business, legal and political risks
associated with international operations could significantly harm us.
As of December 31, 2010, approximately 99.9% of the net book value of our total property,
plant and equipment was located in China. We sell our products to customers in Hong Kong, North
America, Europe, Japan, China and Southeast Asia. Our international operations are subject to
significant political and economic risks and legal uncertainties, including:
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changes in economic and political conditions and in governmental policies; |
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changes in international and domestic customs regulations; |
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wars, civil unrest, acts of terrorism and other conflicts; |
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changes in tariffs, trade restrictions, trade agreements and taxation; |
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limitations on the repatriation of funds because of foreign exchange controls; |
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exposure to political and financial instability; |
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currency exchange fluctuations, collection difficulties or other country-specific losses; |
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exposure to fluctuations in the value of local currencies; |
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changes in value-added tax reimbursement; |
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imposition of currency exchange controls; and |
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delays from customs brokers or government agencies. |
Any of these risks could significantly harm our business, financial condition and operating
results.
Our operating results could be negatively impacted by seasonality.
Historically, our sales and operating results have been affected by seasonality. Sales of
products and components related to mobile phones have generally been lower in the first quarter
after peaking fourth quarter. Sales of educational products and home entertainment devices are
often higher during the second and third quarters in anticipation of the start of the school year
and the Christmas buying season. Similarly, orders for consumer electronics products have
historically been lower in the first quarter from both the closing of our factories in China for
the Lunar New Year holidays and the general reduction in sales following the holiday season. These
sales patterns may not be indicative of future sales performance in future. For example, in 2009 as
a result of the prevailing economic turmoil, many of our customers either postponed or cancelled
orders that had been scheduled for delivery for the Christmas holidays, which based on our
historical seasonal patterns was unusual.
The long, national official, seasonal breaks in the PRC, such as the Chinese lunar New Year
holidays occurring in our first quarter, and the National Day Golden week occurring in our fourth
quarter, typically affects adversely our ability to manufacture products, obtain components and
materials from suppliers and receive and process orders from customers and accordingly our results
of operations during these period can be expected to suffer.
Our results could be adversely affected with intensifying environmental regulations.
Our operations create environmentally sensitive waste, which involves the use and disposal of
chemicals, solid and hazardous waste and other toxic and hazardous materials used in the
manufacturing process. The disposal of hazardous waste has received increasing attention from
Chinese national and local governments and foreign governments and agencies and has been subject to
increasing regulation. Currently, relevant Chinese environmental protection laws and regulations
impose fines on discharge of waste materials and empower certain environmental authorities to close
any facility that causes serious environmental problems. The costs of remedying violations or
resolving enforcement actions that might be initiated by governmental authorities could be
substantial. Any remediation of environmental contamination would involve substantial expense that
could harm our operating results. In addition, we cannot predict the nature, scope or effect of
future regulatory requirements to which our operations may be subject or the manner in which
existing or future laws will be administered or interpreted. Future regulations may be applied to
materials, products or activities that have not been subject to regulation previously. The costs of
complying with new or more stringent regulations could be significant. We are not aware of any
claims related to environmental contamination, and have not accrued any amounts to cover such
claims.
Global environmental legislation continues to emerge. These laws place increased
responsibility and requirements on the producers of electronic equipment (i.e. the OEMs) and, in
turn, their EMS providers and suppliers. On July 1, 2006, the European Unions Restriction of
Hazardous Substances (RoHS) came into effect. As a result, the use of lead and certain other
specified substances in electronic products is restricted in the European Union. Where appropriate,
we have transitioned our manufacturing
12
processes and interfaced with suppliers and customers to
review and secure RoHS compliance. In the event we are not in compliance with the RoHS
requirements, we could incur substantial costs, including fines and penalties, as well as liability
to our customers. In addition, customers who were deemed exempt for certain substances, or beyond
the scope of the legislation, are beginning to be impacted by the changing supply chain. In this
respect, we may incur costs related to inventories containing restricted substances. There are also
European Union requirements with respect to the collection, recycling and management of waste
electronic products and components. Under the European Unions Waste Electrical and Electronic
Equipment (WEEE) directive, compliance responsibility rests primarily with OEMs rather than with
EMS companies. However, OEMs may turn to EMS companies such as Nam Tai for assistance in meeting
their WEEE obligations. Failure by our customers to meet the RoHS or WEEE requirements or
obligations could have a negative impact on their businesses and revenues which would adversely
impact our financial results. Similar restrictions are being proposed or enacted in other
jurisdictions, including China. We cannot currently assess the impact of these legislations on our
operations.
Power shortages in China could affect our business.
We consume substantial amounts of electricity in our manufacturing processes at our production
facilities in China. Certain parts of China, including areas where our manufacturing facilities are
located, have been subject to power shortages in recent years. We have experienced a number of
power shortages at our production facilities in China to date. We are sometimes given advance
notice of power shortages and in relation to this we currently have a backup power system. However,
there can be no assurance that in the future our backup power system will be completely effective
in the event of a power shortage, particularly if that power shortage is over a sustained period of
time and/or we are not given advance notice of it. Any power shortage, brownout or blackout for a
significant period of time may disrupt our manufacturing, and as a result, may have an adverse
impact on our business.
Our insurance coverage may not be sufficient to cover the risks to our manufacturing facilities or
related to our operations.
We have not experienced any major accidents in the course of our operations, which have caused
significant property damage or personal injuries. However, there is no assurance that we will not
experience major accidents in the future. Although we have insurance against various risks,
including a business interruption, fidelity and losses or damages to our buildings, machinery,
equipment and inventories, the occurrence of certain incidents such as major earthquakes,
hurricanes, tsunamis, war, acts of terrorism, pandemics and flood, and their consequences, may not
be covered adequately, or at all, by our insurance. In the event of a major earthquake or other
disaster affecting our manufacturing facilities, our operations and management information systems,
which control our worldwide procurement, inventory management, shipping and billing activities,
could be significantly disrupted. Such events could also delay or prevent product manufacturing and
shipment for the time required to transfer production or repair, rebuild or replace the affected
manufacturing facilities. This time frame could be lengthy and result in significant expenses for
repair and related costs. Any extended inability to continue our operations at affected facilities
following such an event would reduce our revenue and potentially damage our reputation as a
reliable supplier.
We also face exposure to product liability claims in the event that any of our products is
alleged to have resulted in property damage, bodily injury or other adverse effects. We have only
limited product liability insurance covering certain of our products. Losses incurred or payments
we may be required to make in excess of applicable insurance coverage or for uninsured events or
any material claim for which insurance coverage is denied, limited or is not available could have a
material adverse effect on our business, operating results or financial condition.
We could become involved in intellectual property disputes.
We do not have any patents, licenses, or trademarks material to our business. Instead, we rely
on trade secrets, industry expertise and our customers sharing of intellectual property with us.
However, there can be no assurance that such intellectual property is not in violation of that
belonging to other parties. We may be notified that we are infringing patents, copyrights or other
intellectual property rights owned by other parties. In the event of an infringement claim, we may
be required to spend a significant amount of money to develop a non-infringing alternative or to
obtain licenses. We may not be successful in developing such an alternative or obtaining a license
on reasonable terms, if at all. Any litigation, even without merit, could result in substantial
costs and diversion of resources and could materially and adversely affect our business and
operating results.
We depend on our executive officers and skilled personnel and if we are unable to attract or retain
personnel necessary to operate our business, our ability to perform our services and manufacture
and market our products successfully could be harmed.
Our success depends largely upon the continued services of our executive officers as well as
upon our ability to attract and retain qualified technical, manufacturing and marketing personnel.
Generally, our executive officers are bound by employment or non-competition agreements. However,
we cannot assure you that we will be able retain our executive officers and we could be seriously
harmed by the loss of any of our executive officers. The loss of service of any of these
officers or key management personnel could have a material adverse effect on our business growth
and operating results. We maintain no key person insurance on our executive officers. As our
operations grow, we also need to recruit and retain additional skilled management personnel and if
we are not able to do so, our business and our ability to grow could be harmed.
13
We have experienced high management and employee turnover at our manufacturing facilities in
China, and are experiencing increased difficulty in recruiting employees for these facilities. In
addition, we are noting the early signs of wage inflation, labor unrest and increased unionization
in China and expect these to be ongoing trends for the foreseeable future, which could cause
employee issues, including work stoppages, excessive wage increases and the formation of more
active labor unions, at our China facilities. Virtually all of our employees work at our facilities
in China, and our costs associated with hiring and retaining these employees have increased over
the past several years and particularly during the last two years. The high turnover rate, our
difficulty in recruiting and retaining qualified employees and the labor trends we are noting in
China have resulted in an increase in our employee expenses and a continuation of any of these
trends could result in even higher costs or production disruptions or delays, resulting in order
cancellation, imposition of customer penalties if we were unable to perform manufacturing services
and deliver product timely and could have a negative impact on our net sales and profitability.
The PRC legal system has inherent uncertainties that could materially and adversely impact our
ability to enforce the agreements governing our factories and to do business.
We occupy our manufacturing facilities under China land use agreements with agencies of the
PRC government and we occupy other facilities under lease agreements with the relevant landlord.
The performance of these agreements and the operations of our factories depend on our relationship
with the local governments in regions, which our facilities are located. Our operations and
prospects would be materially and adversely affected by the failure of the local government to
honor these agreements or an adverse change in the law governing them. In the event of a dispute,
enforcement of these agreements could be difficult in China. Unlike the United States, China has a
civil law system based on written statutes in which judicial decisions have limited precedential
value. The government of China has enacted laws and regulations dealing with economic matters such
as corporate organization and governance, foreign investment, commerce, taxation and trade.
However, its experience in implementing, interpreting and enforcing these laws and regulations is
limited, and our ability to enforce commercial claims or to resolve commercial disputes in China is
unpredictable. These matters may be subject to the exercise of considerable discretion by agencies
of the PRC government, and forces and factors unrelated to the legal merits of a particular matter
or dispute may influence their determination.
Political or trade controversies between China and the United States could harm our operating
results or depress our stock price.
Differences between the United States and PRC governments on some political issues continue
occasionally to color the relationship. These occasional controversies could materially and
adversely affect our business and operations. Political or trade friction between the two countries
could also materially and adversely affect the market price of our shares, whether or not they
adversely affect our business.
Changes to PRC tax laws and heightened efforts by the Chinas tax authorities to increase revenues
have subjected us to greater taxes.
Under PRC law before 2008, we were afforded a number of tax concessions by, and tax refunds
from, Chinas tax authorities on a substantial portion of our operations in China by reinvesting
all or part of the profits attributable to our PRC manufacturing operations. However, on March 16,
2007, the Chinese government enacted a unified enterprise income tax law or EIT, which became
effective on January 1, 2008. Prior to the EIT, as a foreign invested enterprise, or FIE, located
in Shenzhen of the PRC, our PRC subsidiaries enjoyed a national income tax rate of 15% and were
exempted from the 3% local income tax. The preferential tax treatment to our subsidiaries in the
PRC of qualifying for tax refunds as a result of reinvesting their profits earned in previous years
in the PRC also expired on January 1, 2008. Under the EIT, most domestic enterprises and FIEs will
be subject to a single PRC enterprise income tax rate of 25% in year 2012 and afterward. For
information on the EIT rates as announced by the PRCs State Council for the transition period
until year 2012, please see the table in Item 5, Operating and Financial Review and Prospects on
page 37 of this Report. We base our tax position upon the anticipated nature and conduct of our
business and upon our understanding of the tax laws of the various administrative regions and
countries in which we have assets or conduct activities. However, our tax position is subject to
review and possible challenge by taxing authorities and to possible changes in law, which may have
retroactive effect. We cannot determine in advance the extent to which some jurisdictions may
require us to pay taxes or make payments in lieu of taxes.
We appear to have been a passive foreign investment company for 2010 and based on our current
operations and market conditions, we may be a passive foreign investment company for 2011, which
could result in adverse U.S. federal income tax consequences to some U.S. investors.
Based upon an analysis of the book value of our assets and the total market value, or market
cap, of our shares at the end of each quarter during 2010, we appear to be classified as a passive
foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for
U.S. federal income tax purposes. The determination of whether we are a PFIC in any taxable year
is made on an
annual basis and depends on the composition of our income and assets. Specifically, we will be
classified as a PFIC if, after applying relevant look-through rules with respect to the income and
assets of subsidiaries, either (i) 75% or more of our gross income for such taxable year is passive
income, or (ii) 50% or more of the average percentage of our assets during such taxable year either
produce passive income or are held for the production of passive income (the PFIC asset test).
Accordingly, we could be classified as a PFIC for U.S. federal income tax purpose.
14
We have not conducted an appraisal of the actual fair market value of our assets. If we
conducted such appraisal, it might not result in a fair market value of our assets being
sufficiently greater than the aggregate value of our market cap to avoid our classification as a
PFIC, and, even if it did so result, such appraisal may not be enough to establish to the
satisfaction of the IRS that the fair market value of our assets was sufficiently greater than the
aggregate value of our market cap in order to avoid our classification as a PFIC. Our
characterization as a PFIC during any year could result in adverse U.S. federal income tax
consequences for U.S. investors. For example, if we were a PFIC in 2010 or in any other taxable
year, U.S. investors who owned our common shares generally would be subject to increased U.S. tax
liabilities and reporting requirements, and pledges of our common shares would be considered sales
for U.S. federal income tax purposes.
Given the complexity of the issues regarding our classification as a PFIC, U.S. investors are
urged to consult their own tax advisors for guidance as to our PFIC status. For further discussion
of the adverse U.S. federal income tax consequences of from the classification as a PFIC see
Taxation United States Federal Income Tax Consequences beginning on page 65 of this Report.
Changes in foreign exchange regulations of China could adversely affect our operating results.
Some of our earnings are denominated in yuan, the base unit of the RMB. The Peoples Bank of
China and the State Administration of foreign Exchange (SAFE) regulate the conversion of RMB into
foreign currencies. Under the current unified floating exchange rate system, the Peoples Bank of
China publishes a daily exchange rate for RMB based on the previous days dealings in the
inter-bank foreign exchange market. Financial institutions may enter into foreign exchange
transactions at exchange rates within an authorized range above or below the exchange rate
published by the Peoples Bank of China according to the market conditions. Since 1996, the PRC
government has issued a number of rules, regulations and notices regarding foreign exchange control
designed to provide for greater convertibility of RMB. Under such regulations, any FIE must
establish a current account and a capital account with a bank authorized to deal in foreign
exchange. Currently, FIEs are able to exchange RMB into foreign exchange currencies at designated
foreign exchange banks for settlement of current account transactions, which include payment of
dividends based on the board resolutions authorizing the distribution of profits or dividends of
the company concerned, without the approval of SAFE. Conversion of RMB into foreign currencies for
capital account transactions, which include the receipt and payment of foreign exchange for loans
and capital contributions, continues to be subject to limitations and requires the approval of
SAFE. There can be no assurance that we will be able to obtain sufficient foreign exchange to make
relevant payments or satisfy other foreign exchange requirements in the future.
Changes in currency exchange rates involving the Japanese yen or RMB have and could continue to
significantly affect our financial results.
Our financial results have been affected by currency fluctuations, resulting in total foreign
exchange gains or losses during each of our three fiscal years in the period ended December 31,
2010 as indicated in the following chart:
Our operating costs and financial results have been adversely affected by the appreciation of RMB
to the US dollar. A future appreciation of the Japanese yen against the U.S. dollar would increase
our costs and could adversely affect our margins and financial results unless we made sufficient
sales in Japanese yen to offset against costs and expenses, including material purchases, we make
in Japanese yen.
We sell most of our products in U.S. dollars and pay our expenses in U.S. dollars, Japanese
yen, Hong Kong dollars and RMB. While we face a variety of risks associated with changes among the
relative value of these currencies, we believe the most significant exchange risk presently results
from our costs and expenses we pay in RMB and Japanese yen, and material purchases we make, in
15
Japanese yen. Between 1994 and July 2005, the market and official RMB rates were unified and the
value of the RMB was essentially pegged to the U.S. dollar and was relatively stable. on July 21,
2005, the Peoples Bank of China adjusted the exchange rate of RMB to the U.S. dollar by linking
the RMB to a basket of currencies and simultaneously setting the exchange rate of RMB to U.S.
dollars, from 1:8.27, to a narrow band of around 1:8.11, resulting in an approximate 1.9%
appreciation in the value of the RMB against the U.S. dollars at the end of 2005 from July 21,
2005. The following chart illustrates the fluctuations since the July 31, 2005 adjustment of the
RMB to the US dollar by showing the exchange ratio at the end of each year from December 31, 2005
to December 31, 2010.
|
|
|
(1) |
|
RMB (yuan) to US dollar data presented in this chart were derived from the historical
currency converter available at http://forex-history.net. |
|
(2) |
|
If the end of a year fell on a Saturday or Sunday, datum is provided as of the previous
Friday. |
The appreciation and depreciation in the exchange ratio of the RMB to the US dollar
increases and decreases, respectively, our costs and expenses to the extent paid in RMB.
Approximately 16%, 18% and 17% of our total costs and expenses and 6%, 9% and 7% of our material
costs were in RMB during the years ended December 31, 2008, 2009 and 2010, respectively.
The following table shows the percentage fluctuation in the exchange rate of the RMB to the US
dollar at the end of each of the years in the three-year period ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
RMB Exchange Rate to US$1.00 at December 31(1) |
2008 |
|
2009 |
|
2010 |
Exchange Rate |
|
Percent |
|
Exchange Rate |
|
Percent |
|
Exchange Rate |
|
Percent |
to US$1.00 |
|
change(2) |
|
to US$1.00 |
|
change(2) |
|
to US$1.00 |
|
change(2) |
6.823
|
|
6.59%
|
|
6.827
|
|
-0.06%
|
|
6.602
|
|
3.30% |
|
|
|
(1) |
|
RMB to US dollar data presented in this table were derived from the historical
currency converter available at http://forex-history.net. |
|
(2) |
|
From exchange rate at preceding December 31. |
In mid-2008, the Chinese government halted allowing the RMB to appreciate against the dollar
as it did during earlier periods since July 21, 2005 because of concerns that the stronger RMB
leading to Chinese exports become less competitive at a time of global recession. Accordingly, as
shown in the above table, there was virtually no change in the exchange ratio of the RMB to the US
dollar during 2009. However, on June 19, 2010 Chinas central bank announced that it planned to
introduce more flexibility in the management of its currency and since then the RMB has again begun
to appreciate against the US dollar, increasing approximately 3.3% during 2010, thereby increasing
our costs and expenses that we paid in RMB during 2010 and adversely affecting our financial
results.
Like in the case of the RMB, the appreciation and depreciation in the exchange ratio of the
Japanese yen to the US dollar increases and decreases, respectively, our costs and expenses to the
extent paid in yen. Approximately 16%, 18% and 24% of our total costs and expenses and 12%, 14% and
29% of our material costs were in Japanese yen during the years ended December 31, 2008, 2009 and
2010, respectively. However, unlike in the case of the RMB, over the years we have made substantial
sales denominated in Japanese yen, which has mitigated the effects of fluctuations in the yen-US
dollar exchange ratio on our financial results. Approximately 9%, 12% and 23% respectively, of our
total net sales were made in Japanese yen during the years ended December 31, 2008, 2009 and 2010,
respectively.
16
The following table shows the percentage fluctuation in the exchange rate of the Japanese yen
to the US dollar at the end of each of the years in the three-year period ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yen Exchange Rate to US$1.00 at December 31(1) |
|
2008 |
|
|
2009 |
|
|
2010 |
|
Exchange Rate |
|
Percent |
|
|
Exchange Rate |
|
|
Percent |
|
|
Exchange Rate |
|
|
Percent |
|
to US$1.00 |
|
change(2) |
|
|
to US$1.00 |
|
|
change(2) |
|
|
to US$1.00 |
|
|
change(2) |
|
90.637 |
|
|
19.10% |
|
|
|
92.434 |
|
|
|
-1.98% |
|
|
|
81.313 |
|
|
|
12.03% |
|
|
|
|
1) |
|
Yen to US dollar data presented in this table were derived from the historical currency
converter available at http://forex-history.net. |
|
2) |
|
From exchange rate at preceding December 31. |
Fluctuations in the exchange rate of the Japanese yen to the U.S. dollar affect our gross
margins and financial results, but the effect is mitigated by our yen denominated sales. For
example, at December 31, 2009, the yen to US dollar exchange rate depreciated by approximately two
percent of the rate at December 31, 2008 and at December 31, 2010, the yen to US dollar exchange
rate appreciated by approximately 12% of the rate at December 31, 2009. These fluctuations
resulted in a decrease in our material and other costs and expenses paid in yen during 2009 and an
increase in our material costs and other costs and expenses paid in yen during 2010. However, the
fluctuations did not have a material net impact on our financial results for either 2009 or 2010
because in 2009 there occurred a relatively modest depreciation, which was mitigated by our yen
denominated sales, and in 2010 the material appreciation in the exchange rate was effectively
nullified by our yen denominated sales, which nearly matched our costs and expenses paid in yen.
A future material appreciation of the Japanese yen against the U.S. dollar would increase our
costs when translated into U.S. dollars and could adversely affect our margins and financial
results unless we made sufficient sales in Japanese yen to offset against material purchases and
other costs we paid in Japanese yen.
If we determined to pass onto our customers through price increases the effect of increases in
the RMB and/or Japanese yen relative to the U.S. dollars, it would make our products more expensive
in global markets such as the United States and the European Union. This could result in the loss
of customers, who may seek, and be able to obtain, products and services comparable to those we
offer in lower-cost regions of the world. If we did not increase our prices to pass on the effect
of increases in the RMB or Japanese yen relative to the U.S. dollars, our margins and profitability
could suffer.
We are exposed to intangible asset risk.
We have recorded intangible assets, which are mainly represented by goodwill, which are
attributable to business acquisitions and reorganization. We are required to perform goodwill
impairment test at least on an annual basis and whenever events or circumstances indicate that the
carrying value may not be recoverable from estimated future cash flows. In 2008, after performing
an impairment analysis, we have written off about $17.3 million goodwill in the fourth quarter. As
of December 31, 2010, goodwill with approximately $3.0 million remains on our books, which
continues to be subject to annual and periodic evaluations. We may determine that further
write-down may be necessary, which could adversely affect to our operating results and financial
position.
Nam Tais declaration and payment of dividends is not assured. We declared no dividends for 2009
and 2010. Although our Board has resumed dividends for 2011, we may not declare or pay dividends
thereafter.
Before 2009, we had a long history of dividend payments. In February 2009 our board of
directors determined not to declare dividends in 2009 and in February 2010, Nam Tais board
determined to refrain from declaring dividends again in 2010. The decisions not to declare
dividends in 2009 and 2010 were made in order to maintain cash reserves during the global economic
turmoil that negatively impacted Nam Tais business and operating results beginning in the second
half of 2008 and continuing through our first quarter ended March 31, 2010. Although the Company
has announced the resumption of quarterly dividend payments of $0.05 per share (totaling $0.20 per
share) for 2011, such resumption does not necessarily mean that dividend payments will continue
thereafter. Whether future dividends will be declared will depend on our future growth and
earnings, of which there can be no assurance, and our cash flow needs for future expansion, which
growth, earning or cash flow needs may be adversely affected by one or more of the factors
discussed in this Risk Factors section of this Report or other factors. There can be no assurance
that cash dividends on the Companys shares will be declared for years after 2011, what the amounts
of such dividends will be or whether such dividends, once declared for a specific period, will
continue for any future period, or at all. For additional information on the dividends we have
declared for 2011 and historically, please see Item 8 under the heading Dividends
on page 61 of this Report.
17
Payment of dividends by our subsidiaries in the PRC to our subsidiaries outside of the PRC and to
us, as the ultimate parent, is subject to restrictions under PRC law. If we determine to resume our
payment of dividends to our shareholders, the PRC tax law could force us to reduce the amount of
dividends we have historically paid to our shareholders or possibly eliminate our ability to ever
pay them again.
Under PRC law, dividends may be paid only out of distributable profits. Distributable profits
with respect to our subsidiaries in the PRC refers to after-tax profits as determined in accordance
with accounting principles and financial regulations applicable to PRC enterprises (China GAAP)
less any recovery of accumulated losses and allocations to statutory funds that it is required to
make. Any distributable profits that are not distributed in a given year are retained and available
for distribution in subsequent years. The calculation of distributable profits under China GAAP
differs in many respects from the calculation under U.S. GAAP. As a result, our subsidiaries in PRC
may not be able to pay any dividend in a given year as determined under U.S. GAAP. The Chinas tax
authorities may require changes in determining income of the Company that would limit its ability
to pay dividends and make other distributions.
Prior to the EIT law, which became effective on January 1, 2008, PRC-organized companies were
exempt from withholding taxes with respect to earnings distributions, or dividends, paid to
shareholders of PRC companies outside the PRC, such as was the case when our PRC subsidiaries
distributed portions of their earnings to our subsidiaries outside of the PRC. However, under the
new EIT Law, dividends payable to foreign investors which are derived from sources within the PRC
will be subject to income tax at the rate of
5% to 15% by way of withholding unless the foreign investors are companies incorporated in
countries which have tax treaty agreements with the PRC and then the rate agreed by both parties
will be applied. For example, under the terms of a tax treaty between Hong Kong and the PRC that
became effective in December 2006, distributions from our PRC subsidiaries to our Hong Kong
subsidiary, will be subject to a withholding tax at a rate ranging from 5% to 10%, depending on the
extent of ownership of equity interests held by our Hong Kong subsidiary in our PRC enterprises. As
a result of this new PRC withholding tax, amounts available to us in earnings distributions from
our PRC enterprises will be reduced. Since we derive most of our profits from our subsidiaries in
PRC, the reduction in amounts available for distribution from our PRC enterprises could, depending
on the income generated by our PRC subsidiaries, force us to reduce, or possibly eliminate, the
dividends we have paid to our shareholders historically. For this reason, or other factors, we may
decide not to declare dividends in the future. If we do pay dividends, we will determine the
amounts when they are declared and even if we do declare dividends in the future, we may not
continue them in any future period.
The market price of our shares will likely be subject to substantial price and volume fluctuations.
The markets for equity securities have been volatile and the price of our common shares has
been and could continue to be subject to wide fluctuations in response to variations in operating
results, news announcements, trading volume, sales of common shares by our officers, directors and
our principal shareholders, customers, suppliers or other publicly traded companies, general market
trends both domestically and internationally, currency movements and interest rate fluctuations.
Other events, such as the issuance of common shares upon the exercise of our outstanding stock
options could also materially and adversely affect the prevailing market price of our common
shares.
Further, the stock markets have often experienced extreme price and volume fluctuations that
have affected the market prices of equity securities of many companies and that have been unrelated
or disproportionate to the operating performance of such companies. These fluctuations may
materially and adversely affect the market price of our common shares.
The concentration of share ownership in our senior management allows them to control or
substantially influence the outcome of matters requiring shareholder approval.
On February 28, 2011, members of our senior management and Board of Directors as a group
beneficially owned approximately 25.6% of our common shares. As a result, acting together, they may
be able to control and substantially influence the outcome of all matters requiring approval by our
shareholders, including the election of directors and approval of significant corporate
transactions. This ability may have the effect of delaying or preventing a change in control of Nam
Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.
Regulatory initiatives in the United States, such as the Sarbanes-Oxley Act has increased, and may
continue to increase the time and costs of certain activities; and any further changes would likely
further increase our costs.
In the United States, there have been regulatory changes especially in corporate governance
practices of public bodies, including the Sarbanes-Oxley Act of 2002, changes in the continued
listing rules of the New York Stock Exchange, new accounting pronouncements and there may be new
regulatory legislation, rule and accounting changes, which may have an adverse impact on our future
financial position and operating results. These regulatory changes and other legislative
initiatives have made some activities more time-consuming and have increased financial compliance
and administrative costs of the companies that are subject to them, including foreign private
issuers like Nam Tai having securities traded in the United States and thereby subject to
legislative and regulatory changes in the U.S. capital markets. While these costs are no longer
increasing, they may in fact increase in the future. In addition, any future changes in new
regulatory legislation and rule and accounting may cause our legal and financial accounting costs
to increase.
18
Due to inherent limitations, there can be no assurance that our system of disclosure and internal
controls and procedures will be successful in preventing all errors or fraud, or in informing
management of all material information in a timely manner.
Our management, including the Chief Executive Officer and the Chief Financial Officer, does
not expect that our disclosure controls and internal controls and procedures will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system reflects that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been or will be detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur simply because of error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management
override of the control.
The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may become
inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the
preparation of financial statements in accordance with U.S. GAAP. Any changes in estimates,
judgments and assumptions could have a material adverse effect on our business, financial position
and results of operations.
The consolidated and condensed consolidated financial statements included in the periodic
reports we file with the SEC are prepared in accordance with U.S. GAAP. The preparation of
financial statements in accordance with U.S. GAAP involves making estimates, judgments and
assumptions that affect reported amounts of assets (including intangible assets), liabilities and
related reserves, revenues, expenses and income. Estimates, judgments and assumptions are
inherently subject to changes in the future, and any such changes could result in corresponding
changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes
could have a material adverse effect on our financial position and results of operation.
It may be difficult to serve us with legal process or enforce judgments against our management or
us.
We are a British Virgin Islands holding corporation with subsidiaries in Hong Kong and China.
Substantially, all of our assets are located in the PRC. In addition, most of our directors and
executive officers reside within the PRC or Hong Kong, and substantially all of the assets of these
persons are located within the PRC or Hong Kong. It may not be possible to effect service of
process within the United States or elsewhere outside the PRC or Hong Kong upon our directors, or
executive officers, including effecting service of process with respect to matters arising under
United States federal securities laws or applicable state securities laws. The PRC does not have
treaties providing for the reciprocal recognition and enforcement of judgments of courts with the
United States and many other countries. As a result, recognition and enforcement in the PRC of
judgments of a court in the United States or many other jurisdictions in relation to any matter,
including securities laws, may be difficult or impossible. Furthermore, an original action may be
brought in the PRC against our assets and our subsidiaries, our directors and executive officers
only if the actions are not required to be arbitrated by PRC law and only if the facts alleged in
the complaint give rise to a cause of action under PRC law. In connection with any such original
action, a PRC court may award civil liability, including monetary damages.
No treaty exists between Hong Kong or the British Virgin Islands and the United States
providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and
the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a
debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery
of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as
evidence of a debt due if:
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the judgment is for a liquidated amount in a civil matter; |
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the judgment is final and conclusive; |
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the judgment is not, directly or indirectly, for the payment of foreign taxes,
penalties, fines or charges of a like nature (in this regard, a Hong Kong court is
unlikely to accept a judgment for an amount obtained by doubling, trebling or otherwise
multiplying a sum assessed as compensation for the loss or damage sustained by the
person in whose favor the judgment was given); |
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the judgment was not obtained by actual or constructive fraud or duress; |
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the foreign court has taken jurisdiction on grounds that are recognized by the
common law rules as to conflict of laws in Hong Kong or the British Virgin Islands; |
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the proceedings in which the judgment was obtained were not contrary to natural
justice (i.e. the concept of fair adjudication); |
19
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the proceedings in which the judgment was obtained, the judgment itself and the
enforcement of the judgment are not contrary to the public policy of Hong Kong or the
British Virgin Islands; |
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the person against whom the judgment is given is subject to the jurisdiction of
the Hong Kong or the British Virgin Islands court; and |
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the judgment is not on a claim for contribution in respect of damages awarded by
a judgment, which does not satisfy the criteria stated previously. |
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be
limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium,
or similar laws relating to or affecting creditors rights generally, and will be subject to a
statutory limitation of time within which proceedings may be brought.
Future issuances of preference shares could materially and adversely affect the holders of our
common shares or delay or prevent a change of control.
Our Board of Directors may amend our Memorandum and Articles of Association without
shareholder approval to create from time to time, and issue, one or more classes of preference
shares (which are analogous to preferred stock of corporations organized in the United States).
While we have never issued any preference shares and we have none outstanding, we could issue
preference shares in the future. Future issuance of preference shares could materially and
adversely affect the rights of the holders of our common shares, or delay or prevent a change of
control.
We incurred substantial expenses and costs in privatizing Nam Tai Electronic & Electrical Products
Limited. It may require a number of years to realize the benefits from owning 100 percent of
NTEEP.
In November 2009, we successfully completed the privatization of Nam Tai Electronic &
Electrical Products Limited, or NTEEP, by tendering for and acquiring the 25.12 percent of NTEEP
that we did not previously own, i.e., NTEEPs noncontrolling shares, resulting in NTEEP becoming
our wholly-owned subsidiary. During the year ended December 31, 2009, we expended approximately
$44.3 million to acquire NTEEPs noncontrolling shares, including approximately $900,000 in
professional fees and related expenses. We financed these expenditures with internally generated
funds.
Although our acquisition of the noncontrolling shares of NTEEP has resulted in cost savings
and the elimination of profit sharing with NTEEP noncontrolling shareholders, which have assisted
in improving our financial results during the year ended December 31, 2010, future benefits we
expect on our financial results from this acquisition will occur only to the extent NTEEPs
operations remain profitable. Even if NTEEPs future operating results remain profitable, a number
of years may be required before the net income from NTEEPs operations that was attributable to the
noncontrolling interests that we acquired and the overhead costs saved from NTEEPs privatization
total to an amount that equals the costs and expenses of acquiring that interest.
Our status as a foreign private issuer in the United States exempts us from certain of the
reporting requirements under the Securities Exchange Act of 1934 and corporate governance standards
of the New York Stock Exchange, or NYSE limiting the protections and information afforded to
investors.
We are a foreign private issuer within the meaning of rules promulgated under the Securities
Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States
public companies including:
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the rules under the Securities Exchange Act of 1934 requiring the filing with the
SEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on
Form 10-K; |
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the sections of the Securities Exchange Act of 1934 regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the
Securities Exchange Act of 1934 or disclosures required in a proxy statement in
accordance with rules therefor promulgated under the Securities Exchange Act of 1934; |
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the provisions of Regulation FD aimed at preventing issuers from making selective
disclosures of material information; and |
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the sections of the Securities Exchange Act of 1934 requiring insiders to file
public reports of their stock ownership and trading activities and establishing insider
liability for profits realized from any short-swing trading transaction (i.e. a
purchase and sale, or sale and purchase, of the issuers equity securities within less
than six months). |
In addition, because the Company is a foreign private issuer, certain corporate governance
standards of the NYSE that are applied to domestic companies listed on that exchange may not be
applicable to us. For information regarding whether our corporate governance standards differ from
those applied to US domestic issuers, see the discussion under NYSE listed Company Manual
Disclosure in Item 6, Directors and Senior Management of this Report.
Because of these exemptions, investors are not afforded the same protections or information
generally available to investors holding shares in public companies organized in the United States
or traded on the NYSE. See footnote * on page 51 of this Report for
20
information and risks
associated with disclosures we have made in this Report or may make in our proxy statements
regarding compensation we have paid to our directors and senior managers on an individual basis.
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ITEM 4. |
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INFORMATION ON THE COMPANY |
Corporate Information
Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to China
in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates
available and subsequently relocated to Shenzhen, China in order to capitalize on opportunities
offered in southern China. We were reincorporated as a limited liability International Business
Company
under the laws of the British Virgin Islands in August 1987 (which was amended in 2004 as The
British Virgin Islands Business Companies Act, 2004). Our principal manufacturing and design
operations are currently based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC
headquarters are located in Shenzhen, China. Certain of our subsidiaries offices are located in
Hong Kong, which provide us access to Hong Kongs infrastructure of communication and banking
facilities. Our corporate administrative matters are conducted in the British Virgin Islands
through our registered agent, McNamara Corporate Services Limited, McNamara Chambers, P.O. Box
3342, Road Town, Tortola, British Virgin Islands. In 1978, Mr. Koo, the founder of the Company,
began recruiting operating executives from the Japanese electronics industry. These executives
brought years of experience in Japanese manufacturing methods, which emphasize quality, precision,
and efficiency in manufacturing. Senior and middle management currently include Japanese
professionals who provide technical expertise and work closely with both our Japanese component
suppliers and customers.
Major Events during 2010 to Date
During 2010,
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We began production of FPC boards and FPC subassemblies at our Wuxi factory that
we completed in 2009. During all of 2010, our Wuxi operations focused on developing
manufacturing processes, on evaluations and qualifications by our customers and on
resources planning in preparation for ramping up manufacturing at these facilities
during 2011. |
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We merged our wholly-owned dormant subsidiary, Wuxi Zastron Precision Tech Co.
Ltd., into our wholly owned subsidiary, Wuxi Zastron Precision Flex Co. Ltd., which is
now conducting all of our manufacturing of FPC boards and FPC subassemblies in Wuxi. |
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To simplify our organization and structure further, and in view of the similarity
of our Shenzhen operations and the products we manufacture there, we have consolidated
the operations and businesses of the three reporting units into a single wholly-owned
subsidiary: |
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o |
|
First merging our wholly-owned subsidiary, Jetup Electronic
(Shenzhen) Co. Ltd. with and into Zastron Electronic (Shenzhen) Co. Ltd.
(Zastron Shenzhen) in April 2010; and |
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o |
|
Then transferring the businesses and operations of our wholly owned
subsidiary, Namtai Electronic (Shenzhen) Co. Ltd. (Namtai Shenzhen) to Zastron
Shenzhen in October 2010. |
We are in the process of transforming Namtai Shenzhen into an investment holding company and
expect that process to be completed by the end of 2011.
Organizational Structure
The chart on the next page shows our organizational structure of our principal subsidiaries at
December 31, 2010.
21
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Nam Tai Electronic & Electrical Products Limited, or NTEEP, was
incorporated in June 2003 and is a holding company for the subsidiaries shown
in the chart above and discussed below. Shares of NTEEP were listed on the Hong
Kong Stock Exchange from April 28, 2004 until November 12, 2009, when Nam Tai
completed the privatization of NTEEP by tendering for, and acquiring, the 25.12
percent of NTEEP that Nam Tai did not previously own. At December 31, 2009 and
2010, NTEEP was a wholly-owned subsidiary of Nam Tai Electronics,
Inc.
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100%
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100% |
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Namtai Electronic (Shenzhen)
Co., Ltd. (Namtai Shenzhen) was
originally established as Baoan (Nam
Tai) Electronic Co. Ltd. in June
1989 as a contractual joint venture
company with limited liability
pursuant to the laws of China.
Through September 2010, it engaged
in the manufacture and sale of
consumer electronics and
telecommunications products. With
effect from October 1, 2010, the
businesses and operations of Namtai
Shenzhen were transferred to Zastron
Shenzhen. Namtai Shenzhen is in the
process of transforming into an
investment holding company.
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Nam tai Holdings Limited
(formerly known as First Rich
Holdings Limited) (Nam Tai Holdings)
was incorporated on November 2, 2007
in the British Virgin Islands. It is
a holding company.
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100% |
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Nam Tai Investment limited
(formerly known as Top Eastern
Investment Limited) (Nam Tai
Investment) was incorporated on
November 6, 2007 in Hong Kong. It is
a holding company.
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100%
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100% |
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Zastron Electronic (Shenzhen)
Co. Ltd. (Zastron
Shenzhen) was established in the PRC
in 1992 as a company with limited
liability. It manufacturers
telecommunication components and
assemblies such as LCD modules and
FPC assemblies. Zastron Shenzhens
sister company, Jetup Electronic
(Shenzhen) Co. Ltd. (Jetup), also
wholly owned by Nam Tai Shenzhen and
engaged in the manufacture of LCD
panels and LCD modules, was merged
into Zastron Shenzhen effective on
April 1, 2010. Upon completion of
that merger, Jetup ceased to exist,
and its assets, liabilities and
operations were transferred to
Zastron Shenzhen. In October 2010,
the businesses and operations of
Namtai Shenzhen were transferred to
Zastron Shenzhen.
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Wuxi Zastron Precision-Flex Co.
Ltd. (formerly known as Zastron
Precision- Flex (Wuxi) Co. Ltd.)
(Wuxi Zastron Flex) was established
in November 2006 as a wholly owned
foreign investment enterprise with
limited liability and pursuant to
the relevant laws of the PRC. This
company began manufacturing and
selling FPC boards and FPC
subassemblies during 2010. Wuxi
Zastron Flexs sister company, Wuxi
Zastron Precision-Tech Co. Ltd.
(Wuxi Zastron Tech), also wholly
owned by Nam Tai Investment, was
merged into Wuxi Zastron Flex
effective in April 2010. Upon
completion of that merger, Wuxi
Zastron Tech ceased to exist, and
its assets, liabilities and
operations were transferred to Wuxi
Zastron Flex.
|
Capital Expenditures
The following chart illustrates the amounts of our principal capital expenditures and
divestitures in each of the three years in the period ended December 31, 2010 (in thousands of
dollars).
23
Capital expenditures we currently have planned for 2011 include:
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$24 million for TFT mid-size 13 LCD module assembly line; |
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$10 million for machinery and leasehold improvement for LCD panel and module assembly; |
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$9 million for machinery used for FPC boards and assemblies; and |
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$13.5 million for construction of a dormitory, labor union facilities and a R&D center. |
Our major capital expenditures in 2010 included:
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$3.2 million for machinery used mainly for production of LCD and FPC Modules; |
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$0.9 million for leasehold improvement regarding merge of two subsidiaries; and |
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$0.5 million for other capital equipment. |
Our major capital expenditures in 2009 included:
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$23.7 million for new factory construction in Wuxi; |
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$0.5 million for machinery mainly used for production of LCD modules; and |
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$0.8 million for other capital equipment. |
Our major capital expenditures in 2008 included:
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$18.5 million for new factory construction in Wuxi; |
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$3.6 million for machinery and system improvements for our LCD factory; |
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$1.4 million for a new enterprise resource planning system; and |
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$3.9 million for other capital equipment. |
Our plans for capital expenditures are subject to change from time to time and could result
from, among other things, our consummation of any significant acquisition or strategic investment
opportunities, which we regularly explore, and prevailing economic conditions.
Business Overview
We are an electronics manufacturing and design services provider to a select group of the
worlds leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
subassemblies, including FPC board, FPC board subassemblies, LCD panels, LCD modules, TFT display
module, RF modules, DAB modules, internet radio subassemblies, CMOS imaging sensors modules and PCB
subassemblies. The components, modules and subassemblies are used in numerous electronic products,
including mobile phones, IP phones, notebook computers, digital cameras, electronic toys, and
handheld video game devices, and learning devices. We also manufacture finished products, including
mobile phone accessories, home entertainment products, and educational products. We assist our OEM
customers in the design and development of their products and furnish full turnkey manufacturing
services that utilize advanced manufacturing processes and production technologies. Our services
include software, firmware, and hardware development, mechanical design, parts and components
source and purchasing, product industrialization, and assembly into finished products or electronic
subassemblies with full quality testing and assurance. These services are value-added and assist us
in obtaining new business but do not represent a material component of our revenues. We also
provide early supplier involvement in design service to develop proprietary products that are sold
by our OEM customers using their brand name.
Our Customers
Historically, we have had substantial recurring sales from existing customers. Approximately
99.9% of our 2010 net sales came from customers that also used our services in 2009. While we seek
to diversify our customer base, a small number of customers currently generate a significant
portion of our sales. Sales to our 10 largest customers accounted for 85.5%, 86.2% and 88.4% of our
net sales during the years ended December 31, 2008, 2009 and 2010 respectively. Sales to customers
accounting for 10% or more of our net sales in the years ended December 31, 2008, 2009 or 2010
(listed in order of our net sales during 2010) were as follows:
24
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Year ended December 31 |
|
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2008 |
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2009 |
|
2010 |
Hikari Alphax Co., Ltd. |
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* |
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12.2 |
% |
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24.7 |
% |
Sony Computer Entertainment Europe Ltd. |
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15.4 |
% |
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10.2 |
% |
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17.7 |
% |
Sony Mobile Display Corporation |
|
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* |
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* |
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16.7 |
% |
Sharp Corporation |
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15.3 |
% |
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17.9 |
% |
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11.9 |
% |
Epson Imaging Devices Corporation |
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16.5 |
% |
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23.0 |
% |
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* |
|
Sony Ericsson Mobile Communication International A B |
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10.5 |
% |
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* |
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* |
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* |
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Less than 10% of our total net sales during the year indicated. |
Our 10 largest OEM customers based on net sales during 2010 were the following (listed
alphabetically):
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Customer |
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Products |
Epson Imaging Devices Corporation
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LCD modules for cellular phones and FPC subassemblies |
Hikari Alphax Co., Ltd.
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LCD modules |
Ryoyo Electro Hong Kong Limited
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LCD modules and panels |
Sharp Corporation
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FPC subassemblies, calculators, PDAs and dictionaries |
Sony Computer Entertainment Europe Ltd.
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Home entertainment products |
Sony Ericsson Mobile Communications International AB
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Mobile phone digital camera accessories, headset
accessory containing Bluetooth wireless technology
and flashlights for mobile phones |
Sony Mobile Display Corporation
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LCD modules |
Stanley Electric (Asia Pacific) Ltd.
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LCD Panels for equipment and instruments |
Texas Instruments
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Calculators |
Vtech Communications Ltd.
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LCD modules |
At any given time, different customers account for a significant portion of our business.
Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate
depending on the timing of production cycles for particular products.
Sales to our OEM customers are based primarily on purchase orders we receive from time to time
rather than fixed, long-term purchase commitments from our customers. Although it is our general
practice to purchase raw materials only upon receiving a purchase order, for certain customers we
will occasionally purchase raw materials based on such customers rolling forecasts. Uncertain
economic conditions and our general lack of long-term purchase commitments with our customers make
it difficult for us to predict revenue accurately over the longer term. Even in those cases where
customers are contractually obligated to purchase products from us or repurchase unused inventory
from us, we may elect not to enforce our contractual rights immediately because of the long-term
relationships and for other business reasons, and instead may negotiate accommodations with
customers regarding particular situations.
Our Products
In 2008 and 2009, we managed our business using three reportable segments: consumer
electronics and communication products (CECP), telecommunication components assembly (TCA) and
LCD products (LCDP). In 2010, we reclassified the TCA element in LCDP into TCA to reflect its
parts assembling nature for telecommunication products. As such, the Company only operates and
presents two business segments: TCA and CECP for 2010.
The segment information in 2008 and 2009 have been restated in order
to conform with the change in segment reporting in 2010 in accordance
with FASB ASC 280-10-50-34. The
results of the former LCDP segment were included in the TCA segment in
2008 and 2009.
The TCA segment is focused on subassemblies of components such as LCD modules, assembling for
telecommunication products, radio frequency modules, digital audio broadcast modules, FPC
subassemblies, FPC board, and front light panels and back light panels for handheld video game
devices, as well as the manufacturing of LCD panels and LCD modules for various electronic
appliances. The CECP segment is focused on the manufacturing of products such as mobile phone
accessories, entertainment devices, educational products and optical devices.
25
Our
net sales by reportable segments were as follows ($ in thousands):
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|
Year ended December 31, |
|
|
2008
|
|
2009
|
|
2010 |
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
TCA |
|
|
351,487 |
|
|
|
56 |
% |
|
|
292,074 |
|
|
|
72 |
% |
|
|
401,259 |
|
|
|
75 |
% |
CECP |
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|
271,365 |
|
|
|
44 |
% |
|
|
116,063 |
|
|
|
28 |
% |
|
|
133,161 |
|
|
|
25 |
% |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
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Total |
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|
622,852 |
|
|
|
100 |
% |
|
|
408,137 |
|
|
|
100 |
% |
|
|
534,420 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
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|
Please refer to Note 15 Segment Information of our consolidated financial statements and
Item 8 Financial Information Export Sales which sets forth the information of net sales to
customers by geographical area.
Consumer Electronic and Communication Products
The consumer electronic and communication products we manufacture are focusing on high growth
and mass volume products segments of consumer electronics and communications sectors, and include:
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Mobile phone accessories such as headsets containing Bluetooth wireless
technology, snap-on portable music speaker, phone cradle, snap-on FM radio adaptors, and
snap-on GPS adaptors; |
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|
Entertainment devices such as USB web cam for interactive games, USB microphone
and converter box Karaoke, and a buzzer device for quiz games both in wire, and wireless
design with an infrared solution; |
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|
Educational products such as digital pens, calculators and electronic
dictionaries; and |
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|
Optical devices such as CMOS imaging sensor modules for notebook computers,
portable media players and recording cameras for the automotive industry. |
Telecommunication Component Assembly
We manufacture the following subassemblies and components:
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Color and monochrome LCD modules to display information as part of
telecommunication products such as PDA phone, smart phone and traditional mobile phones
and telephone systems. These modules are also used in most other hand-held consumer
electronic devices, such as electronic games, MP3, Automotive products and digital
cameras; |
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|
RF modules for integration into mobile phones. RF modules are partially finished
circuits that can be incorporated into larger products or components. Each module
includes receivers, transmitters, and transceivers, and can be manufactured for use in
most other hand-held consumer electronic products, such as PDAs, laptop computers and
other products with wireless connectivity; |
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|
DAB modules are digital audio broadcasting components that are used in digital
radio products such as home tuners, kitchen radios, in-car receivers, CD players, clock
radios, boom boxes, midi-systems and handheld portable devices; |
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|
FPC subassemblies for integration into various LCD modules and electronic
devices; |
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|
FPC board manufacturing for vertical integration to FPC subassembly business,
this could be used for mobile phone, PDAs, office automation, laptop computers and other
products which require a portable product design; |
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Front light panels for handheld video game devices; |
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|
|
Back light panels for handheld video game devices; |
|
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|
1.9 high-frequency cordless telephones and home feature phones; |
|
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|
Super thin (0.3-0.5mm glass substrates) LCD panels for application in watches and medical instruments; |
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|
Irregular shaped LCD panels for telecommunications, automotive, white-good (major
household appliances) and industrial applications; |
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|
Super high contrast monochrome vertical aligned Twisted Nematic LCD for
applications in automotive parts and major appliances; |
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|
Black masked color LCD for applications in car audio systems; |
|
|
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|
Wide temperature monochrome dye doped enhanced Super-Twisted Nematic (STN) LCD
for application in major appliances; |
26
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|
|
1.5² Color and monochrome STN LCD modules for application of hand held products,
such as cordless phones; |
|
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|
|
5²-7² monochrome high resolution STN LCD modules with touch screens for
applications of VoIP phones, medical instruments and major appliances such as white
goods; and |
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8.5² TFT color LCD modules for office automation applications, i.e. varied
computer machinery used to digitally create, collect, store, manipulate, and relay
office information needed for accomplishing basic tasks and goals. |
Our Manufacturing and Assembly Capabilities
We utilize the following production techniques:
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Chip on Film, or COF
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is an assembly method for
bonding integrated circuit
chips and other components
onto a flexible printed
circuit. This process
allows for greater
compression of the size of
a product when assembled
enabling the production
and miniaturization of
small form factor devices
like cellular phones,
PDAs, digital cameras and
notebook PCs. As of
December 31, 2010, we had
16 COF machines. These
machines connect the bump
of large scale integrated,
or LSI, driver onto FPC
pattern with anisotropic
conductive film, or ACF.
These COF machines have
the ability to pitch fine
to 38 micrometers and a
total production capacity
of up to 4,400,000 chips
per month. |
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Chip on Glass, or COG
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is a process that connects
integrated circuits
directly to LCD panels
without the need for wire
bonding. We apply this
technology to produce
advanced LCD modules for
high-end electronic
products, such as cellular
phones and PDAs. As of.
These machines provide an
LCD of dimension of up to
200 millimeters (length)x
150 (width)x 2.2 (height),
a process time of five
seconds per chip, a pin
pitch fine to 38
micrometers. During 2005,
our subsidiary, Jetup
Electronic (Shenzhen) Co.
Ltd. (Jetup) also
started manufacturing COG
LCD modules. During 2010,
Jetup was merged into
Zastron Electronic
(Shenzhen) Co. Ltd.
(Zastron Shenzhen). As of
December 31, 2010, Zastron
Shenzhen had a total of 48
COG lines and is capable
of bonding 8.8 million
units of COG LCD modules a
month and is able to bond
LCD panels up to sizes of
200 millimeters x 200
millimeters x 2.2
millimeters thick, with an
accuracy of five microns
tolerance, in a cycle time
of 12-15 seconds per piece. |
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Chip on Board, or COB
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is a technology that
utilizes wire bonding to
connect large-scale
integrated circuits
directly to printed
circuit boards. As of
December 31, 2010, we had
53 COB aluminum bonding
machines which provide a
high speed chip bonding
time of 0.25 second per 2
millimeters wire, a bond
pad fine to 75 micrometers
and a total production
capacity of up to
3,829,000 (150
wires/board) per month .
We use COB aluminum
bonding in the assembly of
consumer products such as
digital pen, calculators,
electronic dictionaries,
audio products. We also
had three COB gold ball
bonding machines which
provide a high speed chip
bonding time of 0.072
second per 2 millimeters
wire, a bond pad fine to
50 micrometers and a total
production capacity of up
to 500,000 (150
wires/board) per month. We
use COB gold ball bonding
in the CMOS camera module,
which are incorporated
into USB cameras, notebook
computers, mobile phones
and digital pens. |
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Outer Lead Bonding, or OLB
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is an advanced technology
used to connect PCBs and
large-scale integrated
circuits with a large
number of connectors. We
use this technology to
manufacture complex
miniaturized products,
such as high-memory PDAs.
As of December 31, 2010,
we had three OLB machines.
The machines include
multi-pinned tape carrier
packaged large scale
integrated circuit, or TCP
LSIC, bonding which is up
to 280 pins, which also
provide ultra-thin
assembly with module
thickness to around one
millimeter and high
accuracy bonding with pin
pitch to 100 micrometers.
The total production
capacity is 12,000 units
per month. |
27
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Tape Automated Bonding With Anisotropic
Conductive Film, or TAB With ACF
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is an advanced heat
sealing technology that
connects a liquid crystal
display component with an
integrated circuit in very
small LCD modules, such as
those used in cellular
phones and pagers. As of
December 31, 2010, Zastron
had 32 systems of TAB with
ACF machines. The machines
provide process time of 10
to 25 seconds per
component, a pin pitch
fine up to 150 micrometers
and a total production
capacity of up to
5,876,000 components per
month. Zastron Shenzhen is
able to bond LCD panels up
to sizes of 120
millimeters x 120
millimeters x 2.2
millimeters thick, with an
accuracy of 10 microns
tolerance in a cycle time
of 20-25 seconds per
piece. |
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Fine Pitch Heat Seal Technology, or FPHS
Technology
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allows us to connect LCD
displays to PCBs produced
by COB and outer lead
bonding that enables very
thin connections. This
method is highly
specialized and is used in
the production of finished
products such as PDAs. As
of December 31, 2010, we
had eight machines
utilizing FPHS technology.
The machines provide a pin
pitch fine to 260
micrometers and a total
production capacity of up
to 268,000 units per
month. |
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Surface Mount Technology, or SMT
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is a process by which
electronic components are
mounted directly on both
sides of a printed circuit
board, increasing board
capacity, facilitating
product miniaturization
and enabling advanced
automation of production.
We use SMT for products
such as mobile display
module and electronic
linguistic devices. As of
December 31, 2010, we had
37 SMT productions lines.
The production time per
chip ranges from 0.055
second per chip to 0.8
second per chip and high
precision ranging from
+/-0.05 millimeter to
+/-0.1 millimeter. The
components size ranges
from 0.4 millimeter
(length)x 0.2 millimeter
(width) to 55 millimeters
(length)x 55 millimeters
(width). Ball grid array,
or BGA, ball pitch is 0.4
millimeter and ball
diameter is 0.2
millimeter. Flip Chip, our
smallest lead/bump pitch,
is 250/240UM and our
smallest components
spacing is 0.15
micrometers. The total
production capacity is
over 1 billion resistor
capacitor chips per month. |
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Super-Twisted Nematic, or STN, Displays
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is a type of monochrome
passive matrix
LCD capable of
providing higher
information content to
display systems and are
typically found in
applications such as
cordless phones, mobile
phones, MP3 players,
pocket games and PDAs. Our
Zastron Shenzhen, through
its predecessor, Jetup,
began producing STN LCDs
in 2002. Since 2005, our
two existing twisted
nematic, or TN type, LCD
lines to STN LCD lines
have been upgraded. TN
displays rotate the
director of the liquid
crystal by 90°, but STN
LCD displays employ up to
a 270°rotation. This extra
rotation gives the crystal
a much steeper
voltage-brightness
response curve and also
widens the angle at which
the display can be viewed
before losing much
contrast. As of December
31, 2010, Zastron Shenzhen
was using three automated
STN lines capable of
producing both TN and STN
type LCDs with capacity of
150,000 pairs of glass
(each sheet of glass of
360 millimeters x 400
millimeters in size)
panels per month. |
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LCD Back-End
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is a main manufacturing
process for LCD panels,
and is regarded as part of
the process for its
finished product LCD
modules. It includes the
precise pure water
cleaning process, scribing
of LCD glass, liquid
crystal insertion, sealing
process and breaking
process, then turns the
LCD mother glass into LCD
panels. Our machines can
cope with 0.2 millimeters +
0.2 millimeters LCD mother
glass up to dimension 550
millimeters x 670
millimeters, with cutting
tolerance +/-0.1
millimeters. |
As of December 31, 2010, we had 14 clean rooms at our principal manufacturing facilities,
which housed COB, COF, COG and Chip Scale Package capabilities for CMOS sensor modules, electronic
calculators, digital camera accessories, LCD panels and modules manufacturing.
A cleanroom is an environment, typically used in manufacturing or scientific research, which
has a low level of environmental pollutants such as dust, airborne microbes, aerosol particles and
chemical vapors. In other words, a cleanroom has a controlled level of contamination that is
specified by the number of particles per cubic meter at a specified particle size. Of our 14 clean
rooms at December
28
31, 2010, six were class ten thousand, six were class thousand and two were class one hundred
with one of them used for cleaning attire provided for use in the clean rooms.
FPC boards and FPC Subassemblies
Flexible Printed Circuit Subassemblies. We began manufacturing FPC subassemblies in March 2003
for integration into various LCD modules. FPC subassemblies are FPC board enhanced by attaching
electronic components, such as connectors, switches, resistors, capacitors, light emitting devices,
integrated circuits, cameras and optical sensors, to the circuit. The reliability of FPC component
assemblies is dependent upon proper assembly design and the use of appropriate fixtures to protect
the flex-to-connector interface. Connector selection is also important in determining the signal
integrity of the overall assembly and is very important to devices that rely upon high system speed
to function properly.
Flexible Printed Circuits. Flexible printed circuits, which consist of copper conductive
patterns that have been etched or printed while affixed to flexible substrate materials such as
polyimide or polyester, are used to provide connections between electronic components and as a
substrate to support these electronic devices. The circuits are manufactured by subjecting the base
materials to multiple processes, such as drilling, screening, photo imaging, etching, plating and
finishing. Single-sided flexible printed circuits, which have an etched conductive pattern on one
side of the substrate, are normally less costly and more flexible than double-sided flexible
printed circuits because their construction consists of a single patterned conductor layer.
Double-sided flexible printed circuits, which have conductive patterns or materials on both sides
of the substrate that are interconnected by a drilled or copper-plated hole, can provide either
more functionality than a single-sided flexible printed circuit by containing conductive patterns
on both sides, or greater shielding of components against electromagnetic interference than a
single-sided flexible printed circuit by covering one side of the circuit with a shielding material
rather than a circuit pattern.
FPC Boards. Flexible printed circuit boards or FPC Boards are applied to various electronic
devices because of their mechanical characteristics and are indispensable to electronic devices
requiring system miniaturization, weight reduction and multi-functionality. FPCs are employed in a
wide variety of applications due to the nature of their characteristics. Examples of applications
for FPCs include cell-phone liquid crystal display enclosure, hinge parts, keypad, battery
enclosure and interface components. FPCs fall into three broad categories: single-sided flexible
printed wiring boards, double-sided flexible printed wiring boards and multilayer flexible printed
boards. Single sided and double sided FPCs are widely employed for personal computers, hard disk
drives and cell phones.
We buy a portion of FPC boards we use in the manufacture of our products from suppliers and
attach electronic components to the purchased FPC boards in accordance with our customers
specifications and produce FPC subassemblies. Since 2007, we also began manufacturing these devices
at our existing facility in Shenzhen to vertically integrate this process by producing FPC boards
internally. Our Wuxi factory began manufacturing pilot runs of FPC boards in 2010 and is moving to
large scale manufacturing in 2011.
Quality Control
We maintain strict quality control programs for our products, including the use of total
quality management, systems and advanced testing and calibration equipment. Our quality control
personnel test the quality of incoming raw materials and components. During the production stage,
our quality control personnel also test the quality of work-in-progress at several points in the
production process. Finally, after the assembly stage, we conduct testing of finished products. In
addition, we provide office space at our principal manufacturing facilities for representatives of
our major customers to permit them to monitor production of their products and we provide them with
direct access to our manufacturing personnel.
All of our existing manufacturing facilities are certified under ISO 9001 quality standards,
the International Organization for Standardization, or ISOs, highest standards. The ISO is a
Geneva-based organization dedicated to the development of worldwide standards for quality
management guidelines and quality assurance. ISO 9000, which was the first quality system standard
to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make
improvements where needed. Our certifications under an ISO 9001 quality standard demonstrate that
our manufacturing operations meet the most demanding of the established world standards. All of our
manufacturing facilities are also certified under an ISO 14001 environmental management standard,
which was published in 2004 to provide a structured basis for environmental management control.
After the consolidation of our Shenzhen operations under Zastron Shenzhen in 2010 as described
above under Major Events during 2010 to Date on page 21 of this Report,
our quality assurance personnel embarked to integrate all management systems in Shenzhen into that
single company. At the end of February 2011, Zastron Shenzhen has passed the following
certifications:
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ISO 9001:2008
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Basic Quality Management System |
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ISO 14001:2004
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Environmental Management System |
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QC080000:2005
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Hazardous Substance Process Management System |
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OHASA18001:2007
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Occupational Health & Safety Management System |
29
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TS16949:2009
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Quality Management System specific for Automotive products |
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ISO13485:2003
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Quality Management System specific for Medical products |
In December 2009, our new factory in Wuxi was audited for compliance of ISO 9001 and TS16949.
We received both certifications in March 2010. During 2010, we applied for other certifications for
this plant, including QC08000 and ISO 14001, which we received in April and May 2010, respectively.
We employ the Six Sigma approach in various projects that we run each year. In 2004, our
principal manufacturing facilities in Shenzhen were recognized by the China Association for Quality
of the Chinese Government as a National Advanced Enterprise for the Promotion of Six Sigma. Six
Sigma is an internationally recognized approach that uses facts and data to develop better
solutions, thereby reducing defects and production times, and improving customer satisfaction. This
approach allows the Company to lower its costs by minimizing manufacturing defects. This results in
improved profit margins and higher competitiveness.
Our Suppliers
We purchase thousands of different component parts from numerous suppliers, which we have
approved based on their quality, cost and services. For some components, we have chosen, for
strategic considerations, to rely on a single supplier. We purchase components from suppliers
located in Japan, China and other countries. Our general practice is to purchase components upon
receipt of purchase orders from customers and pursuant to the customers authorization with agreed
liability for purposes of minimizing our inventory risk by ordering components and parts only to
the extent necessary to support the order. However, we may occasionally purchase raw materials or
request suppliers to maintain buffer stock of certain supplies for particular customers based on
such customers rolling forecasts in order to shorten the lead-time for key materials.
The major component parts we purchase include the following:
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Integrated circuits or chips, most of which we purchase presently from
Cambridge Silicon Radio Plc Ltd., Qualcomm CDMA Technologies Asia Pacific Pte. Ltd.,
Toshiba Electronics (Asia) Ltd., Ricoh Company Ltd, ATI Technologies Ltd, Rohm
Electronics (HK) Co., Ltd., Samsung Electronics., Ltd., Sharp Electronics (M) SDN.BHD
and certain of their affiliates; |
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LCD panels, which are available from many manufacturers. Since 2007, we have
purchased LCD panels from Suzhou Epson Co. Ltd., Safaring Technology Co. Ltd., Toshiba
Matsushita Display Co. Ltd., Shantou Goworld Display (Plant II) Co. Ltd., and VBest
Electronics Ltd.; |
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FPC boards, which consist of copper conductive patterns that have been etched or
printed while affixed to flexible substrate materials such as polyimide or polyester,
are mainly used to provide connections for electronic components and as a substrate to
support these electronic devices. Since 2007, we have purchased FPC boards mainly from
Sony Chemical Co., Ltd., Nitto Denko (HK) Co. Ltd. and NOK Mektec Corp. Ltd.; |
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Light-emitting diodes, or LEDs, are semiconductor devices that emit incoherent
narrow-spectrum light when electrically biased in the forward direction. This effect is
a form of electroluminescence. LEDs are small extended sources with extra optics added
to the chip, which emit a complex intensity spatial distribution. We purchase LEDs
primarily from Nichia Corporation, Everlight Electronics Co., Ltd.; and |
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CMOS imaging sensors, which we purchase mainly from Omnivision Technologies Inc.,
Micron Technology Inc. and Magnachip Semiconductor Ltd. Solar cells and batteries, which
are standard off-the-shelf items that we generally purchase in Hong Kong from agents
of Japanese manufacturers or directly from companies in China; various mechanical
components such as plastic parts, cables, rubber keypads, PCBs, indium tin oxide, or
ITO, glass used in the production of LCD panels, and packaging materials from various
local suppliers in China; and various acoustic components, which we mainly sourced from
Wanstonic Electronics Ltd, Yinpin Electronics (SZ) Co. Ltd., Goertek Technology Co.
Ltd., Shandong Gettop Acoustic Co. Ltd., Vansonic Enterprise co. Ltd., where the
manufacturing base is principally in China. |
Whenever practical, we will consider using domestic China suppliers who are often able to
provide their products at lower cost than overseas suppliers and with shorter lead times.
From time to time, there may be certain components subjected to limited allocation by certain
of our suppliers due to industry-wide shortage as a result of fast growing global demand.
In some cases, supply shortages and delays in deliveries of particular components could result
in curtailed production, or delays in production. These supply shortages have contributed to an
increase in our inventory levels and reduction in our margins. We expect that occasional component
shortages and delays in deliveries of some components will continue to occur. If we are unable to
procure sufficient quantity components in a timely fashion, we may experience production delays,
which could harm our relationships with current or prospective customers and reduce our sales.
30
The principal raw materials used by the Company are large scale integrated, or LSI, circuits,
digital signal processor, or DSP, LCD driver IC, semiconductors, FPC boards, LCD panels, TFT
panels, and batteries. At times, the pricing and availability of these raw materials can be
volatile, attributable to numerous factors beyond the Companys control, including general economic
conditions, currency exchange rates, industry cycles, production levels or a suppliers tight
supply. In the past, we have asked our customers to share the increased costs of raw materials
where such increased costs would adversely affect the Companys business, results of operations and
financial condition. Our customers have generally agreed when so requested in the past. We cannot
provide assurances, however, that our customers will agree to share costs in the future and that
our business, results of operations and financial condition would not be adversely affected by
increased volatility in the price or availability of raw materials.
Production Scheduling
The typical cycle for a product to be designed, manufactured and sold to an OEM customer is
one to two years, which includes the production period, the development period and the period for
market research and data collection (which is undertaken primarily by our OEM customers).
Initially, an OEM customer gathers data from its sales personnel on products for which there is
market interest, including features and unit costs. The OEM customer then contacts us, and possibly
other prospective manufacturers, with forecasted total production quantities and design
specifications or renderings. From that information, we in turn contact our suppliers and determine
estimated component and material costs. We later advise our OEM customer of the development costs,
charges (including molds, tooling and software design, if applicable) and unit cost based on the
forecasted production quantities desired during the expected production cycle.
Once the OEM customer and we agree to the quotation for the development costs and the unit
cost, we begin the product development if we are engaged to do so. This development period
typically lasts less than six months, but may be longer if software design is included. During this
time, we complete all molds, tooling and software required to manufacture the product with the
development costs generally borne by our customer. Upon completion of the molds, tooling and
software, we produce samples of the product for the customers quality testing, and, once approved,
commence mass production of the product. We recover the development costs in relation to molds,
tooling and software from our customers.
The production period usually lasts approximately six to twelve months. In some cases, our OEM
customer handles all product design and development and engages us only at the point of initial
production. Typically, more advanced products have shorter production runs. If total production
quantities change, the OEM customer often provides only limited notice before discontinuing orders
for a product. At any point in time we may be in different stages of the development and production
periods for the various models under development or in production for our OEM customers.
Generally, our production is based on purchase orders received from OEM customers. Purchase
orders are often supported by letters of credit or written confirmation from the OEM customer and
generally may not be cancelled once confirmed without the mutual consent of the parties. Even in
those cases where customers are contractually obligated to purchase products from us or repurchase
unused inventory from us, we may elect not to enforce our contractual rights immediately because of
the long-term nature of our customer relationships and for other business reasons, and instead may
negotiate accommodations with customers regarding particular situations.
In general, we plan for and purchase the materials and components that we will need to
manufacture customers products when we receive the purchase order and specifications from the
customer. We are assisted in this process by our ERP software system which several of our
manufacturing subsidiaries began installing during 2008 and 2009. Installation of our subsidiaries
ERP software system was completed in the first half of 2009. The ERP software system includes
related integrated applications for managing worldwide procurement and logistics business
processes, customer relationships, product life-cycle and supplier relationships and helps us and
our customers assure that the materials and components needed to manufacture our customers
products arrive at our manufacturing facilities on time to meet production and product delivery
schedules. Since our customers are involved in the procurement and delivery of the materials and
components we use to manufacture their products, our customers assume the risk of delays or
failures of delivery of such materials and components.
We did not suffer a material loss resulting from the cancellation of OEM customer orders for
the years ended December 31, 2008, 2009 or 2010.
31
Sales and Marketing
We focus on developing close relationships with our customers at the development and design
phases and continuing throughout all stages of production. We identify, develop and market new
products and technologies that benefit our customers and position us as a strong EMS provider with
the ability to design and develop products.
Sales and marketing operations are integrated processes involving direct salespersons, project
managers and senior executives. We direct our sales resources and activities at several management
and staff levels within our customers and prospective customers. We receive unsolicited inquiries
resulting from word of mouth, from public relations activities, and through referrals from current
customers. We evaluate these opportunities against our customer selection criteria and evaluation
procedure. Upon approval, we assign a salesperson to the customer.
Seasonality
Historically, our sales and operating results have often been affected by seasonality. Sales
of products and components related to mobile phones have generally been lower in the first quarter
after peaking in the fourth quarter. Sales of educational products and home entertainment devices
are often higher during the second and third quarters in anticipation of the start of the school
year and the Christmas buying season. Similarly, consumer electronics products have historically
been lower in the first quarter resulting from both the closing of our factories in China for the
Lunar New Year holidays and the general reduction in sales following the holiday season.
The long, national official, seasonal breaks in the PRC, such as the Chinese lunar New Year
holidays occurring in our first quarter, and the National Day Golden week occurring in our fourth
quarter, typically affects adversely our ability to manufacture products, obtain components and
materials from suppliers and receive and process orders from customers and accordingly our results
of operations during these period can be expected to suffer.
Transportation
Transportation of components and finished products to and from Shenzhen is by truck. Component
parts purchased from Japan, Korea, Singapore and elsewhere of the world are generally shipped by
air and delivered to our designated forwarders warehouse located in Hong Kong. To date, we have
not been materially impacted by any transportation problems. However, transportation difficulties
affecting air cargo or shipping, such as an extended closure of ports that materially disrupt the
flow of our customers products into the United States, could significantly and adversely influence
our sales and margins if, as a result, our customers delay or cancel orders or seek concessions to
offset expediting charges they incur pending resolution of the problems causing the port closures.
Competition
The electronic manufacturing services we provide are available from many independent sources
as well as from our current and potential customers with internal manufacturing capabilities. The
following table identifies those companies who we believe are our principal competitors (listed
alphabetically) by category of products or services we provide.
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Product/Service |
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Competitor |
EMS
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Celestica, Inc. |
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Flextronics International Ltd. |
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Hon Hai Precision Industry Co., Ltd. |
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Jabil Circuit, Inc |
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Sanmina-SCI Corporation |
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Image capturing devices and their modules
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Altus Technology Inc (controlled by Foxconn) |
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Lite-on Technology Corporation |
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Logitech International S.A. |
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The Primax Group |
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Mobile phone accessories
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Balda-Thong Fook Solutions Sdn., Bhd. |
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Celestica, Inc. |
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Elcoteq Network Corp. |
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Flextronics International Ltd. |
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Foster Corporation |
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Foxlink Group |
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Merry Electronics Co. Ltd. |
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WKK International (Holdings) Ltd. |
32
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Product/Service |
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Competitor |
Liquid crystal display, or LCD, panels
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Tianma Microelectronics Co., Ltd |
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Truly International Holdings Ltd. |
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Varitronix International Ltd. |
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Yeebo (International) Holdings Ltd. |
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Telecommunication subassemblies and components
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Flextronics International Ltd. |
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LG. Philips LCD Co., Ltd. |
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Samsung Electronics |
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Varitronix International Ltd. |
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Consumer electronic products (calculators,
personal organizers and linguistic products)
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Computime Limited |
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Inventec Co. Ltd. |
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Kinpo Electronics, Inc. |
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VTech Holdings Limited |
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FPC boards/FPC Subassemblies
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Ichia Technologies Inc |
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Nitto Denko (HK) Ltd. |
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NOK Corporation |
Many of our competitors have greater financial, technical, marketing, manufacturing, regional
shipping capabilities and international logistics support and personnel resources than we do. As a
result, Nam Tai positions itself as a competitive-priced EMS with niches in key product and
technology categories focusing on advanced manufacturing technique and processes as well as design
and development capabilities in these niche areas to compete successfully against with these
organizations for the future.
In addition to intense competition from large FPC board manufacturers located in Taiwan,
China, Korea, Singapore, North America, Japan and Europe, such as those listed in the above table
opposite FPC boards/FPC subassemblies, we also face such competition from large, established EMS
providers that have acquired or, like we have, developed their own FPC manufacturing capabilities,
and have extensive experience in electronics assembly. Furthermore, many companies in our target
customer base are moving the design and manufacturing of their products to original engineering
manufacturers, or OEMs, in Asia. Such competitions could create pressure on us to provide discounts
or lower prices to gain or maintain market share, which could adversely affect our margins and the
profitability of our FPC business and our operating results as a whole. In addition, if we are
unable to capture significant original design manufactures (ODMs) as customers, we may be unable
to sustain or grow our FPC business.
Research and Development
We invest in research and development for developing products, manufacturing and assembly
technology that provide us with the potential to offer better and more technologically advanced
services to our OEM customers or assist us in working with our OEM customers and in the design and
development of future products. We plan to continue acquiring advanced design equipment and to
enhance our technological expertise through continued training of our engineers and further hiring
of qualified system engineers. These investments are intended to improve the speed, efficiency,
costs and quality of our assembly processes.
Additionally, we are responsible for the design and development of new products specified by
our customers. We sell these products to OEM customers to be marketed to end users under the
customers brand names. To date, we have successfully developed LCD modules, CMOS sensor camera
modules mobile phone accessories and game peripherals for our customers.
Patents, Licenses and Trademarks
We do not have any patents, licenses or trademarks on which our business is substantially
dependent. Instead, we rely on our industry expertise, knowledge of niche products and technology
and strong long-term relationships with our customers and suppliers.
Property, Plant and Equipment
Our registered office in the British Virgin Islands is located at McNamara Chambers, P.O. Box
3342, Road Town, Tortola. Corporate administrative matters in the British Virgin Islands are
conducted at this office through our registered agent, McNamara Corporate Services Limited.
The table below lists the locations, square footage, principal use and the expiration dates of
leases or land use rights on the facilities used in our principal operations as of December 31,
2010:
33
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
Square |
|
|
|
Owned(1) or lease |
Location |
|
Footage |
|
Principal or Presently Contemplated Use |
|
expiration date |
Hong Kong |
|
|
3,760 |
|
|
Administration |
|
|
2011 |
|
Shenzhen, China |
|
|
557,835 |
|
|
Principal manufacturing facilities |
|
|
2043/2049 |
(2) |
|
|
|
87,460 |
|
|
Administration |
|
|
2043/2049 |
(2) |
|
|
|
350,585 |
|
|
Dormitories |
|
|
2043/2049 |
(2) |
|
|
|
41,530 |
|
|
Cafeteria |
|
|
2043 |
|
|
|
|
33,825 |
|
|
Recreational |
|
|
2049 |
|
Other existing facilities |
|
|
|
|
|
|
|
|
|
|
Shenzhen, China |
|
|
383,550 |
|
|
Manufacturing LCD panels and modules |
|
|
2012 |
|
|
|
|
32,000 |
|
|
Administration |
|
|
|
|
|
|
|
231,260 |
|
|
Dormitories |
|
|
|
|
|
|
|
22,260 |
|
|
Cafeteria |
|
|
|
|
|
|
|
14,550 |
|
|
Recreational |
|
|
|
|
Wuxi, Jiangsu Province, China |
|
|
470,360 |
|
|
FPC boards and FPC subassemblies, LCD modules and other products |
|
|
2056 |
(3) |
Other property |
|
|
|
|
|
|
|
|
|
|
Guangming, Shenzhen, China |
|
|
1,270,160 |
|
|
LCD modules and other products |
|
|
2057 |
(4) |
|
|
|
(1) |
|
Only the PRC government and peasant collectives may own land in China. Our principal
manufacturing facilities are located on land in which we have entered into a land lease
agreement with the PRC government that gives us the right to use the land for 50 years.
Similarly, the lands which we have acquired in Wuxi and Guangming Shenzhen will be by 50-year
land leases. Our understanding of the practice as it exists today; at the expiration of the
land lease, we may be given the right to renew the lease. For our other facilities, we have
entered into factory building lease agreements with peasant collectives or other companies for
10 years or less. |
|
(2) |
|
Our principal manufacturing facilities occupy two parcels of land with 50-year land leases
that we acquired in 1993 and 1999, respectively. |
|
(3) |
|
Construction was completed in 2009 and mass production at this factory began in 2010. |
|
(4) |
|
Raw land. |
Hong Kong
In October 2005, to align with the Companys China-focused operations, Nam Tai restructured
its subsidiaries to maintain a minimal workforce in Hong Kong.
In June 2008, the Company relocated its Hong Kong office to Units 5811-12, The Center, 99
Queens Road Central, located in the Central District of Hong Kong having approximately 3,760
square feet. Nam Tai occupies these premises under a three-year lease that expires in April 2011.
Rental for this office is approximately $34,000 monthly.
In anticipation of the soon-to-expire lease on its Hong Kong office, in February 2011, the
Company purchased a commercial property having approximately 2,200 square feet at Unit 1201, 12th
Floor, Tower 1, Lippo Centre, 89 Queensway, Admiralty, Hong Kong. These premises are located at the
Eastern extension of the Hong Kongs Central Business District. The purchase price for the property
was approximately $4.3 million, which the Company paid in cash. The Company plans to relocate its
Hong Kong office to this location at the end of March 2011.
Shenzhen, China
Principal Manufacturing Facilities
Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. In
December 1993, we acquired a 50-year lease for the land on which these facilities are located and
initially built a manufacturing facility consisting of approximately: 160,000 square feet of
manufacturing space, 39,000 square feet of office space, 212,000 square feet of dormitories, 26,000
square feet of full service cafeteria, recreation facilities and a swimming pool. Over the years
beginning in November 2000, we have made several additions to these facilities, including:
|
|
|
a five-story factory with approximately 138,000 square feet of production
facilities, including one floor for assembling, one floor of office space, one floor for
warehouse use and two floors of class thousand clean room facilities, totaling
approximately 626,000 square feet of manufacturing space, when construction was
completed in October 2002; |
|
|
|
|
an additional factory, consisting of approximately 265,000 square feet of space,
completing construction in December 2004 on vacant land of approximately 280,000 square
feet (approximately 6.5 acres) bordering on our existing facilities that we purchased in
July 1999, and |
34
|
|
|
two additional blocks of dormitories , which we completed during 2005. |
With these additions, our principal manufacturing facilities in Shenzhen total approximately
557,835 square feet of manufacturing space, 87,460 square feet of offices, 350,585 square feet of
dormitories and 75,355 square feet of cafeteria space, and include a full services recreational
building.
LCD Factory
Our LCD manufacturing facility is located in Baoan, Shenzhen, China and consists of 383,550
square feet of manufacturing space, 32,000 square feet of offices, 231,260 square feet of
dormitories, and 36,810 square feet of cafeteria and recreational spaces. Our subsidiary, Zastron
Shenzhen leases this facility from a third party to manufacture LCDs and LCD Modules. Rental for
this facility is approximately $117,000 monthly and the lease will expire in 2012. We plan to
consolidate our Shenzhen production of LCD modules into our principal Shenzhen manufacturing
facility and have targeted the end of 2011 for such consolidation.
Wuxi, China
We began construction of our new Wuxi manufacturing facility in January 2008 on approximately
470,000 square feet of land we acquired in December 2006. We completed construction in 2009 and by
the end of 2009 we had installed machinery and equipment to manufacture FPC boards and FPC
subassemblies, providing approximately 150,700 square feet of space to manufacture FPC Boards and
FPC subassemblies. The Wuxi new factory is earmarked first to manufacture FPC boards, followed by
FPC subassemblies and then other electronic products assemblies such as LCD modules. We began
manufacturing operations at this factory in 2010.
When we acquired the land use rights to the above-mentioned approximately 470,000 square feet
of land in Wuxi upon which we have since constructed our Wuxi manufacturing facility, we also
acquired similar rights to a second parcel of approximately 515,000 square feet of raw land in Wuxi
situated approximately three miles from the first parcel we used for our Wuxi manufacturing
facility. In September 2010, we sold the second Wuxi parcel back to the Wuxi local government from
which we had originally acquired it for proceeds of approximately $1.6 million, realizing a gain
of approximately $846,000 on the purchase price we paid for the second parcel in December 2006.
Planned and Future Expansion
Currently, we have two separate projects planned for expansion, both of which are dependent
upon the prompt action and cooperation of local PRC governments.
The first project is the development of the Companys raw land in Guangming Hi-Tech Industrial
Park, Shenzhen, PRC, approximately 30 minutes driving distance from its existing facilities in
Gushu, Shenzhen and approximately one hour driving distance from Hong Kong. We acquired the land
use rights on this land in 2005 and the realty consists of approximately 1.3 million square feet of
land. We plan to develop this land into new manufacturing and support facilities to supplement
manufacturing conducted at our principal manufacturing facilities in Shenzhen. We believe that
immediate expansion of our manufacturing facilities in Shenzhen is needed because we expect that
the production capacity at our principal manufacturing facility in Shenzhen to be fully utilized by
the end of 2011 or early 2012.
Although we fully paid for the land use rights to our Guangming property in 2007, the local
government has delayed the release of this land to us and, to date, we have been unable to commence
development of the property. We plan to focus our efforts to convince the local government to
release this property for our use and development at the earliest practical time.
Our second expansion project involves our acquisition of the land use rights on approximately
500,000 square feet of raw land adjacent to our recently operational manufacturing facility in Wuxi
in order to construct structures, such as dormitories, canteen, labor activity center, research
laboratory and testing and training centers, to support operations at our Wuxi manufacturing
facility. Although the local Wuxi government has indicated to us that it strongly supportive our
planned expansion and development and tentatively has agreed to earmark the land for our planned
use and expansion, we have not yet been able to finalize the purchase.
Beyond the above two projects slated for near-term implementation, our future expansion would
involve the acquisition, construction and development of production facilities on another parcel of
land of approximately one million square feet relatively near to our present Wuxi facilities.
We currently expects to fund our planned and future expansion without external financing using
cash on hand and cash generated from operations after reserving funds which we believe are
sufficient to finance capital expenditures to maintain and replace machinery and equipment used at
our existing facilities and for working capital. For information regarding our capital expenditures
planned for 2011, please see Item 4 Information on the Company Capital Expenditures on
page 24 of this Report.
35
ITEM 4A. UNRESOLVED STAFF COMMENTS
We do not have any unresolved Staff comments.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Except for statements of historical facts, this section, particularly (but not limited to)
statements under the heading entitled Trend Information, contains forward-looking statements
involving risks and uncertainties. You can identify these statements by forward-looking words
including expect, anticipate, believe, plans, seek, estimate, intends, should, or
may. Forward-looking statements are not guarantees of our future performance or results and our
actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under the section of this Report entitled
Item 3, Key Information Risk Factors. This section should be read in conjunction with
our consolidated financial statements included as Item 18 of this Report.
Operating Results
Overview
We are an electronics manufacturing and design services provider to a select group of the
worlds leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
subassemblies, including LCD modules and panels, RF modules, DAB modules, FPC board, FPC
subassemblies, image sensors modules and PCB assemblies for headsets containing Bluetooth wireless
technology. These components are used in numerous electronic products, including mobile phones,
laptop computers, digital cameras, electronic toys and handheld video game devices. We also
manufacture finished products, including entertainment devices, mobile phone accessories and
educational products.
We assist our OEM customers in the design and development of their products and furnish full
turnkey services with our state-of-art manufacturing technologies. Our services include software
development services, firmware, and mechanical design, parts and components purchasing, product
industrialization, and assembly into finished products, or electronic subassemblies with full
quality testing and assurance. These services are value-added and assist us in obtaining new
business. We are also capable of providing design services to develop proprietary products
specified by our OEM customers.
Net Sales and Cost of Sales
We derive our net sales principally from manufacturing services that we provide to OEMs of
telecommunications and consumer electronic products. The market for the products we manufacture is
generally characterized by declining unit prices and short product life cycles. Sales to our OEM
customers are primarily based on purchase orders we receive from time to time rather than firm,
long-term purchase commitments from our customers. We recognize sales, net of product returns and
warranty costs, typically at the time of product shipment or, in some cases, as services are
rendered.
Our production is typically based on purchase orders received from OEM customers. However, for
certain customers, we will occasionally purchase raw materials based on such customers rolling
forecasts. Purchase orders are often supported by letters of credit or written confirmation from
our OEM customers. We generally do not obtain firm, long-term commitments from our customers.
Uncertain economic conditions and our general lack of long-term purchase commitments with our
customers make it difficult for us to predict our revenues accurately over the longer term. Even in
those cases where customers are contractually obligated to purchase products from us or to
repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights
because of the long-term nature of our customer relationships and for other business reasons, and
instead may negotiate accommodations with customers regarding particular situations.
Gross Margins
Complex products generally have relatively high material costs as a percentage of total unit
costs and accordingly our strategic shift to produce more of such products has historically been a
factor that has adversely affected our gross margins. This is the primary reason for the decline in
our gross margins percentage between 2008 and 2010. Start-up expenses at our newly operational
manufacturing and assembly facility in Wuxi also adversely impacted our gross margin percentage in
2010.
During the three years ended December 31, 2010, we diversified our product mix from
predominantly low complexity electronic products, including calculators and electronic
dictionaries, to include more complex components and subassemblies, like LCD modules and FPC
subassemblies. Despite the lower gross margin on more complex products, we believe the opportunity
for growth in the demand for these complex products justifies the shift in our strategic focus.
Furthermore, we believe the experience in manufacturing processes and know-how that we have
developed from producing more complex products are a competitive advantage for us relative to some
of our competitors.
The economy in China has grown significantly over the past 20 years, which has resulted in an
increased inflation and the average cost of labor, especially in the coastal cities. Chinas
consumer price index, the broadest measure of inflation, rose 4.9% in
36
January 2011 from the level
in January 2010. Chinas overall economy and the average wage in the PRC are expected to continue
to grow. For example, salaries of our employees increased substantially in 2010 and at December 31,
2010, the average wage level of our direct labor workforce was approximately 57% higher than that
at December 31, 2009. Increasing labor costs and rising inflation in China could have a
negative impact on our future gross margins.
Complex manufacturing processes involved in the production of complex products is also capital
intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift our focus
more to the business of key components subassembly. The key components subassembly business
generally accounts for relatively lower gross profit margin business. Our gross profit margins were
adversely impacted in 2009 because of a significant drop in the unit price of key component subassemblies
for mobile phones, and they were adversely impacted again in 2010 because of a significant increase
in material costs of key component subassemblies for those products.
Income Taxes
Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong
Kong and China are subject to income taxes as described below.
Under current Cayman Islands law, NTEEP is not subject to profit tax in the Cayman Islands as
it has no business operations in the Cayman Islands. However, it may be subject to Hong Kong income
taxes as described below since it is registered in Hong Kong.
The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the current rate of taxation of 16.5% for 2008, 2009 and 2010 to the
estimated taxable income earned in or derived from Hong Kong during the applicable period.
For 2007, the basic corporate tax rate for FIEs in China, such as our PRC subsidiaries, was
33% (30% state tax and 3% local tax). However, because all of our PRC subsidiaries are located in
Shenzhen and are involved in production operations, they qualified for a special reduced state tax
rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries
operate in Shenzhen did not assess any local tax. Moreover, several of our subsidiaries in China
are entitled to certain tax benefits and certain of our subsidiaries in China have qualified for
tax refunds as a result of reinvesting their profits earned in previous years in China.
However, in March 2007, the PRC National Peoples Congress promulgated the Enterprise Income
Tax (EIT) Law. This replaces the foreign enterprise income tax law and takes effect from January
1, 2008. Under the new law, all enterprises (both domestic companies and FIEs) will have one
uniform tax rate of 25%. However, PRC government allows for a five years transition period and FIEs
are expected to increase their 15% tax rate gradually to 25% in year 2012. Besides, the new EIT Law
does not have provision for tax refunds through capital injections by the Companys share of
profits from FIEs. Thus, the Company does not expect any further benefit will be obtained after
withdrawal of this tax concession from year 2008. In addition, since year 2008 there has been no
reduction in the tax rate for FIEs which export 70% or more of their products in production value.
Efforts by the Chinese government to increase tax revenues could result in decisions or
interpretations of the tax laws by the Chinas tax authorities that are unfavorable to us and which
increase our future tax liabilities, or deny us expected refunds. Changes in PRC tax laws or their
interpretation or application may subject us to additional PRC taxation in the future. For example,
following the implementation of the EIT Law effective January 1, 2008, the State Council announced
the transition rules for preferential tax policies (Guofa [2007] No.39) of January 2, 2008, for
eligible enterprises previously subject to a 15% tax rate or 24% tax rate. During the transitional
period, the new enterprise income tax rates were/are:
|
|
|
|
|
|
|
Rate under EIT |
|
Rate under EIT |
|
|
for enterprises previously |
|
for enterprises previously |
Tax Year |
|
subject to 15% tax rate |
|
subject to 24% tax rate |
2008
|
|
18%
|
|
25% |
2009
|
|
20%
|
|
25% |
2010
|
|
22%
|
|
25% |
2011
|
|
24%
|
|
25% |
2012
|
|
25%
|
|
25% |
Our effective tax rates were 7%, 172% and 26% for each of the three years ended December 31,
2008, 2009 and 2010 respectively. The significant factors that caused our effective tax rates to
differ from the applicable statutory rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2009 |
|
2010 |
Applicable statutory tax rates |
|
|
18 |
% |
|
|
20 |
% |
|
|
22 |
% |
Effect of difference between Hong Kong and PRC tax rates applied to Hong Kong income |
|
|
|
|
|
|
65 |
|
|
|
1 |
|
Effect of change in tax law |
|
|
(1 |
) |
|
|
(49 |
) |
|
|
(1 |
) |
Change in valuation allowance |
|
|
3 |
|
|
|
(37 |
) |
|
|
(4 |
) |
Deferred tax liability on withholding tax on undistributed profits of PRC subsidiaries |
|
|
2 |
|
|
|
49 |
|
|
|
2 |
|
Effect of loss/income for which no income tax benefit/expense is receivable/payable |
|
|
(19 |
) |
|
|
102 |
|
|
|
4 |
|
Other items |
|
|
4 |
|
|
|
22 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rates |
|
|
7 |
% |
|
|
172 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires management to make
estimates and judgments that affect our reported amounts of assets and liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates and assumptions based upon historical experience and various other factors
and circumstances. Management believes that our estimates and assumptions are reasonable under the
circumstances; however, actual results may vary from these estimates and assumptions under
different future circumstances. We have identified the following critical accounting policies that
affect the more significant judgments and estimates used in the preparation of our consolidated
financial statements.
For further discussion of our significant accounting policies, refer to Note 2 Summary of
Significant Accounting Policies of our consolidated financial statements.
Allowance for doubtful accounts
Accounts and notes receivable balance is recorded net of allowances for amounts not expected
to be collected from customers. Because the Companys accounts and notes receivable are typically
unsecured, the Company periodically evaluates the collectability of accounts based on a combination
of factors, including a particular customers ability to pay as well as the age of the receivables.
To evaluate a specific customers ability to pay, the Company analyzes financial statements,
payment history, third-party credit analysis reports and various information or disclosures by the
customer or other publicly available information. In cases where the evidence suggests a customer
may not be able to satisfy its obligation to the Company, a specific allowance that is determined
to be appropriate for the perceived risk would be established. If the financial condition of
customers deteriorates, resulting in an impairment of their ability to make payments, additional
allowances may be required.
There have been no significant changes in our collection rates for our accounts and notes
receivable at December 31, 2010 in comparison to December 31, 2009.
Impairment of long-lived assets and goodwill
Long-lived assets. The Company reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable.
The Company assesses the recoverability of the carrying value of long-lived assets by first
grouping its long-lived assets with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities
(the asset group) and, secondly, estimating the undiscounted future cash flows that are directly
associated with and expected to arise from the use of and eventual disposition of such asset group.
The Company estimates the undiscounted cash flows over the remaining useful life of the primary
asset within the asset group. If the carrying value of the asset group exceeds the estimated
undiscounted cash flows, the Company records an impairment charge to the extent the carrying value
of the long-lived asset exceeds its fair value. The Company determines fair value through quoted
market prices in active markets or, if quotations of market prices are unavailable, through the
performance of internal analysis using a discounted cash flow methodology or obtains external
appraisals from independent valuation firms. The undiscounted and discounted cash flow analyses all
based on a number of estimates and assumptions, including the expected period over which the asset
will be utilized, projected future operating results of the asset group, discount rate and
long-term growth rate.
During the fourth quarter of 2008, the market price of our shares first dropped to a level
where, based on the daily closing price of our shares from October 22, 2008 to December 31, 2008,
our market capitalization was less than our book value at December 31, 2008. Accordingly, and
despite, the lack of a substantial history at the time that would indicate whether the effect of
prevailing market and economic conditions on our stock price reflected an aberration or a sustained
decline, in accordance with FASB ASC 360 Property, Plant and Equipment, we reviewed the Companys
long-lived assets of property, plant and equipment and land use rights for potential impairment as
at December 31, 2008.
In view of the sustained level of the Companys stock price during 2009 and our resulting
market capitalization throughout 2009 at a level below our recorded book value at December 31,
2009, the Company conducted a similar review of Nam Tais long-lived assets for potential
impairment.
In 2010, although the Companys stock price remained below the aggregate book value of its
assets, the continuous improvement of the Companys results closed the gap on the difference.
Management assessed and determined that there were no events or changes in circumstances to
indicate that the carrying amounts of long-lived assets in Nam Tais Shenzhen facilities were not
recoverable and there were no impairment tests conducted with respect to those assets. In view of
the continuous operating losses and negative cash flows in Nam Tais Wuxi facilities, the Company
assessed the impairment of its long-lived assets used in the Wuxi facilities,
by comparing the undiscounted cash flows with the carrying amounts of the assets. The results
indicated that the carrying amounts of the Companys long-lived
assets at December 31, 2010 were less
than the undiscounted cash flows.
38
From the forgoing, the Company concluded that the carrying amounts of Nam Tais long-lived
assets were not impaired at December 31, 2008, 2009 and 2010.
Goodwill. To assess goodwill for impairment, the Company performs an assessment of the
carrying value of its reporting units at least on an annual basis or when events and changes in
circumstances occur that would more likely than not reduce the fair value of the Companys
reporting units below their carrying value. If the carrying value of a reporting unit exceeds its
fair value, the Company would perform the second step in its assessment process and would record
impairment charge to earnings to the extent the carrying amount of the reporting unit goodwill
exceeds its implied fair value. The Company estimates the fair value of its reporting units using a
discounted cash flow methodology. This valuation technique is based on a number of estimates and
assumptions, including the projected future operating results of the reporting unit, discount rate,
long-term growth rate and appropriate market comparables.
In performing the annual assessment of goodwill for impairment for the years ended December
31, 2008, 2009 and 2010, the Company determined that there was no impairment loss on goodwill 2009
and 2010. We recognized an impairment loss of $17,345,000 in 2008, primarily as result of the onset
of and impact from the global economic crisis on the Companys business.
The Companys assessments of impairment of long-lived assets and goodwill, and its periodic
review of the remaining useful lives of its long-lived assets are an integral part of the Companys
ongoing strategic review of its business and operations. Therefore, future changes in the Companys
strategy and other changes in the operations of the Company could impact the projected future
operating results that are inherent in the Companys estimates of fair value, resulting in
impairments in the future. Additionally, other changes in the estimates and assumptions, including
the discount rate and expected long-term growth rate, which drive the valuation techniques employed
to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact
the assessments of impairment in the future. Given the current economic environment, uncertainties
regarding the duration and severity of these conditions, forecasting future business is difficult
and subject to modification. If actual market conditions differ or our forecasts change, we may be
required to reassess long-lived assets and goodwill and we could record future impairment charges.
If we are required to take a substantial impairment charge, our operating results could be
materially adversely affected in the periods and year in which the charge is incurred.
Accruals and provisions for loss contingencies
The Company makes provisions for all loss contingencies when information available prior to
the issuance of the consolidated financial statements indicates that it is probable that an asset
has been impaired or a liability has been incurred at the date of the consolidated financial
statements and the amount of loss can be reasonably estimated.
For provisions or accruals related to litigation, the Company makes provisions based on
information from legal counsels and the best estimation of management. The Company assesses the
potential liability for the significant legal proceedings in accordance with FASB ASC 450
Contingencies. FASB ASC 450 requires a liability to be recorded if the contingency loss is
probable and the amount of loss can be reasonably estimated. The actual resolution of the
contingency may differ from the Companys estimates. If the contingency was settled for an amount
greater than the estimate, a future charge to income would result. Likewise, if the contingency was
settled for an amount that is less than our estimate, a future credit to income would result.
Workforce Reduction in 2009
As a result of the global economic crisis, we suffered serious difficulties in production and
business operations during 2009 and reduced the net headcount in our operating subsidiaries by
approximately 1,900 from 7,104 at December 31, 2008 to 5,203 at December 31, 2009. The amount of
employee severance benefits in 2009 was $5,058,000, of which we paid out $4,079,000, recording
these amounts under general and administrative expenses, and accrued $979,000 for future payments,
in our balance sheet at December 31, 2009. In 2010, we have incurred employee severance payment of
approximately $656,000. For a breakdown of these severance expenses by operating segment, see Note
16 of Notes to our Consolidated Financial Statements.
Summary of Results
The increase in sales in 2010 was primarily because of an increase in demand for home
entertainment products and LCD modules. The increase in our sales base year-over-year in 2010
represents increasing demand from existing customers, which we attribute to the recovery from the
worldwide economic recession.
The following table sets forth key operating results (in thousands, except per share data) for
the years ended December 31, 2008, 2009 and 2010:
39
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
% increase/(decrease) |
|
|
2008 |
|
2009 |
|
2010 |
|
2009 vs 2008 |
|
2010 vs 2009 |
Net sales |
|
$ |
622,852 |
|
|
$ |
408,137 |
|
|
$ |
534,420 |
|
|
|
(34.5 |
)% |
|
|
30.9 |
% |
Gross profit |
|
|
70,678 |
|
|
|
40,320 |
|
|
|
51,294 |
|
|
|
(43.0 |
) |
|
|
27.2 |
|
Operating income |
|
|
6,386 |
|
|
|
388 |
|
|
|
14,801 |
|
|
|
(93.9 |
) |
|
|
3,714.7 |
|
Net income attributable to Nam Tai shareholders |
|
|
30,635 |
|
|
|
1,652 |
|
|
|
15,006 |
|
|
|
(94.6 |
) |
|
|
808.4 |
|
Basic earnings per share |
|
$ |
0.68 |
|
|
$ |
0.04 |
|
|
$ |
0.33 |
|
|
|
(94.1 |
) |
|
|
725.0 |
|
Diluted earnings per share |
|
$ |
0.68 |
|
|
$ |
0.04 |
|
|
$ |
0.33 |
|
|
|
(94.1 |
) |
|
|
725.0 |
|
Key Performance Indicators
The following tables set forth, for each of the quarters in the two years period ended
December 31, 2010, certain of managements key financial performance indicators that management
utilizes to assess the Companys operating results. The first table presents the results
sequentially by quarter and the second table presents the results in quarterly comparisons by year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2010 |
Days in: |
|
Mar. 31 |
|
Jun. 30 |
|
Sept. 30 |
|
Dec. 31 |
|
Mar. 31 |
|
Jun. 30 |
|
Sept. 30 |
|
Dec. 31 |
Sales cycle (1) |
|
|
15 |
|
|
|
13 |
|
|
|
15 |
|
|
|
9 |
|
|
|
15 |
|
|
|
11 |
|
|
|
9 |
|
|
|
9 |
|
Inventory
turnover (2) |
|
|
16 |
|
|
|
16 |
|
|
|
14 |
|
|
|
16 |
|
|
|
18 |
|
|
|
24 |
|
|
|
24 |
|
|
|
22 |
|
Accounts
receivable (3) |
|
|
52 |
|
|
|
59 |
|
|
|
63 |
|
|
|
52 |
|
|
|
58 |
|
|
|
73 |
|
|
|
67 |
|
|
|
51 |
|
Accounts
payable (4) |
|
|
53 |
|
|
|
62 |
|
|
|
62 |
|
|
|
59 |
|
|
|
61 |
|
|
|
86 |
|
|
|
82 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
Days in: |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
Sales cycle (1)
|
|
|
15 |
|
|
|
15 |
|
|
|
13 |
|
|
|
11 |
|
|
|
15 |
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Inventory turnover (2)
|
|
|
16 |
|
|
|
18 |
|
|
|
16 |
|
|
|
24 |
|
|
|
14 |
|
|
|
24 |
|
|
|
16 |
|
|
|
22 |
|
Accounts receivable (3)
|
|
|
52 |
|
|
|
58 |
|
|
|
59 |
|
|
|
73 |
|
|
|
63 |
|
|
|
67 |
|
|
|
52 |
|
|
|
51 |
|
Accounts payable (4)
|
|
|
53 |
|
|
|
61 |
|
|
|
62 |
|
|
|
86 |
|
|
|
62 |
|
|
|
82 |
|
|
|
59 |
|
|
|
64 |
|
|
|
|
(1) |
|
Sales cycle is calculated as the sum of days in accounts receivable and days in
inventory, less the days in accounts payable. |
|
(2) |
|
Inventory turnover is calculated as the ratio of inventory, net, at period end divided by
cumulative year to date average daily net cost of sales and multiplied by the cumulative
number of days. |
|
(3) |
|
Days in accounts receivable is calculated as the ratio of accounts receivable, net, at
period end divided by cumulative year to date average daily net sales and multiplied by the
cumulative number of days. |
|
(4) |
|
Days in accounts payable is calculated as the ratio of accounts payable, net, at period end
divided by cumulative year to date average daily net cost of sales and multiplied by the
cumulative number of days. |
Results of Operations
The following table presents selected consolidated financial information stated as a
percentage of net sales for the years ended December 31, 2008, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2009 |
|
2010 |
Net Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
(88.7 |
) |
|
|
(90.1 |
) |
|
|
(90.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
11.3 |
|
|
|
9.9 |
|
|
|
9.6 |
|
General and administrative expenses |
|
|
(4.7 |
) |
|
|
(6.9 |
) |
|
|
(4.7 |
) |
Selling expenses |
|
|
(1.1 |
) |
|
|
(1.3 |
) |
|
|
(1.0 |
) |
Research and development expenses |
|
|
(1.7 |
) |
|
|
(1.6 |
) |
|
|
(1.1 |
) |
Impairment loss on goodwill |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1.0 |
|
|
|
0.1 |
|
|
|
2.8 |
|
Other income (expense), net |
|
|
1.1 |
|
|
|
(0.1 |
) |
|
|
0.7 |
|
Gain on sale of subsidiaries shares |
|
|
3.2 |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1.1 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Interest expense |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6.3 |
|
|
|
0.2 |
|
|
|
3.8 |
|
Income taxes |
|
|
(0.5 |
) |
|
|
(0.3 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
|
5.8 |
|
|
|
(0.1 |
) |
|
|
2.8 |
|
Net (income) loss attributable to noncontrolling interests |
|
|
(0.9 |
) |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nam Tai shareholders |
|
|
4.9 |
% |
|
|
0.4 |
% |
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Sales. Our net sales increased by 30.9% to $534.4 million for 2010, up from $408.1
million in 2009. Sales of TCA and CECP increased by 37.4% and 14.7% respectively. The
increased sales levels were due to the recovery in the global economic conditions after the 2008
crisis.
The distribution of revenues across our reportable segments has fluctuated, and we expect it
to continue to fluctuate, as a result of numerous factors, including but not limited to, increased
business from new and existing customers, fluctuations in customer demand resulting from the
economic recovery or otherwise and seasonality. The following table sets forth, our net sales
during the years ended December 31, 2009 and 2010 by reportable segment expressed as a dollar
amount and as percentage of total net sales and shows the percentage difference in net sales by
segment and in total between 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
2010 |
|
|
vs. 2009 |
|
|
|
Dollars |
|
|
|
|
|
|
Dollars |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Percent |
|
|
(in thousands) |
|
|
Percent |
|
|
Percent |
|
TCA |
|
$ |
292,074 |
|
|
|
72 |
% |
|
$ |
401,259 |
|
|
|
75 |
% |
|
|
37.4 |
% |
CECP |
|
|
116,063 |
|
|
|
28 |
|
|
|
133,161 |
|
|
|
25 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
408,137 |
|
|
|
100 |
% |
|
$ |
534,420 |
|
|
|
100 |
% |
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
the TCA segment, overall sales increased by 37.4%. This was driven primarily by the
increase in sales of LCD modules of 71.1%, or $102.6 million and
increase of 25.1%, or $12.7 million in sales of COG products. However, the increase was partially
offset by the decrease in sales of FPC sub-assemblies of 17.0% or $12.8 million.
In the CECP segment, net sales increased by 14.7%, mainly because sales of home entertainment
products increased by 183.2% or $61.3 million. However, the increase was partially offset by sales
of mobile phone accessories decreased by 69.5% or $32.5 million and optical products decreased by
68.6% or $7.9 million, compared with 2009.
Gross Profit. In terms of dollar value, gross profit for 2010 increased by $11.0 million from
2009 mainly because of an increase in sales. Gross margin decreased to 9.6% of net sales in 2010
from 9.9% in 2009 mainly as a result of start-up expenses at our newly operational manufacturing
and assembly facility in Wuxi, which reduced our overall gross profit margin in 2010 by 2.1%, and
an increase in material costs. Cost reduction and control measures initiated in the first quarter
of 2009, including the combination of work centers and the reduction in amount of floor space used
in manufacturing helped to compensate for the increase in material costs and contributed to Nam
Tais improved gross margin at the beginning of the second quarter of 2010.
General and Administrative Expenses. General and administrative expenses decreased to $25.2
million, or 4.7% of net sales in 2010, from $28.4 million, or 6.9% of net sales, in 2009. The $3.2
million decrease was mainly attributable to decreases of $4.4 million of employee severance
benefits, $1.2 million of loss on disposal of machinery, $0.9 million of privatization expenses,
$0.8 million pre-operating expenses for Wuxi FPC business and $0.4 million of salaries and
benefits. However, the decrease was partially offset by increases of $4.2 million of incentive
bonuses and $0.5 million of depreciation.
Selling Expenses. Selling expenses in 2010 increased slightly to $5.5 million from $5.3
million in 2009 accounting for 1.0% and 1.3% of net sales for 2010 and 2009 respectively.
Research and Development Expenses. Research and development expenses in 2010 decreased to $5.8
million from $6.3 million in 2009 accounting for 1.1% and 1.6% of net sales for 2010 and 2009
respectively.
41
Other Income, Net. During 2010, other income of $4.0 million, comprised primarily of a
$2.4 million foreign currency exchange gain, as compared to a $0.3 million foreign currency
exchange loss in 2009, and a gain of $0.8 million resulting from the sale to the Wuxi local
government of a parcel of raw land that we acquired in 2006.
Interest Income. Interest income was $1.5 million, which increased by $0.7 million from $0.8
million in 2009. The increase was primarily the result of greater RMB cash balances that were
deposited in banks with interest rates higher than they were in 2009.
Interest Expense. Interest expense was nil in 2010 as compared to $0.2 million in
2009. There was no interest expense in 2010 because we did not draw on our credit facilities,
whereas interest expense in 2009 was incurred on an entrusted loan receivable prior to paying it
off in 2009.
Income Taxes. The Company had an effective tax rate of about 26% on income before income taxes
in 2010. The amount represented income tax provision of $7.8 million, partially offset by a
deferred tax credit of $2.6 million recognized during the year, which mainly arose from tax losses
from the Companys FPC business in Wuxi. However, the actual utilization of this deferred tax asset
depends on future profit streams of our businesses. The Company had an effective tax rate of about
172% on income before income taxes in 2009.
Net
Income attributable to Nam Tai shareholders
In November 2009, Nam Tai successfully completed the privatization of Nam Tai Electronic &
Electrical Products Limited, or NTEEP, by tendering for and acquiring the 25.12 percent of NTEEP
that it did not previously own, i.e., NTEEPs noncontrolling shares, resulting in NTEEP becoming
the Companys wholly-owned subsidiary. Accordingly, the Company had no net income or loss
attributable to noncontrolling interests in 2010. Net loss attributable to noncontrolling interests
in 2009 was $2.2 million.
Net income attributable to Nam Tai shareholders increased to $15.0 million in 2010 from $1.7
million in 2009.
The following table sets forth, for the years indicated, net income/(loss) by reportable
segment expressed as a dollar amount and as a percentage of total net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
2010 |
|
|
vs. 2009 |
|
|
|
Dollars |
|
|
|
|
|
|
Dollars |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Percent |
|
|
(in thousands) |
|
|
Percent |
|
|
Percent(1) |
|
TCA |
|
$ |
(573 |
) |
|
|
(34.7 |
)% |
|
$ |
6,617 |
|
|
|
44.1 |
% |
|
|
n/a |
% |
CECP |
|
|
6,710 |
|
|
|
406.2 |
|
|
|
13,969 |
|
|
|
93.1 |
|
|
|
108.2 |
|
Corporate |
|
|
(4,485 |
) |
|
|
(271.5 |
) |
|
|
(5,580 |
) |
|
|
(37.2 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Nam
Tai shareholders |
|
$ |
1,652 |
|
|
|
100.0 |
% |
|
$ |
15,006 |
|
|
|
100.0 |
% |
|
|
808.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Percentage change is presented as n/a if either of the two periods contains a loss.
In TCA segment, net income was $6.6 million in 2010 as compared to net loss of $0.6
million in 2009. The improvement was mainly due to the increase in
sales in LCD modules and COG products. Such
increase was partially offset by the inclusion of the $11.6 million net loss from the Wuxi FPC
operations for 2010.
Net income in CECP segment increased to $14.0 million from $6.7 million mainly because of the
increase in sales in the home entertainment products. Such increase in sales was partially offset
by the drop in sales from losing two customers in 2010.
Net income in the corporate segment is mainly represented by corporate expenses which were not
allocated to segments.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net Sales. Our net sales decreased by 34.5% to $408.1 million for 2009, down from $622.9
million in 2008. Sales of TCA and CECP decreased by 16.9% and 57.2%, respectively. The
decreased sales levels were due to the downturn in the global economic conditions resulting from
the sequential effects of the subprime lending crisis and general credit market crisis.
The following table sets forth our net sales for the years ended December 31, 2008 and 2009 by
reportable segment expressed as a dollar amount and as percentage of total net sales and shows the
percentage difference in net sales by segment and in total between 2009 and 2008.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2009 vs. 2008 |
|
|
|
Dollars |
|
|
|
|
|
|
Dollars |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Percent |
|
|
(in thousands) |
|
|
Percent |
|
|
Percent |
|
TCA |
|
$ |
351,487 |
|
|
|
56 |
% |
|
$ |
292,074 |
|
|
|
72 |
% |
|
|
(16.9 |
)% |
CECP |
|
|
271,365 |
|
|
|
44 |
|
|
|
116,063 |
|
|
|
28 |
|
|
|
(57.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
622,852 |
|
|
|
100 |
% |
|
$ |
408,137 |
|
|
|
100 |
% |
|
|
(34.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the TCA segment, overall sales decreased by about 16.9%. This was driven primarily by
the decrease in sales of FPC sub-assemblies of 29.3% or
$31.1 million, LCD modules of 11.4%, or
$18.6 million, Twisted Nematic (TN) and OEM products of
55.9%, or $12.5 million. However, the decrease was
partially offset by the increase of $6.7 million, or 15.3% in sales of COG products.
In the CECP segment, net sales substantially decreased by about 57.2% mainly because sales of
home entertainment products decreased by 57.7% or $45.6 million and sales of mobile phone
accessories decreased by 66.7% or $93.8 million, compared with 2008.
Gross Profit. In terms of dollar value, gross profit for 2009 decreased by $30.4 million from
2008 mainly because of a decrease in sales. Gross margins decreased to 9.9% of net sales in 2009
from 11.3% in 2008. During the first quarter of 2009, Nam Tai made severe cost reduction and
control measures, including (i) improving operating and manufacturing efficiencies by combining
work centers and using a smaller floor space; and (ii) by reducing headcount from approximately
7,100 at December 31, 2008 to approximately 5,100 at March 31, 2009, representing a 28.2% reduction
in our work force. Although these measures helped Nam Tais operating results to recover in the
second quarter of 2009, the recovery in the second quarter and our financial performance for the
remainder 2009 were insufficient to match our financial results reported in 2008.
General and Administrative Expenses. General and administrative expenses decreased slightly to
$28.4 million, or 6.9% of net sales in 2009, from $29.1 million, or 4.7% of net sales in 2008. The
$0.7 million decrease was mainly attributable to decreases of $1.4 million in audit, legal &
professional fees, $1.2 million of share-based compensation expenses and $5.6 million of salaries
and benefits. However, the decrease was partially offset by increases of $5.1 million of employee
severance benefits, $0.9 million of privatization expenses, $1.2 million of loss on disposal of
machinery and $0.4 million of depreciation.
Selling Expenses. Selling expenses in 2009 decreased to $5.3 million from $6.9 million in 2008
accounting for 1.3% and 1.1% of net sales for 2009 and 2008, respectively.
Research and Development Expenses. Research and development expenses in 2009 decreased to $6.3
million from $10.9 million in 2008 accounting for 1.6% and 1.7% of net sales for 2009 and 2008
respectively.
Impairment Loss on Goodwill. In the fourth quarter of 2008, we recorded $17.3 million of
impairment loss on goodwill on the former LCDP reporting unit which was a result of the decrease in fair
value of the reporting unit affected by the slowdown in the global economy due to the financial
tsunami.
Other (Expenses) Income, Net. During 2009, other expenses were $0.3 million which were mainly
represented by an $0.4 million of exchange loss.
Gain on Sale of Subsidiaries Shares. In March 2008, we disposed of our entire equity interest
in JIC Technology and recorded a gain of $20.2 million.
Interest Income. Interest income was $0.8 million, which decreased by $5.5 million from $6.3
million in 2008. The decrease was primarily resulted from large scales of fund was put into Wuxi
factory and less fund was kept in bank, meanwhile, bank interest rate became lower as compared to
2008.
Interest Expense. Interest expense decreased to $0.2 million in 2009 from $0.4 million in
2008. This decrease was primarily a result of repayment of an entrusted loan during 2009.
Income Taxes. The Company has an effective tax rate of about 172% on income before income
taxes in 2009. The amount represented income tax provision of $2.1 million, partially offset by the
deferred tax credit of $0.8 million recognized during the year. The Company had a low effective tax
rate of about 7% on income before income taxes in 2008.
Net Loss Attributable to Noncontrolling Interests. Net loss attributable to noncontrolling
interests decreased to $2.2 million share of loss in 2009 from $5.4 million share of profit in
2008. The decrease was primarily the result of the gain on disposal of the entire interest in JIC
Technology in March 2008. Moreover, there was a reduction in operating income of NTEEP in 2009.
43
Net Income Attributable to Nam Tai Shareholders. Net income attributable to Nam Tai
shareholders decreased to $1.7 million in 2009 from $30.6 million in 2008. The following table sets
forth, for the years indicated, net income/(loss) by reportable segment expressed as a dollar
amount and as a percentage of total net income attributable to Nam
Tai shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2009 vs. |
|
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
Dollars |
|
|
|
|
|
|
Dollars |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Percent |
|
|
(in thousands) |
|
|
Percent |
|
|
Percent(1) |
|
TCA |
|
$ |
(17,064 |
) |
|
|
(55.7 |
)% |
|
$ |
(573 |
) |
|
|
(34.7 |
)% |
|
|
n/a |
% |
CECP |
|
|
27,359 |
|
|
|
89.3 |
|
|
|
6,710 |
|
|
|
406.2 |
|
|
|
(75.5 |
) |
Corporate |
|
|
20,340 |
|
|
|
66.4 |
|
|
|
(4,485 |
) |
|
|
(271.5 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income attributable to Nam Tai shareholders |
|
$ |
30,635 |
|
|
|
100.0 |
% |
|
$ |
1,652 |
|
|
|
100.0 |
% |
|
|
(94.6) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Percentage change is presented as n/a if either of the two periods contains a loss.
In
the TCA segment, net loss was $0.6 million
in 2009 as compared to net income of $0.2 million
(excluding $17.3 million impairment loss on goodwill) in 2008. The
major reasons were competitive pricing pressures requiring us to lower
unit prices and a major drop in business volume from existing
customers for FPC subassemblies and LCD modules in 2009, resulting in
a decrease in gross profit by $1.7 million. In addition, interest
income decreased by $0.9 million and other income decreased by $0.4
million.
In
CECP segment, net income decreased significantly to $6.7 million from $27.4 million mainly
because of the continuing effect from the global economic downturn. The weak demand in the market
for our consumer products adversely affected sales of all of our end-user products such as mobile
phone and game products accessories, which principally represented sales of our headsets containing
Bluetooth® wireless technology, educational products, optical products and home entertainment
devices.
Net income in the corporate segment is mainly represented by corporate expenses which were not
allocated to segments. Net gain, after tax and noncontrolling interest, on disposal of
subsidiaries share JIC Technology of $20.2 million was recorded in 2008.
Liquidity and Capital Resources
Liquidity
We have financed our operation and cash requirements to date primarily from internally
generated funds, proceeds from the sale of our entire equity interest in JIC Technology, proceeds
from the sale of land we owned in Hong Kong and PRC, and sale of our common stock.
We do not have other off-balance sheet financing arrangements, such as securitization of
receivables or access to assets through special purpose entities, as sources of liquidity. Our
primary uses of cash over the last few years have been to fund expansions and upgrades of our
manufacturing facilities, to acquire the noncontrolling interests in NTEEP from its publicly traded
minority shareholders and to fund increases in inventory and accounts receivable in years when our
sales, inventories or accounts receivables have increased.
We had net working capital of $222.2 million at December 31, 2010 compared to net working
capital of $197.7 million at December 31, 2009. The principal components of our working capital at
December 31, 2010 and December 31, 2009 consisted of cash and cash equivalents, accounts and notes
receivables, and inventories. The increases in these components at December 31, 2010 from levels at
December 31, 2009, in
|
|
|
cash and cash equivalents resulted primarily from the increase in sales in 2010; |
|
|
|
|
the $43.4 million used in the acquisition of shares in privatization of NTEEP in 2009; and |
|
|
|
|
the decrease in purchase of property, plant and equipment in 2010. |
We expect our working capital requirements and capital expenditures to increase when we begin
our expansions of our operations through construction of new factories and machinery purchases.
Future liquidity needs will also depend on fluctuations in levels of inventory and shipments,
changes in customer order volumes and timing of expenditures for new equipment.
We currently believe that during 2011, our capital expenditures will be in the range of $50
million to $70 million. For additional information concerning our planned capital expenditures
during 2011, please see Item 4 Information on the Company Capital Expenditures on
page 23 of this Report. We believe that our level of internal resources, which include cash and
cash equivalents, fixed deposits maturing over three months, accounts and notes receivable, and
available borrowings under our credit facilities, will be adequate to fund these capital expenditures and our working capital requirements for at least the
next twelve months. Should we desire to pursue acquisition opportunities or undertake additional
significant expansion activities, our capital needs would increase and could possibly result in our
need to increase available borrowings under our revolving credit facilities or access public or
private debt and equity markets. There can be no assurance, however, that we would be successful in
raising additional debt or equity on terms that we would consider acceptable or at all.
44
The following table sets forth, for the years ended December 31, 2008, 2009 and 2010, selected
consolidated cash flow information ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
36,791 |
|
|
$ |
38,503 |
|
|
$ |
34,893 |
|
Net cash (used in) provided by investing activities |
|
|
(34,723 |
) |
|
|
(74,781 |
) |
|
|
8,217 |
|
Net cash used in financing activities |
|
|
(42,267 |
) |
|
|
(18,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(40,199 |
) |
|
$ |
(54,334 |
) |
|
$ |
43,110 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities for 2010 was $34.9 million. This consisted primarily
of a $15.0 million consolidated net income, adjusted for $24.5 million of depreciation and
amortization, an increase in accounts payable of $25.9 million and an increase in accrued expenses
and other payables of $4.4 million. Nevertheless, net cash provided by operating activities was
partially offset by an increase in accounts and notes receivable of $16.3 million, an increase in
inventories of $13.0 million, an increase in prepaid expenses and other receivables of $2.4 million
and increase in net deferred tax asset of $2.6 million.
Net cash provided by investing activities of $8.2 million for 2010 consisted primarily of a
fixed deposit maturing over three months of $12.9 million which was matured in 2010 and proceeds
from disposal of property, plant and equipment and land use right of $2.0 million, offset by
capital expenditures of $6.3 million, which were used mainly to expand our manufacturing capacity
and equip our new manufacturing site in Wuxi, and deposits paid for property, plant and equipment of
$0.4 million.
There is no net cash used in or provided by financing activities during 2010.
Net cash provided by operating activities for
2009 was $38.5 million. This consisted primarily of a $0.5 million
consolidated net loss, adjusted for $23.1 million of depreciation and amortization, a decrease in accounts receivable of $46.2 million,
a decrease in inventories of $11.2 million and a decrease in prepaid expenses and other receivables
of $1.1 million. Nevertheless, net cash provided by operating activities was partially offset by a decrease
in accounts payable of $39.5 million and a decrease in accrued expenses and other payables of $4.1 million,
mainly because sales in 2009 decreased by 34.5% as compared to 2008.
Net cash used in investing activities of $74.8 million for 2009 consisted primarily of capital
expenditures of $30.4 million, which were used mainly to expand our manufacturing capacity and equip our new manufacturing site in
Wuxi, and increase in fixed deposits maturing over three months of $12.9 million, offset by
decrease in entrusted loan receivable of $8.2 million and deposits for purchase of property,
plant and equipment of $2.9 million. In addition, the Company utilized $43.4
million to acquire additional ordinary shares of NTEEP in 2009.
Net cash used in financing activities of $18.1 million for 2009 resulted primarily from
dividend payments of
$9.9 million paid to the
shareholders of the Company and noncontrolling shareholders of NTEEP, and the repayment of entrusted
loan of $8.2 million.
Net cash provided by operating activities for 2008 was $36.8 million. This consisted primarily of $36.1 million of
consolidated
net income, adjusted for $22.2 million of depreciation and amortization, impairment loss on goodwill of $17.3
million, a decrease in inventory of $5.1 million, a decrease in prepaid expenses and other receivables of $1.6 million
and a decrease in income tax recoverable of $5.4 million. Nevertheless, it was partially offset by
adjusting
a gain on disposal
of subsidiaries shares of $20.2 million, and an unrealized exchange gain of $4.8 million, an increase in accounts
receivable of $8.5 million, a decrease in notes payable of $4.6 million, an increase in accounts payable of $9.2 million and a
decrease in accrued expenses and other payables of $4.2 million.
Net cash used in investing activities of $34.7 million for 2008 consisted primarily of increase in entrusted loan
receivable of $8.2 million, capital expenditures of $27.4 million and deposits paid for purchase of property, plant and
equipment of $2.6 million, which were used mainly to expand our manufacturing capacity and equip our new
manufacturing site in Wuxi. In addition, the Company utilized $2.9 million to acquire additional ordinary shares of
NTEEP in 2008. These were partially offset by net cash inflow from disposal of JIC Technology of $6.7 million.
Net cash used in financing activities of $42.3 million for 2008 resulted primarily from $47.7 million paid to
shareholders of the Company and noncontrolling shareholders of NTEEP as dividends, $2.6 million in repayment of
bank loans, offset by proceeds of entrusted loan of $8.2 million.
For the years ended December 31, 2009 and 2010, the Company had no guaranteed loans.
We had no material transactions, arrangements or relationships with unconsolidated affiliated
entities that are reasonably likely to affect our liquidity.
Capital Resources
As of December 31, 2010, we had $228.1 million in cash and cash equivalents, consisting of
cash and short-term deposits, compared to $182.7 million as of December 31, 2009. The Company has
no short-term and long-term bank loans as of December 31, 2010 and December 31, 2009.
As of December 31, 2010, we had in place general banking facilities with financial
institutions aggregating $14.1 million. The maturity of these
facilities is generally up to 90 days. These banking facilities (which are not considered guaranteed loans) are guaranteed by the
Company and there is an undertaking not to pledge any assets to any other banks without the prior
consent of our bankers. However, these covenants do not have any impact on our ability to undertake
additional debt or equity financing. Interest rates are generally based on the banks reference
lending rates. Our facilities permit us to obtain letters of credit, import facilities, trust
receipt financing and shipping guarantees. No significant commitment fees are required to be paid
for the banking facilities. These facilities are subject to annual review and approval. As of
December 31, 2010, we had available unused credit facilities of $14.1 million.
As of December 31 2010, the Company had no term loans.
Our contractual obligations, including capital expenditure, purchase obligations and future
minimum lease payments under non-cancelable operating lease arrangements as of December 31, 2010
are summarized below. We do not participate in, or secure financing for, any unconsolidated limited
purpose entities. Non-cancelable purchase commitments do not typically extend beyond the normal
lead-time of several weeks at most. Purchase orders beyond this time frame are typically
cancelable.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments (in thousands) due by period |
Contractual Obligations |
|
Total |
|
2011 |
|
2012 to 2013 |
|
2014 to 2015 |
|
After 2015 |
Long-term debt obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital (finance) lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
1,016 |
|
|
|
1,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital commitments |
|
|
4,923 |
|
|
|
4,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase obligations |
|
|
67,965 |
|
|
|
67,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected
on the Companys balance sheet
under US GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
73,904 |
|
|
$ |
73,904 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
With the exception of a requirement for PRC subsidiaries that about 11% of profits after
tax be reserved for future developments and staff welfare, there are no restrictions on the payment
of dividends from China once all taxes are paid and assessed and losses, if any, from previous
years have been made good. For 2007 or before, if dividends were paid by our PRC subsidiaries, such
dividends would reduce the amount of reinvested profits and, accordingly, the refund of taxes paid
would be reduced to the extent of tax applicable to profits not reinvested. However, in March 2007,
PRC National Peoples Congress promulgated the new Enterprise Income Tax Law which replaces the
former foreign enterprise income tax law and has been effective since January 1, 2008. Profit
reinvestment benefit, which we previously enjoyed, was also abolished with effect from January
1, 2008. Under the new EIT Law, dividends payable to foreign investors which are derived from
sources within the PRC will be subject to income tax at the rate of 5% to 15% by way of withholding
unless the foreign investors are companies incorporated in countries which have tax treaty
agreement with PRC and rate agreed by both parties will be applied. However, except for the
increases in our tax payments, we believe that there is no material impact from these changes on
our ability to provide working capital for growth and future capital expenditures.
Impact of Inflation
Historically, inflation in China where virtually all of our assets and employees are located
has had little impact against the Companys business in the past because we have been able to
increase the price of our services and products to keep pace with inflation. However, in addition
to the appreciation of the renminbi to the US dollar, inflation in China has recently affected the
Company significantly. Chinas consumer price index, the broadest measure of inflation, rose 4.9%
in January 2011 from the level in January 2010. Chinas overall economy and the average wage in the
PRC are expected to continue to grow. For example, wages of our direct labor workforce increased
substantially in 2010 and at December 31, 2010, the average wage level was approximately 57% higher
than that at December 31, 2009.
Continuing increases in Chinas inflation and material increases in the cost of labor would
diminish our competitive advantage and, unless we are able pass on these increased labor costs to
our customers by increasing prices for our products and services, our profitability and results of
operations could be materially and adversely affected.
Exchange Controls
There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of our securities or on the conduct of our operations in Hong Kong
and Cayman Islands, where the offices of some of our subsidiaries are located, or in the British
Virgin Islands, where we are incorporated. Other jurisdictions in which we conduct operations may
have various exchange controls. With respect to our PRC subsidiaries, with the exception of a
requirement that about 11% of profits be reserved for future developments and staff welfare, there
are no restrictions on the payment of dividends from China once all taxes are paid and assessed and
losses, if any, from previous years have been made good. We believe such restrictions will not have
a material effect on our liquidity or cash flows.
Recent Changes in Accounting Standards
In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and Disclosures
(Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent). This update applies to all entities that hold an investment that is required to be
measured or disclosed at fair value on a recurring or nonrecurring basis. These amendments permit,
as a practical expedient, a reporting entity to measure the fair value of investment on the basis
of the net asset value per share of the investment and require disclosures by major category of
investment within the scope of this update. ASU No. 2009-12 is effective for interim and annual
periods ending after December 15, 2009 and the adoption did not have a material impact on the
Companys financial position, results of operations and cash flows.
In December 2009, the FASB issued ASU No. 2009-17, Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities. The amendments in
this update are the result of FASB Statement No. 167
Amendments to FASB Interpretation No. 46 (R), which is now codified as FASB ASC 810-10-50-2A
Consolidation Overall Disclosure Variable Interest Entities and is effective for the
interim and annual periods ending after December 15, 2009. The adoption of ASU No. 2009-17 did not
have a material impact on the Companys financial position, results of operations and cash flows.
46
In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic 810), in which it
clarifies that the scope of the decrease in ownership provision of the Subtopic and related
guidance applies to a subsidiary or group of assets that is a business or nonprofit activity, but
does not apply to sales of substance real estate & conveyances of oil and gas mineral rights. ASU
No. 2010-02 is effective for the interim and annual periods ending after December 15, 2009. The
adoption of ASU No. 2010-02 did not have a material impact on the Companys financial position,
results of operations and cash flows.
In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855), which
requires an SEC filer to evaluate subsequent events through the date that the financial statements
are issued, and removes the requirement for an SEC filer to disclose a date in both issued and
revised financial statements. Revised financial statements include financial statements revised as
a result of either correction of an error or retrospective application of US GAAP. It also
clarifies that if the financial statements have been revised, then an entity that is not an SEC
filer should disclose both the date the financial statements were issued or available to be issued
and the date the revised financial statements were issued or available to be issued. ASU No.
2010-09 is effective for the interim and annual periods ending after June 15, 2010 and no material
impact on Namtais reporting is considered.
In April 2010, the FASB issued ASU No. 2010-13, CompensationStock Compensation (Topic
718), which provides amendments to Topic 718 to clarify that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a substantial portion of
the entitys equity securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not classify such an award as
a liability if it otherwise qualifies as equity. ASU No. 2010-13 is effective for fiscal years, and
the interim and annual periods within those fiscal years, beginning on or after December 15, 2010.
The adoption of ASU No. 2010-13 is not expected to have any impact on the Companys financial
position, results of operations and cash flows.
In December 2010, the FASB issued ASU No. 2010-28, IntangiblesGoodwill and Other (Topic
350), which modifies Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of
the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an impairment may exist.
ASU No. 2010-28 is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after, December 15, 2010. The adoption of ASU No. 2010-28 is not expected to have
any impact on the Companys financial position, results of operations and cash flows.
In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805), which
specifies that if a public entity presents comparative financial statements, the entity should
disclose revenue and earnings of the combined entity as though the business combination(s) that
occurred during the current year had occurred as of the beginning of the comparable prior annual
reporting period only. The amendments in this Update also expand the supplemental pro forma
disclosures under Topic 805 to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. ASU No. 2010-29 is effective for business combinations
for which the acquisition date is after the annual periods ending after December 15, 2010 and which earlier
adoption is permitted. The Company believes that the adoption of ASU No. 2010-29 may impact future
business combinations.
Research and Development
Our research and development expenditures were mainly comprised of salaries and benefits paid
to our research and development personnel and primarily for the development of advanced
manufacturing techniques to produce complex products on a mass scale and at a low cost. We expense
our research and development costs as incurred. For the years ended December 31, 2008, 2009 and
2010 we incurred research and development expenses of approximately $10.9 million, $6.3 million and
$5.8 million respectively.
Trend Information
In 2011, the Company plans to continue to focus its business on manufacturing high value and
higher margin LCD modules geared toward applications in market segments that management perceives
to be strong, such as telecommunications and automotive. In order to meet the demand from
customers, the Company will consider significant expansion of production capacity for LCD modules
and assemblies for smart phone and tablet applications in upcoming years. For the FPC business,
management believes that, through its incorporation of state-of the-art technology and equipment
for production of FPCB usable for many diverse electronic products and components, and benefitted
by management and marketing personnel experienced in FPCB production and sales, operations from Nam
Tais FPCB facilities in Wuxi will show momentum in 2011 and eventually become one of the Companys
key growth drivers.
47
Off-balance Sheet Arrangements
For 2010, we did not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.
48
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
Directors and Senior Managers
Our current directors and senior management, and their ages as of March 1, 2011, are as
follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position with Nam Tai or its Subsidiaries |
M. K. Koo
|
|
|
66 |
|
|
Nam Tais Executive Chairman and Chief Financial Officer;
NTEEPs President and a director |
Colin Yeoh
|
|
|
46 |
|
|
Chief Executive Officer of Nam Tai and a director of NTEEP |
Ivan Chui
|
|
|
52 |
|
|
Chief Marketing Officer of Nam Tai |
Tohru Odashima
|
|
|
60 |
|
|
President of Wuxi Manufacturing |
Peter R. Kellogg
|
|
|
68 |
|
|
Member of the Board of Directors |
Dr. Wing Yan (William) Lo
|
|
|
50 |
|
|
Member of the Board of Directors |
Charles Chu
|
|
|
54 |
|
|
Member of the Board of Directors |
Mark Waslen
|
|
|
50 |
|
|
Member of the Board of Directors |
M. K. Koo. Mr. Koo, a founder of the Nam Tai Group, serves as Executive Chairman and Chief
Financial Officer of Nam Tai. Effective on October 1, 2010, Mr. Koo was appointed President of
NTEEP. Mr. Koo has served Nam Tai in various senior executive and management positions of Nam Tai
Group from our inception, including responsibilities for corporate strategy, finance and
administration. He is also Chairman of the Board of Directors of NTEEP and Chairman & Legal
Representative of Nam Tais PRC subsidiaries. Mr. Koo received his Bachelor of Laws degree from
National Taiwan University in 1970.
Colin Yeoh. Dr. Yeoh joined Nam Tai in September 2003 as President of Business Development for
our LCD and transformer businesses and since then has served in various senior executive positions
for our LCD and transformer manufacturing Jetup business unit, rising to become the Chief Executive
Officer of Jetup business unit. In December 2009, he was appointed as a director of our NTEEP and
Chief Executive Officer of Nam Tai. Before joining Nam Tai, he worked in operations for Varitronix
International Limited, a custom LCD manufacturer, from 1994 to 2003. From 1990 to 1994, he was
employed by GEC Marconi Hirst Research (UK), where he worked in optical and display system
research. Dr. Yeoh received a PhD in Liquid Crystal Devices in 1990 at Imperial College (London,
UK), a Master of Science degree in Microwaves and Modern Optics in 1986 from University College
London (UK) and a Bachelor of Science in Electrical and Electronic Engineering from University
College London (UK).
Ivan Chui. Mr. Chui is a co-founder of J.I.C. Technology Company Limited (JIC) and joined
Nam Tai when the Company acquired JIC in October 2000. Since then Mr. Chui has served the Company
in various senior executive positions for our LCD and transformer manufacturing Jetup business
unit, becoming the Vice Chief Executive Officer of Jetup business unit in January 2009. From
December 2009 to March 2010, Mr. Chui served us as Business Development President of Zastron
Shenzhen, which now handles our manufacturing of LCDs and LCD modules in Shenzhen and in April
2010, was designated as our Chief Marketing Officer. He has over 20 years of experience in the LCD
business and extensive contacts and experience in conducting business with Japanese companies.
Tohru Odashima. Mr. Tohru Odashima, joined Nam Tai as President of its FPC manufacturing plant
in Wuxi in September 2010. Before joining Nam Tai, Mr. Odashima was employed by Sony Chemical
Corporation and its related companies since 1968. During his career span of over 40 years with
Sony, he served Sony in areas of Research & Development, manufacturing technology, factory
operations management and business development of FPC products. His most recent position with
Sony, in which he served for approximately 10 years, was as Director/President of Sony Chemicals
(Suzhou) Co. Ltd., located in Suzhou, PRC, which is the city to the immediate Northwest from our
facilities in Wuxi. During his tenure with Sony, Mr. Odashima gained substantial experience and
developed expertise in the development, manufacturing and marketing of FPC products and in the
management of PRC factories dedicated to their production, which are the same responsibilities he
is undertaking as President of Nam Tais FPC manufacturing operations and facilities in Wuxi.
Peter R. Kellogg. Mr. Kellogg has served on our Board of Directors since June 2000. Mr.
Kellogg was a Senior Managing Director of Spear, Leeds & Kellogg, a registered broker-dealer in the
United States and a specialist firm on the NYSE until the firm merged with Goldman Sachs in 2000.
Mr. Kellogg serves on our Compensation Committee and Nominating / Corporate Governance Committee.
Mr. Kellogg is also a member of the Board of the Ziegler Companies and the U.S. Ski Team.
Dr. Wing Yan (William) Lo. Dr. Lo has served on our Board of Directors since July 8, 2003.
From 1998 to 1999, Dr. Lo served as the Chief Executive Officer of Citibanks Global Consumer
Banking business for Hong Kong. Prior to joining Citibank, Dr. Lo was the founding Managing
Director of Hongkong Telecom IMS Ltd. From 2002 to 2006, Dr. Lo served as Executive Director and
Vice President of China Unicom Ltd., a telecommunications operator in China that is listed on both
the Hong Kong and New York Stock Exchanges. Until mid-2009, Dr. Lo served as Vice Chairman and
Managing Director of I.T. Limited, a Hong Kong retailer in the fashion
49
apparel market with stores in the PRC, Taiwan, Macao, Thailand and Middle East,
listed on the Main Board of the Hong Kong Stock Exchange. Dr. Lo holds an M. Phil. and Ph.D.
degrees from Cambridge University, England. He also serves as an Adjunct Professor of The School of
Business of Hong Kong Baptist University as well as on the Faculty of Business of Hong Kong
Polytechnic University. In 1998, Dr. Lo was appointed as a Hong Kong Justice of the Peace. In 2003,
he was appointed as a Committee Member of Shantou Peoples Political Consultative Conference. Dr.
Lo currently serves on the Nominating / Corporate Governance Committee acting as the Chairman and
also serves on our Audit Committee and Compensation Committee.
Charles Chu. Mr. Chu originally served as a Director of Nam Tai from November 1987 to
September 1989. He was reappointed a Director in November 1992 and has served on our Board of
Directors since then. Since July 1988, Mr. Chu has been engaged in the private practice of law in
Hong Kong. Mr. Chu serves as Chairman of our Compensation Committee, and on our Audit Committee and
Nominating / Corporate Governance Committee. Mr. Chu received his Bachelors of Laws degree and
Post-Graduate Certificate of Law from the University of Hong Kong in 1980 and 1981, respectively.
Mark Waslen. Mr. Waslen has served on our Board of Directors since July 2003 and serves as
Chairman of our Audit Committee and on our Compensation Committee and Nominating/Corporate
Governance Committee. From 1990 to 1995 and from June 1998 to October 1999, Mr. Waslen was
employed by Nam Tai in various capacities, including Financial Controller, Secretary and Treasurer.
Since June 1, 2010, Mr Waslen is employed as a Partner with Meyers Norris Penny, a Canadian
Chartered Accountant and business advisory firm. From 2001 to 2010, Mr. Waslen was employed by
Berris Mangan Chartered Accountants, an accounting firm located in Vancouver, BC. Prior to joining
Berris Mangan, Mr. Waslen has been employed by various other accounting firms, including Peat
Marwick Thorne and Deloitte & Touche. Mr. Waslen is a CFA, CA and a CPA and received a Bachelors
of Commerce (Accounting Major) from University of Saskatchewan in 1982.
No family relationship exists among any of our directors or members of our senior management
and no arrangement or understanding exists between any of our major shareholders, customers,
suppliers or others, pursuant to which any person referred to above was selected as a director or
member of senior management. Directors are elected each year at our annual meeting of shareholders
or serve until their respective successors take office or until their death, resignation or
removal. Members of senior management serve at the pleasure of the Board of Directors.
Compensation of Directors and Senior Management
Compensation on an Aggregate Basis
The aggregate compensation, including benefits in kind granted, during the year ended December
31, 2010 that we or any of our subsidiaries paid to all directors and senior management as a group
for their services in all capacities to the Company or any subsidiary was approximately $2.7
million. That total includes an aggregate of $94,800 in stock compensation expense for options
granted to the Companys non-employee directors.
During the year ended December 31, 2010, we granted to our directors from our stock option
plans options to purchase an aggregate of 60,000 of our common shares at exercise price of $4.45
per share. That exercise price of the shares covered by the options granted during 2010 was equal
to their fair market value of our shares on the date of grant when measured against the closing
price of $4.45 of our shares on June 3, 2010 (the date of the grant) as reported on the NYSE. The
options granted during 2010 expire on the third anniversary of their grant date in 2013.
We pay our directors $4,000 per month for services as a director, $1,000 per meeting attended
in person and $700 per meeting attended by telephone. In addition, we reimburse our directors for
all reasonable expenses incurred in connection with their services as a director and member of a
board committee.
During 2010, members of our senior management were eligible for annual cash bonuses based on
their performance and that of the subsidiaries in which they are assigned for the relevant period.
Senior management is entitled to share up to 15% of the operating income from the subsidiary in
which they are employed during the year. Our senior management in charge of our subsidiaries
recommends the participating staff members from the corresponding subsidiary and the amount, if
any, to be allocated from such subsidiarys profit pool to an eligible employee. In addition to
cash incentives, members of our senior management are eligible to receive stock options from our
Stock Option Plans. For 2010, the Chief Executive Officer is entitled
to 20% of the incentive pools and
the balance is to be shared by other operational senior management of
the Company per above.
According to the applicable laws and regulations in China set by the local government of
Shenzhen, China, prior to July 2006, we are required to contribute 8% to 9% of the stipulated
salary to our staff located there to retirement benefit schemes to fund retirement benefits for our
employees. With effect from July 2006, the applicable percentages were adjusted to 10% to 11%. For
our subsidiary in Wuxi, the applicable percentage was 20%. Our principal obligation with respect to
these retirement benefit schemes is to make the required contributions under the scheme. No
forfeited contributions may be used by us to reduce the existing level of contributions.
Since December 2000, we have enrolled all of our eligible employees located in Hong Kong into
the Mandatory Provident Fund, or MPF, scheme, a formal system of retirement protection that is
mandated by the government of Hong Kong and provides the
framework for the establishment of a system of privately managed, employment-related MPF
schemes to accrue financial benefits for
50
members of the Hong Kong workforce when they retire. Since
first establishing a subsidiary in Macao in 2003, we have enrolled all of our eligible employees in
Macao into Macaos retirement benefit scheme, or RBS. Both the MPF and RBS are available to all
employees aged 18 to 64 and with at least 60 days of service under the employment of Nam Tai in
Hong Kong and Macao. Contributions are made by us at 5% based on the staffs relevant income. The
maximum relevant income for contribution purpose per employee is $3,000 per month. Staff members
are entitled to 100% of the Companys contributions, together with accrued returns, irrespective of
their length of service with us, but the benefits are required by law to be preserved until the
retirement age of 65 for employees in Hong Kong while the benefit can be withdrawn by the employees
in Macao at the end of employment contracts.
The cost of our contributions to the staff retirement plans in Hong Kong, Macao and China
amounted to approximately $1,814,000, $1,480,000 and $1,715,000 for the years ended December 31,
2008, 2009 and 2010, respectively.
Compensation on an Individual Basis*
Directors Compensation
The following table presents the total compensation paid to each of our non-management
directors during 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
Option |
|
All Other |
|
Total |
Name |
|
Paid in Cash ($)(1) |
|
Awards ($)(2) |
|
Compensation ($) |
|
($) |
Peter R. Kellogg |
|
|
46,100 |
|
|
|
23,700 |
|
|
|
|
|
|
|
69,800 |
|
Charles Chu |
|
|
52,950 |
|
|
|
23,700 |
|
|
|
|
|
|
|
76,650 |
|
Dr. Wing Yan (William) Lo |
|
|
50,800 |
|
|
|
23,700 |
|
|
|
|
|
|
|
74,500 |
|
Mark Waslen |
|
|
49,000 |
|
|
|
23,700 |
|
|
|
|
|
|
|
72,700 |
|
|
|
|
(1) |
|
Consists of the aggregate dollar amount of all fees earned or paid in cash for services as
a director, including annual retainer fees and meeting fees. Cash paid to directors were in
HK$ and for purposes of the presentation in the above table have been converted into US$ at a
conversion rate $1.00:HK$7.75. |
|
(2) |
|
Consists of the US$ amount of option grants that Nam Tai recognized for financial statement
reporting purposes in accordance with FASB ASC 718. |
Options Granted During the year and Held by Directors, at December 31, 2010
Our policy is to grant to non-employee directors on an annual basis, upon their election to
the Board of Director at the annual shareholders meeting, options to purchase 15,000 shares at an
exercise price equal to 100% of the fair market value of the common shares on the date of grant.
Accordingly, in June 2010, each of our non-employee directors was granted three-year options to
purchase 15,000 shares (a total of 60,000 shares for all of our non-employee directors) at an
exercise price of $4.45.
Compensation on an Individual Basis Executive Officers
The following table sets forth a summary of the compensation which we (including our
subsidiaries) paid during 2010 to our Chief Executive Officer, our Chief Financial Officer and two
of our other highest paid executive officers during 2010 who were serving at December 31, 2010.
|
|
|
* |
|
Under the rules of the SEC, foreign private issuers like
us are not required to disclose compensation paid to our directors or
senior managers on an individual basis unless individual disclosure is
required in the foreign private issuers home country and is not otherwise
publicly disclosed by the company. Although we are not required by our
home country (the British Virgin Islands, the jurisdiction in which we are
organized), we are voluntarily providing disclosure of compensation we
paid to our directors and senior managers on an individual basis in this
Report and plan to do so in our proxy statement for our 2011 Annual
Meeting of Shareholders (even though we are not subject to the sections of
the Securities Exchange Act of 1934 regulating the solicitation of
proxies, consents or authorizations in respect of a security registered
under the Securities Exchange Act of 1934 or disclosures required in a
proxy statement in accordance with rules therefor promulgated under the
Securities Exchange Act of 1934). See Item 3. Key Information of this
Report under the heading Risk Factors Our status as a foreign private
issuer in the United States exempts us from certain of the reporting
requirements under the Securities Exchange Act of 1934 and corporate
governance standards of the New York Stock Exchange, or NYSE, limiting the
protections and information afforded to investors. By providing
disclosures of compensation we pay to our directors and senior managers on
an individual basis in this Report or in our proxy statement, we are not
undertaking any duty, and investors and others reviewing this Report
should not expect, that we will continue to make such disclosures in any
future Reports or in our proxy statements as long as we are exempt from
doing so under the Securities Exchange Act of 1934. We reserve the right
to discontinue doing so at any time without prior notice. Further,
although the disclosures of compensation we paid to our directors and
senior managers on an individual basis that we have provided in this
Report may, in certain respects, appear comparable to similar disclosures
made by companies organized in the U.S. that are required to file Annual
Reports on Form 10-K or proxy statements under Regulation 14A under the
Securities Exchange Act of 1934, such disclosures that we have made in
this Report do not necessarily comply with the applicable requirements
therefor under Form 10-K or Regulation 14A and this Report does not
contain all disclosures required Item 11 of Form 10-K or Item 8 of
Schedule 14A of Regulation 14A. |
51
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Salary |
|
comp. and |
|
|
Name and Principal Position |
|
Year |
|
($)(1) |
|
benefits ($)(2) |
|
Total ($) |
Koo Ming Kown |
|
|
2010 |
|
|
|
212,915 |
(3) |
|
|
236,079 |
(4) |
|
|
448,994 |
|
Chief Financial Officer and |
|
|
2009 |
|
|
|
10 |
(3) |
|
|
199,720 |
(4) |
|
|
199,730 |
|
Chairman of the Board of Nam Tai; |
|
|
2008 |
|
|
|
|
|
|
|
68,931 |
(4) |
|
|
68,931 |
|
President of NTEEP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colin Yeoh (5) |
|
|
2010 |
|
|
|
213,523 |
|
|
|
829,411 |
|
|
|
1,042,934 |
|
Chief Executive Officer |
|
|
2009 |
|
|
|
171,304 |
|
|
|
4,191 |
|
|
|
175,495 |
|
of Nam Tai |
|
|
2008 |
|
|
|
201,184 |
|
|
|
1,587 |
|
|
|
202,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ivan Chui (6)
Chief Marketing Officer |
|
|
2010 |
|
|
|
219,691 |
|
|
|
551,757 |
|
|
|
771,448 |
|
of Zastron Shenzhen |
|
|
2009 |
|
|
|
|
|
|
|
129,032 |
|
|
|
129,032 |
|
|
|
|
2008 |
|
|
|
176,282 |
|
|
|
|
|
|
|
176,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patinda Lei (7) |
|
|
2010 |
|
|
|
180,492 |
|
|
|
4,166 |
|
|
|
184,658 |
|
Marketing Director of Zastron Shenzhen |
|
|
2009 |
|
|
|
181,993 |
|
|
|
3,457 |
|
|
|
185,450 |
|
|
|
|
2008 |
|
|
|
358,974 |
|
|
|
9,637 |
|
|
|
368,611 |
|
|
|
|
(1) |
|
Consists of the basic salary earned by the named executive officers during the year
indicated. All cash compensation included in the table was paid to Nam Tais senior executives
in HK$ and for purposes of the presentation in the above table have been converted into US$ at
a conversion rate $1.00:HK$7.75 for 2010 and 2009, and $1.00:HK$7.80 for 2008. |
|
(2) |
|
To the extent applicable to the named individual, consists of amounts paid for housing, golf
club membership fees, mandatory provident fund, life, medical, travel, social security,
unemployment compensation, welfare and accident insurance premiums, bonus and fees for annual
physical examination. The value of stock options is not included. |
|
(3) |
|
Mr. Koo was appointed as Nam Tais Chief Financial Officer effective March 1, 2009. Prior to
March 1, 2009, Mr. Koo served on Nam Tais Board of Directors as Non-executive Chairman of the
Board and since March 1, 2009 has served as Executive Chairman of the Board. Mr. Koos salary
for serving as Nam Tais Chief Financial Officer during 2009 and 2010 was $1.00 per month.
Effective on October 1, 2010, in addition to his duties as Nam Tais Chief Financial Officer,
Mr. Koo was appointed as President of NTEEP, his salary for serving as Nam Tais Chief
Financial Officer was confirmed at $1.00 per month and his salary for serving as President of
NTEEP was fixed at approximately $850,000 annually and an annual
bonus of 1.5 months of his monthly salary of approximately $106,000. See Item 7. Major Shareholders and
Related Party Transactions Certain Relationships and Related Party Transactions. |
|
(4) |
|
All other compensation and benefits for 2010
includes insurance premiums and fees for annual physical examination, $147,049 in rental charges paid for housing provided for Mr. Koo and
$26,613 which Nam Tai has accrued as a bonus to Mr. Koo for services in 2010, but is
payable to Mr. Koo in March 2011. All other compensation and benefits for 2009 included
insurance premiums, golf membership expenses and $136,649 in rental charges paid for housing
provided for Mr. Koo. Amounts of $833,333 and $750,000 previously accrued by the Company
during 2009 and 2010 respectively for payment to Mr. Koo if he remained as Nam Tais CFO from
March 1, 2009 through and after February 29, 2012 have not been included in the table since
the Companys obligation therefore was terminated in October 2010 and Mr. Koo has never
received payment of those amounts during 2009 or 2010. See Item 7. Major Shareholders and
Related Party Transactions Certain Relationships and Related Party Transactions for a
discussion of the compensation payable and previously payable to Mr. Koo as Nam Tais CFO.
All other compensation and benefits in 2010, 2009 and 2008 also includes directors fees of
$37,250, $42,750 and $42,000, respectively. All other compensation and benefits in 2008
includes $13,650 actually paid to Mr. Koo when his outstanding stock options were repurchased
at the same time that all other director options were repurchased in 2008. Because (a) options
to purchase 15,000 shares granted in 2009 to Mr. Koo were surrendered and cancelled within a
few months thereafter, and (b) options to purchase 15,000 shares granted in 2008 to Mr. Koo as
a then independent director of Nam Tai were among the options repurchased by Nam Tai a few
months thereafter, in order to avoid the appearance that Mr. Koo received duplicate
compensation, all other compensation and benefits in 2009 and 2008 do not include $13,350
and $27,900, respectively, which were the dollar amounts for the options granted to Mr. Koo in
2009 and 2008, respectively, that Nam Tai recognized for financial statement reporting
purposes in accordance with FASB ASC 718. |
|
(5) |
|
Appointed as CEO of Nam Tai effective December 1, 2009. Compensation for 2008 through
November 30, 2009 was paid to Dr. Yeoh in other executive capacities. Other compensation and
benefits for 2010 includes an incentive bonus of $825,000, which the Company accrued for
2010, but is payable by the end of March 2011. |
|
(6) |
|
Appointed as Business Development President of Zastron Shenzhen in December 2009 and as Nam
Tais Chief Marketing Officer in April 1, 2010. Compensation for 2008 through November 2009
was paid to Mr. Chui in other executive capacities. Other compensation and benefits for 2010
includes an incentive bonus of $551,000, which the Company accrued for 2010, but is payable by
the end of March 2011. |
|
(7) |
|
Appointed as Vice CEO of the Zastron Shenzhen in November 2008. She was appointed as
Marketing Director of Zastron Shenzhen in April 1, 2010. |
52
Retirement Benefits
Since December 2000, we have enrolled all of our eligible employees located in Hong Kong into
the Mandatory Provident Fund. The following table provides amount of contributions that the Company
has made for the Mandatory Provident Retirement Funds to the individuals named in the Summary
Compensation Table above in accordance with Hong Kong law.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Value at |
|
Company |
|
|
of years |
|
December 31, 2010 of |
|
Payments |
|
|
of credited |
|
Accumulated |
|
During |
Name |
|
Service |
|
Benefits ($) |
|
2010 ($) |
Koo Ming Kown |
|
|
36.0 |
(1) |
|
|
N/A |
|
|
|
N/A |
|
Colin Yeoh |
|
|
7.3 |
|
|
|
3,865 |
|
|
|
1,548 |
|
Ivan Chui |
|
|
10.2 |
|
|
|
12,308 |
|
|
|
N/A |
|
Patinda Lei |
|
|
10.0 |
|
|
|
12,308 |
|
|
|
N/A |
|
|
|
|
(1) |
|
Prior to October 2010, Mr. Koos services as our employee were for Nam Tai Electronics, Inc., the ultimate parent,
and as such he is not eligible under Hong Kongs Mandatory Provident Retirement Fund or
Macaos retirement benefit scheme. Accordingly, no contributions have been made for Mr. Koo.
Although he was appointed President of our subsidiary, NTEEP, effective October 1, 2010,
contributions are not required for Mr. Koo under Hong Kongs Mandatory Provident Retirement
Fund because he is over 65 years old. |
Options Held by Executive Officers at December 31, 2010
None of our executive officers named in the Summary Compensation Table above held any option
to purchase shares of the Company as of December 31, 2010.
Board Practices
All directors hold office until our next annual meeting of shareholders, which generally is in
the summer of each calendar year, or until their respective successors are duly elected and
qualified or their positions are earlier vacated by resignation or otherwise. The full board
committee appoints members and chairman of board committees, who serve at the pleasure of the
Board. With the termination in October 2010 of the agreement relating to loss of office that Nam
Tai entered into in March 2009 with Mr. M. K. Koo in connection with his appointment as Nam Tais
Executive Chairman and Chief Financial Officer, Nam Tai no longer has any director service
contracts providing for benefits upon termination of service as a director or employee (if
employed). For information relating to the loss of office agreement with Mr. Koo and its
termination, see Item 7, Certain Relationships and Related Party Transactions on page 58
of this Report.
Annually, upon election to our Board at each Annual Meeting of Shareholders, we grant to
non-employee directors so elected options from one of our stock option plans to purchase 15,000
common shares. These options are exercisable at the fair market value of our shares on the date of
grant and are exercisable for three years from the date of grant, subject to sooner termination
based on the provisions of the applicable stock option plan.
Corporate Governance Guidelines
We have adopted a set of corporate governance guidelines which are available on our website at
http://www.namtai.com/ corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders also may request a free copy of our corporate governance guidelines in
print form by a making a request therefor to:
Kee Wong, Corporate Secretary
Telephone: (852) 2341 0273
e-mail: shareholder@namtai.com
|
|
|
Effective on April 1, 2011 |
|
Effective before April 1, 2011 |
Unit 1201, 12th Floor, Tower 1, Lippo Centre,
|
|
Units 5811-12, 58/F, The Center, |
89 Queensway, Admiralty, Hong Kong Facsimile: (852) 2263 1001
|
|
99 Queens Road Central, Central, Hong Kong Facsimile: (852) 2263 1223 |
NYSE Listed Company Manual Disclosure
As a foreign private issuer with shares listed on the NYSE, the Company is required by Section
303A.11 of the Listed Company Manual of the NYSE to disclose any significant ways in which its
corporate governance practices differ from those followed by U.S. domestic companies under NYSE
listing standards. Management believes that there are no significant ways in which Nam Tais
corporate governance standards differ from those followed by U.S. domestic companies under NYSE
listing standards. Management believes that there are no significant ways in which Nam Tais
corporate governance standards differ from those followed by U.S. domestic companies under NYSE
listing standards.
53
Committee Charters and Independence
The charters for our Audit Committee, Compensation Committee and Nominating / Corporate
Governance Committee are available on our website at http://www.namtai.com/corpgov/corpgov.htm. The
contents of this website address, other than the corporate governance guidelines, the code of
ethics and committee charters, are not a part of this Report. Stockholders may request a copy of
each of these charters from the address and phone number set forth above under Corporate
Governance Guideline.
Each of the members of our Board of Directors serving on our Audit Committee, Compensation
Committee and Nominating/Corporate Governance Committee are independent as that term is defined
in Corporate Governance Rules of the NYSE, other than Mr. Koo, our Chairman of the Board and an
Executive Director.
Nam Tai has adopted the directors independence criteria as established by NYSE Corporate
Governance Rules Section 303A.02.
An independent Non-Executive Director (INED) is one among other conditions is an individual:
|
|
|
who has no material relationship with the Company as affirmatively determined by the
Board; |
|
|
|
|
who is not nor has been within the last 3 years immediately prior to the date of his
appointment as the INED an employee of the Company, provided, however, employment as an
interim Chairman of the Board or Chief Executive Officer or other executive officer of
the Company shall not disqualify a director from being considered independent following
that employment; |
|
|
|
|
whose immediate family members(1) are not, nor have been within the last 3
years immediately prior to the date of his appointment as the INED, an executive officer
of the Company; |
|
|
|
|
who, or whose immediate family member(1), have not received greater than
US$120,000 in direct compensation from the Company, other than directors and
committees fees and pension or other forms of deferred compensation for prior service
(provided such compensation is not contingent in any way on continuous service), during
any twelve-month period within the last 3 years immediately prior to the date of his
appointment as the INED; |
|
|
|
|
who is neither a partner nor an employee of the internal or external audit firm of
the Company and within the last 3 years immediately prior to the date of his appointment
as the INED was neither a partner nor an employee of such firm and personally worked on
the Companys audit during that time; |
|
|
|
|
none of whose immediate family members (1) is (a) a current
partner of the internal or external audit firm of the Company or (b) a current employee
of the internal or external audit firm of the Company and personally works on the
Companys audit; |
|
|
|
|
none of whose immediate family members (1) have been, within the
last 3 years immediately prior to the date of his appointment as the INED, partners or
employees of the internal or external audit firm and personally worked on the Companys
audit during that time; and |
|
|
|
|
who, or whose immediate family members (1), are not, nor within
the last 3 years immediately prior to the date of his appointment as the INED, employed
as an executive officer of another company in which any of the Companys present
executives at the same time serves or served on that companys compensation committee;
and |
|
|
|
|
who is not an employee of, or whose immediate family members (1)
are not executive officers of, a company that has made payments to, or received payments
from, the Company for property or services in an amount which in any of the 3 fiscal
years prior to his appointment as the INED, exceeds the greater $1 million or 2% of such
other companys consolidated gross revenues. |
|
|
|
(1) |
|
An immediate family member includes a persons spouse, parents, children, siblings,
mothers- and father-in-law, sons-and daughters-in-law, brothers and sisters-in-law, and anyone
(other than domestic employees) who shares such persons home. |
Audit Committee
The primary duties of Nam Tais Audit Committee are reviewing, acting on and reporting to the
Board of Directors with respect to various auditing and accounting matters, including the selection
of independent registered public accounting firm, the scope of annual audits, the fees to be paid
to the independent registered public accounting firm and the performance of the independent
registered public accounting firm and accounting practices.
Our Audit Committee consists of three independent non-executive directors, Messrs. Waslen and
Chu and Dr. Lo. Mr. Waslen serves as the Chairman of the Audit Committee.
54
Compensation Committee
The primary duties of Nam Tais Compensation Committee are to recommend (i) the compensation
of the Companys Board of Directors; (ii) compensation of any directors who are executives of the
company and the chief executive officer with reference to achievement of corporate goals and
objectives established in the previous year; (iii) compensation of other senior management if
required by the Board; and (iv) equity based and incentive compensation programs of the Company.
Our Compensation Committee consisted of four independent non-executive directors in 2010:
Messrs. Chu, Waslen, Kellogg and Dr. Lo. Mr. Chu serves as the Chairman of the Compensation
Committee.
Nominating / Corporate Governance Committee
The primary duties of Nam Tais Nominating / Corporate Governance Committee consist of (i)
assisting the Board by actively identifying individuals qualified to become Board members
consistent with criteria approved by the Board; (ii) recommending to the Board the director
nominees for election at the next annual meeting of stockholders, the member nominees for the Audit
Committee, Compensation Committee and the Nominating / Corporate Governance Committee on an annual
basis; (iii) reviewing and recommending to the Board whether it is appropriate for such director to
continue to be a member of the Board in the event that there is a significant change in the
circumstance of any director that would be considered detrimental to the Companys business or
his/her ability to serve as a director or his/her independence; (iv) reviewing the composition of
the Board on an annual basis; (v) recommending to the Board a succession plan for the chief
executive officer and directors, if necessary; (vi) monitoring significant developments in the law
and practice of corporate governance and of the duties and responsibilities of directors of public
companies; (vii) establishing criteria to be used in connection with the annual self-evaluation of
the Nominating / Corporate Governance Committee; and (viii) developing and recommending to the
Board and administering the corporate governance guidelines of the Company.
Our Nominating / Corporate Governance Committee consists of four independent non-executive
directors: Messrs. Chu, Waslen, Kellogg and Dr. Lo. Dr. Lo serves as the Chairman of the
Nominating / Corporate Governance Committee.
Stock Options of Directors and Senior Management
During 2010, our non-employee directors were each granted options to purchase 15,000 shares of
the Company. These options (a total of 60,000 options) and an aggregate of 60,000 options granted
to our directors in 2009 (a total of 120,000) were outstanding and held by our directors as of
February 28, 2011. The directors options granted in 2009 are exercisable at $4.41 per share
through June 4, 2012 and the directors options granted in 2010 are exercisable at $4.45 per
share through June 2, 2013.
Share Ownership of Directors and Senior Management
For information regarding the numbers and percentage ownership of our shares, see
Item 7 Major Shareholders and Related Party Transactions Shares and Options Ownership
of Directors, Senior Management and Principal Shareholders.
Employee Stock Option Plans
Nam Tai has two stock option plans, its amended 2001 stock option plan and its 2006 stock
option plan. The 2006 stock option plan was approved by the Board on February 10, 2006 and approved
by shareholders at our 2006 Annual Meeting of Shareholders.
Under either the amended 2001 stock option plan or the 2006 New Plan, the terms and conditions
of individual grants may vary subject to the following: (i) the exercise price of incentive stock
options may not normally be less than market value on the date of grant; (ii) the term of incentive
stock options may not exceed ten years from the date of grant; (iii) the exercise price of an
option cannot be altered once granted unless such action is approved by shareholders in a general
meeting or results from adjustments to the Companys share capital and necessary to preserve the
intrinsic value of the granted options; and (iv) every non-employee director automatically receives
on an annual basis upon their election to the Board of Director at the annual shareholders
meeting, options to purchase 15,000 common shares at an exercise price equal to 100% of the fair
market value of the common shares on the date of grant.
At February 28, 2011, we had options outstanding to purchase 120,000 shares, held by
directors. Under our existing stock option plans, options to purchase 2,724,869 shares were
available for future grant.
The full text of our amended 2001 stock option plan, amended on July 30, 2004, was filed with
the SEC as Exhibit 4.18 to our Annual Report on Form 20-F for the year ended December 31, 2004. The
full text of our 2006 stock option plan was included as Exhibit 99.1 to our Form 6-K furnished to
the SEC on June 12, 2006. Amendments to our stock options were included with our Forms 6-K
furnished to the SEC on November 13, 2006.
Employees
The following table provides information concerning the number of Nam Tais employees, their
geographic location and their main category of activity during the years ended December 31, 2008,
2009 and 2010.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
Geographic Location |
|
Main Activity |
|
2008 |
|
2009 |
|
2010 |
Shenzhen, PRC |
|
Manufacturing |
|
|
5,225 |
|
|
|
3,734 |
|
|
|
4,153 |
|
|
|
Research and development |
|
|
310 |
|
|
|
156 |
|
|
|
96 |
|
|
|
Quality control |
|
|
484 |
|
|
|
274 |
|
|
|
297 |
|
|
|
Engineering |
|
|
277 |
|
|
|
168 |
|
|
|
158 |
|
|
|
Administration |
|
|
403 |
|
|
|
302 |
|
|
|
289 |
|
|
|
Marketing |
|
|
105 |
|
|
|
64 |
|
|
|
57 |
|
|
|
Support(1) |
|
|
238 |
|
|
|
160 |
|
|
|
155 |
|
|
|
Total Shenzhen |
|
|
7,042 |
|
|
|
4,858 |
|
|
|
5,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wuxi, PRC |
|
Manufacturing |
|
|
5 |
|
|
|
153 |
|
|
|
366 |
|
|
|
Research and development |
|
|
3 |
|
|
|
15 |
|
|
|
21 |
|
|
|
Quality control |
|
|
5 |
|
|
|
41 |
|
|
|
70 |
|
|
|
Engineering |
|
|
7 |
|
|
|
35 |
|
|
|
43 |
|
|
|
Administration |
|
|
15 |
|
|
|
76 |
|
|
|
81 |
|
|
|
Marketing |
|
|
4 |
|
|
|
7 |
|
|
|
11 |
|
|
|
Support(1) |
|
|
7 |
|
|
|
13 |
|
|
|
21 |
|
|
|
Total Wuxi |
|
|
46 |
|
|
|
340 |
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
|
Administration |
|
|
8 |
|
|
|
5 |
|
|
|
6 |
|
|
|
Total Hong Kong |
|
|
8 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macao |
|
Administration |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Total Macao |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan |
|
Administration |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Research & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Japan |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees |
|
|
7,104 |
|
|
|
5,203 |
|
|
|
5,824 |
|
|
|
|
(1) |
|
Employees categorized in support include personnel engaged in procurement, customs,
shipping and warehouse services. |
Our subsidiaries in Shenzhen, China have entered into collective agreements with their
respective trade unions. The collective agreements usually set out the minimum standard for the
wages, working hours and other benefits of the workers. The current collective agreement between
our subsidiaries and its trade union was renewed effective January 1, 2011 and we expect that it
will be renewed on an annual basis thereafter.
56
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Shares and Options Ownership of Directors, Senior Management and Principal Shareholders
The following table sets forth certain information known to us regarding the beneficial
ownership of our common shares as of February 28, 2011, by each person (or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934) known by us to own beneficially 5% or
more of our common shares; and each of our current directors and senior management.
|
|
|
|
|
|
|
|
|
|
|
Shares beneficially owned(1) |
Name |
|
Number |
|
Percent |
Peter R. Kellogg |
|
|
5,826,180 |
(2) |
|
|
13.0 |
% |
M. K. Koo |
|
|
5,242,786 |
(3) |
|
|
11.7 |
% |
I.A.T. Reinsurance Syndicate Ltd. |
|
|
5,224,800 |
(2) |
|
|
11.7 |
% |
Kahn Brothers LLC |
|
|
2,481,289 |
(4) |
|
|
5.5 |
% |
Ivan Chui |
|
|
295,870 |
|
|
|
|
* |
Colin Yeoh |
|
|
10,000 |
|
|
|
|
* |
Charles Chu |
|
|
32,500 |
(5) |
|
|
|
* |
Wing Yan (William) Lo |
|
|
30,000 |
(6) |
|
|
|
* |
Mark Waslen |
|
|
40,000 |
(5) |
|
|
|
* |
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
Percentage of ownership is based on 44,803,735 common shares outstanding as of February 28,
2011. In accordance with Rule 13d-3(d) (1) under the Securities Exchange Act of 1934, shares
not outstanding but which are the subject of options exercisable within 60 days of February
28, 2011 have been considered outstanding for the purpose of computing the percentage of Nam
Tais outstanding shares owned by the listed person holding such options, but are not
considered outstanding for the purpose of computing the percentage of shares owned by any of
the other listed persons. |
|
(2) |
|
Mr. Kellogg directly holds 571,380 common shares and indirectly, through I.A.T. Reinsurance
Syndicate Ltd., holds 5,224,800 common shares. I.A.T. Reinsurance Syndicate Ltd. is a Bermuda
corporation of which Mr. Kellogg is the sole holder of its voting stock. Mr. Kellogg disclaims
beneficial ownership of those shares. Mr. Kellogg also holds options to purchase 30,000
shares, which he received in 2009 and 2010 as a director of Nam Tai. |
|
(3) |
|
Mr. Koo beneficially owned 5,242,786 common shares jointly with Ms. Cho Sui Sin, Mr. Koos
wife. |
|
(4) |
|
Based on a Schedule 13G filed with the SEC by the beneficial holder on February 7, 2011. |
|
(5) |
|
Includes options to purchase 30,000 shares. |
|
(6) |
|
Consists of options to purchase 30,000 shares. |
To our knowledge, the Company is not directly or indirectly owned or controlled by
another corporation or corporations, by any foreign government or by any other natural or legal
person severally or jointly.
All of the holders of our common shares have equal voting rights with respect to the number of
common shares held. As of February 28, 2011, there were approximately 631 holders of record of our
common shares. According to information provided to us by our transfer agent, 612 holders of record
with addresses in the United States held 39,125,702 of our common shares at February 28, 2011.
The following table reflects the percentage ownership of our common shares during the last three
years by shareholders who beneficially owned 5% or more of our common shares during that period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
Ownership
(1) at February 28, |
|
|
2009 |
|
2010 |
|
2011 |
Peter R. Kellogg (2) |
|
|
12.9 |
% |
|
|
13.0 |
% |
|
|
13.0 |
% |
M. K. Koo |
|
|
11.7 |
% |
|
|
11.7 |
% |
|
|
11.7 |
% |
I.A.T. Reinsurance Syndicate Ltd. |
|
|
11.7 |
% |
|
|
11.7 |
% |
|
|
11.7 |
% |
Kahn Brothers LLC |
|
|
|
(3) |
|
|
|
(3) |
|
|
5.5 |
%(4) |
Royce & Associates, LLC |
|
|
5.1 |
% (5) |
|
|
5.2 |
% (6) |
|
|
4.6 |
%(7) |
Renaissance Technologies LLC and James H. Simons |
|
|
5.5 |
% (8) |
|
|
4.0 |
% (9) |
|
|
|
(10) |
|
|
|
(1) |
|
Based on 44,803,735 common shares outstanding on February 28, 2009, 2010 and 2011. In
accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, shares not
outstanding but which are the subject of options exercisable within 60 days of February 28,
2011 |
57
|
|
|
|
|
have been considered outstanding for the purpose of computing the percentage of Nam Tais
outstanding shares owned by the listed person holding such options, but are not considered
outstanding for the purpose of computing the percentage of shares owned by any of the other
listed persons. |
|
(2) |
|
Includes shares registered in the name of I.A.T. Reinsurance Syndicate Ltd., of which Mr.
Kellogg disclaims beneficial ownership. Mr. Kellogg also holds options to purchase 30,000
shares, which he received in 2009 and 2010 as a director of Nam Tai. |
|
(3) |
|
The holder did not make a filing with the SEC under Rule 13d-1 or 13d-2 of the Securities
Exchange Act of 1934 for its holdings in 2009 and 2010 and Nam Tai has no information
regarding the holders beneficial ownership of its shares for these years. |
|
(4) |
|
Based on a Schedule 13G filed with the SEC by the beneficial holder on February 7, 2011. |
|
(5) |
|
Based on Schedule 13G filed with the SEC by the beneficial holder on January 27, 2009. |
|
(6) |
|
Based on Amendment No. 1 to Schedule 13G filed with the SEC by the beneficial holder on
January 26, 2010. |
|
(7) |
|
Based on Amendment No. 2 to Schedule 13G filed with the SEC by the beneficial holder on
February 4, 2011. |
|
(8) |
|
Based on a Schedule 13G filed with the SEC by the beneficial holders on February 13, 2009. |
|
(9) |
|
Based on Amendment No. 1 to Schedule 13G filed with the SEC by the beneficial holders on
February 12, 2010. |
|
(10) |
|
The holder did not make a filing with the SEC under Rule 13d-1 or 13d-2 of the Securities
Exchange Act of 1934 after the filing referred to in footnote (9) to this table and Nam Tai
has no information regarding the holders beneficial ownership of its shares since the filing
referred to in footnote (9). |
The Company is not aware of any arrangements that may, at a subsequent date, result in a
change of control of the Company.
Certain Relationships and Related Party Transactions
In connection with the appointment of Mr. Koo as Nam Tais Chief Financial Officer in March
2009, Nam Tai and Mr. Koo agreed to the following compensation arrangements: (1) a salary of $1.00
per month; (2) employment benefits comparable to those provided to other members of senior
management, including insurance coverage, annual physical examination, golf club membership fees,
and payment of rental expenses of his apartment in Hong Kong up to $15,000 per month, plus all
miscellaneous fees; and (3) compensation in the amount of $3.0 million after completion of three
years service with Nam Tai as Chief Financial Officer.
The compensation payable to Mr. Koo for three-years service was not payable if Nam Tai
replaced Mr. Koo with a suitable candidate within such three-year period, i.e., before February 29,
2012. In October 2010, Nam Tai appointed Joseph Li as Chief Financial Officer. In November 2010, as
a consequence of his wifes health, Mr. Li resigned as Nam Tais Chief Financial Officer and Mr.
Koo again resumed in that position. However, despite his short tenure, Mr. Lis appointment as Nam
Tais Chief Financial Officer within the three-year period terminated the Companys obligation to
Mr. Koo at the end of three years service. Accordingly, the approximately $1.6 million
cumulatively accrued since March 2009 on the terminated obligation payable by the Company to Mr.
Koo at the end of three years were added to the Companys additional paid-in capital on Nam Tais
balance sheet at December 31, 2010 in accordance with the guidance under SAB Topics 1B.1 and 5T, FASB
ASC 718-10-15-4.
In view of Mr. Lis resignation, Mr. Koo resumed as Nam Tais Chief Financial Officer and he
and Nam Tai entered in an employment agreement effective October 1, 2010 regarding Mr. Koos
service as Nam Tais CFO. Under this employment agreement, Mr. Koos salary remains $12 per annum
($1.00 per month), Mr. Koo is entitled to receive perquisites consisting of (a) the same benefits
as other members of the senior management enjoy, (b) reimbursement for any reasonable miscellaneous
expenses, i.e. entertainment expenses, and (c) reimbursement for the actual amount that Mr. Koo
pays for the rental charges of his residential apartment in the amount of approximately $15,000
monthly, and all monthly utilities charges, such as for water, electricity telephone etc. Under the
employment agreement, in the event:
|
|
|
Nam Tais terminates Mr. Koo for any reason other than for his commission of a
criminal act, Nam Tai has agreed to pay Mr. Koo an amount which is equal to 36 months of
his basic monthly salary, all bonuses and allowances and so on that he is entitled at
the time of termination; and |
|
|
|
|
Mr. Koo wishes to terminate his employment with Nam Tai, except in cases of illness
or other health conditions that prevent him from working, he must provide Nam Tai with
one years prior written Notice. |
Effective at the same time as his above-described employment agreement with Nam Tai, Mr. Koo
and Nam Tais subsidiary, NTEEP, entered into an employment agreement for Mr. Koos services as
NTEEPs President (which are in addition to his duties as Nam Tais Chief Financial Officer). Under
his employment agreement with NTEEP, Mr. Koos is to receive (a) an annual salary of approximately
$850,000, (b) subject to the final decision of NTEEP, an annual bonus of 1.5 months of his
monthly salary of approximately $106,000, provided that Mr. Koo is an employee of the Company in
February of the following financial year, and (c) NTEEP is subject to the final decision of the
Company and (c) perquisites consisting of (i) the same benefits as other members of the senior
management of NTEEP enjoy and (ii) reimbursement for any reasonable miscellaneous expenses, i.e.
entertainment expenses. Under his employment agreement with NTEEP, the provisions in the event of
termination of employment with NTEEP are identical to the provisions described above in the event
of termination of employment with Nam Tai.
58
ITEM 8. FINANCIAL INFORMATION
Financial Statements
Our consolidated financial statements are included this Form 20-F in the F pages following
page 76.
Legal Proceedings
We are not a party to any material legal proceedings other than routine litigation incidental
to our business and we believe that there are no material legal proceedings pending that involve
our property.
Tax Dispute with Hong Kong Inland Revenue Department
Since the fourth quarter of 2007, several of our inactive subsidiaries have been involved in
tax disputes relating to tax years 1996 and later years with the Inland Revenue Department of Hong
Kong, or HKIRD, the income tax authority of the Hong Kong Government. These disputes are discussed
sequentially below.
(a) In October 2007, the HKIRD issued an assessment Determination against Nam Tai Trading
Company Limited (NTTC), a limited liability company incorporated in Hong Kong and an indirect
wholly owned subsidiary of the Company. This assessment relates to four tax years from 1996/1997 to
1999/2000. The taxes assessed in this proceeding amount to approximately $2.9 million.
After consulting Hong Kong tax experts, Nam Tai believed that the position of the HKIRD for
the years in question was incorrect as a matter of law and accordingly NTTC objected to the HKIRDs
assessment and appealed it to the Hong Kong Board of Review, an independent body established under
Hong Kong Inland Revenue Ordinance to hear appeals of HKIRD assessments. In December 2008, the
Board of Review dismissed NTTCs appeal. According to advice from Senior Counsel in Hong Kong, the
Court of Appeal in Hong Kong was unlikely to disturb the findings of the Board of Review.
Therefore, NTTC decided not to pursue an appeal.
(b) In addition to the assessment Determination of October 2007, in May 2008, the HKIRD issued
a writ against NTTC claiming taxes in the amount of approximately $3 million for the taxable years
from 1997/1998 to 2000/2001, partially overlapping the taxes against NTTC assessed by HKIRD in its
assessment Determination of October 2007. Nam Tais defense was struck out by the District Court in
Hong Kong. According to advice from Senior Counsel in Hong Kong, the Court of Appeal was unlikely
to disturb the findings of the District Court. Therefore, NTTC decided not to pursue an appeal
against the decision of the District Court.
(c) Furthermore, from May to November 2010, the HKIRD issued three separate writs against NTTC
claiming taxes and interests on unpaid taxes, in the amount of approximately $0.9 million, $1.1
million and $120,000 for the taxable years from 1996/1997 to 2003/2004, from 1996/1997, 1998/1999
and 1999/2000, and from 1996/1997 to 1999/2000, respectively.
(a) The HKIRD has also made estimated assessments against Nam Tai Group Management Limited
(NTGM), another wholly owned subsidiary of Nam Tai, which has been inactive since 2005. This
assessment, which relates to the tax years of 2001 and 2002, is in the amount of approximately
$172,000, including interest allegedly due thereon. on December 17, 2008, the Hong Kong tax
authorities issued a Writ of Summons through the District Court in Hong Kong claiming against NTGM
the amount of $172,000 as taxes allegedly due and payable, together with interest, to the Hong Kong
tax authorities for the fiscal years 2001 to 2002. NTGM filed its defense on January 29, 2009, but
on February 17, 2009, HKIRD filed papers seeking to strike out NTGMs defense. As NTGMs defense
was similar to the defense of NTTC and Senior Counsel had advised that NTTCs defense was not
arguable before the Court, NTGM accordingly agreed with HKIRD to allow Judgment to be entered
against NTGM by consent.
(b) On
February 8, 2011, HKIRD issued a writ against NTGM claiming taxes in the amount of
approximately $855,000 for the taxable years 2001/2002 to 2003/2004. NTGM has instructed Queens
Counsel in the United Kingdom to prepare the defence.
(a) On
September 14, 2009, the HKIRD issued a writ against Nam Tai Telecom (Hong Kong) Company
Limited (NTT), a dormant company of the Company, claiming taxes in the amount of approximately
$337,000 for the taxable year 2002/2003. Judgment has been entered against NTT.
(b) On
February 17, 2011, HKIRD issued a writ against NTT claiming taxes in the amount of
approximately $33,800 for the taxable year 2002/2003. NTT is considering the adoption of the
defence to be prepared by the Queens Counsel in the case of NTGM as discussed in paragraph (2)(b)
above.
59
|
(4) |
|
Expected Dispositions of Tax Disputes with Inactive or Dormant
Subsidiaries |
HKIRD has not accepted the explanations that it was necessary for these subsidiaries to
perform their individual functions for the whole Nam Tai group and therefore the management fees
paid by the Company by contract to support and finance all the necessary overhead expenses of these
subsidiaries (not located in Hong Kong) to contribute to the businesses representing the
administration and finance departmental functions from Vancouver, Canada for the whole group under
the corporate structure at that time were not regarded as necessary expenses by HKIRD.
Since it is believed that it will be difficult for these subsidiaries to continue cooperating
with HKIRD in the future, if the Company discontinues financing these subsidiaries, they will be
forced to liquidate in due course. As these subsidiaries do not conduct any business and have been
inactive or dormant for some time, and have either assets of limited book-value or no assets, Nam
Tai believes that there should be no material impact from these proceeding on the Companys
financial condition, liquidity or results of operations. Accordingly, no provision has been made
regarding these assessments in Nam Tais consolidated financial statements.
|
(5) |
|
Notices of Alleged Personal Liability for Additional Taxes Against Former
Directors and Officers for Signing NTTCs Tax Returns |
In addition to the legal cases against the inactive or dormant subsidiaries of the Company
discussed above, in January 2011, the HKIRD issued two Notices of intention to assess additional
taxes separately and personally against two former directors and officers of NTTC in the amounts of
approximately $1,540,000 for the taxable years 1996/1997 and 1999/2000 and $667,000 for the taxable
year 1997/1998. The taxable years involved in the controversy date from 13 to 15 years ago and
initial advice received from the Companys tax advisor is that it is very rare for tax authorities
to seek to attach personal liability on directors in this situation.
The former directors and officers to whom the Notices have been directed signed the tax
returns for and on behalf of NTTC and the HKIRD has by its Notices sought to hold them personally
liable for additional taxes purportedly on the basis that the relevant tax returns of NTTC were
incorrect and contained omissions and understatements in violation of the Inland Revenue Ordinance,
the governing tax law of Hong Kong.
The Company denies that any of NTTCs tax return filings were incorrect or contained omissions
and understatements in violation of the Inland Revenue Ordinance and believes that no incorrect tax
return was ever filed.
In January 2011, through its tax professionals, NTTC submitted an Objection Letter to the
HKIRD. In February 2011, the HKIRDs Commissioner replied that it will consider the Companys
objections and the representations contained therein before making a formal additional tax
assessment.
In the meantime, NTTC has sought (a) to further clarify with the HKIRDs regarding its tax
positions in an effort to resolve the apparent misunderstanding of the HKIRD and (b) advice from
Queens Counsel in the United Kingdom in the event a defense to formal proceedings becomes
necessary. At this time, Nam Tai is unable to assess the potential impact of these proceedings on
the Company. However, the Company may be required to indemnify and defend this matter for the
former directors and officers. If forced to defend, the Company plans to do so vigorously.
Nam Tai maintains directors and officers liability insurance against certain claims or
liabilities that may arise by reason of the status or service of its directors and officers as
such. We have informed Nam Tais directors and officers liability insurance carrier of the
HKIRDs Notices of assessment against NTTCs former directors and are awaiting its decision on
coverage.
Export Sales
The following table reflects the approximate percentages of our net sales to customers by
geographic area, based upon location of product delivery, for the periods years ended December 31,
2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
Geographic Areas |
|
2008 |
|
2009 |
|
2010 |
Japan |
|
|
2 |
% |
|
|
35 |
% |
|
|
55 |
% |
Hong Kong |
|
|
36 |
|
|
|
28 |
|
|
|
19 |
|
Europe |
|
|
22 |
|
|
|
12 |
|
|
|
12 |
|
United States |
|
|
17 |
|
|
|
10 |
|
|
|
10 |
|
China (excluding Hong Kong) |
|
|
14 |
|
|
|
11 |
|
|
|
3 |
|
North America (excluding United States) |
|
|
3 |
|
|
|
|
|
|
|
|
|
Korea |
|
|
2 |
|
|
|
|
|
|
|
|
|
Others |
|
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Dividends
Under our dividend policy, our Board of Directors determines and declares the amount of Nam
Tais dividend payable based on our operating income, current and estimated future cash, cash flow
and capital expenditure requirements at the time of the yearly declaration and such other factors
as Nam Tais Board believes reasonable and appropriate to consider in the determination and plans
to announce the declared amount of that dividend.
Before 2009, we had a long history of dividend payments. In February 2009 our board of
directors determined not to declare dividends in 2009 and in February 2010, Nam Tais Board
determined to refrain from declaring dividends again in 2010. The decisions not to declare
dividends in 2009 and 2010 were made in order to maintain cash reserves during the global economic
turmoil that negatively impacted Nam Tais business and operating results beginning in the second
half of 2008 and continuing through our first quarter ended March 31, 2010.
On October 29, 2010, following its review of our financial results for the first nine months
of 2010, its assessments of expectations concerning our continuing improvement, of prevailing
global economic conditions and the prospects of recovery, our operating income, current and
estimated future cash, cash flow and capital expenditure requirements, our Board of Directors
determined to resume the payment of quarterly dividends in 2011 according to the Schedule set forth
below.
|
|
|
|
|
|
|
|
|
Dividends declared for 2011 |
|
|
|
|
|
|
|
Dividend per |
|
Quarterly Payment |
|
Record Date |
|
Period Scheduled |
|
share |
|
Q1 2011 |
|
December 31, 2010 |
|
January 20 - 31, 2011 |
|
$ |
0.05 |
|
Q2 2011 |
|
March 31, 2011 |
|
April 20 - 30, 2011 |
|
|
0.05 |
|
Q3 2011 |
|
June 30, 2011 |
|
July 20 - 31, 2011 |
|
|
0.05 |
|
Q4 2011 |
|
September 30, 2011 |
|
October 20 - 31, 2011 |
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for full year 2011 |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
The Companys resumption of dividend payments for 2011 does not necessarily mean that
dividend payments will continue thereafter. Whether future dividends will be declared will depend
upon Nam Tais future growth and earnings, of which there can be no assurance, and the Companys
cash flow needs for future expansion, which growth, earning or cash flow needs may be adversely
affected by one or more of the factors discussed in Item 3. Key Information Risk
Factors in this Report. There can be no assurance that future cash dividends on the Companys
shares will be declared, what the amounts of such dividends will be or whether such dividends, once
declared for a specific period, will continue for any future period, or at all.
The following table sets forth the total cash dividends and dividends per share we have
declared during each of the five years in the period ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010(1) |
Total dividends declared (in thousands) |
|
$ |
66,497 |
|
|
$ |
37,635 |
|
|
$ |
39,427 |
|
|
$ |
|
|
|
$ |
8,961 |
|
Regular dividends per share |
|
$ |
1.44 |
|
|
$ |
0.84 |
|
|
$ |
0.88 |
|
|
$ |
|
|
|
$ |
0.20 |
|
Special dividends(2) |
|
$ |
0.08 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total dividends per share |
|
$ |
1.52 |
|
|
$ |
0.84 |
|
|
$ |
0.88 |
|
|
$ |
|
|
|
$ |
0.20 |
|
|
|
|
(1) |
|
Consists of dividend declared in 2010 payable quarterly in 2011. See the table above setting
forth the schedule for Nam Tais dividends declared in 2010 payable in and for 2011. |
|
(2) |
|
We declared special dividends in 2006 in celebration of thirtieth anniversary of Nam Tais
founding and its fifth consecutive quarter of record-breaking sales. |
ITEM 9. THE LISTING
Our shares are traded in the United States and have been listed on the New York Stock Exchange
since January 2003 under the symbol NTE.
The following table sets forth the highest and lowest closing sales prices for our shares for
each of the quarters in the three-year period ended December 31, 2010:
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Daily |
|
|
|
|
|
|
|
|
|
Daily |
|
|
|
|
|
|
|
|
|
Daily |
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
Trading |
|
|
High |
|
Low |
|
Volume(1) |
|
High |
|
Low |
|
Volume(1) |
|
High |
|
Low |
|
Volume(1) |
1st Quarter |
|
$ |
11.92 |
|
|
$ |
8.37 |
|
|
|
326,052 |
|
|
$ |
6.16 |
|
|
$ |
2.83 |
|
|
|
271,989 |
|
|
$ |
5.30 |
|
|
$ |
4.33 |
|
|
|
131,361 |
|
2nd Quarter |
|
|
13.31 |
|
|
|
9.62 |
|
|
|
197,453 |
|
|
|
4.71 |
|
|
|
3.80 |
|
|
|
189,192 |
|
|
|
5.04 |
|
|
|
4.12 |
|
|
|
81,622 |
|
3rd Quarter |
|
|
12.99 |
|
|
|
8.02 |
|
|
|
198,363 |
|
|
|
6.03 |
|
|
|
4.05 |
|
|
|
141,355 |
|
|
|
4.95 |
|
|
|
4.07 |
|
|
|
78,016 |
|
4th Quarter |
|
|
8.16 |
|
|
|
4.79 |
|
|
|
248,775 |
|
|
|
5.96 |
|
|
|
5.10 |
|
|
|
99,584 |
|
|
|
6.82 |
|
|
|
4.61 |
|
|
|
164,645 |
|
|
|
|
(1) |
|
Determined by dividing the sum of the reported daily volume for the quarter by the number
of trading days in the quarter. |
The following table sets forth the highest and lowest closing sale prices of our shares
for each of the last five years in the period ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily |
Year ended December 31, |
|
High |
|
Low |
|
Trading Volume(1) |
2010
|
|
$6.82
|
|
$4.07
|
|
113,831 |
2009
|
|
6.16
|
|
2.83
|
|
174,327 |
2008
|
|
13.31
|
|
4.79
|
|
241,672 |
2007
|
|
15.28
|
|
11.02
|
|
238,018 |
2006
|
|
24.27
|
|
11.43
|
|
305,468 |
|
|
|
(1) |
|
Determined by dividing the sum of the reported daily volume for the year by the number of
trading days in the year. |
The following table sets forth the highest and lowest closing sale prices of our shares
during each of the most recent six months in the period end February 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily |
Month ended |
|
High |
|
Low |
|
Trading Volume(1) |
February 28, 2011 |
|
$ |
7.84 |
|
|
$ |
6.45 |
|
|
|
148,121 |
|
January 31, 2011 |
|
|
6.61 |
|
|
|
6.28 |
|
|
|
79,730 |
|
December 31, 2010 |
|
|
6.82 |
|
|
|
6.15 |
|
|
|
137,709 |
|
November 30, 2010 |
|
|
6.49 |
|
|
|
5.96 |
|
|
|
302,738 |
|
October 31, 2010 |
|
|
4.89 |
|
|
|
4.61 |
|
|
|
54,771 |
|
September 30, 2010 |
|
|
4.88 |
|
|
|
4.62 |
|
|
|
53,267 |
|
|
|
|
(1) |
|
Determined by dividing the sum of the reported daily volume for the month by the number of
trading days in the month. |
ITEM 10. ADDITIONAL INFORMATION
Share Capital
Our authorized capital consists of 200,000,000 common shares, $0.01 par value per share. As of
February 28, 2011, we had 44,803,735 common shares outstanding.
Memorandum and Articles of Association
On December 5, 2007, we filed with the Registrar of Corporate Affairs of the British Virgin
Islands, our jurisdiction of organization, an amended Memorandum and Articles of Associations
(collectively our Charter), the instruments governing a company organized under the law of the
British Virgin Islands, which are comparable in purpose and effect to certificates or articles of
incorporation and bylaws of corporations organized in a state of the United States. Our Charter,
which became effective on December 5, 2007, amended and restated our Memorandum and Articles of
Association, as amended, theretofore in effect. The purpose of amending our Charter was to:
1. Make our shares eligible for a direct registration system operated by a securities
depository in accordance with Section 501.00 (B) of the rules of the New York Stock Exchange that
became effective on January 1, 2008 as to companies, like us, having equity securities listed on
the New York Stock Exchange prior to January 1, 2007;
2. Make various consequential amendments to our Memorandum and Articles of Association so as
to make them consistent with the BVI Business Companys Act, 2004, as amended (the Act), the Act
becoming effective as to us on January 1, 2007,
62
superseding as of that date the International Business Companies Act, 1984, the relevant BVI
legislation which had previously governed us;
3. Eliminate our authority to issue bearer shares that would otherwise be permitted under BVI
law, our directors believed to be inappropriate for a company with shares publicly traded in the
United States;
4. Authorize our Chief Executive Officer, Chief Financial Officer and our other officers
designated by the Chairman of the Board of Directors (or the directors in the absence of
designation by the Chairman of the Board of Directors), to serve as the Chairman of all meetings of
shareholders in the absence of the Chairman of the Board of Directors; and
5. Make certain other changes as are indicated Memorandum and Articles of Association.
Under our Charter, holders of our shares:
|
|
|
are entitled to one vote for each whole share on all matters to be voted upon by
shareholders, including the election of directors; |
|
|
|
|
do not have cumulative voting rights in the election of directors; |
|
|
|
|
are entitled to receive dividends if and when declared by our board of directors out
of funds legally available under British Virgin Islands law; and |
|
|
|
|
do not have preemptive rights to purchase any additional, unissued common shares. |
Under our Charter or applicable BVI law
|
|
|
all of common shares are equal to each other with respect to voting and dividend
rights; and |
|
|
|
|
in the event of our liquidation, all assets available for distribution to the holders
of our common shares are distributable among them according to their respective
holdings; or |
Pursuant to our Charter and pursuant to the laws of the British Virgin Islands, our Board of
Directors without shareholder approval, may amend our Memorandum and Articles of Association
except:
|
|
|
to restrict the rights or powers of our shareholders to amend the Memorandum or the
Articles; |
|
|
|
|
to change the percentage of shareholders required to pass a resolution of
shareholders to amend our Charter; or |
|
|
|
|
in circumstances where our Charter cannot be amended by the Shareholders; or |
|
|
|
|
to authorize the Company to issue, or authorize the issuance of, bearer shares of
capital stock. |
The power of our Board of Directors to amend our Memorandum and Articles of Association
continues to include amendments to increase or reduce our authorized capital stock. Our ability to
amend our Memorandum and Articles of Association without shareholder approval in this fashion could
have the effect of delaying, deterring or preventing our change in control, including one involving
a tender offer to purchase our common shares or to engage in a business combination at a premium
over the then current market price of our shares.
We have never had any class of stock outstanding other than our common shares nor have we ever
changed the voting rights with respect to our common shares.
Our registered office is at P.O. Box 3342, Road Town, Tortola, British Virgin Islands and we
have been assigned company number 3805.
As set forth in Clause 4 of our Memorandum of Association included in our Charter, our object
or purpose is to engage in any act or activity that is not prohibited under British Virgin Islands
law.
The following summarizes the import of certain of the Regulations from our Articles of
Association, included in our Charter:
|
|
|
Regulation 53 provides that a director may be counted as one of a quorum in respect
of any contract or arrangement in which the director is materially interested or makes
with the Company. |
|
|
|
|
Regulation 46 allows the directors to vote compensation to themselves in respect of
services rendered to us. |
|
|
|
|
Regulation 62 provides that the directors may by resolution exercise all the powers
on our behalf to borrow money and to mortgage or charge our undertakings and property or
any part thereof, to issue debentures, debenture stock and other securities whenever we
borrow money or as security for any of our debts, liabilities or obligations or those of
any third party. These borrowing powers can be altered by an amendment to the Articles. |
63
|
|
|
Regulation 78 of the Articles allows us to deduct from any shareholders dividends
amounts owing to us by that shareholder. |
|
|
|
|
Regulation 8(b) provides that we can redeem shares at fair market value from any
shareholder against whom we have a judgment debt. |
|
|
|
|
Regulation 5(a) of the Articles provides that the Companys registered shares may be
certificated or uncertificated and shall be entered in the register of members of the
Company and registered as they are issued. |
|
|
|
|
Regulation 7 provides that without prejudice to any special rights previously
conferred on the holders of any existing shares, any of our shares may be issued with
such preferred, deferred or other special rights or such restrictions, whether in regard
to dividends, voting, return of capital or otherwise as the directors may from time to
time determine. |
|
|
|
|
Regulation 9 provides that if at any time the capital stock is divided into different
classes or series of shares, the rights attached to any class or series may be varied
with the consent in writing of the holders of not less than three-fourths of the issued
shares of any other class or series of shares which may be affected by such variation. |
|
|
|
|
Regulations 22 to 26 of our Articles of Association and under applicable BVI law
provide that directors may convene meetings of our shareholders at such times and in
such manner and places as the directors consider necessary or desirable, and they shall
convene such a meeting upon the written request of shareholders holding more than 30% of
the votes of our outstanding voting shares. Other than providing, if requested,
reasonable proof of a holders status as a holder of our shares as of the applicable
record date, there is no condition to the admission of a shareholder or his or her proxy
holder to our meetings of shareholders. |
There is no provision in our Charter for the mandatory retirement of directors. Directors are
not required to own our shares in order to serve as directors.
British Virgin Islands law and our Charter impose no limitations on the right of nonresident
or foreign owners to hold or vote our securities.
There are no provisions in our Charter governing the ownership threshold above which
shareholder ownership must be disclosed.
We filed our Charter with the SEC as Exhibit 1.1 to an Amendment to Form 8-A (Amendment No. 1)
on December 13, 2007 and the provisions of our Charter may be reviewed by examining that filing.
Transfer Agent
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016,
U.S.A., serves as transfer agent and registrar for our shares in the United States.
Material Contracts
The following summarizes each material contract, other than contracts entered into in the
ordinary course of business, to which Nam Tai or any subsidiary of Nam Tai is a party, for the two
years immediately preceding the filing of this report:
On July 10, 2009, Nam Tai subsidiary, Wuxi Zastron Precision-Flex Company Limited, and Yixing
Building Engineering & Installation Co. Ltd entered into a Supplemental Plant Construction
Contractors Agreement, whereby Wuxi Zastron Precision-Flex agreed to pay RMB 201 million
(approximately $29.4 million at the date of the agreement) for electrical engineering services to
be provided Yixing Building Engineering in connection with the new Wuxi Factory.
On August 6, 2009, Nam Tais subsidiary, Namtai Electronic (Shenzhen) Company Ltd renewed a
Banking Facilities Letter dated August 11, 2008 with HSBC Bank (China) Company Limited for Namtai
Electronic (Shenzhen) Company Ltd to receive import facilities of up to $5,000,000.
On June 29, 2010, Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co., Ltd. entered into a
Banking Facilities Letter with China Construction Bank Corporation, Shenzhen Branch for Namtai
Electronic (Shenzhen) Co., Ltd. to receive import facilities of up to $6,000,000.
On October 28, 2010, Nam Tais subsidiary, Zastron Electronic (Shenzhen) Co. Ltd. entered into
a Banking Facilities Letter with HSBC Bank (China) Company Limited for Zastron Electronic
(Shenzhen) Co. Ltd. to receive banking facilities of up to $5,000,000.
64
On November 15, 2010, Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co. Ltd. signed a
guaranty in favor of HSBC Bank (China) Company Limited with maximum liability of RMB40,000,000
(approximately $6,000,000 on November 15, 2010) for the banking facilities granted to Zastron
Electronic (Shenzhen) Co. Ltd.
On November 25, 2010, Nam Tai and M. K. Koo entered into an employment agreement, effective on
October 1, 2010, for Mr. Koos services as Nam Tais Chief Financial Officer.
On November 25, 2010, Nam Tais subsidiary, Nam Tai Electronic & Electrical Products Limited,
or NTEEP, and M. K. Koo entered into an employment agreement, effective on October 1, 2010, for Mr.
Koos services as NTEEPs President.
Exchange Controls
There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of Nam Tais securities or on the conduct of our operations in Hong
Kong, Cayman Islands or the British Virgin Islands, where Nam Tai is incorporated. Other
jurisdictions in which we conduct operations may have various exchange controls. With respect to
our subsidiaries in China, with the exception of a requirement that 11% of profits be reserved for
future developments and staff welfare, there are no restrictions on the payment of dividends and
the removal of dividends from China once all taxes are paid and assessed and losses, if any, from
previous years have been made good. We believe such restrictions will not have a material effect on
our liquidity or cash flows.
Taxation
United States Federal Income Tax Consequences
The discussion below is for general information only and is not, and should not be interpreted
to be, tax advice to any holder of our common shares. Each holder or a prospective holder of our
common shares is urged to consult his, her or its own tax advisor.
General
This section is a general summary of the material United States federal income tax
consequences to U.S. Holders, as defined below, of the ownership and disposition of our common
shares as of the date of this report. This summary is based on the provisions of the Internal
Revenue Code of 1986, as amended, or the Code, the applicable Treasury regulations promulgated and
proposed thereunder, judicial decisions and current administrative rulings and practice, all of
which are subject to change, possibly on a retroactive basis. The summary applies to you only if
you hold our common shares as a capital asset within the meaning of Section 1221 of the Code. In
addition, this summary generally addresses certain U.S. federal income tax consequences to U.S.
Holders if we were to be classified as a PFIC. The United States Internal Revenue Service, or the
IRS, may challenge the tax consequences described below, and we have not requested, nor will we
request, a ruling from the IRS or an opinion of counsel with respect to the United States federal
income tax consequences of acquiring, holding or disposing of our common shares. This summary does
not purport to be a comprehensive description of all the tax considerations that may be relevant to
the ownership of our common shares. In particular, the discussion below does not cover tax
consequences that depend upon your particular tax circumstances nor does it cover any state, local
or foreign law, or the possible application of the United States federal estate or gift tax. You
are urged to consult your own tax advisors regarding the application of the United States federal
income tax laws to your particular situation as well as any state, local, foreign and United States
federal estate and gift tax consequences of the ownership and disposition of the common shares. In
addition, this summary does not take into account any special United States federal income tax
rules that apply to a particular U.S. or Non-U.S. holder of our common shares, including, without
limitation, the following:
|
|
|
a dealer in securities or currencies; |
|
|
|
|
a trader in securities that elects to use a market-to-market method of accounting for
its securities holdings; |
|
|
|
|
a financial institution or a bank; |
|
|
|
|
an insurance company; |
|
|
|
|
a tax-exempt organization; |
|
|
|
|
a person that holds our common shares in a hedging transaction or as part of a
straddle or a conversion transaction; |
|
|
|
|
a person whose functional currency for United States federal income tax purposes is
not the U.S. dollar; |
|
|
|
|
a person liable for alternative minimum tax; |
|
|
|
|
a person that owns, or is treated as owning, 10% or more, by voting power or value,
of our common shares; |
|
|
|
|
certain former U.S. citizens and residents who have expatriated; or |
|
|
|
|
a person who receives our shares pursuant to the exercise of employee stock options
or otherwise as compensation. |
65
U.S. Holders
For purposes of the discussion below, you are a U.S. Holder if you are a beneficial owner of
our common shares who or which is:
|
|
|
an individual United States citizen or resident alien of the United States (as
specifically defined for United States federal income tax purposes); |
|
|
|
|
a corporation, or other entity treated as a corporation for United States federal
income tax purposes, created or organized in or under the laws of the United States, any
State or the District of Columbia; |
|
|
|
|
an estate whose income is subject to United States federal income tax regardless of
its source; or |
|
|
|
|
a trust (x) if a United States court can exercise primary supervision over the
trusts administration and one or more United States persons are authorized to control
all substantial decisions of the trust or (y) if it was in existence on August 20, 1996,
was treated as a United States person prior to that date and has a valid election in
effect under applicable Treasury regulations to be treated as a United States person. |
Distributions on Our Common Shares
If you are a U.S. Holder of common shares in a taxable year in which we are a PFIC (and any
subsequent taxable years), then this section generally may not apply to you instead, see PFIC
Considerations, below. Otherwise, generally, the gross amount of any cash distribution or the
fair market value of any property distributed that you receive with respect to our common shares
will be subject to tax as ordinary income to the extent such distribution does not exceed our
current or accumulated earnings and profits, or E&P, as calculated for United States federal income
tax purposes. Such income will be included in your gross income on the date of receipt. Subject to
certain limitations, dividends paid to non-corporate U.S. Holders, including individuals, may be
eligible for a reduced rate of taxation if we are a qualified foreign corporation for U.S.
federal income tax purposes. A qualified foreign corporation includes (i) a foreign corporation
that is eligible for the benefits of a comprehensive income tax treaty with the United States that
includes an exchange of information program, and (ii) a foreign corporation if its stock with
respect to which a dividend is paid is readily tradable on an established securities market within
the United States, but does not include an otherwise qualified corporation that is a PFIC. To the
extent any distribution exceeds our E&P, such distribution will first be treated as a tax-free
return of capital to the extent of your adjusted tax basis in our common shares and will be applied
against and reduce such basis on a dollar-for-dollar basis (thereby increasing the amount of gain
and decreasing the amount of loss recognized on a subsequent disposition of such shares). To the
extent that such distribution exceeds your adjusted tax basis in our common shares, the
distribution will be treated as capital gain. Because we are not a United States corporation, a
dividends-received deduction generally will not be allowed to corporations with respect to
dividends paid by us.
We appear to have been a PFIC for 2010 and, based on our current operations and market
conditions, we may be a PFIC for 2011 see PFIC Considerations below and the discussion of
certain PFIC issues in Risk Factors above. Therefore, the reduced rate of taxation available to
U.S. Holders of a qualified foreign corporation may not be available for 2010 and may not be
available for 2010.
For United States foreign tax credit limitation purposes, dividends received on our common
shares will be treated as foreign source income and will generally be passive category income, or
in the case of certain holders, general category income. You may be eligible, subject to a number
of complex limitations, to claim a foreign tax credit in respect of foreign withholding taxes, if
any, imposed on dividends paid on our common shares. The rules governing United States foreign tax
credits are complex, and we recommend that you consult your tax advisor regarding the applicability
of such rules to you.
Sale, Exchange or Other Disposition of Our Common Shares
If you are a U.S. Holder of common shares in a taxable year in which we are a PFIC (and any
subsequent taxable years), then this section will not apply to you instead, see PFIC
Considerations, below. Otherwise, generally, in connection with the sale, exchange or other
taxable disposition of our common shares:
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you will recognize capital gain or loss equal to the difference (if any) between: |
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the amount realized on such sale, exchange or other taxable disposition and |
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your adjusted tax basis in such common shares (your adjusted tax basis in the shares
you hold generally will equal your U.S. dollar cost of such shares); |
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such gain or loss will be long-term capital gain or loss if your holding period for
our common shares is more than one year at the time of such sale or other disposition; |
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such gain or loss will generally be treated as United States source for United States
foreign tax credit purposes; and |
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your ability to deduct capital losses is subject to limitations. |
PFIC Considerations
A determination of a corporations PFIC status must be made annually. Based upon an analysis
of the book value of our assets and the total market value, or market cap, of our shares at the end
of each quarter during 2010, we appear to be classified as a PFIC for 2010, and based on our
current operations and market conditions, we may be a PFIC for 2011. A foreign corporation will be
treated as a PFIC for United States federal income tax purposes if, after applying relevant
look-through rules with respect to the income and assets of subsidiaries, 75% or more of its gross
income consists of certain types of passive income (the income test) or 50% or more of the gross
value of its assets is attributable to assets that produce passive income or are held for the
production of passive income (the asset test). for this purpose, passive income generally includes
dividends, interest, royalties, rents (other than rents and royalties derived in the active conduct
of a trade or business), annuities and gains from assets that produce passive income.
As a result of the classification as a PFIC, a special tax regime would apply to both (a) any
excess distribution by us (generally, the US Holders ratable share of distributions in any year
that are greater than 125% of the average annual distributions received by such US Holder in the
three preceding years or its holding period, if shorter) and (b) any gain recognized on the sale or
other disposition of your ordinary shares. Under the PFIC regime, any excess distribution and
recognized gain would be treated as ordinary income. The U.S. federal income tax on such ordinary
income is determined under the following steps: (i) the amount of the excess distribution or gain
is allocated ratably over the US Holders holding period for our ordinary shares; (ii) tax is
determined for amounts allocated to the first year in the holding period in which we were
classified as a PFIC and all subsequent years (except the year in which the excess distribution was
received or the sale occurred) by applying the highest applicable tax rate in effect in the year to
which the income was allocated; (iii) an interest charge is added to this tax calculated by
applying the underpayment interest rate to the tax for each year determined under the preceding
sentence from the due date of the income tax return for such year to the due date of the return for
the year in which the excess distribution or sale occurs; and (iv) amounts allocated to a year
prior to the first year in the US Holders holding period in which we were classified as a PFIC or
to the year in which the excess distribution or the disposition occurred are taxed as ordinary
income and no interest charge applies.
If we were treated as a PFIC, a U.S. Holder of our shares would generally be subject to the
PFIC rules described above with respect to distributions by us, and dispositions by us of the stock
of, any direct or indirect subsidiaries of ours that are classified as PFICs under either the
asset test or the income test, as if such holder received directly its pro-rata share of either
the distribution or proceeds from such disposition.
A U.S. Holder may generally avoid the PFIC regime by making a qualified electing fund
election which generally provides that, in lieu of the foregoing treatment, our earnings, on a pro
rata basis, would be currently included in their gross income. However, we may be unable or
unwilling to provide information to our U.S. Holders that would enable them to make a qualified
electing fund election; thus, such election may not be available.
In addition, U.S. Holders may generally avoid the PFIC regime by making the mark-to-market
election with respect to our common shares as long as we are a PFIC and our common shares are
considered to be readily tradable on an established securities market within the United States.
Although a U.S. Holder may be eligible to make a mark-to-market election with respect to our
shares, no such election may be made with respect to the stock of any of our subsidiaries that a
U.S. Holder is treated as owning, if such stock is not marketable. Hence, the mark-to-market
election generally would not be effective to eliminate the interest charge described above with
respect to deemed dispositions of a subsidiary PFIC stock or distributions from a subsidiary PFIC.
Marking-to-market, in this context, means including in ordinary income each taxable year the
excess, if any, of the fair market value of our common shares over your tax adjusted basis in such
common shares as of the end of each year. This mark-to-market election generally enables a U.S.
Holder to avoid the deferred interest charge that would otherwise be imposed on them if we were to
be classified as a PFIC.
Generally, a shareholder in a PFIC must file IRS Form 8621 for each tax year in which that
shareholder: (1) recognizes gain on a direct or indirect disposition of a PFIC stock; (2) receives
certain distributions from a PFIC; or (3) makes reportable elections with regard to the PFIC. In
addition, under the recently enacted legislation, shareholders of a PFIC may be required to file
information with the IRS with regard to their ownership of shares in the PFIC even in the absence
of any of the above described gains, distributions or elections. U.S. Holders are urged to consult
with their own tax advisors regarding the possible impact of that recent legislation on their
filing obligations.
An actual determination of PFIC status is factual in nature. Given the complexity of the
issues regarding our classification as a PFIC, U.S. Holders are urged to consult their own tax
advisors for guidance as to our PFIC status.
Non-U.S. Holders
If you are not a U.S. Holder, you are a Non-U.S. Holder.
Distributions on Our Common Shares
You generally will not be subject to U.S. federal income tax, including withholding tax, on
distributions made on our common shares unless:
67
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you conduct a trade or business in the United States and |
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the distributions are effectively connected with the conduct of that trade or
business (and, if an applicable income tax treaty so requires as a condition for you to
be subject to U.S. federal income tax on a net income basis in respect of income from
our common shares, such distributions are attributable to a permanent establishment that
you maintain in the United States). |
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If you meet the two tests above, you generally will be subject to tax in respect of
such dividends in the same manner as a U.S. Holder, as described above. In addition, any
effectively connected dividends received by a non-U.S. corporation may also, under
certain circumstances, be subject to an additional branch profits tax at a 30 percent
rate or such lower rate as may be specified by an applicable income tax treaty. |
Sale, Exchange or Other Disposition of Our Common Shares
Generally, you will not be subject to U.S. federal income tax, including withholding tax, in
respect of gain recognized on a sale or other taxable disposition of our common shares unless:
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your gain is effectively connected with a trade or business that you conduct in the
United States (and, if an applicable income tax treaty so requires as a condition for
you to be subject to U.S. federal income tax on a net income basis in respect of gain
from the sale or other disposition of our common shares, such gain is attributable to a
permanent establishment maintained by you in the United States), or |
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you are an individual Non-U.S. Holder and are present in the United States for at
least 183 days in the taxable year of the sale or other disposition, and certain other
conditions exist. |
You will be subject to tax in respect of any gain effectively connected with your conduct of a
trade or business in the United States generally in the same manner as a U.S. Holder, as described
above. Effectively connected gains realized by a non-U.S. corporation may also, under certain
circumstances, be subject to an additional branch profits tax at a rate of 30 percent or such
lower rate as may be specified by an applicable income tax treaty.
Backup Withholding and Information Reporting
Payments, including dividends and proceeds of sales, in respect of our common shares that are
made in the United States or by a United States related financial intermediary will be subject to
United States information reporting rules. In addition, such payments may be subject to United
States federal backup withholding tax. You will not be subject to backup withholding provided that:
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you are a corporation or other exempt recipient, or |
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you provide your correct United States federal taxpayer identification number and
certify, under penalties of perjury, that you are not subject to backup withholding. |
Amounts withheld under the backup withholding rules may be credited against your United States
federal income tax, and you may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS in a timely manner.
Documents on Display
Nam Tai is subject to the information requirements of the Securities and Exchange Act of 1934,
and, in accordance with the Securities Exchange Act of 1934, Nam Tai files annual reports on Form
20-F within six months of its fiscal year end, and submits other reports and information under
cover of Form 6-K with the SEC. You may read and copy this information at the SECs public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Recent filings and reports are
also available free of charge though the EDGAR electronic filing system at www.sec.gov. You can
also request copies of the documents, upon payment of a duplicating fee, by writing to the public
reference section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room or accessing documents through EDGAR. As a foreign private
issuer, Nam Tai is exempt from the rules under the Securities Exchange Act of 1934 prescribing the
furnishing and content of proxy statements to shareholders.
68
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Fluctuations and foreign Exchange Risk
Beginning on December 1, 1996, the RMB became fully convertible under the current accounts.
There are no restrictions on trade-related foreign exchange receipts and disbursements in China.
Capital account foreign exchange receipts and disbursements are subject to control, and
organizations in China are restricted in foreign currency transactions that must take place through
designated banks.
We sell a majority of our products in U.S. dollars and pay for our material components in
Japanese yen, U.S. dollars, Hong Kong dollars, and RMB. We pay labor costs and overhead expenses in
RMB, the currency of China (the basic unit of which is the yuan), Hong Kong dollars and Japanese
yen.
Hong Kong Dollar
The exchange rate of the Hong Kong dollars to the U.S. dollars have been fixed by the Hong
Kong government since 1983 at approximately HK$7.80 to US$1.00, through the currency-issuing banks
in Hong Kong and, accordingly, has not in the past presented a currency exchange risk. This could
change in the future if those in Hong Kong arguing for a floating currency system prevail in the
ongoing debate over whether to continue to peg the Hong Kong dollars to the U.S. dollars.
Japanese Yen
We face the potential of a material foreign exchange risk resulting from our costs and
expenses we pay in Japanese yen. The following chart shows the percentage of our total costs paid
in yen and our total sales made in yen during the years ended December 31, 2008, 2009 and 2010.
Our business and operating results could be materially and adversely affected in the event of
a severe increase in the value of the Japanese yen to the U.S. dollar at a time when our sales made
in Japanese yen are insufficient to cover our material purchases in Japanese yen. for further
information regarding the historical effects on our financial results of fluctuations in the
exchange rate of the yen to the US dollar, please see discussion regarding the yen to US dollar
exchange rate in Item 3 Risk Factors under the heading: Our operating costs and
financial results have been adversely affected by the appreciation of RMB to the US dollar. A
future appreciation of the Japanese yen against the U.S. dollar would increase our costs and could
adversely affect our margins and financial results unless we made sufficient sales in Japanese yen
to offset against costs and expenses, including material purchases, we make in Japanese yen,
on page 15 of this Report.
69
Chinese Renminbi
Approximately 17% of our total costs and expenses and 7% of our material costs in 2010 were in
RMB. The appreciation of RMB against U.S. dollars in 2010 has increased our costs when translated
into U.S. dollars and could adversely affect our margin.
Immediately prior to July 21, 2005, the exchange rate between the RMB and the U.S. dollars had
varied by less than one-tenth of 1%. However, on July 21, 2005, the Peoples Bank of China adjusted
the exchange rate of RMB to the U.S. dollars by linking the RMB to a basket of currencies and
simultaneously setting the exchange rate of RMB to U.S. dollars, from 1:8.27, to a narrow band of
around 1:8.11, resulting in an approximate 1.9% appreciation in the value of the RMB against the
U.S. dollars at the end of 2005 from the July 21, 2005 RMB adjustment, a 3.3% appreciation at the
end of 2006 as compared to the end of 2005 and a further 6.4% appreciation at the end of 2007 as
compared to the end of 2006. As of the end of year 2008, there was a further 6.6% appreciation as
compared to the year end of 2007. In 2009, the exchange rate of RMB to U.S. dollars was relatively
stable. As at the end of year 2010, the RMB had further appreciated by 3.3% as compared to the year
end of 2009.
If the RMB had been 1% and 5% less valuable against the U.S. dollars than the actual rate as
of December 31, 2010, which was used in preparing our audited consolidated financial statements as
of and for the year ended December 31, 2010, our net asset value, as presented in U.S. dollars,
would have been reduced by $760,000 and $3.8 million, respectively. Conversely, if the RMB had been
1% and 5% more valuable against the U.S. dollars as of that date, then our net asset value would
have increased by $760,000 and $3.8 million, respectively. Had rates of the RMB been 10% higher
relative to the U.S. dollars during 2010, our operating expenses would have increased $7.6 million
as a result of net assets denominated in RMB as of December 31, 2010. For additional information regarding the
fluctuation of the exchange rate of the RMB to the U.S. dollar, please see the discussion regarding
the RMB to US dollar exchange rate in Item 3 Risk Factors under the heading: Our
operating costs and financial results have been adversely affected by the appreciation of RMB to
the US dollar.
Our results of operations may be negatively impacted by fluctuations in the exchange rate
between the U.S. dollars and RMB. If the RMB continues to appreciate against the U.S. dollars, our
operating expenses will increase and, consequently, our operating margins and net income will
likely decline if we do not manufacture products that allow for greater margins than those we have
experienced historically.
Currency Hedging
We may elect to hedge our currency exchange risk when we judge that such action may be
required. In an attempt to lower the costs of expenditures in foreign currencies, we may enter into
forward contracts or option contracts to buy or sell foreign currency(ies) against the U.S. dollars
through one of our banks. As a result, we may suffer losses resulting from the fluctuation between
the buy forward exchange rate and the sell forward exchange rate, or from the price of the option
premium.
As of December 31, 2010, we held no option or future contracts and during the year and we did
not purchase or sell any commodity or currency options. We are continuing to review our hedging
strategy and there can be no assurance that we will not suffer losses in the future as a result of
hedging activities.
Currencies included in Cash and Cash Equivalents and Fixed Deposits Maturing Over Three Months
The following table provides the U.S. dollar equivalent of amounts of currencies included in
cash and cash equivalents and fixed deposits maturing over three
months on our balance sheets at
December 31, 2009 and 2010:
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Year ended December 31 |
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2009 |
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2010 |
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Currencies included in cash and cash equivalents and fixed deposits maturing over three months |
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(In thousands) |
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United States dollars |
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$ |
71,891 |
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$ |
74,392 |
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Chinese renminbi |
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55,691 |
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92,731 |
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Japanese yen |
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2,557 |
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1,695 |
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Hong Kong dollars |
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65,486 |
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59,249 |
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Total US$ equivalent |
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$ |
195,625 |
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$ |
228,067 |
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Interest Rate Risk
Interest rate risk
Our interest expenses and income are sensitive to changes in interest rates. All of our cash
reserves and short-term borrowings are subject to interest rate changes. Cash on hand of $228.1
million as of December 31, 2010 was invested in term deposits. As such, interest income will
fluctuate with changes in interest rates. During 2010, we had $1.5 million in interest income and
no interest expense.
As of December 31, 2009 and 2010, we had utilized approximately $1.0 million and nil of our
credit facilities, including $1.0 million and nil in short term notes payable, but no short-term
bank loans, respectively, resulting in minimal interest rate risk.
As of December 31, 2009 and 2010, we had no long-term bank loans.
70
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
(1)
(2)
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} |
Disclosures under Items 12A to 12D(2) of
Form 20-F are not required when Form 20-F is
used as an annual report and, in any event,
are not applicable to Nam Tai. |
(3)
(4)
|
} |
Disclosures under Items 12D(3) and 12D(4) of
form 20-F are required even when Form 20-F
is used as an annual report. However,
registrant has no Amercian Depositary
Recepts deposited or outstanding. |
71
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable to Nam Tai.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable to Nam Tai.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Companys management, with the
participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation
pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act), of the effectiveness of the design and operation of Nam Tais disclosure controls
and procedures. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that as of the end of the period covered by this report such disclosure controls
and procedures were effective to provide reasonable assurance that information required to be
disclosed by the Company in reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the
SEC, and included controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to the Companys
management, including the Companys Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Report of Management on Internal Control Over Financial Reporting
Nam Tais management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions; over time, a control may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Nam Tais management, including its Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of our internal control over financial reporting as of December 31,
2010. In making this assessment, our management used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on the assessment, Nam Tais management, including its Chief Executive
Officer and Chief Financial Officer, concluded that, as of December 31, 2010, the Companys
internal control over financial reporting was effective based on these criteria.
Attestation Report of Independent Registered Public Accounting Firm
The effectiveness of Nam Tais internal control over financial reporting as of December 31,
2010 has been audited by Moore Stephens, an independent registered public accounting firm. The
related report to the shareholders and the Board of Directors of Nam Tai appears on the next page
of this Report.
72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of Nam Tai Electronics, Inc.:
We have audited the internal control over financial reporting of Nam Tai Electronics, Inc. and
its subsidiaries (the Company) as of December 31, 2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Report of Management on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys consolidated balance sheet as of December 31, 2010
and the related consolidated statements of income, changes in equity and comprehensive income, and
cash flows for the year then ended, and the financial statement schedules listed in Schedule 1,
and our report dated March 16, 2011 expressed an unqualified opinion thereon.
/s/ Moore Stephens
Moore Stephens
Certified Public Accountants
Hong Kong
March 16, 2011
73
Changes in internal control over financial reporting
There were no changes in the Companys internal controls over financial reporting during the
year ended December 31, 2010, the period covered by this Annual Report on Form 20-F, that have
materially affected, or are reasonably likely to materially affect, the Companys internal controls
over financial reporting.
ITEM 16. [RESERVED]
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
The Companys Board of Directors has determined that one member of the Audit Committee, Mark
Waslen, qualifies as an audit committee financial expert as defined by Item 401(h) of Regulation
S-K, adopted pursuant to the Securities Exchange Act of 1934. For information concerning Mr.
Waslens education and experience by which he acquired the attributes qualifying him as an audit
committee financial expert, please see the description of Mr. Waslens background in Item
6. Directors and Senior Management Directors and Senior Managers of this Report.
Mr. Waslen is independent as that term is defined in the Listed Company Manual of the NYSE.
ITEM 16 B. CODE OF ETHICS
The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial
Officer, which also applies to the Companys principal executive officers and to its principal
financial and accounting officers. The Code of Ethics has been revised to apply to all employees as
well. A copy of the revised Code of Ethics is attached as Exhibit 11.1 to this Annual Report on
Form 20-F. This code has been posted on our website, which is located at
http://www.namtai.com/corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders may request a free copy in print form from:
Kee Wong, Corporate Secretary
Telephone: (852) 2341 0273
e-mail: shareholder@namtai.com
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Effective on April 1, 2011
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Effective before April 1, 2011 |
Unit 1201, 12th Floor, Tower 1, Lippo Centre,
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Units 5811-12, 58/F, The Center, |
89 Queensway, Admiralty, Hong Kong
Facsimile (852) 2263 1001
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99 Queens Road Central, Central, Hong Kong
Facsimile: (852) 2263 1223 |
ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Moore Stephens has served as our independent registered public accounting firm for the years
ended December 31, 2009 and 2010, for which audited consolidated financial statements appeared in
this annual report on Form 20-F. Deloitte Touche Tohmatsu served as our independent registered
public accounting firm as of and for the fiscal year ended December 31, 2008, for which audited
consolidated financial statements appear in this annual report on Form 20-F. Each year our Audit
Committee of the Board of Directors selects our independent registered public accounting firm and
our Board of Directors annually directs us to submit the selection of our independent registered
public accounting firm for ratification by shareholders at our annual meeting of shareholders. It
is currently expected that the Audit Committee will select Moore Stephens as our independent
registered public accounting firm for 2011 and that our Board of Directors will propose at the
Annual Meeting of Shareholders to be held in 2011 that Moore Stephens be ratified as our
independent registered public accounting firm for 2011.
The following table presents the aggregate fees for professional services and other services
rendered by Moore Stephens to us in 2009 and 2010, respectively. (Dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2009 |
|
|
2010 |
|
Audit Fees (1) |
|
$ |
329 |
|
|
$ |
371 |
|
Audit-related Fees (2) |
|
|
8 |
|
|
|
|
|
Tax Fees (3) |
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
Total |
|
$ |
341 |
|
|
$ |
374 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit Fees consist of fees billed for the annual audit of our consolidated financial
statements and the statutory financial statements of our subsidiaries. They also include fees
billed for other audit services, which are those services that only the independent registered
public accounting firm reasonably can provide, and include the provision of attestation
services relating to the review of documents filed with the SEC. |
74
|
|
|
(2) |
|
Audit-related Fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our consolidated financial
statements. |
|
(3) |
|
Tax Fees include fees billed for tax compliance services, including the preparation of
original and amended tax returns. |
Audit Committee Pre-approval Policies and Procedures
The Audit Committee of our Board of Directors is responsible, among other matters, for the
oversight of the independent registered public accounting firm subject to the relevant regulations
of the SEC and NYSE. The Audit Committee has adopted a policy, or the Policy, regarding
pre-approval of audit and permissible non-audit services provided by our independent registered
public accounting firm.
Under the Policy, the Chairman of the Audit Committee is delegated with the authority to grant
pre-approvals in respect of all auditing services including non-audit service, but excluding those
services stipulated in Section 201 Service Outsider the Scope of Practice of Auditors. Moreover,
if the Audit Committee approves an audit service within the scope of the engagement of the audit
service, such audit service shall be deemed to have been pre-approved. The decisions of the
Chairman of the Audit Committee made under delegated authority to pre-approve an activity shall be
presented to the Audit Committee at each of its scheduled meetings.
Requests or applications to provide services that require specific approval by the Audit
Committee are submitted to the Audit Committee by both the independent registered public accounting
firm and the Chief Financial Officer.
During 2009 and 2010, approximately 98.6% and 100%, respectively, of the total audit-related
fees and tax fees were approved by the Audit Committee pursuant to the pre-approval requirement
provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable to Nam Tai.
ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable to Nam Tai.
ITEM 16 F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
Registrant refers to and incorporates herein by this reference its Form 6-K for the month of
April 2009, including the information contained in Exhibits 1 and 2 thereto, furnished to the SEC
on April 20, 2009.
ITEM 16 G. CORPORATE GOVERNANCE
For information regarding whether our corporate governance standards differ from those applied
to US domestic issuers, see the discussion under NYSE listed Company Manual Disclosure in
Item 6. Directors and Senior Management of this Report.
75
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable to Nam Tai.
ITEM 18. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-8 |
|
|
|
|
F-30 |
|
|
|
|
F-31 |
|
|
|
|
F-32 |
|
|
|
|
F-33 |
|
|
|
|
F-34 |
|
The information required within the schedules for which provisions are made in the applicable
accounting regulations of the SEC is either not applicable to Nam Tai or is included in the notes
to our consolidated financial statements.
76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of Nam Tai Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Nam Tai Electronics, Inc. and
subsidiaries (the Company) as of December 31, 2009 and 2010, and the related consolidated
statements of income, changes in equity and comprehensive income, and cash flows for each of
the two years in the period ended December 31, 2010. Our audit also included the financial
statement schedules listed in Schedule 1. These consolidated financial statements and financial
statement schedules are the responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2009 and 2010, and the
results of its operations and its cash flows for each of two years in the period ended December
31, 2010, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the financial statement schedules listed in Schedule 1, when
considered in relation to the basic financial statements taken as whole, presents fairly, in
all material respects, the information set forth therein.
As
disclosed in Note 15 to the consolidated financial statements, the
segment information for the year ended December 31, 2009 has been restated to conform with the change in segment information in the year ended December 31, 2010.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 16, 2011 expressed an unqualified opinion thereon.
/s/ Moore Stephens
Moore Stephens
Certified Public Accountants
Hong Kong
March 16, 2011
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of Nam Tai Electronics, Inc.:
We have audited the accompanying consolidated statements of income, changes in equity and
comprehensive income, and cash flows of Nam Tai Electronics, Inc. and subsidiaries (the Company)
for the year ended December 31, 2008, and the related financial statement schedule included in
Schedule 1. These consolidated financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 2008 consolidated financial statements present fairly, in all material
respects, the results of their operations and the Companys cash flows for the year ended December
31, 2008, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth herein.
As
discussed in Note 2v to the consolidated financial statements, the accompanying 2008
consolidated financial statements have been retrospectively adjusted for the adoption of new
accounting guidance for the presentation and disclosures of noncontrolling interests.
As
discussed in Note 15 to the consolidated financial statements, the
disclosures in the
accompanying 2008 consolidated financial statements have been
retrospectively adjusted in order to conform to the change in segment
reporting in 2010.
/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Certified Public Accountants
Hong Kong
March 13, 2009
(March 16, 2010 as to Note 2v)
(March 16, 2011 as to Note 15)
F-2
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2009 |
|
2010 |
|
Net sales third parties |
|
$ |
622,852 |
|
|
$ |
408,137 |
|
|
$ |
534,420 |
|
Cost of sales |
|
|
(552,174 |
) |
|
|
(367,817 |
) |
|
|
(483,126 |
) |
|
|
|
Gross profit |
|
|
70,678 |
|
|
|
40,320 |
|
|
|
51,294 |
|
|
|
|
General and administrative expenses(1)(2) |
|
|
(29,112 |
) |
|
|
(28,393 |
) |
|
|
(25,232 |
) |
Selling expenses(1) |
|
|
(6,945 |
) |
|
|
(5,266 |
) |
|
|
(5,504 |
) |
Research and development expenses |
|
|
(10,890 |
) |
|
|
(6,273 |
) |
|
|
(5,757 |
) |
Impairment loss on goodwill |
|
|
(17,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(64,292 |
) |
|
|
(39,932 |
) |
|
|
(36,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
6,386 |
|
|
|
388 |
|
|
|
14,801 |
|
Other income (expenses), net |
|
|
6,428 |
|
|
|
(256 |
) |
|
|
3,972 |
|
Gain on sales of subsidiaries shares |
|
|
20,206 |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
6,282 |
|
|
|
818 |
|
|
|
1,484 |
|
Interest expense |
|
|
(356 |
) |
|
|
(202 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
38,946 |
|
|
|
748 |
|
|
|
20,257 |
|
Income taxes(3) |
|
|
(2,877 |
) |
|
|
(1,283 |
) |
|
|
(5,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
|
36,069 |
|
|
|
(535 |
) |
|
|
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interests |
|
|
(5,434 |
) |
|
|
2,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nam Tai(4) shareholders |
|
$ |
30,635 |
|
|
$ |
1,652 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.68 |
|
|
$ |
0.04 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.68 |
|
|
$ |
0.04 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
(1) |
|
The 2009 and 2010 presentations show general and administrative expenses and selling expenses
as separate line items, whereas the Companys consolidated statement of income for 2008, as
originally published, combined general and administrative expenses and selling expenses as a
single line item labeled Selling, general and administrative expenses. Selling, general and
administrative expenses for 2008 have been presented separately to conform to the 2009 and
2010 presentations. |
|
(2) |
|
General and administrative expenses include employee severance benefits of $5,058 and $656
for the years ended December 31, 2009 and 2010 respectively. |
|
(3) |
|
Income tax expenses for the year ended December 31, 2010 included a deferred tax credit of
$2,600 arising from tax losses of Wuxi FPC business, whereas the actual utilization of
such deferred tax asset depends on future profit streams of that business. |
|
(4) |
|
Nam Tai refers to Nam Tai Electronics, Inc. |
See accompanying notes to consolidated financial statements.
F-3
NAM TAI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
182,722 |
|
|
$ |
228,067 |
|
Fixed deposits maturing over three months |
|
|
12,903 |
|
|
|
|
|
Accounts and
notes receivable, less allowance for doubtful accounts of $59 and $13 at December 31, 2009 and 2010,
respectively |
|
|
57,911 |
|
|
|
74,176 |
|
Inventories |
|
|
16,054 |
|
|
|
29,058 |
|
Prepaid expenses and other receivables |
|
|
3,079 |
|
|
|
5,719 |
|
Deferred tax assets current |
|
|
1,460 |
|
|
|
376 |
|
Income tax recoverable |
|
|
|
|
|
|
105 |
|
|
|
|
Total current assets |
|
|
274,129 |
|
|
|
337,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
108,110 |
|
|
|
88,895 |
|
Land use rights |
|
|
13,296 |
|
|
|
12,264 |
|
Deposits for property, plant and equipment |
|
|
32 |
|
|
|
477 |
|
Goodwill |
|
|
2,951 |
|
|
|
2,951 |
|
Deferred tax assets non-current |
|
|
4,486 |
|
|
|
8,423 |
|
Other assets |
|
|
920 |
|
|
|
269 |
|
|
|
|
Total assets |
|
$ |
403,924 |
|
|
$ |
450,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
691 |
|
|
$ |
|
|
Accounts payable |
|
|
58,667 |
|
|
|
84,590 |
|
Accrued expenses and other payables |
|
|
16,397 |
|
|
|
17,484 |
|
Dividend payable |
|
|
|
|
|
|
8,961 |
|
Income taxes payable |
|
|
656 |
|
|
|
4,232 |
|
|
|
|
Total current liabilities |
|
|
76,411 |
|
|
|
115,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability non-current |
|
|
1,103 |
|
|
|
1,379 |
|
|
|
|
Total liabilities |
|
|
77,514 |
|
|
|
116,646 |
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Common shares ($0.01 par value authorized 200,000,000 shares,
issued and outstanding 44,803,735 shares as at
December 31, 2009 and 2010 |
|
|
448 |
|
|
|
448 |
|
Additional paid-in capital (1) |
|
|
285,264 |
|
|
|
286,943 |
|
Retained earnings |
|
|
40,706 |
|
|
|
46,751 |
|
Accumulated other comprehensive loss |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Nam Tai shareholders equity |
|
|
326,410 |
|
|
|
334,134 |
|
|
|
|
Total equity |
|
|
326,410 |
|
|
|
334,134 |
|
|
|
|
Total liabilities and equity |
|
$ |
403,924 |
|
|
$ |
450,780 |
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
(1) |
|
Additional paid-in capital includes a $1,584 compensation obligation payable by the Company
at the end of three years continuous services to its CFO, which obligation was terminated in
October 2010. The amount so accrued was reclassified to additional paid-in capital in
accordance with the guidance under Staff Accounting Bulletin (SAB) Topics 1B.1 and 5T,
Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC)
718-10-15-4. |
See accompanying notes to consolidated financial statements.
F-4
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Shares |
|
|
Shares |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Nam Tai |
|
|
Noncontrolling |
|
|
|
|
|
|
Comprehensive Income |
|
|
|
Outstanding |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Shareholders Equity |
|
|
Interests |
|
|
Total Equity |
|
|
(Loss) |
|
|
|
|
Balance at January 1, 2008 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
281,895 |
|
|
$ |
47,846 |
|
|
$ |
(8 |
) |
|
$ |
330,181 |
|
|
$ |
67,428 |
|
|
$ |
397,609 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
955 |
|
|
|
246 |
|
|
|
1,201 |
|
|
|
|
|
Repurchase of share options |
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
Dividend for noncontrolling
interests of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,902 |
) |
|
|
(8,902 |
) |
|
|
|
|
Disposal of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,843 |
) |
|
|
(12,843 |
) |
|
|
|
|
Purchase of subsidiary shares
from noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,312 |
) |
|
|
(3,312 |
) |
|
|
|
|
Consolidated net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,635 |
|
|
|
|
|
|
|
30,635 |
|
|
|
5,434 |
|
|
|
36,069 |
|
|
$ |
36,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.88 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,427 |
) |
|
|
|
|
|
|
(39,427 |
) |
|
|
|
|
|
|
(39,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
282,767 |
|
|
$ |
39,054 |
|
|
$ |
(8 |
) |
|
$ |
322,261 |
|
|
$ |
48,051 |
|
|
$ |
370,312 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
67 |
|
|
|
|
|
Purchases of a Subsidiarys
shares from noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
(45,864 |
) |
|
|
(43,434 |
) |
|
|
|
|
Consolidated net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,652 |
|
|
|
|
|
|
|
1,652 |
|
|
|
(2,187 |
) |
|
|
(535 |
) |
|
$ |
(535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
285,264 |
|
|
$ |
40,706 |
|
|
$ |
(8 |
) |
|
$ |
326,410 |
|
|
$ |
|
|
|
$ |
326,410 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
95 |
|
|
|
|
|
Deemed contribution of services |
|
|
|
|
|
|
|
|
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
1,584 |
|
|
|
|
|
|
|
1,584 |
|
|
|
|
|
Consolidated net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,006 |
|
|
|
|
|
|
|
15,006 |
|
|
|
|
|
|
|
15,006 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,961 |
) |
|
|
|
|
|
|
(8,961 |
) |
|
|
|
|
|
|
(8,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
286,943 |
|
|
$ |
46,751 |
|
|
$ |
(8 |
) |
|
$ |
334,134 |
|
|
$ |
|
|
|
$ |
334,134 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2008 |
|
2009 |
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
36,069 |
|
|
$ |
(535 |
) |
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile consolidated net income (loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
22,208 |
|
|
|
23,116 |
|
|
|
24,468 |
|
Impairment loss on goodwill |
|
|
17,345 |
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal of property, plant and equipment and land use rights |
|
|
(13 |
) |
|
|
1,248 |
|
|
|
(1,218 |
) |
Gain on sale of a subsidiarys shares
- J.I.C. Technology Company Limited (JIC Technology) |
|
|
(20,206 |
) |
|
|
|
|
|
|
|
|
Share-based compensation expenses |
|
|
1,228 |
|
|
|
67 |
|
|
|
95 |
|
Dividend withheld |
|
|
(305 |
) |
|
|
|
|
|
|
|
|
Unrealized exchange gain |
|
|
(4,757 |
) |
|
|
(39 |
) |
|
|
(2,235 |
) |
Deferred income taxes |
|
|
(793 |
) |
|
|
(804 |
) |
|
|
(2,577 |
) |
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts and notes receivable |
|
|
(8,499 |
) |
|
|
46,239 |
|
|
|
(16,265 |
) |
Decrease (increase) in inventories |
|
|
5,056 |
|
|
|
11,246 |
|
|
|
(13,004 |
) |
Decrease (increase) in prepaid expenses and other receivables |
|
|
1,574 |
|
|
|
1,069 |
|
|
|
(2,434 |
) |
Decrease (increase) in income taxes recoverable |
|
|
5,439 |
|
|
|
|
|
|
|
(105 |
) |
(Decrease) increase in notes payable |
|
|
(4,580 |
) |
|
|
691 |
|
|
|
(691 |
) |
(Decrease) increase in accounts payable |
|
|
(9,201 |
) |
|
|
(39,458 |
) |
|
|
25,923 |
|
(Decrease) increase in accrued expenses and other payables |
|
|
(4,233 |
) |
|
|
(4,132 |
) |
|
|
4,354 |
|
Increase (decrease) in income taxes payable |
|
|
459 |
|
|
|
(205 |
) |
|
|
3,576 |
|
|
|
|
Total adjustments |
|
|
722 |
|
|
|
39,038 |
|
|
|
19,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
36,791 |
|
|
$ |
38,503 |
|
|
$ |
34,893 |
|
|
|
|
F-6
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
$ |
(27,407 |
) |
|
$ |
(30,420 |
) |
|
$ |
(6,295 |
) |
(Increase) decrease in deposits for property, plant and equipment |
|
|
(2,606 |
) |
|
|
2,905 |
|
|
|
(445 |
) |
(Increase) decrease in entrusted loan receivable |
|
|
(8,166 |
) |
|
|
8,199 |
|
|
|
|
|
Increase in prepayment for land use rights |
|
|
(663 |
) |
|
|
|
|
|
|
|
|
Decrease in other assets |
|
|
299 |
|
|
|
|
|
|
|
|
|
Net cash inflow from disposal of a subsidiary JIC Technology |
|
|
6,671 |
|
|
|
|
|
|
|
|
|
Acquisition of additional shares in subsidiaries |
|
|
(2,906 |
) |
|
|
(43,434 |
) |
|
|
|
|
Proceeds from disposal of property, plant and equipment |
|
|
55 |
|
|
|
872 |
|
|
|
2,054 |
|
(Increase) decrease in fixed deposits maturing over three months |
|
|
|
|
|
|
(12,903 |
) |
|
|
12,903 |
|
|
|
|
Net cash (used in) provided by investing activities |
|
$ |
(34,723 |
) |
|
$ |
(74,781 |
) |
|
$ |
8,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
$ |
(47,675 |
) |
|
$ |
(9,857 |
) |
|
$ |
|
|
Repayment of bank loans |
|
|
(2,648 |
) |
|
|
|
|
|
|
|
|
Payment on repurchase of share options |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
Proceeds from (repayment of) entrusted loan |
|
|
8,166 |
|
|
|
(8,199 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(42,267 |
) |
|
$ |
(18,056 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(40,199 |
) |
|
|
(54,334 |
) |
|
|
43,110 |
|
Cash and cash equivalents at beginning of year |
|
|
272,459 |
|
|
|
237,017 |
|
|
|
182,722 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
4,757 |
|
|
|
39 |
|
|
|
2,235 |
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
237,017 |
|
|
$ |
182,722 |
|
|
$ |
228,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
356 |
|
|
$ |
202 |
|
|
$ |
|
|
Income taxes (received) paid, net |
|
|
(2,497 |
) |
|
|
2,290 |
|
|
|
4,428 |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in construction cost funded through
accrued expenses and other payables |
|
$ |
8,547 |
|
|
$ |
(5,438 |
) |
|
$ |
(1,683 |
) |
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital on compensation for loss of office |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,584 |
|
F-7
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)
|
|
|
Nam Tai Electronics, Inc. and subsidiaries (the Company or Nam Tai) is an electronics
manufacturing and design services provider to a selected group of the worlds leading
original equipment manufacturers, or OEMs, of telecommunication and consumer electronic
products. Through its electronics manufacturing services operations, the Company
manufactures electronic components and sub-assemblies, including flexible printed circuit
(FPC) board, FPC board subassemblies, liquid crystal display (LCD) modules, LCD panels,
thin film transistor display modules, radio frequency modules, digital audio broadcast
modules, internet radio subassemblies, image sensors modules and printed circuit board
assemblies. These components, modules and subassemblies are used in numerous electronic
products including mobile phones, Internet Protocol phones, notebook computers, digital
cameras, electronic toys, handheld video game devices and learning devices. The Company also
manufactures finished products, including mobile phone accessories, home entertainment
products and educational products. |
|
|
|
|
The Company was founded in 1975 and moved its manufacturing facilities to the
Peoples Republic of China (the PRC) in 1980 to take advantage of lower overhead
costs, lower material costs and competitive labor rates available and subsequently
relocated to Shenzhen, the PRC in order to capitalize on opportunities offered in
Southern PRC. The Company was reincorporated as a limited liability International
Business Company under the laws of the British Virgin Islands (BVI) in August 1987
(which was amended in 2004 as The British Virgin Islands Business Companies Act, 2004).
The Companys principal manufacturing and design operations are based in Shenzhen,
approximately 30 miles from the Hong Kong Special Administrative Region (Hong Kong).
Its PRC headquarters are located in Shenzhen. Some of the subsidiaries offices are
located in Hong Kong, which provide them access to Hong Kongs infrastructure of
communication and banking facilities. The Companys principal manufacturing operations
are conducted in the PRC. The PRC resumed sovereignty over Hong Kong effective July 1,
1997, and politically, Hong Kong is an integral part of the PRC. However, for simplicity
and as a matter of definition only, our references to PRC in these consolidated
financial statements mean the PRC and all of its territories excluding Hong Kong. |
|
|
During 2008 and 2009, the Company operated primarily in three reportable segments consisting of telecommunication components
assembly (TCA), consumer electronics and communication products
(CECP), and LCD products (LCDP). In 2010, pursuant
to the merging of the Companys two PRC subsidiaries represented
by LCDP and TCA segments into one Shenzhen subsidiary
in 2010, the chief operating decision maker
reviews the segment results by two business segments (TCA and CECP) when making
decisions about allocating resources and
assessing performance. The change in presentation of segment
reporting was due to the following:
|
|
|
|
Most of the LCDP business has been mainly LCD modules assembling for telecommunication products in 2010, which is
similar to the business operated by TCA. In view of the similarity of the products, we have merged the LCDP segment into
the TCA segment;
|
|
|
|
|
After the merger, all the TCA business is ran by one management team; |
|
|
|
|
We discontinued our CECP production for bluetooth headsets and calculators with two major box-built customers in the
fourth quarter 2010, and that quarter will be the last quarter for the camera products made for the remaining major customer
be classified under CECP as management has decided to reclassify this business to TCA to reflect its component assembly
nature in 2011;
|
|
|
|
|
In 2010, the Flexible Printed Circuit Board (FPCB) business was too insignificant to be classified as one business
segment. In addition, FPCB is regarded as WIP (work in progress) for internal use by the Company, i.e. it is manufactured
for a more value-adding process, FPC assembling.
|
|
|
|
The segment information in 2008 and 2009 have been restated
in order to conform with the change in presentation of segment
reporting in 2010 in accordance with FASB ASC 280-10-50-34. The results of the former LCDP segment were included in the TCA
segment in 2008 and 2009.
|
2. |
|
Summary of Significant Accounting Policies |
|
(a) |
|
Principles of consolidation |
|
|
|
|
The consolidated financial statements include the financial statements of the Company
and all of its subsidiaries. The Company consolidates companies in which it has
controlling interest of over 50%. All significant intercompany accounts, transactions
and cash flows have been eliminated on consolidation. |
|
|
(b) |
|
Cash and cash equivalents |
|
|
|
|
Cash and cash equivalents include all cash balances and certificates of deposit having
a maturity date of three months or less upon acquisition. |
F-8
2. |
|
Summary of Significant Accounting Policies continued |
|
(c) |
|
Allowance for doubtful accounts |
|
|
|
|
Accounts and notes receivable balance is recorded net of allowances for amounts not
expected to be collected from customers. Because the accounts and notes receivable
are typically unsecured, the Company periodically evaluates the collectibility of
accounts based on a combination of factors, including a particular customers ability
to pay as well as the age of the receivables. To evaluate a specific customers
ability to pay, the Company analyzes financial statements, payment history,
third-party credit analysis reports and various information or disclosures by the
customer or other publicly available information. In cases where the evidence
suggests a customer may not be able to satisfy its obligation to the Company, a
specific allowance would be set up for the perceived risk. If the financial condition
of customers deteriorates, resulting in an impairment of their ability to make
payments, additional allowances may be required. |
|
|
(d) |
|
Inventories |
|
|
|
|
Inventories are stated at the lower of cost or market value. Cost is determined on
the first-in, first-out basis. The standard cost of work-in-progress
and finished goods comprises direct materials, labor and
manufacturing overheads. Write downs of potentially obsolete or slow-moving
inventory are recorded based on managements analysis of inventory levels. |
|
|
|
|
For the Companys CECP and TCA (excluding LCDP production) reporting units, the Company orders inventory from its
suppliers based on firm customer orders for products that are unique to each
customer. The inventory is utilized in production as soon as all the necessary
components are received. The only reason that inventory would not be utilized within
six months is if a specific customer deferred or canceled an order. As the inventory
is typically unique to each customers products, it is unusual for the Company to be
able to utilize the inventory for other customers products. Therefore, the Companys
policy is to negotiate with the customer for the disposal of such inventory that
remains unused for six months. The Company does not generally write down its
inventories as usually, the customers are held to their purchase commitments.
However, there are cases where customers are contractually obligated to purchase the
unused inventory from the Company, but the Company may elect not to immediately
enforce such contractual right for business reasons. In this connection, the Company
will consider writing down these inventory items which remained unused for over six
months at the Companys own cost. Prior to writing down, management would determine
if the inventory can be utilized in other products. |
|
|
|
|
For the Companys LCDP production, due to the
nature of the business, the customers do
not always place orders enough in advance to enable the Company to order inventory
from suppliers based on firm customer orders. Nonetheless, management reviews its
inventory balance on a regular basis and writes down all inventory over six months
old if it is determined that the relevant inventory cannot be utilized in the
foreseeable future. |
|
|
(e) |
|
Property, plant and equipment and land use rights |
|
|
|
|
Property, plant and equipment and land use rights are recorded at cost and include
interest on funds borrowed to finance construction, if applicable. No interest was
capitalized for the years ended December 31, 2008, 2009 and 2010. The cost of major
improvements and betterments is capitalized whereas the cost of maintenance and
repairs is expensed in the year incurred. Assets under construction are not
depreciated until construction is completed and the assets are ready for their
intended use. Gains and losses for the disposal of property, plant and equipment and
land use rights are included in the consolidated statement of income. |
|
|
|
|
The majority of the land in Hong Kong is owned by the government of Hong Kong which
leases the land at public auction to non-governmental entities. All of the Companys
leasehold land in Hong Kong have leases of not more than 50 years from the respective
balance sheet dates. The cost of such leasehold land is amortized on a straight-line
basis over the respective terms of the leases. |
|
|
|
|
All land in other regions of the PRC is owned by the PRC government. The government
in the PRC, according to PRC law, may sell the right to use the land for a specified
period of time. Thus, all of the Companys land purchases in the PRC are considered
to be leasehold land and classified as land use rights in the consolidated balance
sheet. They are amortized on a straight-line basis over the respective term of the
right to use the land. |
|
|
|
|
Since August 1, 2009, in order to reflect a more reasonable estimation on the useful
lives of the property, plant and equipment, the Company computed depreciation
expenses using the straight-line method at the following depreciation rates: |
F-9
2. |
|
Summary of Significant Accounting Policies continued |
|
(e) |
|
Property, plant and equipment and land use rights - continued |
|
|
|
|
|
Classification |
|
Prior to August 1, 2009 |
|
After August 1, 2009 |
Land use rights
|
|
50 years
|
|
50 years |
Buildings
|
|
20 to 50 years
|
|
20 years |
Machinery and equipment
|
|
4 to12 years
|
|
4 years |
Leasehold improvements
|
|
shorter of lease term or 7 years
|
|
shorter of lease term or 4 years |
Furniture and fixtures
|
|
4 to 8 years
|
|
4 years |
Automobiles
|
|
4 to 6 years
|
|
4 years |
Tools and molds
|
|
4 to 6 years
|
|
2 years |
|
|
|
The above change in depreciation rates decreased operating income, net income, basic
and diluted earnings per share in 2009 by $2,308, $1,643, $0.04 and $0.04,
respectively. |
|
|
(f) |
|
Goodwill |
|
|
|
|
The excess of the purchase price over the fair value of net assets acquired is
recorded on the consolidated balance sheet as goodwill. |
|
|
|
|
Goodwill is not amortized, but is tested for impairment at the reporting unit level at
least on an annual basis at the balance sheet date or more frequently if certain
indicators arise. For the years 2008 and 2009, the Company operated in three reporting
units, which are its reportable segments of CECP, TCA and LCDP. For the year 2010, the
Company operated in two reporting units, which are its reportable segments of TCA and CECP. If business conditions or
other factors cause the profitability and cash flows to decline, the Company may be
required to record impairment charges for goodwill at that time. The goodwill
impairment review is a two-step process in accordance with the FASB ASC 350-20
Goodwill. First step consists of a comparison of the fair value of a reporting unit
with its carrying value. An impairment loss may be recognized if the review indicates
that the carrying value of a reporting unit exceeds its fair value. Estimates of fair
value are primarily determined by using discounted cash flows method. If the carrying
amount of a reporting unit exceeds its fair value, second step requires the fair value
of the reporting unit to be allocated to all of the assets and liabilities (including
any unrecognized intangible assets) of that reporting unit, resulting in an implied
fair value of goodwill. If the carrying amount of the goodwill of the reporting unit
exceeds the implied fair value, an impairment charge is recorded which is equal to the
excess of the carrying amount over the fair value. |
|
|
|
|
The impairment review is highly judgmental and involves the use of significant
estimates and assumptions. These estimates and assumptions have a significant impact
on the amount of any impairment charge recorded. Discounted cash flow methodology is
based on a number of estimates and assumptions, including the projected future
operating results of the reporting unit, discount rate, long-term growth rate and
appropriate market comparables. |
|
|
|
|
Impairment loss on goodwill on the former LCDP reporting unit of $17,345, as fully described
in note 5 was identified and recognized in 2008. No impairment loss on goodwill was
recognized in 2009 and 2010. |
|
|
(g) |
|
Impairment or disposal of long-lived assets |
|
|
|
|
Long-lived assets are included in impairment evaluations when events and circumstances
exist that indicate the carrying value of these assets may not be recoverable. In
accordance with FASB ASC 360 Property, Plant and Equipment the Company assesses the
recoverability of the carrying value of long-lived assets by first grouping its
long-lived assets with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and
liabilities (the asset group) and, secondly, estimating the undiscounted future cash
flows that are directly associated with and expected to arise from the use of and
eventual disposition of such asset group. The Company estimates the undiscounted cash
flows over the remaining useful life of the primary asset within the asset group. If
the carrying value of the asset group exceeds the estimated undiscounted cash flows,
the Company records an impairment charge to the extent the carrying value of the
long-lived asset exceeds its fair value. The Company determines fair value through
quoted market prices in active markets or, if quotations of market prices are
unavailable, through the performance of internal analysis using a discounted cash flow
methodology or obtains external appraisals from independent valuation firms. The
undiscounted and discounted cash flow analyses based on a number of estimates and
assumptions, including the expected period over which the asset will be utilized,
projected future operating results of the asset group, discount rate and long-term
growth rate. |
F-10
2. |
|
Summary of Significant Accounting Policies continued |
|
(g) |
|
Impairment or disposal of long-lived assets continued |
|
|
|
Long-lived assets to be disposed of are stated at the lower of fair value or carrying
value. Expected future operating losses from discontinued operations are recorded in
the periods in which the losses are incurred. During the fourth quarter of 2008, the
market price of our shares first dropped to a level where, based on the daily closing
price of our shares from October 22, 2008 to December 31, 2008, our market
capitalization was less than our book value at December 31, 2008. Accordingly, and
despite, the lack of a substantial history at the time that would indicate whether the
effect of prevailing market and economic conditions on our stock price reflected an
aberration or a sustained decline, in accordance with FASB ASC 360 Property, Plant and
Equipment, we reviewed the Companys long-lived assets of property, plant and
equipment and land use rights for potential impairment as at December 31, 2008. |
|
|
|
|
In view of the sustained level of the Companys stock price during 2009 and our resulting
market capitalization throughout 2009 at a level below our recorded book value at December 31,
2009, the Company conducted a similar review of Nam Tais long-lived assets for potential
impairment. |
|
|
|
|
In 2010, although the Companys stock price remained below the aggregate book value of its
assets, the continuous improvement of the Companys results closed the gap on the difference.
Management assessed and determined that there were no events or changes in circumstances to
indicate that the carrying amounts of long-lived assets in Nam Tais Shenzhen facilities were not
recoverable and there were no impairment tests conducted with respect to those assets. In view of
the continuous operating losses and negative cash flows in Nam Tais Wuxi facilities, the Company
assessed the impairment of its long-lived assets used in the Wuxi facilities,
by comparing the undiscounted cash flows with the carrying amounts of the assets. The results
indicated that the carrying amounts of the Companys long-lived
assets at December 31, 2010 were less
than the undiscounted cash flows. |
|
(h) |
|
Accruals and provisions for loss contingencies |
|
|
|
The Company makes provisions for all loss contingencies when information available
prior to the issuance of the consolidated financial statements indicates that it is
probable that an asset has been impaired or a liability has been incurred at the date
of the consolidated financial statements and the amount of loss can be reasonably
estimated. |
|
|
|
|
For provisions or accruals related to litigation, the Company makes provisions based
on information from legal counsels and the best estimation of management. The Company
assesses the potential liability for the significant legal proceedings in accordance
with FASB ASC 450 Contingencies. FASB ASC 450 requires a liability to be recorded if
the contingency loss is probable and the amount of loss can be reasonably estimated.
The actual resolution of the contingency may differ from the Companys estimates. If
the contingency was settled for an amount greater than the estimate, a future charge
to income would result. Likewise, if the contingency was settled for an amount that is
less than our estimate, a future credit to income would result. |
|
|
|
The Company recognizes revenue when all of the following conditions are met: |
|
|
|
Persuasive evidence of an arrangement exists, |
|
|
|
|
Delivery has occurred or services have been rendered, |
|
|
|
|
Price to the customer is fixed or determinable, and |
|
|
|
|
Collectability is reasonably assured. |
|
|
|
Revenue from sales of products is recognized when the title is passed to customers
upon shipment and when collectability is reasonably assured. The Company does not
provide its customers with the right of return (except for quality), price protection,
rebates or discounts. There are no customer acceptance provisions associated with the
Companys products, except for quality. All sales are based on firm customer orders
with fixed terms and conditions, which generally cannot be modified. |
|
|
|
|
Certain of the Companys subsidiaries are subject to value-added tax of 17% on the
revenue earned for goods and services sold in the PRC. The Company presents revenue
net of such value-added tax which amounted to $1,357, $369 and $73 for the years ended
December 31, 2008, 2009 and 2010, respectively. |
|
(j) |
|
Shipping and handling costs |
|
|
|
Shipping and handling costs are classified as cost of sales for materials purchased
and selling expenses for those costs incurred in the delivery of finished products.
During the years ended December 31, 2008, 2009 and 2010, shipping and handling costs
classified as costs of sales were $503, $363 and $323, respectively.
During
the years ended December 31, 2008, 2009 and 2010, shipping and handing costs
classified as selling expenses were $840, $669 and $940, respectively. |
F-11
2. |
|
Summary of Significant Accounting Policies continued |
|
(k) |
|
Research and development costs |
|
|
|
|
Research and development costs are incurred in the development of new products and
processes, including significant improvements and refinements to existing products and
are expensed as incurred. |
|
|
(l) |
|
Advertising expenses |
|
|
|
|
The Company expenses advertising costs as incurred. Advertising expenses were $132,
$36 and nil for the years ended December 31, 2008, 2009 and 2010, respectively. |
|
|
(m) |
|
Staff retirement plan costs |
|
|
|
|
The Companys costs related to the staff retirement plans (see Note 11) are charged to
the consolidated statement of income as incurred. |
|
|
(n) |
|
Income taxes |
|
|
|
|
Deferred income taxes are provided using the asset and liability method in accordance
with FASB ASC 740 Income taxes. Under this method, deferred income taxes are
recognized for all significant temporary differences at enacted rates and classified
as current or non-current based upon the classification of the related asset or
liability in the consolidated financial statements. A valuation allowance is provided
to reduce the amount of deferred tax assets if it is considered more likely than not
that some portion of, or all, the deferred tax asset will not be realized. |
|
|
|
|
FASB ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements, and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also provides accounting
guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. Interest and penalties from tax
assessments, if any, are included in income taxes in the consolidated statement of
income. |
|
|
(o) |
|
Foreign currency transactions and translations |
|
|
|
|
All transactions in currencies other than functional currencies during the year are
translated at the exchange rates prevailing on the respective transaction dates.
Monetary assets and liabilities existing at the balance sheet date denominated in
currencies other than functional currencies are remeasured at the exchange rates
existing on that date. Exchange differences are recorded in the consolidated statement
of income. |
|
|
|
|
The functional currency of the Company and its subsidiaries include the U.S. dollar or
the Hong Kong dollar. The financial statements of all subsidiaries are translated in
accordance with FASB ASC 830 foreign Currency Matters". All assets and liabilities
are translated at the rates of exchange ruling at the balance sheet date and all
income and expense items are translated at the average rates of exchange over the
year. All exchange differences arising from the translation of subsidiaries financial
statements are recorded as a component of comprehensive income. |
|
|
(p) |
|
Earnings per share |
|
|
|
|
Basic earnings per share is computed by dividing net income attributable to common
shareholders by the weighted average number of common shares outstanding during the
year. |
|
|
|
|
Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the year. 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. |
|
|
(q) |
|
Stock options |
|
|
|
|
The Company has a stock-based employee compensation plan, as more fully described in
Note 9(b). The Company measures the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award. That
cost is recognized over the period during which an employee is required to provide
service, the requisite service period (usually the vesting period), in exchange for
the award. The grant-date fair value of employee share options and similar instruments
are estimated using option-pricing models. If the award is modified after the grant
date, incremental compensation cost is recognized in an amount equal to the excess of
the fair value of the modified award over the fair value of the original award
immediately before the modification. |
F-12
2. |
|
Summary of Significant Accounting Policies continued |
|
(r) |
|
Use of estimates |
|
|
|
|
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. |
|
|
(s) |
|
Comprehensive income (loss) |
|
|
|
|
Accumulated other comprehensive loss represents principally foreign currency
translation adjustments and is included in the consolidated statement of changes in
equity. |
|
|
(t) |
|
Fair value of financial instruments |
|
|
|
|
|
|
|
|
|
The Company adopted FASB ASC 820 Fair Value Measurements and Disclosures to measure
its assets and liabilities. The carrying amounts of cash and cash equivalents, fixed
deposits maturing over three months, accounts and notes receivable, other receivables,
notes payable, accrued expenses and accounts payable, other payables, and dividend
payable approximate their fair values due to the short term nature of these
instruments. The carrying amount of long term debt also approximates fair value due to
the variable nature of the interest calculations. |
|
|
|
|
As of December 31, 2009 and 2010, the Company did not have any nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements, at least annually, on a recurring basis. |
|
|
(u) |
|
Recent changes in accounting standards |
|
|
|
|
In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements
and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset
Value per Share (or Its Equivalent). This update applies to all entities that hold an
investment that is required to be measured or disclosed at fair value on a recurring
or nonrecurring basis. These amendments permit, as a practical expedient, a reporting
entity to measure the fair value of investment on the basis of the net asset value per
share of the investment and require disclosures by major category of investment within
the scope of this update. ASU No. 2009-12 is effective for interim and
annual periods ending after December 15, 2009 and the adoption did not have a material
impact on the Companys financial position, results of operations and cash flows. |
|
|
|
|
In December 2009, the FASB issued ASU No. 2009-17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest
Entities. The amendments in this update are the result of FASB Statement No. 167
Amendments to FASB Interpretation No. 46 (R), which is now codified as FASB ASC
810-10-50-2A Consolidation Overall Disclosure Variable Interest Entities and
is effective for the interim and annual periods ending after December 15, 2009. The
adoption of ASU No. 2009-17 did not have a material impact on the Companys financial
position, results of operations and cash flows. |
|
|
|
|
In January 2010, the FASB issued ASU No. 2010-02, Consolidation
(Topic 810), in which it clarifies that the scope of the decrease in ownership
provision of the Subtopic and related guidance applies to a subsidiary or group
of assets that is a business or nonprofit activity, but does not apply to sales
of substance real estate & conveyances of oil and gas mineral rights. ASU No.
2010-02 is effective for the interim and annual periods ending after December 15,
2009. The adoption of ASU No. 2010-02 did not have a material impact on the
Companys financial position, results of operations and cash flows. |
|
|
|
|
In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855),
which requires an SEC filer to evaluate subsequent events through the date that the
financial statements are issued, and removes the requirement to disclose a date in
both issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of US GAAP. It also clarifies that if the financial
statements have been revised, then an entity that is not an SEC filer should disclose
both the date the financial statements were issued or available to be issued and the
date the revised financial statements were issued or available to be issued. ASU No.
2010-09 is effective for the interim and annual periods ending after June 15, 2010 and
no material impact on Namtais reporting is considered. |
F-13
2. |
|
Summary of Significant Accounting Policies continued |
|
(u) |
|
Recent changes in accounting standards continued |
|
|
|
|
In April 2010, the FASB issued ASU No. 2010-13, CompensationStock Compensation
(Topic 718), which provides amendments to Topic 718 to clarify that an employee
share-based payment award with an exercise price denominated in the currency of a
market in which a substantial portion of the entitys equity securities trades should
not be considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability if it
otherwise qualifies as equity. ASU No. 2010-13 is effective for fiscal years, and
interim period within those fiscal years, beginning on or after December 15, 2010. The
adoption of ASU No. 2010-13 is not expected to have any impact on the Companys
financial position, results of operations and cash flows. |
|
|
|
|
In December 2010, the FASB issued ASU No. 2010-28, IntangiblesGoodwill and Other
(Topic 350), which modifies Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it is more likely than
not that a goodwill impairment exists. In determining whether it is more likely than
not that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. ASU No. 2010-28
is effective for fiscal years, and interim period within those fiscal years, beginning
on or after December 15, 2010. The adoption of ASU No. 2010-28 is not expected to have
any impact on the Companys financial position, results of operations and cash flows. |
|
|
|
|
In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic
805), which specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as
though the business combination(s) that occurred during the current year had occurred
as of the beginning of the comparable prior annual reporting period only. The
amendments in this Update also expand the supplemental pro forma disclosures under
Topic 805 to include a description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. ASU No. 2010-29 is effective for business
combinations for which the acquisition date is after the annual periods ending after
December 15, 2010 and which early adoption is permitted. The Company believes that the
adoption of ASU No. 2010-29 may impact future business combinations. |
|
|
(v) |
|
Noncontrolling interests |
|
|
|
|
The Company adopted FASB ASC 810-10-45-16Consolidation
Overall Other Presentation Matter Noncontrolling Interest in a Subsidiary, which is effective as of the beginning of
an entitys first fiscal year that begins after
December 15, 2008. Accordingly, in 2009, minority
interests have been renamed noncontrolling interests, consolidated net income (loss) is
reported at amounts that include the amounts attributable to both noncontrolling
interests and Nam Tais shareholders for all periods presented. In addition,
noncontrolling interests have been reported as a component of equity in the consolidated
balance sheets and consolidated statements of changes in equity and comprehensive
income for all periods presented. The Company has retrospectively applied the
presentation to balances in the consolidated financial statements for the year ended
December 31, 2008. |
|
|
Inventories consist of the following: |
|
|
|
|
|
|
|
|
|
At December 31, |
|
2009 |
|
|
2010 |
|
|
Raw materials |
|
$ |
11,401 |
|
|
$ |
19,372 |
|
Work-in-progress |
|
|
1,879 |
|
|
|
4,022 |
|
Finished goods |
|
|
2,774 |
|
|
|
5,664 |
|
|
|
|
|
|
$ |
16,054 |
|
|
$ |
29,058 |
|
|
|
|
F-14
4. |
|
Property, Plant and Equipment, net |
|
|
Property, plant and equipment, net consist of the following: |
|
|
|
|
|
|
|
|
|
At December 31, |
|
2009 |
|
|
2010 |
|
At cost: |
|
|
|
|
|
|
|
|
Buildings |
|
$ |
89,335 |
|
|
$ |
89,361 |
|
Machinery and equipment |
|
|
127,369 |
|
|
|
128,647 |
|
Leasehold improvements |
|
|
29,239 |
|
|
|
30,586 |
|
Furniture and fixtures |
|
|
2,771 |
|
|
|
4,469 |
|
Automobiles |
|
|
1,107 |
|
|
|
1,397 |
|
Tools and molds |
|
|
235 |
|
|
|
283 |
|
|
|
|
Total |
|
|
250,056 |
|
|
|
254,743 |
|
Less: accumulated depreciation |
|
|
(146,751 |
) |
|
|
(166,642 |
) |
|
|
|
|
|
|
103,305 |
|
|
|
88,101 |
|
Construction in progress |
|
|
4,805 |
|
|
|
794 |
|
|
|
|
Net book value |
|
$ |
108,110 |
|
|
$ |
88,895 |
|
|
|
|
|
|
Depreciation expenses were $21,901, $22,819 and $23,734 for the years ended December 31,
2008, 2009 and 2010 respectively. |
|
|
A summary of the changes in the carrying value of goodwill, by reporting unit, is as follows: |
|
|
|
|
|
|
|
CECP |
|
|
|
reporting unit |
|
Balance at December 31, 2009 and 2010 |
|
$ |
2,951 |
|
|
|
|
|
|
|
In 2008, the Company performed the first step of its goodwill impairment test for each of its
reporting units and determined that the carrying value of the former LCDP reporting unit exceeded
its fair value in 2008 due to a combination of factors, including the deteriorating
macro-economic environment which resulted in a significant decline in customer demand,
intense pricing pressure and increasing competition of former LCDP reporting unit. The fair value of
the former LCDP reporting unit was estimated using a discounted cash flow methodology. Having
determined that the goodwill of the former LCDP reporting unit was potentially impaired, the Company
began performing the second step of the goodwill impairment analysis which involves
calculating the implied fair value of its goodwill by allocating the fair value of the
reporting unit to all of its assets and liabilities other than goodwill and comparing the
residual amount to the carrying value of goodwill. Accordingly, the Company recorded a
goodwill impairment loss of $17,345 on the former LCDP reporting unit for the year ended December
31, 2008. |
|
|
|
In 2009, the fair value of the CECP reporting unit was determined using a discounted cash
flow methodology, based on a discount rate of 9.8% and expected future cash flows. The
expected future cash flows were based on a five-year plan (after taking into account of the
impact of the current financial crisis) provided by management and with a reasonable growth
rate covering the five-year period as well as the period beyond. The Company completed its
annual impairment analysis for 2009 and concluded that the fair value of the CECP reporting
unit exceeded its carrying value as of December 31, 2009. Therefore, no impairment loss was
recognized in 2009. |
|
|
|
In 2010, the fair value of the CECP reporting unit was determined using a discounted cash flow
methodology, based on a discount rate of 8.6% and expected future cash flows. The expected future
cash flows were based on a five-year plan provided by management and with a reasonable growth rate
covering the five-year period as well as the period beyond. The Company completed its annual
impairment analysis for 2010 and concluded that the fair value of the CECP reporting unit exceeded
its carrying value as of December 31, 2010. Therefore, no impairment loss was recognized in
2010. |
F-15
6. |
|
Investments in Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Ownership as |
|
|
Place of |
|
Principal |
|
at December 31, |
Subsidiaries |
|
Incorporation |
|
activity |
|
2009 |
|
2010 |
|
Consolidated principal subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
NTEEP |
|
Cayman Islands |
|
Investment holding |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Holdings Limited |
|
BVI |
|
Investment holding |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Investment Limited |
|
Hong Kong |
|
Investment holding |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Group Management Limited (NTGM) |
|
Hong Kong |
|
Inactive |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Telecom (Hong Kong) Company Limited |
|
Hong Kong |
|
Inactive |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Trading Company Limited (NTTC) |
|
Hong Kong |
|
Inactive |
|
|
100 |
% |
|
|
100 |
% |
Nam Tai Investments Consultant (Macao Commercial Offshore) Company Ltd. |
|
Macao |
|
Inactive |
|
|
100 |
% |
|
|
|
(1) |
Zastron (Macao Commercial Offshore) Company Limited |
|
Macao |
|
Inactive |
|
|
100 |
% |
|
|
|
(1) |
Namtai Electronic (Shenzhen) Co., Ltd. (Namtai Shenzhen) |
|
PRC |
|
Manufacturing and trading |
|
|
100 |
% |
|
|
100 |
% |
Jetup Electronic (Shenzhen) Co., Ltd. (Jetup) |
|
PRC |
|
Manufacturing and trading |
|
|
100 |
% |
|
|
|
(2) |
Zastron Electronic (Shenzhen) Co. Ltd. (Zastron Shenzhen) |
|
PRC |
|
Manufacturing and trading |
|
|
100 |
% |
|
|
100 |
% |
Wuxi Zastron Precision-Flex Co., Ltd. (Wuxi Zastron Flex) |
|
PRC |
|
Manufacturing and trading |
|
|
100 |
% |
|
|
100 |
% |
Wuxi Zastron Precision-Tech Co., Ltd. (Wuxi Zastron Tech) |
|
PRC |
|
Manufacturing and trading |
|
|
100 |
% |
|
|
|
(3) |
Namtai Japan Company Limited |
|
Japan |
|
Provision of sales co-ordination and marketing services |
|
|
100 |
% |
|
|
|
(1) |
|
|
|
(1) |
|
De-registered during the year ended December 31, 2010. |
|
(2) |
|
Merged with Zastron Shenzhen during the year ended December 31, 2010. |
|
(3) |
|
Merged with Wuxi Zastron Flex during the year ended December 31, 2010. |
Significant Transactions
|
(i) |
|
In February 2008, the Company entered into a share purchase agreement with
an independent third party, pursuant to which the Company agreed to sell its entire interest
in JIC Technology and its subsidiaries to this independent third party for a cash
consideration of approximately $51,100. The disposal was completed in March 2008 and
resulted in a net gain of approximately $20,206. Upon the completion of the disposal, the
Company no longer has any equity interest in JIC Technology and its subsidiaries, including
the Namtek group. |
|
|
(ii) |
|
In May, June and July 2008, the Company further acquired a total of
14,986,000 ordinary shares of NTEEP for cash consideration of $2,906 resulting in 74.88%
equity interest held in NTEEP as of December 31, 2008. |
|
|
(iii) |
|
In 2009, the Company acquired all of the outstanding
221,455,118 ordinary shares of NTEEP it did not own for a cash consideration of $43,434 and
completed the privatization of NTEEP. As a result of the privatization, the additional
paid-in capital increased by $2,430 in 2009. |
Retained Earnings and Reserves
|
The Companys retained earnings are not restricted as to the payment of dividends except to
the extent dictated by prudent business practices. The Company believes that there are no
material restrictions, including foreign exchange controls, on the ability of its non-PRC
subsidiaries to transfer surplus funds to the Company in the form of cash dividends, loans,
advances or purchases. With respect to the Companys PRC subsidiaries, there are restrictions
on the payment of dividends and the distribution of dividends from the PRC. on March 16,
2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the New Law) by
Order No. 63 of the President of the PRC. Please refer to Note 12 for further details of the
New Law. The New Law became effective from January 1, 2008. Prior to the enactment of the New
Law, when dividends are paid by the Companys PRC subsidiaries, such dividends would reduce
the amount of reinvested profits and accordingly, the refund of taxes paid might be reduced
to the extent of tax applicable to profits not reinvested. Subsequent to the enactment of the
New Law, due to the removal of tax benefit related to reinvestment of capital in PRC
subsidiaries, the Company may not reinvest the profits made by the PRC subsidiaries. Payment
of dividends by PRC subsidiaries to foreign investors on profits earned subsequent to January
1, 2008 will also be subject to withholding tax under the New Law. In addition, pursuant to
the relevant PRC regulations, a certain portion of the profits made by these subsidiaries
must be set aside for future capital investment and are not distributable, and the registered
capital of the Companys PRC subsidiaries are also restricted. These reserves and registered
capital of the PRC subsidiaries amounted to $270,548 and $294,691 as of December 31, 2009 and
2010, respectively. However, the Company believes that such restrictions will not have a
material effect on the Companys liquidity or cash flows. |
F-16
7. |
|
Accrued Expenses and Other Payables |
|
|
Accrued expenses and other payables consisted of the following: |
|
|
|
|
|
|
|
|
|
At December 31, |
|
2009 |
|
|
2010 |
|
Accrued salaries |
|
$ |
3,258 |
|
|
$ |
4,744 |
|
Accrued bonus |
|
|
844 |
|
|
|
4,561 |
|
Accrued tooling and equipment charges |
|
|
2,112 |
|
|
|
553 |
|
Accrued professional fees |
|
|
1,826 |
|
|
|
1,709 |
|
Construction payable |
|
|
2,785 |
|
|
|
1,102 |
|
Others |
|
|
5,572 |
|
|
|
4,815 |
|
|
|
|
|
|
$ |
16,397 |
|
|
$ |
17,484 |
|
|
|
|
8. |
|
Bank Loans and Banking Facilities |
|
|
The subsidiaries of the Company have credit facilities with various banks representing notes
payable, trade acceptances, import facilities, revolving loans and overdrafts. At December
31, 2009 and 2010, these facilities totaled $5,129 and $14,130, of which $4,144 and $14,130
were unused at December 31, 2009 and 2010, respectively. The maturity of these facilities is
generally up to 90 days. Interest rates are generally based on the banks usual lending
rates in Hong Kong or the PRC and the credit lines are normally subject to annual review. The
banking facilities are secured by guarantee given by Nam Tai and Namtai Shenzhen. |
|
|
|
Total banking facilities utilized which are usance bills pending maturity may not agree to
notes payable due to bank having not yet received the bills of goods from vendors as of the
balance sheet date. |
|
|
|
|
|
|
|
|
|
At December 31, |
|
2009 |
|
|
2010 |
|
Usance bills pending maturity |
|
$ |
985 |
|
|
$ |
|
|
|
|
|
Total banking facilities utilized |
|
|
985 |
|
|
|
|
|
Less: Outstanding letters of credit |
|
|
(294 |
) |
|
|
|
|
|
|
|
Notes payable |
|
$ |
691 |
|
|
$ |
|
|
|
|
|
|
|
The notes payable carried no interest during 2009. |
|
(a) |
|
The Company has only one class of common shares authorized, issued and
outstanding. |
|
|
(b) |
|
Stock Options |
|
|
|
|
In May 2001 (and amended in July 2004 and in November 2006), the Board of Directors
approved a stock option plan which would grant 15,000 options to each non-employee
director of the Company elected at each annual general meeting of shareholders, and
might grant options to key employees, consultants or advisors of the Company or any of
its subsidiaries to subscribe for its shares in accordance with the terms of this
stock option plan based on past performance and/or expected contributions to the
Company. The maximum number of shares to be issued pursuant to the exercise of options
granted was 3,300,000 shares. The options granted under this plan generally have a
term of two to three years, subject to the discretion of the Board of Directors, but
cannot exceed ten years. |
F-17
|
(b) |
|
Stock Options continued |
|
|
|
|
In February 2006, the Board of Directors approved another stock option plan, which was
subsequently approved by the shareholders at the 2006 annual general meeting of
shareholders, with the same terms and conditions. However, the maximum number of shares to
be issued pursuant to exercise of options granted was 2,000,000 shares. |
|
|
|
|
A summary of stock option activity during the three years ended December 31, 2010 is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
average fair |
|
|
|
Number of |
|
|
exercise |
|
|
value per |
|
|
|
options |
|
|
price |
|
|
option |
|
|
Outstanding and exercisable at January 1, 2008 |
|
|
295,000 |
|
|
$ |
18.19 |
|
|
$ |
5.24 |
|
Granted |
|
|
175,000 |
|
|
$ |
10.79 |
|
|
$ |
1.34 |
|
Expired |
|
|
(90,000 |
) |
|
$ |
21.62 |
|
|
$ |
6.95 |
|
Canceled |
|
|
(140,000 |
) |
|
$ |
10.51 |
|
|
$ |
1.71 |
|
Repurchased |
|
|
(225,000 |
) |
|
$ |
15.57 |
|
|
$ |
3.62 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2008 |
|
|
15,000 |
|
|
$ |
22.25 |
|
|
$ |
6.64 |
|
Granted |
|
|
75,000 |
|
|
$ |
4.41 |
|
|
$ |
0.89 |
|
Expired |
|
|
(15,000 |
) |
|
$ |
22.25 |
|
|
$ |
6.64 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2009 |
|
|
75,000 |
|
|
$ |
4.41 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
60,000 |
|
|
$ |
4.45 |
|
|
$ |
1.58 |
|
Surrendered |
|
|
(15,000 |
) |
|
$ |
4.41 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2010 |
|
|
120,000 |
|
|
$ |
4.43 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2008, 225,000 stock options were repurchased and canceled by the Company.
The repurchase prices of these options were the same as the fair values of these options
calculated on the date of repurchase and the amounts paid for the repurchases were charged
to equity. |
|
|
|
|
Details of the options granted by the Company in 2008, 2009 and 2010 are as follows: |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Exercise |
|
|
options granted |
|
Vesting period |
|
price |
|
Exercisable period |
In 2008 |
|
|
|
|
|
|
|
|
50,000
|
|
100% vested at date of grant
|
|
$ |
9.86 |
|
|
February 5, 2008 to February 4, 2011 (note 2) |
75,000
|
|
100% vested at date of grant
|
|
$ |
12.03 |
|
|
June 6, 2008 to June 5, 2011 (note 1) |
50,000
|
|
100% vested at date of grant
|
|
$ |
9.86 |
|
|
September 24, 2008 to September 24, 2011
(note 2) |
|
In 2009 |
|
|
|
|
|
|
|
|
75,000
|
|
100% vested at date of grant
|
|
$ |
4.41 |
|
|
June 5, 2009 to June 4, 2012 (note 3) |
|
In 2010 |
|
|
|
|
|
|
|
|
60,000
|
|
100% vested at date of grant
|
|
$ |
4.45 |
|
|
June 3, 2010 to June 2, 2013 |
|
|
|
Notes: |
|
|
|
1. |
|
These options were repurchased during 2008. |
|
2. |
|
These options were canceled during 2008. |
|
3. |
|
15,000 of these stock options were surrendered during 2010. |
F-18
|
(b) |
|
Stock Options continued |
|
|
|
|
As of December 31, 2010, there were no non-vested stock options. The total amount of
recognized compensation expense in 2008, 2009 and 2010 was $955, $67 and $95,
respectively. |
|
|
|
|
The following summarizes information about stock options outstanding at December 31, 2010.
120,000 stock options are exercisable as of December 31, 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
Number |
|
remaining contractual |
Weighted average exercise price |
|
of options |
|
life in months |
$4.43
|
|
|
120,000 |
|
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of the stock options outstanding at
December 31, 2008, 2009 and 2010 was approximately 5, 29 and 23 months, respectively. The
weighted average fair value of options granted during 2008, 2009 and 2010 was $1.34, $0.89
and $1.58, respectively, using the Black-Scholes option-pricing model based on the
following assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
Risk-free interest rate |
|
2.08% to 2.73% |
|
|
1.50 |
% |
|
|
1.25 |
% |
Expected life |
|
3 years |
|
3 years |
|
|
3 years |
|
Expected volatility |
|
35.49% to 38.00% |
|
|
52.34 |
% |
|
|
51.23 |
% |
Expected dividend yield |
|
|
8.16% |
|
|
|
9.98 |
% |
|
|
|
|
|
(c) |
|
Share Buy back |
|
|
|
|
No shares were repurchased during the years ended December 31, 2008, 2009 and 2010. |
|
|
(d) |
|
Share Redemptions and Reinstatement of Redeemed Shares |
|
|
|
|
On January 22, 1999, pursuant to its Articles of Association, the Company redeemed
and canceled 415,500 shares of the Company registered in the name of Tele-Art Inc.
(Tele-Art) at a price of $3.73 per share for $1,549. |
|
|
|
|
On August 12, 2002, pursuant to its Articles of Association, the Company redeemed and
canceled an additional 509,181 shares of the Company beneficially owned by Tele-Art at a
price of $6.14 per share for $3,125. |
|
|
|
|
No shares have been redeemed since August 12, 2002. |
|
|
|
|
On November 20, 2006, judgment was rendered by the Lords of the Judicial Committee of the
Privy Council of the United Kingdom (the Privy Council), declaring that the redemptions
by the Company of its common shares beneficially owned by Tele-Art on January 22, 1999 and
August 12, 2002 were nullities and that the register of members of the Company (i.e. the
Companys shareholders register) should be rectified to reinstate the redeemed shares
together with any other shares which have since accrued by way of exchange or dividend. |
|
|
|
|
Following the November 20, 2006 judgment, the Company received the order from the Privy
Council on January 9, 2007 to rectify the share register of Nam Tai by registering such
1,017,149 (after adjustment of the 1 for 10 stock dividend on November 7, 2003) shares
(the Redeemed Shares) in the name of Bank of China (Hong Kong) Limited (Bank of
China). In March 2007, the Company issued the 1,017,149 common shares. However, as the
court judgment was determined in 2006, the Company accounted for the obligation to
reinstate the Redeemed Shares at their fair value (i.e. market closing price) on November
20, 2006, the date of the judgment. |
F-19
10. Earnings Per Share
The calculations of basic earnings per share and diluted earnings per share are computed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average number |
|
|
Per share |
|
Year ended December 31, 2008 |
|
Income |
|
|
of shares |
|
|
amount |
|
Basic earnings per share |
|
$ |
30,635 |
|
|
|
44,803,735 |
|
|
$ |
0.68 |
|
Effect of dilutive securities Stock options |
|
|
|
|
|
|
2,046 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
30,635 |
|
|
|
44,805,781 |
|
|
$ |
0.68 |
|
|
|
|
15,000 options to purchase shares of common stock were excluded in the computation of 2008 diluted
earnings per share as their effects were anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average number |
|
|
Per share |
|
Year ended December 31, 2009 |
|
Income |
|
|
of shares |
|
|
amount |
|
Basic earnings per share |
|
$ |
1,652 |
|
|
|
44,803,735 |
|
|
$ |
0.04 |
|
Effect of dilutive securities Stock options |
|
|
|
|
|
|
6,063 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1,652 |
|
|
|
44,809,798 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average number |
|
|
Per share |
|
Year ended December 31, 2010 |
|
Income |
|
|
of shares |
|
|
amount |
|
Basic earnings per share |
|
$ |
15,006 |
|
|
|
44,803,735 |
|
|
$ |
0.33 |
|
Effect of dilutive securities Stock options |
|
|
|
|
|
|
18,025 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
15,006 |
|
|
|
44,821,760 |
|
|
$ |
0.33 |
|
|
|
|
11. Staff Retirement Plans
The Company operates a retirement benefit scheme (RBS) for all qualifying employees in
Macao (terminated in March 2009) and a Mandatory Provident Fund (MPF) scheme for all
qualifying employees in Hong Kong. The RBS and MPF are defined contribution schemes and the
assets of the schemes are managed by trustees independent to the Company.
Both the RBS and MPF are available to all employees aged 18 to 64 and with at least 60 days
of service under the employment of the Company in Macao and Hong Kong. Contributions are made
by the Company at 5% based on the staffs relevant income. The maximum relevant income for
contribution purpose per employee is $3 per month. Staff members are entitled to 100% of the
Companys contributions together with accrued returns irrespective of their length of service
with the Company, but the benefit can be withdrawn by the employees in Macao at the end of
employment contracts while the benefits are required by law to be preserved until the
retirement age of 65 for employees in Hong Kong.
According to the applicable laws and regulations in the PRC, the Company is required to contribute
10% to 11% and 20% of the stipulated salary set by the local government of Shenzhen and Wuxi
respectively. The principal obligation of the Company with respect to these retirement benefit
schemes is to make the required contributions under the scheme. No forfeited contributions may
be used by the employer to reduce the existing level of contributions.
The cost of the Companys contribution to the staff retirement plans in Macao, Hong Kong and the
PRC amounted to $1,814, $1,480 and $1,715 for the years ended December 31, 2008, 2009 and 2010,
respectively.
F-20
12. Income Taxes
The components of income before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
PRC, excluding Hong Kong and Macao |
|
$ |
3,055 |
|
|
$ |
4,629 |
|
|
$ |
25,405 |
|
Hong Kong, Macao and other jurisdictions |
|
|
35,891 |
|
|
|
(3,881 |
) |
|
|
(5,148 |
) |
|
|
|
|
|
$ |
38,946 |
|
|
$ |
748 |
|
|
$ |
20,257 |
|
|
|
|
The Companys income is not subject to taxation in BVI under the current BVI law.
Subsidiaries operating in Hong Kong and the PRC are subject to income taxes as described
below, and the subsidiaries operating in Macao are exempted from income taxes. Under the
current Cayman Islands law, NTEEP is not subject to profit tax in the Cayman Islands as it
has no business operations in the Cayman Islands. However, it may be subject to Hong Kong
income taxes as described below if they have income earned in or derived from Hong Kong, if
applicable.
The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the rate of taxation of 16.5% for the years ended December 31, 2008,
2009 and 2010 to the estimated income earned in or derived from Hong Kong during the
respective years if applicable.
On March 16, 2007, the PRC promulgated the New PRC Tax Law. Under the New Law which became
effective from January 1, 2008, inter alia, the tax refund to a foreign Investment
Enterprises (FIEs) whose foreign investor directly reinvests by way of capital injection
its share of profits obtained from that FIE or another FIE owned by the same foreign investor
in establishing or expanding an export-oriented or technologically advanced enterprise in the
PRC for a minimum period of five years under the capital reinvestment scheme is removed. In
addition, under the New Law, all enterprises (both domestic enterprises and FIEs will have
one uniform tax rate of 25%. on December 6, 2007, the State Council of the PRC issued
Implementation Regulations of the New Law. The New Law and Implementation Regulations have
changed the tax rate from 15% to 18%, 20%, 22%, 24% and 25% for years ended December 31,
2008, 2009 and 2010, and the years ending December 31, 2011 and 2012, respectively, for
Shenzhen PRC subsidiaries. Moreover, under the New Law, there is no reduction in the tax rate
for FIEs such as Namtai Shenzhen, which export 70% or more of the production value of their
products with effect from January 1, 2008. As such, the Shenzhen PRC subsidiaries do not have
any further benefit since the implementation of the New Law in 2008.
For our subsidiary in Wuxi, China, it is granted with a 5-year tax benefits. According
to the PRC tax regulation, Guo Shui Fa (2007) No. 39 issued in 2007, Wuxi Zastron Flex is
entitled to full exemption for the first two years starting 2008 and 50% exemption for the
following three years accordingly.
The Company, which has subsidiaries that are tax resident in the PRC, will be subject to the
PRC dividend withholding tax of 5% when and if undistributed earnings are declared to be paid
as dividends commencing on January 1, 2008 to the extent those dividends are paid out of
profits that arose on or after January 1, 2008.
The limitation of the Companys obligation for the 5% dividend withholding tax to only those
dividends paid out of earnings that arose on or after January 1, 2008 is due to guidance
issued by the PRC government in February 2008. As such, the Companys tax provision includes
$740, $363 and $276 of income tax expense for the 5% dividend withholding tax on the balance
of distributable earnings that arose on or after January 1, 2008 within its PRC subsidiaries
as of December 31, 2008, 2009 and 2010 respectively.
Uncertainties exist with respect to how the PRCs current income tax law applies to the
Companys overall operations, and more specifically, with regard to tax residency status. The
New Law includes a provision specifying that legal entities organized outside of the PRC will
be considered residents for PRC income tax purposes if their place of effective management or
control is within PRC. The Implementation Rules to the New Law provide that non-resident
legal entities will be considered PRC residents if substantial and overall management and
control over the manufacturing and business operations, personnel, accounting, properties,
etc. occurs within the PRC. Additional guidance is expected to be released by the PRC
government in the near future that may clarify how to apply this standard to taxpayers.
Despite the present uncertainties resulting from the limited PRC tax guidance on the issue,
the Company does not believe that its legal entities organized outside of the PRC should be
treated as residents for the New Laws purposes. If one or more of the Companys legal
entities organized outside of the PRC were characterized as PRC tax residents, the impact
would adversely affect the Companys results of operation.
The Company has made its assessment of the level of tax authority for each tax position
(including the potential application of interest and penalties) based on the technical
merits, and has measured the unrecognized tax benefits associated with the tax positions.
Based on the evaluation by the Company, it is concluded that there are no significant
uncertain tax positions requiring recognition in the consolidated financial statements. The
Company classifies interest and/or penalties related to
unrecognized tax benefits as a component of income tax provisions; however, as of December
31, 2008, 2009 and 2010, there were no interest and penalties related to uncertain tax
positions, and the Company had no material unrecognized tax benefit which would favorably
affect the effective income tax rate in future periods. The Company does not anticipate any
significant increases or decreases to its liability for unrecognized tax benefit within the
next twelve months. Other than the audit by the Hong Kong tax authorities as described
below, the tax positions for the years 2008 to 2010 may be subject to examination by the PRC
and Hong Kong tax authorities.
F-21
12.
Income Taxes-continued
Tax Dispute with Hong Kong Inland Revenue Department
Since the fourth quarter of 2007, several of our inactive subsidiaries have been
involved in tax disputes relating to tax years 1996 and later years with the Inland Revenue
Department of Hong Kong, or HKIRD, the income tax authority of the Hong Kong Government.
These disputes are discussed sequentially below.
(1) NTTC
(a) In October 2007, the HKIRD issued an assessment Determination against Nam Tai
Trading Company Limited (NTTC), a limited liability company incorporated in Hong Kong and
an indirect wholly owned subsidiary of the Company. This assessment relates to four tax years
from 1996/1997 to 1999/2000. The taxes assessed in this proceeding amount to approximately
$2,900.
After consulting Hong Kong tax experts, Nam Tai believed that the position of the HKIRD
for the years in question was incorrect as a matter of law and accordingly NTTC objected to
the HKIRDs assessment and appealed it to the Hong Kong Board of Review, an independent body
established under Hong Kong Inland Revenue Ordinance to hear appeals of HKIRD assessments. In
December 2008, the Board of Review dismissed NTTCs appeal. According to advice from Senior
Counsel in Hong Kong, the Court of Appeal in Hong Kong was unlikely to disturb the findings
of the Board of Review. Therefore, NTTC decided not to pursue an appeal.
(b) In addition to the assessment Determination of October 2007, in May 2008, the HKIRD
issued a writ against NTTC claiming taxes in the amount of approximately $3,000 for the
taxable years from 1997/1998 to 2000/2001, partially overlapping the taxes against NTTC
assessed by HKIRD in its assessment Determination of October 2007. Nam Tais defense was
struck out by the District Court in Hong Kong. According to advice from Senior Counsel in
Hong Kong, the Court of Appeal was unlikely to disturb the findings of the District Court.
Therefore, NTTC decided not to pursue an appeal against the decision of the District Court.
(c) Furthermore, from May to November 2010, the HKIRD issued three separate writs
against NTTC claiming taxes and interests on unpaid taxes, in the amount of approximately
$900, $1,100 and $120 for the taxable years from 1996/1997 to 2003/2004, from 1996/1997,
1998/1999 and 1999/2000, and from 1996/1997 to 1999/2000, respectively.
(2) NTGM
(a) The HKIRD has also made estimated assessments against Nam Tai Group Management
Limited (NTGM), another wholly owned subsidiary of Nam Tai, which has been inactive since
2005. This assessment, which relates to the tax years of 2001 and 2002, is in the amount of
approximately $172, including interest allegedly due thereon. on December 17, 2008, the Hong
Kong tax authorities issued a Writ of Summons through the District Court in Hong Kong
claiming against NTGM the amount of $172 as taxes allegedly due and payable, together with
interest, to the Hong Kong tax authorities for the fiscal years 2001 to 2002. NTGM filed its
defense on January 29, 2009, but on February 17, 2009, HKIRD filed papers seeking to strike
out NTGMs defense. As NTGMs defense was similar to the defense of NTTC and Senior Counsel
had advised that NTTCs defense was not arguable before the Court, NTGM accordingly agreed
with HKIRD to allow Judgment to be entered against NTGM by consent.
(b) On February 8, 2011, HKIRD issued a writ against NTGM claiming taxes in the amount of
approximately $855 for the taxable years 2001/2002 to 2003/2004. NTGM has instructed
Queens Counsel in the United Kingdom to prepare the defence.
(3) NTT
(a) On September 14, 2009, the HKIRD issued a writ against Nam Tai Telecom (Hong Kong)
Company Limited (NTT), a dormant company of the Company, claiming taxes in the amount of
approximately $337 for the taxable year 2002/2003. Judgment has been entered against NTT.
(b) On February 17, 2011, HKIRD issued a writ against NTT claiming taxes in the amount of
approximately $34 for the taxable year 2002/2003. NTT is considering the adoption of the
defence to be prepared by the Queens Counsel in the case of NTGM as discussed in paragraph
(2)(b) above.
F-22
12. Income Taxes-continued
|
(4) |
|
Expected Dispositions of Tax Disputes with Inactive or Dormant
Subsidiaries |
HKIRD has not accepted the explanations that it was necessary for these subsidiaries to
perform their individual functions for the whole Nam Tai group and therefore the management
fees paid by the Company by contract to support and finance all the necessary overhead
expenses of these subsidiaries (not located in Hong Kong) to contribute to the businesses
representing the administration and finance departmental functions from Vancouver, Canada for
the whole group under the corporate structure at that time were not regarded as necessary
expenses by HKIRD.
Since it is believed that it will be difficult for these subsidiaries to continue
cooperating with HKIRD in the future, if the Company discontinues financing these
subsidiaries, they will be forced to liquidate in due course. As these subsidiaries do not
conduct any business and have been inactive or dormant for some time, and have either assets
of limited book-value or no assets, Nam Tai believes that there should be no material impact
from these proceeding on the Companys financial condition, liquidity or results of
operations. Accordingly, no provision has been made regarding these assessments in Nam Tais
consolidated financial statements.
|
(5) |
|
Notices of Alleged Personal Liability for Additional Taxes Against Former
Directors and Officers for Signing NTTCs Tax Returns |
In addition to the legal cases against the inactive or dormant subsidiaries of the
Company discussed above, in January 2011, the HKIRD issued two Notices of intention to assess
additional taxes separately and personally against two former directors and officers of NTTC
in the amounts of approximately $1,540 for the taxable years 1996/1997 and 1999/2000 and
$667 for the taxable year 1997/1998. The taxable years involved in the controversy date
from 13 to 15 years ago and initial advice received from the Companys tax advisor is that it
is very rare for tax authorities to seek to attach personal liability on directors in this
situation.
The former directors and officers to whom the Notices have been directed signed the tax
returns for and on behalf of NTTC and the HKIRD has by its Notices sought to hold them
personally liable for additional taxes purportedly on the basis that the relevant tax returns
of NTTC were incorrect and contained omissions and understatements in violation of the Inland
Revenue Ordinance, the governing tax law of Hong Kong.
The Company denies that any of NTTCs tax return filings were incorrect or contained
omissions and understatements in violation of the Inland Revenue Ordinance and believes that
no incorrect tax return was ever filed.
In January 2011, through its tax professionals, NTTC submitted an Objection Letter to
the HKIRD. In February 2011, the HKIRDs Commissioner replied that it will consider the
Companys objections and the representations contained therein before making a formal
additional tax assessment.
In the meantime, NTTC has sought (a) to further clarify with the HKIRDs regarding its
tax positions in an effort to resolve the apparent misunderstanding of the HKIRD and (b)
advice from Queens Counsel in the United Kingdom in the event a defense to formal
proceedings becomes necessary. At this time, Nam Tai is unable to assess the potential
impact of these proceedings on the Company. However, the Company may be required to
indemnify and defend this matter for the former directors and officers. If forced to defend,
the Company plans to do so vigorously.
Nam Tai maintains directors and officers liability insurance against certain claims or
liabilities that may arise by reason of the status or service of its directors and officers
as such. We have informed Nam Tais directors and officers liability insurance carrier of
the HKIRDs Notices of assessment against NTTCs former directors and are awaiting its
decision on coverage.
Accordingly, no provision has been made regarding these assessments in Nam Tais consolidated
financial statements.
The current and deferred components of the income tax expense appearing in the
consolidated statements of income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
Current tax |
|
$ |
(3,670 |
) |
|
$ |
(2,087 |
) |
|
$ |
(7,828 |
) |
Deferred tax |
|
|
793 |
|
|
|
804 |
|
|
|
2,577 |
|
|
|
|
|
|
$ |
(2,877 |
) |
|
$ |
(1,283 |
) |
|
$ |
(5,251 |
) |
|
|
|
F-23
12. Income Taxes-continued
The Companys deferred tax assets and liabilities as of December 31, 2009 and 2010 are attributable to the following:
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2010 |
|
Net operating losses |
|
$ |
2,634 |
|
|
$ |
3,585 |
|
Obsolete inventories |
|
|
171 |
|
|
|
23 |
|
Allowance for doubtful accounts |
|
|
47 |
|
|
|
3 |
|
Property, plant and equipment |
|
|
4,486 |
|
|
|
5,832 |
|
Pre-operating expenses |
|
|
|
|
|
|
272 |
|
Employee severance benefits |
|
|
196 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
7,534 |
|
|
|
9,715 |
|
Less: valuation allowance |
|
|
(1,588 |
) |
|
|
(916 |
) |
|
|
|
Deferred tax assets |
|
|
5,946 |
|
|
|
8,799 |
|
|
|
|
Deferred tax liability arising from withholding tax
on undistributed earnings
of PRC subsidiaries |
|
|
(1,103 |
) |
|
|
(1,379 |
) |
|
|
|
Net deferred tax |
|
$ |
4,843 |
|
|
$ |
7,420 |
|
|
|
|
Movement of valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
At beginning of the year |
|
$ |
1,040 |
|
|
$ |
1,831 |
|
|
$ |
1,588 |
|
Current year addition (reduction) |
|
|
1,227 |
|
|
|
(276 |
) |
|
|
(672 |
) |
Disposal of a subsidiary |
|
|
(399 |
) |
|
|
|
|
|
|
|
|
Change in tax law |
|
|
(37 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
At end of the year |
|
$ |
1,831 |
|
|
$ |
1,588 |
|
|
$ |
916 |
|
|
|
|
The valuation allowance as of December 31, 2009 and 2010 was related to net operating
losses carried forward that, in the judgment of management, are more likely than not that the
assets will not be realized. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets depends
on the generation of future taxable income in which those temporary differences become
deductible.
As of December 31, 2008, 2009 and 2010, the Company had net operating losses of $3,663,
$3,326 and $5,549, respectively, which may be carried forward indefinitely. As of December
31, 2010, the Company had net operating losses of $1,341 and $10,760, which will expire in
the year ending December 31, 2014 and 2015, respectively.
A reconciliation of the income tax expense to the amount computed by applying the current tax
rate to the income before income taxes in the consolidated statements of income is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
Income before income taxes |
|
$ |
38,946 |
|
|
$ |
748 |
|
|
$ |
20,257 |
|
PRC tax rate |
|
|
18 |
% |
|
|
20 |
% |
|
|
22 |
% |
Income tax expense at PRC tax rate on income before income tax |
|
$ |
(7,010 |
) |
|
$ |
(150 |
) |
|
$ |
(4,457 |
) |
Effect of difference between Hong Kong and PRC tax rates applied to Hong Kong income |
|
|
(71 |
) |
|
|
(485 |
) |
|
|
(134 |
) |
Effect of change in tax law |
|
|
330 |
|
|
|
364 |
|
|
|
134 |
|
Change in valuation allowance |
|
|
(1,227 |
) |
|
|
276 |
|
|
|
672 |
|
Deferred tax liability on withholding tax on undistributed profits of PRC subsidiaries |
|
|
(740 |
) |
|
|
(363 |
) |
|
|
(276 |
) |
Effect of income not taxable for tax purpose |
|
|
7,307 |
|
|
|
|
|
|
|
|
|
Tax benefit (expense) arising from items which are not assessable (deductible) for tax purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
Exempted interest income |
|
|
57 |
|
|
|
|
|
|
|
|
|
Exempted exchange gain |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
Non-deductible legal and professional fees |
|
|
(146 |
) |
|
|
|
|
|
|
|
|
Non-deductible impairment loss on goodwill |
|
|
(3,122 |
) |
|
|
|
|
|
|
|
|
Non-deductible and non-taxable items |
|
|
655 |
|
|
|
(766 |
) |
|
|
(777 |
) |
Under-provision of income tax expense in prior years |
|
|
|
|
|
|
(46 |
) |
|
|
(69 |
) |
Others |
|
|
90 |
|
|
|
(113 |
) |
|
|
(344 |
) |
|
|
|
Income tax expense |
|
$ |
(2,877 |
) |
|
$ |
(1,283 |
) |
|
$ |
(5,251 |
) |
|
|
|
No income tax arose in the United States of America in any of the periods presented.
F-24
13. Financial Instruments
The Companys financial instruments that are exposed to concentrations
of credit risk consist primarily of its cash and cash equivalents and
accounts receivable. As at December 31, 2010, the largest three
customers trade receivables accounted for 41%, 15% and 12% of total
accounts receivable.
The Companys cash and cash equivalents are deposits placed at banks
with high credit ratings. This investment policy limits the Companys
exposure to credit risk.
The accounts receivable balances largely represent amounts due from
the Companys principal customers who are international organizations
with high credit ratings. Letters of credit are the principal security
obtained to support lines of credit or negotiated contracts from a
customer. As a consequence, credit risk is limited. Allowance for
doubtful debts was $59 and $13 as of December 31, 2009 and 2010,
respectively.
14. Commitments and Contingencies
(a) Commitments
Our
contractual obligations, including capital expenditures and future minimum lease payments
under non-cancelable operating lease arrangements as of December 31, 2010 are summarized
below. We do not participate in, or secure financing for, any unconsolidated limited purpose
entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments (in thousands) due by period |
|
Contractual Obligation |
|
Total |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
Operating
leases(1) |
|
$ |
1,016 |
|
|
$ |
1,016 |
|
|
$ |
|
(2) |
|
$ |
|
|
Capital
commitments(3) |
|
|
4,923 |
|
|
|
4,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,939 |
|
|
$ |
5,939 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
Company leases the staff quarters in Wuxi, the LCD facilities in
Shenzhen, the office premise and directors quarter in Hong Kong under operating leases
expiring from 2011 to 2012. The rental expenses charged for the years ended
December 31, 2008, 2009 and 2010 amounted to $1,840,
$1,849 and $2,022, respectively.
(2) The lease expiring in 2012 is cancelable giving six months notice.
(3) Capital
commitments included the outstanding consideration for the acquisition of a commercial property with floor area of approximately 2,200 square
feet at Unit 1201, 12th Floor, Tower 1, Lippo Centre, 89 Queensway, Admiralty, Hong Kong. The purchase price for the
property was approximately $4.3 million, which the Company paid in cash and the transaction was completed in
February 2011.
(b) Significant legal proceedings
Save as disclosed in Note 12, there is no other significant legal proceeding as of December 31, 2010.
15. Segment Information
The Chief Operating
Decision Maker is identified as the Chief Executive Officer and Chief
Financial Officer, reviews these segment results
when making decisions about allocating resources and assessing the performance of the Company.
During 2008 and 2009, the Company operated primarily in three reportable segments consisting of telecommunication components
assembly (TCA), consumer electronics and communication
products (CECP), and LCD products (LCDP). In 2010, pursuant
to the merging of the Companys two PRC subsidiaries represented by LCDP and TCA segments into one Shenzhen subsidiary in 2010, the chief operating decision maker
reviews the segment results by two business segments (TCA and CECP) when making decisions about allocating resources and
assessing performance. The change in presentation of segment reporting was due to the following:
|
|
Most of the LCDP business has been mainly LCD modules assembling for telecommunication products in 2010, which is similar to the business operated by TCA.
In view of the similarity of the products, we have merged the LCDP segment into the TCA segment; |
|
|
|
After the merger, all the TCA business is ran by one management team; |
|
|
|
We discontinued our CECP production for bluetooth headsets and calculators with two major box-built customers in the fourth quarter 2010, and that quarter will be the last quarter for the camera products made for the remaining major customer be classified under CECP as
management has decided to reclassify this business to TCA to reflect its component assembly nature in 2011; |
|
|
|
In 2010, the Flexible Printed Circuit Board (FPCB) business was too insignificant to be classified as one business segment. In addition, FPCB is regarded as WIP (work-in-progress)
for internal use by the Company, i.e. it is manufactured for a more value-adding process, FPC assembling. |
The segment information in 2008 and 2009 have been
restated in order to conform with the change in segment reporting in
2010 in accordance with FASB
ASC 280-10-50-34. The results of the former LCDP segment were included in the TCA segment in 2008 and 2009.
F-25
15. Segment Information-continued
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Net sales third parties |
|
$ |
351,487 |
|
|
$ |
271,365 |
|
|
$ |
|
|
|
$ |
622,852 |
|
Cost of sales |
|
|
(330,772 |
) |
|
|
(221,402 |
) |
|
|
|
|
|
|
(552,174 |
) |
|
|
|
Gross profit |
|
|
20,715 |
|
|
|
49,963 |
|
|
|
|
|
|
|
70,678 |
|
General and administrative expenses * |
|
|
(14,583 |
) |
|
|
(10,813 |
) |
|
|
(3,716 |
) |
|
|
(29,112 |
) |
Selling expenses * |
|
|
(3,210 |
) |
|
|
(3,735 |
) |
|
|
|
|
|
|
(6,945 |
) |
Research and development expenses |
|
|
(5,394 |
) |
|
|
(5,496 |
) |
|
|
|
|
|
|
(10,890 |
) |
Impairment loss on goodwill |
|
|
(17,345 |
) |
|
|
|
|
|
|
|
|
|
|
(17,345 |
) |
Other income, net |
|
|
666 |
|
|
|
4,429 |
|
|
|
1,333 |
|
|
|
6,428 |
|
Gain on sales of subsidiaries shares |
|
|
|
|
|
|
|
|
|
|
20,206 |
|
|
|
20,206 |
|
Interest income |
|
|
964 |
|
|
|
2,801 |
|
|
|
2,517 |
|
|
|
6,282 |
|
Interest expense |
|
|
(356 |
) |
|
|
|
|
|
|
|
|
|
|
(356 |
) |
|
|
|
(Loss) income before income taxes |
|
|
(18,543 |
) |
|
|
37,149 |
|
|
|
20,340 |
|
|
|
38,946 |
|
Income taxes |
|
|
1,401 |
|
|
|
(4,278 |
) |
|
|
|
|
|
|
(2,877 |
) |
|
|
|
Consolidated net (loss) income |
|
|
(17,142 |
) |
|
|
32,871 |
|
|
|
20,340 |
|
|
|
36,069 |
|
Net loss (income) attributable to
noncontrolling interests |
|
|
78 |
|
|
|
(5,512 |
) |
|
|
|
|
|
|
(5,434 |
) |
|
|
|
Net (loss) income attributable to
Nam Tai shareholders |
|
$ |
(17,064 |
) |
|
$ |
27,359 |
|
|
$ |
20,340 |
|
|
$ |
30,635 |
|
|
|
|
Year
ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Net sales third parties |
|
$ |
292,074 |
|
|
$ |
116,063 |
|
|
$ |
|
|
|
$ |
408,137 |
|
Cost of sales |
|
|
(273,011 |
) |
|
|
(94,806 |
) |
|
|
|
|
|
|
(367,817 |
) |
|
|
|
Gross profit |
|
|
19,063 |
|
|
|
21,257 |
|
|
|
|
|
|
|
40,320 |
|
General and administrative expenses |
|
|
(17,085 |
) |
|
|
(7,155 |
) |
|
|
(4,153 |
) |
|
|
(28,393 |
) |
Selling expenses |
|
|
(3,248 |
) |
|
|
(2,018 |
) |
|
|
|
|
|
|
(5,266 |
) |
Research and development expenses |
|
|
(2,987 |
) |
|
|
(3,286 |
) |
|
|
|
|
|
|
(6,273 |
) |
Other income (expenses), net |
|
|
262 |
|
|
|
78 |
|
|
|
(596 |
) |
|
|
(256 |
) |
Interest income |
|
|
78 |
|
|
|
476 |
|
|
|
264 |
|
|
|
818 |
|
Interest expense |
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
|
(202 |
) |
|
|
|
(Loss) income before income taxes |
|
|
(4,119 |
) |
|
|
9,352 |
|
|
|
(4,485 |
) |
|
|
748 |
|
Income taxes |
|
|
1,400 |
|
|
|
(2,683 |
) |
|
|
|
|
|
|
(1,283 |
) |
|
|
|
Consolidated net (loss) income |
|
|
(2,719 |
) |
|
|
6,669 |
|
|
|
(4,485 |
) |
|
|
(535 |
) |
Net loss attributable to noncontrolling interests |
|
|
2,146 |
|
|
|
41 |
|
|
|
|
|
|
|
2,187 |
|
|
|
|
Net (loss) income attributable to Nam Tai
shareholders |
|
$ |
(573 |
) |
|
$ |
6,710 |
|
|
$ |
(4,485 |
) |
|
$ |
1,652 |
|
|
|
|
F-26
15.
Segment Information continued
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Net sales third parties |
|
$ |
401,259 |
|
|
$ |
133,161 |
|
|
$ |
|
|
|
$ |
534,420 |
|
Cost of sales |
|
|
(375,250 |
) |
|
|
(107,876 |
) |
|
|
|
|
|
|
(483,126 |
) |
|
|
|
Gross profit |
|
|
26,009 |
|
|
|
25,285 |
|
|
|
|
|
|
|
51,294 |
|
General and administrative expenses |
|
|
(12,143 |
) |
|
|
(6,074 |
) |
|
|
(7,015 |
) |
|
|
(25,232 |
) |
Selling expenses |
|
|
(4,346 |
) |
|
|
(1,158 |
) |
|
|
|
|
|
|
(5,504 |
) |
Research and development expenses |
|
|
(3,558 |
) |
|
|
(2,199 |
) |
|
|
|
|
|
|
(5,757 |
) |
Other income, net |
|
|
2,080 |
|
|
|
1,064 |
|
|
|
828 |
|
|
|
3,972 |
|
Interest income |
|
|
303 |
|
|
|
574 |
|
|
|
607 |
|
|
|
1,484 |
|
|
|
|
Income (loss) before income taxes |
|
|
8,345 |
|
|
|
17,492 |
|
|
|
(5,580 |
) |
|
|
20,257 |
|
Income taxes |
|
|
(1,728 |
) |
|
|
(3,523 |
) |
|
|
|
|
|
|
(5,251 |
) |
|
|
|
Consolidated net income (loss) |
|
|
6,617 |
|
|
|
13,969 |
|
|
|
(5,580 |
) |
|
|
15,006 |
|
|
|
|
Net income (loss) attributable to
Nam Tai shareholders |
|
$ |
6,617 |
|
|
$ |
13,969 |
|
|
$ |
(5,580 |
) |
|
$ |
15,006 |
|
|
|
|
|
|
|
* |
|
The 2009 and 2010 presentations show general and administrative expenses and selling
expenses as separate line items, whereas the Companys consolidated statement of income for 2008,
as originally published, combined general and administrative expenses and selling expenses as a
single line item labeled Selling, general and administrative expenses. Selling, general and
administrative expenses for 2008 have been presented separately in the segment information to
conform to the 2009 and 2010 presentations. |
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Depreciation and amortization |
|
$ |
15,358 |
|
|
$ |
6,846 |
|
|
$ |
4 |
|
|
$ |
22,208 |
|
Capital expenditures |
|
$ |
43,541 |
|
|
$ |
1,894 |
|
|
$ |
|
|
|
$ |
45,435 |
|
Total assets |
|
$ |
207,493 |
|
|
$ |
189,889 |
|
|
$ |
116,679 |
|
|
$ |
514,061 |
|
Year
ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Depreciation and amortization |
|
$ |
16,597 |
|
|
$ |
6,516 |
|
|
$ |
3 |
|
|
$ |
23,116 |
|
Capital expenditures |
|
$ |
24,806 |
|
|
$ |
176 |
|
|
$ |
|
|
|
$ |
24,982 |
|
Total assets |
|
$ |
183,887 |
|
|
$ |
112,058 |
|
|
$ |
107,979 |
|
|
$ |
403,924 |
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
CECP |
|
Corporate |
|
Total |
Depreciation and amortization |
|
$ |
18,134 |
|
|
$ |
5,839 |
|
|
$ |
495 |
|
|
$ |
24,468 |
|
Capital expenditures |
|
$ |
4,409 |
|
|
$ |
123 |
|
|
$ |
80 |
|
|
$ |
4,612 |
|
Total assets |
|
$ |
197,083 |
|
|
$ |
55,569 |
|
|
$ |
198,128 |
|
|
$ |
450,780 |
|
There were no material inter-segment sales for the years ended December 31, 2008, 2009 and
2010.
F-27
15. Segment Information continued
A summary of the percentage of net sales of each of the Companys product lines of each
segment for the years ended December 31, 2008, 2009 and 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
2009 |
|
2010 |
Product line |
|
|
|
|
|
|
|
|
|
|
|
|
TCA |
|
|
56 |
% |
|
|
72 |
% |
|
|
75 |
% |
CECP |
|
|
44 |
% |
|
|
28 |
% |
|
|
25 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
A summary of net sales, net income (loss) attributable to Nam Tai shareholders and
long-lived assets by geographical areas is as follows:
By geographical area:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
2009 |
|
2010 |
Net sales from operations within: |
|
|
|
|
|
|
|
|
|
|
|
|
- PRC, excluding Hong Kong and Macao: |
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
$ |
622,852 |
|
|
$ |
408,137 |
|
|
$ |
534,420 |
|
Intercompany sales |
|
|
141 |
|
|
|
19 |
|
|
|
1,222 |
|
|
|
|
|
|
$ |
622,993 |
|
|
$ |
408,156 |
|
|
$ |
535,642 |
|
|
|
|
- Intercompany eliminations |
|
|
(141 |
) |
|
|
(19 |
) |
|
|
(1,222 |
) |
|
|
|
Total net sales |
|
$ |
622,852 |
|
|
$ |
408,137 |
|
|
$ |
534,420 |
|
|
|
|
Net income (loss) attributable to Nam Tai shareholders within: |
|
|
|
|
|
|
|
|
|
|
|
|
- PRC, excluding Hong Kong and Macao |
|
$ |
(4,542 |
) |
|
$ |
5,533 |
|
|
$ |
20,154 |
|
- Hong Kong and Macao |
|
|
35,177 |
|
|
|
(3,881 |
) |
|
|
(5,148 |
) |
|
|
|
Total net income attributable to Nam Tai shareholders |
|
$ |
30,635 |
|
|
$ |
1,652 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
2009 |
|
2010 |
Net sales to customers by geographical area: |
|
|
|
|
|
|
|
|
|
|
|
|
- Hong Kong |
|
$ |
226,020 |
|
|
$ |
116,254 |
|
|
$ |
103,337 |
|
- Europe |
|
|
136,888 |
|
|
|
47,577 |
|
|
|
64,587 |
|
- United States |
|
|
108,150 |
|
|
|
41,147 |
|
|
|
51,963 |
|
- PRC (excluding Hong Kong) |
|
|
86,968 |
|
|
|
43,300 |
|
|
|
16,578 |
|
- Japan |
|
|
11,623 |
|
|
|
140,923 |
|
|
|
291,883 |
|
- North America (excluding United States) |
|
|
15,775 |
|
|
|
762 |
|
|
|
914 |
|
- Korea |
|
|
9,411 |
|
|
|
1,503 |
|
|
|
277 |
|
- Others |
|
|
28,017 |
|
|
|
16,671 |
|
|
|
4,881 |
|
|
|
|
Total net sales |
|
$ |
622,852 |
|
|
$ |
408,137 |
|
|
$ |
534,420 |
|
|
|
|
F-28
15. Segment Information continued
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
2008 |
|
|
2009 |
|
|
2010 |
|
Long-lived assets by geographical area: |
|
|
|
|
|
|
|
|
|
|
|
|
- PRC, excluding Hong Kong and Macao |
|
$ |
121,475 |
|
|
$ |
121,286 |
|
|
$ |
101,014 |
|
- Hong Kong and Macao |
|
|
185 |
|
|
|
120 |
|
|
|
145 |
|
|
|
|
Total long-lived assets |
|
$ |
121,660 |
|
|
$ |
121,406 |
|
|
$ |
101,159 |
|
|
|
|
Intercompany sales arise from the transfer of finished goods between subsidiaries operating
in different areas. These sales are generally at prices consistent with what the Company
would charge third parties for similar goods.
The Companys sales to customers which accounted for 10% or more of its sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2008 |
|
2009 |
|
2010 |
A |
|
$ |
102,894 |
|
|
$ |
94,015 |
|
|
|
N/A |
|
B |
|
|
95,911 |
|
|
|
41,559 |
|
|
|
94,644 |
|
C |
|
|
95,508 |
|
|
|
72,922 |
|
|
|
63,803 |
|
D |
|
|
65,269 |
|
|
|
N/A |
|
|
|
N/A |
|
E |
|
|
N/A |
|
|
|
49,770 |
|
|
|
131,873 |
|
F |
|
|
N/A |
|
|
|
N/A |
|
|
|
88,952 |
|
|
|
|
|
|
$ |
359,582 |
|
|
$ |
258,266 |
|
|
$ |
379,272 |
|
|
|
|
16. Employee Severance Benefits
As a result of the global economic crisis, the Company suffered serious
difficulties in production and business operations during 2009, and reduced the headcount
in the operating subsidiaries by approximately 1,900 from 7,104 at December 31, 2008. The
employee severance benefits in 2010 amounted to $656 (2009: $5,058), and it was recorded as
general and administrative expenses. The employee severance benefits by segment were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
|
Expenses incurred by segment: |
|
|
|
|
|
|
|
|
TCA |
|
$ |
3,360 |
|
|
$ |
|
|
CECP |
|
|
1,698 |
|
|
|
656 |
|
|
|
|
|
|
$ |
5,058 |
|
|
$ |
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
|
Provision for employee severance benefits: |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
$ |
|
|
|
$ |
979 |
|
Provision for the year |
|
|
5,058 |
|
|
|
656 |
|
Payments during the year |
|
|
(4,079 |
) |
|
|
(1,560 |
) |
|
|
|
Balance at December 31 |
|
$ |
979 |
|
|
$ |
75 |
|
|
|
|
F-29
SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF INCOME
(In thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
General and administrative expenses* |
|
$ |
(2,834 |
) |
|
$ |
(2,936 |
) |
|
$ |
(2,763 |
) |
Other income (expense), net |
|
|
1,328 |
|
|
|
(626 |
) |
|
|
23 |
|
Gain on sales of subsidiaries shares |
|
|
20,206 |
|
|
|
|
|
|
|
|
|
Interest income on loan to a subsidiary |
|
|
12,146 |
|
|
|
11,134 |
|
|
|
11,568 |
|
Interest income |
|
|
2,517 |
|
|
|
263 |
|
|
|
233 |
|
|
|
|
Income before income taxes |
|
|
33,363 |
|
|
|
7,835 |
|
|
|
9,061 |
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Income before share of net (losses) profits of subsidiaries, net of taxes |
|
|
33,363 |
|
|
|
7,835 |
|
|
|
9,061 |
|
Share of net (losses) profits of subsidiaries, net of taxes |
|
|
(2,728 |
) |
|
|
(6,183 |
) |
|
|
5,945 |
|
|
|
|
Net income attributable to Nam Tai shareholders |
|
$ |
30,635 |
|
|
$ |
1,652 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Amount of share-based compensation expense included in general and
administrative expenses |
|
$ |
290 |
|
|
$ |
67 |
|
|
$ |
95 |
|
F-30
SCHEDULE 1
NAM TAI ELECTRONICS, INC.
BALANCE SHEETS
(In thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
|
2010 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
91,398 |
|
|
$ |
88,333 |
|
Fixed deposits maturing over three months |
|
|
12,903 |
|
|
|
|
|
Prepaid expenses and other receivables |
|
|
|
|
|
|
133 |
|
Loan to a subsidiary current |
|
|
51,906 |
|
|
|
77,857 |
|
Amounts due from subsidiaries |
|
|
11,134 |
|
|
|
32,863 |
|
|
|
|
Total current assets |
|
|
167,341 |
|
|
|
199,186 |
|
|
|
|
|
|
|
|
|
|
Equipments, net |
|
|
1 |
|
|
|
|
|
Deposits for property, plant and equipment |
|
|
|
|
|
|
433 |
|
Loan to a subsidiary non-current |
|
|
233,573 |
|
|
|
207,622 |
|
Investments in subsidiaries |
|
|
(57,247 |
) |
|
|
(51,302 |
) |
|
|
|
Total assets |
|
$ |
343,668 |
|
|
$ |
355,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accrued expenses and other payables |
|
$ |
2,576 |
|
|
$ |
1,650 |
|
Dividend payable |
|
|
|
|
|
|
8,961 |
|
Amounts due to subsidiaries |
|
|
14,682 |
|
|
|
11,194 |
|
|
|
|
Total liabilities |
|
|
17,258 |
|
|
|
21,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common shares ($0.01 par value authorized 200,000,000 shares,
issued and outstanding 44,803,735 shares as at December 31, 2009 and 2010) |
|
|
448 |
|
|
|
448 |
|
Additional paid-in capital |
|
|
285,264 |
|
|
|
286,943 |
|
Retained earnings |
|
|
40,706 |
|
|
|
46,751 |
|
Accumulated other comprehensive loss |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
|
Total shareholders equity |
|
|
326,410 |
|
|
|
334,134 |
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
343,668 |
|
|
$ |
355,939 |
|
|
|
|
F-31
SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
Common Shares |
|
|
Shares |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Shareholders |
|
|
Comprehensive |
|
|
|
Outstanding |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
|
Income |
|
|
|
|
Balance at January 1, 2008 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
281,895 |
|
|
$ |
47,846 |
|
|
$ |
(8 |
) |
|
$ |
330,181 |
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
Repurchase of share options |
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,635 |
|
|
|
|
|
|
|
30,635 |
|
|
$ |
30,635 |
|
Share of subsidiaries equity
transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,635 |
|
|
|
|
|
|
Cash dividends ($0.88 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,427 |
) |
|
|
|
|
|
|
(39,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
282,767 |
|
|
$ |
39,054 |
|
|
$ |
(8 |
) |
|
$ |
322,261 |
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
Acquisition of subsidiaries share |
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,652 |
|
|
|
|
|
|
|
1,652 |
|
|
$ |
1,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,652 |
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
285,264 |
|
|
$ |
40,706 |
|
|
$ |
(8 |
) |
|
$ |
326,410 |
|
|
|
|
|
Equity-settled share-based payment |
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
Deemed contribution of services |
|
|
|
|
|
|
|
|
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
1,584 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,006 |
|
|
|
|
|
|
|
15,006 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,961 |
) |
|
|
|
|
|
|
(8,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
44,803,735 |
|
|
$ |
448 |
|
|
$ |
286,943 |
|
|
$ |
46,751 |
|
|
$ |
(8 |
) |
|
$ |
334,134 |
|
|
|
|
|
|
|
|
|
|
|
|
F-32
SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nam Tai shareholders |
|
$ |
30,635 |
|
|
$ |
1,652 |
|
|
$ |
15,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income attributable to Nam Tai shareholers to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share of net losses (profits) of subsidiaries, net of taxes |
|
|
2,728 |
|
|
|
6,183 |
|
|
|
(5,945 |
) |
Dividend income from subsidiaries |
|
|
26,446 |
|
|
|
|
|
|
|
|
|
Gain on disposal of subsidiaries |
|
|
(20,206 |
) |
|
|
|
|
|
|
|
|
Depreciation |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
Loss on disposal of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
1 |
|
Dividend withheld |
|
|
(305 |
) |
|
|
|
|
|
|
|
|
Share-based compensation expenses |
|
|
290 |
|
|
|
67 |
|
|
|
95 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other receivables |
|
|
(298 |
) |
|
|
309 |
|
|
|
(133 |
) |
Increase (decrease) in accrued expenses and other payables |
|
|
173 |
|
|
|
(779 |
) |
|
|
658 |
|
|
|
|
Net cash provided by operating activities |
|
$ |
39,464 |
|
|
$ |
7,434 |
|
|
$ |
9,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal of subsidiaries shares |
|
|
50,024 |
|
|
|
|
|
|
|
|
|
Increase in deposit for purchase of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
(433 |
) |
(Increase) decrease in fixed deposits maturing over three months |
|
|
|
|
|
|
(12,903 |
) |
|
|
12,903 |
|
Acquisition of subsidiaries shares |
|
|
(2,906 |
) |
|
|
(43,434 |
) |
|
|
|
|
(Increase) decrease in amounts due from subsidiaries |
|
|
(12,946 |
) |
|
|
1,856 |
|
|
|
(21,729 |
) |
Decrease in other assets |
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
$ |
34,436 |
|
|
$ |
(54,481 |
) |
|
$ |
(9,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in amounts due to subsidiaries |
|
|
(1,439 |
) |
|
|
14,682 |
|
|
|
(3,488 |
) |
Proceeds from loan to a subsidiary |
|
|
|
|
|
|
25,952 |
|
|
|
|
|
Payment for repurchase of share options |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
Dividend paid |
|
|
(38,774 |
) |
|
|
(9,857 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
$ |
(40,281 |
) |
|
$ |
30,777 |
|
|
$ |
(3,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
33,619 |
|
|
|
(16,270 |
) |
|
|
(3,065 |
) |
Cash and cash equivalents at beginning of year |
|
|
74,049 |
|
|
|
107,668 |
|
|
|
91,398 |
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
107,668 |
|
|
$ |
91,398 |
|
|
$ |
88,333 |
|
|
|
|
F-33
SCHEDULE 1
NAM TAI ELECTRONICS, INC.
NOTE TO SCHEDULE 1
(in thousands of US dollars)
Schedule 1 has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of
Regulation S-X, which require condensed financial information as to financial position, changes in
financial position and results and operations of a parent company as of the same dates and for the
same periods for which audited consolidated financial statements have been presented when the
restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25
percent of consolidated net assets as of end of the most recently completed fiscal year. As of
December 31, 2010, $294,691 of the restricted capital and reserves are not available for
distribution, and as such, the condensed financial information of the Company has been presented
for the years ended December 31, 2008, 2009 and 2010.
During the years ended December 31, 2008, 2009 and 2010, cash dividends of approximately $26,446,
nil and nil, respectively, were declared and paid by subsidiaries of the Company.
F-34
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report:
|
|
|
Exhibit No. |
|
Exhibit |
1.1
|
|
Memorandum and Articles of Association, as amended on June 26, 2003 (incorporated by reference to Exhibit
1.1 to the registrants Form 8-A/A filed with the SEC on December 13, 2007). |
|
|
|
4.1
|
|
2006 Stock Option Plan of Nam Tai Electronics, Inc adopted February 10, 2006 and approved on June 9, 2006
(incorporated by reference to Exhibit A attached to Exhibit 99.1 of the Form 6-K furnished to the SEC on May
15, 2006). |
|
|
|
4.2
|
|
Amendment to 2006 Stock Option Plan (incorporated by reference to Exhibit 4.1.1 to the Companys
Registration Statement on Form S-8 File No. 333-136653 included with the Company Form 6-K furnished to the
SEC on November 13, 2006). |
|
|
|
4.3
|
|
Amended 2001 Option Plan dated July 30, 2004 (incorporated by reference to Exhibit 4.18 to the Companys
Form 20-F for the year ended December 31, 2004 filed with the SEC on March 15, 2005). |
|
|
|
4.4
|
|
Amendment to 2001 Stock Option Plan (incorporated by reference to Exhibit 4.1.1 to the Companys
Registration Statement on Form S-8 File No. File No. 333-76940 included with Companys Form 6-K furnished to
the SEC on November 13, 2006). |
|
|
|
4.5
|
|
Supplemental Rental Agreement dated May 1, 2007 between Nam Tais subsidiary, Jetup Electronic
(Shenzhen) Co., Ltd and a local collective committee of Shenzhen Baoan District (incorporated by reference
to Exhibit 4.16 to the Companys
Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).* |
|
|
|
4.6
|
|
Banking Facilities Letter dated August 11, 2008 to Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co.
Ltd. from HSBC Bank (China) Company Limited for Namtai Electronic (Shenzhen) Co., Ltd. (incorporated by
reference to Exhibit 4.59 to the Companys Form 20-F for the year ended December 31, 2008 filed with the SEC
on March 13, 2009). |
|
|
|
4.7
|
|
Supplemental plant construction contractors agreement (electrical engineering) dated July 10, 2009 between
Nam Tai Subsidiary, Wuxi Zastron Precision-Flex Company Limited, and Yixing Building Engineering &
Installation Co. Ltd. (incorporated by reference to Exhibit 4.17 to
the Companys Form 20-F for the year ended December 31, 2009
filed with the SEC on March 16, 2010)* |
|
|
|
4.8
|
|
Banking Facilities Letter Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co., Ltd. and China
Construction Bank Corporation, Shenzhen Branch dated June 29, 2010 for Namtai Electronic (Shenzhen) Co.,
Ltd. to receive import facilities of up to $6,000,000.* |
|
|
|
4.9
|
|
Banking Facilities Letter dated August 6, 2009, between Nam Tais subsidiary, Namtai Electronic (Shenzhen)
Company Ltd and HSBC Bank (China) Company (renewing the Bank Facilities letter included as Exhibit 4.6
above) (incorporated by reference to Exhibit
4.18 to the Companys Form 20-F for the year ended December 31,
2009 filed with the SEC on March 16, 2010). |
|
|
|
4.10
|
|
Banking Facilities Letter between Nam Tai subsidiary, Zastron Electronic (Shenzhen) Co. Ltd., and HSBC Bank
(China) Company Limited dated October 28, 2010 for Zastron Electronic (Shenzhen) Co. Ltd. to receive import
facilities of up to $5,000,000. |
|
|
|
4.11
|
|
Guaranty of Nam Tai subsidiary Namtai Electronic (Shenzhen) Co. Ltd., in favour of HSBC Bank (China) Company
Limited with maximum liability of approximately $6 million for the banking facilities of Zastron Electronic
(Shenzhen) Co. Ltd. |
|
|
|
4.12
|
|
Employment (Letter) Agreement dated November 25, 2010 between Nam and M. K. Koo, effective on October 1,
2010, for Mr. Koos services as Nam Tais CFO. |
|
|
|
4.13
|
|
Employment (Letter) Agreement dated November 25, 2010 between Nam Tais subsidiary, Nam Tai Electronic &
Electrical Products Limited, or NTEEP, and M. K. Koo, effective on October 1, 2010, for Mr. Koos services
as NTEEPs President. |
|
|
|
8.1
|
|
Diagram of Companys
subsidiaries at December 31, 2010. See the diagram following page 21 of this Report. |
|
|
|
11.1
|
|
Code of Ethics (incorporated by reference to Exhibit 14.1 to the Companys Form 20-F for the year ended
December 31, 2004 filed with the SEC on March 15, 2005). |
|
|
|
12.1
|
|
Certification required by Rule
13a-14(a) and 18 U.S.C. Section 1350. |
|
|
|
12.2
|
|
Certification required by Rule
13a-14(a) and 18 U.S.C. Section 1350. |
|
|
|
13.1
|
|
Certification pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350. |
|
|
|
15.1
|
|
Consent of Independent Registered Public Accounting Firm Moore Stephens |
|
|
|
15.2
|
|
Consent of Independent Registered Public Accounting Firm Deloitte Touche Tohmatsu |
77
|
|
|
Exhibit No. |
|
Exhibit |
15.3
|
|
Letter of Deloitte Touche Tohmatsu, registrants former independent registered public accounting firm, dated
April 20, 2009 filed pursuant to Item 16F(a)(3) of Form 20-F (incorporated by reference to Exhibit 2 of the
Companys Form 6-K for the month of April 2009 furnished to the SEC
on April 20, 2009). |
|
|
|
* |
|
The agreement is written in Chinese and an English Translation is provided in accordance with
Form 20-F Instructions to Exhibits and Rule 12b-12(d) under the Exchange Act). |
78
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has
duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
|
|
|
|
NAM TAI ELECTRONICS, INC.
|
|
|
By: |
/s/ Koo Ming Kown |
|
|
|
Koo Ming Kown |
|
|
|
Chief Financial Officer |
|
|
Date:
March 16, 2011
79