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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the Fiscal Year Ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Date of event requiring this shell company report
 For the transition period from  to.
 Commission File Number: 001-31583
 
 Nam Tai Electronics, Inc.
  British Virgin Islands
(Jurisdiction of incorporation or
organization)
    
    Unit A
    
    Kee Wong, Corporate Secretary17 Floor Edificio Comercial Rodrigues
    
    Tele: (852) 2341 0273  E-mail: lkwong@namtai.com.hk599 da Avenida da,
    
    Units 5811-12, The Center,Praia Grande, Macao
    
    99 Queens Road Central, Central, Hong Kong(Address of principal executive offices)
    
    (Name, Telephone, E-mail and/or Facsimile numberand Address of Company Contact Person)
     o þ
 o þ
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued by the International Accounting
Standards Board o
    
    Other o
 o o
 o þ
 o þ




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##### 



Table of Contents
 FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
    
    
    3INTRODUCTION
    
    
    3PART I
    
    
    3ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    3ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3. KEY INFORMATION
    
    
    3ITEM 4. INFORMATION ON THE COMPANY
    
    
    21ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    37ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    37ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
    
    
    52ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    61ITEM 8. FINANCIAL INFORMATION
    
    
    62ITEM 9. THE LISTING
    
    
    64ITEM 10. ADDITIONAL INFORMATION
    
    
    65ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    75ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    77PART II
    
    
    77ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    77ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    77ITEM 15. CONTROLS AND PROCEDURES
    
    
    77Attestation Report of the Registered Public Accounting Firm
    
    
    78ITEM 16. [RESERVED]
    
    
    80ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    80ITEM 16 B. CODE OF ETHICS
    
    
    80ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    80ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    81ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    81ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    81ITEM 16G. CORPORATE GOVERNANCE
    
    
    81PART III
    
    
    82ITEM 17. FINANCIAL STATEMENTS
    
    
    82ITEM 18. FINANCIAL STATEMENTS
    
    
    82ITEM 19. EXHIBITS
    
    
    83SIGNATURE
    
    
    88EX-4.52EX-4.53EX-4.54EX-4.55EX-4.56EX-4.57EX-4.58EX-4.59EX-4.60EX-4.61EX-4.62EX-4.63EX-12.1EX-12.2EX-13.1EX-15.1
     2




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FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
  
 INTRODUCTION
  
    
    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;
    
    shares refer to our common shares, $0.01 par value;
    
    China or PRC refers to the Peoples Republic of China, excluding Taiwan, Hong
Kong and Macao;
    
    Hong Kong refers to the Hong Kong Special Administrative Region of the Peoples
Republic of China and HK$ refers to the legal currency of Hong Kong;
    
    Macao refers to the Macao Special Administrative Region of the Peoples
Republic of China, and
    
    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.
 TM 
 
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
  3




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Year ended December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008(in thousands, except per share data)Consolidated statements of income data:Net sales  third parties
    
    $
    499,680
    
    
    $
    791,042
    
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852Net sales  related party
    
    
    34,181
    
    
    
    6,195
    
    
    
    
    
    
    
    
    
    
    
    Total net sales
    
    
    533,861
    
    
    
    797,237
    
    
    
    870,174
    
    
    
    780,822
    
    
    
    622,852Cost of sales
    
    
    (457,385
    )
    
    
    (704,314
    )
    
    
    (783,953
    )
    
    
    (693,804
    )
    
    
    (552,174
    )Gross profit
    
    
    76,476
    
    
    
    92,923
    
    
    
    86,221
    
    
    
    87,018
    
    
    
    70,678Gain on disposal of asset held for sale
    
    
    
    
    
    
    
    
    
    
    9,258
    
    
    
    
    
    
    
    Operating costs and expenses:Selling, general and administrative
    
    
    (28,053
    )
    
    
    (33,057
    )
    
    
    (30,668
    )
    
    
    (36,550
    )
    
    
    (36,057
    )Research and development
    
    
    (5,045
    )
    
    
    (7,210
    )
    
    
    (7,866
    )
    
    
    (9,798
    )
    
    
    (10,890
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,345
    )Losses arising from the judgment to reinstate redeemed shares
    
    
    
    
    
    
    
    
    
    
    (14,465
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    (33,098
    )
    
    
    (40,267
    )
    
    
    (52,999
    )
    
    
    (46,348
    )
    
    
    (64,292
    )Income from operations
    
    
    43,378
    
    
    
    52,656
    
    
    
    42,480
    
    
    
    40,670
    
    
    
    6,386Other (expenses) income  net
    
    
    (1,012
    )
    
    
    (125
    )
    
    
    (1,265
    )
    
    
    2,219
    
    
    
    6,428Dividend income received from marketable securities and investment
    
    
    18,295
    
    
    
    579
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of subsidiaries shares
    
    
    77,320
    
    
    
    10,095
    
    
    
    
    
    
    
    390
    
    
    
    20,206Gain on disposal of an affiliated company
    
    
    
    
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    (Loss) gain on disposal of marketable securities
    
    
    
    
    
    
    (3,686
    )
    
    
    
    
    
    
    43,815
    
    
    
    Impairment loss on marketable securities
    
    
    (58,316
    )
    
    
    (6,525
    )
    
    
    
    
    
    
    
    
    
    
    Loss on marketable securities arising from split share structure reform
    
    
    
    
    
    
    
    
    
    
    (1,869
    )
    
    
    
    
    
    
    Interest income
    
    
    1,110
    
    
    
    3,948
    
    
    
    8,542
    
    
    
    9,163
    
    
    
    6,282Interest expense
    
    
    (195
    )
    
    
    (438
    )
    
    
    (602
    )
    
    
    (452
    )
    
    
    (356
    )Income before income tax expenses, minority interests and
equity in loss of affiliated companies
    
    
    80,580
    
    
    
    60,135
    
    
    
    47,286
    
    
    
    95,805
    
    
    
    38,946Income tax expenses
    
    
    (879
    )
    
    
    (651
    )
    
    
    (377
    )
    
    
    (4,030
    )
    
    
    (2,877
    )Income before minority interests and
equity in loss of affiliated companies
    
    
    79,701
    
    
    
    59,484
    
    
    
    46,909
    
    
    
    91,775
    
    
    
    36,069Minority interests
    
    
    (6,010
    )
    
    
    (7,992
    )
    
    
    (6,153
    )
    
    
    (22,272
    )
    
    
    (5,434
    )Income after minority interests
    
    
    73,691
    
    
    
    51,492
    
    
    
    40,756
    
    
    
    69,503
    
    
    
    30,635Equity in loss of affiliated companies
    
    
    (6,806
    )
    
    
    (186
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    66,885
    
    
    
    51,306
    
    
    
    40,756
    
    
    
    69,503
    
    
    
    30,635Earnings per share:Basic
    
    $
    1.57
    
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.56
    
    
    $
    0.68Diluted
    
    $
    1.57
    
    
    $
    1.19
    
    
    $
    0.93
    
    
    $
    1.55
    
    
    $
    0.68
 At December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008(in thousands, except per share data)Consolidated balance sheet data:Cash and cash equivalents
    
    $
    160,649
    
    
    $
    213,843
    
    
    $
    221,084
    
    
    $
    272,459
    
    
    $
    237,017Working capital (1)
    
    
    218,243
    
    
    
    234,674
    
    
    
    238,105
    
    
    
    266,306
    
    
    
    239,037Land use right and property, plant and equipment, net
    
    
    97,441
    
    
    
    100,741
    
    
    
    105,394
    
    
    
    98,599
    
    
    
    121,660Total assets
    
    
    460,473
    
    
    
    520,011
    
    
    
    529,235
    
    
    
    544,818
    
    
    
    514,061Short-term debt, including current portion of long-term debt
    
    
    4,955
    
    
    
    9,400
    
    
    
    6,266
    
    
    
    6,570
    
    
    
    8,199Long-term debt, less current portion
    
    
    5,163
    
    
    
    2,850
    
    
    
    1,100
    
    
    
    1,558
    
    
    
    Total debt
    
    
    10,118
    
    
    
    12,250
    
    
    
    7,366
    
    
    
    8,128
    
    
    
    8,199Shareholders equity
    
    
    305,053
    
    
    
    310,391
    
    
    
    317,094
    
    
    
    330,181
    
    
    
    322,261Common shares
    
    
    426
    
    
    
    435
    
    
    
    438
    
    
    
    448
    
    
    
    448Total dividend per share
    
    
    0.48
    
    
    
    1.32
    
    
    
    1.52
    
    
    
    0.84
    
    
    
    0.88Total number of common shares issued
    
    
    42,665
    
    
    
    43,506
    
    
    
    43,787
    
    
    
    44,804
    
    
    
    44,804Total number of common shares to be issued
    
    
    
    
    
    
    
    
    
    
    1,017
    
    
    
    
    
    
    
    
 
 (1)
    
    Working Capital represents the excess of current assets over current liabilities. 4




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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.
   The global economic weakness has adversely affected our earnings, liquidity and financial condition
and, until global economic conditions improve, is expected to continue to do so.
  Our quarterly and annual operating results are subject to significant fluctuations as a result of a
wide variety of factors.
  5




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
    
    the timing, cancellation or postponement of orders;
    
    adverse changes in current macro-economic conditions;
    
    the level of capacity utilization of our manufacturing facilities and associated
fixed costs;
    
    the composition of the costs of revenue between materials, labor and
manufacturing overhead;
    
    changes in demand for our products or services;
    
    changes in demand in our customers end markets, which affect the type of product
and related margins;
    
    our customers announcement and introduction of new products or new generations
of products;
    
    the efficiencies achieved in managing inventories and fixed assets;
    
    fluctuations in materials costs and availability of materials;
    
    the life cycles of our customers products;
    
    variability in our manufacturing yields;
    
    long lead times and advance financial commitments for our factories and equipment
expenditures;
    
    long lead times and advance financial commitments for components required to
complete anticipated customer orders;
    
    our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components;
    
    changes in the specific products or quantities our customers order; and
    
    price reductions caused by competitive pressure.
   We face increasing competition, which has had and may continue to have, an adverse effect on our
gross margins.
   6




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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 begin large-scale production
of flexible printed circuit, or FPC, boards and FPC subassemblies.
  Product/Service
    
    CompetitorEMS
    
    Ø
    
    Celestica, Inc.Ø
    
    Flextronics International Ltd.Ø
    
    Hon Hai Precision Industry Co.,
Ltd.Ø
    
    Jabil Circuit, IncØ
    
    Sanmina-SCI CorporationImage capturing devices and their modules
    
    Ø
    
    Altus Technology Inc (controlled
by Foxconn)Ø
    
    Lite-On Technology CorporationØ
    
    Logitech International S.A.Ø
    
    The Primax GroupMobile phone accessories
    
    Ø
    
    Balda-Thong Fook Solutions Sdn.,
Bhd.Ø
    
    Celestica, Inc.Ø
    
    Elcoteq Network Corp.Ø
    
    Flextronics International Ltd.Ø
    
    Foster CorporationØ
    
    Foxlink GroupØ
    
    Merry Electronics Co. Ltd.Ø
    
    WKK International (Holdings) Ltd.
 7




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Product/Service
    
    CompetitorRadio Frequency, or RF modules
    
    Ø
    
    Wavecom SAØ
    
    WKK International (Holdings) Ltd.Liquid crystal display, or LCD, panels
    
    Ø
    
    Elec & Eltek International Holdings LimitedØ
    
    Truly International Holdings Ltd.Ø
    
    Varitronix International Ltd.Ø
    
    Yeebo (International) Holdings Ltd.Telecommunication subassemblies and components
    
    Ø
    
    Flextronics International Ltd.Ø
    
    LG. Philips LCD Co., Ltd.Ø
    
    Samsung ElectronicsØ
    
    Varitronix International Ltd.Consumer electronic products (calculators,
personal organizers and linguistic products)
    
    ØØ
    
    Computime Limited
Inventec Co. Ltd.Ø
    
    Kinpo Electronics, Inc.Ø
    
    VTech Holdings Limited
   Our inability to utilize capacity at facilities that we have planned for expansion could materially
and adversely affect our business and operating results.
  Cancellations or delays in orders could materially and adversely affect our gross margins and
operating results.
  8




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Our customers face numerous competitive challenges, such as rapid technological change and short
life cycles for their products, which may materially adversely affect their business, and also
ours.
  
    
    The inability of our customers to adapt to rapidly changing technology and
evolving industry standards, which result in short product life cycles.
    
    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.
    
    Recessionary periods in our customers markets.
    
    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.
    
    New product offerings by our customers competitors may prove to be more
successful than our customers product offerings.
  Our business has been characterized by a rapidly changing mix of products and customers.
  There may not be a sufficient market for new products that our customers or we develop.
  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.
  9




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
    
    utilization of advances in technology;
    
    development of new or improved manufacturing processes for our customers products;
    
    delivery of efficient and cost-effective services; and
    
    timely completion of the manufacture of new products.
 Our business is capital intensive and the failure to generate sufficient cash could require that we
curtail capital expenditures.
  We generally have no written agreements with suppliers to obtain components and our margins and
operating results could suffer from increases in component prices.
  Our business and operating results would be materially and adversely affected if our suppliers of
needed components fail to meet our needs.
  Recent changes in the PRCs labor law could penalize Nam Tai if it needs to make additional
workforce reductions.
  10




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Adverse market conditions in the electronics industry could reduce our future sales and earnings
per share.
  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.
  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 products are sold internationally and the effect of business, legal and political risks
associated with international operations could significantly harm us.
  
    
    changes in economic and political conditions and in governmental policies;
    
    changes in international and domestic customs regulations;
    
    wars, civil unrest, acts of terrorism and other conflicts;
    
    changes in tariffs, trade restrictions, trade agreements and taxation;
    
    limitations on the repatriation of funds because of foreign exchange controls;
    
    exposure to political and financial instability;
    
    currency exchange losses, collection difficulties or other country-specific
losses;
    
    exposure to fluctuations in the value of local currencies;
    
    changes in value-added tax, or VAT, reimbursement;
    
    imposition of currency exchange controls; and
    
    delays from customs brokers or government agencies.
  11




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Our operating results could be negatively impacted by seasonality.
  Our results could be adversely affected with intensifying environmental regulations.
  i.e.
 Power shortages in China could affect our business.
  Our insurance coverage may not be sufficient to cover the risks related to our operations and
losses.
  12




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We could become involved in intellectual property disputes.
  We depend on our executive officers and skilled personnel.
  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.
  Political or trade controversies between China and the United States could harm our operating
results or depress our stock price.
  The economy of China has been experiencing significant growth, leading to some inflation. If the
government tries to control inflation by traditional means of monetary policy or returns to planned
economic techniques, our business will suffer a reduction in sales growth and expansion
opportunities.
  13




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Changes to PRC tax laws and heightened efforts by the Chinas tax authorities to increase revenues
are expected to subject us to greater taxes.
   Payment of dividends by our subsidiaries in the PRC to us is subject to restrictions under PRC law.
The new PRC tax law could force us to reduce the amount of dividends we have historically paid to
our shareholders or possibly eliminate them or we may decide not pay dividends in the future.
   We appear to have been a passive foreign investment company for 2008 and based on our current
operations and market conditions, we may be a passive foreign investment company for 2009, which
could result in adverse U.S. federal income tax consequences to some U.S. investors.
  14




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Changes in foreign exchange regulations of China could adversely affect our operating results.
  Changes in currency exchange rates involving the Japanese yen or renminbi have and could continue
to significantly affect our financial results.
  
 15




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(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 quarter fell on a Saturday or Sunday, datum is provided as of the previous
Friday.   16




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We are exposed to intangible asset risk
  The market price of our shares will likely be subject to substantial price and volume fluctuations.
   The concentration of share ownership in our senior management allows them to control or
substantially influence the outcome of matters requiring shareholder approval.
  Implementation of a new enterprise resource planning system could disrupt our operations and cause
unanticipated increases in our costs.
    17




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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.
  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.
   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.
  It may be difficult to serve us with legal process or enforce judgments against our management or
us.
   18




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
    
    the judgment is for a liquidated amount in a civil matter;
    
    the judgment is final and conclusive and has not been stayed or satisfied in
full;
    
    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 or British
Virgin Islands 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);
    
    the judgment was not obtained by actual or constructive fraud or duress;
    
    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;
    
    the proceedings in which the judgment was obtained were not contrary to natural
justice (i.e.the concept of fair adjudication);
    
    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;
    
    the person against whom the judgment is given is subject to the jurisdiction of
the Hong Kong or the British Virgin Islands court; and
    
    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.
  
    
    there is no doubt to the authenticity of the judgment documents and the
understanding of the judgment;
    
    pursuant to the law of the place of judgment, the judgment is final and
conclusive;
    
    the judgment was not obtained by fraud or the matter in relation to the judgment
is not within the exclusive jurisdiction of Macao courts;
    
    the judgment will not be challenged on the ground that the relevant matter has
been adjudicated by the Macao court, except matters which have first been adjudicated by
courts outside Macao;
    
    pursuant to the law of the place of the judgment, the defendant has been summoned
and the proceedings in which the judgment was obtained were not contrary to natural
justice; and
    
    the enforcement of the judgment will not cause any orders that may result in
apparent public disorder.
  Future issuances of preference shares could materially and adversely affect the holders of our
common shares or delay or prevent a change of control.
  19




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##### Table of Contents



We will incur substantial costs and expenses in our efforts to privatize Nam Tai Electronic &
Electrical Products Limited. If the privatization is successful, it may require a number of years
to realize the benefits expected from owning 100 percent of NTEEP.
  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.
  
    
    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;
    
    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;
    
    the provisions of Regulation FD aimed at preventing issuers from making selective
disclosures of material information; and
    
    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 issuers equity securities within less
than six months).
   We have determined not to pay dividends for 2009 and may not pay dividends in the future.
  20




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##### Table of Contents



ITEM 4. INFORMATION ON THE COMPANY
 Corporate Information
  Major Events during 2008 to Date
 Developments in Planned Expansion
  Our 2008 Sale of J.I.C. Technology Company Limited (JIC Technology)
  2009 Offer Seeking to Privatize NTEEP
  Capital Expenditures
  21




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##### Table of Contents




    
    $3.6 million for machinery and system improvements for our LCD factory;
    
    $18.5 million for new factory construction in Wuxi;
    
    $1.4 million for a new enterprise resource planning system; and
    
    $3.9 million for other capital equipment.
  
    
    $4.8 million for machinery used mainly for bonding and testing;
    
    $4.0 million for machinery used mainly for LCD products;
    
    $2.4 million for project of FPC board manufacturing in existing site; and
    
    $2.6 million for other capital equipment.
  
    
    $1.4 million for machinery used mainly for COG products;
    
    $7.2 million for machinery used mainly for production of LCD modules;
    
    $11.7 million for project of FPC board manufacturing in existing site; and
    
    $3.5 million for other capital equipment.
  
    
    $3.5 million for machinery used mainly for SMT, COB and testing equipments;
    
    $25.0 million for new factory construction in Wuxi;
 22




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##### Table of Contents




    
    $10.5 million for machinery mainly used for FPC board manufacturing in Wuxi; and
    
    $3.5 million for other capital equipment.
  Business Overview
  Our Customers
  Year ended December 31,2006
    
    2007
    
    2008Epson Imaging Device Corporation (1)
    
    
    16.3
    %
    
    
    15.9
    %
    
    
    16.5
    %Sony Computer Entertainment Europe Ltd.
    
    
    *
    
    
    
    *
    
    
    
    15.4
    %Sharp Corporation
    
    
    18.8
    %
    
    
    20.2
    %
    
    
    15.3
    %Sony Ericsson Mobile Communications International AB
    
    
    *
    
    
    
    *
    
    
    
    10.5
    %Wuxi Sharp Electronic Components Co., Ltd.
    
    
    22.5
    %
    
    
    *
    
    
    
    *GN Netcom
    
    
    *
    
    
    
    10.8
    %
    
    
    *
 
 *
    
    Less than 10% of our total net sales.(1)
    
    Formerly known as Sanyo Epson Imaging Device  Customer
    
    ProductsEpson Imaging Device Corporation(1)
    
    LCD modules for cellular phones and FPC subassembliesGN Netcom
    
    Headset accessory containing Bluetooth wireless technologyHikari Alphax Co., Ltd.
    
    LCD modulesRyoyo Electro Hong Kong Limited
    
    LCD panelsSharp Corporation
    
    FPC subassemblies, calculators, PDAs and dictionariesSony Computer Entertainment Europe Ltd.
    
    Home entertainment productsSony Ericsson Mobile Communications AB
    
    Mobile phone digital camera accessories, headset
accessory containing Bluetooth wireless technology and
flashlight for mobile phoneTech-Pro (Shanghai) Computer Ltd.
    
    CMOS sensor modules for notebook computerTexas Instruments Incorporated
    
    CalculatorsVtech Communications Ltd.
    
    LCD modules
 
 (1)
    
    Formerly known as Sanyo Epson Imaging Device 23




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##### Table of Contents



Our Products
  Year ended December 31,2006
    
    2007
    
    2008Dollars
    
    Percent
    
    Dollars
    
    Percent
    
    Dollars
    
    PercentCECP
    
    
    178,320
    
    
    
    21
    
    
    
    283,757
    
    
    
    36
    
    
    
    271,365
    
    
    
    44TCA
    
    
    627,199
    
    
    
    72
    
    
    
    413,198
    
    
    
    53
    
    
    
    274,953
    
    
    
    44LCDP
    
    
    64,655
    
    
    
    7
    
    
    
    83,867
    
    
    
    11
    
    
    
    76,534
    
    
    
    12Total
    
    
    870,174
    
    
    
    100
    
    
    
    780,822
    
    
    
    100
    
    
    
    622,852
    
    
    
    100
  Consumer Electronic and Communication Products
  
    
    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;
    
    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;
    
    Educational products such as digital pens, calculators and electronic
dictionaries; and
    
    Optical devices such as CMOS imaging sensor modules for notebook computers,
portable media players and recording cameras for the automotive industry.
 Telecommunication Component Assembly
  
    
    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;
 24




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##### Table of Contents




    
    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;
    
    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;
    
    FPC subassemblies for integration into various LCD modules and electronic
devices;
    
    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;
    
    Front light panels for handheld video game devices;
    
    Back light panels for handheld video game devices; and
    
    1.9 high-frequency cordless telephones and home feature phones.
 LCD Products
  
    
    Super thin (0.3-0.5mm glass substrates) LCD panels for application in watches and
medical instruments;
    
    Irregular shaped LCD panels for applications in bicycles and industrial
applications;
    
    Super high contrast monochrome vertical aligned Twisted Nematic LCD for
applications in automotive parts and major appliances;
    
    Black masked color LCD for applications in car audio systems;
    
    Wide temperature monochrome dye doped enhanced Super-Twisted Nematic (STN) LCD
for application in major appliances;
    
    1.5 Color and monochrome STN LCD modules for application of hand held products,
such as cordless phones;
    
    5-7 monochrome high resolution STN LCD modules with touch screens for
applications of VoIP phones, medical instruments and major appliances; and
    
    8.5 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
  Chip On Film, or COF
    
    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, 2008, 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.
 25




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##### Table of Contents



Chip On Glass, or COG
    
    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
December 31, 2008, we had
23 COG lines in our
principal manufacturing
facilities. 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 and a total
production capacity of up
to 4,200,000 chips per
month. During 2005, our
subsidiary, Jetup
Electronic (Shenzhen) Co.
Ltd. (Jetup) also
started manufacturing COG
LCD modules. As of
December 31, 2008, Jetup
had 18 COG lines and is
capable of bonding 5
million units of COG LCD
modules a month. They are
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.Chip On Board, or COB
    
    is a technology that
utilizes wire bonding to
connect large-scale
integrated circuits
directly to printed
circuit boards. As of
December 31, 2008, we had
53COB 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 3COB 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 use
in USB camera, notebook
computer, mobile phone and
digital pen.Outer Lead Bonding, or OLB
    
    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, 2008,
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.Tape Automated
Bonding With Anisotropic Conductive Film, or TAB With ACF
    
    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, 2008, we had
28 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. Since 2005, Jetup
also started manufacturing
TAB LCD modules. As of
December 31, 2008, Jetup
had four TAB lines and is
capable of bonding
2,000,000 pieces of TAB
LCD modules a month. They
are 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.Fine Pitch Heat
Seal Technology, or FPHS  Technology
    
    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, 2008, 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.
 26




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##### Table of Contents



Surface Mount Technology, or SMT
    
    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, 2008, 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.Super-Twisted Nematic, or STN, Displays
    
    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
Jetup began producing STN
LCDs in 2002. Since 2005,
our Jetup upgraded its two
existing twisted nematic,
or TN type, LCD lines to
STN LCD lines. 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, 2008, our Jetup 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.LCD Back-End
    
    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 0.2millimeters +
0.2millimeters LCD mother
glass up to dimension 550
millimeters x 670
millimeters, with cutting
tolerance +/-0.1
millimeters. Nam Tai
started mass production
from September 2006, with
monthly maximum production
capacity of 1,800,000
units.
   FPC boards and FPC Subassemblies
 Flexible Printed Circuit Subassemblies.
 Flexible Printed Circuits
 27




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##### Table of Contents



Quality Control
          28




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##### Table of Contents



Our Suppliers
   
    
    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;
    
    LCD panels, which are available from many manufacturers. In 2007, we 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.;
    
    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. In 2007, we purchased FPC boards mainly from Sony
Chemical Co., Ltd., Nitto Denko (HK) Co. Ltd. and NOK Mektec Corp. Ltd.;
    
    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
    
    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.
    29




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##### Table of Contents



Production Scheduling
      Sales and Marketing
   Seasonality
  30




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##### Table of Contents



Transportation
  Competition
  Product/Service
    
    CompetitorEMS
    
    Ø      Celestica, Inc.Ø      Flextronics International Ltd.Ø      Hon Hai Precision Industry Co., Ltd.Ø      Jabil Circuit, IncØ      Sanmina-SCI CorporationImage capturing devices and their modules
    
    Ø      Altus Technology Inc (controlled by Foxconn)Ø      Lite-On Technology CorporationØ      Logitech International S.A.Ø      The Primax GroupMobile phone accessories
    
    Ø      Balda-Thong Fook Solutions Sdn., Bhd.Ø      Celestica, Inc.Ø      Elcoteq Network Corp.Ø      Flextronics International Ltd.Ø      Foster CorporationØ      Foxlink GroupØ      Merry Electronics Co. Ltd.Ø      WKK International (Holdings) Ltd.RF modules
    
    Ø      Wavecom SAØ      WKK International (Holdings) Ltd.Liquid crystal display, or LCD, panels
    
    Ø      Elec & Eltek International Holdings LimitedØ      Truly International Holdings Ltd.Ø      Varitronix International Ltd.Ø      Yeebo (International) Holdings Ltd.Telecommunication subassemblies and components
    
    Ø      Flextronics International Ltd.Ø      LG. Philips LCD Co., Ltd.Ø      Samsung ElectronicsØ      Varitronix International Ltd.Consumer electronic products (calculators,
personal organizers and linguistic products)
    
    Ø      Computime LimitedØ      Inventec Co. Ltd.Ø      Kinpo Electronics, Inc.Ø      VTech Holdings Limited
  31




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##### Table of Contents



Research and Development
   Patents, Licenses and Trademarks
  Organizational Structure
 . 
 (The remainder of this page left blank intentionally)
 32




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##### Table of Contents



namtai
(incorporated in the British Virgin Islands and listed on
the New York Stock Exchange in the USA) NYSE: NTE74.88%NAM TAI ELECTRONIC & ELECTRICAL
PRODUCTS LIMITED(incorporated in the Cayman Islands and listed on Main Board of HK Stock Exchange
)100%NAM TAI HOLDINGS LIMITED (Incorporated in the British Virgin Islands)100% 100% 100% 100%NAM TAI
INVESTMENT CONSULTANTS NAMTAI JAPANNAMTAI ELECTRONICNAM TAI INVESTMENT (MACO COMMERCIAL COMPANY LIMITED (SHENZHEN)
CO., LTD. LIMITEDOFFSHORE) (Incorporated in(Incorporated in the(Incorporated in Japan) COMPANY LIMITEDPRC) Hong
Kong)(Incorporated in Macao)100% 100% 100% 100%JETUPZASTRONWUXIWUXI ELECTRONIC ELECTRONICZASTRONZASTRON (SHENZHEN)
(SHENZHEN)PRECISION- PRECISION-CO., LTD. CO. LTD. TECH CO. LTD. FLEX CO. LTD. (Incorporated(Incorporated(Incorporated
(Incorporated in the PRC) in the PRC) in the PRC) in the PRC)1 33




---



##### Table of Contents



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 have been
listed on the Hong Kong Stock Exchange since April 28, 2004. At December 31, 2008, NTEEP was a 74.88%-owned subsidiary
of Nam Tai Electronics, Inc. (NYSE: NTE)100%NAM TAI HOLDINGS LIMITED (formerly known as First Rich Holdings Limited) (Nam Tai
Holdings) incorporated on November 2, 2007 in the British Virgin Islands and prior to the 2007 Reorganization
was a wholly owned subsidiary of JIC. It and its subsidiaries became part of the NTEEP Group in the 2007 Reorganization.
100%100%100% 100%NAM TAI NAMTAI ELECTRONIC (SHENZHEN) CO., LTD. (Namtai INVESTMENTS Shenzhen) was originally
established as Baoan (Nam CONSULTANT Tai) Electronic Co. Ltd. in June 1989 as a contractual (MACAO joint venture company with limited liability
pursuant COMMERCIAL to the laws of China. Originally, the equity of Baoan OFFSHORE) (Nam Tai) Electronic Co. Ltd. was 70% owned by
COMPANY LIMITED NAM TAI JAPANNam Tai Electronic & Electrical Products Limited, a(Nam Tai Macao) was COMPANY LIMITED Hong Kong
subsidiary of Nam Tai, and 30% owned N established in August (Namtai Japan) was by a PRC company. In 1992, the PRC companyAM
TAI INVESTMENT LIMITED (formerly known as Top Eastern Investment Limited) 2003 by the Company. established in August transferred all
of its equity interest in the contractual (Nam Tai Investment) was incorporated in In March 2004, the 2008 in Japan and is joint venture to
Nam Tai Electronic & Electrical November 6, 2007 in Hong Kong. It is wholly Company transferred the wholly ownedProducts Limited and
Baoan (Nam Tai) Electronic owned subsidiary of Nam Tai Holdings and the equity interest to subsidiary of NTEEP. Co. Ltd. and changed its name
to Namtai Electronic the holding company of Wuxi Zastron Tech NTEEP and this This company engages (Shenzhen) Co., Ltd. In December 2003,
the equity and Wuxi Zastron Flex.company then became a in sales and marketing interest in Namtai Shenzhen was transferred from wholly owned
activities in Japan.Nam Tai Electronic & Electrical Products Limited subsidiary of NTEEP. (Hong Kong) to NTEEP and it became NTEEPs Its
principal business is wholly owned subsidiary. Its business was to provide consultancy, unaffected by the 2007 Reorganization and it administrative
and data continues to engage in the manufacture and sale of processing services to consumer electronics and telecommunications other companies in the
products. NTEEP group. 100%100%ZASTRON ELECTRONIC (SHENZHEN) CO. Ltd. (Zastron Shenzhen) was organized as Zastron Plastic & Metal Products
(Shenzhen) Ltd. in March 1992 as a company with limited W WUXI ZASTRON PRECISION-FLEX liability company began producingUXI ZASTRON PRECISION-TECH .
(formerly known asCO. LTD. (formerly known as JETUP ELECTRONICmetallic parts and PVC plasticCO. LTD Zastron Precision- Flex (Wuxi) Co. (SHENZHEN)
CO. LTD. (Jetup) was products, much of which is used in Zastron Precision- Tech (Wuxi) Ltd.) (Wuxi Zastron Flex) was incorporated in 1993 in China and the products
manufactured in ourCo. Ltd.) (Wuxi Zastron Tech) was established in November 2006 as a handles the manufacturing andprincipal manufacturing facilities. In established
in November 2006 as a wholly owned foreign investment processing production of LCD panels August 2002, Zastron Plastic & Metal wholly owned foreign investment
enterprise with limited liability and and modules through its factories in Products (Shenzhen) Ltd. changed its enterprise with limited liability and pursuant to the
relevant laws of Baoan County, Shenzhen and was name to Zastron Electronicpursuant to the relevant laws of China. The Company will be formerly a
wholly owned subsidiary (Shenzhen) Co. L
td. and expanded China. The Company will be engaged in the manufacturing and of JIC Technology.
Its businessthe nature of its business to include engaged in the manufacturing and trading of FPC boards and FPC remains unaffected by the 2007
manufacturing of telecommunication trading of LCD modules and other subassemblies and became part of Reorganization and it continues to products,
LCD modules, TFT LCD products and became part of the the NTEEP Group in the 2007 engage in the manufacture and sale of modules and other products.
It is one NTEEP Group in the 2007 Reorganization. In August 2008, liquid crystal display products, now of our principal manufacturing arms, Reorganization.
In September the equity interest in Wuxi Zastron part of the NTEEP Group as abecoming part of the NTEEP Group 2008, the equity interest in Wuxi
Flex was transferred from Zastron consequence of the 2007in the 2007 Reorganization. In July Zastron Tech was transferred from Precision Tech
Ltd, a wholly Reorganization. In January 2009, the 2008, the equity interest in Zastron Zastron Precision Tech Ltd, a owned subsidiary of NTEEP
to equity interest in Jetup was further Shenzhen was transferred fromwholly owned subsidiary of Nam Tai Investment, another transferred from Nam
Tai Investment Zastron Precision Tech Ltd, a wholly NTEEP to Nam Tai Investment, wholly owned subsidiary of to Namtai Shenzhen.owned subsidiary
of NTEEP to Nam another wholly owned subsidiary NTEEP. Tai Investment, another whollyof NTEEP. owned subsidiary of NTEEP. In January 2009,
the equity interest in Zastron Shenzhen was further transferred from Nam Tai Investment to Namtai Shenzhen. 34




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##### Table of Contents



Property, Plant and Equipment
  Approximate Square
    
    
    
    Owned(1) or leaseLocation
    
    Footage
    
    Principal Use
    
    expiration dateHong Kong
    
    
    3,760
    
    
    Administration
    
    
    2011Macao
    
    
    2,480
    
    
    Administration
    
    
    2009Shenzhen, China
    
    
    557,835
    
    
    Principal manufacturing facilities
    
    
    2043/2049
    (2)87,460
    
    
    Administration
    
    
    2043/2049
    (2)350,585
    
    
    Dormitories
    
    
    2043/2049
    (2)41,530
    
    
    Cafeteria
    
    
    204333,825
    
    
    Recreational
    
    
    2049Other existing facilitiesShenzhen, China
    
    
    383,550
    
    
    Manufacturing LCD panels and modules
    
    
    201232,000
    
    
    Administration231,260
    
    
    Dormitories22,260
    
    
    Cafeteria14,550
    
    
    RecreationalPlanned new manufacturing facilitiesWuxi, Jiangsu Province, China 
(1st parcel of land)
    
    
    (3
    )
    
    FPC boards and subassemblies, LCD modules and other products
    
    
    2056Wuxi, Jiangsu Province, China
(2nd parcel of land)
    
    
    (4
    )
    
    LCD modules and other products
    
    
    2056Guangming, Shenzhen, China
    
    
    (4
    )
    
    LCD modules and other products
    
    
    2057
 
 (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 land which we have acquired in Wuxi, and will be acquiring the land in
Guangming Shenzhen, will be by 50-year land lease. 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 is in progress and is expected to be completed and available for mass production
by the second half of 2009.(4)
    
    Raw land. Because of the current economic global downturn, our current plan is to postpone
construction of these expansion projects until at least mid-2009 or later. Hong Kong
   Macao
  35




---



##### Table of Contents



Japan
  Shenzhen, China
 Principal Manufacturing Facilities
   LCD Factory
  Future Expansion
   36




---



##### Table of Contents



ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Operating Results
 Overview
   Net Sales and Cost of Sales
   37




---



##### Table of Contents



Gross Margins
    Income Taxes
       38




---



##### Table of Contents



Rate under EIT
    
    Rate under EITfor enterprises previously
    
    for enterprises previouslyTax Year
    
    subject to 15% tax rate
    
    subject to 24% tax rate2008
    
    
    18
    %
    
    
    25
    %2009
    
    
    20
    %
    
    
    25
    %2010
    
    
    22
    %
    
    
    25
    %2011
    
    
    24
    %
    
    
    25
    %2012
    
    
    25
    %
    
    
    25
    %
  Year Ended December 31,2006
    
    2007
    
    2008Applicable statutory tax rates
    
    
    15
    %
    
    
    15
    %
    
    
    18
    %Effect of loss/income for which no income tax benefit/expense is
receivable/payable
    
    
    (5
    )%
    
    
    (4
    )%
    
    
    (19
    )%Tax holidays and incentives
    
    
    (3
    )%
    
    
    (4
    )%
    
    
    Effect of China tax concessions, giving rise to no China tax liability
    
    
    (4
    )%
    
    
    
    
    
    
    Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    3
    %Effect of Change in tax law on deferred tax
    
    
    
    
    
    
    (3
    )%
    
    
    (1
    )%Deferred tax liability on undistributed profits of PRC subsidiaries
    
    
    
    
    
    
    
    
    
    
    2
    %Other items which are not (assessable) deductible for tax purposes
    
    
    (2
    )%
    
    
    
    
    
    
    4
    %Effective tax rates
    
    
    1
    %
    
    
    4
    %
    
    
    7
    %
 Strategic Investments
   39




---



##### Table of Contents



Year ended December 31,2006
    
    2007
    
    2008Gain on disposal of marketable securities
    
    $
    
    
    
    $
    43,815
    
    
    $
    Loss on marketable securities arising from split share structure reform
    
    
    (1,869
    )
    
    
    
    
    
    
    
 Critical Accounting Policies and Estimates
   Valuation of long-lived assets and valuation of goodwill
     40




---



##### Table of Contents



Accruals and provisions for loss contingencies
   Summary of Results
   Year Ended December 31,
    
    % increase/(decrease)2006
    
    2007
    
    2008
    
    2007 vs. 2006
    
    2008 vs. 2007Net sales
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852
    
    
    
    (10.3
    )%
    
    
    (20.2
    )%Gross profit
    
    
    86,221
    
    
    
    87,018
    
    
    
    70,678
    
    
    
    0.9
    
    
    
    (18.8
    )Operating income
    
    
    42,480
    
    
    
    40,670
    
    
    
    6,386
    
    
    
    (4.3
    )
    
    
    (84.3
    )Net income
    
    
    40,756
    
    
    
    69,503
    
    
    
    30,635
    
    
    
    70.5
    
    
    
    (55.9
    )Basic earnings per share
    
    
    0.93
    
    
    
    1.56
    
    
    
    0.68
    
    
    
    67.6
    
    
    
    (56.4
    )Diluted earnings per share
    
    
    0.93
    
    
    
    1.55
    
    
    
    0.68
    
    
    
    66.7
    
    
    
    (56.1
    )
 Key Performance Indicators
  2007
    
    2008Days in:
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31Sales cycle(1)
    
    
    12
    
    
    
    9
    
    
    
    11
    
    
    
    6
    
    
    
    20
    
    
    
    10
    
    
    
    17
    
    
    
    14Inventory turnover(2)
    
    
    16
    
    
    
    19
    
    
    
    17
    
    
    
    17
    
    
    
    20
    
    
    
    16
    
    
    
    23
    
    
    
    18Accounts receivable(3)
    
    
    52
    
    
    
    48
    
    
    
    53
    
    
    
    45
    
    
    
    56
    
    
    
    50
    
    
    
    75
    
    
    
    61Accounts payable(4)
    
    
    56
    
    
    
    58
    
    
    
    59
    
    
    
    56
    
    
    
    56
    
    
    
    56
    
    
    
    81
    
    
    
    65
 41




---



##### Table of Contents



March 31
    
    June 30
    
    September 30
    
    December 31Days in:
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008Sales cycle(1)
    
    
    12
    
    
    
    20
    
    
    
    9
    
    
    
    10
    
    
    
    11
    
    
    
    17
    
    
    
    6
    
    
    
    14Inventory turnover(2)
    
    
    16
    
    
    
    20
    
    
    
    19
    
    
    
    16
    
    
    
    17
    
    
    
    23
    
    
    
    17
    
    
    
    18Accounts receivable(3)
    
    
    52
    
    
    
    56
    
    
    
    48
    
    
    
    50
    
    
    
    53
    
    
    
    75
    
    
    
    45
    
    
    
    61Accounts payable(4)
    
    
    56
    
    
    
    56
    
    
    
    58
    
    
    
    56
    
    
    
    59
    
    
    
    81
    
    
    
    56
    
    
    
    65
 
 (1)
    
    The 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 of 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
  Year Ended December 31,2006
    
    2007
    
    2008Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    (90.1
    )
    
    
    (88.9
    )
    
    
    (88.7
    )Gross profit
    
    
    9.9
    
    
    
    11.1
    
    
    
    11.3Gain on disposal of asset held for sale
    
    
    1.1
    
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    (3.5
    )
    
    
    (4.7
    )
    
    
    (5.8
    )Research and development expenses
    
    
    (0.9
    )
    
    
    (1.2
    )
    
    
    (1.7
    )Impairment loss on goodwill
    
    
    
    
    
    
    
    
    
    
    (2.8
    )Losses arising from judgment to reinstate redeemed shares
    
    
    (1.7
    )
    
    
    
    
    
    
    Operating income
    
    
    4.9
    
    
    
    5.2
    
    
    
    1.0Other (expense) income, net
    
    
    (0.2
    )
    
    
    0.3
    
    
    
    1.0Gain on sale of subsidiaries shares
    
    
    
    
    
    
    0.1
    
    
    
    3.2Gain on disposal of marketable securities
    
    
    
    
    
    
    5.6
    
    
    
    Loss on
marketable securities arising from split share structure reform
    
    
    (0.2
    )
    
    
    
    
    
    
    Interest income
    
    
    1.0
    
    
    
    1.2
    
    
    
    1.0Interest expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Income before income taxes and minority interests
    
    
    5.4
    
    
    
    12.3
    
    
    
    6.2Income taxes
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.5
    )Minority interests
    
    
    (0.7
    )
    
    
    (2.9
    )
    
    
    (0.9
    )Net income
    
    
    4.7
    %
    
    
    8.9
    %
    
    
    4.9
    %
 Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Net Sales.
 42




---



##### Table of Contents



Year ended December 31,2007
    
    
    2008
    
    
    2008 vs. 2007Dollars
    
    
    
    
    
    
    Dollars(in thousands)
    
    
    Percent
    
    
    (in thousands)
    
    
    Percent
    
    
    PercentCECP
    
    $
    283,757
    
    
    
    36
    %
    
    $
    271,365
    
    
    
    44
    %
    
    
    (4.4)
    %TCA
    
    
    413,198
    
    
    
    53
    
    
    
    274,953
    
    
    
    44
    
    
    
    (33.5)
    %LCDP
    
    
    83,867
    
    
    
    11
    
    
    
    76,534
    
    
    
    12
    
    
    
    (8.7)
    %Total
    
    $
    780,822
    
    
    
    100
    %
    
    $
    622,852
    
    
    
    100
    %
    
    
    (20.2)
    %
     Gross Profit.
 Selling, General and Administrative Expenses.
 Research and Development Expenses.
 Impairment loss on goodwill.
 Other Income, Net.
 Gain on Sale of Subsidiaries Shares
 Interest Income.
 Interest Expense
 43




---



##### Table of Contents



Income Taxes
 Minority Interests
 Net Income.
 Year ended December 31,2006
    
    2007
    
    2008Dollars
    
    
    
    
    
    Dollars
    
    
    
    
    
    Dollars(in millions)
    
    Percent
    
    (in millions)
    
    Percent
    
    (in millions)
    
    PercentCECP
    
    $
    12.3
    
    
    
    30
    %
    
    $
    54.5
    
    
    
    78
    %
    
    $
    27.3
    
    
    
    89
    %TCA
    
    
    31.4
    
    
    
    77
    
    
    
    16.0
    
    
    
    23
    
    
    
    3.7
    
    
    
    12LCDP
    
    
    2.6
    
    
    
    6
    
    
    
    1.4
    
    
    
    2
    
    
    
    (20.7
    )
    
    
    (67
    )Corporate
    
    
    (5.5
    )
    
    
    (13
    )
    
    
    (2.4
    )
    
    
    (3
    )
    
    
    20.3
    
    
    
    66Total
    
    $
    40.8
    
    
    
    100
    %
    
    $
    69.5
    
    
    
    100
    %
    
    $
    30.6
    
    
    
    100
    %
     Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Net Sales.
  Year ended December 31,2006
    
    
    2007
    
    
    2007 vs. 2006Dollars
    
    
    
    
    
    
    Dollars(in thousands)
    
    
    Percent
    
    
    (in thousands)
    
    
    Percent
    
    
    PercentCECP
    
    $
    178,320
    
    
    
    21
    %
    
    $
    283,757
    
    
    
    36
    %
    
    
    59.1
    %TCA
    
    
    627,199
    
    
    
    72
    
    
    
    413,198
    
    
    
    53
    
    
    
    (34.1)
    %LCDP
    
    
    64,655
    
    
    
    7
    
    
    
    83,867
    
    
    
    11
    
    
    
    (29.7
    )%Total
    
    $
    870,174
    
    
    
    100
    %
    
    $
    780,822
    
    
    
    100
    %
    
    
    (10.3)
    %
 44




---



##### Table of Contents



Gross Profit
 Selling, General and Administrative Expenses
 Research and Development Expenses.
 Losses arising from the judgment to reinstate the redeemed shares.
 Other Income (Expenses) Net.
 Gain on Sale of Subsidiaries Shares
 Loss on marketable securities arising from split share structure reform.
 Gain on disposal of marketable securities.
 Interest
Income.
 Interest Expense
 Income Taxes
 Minority Interests
 45




---



##### Table of Contents



Net Income.
     Liquidity and Capital Resources
 Liquidity
      46




---



##### Table of Contents



Year Ended December 31,2006
    
    2007
    
    2008Net cash provided by operating activities
    
    $
    79,811
    
    
    $
    71,050
    
    
    $
    36,791Net cash (used in) provided by investing activities
    
    
    (8,430
    )
    
    
    26,610
    
    
    
    (34,723
    )Net cash used in financing activities
    
    
    (65,071
    )
    
    
    (47,098
    )
    
    
    (42,267
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,310
    
    
    
    50,562
    
    
    
    (40,199
    )
         Prior Litigation Involving Tele-Art, Inc.
 i.e.
 47




---



##### Table of Contents




    
    $200,000 to satisfy claims of unsecured creditors of Tele-Art other than Nam Tai;
    
    $400,000 to satisfy the claims of Tele-Arts former liquidator;
    
    $600,000 in payment of professional fees and expenses, including expenses relating to
the sale of the shares, incurred through June 30, 2008.
  Tax Dispute with Hong Kong Inland Revenue Department
    Capital Resources
   48




---



##### Table of Contents



Payments (in thousands) due by periodContractual Obligation
    
    Total
    
    
    2009
    
    
    2010 -2012
    
    
    2012-2014
    
    
    After 2014Long-term debt obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    5,977
    
    
    
    1,848
    
    
    
    4,129
    
    
    
    619
    
    
    
    Capital expenditures
    
    
    21,456
    
    
    
    21,456
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    55,402
    
    
    
    55,402
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    82,835
    
    
    $
    78,706
    
    
    $
    4,129
    
    
    $
    619
    
    
    $
    
  Impact of Inflation
  Exchange Controls
  Recent Changes in Accounting Standards
 Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
 49




---



##### Table of Contents



Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 Business Combination Accounting for Costs Associated with Exit or
Disposal Activities" Accounting for
Contingencies"
 Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51
 Determination of the Useful Life of Intangible
Assets. Goodwill and Other Intangible Assets
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.
 Accounting for Defensive Intangible Assets
 50




---



##### Table of Contents



Research and Development
  Trend Information
 Business Trends
       51




---



##### Table of Contents



Efforts to Seek to Privatize NTEEP
       Off-balance Sheet Arrangements
  
 ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
 Directors and Senior Managers
  Name
    
    Age
    
    Position with Nam Tai or its SubsidiariesM. K. Koo
    
    
    64
    
    
    Chairman of the Board of Nam Tai and NTEEP Group and Chief Financial Officer of Nam TaiKarene Wong
    
    
    45
    
    
    President and Chief Executive Officer (Acting) of Nam Tai and NTEEP GroupAnthony Chan
    
    
    39
    
    
    Vice Chief Financial Officer of Nam TaiSteve Wang
    
    
    49
    
    
    Chief Executive Officer of NTEEP Business UnitL. P. Wang
    
    
    52
    
    
    Chief Executive Officer of Zastron Business UnitColin Yeoh
    
    
    44
    
    
    Chief Executive Officer of Jetup Business UnitPeter R. Kellogg
    
    
    66
    
    
    Member of the Board of DirectorsDr. Wing Yan
(William) Lo
    
    
    48
    
    
    Member of the Board of DirectorsCharles Chu
    
    
    52
    
    
    Member of the Board of DirectorsMark Waslen
    
    
    48
    
    
    Member of the Board of Directors
 M. K. Koo.
 52




---



##### Table of Contents



Karene Wong.
 Anthony Chan.
 Steve Wang
 L.P. Wang
 Colin Yeoh.
 Peter R. Kellogg.
 53




---



##### Table of Contents



Dr. Wing Yan (William) Lo
 Charles Chu.
 Mark Waslen
  Compensation of Directors and Senior Management
 Compensation on an Aggregate Basis
     54




---



##### Table of Contents



Compensation on an Individual Basis 1
 Directors
  Fees Earned or
    
    Option
    
    All Other
    
    TotalName
    
    Paid in Cash ($)(1)
    
    Awards ($)(2)
    
    Compensation ($)
    
    ($)M. K. Koo(4)
    
    
    42,000
    
    
    
    27,900
    
    
    
    13,281
    (3)
    
    
    83,181Peter R. Kellogg
    
    
    40,000
    
    
    
    27,900
    
    
    
    
    
    
    
    67,900Charles Chu
    
    
    43,250
    
    
    
    27,900
    
    
    
    
    
    
    
    71,150Dr. Wing Yan (William)
Lo
    
    
    42,750
    
    
    
    27,900
    
    
    
    
    
    
    
    70,650Mark Waslen
    
    
    42,000
    
    
    
    27,900
    
    
    
    
    
    
    
    69,900
 
 (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.(2)
    
    Consists of the dollar amount of option grants that Nam Tai recognized for financial
statement reporting purposes in accordance with FAS 123(R).(3)
    
    Consists of amounts paid for golf club membership fees, and on life, medical, travel and
accident insurance premiums.(4)
    
    Mr. Koo was appointed Executive Chairman and Chief Financial Officer of Nam Tai in March
2009.1
    
    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 issuers 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 2009 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. 55




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##### Table of Contents



Option Granted and Repurchases During 2008
  Number of
    
    Total number of optionsoptions granted
    
    held immediately prior
    
    Amount ($) receivedDirector
    
    during 2008
    
    to Oct. 2008 buyback
    
    in Options BuybackM. K. Koo*
    
    
    15,000
    
    
    
    45,000
    
    
    $
    13,650Peter R. Kellogg
    
    
    15,000
    
    
    
    45,000
    
    
    $
    13,650Dr. Wing Yan
(William) Lo
    
    
    15,000
    
    
    
    45,000
    
    
    $
    13,650Charles Chu
    
    
    15,000
    
    
    
    45,000
    
    
    $
    13,650Mark Waslen
    
    
    15,000
    
    
    
    45,000
    
    
    $
    13,650
 
 *
    
    Mr. Koo was appointed Executive Chairman and Chief Financial Officer of Nam Tai in March 2009. Options Held by Directors at December 31, 2008
  Executive Officers
  Summary Compensation TableAll otherOption
    
    Compen-Name and Principal Position
    
    Year
    
    Salary ($)(1)
    
    Bonus ($)(2)
    
    Awards($)(3)
    
    sation ($)(4)
    
    Total ($)Karene Wong
    
    
    2008
    
    
    
    358,974
    
    
    
    455,241
    
    
    
    
    
    
    
    10,217
    
    
    
    824,432President and Chief Executive
    
    
    2007
    
    
    
    358,974
    
    
    
    1,259,305
    
    
    
    
    
    
    
    10,217
    
    
    
    1,628,496Officer (Acting) of Nam Tai
    
    
    2006
    
    
    
    358,974
    
    
    
    394,885
    
    
    
    
    
    
    
    9,795
    
    
    
    763,654and NTEEP GroupAnthony Chan(5)
    
    
    2008
    
    
    
    192,308
    
    
    
    24,038
    
    
    
    
    
    
    
    4,559
    
    
    
    220,905Chief Financial Officer (Acting) of
    
    
    2007
    
    
    
    181,538
    
    
    
    60,513
    
    
    
    
    
    
    
    4,024
    
    
    
    246,075Nam Tai and NTEEP Group
    
    
    2006
    
    
    
    135,385
    
    
    
    22,564
    
    
    
    
    
    
    
    3,749
    
    
    
    161,698John Q. Farina(6)
    
    
    2008
    
    
    
    658,334
    
    
    
    
    
    
    
    155,000
    
    
    
    21,046
    
    
    
    834,380President and CFO of
    
    
    2007
    
    
    
    274,750
    
    
    
    
    
    
    
    144,400
    
    
    
    33,963
    
    
    
    453,113Nam Tai Group
    
    
    2006
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMasaaki Yasukawa(7)
    
    
    2008
    
    
    
    367,885
    
    
    
    
    
    
    
    156,500
    
    
    
    11,413
    
    
    
    535,798Chief Executive Officer of
    
    
    2007
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ANam Tai Group
    
    
    2006
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/APatinda Lei(8)
    
    
    2008
    
    
    
    358,974
    
    
    
    
    
    
    
    
    
    
    
    9,637
    
    
    
    368,611Vice CEO of Zastron
    
    
    2007
    
    
    
    358,974
    
    
    
    155,250
    
    
    
    
    
    
    
    9,637
    
    
    
    523,861Business Unit
    
    
    2006
    
    
    
    358,974
    
    
    
    395,474
    
    
    
    
    
    
    
    9,450
    
    
    
    763,898
 56




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##### Table of Contents



(1)
    
    Consists of the dollar value of base salary, including housing, if applicable, earned by the
named executive officer during the year indicated.(2)
    
    Consists of the dollar value of bonus earned by the named executive officer during the year
covered.(3)
    
    Represents the total fair value of options awards recognized for financial statement
reporting purposes with respect to the year indicated in accordance with FAS 123R.(4)
    
    To the extent applicable to the named individual, consists of amounts paid for golf club
membership fees, mandatory provident fund, life, medical, travel, social security,
unemployment compensation, welfare and accident insurance premiums and fees for annual
physical examinations.(5)
    
    Resigned as Chief Financial Officer (Acting) of Nam Tai on March 1, 2009 and was appointed at
that time as Vice Chief Financial Officer of Nam Tai.(6)
    
    Joined Nam Tai Group as CFO in April 2007 and resigned as President and CFO of Nam Tai Group
effective on September 26, 2008. Salary in 2008 also includes severance compensation equal to
six-months salary. Options to purchase 40,000 and 50,000 shares of the Company as well as the
options to purchase 2,000,000 shares of NTEEP were granted to him in April 2007 and February
2008, respectively. All options were cancelled upon his resignation.(7)
    
    Joined Nam Tai Group in February 2008 as CEO and resigned effective on November 1, 2008.
Salary in 2008 includes severance compensation equal to six-months salary. Options to
purchase 2,000,000 shares of NTEEP and 50,000 shares of the Company were granted to him in
February and September 2008, respectively. All options were cancelled upon his resignation.(8)
    
    Appointed as Vice CEO of Zastron Business Unit effective November 1, 2008. Retirement Benefits
  Number
    
    Value at
    
    Companyof years
    
    December 31, 2008 of
    
    Paymentsof credited
    
    Accumulated
    
    duringName
    
    Service
    
    Benefits ($)
    
    2008 ($)Karene Wong
    
    
    8
    
    
    
    12,308
    
    
    
    1,538Anthony Chan
    
    
    8
    
    
    
    12,308
    
    
    
    1,538John Q. Farina
    
    
    1.5
    
    
    
    2,179
    
    
    
    1,410Masaaki Yasukawa
    
    
    0.75
    
    
    
    1,154
    
    
    
    1,154Patinda Lei
    
    
    8
    
    
    
    12,308
    
    
    
    1,538
 
 (1)
    
    Since December 2000, we have enrolled all of our eligible employees located in Hong Kong into
the Mandatory Provident Fund. Since first establishing a subsidiary in Macao in 2003, we have
enrolled all of our eligible employees in Macao into Macaos retirement benefit scheme. Options Held by Executive Officers at December 31, 2008
  Board Practices
  57




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##### Table of Contents



Corporate Governance Guidelines
  
 shareholder@namtai.com
 NYSE Listed Company Manual Disclosure
  Committee Charters and Independence
     
    
    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 members1 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 member1, 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 Companys audit during that time;
    
    none of whose immediate family members1 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 Companys
audit;
 58




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##### Table of Contents




    
    none of whose immediate family members1 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
Companys audit during that time; and
    
    who, or whose immediate family members1, 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 Companys present
executives at the same time serves or served on that companys compensation committee;
and
    
    who is not an employee of, or whose immediate family members1 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 companys consolidated gross revenues.
 
 Note : (1)
    
    An immediate family member includes a persons 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 persons home. Audit Committee
   Compensation Committee
   Nominating / Corporate Governance Committee
   59




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##### Table of Contents



Stock Options of Directors and Senior Management
  Employee Stock Option Plans
     Employees
  At December 31,Geographic Location
    
    Main Activity
    
    2006
    
    2007
    
    2008Shenzhen, PRC
    
    Manufacturing
    
    
    5,630
    
    
    
    6,220
    
    
    
    5230Research and development
    
    
    316
    
    
    
    360
    
    
    
    313Quality control
    
    
    439
    
    
    
    558
    
    
    
    489Engineering
    
    
    305
    
    
    
    337
    
    
    
    284Administration
    
    
    417
    
    
    
    445
    
    
    
    418Marketing
    
    
    89
    
    
    
    101
    
    
    
    109Support(1)
    
    
    246
    
    
    
    298
    
    
    
    245Total Shenzhen
    
    
    7,442
    
    
    
    8,319
    
    
    
    7,088Hong Kong
    
    Administration
    
    
    10
    
    
    
    13
    
    
    
    8Total Hong Kong
    
    
    10
    
    
    
    13
    
    
    
    8Macao
    
    Administration
    
    
    16
    
    
    
    13
    
    
    
    5Total Macao
    
    
    16
    
    
    
    13
    
    
    
    5Japan
    
    Administration
    
    
    2
    
    
    
    1
    
    
    
    2Marketing
    
    
    1
    
    
    
    2
    
    
    
    1Research & Development
    
    
    1
    
    
    
    1
    
    
    
    Total Japan
    
    
    4
    
    
    
    4
    
    
    
    3British Virgin Islands(2)
    
    Administration
    
    
    1
    
    
    
    
    
    
    
    Total British Virgin Islands
    
    
    1
    
    
    
    
    
    
    
    Total employees
    
    
    7,473
    
    
    
    8,349
    
    
    
    7,104
 
 (1)
    
    Employees categorized in support include personnel engaged in procurement, customs,
shipping and warehouse services.(2)
    
    We closed our BVI office on January 1, 2007.  60




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Shares and Options Ownership of Directors, Senior Management and Principal Shareholders
  Shares beneficially owned(1)Name
    
    Number
    
    PercentPeter R. Kellogg
    
    
    5,796,180
    (2)
    
    
    12.9M. K. Koo
    
    
    5,242,786
    (3)
    
    
    11.7I.A.T. Reinsurance Syndicate Ltd.
    
    
    5,224,800
    (2)
    
    
    11.7Renaissance Technologies LLC and James H. Simons
    
    
    2,478,200
    (4)
    
    
    5.5Royce & Associates, LLC
    
    
    2,290,275
    (5)
    
    
    5.1Karene Wong
    
    
    37,100
    
    
    
    *Anthony Chan
    
    
    
    
    
    
    Steve Wang
    
    
    
    
    
    
    L. P. Wang
    
    
    1,516
    (6)
    
    
    *Colin Yeoh
    
    
    10,000
    
    
    
    *Charles Chu
    
    
    2,500
    
    
    
    *Wing Yan (William) Lo
    
    
    
    
    
    
    Mark Waslen
    
    
    10,000
    
    
    
    *
 
 *
    
    Less than 1%.(1)
    
    Percentage of ownership is based on 44,803,735 common shares outstanding as of February 28,
2009.(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 these shares.(3)
    
    Mr. Koo beneficially owned 5,242,786 common shares jointly with Ms. Cho Siu Sin, Mr. Koos
wife.(4)
    
    Based on a Schedule 13G filed with the SEC by the beneficial holders on February 13, 2009.(5)
    
    Based on a Schedule 13G filed with the SEC by the beneficial holder on January 27, 2009.(6)
    
    Includes 1,516 common shares and that are registered to Jean S. Tsai, Mr. Wangs wife.    Percentage Ownership (1) atMarch 1,
    
    February 29,
    
    February 28,2007
    
    2008
    
    2009Peter R. Kellogg (2)
    
    
    13.0
    
    
    
    12.9
    
    
    
    12.9M. K. Koo
    
    
    12.7
    
    
    
    12.7
    
    
    
    11.7I.A.T. Reinsurance Syndicate Ltd.
    
    
    11.7
    
    
    
    11.7
    
    
    
    11.7Renaissance Technologies LLC and
James H. Simons
    
    
    
    
    
    
    
    
    
    
    5.5
    (3)Royce & Associates, LLC
    
    
    
    
    
    
    
    
    
    
    5.1
    (4)Invesco Ltd. and PowerShares
Capital Management LLC
    
    
    
    
    
    
    7.1
    (5)
    
    
    0.3
    (6)
 61




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##### Table of Contents



(1)
    
    Based on 44,803,735 common shares outstanding on March 1, 2007, February 29, 2008 and
February 28, 2009.(2)
    
    Includes shares registered in the name of I.A.T. Reinsurance Syndicate Ltd., of which Mr.
Kellogg disclaims beneficial ownership.(3)
    
    Based on a Schedule 13G filed with the SEC by the beneficial holders on February 13, 2009.(4)
    
    Based on a Schedule 13G filed with the SEC by the beneficial holder on January 27, 2009.(5)
    
    Based on a Schedule 13G filed with the SEC by the beneficial holders on February 13, 2008.(6)
    
    Based on Amendment No. 1 to Schedule 13G filed with the SEC by Invesco PowerShares Capital
Management LLC on February 13, 2009.  Certain
Relationships and Related Party Transactions
  
 ITEM 8. FINANCIAL INFORMATION
 Financial Statements
  Legal Proceedings
  Prior Litigation Involving Tele-Art, Inc.
 i.e.
  
    
    $200,000 to satisfy claims of unsecured creditors of Tele-Art other than Nam Tai;
    
    $400,000 to satisfy the claims of Tele-Arts former liquidator; and
    
    $600,000 in payment of professional fees and expenses, including expenses relating
to the sale of the shares, incurred through June 30, 2008.
 62




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##### Table of Contents



Previously Reported Class Action
   Tax Dispute with Hong Kong Inland Revenue Department
    Export Sales
  Year Ended December 31,Geographic Areas
    
    2006
    
    
    2007
    
    
    2008Hong Kong
    
    
    30
    %
    
    
    33
    %
    
    
    36
    %Europe
    
    
    15
    
    
    
    16
    
    
    
    22United States
    
    
    9
    
    
    
    15
    
    
    
    17China (excluding Hong Kong)
    
    
    31
    
    
    
    22
    
    
    
    14North America (excluding United States)
    
    
    
    
    
    
    1
    
    
    
    3Japan
    
    
    2
    
    
    
    3
    
    
    
    2Korea
    
    
    6
    
    
    
    4
    
    
    
    2Other
    
    
    7
    
    
    
    6
    
    
    
    4100
    %
    
    
    100
    %
    
    
    100
    %
 63




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##### Table of Contents



Dividends
  Year ended December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008Total dividends declared (in thousands)
    
    $
    20,424
    
    
    $
    56,324
    
    
    $
    66,497
    
    
    $
    37,635
    
    
    $
    39,427Regular dividends per share
    
    $
    0.48
    
    
    $
    1.32
    
    
    $
    1.44
    
    
    $
    0.84
    
    
    $
    0.88Special dividends
    
    $
    
    
    
    $
    
    
    
    $
    0.08
    
    
    $
    
    
    
    $
    Total dividends per share
    
    $
    0.48
    
    
    $
    1.32
    
    
    $
    1.52
    
    
    $
    0.84
    
    
    $
    0.88
   
 ITEM 9. THE LISTING
   2006
    
    2007
    
    2008Average
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    AverageDaily
    
    
    
    
    
    
    
    
    
    Daily
    
    
    
    
    
    
    
    
    
    DailyTrading
    
    
    
    
    
    
    
    
    
    Trading
    
    
    
    
    
    
    
    
    
    TradingHigh
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)1st
Quarter
    
    $
    24.27
    
    
    $
    21.31
    
    
    
    224,826
    
    
    $
    15.28
    
    
    $
    12.70
    
    
    
    222,472
    
    
    $
    11.92
    
    
    $
    8.37
    
    
    
    326,0522nd
Quarter
    
    
    23.10
    
    
    
    21.46
    
    
    
    173,659
    
    
    
    14.38
    
    
    
    11.92
    
    
    
    244,741
    
    
    
    13.31
    
    
    
    9.62
    
    
    
    197,4533rd
Quarter
    
    
    22.56
    
    
    
    11.43
    
    
    
    504,411
    
    
    
    13.58
    
    
    
    11.76
    
    
    
    248,325
    
    
    
    12.99
    
    
    
    8.02
    
    
    
    198,3634th
Quarter
    
    
    16.95
    
    
    
    12.57
    
    
    
    317,697
    
    
    
    13.69
    
    
    
    11.02
    
    
    
    236,070
    
    
    
    8.16
    
    
    
    4.79
    
    
    
    248,775
 
 (1)
    
    Determined by dividing the sum of the reported daily volume for the quarter by the number of
trading days in the quarter.  Average DailyYear ended
    
    High
    
    Low
    
    Trading Volume(1)December 31, 2008
    
    $
    13.31
    
    
    $
    4.79
    
    
    
    241,672December 31, 2007
    
    
    15.28
    
    
    
    11.02
    
    
    
    238,018December 31, 2006
    
    
    24.27
    
    
    
    11.43
    
    
    
    305,468December 31, 2005
    
    
    28.36
    
    
    
    17.25
    
    
    
    283,482December 31, 2004
    
    
    34.24
    
    
    
    13.99
    
    
    
    532,568
 
 (1)
    
    Determined by dividing the sum of the reported daily volume for the year by the number of
trading days in the year. 64




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##### Table of Contents



Average DailyMonth ended
    
    High
    
    Low
    
    Trading Volume(1)February 28, 2009
    
    $
    5.65
    
    
    $
    3.16
    
    
    
    347,590January 31, 2009
    
    
    6.16
    
    
    
    5.20
    
    
    
    160,085December 31, 2008
    
    
    6.40
    
    
    
    4.79
    
    
    
    216,291November 30, 2008
    
    
    7.52
    
    
    
    4.89
    
    
    
    226,405October 31, 2008
    
    
    8.16
    
    
    
    5.94
    
    
    
    298,326September
30, 2008
    
    
    9.90
    
    
    
    8.02
    
    
    
    190,538
 
 (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
  Memorandum and Articles of Association
        
    
    Continue to be entitled to one vote for each whole share on all matters to be
voted upon by shareholders, including the election of directors;
    
    Continue not to have cumulative voting rights in the election of directors; and
    
    Continue to be entitled to receive dividends if and when declared by our board of
directors out of funds legally available under British Virgin Islands law.
  
    
    all of common shares are equal to each other with respect to liquidation and
dividend rights;
 65




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##### Table of Contents




    
    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
    
    holders of our common shares have no preemptive rights to purchase any
additional, unissued common shares.
  
    
    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 the Memorandum or the Articles; or
    
    in circumstances where the Memorandum or the Articles cannot be amended by the
Shareholders; or
    
    to change the rights of our shareholders as described in any of the bulleted
provisions set forth above in this Report.
              66




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Transfer Agent
  Material Contracts
  i.e.
 i.e.
    i.e. i.e.
 i.e.
  67




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##### Table of Contents



i.e.
 i.e.
     i.e.
 i.e.
 i.e.
 i.e.
 i.e.
 68




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##### Table of Contents



i.e.
 i.e.
 i.e.
 i.e.
 i.e.
  i.e.
  i.e.
 i.e.
 i.e.
  69




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##### Table of Contents



i.e. i.e.
 i.e.
      i.e.
     i.e. i.e.
 70




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##### Table of Contents



i.e. i.e.
    Exchange Controls
  Taxation
 United States Federal Income Tax Consequences
  General
  71




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##### Table of Contents




    
    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.
 U.S. Holders
  
    
    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
trusts 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
  72




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Sale, Exchange or Other Disposition of Our Common Shares
  
    
    you will recognize capital gain or loss equal to the difference (if any) between:
    
    the amount realized on such sale, exchange or other taxable disposition and
    
    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);
    
    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;
    
    such gain or loss will generally be treated as United States source for United
States foreign tax credit purposes; and
    
    your ability to deduct capital losses is subject to limitations.
 PFIC Considerations
    73




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Non-U.S. Holders
  Distributions on Our Common Shares
  
    
    you conduct a trade or business in the United States and
    
    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).
    
    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
  
    
    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
    
    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.
  Backup Withholding and Information Reporting
  
    
    you are a corporation or other exempt recipient, or
 74




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##### Table of Contents




    
    you provide your correct United States federal taxpayer identification number and
certify, under penalties of perjury, that you are not subject to backup withholding.
  Documents on Display
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Currency Fluctuations and Foreign Exchange Risk
    
  75




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##### Table of Contents



Year ended December 31,Currencies included in cash and cash equivalents ($ in thousands)
    
    2007
    
    
    2008United States dollars
    
    $
    157,032
    
    
    $
    178,105Chinese renminbi
    
    
    56,313
    
    
    
    34,493Japanese yen
    
    
    2,005
    
    
    
    435Hong Kong
    
    
    57,095
    
    
    
    23,971Macao Patacas
    
    
    14
    
    
    
    13Total US$ equivalent
    
    $
    272,459
    
    
    $
    237,017
 Interest Rate Risk
 Short-term interest rate risk
  76




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##### Table of Contents



Long-term interest rate risk
    
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  77




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##### Table of Contents



Report of Management on Internal Control Over Financial Reporting
   
 Attestation Report of the Registered Public Accounting Firm
  78




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##### Table of Contents



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control  Integrated Framework
    Internal Control  Integrated Framework
  
 79




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##### Table of Contents



Changes in internal control over financial reporting
  
 ITEM 16. [RESERVED]
 
 ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
   
 ITEM 16 B. CODE OF ETHICS
  
 shareholder@namtai.com
 
 ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   Year ended December 31,2007
    
    
    2008Audit Fees (1)
    
    $
    1,573
    
    
    $
    1,211Audit-related Fees (2)
    
    
    452
    
    
    
    18Tax Fees (3)
    
    
    8
    
    
    
    7All Other Fees (4)
    
    
    156
    
    
    
    Total
    
    $
    2,189
    
    
    $
    1,236
 
 (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. 80




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##### Table of Contents



(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 and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers
and acquisitions, transfer pricing, and requests for rulings or technical advice from tax
authorities; tax planning services; and expatriate tax compliance, consultation and planning
services.(4)
    
    All Other Fees includes a business advisory service fee. Audit Committee Pre-approval Policies and Procedures
     
 ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT.
  
 ITEM 16G. CORPORATE GOVERNANCE.
  81




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PART III
 
 ITEM
17. FINANCIAL STATEMENTS
  
 ITEM
18. FINANCIAL STATEMENTS*
 Index to Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Statements of Income for the years ended December 31, 2006, 2007 and 2008
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    F-3Consolidated Statements of Shareholders Equity and Comprehensive Income for the years
ended December 31, 2006,
 2007 and 2008
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008
    
    F-5Notes to Consolidated Financial Statements
    
    F-7Schedule 1  Nam Tai Electronics, Inc.  condensed financial information as of December
31, 2007 and 2008 and for the
 years ended December 31, 2006, 2007 and 2008
    
    F-33
  
  82




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ITEM 19. EXHIBITS
  Exhibit No.
    
    Exhibit1.1
    
    
    Memorandum and Articles of Association, as amended on June 26, 2003 (incorporated by reference to Exhibit
1.1 to the registrants Form 8-A/A filed with the SEC on December 13, 2007).4.1
    
    
    Investment Agreement dated March 14, 2006 between Zastron Electronic (Shenzhen) Co. Ltd and Shenzhen Baoan
District High and New Technology Industrial Park Development and Investment Co., Ltd. (incorporated by
reference to Exhibit 4.9 to the registrants Form 20-F filed with the SEC on March 19, 2007)4.2
    
    
    Banking facilities letter dated July 17, 2006 The Hongkong and Shanghai Banking Corporation Limited to
Zastron Electronic (Shenzhen) Co. Ltd. (incorporated by reference to Exhibit 4.10 to the registrants Form
20-F filed with the SEC on March 19, 2007)4.3
    
    
    Banking Facilities Letter dated July 17, 2006, The Hongkong and Shanghai Banking Corporation Limited to
Jetup Electronic (Shenzhen) Co. Ltd. (incorporated by reference to Exhibit 4.11 to the registrants Form
20-F filed with the SEC on March 19, 2007)4.4
    
    
    Guaranty dated July 21, 2006 by the Company in favor of The Hongkong and Shanghai Banking Corporation
Limited (incorporated by reference to Exhibit 4.12 to the registrants Form 20-F filed with the SEC on March
19, 2007)4.5
    
    
    Cooperation Agreement dated October 26, 2006 between Zastron Precision-Tech Limited and the Administration
Committee of Wuxi National High and New Technology Industry Development District (incorporated by reference
to Exhibit 4.13 to the registrants Form 20-F filed with the SEC on March 19, 2007)4.6
    
    
    Cooperation Agreement dated October 26, 2006 between Zastron Precision-Tech Limited and the Administration
Committee of Wuxi National High and New Technology Industry Development District (incorporated by reference
to Exhibit 4.14 to the registrants Form 20-F filed with the SEC on March 19, 2007)4.7
    
    
    Land Use Transfer Agreement dated December 25, 2006 between Wuxi Municipal Bureau of State Land and
Resources and Zastron Precision-Tech (Wuxi) Co. Ltd. (incorporated by reference to Exhibit 4.15 to the
registrants Form 20-F filed with the SEC on March 19, 2007)4.8
    
    
    Land Use Transfer Agreement dated December 31, 2006 between Wuxi Municipal Bureau of State Land and
Resources and Zastron Precision-Flex (Wuxi) Co. Ltd. (incorporated by reference to Exhibit 4.16 to the
registrants Form 20-F filed with the SEC on March 19, 2007)4.9
    
    
    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).4.10
    
    
    Amendment to 2006 Stock Option Plan (incorporated by reference to Exhibit 4.1.1 to the Companys
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).4.11
    
    
    Amended 2001 Option Plan dated July 30, 2004 (incorporated by reference to Exhibit 4.18 to the Companys
Form 20-F for the year ended December 31, 2004 filed with the SEC on March 15, 2005).4.12
    
    
    Amendment to 2001 Stock Option Plan (incorporated by reference to Exhibit 4.1.1 to the Companys
Registration Statement on Form S-8 File No. File No. 333-76940 included with Companys Form 6-K furnished to
the SEC on November 13, 2006).4.13
    
    
    Supplemental Rental Agreement dated May 1, 2007 between Nam Tais subsidiary, Jetup Electronic (Shenzhen)
Co., Ltd and a local collective committee of Shenzhen Baoan District (incorporated by reference to Exhibit
4.16 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17,
2008).**4.14
    
    
    Consultancy Agreement dated May 31, 2007 between Nam Tais subsidiary, Zastron Precision-Tech Limited and
the Hong Kong Productivity Council (incorporated by reference to Exhibit 4.17 to the Companys Form 20-F for
the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.15
    
    
    Banking Facilities Letter dated June 7, 2007 between Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co.,
Ltd. and HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.18 to the Companys Form
20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.16
    
    
    Guaranty dated June 7, 2007 by Nam Tais subsidiary, Nam Tai Electronic & Electrical Products Limited signed
a guarantee in favor of HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.19 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).
 83




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##### Table of Contents



Exhibit No.
    
    Exhibit4.17
    
    
    Banking Facilities Letter dated June 7, 2007 between Nam Tais subsidiary, Zastron Electronic (Shenzhen) Co.
Ltd. and HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.20 to the Companys Form
20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.18
    
    
    Banking Facilities Letter dated June 7, 2007 between Nam Tais subsidiary, Jetup Electronic (Shenzhen) Co.
Ltd. and HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.20 to the Companys Form
20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.19
    
    
    Guaranty dated June 7, 2007 by Nam Tais subsidiary, J.I.C. Technology Company Limited in favor of HSBC Bank
(China) Company Limited with maximum liability of approximately $14.1 million (i.e., HK$110,000,000) for the
banking facilities of Jetup Electronic (Shenzhen) Co., Ltd. This guarantee was terminated on December 31,
2007 and replaced by a new Guarantee by Nam Tai Electronic & Electrical Products Limited with same terms and
conditions as a part of Nam Tais 2007 Reorganization (incorporated by reference to Exhibit 4.21 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.20
    
    
    Guaranty dated June 22, 2007 by Nam Tai in favor of HSBC Bank (China) Company Limited. This guarantee was
terminated on December 31, 2007 and replaced by a new guarantee signed by Nam Tai Electronic & Electrical
Products Limited with same terms and conditions as a part of Nam Tais reorganization (incorporated by
reference to Exhibit 4.23 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC
on March 17, 2008).4.21
    
    
    Assignment dated June 30, 2007 by Shenzhen Municipal Bureau of State Land and Resources pursuant to Land Use
Transfer Agreement and Supplemental Agreement of the land use right of No. A614-0377 Plot located in
Shenzhen Guangming Hi-Tech Industrial Park to Nam Tais subsidiary, Zastron Electronic (Shenzhen) Co. Ltd
(incorporated by reference to Exhibit 4.24 to the Companys Form 20-F for the year ended December 31, 2007
filed with the SEC on March 17, 2008).**4.22
    
    
    Summary of Design Consultancy Agreement dated July 30, 2007 by Zastron Precision -Tech Limited, a company
incorporated under the laws of the Cayman Island and Parsons Brinckerhoff (Asia) Ltd, a company incorporated
under the laws of the Hong Kong SAR (incorporated by reference to Exhibit 4.25 to the Companys Form 20-F
for the year ended December 31, 2007 filed with the SEC on March 17, 2008).*4.23
    
    
    Summary of Project Management Agreement dated July 30, 2007 by Wuxi Zastron Precision-Flex Company Limited
(formerly known as Zastron Precision-Flex (Wuxi) Company Limited), a company incorporated under the laws of
the PRC; and (2) Parsons Brinckerhoff Constructors (Shanghai) Company Limited , a company incorporated under
the laws of the PRC (incorporated by reference to Exhibit 4.26 to the Companys Form 20-F for the year ended
December 31, 2007 filed with the SEC on March 17, 2008).*4.24
    
    
    Supplemental Loan Agreement dated September 5, 2007, between Nam Tais two subsidiaries, Zastron Precision
Tech Limited and Zastron Electronic (Shenzhen) Co. Ltd (incorporated by reference to Exhibit 4.27 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.25
    
    
    Supplemental Loan Agreement dated September 5, 2007, between Nam Tais two subsidiaries, Zastron Precision
Tech Limited and Zastron Electronic (Shenzhen) Co. Ltd (incorporated by reference to Exhibit 4.28 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.26
    
    
    Supplemental Loan Agreement dated September 5, 2007, between Nam Tais two subsidiaries, Zastron Precision
Tech Limited and Zastron Electronic (Shenzhen) Co. Ltd (incorporated by reference to Exhibit 4.29 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.27
    
    
    Supplemental Loan Agreement dated September 5, 2007, between Nam Tais two subsidiaries, Zastron Precision
Tech Limited and Zastron Electronic (Shenzhen) Co. Ltd (incorporated by reference to Exhibit 4.30 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.28
    
    
    Sales and Purchase Agreement dated September 24, 2007, between Nam Tai and its subsidiary, J.I.C. Technology
Company Limited (incorporated by reference to Exhibit 4.31 to the
Companys Form 20-F for the year ended December 31, 2007 filed
with the SEC on March 17, 2008)4.29
    
    
    Sales and Purchase Agreement dated September 24, 2007, between Nam Tai and its subsidiary, Nam Tai
Electronic & Electrical Products Limited (incorporated by reference to Exhibit 4.32 to the Companys Form
20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.30
    
    
    Supplemental Sales and Purchase Agreement dated October 5, 2007, between Nam Tai and its subsidiary, J.I.C.
Technology Company Limited (incorporated by reference to Exhibit 4.33 to the Companys Form 20-F for the
year ended December 31, 2007 filed with the SEC on March 17, 2008).
 84




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Exhibit No.
    
    Exhibit4.31
    
    
    Sales and Purchase Agreement dated October 5, 2007, between Nam Tais two subsidiaries Nam Tai Electronic &
Electrical Products Limited and J.I.C. Technology Company Limited (incorporated by reference to Exhibit 4.34
to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.32
    
    
    External Loan Agreement dated November 6, 2007, between Nam Tais two subsidiaries, J.I.C. Technology
Company Limited and Jetup Electronic (Shenzhen) Co. Ltd (incorporated by reference to Exhibit 4.35 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.33
    
    
    External Loan Agreement dated November 15, 2007, between Nam Tais two subsidiaries, J.I.C. Technology
Company Limited and Jetup Electronic (Shenzhen) Co. Ltd. (incorporated by reference to Exhibit 4.36 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.34
    
    
    Supplemental Sales and Purchase Agreement dated November 28, 2007, between Nam Tai and its subsidiary,
J.I.C. Technology Company Limited (incorporated by reference to Exhibit 4.37 to the Companys Form 20-F for
the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.35
    
    
    Supplemental Sales and Purchase Agreement dated November 28, 2007, between Nam Tais two subsidiaries Nam
Tai Electronic & Electrical Products Limited and J.I.C. Technology Company Limited (incorporated by
reference to Exhibit 4.38 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC
on March 17, 2008).4.36
    
    
    Supplemental Sales and Purchase Agreement dated November 28, 2007, between Nam Tai and its subsidiary,
J.I.C. Technology Company Limited (incorporated by reference to Exhibit 4.39 to the Companys Form 20-F for
the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.37
    
    
    Professional Service Agreement, SAP Software End-User Value License Agreement dated November 30, 2007,
between Nam Tais subsidiary, Zastron Precision-Tech Limited and SAP Hong Kong Co. Limited (incorporated by
reference to Exhibit 4.40 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC
on March 17, 2008).4.38
    
    
    Sales and Purchase Agreement dated November 30, 2007, between Nam Tais two subsidiaries Nam Tai Electronic
& Electrical Products Limited and Best Whole Holdings Limited (incorporated by reference to Exhibit 4.41 to
the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.39
    
    
    Sales and Purchase Agreement dated November 30, 2007, between Nam Tais two subsidiaries J.I.C. Technology
Company Limited and Top Eastern Investment Limited (incorporated by reference to Exhibit 4.42 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).**4.40
    
    
    Letter of Commitment dated December 18, 2007, between Nam Tais subsidiary, Zastron Electronic (Shenzhen)
Co. Ltd. and Shenzhen Baoan District High and New Technology Industrial Park Development Committee
(incorporated by reference to Exhibit 4.43 to the Companys Form 20-F for the year ended December 31, 2007
filed with the SEC on March 17, 2008).**4.41
    
    
    Loan Agreement dated December 28, 2007, between Nam Tais two subsidiaries, Nam Tai Electronic & Electrical
Product Limited and Top Eastern Investment Limited (incorporated by reference to Exhibit 4.44 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.42
    
    
    Deed of Assignment Agreement dated December 31, 2007, between Nam Tais three subsidiaries, J.I.C.
Technology Company Limited, Top Eastern Investment Limited and Jetup Electronic (Shenzhen) Co. Ltd.
(incorporated by reference to Exhibit 4.45 to the Companys Form 20-F for the year ended December 31, 2007
filed with the SEC on March 17, 2008).4.43
    
    
    Deed of Release Agreement dated December 31, 2007, between Nam Tais two subsidiaries, J.I.C. Technology
Company Limited and Top Eastern Investment Limited (incorporated by reference to Exhibit 4.46 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.44
    
    
    Deed of Release Agreement dated December 31, 2007, between Nam Tais two subsidiaries, Nam Tai Electronic &
Electrical Products Limited and Best Whole Holdings Limited (incorporated by reference to Exhibit 4.47 to
the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.45
    
    
    Banking Facilities Letter Agreement dated January 2, 2008, between Nam Tais subsidiary, Jetup Electronic
(Shenzhen) Co., Ltd. and HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.48 to the
Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.46
    
    
    Guaranty dated December 31, 2007, by Nam Tais subsidiary, Nam Tai Electronic & Electrical Products Limited
in favor of HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.49 to the Companys
Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).
 85




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##### Table of Contents



Exhibit No.
    
    Exhibit4.47
    
    
    Banking Facilities Letter dated January 2, 2008, between Nam Tais subsidiary, Zastron Electronic (Shenzhen)
Co. Ltd and HSBC Bank (China) Company Limited (incorporated by reference to Exhibit 4.50 to the Companys
Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.48
    
    
    Guaranty dated December 31, 2007, by Nam Tai Electronics & Electrical Products Limited in favor of HSBC Bank
(China) Company Limited (incorporated by reference to Exhibit 4.51 to the Companys Form 20-F for the year
ended December 31, 2007 filed with the SEC on March 17, 2008).4.49
    
    
    Banking Facilities Letter dated December 31, 2007 among Nam Tais subsidiaries, Nam Tai Electronics &
Electrical Products Limited and Jetup Electronic (Shenzhen) Co. Ltd. and Shanghai Commercial Bank Ltd
(incorporated by reference to Exhibit 4.52 to the Companys Form 20-F for the year ended December 31, 2007
filed with the SEC on March 17, 2008).**4.50
    
    
    Exclusivity Agreement dated February 6, 2008 between Hong Kong Energy (Holdings) Limited and Nam Tai
relating to the potential sale of Nam Tais entire equity interest in JIC (incorporated by reference to
Exhibit 4.53 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17,
2008).4.51
    
    
    Share Purchase Agreement dated February 26, 2008 between Nam Tai as the Vendor, and HKC (Holdings) Limited
as the Purchaser relating to Nam Tais entire equity interest in JIC (incorporated by reference to Exhibit
4.54 to the Companys Form 20-F for the year ended December 31, 2007 filed with the SEC on March 17, 2008).4.52
    
    
    Agreement dated March 28, 2008 between Nam Tai subsidiary, Wuxi Zastron Precision-Flex Co. Ltd. (formerly
known as Zastron Precision-Flex (Wuxi) Co. Ltd.) and Yixing Building Engineering & Installation Co. Ltd. for
the engagement of Yixing Building Engineering & Installation Co. Ltd. as the main contractor of civil works
in relation to the facility in Wuxi*4.53
    
    
    Supplemental Loan Agreement dated April 3, 2008 between Nam Tais two subsidiaries, Zastron Precision Tech
Limited and Zastron Electronic (Shenzhen) Co. Ltd extending the repayment term for a loan of $18,660,000
granted from Zastron Precision-Tech Limited to Zastron Electronic (Shenzhen) Co. Ltd.4.54
    
    
    Banking Facilities Letter dated June 2, 2008 to Nam Tais subsidiary, Nam Tai Electronic & Electrical
Products Limited from Hongkong and Shanghai Banking Corporation
Limited.4.55
    
    
    Banking Facilities Letter dated July 7, 2008 to Nam Tais subsidiary, Zastron Electronic (Shenzhen) Co. Ltd.
from HSBC Bank (China) Company Limited.4.56
    
    
    Guarantee dated July 7, 2008 from Nam Tais subsidiary, Namtai Electronic and Electrical Products Limited to
HSBC Bank (China) Company Limited.4.57
    
    
    Supplemental Agreement dated July 10, 2008 between Nam Tai subsidiary, Wuxi Zastron Precision-Flex Co. Ltd.
(formerly known as Zastron Precision-Flex (Wuxi) Co. Ltd.) and Yixing Building Engineering & Installation
Co. Ltd. for the engagement of Yixing Building Engineering & Installation Co. Ltd. as the main contractor of
mechanical and electrical works in relation to the facility in Wuxi.**4.58
    
    
    Novation Agreement dated August 8, 2008 between Nam Tais two subsidiaries, Nam Tai Electronic & Electrical
Products Limited and Zastron Precision-Tech Limited, on the one hand, and Parsons Brinckerhoff (Asia)
Limited, on the other.4.59
    
    
    Banking Facilities Letter dated August 11, 2008 to Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co.
Ltd. from HSBC Bank (China) Company Limited for Namtai Electronic (Shenzhen) Co., Ltd.4.60
    
    
    Banking Facilities Letter dated August 11, 2008 to Nam Tais subsidiary, Jetup Electronic (Shenzhen) Co.
Ltd. from HSBC Bank (China) Company Limited.4.61
    
    
    Novation Agreement dated August 13, 2008 between Nam Tais two subsidiaries, Nam Tai Electronic & Electrical
Products Limited and Zastron Precision-Tech Limited and SAP HK Co. Ltd.4.62
    
    
    Novation Agreement dated August 13, 2008, Nam Tai Electronic & Electrical Products Limited and Zastron
Precision-Tech Limited and Hong Kong Productivity Council.4.63
    
    
    Banking Facilities Letter dated November 24, 2008 to Nam Tais subsidiary, Namtai Electronic (Shenzhen) Co.
Ltd., from Banking Facilities Letter with China Construction Bank Corporation, Shenzhen. Branch.**8.1
    
    
    Diagram of Companys subsidiaries. See the Section headed Organization Structure under Item 4 of this
Report at page 33.11.1
    
    
    Code of Ethics (incorporated by reference to Exhibit 14.1 to the Companys Form 20-F for the year ended
December 31, 2004 filed with the SEC on March 15, 2005)12.1
    
    
    Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    
    Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 86




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Exhibit No.
    
    Exhibit13.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.15.1
    
    
    Consent of Deloitte Touche Tohmatsu.15.2
    
    
    Joint announcement of Nam Tai and NTEEP issued February 24, 2009 regarding the proposed privatization of
NTEEP by Nam Tai (incorporated by reference to the Companys Form 6-K for the month of February 2009
furnished to the SEC on February 25, 2009).
 
 *
    
    The agreement is written in Chinese and a Summary is provided in accordance with Form 20-F
Instructions to Exhibits and Rule 12b-12(d) under the Exchange Act).**
    
    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). 87




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SIGNATURE
  NAM TAI ELECTRONICS, INC.By:

/s/
Koo Ming KownKoo Ming KownChief Financial Officer




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated
Framework
 
 F-1




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)
 Year ended December 31,2006
    
    
    2007
    
    
    2008Net sales - third parties
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852Cost of sales
    
    
    (783,953
    )
    
    
    (693,804
    )
    
    
    (552,174
    )Gross profit
    
    
    86,221
    
    
    
    87,018
    
    
    
    70,678Gain on disposal of asset held for sale
    
    
    9,258
    
    
    
    -
    
    
    
    -Selling, general and administrative expenses
    
    
    (30,668
    )
    
    
    (36,550
    )
    
    
    (36,057
    )Research and development expenses
    
    
    (7,866
    )
    
    
    (9,798
    )
    
    
    (10,890
    )Impairment loss on goodwill
    
    
    -
    
    
    
    -
    
    
    
    (17,345
    )Losses arising from the judgment to reinstate redeemed shares
    
    
    (14,465
    )
    
    
    -
    
    
    
    -Total operating expenses
    
    
    (52,999
    )
    
    
    (46,348
    )
    
    
    (64,292
    )Income from operations
    
    
    42,480
    
    
    
    40,670
    
    
    
    6,386Other (expenses) income, net
    
    
    (1,265
    )
    
    
    2,219
    
    
    
    6,428Gain on sales of subsidiaries shares
    
    
    -
    
    
    
    390
    
    
    
    20,206Gain on disposal of marketable securities
    
    
    -
    
    
    
    43,815
    
    
    
    -Loss on marketable securities arising from split share structure reform
    
    
    (1,869
    )
    
    
    -
    
    
    
    -Interest income
    
    
    8,542
    
    
    
    9,163
    
    
    
    6,282Interest expense
    
    
    (602
    )
    
    
    (452
    )
    
    
    (356
    )Income before income taxes and minority interests
    
    
    47,286
    
    
    
    95,805
    
    
    
    38,946Income taxes
    
    
    (377
    )
    
    
    (4,030
    )
    
    
    (2,877
    )Income before minority interests
    
    
    46,909
    
    
    
    91,775
    
    
    
    36,069Minority interests
    
    
    (6,153
    )
    
    
    (22,272
    )
    
    
    (5,434
    )Net income
    
    $
    40,756
    
    
    $
    69,503
    
    
    $
    30,635Basic earnings per share
    
    $
    0.93
    
    
    $
    1.56
    
    
    $
    0.68Diluted earnings per share
    
    $
    0.93
    
    
    $
    1.55
    
    
    $
    0.68
  F-2




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)
 December 31,2007
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    272,459
    
    
    $
    237,017Accounts receivable, less allowance for doubtful accounts of $53
and $25 at December 31, 2007 and 2008, respectively
    
    
    95,802
    
    
    
    104,150Inventories
    
    
    32,356
    
    
    
    27,300Entrusted loan receivable
    
    
    -
    
    
    
    8,199Prepaid expenses and other receivables
    
    
    5,803
    
    
    
    4,148Income taxes recoverable
    
    
    5,483
    
    
    
    -Deferred tax assets - current
    
    
    54
    
    
    
    1,232Total current assets
    
    
    411,957
    
    
    
    382,046Property, plant and equipment, net
    
    
    94,669
    
    
    
    108,067Land use right
    
    
    3,930
    
    
    
    13,593Deposits for property, plant and equipment
    
    
    536
    
    
    
    2,937Prepayment for land use right
    
    
    9,019
    
    
    
    -Goodwill
    
    
    20,296
    
    
    
    2,951Deferred tax assets - non-current
    
    
    3,192
    
    
    
    3,547Other assets
    
    
    1,219
    
    
    
    920Total assets
    
    $
    544,818
    
    
    $
    514,061LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Notes payable
    
    $
    4,580
    
    
    $
    -Long term bank loans - current portion
    
    
    1,990
    
    
    
    -Entrusted loan payable
    
    
    -
    
    
    
    8,199Accounts payable
    
    
    107,326
    
    
    
    98,125Accrued expenses and other payables
    
    
    21,690
    
    
    
    25,967Dividend payable
    
    
    9,509
    
    
    
    9,857Income taxes payable
    
    
    556
    
    
    
    861Total current liabilities
    
    
    145,651
    
    
    
    143,009Long tem bank loans - non-current portion
    
    
    1,558
    
    
    
    -Deferred tax liability - non-current
    
    
    -
    
    
    
    740Total liabilities
    
    
    147,209
    
    
    
    143,749Minority interests
    
    
    67,428
    
    
    
    48,051Commitments and contingencies (Note 15)Shareholders equity:Common shares ($0.01 par value - authorized 200,000,000 shares)
    
    
    448
    
    
    
    448Additional paid-in capital
    
    
    281,895
    
    
    
    282,767Retained earnings
    
    
    47,846
    
    
    
    39,054Accumulated other comprehensive loss
    
    
    (8
    )
    
    
    (8
    )Total shareholders equity
    
    
    330,181
    
    
    
    322,261Total liabilities and shareholders equity
    
    $
    544,818
    
    
    $
    514,061
  F-3




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
 Accumulated
    
    
    TotalCommon
    
    
    Common
    
    
    Reinstatement
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Share-Shares
    
    
    Shares
    
    
    of redeemed
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holders
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    shares
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at January 1, 2006
    
    
    43,505,586
    
    
    $
    435
    
    
    $
    -
    
    
    $
    258,167
    
    
    $
    50,771
    
    
    $
    1,018
    
    
    $
    310,391Shares issued on exercise of options
    
    
    281,000
    
    
    
    3
    
    
    
    -
    
    
    
    5,436
    
    
    
    -
    
    
    
    -
    
    
    
    5,439Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    790
    
    
    
    -
    
    
    
    -
    
    
    
    790Reinstatement of redeemed shares
(note 9(d))
    
    
    -
    
    
    
    -
    
    
    
    17,159
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    17,159Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    40,756
    
    
    
    -
    
    
    
    40,756
    
    
    $
    40,756Unrealized gain of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,983
    
    
    
    8,983
    
    
    
    8,983Foreign currency translation
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    73
    
    
    
    73
    
    
    
    73Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,812Cash dividends ($1.52 per share)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (66,497
    )
    
    
    -
    
    
    
    (66,497
    )Balance at December 31, 2006
    
    
    43,786,586
    
    
    $
    438
    
    
    $
    17,159
    
    
    $
    264,393
    
    
    $
    25,030
    
    
    $
    10,074
    
    
    $
    317,094Reinstatement of redeemed shares
    
    
    1,017,149
    
    
    
    10
    
    
    
    (17,159
    )
    
    
    17,149
    
    
    
    -
    
    
    
    -
    
    
    
    -Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    353
    
    
    
    -
    
    
    
    -
    
    
    
    353Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    69,503
    
    
    
    -
    
    
    
    69,503
    
    
    $
    69,503Unrealized gain of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    17,451
    
    
    
    17,451
    
    
    
    17,451Disposal of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (27,381
    )
    
    
    (27,381
    )
    
    
    (27,381
    )Foreign currency translation
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (152
    )
    
    
    (152
    )
    
    
    (152
    )Reserve shared by minority interests
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (9,052
    )
    
    
    -
    
    
    
    (9,052
    )
    
    
    (9,052
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50,369Cash dividends ($0.84 per share)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (37,635
    )
    
    
    -
    
    
    
    (37,635
    )Balance at December 31, 2007
    
    
    44,803,735
    
    
    $
    448
    
    
    $
    -
    
    
    $
    281,895
    
    
    $
    47,846
    
    
    $
    (8
    )
    
    $
    330,181Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    955
    
    
    
    -
    
    
    
    -
    
    
    
    955Repurchase of share options
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (83
    )
    
    
    -
    
    
    
    -
    
    
    
    (83
    )Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    30,635
    
    
    
    -
    
    
    
    30,635
    
    
    $
    30,635Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,635Cash 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
  F-4




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2006
    
    
    2007
    
    
    2008Cash flows from operating activities:Net income
    
    $
    40,756
    
    
    $
    69,503
    
    
    $
    30,635Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization of property, plant and equipment
    
    
    19,024
    
    
    
    21,501
    
    
    
    22,208Impairment loss on goodwill
    
    
    -
    
    
    
    -
    
    
    
    17,345Gain on disposal of property, plant and equipment
    
    
    (317
    )
    
    
    (66
    )
    
    
    (13
    )Gain on disposal of assets held for sale
    
    
    (9,258
    )
    
    
    -
    
    
    
    -Loss on marketable securities arising from split share structure reform
    
    
    1,869
    
    
    
    -
    
    
    
    -Loss arising from the judgment to reinstate redeemed shares
    
    
    14,465
    
    
    
    -
    
    
    
    -Gain on disposal of marketable securities
    
    
    -
    
    
    
    (43,815
    )
    
    
    -Gain on sale of a subsidiarys shares - Nam Tai Electronic & Electrical
Products Limited (NTEEP)
    
    
    -
    
    
    
    (325
    )
    
    
    -Gain on sale of a subsidiarys shares - J.I.C. Technology Company
Limited (JIC Technology)
    
    
    -
    
    
    
    (65
    )
    
    
    (20,206
    )Share-based compensation expenses
    
    
    873
    
    
    
    389
    
    
    
    1,228Dividend withheld
    
    
    -
    
    
    
    -
    
    
    
    (305
    )Unrealized exchange gain
    
    
    (931
    )
    
    
    (813
    )
    
    
    (4,757
    )Deferred income taxes
    
    
    -
    
    
    
    (3,246
    )
    
    
    (793
    )Minority interests
    
    
    6,153
    
    
    
    22,272
    
    
    
    5,434Changes in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    8,101
    
    
    
    21,704
    
    
    
    (8,499
    )Decrease (increase) in inventories
    
    
    850
    
    
    
    (1,462
    )
    
    
    5,056(Increase) decrease in prepaid expenses and other receivables
    
    
    (1,013
    )
    
    
    (3,303
    )
    
    
    1,574(Increase) decrease in income taxes recoverable
    
    
    (1,645
    )
    
    
    (1,167
    )
    
    
    5,439(Decrease) increase in notes payable
    
    
    (297
    )
    
    
    79
    
    
    
    (4,580
    )Increase (decrease) in accounts payable
    
    
    4,285
    
    
    
    (18,567
    )
    
    
    (9,201
    )(Decrease) increase in accrued expenses and other payables
    
    
    (3,104
    )
    
    
    8,041
    
    
    
    (4,233
    )Increase in income taxes payable
    
    
    -
    
    
    
    390
    
    
    
    459Total adjustments
    
    
    39,055
    
    
    
    1,547
    
    
    
    6,156Net cash provided by operating activities
    
    $
    79,811
    
    
    $
    71,050
    
    
    $
    36,791
 F-5




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2006
    
    
    2007
    
    
    2008Cash flows (used in) from investing activities:Purchase of property, plant and equipment
    
    $
    (23,793
    )
    
    $
    (13,785
    )
    
    $
    (27,407
    )Decrease (increase) in deposits for property, plant and equipment
    
    
    641
    
    
    
    73
    
    
    
    (2,606
    )Increase in entrusted loan receivable
    
    
    -
    
    
    
    -
    
    
    
    (8,166
    )Increase in prepayment for land use rights
    
    
    (2,880
    )
    
    
    (7,532
    )
    
    
    (663
    )Proceeds from disposal of assets held for sale
    
    
    20,170
    
    
    
    -
    
    
    
    -Decrease (increase) in other assets
    
    
    142
    
    
    
    (61
    )
    
    
    299Proceeds from disposal of marketable securities
    
    
    -
    
    
    
    53,914
    
    
    
    -Net cash inflow from disposal of a subsidiary - JIC Technology
    
    
    -
    
    
    
    -
    
    
    
    6,671Acquisition of additional shares in subsidiaries
    
    
    (3,130
    )
    
    
    (13,808
    )
    
    
    (2,906
    )Proceeds from partial disposal of subsidiaries - JIC Technology
and NTEEP
    
    
    -
    
    
    
    7,287
    
    
    
    -Proceeds from disposal of property, plant and equipment
    
    
    420
    
    
    
    522
    
    
    
    55Net cash (used in) provided by investing activities
    
    $
    (8,430
    )
    
    $
    26,610
    
    
    $
    (34,723
    )Cash flows used in financing activities:Cash dividends paid
    
    
    (65,923
    )
    
    
    (47,796
    )
    
    
    (47,675
    )Repayment of bank loans
    
    
    (8,067
    )
    
    
    (1,972
    )
    
    
    (2,648
    )Payment on repurchase of share options
    
    
    -
    
    
    
    -
    
    
    
    (110
    )Proceeds from bank loans
    
    
    3,480
    
    
    
    2,670
    
    
    
    -Proceeds from entrusted loan
    
    
    -
    
    
    
    -
    
    
    
    8,166Proceeds from shares issued on exercise of options
    
    
    5,439
    
    
    
    -
    
    
    
    -Net cash used in financing activities
    
    $
    (65,071
    )
    
    $
    (47,098
    )
    
    $
    (42,267
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,310
    
    
    
    50,562
    
    
    
    (40,199
    )Cash and cash equivalents at beginning of year
    
    
    213,843
    
    
    
    221,084
    
    
    
    272,459Effect of exchange rate changes on cash and cash equivalents
    
    
    931
    
    
    
    813
    
    
    
    4,757Cash and cash equivalents at end of year
    
    $
    221,084
    
    
    $
    272,459
    
    
    $
    237,017Supplemental schedule of cash flow information:Interest paid
    
    $
    602
    
    
    $
    452
    
    
    $
    356Income taxes (received) paid, net
    
    
    (1,904
    )
    
    
    7,697
    
    
    
    (2,497
    )Non-cash
investing activities:Construction
cost funded through accrued expenses and other payables
    
    $
    -
    
    
    $
    -
    
    
    $
    8,547
  F-6




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)
 1.
    
    Company InformationNam Tai Electronics, Inc. and subsidiaries (the Company or Nam Tai) is an electronics
manufacturing and design services provider to a selected group of the worlds 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) panels, LCD modules,
thin film transistor display modules, radio frequency modules, digital audio broadcast
modules, internet radio subassemblies, image sensors modules and printed circuit board
assembles. 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 Peoples
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 Companys 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 the Macao Special
Administrative Region (Macao). Some of the subsidiaries offices are located in Macao and
Hong Kong, which provide it access to Macaos and Hong Kongs infrastructure of
communication and banking facilities. As of December 31, 2008, one of the Companys
subsidiaries also maintained an office in Japan. The Companys principal manufacturing
operations are conducted in the PRC. The PRC resumed sovereignty over Hong Kong and Macao
effective July 1, 1997 and December 20, 1999, respectively, and politically, Hong Kong and
Macao are integral parts 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 and Macao.The Company operates primarily in three reportable segments consisting of consumer
electronics and communication products (CECP), telecommunication components assembly
(TCA) and LCD products (LCDP).
 2.
    
    Summary of Significant Accounting Policies
 (a)
    
    Principles of consolidationThe 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 equivalentsCash and cash equivalents include all cash balances and certificates of deposit
having a maturity date of three months or less upon acquisition.(c)
    
    Marketable securitiesMarketable securities are principally equity securities and are classified as
available-for-sale. Securities classified as available-for-sale are stated at fair
value with unrealized gains and losses recorded as a separate component of
accumulated other comprehensive income (loss). Realized gains and losses on the sale
of the available-for-sale securities are determined using the specific-identification
method and are reflected in income (expenses).
 F-7




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies - continued
 (d)
    
    InventoriesInventories are stated at the lower of cost or market value. Cost is determined on
the first-in, first-out basis. Write down of potentially obsolete or slow-moving
inventory are recorded based on managements analysis of inventory levels.For the Companys CECP and TCA 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 customers products, it is unusual for the
Company to be able to utilize the inventory for other customers products.
Therefore, the Companys 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 Companys own cost. Prior to writing down, management
would determine if the inventory can be utilized in other products.For the Companys LCDP segment, due to the nature of the business, LCDP customers do
not always place orders advance enough 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 can not be utilized in the
foreseeable future.(e)
    
    Property, plant and equipment and land use rightProperty, plant and equipment and land use right 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, 2006, 2007 and 2008. 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 right are included in 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 Companys
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 Companys land purchases in the PRC are considered
to be leasehold land and classified as land use right in the consolidated balance
sheets. They are amortized on a straight-line basis over the respective term of the
right to use the land.Depreciation rates computed using the straight-line method are as follows:
 Classification
    
    YearsLand use right
    
    50 yearsBuildings
    
    20 to 50 yearsMachinery and equipment
    
    4 to 12 yearsLeasehold improvements
    
    shorter of term of the
lease or 7 yearsFurniture and fixtures
    
    4 to 8 yearsAutomobiles
    
    4 to 6 yearsTools and molds
    
    4 to 6 years
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2.
    
    Summary of Significant Accounting Policies - continued
 (f)
    
    GoodwillThe 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. The Company operates in three reporting units, which are its
reportable segments of CECP, TCA and LCDP. If business conditions or other factors
cause the profitability and cash flows of the reporting unit 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 to the Statement of Financial
Accounting Standard (SFAS) No. 142 Goodwill and Other Intangible Assets. Step
one consists of a comparison of the fair value of a reporting unit with its carrying
amount. 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 and market multiples on
earnings. If the carrying amount of a reporting unit exceeds its fair value, step
two requires the fair value of the reporting unit to be allocated to the underlying
assets and liabilities 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 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 methods are
dependent upon assumptions of future sales trends, market conditions and cash flows
of each reporting unit over several years. Actual cash flows in the future may
differ significantly from those previously forecasted. Other significant assumptions
include growth rates and the discount rate applicable to future cash flows.No impairment loss on goodwill was identified in 2006 and 2007. Impairment loss on
goodwill on the LCDP reporting unit of $17,345, as more fully described in note 5,
was identified and recorded in 2008.(g)
    
    Impairment or disposal of long-lived assetsLong-lived assets are included in impairment evaluations when events and
circumstances exist that indicate the carrying amount of these assets may not be
recoverable. The Company reviews its long-lived assets for potential impairment
based on a review of projected undiscounted cash flows associated with these assets
in accordance with SFAS No. 144 Accounting For the Impairment or Disposal of
Long-Lived Assets. Measurement of impairment losses for long-lived assets that the
Company expects to hold and use is based on the estimated fair value of the assets.Long-lived assets to be disposed of are stated at the lower of fair value or carrying
amount. Expected future operating losses from discontinued operations are recorded
in the periods in which the losses are incurred. The Company concluded in 2007 and
2008 that there were no events or changes in circumstances that would indicate that
the carrying amounts of long-lived assets were impaired.(h)
    
    Revenue recognitionThe 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.
 
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2.
    
    Summary of Significant Accounting Policies - continued
 (h)
    
    Revenue recognition - continuedRevenue 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 Companys 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 Companys 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 $99, nil and $1,357 for the years ended
December 31, 2006, 2007 and 2008, respectively.(i)
    
    Shipping and handling costsShipping 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, 2006, 2007, and 2008, shipping and handling costs
classified as costs of sales were $593, $523 and $503, respectively. During the
years ended December 31, 2006, 2007 and 2008, shipping and handing costs classified
as selling expenses were $910, $1,027 and $840, respectively.(j)
    
    Research and development costsResearch 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.(k)
    
    Advertising expensesThe Company expenses advertising costs as incurred. Advertising expenses were $127,
$137 and $132 for the years ended December 31, 2006, 2007 and 2008, respectively.(l)
    
    Staff retirement plan costsThe Companys costs related to the staff retirement plans (see note 11) are charged
to the consolidated statement of income as incurred.(m)
    
    Income taxesFor the year ended December 31, 2006, PRC tax paid by subsidiaries operating in the
PRC during the year was recorded as an amount recoverable at the balance sheet date
when management had filed or had the definite intention to file an application for
reinvestment of profits and a refund was expected unless there was an indication from
the PRC tax authority that the refund, or a portion of which, would be refused. For
the years ended December 31, 2007 and 2008, tax refund for reinvestment of profits
under the capital reinvestment scheme was removed under the new income tax law in the
PRC and therefore the PRC tax paid or payable by subsidiaries operating in the PRC
during the years ended December 31, 2007 and 2008 was expensed.Deferred income taxes are provided using the asset and liability method. 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.Effective January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements.
The interpretation 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. FIN 48 also provides accounting guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. There was no material impact resulting from the
adoption of FIN 48 on the Companys consolidated financial statements.
 F-10




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2.
    
    Summary of Significant Accounting Policies - continued
 (n)
    
    Foreign currency transactions and translationsAll 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 currencies of the Company and its subsidiaries include the U.S. dollar
or the Hong Kong dollar. The financial statements of all subsidiaries with
functional currencies other than the U.S. dollar, the reporting currency, are
translated in accordance with SFAS No. 52, Foreign Currency Translation. 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.The exchange rates between the Hong Kong dollar and the U.S. dollar were
approximately 7.7747, 7.7998 and 7.7499 as of December 31, 2006, 2007 and 2008,
respectively.(o)
    
    Earnings per shareBasic earnings per share is computed by dividing net income available 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 share that would
have been outstanding if the dilutive potential common shares had been issued.(p)
    
    Stock optionsThe 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.(q)
    
    Use of estimatesThe 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.(r)
    
    Comprehensive income (loss)Accumulated other comprehensive income (loss) represents principally unrealized gains
on marketable securities and foreign currency translation adjustments and is included
in the consolidated statement of shareholders equity.
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2.
    
    Summary of Significant Accounting Policies - continued
 (s)
    
    Fair value of financial instrumentsThe carrying amounts of cash and cash equivalents, accounts receivable, other
receivable, entrusted loan receivable, notes payable, short-term bank loans, accounts
payable, other payables, dividend payable and entrusted loan 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.In September 2006, the
FASB issued SFAS No. 157 Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value, and enhances fair value measurement
disclosure. In October 2008, the FASB issued FASB Staff Position (FSP) 157-3
Determining the Fair Value of a Financial Asset When the Market for That Asset Is
Not Active (FSP SFAS 157-3). FSP SFAS 157-3 clarifies the application of SFAS 157
in a market that is not active, and provides guidance on the key considerations in
determining the fair value of a financial asset when the market for that financial
asset is not active. Effective January 1, 2008, the Company adopted the measurement
and disclosure requirements related to financial assets and financial liabilities.
The adoption of SFAS 157 for financial assets and financial liabilities did not have
a material impact on the Companys results of operations or the fair values of its
financial assets and liabilities.FSP SFAS 157-2, Effective Date of FASB Statement No. 157 (FSP SFAS 157-2) delayed
the effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until
the fiscal year beginning after November 15, 2008. The Company is currently assessing the impact that the application of
SFAS 157 to nonfinancial assets and liabilities will have on its results of
operations and financial position.As of December 31, 2007 and 2008, the Company did not have any nonfinancial assets
and liabilities that are recognised or disclosed at fair value in the financial
statements, at least annually, on a recurring basis.(t)
    
    Recent changes in accounting standardsIn February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
(SFAS 159). Under SFAS 159, a company may choose, at specified election dates, to
measure eligible items at fair value and report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting date. Effective January 1, 2008, the Company adopted SFAS 159, but the
Company has not elected the fair value option for any eligible financial instruments
as of December 31, 2008.
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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies - continued
 (t)
    
    Recent changes in accounting standards - continuedIn December 2007, the
FASB issued SFAS No. 141 (Revised 2007), Business Combination
(SFAS 141R). SFAS 141R is relevant to all transactions or events in which one
entity obtains control over one or more other businesses. SFAS 141R requires an
acquirer to recognize any assets and non controlling interest acquired and
liabilities assumed to be measured at fair value as of the acquisition date.
Liabilities related to contingent consideration are recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of the
consideration may be resolved beyond a reasonable doubt. This revised approach
replaces SFAS 141s cost allocation process in which the cost of an acquisition was
allocated to the individual assets acquired and liabilities assumed based on their
respective fair value. SFAS 141R requires any acquisition-related costs and
restructuring costs to be expensed as incurred as opposed to allocating such costs to
the assets acquired and liabilities assumed as previously required by
SFAS No. 141.
Under SFAS 141R, an acquirer recognizes liabilities for a restructuring plan in
purchase accounting only if the requirements of SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, are met. SFAS 141R allows for the
recognition of pre-acquisition contingencies at fair value only if these
contingencies are likely to materialize. If this criterion is not met at the
acquisition date, then the acquirer accounts for the non-contractual contingency in
accordance with recognition criteria set forth under SFAS No. 5, Accounting for
Contingencies", in which case no amount should be recognized in purchase accounting.
SFAS 141R is effective as of the beginning of an entitys first fiscal year that
begins after December 15, 2008. The Company is evaluating the impact, if any, of the
adoption of SFAS 141R. It is not expected to have a material impact on the Companys
financial position, results of operations and cash flows.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51(SFAS 160). This
Statement amends ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity and should be reported as equity on the financial
statements. SFAS 160 requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the non controlling interest.
Furthermore, disclosure of the amounts of consolidated net income attributable to
the parent and to the noncontrolling interest is required on the face of the
financial statements. SFAS 160 is effective as of the beginning of an entitys first
fiscal year that begins after December 15, 2008. The Company is evaluating the
impact, if any, of the adoption of SFAS 160. It is not expected to have a material
impact on the Companys financial position, results of operations and cash flows.In April 2008, the FASB issued FSP SFAS 142-3, Determination of the Useful Life of
Intangible Assets.This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets. This FSP is effective for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The guidance for determining the
useful life of a recognized intangible asset in this FSP shall be applied
prospectively to intangible assets acquired after the effective date. The Company is
evaluating the impact, if any, of the adoption of FSP SFAS 142-3. It is not expected
to have a material impact on the Companys financial position, results of operations
and cash flows.In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.This FSP gives guidance on the computation of earnings
per share and the impact of share-based instruments that contain certain non
forfeitable rights to dividends or dividend equivalents. The FSP is effective for
fiscal years beginning after December 31, 2008. The Company is evaluating the
impact, if any, of the adoption of FSP EITF 03-6-1. It is not expected to have a
material impact on the Companys financial position, results of operations and cash
flows.
 F-13




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2.
    
    Summary of Significant Accounting Policies - continued
 (t)
    
    Recent changes in accounting standards - continuedIn November 2008, the FASB ratifies the consensus reached by the Task Force in EITF
Issue 08-7, Accounting for Defensive Intangible Assets(EITF 08-7). EITF 08-7
requires entities that will acquire a defensive intangible asset after the effective
date of SFAS 141R, to account for the acquired intangible asset as a separate unit of
accounting and amortize the acquired intangible asset over the period during which
the asset would diminish in value. EITF 08-7 is effective for defensive intangible
assets acquired in fiscal years beginning on or after December 15, 2008. The Company
is evaluating the impact, if any, of the adoption of EITF 08-7. It is not expected
to have a material impact on the Companys financial position, results of operations
and cash flows.
 3.
    
    Inventories
  At December 31,
    
    2007
    
    
    2008Raw materials
    
    $
    25,262
    
    
    $
    16,910Work-in-progress
    
    
    3,715
    
    
    
    4,351Finished goods
    
    
    3,379
    
    
    
    6,039$
    32,356
    
    
    $
    27,300
 4.
    
    Property, Plant and Equipment, net
  At December 31,
    
    2007
    
    
    2008At cost:Buildings
    
    $
    50,266
    
    
    $
    50,497Machinery and equipment
    
    
    121,009
    
    
    
    122,448Leasehold improvements
    
    
    27,503
    
    
    
    30,782Furniture and fixtures
    
    
    2,513
    
    
    
    2,631Automobiles
    
    
    1,199
    
    
    
    1,110Tools and molds
    
    
    178
    
    
    
    263Total
    
    
    202,668
    
    
    
    207,731Less: accumulated depreciation and amortization
    
    
    (108,682
    )
    
    
    (128,192
    )Construction in progress
    
    
    683
    
    
    
    28,528Net book value
    
    $
    94,669
    
    
    $
    108,067
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5. Goodwill
 A summary of the changes in the carrying value of goodwill, by reporting unit, is as
follows:
 CECP
    
    
    LCDPreporting
    
    
    reportingunit
    
    
    unit
    
    
    TotalBalance at January 1, 2007
    
    $
    1,232
    
    
    $
    17,244
    
    
    $
    18,476Exchange difference
    
    
    -
    
    
    
    (6
    )
    
    
    (6
    )Goodwill upon acquisition of additional 1.46% interest
in JIC Technology
    
    
    -
    
    
    
    417
    
    
    
    417Goodwill upon acquisition additional 6.18% interest
in NTEEP
    
    
    1,853
    
    
    
    -
    
    
    
    1,853Goodwill release related to disposal of 1.41% interest
in JIC Technology
    
    
    -
    
    
    
    (310
    )
    
    
    (310
    )Goodwill release related to disposal of 3.31% interest
in NTEEP
    
    
    (134
    )
    
    
    -
    
    
    
    (134
    )$
    2,951
    
    
    $
    17,345
    
    
    $
    20,296Impairment loss on goodwill
    
    
    -
    
    
    
    (17,345
    )
    
    
    (17,345
    )Balance at December 31, 2008
    
    $
    2,951
    
    
    $
    -
    
    
    $
    2,951
 The Company completed its annual impairment analysis for 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 LCDP reporting unit exceeded its fair value 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 LCDP reporting unit. The fair value of the LCDP reporting unit
was estimated using a discounted cash flow methodology. Having determined that the goodwill
of the 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 $17,345 goodwill impairment loss on the LCDP
reporting unit for the year ended December 31, 2008. No impairment loss was identified in
2006 and 2007.
 6. Investments
 (a)
    
    Investments in available-for-sale marketable securitiesIn January 2002, the Company acquired a 6% equity interest in TCL Holdings
Corporation Ltd., now known as TCL Corporation, for a consideration of $11,968. TCL
Corporation, an enterprise established in the PRC, is the parent company of the TCL
Group of companies. TCL Corporations scope of business includes the import and
export of raw materials, the design, manufacturing and sales and marketing of
telephones, VCD players, color television sets, mobile phones and other consumer
electronic products. TCL Corporation changed from a limited liability company to a
company limited by shares in April 2002 (the Establishment Date).In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange
at RMB4.26 (equivalent to US$0.52) per A-share. The Companys interest in TCL
Corporation was then diluted to 3.69% and represented 95.52 million promoters shares
of TCL Corporation after its initial public offering. According to Article 147 of
the Company Law of the PRC, the Company was restricted to transfer its promoters
 shares within three years from the Establishment Date. The Company was, however,
entitled to dividend and other rights similar to the holders of A-shares.In April 2006, pursuant to the Split Share Structure Reform (SSR) of TCL
Corporation, the Companys interest in TCL Corporation was changed from 95,516,112
promoter shares to 80,600,173 A-shares diluting its interest from 3.69% to 3.12%. As
a result of the reduction in the number of shares in TCL Corporation, the Company
recorded a loss of $1.3 million ($1.9 million before sharing with minority
interests). The A-shares became tradable on the Shenzhen Stock Exchange after the
expiration of 12 months from April 20, 2006, which was the first trading day after
the SSR was formally implemented.In April 2007, the Company disposed of its entire interest in the A-shares of TCL
Corporation through the Shenzhen Stock Exchange. The net proceeds from the disposal
were $54 million (net of commission, expenses and stamp duty), resulting in a gain of
approximately $43.8 million.
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6. Investments - continued
 (b)
    
    Investments in SubsidiariesSubsidiaries
 Percentage of ownershipPlace of
    
    Principal
    
    as at December 31,incorporation
    
    activity
    
    2007
    
    2008Consolidated principal subsidiaries:Best Whole Holdings Limited
    
    Hong Kong
    
    Investment holding
    
    
    74.99
    %
    
    -JIC Technology
    
    Cayman Islands
    
    Investment holding
    
    
    74.99
    %
    
    -J.I.C. Enterprises (Hong Kong) Limited
    
    Hong Kong
    
    Inactive
    
    
    74.99
    %
    
    -Jetup Electronic (Shenzhen) Co., Ltd. (Jetup)
    
    PRC
    
    Manufacturing and trading
    
    
    73.18
    %
    
    
    74.88
    %J.I.C. (Macao Commercial
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    74.99
    %
    
    -Joy Holdings Limited
    
    BVI
    
    Investment holding
    
    
    74.99
    %
    
    -NTEEP
    
    Cayman Islands
    
    Investment holding
    
    
    73.18
    %
    
    
    74.88
    %Nam
Tai Group Management Limited (NTGM)
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Nam Tai Holdings Limited
(formerly known as First Rich Holdings Limited)
    
    BVI
    
    Investment holding
    
    
    73.18
    %
    
    
    74.88
    %Nam Tai Investments Consultant
(Macao Commercial Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    73.18
    %
    
    
    74.88
    %Namtai Japan Company Limited
    
    Japan
    
    Provision of sales
co-ordination and
marketing services
    
    
    
    -
    
    
    74.88
    %Nam Tai Investment Limited
(formerly known as Top Eastern Investment Limited)
    
    Hong Kong
    
    Investment holding
    
    
    73.18
    %
    
    
    74.88
    %Nam Tai Telecom (Hong Kong)
Company Limited
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Nam Tai Trading Company
Limited (NTTC)
    
    Hong Kong
    
    Inactive
    
    
    100
    %
    
    
    100
    %Namtai Electronic (Shenzhen)
Co., Ltd. (NTSZ)
    
    PRC
    
    Manufacturing and
trading
    
    
    73.18
    %
    
    
    74.88
    %Namtek Japan Company Limited
    
    Japan
    
    Provision of sales
co-ordination and
marketing services
    
    
    74.99
    %
    
    -Shenzhen Namtek Co., Ltd.
(Shenzhen Namtek)
    
    PRC
    
    Software development
    
    
    74.99
    %
    
    -Zastron Electronic (Shenzhen)
Co. Ltd. (Zastron)
    
    PRC
    
    Manufacturing and
trading
    
    
    73.18
    %
    
    
    74.88
    %Zastron Precision-Tech
Limited (ZPTL)
    
    Cayman Islands
    
    Investment holding
    
    
    73.18
    %
    
    
    74.88
    %Zastron (Macao Commercial
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    73.18
    %
    
    
    74.88
    %Wuxi Zastron Precision-Tech
Co., Ltd. (formerly known as
Zastron Precision-Tech (Wuxi)
Co., Ltd.) (Zastron Tech)
    
    PRC
    
    Manufacturing and
trading
    
    
    73.18
    %
    
    
    74.88
    %Wuxi Zastron Precision-Flex
Co., Ltd. (formerly known as
Zastron Precision-Flex (Wuxi)
Co., Ltd.) (Zastron Flex)
    
    PRC
    
    Manufacturing and
trading
    
    
    73.18
    %
    
    
    74.88
    %
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6. Investments - continued
 (b)
    
    Investments in Subsidiaries - continuedSignificant transactions
 (i)
    
    In August and September 2006, the Company acquired a total of
7,152,000 ordinary shares of NTEEP for cash consideration of $1,010 resulting in
70.31% equity interest held in NTEEP as of December 31, 2006.In May 2007, the Company further acquired a total of 54,514,000 ordinary
 shares of NTEEP for cash consideration of $13,054. In June 2007, the Company
disposed of a total of 29,199,000 ordinary shares of NTEEP for cash
considerations of approximately $6,586. The disposal resulted in a net gain
on partial disposal of a subsidiary of approximately $325 after deducting the
releasing of goodwill of $134. The acquisition and disposal resulted in
73.18% equity interest held in NTEEP as of December 31, 2007.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.(ii)
    
    In December 2007, the Company completed its reorganization of
internal structure involving its two Hong Kong Stock Exchange (SEHK) listed
subsidiaries, NTEEP and JIC Technology (Reorganization). The purpose of the
Reorganization was for the Company to centralize all electronic manufacturing
services (EMS) business into NTEEP and non-EMS business into JIC Technology.
The result was to turn NTEEP into a flagship EMS provider.Pursuant to the Reorganization, NTEEP acquired 100% equity interests in ZPTL
and 100% equity interests in Jetup from the Company while JIC Technology
acquired 100% equity interest in both Namtek Shenzhen and Namtek Japan
(Namtek group).Upon the completion of the Reorganization, the Companys effective
shareholding in Namtek group increased from 73.18% to 74.99% while the
effective shareholding in ZPTL and Jetup decreased from 100% to 73.18%, and
74.99% to 73.18%, respectively. The Company continued to own 73.18% and
74.99% equity interest in NTEEP and JIC Technology respectively as of December
31, 2007.(iii)
    
    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 completed in March 2008 and resulted in a net gain of approximately
$20,206. Upon the completion of the disposal, the Company no longer have any
equity interest in JIC Technology and its subsidiaries, including the Namtek
group.
 Retained earnings and reservesThe Companys 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 Companys
PRC subsidiaries, there are restrictions on the payment of dividends and the removal
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 Companys 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
Companys PRC subsidiaries are also restricted. These reserves and registered
capital of the PRC subsidiaries amounted to $249,720 and $270,509 as of December 31,
2007 and 2008, respectively. However, the Company believes that such restrictions
will not have a material effect on the Companys liquidity or cash flows.
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##### Table of Contents



7. Accrued expenses and other payables
  At December 31,
    
    2007
    
    
    2008Accrued salaries
    
    $
    4,795
    
    
    $
    3,661Accrued bonus
    
    
    4,278
    
    
    
    2,162Accrued tooling and equipment charges
    
    
    2,563
    
    
    
    2,597Accrued professional fees
    
    
    2,919
    
    
    
    3,623Construction payable
    
    
    -
    
    
    
    8,223Others
    
    
    7,135
    
    
    
    5,701$
    21,690
    
    
    $
    25,967
 8. Bank Loans and Banking Facilities
 The Company has credit facilities with various banks representing notes payable, trade
acceptances, import facilities, revolving loans and overdrafts. At December 31, 2007 and
2008, these facilities totaled $35,237 and $30,231, of which $30,657 and $30,231 were unused
at December 31, 2007 and 2008, respectively. The maturity of these facilities is generally
up to 120 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 guarantees given by Nam Tai and certain subsidiaries.The notes payable, which include trust receipts and shipping guarantees, may not agree to
utilized banking facilities due to a timing difference between the Company receiving the
goods and the bank issuing the trust receipt to cover financing of the purchase. The
Company recognizes the outstanding letter of credit as a note payable when the goods are
received, even though the bank may not have issued the trust receipt. However, this will
not affect the total bank facility utilization, as an addition to the trust receipts will be
offset by a reduction in the same amount of outstanding letters of credit.
 At December 31,
    
    2007
    
    
    2008Trust receipts
    
    $
    4,580
    
    
    $
    -Usance bills pending maturity
    
    
    -
    
    
    
    -Total banking facilities utilized
    
    
    4,580
    
    
    
    -Less: Outstanding letters of credit
    
    
    -
    
    
    
    -Notes payable and short term bank loans
    
    $
    4,580
    
    
    $
    -
 In 2007, Jetup obtained an unsecured three-year term loan with borrowings totaling $2,670 at
a rate of 0.55% per annum over three months London Interbank Offered Rate (LIBOR),
repayable in 12 quarterly instalments of approximately $222 beginning in October 2007.
During the year ended December 31, 2008, Jetup early settled such loan; accordingly, no
outstanding balance is noted at December 31, 2008. There were no restrictive financial
covenants associated with this term loan.JIC Technology had an unsecured four-year term loan with borrowings in 2004 totaling $7,000
at a rate of 0.75% per annum over three months LIBOR, repayable in 16 quarterly
installments. The outstanding balance of the loan at December 31, 2007 was $1,100. In March
2008, the Company disposed of its entire interest in JIC Technology.
 9. Shareholders Equity
 (a)
    
    The Company has only one class of common shares authorized, issued and
outstanding.(b)
    
    Stock OptionsIn May 2001 (and amended in July 2004), 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.
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##### Table of Contents



9. Shareholders Equity - continued
 (b)
    
    Stock Options - continuedIn 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, 2008 is
as follows:
 WeightedaverageNumber of
    
    
    exercise
    
    
    Weighted averageoptions
    
    
    price
    
    
    fair value per optionOutstanding and exercisable
at January 1, 2006
    
    
    1,001,000
    
    
    $
    20.45
    
    
    $
    6.86Granted
    
    
    90,000
    
    
    
    22.25
    
    
    
    6.64Exercised
    
    
    (281,000
    )
    
    
    19.35
    
    
    
    7.01Expired
    
    
    (30,000
    )
    
    
    19.40
    
    
    
    6.94Outstanding and exercisable
at December 31, 2006
    
    
    780,000
    
    
    $
    21.09
    
    
    $
    6.78Granted
    
    
    115,000
    
    
    
    12.32
    
    
    
    2.80Expired
    
    
    (600,000
    )
    
    
    20.84
    
    
    
    6.77Outstanding and exercisable
at December 31, 2007
    
    
    295,000
    
    
    $
    18.19
    
    
    $
    5.24Granted
    
    
    175,000
    
    
    
    10.79
    
    
    
    1.34Expired
    
    
    (90,000
    )
    
    
    21.62
    
    
    
    6.95Canceled
    
    
    (140,000
    )
    
    
    10.51
    
    
    
    1.71Repurchased
    
    
    (225,000
    )
    
    
    15.57
    
    
    
    3.62Outstanding and exercisable
at December 31, 2008
    
    
    15,000
    
    
    $
    22.25
    
    
    $
    6.64
 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 2006, 2007 and 2008 are as follows:
 Number of
    
    
    
    Exerciseoptions granted
    
    Vesting period
    
    price
    
    Exercisable periodIn 200690,000
    
    100% vested at date of grant
    
    $
    22.25
    
    
    June 9, 2006 to June 8, 2009 (note 1)In 200775,000
    
    100% vested at date of grant
    
    $
    12.42
    
    
    June 8, 2007 to June 7, 2010 (note 2)40,000
    
    100% will vest one year
after date of grant
    
    $
    12.13
    
    
    May 14, 2008 to May 13, 2011 (note 3)In 200850,000
    
    100% vested at date of grant
    
    $
    9.86
    
    
    February 5, 2008 to February 4, 2011 (note 3)75,000
    
    100% vested at date of grant
    
    $
    12.03
    
    
    June 6, 2008 to June 5, 2011 (note 2)50,000
    
    100% vested at date of grant
    
    $
    9.86
    
    
    September 24, 2008 to September 24, 2011
(note 3)
  
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##### Table of Contents



9. Shareholders Equity - continued
 (b)
    
    Stock Options - continuedAs of December 31, 2008, there was no unrecognized compensation expense related to
non-vested stock options granted under the Companys option plan. The total amount of
recognized compensation expense in 2006, 2007 and 2008 were $790, $353 and $955,
respectively. The aggregate intrinsic value of options outstanding as of December 31,
2008 was nil.The following summarizes information about stock options outstanding at December 31,
2008. 15,000 stock options are exercisable as of December 31, 2008.
 Weighted averageNumber
    
    remaining contractualWeighted average exercise price
    
    of options
    
    life in months$22.25
    
    
    15,000
    
    
    
    5.3
 The weighted average remaining contractual life of the stock options outstanding at
December 31, 2006, 2007 and 2008 was approximately 6, 20 and 5 months, respectively.
The weighted average fair value of options granted during 2006, 2007 and 2008 was
$6.64, $2.80 and $1.34, respectively, using the Black-Scholes option-pricing model
based on the following assumptions:
 Year ended December 31,
    
    2006
    
    2007
    
    2008Risk-free interest rate
    
    4.96%
    
    4.63% to 5.03%
    
    2.08% to 2.73%Expected life
    
    3 years
    
    3 to 4 years
    
    3 yearsExpected volatility
    

    57.71%
    
    37.22% to 55.09%
    
    35.49% to 38.00%Expected dividend per quarter
    
    $0.38

    
    $0.21
    
    $0.22
 (c)
    
    Share Buy - backNo shares were repurchased during the years ended December 31, 2006, 2007 and 2008.(d)
    
    Share Redemptions and reinstatement of redeemed sharesOn 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 Companys 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 judgement 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 judgement (see note 15(b)).
 F-20




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##### Table of Contents



10. Earnings Per Share
 The calculations of basic earnings per share and diluted earnings per share are computed as
follows:
 Weightedaverage number
    
    
    Per shareYear ended December 31, 2006
    
    Income
    
    
    of shares
    
    
    amountBasic earnings per share
    
    $
    40,756
    
    
    
    43,702,135
    
    
    
    $0.93Effect of dilutive securities
- Stock options
    
    
    -
    
    
    
    39,364
    
    
    
    -Effect of reinstatement of redeemed shares
    
    
    -
    
    
    
    116,088
    
    
    
    -Diluted earnings per share
    
    $
    40,756
    
    
    
    43,857,587
    
    
    
    $0.93
 397,000 options to purchase shares of common stock were excluded in the computation of 2006
diluted earnings per share as their effects were anti-dilutive.
 Weightedaverage number
    
    
    Per shareYear ended December 31, 2007
    
    Income
    
    
    of shares
    
    
    amountBasic earnings per share
    
    $
    69,503
    
    
    
    44,583,585
    
    
    
    $1.56Effect of dilutive securities
- Stock options
    
    
    -
    
    
    
    963
    
    
    
    -Effect of reinstatement of redeemed shares
    
    
    -
    
    
    
    220,150
    
    
    
    -Diluted earnings per share
    
    $
    69,503
    
    
    
    44,804,698
    
    
    
    $1.55
 220,000 options to purchase shares of common stock were excluded in the computation of 2007
diluted earnings per share as their effects were anti-dilutive.
 Weightedaverage number
    
    
    Per shareYear ended December 31, 2008
    
    Income
    
    
    of shares
    
    
    amountBasic earnings per share
    
    $
    30,635
    
    
    
    44,803,735
    
    
    
    $0.68Effect 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.
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##### Table of Contents



11. Staff Retirement Plans
 The Company operates a retirement benefit scheme (RBS) for all qualifying employees in
Macao 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 the 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 staffs relevant income. The maximum relevant income
for contribution purpose per employee is $3 per month. Staff members are entitled to 100% of
the Companys 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, prior to July 2006, the Company
was required to contribute 8% to 9% of the stipulated salary set by the local government of
Shenzhen, the PRC, to the retirement benefit schemes to fund the retirement benefits of their
employees. With effect from July 2006, the applicable percentages were adjusted to 10% to
11%. 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 Companys contribution to the staff retirement plans in Macao, Hong Kong and
PRC amounted to $1,534, $1,800 and $1,814 for the years ended December 31, 2006, 2007 and
2008, respectively.
 12. Income Taxes
 The components of income before income taxes and minority interest are as follows:
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008PRC, excluding Hong Kong and Macao
    
    $
    23,372
    
    
    $
    78,318
    
    
    $
    3,055Hong Kong, Macao and other jurisdictions
    
    
    23,914
    
    
    
    17,487
    
    
    
    35,891$
    47,286
    
    
    $
    95,805
    
    
    $
    38,946
 Under the current BVI law, the Companys income is not subject to taxation. 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, ZPTL, NTEEP and JIC Technology are not subject to profit tax in the Cayman
Islands as they have no business operations in the Cayman Islands. However, they may be
subject to Hong Kong income taxes as described below if they are registered in Hong Kong.The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the rate of taxation of 17.5% for the years ended December 31, 2006
and 2007 and 16.5% for the year ended December 31, 2008 to the estimated taxable income
earned in or derived from Hong Kong during the period, if applicable.The basic corporate tax rate for Foreign Investment Enterprises (FIEs) in the PRC, such as
NTSZ, Zastron, Shenzhen Namtek and Jetup (collectively the Shenzhen PRC subsidiaries) was
33% (30% state tax and 3% local tax) as of December 31, 2007. However, because all of these
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 Shenzhen were not assessing any local tax as of December 31, 2007. In 2006,
two new FIEs, Zastron Tech and Zastron Flex were established. They are located in Wuxi,
Jiangsu Province, the PRC and will involve in production operations in year 2009 or after.
They are entitled to an exemption from the enterprise income tax in the PRC for two years
commencing from year 2008, following with a 50% relief from enterprise income tax in the PRC
for the next three years.
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##### Table of Contents



12. Income Taxes - continued
 Pursuant to the old PRC Tax Law, for FIEs such as NTSZ, Zastron and Shenzhen Namtek which
export 70% or more of the production value of their products, a reduction in the tax rate was
available; in all cases apart from the years in which a tax holiday and tax incentive is
available, there is an overall minimum tax rate of 10%. The following details the tax
concessions received for the Companys Shenzhen PRC subsidiaries under the old PRC Tax Law:
 
    
    In 2006, NTSZ paid $1,566 and received a tax refund of $746 for being an
export-oriented enterprise for the year 2005. In 2007, NTSZ paid $9,145 and received a
tax refund of $544 for being an export-oriented enterprise for the year 2006, and $431
from reinvestment of profit for the year 2005. In 2008, NTSZ received a tax refund of
$2,045 from profit reinvestment for 2005 and 2006, and $3,568 for being an
export-oriented enterprise for year 2007.
    
    In 2006, Zastron applied and was waiting for a tax refund for 2005. In 2007, Zastron
paid $354 and received a tax refund of $191 and $494 from reinvestment of profits for
2005 and 2006, respectively.
    
    In 2006 and 2007, Shenzhen Namtek was entitled to a 5% tax refund for being an
export-oriented enterprise.
    
    In 2006, Jetup received a tax refund of $211 for being an export-oriented enterprise
for 2005. In 2007, Jetup received a tax refund of $137 for being an export-oriented
enterprise for the year 2006. Besides, Jetup also received $98 and $258 from
reinvestment of profits for the years 2005 and 2006, respectively.
 In year 2006, a FIE 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 may obtain a refund of the taxes already paid on those
profits. NTSZ, Zastron and Jetup qualified for such refunds of taxes as a result of
reinvesting their profit earned in previous years by their respective holding companies. As
a result, the Company recorded tax expense net of the benefit related to the refunds. At
December 31, 2007, tax recoverable under such arrangements was $5,365, which was included in
income taxes recoverable and received during 2008.On March 16, 2007, the PRC promulgated the New Law. Under the New Law which becomes
effective from January 1, 2008, inter alia, the tax refund under the capital reinvestment
scheme as described above is removed. As a result, for 2007, the Shenzhen PRC subsidiaries
have continued to provide enterprise income tax at a tax rate of 10% as discussed above. 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 year ended December 31, 2008
and the years ending December 31, 2009, 2010, 2011, 2012 respectively for Shenzhen PRC
subsidiaries. In 2007, the deferred tax balance had been adjusted to reflect the tax rates
that are expected to apply. Moreover, under the New Law, there is no reduction in the tax
rate for FIEs which export 70% or more of the production value of their products with effect
from January 1, 2008. As such, the Company does not have any further benefit for 2008 after
the implementation of the New Law.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 Companys obligation for the 5% dividend withholding tax to only those
dividends paid out of profits that arose on or after January 1, 2008 is due to guidance
issued by the PRC government in February 2008. As such, the Companys tax provision includes
$740 of income tax expense for the 5% dividend withholding tax on the balance of
distributable profits that arose on or after January 1, 2008 within its PRC subsidiaries as
of December 31, 2008.
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##### Table of Contents



12. Income Taxes - continued
 Uncertainties exist with respect to how the PRCs current income tax law applies to the
Companys 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 Laws purposes. If one or more of the Companys legal
entities organized outside of the PRC were characterized as PRC tax residents, the impact
would adversely affect the Companys 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, 2007 and 2008, there is no
interest and penalties related to uncertain tax positions, and the Company has 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 2006 to
2008 may be subject to examination by the PRC and Hong Kong tax authorities.Since the fourth quarter of 2007, the Inland Revenue Department of Hong Kong (HKIRD) issued
their determination to request NTTC, which has been inactive since 2004, for an additional
tax payment which relating to four years of assessment for the taxable years from 1996/1997
to 1999/2000. The total amount involved was approximately $2.9 million.After consulting Hong Kong tax experts, the Company believes that the position of the HKIRD
for the years in questions was incorrect as a matter of law and accordingly, NTTC objected to
the HKIRDs 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 the Companys appeal.HKIRD also issued a writ in May 2008, demanding NTTC to pay tax in the amount of
approximately $3 million for taxable years from 1997/1998 to 2000/2001. The Companys
defence was struck out by the District Court in Hong Kong.The Company is currently evaluating various alternatives to these tax proceedings, including
seeking reconsideration with the Board of Review of its decisions on appeal or seeking
separate judicial review of the HKIRD assessment and the Board of Reviews decision. The
Company is also evaluating an alternative of permitting the HKIRD to proceed uncontested
against NTTC, forcing its dissolution and liquidation. As NTTC s assets consist only of land
and golf club memberships having a book value of approximately $0.3 million at December 31,
2008, the Company believes that if NTTC were liquidated as a result, the financial exposure
to the Company is limited and insignificant. Accordingly, no significant provision has been
made regarding this assessment in the Companys consolidated financial statements.In addition, the HKIRD has made certain estimated assessments for NTGM, in relation to fiscal
years 2001 through 2002, for public revenue protection purposes to prevent the assessments,
if any, from becoming time barred. The amount of additional tax relating to fiscal years
2001 to 2002 demanded by the Hong Kong tax authorities was approximately $163. The Company
and NTGM have objected to these estimated assessments on June 27, 2008 but it was later
refused by the Hong Kong tax authorities. On December 17, 2008, the Hong Kong tax authorities
issued a Writ of Summons to claim against NTGM for the amount of $172, being tax allegedly
due and payable, together with interest, to the Hong Kong tax authorities for the fiscal
years 2001 to 2002 through the District Court in Hong Kong. NTGM filed its defence on
January 29, 2009. As of March 13, 2009, the date of hearing of this case is not fixed.The Company has assessed this tax position and believed NTGM has good technical merits.
Accordingly, no provision for tax liability in this respect is considered to be necessary.
 F-24




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##### Table of Contents



12. Income Taxes  continued
  Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008Current tax
    
    $
    (377
    )
    
    $
    (7,276
    )
    
    
    (3,670
    )Deferred tax
    
    
    -
    
    
    
    3,246
    
    
    
    793$
    (377
    )
    
    $
    (4,030
    )
    
    
    (2,877
    )
  December 31,
    
    2007
    
    
    2008Net operating losses
    
    $
    1,040
    
    
    $
    2,860Obsolete inventories
    
    
    45
    
    
    
    199Allowance for doubtful accounts
    
    
    9
    
    
    
    5Property, plant and equipment
    
    
    3,192
    
    
    
    3,546Total deferred tax assets
    
    
    4,286
    
    
    
    6,610Less: valuation allowance
    
    
    (1,040
    )
    
    
    (1,831
    )Deferred tax assets
    
    
    3,246
    
    
    
    4,779Deferred tax liability arising from withholding tax on undistributed profits
of PRC subsidiaries
    
    
    -
    
    
    
    (740
    )Net deferred tax
    
    $
    3,246
    
    
    $
    4,039
  December 31,
    
    2006
    
    
    2007
    
    
    2008At the beginning of the year
    
    $
    1,560
    
    
    $
    1,647
    
    
    $
    1,040Current year addition (reduction)
    
    
    87
    
    
    
    (607
    )
    
    
    1,227Disposal of a subsidiary
    
    
    -
    
    
    
    -
    
    
    
    (399
    )Change in tax rate
    
    
    -
    
    
    
    -
    
    
    
    (37
    )At the end of year
    
    $
    1,647
    
    
    $
    1,040
    
    
    $
    1,831
    F-25




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##### Table of Contents



12. Income Taxes - continued
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008Income before income taxes and minority interests
    
    $
    47,286
    
    
    $
    95,805
    
    
    $
    38,946PRC tax rate
    
    
    15
    %
    
    
    15
    %
    
    
    18
    %Income tax expense at PRC tax rate on income before
income tax
    
    $
    (7,093
    )
    
    $
    (14,371
    )
    
    $
    (7,010
    )Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income
    
    
    (149
    )
    
    
    132
    
    
    
    (71
    )Effect of income for which no income tax expense is payable, net
    
    
    2,709
    
    
    
    3,418
    
    
    
    7,307Tax holidays and tax incentives
    
    
    1,381
    
    
    
    3,902
    
    
    
    -Effect of PRC tax concessions, giving rise to no PRC tax
liability
    
    
    1,794
    
    
    
    -
    
    
    
    -Effect of change in tax law on deferred tax assets
    
    
    -
    
    
    
    3,246
    
    
    
    330Change in valuation allowance
    
    
    (87
    )
    
    
    607
    
    
    
    (1,227
    )Deferred tax
liability on withholding tax on undistributed profits
of PRC subsidiaries
    
    
    -
    
    
    
    -
    
    
    
    (740
    )Tax benefit (expense) arising from items which are not
assessable (deductible) for tax purposes:Gain on disposal of asset held for sale
    
    
    1,620
    
    
    
    -
    
    
    
    -Exempted interest income
    
    
    52
    
    
    
    124
    
    
    
    57Exempted exchange gain
    
    
    -
    
    
    
    984
    
    
    
    1,000Non-deductible legal and professional fees
    
    
    (75
    )
    
    
    (332
    )
    
    
    (146
    )Non-deductible impairment loss on goodwill
    
    
    -
    
    
    
    -
    
    
    
    (3,122
    )Non-deductible and non-taxable other items
    
    
    (470
    )
    
    
    (672
    )
    
    
    655Underprovision of income tax expense in prior years
    
    
    (67
    )
    
    
    (877
    )
    
    
    -Others
    
    
    8
    
    
    
    (191
    )
    
    
    90$
    (377
    )
    
    $
    (4,030
    )
    
    $
    (2,877
    )
   13. Entrusted loan receivable/payable
  F-26




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##### Table of Contents



14. Financial Instruments
    15. Commitments and Contingencies
 (a) Lease commitments
    - 2009
    
    $
    1,848- 2010
    
    
    1,874- 2011
    
    
    1,636- 2012
    
    
    619$
    5,977
 (b) Significant legal proceedings
 Tele-Art
  F-27




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##### Table of Contents



15. Commitments
and Contingencies - continued
 (b) Significant
legal proceedings - continued
 Tele-Art
  
    
    $200 to satisfy claims of unsecured creditors of Tele-Art other than the
Company;
    
    $400 to satisfy the claims of Tele-Arts former liquidator; and
    
    $600 in payment of professional fees and expenses, including expenses
relating to the sale of the shares, incurred through June 30, 2008.
  Shareholders Actions
 Rocco vs. Nam Tai Electronics et al.,
  F-28




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##### Table of Contents



16. Segment Information
   Year ended December 31, 2006
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalNet sales - third parties
    
    $
    178,320
    
    
    $
    627,199
    
    
    $
    64,655
    
    
    $
    -
    
    
    $
    870,174Cost of sales
    
    
    (148,013
    )
    
    
    (582,052
    )
    
    
    (53,888
    )
    
    
    -
    
    
    
    (783,953
    )Gross profit
    
    
    30,307
    
    
    
    45,147
    
    
    
    10,767
    
    
    
    -
    
    
    
    86,221Gain on disposal of asset held for sale
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,258
    
    
    
    9,258Selling, general and administrative
expenses
    
    
    (10,026
    )
    
    
    (11,960
    )
    
    
    (5,167
    )
    
    
    (3,515
    )
    
    
    (30,668
    )Research and development expenses
    
    
    (3,285
    )
    
    
    (3,064
    )
    
    
    (1,517
    )
    
    
    -
    
    
    
    (7,866
    )Losses arising from the judgment to
reinstate redeemed shares
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (14,465
    )
    
    
    (14,465
    )Other income (expenses), net
    
    
    954
    
    
    
    577
    
    
    
    -
    
    
    
    (2,796
    )
    
    
    (1,265
    )Loss on marketable securities arising
from split share structure reform
    
    
    (1,869
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,869
    )Interest income
    
    
    1,638
    
    
    
    809
    
    
    
    84
    
    
    
    6,011
    
    
    
    8,542Interest expense
    
    
    -
    
    
    
    -
    
    
    
    (602
    )
    
    
    -
    
    
    
    (602
    )Income (loss) before income taxes
and minority interests
    
    
    17,719
    
    
    
    31,509
    
    
    
    3,565
    
    
    
    (5,507
    )
    
    
    47,286Income taxes
    
    
    (214
    )
    
    
    (85
    )
    
    
    (78
    )
    
    
    -
    
    
    
    (377
    )Income (loss) before minority interests and
equity in (loss) profit  of an affiliated company
    
    
    17,505
    
    
    
    31,424
    
    
    
    3,487
    
    
    
    (5,507
    )
    
    
    46,909Minority interests
    
    
    (5,251
    )
    
    
    -
    
    
    
    (904
    )
    
    
    2
    
    
    
    (6,153
    )Equity in (loss) profit of an
affiliated company
    
    
    -
    
    
    
    -
    
    
    
    (8
    )
    
    
    8
    
    
    
    -Net income (loss)
    
    $
    12,254
    
    
    $
    31,424
    
    
    $
    2,575
    
    
    $
    (5,497
    )
    
    $
    40,756
 Year ended December 31, 2007
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalNet sales - third parties
    
    $
    283,757
    
    
    $
    413,198
    
    
    $
    83,867
    
    
    $
    -
    
    
    $
    780,822Cost of sales
    
    
    (234,729
    )
    
    
    (384,443
    )
    
    
    (74,632
    )
    
    
    -
    
    
    
    (693,804
    )Gross profit
    
    
    49,028
    
    
    
    28,755
    
    
    
    9,235
    
    
    
    -
    
    
    
    87,018Selling, general and administrative
expenses
    
    
    (15,269
    )
    
    
    (10,831
    )
    
    
    (6,331
    )
    
    
    (4,119
    )
    
    
    (36,550
    )Research and development expenses
    
    
    (4,144
    )
    
    
    (3,941
    )
    
    
    (1,713
    )
    
    
    -
    
    
    
    (9,798
    )Other income (expenses), net
    
    
    4,851
    
    
    
    561
    
    
    
    (121
    )
    
    
    (3,072
    )
    
    
    2,219Gain on sales of subsidiaries shares
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    390
    
    
    
    390Gain on disposal on marketable securities
    
    
    43,815
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    43,815Interest income
    
    
    3,609
    
    
    
    1,055
    
    
    
    30
    
    
    
    4,469
    
    
    
    9,163Interest expense
    
    
    (24
    )
    
    
    -
    
    
    
    (452
    )
    
    
    24
    
    
    
    (452
    )Income (loss) before income taxes
and minority interests
    
    
    81,866
    
    
    
    15,599
    
    
    
    648
    
    
    
    (2,308
    )
    
    
    95,805Income taxes
    
    
    (5,655
    )
    
    
    350
    
    
    
    1,275
    
    
    
    -
    
    
    
    (4,030
    )Income (loss) before minority interests
    
    
    76,211
    
    
    
    15,949
    
    
    
    1,923
    
    
    
    (2,308
    )
    
    
    91,775Minority interests
    
    
    (21,693
    )
    
    
    -
    
    
    
    (458
    )
    
    
    (121
    )
    
    
    (22,272
    )Net income (loss)
    
    $
    54,518
    
    
    $
    15,949
    
    
    $
    1,465
    
    
    $
    (2,429
    )
    
    $
    69,503
 F-29




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##### Table of Contents



16. Segment Information - continued
 Year ended December 31, 2008
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalNet sales - third parties
    
    $
    271,365
    
    
    $
    274,953
    
    
    $
    76,534
    
    
    $
    -
    
    
    $
    622,852Cost of sales
    
    
    (221,402
    )
    
    
    (259,345
    )
    
    
    (71,427
    )
    
    
    -
    
    
    
    (552,174
    )Gross profit
    
    
    49,963
    
    
    
    15,608
    
    
    
    5,107
    
    
    
    -
    
    
    
    70,678Selling, general and administrative
expenses
    
    
    (14,548
    )
    
    
    (10,984
    )
    
    
    (6,809
    )
    
    
    (3,716
    )
    
    
    (36,057
    )Research and development expenses
    
    
    (5,496
    )
    
    
    (3,780
    )
    
    
    (1,614
    )
    
    
    -
    
    
    
    (10,890
    )Impairment loss on goodwill
    
    
    -
    
    
    
    -
    
    
    
    (17,345
    )
    
    
    -
    
    
    
    (17,345
    )Other income (expenses), net
    
    
    4,429
    
    
    
    821
    
    
    
    (155
    )
    
    
    1,333
    
    
    
    6,428Gain on sales of subsidiaries shares
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    20,206
    
    
    
    20,206Interest income
    
    
    2,801
    
    
    
    785
    
    
    
    179
    
    
    
    2,517
    
    
    
    6,282Interest expense
    
    
    -
    
    
    
    -
    
    
    
    (356
    )
    
    
    -
    
    
    
    (356
    )Income (loss) before income taxes
and minority interests
    
    
    37,149
    
    
    
    2,450
    
    
    
    (20,993
    )
    
    
    20,340
    
    
    
    38,946Income taxes
    
    
    (4,278
    )
    
    
    1,221
    
    
    
    180
    
    
    
    -
    
    
    
    (2,877
    )Income (loss) before minority interests
    
    
    32,871
    
    
    
    3,671
    
    
    
    (20,813
    )
    
    
    20,340
    
    
    
    36,069Minority interests
    
    
    (5,512
    )
    
    
    -
    
    
    
    78
    
    
    
    -
    
    
    
    (5,434
    )Net income (loss)
    
    $
    27,359
    
    
    $
    3,671
    
    
    $
    (20,735
    )
    
    $
    20,340
    
    
    $
    30,635
 Year ended December 31, 2006
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalDepreciation and amortization
    
    $
    6,484
    
    
    $
    8,488
    
    
    $
    4,052
    
    
    $
    -
    
    
    $
    19,024Capital expenditures
    
    $
    1,992
    
    
    $
    19,864
    
    
    $
    1,937
    
    
    $
    -
    
    
    $
    23,793Total assets
    
    $
    181,634
    
    
    $
    170,129
    
    
    $
    58,172
    
    
    $
    119,300
    
    
    $
    529,235
 Year ended December 31, 2007
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalDepreciation and amortization
    
    $
    6,815
    
    
    $
    10,453
    
    
    $
    4,230
    
    
    $
    3
    
    
    $
    21,501Capital expenditures
    
    $
    5,609
    
    
    $
    4,996
    
    
    $
    4,568
    
    
    $
    94
    
    
    $
    15,267Total assets
    
    $
    212,098
    
    
    $
    150,963
    
    
    $
    64,628
    
    
    $
    117,129
    
    
    $
    544,818
 Year
ended December 31, 2008
 CECP
    
    
    TCA
    
    
    LCDP
    
    
    Corporate
    
    
    TotalDepreciation and amortization
    
    $
    6,846
    
    
    $
    10,558
    
    
    $
    4,800
    
    
    $
    4
    
    
    $
    22,208Capital expenditures
    
    $
    1,894
    
    
    $
    39,501
    
    
    $
    4,040
    
    
    $
    -
    
    
    $
    45,435Total assets
    
    $
    189,889
    
    
    $
    164,516
    
    
    $
    42,977
    
    
    $
    116,679
    
    
    $
    514,061
  F-30




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##### Table of Contents



16.
    
    Segment Information - continuedA summary sets forth the percentage of net sales of each of the Companys product lines of
each segment for the years ended December 31, 2006, 2007 and 2008, is as follows:
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008Product lineCECP:- Assembling- Consumer electronics and communication products
    
    
    20
    %
    
    
    36
    %
    
    
    44
    %- Software development services
    
    
    1
    %
    
    
    -
    
    
    
    -21
    %
    
    
    36
    %
    
    
    44
    %TCA
    
    
    72
    %
    
    
    53
    %
    
    
    44
    %LCDP:- Parts and components- LCD products
    
    
    7
    %
    
    
    11
    %
    
    
    12
    %100
    %
    
    
    100
    %
    
    
    100
    %
 A summary of net sales, net income and long-lived assets by geographic areas is as follows:By geographical area:
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008Net sales from operations within:- PRC, excluding Hong Kong and Macao:Unaffiliated customers
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852Intercompany sales
    
    
    418
    
    
    
    253
    
    
    
    141870,592
    
    
    
    781,075
    
    
    
    622,993- Intercompany eliminations
    
    
    (418
    )
    
    
    (253
    )
    
    
    (141
    )Total net sales
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852Net income within:- PRC, excluding Hong Kong and Macao
    
    $
    18,743
    
    
    $
    52,338
    
    
    $
    (4,542
    )- Hong Kong and Macao
    
    
    22,013
    
    
    
    17,165
    
    
    
    35,177Total net income
    
    $
    40,756
    
    
    $
    69,503
    
    
    $
    30,635
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008Net sales to customers by geographical area:- Hong Kong
    
    $
    258,774
    
    
    $
    255,569
    
    
    $
    226,020- Europe
    
    
    131,763
    
    
    
    128,800
    
    
    
    136,888- United States
    
    
    76,620
    
    
    
    113,352
    
    
    
    108,150- PRC (excluding Hong Kong)
    
    
    272,916
    
    
    
    169,395
    
    
    
    86,968- Japan
    
    
    19,259
    
    
    
    20,827
    
    
    
    11,623- North America (excluding United States)
    
    
    1,999
    
    
    
    11,328
    
    
    
    15,775- Korea
    
    
    49,434
    
    
    
    34,731
    
    
    
    9,411- Other
    
    
    59,409
    
    
    
    46,820
    
    
    
    28,017Total net sales
    
    $
    870,174
    
    
    $
    780,822
    
    
    $
    622,852
 F-31




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##### Table of Contents



16.
    
    Segment Information - continued
 As of December 31,
    
    2006
    
    
    2007
    
    
    2008Long-lived assets by geographical area:- PRC, excluding Hong Kong and Macao
    
    $
    105,123
    
    
    $
    98,441
    
    
    $
    121,475- Hong Kong and Macao
    
    
    271
    
    
    
    158
    
    
    
    185Total long-lived assets
    
    $
    105,394
    
    
    $
    98,599
    
    
    
    121,660
 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 Companys sales to customers which accounted for 10% or more of its sales are as follows:
 Year ended December 31,
    
    2006
    
    
    2007
    
    
    2008A
    
    $
    195,476
    
    
    $
    N/A
    
    
    $
    N/AB
    
    
    163,712
    
    
    
    157,891
    
    
    
    95,508C
    
    
    141,977
    
    
    
    123,858
    
    
    
    102,894D
    
    
    N/A
    
    
    
    84,555
    
    
    
    N/AE
    
    
    N/A
    
    
    
    N/A
    
    
    
    95,911F
    
    
    N/A
    
    
    
    N/A
    
    
    
    65,269$
    501,165
    
    
    $
    366,304
    
    
    $
    359,582
 17.
    
    Subsequent eventIn February 2009, the Company announced its intent to seek to privatize NTEEP, a Hong Kong
Stock Exchange listed subsidiary in which the Company holds 74.88% of the issued share
capital, by making a cash offer aggregating approximately $43,000 for the remaining 25.12%
of the issued shares of NTEEP (the Offer). Completion of the Offer and the resulting
privatization of NTEEP is conditional upon the Company acquiring at least 90% of the NTEEP
shares in which it does not own. If that condition is satisfied, the Company intends to
exercise compulsory acquisition rights available under the Hong Kong law to acquire any
remaining NTEEP shares that it did not acquire in the Offer and then withdraw the listing of
NTEEP from the Hong Kong Stock Exchange. It is expected that the results of the Offer will
be known around April 2009.
 F-32




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF INCOME
(In thousands of US dollars)
 Year ended December 31,2006
    
    
    2007
    
    
    2008General and administrative expenses*
    
    $
    (3,459
    )
    
    $
    (4,115
    )
    
    $
    (2,834
    )Other (expense) income, net
    
    
    (2,798
    )
    
    
    (3,078
    )
    
    
    1,328Gain on sales of subsidiaries shares
    
    
    -
    
    
    
    390
    
    
    
    20,206Interest income on loan to a subsidiary
    
    
    -
    
    
    
    -
    
    
    
    12,146Losses arising from judgement to reinstate redeemed shares
    
    
    (14,465
    )
    
    
    -
    
    
    
    -Interest income
    
    
    7,247
    
    
    
    4,493
    
    
    
    2,517(Loss) income before income taxes
    
    
    (13,475
    )
    
    
    (2,310
    )
    
    
    33,363Income taxes
    
    
    -
    
    
    
    -
    
    
    
    -(Loss)
income before share of net profits (losses) of subsidiaries, net of taxes
    
    
    (13,475
    )
    
    
    (2,310
    )
    
    
    33,363Share of net profits (losses) of subsidiaries, net of taxes
    
    
    54,231
    
    
    
    71,813
    
    
    
    (2,728
    )Net income
    
    $
    40,756
    
    
    $
    69,503
    
    
    $
    30,635* Amount of share-based compensation
expense included in general and administrative
expenses
    
    $
    597
    
    
    $
    268
    
    
    $
    290
 F-33




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
BALANCE SHEETS
(In thousands of US dollars)
 December 31,2007
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    74,049
    
    
    $
    107,668Prepaid expenses and other receivables
    
    
    11
    
    
    
    309Loan to a subsidiary - current
    
    
    25,953
    
    
    
    51,906Amounts due from subsidiaries
    
    
    44
    
    
    
    12,990Total current assets
    
    
    100,057
    
    
    
    172,873Equipments, net
    
    
    4
    
    
    
    3Loan to a subsidiary - non-current
    
    
    285,478
    
    
    
    259,525Investments in subsidiaries
    
    
    (41,992
    )
    
    
    (96,928
    )Other assets
    
    
    264
    
    
    
    -Total assets
    
    $
    343,811
    
    
    $
    335,473LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accrued expenses and other payables
    
    $
    2,682
    
    
    $
    3,355Dividend payable
    
    
    9,509
    
    
    
    9,857Amounts due to subsidiaries
    
    
    1,439
    
    
    
    -Total liabilities
    
    
    13,630
    
    
    
    13,212Shareholders equity:Common shares ($0.01 par value - authorized 200,000,000 shares)
    
    
    448
    
    
    
    448Additional paid-in capital
    
    
    281,895
    
    
    
    282,767Retained earnings
    
    
    47,846
    
    
    
    39,054Accumulated other comprehensive loss
    
    
    (8
    )
    
    
    (8
    )Total shareholders equity
    
    
    330,181
    
    
    
    322,261Total liabilities and shareholders equity
    
    $
    343,811
    
    
    $
    335,473
 F-34




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENT OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
 Accumulated
    
    
    TotalCommon
    
    
    Common
    
    
    Reinstatement
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Share-Shares
    
    
    Shares
    
    
    of redeemed
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holders
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    shares
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at January 1, 2006
    
    
    43,505,586
    
    
    $
    435
    
    
    $
    -
    
    
    $
    258,167
    
    
    $
    50,771
    
    
    $
    1,018
    
    
    $
    310,391Shares issued on exercise of options
    
    
    281,000
    
    
    
    3
    
    
    
    -
    
    
    
    5,436
    
    
    
    -
    
    
    
    -
    
    
    
    5,439Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    597
    
    
    
    -
    
    
    
    -
    
    
    
    597Reinstatement of redeemed shares
    
    
    -
    
    
    
    -
    
    
    
    17,159
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    17,159Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    40,756
    
    
    
    -
    
    
    
    40,756
    
    
    $
    40,756Share of subsidiaries equity transactions:Equity settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    193
    
    
    
    -
    
    
    
    -
    
    
    
    193Unrealized gain of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,983
    
    
    
    8,983
    
    
    
    8,983Foreign currency translation
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    73
    
    
    
    73
    
    
    
    73Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,812Cash dividends ($1.52 per share)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (66,497
    )
    
    
    -
    
    
    
    (66,497
    )Balance at December 31, 2006
    
    
    43,786,586
    
    
    $
    438
    
    
    $
    17,159
    
    
    $
    264,393
    
    
    $
    25,030
    
    
    $
    10,074
    
    
    $
    317,094Reinstatement of redeemed shares
    
    
    1,017,149
    
    
    
    10
    
    
    
    (17,159
    )
    
    
    17,149
    
    
    
    -
    
    
    
    -
    
    
    
    -Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    268
    
    
    
    -
    
    
    
    -
    
    
    
    268Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    69,503
    
    
    
    -
    
    
    
    69,503
    
    
    $
    69,503Share of subsidiaries equity transactions:Equity settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    85
    
    
    
    -
    
    
    
    -
    
    
    
    85Reserve shared by minority interests
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (9,052
    )
    
    
    -
    
    
    
    (9,052
    )
    
    
    (9,052
    )Unrealized gain of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    17,451
    
    
    
    17,451
    
    
    
    17,451Disposal of marketable securities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (27,381
    )
    
    
    (27,381
    )
    
    
    (27,381
    )Foreign currency translation
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (152
    )
    
    
    (152
    )
    
    
    (152
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50,369Cash dividends ($0.84 per share)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (37,635
    )
    
    
    -
    
    
    
    (37,635
    )Balance at December 31, 2007
    
    
    44,803,735
    
    
    $
    448
    
    
    $
    -
    
    
    $
    281,895
    
    
    $
    47,846
    
    
    $
    (8
    )
    
    $
    330,181Equity-settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    290
    
    
    
    -
    
    
    
    -
    
    
    
    290Repurchase of share options
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (68
    )
    
    
    -
    
    
    
    -
    
    
    
    (68
    )Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    30,635
    
    
    
    -
    
    
    
    30,635
    
    
    $
    30,635Share of subsidiaries equity transaction:Equity settled share-based payment
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    650
    
    
    
    -
    
    
    
    -
    
    
    
    650Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,635Cash 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
 F-35




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2006
    
    
    2007
    
    
    2008Cash flows from operating activities:Net income
    
    $
    40,756
    
    
    $
    69,503
    
    
    $
    30,635Adjustments to reconcile net income to net cash provided
by operating activities:Share of net
(profits) losses of subsidiaries, net of taxes
    
    
    (54,231
    )
    
    
    (71,813
    )
    
    
    2,728Dividend income from subsidiaries
    
    
    13,596
    
    
    
    17,116
    
    
    
    26,446Gain on disposal of subsidiaries
    
    
    -
    
    
    
    (390
    )
    
    
    (20,206
    )Depreciation
    
    
    1
    
    
    
    1
    
    
    
    1Dividend withheld
    
    
    -
    
    
    
    -
    
    
    
    (305
    )Loss arising from judgement to reinstate redeemed shares
    
    
    14,465
    
    
    
    -
    
    
    
    -Share-based compensation expenses
    
    
    597
    
    
    
    268
    
    
    
    290Changes in current assets and liabilities:(Increase) decrease in prepaid expenses and other receivables
    
    
    (626
    )
    
    
    978
    
    
    
    (298
    )(Decrease) increase in accrued expenses and other payables
    
    
    (67
    )
    
    
    613
    
    
    
    173Net cash provided by operating activities
    
    
    14,491
    
    
    
    16,276
    
    
    
    39,464Cash flows from (used in) investing activities:Proceeds on disposal of subsidiaries shares
    
    
    -
    
    
    
    49,002
    
    
    
    50,024Acquisition of subsidiaries shares
    
    
    (3,130
    )
    
    
    (62,755
    )
    
    
    (2,906
    )Decrease (increase) in amounts due from subsidiaries
    
    
    41,824
    
    
    
    -
    
    
    
    (12,946
    )Purchase of equipment
    
    
    -
    
    
    
    (3
    )
    
    
    -Decrease (increase) in other assets
    
    
    143
    
    
    
    (25
    )
    
    
    264Net cash provided by (used in) investing activities
    
    
    38,837
    
    
    
    (13,781
    )
    
    
    34,436Cash flows used in financing activities:Decrease in amounts due to subsidiaries
    
    
    (8,022
    )
    
    
    (1,313
    )
    
    
    (1,439
    )Proceeds from shares issued on exercise of options
    
    
    5,439
    
    
    
    -
    
    
    
    -Payment for repurchase of share options
    
    
    -
    
    
    
    -
    
    
    
    (68
    )Dividend paid
    
    
    (64,215
    )
    
    
    (44,765
    )
    
    
    (38,774
    )Net cash used in financing activities
    
    
    (66,798
    )
    
    
    (46,078
    )
    
    
    (40,281
    )Net (decrease) increase in cash and cash equivalents
    
    
    (13,470
    )
    
    
    (43,583
    )
    
    
    33,619Cash and cash equivalents at beginning of year
    
    
    131,102
    
    
    
    117,632
    
    
    
    74,049Cash and cash equivalents at end of year
    
    $
    117,632
    
    
    $
    74,049
    
    
    $
    107,668
 F-36




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##### Table of Contents



SCHEDULE 1
NAM TAI ELECTRONICS, INC.
NOTE TO SCHEDULE 1
(in thousands of US dollars)
   F-37