Nam Tai Electronics, Inc. Reports Q4 2010 Earnings

SHENZHEN, China, Feb. 22, 2011 /PRNewswire/ -- Nam Tai Electronics, Inc. ("Nam Tai" or the "Company") (NYSE Symbol: NTE) today announced its unaudited results for the fourth quarter and the year ended December 31, 2010.

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, professional expenses in relation to privatization of NTEEP, 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.

SUPPLEMENTARY INFORMATION

Pursuant to the merging of the Company's three PRC subsidiaries into one Shenzhen subsidiary in 2010, the Company decided to report only two business segments (CECP and TCA) in the fourth quarter 2010 and for the year due to the followings:

• Most of the LCDP ("Liquid Crystal Display Products") business have been mainly LCD modules assembling for telecommunication products in 2010, which is the similar business operated by TCA;
• CECP discontinued its business with its two major box-built customers in the fourth quarter 2010, such as bluetooth headsets and calculators, while it 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 FPCB ("Flexible Printable Circuit Board") 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; and
• In regard to the above, in 2011, we will adopt a vertical integration approach and focus our FPC business on FPC assembling for telecommunication products which will be classified as TCA.

Accordingly, the Company would only report one business segment, TCA (or Key Components Assembly – Telecommunications) from 2011 onwards, unless and until the Company develops another reportable operating segment that meets US GAAP definitions in the future.

From 2011, the Company intends to focus its business on key components assembling for telecommunication products and businesses that are stable in growth and margins, befitting the long term business strategy of the Company.

OPERATIONS REVIEW

The momentum in our business that began in the third quarter extended into the fourth quarter of 2010, when the Company achieved sales revenue of $166.5 million, an increase of 78% compared to the sales revenue of $93.7 million in the fourth quarter of 2009. Gross profit of $14.2 million in the fourth quarter of 2010 also grew by 40% when compared with $10.2 million in the same quarter last year. However, the gross profit margin in the fourth quarter of 2010 was only 8.5%, down from 10.8% in the fourth quarter of 2009, which was mainly attributable to the operating losses from the Company's facility in Wuxi that was completed in 2009 and began operating to manufacture and assemble flexible printed circuit board in 2010. Despite the negative effects from Nam Tai's Wuxi operations in 2010, the Company was able to record a net profit of $5.3 million, amounting to nearly thirteen times the net profit reported for the same quarter of last year.

For the year ended December 31, 2010, the Company recorded sales revenue of $534.4 million, which was 31% higher when compared to sales revenue of $408.1 million for the year ended December 31, 2009. Gross profit for 2010 was $51.3 million, an increase of 27%, as compared to gross profit of $40.3 million last year, with a similar gross profit margin of 9.6% for 2010 compared to 9.9% for 2009. The Company completed the year 2010 with a net profit of $15.0 million, an increase of $13.3 million compared to a net profit of $1.7 million for the year 2009.

Overall, Nam Tai's performance in 2010 was much improved from 2009 and would have been better in 2010 but for adverse results attributable to start-up expenses incurred at the Company's FPCB production facility in Wuxi, which during 2010 generated

• negligible revenue of $3.7 million;
• a negative gross profit margin (i.e. a gross loss) of $11.0 million;
• an operating loss of $15.4 million; and
• a net loss of $11.6 million.

The primary component of the 2010 losses from the Wuxi production facility consisted of a non-cash depreciation expense of $8.7 million.

Non-GAAP Financial Information

Non-GAAP operating income for the fourth quarter of 2010 was $4.4 million, or $0.10 per share (diluted), compared to non-GAAP operating income of $0.7 million, or $0.02 per share (diluted) in the fourth quarter of 2009. Non-GAAP net income for the fourth quarter of 2010 increased to $5.4 million or $0.12 per share (diluted), compared to $0.4 million, or $0.01 per share (diluted), in the fourth quarter of 2009.

EXPANSION PROJECTS

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 Company's 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 parcel 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 facilities 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 facilities. Although the local Wuxi government has indicated to us that it strongly supported 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 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 expect to fund our planned and future expansion using cash on hand and cash generated from operations after reserving funds which we believe are sufficient to finance capital expenditures and to maintain and replace machinery and equipment used at our existing facilities and working capital.

COMPANY OUTLOOK

The demand for LCD modules and telecommunication subassemblies increased considerably during 2009 and 2010, and we expect that momentum to be strong into 2011. Accordingly, we believe that Nam Tai's overall business in the first quarter of 2011 will be stable, although the usual seasonal decline from the Chinese New Year period in February should be anticipated.  

In 2010, sales revenue generated from our newly operating FPCB manufacturing and assembly facilities in Wuxi did not contribute to Nam Tai's total revenue materially. However, with the recent arrival of an experienced executive who has been appointed President of the Wuxi facility who is highly capable in technical and marketing aspects for FPCB business, bringing an encouraging outlook for sales, the Company is confident that its FPCB business will improve and may even reach the break-even point in the fourth quarter of 2011. If operations at our Wuxi facilities do reach the breakeven point by the end of 2011, we expect that the improved contribution to our sales revenue and gross margins to result in increased profitability beginning in 2012.

For 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 Tai's FPCB facilities in Wuxi will show momentum in 2011 and eventually become one of the Company's key growth drivers.

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.

We expect to maintain improvements in operations for our Shenzhen and Wuxi facilities and sales that we achieved in 2010, and currently anticipate exceeding in 2011 our financial results reported in 2010. However, key factors that may adversely impact our performance, which are specific to conducting business in the PRC, include:

• Appreciation of the exchange rate between Chinese renminbi against other world currencies, especially the U.S. dollar, which, according to the historical currency converter available at http://forex-history.net, increased 3.3%, from RMB 6.827 at December 31, 2009 to RMB 6.602 at December 31, 2010.
• Increasing inflation in China (which rose 4.9% in January 2011 year-on-year and, according to some projections, may exceed 5% in 2011);
• Increasing employee salaries, which have increased 100% since March 2010 from inflation and labor shortages in China (which has included an increase for 20 to 30% during the first quarter of 2011; and
• Increasing income taxes in the PRC, where tax rates under the PRC's Enterprise Income Tax Law enacted in 2007 have risen from 20% in 2009 to 22% in 2010 and are expected to rise to 24% in 2011 and 25% in 2012, and are exacerbated by a number of other local PRC taxes.

DIVIDENDS

As announced on November 1, 2010, the Company has resumed the payment of quarterly dividends in 2011. The dividends for Q1 2011 were paid on January 20, 2011. The table repeats the previously announced schedule for the declaration and payment of quarterly dividends in 2011.

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.

PROPOSED SCHEDULE OF (I) RELEASE OF QUARTERLY FINANCIAL RESULTS FOR 2011; AND (II) ANNUAL GENERAL MEETING

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 demand for LCD modules and telecommunication subassemblies during 2011; the forecast for Nam Tai's overall performance in the first quarter of 2011; expectations regarding the financial performance of the Company during 2011 generally, and from Nam Tai's Wuxi facilities particularly, including when it will reach the breakeven point, benefits expected from management and sales personnel at these facilities and contributions from these facilities to Nam Tai's overall future revenue, growth and profitability; managements perception regarding the strength of its consolidated market segment (TCA) to gear expansion of production capacity, expectations regarding planned and future expansion projects, assessments regarding when full production capacity at Nam Tai's manufacturing facilities will be reached necessitating expansion of Nam Tai's Shenzhen and Wuxi manufacturing facilities and that such expansion would be funded internally with cash on hand and cash generated from operations, with sufficient reserves for capital expenditures and working capital, 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 markets 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 February 22, 2011 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, 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.

www.namtai.com

(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.