Nam Tai Electronics, Inc. Q3 2010 Sales Up 58.3%, Net Income Up 68.9%

SHENZHEN, China, Nov. 1, 2010 /PRNewswire-FirstCall/ -- Nam Tai Electronics, Inc. ("Nam Tai" or the "Company") (NYSE Symbol: NTE) today announced its unaudited results for the third quarter ended September 30, 2010.

KEY HIGHLIGHTS

(In thousands of US Dollars, except per share data, percentages and as otherwise stated)

In addition to disclosing results determined in accordance with accounting principles generally accepted in the United States ("US GAAP") as set forth in the table above, management utilizes a measure of operating income / (loss), net income / (loss) and earnings (loss) per share on a non-GAAP basis that excludes certain income and expenses to better assess operating performance. Those non-GAAP financial measures exclude certain items, such as share-based compensation expenses and employee severance benefits in PRC subsidiaries. By disclosing the non-GAAP information, management intends to provide investors with additional information to analyze the Company's performance, core results and underlying trends. Non-GAAP information is not determined using US GAAP; therefore, the information is not necessarily comparable to other companies and should not be used to compare the Company's performance over different periods. Non-GAAP information should not be viewed as a substitute for, or superior to, net income/(loss) or other financial data prepared in accordance with US GAAP as measures of our operating results or liquidity. Users of this financial information should consider the types of events and transactions for which adjustments have been made. See the table below for a reconciliation of non-GAAP amounts to amounts reported under US GAAP.

GAAP TO NON-GAAP RECONCILIATION

(In millions of US Dollars, except for per share (diluted) and numbers of shares)

OPERATIONS REVIEW

Management attributes Nam Tai's success and growth in profitability in the third quarter of 2010, both year-over-year and sequentially from the second quarter of this year, as reflective not only of strong sales during the third quarter, but also to the cumulative effects of the simplification of the Company's corporate organization structure and continued focus on management controls and enterprise efficiencies, which have resulted in cost savings.  

Sales in the third quarter of 2010 were $174.7 million, an increase of 58.3% as compared to sales of $110.4 million in the same quarter of 2009.  The Company's gross profit margin in the third quarter of 2010 was 10.2%, down from 11.4% in the third quarter of 2009. The year-over-year decline in gross profit margin was attributable to start-up losses stemming from the Company's newly inaugurated production of flexible printed circuit board, or FPCB, at its facilities in Wuxi, near the East Coast of the PRC, which was completed in, and equipped at the end of, 2009, and a change in product mix. Gross profit in the third quarter of 2010 was $17.9 million, an increase of 41.6%, as compared to $12.6 million in the third quarter of 2009, primarily resulting from the increase of sales and the effects of costs savings.

Net income in the third quarter of 2010 was $7.6 million, an increase of 68.9% as compared to net income attributable to Nam Tai shareholders of $4.5 million in the same quarter of 2009. The profit in the third quarter of 2010 primarily resulted from the overall increase of sales. Basic and diluted earnings per share in the third quarter of 2010 were $0.17, as compared to $0.10 in the third quarter of 2009.

For the nine months ended September 30, 2010, our net sales were $367.9 million, an increase of 17.0% as compared to $314.4 million in the same period of last year. Sales during the nine months ended September 30, 2010 are attributable mainly to the increase in sales from TCA segment. The Company's gross profit margin was 10.1% as compared to 9.6% in the same period of 2009. Gross profit was $37.1 million, an increase of 22.9%, as compared to $30.2 million in the same period of last year.

Net income for the nine months ended September 30, 2010 was $9.7 million, as compared to net income attributable to Nam Tai shareholders of $1.2 million in the same period of last year. Basic and diluted earnings per share in the nine months ended September 30, 2010 were $0.22, as compared to $0.03 for the same period of last year.

Non-GAAP Financial Information

Non-GAAP operating income for the third quarter of 2010 was $7.3 million, or $0.16 per share (diluted), compared to non-GAAP operating income of $4.8 million, or $0.11 per share (diluted), in the third quarter of 2009. Non-GAAP net income for the third quarter of 2010 increased to $7.6 million or $0.17 per share (diluted), compared to $4.5 million, or $0.10 per share (diluted), in the third quarter of 2009.

EXPANSION PROJECTS

Currently, the Company has two separate projects under consideration for future expansion.

One is the development of the Company's raw land in Guangming Hi-Tech Industrial Park, Shenzhen, PRC, approximately 30 minutes driving distance from its existing facilities in Gushu, Shenzhen consisting of approximately 118,000 square meters. The Company is still awaiting the release of this land by the PRC government and, when released, plans to reserve future development for long-term expansion of business.

The other is expansion of the Company's Wuxi facilities regarding the acquisition of additional real estate just beside the Company's current Wuxi facility for necessary supporting facilities such as dormitories, canteen, labor activity center and research laboratory to back up and service the existing operations and for reserving for further expansion of the production.

Management currently expects to fund the above expansion internally with cash on hand and cash generated from operations.

COMPANY OUTLOOK

Following a marginal first half of 2010, the Company's business showed substantial improvement in the third quarter. Orders for optical and educational products in our CECP segment, although dropping considerably from previous years and expected to remain weak in 2010, increased in the third quarter and are expected to remain stable to levels in 2009 for the balance of 2010.  Demand for LCD modules and telecommunication subassemblies increased considerably during the third quarter and are expected to show similar momentum into the fourth quarter. Based on these developments, we believe that Nam Tai's overall business in the fourth quarter will be strong, although the usual seasonal decline at the end of 2010 should be anticipated.  We continue to forecast that business for 2010 as a whole will exceed 2009.  

So far in 2010, we have integrated management of our TCA and LCDP segment to reduce expenses. Sales of products manufactured at our newly operating FPC manufacturing plant in Wuxi have not materially contributed to the Company's total revenue and operations from that facility continue to consume more cash than it generates.  However, the Company's confidence in the potential for FPC business at this facility remains strong.  We have successfully recruited a new senior executive to manage and spearhead operations at our Wuxi facilities, who brings to Nam Tai expertise from over 20 years in technology manufacturing, management of factory operations and FPC product and business development, the most recent 10 years of which were in the PRC at manufacturing facilities relatively close in proximity to the Company's site in Wuxi. For further information on Nam Tai's new President of FPC manufacturing in Wuxi, please see the background summary of Mr. Tohru Odashima in the discussion of senior management changes below.

The Company plans to continue to focus its business on manufacturing high value and higher margin LCD modules geared toward applications in market segments which we perceive as strong such as telecommunications, medical and automotive. For the automotive market segment, we have recently established a strategic long term supply arrangement for liquid crystal display ("LCD") panels and LCD modules to a large US-listed first-tier automotive components OEM, which supplies to major automobile manufacturers globally.

We anticipate that the improvements in operations that we have achieved so far in 2010, and expect to continue to achieve, to be mitigated not only by global economic factors generally, but by factors specific to conducting business in the PRC, including:

• Appreciation of the exchange rate between Chinese renminbi against other world currencies, especially the U.S. dollar, which, since mid-June 2010 when China's central bank announced that it planned to introduce more flexibility in the management of the renminbi, has appreciated against the US dollar, increasing approximately 2.4% from, according to the historical currency converter available at http://forex-history.net, RMB6.8262 on June 18, 2010 to RMB6.6627 on October 26, 2010;
• Inflation in China, where, according to news reports, the consumer price index, the broadest measure of inflation, rose 3.6 percent in September 2010 from the level in September 2009; and
• Increasing employee salaries, which rose approximately 20% in the second quarter of 2010 from average salary levels in April 2010 and increased again by approximately 30% at the start of the fourth quarter of 2010 from average salary levels in October 2010.

CHANGES IN SENIOR MANAGEMENT

The Board of Directors is happy to announce the following changes in personnel:

Mr. M.K. Koo

Mr. M.K. Koo, age 66, resigned as Chief Financial Officer of Nam Tai with effect from October 2010.  Mr. Koo continues to serve as the Company's Chairman of the Board and as an Executive Director of Nam Tai.

Mr. Joseph Li

Mr. Joseph Li, age 59, has been appointed as Chief Financial Officer of Nam Tai in place of Mr. M.K. Koo with effect from October 2010.  Mr. Li co-founded the JIC Group, which Nam Tai acquired in 2000 and then served in various senior executive positions with Nam Tai and its subsidiaries, including Chief Financial Officer of Nam Tai, until his temporary retirement in January 2006.

Mr. Tohru Odashima

Mr. Tohru Odashima, age 60, joined Nam Tai as President of its FPC manufacturing plant in Wuxi on September 2010.  Before joining Nam Tai, Mr. Odashima was employed by Sony Chemical Corporation and its related companies since 1968. During his career spanning over 40 years, 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 next city northwest from our facilities in Wuxi.  During his long 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, the identical  responsibilities he is undertaking as President of Nam Tai's FPC manufacturing operations and facilities in Wuxi.

DIVIDENDS

Although we had a long history of dividend payments before 2009, in February 2009 our board of directors determined not to declare dividends in 2009. In February 2010, Nam Tai's 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 Tai's business and operating results beginning in the second half of 2008 and continuing through our first quarter ended March 31, 2010.

As previously announced, our board of directors was expected to determine our dividend policy for 2011 after its evaluation of our financial results for the first nine months of 2010, our board's expectations concerning our continuing improvement and their assessment of prevailing global economic conditions and the prospects of recovery. We are pleased to announce that our Board of Directors has conducted that evaluation and has determined to resume the payment of quarterly dividends in 2011 according to the Schedule set forth below.

The Company's 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 the Company's future growth and earnings, of which there can be no assurance, and the Company's 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 our Annual Report on Form 20-F for the year ended December 31, 2009, as filed on March 16, 2010 with the Securities and Exchange Commission. Accordingly, there can be no assurance that future cash dividends on the Company's common 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.  

FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD CAUSE OUR SHARE PRICE TO DECLINE

Express or implied statements in this press release, such as the statements included in "Expansion Projects" and  "Company Outlook," particularly management's expectations regarding increases in demand for products manufactured at this facility over the next several years necessitating expansion of Nam Tai's Wuxi facilities and that such expansion would be funded internally with cash on hand and cash generated from operations; management's assessment of the potential for FPC business at Nam Tai's Wuxi facility; management's forecast that orders for optical and educational products in Nam Tai's CECP segment are expected to remain stable to levels in 2009 for the balance of 2010, that similar momentum in demand for LCD modules and telecommunication subassemblies as that experienced in the third quarter can be expected for the fourth quarter of 2010, that business during the fourth quarter of 2010 will be strong and that business as a whole for 2010 will exceed 2009; and management's assessment of the strength of Nam Tai's financial condition and cash position, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these forward-looking statements as a result of a number of factors, including deterioration of the market for the Company's customers' products and the global economy as a whole, which could negatively impact the Company's revenue and the ability of the Company's customers to pay for the Company's products; customer bankruptcy filings; the sufficiency of the Company's cash position and other sources of liquidity to operate its business; competition negatively impacting the Company's revenues and margins; and one or more of the factors discussed in "Item 3. Key Information — Risk Factors" in the Company's Annual Report on Form 20-F for the year ended December 31, 2009 as filed on March 16, 2010 with the Securities and Exchange Commission.

For further information regarding risks and uncertainties associated with Nam Tai's business, operating results or financial condition, please refer to the "Operating and Financial Review and Prospects," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Risk Factors" sections of Nam Tai's SEC filings, including, but not limited to, its annual reports on Form 20-F and Reports on Form 6-K containing releases of Nam Tai's quarterly financial results, copies of which may be obtained from Nam Tai's website at http://www.namtai.com or from the SEC's EDGAR website at http://www.sec.gov.

All information in this press release is as of November 1, 2010 in Shenzhen of the People's Republic of China except as otherwise indicated.  Nam Tai does not undertake any duty, and should not be expected, to update any forward-looking statement to conform the statement to actual results or changes in Nam Tai's expectations, unless so required by law.

ABOUT NAM TAI ELECTRONICS, INC.

We are an electronics manufacturing and design services provider to a select group of the world's leading OEMs of telecommunications, consumer electronic, medical and automotive products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC subassemblies and image-sensor modules and PCBAs for headsets containing Bluetooth® wireless technology.(1) These components are used in numerous electronic products, including mobile phones, laptop computers, digital cameras, electronic toys, handheld video game devices, and entertainment 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.

(1)  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.

SOURCE Nam Tai Electronics, Inc.