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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, 2005
 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
 Commission File Number: 0-16673
 Nam Tai Electronics, Inc.
 (Exact name of registrant as specified in its charter)
 British Virgin Islands  (Jurisdiction of incorporation or organization)
 116 Main Street
3rd Floor
Road Town, Tortola
British Virgin Islands  (Address of principal executive offices)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common Shares, $0.01 par value per share
 Securities registered pursuant to Section 12(g) of the Act: NONE
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
   o þ
  o þ
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    None-accelerated filer o
 o þ
  o þ




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TABLE OF CONTENTS
 PagePART I
    
    3Item 1. Identity of Directors, Senior Management and Advisors  Not applicable
    
    3Item 2. Offer Statistics and Expected Timetable  Not applicable
    
    3Item 3. Key Information
    
    3Item 4. Information on the Company
    
    18Item 4 A. Unresolved Staff Comments
    
    35Item 5. Operating and Financial Review and Prospects
    
    36Item 6. Directors, Senior Management and Employees
    
    51Item 7. Major Shareholders and Related Party Transactions
    
    57Item 8. Financial Information
    
    59Item 9. The Listing
    
    66Item 10. Additional Information
    
    67Item 11. Quantitative and Qualitative Disclosure about Market Risk
    
    73Item 12. Description of Securities Other than Equity Securities  Not applicable
    
    75PART II
    
    75Item 13. Defaults, Dividend Arrearages and Delinquencies  Not applicable
    
    75Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds  Not applicable
    
    75Item 15. Controls and Procedures
    
    75Item 16. [Reserved]
    
    75Item 16 A. Audit Committee Financial Expert
    
    75Item 16 B. Code of Ethics
    
    76Item 16 C. Principal Accountant Fees and Services
    
    76Item 16 D. Exemptions from the Listing Standards For Audit Committees  Not applicable
    
    77Item 16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers  Not applicable
    
    77PART III
    
    77Item 17. Financial Statements  Not applicable
    
    77Item 18. Financial Statements
    
    77Item 19. Exhibits
    
    78EX-4.17 LOAN AGREEMENTEX-4.18 AGREEMENT IN RELATION TO SALE AND PURCHASEEX-4.19 SUPPLEMENTAL LOAN AGREEMENTEX-4.20 SUPPLEMENT LETTER DATED MAY 12, 2005EX-4.21 BANKING FACILITIES LETTEREX-4.22 BANKING FACILITIES LETTEREX-12.1 SECTION 302 CEO CERTIFICATIONEX-12.2 SECTION 302 CFO CERTIFICATIONEX-23.1 CONSENT OF DELOITTEEX-99.1 SECTION 906 CEO CERTIFICATIONEX-99.2 SECTION 906 CFO CERTIFICATION
  SIGNATURES AND CERTIFICATIONS
  This Annual Report on Form 20-F contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section entitled Risk Factors
under Item 3. Key Information.
 Readers should not place undue reliance on forward-looking statements, which reflect
managements view only as of the date of this Report. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Readers should also carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission.
 FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
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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
  Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in thousands)Consolidated statements of income data:Net sales  third parties
    
    $
    212,934
    
    
    $
    228,167
    
    
    $
    385,524
    
    
    $
    499,680
    
    
    $
    791,042Net sales  related party
    
    
    21,072
    
    
    
    7,849
    
    
    
    20,782
    
    
    
    34,181
    
    
    
    6,195Total net sales
    
    
    234,006
    
    
    
    236,016
    
    
    
    406,306
    
    
    
    533,861
    
    
    
    797,237Cost of sales
    
    
    203,974
    
    
    
    197,956
    
    
    
    340,016
    
    
    
    457,385
    
    
    
    704,314Gross profit
    
    
    30,032
    
    
    
    38,060
    
    
    
    66,290
    
    
    
    76,476
    
    
    
    92,923Operating costs and expenses:Selling, general and administrative
    
    
    21,974
    
    
    
    17,983
    
    
    
    24,866
    
    
    
    28,053
    
    
    
    33,057Research and development
    
    
    2,954
    
    
    
    2,686
    
    
    
    4,037
    
    
    
    5,045
    
    
    
    7,210Impairment of goodwill
    
    
    
    
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    24,928
    
    
    
    21,008
    
    
    
    28,903
    
    
    
    33,098
    
    
    
    40,267Income from operations
    
    
    5,104
    
    
    
    17,052
    
    
    
    37,387
    
    
    
    43,378
    
    
    
    52,656Other income (expenses)  net
    
    
    989
    
    
    
    (8,418
    )
    
    
    (815
    )
    
    
    (1,012
    )
    
    
    (125
    )Dividend income received from marketable
securities and investment
    
    
    525
    
    
    
    917
    
    
    
    3,714
    
    
    
    18,295
    
    
    
    579Gain on sale of subsidiaries shares
    
    
    
    
    
    
    17
    
    
    
    1,838
    
    
    
    77,320
    
    
    
    10,095Gain on disposal of an affiliated company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,631Gain (Loss) on disposal of marketable securities
    
    
    
    
    
    
    642
    
    
    
    
    
    
    
    
    
    
    
    (3,686
    )Impairment loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,316
    )
    
    
    (6,525
    )Interest income
    
    
    1,195
    
    
    
    799
    
    
    
    788
    
    
    
    1,110
    
    
    
    3,948Interest expense
    
    
    (178
    )
    
    
    (790
    )
    
    
    (121
    )
    
    
    (195
    )
    
    
    (438
    )Income before income taxes and minority interests
    
    
    7,635
    
    
    
    10,219
    
    
    
    42,791
    
    
    
    80,580
    
    
    
    60,135
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Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in thousands, except per share data)Income taxes expenses
    
    
    (227
    )
    
    
    (773
    )
    
    
    (399
    )
    
    
    (879
    )
    
    
    (651
    )Income before minority interests and equity in
income (loss) of affiliated companies
    
    
    7,408
    
    
    
    9,446
    
    
    
    42,392
    
    
    
    79,701
    
    
    
    59,484Minority interests
    
    
    (230
    )
    
    
    (164
    )
    
    
    (1,067
    )
    
    
    (6,010
    )
    
    
    (7,992
    )Income after minority interests
    
    
    7,178
    
    
    
    9,282
    
    
    
    41,325
    
    
    
    73,691
    
    
    $
    51,492Equity in income (loss) of affiliated companies
    
    
    1,867
    
    
    
    10,741
    
    
    
    498
    
    
    
    (6,806
    )
    
    
    (186
    )Discontinued operation
    
    
    
    
    
    
    
    
    
    
    1,979
    
    
    
    
    
    
    
    Net income
    
    $
    9,045
    
    
    $
    20,023
    
    
    $
    43,802
    
    
    $
    66,885
    
    
    $
    51,306Earnings per share:Basic
    
    $
    0.27
    
    
    $
    0.57
    
    
    $
    1.09
    
    
    $
    1.57
    
    
    $
    1.19Diluted
    
    $
    0.26
    
    
    $
    0.57
    
    
    $
    1.07
    
    
    $
    1.57
    
    
    $
    1.19Income from continuing operations per share:Basic
    
    $
    0.27
    
    
    $
    0.57
    
    
    $
    1.04
    
    
    $
    1.57
    
    
    $
    1.19Diluted
    
    $
    0.26
    
    
    $
    0.57
    
    
    $
    1.02
    
    
    $
    1.57
    
    
    $
    1.19Weighted average shares:Basic
    
    
    33,905
    
    
    
    34,885
    
    
    
    40,336
    
    
    
    42,496
    
    
    
    42,945Diluted
    
    
    34,298
    
    
    
    35,430
    
    
    
    40,839
    
    
    
    42,548
    
    
    
    43,169
 At December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in thousands, except per share data)Consolidated balance sheet data:Cash and cash equivalents
    
    $
    58,676
    
    
    $
    82,477
    
    
    $
    61,827
    
    
    $
    160,649
    
    
    $
    213,843Working capital
    
    
    83,525
    
    
    
    87,184
    
    
    
    93,474
    
    
    
    218,243
    
    
    
    234,674Land use
right and property, plant and equipment  net
    
    
    70,414
    
    
    
    75,914
    
    
    
    77,647
    
    
    
    97,441
    
    
    
    100,741Total assets
    
    
    224,573
    
    
    
    275,086
    
    
    
    297,695
    
    
    
    460,473
    
    
    
    520,011Short-term debt, including current portion of long-term debt
    
    
    3,687
    
    
    
    14,970
    
    
    
    3,004
    
    
    
    4,955
    
    
    
    9,400Long-term debt, less current portion
    
    
    12,860
    
    
    
    2,812
    
    
    
    1,688
    
    
    
    5,163
    
    
    
    2,850Total debt
    
    
    16,547
    
    
    
    17,782
    
    
    
    4,692
    
    
    
    10,118
    
    
    
    12,250Shareholders equity
    
    
    169,351
    
    
    
    202,128
    
    
    
    217,118
    
    
    
    305,053
    
    
    
    310,391Common shares
    
    
    312
    
    
    
    360
    
    
    
    412
    
    
    
    426
    
    
    
    435Total dividend per share
    
    
    0.13
    
    
    
    0.49
    
    
    
    1.00
    
    
    
    0.48
    
    
    
    1.32Total number of common shares issued
    
    
    34,326
    
    
    
    39,665
    
    
    
    41,231
    
    
    
    42,665
    
    
    
    43,506
 
  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
Securities and Exchange Commission, 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:
 Risks Related to Our Business
 We are dependent on a few large customers, the loss of any of which could substantially harm our
business and operating results.
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Our quarterly and annual operating results are subject to significant fluctuations due to a wide
variety of factors.
  
    
    the timing, cancellation or postponement of orders;
    
    the type of product and related margins;
    
    our customers announcement and introduction of new products or new generations of products;
    
    the life cycles of our customers products;
    
    our timing of expenditures in anticipation of future orders;
    
    our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components; and
    
    the mix of orders filled.
   Cancellations or delays in orders could materially and adversely affect our gross margins and
operating income.
  We do not have long-term purchase commitments from our customers and the life cycles of their
products (and therefore ours) may be short, so our future revenues are difficult to predict.
  Our
business has been characterized by a rapidly changing mix of products and customers.
 TM
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TM
 There may not be a sufficient market for new products that our customers or we develop.
  Our inability to utilize capacity at our new factory could materially and adversely affect our
business and operating results.
  We face increasing competition, which has had and could continue to have an adverse effect on our
margins.
   We may not be able to compete successfully with our competitors, many of which have substantially
greater resources than we do.
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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.
   
    
    utilization of advances in technology;
    
    development of new or improved manufacturing processes for our customers products;
    
    delivery of efficient and cost-effective services; and
    
    timely completion of the manufacture of new products.
 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.
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Factors affecting the electronics industry in general and our customers in particular could harm
our operations.
  As we currently only operate one production facility for each of our subsidiaries, our business may
be materially and adversely affected if the facility of any of our major subsidiaries were to be
shut down.
  Future acquisitions or strategic investments may not be successful and may harm our operating
results.
   
    
    possible charges to operating results for purchased technology, restructuring or
impairment charges related to goodwill or amortization expenses associated with intangible
assets;
    
    potential increase in our expenses and working capital requirements and the
incurrence of debt and contingent liabilities;
    
    difficulties in successfully integrating any acquired operations, technologies,
customers products and businesses with our operations;
    
    diversion of our capital and managements attention to other business concerns;
    
    risks of entering markets or geographic areas in which we have limited prior experience; or
    
    potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.
   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.
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Because our operations are international, we are subject to significant worldwide political,
economic, legal and other uncertainties.
  
    
    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;
    
    difficulties in managing or overseeing foreign operations; and
    
    limitations on the repatriation of funds because of foreign exchange controls.
  Our operating results could be negatively impacted by seasonality.
  Our results could be adversely affected if we have to comply with new environmental regulations.
  Our insurance coverage may not be sufficient to cover the risks related to our operations and
losses.
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We are a defendant in putative class action lawsuits and this litigation could adversely
affect our business regardless of the final outcome.
 3⁄4 3⁄4
 We may be unable to succeed in recovering on our judgment debts against Tele-Art, Inc.
 3⁄4 3⁄4
 We could become involved in intellectual property disputes.
  We depend on our executive officers and skilled management personnel.
  We may not pay dividends in the future.
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We are subject to the risk of increased taxes.
   Recently enacted changes in the securities laws and regulations are likely to increase our costs.
  Risks Related to Our Operations in China, Hong Kong, Macao and Japan
  We are exposed to risks associated with doing business in China.
  Changes in the economic and political environment in China and policies adopted by the Chinese
government to regulate its economy and toward, or even nationalize, private enterprise, may
adversely affect our business, operating results and financial condition.
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The Chinese legal system has inherent uncertainties that could materially and adversely impact our
ability to enforce the agreements governing our factories and to do business.
  Fire, severe weather, flood or earthquake could cause significant damage to our facilities in China
and disrupt our business operations.
  Controversies affecting Chinas trade with the United States could harm our results of operations
or depress our stock price.
  A deterioration of relations between China and Japan may harm our business.
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Payment of dividends by our subsidiaries in China to us are subject to restrictions under Chinese
law.
  Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase
revenues could subject us to greater taxes.
  Our results could be affected by changes in foreign exchange regulations of China.
  Our results have been affected by changes in currency exchange rates. Changes in currency rates
involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.
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We have suffered losses from hedging against our currency exchange risk.
  Political and economic instability in Hong Kong could harm our operations.
  Power shortages in China could affect our business.
  The spread of severe acute respiratory syndrome, avian influenza or similar illnesses may have a
negative impact on our business and operating results.
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We conduct operations in a number of countries and the effect of business, legal and political
risks associated with international operations could significantly harm us.
  
    
    Difficulties in staffing and managing international operations;
    
    Compliance with laws and regulations, including environmental laws, which vary
from country to country and over time, increasing the costs of compliance and potential
risks of non-compliance;
    
    Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other 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.
  Risks Related to Our Industry
 We are exposed to general economic conditions. Any slowdown in the technology products industry may
affect our business and operating results adversely.
  Our business and operating results are dependent on growing global outsourcing trends.
  Actual or perceived health risks associated with the use of mobile phone handsets or other
communications equipment could negatively affect our business.
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Risks Related to Ownership of Our Common Shares
 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.
  If we do not receive an unqualified opinion on the adequacy of our internal control over financial
reporting as of December 31, 2006 and future year-ends as required by Section 404 of the
Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our shares.
  Changes to financial accounting standards may affect our reported results of operations and could
result in a decrease in the value of our shares.
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Risks Related to Our Foreign Private Issuer Status
 It may be difficult to serve us with legal process or enforce judgments against our management or
us.
   
    
    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;
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
    
    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.
  Our status as a foreign private issuer exempts us from certain of the reporting requirements under
the Securities Exchange Act of 1934 and corporate governance standards of the 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;
    
    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).
   
 Item 4. Information on the Company
 History and Development of Nam Tai
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TM
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pari passu
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Capital Expenditures
  2003
    
    2004
    
    2005Property, plant and equipment (net)
    
    $
    17,053,000
    
    
    $
    38,611,000
    
    
    $
    32,166,000
  
    
    $10.8 million for new factory expansion;
    
    $5.4 million for expansion of a LCD factory;
    
    $3.3 million for machinery used mainly for COG products;
    
    $4.9 million for machinery used mainly for FPC sub-assemblies;
    
    $7.8 million for other capital equipment.
  
    
    $13.8 million for new factory expansion;
    
    $7.7 million for the expansion of LCD factory (which included $5.8 million paid
as a deposit for property, plant and equipment);
    
    $0.7 million for the expansion of our high-resolution color LCD module production capacity;
    
    $14.5 million for machinery used mainly for FPC sub-assemblies;
    
    $5.6 million for other capital equipment; and
    
    $2.1 million for construction work in relation to the electricity supply for
Namtai Electronic (Shenzhen) Co., Ltd.
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
    
    $6.0 million for machinery for manufacturing RF modules;
    
    $1.2 million for new factory expansion;
    
    $0.4 million for machinery on FPC sub-assemblies;
    
    $1.7 million for expansion of our high-resolution color LCD module production capacity;
    
    $6.7 million for other capital equipment; and
    
    $1.1 million for construction of a new trade union building for our workers in China.
   
    
    $3.7 million for the purchase of land for the construction of a new factory by a subsidiary;
    
    $15.8 million for machinery and equipment;
    
    $2.6 million for other capital equipment.
    
    $20.9 million for FPC board project (including $18.5 million for machinery,
$1.4 million for factory improvement and $1.0 million consultancy fee)
  Business Overview
 TM
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Our Customers
  Year endedDecember 31,2003
    
    2004
    
    2005Sanyo Epson Imaging Devices (HK) Limited (formerly
known as Epson Precision (HK) Ltd.)
    
    
    24.8
    %
    
    
    14.1
    %
    
    
    15.3
    %Sony Ericsson Mobile Communications AB
    
    
    11.3
    %
    
    
    *
    
    
    
    *Toshiba Matsushita Display Technology Co. Ltd
    
    
    10.6
    %
    
    
    *
    
    
    
    *Motorola Inc.
    
    
    *
    
    
    
    10.2
    %
    
    
    *Sharp Corporation
    
    
    *
    
    
    
    13.5
    %
    
    
    32.3
    %Wuxi Sharp Electronic Components Co., Ltd.
    
    
    *
    
    
    
    10.1
    %
    
    
    10.1
    %
 
 *
    
    Less than 10% of our total net sales.  Customer
    
    ProductsHikari Alphax Co., Ltd.
    
    LCD modulesMotorola Inc.
    
    CMOS sensor modulesSanyo Epson Imaging Devices (HK) Limited (formerly
    
    LCD modules for cellular phones and FPC sub-assembliesknown as Epson Precision (HK) Ltd.)Sharp Corporation
    
    FPC sub-assemblies, calculators, PDAs and dictionariesSony Computer Entertainment Europe Ltd.
    
    Home entertainment productsSony Ericsson Mobile Communications AB
    
    Mobile phone digital camera accessories,
BluetoothTM wireless headset accessory and
flashlight for mobile phoneSumitronics Hong Kong Ltd.
    
    FPC sub-assembliesTexas Instruments Incorporated
    
    CalculatorsUniden HK Ltd.
    
    LCD panelsWuxi Sharp Electronic Components Co., Ltd.
    
    Telecom printed circuit board, or PCB, modules and
FPC sub-assemblies
   24




---



##### Table of Contents



Our Products
   Year ended December 31,2003
    
    
    2004
    
    
    2005Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent
    
    
    Dollars
    
    
    PercentConsumer Electronics and
Communication ProductsConsumer Electronics and
Communication Products
    
    $
    128,779
    
    
    
    32
    %
    
    $
    163,584
    
    
    
    31
    %
    
    $
    163,645
    
    
    
    20
    %Software Development Services
    
    
    4,041
    
    
    
    1
    
    
    
    4,872
    
    
    
    1
    
    
    
    5,411
    
    
    
    1Telecommunication, components assembly
    
    
    232,162
    
    
    
    57
    
    
    
    316,695
    
    
    
    59
    
    
    
    570,069
    
    
    
    72LCD Panels
and TransformersLCD panels
    
    
    35,040
    
    
    
    9
    
    
    
    48,710
    
    
    
    9
    
    
    
    58,112
    
    
    
    7Transformers(1)
    
    
    6,284
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    406,306
    
    
    
    100
    %
    
    $
    533,861
    
    
    
    100
    %
    
    $
    797,237
    
    
    
    100
    %
 
 (1)
    
    We sold our transformers operation to a third party in June 2003.  Consumer Electronic and Communication Products, or CECP
  
    
    Optical devices such as CMOS sensor modules.
    
    Entertainment devices such as USB camera accessory, USB microphone and
converter box, controller for a music quiz game and a gaming device
for mobile phones.
    
    Mobile phone accessories such as BluetoothTM wireless headsets, a
snap-on speaker, a snap-on card holder and snap-on flash lights.
    
    Educational products such as digital pens, calculators and electronic
dictionaries.
 Software Development Services
  Telecommunication Component Assembly, or TCA
  
    
    Color and monochrome LCD modules to display information as part of
telecommunication products such as cellular phones and telephone systems and appliances
such as micro-wave ovens. Our LCD modules could be manufactured for use in most other
hand-held consumer electronic devices, such as electronic games and digital cameras.
 25




---



##### Table of Contents




    
    RF modules, which we began manufacturing in December 2002, for integration into
cellular phones. These modules could 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, which we began manufacturing in 2005 are designed into digital
radio products such as home tuners, kitchen radios, in-car receivers, CD players, clock
radios, boomboxes, midi-systems and handheld portable devices.
    
    Cellular phones in SKD form.
    
    FPC sub-assemblies which we began manufacturing in March 2003 for integration
into various LCD modules.
    
    Front light panels for handheld video game devices.
    
    Back light panels for handheld video game devices, which we began manufacturing in October 2004.
    
    1.9 high frequency cordless telephones and home feature phones.
 LCD Panels, or LCDP
  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, 2005, 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, is available. These COF machines have the ability to pitch fine to
38 micrometers and a total production capacity of up to 4,000,000 chips per month.
    
    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, 2005, 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 4,300,000 chips per month. During 2005, our subsidiary,
Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules.
As of December 31, 2005, Jetup had nine COG lines and is capable of bonding 2,500,000
pieces 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 tolerence, 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,
2005, we had 51 COB aluminum bonding machines which provide a high speed chip mounting time
of 0.25 second per 2 millimeters wire, a bond pad fine to 75 micrometers and a total
production capacity of up to 3,000,000 per month. We use COB aluminum bonding in the
assembly of consumer products such as calculators, personal organizers, linguistic
products, meters and car audio products. We also had two COB gold bonding machines which
provide a high speed chip mounting time of 0.072 second per 2 millimeters wire, a bond pad
fine to 50 micrometers and a total production capacity of up to 300,000 per month. We use
COB gold bonding in the assembly for digital still camera, mobile phone and digital pen
products.
 26




---



##### Table of Contents




    
    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,
2005, 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, 2005, we had 19 systems of TAB with ACF machines. The machines
provide process time of 10 to 25 seconds per component, a pin pitch fine to 200 micrometers
and a total production capacity of up to 4,020,000 components per month. During 2005, Jetup
also started manufacturing TAB LCD modules. As of December 31, 2005, Jetup had four TAB
lines and is capable of bonding 500,000 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 tolerence 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, 2005, 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.
    
    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 electronic linguistic devices. As of December 31, 2005, we had 33
SMT productions lines. The production time per chip ranges from 0.06 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 0.6 millimeter (length) x 0.3 millimeter (width) to 55
millimeters (length) x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.5
millimeter and ball diameter is 0.2 millimeter. Flip Chip, our smallest lead/bump pitch, is
250/240UM. The total production capacity is 910,000,000 resistor capacitor chips per month.
    
    Super-Twisted Nematic LCDs,or STN, type LCDs capable of providing higher
information content display systems are found in applications such as cordless phones,
mobile phones, MP3 players, pocket games and PDAs. J.I.C. group started producing STN LCDs
in 2002. During 2005, J.I.C. group update its two existing twisted nematic, or TN type,
LCD lines to STN LCD lines. As of December 31 2005, J.I.C. group was equipped with 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 size) panels per
month.
  Quality Control
   27




---



##### Table of Contents



Our Suppliers
   
    
    off-the-shelf and custom integrated circuits or chips, most of which we
purchase presently from Cambridge Silico Radio Plc, Toshiba Corporation, Sharp Corporation
and certain of their affiliates;
    
    LCD panels, which are available from many manufacturers. In 2005, we purchased
LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd.,
Optrex Corporation, Sharp Corporation, Nanya Plastic Corporation and Safaring Technology
Co. Ltd. One of our subsidiary groups, J.I.C. group, also produces LCD panels for the
NTEEP group;
    
    CMOS sensors, which we purchase mainly from Omnivision Technologies Inc.;
    
    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, 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 KSY Technology
Limited and Ole Wolf (Asia) Limited.
    28




---



##### Table of Contents



Production Scheduling
      Sales and Marketing
   Seasonality
  Transportation
  29




---



##### Table of Contents



Competition
   Research and Development
   Patents, Licenses and Trademarks
  Organizational Structure
  30




---



##### Table of Contents



Note:(1)
    
    Namtai Electronic (Shenzhen) Co. Ltd. currently holds 3.69%
interest in TCL Corporation and will be changed to 3.12% upon
completion of the split share structure reform of TCL Corporation  Nam Tai Electronic & Electrical Products Limited
  Namtai Electronic (Shenzhen) Co., Ltd.
  Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited
  Shenzhen Namtek Co., Ltd.
  31




---



##### Table of Contents



Namtek Japan Company Limited
  Zastron Precision-Tech Limited
  Zastron Electronic (Shenzhen) Co. Ltd.
  Zastron (Macao Commercial Offshore) Company Limited
  J.I.C. Technology Company Limited
  Jetup Electronic (Shenzhen) Co., Ltd.
  J.I.C. (Macao Commercial Offshore) Company Limited
  32




---



##### Table of Contents



Property, Plant and Equipment
  Owned or leaseLocation
    
    Square Footage
    
    
    Principal Use
    
    expiration date(1)Hong Kong
    
    
    24,200
    
    
    Offices
    
    Owned(2)3,482
    
    
    Offices
    
    2008Macao
    
    
    2,479
    
    
    Offices
    
    2007British Virgin Islands
    
    
    300
    
    
    Offices
    
    2006Principal Manufacturing Facilities
    
    
    557,835
    
    
    Manufacturing
    
    2043/2049 (3)Shenzhen, China
    
    
    87,462
    
    
    Offices
    
    2043/2049 (3)266,168
    
    
    Dormitories
    
    2043/2049(3)26,939
    
    
    Cafeteria
    

2043 (3)(4)33,826
    
    
    Recreational
    

2049 (3)Other FacilitiesShenzhen, China
    
    
    383,547
    
    
    Manufacturing LCDpanels and modules
    
    201232,005
    
    
    Offices
    
    2012221,666
    
    
    Dormitories
    
    201222,259
    
    
    Cafeteria
    
    201214,548
    
    
    Recreational
    
    2012Shekou, Shenzhen, China
    
    
    15,602
    
    
    Software development
    
    2007Tokyo, Japan
    
    
    904
    
    
    Software development
    
    2007
 
 (1)
    
    Only the Chinese 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 Chinese government that gives us the right to use the land for 50
years. Based on 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. However, at the end of the lease
term, all improvements we have made will revert to the government. For our other facilities,
we have entered into factory building lease agreements with peasant collectives or other
companies for 10 years or less.(2)
    
    Although we own the office space, the land on which the building is located is
subject to a 75-year lease with the government that expires in 2055, with a right to renew for
75 more years. This office was sold in February 2006. See   Hong Kong below for more
details of this transaction.(3)
    
    Our principal manufacturing facilities occupy two pieces of land with 50-year leases
which we acquired in 1993 and 1999, respectively.(4)
    
    In January 2006, the construction of another cafeteria
of approximately 14,589 square feet was also completed.   33




---



##### Table of Contents



Hong Kong
   Macao
  Shenzhen, China
 Principal Manufacturing Facilities
   34




---



##### Table of Contents



LCD Factory
  Software Development
  Future Expansion
   
 Item 4A. Unresolved Staff Comments
  35




---



##### Table of Contents



Item 5. Operating and Financial Review and Prospects
 Except for statements of historical facts, this section contains forward-looking statements
involving risks and uncertainties. You can identify these statements by forward-looking words
including expect, anticipate, believe, seek, estimate, intends, should, or may.
Forward-looking statements are not guarantees of our future performance or results and our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the section of this Report entitled Item
3. Key Information  Risk Factors. This section should be read in conjunction with our
Consolidated Financial Statements included as Item 18 of this Report.
 Operating Results
 Overview
 TM
  Net Sales and Cost of Sales
   Gross Margins
  36




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##### Table of Contents



Income Taxes
       2003
    
    2004
    
    2005Applicable statutory tax rates
    
    
    15
    %
    
    
    15
    %
    
    
    15
    %Effect of loss / income for which no income tax benefit/expense is receivable/payable
    
    
    (2
    %)
    
    
    (10
    %)
    
    
    (8
    %)Tax losses not recognised
    
    
    
    
    
    
    1
    %
    
    
    Tax holidays and incentives
    
    
    (5
    %)
    
    
    (3
    %)
    
    
    (4
    %)Effect of China tax concessions, giving rise to no China tax liability
    
    
    (8
    %)
    
    
    (3
    %)
    
    
    (4
    %)Other items which are not assessable (deductible) for tax purposes
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %Effective tax rates
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
 Strategic Investments
  Stepmind
 37




---



##### Table of Contents



Alpha Star/JCT.
 TCL group.
 
    
    In September 2000, we made a strategic investment of $2.0 million to acquire a
5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL
Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together
known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of
digital mobile phones and accessories in China and overseas markets. In October 2002, we
began to provide TCL Mobile with LCD modules used in its mobile phones.
    
    In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly
known as TCL Holdings Corporation Ltd.), the parent of the TCL group of companies, for
approximately $12.0 million. In January 2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at $0.52, or RMB4.26, per A-share. The Companys interest in TCL
Corporation has then been diluted to 3.69%, represented by 95.52 million promoters shares
of TCL Corporation after its initial public offering. However, in December 2005,
shareholders of TCL Corporation approved a split share structure reform. Pursuant to this
reform, the Company will give away 15.62% of its total shares to floating shareholders as
consideration and thereafter all its restricted shares will become floating shares subject
to the regulations of China Securities Regulation Commission and can become tradable 12
months from the first trading day after the reform is formally in effect, which will depend
on the approval of the Ministry of Commerce of China. The Companys interest in TCL
Corporation has been reduced from 3.69% to 3.12%, representing 80.60 million shares.
However, the financial impact on the Companys interest in TCL Corporation cannot be
ascertained at the moment because of the unforeseeable impact of the reform on TCL
Corporation A-share price. As of December 31, 2005, the Company recognized an unrealized
gain of $1.36 million, based on the Companys cost of $11.97 million. The Companys
interest in TCL Corporation was recorded at fair value of $13.33 million, based on a
valuation report from an external valuation firm.
    
    In November 2002, one of our subsidiaries sold a portion of its equity interest in Huizhou TCL
Mobile Communication Co., Ltd. for which we received proceeds of approximately $10.4
million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to
approximately 3%.
    
    In November 2002, we invested $5.1 million in the 3% convertible notes of TCL
International Holdings Limited that are due in November 2005. TCL International Holdings
Limited is another company in the TCL group and is publicly listed on the Hong Kong Stock
Exchange. Those convertible notes of TCL International Holdings Limited were disposed of in
August 2003 for approximately $5.03 million.
    
    In April 2004, we increased our shareholding in TCL Mobile from approximately 3%
to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile,
at a consideration of approximately $102.2 million. The consideration was satisfied, by the
exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million and the
issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5
million. We recognized an impairment loss of $58.3 million as at December 31, 2004. In the
second quarter of 2005, a further $6.5 million impairment loss was recognized. Due to a
share swap between TCL Communication and Alcatel on July 18, 2005, our shareholding in TCL
Communication decreased from 9% to 8.57%. During the period from August to December 2005,
we disposed of our entire stake in TCL Communication realizing proceeds of $11.0 million
which resulted in a net realized and accumulated losses of $68.5 million.
 
 38




---



##### Table of Contents



2003
    
    
    2004
    
    
    2005(in thousands)Income
from Investments Stated at Fair Value:Dividend
income received from marketable securities and investmentTCL Corporation
    
    
    1,696
    
    
    
    926
    
    
    
    579Huizhou
TCL
    
    
    2,018
    
    
    
    17,369
    
    
    
    $
    3,714
    
    
    $
    18,295
    
    
    $
    579Loss on
Disposal of Marketable Securities
    
    
    
    
    
    
    
    
    
    
    (3,686
    )Impairment Loss on Marketable Securities
    
    
    
    
    
    
    (58,316
    )
    
    
    (6,525
    )Equity InvestmentsAlpha Star Investments LimitedGain on
Disposal of an Affiliated Company
    
    
    
    
    
    
    
    
    
    
    3,631Equity in
Income (Loss) of an Affiliated Company
    
    $
    498
    
    
    $
    (6,806
    )
    
    $
    (186
    )
 J.I.C. Group
        39




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Marketable securities
   40




---



##### Table of Contents



Valuation of long-lived assets, including purchased intangible assets and valuation of goodwill
     41




---



##### Table of Contents





Deferred income taxes






Accruals and provisions for loss contingencies






Summary of Results






Year Ended December 31,
    
    % increase/(decrease)2003
    
    2004
    
    2005
    
    2004 vs 2003
    
    2005 vs 2004Net sales
    
    $
    406,306
    
    
    $
    533,861
    
    
    $
    797,237
    
    
    
    31%
    
    
    
    49%Gross profit
    
    
    66,290
    
    
    
    76,476
    
    
    
    92,923
    
    
    
    15%
    
    
    
    22%Operating income
    
    
    37,387
    
    
    
    43,378
    
    
    
    52,656
    
    
    
    16%
    
    
    
    21%Net income
    
    
    43,802
    
    
    
    66,885
    
    
    
    51,306
    
    
    
    53%
    
    
    
    (23%
    )Basic earnings per share
    
    
    1.09
    
    
    
    1.57
    
    
    
    1.19
    
    
    
    44%
    
    
    
    (24%
    )Diluted earnings per share
    
    
    1.07
    
    
    
    1.57
    
    
    
    1.19
    
    
    
    47%
    
    
    
    (24%
    ) Key Performance Indicators
  Three Months EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2004
    
    2004
    
    2004
    
    2004Sales cycle (1)
    
    8 days
    
    29 days
    
    41 days
    
    29 daysInventory turnover (2)
    
    18 days
    
    24 days
    
    34 days
    
    37 daysDays in accounts receivable (3)
    
    62 days
    
    54 days
    
    86 days
    
    56 daysDays in accounts payable (4)
    
    72 days
    
    49 days
    
    79 days
    
    64 days
 Three Months EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2005
    
    2005
    
    2005
    
    2005Sales cycle (1)
    
    11 days
    
    19 days
    
    22 days
    
    18 daysInventory turnover (2)
    
    16 days
    
    20 days
    
    16 days
    
    14 daysDays in accounts receivable (3)
    
    58 days
    
    60 days
    
    50 days
    
    56 daysDays in accounts payable (4)
    
    63 days
    
    61 days
    
    44 days
    
    52 days
 
 (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 are calculated as the ratio of inventory, net, at period
end divided by year to date of cost of sales.(3)
    
    Days in accounts receivable is calculated as the ratio of accounts
receivable, net, at period end divided by year to date average daily net sales.(4)
    
    Days in accounts payable is calculated as the ratio of accounts payable,
net, at period end divided by year to date average daily net cost of sales. 42




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##### Table of Contents



Results of Operations
  Year Ended December 31,2003
    
    
    2004
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    (83.7
    )
    
    
    (85.7
    )
    
    
    (88.3
    )Gross profit
    
    
    16.3
    
    
    
    14.3
    
    
    
    11.7Selling, general and administrative expenses
    
    
    (6.1
    )
    
    
    (5.2
    )
    
    
    (4.2
    )Research and development expenses
    
    
    (1.0
    )
    
    
    (1.0
    )
    
    
    (0.9
    )Income from operations
    
    
    9.2
    
    
    
    8.1
    
    
    
    6.6Other expenses, net
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.0
    )Dividend income from marketable securities and investments
    
    
    0.9
    
    
    
    3.4
    
    
    
    0.1Gain on sale of subsidiaries shares
    
    
    0.5
    
    
    
    14.5
    
    
    
    1.3Gain on disposal of investment in an affiliated company
    
    
    
    
    
    
    
    
    
    
    0.4Impairment loss on marketable securities
    
    
    
    
    
    
    (10.9
    )
    
    
    (0.8
    )Realized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Interest income
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.5Interest expense
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Income before income taxes and minority interests
    
    
    10.6
    
    
    
    15.1
    
    
    
    7.5Income taxes
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Income before minority interests and equity in income (loss) of affiliated companies
    
    
    10.5
    
    
    
    14.9
    
    
    
    7.4Minority interests
    
    
    (0.3
    )
    
    
    (1.1
    )
    
    
    (1.0
    )Equity in income (loss) of affiliated companies
    
    
    0.1
    
    
    
    (1.3
    )
    
    
    Income after minority interests and equity in income (loss) of affiliated companies
    
    
    10.3
    
    
    
    12.5
    
    
    
    6.4Discontinued operation
    
    
    0.5
    
    
    
    
    
    
    
    Net income
    
    
    10.8
    %
    
    
    12.5
    %
    
    
    6.4
    %
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Net Sales.
  Year ended December 31,2003
    
    
    2004
    
    
    2005Percent
    
    Percent
    
    PercentConsumer
Electronics and Communication ProductsConsumer Electronics and Communication Products
    
    
    32
    %
    
    
    31
    %
    
    
    20
    %Software Development Services(2)
    
    
    1
    
    
    
    1
    
    
    
    1Telecommunication components assembly
    
    
    57
    
    
    
    59
    
    
    
    72LCD Panels
and TransformersLCD panels
    
    
    9
    
    
    
    9
    
    
    
    7Transformers(1)
    
    
    1
    
    
    
    
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    We sold our transformers operation to a third party in June 2003.(2)
    
    Software Development Services was reclassified from
Telecommunication Components Assembly
segment to Consumer Electronics and Communication Products segment in 2005. Comparative
figures for year 2003 and 2004 have been restated accordingly. Gross Profit.
 43




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Research and Development Expenses.
 Other Expenses  Net.
 Dividend Income Received From Marketable Securities and Investment.
 Gain on Sale of Subsidiaries Shares
  Gain on Disposal of Investment in an Affiliated Company. .
 Impairment Loss of Marketable Securities and Realized Loss in Marketable Securities
 Interest Income
 Interest Expense.
 Income Taxes.
 Minority Interests.
 Equity in Loss of Affiliated Companies. 3⁄4
 44




---



##### Table of Contents



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Research and development Expenses.
 Other Expenses, Net.
 Dividend Income Received From Marketable Securities and Investment.
 Gain on Sale of Subsidiaries Shares.
 Unrealized Loss of Marketable Securities
 Interest Income
 Interest Expense.
 45




---



##### Table of Contents



Income Taxes.
 Minority Interests.
 Equity in Income (Loss) of Affiliated Companies. 3⁄4
 Liquidity and Capital Resources
 Liquidity
     Year Ended December 31,2003
    
    
    2004
    
    
    2005Net cash provided by operating activities
    
    $
    44,272
    
    
    $
    75,210
    
    
    $
    70,825Net cash (used in) provided by investing activities
    
    
    (21,669
    )
    
    
    37,729
    
    
    
    18,740Net cash used in financing activities
    
    
    (43,253
    )
    
    
    (14,117
    )
    
    
    (36,165
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (20,650
    )
    
    $
    98,822
    
    
    $
    53,400
  46




---



##### Table of Contents



Capital Resources
   47




---



##### Table of Contents



Outstanding
    
    
    OutstandingOriginal
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    
    
    
    
    balance at
    
    
    balance atDate of
    
    
    Amount
    
    
    
    
    
    
    per
    
    
    
    
    
    
    
    
    
    
    December 31,
    
    
    December 31,Draw
    
    
    drawn
    
    
    No. of
    
    
    installment
    
    
    Interest
    
    
    First
    
    
    2005
    
    
    2004Down
    
    
    (in millions)
    
    
    installments
    
    
    (in millions)
    
    
    rate
    
    
    repayment
    
    
    (in millions)Term loan 1
    
    May 2002
    
    $
    4.5
    
    
    
    16
    
    
    $
    0.3
    
    
    1.5% over LIBOR,
    
    August 2002
    
    $
    0.6
    
    
    $
    1.7changed to 0.75%over LIBOR inAugust 2004Term loan 2April 2004
    
    $
    1.6
    
    
    
    16
    
    
    $
    0.1
    
    
    0.75% over LIBOR
    
    July 2004
    
    $
    1.0
    
    
    $
    1.4June 2004
    
    $
    3.6
    
    
    
    16
    
    
    $
    0.2
    
    
    0.75% over LIBOR
    
    September 2004
    
    $
    2.2
    
    
    $
    3.2December 2004
    
    $
    1.8
    
    
    
    16
    
    
    $
    0.1
    
    
    0.75% over LIBOR
    
    March 2005
    
    $
    1.4
    
    
    $
    1.8Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5.2
    
    
    $
    8.1
  Payments due by periodContractual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011 andobligation
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    thereafterLong-term bank
borrowing
    
    $
    5,162,000
    
    
    $
    2,312,000
    
    
    $
    1,750,000
    
    
    $
    1,100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    9,332,000
    
    
    
    1,703,000
    
    
    
    1,662,000
    
    
    
    1,476,000
    
    
    
    1,242,000
    
    
    
    1,314,000
    
    
    
    1,935,000Capital
expenditures
    
    
    10,758,000
    
    
    
    10,758,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase
obligations
    
    
    101,985,000
    
    
    
    101,985,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    127,237,000
    
    
    $
    116,758,000
    
    
    $
    3,412,000
    
    
    $
    2,576,000
    
    
    $
    1,242,000
    
    
    $
    1,314,000
    
    
    $
    1,935,000
  Impact of Inflation
  Exchange Controls
  48




---



##### Table of Contents



Recent Changes in Accounting Standards
 Inventory Costs  an amendment of ARB No. 43, Chapter 4
  Share-Based Payment
  Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143
 Accounting Changes And Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3 Accounting changes and SFAS No. 3, Reporting Accounting changes in Interim Financial
Statements
 49




---



##### Table of Contents



Accounting for Purchases and Sales of Inventory with the Same Counterparty Accounting for Nonmonetary Transactions
 Research and Development
  Trend Information
    TM
   50




---



##### Table of Contents



Off-balance Sheet Arrangement
  
 Item 6. Directors, Senior Management and Employees
 Directors and Senior Managers
  Name
    
    Age
    
    Position with Nam TaiM. K. Koo
    
    
    61
    
    
    Chairman of the Board and member of the Board of DirectorsPatinda Lei
    
    
    39
    
    
    Chief Executive Officer and Chief Financial Officer, Chairman
of the Board of Zastron groupPatrick Lee
    
    
    41
    
    
    Chief Executive Officer of Zastron groupLai Yick Fung
    
    
    35
    
    
    Chief Financial Officer of Zastron groupKarene Wong
    
    
    42
    
    
    Chairman of the Board of NTEEP groupKazuhiro Asano
    
    
    54
    
    
    Member of the Board of NTEEPGuy Bindels
    
    
    45
    
    
    Member of the Board and Chief Executive Officer of NTEEP groupJoseph Hsu
    
    
    41
    
    
    Chief Financial Officer of NTEEP groupSeitaro Furukawa
    
    
    64
    
    
    Chairman of the Board of J.I.C. groupIvan Chui
    
    
    47
    
    
    Member of the Board and Chief Executive Officer of J.I.C. groupColin Yeoh
    
    
    41
    
    
    Member of the Board and Chief Financial Officer of J.I.C. groupPeter R. Kellogg
    
    
    63
    
    
    Member of the Board of DirectorsStephen Seung
    
    
    59
    
    
    Member of the Board of Directors and Corporate SecretaryDr. Wing Yan (William) Lo
    
    
    45
    
    
    Member of the Board of DirectorsCharles Chu
    
    
    49
    
    
    Member of the Board of DirectorsMark Waslen
    
    
    45
    
    
    Member of the Board of Directors
 M.K. Koo.
 Patinda Lei.
 Patrick Lee.
 Lai Yick Fung.
 51




---



##### Table of Contents



Karene Wong.
 Kazuhiro Asano.
 Guy Bindels.
 Joseph Hsu
 Seitaro Furukawa.
 Ivan Chui
 Colin Yeoh.
 Peter R. Kellogg.
 52




---



##### Table of Contents



Stephen Seung.
 Dr. Wing Yan (William) Lo
 Charles Chu.
 Mark Waslen
  Compensation of Directors and Senior Management
     53




---



##### Table of Contents



Board Practices
  Corporate Governance Guideline
  
 Committee Charters
  Audit Committee
  54




---



##### Table of Contents



Compensation Committee
   Nominating / Corporate Governance Committee
   Options of Directors and Senior Management
  55




---



##### Table of Contents



Number ofcommon shares
    
    
    Exercisesubject to
    
    
    Price ($)
    
    
    ExpirationName
    
    options
    
    
    per share
    
    
    DateM.K. Koo
    
    
    
    
    
    
    
    
    
    
    Patinda Lei
    
    
    
    
    
    
    
    
    
    
    Patrick LeeLai Yick FungKarene Wong
    
    
    
    
    
    
    
    
    
    
    Kazuhiro Asano
    
    
    
    
    
    
    
    
    
    
    Guy Bindels
    
    
    
    
    
    
    
    
    
    
    Joseph Hsu
    
    
    
    
    
    
    
    
    
    
    Seitaro Furukawa
    
    
    
    
    
    
    
    
    
    
    Ivan Chui
    
    
    
    
    
    
    
    
    
    
    Colin Yeoh
    
    
    
    
    
    
    
    
    
    
    Charles Chu
    
    
    16,500
    
    
    
    16.82
    
    
    
    7/8/200615,000
    
    
    
    19.40
    
    
    
    7/30/200615,000
    
    
    
    21.62
    
    
    
    6/6/2008Peter R. Kellogg
    
    
    15,000
    
    
    
    21.62
    
    
    
    6/6/2008Stephen Seung
    
    
    15,000
    
    
    
    19.40
    
    
    
    7/30/200615,000
    
    
    
    21.62
    
    
    
    6/6/2008Wing Yan (William) Lo
    
    
    16,500
    
    
    
    16.82
    
    
    
    7/8/200615,000
    
    
    
    19.40
    
    
    
    7/30/200615,000
    
    
    
    21.62
    
    
    
    6/6/2008Mark Waslen
    
    
    15,000
    
    
    
    19.40
    
    
    
    7/30/200615,000
    
    
    
    21.62
    
    
    
    6/6/2008
  Employee Stock Option and Incentive Plan
 ,
   Employees
  56




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##### Table of Contents
















Item 7. Major Shareholders and Related Party Transactions





    
    each person (or group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934) known by us to own beneficially 5% or more of our common shares; and
    
    each of our current directors and senior management.




Shares beneficially(1)ownedName
    

Number(11)
    
    PercentM. K. Koo
    
    
    5,690,786
    (2)
    
    
    13.1Peter R. Kellogg
    
    
    5,694,680
    (3)
    
    
    13.1I.A.T. Reinsurance Syndicate Ltd.
    
    
    5,108,300
    (3)
    
    
    11.7Li & Chui Holdings (B.V.I.) Ltd.
    
    
    2,000,000
    
    
    
    4.6Joseph Li
    
    
    2,158,870
    (4)
    
    
    5.0Ivan Chui
    
    
    2,045,870
    (5)
    
    
    4.7Patinda Lei
    
    
    25,300
    
    
    
    *Patrick Lee
    
    
    
    
    
    
    Lai Yick Fung
    
    
    
    
    
    
    Karene Wong
    
    
    37,100
    
    
    
    *Kazuhiro Asano
    
    
    
    
    
    
    Guy Bindels
    
    
    1,000
    
    
    
    *Joseph Hsu
    
    
    2,000
    
    
    
    *Seitaro Furukawa
    
    
    
    
    
    
    Colin Yeoh
    
    
    
    
    
    
    Charles Chu
    
    
    49,000
    (6)
    
    
    *Stephen Seung
    
    
    92,800
    (7)
    
    
    *Wing Yan (William) Lo
    
    
    46,500
    (8)
    
    
    *Mark Waslen
    
    
    40,000
    (9)
    
    
    *


57



---



##### Table of Contents



*
    
    Less than 1%.(1)
    
    Pursuant to the rules of the Securities and Exchange Commission, shares of
common shares that an individual or group has a right to acquire within 60 days pursuant to
the exercise of options are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 43,505,586 common shares outstanding as of March 1, 2006.(2)
    
    Mr. Koo beneficially owned 5,690,786 common shares includes 1,000,000
common shares, which owned by Mr. Koo as sole holder and 4,690,786 common shares owned jointly
with Ms. Cho Siu Sin, Mr. Koos wife.(3)
    
    Mr. Kellogg holds directly 571,380 common shares and options to purchase
15,000 common shares exercisable within 60 days of March 1, 2006. Indirectly, through I.A.T.
Reinsurance Syndicate Ltd., Mr. Kellogg holds 5,108,300 common shares. I.A.T. Reinsurance
Syndicate Ltd. is a Bermuda corporation of which Mr. Kellogg is the sole holder of voting
stock. Mr. Kellogg disclaims beneficial ownership of these shares.(4)
    
    Includes 2,000,000 common shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Li shares investment and voting control equally with Mr. Chui. These are the same
shares shown in the table for Ivan Chui. Also, includes 78,870 common
shares and options to purchase 80,000 common
shares exercisable within 60 days of March 1, 2006, which
are held directly by Mr. Li.(5)
    
    Includes 2,000,000 common shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Chui shares investment and voting control equally with Mr. Li. These are the same
shares shown in the table for Joseph Li. Also, includes 45,870 common shares held
directly by Mr. Chui(6)
    
    Includes  2,500 common shares and options to purchase 46,500 common shares exercisable within 60
days of March 1, 2006.(7)
    
    Includes 62,800 common shares and options to purchase 30,000 common shares exercisable within 60
days of March 1, 2006, and 20,300 common shares that are registered to Violet Seung, Mr.
Seungs wife, as to which Mr. Seung disclaims beneficial ownership.(8)
    
    Consists of options to purchase common shares exercisable within 60 days of
March 1, 2006.(9)
    
    Includes 10,000 common shares and options to purchase 30,000 common shares exercisable within 60
days of March 1, 2006.(10)
    
    All the share numbers have been adjusted to give effect to a three-for-one
stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November
7, 2003.(11)
    
    These share numbers include options owned by these individuals and assume
that these options will be exercised.   Percentage Ownership(1)March 1,
    
    February 28,
    
    March 1,2004
    
    2005
    
    2006M. K. Koo
    
    
    12.9
    
    
    
    16.2
    
    
    
    13.1Peter R. Kellogg
    
    
    12.7
    
    
    
    13.3
    
    
    
    13.1I.A.T. Reinsurance Syndicate Ltd.
    
    
    11.3
    
    
    
    12.0
    
    
    
    11.7Li & Chui Holdings (B.V.I.) Ltd.
    
    
    7.1
    
    
    
    6.9
    
    
    
    4.6Joseph Li
    
    
    7.3
    
    
    
    7.2
    
    
    
    5.0Ivan Chui
    
    
    7.2
    
    
    
    7.0
    
    
    
    4.7
 
 (1)
    
    Based on 41,231,272, 42,664,536, and 43,505,586 common shares outstanding on
March 1, 2004, February 28, 2005 and March 1, 2006 respectively.  58




---



##### Table of Contents



Certain Relationships and Related Transactions
     
 Item 8. Financial Information
 Financial Statements
  Change in Public Accountants
   59




---



##### Table of Contents



Legal Proceedings
  Tele-Art Litigation
       60




---



##### Table of Contents




    
    A declaration as to the respective priorities of the debts of Tele-Art, Inc. to
the Bank of China, Nam Tai, and other creditors and their respective rights to have their
debts discharged out of the proceeds of the Tele-Art, Inc.s Nam Tai shares;
    
    An order setting aside the redemption of 415,500 (Note 1) shares, and ordering
delivery of all shares in our possession or control of to the liquidator; and
    
    Payment of all dividends in respect of Tele-Art, Inc.s Nam Tai shares.
  61




---



##### Table of Contents



62




---



##### Table of Contents



Accounting for
Contingencies,
    63




---



##### Table of Contents



Note
 1.
    
    Subsequent to November 7, 2003, the number of shares was adjusted to 457,050 to reflect the
ten-for-one stock dividend.
 2.
    
    Subsequent to November 7, 2003, the number of shares was adjusted to 560,099 to reflect the
ten-for-one stock dividend.
 Putative Class Actions
  64




---



##### Table of Contents



Export Sales
 Geographic Markets
  Year ended December 31,Geographic Areas
    
    2003
    
    
    2004
    
    
    2005China (excluding Hong Kong)
    
    
    25
    %
    
    
    25
    %
    
    
    19
    %Europe (excluding Estonia)
    
    
    21
    
    
    
    18
    
    
    
    17Japan
    
    
    17
    
    
    
    6
    
    
    
    2United States
    
    
    14
    
    
    
    11
    
    
    
    4Hong Kong
    
    
    9
    
    
    
    30
    
    
    
    48Estonia
    
    
    5
    
    
    
    1
    
    
    
    North America (excluding United States)
    
    
    
    
    
    
    1
    
    
    
    Korea
    
    
    6
    
    
    
    4
    
    
    
    7Other
    
    
    3
    
    
    
    4
    
    
    
    3100
    %
    
    
    100
    %
    
    
    100
    %
 Dividends
  Year ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Total dividends declared (in thousands)
    
    $
    4,134
    
    
    $
    17,056
    
    
    $
    37,584
    
    
    $
    20,424
    
    
    $
    56,324Regular dividends per share
    
    $
    0.13
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.48
    
    
    $
    1.32Special dividends
    
    
    
    
    
    $
    0.33
    
    
    $
    0.80
    
    
    
    
    
    
    
    Total dividends per share
    
    $
    0.13
    
    
    $
    0.49
    
    
    $
    1.00
    
    
    $
    0.48
    
    
    $
    1.32
   65




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##### Table of Contents




    
    In 2002, primarily as a result of a realized gain we made from our sale of
approximately one-third of our direct investment in Huizhou TCL Mobile Communication Company
Ltd.; and
    
    In 2003, in celebration of our fifteenth anniversary since our listing and
initial public offering in 1988, our fifteenth consecutive year of profitability, and the
transfer of our shares from the NASDAQ National Market to the NYSE in January 2003.
    
    In 2006, in celebration of Companys thirtieth founding anniversary and its
fifth consecutive quarter of record-breaking sales.
 
 Item 9. The Listing
   2003
    
    2004
    
    2005Average
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    AverageDaily
    
    
    
    
    
    
    
    
    
    Daily
    
    
    
    
    
    
    
    
    
    DailyTrading
    
    
    
    
    
    
    
    
    
    Trading
    
    
    
    
    
    
    
    
    
    TradingHigh
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)
    
    High
    
    Low
    
    Volume(1)First Quarter
    
    $
    11.30
    
    
    $
    7.92
    
    
    
    363,270
    
    
    $
    34.24
    
    
    $
    22.30
    
    
    
    927,119
    
    
    $
    28.36
    
    
    $
    17.25
    
    
    
    376,920Second Quarter
    
    
    14.13
    
    
    
    6.94
    
    
    
    288,459
    
    
    
    28.00
    
    
    
    13.99
    
    
    
    509,173
    
    
    
    27.80
    
    
    
    19.70
    
    
    
    302,367Third Quarter
    
    
    32.90
    
    
    
    12.87
    
    
    
    734,330
    
    
    
    23.51
    
    
    
    16.10
    
    
    
    412,488
    
    
    
    26.65
    
    
    
    22.50
    
    
    
    219,858Fourth Quarter
    
    
    42.48
    
    
    
    26.25
    
    
    
    1,393,722
    
    
    
    23.14
    
    
    
    18.07
    
    
    
    283,030
    
    
    
    25.88
    
    
    
    21.27
    
    
    
    238,459
 
 (1)
    
    Determined by dividing the sum of the reported daily volume for the quarter by the
number of trading days in the quarter.  DailyTradingYear ended
    
    High
    
    Low
    
    Volume(1)December 31, 2005
    
    $
    28.36
    
    
    $
    17.25
    
    
    
    283,482December 31, 2004
    
    
    34.24
    
    
    
    13.99
    
    
    
    532,568December 31, 2003
    
    
    42.48
    
    
    
    6.94
    
    
    
    597,858December 31, 2002
    
    
    9.07
    
    
    
    5.15
    
    
    
    164,011December 31, 2001
    
    
    6.38
    
    
    
    3.77
    
    
    
    81,656
 
 (1)
    
    Determined by dividing the sum of the reported daily volume for the year by the
number of trading days in the year.  DailyTradingMonth ended
    
    High
    
    Low
    
    Volume(1)February 28, 2006
    
    $
    24.48
    
    
    
    21.86
    
    
    
    312,663January 31, 2006
    
    
    24.25
    
    
    
    22.23
    
    
    
    189,575December 31, 2005
    
    
    22.94
    
    
    
    21.86
    
    
    
    152,357November 30, 2005
    
    
    23.08
    
    
    
    21.27
    
    
    
    299,829October 31, 2005
    
    
    25.88
    
    
    
    21.30
    
    
    
    263,190September 30, 2005
    
    
    25.84
    
    
    
    22.87
    
    
    
    204,314
 
 (1)
    
    Determined by dividing the sum of the reported daily volume for the month by the
number of trading days in the month.  66




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##### Table of Contents



Item 10. Additional Information
 Share Capital
  Memorandum and Articles of Association
      67




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##### Table of Contents



Transfer Agent
  Material Contracts
  
    
    On February 3, 2005, a Loan Agreement was entered into
between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision Tech-Limited for a loan of $36,000,000 granted from
Zastron Precision-Tech Limited to Zastron Electronic
(Shenzhen) Co. Ltd.
    
    On April 8, 2005, an Agreement was entered into between
Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai
Electronic & Electrical Products Limited in relation to the
sale and purchase of the entire issued share capital of Namtek
Software Technology Limited regarding an allotment and
issuance of 65,336,470 and 16,334,118 of shares of Nam Tai
Electronic & Electrical Products Limited to Nam Tai
Electronics, Inc. and Asano Company Limited respectively at an
issue price of HKD2.55 per share.
    
    On April 14, 2005, a Supplemental Loan Agreement between
Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
Tech Limited for extending the repayment term for a loan of
$18,660,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the
an loan agreement dated March 30, 2004.
    
    On May 12, 2005, a Supplement Letter was issued from
Kazuhiro Asano to Nam Tai Electronic & Electrical Products
Limited to undertake certain conditions set out in the
attached Undertaking in relation to the sale and purchase of
the entire issued share
 68




---



##### Table of Contents




    
    On September 9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronics, Inc. for
granting of overdraft of HK$500,000, treasury facilities of
$30,000,000 and commercial card facility of HK$1,100,000.
    
    On September 9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronic & Electrical
Products Limited for renewal of corporate card facility of
HK$700,000, the revolving loan of $30,000,000 and foreign
exchange line of $2,000,000.
    
    On March 26, 2004, a Memorandum of Understanding was
signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai
Electronic & Electrical Products Limited (Hong Kong) to
confirm the respective rights and liabilities of Nam Tai
Electronic & Electrical Products Limited (Hong Kong) and
Namtai Electronic (Shenzhen) Co., Ltd. under an internal
restructuring.
    
    On March 31, 2004, a Sale and Purchase Agreement was
entered into between Nam Tai Electronics, Inc. and Mr. Wong
Toe Yeung regarding purchasing the entire issued share capital
of Jasper Ace Limited from Mr. Wong Toe Yeung with the
consideration of disposal of a 72.2% interest in Mate Fair
Group Limited, cash of $25 million and 2,389,974 shares issued
by Nam Tai Electronics, Inc.
    
    On April 8, 2004, a Trademark License Agreement was
entered into between Nam Tai Electronics, Inc. and Nam Tai
Electronic & Electrical Products Limited for the use of
certain Namtai trademarks.
    
    On April 15, 2004, a Deed of Indemnity was entered into
between Nam Tai Electronics, Inc., and Nam Tai Electronic &
Electrical Products Limited in favour of Nam Tai Electronic &
Electrical Products Limited regarding the Global Offering of
200,000,000 shares of HK$0.01 each of Nam Tai Electronic &
Electrical Products Limited.
    
    On April 15, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as public
offer underwriters regarding the public offering of 20,000,000
shares of HK$0.01 each of Nam Tai Electronic & Electrical
Products Limited.
    
    On April 21, 2004, a Supplemental Agreement was entered
into between Nam Tai Electronics, Inc., and Mr. Wong Toe Yeung
regarding to adjust the consideration for purchasing entire
issued share capital of Jasper Ace Limited by canceling
973,210 common shares of Nam Tai Electronics, Inc., issued to
Top Scale Company Limited on April 21, 2004.
    
    On April 22, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as
international placing underwriters regarding the international
placing of 180,000,000 shares of HK$0.01 each of Nam Tai
Electronic & Electrical Products Limited.
    
    On April 22, 2004, a Pricing Determination Agreement was
entered into among Nam Tai Electronics, Inc., Nam Tai
Electronic & Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited for determining the
offering price of the shares of Nam Tai Electronic &
Electrical Products Limited to be HK$3.88 per share.
    
    On April 22, 2004, a Stock Borrowing Agreement was
entered into between Nam Tai Electronics, Inc. and the
Hongkong and Shanghai Banking Corporation Limited regarding
the Global Offering of 200,000,000 shares of HK$0.01 each of
Nam Tai Electronic & Electrical Products Limited.
    
    On August 4, 2004, an Accession Agreement was entered
into between Welcome Success Technology Ltd. and Mr. Alain
Jolivet in relation to the transfer of entire interest in
Stepmind to Remote Reward SAS and became a party to the
Shareholders Agreement entered into among Nam Tai Electronics,
Inc., AGF Innovation 3, AGF Innovation 4, AGF Innovation 5,
Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain
Jolivet and Mr. Andre Jolivet executed on November 28, 2003,
December 9, 2003 and December 10, 2003.
 69




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##### Table of Contents




    
    On August 18, 2004, an Escrow Agreement was entered into
among Nam Tai Electronics, Inc., Welcome Success Technology
Ltd., Remote Reward SAS, Johnson Stokes & Master, Mr. Andre
Jolivet and Mr. Alain Jolivet in relation to the disposal of
1,457,720 shares in Stepmind to Remote Reward SAS with a
consideration of Euros 4,253,301.98.
    
    On August 19, 2004, a Subscription Agreement was entered
into among TCL Industries Holdings (HK) Limited, TCL
International Holdings Limited, Cheerful Asset Investments
Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited for subscribing
254,474,910 shares in TCL Communication Technology Holdings
Limited in a consideration of RMB131,283,020.
    
    On September 20, 2004, a Deed of Assignment of Trademarks
was entered into between Nam Tai Electronics, Inc. and Namtai
Electronic (Shenzhen) Co., Ltd. for assigning Namtai &
device trademarks to Nam Tai Electronics, Inc.
    
    Banking Facilities Letter from the Hongkong and Shanghai
Banking Corporation Limited to Nam Tai Group Management
Limited on September 24, 2004 regarding the renewal of
Overdraft Facility of HK$500,000, Treasury Facilities of
US$30,000,000 and Corporate Card of HK$1,100,000.
    
    On October 15, 2004, a Share Transfer Agreement was
entered into between J.I.C. Enterprises (Hong Kong) Limited
and J.I.C. Technology Company Limited for the disposal of the
entire issued share capital of Jetup Electronic (Shenzhen)
Co., Ltd. to J.I.C. Technology Company Limited for a
consideration of HK$105,878,396.
 Exchange Controls
  Taxation
 United States Federal Income Tax Consequences
  General
  
    
    a dealer in securities or currencies;
 70




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##### Table of Contents




    
    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; or
    
    a person who receives our shares pursuant to the exercise of employee stock options or otherwise as compensation.
  
    
    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.
   71




---



##### Table of Contents



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
  Backup Withholding and Information Reporting
  
    
    you are a corporation or other exempt recipient, or
    
    you provide your correct United States federal taxpayer
identification number and certify, under penalties of perjury,
that you are not subject to backup withholding.
  72




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##### Table of Contents



BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS
   Documents on Display
  
 Item 11. Quantitative and Qualitative Disclosure About Market Risk
 Currency Fluctuations
      73




---



##### Table of Contents



Foreign Currency Risk
   EquivalentU.S. DollarHoldingsDecember 31, 2005Japanese yen
    
    
    4,532,000United States dollars
    
    
    153,604,000Hong Kong dollar
    
    
    26,422,000Chinese renminbi
    
    
    29,257,000Macao Pataca
    
    
    28,000
 Interest Rate Risk
 Short-term interest rate risk
   Long-term interest rate risk
   74




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##### Table of Contents



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
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  
 Item 16. [Reserved]
 
 Item 16 A. Audit Committee Financial Expert
   75




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##### Table of Contents



Item 16 B. Code of Ethics
  
 
 Item 16 C. Principal Accountant Fees and Services
   2004
    
    2005US$000
    

US$000Audit Fees(1)
    
    
    702
    
    
    
    476Audit-related Fees(2)
    
    
    21
    
    
    
    541Tax Fees(3)
    
    
    3
    
    
    
    6All Other Fees(4)
    
    
    15
    
    
    
    4Total
    
    
    741
    
    
    
    1,027
 
 (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 comfort letters and consents, and
attestation services relating to the review of documents filed with the SEC. The fees for 2004
include US$159 of accrued audit fees for the 2004 year-end audit that were not billed until 2005.(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 financial statements or
that are traditionally performed by the external auditor.(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 business advisory service fee. Audit Committee Pre-approval Policies and Procedures
  76




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##### Table of Contents



Item 16 D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated
Statements of Income for the years ended December 31, 2003, 2004 and 2005
    
    F-3Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    F-4Consolidated Statements of Shareholders Equity and Comprehensive Income for the years
ended December 31, 2003, 2004     
and 2005
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
    
    F-6 & F-7Notes to Consolidated Financial Statements
    
    F-8F-38
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 77




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##### Table of Contents



Item 19. Exhibits
  ExhibitNumber
    
    DESCRIPTION4.1*
    
    
    A Memorandum of Understanding signed by Namtai Electronic (Shenzhen) Co.,
Ltd. and Nam Tai Electronic & Electrical Products Limited (Hong Kong) on
March 26, 2004 to confirm the respective rights and liabilities of Nam Tai
Electronic & Electrical Products Limited (Hong Kong) and Namtai Electronic
(Shenzhen) Co., Ltd. under an internal restructuring.4.2*
    
    
    A Sale and Purchaser Agreement entered into between Nam Tai Electronics,
Inc. and Mr. Wong Toe Yeung on March 31, 2004 regarding purchasing the
entire issued share capital of Jasper Ace Limited from Mr. Wong Toe Yeung
with the consideration of disposal 72.2% interest in Mate Fair Group
Limited, cash of $25 million and 2,389,974 shares issued by Nam Tai
Electronics, Inc.4.3*
    
    
    A Trademark License Agreement entered into between Nam Tai Electronics,
Inc. and Nam Tai Electronic & Electrical Products Limited on April 8, 2004
for the use of certain Namtai trademarks.4.4*
    
    
    A Deed of Indemnity entered into between Nam Tai Electronics, Inc, and Nam
Tai Electronic & Electrical Products Limited on April 15, 2004 in favour of
Nam Tai Electronic & Electrical Products Limited regarding the Global
Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic &
Electrical Products Limited.4.5*
    
    
    An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as public offer underwriters on April 15, 2004 regarding
the public offering of 200,000,000 shares of HK$0.01 each of Nam Tai
Electronic & Electrical Products Limited.4.6*
    
    
    A Supplemental Agreement entered into between Nam Tai Electronics, Inc, and
Mr. Wong Toe Yeung on July 27, 2004 to adjust the consideration for
purchasing the entire issued share capital of Jasper Ace Limited by
canceling 973,210 common shares of Nam Tai Electronics, Inc, issued to Top
Scale Company Limited on April 21, 2004.4.7*
    
    
    An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as international placement underwriters on April 22, 2004
regarding the international placing of 180,000,000 shares of HK$0.01 each
of Nam Tai Electronic & Electrical Products Limited.4.8*
    
    
    A Pricing Determination Agreement entered into among Nam Tai Electronics,
Inc., Nam Tai Electronic & Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited on April 22, 2004 for determining the
offering price of the shares of Nam Tai Electronic & Electrical Products
Limited to be HK$3.88 per share.4.9*
    
    
    A Stock Borrowing Agreement entered into between Nam Tai Electronics, Inc.
and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004
regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam
Tai Electronic & Electrical Products Limited.4.10*
    
    
    Amended 2001 Option Plan dated July 30, 2004.4.11*
    
    
    An Accession Agreement entered into between Welcome Success Technology Ltd. and Mr. Alain Jolivet on August
4, 2004 in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and who became a
party to the Shareholders Agreement which entered into among Nam Tai Electronics, Inc., AGF Innovation 3,
AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain Jolivet and
Mr. Andre Jolivet executed on November 278, 2003, December 9, 2003 and December 10, 2003.4.12*
    
    
    An Escrow Agreement entered into among Nam Tai Electronics, Inc., Welcome Success Technology Limited, Remote
Reward SAS, Johnson Stokes & Master, Mr. Andre Jolivet and
Mr. Alain Jolivet on August 18, 2004 for the disposal of
Nam Tais entire interest in Stepmind to Remote
Reward SAS with a consideration of Euros 4,253,301.98.
 78




---



##### Table of Contents



ExhibitNumber
    
    DESCRIPTION4.13*
    
    
    A subscription Agreement entered into among TCL Industries Holdings (HK) Limited, TCL International holdings
Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited on August 19, 2004 for subscribing 254,474,910 shares in TCL
Communication Technology Holdings Limited in a consideration of RMB131,283,020.4.14*
    
    
    A Deed of Assignment of Trademarks entered into between Nam Tai Electronics, Inc. and Namtai Electronic
(Shenzhen) Co. Ltd. on September 20, 2004 for assigning Namtai & device trademarks to Nam Tai Electronics,
Inc.4.15*
    
    
    A Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group
Management Limited on September 24, 2004 regarding the renewal of Overdraft Facility of
HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.4.16*
    
    
    A Share Transfer Agreement entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology
Company Limited on October 15, 2004 for the disposal of the entire issued share capital of Jetup Electronic
(Shenzhen) Co. Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.4.17
    
    
    A Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
Tech-Limited on February 3, 2005 for a loan of $36,000,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd.4.18
    
    
    An Agreement entered into between Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai Electronic &
Electrical Products Limited on April 8, 2005 in relation to the sale and purchase of the entire issued share
capital of Namtek Software Technology Limited regarding an allotment and issuance of 65,336,470 and
16,334,118 of shares of Nam Tai Electronic & Electrical Products Limited to Nam Tai Electronics, Inc. and
Asano Company Limited respectively at an issue price of HKD2.55 per share.4.19
    
    
    A
Supplemental Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision Tech Limited on April 14, 2005 for extending the repayment term for a loan of $18,660,000 granted from Zastron
Precision-Tech Limited to Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the an loan agreement
dated March 30, 2004.4.20
    
    
    A Supplement Letter dated May 12, 2005 issued from Kazuhiro Asano to Nam Tai Electronic & Electrical
Products Limited to undertake certain conditions set out in the attached Undertaking in relation to the sale
and purchase of the entire issued share capital of Namtek Software Development Company Limited from Nam Tai
Electronics, Inc. and Asano Company Limited to Nam Tai Electronic & Electrical Products Limited.4.21
    
    
    A Banking Facilities Letter dated September 9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronics, Inc. for granting of overdraft of HKD500,000, treasury facilities of
$30,000,000 and commercial card facility of HKD 1,100,000.4.22
    
    
    A Banking Facilities Letter dated September 9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronic & Electrical Products Limited for renewal of corporate card facility of
HKD700,000, the revolving loan of $30,000,000 and foreign exchange line of $2,000,000.8.1
    
    

Diagram
of Companys subsidiaries. See the
Section headed Organization Structure under Item 4 of
this Report.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 2002.14.1*
    
    
    Code of Ethics.23.1
    
    
    Consent of Deloitte Touche Tohmatsu.99.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.2
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 
 *
    
    Previously filed with the registrants Form 20-F filed with the SEC on March 15, 2005. 79




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page(s)Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Statements of Income for the years ended
December 31, 2003, 2004 and 2005
    
    F-3Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    F-4Consolidated Statements of Shareholders Equity and Comprehensive
Income for the years ended December 31, 2003, 2004 and 2005
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2004 and 2005
    
    F-6 & F-7Notes to Consolidated Financial Statements
    
    F-8 - F-38
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     
 F-2




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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 31,2003
    
    
    2004
    
    
    2005Net sales  third parties
    
    $
    385,524
    
    
    $
    499,680
    
    
    $
    791,042Net sales  related party
    
    
    20,782
    
    
    
    34,181
    
    
    
    6,195Total net sales
    
    
    406,306
    
    
    
    533,861
    
    
    
    797,237Cost of sales
    
    
    340,016
    
    
    
    457,385
    
    
    
    704,314Gross profit
    
    
    66,290
    
    
    
    76,476
    
    
    
    92,923Selling, general and administrative expenses
    
    
    24,866
    
    
    
    28,053
    
    
    
    33,057Research and development expenses
    
    
    4,037
    
    
    
    5,045
    
    
    
    7,210Total operating expenses
    
    
    28,903
    
    
    
    33,098
    
    
    
    40,267Income from operations
    
    
    37,387
    
    
    
    43,378
    
    
    
    52,656Other expenses, net
    
    
    (815
    )
    
    
    (1,012
    )
    
    
    (125
    )Dividend income received from marketable securities and investment
    
    
    3,714
    
    
    
    18,295
    
    
    
    579Gain on sales of subsidiaries shares
    
    
    1,838
    
    
    
    77,320
    
    
    
    10,095Gain on disposal of an affiliated company
    
    
    
    
    
    
    
    
    
    
    3,631Loss on disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    (3,686
    )Impairment loss on marketable securities
    
    
    
    
    
    
    (58,316
    )
    
    
    (6,525
    )Interest income
    
    
    788
    
    
    
    1,110
    
    
    
    3,948Interest expense
    
    
    (121
    )
    
    
    (195
    )
    
    
    (438
    )Income before income taxes and minority interests
    
    
    42,791
    
    
    
    80,580
    
    
    
    60,135Income taxes
    
    
    (399
    )
    
    
    (879
    )
    
    
    (651
    )Income before minority interests and equity in income (loss) of an
affiliated company
    
    
    42,392
    
    
    
    79,701
    
    
    
    59,484Minority interests
    
    
    (1,067
    )
    
    
    (6,010
    )
    
    
    (7,992
    )Equity in income (loss) of an affiliated company
    
    
    498
    
    
    
    (6,806
    )
    
    
    (186
    )Income after minority interests and equity in income (loss) of an
affiliated company
    
    
    41,823
    
    
    
    66,885
    
    
    
    51,306Discontinued operation
    
    
    1,979
    
    
    
    
    
    
    
    Net income
    
    $
    43,802
    
    
    $
    66,885
    
    
    $
    51,306Basic earnings per share
    
    $
    1.09
    
    
    $
    1.57
    
    
    $
    1.19Diluted earnings per share
    
    $
    1.07
    
    
    $
    1.57
    
    
    $
    1.19
  F-3




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##### Table of Contents



NAM TAI ELECTRONICS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands of US dollars, except share data)
 December 31,2004
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    160,649
    
    
    $
    213,843Marketable securities
    
    
    41,906
    
    
    
    13,330Accounts receivable, less allowance for doubtful accounts of $157
and $494 at December 31, 2004 and 2005, respectively
    
    
    90,362
    
    
    
    125,662Amount due from a related party
    
    
    66
    
    
    
    Inventories
    
    
    23,096
    
    
    
    31,744Prepaid expenses and other receivables
    
    
    12,087
    
    
    
    1,490Income taxes recoverable
    
    
    6,566
    
    
    
    2,671Asset held for sale
    
    
    
    
    
    
    10,912Total current assets
    
    
    334,732
    
    
    
    399,652Investment in an affiliated company
    
    
    3,049
    
    
    
    Property, plant and equipment, net
    
    
    94,697
    
    
    
    97,926Land use right
    
    
    2,744
    
    
    
    2,815Deposits for property, plant and equipment
    
    
    7,701
    
    
    
    1,250Goodwill
    
    
    15,831
    
    
    
    17,068Intangible assets, net
    
    
    459
    
    
    
    Other assets
    
    
    1,260
    
    
    
    1,300Total assets
    
    $
    460,473
    
    
    $
    520,011LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Notes payable
    
    $
    2,080
    
    
    $
    4,813Short term bank loans
    
    
    
    
    
    
    2,275Long term bank loans  current portion
    
    
    2,875
    
    
    
    2,312Accounts payable
    
    
    89,570
    
    
    
    121,608Accrued expenses and other payables
    
    
    16,661
    
    
    
    19,447Dividend payable
    
    
    5,120
    
    
    
    14,357Income taxes payable
    
    
    183
    
    
    
    166Total current liabilities
    
    
    116,489
    
    
    
    164,978Long term bank loans  non-current portion
    
    
    5,163
    
    
    
    2,850Total liabilities
    
    
    121,652
    
    
    
    167,828Minority interests
    
    
    33,768
    
    
    
    41,792Commitments and contingencies (Note 18)
    
    
    
    
    
    
    Shareholders equity:Common shares ($0.01 par value  authorized 200,000,000 shares)
    
    
    426
    
    
    
    435Additional paid-in capital
    
    
    241,756
    
    
    
    258,167Retained earnings
    
    
    56,324
    
    
    
    50,771Accumulated other comprehensive income
    
    
    6,547
    
    
    
    1,018Total shareholders equity
    
    
    305,053
    
    
    
    310,391Total liabilities and shareholders equity
    
    $
    460,473
    
    
    $
    520,011
  F-4




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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
    
    Additional
    
    
    
    
    
    Other
    
    Share-Shares
    
    Shares
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    holders
    
    ComprehensiveOutstanding
    
    Amount
    
    Capital
    
    Earnings
    
    (Loss) income
    
    Equity
    
    IncomeBalance at January 1, 2003
    
    
    36,059,004
    
    
    $
    360
    
    
    $
    147,754
    
    
    $
    54,016
    
    
    $
    (2
    )
    
    $
    202,128Shares issued on exercise of options
    
    
    1,425,600
    
    
    
    14
    
    
    
    8,494
    
    
    
    
    
    
    
    
    
    
    
    8,508Issue of stock dividend
    
    
    3,746,668
    
    
    
    38
    
    
    
    50,333
    
    
    
    (50,371
    )
    
    
    
    
    
    
    Compensation expense (note 3(b)(iii))
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    264Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,802
    
    
    
    
    
    
    
    43,802
    
    
    $
    43,802Cash dividends ($1.00 per share, including
special dividend of $0.80 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,584
    )
    
    
    
    
    
    
    (37,584
    )Balance at December 31, 2003
    
    
    41,231,272
    
    
    
    412
    
    
    
    206,845
    
    
    
    9,863
    
    
    
    (2
    )
    
    
    217,118Shares issued on exercise of options
    
    
    16,500
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Shares issued on acquisition of a subsidiary
    
    
    2,389,974
    
    
    
    24
    
    
    
    58,769
    
    
    
    
    
    
    
    
    
    
    
    58,793Cancellation of shares issued on acquisition
of a subsidiary
    
    
    (973,210
    )
    
    
    (10
    )
    
    
    (23,930
    )
    
    
    
    
    
    
    
    
    
    
    (23,940
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,885
    
    
    
    
    
    
    
    66,885
    
    
    $
    66,885Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,549
    
    
    
    6,549
    
    
    
    6,549Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    73,434Cash dividends ($0.48 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,424
    )
    
    
    
    
    
    
    (20,424
    )Balance at December 31, 2004
    
    
    42,664,536
    
    
    
    426
    
    
    
    241,756
    
    
    
    56,324
    
    
    
    6,547
    
    
    $
    305,053Shares issued on exercise of options
    
    
    841,050
    
    
    
    9
    
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    16,420Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,306
    
    
    
    
    
    
    
    51,306
    
    
    $
    51,306Unrealized loss of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,352
    )
    
    
    (5,352
    )
    
    
    (5,352
    )Realization of loss upon disposals of
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (250
    )
    
    
    (250
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73
    
    
    
    73Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    45,777Cash dividends ($1.32 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,859
    )
    
    
    
    
    
    
    (56,859
    )Balance at December 31, 2005
    
    
    43,505,586
    
    
    $
    435
    
    
    $
    258,167
    
    
    $
    50,771
    
    
    $
    1,018
    
    
    $
    310,391
  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 31,2003
    
    
    2004
    
    
    2005Cash flows from operating activities:Net income
    
    $
    43,802
    
    
    $
    66,885
    
    
    $
    51,306Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization of property, plant and equipment
    
    
    12,172
    
    
    
    13,924
    
    
    
    16,824Amortization and impairment loss of intangible assets
    
    
    92
    
    
    
    92
    
    
    
    459(Gain) loss on disposal of property, plant and equipment
    
    
    (6
    )
    
    
    347
    
    
    
    (563
    )Gain on disposal of other assets
    
    
    
    
    
    
    (19
    )
    
    
    Loss on disposal of convertible notes
    
    
    102
    
    
    
    
    
    
    
    Loss on disposal of investment
    
    
    
    
    
    
    67
    
    
    
    Impairment loss on marketable securities  TCL Communication
Technology Holdings Limited (TCL Communication)
    
    
    
    
    
    
    58,316
    
    
    
    6,525Loss on disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    3,686Gain on disposal of an affiliated company
    
    
    
    
    
    
    
    
    
    
    (3,631
    )Gain on disposal of a subsidiary  Jieyao Electronics (Shenzhen) Co., Ltd.
(Jieyao)
    
    
    (1,979
    )
    
    
    
    
    
    
    Gain on sale of a subsidiarys shares  J.I.C. Technology Company
Limited (JIC Technology)
    
    
    (1,838
    )
    
    
    (6,249
    )
    
    
    Gain on sale of a subsidiarys shares  Nam Tai Electronic & Electrical
Products Limited (NTEEP)
    
    
    
    
    
    
    (71,071
    )
    
    
    (8,165
    )Gain on sale of a subsidiarys shares  Namtek Software Development
Company Limited (Namtek Software)
    
    
    
    
    
    
    
    
    
    
    (1,930
    )Compensation cost on transfer of interest in a subsidiary  Namtek
Software
    
    
    509
    
    
    
    
    
    
    
    Equity in (income) loss of an affiliated company less dividend received
    
    
    (498
    )
    
    
    6,806
    
    
    
    186Others
    
    
    
    
    
    
    
    
    
    
    206Dividend income
    
    
    
    
    
    
    (15,913
    )
    
    
    Deferred income taxes
    
    
    (34
    )
    
    
    (78
    )
    
    
    Minority interests
    
    
    1,067
    
    
    
    6,010
    
    
    
    7,992Changes in current assets and liabilities (net of effects of acquisitions
and disposals):Increase in accounts receivable
    
    
    (11,146
    )
    
    
    (28,272
    )
    
    
    (35,300
    )(Increase) decrease in amount due from a related party
    
    
    (2,707
    )
    
    
    2,641
    
    
    
    66(Increase) decrease in inventories
    
    
    (8,554
    )
    
    
    3,936
    
    
    
    (8,648
    )(Increase) decrease in prepaid expenses and other receivables
    
    
    (3,027
    )
    
    
    2,654
    
    
    
    377(Increase) decrease in income taxes recoverable
    
    
    (4,067
    )
    
    
    (1,644
    )
    
    
    3,895Increase in notes payable
    
    
    894
    
    
    
    201
    
    
    
    2,733Increase in accounts payable
    
    
    17,971
    
    
    
    33,896
    
    
    
    32,038Increase in accrued expenses and other payables
    
    
    1,189
    
    
    
    3,028
    
    
    
    2,786Increase (decrease) in income taxes payable
    
    
    330
    
    
    
    (347
    )
    
    
    (17
    )Total adjustments
    
    
    470
    
    
    
    8,325
    
    
    
    19,519Net cash provided by operating activities
    
    $
    44,272
    
    
    $
    75,210
    
    
    $
    70,825
 F-6




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##### Table of Contents



NAM TAI ELECTRONICS. INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
 Year ended December 31,2003
    
    
    2004
    
    
    2005Cash flows from investing activities:Purchase of property, plant and equipment
    
    $
    (17,053
    )
    
    $
    (38,611
    )
    
    $
    (32,166
    )(Increase) decrease in deposits for property, plant and equipment
    
    
    (3,103
    )
    
    
    (4,374
    )
    
    
    6,451Prepayment for long term investment
    
    
    (5,277
    )
    
    
    
    
    
    
    Increase in other assets
    
    
    (24
    )
    
    
    (37
    )
    
    
    (40
    )(Acquisition) proceeds from disposal of an affiliated company  Alpha Star
Investments Limited (Alpha Star)
    
    
    (10,000
    )
    
    
    
    
    
    
    6,494Acquisition of long term investment  iMagic Infomedia Technology
Limited
    
    
    (384
    )
    
    
    
    
    
    
    Proceeds from disposal of convertible notes  TCL
International Holdings Limited
    
    
    5,026
    
    
    
    
    
    
    
    (Acquisition) proceeds from disposal of marketable securities  TCL
Communication
    
    
    
    
    
    
    (25,084
    )
    
    
    10,995Proceeds from partial disposal of subsidiaries  JIC Technology and
Namtek Software/JIC Technology and NTEEP/NTEEP
    
    
    4,165
    
    
    
    95,449
    
    
    
    25,218Proceeds from disposal of property, plant and equipment
    
    
    2,595
    
    
    
    4,546
    
    
    
    1,788Proceeds from disposal of investment
    
    
    
    
    
    
    5,609
    
    
    
    Proceeds from disposal of other assets
    
    
    
    
    
    
    231
    
    
    
    Proceeds from disposal of a subsidiary, net of cash disposed of  Jieyao
    
    
    2,386
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (21,669
    )
    
    
    37,729
    
    
    
    18,740Cash flows from financing activities:Cash dividends paid
    
    
    (37,777
    )
    
    
    (19,414
    )
    
    
    (51,984
    )Repayment of bank loans
    
    
    (13,984
    )
    
    
    (5,375
    )
    
    
    (5,375
    )Proceeds from bank loans
    
    
    
    
    
    
    10,600
    
    
    
    4,774Proceeds from shares issued on exercise of options
    
    
    8,508
    
    
    
    72
    
    
    
    16,420Net cash used in financing activities
    
    
    (43,253
    )
    
    
    (14,117
    )
    
    
    (36,165
    )Net (decrease) increase in cash and cash equivalents
    
    
    (20,650
    )
    
    
    98,822
    
    
    
    53,400Cash and cash equivalents at beginning of year
    
    
    82,477
    
    
    
    61,827
    
    
    
    160,649Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (206
    )Cash and cash equivalents at end of year
    
    $
    61,827
    
    
    $
    160,649
    
    
    $
    213,843Supplemental schedule of cash flow information:Interest paid
    
    $
    121
    
    
    $
    195
    
    
    $
    438Income taxes paid (received), net
    
    
    4,183
    
    
    
    2,953
    
    
    
    (3,335
    )
  F-7




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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 liquid crystal display
(LCD) panels, LCD modules, radio frequency modules, thin film transistor LCD modules,
flexible printed circuit sub-assemblies, digital audio broadcast, modules and image sensors
modules. These components are used in numerous electronic products, including cellular
phones, laptop computers, digital cameras, electronic toys, handheld video game devices and
microwave ovens. The Company also manufactures finished products, including cellular phones
in semi-knock down form, entertainment devices, mobile phone accessories 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 China. The Company was
reincorporated as a limited liability International Business Company under the laws of the
British Virgin Islands (BVI) in August 1987. 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 Hong Kong
and Macao, which provide it access to Hong Kongs and Macaos infrastructure of
communication and banking and facilitates management of its PRC operations. 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 China. However, for simplicity and as
a matter of definition only, our references to PRC in these consolidated financial
statements means the PRC and all of its territories excluding Hong Kong and Macao.In 2004, Nam Tais operations were re-organized into three reportable segments consisting of
consumer electronics and communication products (CECP), telecommunication components
assembly (TCA) and LCD panels (LCDP). In 2003, CECP and TCA were classified as a single
reportable segment as consumer electronic products (CEP) while LCDP also comprised the
transformers operations and collectively referred to as LCD panels and transformers (LPT).
Through the disposal of a subsidiary in 2003, the Company discontinued its transformers
operations, details of which are set out in note 3(b)(ii).2.
    
    Summary of Significant Accounting Policies
 (a)
    
    Principles of consolidationThe consolidated financial statements include the financial statements of the Company
and all 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.The equity method of accounting is used when the Company has the ability to exercise
significant influence over the operating and financial policies of an investee, which
is normally indicated by a 20% to 50% interest in other entities. Under the equity
method, original investments are recorded at cost and adjusted by the Companys share
of undistributed earnings or losses of these entities and distributions received, if
any.(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.
 F-8




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (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 other income (expenses).(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 cancelled 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 remained 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. No interest was capitalized for
the years ended December 31, 2003, 2004 and 2005. 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 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. 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 yearsLeasehold land and buildings
    
    20 to 50 yearsMachinery and equipment
    
    4 to 12 yearsLeasehold improvements
    
    3 to 7 yearsFurniture and fixtures
    
    4 to 8 yearsAutomobiles
    
    4 to 6 yearsTools and molds
    
    4 to 6 years
 F-9




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (f)
    
    Goodwill and intangible assetsThe 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
on at least an annual basis at the balance sheet date. Prior to April 2004, the
Company operated in two reporting units, CEP and LCD panels and transformers. In
June 2003, the Company disposed of its transformers operation through the disposal of
a subsidiary, details of which are set out in note 3(b)(ii). Effective April 2004,
the Company operated in three reporting units, which were its reportable segments of
CECP, TCA and LCDP.The evaluation of goodwill for impairment involves two steps: (1) the identification
of potential impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill and (2) the measurement of the amount of goodwill
loss by comparing the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill and recognizing a loss by the excess of the latter
over the former. For assessment of impairment loss, the Company will measure fair
value based either on internal models or independent valuations. No impairment loss
was identified in 2004 and 2005.Costs incurred in the acquisition of licenses are classified as intangible assets.
They are capitalized and amortized to expense on a straight-line basis over the
shorter of the license period or 5 to 7 years.(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.
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.(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
    
    Collectibility is reasonably assured.
  F-10




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (i)
    
    Shipping and handling costsShipping and handling costs are classified as to cost of sales for material purchased
and selling expenses for those costs incurred in the delivery of finished products.
During the years ended December 31, 2003, 2004, and 2005, shipping and handling costs
classified as costs of sales were $466, $536 and $561, respectively. During the
years ended December 31, 2003, 2004 and 2005, shipping and handing costs classified
as selling expenses were $870, $767 and $847, 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 $261,
$265 and $377 for the years ended December 31, 2003, 2004 and 2005, respectively.(l)
    
    Staff retirement plan costsThe Companys costs related to the staff retirement plans (see note 14) are charged
to the consolidated statement of income as incurred.(m)
    
    Income taxesPRC tax paid by subsidiaries operating in the PRC during the year is recorded as an
amount recoverable at the balance sheet date when management has filed or has the
definite intention to file an application for reinvestment of profits and a refund is
expected unless there is an indication from the PRC tax authority that the refund, or
a portion of which, will be refused.Deferred income taxes are provided using the asset and liability method. Under this
method, deferred income taxes are recognized for all significant temporary
differences and classified as current or non-current based upon the classification of
the related asset or liability in the 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.(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 7.7643, 7.7732 and 7.7546 as of December 31, 2003, 2004 and 2005,
respectively.
 F-11




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2.
    
    Summary of Significant Accounting Policies  continued
 (o)
    
    Earnings per shareOn June 20, 2003, the Companys board of directors
declared a 3 for 1 stock split of
its outstanding common shares. Each shareholder of record on June 30, 2003 received
two additional shares for each common share held at that date. In addition, the
Company retained the current par value of $0.01 per share. Accordingly, all
references to numbers of common shares, per share data and stock option data in the
accompanying financial statements have been restated to reflect the stock split on a
retroactive basis.On October 24, 2003, the Companys board of directors declared an issuance of stock
dividend to shareholders at the ratio of one dividend share for every ten shares held
by the shareholders of record on November 7, 2003. For the purposes of earnings per
share calculation, all references to numbers of common shares and per share data have
been restated to reflect this stock dividend.Basic earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the year.Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the year. The weighted average number of common shares
outstanding is adjusted to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.(p)
    
    Stock optionsThe Company does not recognize compensation expense for employee stock-based
compensation if the strike-price is equal to or greater than the market price of the
stock at the date of grant. The Companys policy is to generally grant stock-based
compensation to employees with a stock price equal to the market price of the stock
on the date of grant. The Company continues to account for stock-based compensation
arrangements under Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employeesand provides additional financial statement disclosure
in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation. The
Company recognizes compensation expense for all stock-based compensation granted to
non-employees by estimating the fair value of the stock-based compensation utilizing
the Black-Scholes option-pricing model. See note 12.The Company has a stock-based employee compensation plan, as more fully described
in note 12(b). Stock-based employee compensation costs are not reflected in net
income when options granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant.The following table illustrates the effect on net income and earnings per share as if
the Company had applied the fair value recognition.
 Year ended December 31,
    
    2003
    
    
    2004
    
    
    2005Net income, as reported
    
    $
    43,802
    
    
    $
    66,885
    
    
    $
    51,306Less: Stock based compensation costs under
fair value based method for all awards
    
    
    (582
    )
    
    
    (4,476
    )
    
    
    (7,500
    )Net income, pro forma
    
    $
    43,220
    
    
    $
    62,409
    
    
    $
    43,806Basic earnings per share            As reported
    
    $
    1.09
    
    
    $
    1.57
    
    
    $
    1.19Pro forma
    
    $
    1.07
    
    
    $
    1.47
    
    
    $
    1.02Diluted
earnings per
share         As reported
    
    $
    1.07
    
    
    $
    1.57
    
    
    $
    1.19Pro forma
    
    $
    1.06
    
    
    $
    1.47
    
    
    $
    1.01
 Share-Based Payment
 F-12




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (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 incomeAccumulated other comprehensive income (loss) represents unrealized gains on
marketable securities and foreign currency translation adjustments and is included in
the consolidated statement of shareholders equity.(s)
    
    Fair value disclosuresThe carrying amounts of cash and cash equivalents, accounts receivable, other
receivables, income taxes recoverable, notes payable, short-term bank loans, accounts
payable, accrued expenses and other payables 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.(t)
    
    ReclassificationCertain prior year figures have been reclassified to conform with the current years
presentation(u)
    
    Recent changes in accounting standardsIn November 2004, the Financial Accounting Standard Board (FASB) issued SFAS No.
151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. SFAS No. 151
clarifies the accounting that requires abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage costs to be recognized as current-period
charges. It also requires that allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS No.
151 will be effective for inventory costs incurred on or after July 1, 2005. The
adoption of this new standard did not have any material impact on the Companys
financial position, results of operations or cash flows.In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary AssetsAn
Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions which
redefines the types of non-monetary exchanges that require fair value measurement.
The Company is required to adopt SFAS No. 153 for nonmonetary transactions entered
into after June 30, 2005. The adoption of this new standard did not have a material
impact on the Companys financial position, results of operations or cash flows.In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R). This statement is a revision to SFAS No. 123 and supercedes APB
Opinion No. 25. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services, primarily focusing on the accounting for transactions in which an entity
obtains employee services in share-based payment transactions. Entities are required
to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be 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 to be estimated using option-pricing models. If
an equity award is modified after the grant date, incremental compensation cost will
be 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.
This statement is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. In accordance with the standard,
the Company is required to adopt SFAS No. 123R effective January 1, 2006.
 F-13




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##### Table of Contents



2.
    
    Summary of Significant Accounting Policies  continued
 (u)
    
    Recent changes in accounting standards  continuedUpon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-retrospective transition
approach. Under the modified-prospective transition method the Company would be
required to recognize compensation cost for share-based awards to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied as well as compensation cost for awards that
were granted prior to, but not vested as of the date of adoption. Prior periods
remain unchanged and pro forma disclosures previously required by SFAS No. 123
continue to be required. Under the modified-retrospective transition method, the
Company would restate prior periods by recognizing compensation cost in the amounts
previously reported in the pro forma footnote disclosure under SFAS No. 123. Under
this method, the Company is permitted to apply this presentation to all periods
presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The
Company would follow the same guidelines as in the modified-prospective transition
method for awards granted subsequent to adoption and those that were granted and not
yet vested. The Company believes that the impact that the adoption of SFAS No. 123R
will have on its financial position or results of operations will approximate the
magnitude of the stock-based employee compensation cost disclosed in Note 2 (p)
pursuant to the disclosure requirements of SFAS No. 148.In March 2005, the FASB issued FASB Interpretation No. (FIN) 47, Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143.FIN 47
clarifies that an entity is required to recognize a liability for a legal obligation
to perform an asset retirement activity if the fair value can be reasonably estimated
even though the timing and/or method of settlement are conditional on a future event.
FIN 47 is required to be adopted for annual reporting periods ending after December
15, 2005. The Company is evaluating the effect of the adoption of FIN 47. It is not
expected to have a material impact on the Companys financial position, results of
operations or cash flows.In May 2005, the FASB issued SFAS No. 154, Accounting Changes And Error Corrections
- a replacement of APB Opinion No. 20 and FASB Statement
No. 3. This statement
supercedes APB Opinion No. 20, Accounting changesand SFAS No. 3, Reporting
Accounting changes in Interim Financial Statements. SFAS No. 154 requires
retrospective application to prior periods financial statements of changes in
accounting principles, unless it is impracticable to determine the period-specific
effects or the cumulative effect of the change. APB Opinion No. 20 Accounting
Changes, previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No. 154 will be effective
for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005.In September 2005, the FASBs Emerging Issues Task Force (EITF) reached a final
consensus on Issue 04-13, Accounting for Purchases and Sales of Inventory with the
Same Counterparty. EITF 04-13 requires that two or more legally separate exchange
transactions with the same counterparty be combined and considered a single
arrangement for purposes of applying APB Opinion No. 29, Accounting for Nonmonetary
Transactions, when the transactions are entered into in contemplation of one
another. EITF 04-13 is effective for new arrangements entered into, or modifications
or renewals of existing arrangements, in interim or annual periods beginning after
March 15, 2006. The Company is evaluating the effect of the adoption of EITF 04-13.
It is not expected to have a material impact on the Companys financial position,
results of operations or cash flows.
 F-14




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##### Table of Contents



3.
    
    Investment in Subsidiaries
 (a)
    
    Subsidiaries
 Percentage of ownershipPlace of
    
    Principal
    
    as at December 31,incorporation
    
    activity
    
    2004
    
    2005Consolidated principal subsidiaries:Jasper Ace Limited (Jasper Ace)
    
    BVI
    
    Investment holding*
    
    
    100
    %
    
    
    100
    %J.I.C. Technology Company
Limited
    
    Cayman Islands
    
    Investment holding
    
    
    71.63
    %
    
    
    71.63
    %J.I.C Enterprises (Hong Kong)
Limited
    
    Hong Kong
    
    Inactive
    
    
    71.63
    %
    
    
    71.63
    %Jetup Electronic (Shenzhen)
Co., Limited (Jetup)
    
    PRC
    
    Manufacturing and
trading
    
    
    71.63
    %
    
    
    71.63
    %J.I.C. (Macao Commercial
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    71.63
    %
    
    
    71.63
    %Nam Tai Electronic & Electrical
Products Limited
    
    Cayman Islands
    
    Investment holding
    
    
    75
    %
    
    
    69.5
    %Nam Tai Group Management
Limited
    
    Hong Kong
    
    Provision of
administrative
services*
    
    
    100
    %
    
    
    100
    %Nam Tai Investments Consultant
(Macao Commercial Offshore)
Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    75
    %
    
    
    69.5
    %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.
    
    PRC
    
    Manufacturing and
trading
    
    
    75
    %
    
    
    69.5
    %Namtek Japan Company Limited
    
    Japan
    
    Provision of sales
co-ordination and
marketing services
    
    
    80
    %
    
    
    69.5
    %Namtek Software Development
Company Limited
    
    Cayman Islands
    
    Investment holding
    
    
    80
    %
    
    
    69.5
    %Shenzhen Namtek Co., Ltd.
    
    PRC
    
    Software development
    
    
    80
    %
    
    
    69.5
    %Zastron Electronic (Shenzhen)
Co. Ltd.
    
    PRC
    
    Manufacturing and
trading
    
    
    100
    %
    
    
    100
    %Zastron Precision-Tech
Limited (ZPTL)
    
    Cayman Islands
    
    Investment holding
    
    
    100
    %
    
    
    100
    %Zastron (Macao Commercial
Offshore) Company Limited
    
    Macao
    
    Provision of
consultancy,
administrative and
data processing
services
    
    
    100
    %
    
    
    100
    %
 
 *
    
    Became inactive subsequent to December 31, 2005. F-15




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##### Table of Contents



3.
    
    Investment in Subsidiaries  continued
 (b)
    
    Significant transactions
 (i)
    
    During the period from June to November 2003, the Company
disposed of a total of 42,600,000 ordinary shares of JIC Technology for cash
considerations of $4,005. The disposal resulted in a net gain on partial
disposal of a subsidiary of $1,838 after deducting the releasing of unamortized
goodwill of $1,171. In November 2003, the Company converted 175,100,000
preference shares into 170,000,000 ordinary shares of JIC Technology. As at
December 31, 2003, the Company held 263,900,688 ordinary shares of JIC
Technology, equivalent to 74.86% of issued ordinary shares, and 423,320,000
preference shares. Upon full conversion of the preference shares owned, the
Company would have held approximately 88.39% of JIC Technology as of December
31, 2003.In November and December 2004, the Company disposed of a total of 128,000,000
ordinary shares of JIC Technology for cash considerations of $12,902. The
disposal resulted in a net gain on partial disposal of a subsidiary of $6,249
after deducting the releasing of goodwill of $3,518. The Company also
converted all outstanding preference shares into 410,990,290 ordinary shares
of JIC Technology resulting in 71.63% equity interest held in JIC Technology
as of December 31, 2004.(ii)
    
    In order to concentrate its effort on its LCD panels reporting
unit, in June 2003, JIC Technology disposed its transformers reporting unit to a
third party for a cash consideration of $2,426. Sales of the transformers
reporting unit for the year ended December 31, 2003 was $6,284, and was
insignificant comparing to the sales of the Company as a whole. The income from
operations of the transformers reporting unit was less than 1% of the Companys
income from operations for the year ended December 31, 2003. The transformers
reporting unit had no non-operating income or expenses for the year ended
December 31, 2003.The proceeds from the disposal exceeded the carrying value of the net assets
of the transformers reporting unit, resulting in a gain from discontinued
operation, net of minority interests, in 2003 of $1,979.The carrying amounts of the assets and liabilities of the transformers
reporting unit at the date of disposal were as follows:Net assets disposed of:
 Property, plant and equipment
    
    $
    559Cash
    
    
    40Other assets
    
    
    870Liabilities
    
    
    (1,176
    )Total
    
    $
    293
 (iii)
    
    In January 2003, the Company disposed of 20% of its equity
interest in Namtek Software to Asano Company Limited (Asano Company), a
company owned by the management of Namtek Software, for a cash consideration of
$160. As of the date of transfer, Namtek Software was fair valued at $3,347.
Accordingly, a charge to compensation expense of $509 and a credit to additional
paid-in capital of $264 (being the difference between the net asset value and
fair value of Namtek Software disposed) resulted.In May 2005, the Company and Asano Company transferred 80% and 20%,
respectively, of their interest in Namtek Software to NTEEP for a total
consideration of $26,700. Please also see note 3(b)(v) for further details.
 F-16




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##### Table of Contents



3.
    
    Investment in Subsidiaries  continued
 (b)
    
    Significant transactions  continued
 (iv)
    
    As of January 1, 2003, the Company had a 3.033% interest in
Huizhou TCL Mobile Communication Co., Ltd (Huizhou TCL) through a then 72.2%
owned subsidiary, Mate Fair Group Limited (Mate Fair).In April 2004, the Company increased its equity interest in Huizhou TCL to 9%
through exchange of its existing 72.2% interest in Mate Fair, which had a
3.033% equity interest in Huizhou TCL, and acquiring the entire issued share
capital of Jasper Ace, a holding company with no operations, which directly
holds 9% equity interest in Huizhou TCL. The acquisition was satisfied by the
exchange of the Companys 72.2% equity interest in Mate Fair, cash of $25,000,
and 1,416,764 new shares in the Company upon a pricing adjustment in July 2004
resulting in the cancellation of 973,210 shares of the Company previously
issued as part of the purchase consideration.(v)
    
    In April 2004, one of the then wholly owned subsidiaries of the
Company, NTEEP, completed public offering of its common stock on the Stock
Exchange of Hong Kong Limited (SEHK) in which the Company disposed of a 25%
interest in this subsidiary resulting in a gain on partial disposal of $71,071.In March 2005, the Company disposed of a total of 30,000,000 ordinary shares
of NTEEP for cash considerations of approximately $9,836, resulting in a gain
on partial disposal of a subsidiary of approximately $5,870.In May 2005, through a series of linked transactions, the Companys
shareholding in NTEEP increased from 71.25% to 72.06% while the effective
shareholding in Namtek Software decreased from 80% to 72.06% upon completion
of the partial disposal of Namtek Software when the Company and Asano Company
transferred 80% and 20%, respectively, of their interest in Namtek Software to
NTEEP for a total consideration of $26,700. The consideration was satisfied
by the issuance of 81,670,588 new shares of NTEEP to the Company and Asano
Company at approximately $0.327 per share. These transactions resulted in a
goodwill of $1,278 arising from the additional interest in NTEEP exchanged and
a net gain on partial disposal of interest in Namtek Software of $1,930.In August 2005, the Company further disposed of a total of 22,574,000 ordinary shares of NTEEP for cash considerations of approximately $5,163. The disposal
resulted in a net gain on partial disposal of a subsidiary of approximately
$2,295 after deducting the releasing of goodwill of $45.
 (c)
    
    Establishment of subsidiaries
 (i)
    
    In June 2003, Namtek Software established Namtek Japan Company
Limited, a subsidiary incorporated in Japan, at an investment cost of $85. Its
principal activity is sales co-ordination and marketing of software.(ii)
    
    In June 2003, the Company established two wholly-owned
subsidiaries, namely ZPTL and NTEEP, incorporated in the Cayman Islands. Their
principal activity is to act as investment holding companies.(iii)
    
    In August 2003, the Company established Nam Tai Investments
Consultant (Macao Commercial Offshore) Company Limited, at an investment cost of
$13. Its principal activity is provision of consultancy, administrative and
data processing services to other group companies, and to act as the Companys
PRC headquarters due to the continuous increase in investment in China.(iv)
    
    In March 2004, the ZPTL established Zastron (Macao Commercial
Offshore) Company Limited, a subsidiary incorporated in Macao, at an investment
cost of $13. Its principal activity is provision of consultancy, administrative
and data processing to group companies.(v)
    
    In November 2004, JIC Technology established J.I.C. (Macao
Commercial Offshore) Company Limited, a wholly owned subsidiary incorporated in
Macao, at an investment cost of $13. Its principal activity was trading of
electronic components, and the provision of consultancy, administrative and data
processing. In 2005, it ceased to carry out the trading of electronic
components and focused on the administrative and data processing services only.
 F-17




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3.
    
    Investment in Subsidiaries  continued
 (d)
    
    Retained earnings
 The 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. In the event that dividends are paid by the Companys PRC
subsidiaries, such dividends will reduce the amount of reinvested profits and
accordingly, the refund of taxes paid will be reduced to the extent of tax applicable
to profits not reinvested. 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 amounted to $6,164 and
$7,489 as of December 31, 2004 and 2005 respectively. However, the Company believes
that such restrictions will not have a material effect on the Companys liquidity or
cash flows.
 4.
    
    InventoriesInventories consist of the following:
 At December 31,
    
    2004
    
    
    2005Raw materials
    
    $
    19,815
    
    
    $
    24,023Work-in-progress
    
    
    1,578
    
    
    
    4,003Finished goods
    
    
    1,703
    
    
    
    3,718$
    23,096
    
    
    $
    31,744
 5. Property, Plant and Equipment, net
  At December 31,
    
    2004
    
    
    2005At cost:Leasehold land and buildings
    
    $
    41,961
    
    
    $
    46,393Machinery and equipment
    
    
    80,479
    
    
    
    94,952Leasehold improvements
    
    
    15,226
    
    
    
    22,215Furniture and fixtures
    
    
    2,026
    
    
    
    1,907Automobiles
    
    
    1,427
    
    
    
    1,766Tools and molds
    
    
    196
    
    
    
    279Total
    
    
    141,315
    
    
    
    167,512Less: accumulated depreciation and amortization
    
    
    (59,912
    )
    
    
    (72,619
    )Construction in progress
    
    
    13,294
    
    
    
    3,033Net book value
    
    $
    94,697
    
    
    $
    97,926
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6.
    
    GoodwillGoodwill consists of the following:
 CECP
    
    
    LCDPreporting
    
    
    reportingunit
    
    
    unit
    
    
    TotalBalance at January 1, 2004
    
    $
    788
    
    
    $
    19,349
    
    
    $
    20,137Goodwill release related to disposition of 16.76%
interest in JIC Technology
    
    
    
    
    
    
    (3,518
    )
    
    
    (3,518
    )Goodwill release related to disposition of 72.22%
interest in Mate Fair
    
    
    (788
    )
    
    
    
    
    
    
    (788
    )Balance at December 31, 2004
    
    $
    
    
    
    $
    15,831
    
    
    $
    15,831Exchange difference
    
    
    
    
    
    
    5
    
    
    
    5Goodwill upon acquisition of additional 0.81% interest
in NTEEP
    
    
    1,277
    
    
    
    
    
    
    
    1,277Goodwill release related to disposition of 2.56% interest
in NTEEP
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Balance at December 31, 2005
    
    $
    1,232
    
    
    $
    15,836
    
    
    $
    17,068No impairment loss was identified in 2004 and 2005.
 7.
    
    Intangible Assets, netIntangible assets, net consist of the following:
 At December 31,
    
    2004
    
    
    2005Licenses
    
    $
    643
    
    
    $
    643Accumulated amortization
    
    
    (184
    )
    
    
    (245
    )Impairment loss recognized (Note 9)
    
    
    
    
    
    
    (398
    )Net carrying amount
    
    $
    459
    
    
    $
    
 Amortization expense charged to income from operations for the year ended December 31, 2003,
2004 and 2005 was $92, $92 and $61, respectively.
 8.
    
    Asset held for saleIn 2005, the management of the Company has committed to a plan to sell certain of its
leasehold land and buildings located in Hong Kong. Accordingly, the leasehold land and
building has been reclassified as asset held for sale and ceased to record depreciation
expense since then. On March 9, 2006, the Company entered into an agreement to sell this
leasehold land and building for a gross consideration of approximately $20,645.
 F-19




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##### Table of Contents



9.
    
    Investment in Affiliated Companies, Equity MethodAlpha StarIn January 2003, the Company further expanded its business to include wireless communication
technology and related products. The Company made a strategic investment of $10,000 by
subscribing for a 25% shareholding in Alpha Star, a BVI company, which is the ultimate
holding company of Jiang Cheug Tang Wireless Technology Limited (JCT), a company engaged
in the design, development and marketing of wireless communication terminals and wireless
application software. The Company also manufactures wireless communication terminals and
related modules for JCT. As part of the agreement, Alpha Star agreed to purchase from the
Company at least 50 percent of the orders it, or any of its subsidiaries, receives for RF
modules provided the Company performs such manufacturing services at a price comparable to
the market. The fair value of this arrangement was estimated to be $643 and is included in
the consolidated balance sheet as an intangible asset (note 7). The Company had one
representative on Alpha Stars board of directors until his resignation in July 2004.The Company initially recorded goodwill of approximately $5,596 as a result of the
acquisition of Alpha Star. The Company recorded an equity in earning of Alpha Star of $498
for 2003 but recognized an equity in loss of $1,210 and $186 for 2004 and 2005,
respectively. In the third quarter of 2004, based on the advise from an independent
external valuer, the Company recorded an other-than-temporary impairment charge of
approximately $5,596 to write down its investment in Alpha Star upon its unsatisfactory
operating results and the continued weakness in market operated by Alpha Star.In August 2005, the Company disposed of its entire interest in Alpha Star to the majority
shareholders of Alpha Star for a cash consideration of $6,500. As a result, a gain of
$3,631 was recorded. Due to the cessation of relationship with Alpha Star, the Company
evaluated the viability of the related purchase arrangement as aforesaid and fully wrote off
its then carrying value of $398 (included in selling, general and administrative expenses)
as the intangible asset was no longer expected to recover its carrying value through future
cash flows.As of December 31, 2004, JCT owed the Company $66. For the years ended December 31, 2004
and 2005, the Company recognized net sales of $34,181 and $6,195 to JCT and purchased raw
materials of $12,398 and $5,766 from JCT and its related companies, respectively.The Company did not make any loans or guarantees or had any contingent liabilities with
Alpha Star or any of its subsidiaries.10.
    
    InvestmentsInvestments in TCLThe Company had various investments in TCL Group of companies in the form of convertible
notes, and available for sale marketable securities. During the year ended December 31,
2003, the Company disposed of the convertible notes. During the year ended December 31,
2004, the investments at cost became marketable securities upon the listing of these
investments on public stock exchanges. The Company has not incurred any material operating
revenue or expenses from the TCL Group of companies, for the years ended December 31, 2003,
2004 and 2005.
 (a)
    
    Convertible NotesOn November 11, 2002, in connection with its disposal of 1.467% indirect interest in
Huizhou TCL (see note 3(b)(iv)) for approximately $10,424, the Company purchased
$5,128 in 3% convertible notes (CB Note) due in November 2005 of TCL International
Holdings Limited, a company publicly listed on the SEHK. In August 2003, the CB Note
was disposed of by the Company for a consideration of $5,026, resulting in a loss of
$102.
 F-20




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##### Table of Contents



10.
    
    Investments  continued
 (b)
    
    Investments, at cost/available for sale investment securities
 (i)
    
    TCL CorporationIn January 2003, 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 has then been diluted to 3.69% and represents
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
is restricted to transfer its promoters shares within three years from the
Establishment Date. The Company is, however, entitled to dividend and other
rights similar to the holders of A-shares.As these promoters shares have a restriction on their sale prior to April
2005, the Company hired a third party valuation firm to determine the fair
value of these shares as of December 31, 2004 and 2005 and recognized an
unrealized gain of $6,549 and $1,362, respectively, based on the Companys
cost of $11,968 and an estimated fair value of $20,700 and $13,330.On 28 November 2005, TCL Corporation announced the proposal of a split share
structure reform (SSR). Under the proposed SSR, holders of TCL Corporation
tradable A-shares will receive 2.5 shares for every 10 shares from the holders
of promoters shares of TCL Corporation, on a pro rata basis. Upon completion
of the SSR, the Companys interest in TCL Corporation will be reduced from
95,516,112 shares to 80,600,173 shares, representing a change from 3.69% to
3.12%.The proposed SSR was approved by the holders of TCL Corporations A-shares
during the shareholders meeting held on 30 December 2005, and shall become
effective upon approval by the China Securities Regulatory Commission. As at
31 December 2005, such approval has not been obtained.(ii)
    
    Huizhou TCLThe Company had a 3.033% direct interest in Huizhou TCL. As described in note
3(b)(iv), the Company increased its equity interest in Huizhou TCL to 9%. In
August 2004, as part of the preparation for TCL Communications public
offering on SEHK, the shares in Huizhou TCL were exchanged for the shares in
TCL Communication. In September 2004, TCL Communications public offering was
completed. At December 31, 2004, the Companys investment in TCL
Communication is stated at fair value based on the traded market price of TCL
Communications shares and recognized an impairment loss of $58,316 based on
the Companys cost of $79,522 and a fair value of $21,206. At June 30, 2005,
the Company further recognized an impairment loss of $6,525 based on the fair
value of $14,681. In the fourth quarter of 2005, the Company disposed of its
entire stake in TCL Communication and recorded a loss of $3,686.
 Investment in StepmindIn December 2003, the Company paid approximately $5,277 (Euros 4,250) into an escrow account
for an investment in Stepmind, which was included in prepaid expenses and other receivables
at December 31, 2003. Approximately $2,646 (Euros 2,122) was released from the escrow
account in January 2004 for the Companys first phase of investment and was included in
investments. In August 2004, the remaining balance in the escrow account was released. In
the same month, the Company disposed of its entire interest in Stepmind to one of the
shareholders of Stepmind at the original subscription price. As a result, a loss of $67,
representing the legal and administrative costs incurred, was noted.
 F-21




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##### Table of Contents



11.
    
    Bank Loans and Banking FacilitiesThe Company has credit facilities with various banks representing notes payable, trade
acceptances, import facilities, revolving loans and overdrafts. At December 31, 2004 and
2005, these facilities totaled $87,923 and $117,345, of which $84,495 and $110,246 were
unused at December 31, 2004 and 2005, 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,
    
    2004
    
    
    2005Outstanding letters of credit
    
    $
    1,348
    
    
    $
    11Trust receipts
    
    
    1,257
    
    
    
    4,813Usance bills pending maturity
    
    
    823
    
    
    
    Short term bank loans
    
    
    
    
    
    
    2,275Total banking facilities utilized
    
    
    3,428
    
    
    
    7,099Less: Outstanding letters of credit
    
    
    (1,348
    )
    
    
    (11
    )Notes payable and short term bank loans
    
    $
    2,080
    
    
    $
    7,088
 A subsidiary of the Company has an unsecured four-year term loan with borrowings in May 2002
totaling $4,500 at a rate of 1.5% p.a. over three months London Interbank Offered Rate
(LIBOR), repayable in 16 quarterly instalments of approximately $281 beginning August 31,
2002. The interest rate was reduced to 0.75% p.a. over three months LIBOR in 2004. During
the year 2004, it has obtained another unsecured four-year term loan totaling $7,000 at a
rate of 0.75% p.a. over three months LIBOR, repayable in 16 quarterly instalments of $438
beginning in July 2004. At December 31, 2005, the loans had outstanding balances of $5,162.
There are no restrictive financial covenants associated with these term loans.The long term bank loans at December 31, 2005 are repayable as follows for the years ending
December 31
 - 2006
    
    $
    2,312- 2007
    
    
    1,750- 2008
    
    
    1,100$
    5,162
 12.
    
    Shareholders Equity
 (a)
    
    The Company has only one class of common shares authorized, issued and
outstanding.(b)
    
    Stock optionsIn May 2001, 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 vest immediately and generally have a term of
two to three years, subject to the discretion of the board of directors, but cannot
exceed ten years.
 F-22




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##### Table of Contents



12.
    
    Shareholders Equity  continued
 (b)
    
    Stock options  continuedA summary of stock option activity during the three years ended December 31, 2005 is
as follows:
 Number of
    
    
    Weighted averageoptions
    
    
    option price per shareOutstanding at January 1, 2003
    
    
    1,449,000
    
    
    $
    5.84Granted
    
    
    75,000
    
    
    $
    18.50Exercised prior to 10 for 1 stock
dividend
    
    
    (1,422,500
    )
    
    $
    5.97Effect of 10 for 1 stock dividend on
stock option
    
    
    10,150
    
    
    
    Exercised after 10 for 1 stock dividend
    
    
    (3,100
    )
    
    $
    6.02Outstanding at December 31, 2003
    
    
    108,550
    
    
    $
    12.35Granted
    
    
    645,000
    
    
    $
    6.94Exercised
    
    
    (16,500
    )
    
    $
    4.39Outstanding at December 31, 2004
    
    
    737,050
    
    
    $
    6.83Granted
    
    
    1,105,000
    
    
    $
    6.79Exercised
    
    
    (841,050
    )
    
    $
    6.74Outstanding at December 31, 2005
    
    
    1,001,000
    
    
    $
    6.86
 Details of the options granted by the Company in 2003, 2004 and 2005 are as follows:
 Number of
    
    Exerciseoptions granted
    
    price
    
    
    Exercisable periodIn 200375,000
    
    $
    16.82
    *
    
    July 8, 2003 to July 8, 2006In 2004645,000
    
    $
    19.40
    
    
    July 30, 2004 to July 30, 2006In 20051,000,000
    
    $
    20.84
    
    
    February 4, 2005 to February 4, 2007105,000
    
    $
    21.62
    
    
    June 6, 2005 to June 6, 2008
 The following summarizes information about stock options
outstanding at December 31, 2005. All stock options are
exercisable as of December 31, 2005.
 Weighted averageNumber
    
    
    remaining contractualExercise prices
    
    of options
    
    
    life in months$16.82*
    
    
    33,000
    
    
    
    6.3$19.40
    
    
    228,000
    
    
    
    7.0$20.84
    
    
    650,000
    
    
    
    13.1$21.62
    
    
    90,000
    
    
    
    29.21,001,000
    
    
    
    12.9
 
 *
    
    Subsequent to November 7, 2003, the exercise price has been
adjusted to reflect the 10 for 1 stock dividend effect. F-23




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##### Table of Contents



12.
    
    Shareholders Equity  continued
 (b)
    
    Stock options  continuedThe weighted average remaining contractual life of the stock options outstanding at
December 31, 2003, 2004 and 2005 was 23, 18 and 13 months, respectively. The
weighted average fair value of options granted during 2003, 2004 and 2005 was $7.76,
$6.94 and 6.79, respectively, using the Black-Scholes option-pricing model based on
the following assumptions:
 Year ended December 31,
    
    2003
    
    2004
    
    2005Risk-free interest rate
    
    
    2.56
    %
    
    
    2.75
    %
    
    3.56% to 3.59%Expected life
    
    3 years
    
    
    2 years
    
    
    
    2 to 3 yearsExpected volatility
    
    
    64.24
    %
    
    
    68.62
    %
    
    62.62% to 71.14%Expected dividend per quarter
    
    $
    0.05
    
    
    $
    0.12
    
    
    
    $0.33
 (c)
    
    Share buy  backNo shares were repurchased during the years ended December 31, 2003, 2004 and 2005.(d)
    
    Share redemptionsOn 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 at a
price of $3.73 per share for $1,549 (see note 18(b)).On August 12, 2002, pursuant to its Articles of Association, the Company redeemed and
cancelled an additional 509,181 shares of the Company beneficially owned by Tele-Art
at a price of $6.14 per share for $3,125 (see note 18(b)).No shares have been redeemed since August 12, 2002.
 F-24




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##### Table of Contents



13.
    
    Earnings Per ShareThe calculations of basic earnings per share and diluted earnings per share are computed as
follows:
 Weightedaverage number
    
    
    Per shareYear ended December 31, 2003
    
    Income
    
    
    of shares *
    
    
    amountContinuing operationsBasic earnings per share
    
    $
    41,823
    
    
    
    40,336,439
    
    
    $
    1.04Effect of dilutive securities- Stock options
    
    
    
    
    
    
    502,701Diluted earnings per share
    
    $
    41,823
    
    
    
    40,839,140
    
    
    $
    1.02Discontinued operationBasic earnings per share
    
    $
    1,979
    
    
    
    40,336,439
    
    
    $
    0.05Effect of dilutive securities- Stock options
    
    
    
    
    
    
    502,701Diluted earnings per share
    
    $
    1,979
    
    
    
    40,839,140
    
    
    $
    0.05Net incomeBasic earnings per share
    
    $
    43,802
    
    
    
    40,336,439
    
    
    $
    1.09Effect of dilutive securities- Stock options
    
    
    
    
    
    
    502,701Diluted earnings per share
    
    $
    43,802
    
    
    
    40,839,140
    
    
    $
    1.07
 All options and warrants to purchase shares of common stock were included in the computation
of 2003 diluted earnings per share as the exercise prices were less than the average market
price of the common stock.
 
 *
    
    Adjusted for 3 for 1 stock split and 10 for 1 stock dividend. Weightedaverage number
    
    Per shareYear ended December 31, 2004
    
    Income
    
    of shares
    
    amountBasic earnings per share
    
    $
    66,885
    
    
    
    42,496,122
    
    
    $
    1.57Effect of dilutive securities- Stock options
    
    
    
    
    
    
    52,123
    
    
    
    Diluted earnings per share
    
    $
    66,885
    
    
    
    42,548,245
    
    
    $
    1.57
  F-25




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##### Table of Contents



13. Earnings Per Share  continued
 Weightedaverage number
    
    Per shareYear ended December 31, 2005
    
    Income
    
    of shares
    
    amountBasic earnings per share
    
    $
    51,306
    
    
    
    42,944,682
    
    
    $
    1.19Effect of dilutive securities
- Stock options
    
    
    
    
    
    
    223,859
    
    
    
    Diluted earnings per share
    
    $
    51,306
    
    
    
    43,168,541
    
    
    $
    1.19
  14. Staff Retirement Plans
     15. Income Taxes
  Year ended December 31,
    
    2003
    
    2004
    
    

2005PRC, excluding Hong Kong and Macao
    
    $
    39,778
    
    
    $
    37,546
    
    
    
    $

    36,138Hong Kong, Macao and other jurisdictions
    
    
    3,013
    
    
    
    43,034
    
    
    

    
    23,997$
    42,791
    
    
    $
    80,580
    
    
    

    $
    60,135
  F-26




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##### Table of Contents



15. Income Taxes  continued
     
    
    On January 8, 1999, NTSZ received the recognition of High and New Technology
Enterprise which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In July 2002, the Shenzhen local tax authority issued a notice to
shorten the tax incentive period from 5 years to 3 years expiring in 2001.
Nevertheless NTSZ was advised by the Shenzhen local tax authority that it would
continue to provide a rebate of corporate tax paid for 2 years for 2002 and 2003.
During 2003, NTSZ received $110 rebate of corporate tax paid for 2002, a tax refund of
$122 from reinvestment of profits for 1999 to 2001 and a refund of $441 for being an
export-oriented enterprise in 2002. In 2004, NTSZ received a tax refund of $821 from
reinvestment of profits for 2003 and a refund of $399 for being an export-oriented
enterprise in 2003. In 2005, NTSZ received a tax refund of $1,815 from reinvestment of
profit for 2003. Besides, NTSZ further paid $738 and subsequently received a tax
refund of $1,726 from reinvestment of profit for year 2004 and a refund of $971 for
being an export-oriented enterprise.
    
    In 2003, Zastron received a refund of $56 from reinvestment of profits for 1999 and
a refund of $124 for being an export-oriented enterprise. On May 13, 2005, Zastron
received the recognition of High and New Technology Enterprise and was entitled to
enjoy a reduced corporate tax rate of 7.5% for three years commencing 2005. In 2004,
Zastron also received a refund of $243 from reinvestment of profits for 1999 to 2003
and a refund of $793 for being an export-oriented enterprise in 2003. In 2005, Zastron
received a refund of $1,398 from reinvestment of profit for year 2000 to 2003.
Besides, Zastron further paid $170 and subsequently received a tax refund of $874 from
reinvestment of profit for year 2004.
    
    In February 2001, Shenzhen Namtek received the recognition of Advanced Technology
Enterprise which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In 2003, Shenzhen Namtek received a refund of $27 from the
reinvestment of profits for 1998 to 2000. In 2004, Shenzhen Namtek is entitled to a 5%
tax refund for being an export-oriented enterprise in 2004.
    
    The Shenzhen local tax authority has granted Jetup the status of High and New
Technology Enterprise and allowed it to enjoy a lower income tax rate of 7.5% for 3
years from 2002 to 2004. During 2003, Jetup received a refund of $175 from
reinvestment of profit for 2002. During 2005, Jetup received a refund of $233 and $346
from reinvestment of profit for 2003 and 2004, respectively.
 F-27




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##### Table of Contents



15. Income Taxes  continued
    Year ended December 31,
    
    2003
    
    2004
    



2005Current tax
    
    $
    (433
    )
    
    $
    (957
    )
    
    
    
    $(651)Deferred tax
    
    
    34
    
    
    
    78$
    (399
    )
    
    $
    (879
    )
    
    

    $
    (651)
  December 31,
    
    2004
    


2005Net operating losses
    
    $
    5,863
    
    
    

    $
    8,914Valuation allowance
    
    
    (5,863
    )
    

    
    
    (8,914
)$
    
    
    
    
    $
    
   F-28




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##### Table of Contents



15. Income Taxes  continued
  Year ended December 31,
    
    2003
    
    2004
    
    2005Income before income taxes and minority interests
    
    $
    42,791
    
    
    $
    80,580
    
    
    $
    60,135PRC tax rate
    
    
    15
    %
    
    
    15
    %
    
    
    15
    %Income tax expense at PRC tax rate on income before
income tax
    
    $
    (6,419
    )
    
    $
    (12,087
    )
    
    $
    (9,020
    )Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income
    
    
    72
    
    
    
    205
    
    
    
    196Effect of (loss) income for which no income tax benefit/
expense is receivable/payable
    
    
    796
    
    
    
    7,660
    
    
    
    4,813Tax holidays and tax incentives
    
    
    2,122
    
    
    
    2,220
    
    
    
    2,103Effect of PRC tax concessions, giving rise to no PRC tax
liability
    
    
    3,435
    
    
    
    2,774
    
    
    
    2,667Tax losses not recognised-
    
    
    
    
    
    
    (1,026
    )
    
    
    (534
    )Tax benefit (expense) arising from items which are not
assessable (deductible) for tax purposes:Gain on disposal of land in Hong Kong
    
    
    1
    
    
    
    
    
    
    
    82Exempted interest income
    
    
    16
    
    
    
    24
    
    
    
    17Non-deductible legal and professional fees
    
    
    (301
    )
    
    
    (282
    )
    
    
    (317
    )Non-deductible and non-taxable other items
    
    
    (105
    )
    
    
    17
    
    
    
    (744
    )Overprovision for income tax expense in prior year
    
    
    103
    
    
    
    
    
    
    
    Underprovision of income tax expense in prior years
    
    
    
    
    
    
    (268
    )
    
    
    (41
    )Other
    
    
    (119
    )
    
    
    (116
    )
    
    
    127$
    (399
    )
    
    $
    (879
    )
    
    $
    (651
    )
   16. Related Party Balance and Transactions
   F-29




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##### Table of Contents



17. Financial Instruments
     18. Commitments and Contingencies
 (a)
    
    Lease commitmentsThe Company leases premises under various operating leases, certain of which contain
contingent escalation clauses whereby the percentage increase is subject to periodic
review and agreement between the Company and the lessor. Rental expense under
operating leases was $617, $975 and $1,546 in the years ended December 2003, 2004
and 2005, respectively.At December 31, 2005, the Company was obligated under operating leases, which relate
to land and buildings, requiring minimum rentals as follows:
 Year ending December 31,- 2006
    
    $
    1,703- 2007
    
    
    1,662- 2008
    
    
    1,476- 2009
    
    
    1,242- 2010
    
    
    1,314- 2011 and thereafter
    
    
    1,935$
    9,332
 (b)
    
    Significant legal proceedingsTele-ArtIn June 1997, the Company filed a petition in BVI for the winding up of Tele-Art Inc.
(Tele-Art) on account of an unpaid judgment debt owing to the Company. The High
Court of Justice granted an order to wind up Tele-Art in July 1998. Tele-Art
appealed to the Court of Appeal against the winding up order. This appeal was heard
on January 13, 1999 by the Court of Appeal and was dismissed on January 25, 1999. On
January 22, 1999, pursuant to its Articles of Association, the Company redeemed and
cancelled 415,500 shares * of the Company registered in the name of Tele-Art at a
price of $3.73 per share to offset substantially all of the judgment debt of $799,
plus interest and legal costs totaling $1,673. The Company had also previously
withheld dividends on shares beneficially owned by Tele-Art which were applied
towards the partial satisfaction of the said judgment debts costs and interest.
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##### Table of Contents



18. Commitments and Contingencies
 (b)
    
    Significant legal proceedings- continuedTele-Art- continuedIn September 1999, the High Court heard the application by the Company dated March
22, 1994 for an inquiry into damage suffered by the Company (the First Inquiry) as
a result of the ex-part injunction granted to Tele-Art against the Company on
September 29, 1993 which prohibited the Company from proceeding with a rights
offering in September 1993.Following the completion of the first redemption on January 22, 1999, the Company
received notice that David Hague, the then liquidator of Tele-Art, had obtained an
ex-parte injunction from the High Court preventing the Company from redeeming the
Company 415,500 shares *.On July 5, 2002, upon the Companys application, the High Court ordered the removal
of the David Hagues ex-parte injunction and ordered an inquiry into damages suffered
by the Company as a result of the injunction (the Second Inquiry).On August 9, 2002, the High Court delivered its decision on the First Inquiry and
awarded the Company damages of approximately $34,000. On August 12, 2002, the Company
redeemed and cancelled, pursuant to its Articles of Association, the remaining
509,181 shares ** beneficially owned by Tele-Art at a price of $6.14 per share.
Including the dividends which we had withheld and credited against the judgment, this
offset a further $3,519 in judgment debts owed to the Company by Tele-Art. The
Company recorded the $3,333 redemption, net of expenses, as other income in 2002.In accordance with the directions given by the High Court in respect of the Second
Inquiry on March 28, 2003, the Company filed its points of claim on April 3, 2003 and
subsequently filed amended points of claim on April 16, 2003. In breach of the
courts directions, David Hague failed to file his points of defense on June 20, 2003
as ordered but instead he filed an application in the High Court, inter alia, to
strike out the Companys points of claim and for summary judgment on the inquiry into
damages on June 20, 2003. The Company thereupon applied to the High Court on August
19, 2003 for judgment against David Hague in default of defense on the basis that
David Hague had not complied with the directions of the court for the filing of his
points of defense to the Companys points of claim.Both applications were heard by the High Court on May 12, 2004. At the hearing, the
court allowed David Hague to file his points of defense on May 12, 2004. The Company
filed an application for leave to appeal against this ruling on May 24, 2004. The
High Court dismissed David Hagues strike out application on December 14, 2004 and
David Hague applied for leave to appeal against the order dismissing his application
on December 28, 2004. The Companys appeal and David Hagues appeal were heard by
the Court of Appeal on September 19 to 21, 2005 and the court delivered its judgment
on January 16, 2006. In this judgment, the Court of Appeal reversed the High Court
s ruling on David Hagues application and struck out the Companys points of claim on
the inquiry into damages on the ground that the Company had no realistic process of
succeeding on same. The court also ordered costs against the Company to be assessed
on a prescribed costs basis. The court further expressed the view that, in light of
its dismissal of the Companys points of claim, it was not necessary to rule on the
Companys appeal against the dismissal of its application for judgment in default
since the point was now academic with the dismissal of the Companys points of claim.The Company filed an application for leave to appeal the decision of the Court of
Appeal to the Privy Council, the BVI final court of appeal on February 3, 2006. This
application is expected to come on for hearing when the Court of Appeal next sits in
the British Virgin Islands in May 2006.
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##### Table of Contents



18. Commitments and Contingencies
 (b)
    
    Significant legal proceedings- continuedTele-Art- continuedPreviously, on February 4, 1999, David Hague, the then liquidator of Tele-Art filed a
summons (the Priority Summons) in the BVI on its behalf seeking, among other
matters:
 
    
    A declaration as to the respective priorities of the debts of Tele-Art to the
Bank of China, the Company, and other creditors and their respective rights to
have their debts discharged out of the proceeds of the
Tele-Arts Nam Tai shares;
    
    An order setting aside the redemption of 415,500 shares *, and ordering
delivery of all shares in possession or control of the Company to the
liquidator; and
    
    Payment of all dividends in respect of Tele-Arts Nam Tai shares.
 The Priority Summons was heard by the High Court on July 29 and 30, 2002 and the High
Court delivered its judgment on January 21, 2003 declaring that the redemption and
set-off of dividends on the 415,500 shares * be set aside and that all Tele-Arts
property withheld by the Company be delivered to Tele-Art in liquidation. On
February 4, 2003, the Company filed an application for a stay of execution and leave
to appeal the decision. The appeal was heard on January 12, 2004 and judgment was
delivered on April 26, 2004. The Court of Appeal held that the redemption by the
Company of 415,500 * of the Companys shares was proper and efficacious. However,
the Company must return the redemption proceeds and dividends payable prior to the
redemption to the liquidator. David Hague obtained leave to appeal to the Privy
Council on September 21, 2004 to appeal the finding by the Court of Appeal that the
redemption by the Company was efficacious. It is not expected that this appeal will
be heard in 2006.The Bank of China, which had involved in the proceedings in the High Court and Court
of Appeal with respect to the Priority Summons, applied on December 12, 2005 for
special leave to intervene and to be joined as a respondent to the Privy Council
appeal of David Hague, firstly so as to be in a position to support David Hagues
appeal and secondly, to appeal against that part of the Court of Appeal Order that
declared that the redemption price for the sale of the Companys shares owned by Tele
Art and all withheld dividends to be paid to the liquidator of Tele Art and not the
Bank of China despite finding that the Bank of China was a secured creditor. The
Bank of Chinas application for special leave was heard by the Privy Council on
February 6, 2006 which granted the Bank of China special leave to intervene on the
ground that the matter raised important points of law.In their judgments on the Priority Summons, both the High Court and the Court of
Appeal held that Bank of China was a secured creditor pursuant to its share charge
dated November 10, 1993 over the shares of the Company held beneficially by Tele-Art.
Neither court determined the amount owned by Tele-Art to Bank of China,Bank of China has submitted that it is a secured creditor. In this respect, its
position is that as of December 6, 2004, the secured debt, which was from advances
made to Tele-Arts subsidiary, Tele-Art Limited, was $2,819 with interest accruing
daily. The liquidator, however, took the view in his third liquidator report, which
was submitted to the Court on October 13, 2004, that the Bank of Chinas proof of
debt was incomplete. The liquidator has requested the Courts approval to take
further action and demand that Bank of China provide further information for his
consideration. According to the third report, the amount of debt owed by Tele-Art
Limited to Bank of China may not exceed $1,400. It should be further noted that
apart from the Company, the liquidator admitted the proof of debts of two other
unsecured creditors which together amounted to approximately $33. David Hague, the
former liquidator, has submitted a claim for $382 in respect of costs for work as
liquidator of Tele-Art. These costs, however, are subject to the approval of the
court and as such are still pending, as they have not yet been approved. The
liquidator filed a summons for the approval of his third report on October 13, 2004
and this was heard on December 14, 2004. The Court, inter alia, ordered that the
liquidator continue the administration of the liquidation of Tele-Art substantially
in accordance with his proposals contained in said report as well as the second
report..
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##### Table of Contents



18. Commitments and Contingencies
 (b)
    
    Significant legal proceedings- continuedTele-Art- continuedOn August 25, 2005, the liquidator filed his summons in the High Court for the
approval of his fourth liquidator report. The report sought the courts approval of
his recommendation to the amount of debt owed by Tele-Art to the Company of
approximately $3,890, two other unsecured creditors of approximately $221 and the fee
to David Hague of approximately $382. The report also sought the courts approval of
the Companys proposal on the distribution of the redemption proceeds among the
unsecured creditors and direction of court on whether Bank of China is eligible to
claim any debts as against Tele-Art and , if eligible, the quantum of such debt.
This liquidators summons was due to be heard on February 20, 2006 but had been
adjourned to a date to be fixed by the Registrar of the High Court because the
liquidator failed to serve a copy of the summons on the Bank of China.On April 11, 2005, Bank of China also filed a summons to the BVI court to seek orders
to force the Company to pay redemption price and dividends ordered by the Court of
Appeal on the appeal of the Priority Summons to Bank of China. The Company filed
affidavit evidence in response on July 19, 2005. The hearing date of this summons has
not yet been fixed and the Company will continue to contest the summons vigorously.
The Company dispute that finding, and among other matters, that the proof of debt by Bank of
China submitted to the liquidator was incomplete and invalid.As of December 31, 2002, due to the uncertainty of the final outcome of the
litigation as a result of the January 21, 2003 judgment and in accordance with SFAS
No. 5, Accounting for Contingencies, the Company recorded a provision for $5,192 as
a component of accrued expenses as of December 31, 2002, pending a final
determination of this matter by the courts, represented the then best estimate of the
net monetary expense the Company would have if its appeal to the judgment in relation
to the Priority Summons on January 21, 2003 was unsuccessful and its two judgment
debts in the total amount of $38,000 (including interest, costs, and related
expenses) was determined as having the lowest priorities in recovering from the
estate of Tele-Art. According to the information provided by the liquidator on
November 7, 2003, apart from the Company, a total of 3 other creditors of Tele-Art,
including the Bank of China, submitted their proof of debt to the liquidator for a
total claim of approximately $3,390. Together with the outstanding legal charge as
at December 31, 2003, the total potential obligation to the Company was estimated to
be approximately $3,890, and accordingly, the 2002 provision for $5,192 had been
reduced to $3,890 in the fourth quarter of 2003. As a result of the April 26, 2004
judgment, the Company negotiated with the liquidator on the distribution of the
redemption proceeds among the unsecured creditors and suggested a proposal for the
courts approval. If the Companys proposal is approved by the court, and all legal
matters related to Tele-Art are finalized, including the final determination of the
position of the Bank of China, then any remaining portion of the $3,890 provision
will be reversed into income in the related period.However, the actual amount of the recovery, if any, is uncertain, and is dependent on
a number of factors including the final determination of the Bank of Chinas
position. The Company plans to continue to pursue vigorously all legal alternatives
available to seek to recover the maximum amount of the outstanding debt from Tele-Art
as well as to pursue other parties that may have assisted in any transfers of the
assets from Tele-Art. In furtherance of this objective, the Company commenced
proceedings in 2002 against David Hague and PricewaterhouseCoopers for, inter alia,
negligence and breach of statutory duty in their conduct of the liquidation. David
Hague had submitted a letter of resignation from the post of liquidator of Tele-Art
on September 3, 2002 to the High Court and his resignation was approved by the High
Court on December 17, 2002. A new liquidator, Mr. Glenn Harrigan, was then appointed
by the BVI court on July 11, 2003. David Hague and PricewaterhouseCoopers applied to
the High Court of the BVI on December 24, 2002 challenge the service of these
proceedings on them to Hong Kong and jurisdiction of the BVI courts to determine the
claim by the Company. The application was heard by the High Court on May 11 and 12,
2004 and dismissed in its judgment on October 29, 2004. David Hague and
PricewaterhouseCoopers obtained leave to appeal this judgment in March 2005 and the
appeal was heard by the Court of Appeal on September 19 to 21, 2005. The Court of
Appeal delivered its judgment dismissing the appeal and awarding costs to the
Company. David Hague and PricewaterhouseCoopers made an application on February 6,
2006 for leave to appeal this judgment to the Privy Council. The Company has
cross-applied for leave on February 3, 2006 to appeal to the Privy Council against
the costs awarded to the Company in the Court of Appeal on the basis that such costs
were determined by the application of incorrect legal principles and were in any
event too low and inconsistent with cost orders made against the Company in other
appeal proceedings involving David Hague. It is expected that both the applications
of the Company and David Hague and PricewaterhouseCoopers will come on for hearing in
May 2006 when the Court of Appeal next sits in the BVI.
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##### Table of Contents



18. Commitments and Contingencies
 (b)
    
    Significant legal proceedings- continuedTele-Art- continuedThe Company has also instituted proceedings in the British Virgin Islands against UBS
Painewebber (UBS) on June 20, 2005 for breach of trust in respect of UBSs role as
brokers in carrying out the terms of the September 1997 BVI Court Order for the sale
of Tele-Arts Nam Tai shares in sufficient quantities to pay the debts of the Bank of
China and the Company. UBS has filed an application challenging the jurisdiction of
the Court, which has not yet been formally served on the Company. The High Court has
adjourned the hearing of this application to May 22, 2006.(* Subsequent to November 7, 2003, the number of shares has been adjusted to 457,050
to reflect the 10 for 1 stock dividend effect.)(** Subsequent to November 7, 2003, the number of shares has been adjusted to 560,099
to reflect the 10 for 1 stock dividend effect.)Shareholders ActionsOn March 11, 2003, we were served with a complaint in an action captioned Michael
Rocco v. Nam Tai, et al., 03 Civ. 1148 S.D.N.Y.), or the Rocco Action. In addition to
Nam Tai, certain directors are named as defendants.On or about April 9, 2003, a
second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai,
et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco
Action, the Actions. The Actions have been consolidated since July 2003 and purport
to represent a putative class of persons who purchased the common stock of Nam Tai
from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
allege that misrepresentations and/or omissions were made during the alleged class
period concerning the partial reversal of an inventory provision and a charge to
goodwill related to Nam Tais LPT segment. Our motion to dismiss the Actions was
denied on September 27, 2004. On May 27, 2005, the plaintiffs moved to certify the
Actions as a class action with an individual, Douglas Ward, as the named class
representative. We filed our opposition to the motion on June 20, 2005. The court
heard oral argument on the motion on July 26, 2005, and has not yet ruled. On
October 7, 2005, the plaintiffs filed a Second Amended Consolidated Class Action
Complaint which contained substantive allegations that did not vary from the
previously filed Actions and added an additional individual, Michael Rocco, as a
named class representative. After class representative discovery, on February 10,
2006, plaintiffs filed their motion for class certification with Michael Rocco as on
added class representative. The Company filed its opposition papers on March 3,
2006. The motion is scheduled for oral argument on April 17, 2006. The Company
believes it has meritorious defenses and intends to defend the case vigorously.
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##### Table of Contents



19. Segment Information
   Year ended December 31, 2003
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalNet sales  third parties
    
    $
    132,820
    
    
    $
    211,380
    
    
    $
    41,324
    
    
    $
    
    
    
    $
    385,524Net sales  related parties
    
    
    
    
    
    
    20,782
    
    
    
    
    
    
    
    
    
    
    
    20,782Total net sales
    
    
    132,820
    
    
    
    232,162
    
    
    
    41,324
    
    
    
    
    
    
    
    406,306Cost of sales
    
    
    (98,511
    )
    
    
    (206,915
    )
    
    
    (34,590
    )
    
    
    
    
    
    
    (340,016
    )Gross profit
    
    
    34,309
    
    
    
    25,247
    
    
    
    6,734
    
    
    
    
    
    
    
    66,290Selling, general and administrative expenses
    
    
   (9,056
    )
    
    
    (8,749
    )
    
    
    (3,958
    )
    
    
    (3,103
    )
    
    
    (24,866
    )Research and development expenses
    
    
    (2,081
    )
    
    
    (1,466
    )
    
    
    (490
    )
    
    
    
    
    
    
    (4,037
    )Other (expenses) income, net
    
    
    (256
    )
    
    
    7
    
    
    
    (3,078
    )
    
    
    2,512
    
    
    
    (815
    )Dividend income received from marketable
securities and investment
    
    
    1,696
    
    
    
    
    
    
    
    
    
    
    
    2,018
    
    
    
    3,714Gain on partial disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    1,838
    
    
    
    
    
    
    
    1,838Interest income
    
    
    5
    
    
    
    2
    
    
    
    6
    
    
    
    775
    
    
    
    788Interest expense
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    (5
    )
    
    
    (121
    )Income before income taxes and minority
interests
    
    
    24,617
    
    
    
    15,041
    
    
    
    936
    
    
    
    2,197
    
    
    
    42,791Income taxes
    
    
    (233
    )
    
    
    (219
    )
    
    
    (4
    )
    
    
    57
    
    
    
    (399
    )Income before minority interests and equity
income of affiliated companies
    
    
    24,384
    
    
    
    14,822
    
    
    
    932
    
    
    
    2,254
    
    
    
    42,392Minority interests
    
    
    (295
    )
    
    
    
    
    
    
    (211
    )
    
    
    (561
    )
    
    
    (1,067
    )Equity in income of an affiliated company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498
    
    
    
    498Income after minority interests and equity
in income of an affiliated company
    
    
    24,089
    
    
    
    14,822
    
    
    
    721
    
    
    
    2,191
    
    
    
    41,823Discontinued operation
    
    
    
    
    
    
    
    
    
    
    1,979
    
    
    
    
    
    
    
    1,979Net income
    
    $
    24,089
    
    
    $
    14,822
    
    
    $
    2,700
    
    
    $
    2,191
    
    
    $
    43,802
 Year ended December 31, 2004
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalNet sales  third parties
    
    $
    168,456
    
    
    $
    282,514
    
    
    $
    48,710
    
    
    $
    
    
    
    $
    499,680Net sales  related parties
    
    
    
    
    
    
    34,181
    
    
    
    
    
    
    
    
    
    
    
    34,181Total net sales
    
    
    168,456
    
    
    
    316,695
    
    
    
    48,710
    
    
    
    
    
    
    
    533,861Cost of sales
    
    
    (131,163
    )
    
    
    (286,206
    )
    
    
    (40,016
    )
    
    
    
    
    
    
    (457,385
    )Gross profit
    
    
    37,293
    
    
    
    30,489
    
    
    
    8,694
    
    
    
    
    
    
    
    76,476Selling, general and administrative expenses
    
    
    (10,268
    )
    
    
    (6,940
    )
    
    
    (5,212
    )
    
    
    (5,633
    )
    
    
    (28,053
    )Research and development expenses
    
    
    (2,348
    )
    
    
    (1,748
    )
    
    
    (949
    )
    
    
    
    
    
    
    (5,045
    )Other income (expenses), net
    
    
    777
    
    
    
    (72
    )
    
    
    39
    
    
    
    (1,756
    )
    
    
    (1,012
    )Dividend income received from marketable
securities and investment
    
    
    926
    
    
    
    
    
    
    
    
    
    
    
    17,369
    
    
    
    18,295Gain on partial disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,320
    
    
    
    77,320Impairment loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,316
    )
    
    
    (58,316
    )Interest income
    
    
    164
    
    
    
    105
    
    
    
    18
    
    
    
    823
    
    
    
    1,110Interest expense
    
    
    (1
    )
    
    
    (23
    )
    
    
    (171
    )
    
    
    
    
    
    
    (195
    )Income before income taxes and
minority interests
    
    
    26,543
    
    
    
    21,811
    
    
    
    2,419
    
    
    
    29,807
    
    
    
    80,580Income taxes
    
    
    (689
    )
    
    
    (180
    )
    
    
    (67
    )
    
    
    57
    
    
    
    (879
    )Income before minority interests and equity
in loss of an affiliated company
    
    
    25,854
    
    
    
    21,631
    
    
    
    2,352
    
    
    
    29,864
    
    
    
    79,701Minority interests
    
    
    (5,351
    )
    
    
    
    
    
    
    (254
    )
    
    
    (405
    )
    
    
    (6,010
    )Equity in loss of an affiliated company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,806
    )
    
    
    (6,806
    )Net income
    
    $
    20,503
    
    
    $
    21,631
    
    
    $
    2,098
    
    
    $
    22,653
    
    
    $
    66,885
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##### Table of Contents



19. Segment Information  continued
 Year ended December 31, 2005
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalNet sales  third parties
    
    $
    169,056
    
    
    $
    563,874
    
    
    $
    58,112
    
    
    $
    
    
    
    $
    791,042Net sales  related parties
    
    
    
    
    
    
    6,195
    
    
    
    
    
    
    
    
    
    
    
    6,195Total net sales
    
    
    169,056
    
    
    
    570,069
    
    
    
    58,112
    
    
    
    
    
    
    
    797,237Cost of sales
    
    
    (134,002
    )
    
    
    (523,869
    )
    
    
    (46,443
    )
    
    
    
    
    
    
    (704,314
    )Gross profit
    
    
    35,054
    
    
    
    46,200
    
    
    
    11,669
    
    
    
    
    
    
    
    92,923Selling, general and administrative
expenses
    
    
    (11,166
    )
    
    
    (10,364
    )
    
    
    (6,224
    )
    
    
    (5,303
    )
    
    
    (33,057
    )Research and development expenses
    
    
    (3,500
    )
    
    
    (2,546
    )
    
    
    (1,164
    )
    
    
    
    
    
    
    (7,210
    )Other income (expenses), net
    
    
    2,508
    
    
    
    1,276
    
    
    
    740
    
    
    
    (4,649
    )
    
    
    (125
    )Dividend income received from
marketable securities
    
    
    579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    579Gain on partial disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,095
    
    
    
    10,095Gain on disposal of an affiliated company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,631
    
    
    
    3,631Loss on disposal of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,686
    )
    
    
    (3,686
    )Impairment loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,525
    )
    
    
    (6,525
    )Interest income
    
    
    514
    
    
    
    728
    
    
    
    47
    
    
    
    2,659
    
    
    
    3,948Interest expense
    
    
    
    
    
    
    
    
    
    
    (438
    )
    
    
    
    
    
    
    (438
    )Income (loss) before income taxes
and minority interests
    
    
    23,989
    
    
    
    35,294
    
    
    
    4,630
    
    
    
    (3,778
    )
    
    
    60,135Income taxes
    
    
    (498
    )
    
    
    (78
    )
    
    
    (75
    )
    
    
    
    
    
    
    (651
    )Income (loss) before minority interests and
equity in loss of an affiliated company
    
    
    23,491
    
    
    
    35,216
    
    
    
    4,555
    
    
    
    (3,778
    )
    
    
    59,484Minority interests
    
    
    (6,661
    )
    
    
    
    
    
    
    (1,331
    )
    
    
    
    
    
    
    (7,992
    )Equity in loss of an affiliated company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186
    )
    
    
    (186
    )Net income (loss)
    
    $
    16,830
    
    
    $
    35,216
    
    
    $
    3,224
    
    
    $
    (3,964
    )
    
    $
    51,306
 Year ended December 31, 2003
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalDepreciation and amortization
    
    $
    4,207
    
    
    $
    4,449
    
    
    $
    2,631
    
    
    $
    977
    
    
    $
    12,264Capital expenditures
    
    $
    5,404
    
    
    $
    10,800
    
    
    $
    469
    
    
    $
    380
    
    
    $
    17,053Identifiable assets
    
    $
    86,919
    
    
    $
    87,331
    
    
    $
    49,530
    
    
    $
    73,915
    
    
    $
    297,695
 Year ended December 31, 2004
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalDepreciation and amortization
    
    $
    4,527
    
    
    $
    6,030
    
    
    $
    2,454
    
    
    $
    1,005
    
    
    $
    14,016Capital expenditures
    
    $
    21,605
    
    
    $
    14,628
    
    
    $
    2,227
    
    
    $
    151
    
    
    $
    38,611Identifiable assets
    
    $
    138,691
    
    
    $
    127,261
    
    
    $
    51,336
    
    
    $
    143,185
    
    
    $
    460,473
 Year ended December 31, 2005
 CECP
    
    TCA
    
    LCDP
    
    Corporate
    
    TotalDepreciation and amortization
    
    $
    5,132
    
    
    $
    7,140
    
    
    $
    3,508
    
    
    $
    1,044
    
    
    $
    16,824Capital expenditures
    
    $
    13,498
    
    
    $
    8,402
    
    
    $
    10,222
    
    
    $
    44
    
    
    $
    32,166Identifiable assets
    
    $
    148,173
    
    
    $
    170,624
    
    
    $
    57,736
    
    
    $
    143,478
    
    
    $
    520,011
  F-36




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##### Table of Contents



19. Segment Information  continued
  Year ended December 31,
 2003
    
    
    2004
    
    
    2005Product lineCECP:- Assembling- Consumer electronics and communication products
    
    
    32
    %
    
    
    31
    %
    
    
    20
    %- Software development services
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %33
    %
    
    
    32
    %
    
    
    21
    %TCA
    
    
    57
    %
    
    
    59
    %
    
    
    72
    %LCDP:- Parts and components- LCD panels
    
    
    9
    %
    
    
    9
    %
    
    
    7
    %- Transformers
    
    
    1
    %
    
    
    0
    %
    
    
    0
    %10
    %
    
    
    9
    %
    
    
    7
    %100
    %
    
    
    100
    %
    
    
    100
    %
   Year ended December 31,
 2003
    
    
    2004
    
    
    2005Net sales from operations within:- Hong Kong and Macao:Unaffiliated customers
    
    $
    295,113
    
    
    $
    48,710
    
    
    $
    58,112Related party
    
    
    14,770
    
    
    
    
    
    
    
    Intercompany sales
    
    
    404
    
    
    
    563
    
    
    
    670310,287
    
    
    
    49,273
    
    
    
    58,782- PRC, excluding Hong Kong and Macao:Unaffiliated customers
    
    
    90,411
    
    
    
    450,970
    
    
    
    732,930Related parties
    
    
    6,012
    
    
    
    34,181
    
    
    
    6,195Intercompany sales
    
    
    263,971
    
    
    
    4,393
    
    
    
    360,394
    
    
    
    489,544
    
    
    
    739,125- Intercompany eliminations
    
    
    (264,375
    )
    
    
    (4,956
    )
    
    
    (670
    )Total net sales
    
    $
    406,306
    
    
    $
    533,861
    
    
    $
    797,237Net income within:- PRC, excluding Hong Kong and Macao
    
    $
    38,627
    
    
    $
    30,981
    
    
    $
    31,354- Hong Kong and Macao
    
    
    5,175
    
    
    
    35,904
    
    
    
    19,952Total net income
    
    $
    43,802
    
    
    $
    66,885
    
    
    $
    51,306
 F-37




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##### Table of Contents



19. Segment Information  continued
 Year ended December 31,
 2003
    
    
    2004
    
    
    2005Net sales to customers by geographical area:- Hong Kong
    
    $
    36,433
    
    
    $
    160,959
    
    
    $
    383,138- Europe (excluding Estonia)
    
    
    84,954
    
    
    
    96,304
    
    
    
    138,974- United States
    
    
    55,543
    
    
    
    58,696
    
    
    
    33,259- PRC (excluding Hong Kong)
    
    
    101,211
    
    
    
    132,603
    
    
    
    151,788- Japan
    
    
    68,498
    
    
    
    33,880
    
    
    
    14,858- Estonia
    
    
    20,474
    
    
    
    3,106
    
    
    
    - North America (excluding United States)
    
    
    347
    
    
    
    5,352
    
    
    
    492- Korea
    
    
    24,499
    
    
    
    21,520
    
    
    
    53,979- Other
    
    
    14,347
    
    
    
    21,441
    
    
    
    20,749Total net sales
    
    $
    406,306
    
    
    $
    533,861
    
    
    $
    797,237
 As at December 31,
 2003
    
    
    2004
    
    
    2005Long-lived assets by geographic area:- PRC, excluding Hong Kong and Macao
    
    $
    59,399
    
    
    $
    84,453
    
    
    $
    100,372- Hong Kong and Macao
    
    
    18,248
    
    
    
    12,988
    
    
    
    369Total long-lived assets
    
    $
    77,647
    
    
    $
    97,441
    
    
    $
    100,741
   Year ended December 31,
 2003
    
    
    2004
    
    
    2005A
    
    $
    N/A
    
    
    $
    72,235
    
    
    $
    257,595B
    
    
    100,541
    
    
    
    75,426
    
    
    
    121,369C
    
    
    N/A
    
    
    
    54,023
    
    
    
    80,354D
    
    
    N/A
    
    
    
    54,635
    
    
    
    N/AE
    
    
    46,057
    
    
    
    N/A
    
    
    
    N/AF
    
    
    43,233
    
    
    
    N/A
    
    
    
    N/A$
    189,831
    
    
    $
    256,319
    
    
    $
    459,318
 F-38




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##### Table of Contents



SIGNATURES
  NAM TAI ELECTRONICS, INC.By:
    
    /s/ PATINDA LEIPatinda LeiChief Executive OfficerDate: March 15, 2006
 80