Nam Tai Electronics, Inc. Q3 2008 Sales Down 21.5%, Gross Profit ...

Tag : electrical toys
Nam Tai Electronics, Inc. Q3 2008 Sales Down 21.5%, Gross ProfitMargin Drop to 9.8% and EPS at 11 Cents
MACAO, Nov. 3 /PRNewswire-FirstCall/ -- Nam Tai Electronics, Inc. ("Nam Tai" or the "Company") (NYSESymbol: NTE) today announced its unaudited results for the thirdquarter and nine months ended September 30, 2008.
In addition to disclosing results determined in accordance withaccounting principles generally accepted in the United States ("USGAAP") as set forth in the table above, management utilizes ameasure of operating income, net income and earnings per share on anon-GAAP basis that exclude certain income and expenses to betterassess operating performance. Those non-GAAP financial measuresexclude certain items, such as share-based compensation expensesand infrequent or unusual items such as gain on disposal ofsubsidiaries' shares and gain on disposal of marketable securities.By disclosing the non-GAAP information, management intends toprovide investors with additional information to analyze theCompany's performance, core results and underlying trends. Non-GAAPinformation is not determined using US GAAP; therefore, theinformation is not necessarily comparable to other companies andshould not be used to compare the Company's performance overdifferent periods. Non-GAAP information should not be viewed as asubstitute for, or superior to, net income or other financial dataprepared in accordance with US GAAP as measures of our operatingresults or liquidity. Users of this financial information shouldconsider the types of events and transactions for which adjustmentshave been made. See the table below for a reconciliation ofnon-GAAP amounts to amounts reported under US GAAP.
Notes:
(a) The share-based compensation expenses included approximately$0.2 million attributable to options to purchase 75,000 sharesgranted in the second quarter of 2008 to non-employee directors inaccordance with the Company's practice of making annual optiongrants to its non-employee directors upon their election for theensuing year and approximately $1.0 million principallyattributable to options to purchase approximately 20 million sharesgranted by the Company's Hong Kong Stock Exchange listedsubsidiary, Nam Tai Electronic & Electrical Products Limited("NTEEP")(Stock Code : 2633), to certain of its executive directorsand employees in the first quarter of 2008.
(b) On March 4, 2008, Nam Tai completed the sale of its entire equity interest in J.I.C.Technology Company Limited ("JIC"), a Hong Kong StockExchange-listed subsidiary (Stock Code: 00987), to an independentthird party. In this transaction, Nam Tai sold 572,594,978 shares of JIC, representing 74.99% of itsoutstanding share capital for cash of approximately $51 million,which resulted in a gain on disposal of approximately $20 million.
( c ) Other income totaling approximately $2.9 million was reportedin the Company's financial statements for the second quarter of2008. This amount represents Nam Tai's share of proceeds realized from the disposal for the account ofTele-Art.'s liquidator of 477,319 Nam Tai shares owned by Tele-Art and was paid to the Company in settlementof amounts previously funded by Nam Tai in connection with Tele-Art's liquidation and in partialsatisfaction of judgments in favor of Nam Tai against Tele-Art.
THIRD QUARTER REVIEW
Sales in the third quarter of 2008 were $160.5 million, a decreaseof 21.5% as compared to sales of $204.5 million in the thirdquarter of 2007, mainly as a consequence of the continuing declinein business from the Company's telecommunication component assembly("TCA") segment, a trend we have experienced since 2007 and whichhas continued and accelerated as a result of declining demandencountered in the mobile phone market and persistent pressure tolower unit prices. Net sales in the TCA segment for the thirdquarter of 2008 decreased by 20.0% compared to the same quarter of2007. Sales of products in our liquid crystal display ("LCD")product ("LCDP") segment and from our consumer electronic andcommunication products ("CECP") segment also decreased, by 6.0% and27.0% respectively, during the third quarter of 2008, as comparedto sales in the corresponding quarter of 2007. The drop in sales inour LCDP segment was mainly a consequence of the decrease in salesof our LCD module products. Sales in our CECP segment wereprincipally affected by a decrease in sales of educational productsand home entertainment devices.
The Company's gross profit in the third quarter of 2008 was $15.7million, a decrease of 39.6% as compared to $26.0 million in thethird quarter of 2007, primarily resulting from the decline in 2008sales. Gross profit margin in the third quarter of 2008 was 9.8% ascompared to 12.7% in the third quarter of 2007. The lower marginwas also caused by the increase in factory overhead costs and ashift of sales mix as relatively higher margin products, such aseducational products and home entertainment devices, represented asmaller percentage of our quarterly sales in 2008.
Operating income in the third quarter of 2008 was $4.4 million, or$0.10 per share (diluted), compared to operating income of $13.9million, or $0.31 per share (diluted) in the third quarter of 2007.Net income in the third quarter of 2008 was $4.9 million, comparedto net income of $12.7 million in the third quarter of 2007. Basicand diluted earnings per share in the third quarter of 2008 were$0.11 per share, compared to basic and diluted earnings per shareof $0.28 in the third quarter of 2007.
For the nine months ended September 30, 2008, Nam Tai's net sales were $453.8 million, a decrease of 23.6% as compared to$593.9 million in the same period last year. Gross profit was $56.0million, a decrease of 15.1% as compared to $66.0 million in thesame period last year. Operating income for the first nine monthsin 2008 decreased 36.8% to $20.8 million, or $0.47 per share(diluted), compared to $33.0 million, or $0.74 per share (diluted),in the same period last year. Net income was $45.1 million, or$1.01 per share (diluted), a decrease of 24.7% as compared to $59.9million or $1.34 per share (diluted) in the same period of lastyear.
The Company's financial position remained strong at the end of thethird quarter of 2008, with $250.5 million of cash and cashequivalents at September 30, 2008. During the third quarter, theCompany made capital expenditures of $5.8 million and paid cashdividends of $9.8 million to shareholders of the Company and $2.8million to minority shareholders of NTEEP. Besides, the Companycontinues to exercise rigorous corporate governance and controlpolicies and is not involved in trading of any debt securities orfinancial derivative products.
NON-GAAP FINANCIAL INFORMATION
Non-GAAP operating income for the first nine months in 2008 was$22.0 million, or $0.50 per share (diluted), compared to non-GAAPoperating income of $33.3 million, or $0.75 per share (diluted) forthe same period last year. Non-GAAP net income for the first ninemonths in 2008 was $23.2 million or $0.52 per share (diluted), adecrease of 27.0% as compared to $31.8 million, or $0.71 per share(diluted), for the same period last year.
COMPANY OUTLOOK
In 2008, global economic conditions have experienced a downturnfrom the sequential effects of the subprime lending crisis, generalcredit market crisis, collateral effects on the finance and bankingindustries, volatile energy costs, concerns about inflation, slowereconomic activity, decreased consumer confidence, reduced corporateprofits and capital spending, adverse business conditions andliquidity concerns. These conditions make it difficult for ourcustomers, our vendors and us to forecast and plan future businessactivities or expansion accurately, and they appear to have causedand may continue to cause, companies worldwide to slow spendinggenerally and our customers to slow ordering and spending on ourproducts specifically. If our customers' markets continue todeteriorate because of these macroeconomic effects, our business,financial condition and results of operations will in turn likelybe materially and adversely affected.
We cannot predict the timing or duration of the economic slowdownor the timing or strength of any subsequent economic recovery ofmarkets worldwide or in the electronics manufacturing servicesindustry in which we serve. The global adverse economic conditionswe currently face could result, and we expect, barring anunexpectedly swift reversal of global economic trends, will result,in negative effects to our results of operations over the nextseveral quarters. The business environment for us is made even moredifficult as we continue to face factors that have adverselyaffected our operations such as the appreciation of the exchangerate of the renminbi to the US dollar, and the adverse effects ofchanging tax and labor laws in the People's Republic of China("PRC") and the resulting increases in our overhead expenses andincome taxes.
Under these circumstances, management has continued our strategy toconcentrate our efforts to improve manufacturing efficiencies,broaden our product offerings and diversify our customer base. Inaddition, we are planning to streamline our supporting service teamin Hong Kong and Macao to reduce overhead costs and accelerate ourefforts to strengthen management controls. In operations, dealingeffectively with competitive pressures to reduce unit pricing andwith short product lifecycles have always been, and remain, ourchallenge. The Company plans to concentrate on productionefficiencies and improving resources utilization in order to foster Nam Tai's ability to adapt readily to new product development and newrequirements of customers.
EXPANSION PROJECTS
Construction of Nam Tai's new factory building in Wuxi, Jiangsu Province of the PRC, thefirst of the Company's three planned expansion projects, continueson schedule with completion still targeted for the first half of2009 in order for the Company to be positioned to begin massproduction in mid-2009. However, in view of prevailing globaleconomic conditions and the emerging uncertainty in the businessclimate, management is giving serious consideration to postponingimplementation of the second two stages of Nam Tai's expansion plan consisting of the construction of a new factory inthe Shenzhen Guangming Hi-Tech Industrial Park and the developmentof the Company's second real estate site in Wuxi. The Company willreconsider the resumption of these expansion plans in mid-2009 bytaking into account of the global economic conditions and businessdevelopment of the Company.
DIVIDENDS
The record date for the third quarter dividend of $0.22 per shareis September 30, 2008 and the payment date is on or before October21, 2008. The payment dates for the fourth quarter is scheduled tobe on or before January 21, 2009.
APPOINTMENT OF NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER (ACTING)
Mr. Masaaki Yasukawa , Nam Tai's Chief Executive Officer had tendered his resignation as ChiefExecutive Officer of the Company with immediate effect for personalreasons related to his family. Nam Tai's Board accepted Mr. Yasukawa's resignation and expressed sinceregratitude to him for his valuable contributions and guidance duringhis service to Nam Tai .
Ms. Wong Kuen Ling , Karene ( Karene Wong ), has been appointed as President and Chief Executive Officer(Acting) of Nam Tai with effect from November 1, 2008. Ms. Wong joined the Company inJune 1989. In January 2001, Ms. Wong was promoted to managingdirector of a subsidiary of Nam Tai . She later held the position of chairman of NTEEP. After thereorganization of Nam Tai Group in 2007, she was re-designated asChief Executive Officer of the NTEEP business unit, responsible foroverseeing the overall business of the NTEEP business unit.
Nam Tai's board of directors believes that Ms. Wong's long service with Nam Tai and to the NTEEP Group and her familiarity and experience with itsoperations qualifies her for the position as the Company'sPresident and Chief Executive Officer (Acting) and is confidentthat she will exhibit the same abilities, dedication and acumenthat she has demonstrated in each of the positions she hasundertaken during her rise as a Nam Tai executive.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD CAUSE OUR SHAREPRICE TO DECLINE
Statements in this press release, such as management's plans toconcentrate on production efficiencies and improving resourcesutilization in order to foster Nam Tai's ability to adapt readily to new product development and theevolving and new requirements of existing and new customers andmanagement's estimates of when Nam Tai will be in a position to begin mass production at its new facilityin Wuxi, Jiangsu Province, PRC, among other statements in thispress release, are "forward-looking statements" within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Forward-looking statements may beidentified by the use of words like "believes," "intends,""expects," "plans" or "planned," "may," "will," "should" or"anticipates," or the negative equivalents of those words orcomparable terminology, and involve risks and uncertainties. Suchstatements are based on current expectations and assumptions andreflect management's views with respect to future events and maynot actually occur during the periods indicated or at all and arenot a guarantee of Nam Tai's future performance. These forward-looking statements are, by theirnature, subject to risks, uncertainties and other factors thatcould cause actual results to differ materially from future resultsexpressed or implied by the forward-looking statements in thispress release.
Whether the effects of management's efforts on productionefficiencies or resources utilization will achieve materialimprovements in production efficiencies or resources utilization,translate into increased sales, maintain or increase orders fromexisting customers, attract orders from new customers, improve ormaintain Nam Tai's profitability or profit margins or overcome or cope with adverseglobal economic conditions generally or the fallout from suchconditions on Nam Tai's business specifically, increasing taxes and labor costs from newtax and labor legislation in the PRC, whether management'sestimates of when construction of Nam Tai's new manufacturing facility in Wuxi, Jiangsu Province, PRC will becompleted and the new facility available for production will provetrue, and whether material revenues from production at Nam Tai'snew Wuxi facility when construction is completed will materialize,will depend upon future sales orders and on Nam Tai's actual ability to contain manufacturing costs and the level ofcapital expenditures required to complete construction andadequately staff and equip its added Wuxi manufacturing facilities.Product orders and Nam Tai's operating income, available cash, cash flows, net income andlevels of capital expenditures may be adversely affected bynumerous factors including adverse global economic conditionsgenerally and the growing uncertainties and fears regarding theworld's and nations' economies, Nam Tai's dependence on a few large customers; intense competition in theelectronics industry in which the Company participates,particularly in markets that place constant pressure on the Companyto reduce unit prices; continuing competitive pressures thatadversely affect its profit margins; its operating resultsfluctuating and lacking predictability; risks relating to its doingbusiness in the PRC such as arising from changes in governmentalpolicies, trade regulation, currency exchange rates, particularlyfrom the appreciation of the renminbi to the U.S. dollar which hasoccurred since June 2005 and has shown no signs of abating,inflation in the PRC and elsewhere globally; the timing and amountof significant orders from customers; Nam Tai's success at attracting new customers, delays in product developmentand related product release schedules; obsolete inventory orproduct returns; warranty and other claims on products;technological shifts; the availability of competitive products ofcomparable quality at prices below Nam Tai's prices; maturing product life cycles of the products manufacturedby Nam Tai ; concessions Nam Tai may make on product sale terms and conditions; implementation ofoperating cost structures that align with revenue, the financialcondition of Nam Tai's customers and vendors; the availability and increasing costs ofmaterials and other components needed to manufacture Nam Tai's products; potential shortages of materials or skilled labor neededfor its planned expansion projects or for its existing facilities;unforeseen engineering problems, work stoppages, weatherinterference, flood, earthquake or other acts of God, delays inobtaining or failure to obtain necessary permits from regulatoryauthorities needed for completion of its planned new Wuxi facilityor to continue existing operations, other unexpected project delaysor unanticipated cost increases; risks of expanding into a new areaof the PRC where Nam Tai's has not yet conducted business, diversion of management'sattention to expansion and its management to a new location and toother business concerns; the impact of legislative actions, higherinsurance costs and potential new accounting pronouncements; aworsening of relations between the PRC and the United States orTaiwan; the effects of terrorist activity and armed conflict thatcause disruptions in general economic activity and changes in Nam Tai's operations and security arrangements; the effects of travelrestrictions and quarantines associated with major health problems,such as the Severe Acute Respiratory Syndrome or Bird Flu, ongeneral economic activity; or other changes in general economicconditions, including an exacerbation of the current globaleconomic weaknesses that continue to adversely affect, or furtherreduce, demand for Nam Tai's products. In addition, factors, among others, that could cause themarket price of our shares to decline in the future could includefurther decreases in our revenues from those we reported in earlierperiods, our operating results or those of our competitors orcustomers to meet the expectations of public market analysts andinvestors who follow the electronics manufacturing services, orEMS, industry, or one or more of the factors discussed in "Item 3.Key Information - Risk Factors" in our Annual Report on Form 20-Ffor the year ended December 31, 2007 as filed on March 17, 2008with the Securities and Exchange Commission ("SEC").
For further information regarding risks and uncertaintiesassociated with Nam Tai's business, please refer to the "Management's Discussion andAnalysis 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 onForm 20-F, copies of which may be obtained from Nam Tai's website at http://www.namtai.com .
All information in this press release is as of October 31, 2008 inMacao, Special Administrative Region of the People's Republic ofChina. Nam Tai does not undertake any duty, and should not be expected, to updateany forward-looking statement to conform the statement to actualresults or changes in Nam Tai's expectations.
ABOUT NAM TAI ELECTRONICS, INC.
We are an electronics manufacturing and design services provider toa select group of the world's leading OEMs of telecommunicationsand consumer electronic products. Through our electronicsmanufacturing services operations, we manufacture electroniccomponents and subassemblies, including LCD panels, LCD modules, RFmodules, DAB modules, FPC subassemblies and image-sensor modulesand PCBAs for headsets containing Bluetooth(R) wirelesstechnology.(1) These components are used in numerous electronicproducts, including mobile phones, laptop computers, digitalcameras, electronic toys, handheld video game devices, andentertainment devices. We also manufacture finished products,including mobile phone accessories, home entertainment products andeducational products. We assist our OEM customers in the design anddevelopment of their products and furnish full turnkeymanufacturing services that utilize advanced manufacturingprocesses and production technologies.
Nam Tai's operations are conducted by its subsidiary, Nam Tai Electronic& Electrical Products Limited ("NTEEP"), a Hong Kong StockExchange-listed company, in which Nam Tai owns approximately 74.88% of the outstanding share capital. Inaddition to reports that Nam Tai files with the SEC, which may be accessed through the SEC's EDGARdatabase at http://www.sec.gov , interested investors may review the website of The Stock Exchangeof Hong Kong at www.hkex.com.hk to obtain information that NTEEP is required to file underapplicable rules of the Hong Kong Stock Exchange. The stock code ofNTEEP on The Stock Exchange of Hong Kong is 2633. Investors arereminded to exercise caution when assessing information from theHong Kong Stock Exchange and not to deal with the shares of Nam Tai based solely upon reliance on such information.
Note: Information extracted from the audited financial statementsis included in the 2007 Form 20-F of the Company filed with theSecurities and Exchange Commission on March 17, 2008.
1. The entrusted loan represents the loan arrangement between twosubsidiaries, Namtai Electronic (Shenzhen) Co., Ltd. as theentrusting party and Jetup Electronic (Shenzhen) Co., Ltd. as theborrower, via HSBC Bank (China) Company Limited, Shenzhen Branch asthe lender.
2. Accumulated other comprehensive loss represents foreign currencytranslation adjustments. The comprehensive income of the Companywas $45,082 and $49,818 for the nine months ended September 30,2008 and September 30, 2007, respectively.
(1) The Bluetooth(R) word mark and logos are owned by the BluetoothSIG, Inc. and any use of such marks by Nam Tai is under license.
SOURCE Nam Tai Electronics, Inc.